May 2016        

Irish GDP: The great con trick

Eoghan M. Ó Néill

Capitalism has been in stagnation for decades. Economic growth has been sluggish, rarely rising above 2 per cent. Ireland, on the other hand, is once again the poster economy of capitalism.
     Having cast off the shameful remnants of the “Celtic Tiger” years and the financial crisis of 2008, Ireland is once again an economic powerhouse, with the growth in its gross domestic product (GDP) bucking the international trend and towering above that of other EU member-states, a phenomenon, we are told, that is due to sound political leadership and massive exports.
     So how is it that little Ireland, a small country on the edge of Europe with a population that would not fill many European cities, is once again showing the rest of the world how an economy should be run? How is it that this small nation has clawed its way out of a deep recession to take its rightful place among the wealthiest nations of the globe?
     Quite frankly, it is all a lie—a huge con game that exaggerates our true position as an economy. Look behind the figures of the amazing growth in GDP, and what you will find is not an economy that strides the world as an economic giant but rather one that has been sold to its imperialist masters and is complicit in the imperialist exploitation of workers in the global South.
     Before delving into the figures, a quick look around at the country’s social and economic fabric is enough to raise questions about our supposed wealth. Even a cursory examination would reveal a nation that is traumatised by economic stagnation rather than one that is in the full flush of economic growth.
     Data on Ireland from the OECD reveals that wages have been in decline since the 1980s, while GDP has been increasing over the same period. Wages in 2016 are still below those of 2000.

Fig. 1. Decline in Irish wages, 2000–2014

Source: OECD.

Fig. 2. Increase in Irish GDP, 1980–2015

Source: OECD.

     Ireland is in the grip of massive unemployment, hidden by emigration and the manipulation of social data by means of employment schemes such as Job Bridge, Tús, and CE. Our public sector is in decline, with massive disinvestment in health, education, social housing, etc.
     We see the results of this disinvestment in a two-tier wage structure for teachers and nurses, increasing numbers on hospital trolleys and lengthening medical waiting-lists, increasing homelessness, and bigger class sizes and the loss of remedial services in schools. Household debt is now running at 207 per cent of disposable income (according to the OECD). Inequality is growing, and in general we are experiencing a sharp decline in the quality of life.
     These are the symptoms of economic stagnation; yet the level of our GDP would lead us to believe that our economy is on the rise.
     The economic and social reality, as experienced by the majority of the Irish people, does not tally with the stratospheric GDP that the government is so fond of boasting about. So what is GDP, and how in Ireland’s case does it create an impression of an economic powerhouse when the facts on the ground tell a different story?
     The accepted definition of GDP states that it is the sum of gross value added by all resident producers in the economy, plus any taxes and minus any subsidies. In other words, everything of value that is produced in Ireland, be it in the form of products or services, is the measure of our GDP. Sounds fair enough; except that it’s not true.
     Firstly, GDP fails to take account of domestic labour in the home that is necessary for the reproduction of labour power. Nor does it give any consideration to the work of carers, who, by their work, subsidise public services. Why? Because these activities, while having a use value, do not produce profit and therefore are deemed not to have an exchange value.
     In other words, GDP only measures profit-producing processes and considers domestic labour and the work of carers as valueless.
     So what does Irish GDP actually measure? You will note that the definition above mentions “all resident producers.” This includes not only indigenous industries but also all transnational corporations resident in Ireland. This is an important point. Remember that it is claimed that GDP is fuelled by exports. A report by the Industrial Development Authority in 2014 reveals that transnational corporations account for 75 per cent of Irish exports. According to FINFACTS, this figure is closer to 90 per cent.
     As transnational corporations repatriate their profits, they in fact contribute little to the Irish economy. They pay corporation tax, often as low as 2 or 3 per cent, rather than the 12½ per cent claimed. Their employees do pay income tax, and that is about the height of their contribution to the economy. Nevertheless the profits that they make and repatriate are considered as value added and are therefore included in the estimation of GDP.
     In a recent change to the rules governing GDP, companies may now count research and development as value added, rather than as a cost. So research and development costs are also calculated into Irish GDP.
     These new rules also allow the risk that banks take to be considered as value added. Despite the fact that the government spent €65 billion in bailing out the banks as a result of those risks, these same risks are now to be included as a positive in the calculation of GDP.
     Contract production is yet another profit-making process of transnational corporations, the profits of which we never see but are counted as value added for GDP purposes. Contract production is where a transnational corporation uses an office or a company in Ireland to contract a third party outside Ireland to produce commodities, the profit from which is filtered back through the Irish office and then on to the transnational corporation. Nothing is in fact produced in Ireland, yet the profits filtered back by way of the Irish office and then on to the transnational corporation contribute to our GDP.
     Dell is on paper one of Ireland’s biggest computer producers. The company moved production from Ireland to Poland in 2009, with the loss of 1,900 jobs. Yet we allow the profits from Dell’s Polish factory to be repatriated via Ireland. We see none of it, but it still counts towards our GDP.
     Dell is not the only transnational corporation to pull this con trick: many big pharma corporations are doing likewise, all contributing virtually nothing to the economy but with their profits being considered as value added and hence added to our GDP. All with the blessing of our comprador political elite.
     Contract production is nothing other than tax evasion perpetrated on a third country. By facilitating contract production, Ireland is complicit in that robbery.
     Contract production is not the only way in which Ireland is complicit in what must be regarded as criminal activity. The Irish Financial Services Centre proudly boasts that it makes up more than 7 per cent of Irish GDP. It also facilitates the robbery of economies in the global South by way of tax evasion. Billions are laundered through the IFSC, and these billions are considered value added and therefore count towards Ireland’s GDP.
     We are also complicit in the direct exploitation of workers in the global South. Irish companies and transnational corporations with Irish offices super-exploit workers in the global South, whether they are producing clothing, growing coffee beans, or making components for smartphones and laptops.
     Through foreign direct investment, transnational corporations—Irish ones included—force indigenous companies to lower wages, reduce working conditions, and ignore health and safety and environmental regulations in order to drive down the costs of production. This is the real point of competition between transnationals—not pricing.
     For example, in the case of the iPhone, it costs about $150 to produce but retails in Ireland for about $600. The 400 per cent value added is apparently achieved by stacking shelves and selling the product. These super-profits are repeated for all products produced in the global South and sold in Northern economies, from the humble T-shirt or cup of coffee to smartphones and laptops. This super “value added” is also added to our GDP.
     There is, of course, genuine production in Ireland. However, while transnational corporations make up only up 9.4 per cent of our manufacturing sector they account for 83.4 per cent of value added. In the services sector they now make up 1.9 per cent of service providers but produce 42.9 per cent of value added in the services sector. As stated above, the vast majority of this is repatriated.
     Should CETA, TTIP and TiSA be ratified, our services sector will be further open to the predatory greed of transnationals, and Ireland will be not only an open economy but the most openly exploited economy in Europe.

Fig. 3. Department of Finance figures: Economic effect of the foreign sector, 2014

Source: CSO.

     The measurement of GDP in Ireland is a cocktail of small indigenous manufacturing and service sectors dominated by transnational corporations, the exploitation of workers in the global South, and the laundering of dirty money. It is not difficult to see why the mythical growth of the economy does not match the reality.
     Gross national product (GNP) was once the main measure of a country’s wealth. It was far from perfect, but it gave a truer reading than GDP. Irish GNP in 2015 stood at 85 per cent of GDP—that is a massive 15 per cent difference between the two. If GNP was applied, the Irish economy would be seen as one struggling in low growth and stagnation—much like the rest of the capitalist world. In most countries the difference between GNP and GDP is minimal. The difference between the two in Ireland is due to the influence of repatriated profits by transnational corporations and the distorting factors that I have listed.
     A close examination of the Irish economy reveals the stranglehold that imperialism has on our country. It also reveal Ireland’s complicity in the exploitation of our fellow-workers in the global South. And finally, it raises questions over Ireland’s claim to sovereignty.

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