By Jonathan Ruane
A study of Ireland’s small, open economy can inform similar economies around the world on how to respond to rapid technological progress
Jonathan Ruane, Research Scientist at the MIT IDE, recently spoke at a conference on Work of The Future in Dublin, Ireland, addressing how digital technologies are changing the landscape there, and how to adapt. Ruane discussed policies that might best prepare the country given a backdrop of international protectionism, automation, and Brexit. While specific to Ireland, the broader discussion also provides lessons for other small, open economies, as well. Ruane was joined by other MIT Sloan faculty including Professors John Van Reenan and Thomas Kochan. The conference was organized with the Higher Education Authority of Ireland, and was attended by the Minister for Higher Education, heads of several major universities, and 200 key stakeholders from government, education, and the private sector. One conclusion: Entrepreneurship is a vital ingredient to unlocking the future.
Some highlights of Ruane’s presentation follow:
Economists, politicians, business and community leaders around the world are engaging in discussions on how to maximize the opportunities and minimize the disruption caused by technological progress. There is still much debate as to what exactly is happening, how factors such as globalization interact, and what the future might look like. What we do know is that the effects are not felt uniformly across every firm, sector, or nation. Unpacking the implications, choices, and levers for a small, open economy such as Ireland, which has limited resources but potentially high levels of adaptability, presents an interesting set of challenges.
For instance, leaders in smaller countries, such as Ireland, are grappling with many of the challenges of larger nations including an increasing share of income going to capital, technological labor displacement, urban concentration, low-work intensity households, high public debt, and income inequality. Despite these headwinds, Ireland’s success in the last several decades has been extraordinary; few nations in the world have experienced similar rates of growth in living standards. In the last 50 years, real weekly earnings for industrial workers grew 250% as the economy transitioned from a primary focus on agriculture to become a global powerhouse in pharmaceuticals, financial services, software, medical technologies, and aircraft leasing. (The figure was even higher since World War2, as indicated in Figure 1.1.)
The country’s institutions, corporations, workers, and communities have embraced technology and trade as primary drivers of its success. At the same time, Ireland is intertwined with the global economy: Its membership in the EU, coupled with a low-tax regime and a well-educated, young, English-speaking workforce have enabled it to succeed in the international competition for mobile, foreign direct investment (FDI). Seven of the top 10 global software companies, 14 of the top 15 med-tech companies, and all of the top 10 pharma companies have a substantial presence in Ireland. More than one in five workers is employed at a foreign-owned enterprise. Nevertheless, the question is how do countries such as Ireland continue to succeed? Below are four key, technology-related battlegrounds I believe will play a pivotal role.
- Automation
As technologies such Artificial Intelligence (AI) and robotics proliferate we can expect to see digitally native, data-centric, frontier firms adopt them earliest. This presents a heightened challenge for Ireland as its economy is highly dependent on these types of firms: Fully 80% of corporation tax receipts are paid by just 10 of these foreign companies including Google (7,000+ employees), Apple (6,000+ employees), Facebook (on track to 4,000 employees), and Intel (4,000+ employees). Automation effects typically happen at the task-level and the suitability for machine learning, as described here, varies widely among roles. Although this shift will inevitably cause some labor displacement, if Ireland can create suitable complements and become a hub for testing and deploying new technologies, it could attract even more investment in the long term. Expect Ireland to be an early bellwether for these trends with pronounced effects in certain sectors.
- Productivity
On the surface, Ireland is a highly productive economy. For instance, a 2019 OECD report ranked it Number 1 in the world. However this assessment disguises a two-tier economy where a small cohort of foreign multinationals book non-Irish revenue that inflate the output of their workers. Despite decades of international investment, there is sparse productivity spillover into the domestic economy. Underperforming Irish-owned firms must reverse the trend by accelerating their technology adoption (digital, in particular) if they are to grow exports and compete internationally. Digital adoption is the key to growing wages (important to alleviating issues such as housing affordability and funding for public services), while remaining competitive. Government and industry should collaborate to support technology diffusion from FDI-related frontier firms to the rest of the economy through intensified trade linkages, research collaboration, and labor-mobility incentives.
- Entrepreneurship
Ireland needs to grow its export-orientated, indigenous industry to ensure the economy is resilient and adaptable—especially, given Brexit and the generally turbulent international trade environment. To achieve this expansion, it must consider whether it is creating the right business conditions to allow new firms to thrive, in particular technology-orientated start-ups. The State is active in financially supporting the early stage venture capital needs of these firms, but it stops short in terms of reducing the power of incumbent firms and entities. For example, the state has recently passed legislation to restrict home-sharing platforms (despite Dublin being the European HQ for AirBnB), and indirectly, substantially curbed the activities of ride-hailing firms such as Uber. Achieving entrepreneurial growth is often incompatible with maintaining the status quo. Achieving the right conditions and culture for new firms to flourish will require bold decisions and difficult trade-offs.
- Healthcare
A robust focus on healthcare can help Ireland capitalize on tech progress and its potential nimbleness–something larger countries struggle with, as well. Ireland’s single payer healthcare system and relatively small population offers potential for a step change in the utilization of advanced digital technologies which could have tremendous benefits in terms of quality of care for citizens, as well as productivity and start-up success. For example, digitizing patient healthcare records for the entire nation (something also discussed by both Kochan and Van Reenan), could lead to a transformative, “New-Deal” level of investment.
In sum, Ireland has benefited enormously from technological progress, but as a small, open economy it shares some of the challenges of larger, developed nations in the future. Its ability to focus and move quickly could enable it to benefit more than most as advances accelerate. These opportunities do not come without a cost, however, and taking advantage of them whilst maintaining social cohesion will undoubtedly require leadership at all levels.