The announcement that the Seagate plant at Limavady, Co Derry, is to close next year with the loss of more than 900 jobs is a harsh blow to the town and its hinterland. For high-technology manufacturing jobs are hard to come by in the northwest - on either side of the Border.
Seagate's decision to switch the manufacture of disk drive components from Limavady to Johor, Malaysia, was prompted by the high costs of production in Northern Ireland relative to cost structures in alternative investment locations. More generally, the decision demonstrates the relentless pace of globalisation. Progressive trade liberalisation, together with the entry of many newly-industrialising countries into the global economy, has increased the scale and intensity of competition for a scarce supply of mobile international investment.
Multinational companies owe allegiance to no flag; they are hostage to no nation. Their investment decisions are grounded on achieving the highest and most secure return on capital available. These are the rules of the global economic game and Ireland is not in a position to dissent from them. For it has played the global game adroitly to its own advantage. By fashioning a highly attractive package of low corporation taxes, industrial grants and free repatriation of profits, Ireland succeeded in seducing many foreign investors. Without the sustained inflow of foreign direct investment into Ireland from the late 1980s, there would have been no Irish boom. Ireland became the textbook illustration of how small developing economies should ride the global wave. However, innovation in the policy sphere is required if Ireland is to hold its place in the global economic race.
In the case of Northern Ireland, Seagate's decision to close its Limavady manufacturing facility carries two important messages. In the first place, high-technology industries are not immune from closure or relocation. It is the calibre of the skills applied in the manufacturing process, not the type of output produced, that provides the best defence against closure or relocation. In response to the closure, Northern Ireland First Minister Dr Ian Paisley was right to emphasise the need to raise workforce skills. No part of Ireland can compete internationally on the basis of low labour costs.
In the second place, the Seagate closure buttresses the case for a 12.5 per cent rate of corporation tax on the island of Ireland. While not underestimating the political difficulties posed for the British government, the fact remains that Northern Ireland lost 35 years of potential economic development. It needs to extend the range of industrial incentives it can offer to foreign investors if it is to regain the ground it gave up during that period.
For the Republic, the Seagate closure emphasises once again the importance of preserving the existing 12.5 per cent rate of corporation tax. The Government should continue to oppose any efforts by the EU to encroach on Ireland's fiscal sovereignty or to edge towards a harmonisation of EU corporation taxes.