Researching Ireland and the MNEs

The recent announcement that HP Inc is to shed almost 500 jobs as it closes its global print usiness in Kildare is a stark reminder of the role that Foreign Direct Investment (FDI) plays in Ireland.

In collaboration with FEPS (Federation of European Progressive Studies) TASC has begun working on a project examining the topic of Ireland and the Multi-National Enterprises (MNES) from a range of perspectives.

There is hardly a point in time since the late 1950s when research on this topic would not have been timely.

It is particularly so now in the context of the controversy over the Apple tax case, the questioning of the Section 110 clause (some would call it a “loophole”) in Ireland’s fiscal regime, the pressure from the EU and the OECD to reduce the “race to the bottom” in corporate tax, and the apparent threat to US MNEs in Ireland and elsewhere arising from Trumpism.

The corporate tax regime
One focus of the project is on the evolution of Ireland’s corporate tax regime. To what extent is this a part of a system for encouraging Foreign Direct Investment? What other elements are there to this system? Paul Sweeney has been a key contributor to the trade union movement’s thinking on taxation; he has undertaken to lead the research on the evolution of the corporate tax system.

The Apple case very clearly reflects many of the issues in the Irish state’s incentives to, and relationship with, subsidiaries of MNEs. This case therefore inevitably falls within the scope of the project. Jim Stewart has been a leading contributor to our understanding of Ireland’s FDI incentive system and of how MNEs have responded to this. He will lead this part of the project.

The fiscal centre of the FDI incentive system suggests that tax is at the heart of Ireland’s industrial policy. In contrast to its denigration by the “Washington consensus”, there has been a revival of interest in “real” industrial policy in recent years, from past and probable future Nobel Prize winners in economics.

With reference to this literature the project will examine whether overly tax-based industrial policies are less likely to succeed than those that are better at integrating a variety of institutional contributions to industrial progress and, more broadly, enterprise development in general.

The role of indigenous enterprise

The need for industrial policy to be integrated, to reflect “joined-up-thinking”, must be elevated in importance so that it is actually implemented. Among the results are likely to be an acceptance of the increasing need to focus on indigenous enterprise development. Even within a framework acknowledging the huge contribution to the Irish economy of MNEs, it is still appropriate to posit counter factual questions: if some of the expenditure, attention, and institutional focus on MNEs had instead gone to the development of indigenous enterprise, would Irish economy and society be better off today? Accepting that there are no certain answers to this type of question, David Jacobson – who led TASC’s Industrial Policy Commission – will nevertheless, in his work for the project, attempt to address these counter factuals.

Employment and its problems

Current policy has ensured that for decades MNEs have contributed substantial employment in Ireland. Since the 1980s James Wickham has been publishing on FDI and employment in Ireland. He will lead the section of the project that examines the quantity and quality of FDI employment and examine claims that US companies have created a non-union sector in Ireland and that their political influence has vetoed any strengthening of the rights of Irish workers to trade union representation.

The European context

Among other issues covered by the project will be a review of the approaches in other EU countries to the encouraging FDI. Is there, for example, increasing competition to attract subsidiaries of MNEs? Have other countries been affected by EU Competition Commissioner Vestager’s use of state aid rules to pursue Apple over its tax payments? Are the OECD’s proposals on BEPS (Base Erosion Profit Switching) and the EU’s on a CCCTB (Common Consolidated Corporate Tax Base) having any effect on corporate tax policies in member countries?
The project will advance through the writing and presenting of a series of papers, first in closed sessions but ultimately for public consumption. The hope is both to improve understanding of, and to lead to changes in both corporate taxation and industrial policy.

Posted in: Economics

Tagged with: apple • BEPS • corporationtax • MNEs

Professor David Jacobson     @davidjacobson48

David Jacobson is Emeritus Professor of Economics at Dublin City University Business School. He is the Chair of Commission on Industrial Policy in TASC since 2011. He has written and lectured on various aspects of industrial policy and political economy in Ireland. In the 1990s he was an independent member of the National Economic and Social Council. He has also worked in many other countries, most recently Cyprus and China.