The world has turned a shade darker. Rather than political authorities confronting the realities of a modern capitalist society that has made vast swathes of the population effectively redundant, it’s turned the history books back a chapter to the smog filled corridors of manufacturing and nationalism. On both sides of the pond there are claims that a combination of restricting migration and a slashing of corporation taxes will reinvigorate “the rusted out factories scattered like tombstones across the landscape of our nation” as The Donald put it.

Ireland on the other hand faces a different side of the same problem. Since the 1960’s, our elites have based our economic model on the premise that capital is global, and by making conditions favourable for foreign investment, native industry can be bypassed in favour of FDI and the secondary industries that grow around it.

However, with the EU Commission ruling that the Irish State gave illegal state aid to Apple, while reports of Ireland’s GDP growth rates are called out both at home and abroad for being bogus, the promise of this FDI growth model is ringing hollow. It now faces an even more uncertain future as Ireland now lacks the United Kingdom in the EU defending its corner, while Trump seduces US multinationals back to the OC.

Earlier this year, Aidan Regan of the Geary Institute for Public Policy in UCD published his paper Celtic Phoenix or Leprechaun Economics? The politics of an FDI growth model in Europe. I spoke to him on the political implications here in Ireland of having an economic growth model based primarily on attracting FDI:

“Ireland has a growth model and that growth model is based on foreign direct investment. That foreign direct investment predominantly comes from US multinationals from Silicon Valley. That gives Ireland headline levels of economic growth, a headline recovery. It creates good jobs and good employment and who doesn’t want to have a high wage, high growth, high skilled sector in their economy right? The problem arises because it’s so narrow.”

“The multinational sector in Ireland that’s exporting is 90% owned by US multinationals,” explains Regan. “And if you unpack that a little bit further and you look at the actual firms within that sector that are driving the recovery you are for the most part talking about ICT, the information, communications, technology and more particularly, you know, the tech sector. So the inward investment, the FDI from the tech sector and the expansion of tech firms and the exports from those firms which are predominantly services is what’s driven the Irish recovery.”

“That’s what’s driving the recovery, these are the people that have really felt the recovery. But on average, for the most part, most people don’t work in these firms, most people don’t work in that sector and most people have seen their taxes increase and their pay decline and they’ve seen less investment in public services. ‘Keep the recovery going’, in hindsight it’s such a ridiculous statement because for the vast part of Irish people there is no recovery because they don’t feel it in their pocket.”

The GDP figure published last year showed a 26% increase. GDP is supposed to be a reflection of the economy’s productive activity. Yet as Regan explains, there is clear discrepancy between the figure touted and the actual reality of the situation on the ground:

“So leprechaun economics is of course a term that (Nobel Prize winning economist) Paul Krugman coined when it emerged from the national accounts in Ireland that the economy had grown, measured through Gross Domestic Product by 26%. Anybody that has any understanding of national accounts would know that it was totally nonsense. On that basis Ireland’s economy would be bigger than China in less than a decade or thereabout. So it was a term that Paul Krugman used to describe effectively the tax avoidance strategies in use in Ireland.”

The most notorious example of the kind of tax avoidance going on has been the EU commission’s judgement that the Irish state gave illegal state aid to Apple which allowed them to avail of a corporate tax rate as low as 1% in 2003 and declining to 0.005% in 2014. The commission ruled that Apple must back pay 13 billion euro in taxes to the Irish state. Economist Conor McCabe explains this further:

“The main basis of the EU commission’s case is that there had been rulings by the European Court that not all state aid is in the form of a grant. A tax deal can be seen as state aid. So what they reckon is that given the impact that there were sales being booked here that weren’t part of the activity here, nor was the company taxed anywhere else, that really this is a form of state aid and it’s anti-competition because other companies didn’t avail of it. If every single company was able to do exactly what Apple did then it wouldn’t be state aid. It’s because they got a bespoke deal. Now there is three hundred of these kind of bespoke deals under investigation by the EU commission.”

The Irish state is now battling this judgement, arguing that the EU is encroaching on the Irish state’s sovereignty by meddling in its ability to set its own tax rates. The Irish state for the past ten years has played fast and loose with the notion of sovereignty. We hear the term pedaled about as an argument for tax avoidance, as if the supreme authority of the state is the ability to set its own tax rates. Yet it was noticeably absent in the aftermath of the bank bailout when the actual sovereign of the state, in other words the people, were inflicted with austerity and Ireland was infrastructurally ripped apart.

“There is a tax avoidance industry here. It’s a very very powerful,” explains McCabe. “It has very strong lobby. So if you look at any kind of FDI there is always a secondary industry built up around that FDI. If you build factories that are kind of feeder industries into that factory, that’s where most of your jobs kind of come from in terms of FDI. It’s in the secondary industries. If your industry is in tax avoidance then the feeder industries are accountancy and law and they’re the one who benefits from this. It is a multi-billion dollar industry.”

As both McCabe and Regan emphasis, it is important to distinguish the actual FDI that have a “bricks and mortar” base from the tax avoiding FDI – those that just have a broadband line and an office that funnels revenue through the government’s books. Yet each successive government’s argument has been that the 12.5% corporation tax rate is the golden net that attracts FDI, that without it there would be no growth in the Irish economy.

This entanglement of the productive FDI with financial tax avoidance is a smokescreen, used to dissuade any discussion of the corporation tax and the fact that so many companies are getting illegal state aid, effectively setting their own tax rates.

Regan’s research reveals that it is the access to skilled labour (both domestic and EU) and not the corporation tax that is the main reason FDI is attracted to Irish shores.

“Our research would suggest that the core determinant if you wanted to identify a causal determinant, it’s fundamentally the cluster effect of high skilled labour. And therefore the cluster effect of high skilled labour in this particular sector, in this tech sector, comes from the rest of the EU. 70% of people working in Google are not from Ireland. So when you have that cluster of people, these other firms want to be around the big players. So Facebook comes in, Twitter comes in and everybody wants to come in and they want to come in because they want to take those workers, they want to have access to that supply of workers. The corporate tax thing matters to a certain extent as every multinational company with capital, and capital is global, is going to want to reduce how much taxes it pays.”

With the EU now intent on cracking down on low corporation taxes, the time is running short on the Irish state using its corporation tax as the magic wand to attract FDI. With tax harmonisation on the EU’s horizons, it’ll be of little surprise if a populist backlash arises from the Irish elites here that cream off the tax avoidance industry, to cry wolf and scapegoat the EU for impinging on their political ability to create jobs. The corporation tax is being made a holy grail in Irish political discourse, not for its centrality in job creation but in being highly lucrative to a select few with access to the honey pot.

At a time when Trump’s corporatocracy pledges to bludgeon down further domestic corporate tax rates, it is a dangerous game to think that this the only card we hold. Hold on to it until last and it may very well be a race to the bottom.