"Goblin economy". Leprechaun economics. This is how economist and Nobel laureate Paul Krugman baptized in 2015 the data produced by Ireland, in reference to the pixie with a red beard and green clothing fruit of the mythology of the island. That year, the country's GDP growth was 26%. The largest recorded in Europe since the end of World War II. It was soon discovered that during that period Apple had allocated a large part of its accumulated intellectual property rights assets to an Irish tax domicile.
Ireland has been an economic miracle in recent decades – with notable ups and downs, such as the bailout it received in the early 2010s, victim of the same debt crisis that staggered the Greek economy – but its public accounts are always accompanied by some confusion, and distort reality, not only of the country itself. but that of the economic environment in which it operates. The eurozone slipped into recession in the first quarter of 2023, largely because Ireland sharply corrected its growth figures.
Last Friday, the Central Statistics Office (CSO) announced that the gross domestic product (GDP) of the Republic of Ireland contracted by 4.6% in the first quarter of 2023, a much larger decline than the 2.7% initially forecast. Added to the revision made on the growth data of the previous quarter – it fell by 0.1% compared to the 0.3% rise that had been previously estimated – the figure indicated that the country had technically entered into recession. Two consecutive quarters with negative growth.
"The figures revealed by the CSO continue to show growth in the domestic economy, despite all the challenges of the global economy. It was mainly the volatility in the production of multinationals that caused this 4.6% decline," explains Hazel Ahern-Flynn, economist at IBEC, the main Irish business association. "Changes in the production of a small number of multinational firms in a particular quarter can produce an oversized impact on GDP figures, although the total annual impact, we calculate, is ultimately 0.2%," adds the analyst.
The dimension of multinationals
In a country of just five million inhabitants (seven million on the whole island if it is incorporated into Northern Ireland) more than 1,500 multinationals are concentrated, which include the main technological giants and the main pharmaceutical laboratories. In fact, it is the latter who are responsible, for reasons so far diffuse, for the setback suffered in the country during the first quarter. Part of the cause of the contraction suffered by this sector may derive precisely from the boom it experienced during the pandemic. Together with digital services companies (favoured by lockdown and teleworking), it proved to be a resilient sector that retained its workforce, and contributed, through the payment of Corporation Tax, to sustain the Irish economy.
But everything that oversizes profits also affects losses. "Given the oversized role that the multinational sector plays in our economy, GDP is not the most appropriate measure to gauge the level of quality of life of residents in the country," defended Michael McGrath, the Irish finance minister, upon knowing the latest data.
It is true that the last unemployment figure recorded in Ireland, in May, was 3.8%. Anything below 4% equals full employment. It is a fact very similar to that experienced between 2000 and 2001, when the economic explosion of the island made it known in the rest of the world as the "Celtic tiger". More than twenty years later, the reasons for the success are no longer solely due to the fiscal dumping that Ireland was allowed to implement. "A lot of people are still convinced that all this growth is stemming from intellectual property [technology] generating profits around the world," the governor of the Central Bank of Ireland, Gabriel Makhlouf, recently complained to the Financial Times. "It's not true. Everything that is produced, especially in the pharmaceutical sector, is produced in the country. They are people who live in Ireland. A huge proportion of the world's top ten medicines are made in Ireland," Makhlouf said.
Multinationals employ 10% of the Irish population, along with thousands of expatriates who have moved there. That is why the housing crisis, with prices that exceed in the capital, Dublin, and in the rest of the country, the already exorbitant prices of London, together with public services in tension, have led, among other things, to the triumph in total number of votes of Sinn Féin, the party that for years was the political arm of the IRA and today represents the political option more to the left.
Modified domestic demand
The CSO itself favours, with the complicity of the Irish Government, the prevalence of the so-called Modified Domestic Demand (MDD). This method measures overall household and government consumption, as well as capital investment, but excludes distorting factors such as the importation of intellectual property or all aircraft that are leased by companies around the world. Ireland is, to the general public's ignorance, the world giant in this sector.
In the same year that the Irish economy grew by 12.2% (2022), the country's MDD grew by 8.2%. That is, there is a reality behind the country's momentum, not just a green pixie. It continues to be the country that concentrates more Direct Investment in Europe, and foreign firms pay about 80% of the corporate tax collected by the country. The economic model has been a success that has survived even after the OECD and G-7 endorsed a global minimum corporate tax of 15%, with the aim of reducing the comparative advantage of some countries. By then, Ireland no longer needed that extra boost.
But more realistic indicators than GDP or MDD, such as the so-called NIG* (Gross National Income), which assumes gross domestic product minus the earnings of non-residents of the country, puts Ireland with its feet closer to the ground, and reduces wealth by up to 40%. It can be stated even more clearly: in 2021, Irish GDP was about €426 billion. Assets such as the intellectual property rights of large multinationals amounted to about 000,233 million within that amount.
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