The Celtic Tiger is losing its charm. Alarmed at the prospects of increased taxation, stifling budget cuts, and growing emigration of skilled but unemployed talents, high-tech companies that have poured billions in direct investment into Ireland are speaking out.
Their message is very simple but also very blunt: Any moves that crimp the ability of foreign investors to retain employees or that boost their tax rate will impede direct investment in the country.
"Any increase in corporation tax will have a damaging impact on our ability to win and retain investment in Ireland," the American Chamber of Commerce Ireland, said in a statement supported by executives from Hewlett-Packard Co. (NYSE: HPQ), Intel Corp. (Nasdaq: INTC), and Microsoft Corp. (Nasdaq: MSFT):
At this point in time, the one bright spot on the economy is our multinational sector, which has been sustaining jobs, driving our export growth and, through R&D investment, leading the development of the smart economy. When we compete for jobs and investment we are competing not against the European Union, but against countries such as Singapore, Israel, India and China.
Google (Nasdaq: GOOG), Ireland's biggest US-based employer, was even blunter. The Belfast Telegraph quoted the head of Google in Ireland as warning: "Anything that impinges on Ireland's competitiveness is going to be a big thing for Google, including corporation tax. And anything that increases the cost-base of a business is negative for competitiveness."
The Irish government isn't deaf to the ominous warnings from the group representing the country's largest foreign investors. Before it agreed to accept a €90 billion bailout from the European Union and the International Monetary Fund, it promised to ensure the country's attractive 12.5 percent corporate tax rate was not pushed higher by the financial rescuers.
This is not a promise the government can keep, however, especially if it requires future additional financial assistance. In fact, the government that made that promise has already folded, with Prime Minister Brian Cowen saying he will dissolve his government and call for new elections in 2011.
Ireland was a success story during its boom years, quickly earning the moniker "Celtic Tiger" as high-tech companies moved R&D facilities and even some manufacturing operations into the country. The American Chamber of Commerce Ireland estimates US firms have invested $165 billion in the country over the years, employ some 100,000 people, export some €90 billion worth of products from Ireland, and contribute about €3 billion in corporate taxes.
Recent events have undoubtedly forced the government to introduce huge cuts to deal with its budget deficit. How will this affect ordinary people and the high-tech industry? Analysts are coming up with doom forecasts, including that any significant emigration could turn the country's immediate debt problems into a longer-term "brain drain" crisis, with an army of skilled workers, who learned their trade in Ireland, lost to other nations.
Ireland's brightest minds, unable to secure local jobs or dissatisfied with the country's economic situation, are moving out en masse. Even the Irish government, according to The Independent, estimates the country's economic problem could drive some 100,000 people out over the next four years.
What will be the lasting impact on the economy and high-tech employers? Ireland's former chief economist, Michael Casey, author of a recent book, Ireland's Malaise: The Troubled Personality of the Irish Economy, puts it well when he says: “A brain drain on any scale would be a loss to the country. The middle class is the backbone of an economy and trained workers are the seed laid for the future."