State and workers’ power in the Irish city-state
The recent ruling of the EU’s General Court in favour of Apple and the Irish state has led to a renewed discussion around the future of Ireland’s tax haven status. Michael Rafferty argues that Ireland’s low-tax arrangements form one part of a new ‘relational’ economy centred on Dublin’s financial/professional/tech industries and the new, atomised labour market patterns it engenders. This raises important challenges and opportunities for the institutional left.
by Michael Rafferty
Irish neoliberalism is on the up. It almost always is. And the current version, a new government with a seat on the UN Security Council, the presidency of the Eurogroup and an historic civil war axe-burying ‘green’ makeover, is strutting its stuff on the international stage. The stern rebuke given by Irish voters in February on the very real negative impacts of the post-Tiger growth model is now a distant memory amid the international plaudits for marginally more decisive action than the UK and USA on coronavirus. Come what may, the tax-haven configuration centred around its multinational corporate clients in Dublin’s docklands, its financiers and property tycoons, is sacrosanct. All imaginable alternatives occur within this narrow window; even the previously unimaginable implications of a global pandemic do not threaten it. There is simply no conceivable deviation from the trajectory which began in 1987 with the Irish government’s conversion of Dublin Corporation land – which, in poetic irony, was earmarked for public housing – into the fiscal vacuum of what is now the IFSC.
Upsetting the Apple cart
The economic hubris displayed following the tentative outcome of the Apple corporate taxation case belies a flimsy legal framework for the Irish tax-haven, and falls flat in an increasingly inhospitable global political environment for tax avoidance. The ‘Single Malt’ was the corporate response tolerated by the Irish government for years after the expiry of the ‘double Irish’ fix, itself a state-assisted doubling-down of Ireland’s tax flexibility following the 2008 meltdown. Shrewd use of ‘brass-plate’ real-estate, consultancy or financial firms as conduits to offshore accounts developed by 2015 into wholesale repackaging of giant corporate accounting systems to report profits from ‘intellectual property’ registered in Ireland. This technically mushroomed Ireland’s GDP by 34.4% in Q1 2015 alone (the highest ever single quarterly increase in the OECD), revealed in 2018 as being inflated by the profit-shifting activities of multinationals such as Apple.
That these eye-watering amounts were being extracted via Ireland not only made a mockery of GDP as being any kind of yardstick for phantom investment in Irish economy, but posed unavoidable political problems for the principle of the European single market and stuck in the craw of European capitalists unable to avail of such facilities in their member states. The innocuous sounding EU ‘tax package’ announced on 15 July 2020 is seen as tonic for several rather overworked tax-dodges in several member states, but the threat of regulating and taxing digital platforms operating in Europe rings alarm bells in the Irish tax haven, at least in its current form.
While the Irish government is likely to use all of its diplomatic wherewithal to mitigate its effects and bureaucratic alchemy to make its tax code compliant, it is also confronted with a slowdown of globalisation and a plateau in the digital platform economy – the tide that keeps the Irish tax haven afloat. But rather than using the tax it would gain and make the necessary structural investments towards a more robust economy, the Irish bourgeoisie can be relied upon to fight tooth and nail to defend the unproductive system they have. It’s a strategy that has worked for generations.
Why has the hegemony of Irish neoliberalism been so impermeable?
The resilience of Ireland’s neoliberal hegemony is not built on its adherence to ‘fiscal discipline’, devotion to free-market ideology, or on economic ‘success’ at any cost. Rather, the onset of the Celtic Tiger was a permanent volte-face in Irish industrial policy away from the decentralised, export-oriented and comparatively diverse (but incomplete and declining) economy developed in large part by the Industrial Development Authority since the 1970s. The Irish miracle would be focused sectorally on financial, professional and other advanced services, and geographically centred on the capital city, back then considered a postcolonial ‘backwater’ among its European comparators by dint of the deep recession of the 1980s.
Amid the new geopolitics of the 1990s, both on the island of Ireland and globally, this decisive shift would produce a major transformation of the Irish economy and society, particularly after Ireland’s incorporation into the Eurozone in 1999. Enormous national GDP growth, Dublin’s ‘alpha-minus’ and top-ten global city rankings, attracting giant corporate HQs through fiscal deals, inward migration and population growth in this period were only slightly interrupted by the 2008 financial crash and subsequent austerity and austere ‘recovery’ since 2016.
The impact of neoliberalism in Ireland is frequently understated, and sometimes essentialised as a local iteration of a global phenomenon involving privatisation, market-oriented (de-)regulation, globalisation and financialisation. More critical accounts have identified the interplay between Ireland’s arrested industrial development and urbanisation, idiosyncratic post-colonial politics and contemporary self-positioning as ‘somewhere between Boston and Berlin’. This created favourable conditions for an enthusiastic uptake of neoliberal ‘governance’ in the Celtic Tiger years, compared to states where the post-war Fordist welfare state was more fully developed.
But what makes Irish neoliberalism comparatively resilient is that it reconfigured the economic and social geography of the whole country, and inverted what was previously a system of national government which benefited a longstanding rural/provincial bourgeoisie into one which now instrumentalises Dublin as a spatial conduit, connecting Ireland’s monetarists to the emerging circuits of financialised global capital of the late 20th century. The spatial ramifications of this have been considerable: since 1991 the population of the Greater Dublin Area has grown by around 2/3 to represent 40% of the national population without commensurate improvements in infrastructure, and with the deepest and most sustained housing crisis of a city of its size in North-Western Europe.
Small state or city-state?
As with almost all neoliberal transformations, the primary driving-force for Ireland’s ascension to tax-haven status is its national political system. The OECD describes Ireland as one of its most centralised member-states, meaning that government (or ‘governance’) at the national level retains control over many areas of public policy which are elsewhere devolved to local or regional authorities. This situation gives the national government unparalleled leverage over the development of its single major urban centre, which it has, for example, used in 2012 to designate the ‘Docklands Strategic Development Zone’, fast-tracking the required level of office development for FDI with reduced planning scrutiny. Economic data produced by Ireland’s Central Statistics Office (CSO) shows that more than 50% of Ireland’s GDP (for want of a better measure) derives from economic activity in Greater Dublin. Gains arising from property and other financialised areas of the economy outside the city in large part flow back to Dublin through banks, mortgages and other financial products where they are reinvested (read ‘extracted’) into what financial geographer Manuel Aalbers calls the ‘quaternary circuit’ of global capital.
These measures, taken to heighten Dublin’s global prominence firstly as a financial and professional services (and now also ‘tech’) hub exist as part of a national strategy notorious for its bending of the rules of the European single market on corporation tax and state aid to facilitate US, EU and, increasingly, Gulf capital. That Dublin now features on the GawC Global City index as an ‘Alpha-minus’ city (alongside Luxembourg, New Delhi and Vienna), and prominently in other ranking systems of urban competitiveness signifies the ‘success’ the of the architects of this situation. But the gains are often extracted entirely from the Irish economy, and are commensurate with the costs imposed domestically through unaffordability and austerity in welfare and public services.
In historical comparative terms, the magnitude of economic transformation owing to the wider process of financialisation of the Irish economy, in parallel with the state-led conversion of Dublin into an emerging urban magnet for footloose global capital, easily dwarfs that of Ireland’s tiny internal market being opened up to the Common Market in 1973. It is for these reasons, and some others, that it is appropriate to understand that the Republic of Ireland now operates competitively as a city-state in the global economy.
This type of rapid urban transformation of small or medium size places towards positionality in the global system of flows under capitalism is researched by geographers in ‘relational cities’, a categorical term referring to cities which have emerged under financialised capitalism as nodes between local, regional and global economic circuits not just of finance, but of goods, services, people, culture and information. ‘Relational urbanisation’ describes the process of adaptation involved here, which is contingent on particular governance features and historical trajectories, and relevance to the management of capitalist flows. Examples relevant to this ‘relational city’ category are commonly recognised as offshore or micro-state ‘tax haven’ economies (such as Panama City, Luxembourg or Singapore), whose relatively small, wealthy populations and unique geography represent a rather barren environment for alternative politics.
But Dublin finds itself caught between two worlds: hugely transformed towards global relevance to financialised capitalism and as the major city on an island of over 6 million people, with a large-but-weak labour movement and a century of working-class politics (even if the rest of the Republic industrialised somewhat later). The relevance of radical alternatives to (or within) Dublin’s relational urbanisation is therefore far higher than in the tax-haven offshore micro-states with which it finds itself in competition. Why, then, do socialists and progressives not see radical potential among the new labour profile this relational urbanisation model brings into being? Why is state power not regarded as a viable instrument for a more equitable economic configuration?
One of the most visible aspects of newfound global prominence is the attraction of a new, international labour profile. The remaking of cities to attract financial/tech/professional ‘expats’ is an example of the ‘creative destruction’ inherent to this extreme process of neoliberalisation, seen in the proliferation of luxury housing and avenues for consumption in expectation of an incoming expert bourgeoisie. Gentrification is prevalent among the mechanisms employed to clear out ‘old’ working-class communities around Dublin’s docklands, to be replaced by the new cadres of higher-paid (and higher-paying) workers in the ‘relational’ economy.
That a city which becomes a globally-relevant financial hub attracts upwardly-mobile yuppies from the hinterlands and international ‘expat’ types is almost a banal observation: it comes with the territory. But what is serially overlooked in almost all relational cities is the labour intensity of maintaining the sterile glass office towers, soulless overpriced restaurants and glibly kitsch wine bars which come with the new, transient bourgeoisie. In addition to attracting a new layer of bourgeoisie, relational urbanisation quietly creates an alienated, detached and atomised working-class (both white collar and blue collar), which contends with heightened unaffordability, long commutes and precarious, hamster-wheel employment now common to the service economy. Yet much more work remains to be done to unionise the army of labour required to maintain the corporate ‘global city’, alongside current struggles and new advances in the more established parts of the city’s economy.
A similar paradox seems to exist regarding state power in the small neoliberal (city-)state. On one hand, the national state has ‘made’ an economy around relational urbanisation, not only in the development of the Docklands but with e.g. the establishment of Dublin’s airport and ports as the sole hub on a national ‘spoke’ system of transport infrastructure, melding it into the system of flows of global capitalism. The Port Tunnel, the Irish government’s most expensive undertaking, exemplifies the new primacy of Dublin Port at the expense of Rosslare and Dun Laoghaire. On the other hand, the state’s limited organisational durability is routinely tested, whether in European courts over its fiscal policy or more practically in the coronavirus response. Leaning forever on a staid postcolonial provinciality operating at a global scale, the Irish state rests on its laurels with almost foolhardy confidence, in passive denial of its fragility. The ‘niche sovereignty’ it has used to utterly reconfigure itself since 1990, and now flaunts around the Eurogroup and UN, suffers from the same lack of robustness as the economy it created.
Yet the attitude of much of the Irish left to state power is that the forces that stop it from achieving it are too strong; and even in power the state would be incapable of something as humdrum as a public housing programme, let alone taking on the corporate tax policy. Those downbeat assessments are all too common, yet do not reflect the experience of the last thirty years: Ireland has a strong centralised state with easy access to plentiful capital to address its myriad problems of infrastructure and equality.
Irish neoliberalism might be looking up but it is enjoying the last days of its unquestioned hegemony. But it is not currently progressive, left or working-class forces which are bearing down on it. Epidemiological and economic externalities are breathing down the neck of a city-state economy in a national system defined by its smallness, centralisation and reticence to invest in an economy in desperate need of radical state intervention. Its systemic and current vulnerabilities, partly a function of its scale and partly of its operating model, are also ripe opportunities for those in labour and progressive/left movements. The contradictions of Ireland’s tax-haven city-state and the externalities it faces in its global game are finally opening up a left-right divide in Irish politics long overshadowed by traditional forces. But the Irish Left needs to rapidly develop counter-hegemonic imaginaries and strategies to illuminate them, and to branch out of the traditional areas of trade union, political party and community organisation to realise them.
Michael Rafferty is a PhD researcher in the Department of Geography and Spatial Planning, University of Luxembourg.