In Dublin, the winter was cool on the banks of the Liffey. Dockworkers shivered at the first quarterly results of the major American tech multinationals, where the majority of their European headquarters have been located for twenty years. The economic slowdown, symbolized at Meta by the 1% drop in turnover over one year, a first, has led to social plans in shambles. Ireland has taken its share: 350 departures within the company led by Mark Zuckerberg, 240 for Google, 140 for Twitter, 130 for Intel, 60 for Microsoft, more than 200 for Indeed, 400 at Accenture or even 1,000 for Stripe, of Irish origin, but founded and based in the United States. Not to mention the hiring freezes. The end of spring may not be more lenient. Inflation persists in the United States as in Europe, affecting both the sales of these titans as well as their advertising revenues. Meta, again, would have 10,000 additional job cuts in the pipeline, with a new wave, likely, for the Dublin “Silicon Dock”. The Technology Ireland network expects another 3,000 job losses, bringing the total to more than 5,000.
What do these layoffs actually mean for Ireland? Two visions clash. The confident, with strong arguments: the recent boom in artificial intelligence brings new growth prospects. These layoffs are, moreover, only a modest part of the massive hirings signed during the pandemic. Meta, once again, is a good example of this, doubling its workforce between 2019 and 2022. In total, Ireland has gained almost 50,000 jobs in the sector since 2018. “The risks that the slowdown in business the country are overstated. The factors behind this slowdown are largely linked to a correction in growth due to the pandemic,” said Declan Jordan, an Irish economist at the University of Cork. He fears another problem: “The housing crisis, which increases the cost of living in Ireland and makes it more difficult to attract the foreign talent we need, seems to me a much greater risk for foreign direct investment in the countries, and not just in the tech sector.”
The Leprechaun Economy
Fewer digital jobs means first of all less tax revenue. The average salary of engineers in tech is around 70,000 euros gross per year. At Google Ireland, it even exceeds 130,000 euros. A remuneration well above the 45,000 euros on average in the rest of the country, a statistic that the sector is already tending to inflate mechanically. Even more than the taxes on wages, the Celtic Tiger carefully scrutinizes the amount of taxes that will soon be paid by the powerful American firms, on which Ireland is fundamentally dependent. Since the 1980s, the island has been attracting multinationals to the European market with one of the lowest corporate tax rates in the world, at 12.5% (against 26% for France, for example). With a stable political situation and a common language, English, Ireland has established itself as the ideal gateway for firms wishing to attack the immense common market of the continent.
In addition to tech, the country also hosts the headquarters of major pharmaceutical companies such as Pfizer or Merck. If the exact amounts are confidential, it is established that foreign firms today pay the majority of the taxes paid by all companies based in Ireland (22.6 billion euros in 2022). According to a recent report by the Irish agency Goodbudy, a dozen companies, including Gafam, alone account for 50% of tax revenue. “The Leprechaun economy,” as economist Paul Krugman dubbed it in reference to the green leprechaun from local folklore, is a global incongruity. In 2015, it recorded a spectacular increase in GDP of 26.5%, then a positive growth rate (+ 3.4%) in 2020, in the midst of the Covid crisis. Since then, Ireland has made efforts to diversify. “Industrial production exceeds 40% of the country’s added value”, notes in this respect the researcher at the Institute of Economic and Social Research (Ires), Noélie Delahaie.
The specter of a lasting deceleration by the tech giants is still taken very seriously. National employment agencies have multiplied alerts over the last months of 2022, according to Bloomberg. Ireland’s powerful Foreign Investment Agency (IDA) has warned of an “uncertain” outlook for 2023. “Ireland’s reliance on the international tech sector poses risks to growth, jobs and revenue in the event of a severe or prolonged downturn,” the Irish Central Bank also wrote in a March report. Within the Institute of Economic and Social Research (Esri), the stakes of such an upheaval are estimated at 34 billion euros. Contacted by L’Express, Conor O’Toole, economist at this institute, considers it essential to “develop indigenous sectors”, including in tech, by helping local companies to increase in value. In short, to prepare for the end of a pattern. It’s the meaning of the latest strategic developments taken by the Irish authorities, who hope to increase the number of start-ups by 20% by 2024, and by 50% the number of large exporting companies by 2030.
Dublin, friend of Gafam
In the meantime, other headwinds could be blowing. The impact of the implementation of the minimum tax of 15% on multinationals carried by the OECD and voted at the end of 2021, and which should be implemented by 2024, is for the moment unknown. The optimists point to the small increase compared to the current rate and the fact that it will only be applicable to companies with a turnover of more than 750 million euros. At the time of the adoption of this new rate, the government estimated the impact of this end to the status of “tax haven for businesses” at around 2 billion euros in losses. “It will probably mean a new phase of slowdown. The Irish economy will undoubtedly suffer”, judge Matthew Lesh, of the Institute of Economic Affairs (IEA) British.
The latter also points to another major pitfall. Europe is no longer the Eldorado it used to be for the tech giants. European Union regulations are expected to tighten soon with the entry into force of the Digital Services and Market Act (DSA and DMA) later this year. Dublin has long acted as a firewall between the EU and Gafam. Stop damaging his image. “Irish regulators are bound hand and foot to Irish industry,” Austrian activist Max Schrems lamented in our columns in January, criticizing both the lack of aggressiveness and the slowness of local procedures. Brussels seemed to regain control, by imposing more sanctions. In 2022, their amount approached 3 billion euros, unheard of. The fragmentation of geopolitical space is affecting technology companies more than ever. “How are they going to line up tomorrow against the various American, Chinese or European blocs?” asks Conor O’Toole. This is another element of uncertainty.
The last limit to the Irish rise of Big Tech is perhaps, finally, the environmental issue. In addition to its attractive taxation, Ireland has the advantage of having a cool climate and good water resources. Ideal, on paper, for powering and cooling the huge data centers that have become essential to their activities. “Data is gold,” Irish Prime Minister and former business minister Leo Varadkar himself admitted. But, faced with global warming and the scarcity of resources, voices call for limiting the installation. According to a report of the Irish Water and Energy Commission (CRU), published last year, the electricity consumption of these data centers will absorb 27% of the national consumption by 2028, compared to 11% today, if the situation is not changing. Multinationals must already send their data out of Dublin. And tomorrow, off the island?