Celtic Phoenix or Leprechaun Economics? The Politics of an FDI-led Growth Model in Europe

ABSTRACT

In this paper, we argue that Ireland’s post-crisis economic recovery in Europe was driven by foreign direct investment (FDI) from Silicon Valley, and while this growth model was made possible by Ireland’s low-corporate tax rates, it was also a result of these firms using Ireland to directly access the European labour market. We evidence this contention via sectoral and geographic analyses while simultaneously showing that Irish fiscal policies have not redistributed gains from the recovery to the broader population. As a result, the economic recovery has been most actively felt by those in the FDI sectors, including workers from the EU and beyond. Building on theories from the study of comparative capitalism, we suggest that this experience indicates that Ireland’s FDI-led growth model has created clear winners and losers, with significant distributional implications. 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.

KEYWORDS:

• Adjustment
• capitalism
• growth models
• European integration

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Aidan Regan is an Assistant Professor of Politics and International Relations at University College Dublin (UCD), and Director of the Dublin European Institute (DEI). His research is focused on the comparative politics of economic adjustment, varieties of capitalism, European integration, industrial relations and the welfare state. His work has appeared in Perspectives on Politics, Politics and Society, New Political Economy, Journal for Common Market Studies, European Journal of Industrial Relations, Comparative European Politics, Socio-Economic Review, and Intereconomics, among other outlets.

Samuel Brazys is an Associate Professor of Politics and International Relations at University College Dublin. His work focuses on the nexus between international political economy and development and has appeared, or is forthcoming, in Asia and the Pacific Policy Studies, the Cambridge Review of International Affairs, Electoral Studies, the European Journal of Political Research, the European Journal of Development Research, the International Political Science Review, the Journal of Development Studies, and the Review of International Political Economy among other outlets.

ORCID

Samuel Brazys http://orcid.org/0000-0002-4482-4234

Notes

1. http://www.economist.com/news/finance-and-economics/21678830-ireland-shows-there-economic-life-after-death-celtic-phoenix [accessed 15 July 2016].

2. This is perhaps largely inaccurate given that most of the activities of these Internet firms in Dublin are related to sales and advertising, which requires high-skilled multi-lingual business-finance professionals.

3. See Moretti (2012) for a broader analysis associated with this ‘new geography of jobs’.

4. See Table A.1 in Appendix 2 for a more detailed breakdown of the data.

5. Unfortunately, our employment data in manufacturing is not disaggregated by activity. Thus, we are unable to asses if the poor employment performance in manufacturing is due to falling job numbers in the foreign FDI sectors of manufacturing (medical and electronics) or in Irish-domestic manufacturing activity.

6. Either as a primary code ‘J63’ in the NACE codes, or as the sector of a firm establishing its headquarters, which is coded as ‘M70’ in the NACE codes.

7. We thank the editor for bringing our attention to this fact.

8. Source: PER.

9. Given this substantial fall in transport spending, it is perhaps no surprise that the semi-state transport networks have seen significant industrial unrest during and after the crisis.

10. While one might think that, given the trends in employment above, the recovery might be a case of foreign workers “subsidizing” Irish citizens via the payment of their income. However, while foreign workers form a disproportionate share of ICT workers, as the overall number of workers in this sector is quite small, these workers are not subsidizing Irish citizens to any great amount (and this is even discounting the fact that many of these workers would also enjoy and have access to goods provided by the Irish state, including things like the universal child payment).

11. Discussed on RTE’s documentary ‘the Making of Enda’ – aired 31-116’.

12. It is more likely that Ireland will build a coalition with other FDI growth models in Eastern and Central Europe, in addition to more liberal small open economies such as the Netherlands and Luxembourg, who also use aggressive corporate tax avoidance strategies to attract FDI.