3. Foreign
Direct Investment and the Internationalisation of the Economy
Finally, another common trait of the recent Irish and
Spanish experiences of economic growth has been the critical
contribution of Foreign Direct Investment (FDI). The 1980s
economic recovery in Spain was to
a large extent fuelled by substantial FDI inflows, especially
during the second half of the decade. The appeal of Spain
as a destination for FDI was based on several factors such as
relatively good and developing infrastructure, below-average
labour costs, good industrial and technological bases and an
expanding services sector. The prospect of accession to the EC
in 1986, together with a rapidly expanding national market,
provided additional incentives to multinational corporations
to choose Spain
as a location for investment. Even though Spain
started to receive FDI in the 1970s, it was not until 1985-6
that the size of this flow became truly remarkable compared to
other EC countries. Accordingly, by 1991 FDI accounted for
around 5% of Spanish GDP and 17% of total investment.
The importance of FDI for the Spanish economy lies not
only in its direct contribution to economic growth, but most
importantly, in the knock-on effect of internationalisation.
After some decades of relative economic isolation, joining the
EC together with the reception of large amounts of FDI meant
definitive integration into the international economic scene. Spain
was becoming an open economy, as demonstrated by the fact that
by the turn of the century it had become a net FDI exporter
and the single most important investor in South America
together with the United States of America.
There is a general consensus among scholars and
policymakers regarding the importance of FDI in explaining the
Celtic Tiger. A look at the data serves to confirm this
perception as Ireland has
attracted the lion’s share of US investment in Europe since
the early 1990s. By 2006, the FDI stock in Ireland
amounted to almost €200,000 million. In 2005, inward FDI stock
amounted to roughly 125% of Ireland’s GDP. According to some
commentators, Ireland
operates as a conduit for US multinationals’ overseas profits
to take advantage of a tax exemption on patent income.
Moreover, US multinationals find Irish labour market
legislation more attractive compared to other European
countries, as there is no obligation on companies to recognise
trade unions. This allows US multinationals to be able to
adopt similar personnel policies to those followed back at the
headquarters. Whatever the motivations behind the investment
decision, Ireland has made the most of an attractive fiscal
regime in order to attract foreign investors from the US, and
also from Europe. This has strongly contributed to economic
growth, raising income levels and employment creation.
Concluding
Remarks
The Irish and Spanish economies have been the leading
runners of the EU in the last fifteen years. Once classified
within the poor periphery of Europe, these
two countries have undergone what some people would call an
economic and employment miracle, or at the very least, a
process of accelerated economic convergence. The objective of
this short article has not been to provide an interpretation
or an explanation for growth in these two economies in the
last fifteen years. The complexity of this task goes far
beyond what could be accomplished here. The article had a much
less ambitious objective, as it simply aimed to highlight the
existence of some common traits in these two parallel
experiences of economic success: the reception of Foreign
Direct Investment, inward migration and social dialogue.
The above analysis, descriptive and impressionistic as
it is, serves nonetheless to extract some interesting
insights. First of all, the two countries show how
international openness has become a necessary condition for
economies to grow and develop. Much to the disappointment of
the critics of economic globalisation, the Irish and Spanish
experiences show that there are benefits to be taken advantage
of in order to boost growth. However, and this is the second
important message coming from this piece, globalisation has to
be managed. In the same way as it is necessary for any economy
and society nowadays to become integrated into the
international circuits of globalisation, it is equally
important to domestically manage its effects. In this regard,
the view supported in this article is that tripartite social
dialogue, with the participation of all relevant social
partners in the management of the economy, has allowed Ireland and
Spain to reap the benefits of internationalisation without
generating excessive tensions between social and economic
groups.
That
said, the risk of a market or neo-liberal bias remains
present, requiring the search for innovative solutions within
the consensual framework provided by social dialogue. In
Ireland, trade unions are becoming increasingly aware of the
need to increase labour market regulations in order to
guarantee compliance with the terms negotiated in the
agreements. The Irish Ferries case showed very clearly the
challenges ahead for trade unions and meant a real baptism of
fire for partnership. On the other hand, the Spanish economy
needs to move beyond a cheap labour model of low wages and
labour productivity towards a different competitive strategy.
This would ensure higher living standards and better working
conditions for migrant workers. In spite of these challenges,
both the Irish and Spanish economies have proved capable of
internationalising and growing. However, it is important not
to forget that part of this success is due to migrant workers
leaving their home countries in search of better living and
working conditions. As a consequence, it remains an imperative
to have recourse to tripartite social dialogue including trade
unions, in order to manage the economy and achieve a balance
between competitiveness and social protection.
Oscar
Molina
University College Dublin
|