The New Yorker on how Apple created Ireland’s real, and less real, economies

For readers who want a good summary of what’s going on with Apple, the EU Commission, etc., Adam Davidson of the New Yorker has a nice piece putting the decision in its historical and political context. From the piece:

Is the Ireland of the real Apple—the physical place with people doing things that produce profit—going to dominate, or will it be the Ireland of tax-free fictions and arbitraging loopholes in a complicated global economy?

Ireland’s economic transformation in the course of the past thirty-five years was remarkable in many ways. Up until the early nineteen-eighties, Ireland’s income per person was one of the lowest in Europe, right alongside Greece’s. Unemployment was well above sixteen per cent for much of the nineteen-eighties. The country’s income began to hurtle upward after 1995. Dell, Intel, and Microsoft joined Apple in Ireland. Large pharmaceutical firms also came, and now more than half of Irish exports are pharmaceuticals. At first, these big firms were excited to find people with advanced degrees willing to work at a fraction of what American, French, or German workers are paid. By the early two-thousands, Ireland’s per-capita gross domestic product was higher than that of the U.S. or the U.K., and fully a hundred and thirty per cent of the European average. For the first time in Ireland’s history, the country experienced net immigration. Alongside the new economy of high-tech and pharmaceutical companies, Ireland continued to develop its agricultural businesses, especially food manufacturing. Ireland is now a major exporter of snack foods and dairy products. For the first few decades, this growth seemed to have been based on something beautiful and right: the Irish had always been highly educated, clever, and hardworking, and they were now earning what they deserved.

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Author: Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

26 thoughts on “The New Yorker on how Apple created Ireland’s real, and less real, economies”

    1. Madame Kroes was a tough competition herself but now she has a different role as an adviser to the Dutch PM and she accompanied him on a trip to Silicon Valley earlier this year.

      She is also on the Uber board – the impact of business tax on state aid is a clear EC competence!!

      1. Calling into question the bona fides of a contributor is not a valid argument. Indeed, it is something to be regretted and which Nellie Kroes anticipated. Herewith the full article by her.

        https://www.theguardian.com/technology/2016/sep/01/eu-state-aid-tax-avoidance-apple

        The accuracy of your pronouncement on the competence of the EU in relation to the nexus between state aid rules and direct taxation remains to be confirmed. It may take about six years. Meanwhile, €13 billion will be “resting in an – escrow – account”; unless some other state chooses to go into the parlour at the Commissioner’s invitation.

  1. I think a hat-tip is due to Aidan Regan for highlighting this piece in the comment thread of an earlier post.

    The piece neatly highlights the distinction between the rent-seekers (and those who benefit by facilitating their rent-seeking) and those who generate economic and social benefits. Of course, it isn’t a case of ‘either/or’; many people are simultaneously in both camps. Those who exercise power and influence use PR and spin to highlight their contribution to economic and social benefits, while using various combinations of silence, bluster and dissimulation (depending on the circumstances) to conceal or deny their rent-seeking.

    The fundamental issue here has always been the ability of MNCs, with US MNCs in the forefront and Apple being fingered as the most notorious, to decide when and where they pay tax on their profits and how much they pay. The US tax regime has long been a combination of hubris – claiming the ability to tax US citizens and firms irrespective of where on the planet they might be resding or operating – and of impotence in the face of corporate lobbying – allowing US firms to accumulate profits overseas that, in all likelihood, should be subject to US taxation. This behaviour comprises a large share of the pervasive and damaging rent-seeking that is proving detrimental to the global economy.

    And the Irish authorities (and the well-heeled influential army of functionaries and facilitators) have contributed to the incidence, durability and extent of this rent-seeking. The authorities and functionaries in all polities facilitate rent-seeking to some extent or other, but the facilitation provided in Ireland was, and continues to be, an art-form. It displays a mental ingenuity and agility, an ability to suspend disbelief almost indefinitely, a skill at projecting and sustaining optical illusions, a moral flexibility (if not a studied moral vacuity) and exceptional skills at concealing and distorting the underlying realities that few, if any jurisdictions, have been capable of sustaining.

    It is indeed a tribute to the evasiveness and deviousness of the Irish authorities and associated functionaries in facilitating this egregious rent-seeking that the EU authorities (in the form of DG COMP)belive they are compelled to use the sledge-hammer they have deployed. It makes no sense to rule that the Irish authorites should apply its regime retroactively to extract tax on profits on the provision of goods and services that has no economic connection to Ireland. But it certainly forces the issue out in to the open. And it puts the most devious and evasive facilitator of this blatant rent-seeking (among the developed economies) in to the spot-light.

  2. The parting words in this piece are very relevant:
    “A secure Ireland, one that will be economically healthy for years to come, needs to be built on a “real” economy, one based on strong investment in innovation, manufacturing, and valuable services that other people want to pay for. It needs to be based on things done in Ireland, by people who live in Ireland—who pay Irish taxes.”
    The great failure of the FDI-based national business model is that indigenous tech/engineering-based business (i.e. with potential to grow fast unlike food sector businesses) have been squeezed out. The skills diffusion theory (from FDI manufacturing to indigenous engineering startup) worked to a limited extent until the early noughties. When the composition of businesses in the FDI sector rapidly turned financial/administrative as Irish manufacturing operations were terminated and moved east this diffusion slowed.
    The squeeze-out takes many forms, for example, competition for key people, equality of tax treatment, interest and attention by banks, media and the state, access to public procurement. So today the state has a deformed economy dominated by FIRE sector businesses many of them controlled by larger non-Irish entities. Most only provide low skilled low wage employment in east coast towns and in Dublin and with limited embedding into the state.
    There have been heroic attempts by the state to attract ‘higher value’ jobs, for example through scaling-up the production of PhD’s-qualified STEM graduates without regard to existence of meaningful employment opportunities, or by pressurising semi-state and private businesses to commission and part-fund irrelevant industrial R&D services in third level institutions. Unsurprisingly both policies have been failures and have added confusion to a clear cut failure by the state to properly support indigenous business with export potential.
    What is remarkable about the current tax-related controversy is the speed with which the embarrassing official fictions about the basis of Ireland’s attraction to US FDI (‘young europeans’, ‘innovation island’ etc) have collapsed to be replaced by abject terror about the economic wasteland that Ireland will become if the FDI sector starts to move unimbedded operations away. We need a proper economic development strategy that is focused on developing a broad-based indigenous business sector, so that the Irish economy cannot ever again be hijacked by power blocs or large corporations. Because the Irish state has failed over many years to address this risk it is fair to assume it will not change unless it is forced to by public opinion. I hope some part of the national discussion will address the unwillingness to build a sustainable and robust economy.

  3. I respectfully suggest that the two major issues here be dealt with separately and not confused. They are (i) the Competition Directorate’s action in this instance in pushing the use of State Aid rules to such a point and (ii) the policies underpinning Ireland’s approach to FDI. One can have major misgivings with regard to both without any logical contradiction because they are, in substance, two unrelated topics. Tony Connelly of RTE has more information on the first.

    http://www.rte.ie/news/2016/0902/813591-santander-apple/

    To say that there has been a good deal of legal tussling on the use of State Aid rules in a manner which impinges on the rights of member states to conduct their national tax policies would, on the evidence, be an understatement.

    A failure by the Irish state to defend its interests in this area, in the same manner as other states, would be an abdication of sovereign responsibility.

    It may be noted that there has been no evident rush by other countries, the US included, to take up the Commissioner’s invitation to delve into their own tax authorities’ tax assessments of Apple, a matter in which she has no legal role whatsoever.

  4. Apple was of course very welcome in Cork just four years before 3 key FDI operations closed.

    Irish Americans Henry Ford and John A. Mulcahy (who also put Waterville on the tourist map and brought Richard Nixon to Ireland) were very kind to Cork.

    Protectionism resulted in Ford transferring many workers to Dagenham, Essex while Guinness became British and opened a brewery in Park Royale in London.

    The Irish whiskey industry was once bigger than Scotland’s but by 1966 was lucky to be acquired by Pernod of France.

    It’s possible to admire Apple’s products but in the age of Trump and Le Pen, one of the world’s most recognised companies has been using a tax strategy that is not in the public interest or its own interest.

    The 10 years to 2015 were the first since 1929 when GDP growth did not once exceed 3% in the US, according to the BEA while in 2000, wages, salaries and benefits accounted for 66% of national income through wages, salaries and benefits. They fell to 61% after the recession and profits rose to 12% of income from 8%.

    Tim Cook is already softening his tone and with the muddle of tax inversions and massive CT avoidance, we maybe surprised in 2017.

    As for Ireland, at long last, some attention maybe given to the underperforming indigenous sector.

    Ministers have traditionally loved announcing ready-made jobs provided by foreign firms and the indigenous exporting sector gets little serious attention.

    It would take 20 or more years to make a difference.

    Giving priority to State-supported high tech startups that are invariably sold to bigger foreign firms is a fool’s game while the urgent necessity is to increase the number of exporting firms from a very low base.

    The big exporters do not engage in research that merits patenting while the indigenous sector has an unusually low number of manufacturing firms — manufacturing typically is responsible for most business R&D in an economy.

    Caution is required in respect of big firm jobs numbers: when Intel officially had 4,500 at its Leixlip campus, it had 2,800 employees (additional staff include external security, canteen staff etc). Google says it doubled its head count in 2015 to 6,000 by adding 3,000 contract staff but this appears to be the result of restructuring elsewhere.

    Apple’s tax woes as Irish conventional wisdom fails again

    1. There is now only one certainty on this topic and it is that the ECJ will decide. However, the decision to appeal was arrived at, it is a watershed one in the history of the state, win or lose. Ireland may be caught up in a bigger game but it does not have to play the role of patsy in it.

      FYI

      Ihttp://curia.europa.eu/juris/document/document_print.jsf?doclang=EN&text=&pageIndex=0&part=1&mode=lst&docid=182304&occ=first&dir=&cid=896560

    2. J. K. Galbraith :“The conventional wisdom” gives way not so much to new ideas as to “the massive onslaught of circumstances with which it cannot contend”.

  5. The government needs to seriously consider holding an election on this. The Left (including SF) has shot itself in the foot. Its siding with its fellow-socialist EU Commission and against those defending the tax-regime that transformed Ireland after a century of depopulation has gone down like a lead balloon. Both FG and FF would gain in an election. The opportunity is there to crush the Left once and for all. Rivalry and animosity between FG and FF over matters long ago should not be allowed to get in the way of this highly desirable objective.

    As for all the weeping and wailing about Ireland’s ‘reputation’ being hit, its all nonsense. I laugh at it. Who cares what the Irish Times, Guardian, New York Times think? Or Krugman or Stiglitz or any of them? None of them have ever created a single job. If Ireland raised its CT rate to 90%, they’d be falling over themselves to say what a wonderful country it was. As for the FT, as a proponent if British nationalism, it always has and always will portray Ireland as being on the brink of economic catastrophe. How otherwise can it prevent N. Ireland and Scotland from abandoning their serfdom to London? Among the people who really matter, the capitalists, entrepreneurs and wealth-creators, Ireland’s stock has never been higher. If anyone disputes this, I suggest Michael Noonan and Margrethe Vestager attend the next meeting of Silicon Valley Entrepreneurs Association. Lets’s see which of them gets pelted with tomatoes. It won’t be Michael, that’s for sure.

    The decision to appeal was very wise. It buys time for political developments to unfold. The way America sees it, what Vestager did on Tuesday was the economic equivalent of Pearl Harbour. Now that America is roused, the socialist EU Commission can’t win. Once capitalist America flexes its muscles, they will cave in. They are already splitting. The former Commissioner, a Dutch woman I think, has come out strongly against Vestager. I’m afraid she’s toast.

    1. Way to go, JTO! I have described on another thread the Very Possible Trinity of (i) continued access to the Single Market (ii) membership of the euro and (iii) continued FDI, especially American. This contrary to popular sentiment, media comment and a lot of academic opinion. We have avoided the cul de sac into which the UK has fallen. Of which the Japanese are well aware.

      http://www.mofa.go.jp/files/000185466.pdf

    2. “Who cares what the Irish Times, Guardian, New York Times think? Or Krugman or Stiglitz or any of them? None of them have ever created a single job.”

      Irish Times : 420 employees
      Guardian : 925 employees
      NY TImes : 3500 employees

      Paul Krugman and Stiglitz are reasonably interesting in that they havent gone the overtly commercial route but one imagines that their theories might have had some minor influence on, oh, international trade, finance, that sort of stuff.

      Like the “TCD is Run By MI5” (it would be MI6 anyhow being outside teh UK) argument, stick to what you are good at, and you are good at it, some critical deconstruction. But in the new blog-o-wonder, I think the general tone is much improved and that is down to less ad hom and more ad rem.

  6. One would thing from some of the above comments that Irish Industrial policy was all about Multinationals and tax incentives. This seems to ignore the extensive debates about fostering indigenous industry over the past 20 years or so, and also the role of Enterprise Ireland.

    1. Ironically, would the possibility that there are six other similar deals not help the government’s argument that they did not selectively favour Apple?

  7. The respective roles of FDI exporting sector vs. the indigenous international trading sector in the Irish economy, has not materially changed in the past 20 years while the public strategy on innovation has been a failure.

    Permanent full-time employment in Irish-owned firms

    2006: 162,000 2015: 164,000

    Permanent full-time employment in foreign-owned firms

    2006: 158,000 2016: 177,000

    The Government has commissioned two external reports on the poor patenting record in recent years:

    A small number of firms are responsible for the majority of patent applications. Approximately 0.2% of firms in Ireland account for 77% of applications between 1999-2013.

    Data show that the patent filing trend of Irish inventors with foreign applicants (a proxy for foreign-owned multinational firms) has been in general decline since a peak in 2005. The trend is that of a steep decline from 2007 to 2010. Conversely, the filing of Irish inventors with Irish applicants (a proxy for indigenous firms) has demonstrated a positive trend, growing to 2008 and then steadily tapering away.

    A July 2016 report from the Joint Research Centre of the EC says:

    Looking at the input side, the level of business enterprise funding of public R&D as a percentage of GDP was 0.007% in 2013 (Eurostat data), one of the lowest in the EU-28 and much lower than the EU average of 0.05% (2012). This value is even more striking if compared with innovation leaders like Germany (0.114%) or Finland (0.065%) or other strong innovators like the Netherlands (0.088%) or Belgium (0.072%). Another figure provided by OECD shows that the percentage of HERD (higher education R&D) funded by indigenous industry has dropped from in 5.3% in 2000 to a very low 1.6% in 2013.

  8. All

    Perhaps the really clever thing to do here is to appeal the decision but put out the worst legal team the State could ever have assembled to supposedly fight the decision and fight a really really bad fight and virtually guarantee a loss in the ECJ. Have the Ireland Inc case heard ahead of Apple Incs.leaving little or no room for the decision to be overturned. (All the States legal team could also be allowed open spread betting accounts and lay themselves massively in the market for such a loss to dampen the ego hits )

    Such a course of action will see the State save face with the MNCs and still collect the much needed loot and the States ‘Eddie the Leglas’ will be ahead in the betting markets. Everyone’s a winner ?

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