Republic a prime example of how to profit from the politics of trade
McCoy says decision to embrace trade since the 1960s has proved a spectacular success
Danny McCoy: “When Ireland joined the EU, he said that we would be able to have a growing population, full employment, and living standards comparable with the EEC Six as it then was. Tick, tick, tick. We’ve achieved all of that and the glue that has held it together is trade.” Photograph: Alan Betson
The Irish business community will gather next month at the Convention Centre in Dublin for the Ibec Leaders Conference which will focus on the timely theme of the politics of trade.
After three decades of globalisation, Brexit and the trade wars and skirmishes between the US and a number of its trading partners have led people to consider the benefits and otherwise of international trade.
There are many who see trade as a kind of zero sum game where any trade imbalance between countries implies a winner and a loser while others see it as a continuum which cannot be seen in such simplistic terms.
Ibec chief executive Danny McCoy is firmly in the latter camp and believes Ireland stands as an example to the world of how countries benefit from trade.
“I was in Paris last week for a meeting of the OECD Business Panel,” he says. “The topic under discussion was what trade has done for society. I pointed to Ireland as probably a best-in-class example.”
He says Ireland couldn’t sustain even a small population up until the late 1960s when it began to open up for trade.
“There is no more classic example of a society which has benefited from the opening up of trade,” he argues. “We have seen a dramatic rise in population since then. We are at five million now and when the next census is carried out in 2021 it will show a population of over five million.”
Protectionism and policies of self-sufficiency didn’t serve the State well in its early years, he contends.
“Ireland stayed out of the trade story and we know from that experience that turning our back on trade was catastrophic. On her visit to Dublin last week, European Commission president Ursula von der Leyen quoted from Paddy Hillery, former president of Ireland and our first European Commissioner.
“When Ireland joined the EU, he said that we would be able to have a growing population, full employment, and living standards comparable with the EEC Six as it then was. Tick, tick, tick. We’ve achieved all of that and the glue that has held it together is trade.”
The nature of trade has also changed.
“Over the last 10 years we have moved from tangible assets to intangible. We tend to think of that as technology and software, but it is increasingly the IP associated with physical products – the right to use the product, licences, brand, copyright. Goodwill, in old fashioned accounting terms. In 1975, 80 per cent of the world’s top companies’ assets were tangible. It has now completely switched and 80 per cent of the assets are intangible.”
But how do you tax intangible assets?
“In the old world you could tax companies on where the substance was, on where the tangible assets were produced. In the new world, intangible assets can be moved around at will. That’s what the OECD Base Erosion and Profit Shifting (BEPS) framework deals with.”
And Ireland has benefited once again through the very large inflows of FDI in recent years.
“Companies responded by moving to where they had real substance. If they were moving to the EU, they had to decide where to land there. Ireland is English-speaking, common law jurisdiction, has a good tax system. Britain made itself less attractive by introducing uncertainty with the Scottish independence referendum, and then Brexit.”
That in turn led to derisory comments about “leprechaun economics” in response to Ireland reporting GDP growth of 26 per cent in 2015.
“It actually grew by one third,” McCoy notes.
And he points to employment statistics as an indication of the reality of that growth as well as of the need for increased spending on public services to meet the needs of society.
“We have 2.3 million people at work in Ireland now and 300,000 of those are public servants. When we had 1.5 million at work, we still had 300,000 public servants. That means we have 800,000 more people in work in the private sector with no increase in public service employment.
“If you or of a certain ideological persuasion you are in Nirvana but all rich societies want to have good public services with high standards of education, health, security and so on. We need to have that discussion about what we need to do.”
We also have to get used to our new position in the world.
“We have arrived at the top of the hill. It’s not like the old days when we were the underdog in the match and went 1-0 down in the first few minutes and had to fight doggedly to get back on terms. Now we are 2-0 up and have to figure out how to stay ahead.”