Interview with Danny Mc Coy, CEO, Ibec, Ireland

Interview with Danny Mc Coy, CEO, Ibec, Ireland

 

Q: Although the Covid-19 pandemic has hit every economy in Europe hard, Ireland has somehow avoided 2020’s economic downturn. The nation is one of the fastest-growing economies in the world, with projected GDP growth rates just above 3% in 2020 – the only country with positive growth rates in the EU. This is due to Ireland heavily investing in advancing its modern businesses sectors and population. Can you give us an overview of Ireland’s major industrial strengths? What particular sectors are driving the economic growth of the country?

Danny McCoy: The experience of the economy is a growth rate in 2020 of just over 3% and possibly something broadly similar for this year and next. It’s remarkable that the economy grew last year, in contrast to other jurisdictions, and therefore the drivers of that growth were really a K shape type recovery with  the upward arm was very firmly driven by international investment in Ireland over the last decade in the pharmaceutical sector, the medical technology sector, technology more generally, but also in terms of food and drink. So the real drivers of the economy last year were those outward-facing export-orientated sectors.  They would have dragged up the economy by 15 to 18% and that counteracted the drag on the economy from the domestic economy that base consumer congregation, consumer events like hospitality, entertainment, drinks, some retail though not all retail, and construction; basically, those that were shut down during the pandemic. So fundamentally big drivers: med tech, pharma, technology, food and drink.

 

Q: How significant is the employment rights legislation proposed for 2021, and what should the government be looking at in order to create a sustainable economic system for businesses and employees?

Danny McCoy: One of the features of the pandemic is that it has shown that some sectors are precarious, and some incomes from individuals have been devastated, as a result of the pandemic. So we clearly need to take a look at our taxation and social welfare interaction and so the government has set up a commission on taxation and welfare. In addition, the government has set up a Labour Employer Economic Forum  that will look at the type of employment rights and issues, like right to disconnect, remote working, living wage, statutory sick pay. But also how we deal with collectivism in terms of how do people express collectively what their wishes are. So there’s an opportunity now to reshape our economy and society. The government’s approach to doing this is through a social dialogue model where government, trade unions and employers, as represented by Ibec, come together to try and forge a better, more sustainable enterprise labor market and environmental backdrops. It’s a great opportunity to do this.

 

Q: The historical interactions of what is now Ibec have been a driving force for Ireland’s industry for almost the last century. Now, Ibec is the largest lobby and business group in the nation and supports businesses and employees in every sector. As Ireland’s economy continues to grow at a rapid rate, Ibec becomes more and more crucial in spurring change as well as policing sustainable models of business. Can you give us an overview of your role in supporting Ireland’s businesses and employees? How does Ibec engage with the public sector, and what kind of influence does the confederation have?

Danny McCoy: Ibec is by far the largest business representative organization in Ireland, but actually in society, we’re the biggest lobbying group in society as well. That’s because the business footprint in Ireland proportionately is larger per capita than in most other societies, because of the nature of what happens here, which is as a globalized hub, and that hub activity creates quite a lot of resources, and so our interaction with the government is really to harness that innovation and resources to provide a sustainable platform. But, given the nature of the globalized economy, Ibec is also one of the largest business representative organizations in Europe. And we were internationalized, so we have offices in Brussels, obviously, but we have joint ventures with other business associations right across the States, and particularly with the Confederation of British Industry; we have a joint Business Council in Northern Ireland for instance. So we would see Ibec as helping our members, both domestically and also internationally. But we’re also an employer’s organization, as well as a business organization. That’s in our name: Irish Business and Employers. On the employer side, we would try to make sure that the labor market functions properly and whether there are collective disputes with trade unions, we would negotiate and find solutions to industry relations problems or negotiate on pay determination or on sectoral activities, but then also we would represent individual employers, whether with dispute about employment rights, often individual along the way.

 

Q: How important is sustainability to Ibec – be it environmentally, socially or financially – and what is the organization doing to promote green and ethical measures in business?

Danny McCoy: Going back maybe 16 years ago when I joined Ibec and leading it for 12 my own background. I lectured Environmental Economics and Sustainable Development at Oxford University and University College London in the past, so we certainly have shaped our policy response going right back to the mid-2000s around the sustainable development and seeing  natural capital, social capital, human capital and the entrepreneurial capital or financial capital, these things are brought together by enterprise. And so that structure, we would have maintained right through the financial crisis, and so on, to try to get Ireland into a net zero carbon ambition. And so we launched a report on low carbon transitions. We’ll update that at the moment because we’ve done that about 18 months ago, but the targets have got more significant since then, 30% has become 55% by 2030. 

We will certainly see the opportunities from sustainability. It’s not just a cost. This capacity to be innovation and to transform is a great opportunity for Ireland because Ireland missed the industrial revolutions of the past. So it doesn’t really have a brownfield site; it’s got more a greenfield site. In that regard we’ve got an opportunity here to be both innovative and have a much more sustainable economy.

 

Q: The Covid-19 pandemic has seen massive economic dips around the world. While some sectors are affected more than others, every sector has felt its impact through lockdowns and clients tightening their belts. However, things have changed since the pandemic began, and outlooks are high as investors finally reopen their purse strings. Employment rates dropped drastically last year as people lost jobs and were forced onto the Pandemic Unemployment Payment. How has the pandemic affected workers, and what needs to be done to get the country back on track?

Danny McCoy: When you look at the macroeconomic numbers of a growing economy, it means that a significant amount of activity continued to take place during 2020. Very often, workers were dislocated from their place of work but continue to do that work from home in the case of services. And because services is such a significant component of our economy, people were disrupted, but they weren’t losing their income and they weren’t losing their jobs. Those who have lost their jobs at the moment have been temporary as a result of the crisis, and their welfare payments have gone a substantial way to restore their incomes. So, it’s more than a 90%-10% story in terms of 90% are intact, 10% are in quite a lot of distress. But the opportunity that we see is that the demand side of the economy remains very strong because income growth was quite strong last year on the back of the economic performance. And therefore, we expect, that when we get a sustainable reopening which we would hope would happen this summer, the demand side will come surging forward. And the question will be: can we make sure that the supply side gets people back into their jobs and their businesses and are there to meet that demand? It’s going to be a challenge, but the opportunity is high that we can see a really strong V shaped recovery effectively. As a result of that we’d expect that employment and, therefore, the unemployment rate will restore back very quickly during 2022 to what it was pre-COVID.

 

Q: Although EU countries saw a fall in exports of more than 8% during the pandemic, Ireland’s exports continued to grow. What are the reasons Ireland’s trade model is so robust – even with lockdowns?

Danny McCoy: First of all, Ireland would have had started badly in the 20th century, so that we didn’t have any natural resources that were valuable in terms of oil, coal, gas; we didn’t have any mineral natural assets of any significance. Therefore, our model was one of failure for a significant proportion of 20th century, where we couldn’t hold the population. Ireland’s population today is still lower than the 1840s; no other place on earth probably has a lower population today than in the 19th century. Our main exports would have been people. What we saw was that, post Second World War and with the European Economic Community, Ireland had an opportunity if it opened up, to actually have a higher standard of living, because it couldn’t sustain a good standard of living on the circumstance it found itself in. And so it became a very open export-oriented economy, which had no disputes between capital and labor; we didn’t have any of those tensions and that allowed Ireland to be in a good position for globalization when it took off, particularly in the late 1980s early 1990s, when we were fully embedded within the European Union and that large market. We had the characteristics for a strong export-led growth. That export-led growth would have been predicated on being in the European Union, being English speaking, being very tight the United Kingdom as a G7 country, and United Kingdom’s renaissance from the late 1980s through the 90s into the 2000s was quite correlated with the Celtic Tiger period because both countries actually benefited from the same causation factors: globalization, openness, population dynamics, etc., so that Ireland and Britain would have aligned very closely. 

Where the robustness came in the last half decade is because of the OECD work on Base Erosion and Profit Shifting. It meant that intangible assets became a more significant driver of value. And intangible assets can move to a jurisdiction, particularly one that has a favorable corporate tax rate, has a stable society, is part of a bigger economic block and has a certain stable and legal system. Britain and Ireland would have had those characteristics, and, in fact, we would have seen 2012 to 2014 a strong surge in both Britain and Ireland as a result of this move towards an intangible-driven world. Britain then caused uncertainty for their model through the Scottish independence vote of 2014 and then significantly the Brexit uncertainty in the run up to the referendum, and then the decision in Brexit. It meant that Ireland had even advantage over Britain and we saw a dramatic change in our capital stock, as we saw the balance sheet movement into Ireland, followed by a significant investment, a huge investment in fact in machinery and equipment, building construction and these intangible assets of brands, copyrights and patents. And so we saw our economy to be doubled. But that also gave us the capital stock base to be able to deal with the pandemic because we’re exposed to those sectors that were important during the pandemic: pharmaceuticals, med tech, food and technology.

 

Q: How significant is Brexit to Ireland’s industrial sectors and trade, and how long lasting will its effects be?

Danny McCoy: They’re transitional costs of Brexit or substantial but not significant in the long term. In other words, there’s transaction costs of goods moving, the absence of the land bridge driving on to the island of Britain to head towards the continent, having to use the sea routes, these things are kind of sand in the wheels at the moment. But in time, these will calm down and people will adapt. The more significant factor for the Irish business model is stability of the Union, the United Kingdom. Because the consequences of the United Kingdom itself breaking up, which is a possibility – it’s probably not a probability it’s more like a possibility – would be triggered potentially by the Scottish decision. And that Scottish decision about the Union, which I don’t think will happen anytime soon, will have knock-on consequences for the island of Ireland and for Northern Ireland’s position. In that regard the stability of the North/South dimension in Ireland is important for the business community because that’s a stable backdrop.

 

Q: What kind of major opportunities do you think Brexit has given to Irish businesses and how can they leverage on the new trade model?

Danny McCoy: The new trade model has got to do with goods, not services, capital or people right now. So narrowly, in terms of goods, there are not a lot of advantages with Brexit, because, for a lot of our goods, Britain is the main market in which to be serviced in terms of food. Small and medium enterprises, if they export at all, their main export market is going to be to Britain. 

The opportunities are more around the investment. Some of those opportunities have even presented themselves in the last five years since the Brexit vote. We see that Ireland has become very dominant in those sectors like financial services. We’ve had a lot of exodus out of Britain into Dublin, around financial services, to have the benefit of EU passporting and regulatory equivalent. There are huge amounts of opportunity in the absence of Britain, being in the European Union, but also there will be quite a lot of challenge for Ireland because Britain will find its way in the world and will have a similar proposition as Ireland. And that proposition is probably no longer going to be around corporate tax competition, given what’s happening with the OECD work on BEPS and the Biden administration in terms of putting corporation tax rates up and a new floor through a minimum effective tax rate. So that we must move on to other characteristics which Britain is very good at, which is their university systems, their innovation culture, the sheer quantity of population. These factors will be quite a challenge for Ireland, and we’ll be competing against Britain very significantly for future investment.

 

Q: US-Irish relations are at an all-time high after continued growth in the last two decades. Ireland is now America’s ninth largest trading partner – no small feat for a nation the size of Indiana. Additionally, American multinationals now noticeably dot Ireland’s business landscape and have bolstered the country’s GDP significantly. What are the reasons for Ireland’s strong economic connections with the US, and how is Ireland looking to grow these connections – both at home and in Ireland’s presence in the States?

Danny McCoy: The connections have always been historically strong through people but increasingly they’re becoming strong through investment. That investment was unidirectional at the start: US companies investing into Ireland. But as Ireland has developed and become a stronger hub itself, we’re seeing that investment by Irish businesses is back into the United States, being much more substantial and significant in the relationship. But clearly, 5 million people versus 333 million, the relationship must be tempered in that scale, so it’s not a relationship of equals. When Irish businesses invest in United States, they’re investing for the  scale of that market. When the US invests into Ireland it’s not investing for the Irish domestic market potential. It’s as a platform to hit not just European Union, but the European continent and the Middle East and Africa; it’s a preferable time zone.  That relationship is kind of where the future will be. In a globalized world, that is shifting towards Asia, what relationship can Europe and the United States have together? Ireland could be one of the leading parts of the European part of that relationship. And that’s probably where we’ll see the future: Ireland used to export people to the United States; they didn’t export their people to here, they’ve put their investment in here and we’ve now put our investment back. It’s that kind of relationship that will develop. It won’t be around people movement; it will be around investment.

 

Q: Recent digital advances have affected everything from the sale of boots to advancements in medical science. New innovations in big data, AI and robotics have created platforms for greater efficiencies – but have also created a race to implement these new strategies to stay competitive. A recent study ranked Ireland as sixth in Europe in terms of integrating digital technologies, and the fastest growing in this index. How have Irish companies adopted digitalization, and what significant changes have it brought to common business models?

Danny McCoy: Digitalization has been changing so dramatically in so many ways in the last decade that people would describe digital companies, but now every company has digitalized. And if they aren’t digitalized then they’re going to be in decline. Digitalization is just completely pervasive both in business and in consumers’ lives. Clearly the infrastructure piece behind the digitalization in Ireland, like in other jurisdictions, is good quality broadband, digital access channels of delivery towards digitalization. But these are all factors that impact the demand side. Ireland is also significantly on the supply side of digitalization with data servers, data firms and so on. That infrastructure means that Ireland has capacity to spin off new developments around digitalization, be it in robotics, AI or 5G. So that Ireland has the conditions- like in other jurisdictions, it doesn’t have a unique advantage in this – but it certainly has the conditions on which to thrive as we move into the next phase of digitalization. 

We see this in industrialization as well, industrialization 4.0. Ireland is pretty frontier in some of the things it’s doing around medical technology, in pharmaceuticals, particularly in terms of technology, but also in food companies. Traditionally Ireland’s only natural asset was really its capacity to grow grass and we didn’t really have a dairy industry of any significance. But now, the last generation, we’ve seen that not only we have use of that grass for infant formula in the high value activities infant formula brings, but also the nutrient from that dairy nutrients are used for exercise, for gyms and for bodybuilding etc. In this market, as we see that trend internationally, Ireland is very heavily present, but in order to get that through, it’s done via digitalization with a product that is delivered and moved around through the capacity of digital footprint. It allows more effective delivery of what is factually milk but delivered in a different way.

 

Q: You have been running as the head of Ibec for almost twelve years! In your time I’m sure you have seen a ton of economic highs and lows, including the recent intensified economic depressions and the pandemic. Still, Ireland is holding strong, and there’s no doubt you have had something to do with it. What is your vision for Ibec and the Irish business world in the next five years, and what have you set aside to accomplish your goals?

Danny McCoy: I guess the changing landscape of what we talked about earlier on: the post- Brexit world, the sustainability agenda, its aggressiveness, and the globalization changes, reflected in the corporate tax changes, but also in the globalized collectivism that’s coming, with collective bargaining, trade union recognition and those employment rights, right to disconnect, right to remote working, all these things give a kind of a palette of issues which are connected. But what makes it exciting is to try and find what the formula is to bring these things together. Ibec can be at the frontier of that discussion, both in Ireland through that social dialogue bond I talked about, but increasingly in international forums, at the OECD, but also in Brussels and also the International Labor Organization in Geneva, and increasingly in New York with the United Nations Sustainable Development Goals. These are exciting things for the next five years. And they’re a great relief from the pandemic issues that we’ve been dealing with. The pandemic has heightened our sensitivity to the opportunities, and the next five years, we hope to deliver on them.

 

Q: Final message to the readers of Foreign Policy magazine

Danny McCoy: Track record is probably the most significant feature for betting on an investment location, and there are very few places on earth that delivered on that investment agenda like Ireland had, over succeeding generations, in the last 40 years. Form is temporary they say, but class is permanent.

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