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How Ireland Became 2020's Fastest Growing Economy | Economics Explained - YouTube
Channel: Economics Explained
[0]
this is ireland or more specifically the
[2]
republic of ireland which is a sovereign
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nation that is home to 5 million people
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who are all quickly becoming some of the
[8]
wealthiest citizens in the world
[10]
ireland now has a gdp per capita of over
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80
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000 meaning they are well ahead of
[16]
traditionally wealthy nations and
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regions like switzerland
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hong kong and norway and only placing
[21]
behind statistical outliers like
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luxembourg
[24]
singapore and qatar what's more is that
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ireland is on track to be the fastest
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growing economy in 2020
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a year that has seen most nations fall
[32]
behind it has achieved this despite
[34]
historically being very dependent on
[36]
trade and tourism
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which has of course been a lot more
[39]
difficult in a world of closed borders
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so it looks like there should be a lot
[43]
to learn from this country that could
[44]
potentially be adopted to our own
[45]
economies so that we too may share in
[47]
the luck of the irish
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right well that's what the figures might
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have you believe
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but it may not be the whole story
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frequent viewers of the channel will
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know that gdp figures
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alone can leave out some very important
[60]
details about the true prosperity of a
[62]
nation and the people living within it
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so to see if ireland is more a miracle
[66]
of paperwork
[67]
we need to look at a few key areas how
[70]
has ireland become
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so wealthy despite its history of being
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poor and oppressed
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is this wealth going to benefit the
[76]
citizens of the nation and
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is this irish strategy something that
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all nations could adopt
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oh and of course while we're here it
[83]
should go without saying that we're
[84]
going to put ireland on the economics
[86]
explained
[87]
national leader board this video is
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slash economics explained
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again that's trends.co economics
[122]
explained
[123]
the link is on the screen now and in the
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video description below
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now ireland is a member of the european
[129]
union and unlike their estranged mother
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they have remained so this has in many
[134]
ways been a relationship that the nation
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has been able to leverage to truly make
[137]
the country what it is today
[139]
we will get to those benefits later but
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there are also some major drawbacks
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for starters they are using the euro
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which brings with it a collection of
[148]
disadvantages
[149]
we have covered these disadvantages on
[150]
our videos on brexit greece germany and
[153]
italy so i don't want to repeat too much
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here but in short
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not having control over your own
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currency means you don't get to set your
[160]
own interest rates and you are also
[162]
indirectly responsible for
[163]
other less prosperous members of the
[166]
union
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this lack of autonomy means that
[168]
countries that want to adopt new
[170]
economic policies or implement new
[171]
schemes for growth
[172]
can be limited in doing so this is part
[175]
of the reason that
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most european nations have seen very
[178]
little gdp growth in the last decade
[180]
the nations that are doing well like
[181]
germany have been held back by places
[183]
that are doing
[184]
poorly and nations that are doing poorly
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are being trodden on by places that are
[188]
doing well
[189]
despite this unfortunate back and forth
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ireland has managed to almost double in
[193]
size in the same decade that most member
[195]
states went
[196]
nowhere and a lot of this has to do with
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raising
[199]
all kinds of money you may have heard
[202]
the term double irish with a dutch
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sandwich
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it's an amusing term that's used to
[206]
describe the intricate tax loophole
[207]
where international corporations will
[209]
exploit intellectual property and
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corporate expense laws
[212]
in ireland and the netherlands again we
[214]
have done a video on this little scheme
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before and we found that major
[217]
institutions like apple
[219]
were using it to hoard massive piles of
[221]
cash without having to pay tax on it
[223]
all of those trillions of dollars have
[225]
been parked in where else
[227]
but ireland now you might be thinking
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that trillions of dollars in foreign
[231]
investments sounds great and kind of
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answers the questions about how ireland
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got so rich
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but not so fast there are two major
[238]
problems with this particular
[239]
arrangement
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the first is that it doesn't exist
[242]
anymore the loophole that made this
[244]
whole system possible was closed by an
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irish law in 2015 which meant no new
[248]
corporate structures could be set up
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and the ones that did still exist had
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until 2020 to find other arrangements
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since it is now 2020 there is no more
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double irish
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however that doesn't mean the money is
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gone in the two decades that this system
[263]
was abused by major corporations the
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companies involved piled up
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trillions of dollars in ireland which
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leads to the second problem
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just because money is sitting there in
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irish accounts does not mean it is going
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to benefit
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ireland the whole reason these companies
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chose to do business in ireland in the
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first place
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is that they didn't need to pay tax if
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the country turned around and started
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taxing this income to put towards well
[287]
you know public services
[288]
then these companies would just go and
[289]
find themselves an alternative in a more
[291]
accommodating country
[293]
and of course to provide these services
[295]
there are a few thousand well-paid
[297]
accountants and lawyers working in
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ireland which
[299]
is a boost to the local economy but it's
[301]
not exactly putting money directly into
[303]
the pockets of regular joe
[305]
but ireland had a plan you see it knew
[307]
that as soon as these companies try to
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take this money back out to the united
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states to use for reinvestment or
[312]
dividends or stock buybacks
[314]
they would need a canada's income and
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pay tax on it so
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it was a great way to save money
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tax-free but it kind of put a lock on
[322]
that money to use for anything useful
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so ireland let them use it in ireland
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without too much of a penalty
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without the money leaving the country
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the companies involved have been able to
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invest into research and development
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which can benefit their operations
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worldwide
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this is a win-win ireland gets jobs and
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investments into their local economy
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and the companies involved get something
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to do with their money in a very
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business-friendly environment
[346]
in fact this friendly arrangement
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actually goes well beyond this single
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tax loophole
[351]
today ireland is one of the largest
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technology centres in the world with
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operations from silicon chip
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manufacturing to medical research
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centres spread across a population of
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less than 5 million people
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the reason they set up operations here
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of all places rather than
[365]
silicon valley or seattle or shenzhen
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extend beyond
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just tax and can be more well classed as
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ireland just being a really good
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middleman this is shannon's
[376]
international airport
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it's not a particularly remarkable
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airport in its own right but what is
[380]
just outside the gates
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really is the shannon free trade zone
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was established in 1959 as a way to
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encourage businesses to set up
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operations in the country
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you see prior to this ireland really
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struggled to attract international
[393]
investment because
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the whole place was viewed as very
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unstable on account of its fight for
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independence and a selection of
[400]
headlines that didn't make global
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executives particularly excited to go
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there on a business trip
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this free trade zone though well that
[408]
was something to get excited about
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what it did was mark out a 600 acre plot
[413]
of land around the airport to be
[414]
established as a business park where
[416]
local
[417]
import export and business taxes did not
[420]
need to be paid
[421]
until the goods left the area what this
[423]
meant is that companies could set up
[425]
manufacturing centres in this little
[426]
area
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fly in parts and then fly out finished
[429]
products without lofty tariffs that were
[431]
commonplace in the world at this time
[433]
now you might be thinking oh great
[435]
another tax loophole
[437]
but it wasn't exactly the companies
[439]
involved still had to pay tax in
[441]
whatever country they ended up selling
[443]
their products
[444]
they just avoided taxes during the
[446]
actual assembly phase
[448]
in a sense it kind of just made the area
[450]
the world's first and largest airport
[452]
duty-free zone
[453]
this little arrangement mixed with the
[455]
nation's very strong policies on
[457]
intellectual property rights
[458]
attracted companies like intel lufthansa
[460]
de beers
[461]
and ge capital aviation services in fact
[465]
sony's first international manufacturing
[467]
operation was in shannon island of all
[469]
places
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now in fairness almost any country in
[472]
the world at the time could have pulled
[473]
a similar trick
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but it probably would have not been
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quite as popular because ireland did
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have some other things going for it as
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well
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it had a great central location between
[482]
europe and the united states
[484]
the two largest industrial centres in
[485]
the world at the time it also offered a
[487]
sneaky backdoor into the european
[489]
economic community the predecessor to
[491]
the european union for
[492]
american companies that would have
[493]
otherwise had to pay significant markups
[495]
on imports into this little european
[497]
club
[498]
what's more is that it was home to an
[500]
english-speaking population
[501]
that was very well educated being able
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to manufacture silicon chips tax-free
[507]
was all well and good
[508]
but it's not a job that can be done by
[509]
just anyone so this workforce went a
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long way
[513]
this whole system served to boost the
[515]
local economy bring businesses into an
[517]
otherwise unremarkable airport and
[519]
create
[519]
highly skilled high-paying jobs in the
[521]
irish economy that were all being paid
[524]
for
[524]
by companies abroad of course it must be
[527]
recognised that the system was not
[528]
perfect
[530]
for starters this whole system revolved
[532]
around an airport
[534]
people who have watched our video on the
[535]
merchant navy will know that most
[537]
international trade is done using ships
[539]
rather than aircraft given how much
[540]
cheaper they are to operate at scale
[543]
this has meant that the country can only
[544]
really attract companies that
[546]
manufacture
[547]
very small high-value products like
[549]
aircraft parts computer components and
[552]
diamonds this was somewhat limiting but
[555]
with ireland's modest population
[557]
it could probably be called more of a
[558]
feature rather than a bug
[560]
even if they did have access to mass
[562]
shipping low cost manufacturing was
[564]
never going to be their thing
[565]
the other problem with this system is
[567]
that it's somewhat obsolete these days
[569]
before trade deals and in a time with
[572]
widespread important export tariffs this
[574]
free trade zone was an amazing
[576]
tool that companies could use today it's
[578]
somewhat
[579]
unnecessary in fact the shannon free
[582]
trade zone lost nearly all of its
[583]
special privileges in 2003
[585]
but despite being little more today than
[587]
just another industrial center outside
[589]
an airport
[590]
it is still home to over 100
[592]
international firms that directly employ
[594]
over 10 000 workers
[596]
and tens of thousands throughout the
[597]
rest of the country at a foundational
[599]
level
[600]
this is what has given the country such
[602]
great metrics companies have decided to
[605]
just stick with ireland
[606]
we recently explored the economy of
[608]
california and a lot of what we found
[610]
out about that state's industry
[612]
is very similar to what is going on here
[613]
in ireland today
[615]
ireland doesn't have anything
[617]
particularly appealing about it
[618]
global tax loopholes have been closed
[620]
free trade zones have been made
[622]
irrelevant and sure
[623]
its domestic tax rates are low but there
[626]
are cheaper alternatives
[628]
the thing that has made ireland so
[629]
successful is that there are no other
[631]
more compelling
[632]
options that would make it worth moving
[633]
the significant infrastructure
[635]
now set up in the country out of it very
[637]
similar in many ways to how hollywood is
[639]
the go-to place to make movies because
[642]
it is home to all of the companies and
[643]
people that make movies
[645]
ireland is the go-to hub for financial
[647]
services and technological development
[649]
because it is home to all of the
[651]
companies and people that do this stuff
[653]
perhaps the best example of this is gcas
[656]
or general electric capital services we
[659]
have mentioned this earlier but i would
[661]
imagine most of you have never heard of
[663]
this company or
[664]
know what it does but what it is is
[666]
basically just a rental service for
[668]
airplanes general electric will buy up
[671]
planes primarily from airbus and boeing
[673]
and then rent those planes out to
[674]
airlines all across the world that
[676]
don't want to have to pay the hundreds
[678]
of millions of dollars up front
[680]
for an aircraft a quick side note is
[682]
that this
[683]
is a great marketing tool for ge because
[685]
they will not buy up planes for this
[687]
fleet that are not fitted with ge
[689]
jet engines so if boeing and airbus want
[692]
to attract the world's biggest consumer
[693]
of aircraft
[694]
they better think twice before sticking
[696]
a rolls-royce engine on them
[697]
to give you an idea of just how large
[700]
this company is
[701]
it owns more planes than united delta
[704]
american airlines and emirates combined
[707]
back during the free trade zone
[709]
shannon's airport was the only logical
[711]
headquarters of this global operation
[713]
because it was buying up planes from
[714]
both airbus and europe and boeing in
[716]
america and then shipping them out to
[718]
airlines all over the world
[720]
today it could do this from anywhere but
[723]
it is already established in ireland so
[725]
it may as well stick around
[727]
so the big question is then do all these
[729]
multinational operations
[731]
actually benefit the people of ireland
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and the answer is
[735]
well yes sort of of course for the
[738]
people directly involved in these
[739]
businesses
[740]
it is great they will earn lots of money
[743]
and do very well for themselves
[744]
but for everyone else it is causing a
[746]
lot of the same problems we have seen in
[748]
places like san francisco
[750]
extremely high rents and cost of living
[752]
are being driven by this influx of
[753]
foreign investment and it is leaving
[755]
average workers in more traditional
[757]
roles behind
[758]
this is a serious problem that the
[760]
country will have to address or it will
[762]
face similar social issues to other
[764]
industrial centres around the world
[766]
a two-speed economy now to put ireland
[769]
on the economics explained national
[771]
leader board
[772]
this will be a fun one because of just
[774]
how unique ireland's history has been
[776]
starting off with size the nation has a
[778]
gdp of 398 billion dollars as of 2019
[782]
and this figure is actually likely to
[783]
increase in 2020.
[785]
this gives the nation a 7 out of 10
[787]
because it must be remembered that it is
[788]
still a relatively small country with a
[790]
modest population
[792]
that small population though makes its
[794]
gdp per capita figure
[795]
extremely strong with each resident
[798]
sharing an 80
[799]
000 worth of that output it's only
[801]
beaten by the statistical outliers that
[803]
we saw earlier
[804]
it gets an easy 10 out of 10. stability
[807]
and confidence
[808]
is quite strong despite its short and
[810]
tenuous history the nation has
[812]
established itself as a reliable center
[814]
of international business
[815]
all of the tax breaks in the world would
[817]
mean nothing if companies could not be
[819]
sure that the government wouldn't turn
[820]
around and nationalize their enormous
[822]
piles of money
[823]
so it gets an eight out of ten it's not
[825]
quite switzerland just yet
[827]
but it's certainly getting there growth
[830]
well there's not much to say here in the
[833]
past decade the nation has doubled its
[835]
economic output
[836]
at least by gdp figures this is on top
[838]
of a long-running trend that has seen
[840]
ireland grow from impoverishment to the
[842]
advanced centre of business it is today
[844]
it gets a 10 out of 10. what's more is
[846]
that it's likely to be one of the few
[848]
countries in the world that will report
[849]
economic growth in 2020
[851]
even if it will be slightly more modest
[853]
than in recent years
[855]
finally industry again this is
[857]
interesting the country has obviously
[859]
attracted
[859]
all manner of businesses from around the
[861]
world and established a good share of
[862]
their own
[863]
it isn't necessarily going to benefit
[865]
everyone but
[866]
a rising tide does lift all boats and
[869]
even working class residents are
[871]
enjoying a better quality of life today
[873]
thanks to these companies although i do
[876]
expect to be shouted out in the comments
[877]
section for saying that so
[878]
you know like and subscribe to make me
[880]
feel better either way
[882]
the nation gets an 8 out of 10. all
[885]
together
[885]
this gives ireland an average score of
[887]
8.6 out of 10
[889]
only just falling behind hong kong which
[892]
isn't technically a sovereign nation
[894]
so this score is unbelievably impressive
[897]
it goes to show that being in the right
[899]
place at the right time with the ability
[900]
to provide the right services is a trait
[903]
that will pay dividends for a very long
[904]
time
[905]
and being in the right place with the
[907]
right people is made a lot easier with
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trends
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