Something went Br-ump in the night

First it was Brexit. Then it was Trump. Twice in recent months, we have awoken to news from across the water that shook us to our core. Something has gone ‘Br-ump’ in the night.

For Ireland, the biggest impact of Brexit and Trump’s ascendancy are likely to be economic. Even if recent decades have seen Ireland Inc. diversify its economic ties, the UK and US are still by far our most important trade and foreign direct investment partners. Directly or indirectly, hundreds of thousands of Irish jobs depend on these countries’ fortunes and policies. The temptation will be for Irish policymakers to adopt a reactive stance, but this needs to be complemented by a proactive and comprehensive approach.

As a tiny, very open economy, Ireland has surfed the wave of neoliberal globalisation more deftly than most, making the most of our geographic and cultural proximity to the US and the UK, in particular. For decades, for better or worse, we have been ‘all in’ on an economic strategy aimed at grabbing a slice of the global economic pie. As a result, there is perhaps no other country as uniquely exposed to the twin ‘Br-ump’ challenges.

Who knows which of Trump’s campaign promises he actually intends to keep, but lets look at the one most likely to impact on Ireland: corporation tax.

Corporation tax reform has been mooted by both main political parties in the US for well over a decade. With Republicans now in control of the Presidency, Senate and Congress, they now have the scope to enact it on their terms by bringing down the headline 35% rate (Trump campaigned for a 15% rate), maybe phasing out some of the tax reliefs that complicate the system and incentivising multinationals like Apple to repatriate the mountains of cash they’ve been hoarding oversees in expectation of precisely such an opportunity (Trump proposed a one-time 10% rate on such profits held abroad).

It’s quite likely that profit repatriations would have a big impact on headline Irish GDP and FDI numbers, but it doesn’t necessarily follow that jobs or wages in the multinational sector would also take a big hit. In the medium term, fewer multinational profits routed through and taxed in Ireland could leave the public finances exposed, but nothing like the extent of exposure to the bursting property bubble in 2008.

More generally, a shift away from global economic openness is likely to hit the smallest and most open economies hardest. Economic orthodoxy would suggest that breaking down barriers to trade, investment, immigration and information flows and technological progress could increase the size of the economic pie. In practice, this is not a given, but it has largely held true. Despite big bumps in the road, not least the halting global recovery from the crisis of 2008, our economies are now bigger and more interconnected than they have ever been. Rapid catch-up growth in China, India, Africa and elsewhere has raised hundreds upon hundreds of millions out of poverty.

But, economic orthodoxy is largely silent on how the pie is shared across our economies. While helping narrow inequality between countries, the era of hyper-globalisation has almost universally given rise to increased inequalities within countries. In practice, the biggest gains from globalization have been concentrated in the hands of the few, but so have the losses. Among the key demographics that voted for Brexit and Trump were working class communities in Northern England and America’s rust belt, areas devastated by decades of deindustrialization, compounded by a welfare state in retreat and unable to create decent jobs to replace those lost. It should not come as a surprise that people with little to lose were willing to roll the dice.

For its part, Ireland needs a twin-pronged response to the Br-ump phenomenon: reactive and proactive. Given the degree of uncertainty, our policymakers need to be resolute and ready to react decisively to protect the citizens whose livelihoods depend on the high-performing multinational sector.

But, no matter what becomes of President Trump or post-Brexit Europe, there is a need for a proactive and progressive policy agenda in Ireland. We need to do more to tackle inequalities of incomes, as well as outcomes in health, education and employment. We need to tackle pockets of rural and urban inter-generational deprivation – areas that the Celtic Tiger largely passed by, but that the Celtic Crash hammered anyway. We need an industrial policy that puts at least as much focus on boosting indigenous enterprise as on kowtowing to fleet-footed multinationals. We need to build better bridges between domestic and foreign firms here. And, we need to have the confidence to build a business model founded on more than a giveaway corporate tax regime.

In short, we need to learn the right lessons from Br-ump: by all means, take action to mitigate the damage to Ireland Inc., but don’t lose sight of why it happened in the first place, so we stop making the same mistakes here.

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