Celtic Phoenix or Leprechaun Economics?

Readers might be interested in this UCD Geary working paper, which was featured in the Sunday Business Post yesterday. The title of the paper is “Celtic Phoenix or Leprechaun Economics: the Political Economy of an FDI-led Growth Model in Europe”.

Our core argument is that Ireland’s post-crisis economic recovery was driven by foreign direct investment (FDI) from Silicon Valley, and whilst this growth model was made possible by Ireland’s low corporate tax rates, it was also a result of inward migration, with these firms using Ireland to directly access the European labour market.

We also demonstrate that Irish fiscal and wage policies have not redistributed gains from the FDI recovery to the broader population. As a result, the economic recovery has been most actively felt by those in the FDI sectors, including foreign-national workers from the EU and beyond.

We suggest that this experience indicates that Ireland’s FDI-led growth model has created clear winners and losers. The FDI growth regime been made possible by inward migration and European integration, but given the unequal distribution of the economic benefits that this generates, it is unlikely to be politically, or electorally, sustainable.

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Author: Aidan Regan

I'm an Assistant Professor at the School of Politics and International Relations, University College Dublin (UCD), and Director of the Dublin European Research Institute (DEI). My research is primarily focused on comparative and international political economy.

68 thoughts on “Celtic Phoenix or Leprechaun Economics?”

  1. Each year US companies in Ireland (excluding those in the financial sector, NACE K):
    – pay €6 billion of compensation to their employees
    – buy around €4 billion of goods and services from domestic suppliers
    – undertake an average of €3 billion of fixed capital investment
    – pay around €3 billion of Corporation Tax

    How distributed does it need to be before it is “politically, or electorally, sustainable”?

    1. Aggregates say nothing about distribution (whether measured at the global, national and regional level).

      There is a reason why the average income earner in Dublin (who has seen her annual tax contributions increase by 6k; her wages decline by 3% over 7 years; deteriorating public services and infrastructure; increased childcare costs and a 50% increase in her rental-housing costs) didn’t buy the electoral headline “keep the recovery going”.

      Note: we don’t deny the importance of the FDI-sector. It’s the export engine of Ireland’s growth model. But it creates clear winners and losers, particularly in the labour market. This is particularly problematic in Dublin (where most ICT-FDI is concentrated) given that the expansion of workers in the sector don’t have a vote, as they are increasingly disenfranchised EU citizens.

      1. There are more non-Irish nationals employed in the Human Health and Social Work sector (Nace P) than in the Information and Communications sector (Nace J). Couldn’t the analysis equally apply to them?

        I’m sure there are reasons for tax increases, pay cuts and the like but I’m not sure non-Irish employees in “high-tech FDI sectors” are the reason. What links them? Who are the clear losers you refer to?

        Employment among Irish nationals is up over 150,000 since the trough. These are the people who are feeling the recovery. Reference to a “jobless” recovery seems odd. Of the growth in employment around 7,000 can be attributed to non-Irish nationals in the ICT sector. It seems a bit harsh to be pinning increased childcare and housing costs on people making up 3.5 per cent of the employment increase.

        Anyway, here is an unequal distribution:

        Ireland 14.6%
        United Kingdom 9.0%
        Hungary 7.5%
        Belgium 7.4%
        Luxembourg 7.2%
        Netherlands 6.8%
        Czech Republic 5.9%
        France 4.6%
        Sweden 4.5%
        Germany 4.2%
        Poland 4.0%
        Denmark 3.9%
        Italy 3.9%
        Slovakia 3.6%
        Portugal 3.2%
        Austria 3.1%
        Estonia 3.1%
        Romania 3.1%
        Finland 2.9%
        Spain 2.9%
        Bulgaria 2.8%
        Malta 2.2%
        Lithuania 2.0%
        Slovenia 1.6%
        Latvia 1.4%
        Greece 1.4%
        Cyprus 0.7%
        Croatia 0.5%

        Those are the proportion of personnel cost incurred by firms in the business economy (i.e. excluding agriculture, the financial sector and sectors dominated by the public sector) that comes from US firms in each country.

        1. @Seamus

          You never replied to my comment about distribution and the electoral sustainability of the Irish FDI growth model.

          “I’m sure there are reasons for tax increases, pay cuts and the like but I’m not sure non-Irish employees in “high-tech FDI sectors” are the reason”.

          Just to be clear. This is not our argument in the paper. Nor is it an inference to be drawn from the data.

          “It seems a bit harsh to be pinning increased childcare and housing costs on people making up 3.5 per cent of the employment increase”.

          Again, just to be clear, this is absolutely not the argument of our paper, nor is it an inference that can be drawn from the data. We are not “blaming” anyone.

          But there is undoubtedly a correlation between rising rents and non-traded prices and the presence of the high-tech Google business cluster in Dublin. The demand effect is obvious.
          _

          Pointing out that there are sectoral, geographic, skill-based and occupational “winners and losers” to a high-tech Google driven growth model (which everyone knows is real in Dublin), does not imply that those who benefit from this are to “blame” for those who do not benefit.

          Rather the policy implication is that more and better investment, particularly in higher education, is necessary to ensure Irish graduates can compete with their multi-lingual counter-parts from the rest of the EU.

          1. The paper says a few times that “there are clear winners and losers to the Irish FDI growth model” but it is very difficult to determine who the winners are. An economy is dynamic, not static.

            The is pointed by points such as “high-wage FDI workers in Dublin are contributing toward rising house prices, and rental-housing price inflation.” Thus, homeowners and landlords are winners. And of course on a much less visible scale retailers, coffee shops, restaurants, taxis and many more service providers besides are winners because of increased income in the economy. Where would our non-traded sector be absent the huge sums of money pumped into the economy by FDI. That is the point of my first comment above. It is not only about who gets the money first; it is about the benefits as it passes around the economy – and much of it will pass through the government sector.

            Surely any arguments about distribution and electoral sustainability apply far more to public sector employment than to MNC employment given that this is more directly under the remit of our elected representatives. It might be helpful to add these average weekly earning figures to Fig 2.

            Civil service €889.47
            Defence €807.84
            Garda Siochana €1,251.09
            Education €927.93
            Regional bodies €833.07
            Health €870.57
            Semi-State companies €1,001.22

            Maybe then the chart wouldn’t be followed with “Figure 2 shows a clear divergence between wages in the FDI sectors and all other sectors of the Irish economy” with the same paragraph concluding ” Those working in Ireland’s expanding high wage FDI-tech sectors are the main beneficiaries of the economic recovery.” The main beneficiaries of the recovery is seen in the increase in the employment figures, just as the main losers in the crisis were those who lost their jobs.

          2. @Seamus

            Thanks for this.

            “The paper says a few times that “there are clear winners and losers to the Irish FDI growth model” but it is very difficult to determine who the winners are. An economy is dynamic, not static”.

            I agree that an economy is dynamic (and therefore gives optimism to change). We don’t go into it in the paper – although it’s part of other work I do – but Ireland is a very interesting case study of an expansion in high-skilled services jobs, plus an expansion of low-skilled services jobs. Ireland did not experience the type of occupational change of other advanced Western economies because, as is well document, we skipped the industrial phase of medium-tech development. We turbo charged into a high-tech service economy pretty quickly. So in this sense, there was major occupational upgrading.

            However, in addition to this, Ireland has also seen a massive expansion in low-skill, low-wage employment (and often carried out by relatively well educated graduates). In this sense, the labour market trend in Ireland is relatively similar (although not as extreme yet) as the UK and the USA. This is well document by the OECD, and linked to above in Michael Hennigan’s post. Researchers at the School of Social Policy have also done great work documenting the rise in low-paid work, and the societal effects. See the recent work by Michael Collins.

            So put simply: the winners of Ireland’s high-tech FDI growth model are those who have secured high-wage employment in the large MNCs, such as Google and Facebook (in addition to those in the socio-cultural sectors, such as universities). The losers are those on low-wages who serve these employees pints in the local bar. Both groups have to pay the same price for goods and services in the local economy.

            This dualization becomes more problematic when the growing sector is increasingly made up of non-Irish graduates. Sometimes the quantitative must become qualitative to be meaningful. When AirBnB announced the creation of 150 jobs a couple of years ago, the day previous Jacobs announced they were letting go of 100 employees. Will these employees be competitive enough to seek work in AirBnB? That’s the story of winners and losers. It’s empirical not normative.

            “The is pointed by points such as “high-wage FDI workers in Dublin are contributing toward rising house prices, and rental-housing price inflation.” Thus, homeowners and landlords are winners”.

            Yes. I agree. But it’s important to also discuss the income-demand effect that makes it possible to charge 2500 euro for a 2 bed apartment in a peripheral European city like Dublin.

            “It is not only about who gets the money first; it is about the benefits as it passes around the economy – and much of it will pass through the government sector”.

            Yes. I agree. But I don’t see this observation as juxtaposed to the argument that there are winners and losers to the Irish FDI-growth model. People eat their wages, not GDP. The thousands of graduates from our universities want, first and foremost, rewarding jobs with decent pay. They’re not concerned about the aggregate demand effect of a small competitive sector in the Docklands. They want a job there.

            “Surely any arguments about distribution and electoral sustainability apply far more to public sector employment than to MNC”.

            Yes! And I am glad you mention it. It’s not in the paper. But most European political economy models in political science operate from a two dimensional space when mapping the preferences of the electorate (economic: more or less state, measured in terms of willingness to pay higher taxes, and social values: measured in terms of attitudes and tolerance toward immigration and European integration). Public sector workers (usually called socio-cultural professionals) and business-finance professionals share similar preferences on social values (openness to integration, trade, free movement) but diverge on the size of the state (tax and spend). This coalition of workers is classically associated with New Labour.

            The rise of popular right parties across Europe (and Trump) mobilise on the social values cleavage, and electorally this involves a growing coalition between the non-traded “petty bourgeoise” (and often construction/agriculture) and “low-skilled” workers (who often previously worked in manufacturing). In political science, it was always assumed that this coalition (the bottom two quadrants of a two-dimensional electoral space) would not be possible in a liberal open economy. The last 24 months have shown that this is naive.

            Looking at Ireland, what does this imply? It suggests that if he government want to build an electoral coalition to defend the open FDI growth model they need to build a coalition between business-finance professionals and the public sector. This is what FG never understood (if FG got rid of their south Dublin free market ideologues, and shifted slightly to the left, they’d govern for a decade. But that’s a side point).So yes, you are right, any discussion of electoral sustainability must include a discussion on the preferences of the public sector (something FF always understood). Across Europe, this coalition is in free fall, not least because governments have spent 8 years slashing the public sector.

            “Maybe then the chart wouldn’t be followed with “Figure 2 shows a clear divergence between wages in the FDI sectors and all other sectors of the Irish economy” with the same paragraph concluding ” Those working in Ireland’s expanding high wage FDI-tech sectors are the main beneficiaries of the economic recovery.”

            Yes. We should change the graph to document where the non-traded high-wage services sector sits comparatively (i.e. the health and education sectors).

            “The main beneficiaries of the recovery is seen in the increase in the employment figures, just as the main losers in the crisis were those who lost their jobs”.

            I tend to disagree. Again, the quantitative must become qualitative. The type of job matters. The UK and USA have shown that a labour market aimed at creating a volume effect of jobs (low skilled services made possible by a narrow high-wage sector) not only creates massive levels of income inequality, it generates the political conditions for electoral anger, and a rejection of liberal openness.

      2. I’m with Seamus on this one. What strikes me is that apart from stoking up anti-foreigner sentiment between workers, [you’re LOSING and they’re WINNING!] the implication seems to be that the FDI strategy, creates Irish losers, and it comes at the cost of some better alternative strategy in which the Irish would have made out better. ie there was FDI vs X. So, what was X? What is the opportunity cost of FDI?
        And though slightly off topic but related to what Elia said – whatever anti immigrant sentiment there is is a class issue. This is an interesting interview I did with Martina Byrne, then in UCD on the issue
        http://www.newstalk.com/podcasts/The_Sunday_Show/The_Sunday_Show/152033/How_Prevalent_is_Racism_among_the_Irish_Middle_Class

        Summary: Middle and professional classes don’t view professional immigrants, like those in Google AS immigrants. They are people who’ve made a lifestyle choice to move here. (similar to the “ex-pat” vs “migrant” vs “asylum seeker” terms we see in UK)
        We start getting racist as the immigrants burden on the state increases. She lists the ratings for each group. European Googlers top. Romanians and Travellers bottom. I only mention in terms of the discussion on the idea of anti-immigrant sentiment. It’s more subtle than a general anti-foreigner feeling.

        1. “What strikes me is that apart from stoking up anti-foreigner sentiment between workers”

          The risk of this research is that, yes, populist right wing journalists make this inference, which is why I was glad the SBP picked up on it first.

          I repeat. This is NOT the inference we draw, nor is it the argument of the paper.

  2. Aggregates say nothing about distribution … the average income earner in Dublin (who has seen her annual tax contributions increase by 6k [and] her wages decline by 3% over 7 years

    Aidan,

    As far as I can tell you’re using aggregates yourself, and crucially not adjusting for compositional changes as per Solon et al (QJE, 1994).

    As Seamus mentions there are 150,000 new jobs in the economy. Unless these people are earning more than those who were consistently employed — which seems unlikely if there are returns to experience — average wages simply must fall, even though every single individual has more money in their pocket.

    Let me say that again: average wages can fall, even if every single person has more money. If you have controlled for the compositional structure please let me know, but it seems likely to me that you’re attributing the label “losers” to people quite incorrectly.

  3. @Aidan

    “Rather the policy implication is that more and better investment, particularly in higher education, is necessary to ensure Irish graduates can compete with their multi-lingual counter-parts from the rest of the EU.”

    First, I wonder whether ‘higher education’ is held back a bit by secondary education, and secondary education by primary. I’m sure more investment would improve moral if nothing else in third level, but what are the granular details of Irish graduates shortcomings – or is it just a population thing with a shortage of numbers at the higher end academically?

    Second, after a few years of this it really is getting boring msaking the point, but there are shortages in non-traded skilled (the most obvious being construction), and most don’t need degrees.

    1. “Second, after a few years of this it really is getting boring making the point, but there are shortages in non-traded skilled (the most obvious being construction), and most don’t need degrees”.

      I agree. Ideally, Ireland would have a functioning vocational-training regime that complements a robust medium-sized enterprise sector specialising in the production of high quality goods and services. But Ireland is not a coordinated market economy, like Germany. Muck like the UK, it has banked on a generalist university education regime.

  4. 1. There are employment survey data up to end 2015 and indigenous international tradeable employment was essentially unchanged since 2007 while 25,000 jobs were added in the FDI agency supported sector — that is 19% of jobs added during the recovery from end 2012.

    Rather than being driven primarily by FDI from Silicon Valley, there were job rises in several sectors including tourism.

    2. Professional scientific and technical services naics are typically servicing the domestic market — accountancy, legal, consultancy, property services and so on.

    3. About half ICT employment is in admin — this is important in relation to innovation and low patenting.

    “Global capital has come into Ireland — and that’s a good thing — but somehow it hasn’t translated into Irish-owned firms,” Catherine Mann, OECD chief economist, said in 2015.

    She said Irish-owned enterprises lagged behind their foreign counterparts across a range of productivity metrics, most notably research and development.

    “The patents are here, but they’re not being linked into the domestic economy, not being levered up by domestic firms or married to domestic workers.”

    Despite housing some of the most innovative firms in the world, Ireland has one of the lowest domestic spends on R&D in the EU.

    4. Google’s 2,300 staff in the UK earned an average wage of £160,000 each in 2015 as more engineers were employed. Google said in 2014 taht 70% of Dublin staff were from outside Ireland.

    In Ireland the average for staff in 2015 including stock compensation was about €114,000.

    5. Official data show that total spending in Ireland on wages, and purchases of materials and services in 2014 was at €21bn by both Irish-owned firms and FDI firms (FDI firms bought less materials and paid higher wages).

    The contribution of both sectors as a ratio of GNP (gross national product) has fallen from 2000: down from 17.3% to 12.7% for Irish firms and down from 16.9% to 12.5% for FDI firms.

    6. The OECD said in 2016 that at 25% Ireland had the highest level of low pay in the rich world. Typically, private sector staff in non-exporting firms have no occupational pension coverage.

    7. Whatever about distribution, the over-reliance on FDI firms compared with for example Denmark, will ensure that Ireland will not reach the levels of income and consumption it artificially achieved during the bubble but still the actual consumption per capita was behind some of Europe’s rich countries.

    http://www.finfacts.ie/Irish_finance_news/articleDetail.php?Ireland-in-19th-rank-for-disposable-income-22-below-OECD-average-749

    1. @Michael.

      Brilliant.Thanks. I was hoping you’d contribute. I’ll go through each of these with interest, and follow up with an email.

      “Google said in 2014 that 70% of Dublin staff were from outside Ireland”.

      Do you have a link to this statement/quote? I’ve heard the same anecdotally (as does everyone renting/living in Dublin city) but can’t find hard evidence to verify.

      1. @ Aidan

        Interview with John Herlihy, then head of Google Ireland:

        http://www.independent.ie/business/irish/google-was-never-meant-to-be-this-big-in-ireland-but-plans-change-30116405.html

        Google Ireland reported in its 2015 accounts that it had 2,824 employees but also in 2015 Google began claiming for the first time that it had 6,000 people working for Google Ireland including contractors. “We now employ 6,000 people here in Ireland,” the current Ireland head has said and the head of engineering has said: “Our 400+-strong engineering team in Ireland…”

        Google’s new data centres employ 30 to 40 people.

        Google may have ramped up the total employee numbers to deflect criticism about tax avoidance.

        All jobs are good but including indirect jobs such as security, facility maintenance, external IT support systems, catering etc. is misleading.

        The number employed by Intel in Leixlip is commonly reported by the IDA and the media as 4,500 but in 2014 Intel confirmed to me that it employed 2,800 — again the number is topped up by including employees of firms providing various services.

  5. I can’t see how Irish natives can take these jobs. A lot are jobs relating to servicing their respective nationalities I.e Finns serving Finns, Germans Germans etc… No matter how many classes an Irish student does he/she won’t speak and have the cultural nuances of a German/Finnish native.

  6. I’m having a quiet day at work so I was able to read this Working Paper twice (SBP link doesn’t work as I’m not a subscriber). The paper’s central argument is – in my view – very dubious. Apparently there’s a danger of Brexit-type backlash in Ireland because we’re all really jealous of these high earners in Google, Microsoft, Apple, etc and we’re not getting a slice of the cake. Furthermore, if you live in Dublin, the foreigners working for these companies are driving up rents because they have so much money. I think the Paper is all over the place. The authors want to criticise Ireland’s low-tax policy (fair enough) but, after that, lose sight of what they should be aiming their gun at.

    Generally, it is low-wage immigrants, immigrants who do not integrate or immigrants who are perceived to be ‘riding the benefits system’ who tend to be the focus of anti-immigrant sentiment in most countries. Apparently in Ireland it is the latte-sippers in the Docklands who will lead to the creation of a political movement.

    The confirmation bias is very evident in the Paper e.g. “… our suspicion …hold”, “this largely corroborates”. Finally, the language is pretty painful in parts (‘problematize’ anyone?).

    1. “The paper’s central argument is – in my view – very dubious. Apparently there’s a danger of Brexit-type backlash in Ireland because we’re all really jealous of these high earners in Google, Microsoft, Apple, etc and we’re not getting a slice of the cake”.

      Can you quote/cite anything in the paper that suggests this?

      “The authors want to criticise Ireland’s low-tax policy (fair enough) but, after that, lose sight of what they should be aiming their gun at”.

      Can you quote/cite anything in the paper that suggests this?

      “Apparently in Ireland it is the latte-sippers in the Docklands who will lead to the creation of a political movement”

      Can you quote/cite anything in the paper that suggests this?

      I don’t expect peer-review academic standards from anonymous online bloggers. But at least cut and paste quotes to enable an informed and reasoned conversation.

      1. Did I click on the wrong link? These are sample quotes from the Paper I read and are reasonable cut and paste quotes:

        P2: ‘skewed by the vagaries of international tax avoidance strategies’, ‘chicanery’ (in relation to Apple), ‘…matters much more than low corporate taxes’

        P3: ‘We suggest … the growth model is not compatible with the drive toward corporate tax harmonisation in the EU …’ , ‘Ireland’ Internet-tech FDI growth model may come unstuck from within…’

        P6: ‘Periods of political unrest have emerged when disadvantaged sectors feel as though the gains from trade and specialisation have not been sufficiently disbursed. For a stat pursuing an FDI-services growth model, the underlying logic is no different …’.

        P25: ‘… a direct affront to the preferences of the business-state elite that shape Ireland’s FDI growth model, is the recent interventions of the EU commission into Ireland’s corporate tax affairs … Those member states that actively engage in corporate tax competition are perceived as undermining the tax base of the entire EU, and engaging in beggar thy neighbour strategies of economic development’.

        P7: ‘If and when the gains from high-tech and high-wage employment accrue to small [sic] segment of the population, be they nationals or migrants, and not to the broad-based workforce, the likelihood of political discontent increases. In such an instance, the state risks alienating its domestic political legitimacy by promoting an economic growth mode that accrues gains more to small segments of high-skilled workers than to the bulk of the electorate’.

        P17: ‘… the clustering of high-wage workers in Dublin puts huge pressure on local non-tradable prices, in particular housing and rental prices. These price increases can have significant welfare implications for those that are not engaged in the high-wage enterprise sectors, given that all workers in Dublin have to pay the cost of inflated non-tradable goods such as rental accommodation.

        P19: ‘This largely corroborates our claim that Ireland’s FDI growth model creates clear winners and losers, and that the winners are increasingly high-skilled workers from other EU countries’.

        On page 20 the Paper I read begins to look to see if the Government has ‘engaged in distributional spending in order to secure the support of constituents in the domestic and non-FDI sectors of the political economy’. On page 23 the Paper concludes that as all income taxes increased and most income tax payers are not in the FDI sector then ‘the bulk of increased revenues in the austerity period came from the working and middle classes in the non-FDI sector’. I simply don’t understand the argument being made here. Is it that the bulk of taxpayers didn’t feel the recovery as income taxes increased but, as FDI-workers are high earners then they wouldn’t feel the tax increases as much?

        OK, I accept you say that there has been no electoral backlash against the EU or the free movement of workers – rather it is directed at the established political parties. But on the same page (24) you state ‘Ireland’s FDI-led growth regime is likely to lead to increased polarisation between high-skilled and low-skilled workers. This tension will be exacerbated by the fact that these high-skilled and high wage workers are increasingly less likely to be Irish citizens, and more likely to be citizens from other member states of the EU. This has not yet become a politicised issue in Ireland … However, this cannot be taken for granted particularly in a context whereby high-wage FDI workers in Dublin are contributing towards rising house prices, and rental-housing price inflation’.

        I don’t accept one needs ‘peer review’ skills to be able to read a document and try to understand the argument. I consider myself reasonably well-read and well-educated and I have a couple of post-grad degrees but I don’t work in academia. I don’t give my name because I work in the public sector and have often posted on this site on matters relating to public policy. By pure coincidence, I’ll be in the UCD library tomorrow to do some personal research (as an alumni Library member) on an entirely unrelated matter and I’d be happy to buy you a coffee and discuss this Working Paper should you wish to meet.

        1. Elia,

          Thanks for this!

          “P2: ‘skewed by the vagaries of international tax avoidance strategies’, ‘chicanery’ (in relation to Apple), ‘…matters much more than low corporate taxes”.

          Yes, we argue that inward migration, and the cluster effect of skilled labour matters much more for the development of the “Silicon Docks” than corporate tax. This is not to say that corporate tax does not matter.

          Our use of the term “chicanery” is to suggest that despite leprechaun economics (created by corporate tax avoidance strategies), there is a real underlying recovery. Do you dispute this? Are you suggesting it is all chicanery?

          “P3: ‘We suggest … the growth model is not compatible with the drive toward corporate tax harmonisation in the EU …’ , ‘Ireland’ Internet-tech FDI growth model may come unstuck from within…”

          Yes. We think that using corporate tax competition is not compatible with increased European integration (my main area of research). If one accepts that the EMU has a future, then it’s plausible to assume it will involve greater tax harmonization. This is not compatible with a growth model built on tax competition.

          Hence, the government would be better placed to focus on what really explains the expansion of high-tech business clusters: the human capital externalities of thick labour markets (made possible by European integration).

          “P6: ‘Periods of political unrest have emerged when disadvantaged sectors feel as though the gains from trade and specialisation have not been sufficiently disbursed. For a stat pursuing an FDI-services growth model, the underlying logic is no different …”

          Yes. This is a standard assumption, and solid empirical finding, in the study of international political economy. Electorates support economic growth models when the gains of the system are widely distributed. When the system does not widely distribute the gains, electorates revolt. Think Trump or Brexit.

          “P25: ‘… a direct affront to the preferences of the business-state elite that shape Ireland’s FDI growth model, is the recent interventions of the EU commission into Ireland’s corporate tax affairs … Those member states that actively engage in corporate tax competition are perceived as undermining the tax base of the entire EU, and engaging in beggar thy neighbour strategies of economic development”.

          Yes. the Apple tax ruling has infuriated the IDA and the Dept of Finance, has it not? And yes, anyone who spends time in the Berlaymont in Brussels will know that Ireland’s approach to corporate tax competition is perceived as a beggar thy neighbour approach by European policymakers. There is a world of difference in how the Commission and the Council perceive Ireland, when compared to how Ireland see itself.

          “P7: ‘If and when the gains from high-tech and high-wage employment accrue to small [sic] segment of the population, be they nationals or migrants, and not to the broad-based workforce, the likelihood of political discontent increases. In such an instance, the state risks alienating its domestic political legitimacy by promoting an economic growth mode that accrues gains more to small segments of high-skilled workers than to the bulk of the electorate”.

          Yes. Again, this is broadly accepted in the study of international political economy. Do you disagree?

          “P17: ‘… the clustering of high-wage workers in Dublin puts huge pressure on local non-tradable prices, in particular housing and rental prices. These price increases can have significant welfare implications for those that are not engaged in the high-wage enterprise sectors, given that all workers in Dublin have to pay the cost of inflated non-tradable goods such as rental accommodation”.

          Yes. I have no doubt that the impact and growth of Google’s labour market (and all the other FDI firms that since invested and feed off this labour market) has put huge upward pressure on the price of non-tradables, such as housing-rental accommodation. There is a reason why 2-bed apartments in the city = 2,400 euro a month. Do you disagree?

          “P19: ‘This largely corroborates our claim that Ireland’s FDI growth model creates clear winners and losers, and that the winners are increasingly high-skilled workers from other EU countries”.

          Yes. After presenting our evidence, we suggest that it does corroborate our core claim: that inward migration, made possible by European integration, explains the expansion of the Silicon Docks, and in turn, those who work in this sector are the main beneficiaries of the Irish FDI growth model that has driven the economic recovery.

          “On page 20 the Paper I read begins to look to see if the Government has ‘engaged in distributional spending in order to secure the support of constituents in the domestic and non-FDI sectors of the political economy’. On page 23 the Paper concludes that as all income taxes increased and most income tax payers are not in the FDI sector then ‘the bulk of increased revenues in the austerity period came from the working and middle classes in the non-FDI sector’. I simply don’t understand the argument being made here. Is it that the bulk of taxpayers didn’t feel the recovery as income taxes increased but, as FDI-workers are high earners then they wouldn’t feel the tax increases as much?”

          I’m not sure I understand this point. But perhaps our argument is not clear at this point in the paper. What we argue is that all workers have seen a rise in income tax. But the type of wage-growth in the ICT FDI sector has meant that these employees are better able to afford these tax increases (i.e. those who have seen tax increases + wages cuts + increased non-tradable prices have see a decline in their disposable income/standard of living).

          “OK, I accept you say that there has been no electoral backlash against the EU or the free movement of workers – rather it is directed at the established political parties”.

          Yes. This is the Irish experience. There has been no change in political supply (i.e. no new parties) but there has been the emergence of popular movements such as the anti-water charges. The most recent Irish election continued the trend of electoral volatility and parliamentary fragmentation. In this sense, Ireland is part of a general trend in Europe. And again, in standard political science models, this can be traced to the electorate being angry about their economic experience.

          “But on the same page (24) you state ‘Ireland’s FDI-led growth regime is likely to lead to increased polarisation between high-skilled and low-skilled workers. This tension will be exacerbated by the fact that these high-skilled and high wage workers are increasingly less likely to be Irish citizens, and more likely to be citizens from other member states of the EU. This has not yet become a politicised issue in Ireland … However, this cannot be taken for granted particularly in a context whereby high-wage FDI workers in Dublin are contributing towards rising house prices, and rental-housing price inflation”.

          Yes, we finish the paper on this observation. It is not a prediction. It is simply an argument that Ireland should not wait for it’s Trump or Brexit moment to tackle the growing problem of labour market dualization.

          Michael Hennigan above shows just how many low-paid, under-employed, precarious workers there are. These numbers are growing, which means their votes are growing too. What we are saying is that economics needs to engage with the insights from political science to avoid a backlash against European integration, free movement and the FDI growth model.

          “I’LL be in the UCD library tomorrow to do some personal research (as an alumni Library member) on an entirely unrelated matter and I’d be happy to buy you a coffee and discuss this Working Paper should you wish to meet”.

          I’d be delighted!!

          1. I think you confirmed the points I made originally at 1.31pm in that your paper argues that there may be a backlash against the labour market dualisation in Ireland and this is likely to be against FDI workers (or the ‘latte-sippers’ as I called them). I don’t believe this. If anything, it is as likely to be against public sector workers. I recently considered leaving the PS and was shocked at the drop in salary and conditions I would have had to accept outside the PS. I share an office with an ex-US Multinational employee (engineer) and he is continually surprised at the much better salaries, terms and conditions available to PS workers. But this is not an anti-PS rant as I’m raising my family on what is sent to my bank account every month from my PS job.

            My point stand that you are critical of Ireland’s low tax policies and the quotes I gave above show the language you select to use when talking about that sector (you had asked for proof of this). Also, the analysis of the voting in the UK Brexit referendum shows that many wealthy areas voted for Brexit. They were not losers in any economic sense of the word. It was simply English nationalism at play which political researchers may be reluctant to acknowledge. So I certainly disagree about what is broadly accepted in international political economy regarding winners and losers. For example, are the people of Stoke or Luton in the UK causing unrest because of high earners in the City of London? Is that why they voted Brexit? I bet many wealthy people in the US voted for Donald Trump also. There is labour-market dualisation happening (as Michael Hennigan points out) but I don’t know of any country where this could be said to be exclusively the cause of political unrest. Could it explain the turmoil in Greece? But the argument is getting clouded at this point. Labour market dualisation is also caused when the State awards lucrative legal contracts or sets up monopolies to run public services e.g. Irish Water – I’d love a job in that company over a job in retail any day.

            I hope to be the James Joyce Library in UCD tomorrow afternoon. I’ll check then to see if the offer still stands!

  7. Hourly earnings thresholds used for determining low-wage earners, 2014

    Country €
    Denmark 16.74
    Ireland 13.31
    Sweden 12.18
    Luxembourg 12.06
    Belgium 11.42
    Finland 11.38
    Netherlands 10.56
    Germany 10.10
    France 9.77
    United Kingdom 9.72
    Austria 9.09
    Italy 8.14
    Spain 6.49
    Portugal 3.38
    Greece n/a

      1. “Using the hourly Living Wage as a threshold, the analysis finds that 25.6% of employees have an hourly wage rate of less than €11.45. Some 30.3% of employees lie below the low pay threshold of €12.20. These findings imply that almost 345,000 employees earn less than €11.45 per hour while just over 400,000 earn below €12.20 per hour”.

        If that does not convince you that Ireland has a significant low-paid sector, I’m not sure what would. All data comes from the SILC: http://www.cso.ie/en/releasesandpublications/er/silc/surveyonincomeandlivingconditions2014/

        1. Here is some comparative data from the SILC.

          Employees at risk of poverty rate (cut-off point: 60% of median equivalised income after social transfers), 2014

          Country, %
          Finland 2.1
          Belgium 3.6
          Denmark 3.8
          Netherlands 4.1
          Ireland 4.2
          Austria 6.4
          France 6.5
          Sweden 6.5
          United Kingdom 7.5
          Portugal 7.9
          Greece 8.5
          Italy 8.6
          Germany 9.2
          Spain 9.9
          Luxembourg 10.2

  8. Some of the points made by the author in relation to the political effects of the growth are valid. In particular, the fact that, despite 3/4 years of strong growth, FG did badly in the last general election (Feb 2016), and the combined FF/FG vote was at an all-time low (50%). However, FG still formed the government and FF still formed the opposition, and both were way ahead of any other party, so their relatively poor performance shouldn’t be exaggerated. The main difference between Ireland and other countries in that election was that the bulk of the disaffected vote did not go to parties of the far-left or far-right, but to a motley collection of clowns standing as independents. Buffoons, yes. But, fascists and marxists, no. Its all a far cry from Morgan Kelly’s 2012 prediction that the next election would see both FF and FG wiped out and a hardline anti-immigrant anti-EU party take over.

    There is lots of evidence that things have stabilised even more in the past year.

    (1) A recent EU-wide poll showed that the percentage of the electorate thinking ‘the country is moving in the right direction’ was higher in Ireland than in any other EU country. Some 62% said that in Ireland, versus around 50% in the U. Kingdom, around 30% in the Nordic countries, and amazingly low percentages in the economically-worst-performing EU countries.

    (2) There has been a significant shift to FF/FG in polls since the election. In almost all recent polls the combined FF/FG vote share has been in the range 55%-59% versus 40%-48% in polls in the year before the last election.

    (3) The so-called ‘winter of discontent’ on the labour front has proved to be a damp squib. In October the media were predicting a rerun of U. Kingdom 1979, but its turned out to be nothing of the sort and the number of days lost in industrial disputes continues to be negligible (under 10,000 in total every year, bar one, in the past decade versus 1,000,000 back in the 1980s.

    (4) Street protests on the water charge issue have fizzled out and the left have nothing in the cupboard to replace it.

    (5) Polls continue to show a massive majority for Ireland’s membership of both the EU and the Eurozone. There has been no ‘Brexit effect’ in Ireland at all.

    Will this all continue?

    It depends on the economy.

    Its always possible that Brexit/Trump will cause an economic downturn. Unlikely, but possible. Nothing is guaranteed. So far, however, there is no sign of it. The fall in unemployment in ireland has actually accelerated since Brexit. In the absence of such a downturn, the unemployment rate will continue to fall rapidly and, at its current rate of fall, could easily hit 5% by the end of the year. Employment in the building industry looks set to soar in the next couple of years, and this always bodes badly for the left and ‘protest politics’. I’d advise anyone who owns shares in Paul Murphy, Ruth Coppinger or Claire Daly to sell them asap.

  9. I’m surprised no economist, commentator or politician has ever called out Paul Krugman on his casual racism in using the term ‘leprechaun economics’. If he had described German economic policy (trade surpluses) as ‘kr***t’ economics or Israeli economic policy as ‘k**e’ economics he would be rightly castigated and made to apologise.

    1. @ Elia

      Racism?

      The leprechaun is part of our folklore like Santa Claus or the tooth fairy — the latter is often evoked by Paul Krugman.

      The mythical pot of gold at the end of the rainbow was a great allusion to make!!

    2. Elia, Krugman was out of order and I said so (politely) in the Sindo last July:

      ‘The Irish economy, on all credible indicators, grew by about 5% last year. The GDP growth rate could even have been a little higher. But it could not have been 26.3%, the amazing figure computed by the Central Statistics Office. The CSO explained that they follow faithfully the rules laid down by Eurostat, the statistical arm of the European Union and it appears that they have indeed calculated the figures by the book. National statistical offices do not make up these numbers off the top of their heads, they follow harmonised procedures laid down by international agencies. In Ireland’s case the rules are contained in a manual called ESA 2010, binding on EU members and authored by Eurostat in Luxembourg.

      Paul Krugman, the Nobel prize-winning economist, tweeted an instant crack on Tuesday about ‘leprechaun economics’, providing the world’s journalists with the hook for their coverage of these extraordinary figures. The impression created is that the Irish state cannot organise a statistics office to count economic activity properly. Krugman missed the target with his instant smart remark. The leprechauns are in Luxembourg, not in Ireland.’

      Serious people shout abjure Twittering.

      1. Given recent growth, do you now accept that your call (a few years ago) for the new Dublin airport terminal to be mothballed, was a mistake?

    3. I’m appalled at the enthusiasm of the Irish media in continuing to use the L.E. term. It was a disgraceful accusation implying that the CSO was fiddling the books, when in fact they were following Eurostat rules and for at least generation economic and political commentators have acknowledged that our FDI means GDP is distorted here. But Krugman as usual gets away with it cheered on by the failed state journo who just LOVE to see a fail, even if its imaginary.

      1. From an international perspective what was far more appalling was the realisation that Ireland facilitated the richest company in the world – valued at over $600bn – to avoid paying it’s taxes.

        If there is a failure of journalism in Ireland, it’s turning a blind eye to international corporate tax avoidance.

        1. LE is an apalling comment? Nope. It points up a case of bureacratic bullshit. The phrase probably – and I’m guessing here, is something that John Healy might have conjured up – tongue in cheek and glass of malt at hand mind.

          ESA 2010 may be the protocol to follow, but if its use results in a completely daft value then its the duty and responsibility of the users to ignore the protocol and propose a statistically meaningful alternative. Or is it a case of – “TINA! – Long live TINA!” Looks like it. And folk are ‘worried’ about the rise and rise of populism? Give me a break!

        2. The esteemed Prof. Krugman missed not one target, but two. The CSO was just calling it as the numbers emerged and could do no other. (Though the high dudgeon of those defending the allegedly desmirched amour propre of the CSO (and, by extension, other Irish public bodies) is a tad disingenuous. It smacks of an attempt to distract attention from the real issues.) What Prof. Krugman also missed, whether disingenuously or not, is the fact that, as Seamus Coffey has pointed out previously, the US is the state aid provider-in-chief to MNCs by providing them with full permission and clear incentives to shelter their overseas profits offshore or to ensure these profits are subjected to extremely low rates of taxation. Ireland simply provided some sheltering facilities and a low tax regime.

          The irony is that the removal of some of these sheltering facilities (for example the use of Irish incorporated companies that weren’t liable for taxation anywhere) and the phasing out of other ruses led to the activity that resulted in the jump in GDP. The further irony is that Ireland got hit with the Leprechaun Economics tag after the public authorities had put in a lot of effort to clean up their act. If there was Leprechaum Economics it happened previously when the Irish authorities said to selected MNCs “We’re delighted that ye’re establishing operations here and using us as an aircraft carrier to penetrate the EU market. Ye’ll find that we won’t be too hard on ye when it comes to tax. Shure, ye’re great people altogether with the investment, jobs and pay ye provide. But we’d be even more delighted if ye were to run through our system the flows of money coming from sales to other countries and that are building up your crocks of gold that ye want to keep away from the Yankee taxman. Shure, we’d take only the slighest sliver off the top.”

          The final irony for me, at a time when we rightly mourn the passing of TK Whitaker, is that the rent extracting special interest groups who vociferously opposed his proposals to open the economy (Sean Lemass’s ‘forces of reaction’) have morphed in to equally vociferous rent-extracting special interest groups (which have increased almost exponentially) defending this policy paradigm – even though it is accompanied, unfortunately, but, in the Irish context, almost inevitably, by an unbalanced, distorted and inefficient domestic economy.

          It will be interesting to see the impact on this slightly leprechaunish economy and polity when Trumpian tax policy desires confront Paul Ryan’s detailed proposals.

        3. If there is a failure of journalism in Ireland, it’s turning a blind eye to international corporate tax avoidance.

          Aidan, there has always been a clear distinction between avoidance (which is completely legal) and evasion (which is a crime). Tax avoidance includes setting up European headquarters in low tax jurisdictions, claiming your tax back on your annual bus pass, or hiring an accountant to see what product innovations count as R&D. Would you prefer people didn’t respond to taxes? (Wouldn’t we all? But that’s not the point.)

          Tax evasion includes getting paid under the table, claiming personal expenses as tax-deductible business expenses, and under-pricing intra-firm transfers. These are illegal.

          Are you trying to steal the word “avoidance”? If your qualm is with firms not volunteering more taxes than they’re legally obliged to, this is equivalent to berating individuals for claiming their rebate on their bus pass. More precisely, if you’re unhappy with the completely-legal activities of companies, then you’re unhappy with the law, not the companies. So be specific and make a list of sections of the Finance Act 2015 or Tax Consolidation Act 1997 or whatever that you’re unhappy with, rather than lumping it all in as “avoidance”.

          1. I understand all of this perfectly well. And I, like the entire international community, will continue to call it corproate tax avoidance. That’s exactly what it is.

          2. You’re simply incorrect to suggest “the entire international community” lumps it all in as corporate tax avoidance. Come join us at a tax conference!

            As someone who does tax research, I’d appreciate it if you were more precise about your criticisms of tax avoidance. It’s the honest thing to do, rather than casting perfectly reasonable behaviour (e.g. claiming R&D tax credits that a firm is entitled to) in a bad light. Many of these policies are explicitly designed to lower tax burdens, just like tax credits to encourage firms to do more R&D. Lumping these tax avoidance strategies in with the under-handed nature of some corporate strategies (Dutch sandwiches and the rest of it) is, in my opinion, unhelpful and misleading. Non-experts might not see the distinction. That’s why I encourage you to be more precise. Up to you.

      2. Have pity on poor Krugman. Tomorrow midday (EST) will be the blackest moment in his life. If he survives it, I wouldn’t be at all surprised to see him seek political asylum here in the next few years. It should be granted, of course, but only if he apologises.

        1. John, PK has nothing to apologise for. He wrote it as it was – and still is.

          The Director of our CSO should never have authorised or agreed to the publication of that surreal GDP estimate. Its not a ‘system error’ – its a severe case of the infection known as ‘Pyramidal Kreep’ – an organizational virus whose toxic secretion erodes and disables the character and well-being of the inhabitants of many bureaucratical style enterprises to the point that both they and their organization are no longer fit for their original purpose.

          “Decisions have consequences.”

          1. Ah here. That’s arse. They produce the statistics exactly as demanded by Eurostat. The flaws in that system have been repeatedly pointed out, publicly, by a wide range of commentators.
            More they cannot do.

  10. This is a very worthwhile paper, with many excellent observations on Irish policy.

    Table 1, showing that 64.9% of all ICT projects went to Dublin was a real eye opener for me. So where were the plans to house these people? Or was housing deliberately left short so that landholders, banks, owners occupiers and landlords could profit?
    And who in government has attempted to direct investment to the regional cities? I doubt if any such effort has been made. Is it that lattés can’t be brewed beyond Leixlip, or do policy makers have skin in the ‘Dublin’ game. Looking at Table 1, it is a fair question to ask.

    The paper is correct in questioning whether an existing fractured society will be able to sustain increasing levels of income disparity, but the finger could be more firmly directed at government policy which has done little to improve or even recognise that pre-tax income disparity is a real issue. The income disparity however is not just FDI economy versus the rest. There is almost a three way split between an FDI economy (doing very well), a sheltered sector economy (doing very nicely at many levels) and indigenous economy where wages and conditions are not good, and where pension poverty awaits many workers, unlike in many EU countries where occupational pensions are the norm.

    The paper is correct in addressing the tax chicanery, and indeed the low corporate tax dodge that has clearly reached its political acceptability point, not only in Europe but in Ireland. The sight of vulture funds labelling themselves as charities, and similar FDI tax wheezes has sickened the body politic to the point where there is a strong mood to get tougher on corporates.

    The paper does not make the point that many indigenous companies also benefit for the low corporate tax of 12.5% (plus a few wheezes, no doubt), and no quid pro quo was ever demanded from these companies in terms of mandatory pensions etc.
    Indigenous companies are just as adept at the Dutch dividend dance or the Luxembourg interest shuffle as the FDI companies.
    The tax saving gifted to many of the indigenous companies was frittered away in the ‘property boom’ by the grateful and in many cases very greedy recipients.

    It would be regrettable if an extreme national sensitivity to any mention of FDI prevented Ireland from taking a hard look at the negative consequences for some of the population, from the poor infrastructural and other planning necessary to accommodate a welcome influx of FDI into this country, even if accompanied by some lively leprechauns.

    And I like the word problematize. It is very self-explanatory, but I would suggest using s rather than z.

    Beir Beannacht.

  11. There are tradeoffs in most economic choices but in Ireland the conventional wisdom typically drowns out dissent. There is then shock when a soft landing does not materialise; moves to tackle international tax avoidance are said to have no chance of success and gridlock in the US Congress will put the kaibosh on tax reform while there is no risk in allowing foreign companies to use Irish non-resident companies for massive tax avoidance.

    Distortions in the national accounts are treated as fact — economists sagely note how rising services exports (thanks to Double Irish tax dodges) reflect a “move up the value chain” and then the establishment panics when 2015 growth is revised up to 26%; Paul Krugman says it’s a joke and a committee of notables is at last appointed.

    Those who question the over-reliance on FDI and the persistent underperformance of the indigenous international trading sector are dismissed as loony left-wingers.

    Most of the media are in the Amen Corner for the status quo with “people of standing” or experts given platforms reinforcing it.

    There is shock again that British voters supported Brexit and an unstable ignorant self-styled billionaire becomes US president

    However, none of the foregoing happenings were black swan events.

    There needs to be more research to challenge conventional wisdom. Tweaking a 60-year old model is no longer adequate.

    Ireland’s business startup rate is among lowest in the European Union;

    Focus on tech startups only when ones with potential are invariably acquired by foreign firms before scaleup, is not good policy;

    Ireland has one of the lowest number of exporting firms per population in the EU;

    The lazy attitudes to foreign languages and the related poor indigenous exporting performance in mainland Europe, needs to change;

    A high number of graduates in the population is not sufficient when State and business staff training systems have failed for decades – check OECD Economic Survey of Ireland 2015;

    Innovation, patenting and in particular in the food sector needs attention;

    Ireland has the second lowest number of manufacturing firms in the EU with Luxembourg last;

    While services cluster in cities, manufacturing remains the main driver of business R&D. It also has great advantages in terms of
    spatial development.

    Ireland needs new economic development plan for next 20 years

  12. “The ICT sector had the largest percentage growth in employment and wages during the recovery, as well as being the
    most geographically concentrated.’ Yes, but given that employment in the sector went up by just over 4,000 its hard to say that it was the ‘driver of the recovery’ as total employment has risen by some 195000 from the cycle low.

    It is useful and timely, though, to look at FDI and their impact , aside from the tax issue, as it appears that all inflows are welcome at all times, regardless of the state of the economy- Ireland has an infinitely elastic supply response, it would seem.. As I have stated before, it seems very clear that Ireland is currently facing huge capacity constraints , notably in Dublin. Contrary to the media narrative of ‘generation emigration’ the population never fell during and after the crash, and with the return of immigration is probably rising now by at least 50000 a year, so its not surprising that there are more people on A&E trolleys this year than last, House building has picked up, at 15000 or so in 2016 , but the resulting increase in the housing stock is still lagging population growth ,Some 212000 additional cars were registered last year (new and imported) so no wonder the M50 is gridlocked half the time. while Dublin airport recently announced almost 28 million in passenger numbers last year. Its hard to get a hotel room in Dublin and restaurants are packed, so its a puzzle why attracting 20000 or more highly paid financial professionals to Dublin, post Brexit, is seen as a priority in an economy with such obvious capacity issues, not least in housing,

    1. Agreed.

      Based on the last QNHS and the known fact that (following the census) the CSO will be revising up its estimates for population in recent years, annual population growth is probably around 60,000 currently, and accelerating, I wouldn’t be at all surprised if it hits 100,000 annually in the next few years. Its clear that the worst economic mistake Ireland made in the past 50 years was to listen to the property-doomsters back in 2008-2010, This had 2 bad effects. First, Irish investors failed totally to foresee that in 2012-2013 the house price correction had massively overshot and was about to rebound. In 2007 the Economist stated that a house price correction of 20% was required. Some Irish economists said 80%. Naturally, these much more sensationalist, but wholly unjustified, predictions were what the useless Irish media popularised and those making them became national celebrities (although we never hear from them now). So, when the house-price correction reached 50%-55% in 2012-2013, Irish investors expect further house price falls. American vulture firms were much cleverer and judged the market correctly. They analysed the fundamentals and concluded that the then-55% correction was in fact a massive overshoot and a rebound was inevitable. They were correct and have made huge, but deserved, profits on the back of it. Second, in the belief that a mass population exodus was under way and that Ireland was depopulating at a rate similar to the immediate post-famine (a view again popularised by the useless Irish media), the rate of new-housebuilding was allowed to fall to levels far below what was necessary to house the population that was actually growing fast.

      1. @JohnTheOptimist

        Its clear that the worst economic mistake Ireland made in the past 50 years was to listen to the property-doomsters back in 2008-2010

        Ah, now, John. May the man rest in peace, but I think Ireland’s worst economic mistake in the past 50 years could have been avoided had Brian Lenihan listened more to the property-doomsters.

        1. @Enda H

          Hmmmm, I know what you mean, but perhaps JtO (all hail!) meant the following:

          I tuned out for a while but as NAMA winds down and it’s clear they’ve been selling off massive tracts of properties to these Vulture Funds for sums far below what actual families would pay for the individual houses,* thus not only crystallising a steep loss to the taxpayer (based on the loss to the BANK, and not the discounted amount NAMA paid for the loans, which it seems to be me is rarely quoted) but adding to the housing crisis by keeping those families in rented accommodation.

          NOW I recall at the time when NAMA was being set up that there were 2 arguments.
          1, NAMA should dispose of the properties ASAP because the state holding such a large land bank would be bad – it would stall the recovery of the property market, and anyway, there was nothing to be gained by holding on because obviously the money would never be recovered for yeeeaars since we were in Morgan whathisname land with the price collapse around 60%.

          vs

          2. NAMA should hold onto the properties and only very slowly release as the market improved and perhaps an idea that the land/housing would be disposed of with some kind of public interest in mind.

          1 won the argument, and again, I recall, but am happy to be corrected, that the consensus was behind this. Get rid of these toxic assets ASAP rather than let them be a burden to the state.

          Perhaps if there were more optimistic voices at the time, then the case for 2 might have won, and right now families would be moving into those homes, rather than pension funds taking them over, kicking out the existing tenants, reducing the supply available for sale, and generally pissing off everyone because it turns out evil hedge funds are going to be the biggest beneficiaries of the recovery. But everything seemed so bad back then (08-10) the possibility of any recovery seemed so slim that an accelerated disposal seemed sensible.

          This might all be a bit cracked, and is based on vague memory and possible misdiagnosis now,but as I say, I tuned out for a while.

        2. @ Enda H

          JTO likely expected an “‘everlasting boom” before the crash! The “experts” relied on demography and Say’s Law — supply creates its own demand.

          It’s easy to be fooled.

          Roy Foster, the historian, says in his book ‘Luck and the Irish: a brief history of change from 1970‎,’ that in December 1977, Trinity College professor of economics, Martin O’Donoghue, who was then minister for economic planning and development, promised an “‘everlasting boom.”

          In 1978, a public spending fuelled boom in Ireland resulted in a budget deficit of 17.6% of GDP — a record for developed countries according to the International Monetary Fund (IMF) for the period 1970-2008.

          1. @MH

            So what? Nearly all politicians promise an ‘everlasting boom’. Gordon Brown promised an end to ‘boom and bust’. Same thing. As it happens, Ireland 1986-2007 was as close to an everlasting boom as any western country has managed in modern times. Myself, I believe periodic recessions are inevitable, regardless of what any politician says. The key issue is how frequently they occur. In Ireland its about every 20-25 years. That will do me.

            As for the future, we’ll just have to see what Donald Trump does. He wouldn’t be my number one choice, but I’m happy to give him a chance and hope he succeeds. Am watching his inauguration as I type. A very good start with readings from the gospels by a number of Christian leaders. God seems to be back in fashion. Can’t see any of that happening at Michael D Higgins’ inauguration. Maybe the liberal era really is coming to an end? If he avoids nuclear Armageddon by Easter, he’ll have exceeded the expectations of most liberals. I’m hoping for more than that though. An American (leading to a worldwide) construction boom seems a strong possibility, which would certainly be good for Ireland.

        3. @Sarah Carey

          Brilliant analysis. I couldn’t possibly improve on it, so I won’t try.

          @Enda H

          There are always bad consequences when widely-accepted forecasts turn out to be wrong. That was true of the over-optimistic forecasts made in the years up to 2007. It is also true of the over-pessimistic forecasts made in 2008-2011. The consequences of the former have been well-publicised. I outlined the consequences of the latter in my post above.

          There is one crucial difference, however.

          Those who made the over-optimistic forecasts in the years up to 2007 have been demonised and largely driven from public life. They are never done apologising and issuing ‘mea culpas’. In contrast, those who made the over-pessimistic forecasts in 2008-2011, one of the main consequences of which was the rundown of the construction industry to almost nothing, with a now resultant severe housing shortage and increased homelessness, are silent. When is Morgan Kelly going to apologise for his wildly inaccurate forecasts in 2011, which have had such bad consequences.

    2. @ Dan McLaughlin

      so its a puzzle why attracting 20000 or more highly paid financial professionals to Dublin, post Brexit, is seen as a priority in an economy with such obvious capacity issues, not least in housing,

      The default mindset of policy makers and the business media is to follow the lead of executives in places such as the Big 4 accounting firms!

    3. Having just come back from a day in Dublin, I could not agree more. With all due respect to the technical arguments, cannot the academic community open its eyes and observe the obvious. Investment has been slashed in order to keep all sectors more or less (for the most part, less) in the style to which they had become accustomed. If this trend is not reversed, and soon, capacity constraints will cause the economy to burst its boiler; once again.

      It is time to give substane to the idea of growth centres (as is already happening by default in Galway) and to provide the infrastructure connecting them up.

      Instead, we are discussing what are largely economic irrelevancies. There is not too much FDI. There is a lack of action on how to take best advantage of it.

  13. “More they cannot do.”

    Sarah, that is just TINA talk. They (the CSO folk) can and indeed need to do ‘something’. Maybe its just politically inconvenient for them to institute the required remedial action – cf: Sir Humphrey Appleby, GCB, KBE, MVO, MA (Oxon).

    The CSO folk have to ‘correct their own homework’: its known as professional integrity. Publishing an utterly surreal estimate of GDP discredits the CSO. And what’s the advantage in that one? Or more correctly – to whose advantage is it? Think GUBU, not TINA.

    1. @BWsr

      http://www.cso.ie/en/media/csoie/newsevents/documents/IrelandEconomicGrowthFigures.pdf

      https://www.rte.ie/news/business/2016/1013/823757-finance-committee/

      Brian – just some of the statements by CSO drawing attention to the problem with the stats. They are compiled exactly as instructed by Eurostat but show a distorted picture. They have been entirely transparent both in their calculations and in pointing out publicly and to the Oireachtas and to Eurostat how the calculations are flawed.

      In fact, at the DEW in Wexford earlier this year Frank Barry did a presentation on how most of the measurements we use distort reality and that Patrick Honahan himself gave instructions for bespoke measures for his own use when he was Governor.

      You really are being most unfair. And so was Krugman. The problem here is Eurostat.

      1. @all

        The problem here is not the CSO or Euro stat. The problem is the antiquated way we measure the economy.

        Our statistical measures, and in particular, our national accounts, have not kept apace with the global nature of economic inter-dependence.

        1. “The problem is the antiquated way we measure the economy.”

          Thanks Aidan. That’s what I thought. I’m out now.

          1. Right, but can we please acknowledge that “we” and the “our” is not Irish. “We” compile the statistics as instructed and “we” have repeatedly, publicly, and officially pointed out that the methods are flawed. So the charge and implication of “leprechaun economics” was unfair. You can call it Bureaucrat Economics but making it an exclusively Irish crime is unfair. So Brian, it’s not fair to leave the conversation having made unfair allegations. The CSO cannot do any more than it has done. As far as I can see anyway. They acknowledge the flaws, and point them out publicly. They aren’t covering up for anything.

      2. @ sarah carey

        The issue is not that the CSO should have departed from international standards but that if it provided some caveats at all, they were typically in a telegraphic format.

        Officially corporate tax avoidance didn’t exist — who in the establishment would then dare suggest it was causing distortions?

        The big stories on tax avoidance in Ireland came from external media: Tax Notes, a US newsletter in 2004; The Wall Street Journal on Microsoft’s use of Irish Bermuda based companies in 2005; Bloomberg in 2010 revealed how much Google was saving through use of the Double Irish, and a US Senate panel in 2013 disclosed how Apple was using Irish companies to avoid tax.

        1. You’re changing the subject. The subject is: was krugman’s accusation of LE fair given its implication we were deliberately distorting figures (at worst) or at best turning a blind eye to the distortions produced by the method of calculation.
          It’s perfectly clear the CSO is guilty of neither. They clearly (as did every sensible economic commentator and the gov at the time) qualify the figures.
          No one in officialdom – no one – no politician – claimed our economy grew by 26%. Any accusation they did so or allowed a distorted figure to stand unqualified simply isn’t true.

  14. Sarah, thanks for the comment. Can we just agree an uneasy armistice on this one. It was a magnificent mistake to publish that GDP estimate of 26%.

    Crime? Covering up? Did I write those? LE was an ‘unfair allegation’? More like a swift and well directed kick to the you-know-wheres. Painful and embarrassing – but hardly life-threatening. Cheers.

  15. Congratulations Aidan on breathing life in to Irisheconomy.ie again.

    I think there is major research needed on labour market dualisation in Ireland and, given this phenomenon is happening in many countries, I wonder if policies have been introduced elsewhere in an attempt to counteract it e.g. Spain?

    I looked up the predictions of a particular well-known commentator on this matter. They date from quite some years ago. He said that professional sport is a good model for how the economy will look in the future. This is an industry in which there is almost complete information about who has what skills and who has what openings. It’s a fairly efficient jobs market. The employee who is one percent better in a high-skill area is worth a hundred times as much as someone who is just ‘fairly good’. That one percent might be the difference between winning and losing in the marketplace – just as in sports. Think of Brad Thorn joining Leinster for a few games to help them win the Heineken Cup. You thus end up with amazingly rich athletes at one end of the scale and everyone else who is fairly low paid with a few managers in the middle who hold it all together but they aren’t terribly important or large in number. Everything else will be done by consultants or outsourcing firms.

    When every job opening and every resume is on the internet (think LinkedIn) you are competing against thousands of candidates for every low and medium skill job. You won’t be able to rely on the inefficiency of the job search process anymore. This will drive down wages or, at least, keep them low unless the government gets involved. Whose side the government will get involved on is open to conjecture.

    I think Sarah Carey’s point is valid though in that the Paper could easily be construed as an attack on foreigners. If this Paper had been written by a ‘popular right wing journalist’ and had mentioned Romanians working in Silicon Docks (I’m sure there are some highly-paid nationals of that country working in Ireland) well I think you can predict the outrage that would have ensued.

    Regarding the CSO, I’ve read nothing anywhere to suggest they weren’t simply following rules laid down by Eurostat in compiling Ireland’s economic statistics. In my view, their more egregious failings were: (a) attempting to argue that Irish Water should be off the national balance sheet notwithstanding its significant direct funding by the Government, and (b) its consistent underestimation of population growth and over-estimation of emigration. The former undermined its credibility while the latter is a systematic organisational failure.

  16. “Regarding the CSO, I’ve read nothing anywhere to suggest they weren’t simply following rules laid down by Eurostat in compiling Ireland’s economic statistics.”

    Following rules and make a ‘horses ass’ of yourself. Wonderful!

    “In Ireland’s case the rules are contained in a manual called ESA 2010, binding on EU members and authored by Eurostat in Luxembourg.”

    ESA 2010 is a manual of statistical procedures:not protocols. Hmmmm. The relevant sections are 3.1. thru 3.24. ‘Processes for acquiring basic data ‘- that is, for estimating quarterly GDP.

    I’d have to admit that some of those processes described are a tad wobbly. Apart from the statistical formulae and math expressions the directions appear to be a set of discretionary generalities rather than mandatory specifics. There is mention (several times) of two quite tricky statistical terms: accuracy and random sample: statistical landmines for the unwary. There are some warnings about the validity of samples (good advice) and the possible misuse of ‘imputations’ (silly guesses?). There is also the mention of the use of inference from estimates to population parameters. Now, that’s a very dodgy undertaking – especially if the statisticians working the data know that some or all of their raw data variables contain both random and systemtic errors – and they are uncertain about the sampling distributions of those errors. You may be able to correct for the systematic errors, but the random ones will defeat you.

    All in all, I’d judge ESA 2010 as somewhat unsatisfactory as a methodolgy for estimating reliable economic estimates. It needs to have some form of a health warning printed on its front cover. And this ESA 2010 is ‘binding’ on EU states? – I’m not impressed. Nowhere in the processes is it mandated that one cannot use one’s experienced judgement or vanilla common sense if one encounters an obvious and glaring anomaly – like a 26% uptick in GDP. If in doubt – do not publish. You’ll simply make a chump of yourself if you do. And they did!

    Finally, a familiar quotation variously attributed to Mark Twain or Yogi Berra is worth citing to clarify the objectives of the statistical analysis of quantitative data.; “It is dangerous to make forecasts, especially about the future.” I’d also add my own caveat: the application of statistical analyses to quantitative data is undertaken as a means to reduce uncertainty rather than to improve certainty. “Garbage in, garbage out” – as they say.

  17. @ Aidan Regan

    1) On the limited research on this topic, Prof Seamus Grimes of NUIG, a geographer, who is now retired, has been involved in research on Irish MNCs and more recently in China.

    S&P Global Market Intelligence, 55 Water Street, New York, NY 10041
    http://www.snl.com/web/client?auth=inherit#news/article?id=39013136&cdid=A-39013136-13871

    2) DOCM makes an interesting point on growth centres. City clusters are fine but with the demise of manufacturing and the big drop in the number of big manufacturing plants in the US points to change. I think of my own area in West Cork where big plants could be built in open countryside providing easy access for staff, supplies and output: the American-owned Eli Lilly plant on 500 acres in Dunderrow between Bandon and Kinsale is an example. It’s on elevated ground and all you see to the horizon is farmland. Carbery Milk Products, which started as a joint venture with a British group, is a great example of a successful indigenous exporter and its plant is located mid-way between Bandon and Dunmanway.

    3) Many countries have tried to clone Silicon Valley but Israel has been the only one to successfully do so.

    It hosts many R&D centres of US companies but it’s impact of high tech on the rest of the economy has been limited. In 2013 9% of employment was in high-tech down from about 11% in 2006-2008.

    4) During the Great Recession, the McKinsey Global Institute warned: “While many policy makers see innovative technologies as the answer to the challenge of job creation, our analysis indicates that governments are likely to be disappointed in such hopes.”

    5) An Oxford Martin School study published in 2014 showed that less than 0.5% of US jobs had been created by new technology industries in the 21st century, ushering in an era of wealth rather than job creation.

    6) Google has bought about 200 young companies since 2001 while in Ireland the sale of tech firms created 300 millionaires in 15 years but not one scaleup — it’s a problem for Irish public policy makers that is currently ignored.

    7) According to the Inscope research institute at Erasmus University, Rotterdam, only 25% of Innovation success depends on the investments in ICT and related technologies. But 75% comes from other factors such as management innovation, leadership style, methods of organizing, investment in human capital and co-creation with partners.

    8) High-tech firms accounted for 4.1% of US private firms in 2011 and most global tech startup exits have no venture capital. Meanwhile, in the UK less than 4% of startups have 10 or more employees 10 years after their creation.

    9) Prof Dan Breznitz, an Israeli native who is the co-director of the Innovation Policy Lab at the Munk School of Global Affairs in the University of Toronto, spent time in Ireland when a graduate student and later advised Enterprise Ireland. He said in 2007 that Irish research was too narrowly focussed on biotech and the ICT, or information and communications technology industries.

    He told the Irish Times in 2014: “Ireland has done a really rotten job of figuring out jobs for people who don’t have Master’s degrees.”

    He also said Ireland has done very poorly in creating innovative and successful indigenous companies, especially in the technology sector, as opposed to being very successful at attracting in multinationals.

    10) High-growth firms transient; not typically in high-tech sector:

    http://www.finfacts.ie/Irish_finance_news/articleDetail.php?High-growth-firms-transient-not-typically-in-high-tech-sector-743

  18. @Sarah

    Couple of points on part your analysis, bits of which pasted below:

    “I tuned out for a while but as NAMA winds down and it’s clear they’ve been selling off massive tracts of properties to these Vulture Funds for sums far below what actual families would pay for the individual houses,* thus not only crystallising a steep loss to the taxpayer (based on the loss to the BANK, and not the discounted amount NAMA paid for the loans, which it seems to be me is rarely quoted) but adding to the housing crisis by keeping those families in rented accommodation…..

    …….Perhaps if there were more optimistic voices at the time, then the case for 2 might have won, and right now families would be moving into those homes, rather than pension funds taking them over, kicking out the existing tenants, reducing the supply available for sale, and generally pissing off everyone because it turns out evil hedge funds are going to be the biggest beneficiaries of the recovery. ”

    A combination of Nama and the banks (via the stuff they didn’t sell on to Nama – and eventually, reluctantly took possession of actual real estate) have sold assests on a packaged way. Their aim, or excuse, depending on your prejudice, was to mix decent stuff with the crap in sales otherwise they would just be left with all the crap. At times this was done clumsily and properties that Irish owner-occupiers were bidding on, and Irish BTLers were bidding on, were withdrawn from the market to be auctioned and/or packaged. Very irritating for the locals, and some were found to have achieved modest prices subsequently.

    However, these properties did not disappear from the country and they did not therefore add to the housing crisis. They, generally have been made available to the rental market – thus assisting the rental housing market.

    What they have done though is to compete against local Irish purchasers (both owner-occupiers and investors intending to rent out properties) on a non-level playing field. The vulture funds have been facilitated in avoiding Irish taxes on rent or capital gains on their investment – the smaller, local market participants have not been able to structure their investments in the way necessary to achieve tax-free status.

    I would advise a (effectively) tax-free investor that it makes sense to outbid those who are taxed in acquiring assets. Any sensible target % return is harder for the taxed purchaser to achieve, therefore they have to bid less. This is basic stuff, and every investment professional interacting with the Irish property market over the last few years knows it.

    In this way, the Irish tax payer has subsidised the vulture funds. The market effect is that the vulture funds have been more willing to outbid local, smaller players. So some of that subsidy has been recouped via higher prices paid on Nama etc assets, therefore reducing taxpayers’ losses.

    If you recall, it was European official sector influences, and the FG led government (via using national debt dynamics to define its success or failure) which propelled the relentless clear-out of the Nama assets.

    Back in 2010, 2011 or so there was an absolute determination in Irish official circles that nothing at all should be sold by banks (or their equivalent). This was to prevent price discovery at lower levels. “No fire sales – not even one!”. There were though, back then, ready buyers (not tax-break dependent) waiting to pick things up. There could have been a much quicker turnaround in market sentiment if some fire-sales had happened. Some low prices would have been booked, but it would have woken up the bargain hunters and that process where a market realised a falling market has reached and left behind its low point – and is therefore now a risky, but ‘bull’ market that is being missed out on – would have happened much earlier. Greed would have kicked in quickly after a few wildly low prints. The manipulated, long slow relentless drift lower in prices – and the dragging out and extension of the negative sentiment, might not actually have been as helpful as some people like to think.

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