In the few weeks since my last blog post on Trump’s tariffs, they came in and then were (partially) ‘paused’. You’d be forgiven for thinking the world’s financial markets are suffering from an economic whiplash from it all: some damage done, but not enough to be catastrophic without more trauma.
It got me thinking quite a bit about the nature of the Irish economy and its specific exposures to major international economic upheaval. We have weaknesses in our economic model and private sector. Indeed, every country does to some degree, but ours are more unique than others, which require a different kind of policy response to the tumult.
The American President exposed the world – and more specifically the Irish – economic model to a churlish chaos. We had pronouncements that we frankly needed years if not decades ago from the Taoiseach, Tánaiste, Minister for Finance, and Minister for Enterprise about ‘investing in research’ and ‘indigenous businesses’ and ‘opening up new markets,’ as if the weaknesses in the model of their own creation were only recently discovered. I’m not sure the Irish political system has ever been particularly self-reflective.
My Journey in Understanding the Irish Economy
I understand the surprise discovery, because I experienced it once myself: To say I was an unlikely business person is probably an understatement – I come from a family of teachers and academics. While decently academically talented, I am also somewhat impatient and I like practicality, so I was more drawn to first engineering and then business. After a chemical engineering degree, fairly uncertain of what to do next and wholly enraptured in the economic debates of that era, I thought going to London Business School might be a good next step. I was lucky enough to study macroeconomics under Professor Hélène Rey, an advisor to the French Socialist President of France, Francoise Hollande, and attend lectures from Nobel Laureates Paul Krugman and Joseph Stiglitz. I spent more of my time reading about macroeconomics than I did studying for it, and so one of the great love-affairs of my life began, if one could ever say something like that about the “dismal science”.
Because I was essentially 23 before I ever had any formal business education, and it occurred in a place like London rather than Ireland, I have a different perspective on the Irish economy. The way I was taught – and this is critical to understanding Ireland – is that ‘business’ is pretty simple: you get investment money (capital), you spend it on building the business, and you generate financial returns for yourself and your investors or creditors. That’s the whole gig in a nutshell – it can happen at a really small or early stage, and it can happen in big corporations. I spent the best part of my 20s working with people who did that and thought like that in a variety of contexts, and got a decent understanding of how those people operated.
So when I returned to Ireland, it was a bit shocking and confusing to find very few people in business who had actually done or were doing that. The economy was substantially unique and different from the theoretical models of London Business School or the practical ones I worked on in London and New York. The Irish economy, and it’s worth emphasising this, is dominated by multinational corporations where investment decisions are made outside of the country far more often than inside of them. That’s internationally unusual, even exceptional, and not in a good way. It effectively means that unlike in other countries, where the owner or primary shareholders of the businesses sees and feels the consequences of their decisions on their local economy, in Ireland the decision-makers for the biggest economic contributors are completely removed from the effects of their decisions.
A Draft Structure of the Irish Economy
That, of course, raises the question of how one would characterise the Irish economy. After a very long period of studying this, I’ll try and break it down.
You can think about any economy as a mix of public sector activity and private sector activity, the proportions and definitions of which have fluctuated wildly in the history of most societies. I think most people inherently understand the public sector – it consists of the majority of our schools, our hospitals, and our local and national government services. But our private sector is less well-understood.
A way of breaking the Irish private sector into a rough categorisation is the following:
- Freelancers (e.g. accountants, architects, etc.)
- Local businesses (e.g. the village cafe, the local hairdressers, even a solicitor’s office)
- Small exporting businesses (e.g. Gym+Coffee, startups like Tines)
- Larger exporting businesses (e.g. Kerrygroup, CRH)
- Foreign multinationals (e.g. Pfizer, Google, Intel)
One of the additional lenses to put on this, which I won’t go into too much here, is to separate those that are ‘domestically-reliant’ vs. ‘international markets-reliant’. For example, a large construction firm in Ireland is entirely dependent on the local property market, as are a strong majority of our country’s legal professionals. Whereas the success of a technology startup that sells software primarily to the US market is largely independent of what’s happening in the Irish economy. I’ve been stunned by how high a proportion of business success or even financial stability in Ireland is based on property – my experience of the business elite of the US, for example, is that they almost never had property holdings outside of a primary residence.
Extremely importantly, some of these categories are reliant on others – the strong majority of the customers of a local coffee shop are people who are paid by multinationals, for example. Largely, the multinationals have been economically good for Ireland, but they are distortive because generally they pay such high salaries in comparison to the other categories. Large-scale layoffs would have a disproportionate effect on businesses and individuals far outside the immediate vicinity of the employee base, and that’s before you mention the fiscal impact to corporate and income tax receipts.
How To Think About Public Policy Responses
In terms of public policy responses, each of these categories require vastly different treatment, yet our public discussions almost exclusively focus on categories 2 and 5. Most other developed economies discuss how better to support 3 and 4, understanding those categories as the engines of prosperity and self-reliance beyond simple primary industry in things like natural resources or agriculture – think of Skoda in Czechia, for example, and how insane it would sound to start an Irish-made car company. The most extreme version of this is a centrally controlled economy in China, where category 5 has been severely restricted – instead of Twitter, they have eschewed it for building Weibo; instead of importing eBay, they cultivated Alibaba. This has led to a level of growth combined with economic independence Ireland simply doesn’t have. The Celtic Tiger economy bled more white and blue than its Eastern counterpart.
And so our economic response to major external economic shocks is and must be different from China or Canada or even France. When foreign multinationals dominate our economy, our indigenous investment capital is disproportionately in property, and we have very few large indigenous companies, we have limited options. We can’t rely on just ourselves, at least not in the short-term, without major economic pain.
But as the saying goes, the best time to plant a tree was yesterday; the next best time is today. And in Ireland’s case, it’s so far past time that we need to start planning forests. Looking at how other countries have successfully done this, we need to go back to what I learned in business school: capital, business models, and returns. We need to think about how a small open knowledge economy like Ireland places ‘bets’ on the future (without relying on multinationals to craft it), and we need to learn from places like Silicon Valley, Asia, and even post-war Europe to understand the lessons they applied in cultivating competitive global advantage in industrial strategy and research. There’s a lot to unpack there, so in my next post, I’ll talk a little more about what that could mean, and why it’s a core part of how we need to think about reacting to the international trade war uncertainty currently roiling our world.