A year of diminishing returns
While not on the scale of the 2001-2002 dotcom bust, the past 12 months were characterised by decline in the tech sector. Technology companies led global stock market dips as the irrational exuberance of the Covid share trading boom came to an end. In the real economy, meanwhile, the sector shed jobs at an alarming rate, with almost every big name slimming down in anticipation of falling receipts and in the face of rising costs.
Despite this, Ireland thrived. A statement issued by the government last week noted that the country banked a tax surplus of €5 billion in 2022. This is a remarkable achievement given it occurred in the context of a lingering global pandemic, war in Ukraine, rocketing inflation and widespread economic uncertainty.
Alongside €30.7 billion in income tax and VAT of €18.6 billion, corporation tax receipts amounted to €22.6 billion last year, nearly 50% higher than a year earlier. The government noted that, “for the first time ever, this is the second-largest source of tax revenue” – though this fact may raise a wry smile given that the county was frogmarched into hiking corporation tax rates by the EU.
Alongside pharmaceuticals, the lion’s share of that portion of the income which is derived from foreign-direct investment (FDI) comes from tech and tech-related businesses. Ireland’s strategy of attracting FDI, which over time coalesced around tech and pharma, was without a doubt a successful policy for what is, after all, a small and underpopulated country. But it also comes with built-in risks.
It is a cliché to say there is room for complacency (as if there is ever room for it), but it is nonetheless worth nothing that economic forecasts are not entirely rosy. Buoyed by FDI, Ireland has not seen macroeconomic decline on the scale experienced by, for instance, Britain. However, the Organisation for Economic Cooperation and Development (OECD) has said it expects the country to see slower growth in 2023. Workers in the tech sector, too, have expressed fears of recession.
There are also signs that the roster of Big Tech names is in the middle of one of its periodic games of musical chairs. A question to ask, then, is will today’s tech behemoths be smaller fish a decade hence?
Optics
This is not unimaginable. Twitter, post-buyout, is very clearly on the ropes and Meta Networks (formerly Facebook) remains profitable but no longer comes across as the world beater it once was. Intel is investing heavily in the future but, paradoxically, being punished for it by the markets, which either do not believe it will be a success or else simply want to squeeze the chip giant for as much juice as possible. And while it is far too early to say for sure, the revelation that OpenAI’s ChatGPT can actually answer people’s questions has left many wondering if Google’s effective monopoly on search could end up leaving the company the king of a declining or stagnant business model.
Moreover, headline figures about a budget surplus need to be seen in the context of ongoing crises in housing and healthcare that demand increased state spending. (Having spent Christmas with family in Ireland, north and south, I was disturbed by the state of healthcare provision, and there are simply no words when it comes to Ireland’s housing situation).
And as spending rises, income could fall. As Silicon Valley continues to swing the axe, Ireland, which has profitably made itself an outpost of the sector, is vulnerable. If de-globalisation turns out to be more than just a talking point, both job numbers and tax receipts could decline. While it is hard to imagine a return to the days of high tariffs and import substitution, it is undeniable that in the United States pressure is growing on businesses, in the face of rickety international supply chains and demands that US companies should create US jobs, to bring investment home.
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