Industrial Policy in Ireland: Responding to Covid-19 and Brexit William Kingston It is clearly inevitable that the Covid-19 pandemic and Brexit, the events which have so dominated in 2020, will transform Irish economic conditions in a fundamental way. The pandemic on its own is surely undermining globalisation in the form which successive Irish governments have enthusiastically embraced it. A key aspect of this has been the ability of global firms to avoid paying tax through use of international arrangements for what is called intellectual property – trademarks, patents, designs etc. By having these owned in one low-tax country, and licensed to subsidiary firms in others, the licence terms can be arranged so as to absorb almost all the profits made in these other countries and transfer them to where little or no tax has to be paid. The primary function of the laws of intellectual property, and the reason they were brought into being, was to make it possible to undertake the high risks of investing in technological innovations. As part of a process whereby law-making for property rights came under the control of those whom these rights could benefit, the primary function of intellectual property has been changed. It is now more important for facilitating money transfer around the world for tax evasion and avoidance than it is for technological innovation.1 Ireland and globalisation Ireland has been a key player in this change, although it did not invent it, just as it had not invented the incentives that brought so much foreign investment into the country. These were grants for plant, buildings and training, originally introduced by the Fine Gael/Labour government of 1947 to try to get firms to locate west of the Shannon. Almost all those set up under Fianna Fáil’s 1934 Control of Manufactures Act had been within the Pale. It was not until Liebherr, the Austrian firm which had innovated tower cranes for building, took advantage of these incentives to set up in Killarney, that their potential for getting foreign firms to establish here was shown and Studies • volume 110 • number 437 84 grasped. When they were reinforced by a low tax rate for manufacturing industry, they were highly successful. Similarly, the origin of the tax-efficient use by foreign firms of Ireland’s membership of the Paris Convention of 1883, which covers patents and trademarks, was not the result of deliberate policy. The initiator was Don Panoz, an American who set up the Elan pharmaceutical firm in Athlone. At that time, Ireland allowed freedom of tax on royalties for patents, and Belgium did not examine patent applications for novelty. Panoz used this combination to avoid paying tax on profits from enterprises which had nothing at all to do with invention. He was followed by many local firms, some of whose tax evasion was so blatant that the patent tax exemption had to be ended. However, this did not affect the multinational firms, which continued to develop their use of the country’s position within the Paris Convention to minimise their tax liabilities. Ireland’s ability to attract foreign investment meant that it could do without policies to encourage indigenous invention and innovation. Consequently, there has been little of this. Research in a uniquely comprehensive and reliable database, for example, showing patentable inventions in relation to population, revealed it as the third lowest of all the advanced countries (members of the OECD).2 In fact, public funding of research only began when an ambitious civil servant persuaded the government to establish Science Foundation Ireland (SFI) to provide money for university research, with himself as its first director. This underwrote large subsidies to universities, based on a simple linear theory of industrial innovation. According to this, money invested in basic research would lead to opportunities for applied research, out of which new products and jobs could be expected to come eventually. Public funding of research This had worked the first time that public money had been invested in scientific research, which was in the establishment of the Kaiser Wilhelm Institutes (now called the Max Planck Institutes) in Germany. These funded and carried out basic research, which led to saleable products...
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Nov 29, 2021
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