Fair dues to the Taoiseach – escaping the White House badger pit without getting mauled. This still leaves the outstanding question: is our over-reliance on US multi-national investment in the long-term interests of the Irish economy?
The first rule of investment is to spread your risk. If you put your proverbial eggs in one basket, and that basket goes up in flames (or develops egg-sized holes) – well, it can ruin your day.
We have a lot of eggs in the American basket. For a long time, many of us benefitted from this – well-paying jobs, exports, tax revenue. Now there is considerable concern over the future of that basket. That leads us to the second rule: things go well until they don’t. Hence, the need to abide by the first rule.
Much attention has been paid to our trade deficit with the US. Here is another measurement to consider: our dependency on US multi-national investment. This comes from Eurostat’s data on what is called ‘investment in tangible assets’. This is primarily made up of buildings, machinery and equipment, land, etc. – things that are ‘tangible’. It’s not the whole Foreign Direct Investment (FDI) story but, as we saw in a previous post, the CSO suggested that 76 percent of total FDI had no impact on the real economy.
In 2022:
- Total multi-national investment in Ireland made up 8 percent of national income (GNI*)
- Total multi-national investment in other EU small open economies made up 2.4 percent of GDP
We are often told that small open economies are necessarily reliant on foreign investment. Yes, but there’s a small reliance and a big reliance. Ireland is the latter. The key point is that being a small open economy does not necessarily require a high level of multi-national investment to prosper.
Looking at where foreign investment comes from, we find that Ireland is massively over-reliant on US multinationals.
Nearly 80 percent of all multi-national investment in the Irish economy comes from the US, with only 7 percent coming from other EU countries. It’s completely different for other European small open economies: investment from the US makes up only 16 percent while nearly 60 percent of multi-national investment comes from other EU countries.
We constantly refer to our FDI model as if it was unique. Clearly, our extra-ordinary reliance on the US is. But what does our model look like when we exclude US investment?
When we exclude US multi-national investment, we see that Ireland’s FDI model is not unique. In fact, it’s not all that substantial. Non-US multi-national investment in Ireland represents 1.7 percent of GNI*, less than the average of our peer group.
This reinforces the notion that Ireland’s FDI model is an American dependency model.
There is one more perspective. The following examines total investment in the economy (i.e. Eurostat’s tangible assets) – both foreign and domestic.
When we look at total investment – combining foreign and domestic – we see that we are still over-reliant on US capital. However, investment from domestic companies is poor, making up only a third of total investment. Among our peer group, domestic investment makes up nearly three-quarters.
This is not a healthy balance: a high level of dependency on one country – the US – combined with a poor level of domestic investment. These structural flaws have been present for a long time. So what do we need to do?
- First, Irish policy needs to spread the sources of foreign investment so that we are not reliant on one country.
There are some who may be hoping that, if we can weather this Trump-storm for four years, normalcy will return. There is absolutely no guarantee of this. And even if saner heads prevail in elections four year hence, there is no guarantee that things will return to pre-Trump policies.
- Second, we have to find ways to get our domestic capitalist class to start investing.
This is far easier said than done. Sean Lemass spent decades trying to get our native class to invest, expand, grow and export – and only met with limited success.
None of this can be done in the short-term. It took a long-time to end our over-reliance on the UK market and our struggle with domestic investment is a constant.
But this is where the debate should start. Over the long-term we need to break from our American dependency model or be prepared to be broken. In truth, we may have no choice. Sparks are already coming from the basket.
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