JULIA KENNEDY: Welcome to Just Business, a series of interviews on global business ethics.
I'm Julia Taylor Kennedy, and today on the program we're talking about Ireland's tough path to economic recovery after its battering in the recent global financial crisis.
Here with me is Barry O'Leary, head of IDA Ireland. IDA stands for Industrial Development Agency.
Since 2007, O'Leary has overseen the government's work to bring foreign direct investment from overseas into Ireland. He has been at IDA for more than 30 years, living through the Celtic Tiger boom period and recent harder times with the agency. So he'll have plenty of insight into the role foreign direct investment could play in an Irish economic recovery.
Barry O'Leary, welcome to Just Business.
BARRY O'LEARY: Thank you very much for having me here.
JULIA KENNEDY: For those who haven't been following the Irish economy very closely, why don't you give me a quick background on its history, why it has been dubbed the Celtic Tiger, and then some of the bumps it has hit along the way?
BARRY O’LEARY: In the late-1980s/early-1990s, Ireland underwent a pretty severe recession. Debt levels went very, very high, much higher than they are today. Around the mid-1990s the economy started to take off, very much driven by export-led activity. But by the time the early-2000s came, the construction industry began to play a disproportionately high percentage role in the Irish economy.
JULIA KENNEDY: Because there were a lot of people coming into Ireland and lots of people buying homes, right? Is that part of it?
BARRY O'LEARY: Absolutely. The population—first of all, the demographics were very, very favorable; the population was growing and a lot of people came in from other EU Member States. So the impact of this was there was a great demand for property.
But, with rising wealth in Ireland, people were looking for a home for their investments, and they started to invest in property. They started borrowing rather large sums of money from the financial institutions in Ireland, of course the domestic banks in Ireland and some foreign banks that came in. At a time of low interest rates, people were buying and buying.
And as the economy was going up, in 2004 the European Union enlarged from 15 to 27 countries. So within about an 18-month period after that about 200,000 people from former eastern European states came into Ireland. They came in to work in the booming construction industry because they needed somewhere to live as well. So there were properties built not just for investment purposes but for the capacity needed for the enlarged work force.
After all, in 1991 there were 1.1 million people working in Ireland. By 2005–2006, there were 2.1 million. So it's a huge increase in the working population.
JULIA KENNEDY: Doubling.
BARRY O'LEARY: Absolutely, which is probably unheard of in European times. But this all fueled the property.
Added to that, the banks were giving out money for people who wanted to buy to let [rent]. So essentially people were borrowing 110 percent of the value of the property and were amassing, owning three, four, five properties. Even people in their mid-20s were doing that. So it all led to an over-hyped property market, where downtown Dublin was as expensive as downtown London or New York, and that was never sustainable in a country the size of Ireland.
So the end of 2007, the beginning of 2008, the property market collapsed. That meant that a lot of the tax revenue coming from property was no longer available.
The banks were bankrupt without being bailed out by the state, which the Irish government at the time decided to do. However, that has been a very, very expensive exercise.
So we are left with two big challenges: One, how do we deal with the financing of the banking bailout; and second, how do we cope with what is now a major budget deficit after the tax income from construction and retail disappeared.
Now we are a couple of years into austerity measures. As an example, expenditure has been cut and the number of public servants has been cut, the number of civil servants. But also salary levels are down in the public sector anything between 8 and 34 percent over that period of time. So there is a lot of austerity measures being introduced by the government.
Really, those challenges around dealing with the banks, dealing with the budget deficit, are something as part of the IMF/EU/ECB [European Central Bank] arrangements we're now working our way through. Thus, there is plenty of work we have to do.
However, at the same time, this small country of only 4 million people, we live by our export trade. It's a very, very open economy. Eighty-five percent of all exports come from foreign-owned companies, multinationals.
The role we in IDA Ireland have is very much to target companies, to convince them to invest in Ireland and to export from Ireland. We have a very, very strong position, particularly in the U.S. market, in areas like the technology sector, the life sciences, the international financial services area, and areas like the digital media, digital content, clean-tech, etc.
JULIA KENNEDY: We're speaking now in late June of 2011. The headlines are plastered with riots in Greece, another country that was hit hard by the economic crisis.
Why is there so much more resistance in Greece to these types of austerity measures than what you might see in Ireland, or what you have seen in Ireland?
BARRY O'LEARY: I think the dynamics of what happened in the two countries are very, very different. Greece has a lot of structural problems as regards their industry, and it would appear as if over a number of years this has been building up. The Irish one was driven not by the overall economic performance of Ireland, but the downturn was driven by the construction industry.
But I do think that people are looking at it. They know it's an awful lot to carry what we have to do.
But the question of rioting—what they do see is that fundamentally long term, because of the demographics of Ireland, the fact that we have this modern industry sector like the life sciences and like the technology sector, they are areas of great growth in the future. So it's almost repairing the deficit and the banking crisis but at the same time making sure that we are growing the internationally traded sector of the economy, and they are doing well. So I think people can see a roadmap.
However, I do think that the grasp that the Irish population have of the size of the problem in Ireland—they recognize it's a big, big issue, the burden caused by the banks, but they recognize that everybody has to put their shoulder behind it.
But of course that doesn't in any way minimize the fact that they are very, very annoyed with what happened, and quite rightly so, and frustrated, because we are in a position where it shouldn't have been as severe as it was.
JULIA KENNEDY: One reason there has been all this foreign direct investment in Ireland has been really low corporate taxes. Can you talk a little bit about that and how that has brought some foreign direct investment into the country?
BARRY O'LEARY: Sure.
When multinationals are looking at a new location around the globe, there are a number of things. They usually have a list of ten or 15 different items and they score them accordingly. However, in our experience there were four key ones, what attracts foreign direct investment:
First of all, the talent pool. Thankfully, we score very, very highly in that in Ireland.
- The tax rate is very important. In Ireland companies pay a maximum of 12.5 percent corporation tax. We've had a history of low corporation tax. That's very, very important particularly in the sectors I mentioned, because they are high-profit sectors, they're high-growth sectors, and therefore can benefit by having a low tax rate.
- But quite clearly, then there is also the track record we have of many, many years, 40 years, of attracting businesses to Ireland right at the leading edge of technology. But if I go back to the late-1980s/early-1990s, Fruit of the Loom employing 4,000 people making T-shirts was one of the biggest employers. Today it's Intel, it's Microsoft, it's HP, etc.
- And of course the technology capability.
JULIA KENNEDY: As the government has been implementing austerity measures, from what I've read the corporate tax structure has remained the same. So why is that important to keep that in place?
BARRY O'LEARY: I think it's very, very important because the Irish economy relies quite a lot on foreign direct investment. It also means that the balance of payments in Ireland is very much influenced by the performance of the multinationals. Exporting more than 85 percent of all exports means that they play a disproportionately strong role in the Irish economy.
As the low corporate tax rate is a key element of their decision-making, it would be very, very wrong for Ireland to change from that. Ireland has been quite clear. The new government, the new prime minister, has given 100 percent assurance that we are not for changing it, because actually—although it's a lowish rate, although there are lower rates elsewhere available—we actually get quite a good flow of corporation tax because we attract these profitable businesses and they are paying albeit it a low corporation tax but on high profits.
JULIA KENNEDY: An argument that I read is questioning the equity between the tax increases and salary decreases and those austerity measures within the government in one area but not in the corporate sector. So how do you answer those kinds of arguments?
BARRY O'LEARY: I think when people see very visibly all of these high brand names—just to give you an example, in the newest area, the companies born on the Internet, over the last five years we have landed the top eight in the world come to Ireland. So from Google, eBay, PayPal, to Facebook, LinkedIn, Zynga—we have all of those.
People see the benefits it brings by employment, by high-skilled jobs, and people are very, very committed to say, "We can see the benefit of foreign direct investment, it's very, very visible, and we know if it went away or reduced in size or importance, then people would have to burden even a greater share of the national debt that we have."
JULIA KENNEDY: But there's not a requirement to then have the corporations help pay for that debt.
BARRY O'LEARY: Well, I think they do pay for that debt because, for instance—again everything is related to our 4.3 million population—multinationals pay over $4 billion a year in corporation tax. In payroll they spend about $10 billion a year. Our total expenditure is around $27 billion a year in the Irish economy. Directly and indirectly they account for about 240,000 people in employment. So I think people can see the benefits very, very strongly.
JULIA KENNEDY: I'm also curious how employment at those MNCs [multinational corporations] has changed. I read a headline about Dell, that they cut a lot of jobs; now they're bringing some back, but not as many as they cut. So are you seeing these MNCs start to trust adding jobs in Ireland again?
BARRY O'LEARY: Yes, we're definitely seeing growth. The last 18 months, particularly, foreign direct investment has been quite strong.
It's interesting if you look at Dell. Dell had been in Ireland for quite some time. But, like all PC manufacturers, they had moved most of their manufacturing to Asia. The likes of IBM, HP, did that six years ahead of Dell. When Dell had to shed manufacturing jobs, [inaudible] basic assembly put on them, that was pretty tragic for the area.
However, they have recognized the skill in the Irish work force, and today Dell employs 2,300 people between two locations in Ireland and they've just set up their first global research and development center in cloud computing in Dublin. And in the whole solutions area, as they develop more services, they'll set up one of their first R&D centers for solutions in Limerick in the southwest.
So I think that's the challenge, is to make sure that companies constantly transform. Going back, the country has moved from T-shirts to semiconductors to the Googles of this world. But, of course, even within companies like IBM, if you look at what they came to do and what they're now doing, everything has to transform. Every few years you need to be getting new waves of investment in new technologies.
JULIA KENNEDY: Are you fearful of brain drain in this economic period, that some of the people that moved to Ireland will then move away and that capital that you talked about won't be as strong to draw foreign direct investment?
BARRY O’LEARY: Well, quite clearly they'll move away from Ireland if they don't find employment. But that's the reason why we're out around the world attracting foreign direct investment into Ireland. The majority of Irish people want to stay and live in Ireland. If the employment opportunities are there, they certainly will stay.
But in actual fact, if you look since 2004, since we opened the unrestricted access from the labor market in the European Union, there's a substantial amount of people coming into Ireland as we speak today, particularly the 23-to-38-year-olds. They work in a pan-European project run by, say, a Google or a Microsoft or a LinkedIn. So I think the brain drain will only be if we can't fulfill the employment opportunities. But therein lies a strength that we have, to capitalize on that now.
JULIA KENNEDY: What has it been like for you personally to be in this field and over your long career at the IDA watch such a vast sea change in Ireland?
BARRY O'LEARY: Yes, indeed.
Well, I remember in my early days in IDA when we had 1.1 million people working in the work force, and then we went up to 2.1 million, and now we’re down to 1.8 million. I think it shows you we still have a very, very strong base in comparison to what we historically had.
I don't think anybody could ever have predicted the impact that the over-hyped construction market would have played in the Irish economy. But it's like with every crisis, there's a bit of a silver lining, because the things that they came for originally, around the talent and the tax, etc., are still very much there.
The difference is that the Irish economy has effectively re-priced itself in terms of competitiveness. So now labor rates are 10-to-15 percent down. If you are, say, renting an apartment, you're looking at maybe typically $400 or $500 a month less than you would have a few years ago. If you're looking at the cost of energy, it has come down. The cost of renting an office—if you look back in 2007, Ireland was the fifth-most-expensive place in the world for renting office accommodation; today it's the 45th.
So those competitiveness improvements I think are leading us to some of the world's leaders continuing to invest in Ireland. As we speak right now, it the first six months of this year a number of them, like Intel and Google and Amgen, number one in the world in their respective fields, have all invested significantly in Ireland.
JULIA KENNEDY: Are you seeing an effort on the part of policymakers to prevent the type of construction—this is obviously a challenge we're seeing in the U.S., right?—but the kind of finance and real estate bubble that you saw in Ireland recur?
BARRY O'LEARY: I think if you look at the demographics of Ireland and the sheer capacity that has been overbuilt, that will mean that the construction industry is going to be quite flat, quite depressed, for a long, long time. So it is actually hard to imagine how you could go into a cycle of such huge growth in the construction industry.
If you look at it, a lot of the reasons were the bad mistakes that the banks made. However, money was at its cheapest level ever in the European Union. Because we had the euro, the Eurozone dictated interest rates.
When property prices are really climbing strongly, going through the roof, one of the things that you normally use is interest policy to dampen demand. But of course the money was getting even cheaper and cheaper all the time in Ireland. You know, the Irish banks had plenty of it. A couple of UK banks came into Ireland to undercut the Irish banks. And of course the Irish banks were financed by the likes of German and French banks as well. So there's a whole circle really of financial stakeholders who fueled this. I think the lessons have been so, so great that it is hard to see that ever happening again.
JULIA KENNEDY: What are policies like in Ireland around foreign direct investment and multinational corporations pulling their money out of Ireland?
BARRY O'LEARY: The flow of capital is very, very easy. Ireland is a key international player. We always have flows in and out of foreign direct investment. So there are no restrictions. It's very, very easy.
I think the important thing is to make sure that the companies that are in Ireland transform, adapt, and are investing on a constant basis. Thankfully, with most of the world's leaders in Ireland, a good number of them are investing and continue to invest in Ireland.
JULIA KENNEDY: So tell me about your trip to the U.S. What brings you here and what are your goals while you’re here in New York?
BARRY O'LEARY: First of all, the United States is the largest source of foreign direct investment into Ireland, and that will remain so I would say almost forever, as long as I can see ahead. So I'm actually over here quite a lot, about nine, ten times a year.
IDA Ireland has quite a footprint in the U.S. We have six offices and a team of about 34 people here. I'm very much here to support them.
We are meeting a number of key existing clients that we have in Ireland and meeting a number of potential new ones, because although we're a government agency, we're very, very specific and very targeted. Everybody works to their own delivery targets of so many investments, so many jobs created, etc. I'm here to support the team this week.
JULIA KENNEDY: You seem extremely optimistic about the future. How important is it to hold onto that optimism and how does that fuel you in your career?
BARRY O'LEARY: I think it is very, very important. But I do believe that the great thing about that optimism is that it is evidence-based.
Going back to an earlier comment, in the first quarter of the year the world's number-one semiconductor, Internet, and biopharmaceutical company—Amgen, Google, and Intel—all announced major investments in Ireland. There have been many, many others, like Dell, HP, [inaudible], Merck, Eli Lily, etc., LinkedIn—all of those. That gives you confidence, because you're not talking about a concept; you're actually being able to say, "Well, look, this is precisely what Intel are doing or what Microsoft are doing." That's fact-based and that helps you greatly. There's nothing like having that strong track record, because it means that it's not just IDA that's endorsing the story; it's the individual companies who continue to invest in Ireland.
JULIA KENNEDY: Is there also a push to increase Irish-owned business and expand the private sector that is Irish-owned at the same time?
BARRY O'LEARY: Very much so. It's a dual strategy we have, the foreign direct investment and the indigenous Irish companies.
There are some really, really great Irish-owned companies. Particularly in the technology sector they're very, very good, particularly in the likes of banking software and telecommunications, but in a wide variety of areas.
Obviously, the big challenge there is that they are small in nature and they need to compete on scale on world markets. So sometimes what happens is interesting companies with great technology get taken over, particularly by American corporations, which happens on quite a regular basis. But that can be good in its own right because then the U.S. corporation can exploit the technology in Ireland for the European or global markets.
We are seeing, though, quite an increase in the technology sector in Irish-owned companies.
JULIA KENNEDY: In terms of a timeline, I'm sure you have benchmarks, but do you have an idea when you want to reach 2.1 million workers again and to build back up and move beyond that?
BARRY O’LEARY: Sure.
Foreign direct investment plays a certain role in the economy. We have set out our five-year plan, 2010–2014, where we want the foreign direct investment companies to add about 102,000 jobs in Ireland. So we have very, very specific measures of what we target.
Of course, it's the overall economic impact. Part of it, of course, is the employment it creates directly and indirectly, because if you are somebody working for a technology company, whether they're Irish or come in from outside, they're in the economy, they're living in accommodation, they're paying their rent every month, they’re spending in the local supermarket, going into the bars, the restaurants, etc. So there are a number of key indicators.
But, quite clearly, the corporation tax paid is one area that we target—the spend in the economy, but the number of overall jobs. It is important that we set that out in the competitive environment because while we're fighting for this foreign direct investment we're not alone. There are many, many countries that do that in a very, very targeted way.
JULIA KENNEDY: How did you get into this field and why have you stayed in it?
BARRY O'LEARY: I was working for a large food company at the time, Nestlé. One weekend I was just looking at the newspaper, saw this advertisement looking for somebody for this organization, IDA Ireland, that I knew practically nothing about. I looked at it, researched it, and said, "Well, that might be something that would be interesting to do for two or three years." I joined that. Now, around 30 years later, here I am.
But I think one of the great things that fuels the passion that the people in IDA have is it's not like working for a company per se; we're actually working for the country. Therefore, by actually bringing in all of this investment it is benefiting the population of Ireland. So you do take quite an amount of pride on that.
But, of course, it's a responsible job for all our team, to make sure that we have that flow, because it impacts people's lives. You know, if you're looking at, say, we get an investment to employ 200 people. When you add on the indirect benefit, it's probably about 400 people, and you can imagine them in a few rooms.
I also feel that, with the team we have in IDA, you get a chance to go to different markets around the world. I spent 15 years, two separate stints, outside Ireland as well. So I think all of that, and the job satisfaction certainly, fueled into staying that long.
JULIA KENNEDY: I've interviewed several people recently here on Just Business who have stayed with the same employer for many years. What they all seem to have in common is passion for their work and utmost respect for the values of their employer. That certainly seems to apply to you.
But foreign direct investment has been quite controversial over the years and is often cast as a fickle way to support an economy. So tell me why, despite the controversy, you see this as a huge net benefit to Ireland and why do you place such value in foreign direct investment when people are attacking it many countries, saying it's insecure, companies can pull out, people can exploit the population? So why is this such a positive thing in your view?
BARRY O'LEARY: First of all, the comment about companies pulling out. Companies can close that are locally owned as well. In fact, in Ireland there's a higher proportion of ones that closed locally than there is of the multinationals.
But I do think if we start from it isn't something by chance—you know, we set out very, very clearly a strategy, six key areas that we go after and within that certain business models.
Our challenge then is to go around the world to world leaders. The people that we interact with in most corporations in the United States are C-level executives, right up at president or number two, etc. You're going out on the stage with the world leaders and you're going to have to convince them that they should make an investment in Ireland. That in its own right is a motivating factor, particularly when you get success at it.
But as regards any negative about foreign direct investment, I think, no matter what, if you are going to be a global corporation, you have to be located in a number of locations around the world. Ireland happens to be one of the ones that's very good for servicing particularly the European, but in many ways the European, Middle East, and African, in some cases global.
I think that it can only bring benefits because—first of all, what it does it is helps the competitive of a country, because you’ll only attract them if they're competitive enough—but they bring enormous benefits. Certainly we've seen that in our organization.
JULIA KENNEDY: Great. Barry O'Leary, thank you so much for joining me on Just Business. I really appreciate your contribution.
BARRY O'LEARY: Thank you very, very much for having me here. I'm delighted to be here.