This is Ireland, or more specifically the Republic of Ireland which is a sovereign nation
that is home to 5 million people who are all quickly becoming some of the wealthiest citizens
in the world.
Ireland now has a GDP per capita of over $90,000 meaning they are well ahead of traditionally
wealthy nationals or regions like Switzerland, Hong kong and Norway and only placing behind
statistical outliers like Luxembourg, Singapore and Qatar.
What’s more is that Ireland is on track to be the fastest-growing economy in 2020
a year that has seen most nations fall behind.
It has achieved this despite historically being very dependent on trade and tourism
which has of course been a lot more difficult in a world of closed borders.
So it looks like there should be a lot to learn from this country that could potentially
be adapted to our own economies so that we too may share in the luck of the Irish right?
Well, that’s what the figures might have you believe but it may not be the whole story.
Frequent viewers of the channel will know that GDP figures alone can leave out some
very important details about the true prosperity of a nation and the people living within it.
So to see if Ireland is more than a miracle of paperwork we need to look at a few key
areas.
How has Ireland become so wealthy despite it’s history of being poor and oppressed?
Is this wealth going to benefit the citizens of the nation?
And is this Irish strategy something that all nations could adopt?
Oh and while we are here it should go without saying that we are going to put Ireland on
the Economics Explained national leaderboard.
Intro add
Now Ireland is a member of the European union, and unlike their estranged mother, they have
remained so. This has in many ways been a relationship that the nation has been able
to leverage to truly make the country what it is today.
We will get to those benefits later, but there are also some major drawbacks. For starters,
they are using the Euro which brings with it a collection of disadvantages.
We have covered these disadvantages in our video’s, on brexit, greece, germany and
italy so I don’t want to repeat too much here, but in short not having control over
your own currency means you don’t get to set your own interest rates and you are also
indirectly responsible for other… less prosperous members of the union.
This lack of autonomy means that countries that want to adopt new economic policies or
implement new schemes for growth can be limited in doing so.
This is part of the reason that most european nations have seen very little GDP growth in
the past decade. The nations that are doing well like Germany are being held back by places
that are doing poorly. And the nations that are doing poorly are being trodden on by the
places that are doing well.
Despite this unfortunate back and forth Ireland has managed to almost double in size size
in the same decade that most member states went nowhere.
And alot of this has to do with
Raising all kinds of money
You may have heard the term, double irish with a dutch sandwich. An amusing term used
to describe an intricate tax loophole where international corporations will exploit intellectual
property and corporate expense laws in Ireland and the Netherlands.
Again we have done a video on this little scheme before and we found that major institutions
like apple were using it to horde massive piles of cash without having to pay any tax
on it.
All of those trillions of dollars have been parked in where else but ireland.
Now you might think that trillions of dollars of foreign investment sound great and kind
of answers the question of how Ireland got so rich. But not so fast there are two problems
with this particular arrangement.
The first is that it doesn’t exist anymore.
The loophole that made this whole system possible was closed by an irish law in 2015 which meant
no new corporate structures could be set up, and the ones that did still exist had until
2020 to find other arrangments.
Since it is now 2020 there is no more double irish. However, that doesn’t mean the money
is gone. In the two decades that this system was abused by major corporations, the companies
involved piled up trillions of dollars in Ireland, which leads to the second problem.
Just because the money is sitting there in irish accounts does not mean it is going to
benefit Ireland.
The whole reason these companies chose to do business in ireland in the first place
is that they didn’t need to pay tax. If the country turned around and started taxing
this income to put towards well you know public services then these companies would just go
and find themselves an alternative in a more accommodating country.
And of course, to provide these services there are a few thousand very well-paid accountants
and lawyers working in Ireland which is a boost to the local economy, but it’s not
exactly putting money directly in the pockets of regular joe.
But Ireland had a plan. You see it knew that as soon as these companies tried to take this
money back to the united states to use for reinvestment, or dividends or stock buybacks
they would need to count it as income and pay tax on it.
So it was a great way to save money tax-free but it kind of put a lock on that money to
use for anything useful.
So Ireland let them use it in Ireland without to much of a penalty.
Without the money leaving the country the companies involved have been able to invest
into research and development which can benefit their operations worldwide.
This is a win-win, Ireland gets jobs and investments into their local economy and the companies
involved get something to do with their money in a very business-friendly environment.
In fact, this friendly arrangement actually goes well beyond this single tax loophole.
Today Ireland is one of the largest technology centers in the world with operations from
silicon chip manufacturing to medical research centers spread across a population of less
than 5 million.
The reason’s they set up operations here of all places, rather than silicone valley,
or Seattle, or Shenzhen extend beyond tax and can be more well classified as Ireland
just being a really good middle man.
This is Shannon’s international airport.
It’s not a particularly remarkable airport in its own right but what is just outside
of the gates really is.
The Shannon free trade zone was established in 1959 as a way to encourage businesses to
set up operations in the country.
You see prior to this Ireland really struggled to attract international investment because
the whole place was viewed as very unstable, on account of it’s fight for independence
and a selection of headlines that didn’t make global executives particularly excited
to go there on a business trip.
This free trade zone though, well that was something to get excited about.
What it did was mark out a 600 acre plot of land around the airport to be established
as a business park where local import, export or business taxes did not need to be paid
until good’s left the area.
What this meant is that companies could set up manufacturing centers in this little area
fly in parts and then fly out finished products without the lofty tariffs that were commonplace
in the world at the time.
Now you might be thinking oh great another tax loophole, but it wasn’t exactly. The
companies involved still had to pay tax in whatever country they ended up selling their
products in, they just avoided taxes during the actual assembly phase. In a sense, it
kind of just made the area the world’s first and largest airport duty-free zone.
This little arrangement mixed with the nation’s very strong policies on intellectual property
rights attracted companies like intel, Lufthansa, DeBeers, and GE Capital Aviation Services.
In fact, sony’s first international manufacturing operation was in Shannon Ireland of all places.
Now in fairness, almost any country in the world at the time could have pulled a similar
trick but it probably would not have been quite as popular because Ireland did have
other things going for it as well.
It had a great central location between Europe and the united states the two largest industrial
centers in the world at the time. It also offered a sneaky back door into the European
economic community (the predecessor to the European union) for American companies that
would have otherwise had to pay significant markups on imports into this little European
club.
What’s more is that it was home to an English-speaking population that was well educated.
Being able to manufacture silicone chips tax-free was all well and good, but it’s not a job
that can be done by just anyone so this workforce went a long way.
This whole system served to boost the local economy, bring business into an otherwise
unremarkable airport and create highly skilled high paying jobs in the Irish economy that
were all being paid for by companies abroad.
Of course, it must be recognized that this system was not perfect.
For starters this whole system revolved around an airport, people who have watched our video
on the merchant navy will know that most international trade is done using ships rather than aircraft
given how much cheaper they are to operate at scale.
This has meant that the country could only really attract companies that manufactured
very small high-value products, like aircraft parts, computer components and diamonds.
This was somewhat limiting, but with Ireland’s modest population it could probably be called
more of a feature rather than a bug, even if they did have access to mass shipping,
low-cost manufacturing was never going to be their thing.
The other problem with this system is that it is somewhat obsolete these days.
Before trade deals and in a time with widespread import and export tariffs, this free trade
zone was an amazing tool that companies could use. Today it is somewhat unnecessary.
In fact, the Shannon free trade zone lost nearly all of it’s special privileges in
2003 but despite being little more today than just another industrial center outside an
airport it is still home to over 100 international firms that directly employ over 10,000 workers,
and tens of thousands throughout the rest of the country.
At a foundational level, this is what has given the nation such great metrics. Companies
have decided to just
Stick with Ireland
We recently explored the economy of California and a lot of what we found about that state’s
industry is very similar to what is going on here in Ireland.
Today Ireland doesn’t have anything particularly appealing going for it.
Global tax loopholes have been closed, free trade zones have been made irrelevant and
sure its domestic tax rates are low but there are cheaper alternatives.
The thing that has made Ireland so successful is that there are no other more compelling
options that would make it worth moving the significant infrastructure now set up in the
country out of it.
Very similar in many ways to how Hollywood is the go-to place to make movies because
it is home to all of the companies and people that make movies. Ireland is the go-to hub
of financial services and technical development because it is home to all of the companies
and people that do this stuff.
Perhaps the best example of this is GECAS, or General Electric Capital Services.
We mentioned this earlier but I would imagine most of you have never heard of this company
or know what it does. But it is basically a rental service for airplanes.
General Electric will buy up planes primarily from Airbus and Boeing and then rent those
planes out to airlines all across the world that don’t want to have to pay hundreds
of millions of dollars upfront for an airplane.
A quick side note is that this is a great marketing tool for GE because they won’t
buy planes for this fleet that are not fitted with GE jet engines, so if boeing and airbus
want to attract the world’s biggest consumer of aircraft, they better think twice before
sticking Rolls Royce engines on them.
To give you an idea of how large this company is, it owns more planes than united, delta,
American airlines, and emarits combined.
Back during the free trade zone, Shannons airport was the only logical headquarters
of this global operation because it was buying up planes from both airbus in europe, and
boeing in America and then shipping them out to airlines all over the world.
Today it could do this from anywhere, but it is already established in Ireland so it
may as well stick around.
So the big question is this then, do all of these multinational operations actually benefit
the people of Ireland?
And the answer is well yeah, sorta. Of course for the people directly involved in these
businesses it is great, they will earn lots of money and do very well for themselves.
But for everybody else, it is causing a lot of the same problems that we see in places
like san Fransisco.
Extremely high rents and costs of living are being driven by this influx of foreign investment
and it is leaving average workers in more traditional roles behind.
This is a serious problem that the country will have to address or it will face similar
social issues to other industry centres around the world.. A two speed economy.
Ranking
Now to put Ireland on the economics explained national leaderboard, this will be a fun one
because of just how unique Ireland’s history has been.
Starting off with size the nation has a GDP of 398 billion dollars as of 2019, and this
figure s actually likely to increase in 2020. This gives the nation a 7 out of 10 because
it must be remembered that it is still a relatively small country, with a modest population.
That small population though makes its GDP per capita figure extremely strong. With each
resident sharing in $80,000 worth of that output it is only beaten out by the statistical
outliers we saw earlier. It gets an easy 10/10. Stability and confidence is quite strong,
despite it’s short and tenuous history the nation has established itself as a reliable
center of international business. All of the tax breaks in the world would mean nothing
if the companies could not be sure that the government wouldnt turn around and nationalize
their enormous piles of money so it gets an 8/10. It’s not quiet a Switzerland just
yet but it is certainly getting there.
Growth, well there is not much to say here in the past decade the nation has double it’s
economic output, atleast by GDP figures. This is on top of a long-running trend that has
seen Ireland grow from impoverishment to the advanced centre of business that it is today.
It gets a 10/10. What’s more is that it is likely to be one of the few countries in
the world that will report economic growth in 2020 even if it will be slightly more modest
than in recent years.
Finally Industry. Again this is interesting the country has obviously attracted all manner
of business from around the world, and established a good share of their own. It isn’t necessarily
going to benefit everybody but a rising tide does lift all boats and even working-class
residents are enjoying a better quality of life today thanks to these companies. Although
I do expect to be shouted at in the comments for saying that, so you know, like and subscribe
to make me feel better. Either way the nation gets an 8/10.
Altogether this gives Ireland an average score of 8.6 out of 10 only just falling behind
hong kong which isn’t technically a sovereign nation, so this score is unbelievably impressive.
It goes to show that being in the right place at the right time with the ability to provide
the right services is a trait that will pay dividends for a very long time,
Outro add
and being in the right place with the right people is made a lot easier…
With trends...