Ireland cannot compete in a state-aid free-for-all

In 1990, when Intel was considering whether to locate a new factory in Ireland to make computer chips, the low corporate tax rate was obviously attractive but the company faced a number of potentially serious constraints. Would the electricity system be sufficiently reliable to guarantee continuous production? Would there be enough skilled staff, in particular engineers, to operate the huge new plant?

Once it decided to set up in Ireland, Intel located the new plant at Leixlip, because it was the strongest point on the electricity grid. As it turned out, Intel has experienced uninterrupted electricity supply over 30 years, while some of its plants in other countries have had occasional significant supply disruptions.

Intel needed more skilled engineers to operate its new facility than were working in all other firms in Ireland. IDA Ireland surveyed Irish emigrants and found that there were enough engineers living abroad who would return to Ireland to work for Intel. That satisfied the company and, in due course, when the Leixlip plant opened, the promised workforce returned home to take up the jobs.

The Intel campus has proved to be the single largest investment by a foreign multinational in Ireland. The original 1990 plant has been upgraded a number of times, with the latest upgrade coming into production this year. The total investment by Intel since it started in Ireland in 1990 has been about €30 billion, with the most recent expansion accounting for about €17 billion of that. It’s estimated that Intel alone accounts for about a fifth of all physical investment in Ireland in recent years.

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The value of Intel’s activity on the ground in Leixlip has been even more important than the corporate tax take

The benefits to Ireland have been very substantial. As with other multinationals, corporation tax has been important. However, unlike some of the other big corporation taxpayers, the value of Intel’s activity on the ground in Leixlip has been even more important than the corporate tax take. The wage bill, with almost 5,000 highly skilled employees, is clearly of great significance. In addition, the continuing massive upgrades to the plant have employed a huge number of additional workers in construction and fit-out.

The indirect benefits for Ireland of Intel’s operations here have also been also very substantial. Today there are more former Intel employees than there are people currently employed at the Leixlip plant. Many of them have gone on to apply the skills that they acquired working for Intel in other businesses, spreading expertise across the economy.

The initial investment by Intel, and the successive massive upgrades, have been largely funded by the company itself. European Union rules on state aid precluded the kind of industrial grants that were normal in the 1980s. When the IDA sought to attract Intel to Ireland in 1990, it was not facing competition from subsidies offered by other EU countries.

Strategic assets

However, things are changing globally, with certain industries, including computer chips, seen as important strategic assets. As a result governments are increasingly offering large subsidies for plants to locate so their countries are not dependent on global competitors for critical supplies.

Increasingly, production of chips has been located in South Korea and Taiwan, with Intel being the most important US/European supplier. For security reasons, with the growing global importance of China, the US wants to ensure that computer chips are produced at home. To this end, the US now offers massive government support for such investment.

[ EU looks to prop up industry to compete with United States ]

[ John FitzGerald: EU aid must not dig up competitive playing pitches ]

To counter this competition, the EU has recently relaxed the rules on state aid, allowing countries to offer packages to compete with the US – bad news for Ireland. It’s understood that France and Germany account for at least 80 per cent of such state aids.

Intel is currently building a major new plant in Germany costing about €30 billion, almost twice the cost of the new Leixlip plant. To ensure it is located in Germany, the Berlin government is offering a subsidy of €10 billion. There is no way that Ireland could compete with such largesse.

When a new-generation plant is needed at Leixlip around 2030, if the EU continues to permit state aids, Ireland won’t be able to compete with the subsidies larger countries could offer.

If the EU wants to subsidise key industries, any such subsidy should come from the EU, not national governments, and be independent of where a plant is located within the EU. This would ensure that the location decisions of major firms are not biased by national ability to pay. The current national free-for-all on state aid must be ended to ensure a level playing field between different countries in the single market.