Big Tech faces groundhog day as 2021's challenges set tone for 2022

For the tech sector in 2021, it was the best of times, it was the worst of times.

The best can be summed up easily: much of the sector did extremely well when it came to the bottom line, despite, or often because of, the ongoing pandemic. This phenomenon helped keep Ireland’s corporate tax take far above what might have been otherwise expected.

But the rest of the picture was less rosy. If profits have remained high, an onlooker might shrug and say, why worry? But developments over the past year, on the production, employment, tax and regulatory front have been challenging for the sector, to put it mildly. And though the pandemic gave, it also took away in ways that may have a longer-term impact. Here are some key examples of where things went wrong for tech in 2021.

Chip scarcity

On the production side, the headline issue has been an ongoing shortage of semiconductors, the microchips that are now central not just to the devices that people think of as "technology" – computers, smartphones, gaming consoles, tablets – but also to many that we don't.

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Cars, thermostats, televisions, medical devices, door locks, kitchen scales, cat flaps, any range of the toys that children most want from Santa and, importantly, the back-end of what we call “the cloud” – the multitudinous servers all over the world that store and manage the world’s digital data – all rely on chips.

Their lack means companies have struggled to meet demand for products, and services, too, and may continue to do so for quite some time (months, at the very least).

The pandemic provided a perfect storm. It created a demand for technology products and services because people were stuck at home for a large part of 2020 and 2021, and needed the technology for work, communication and entertainment. But some of those stuck at home were the workers in the factories that produce the chips and other components needed for the products and services.

That constrained chip supply, and the long production pipeline isn't expected to begin to recover anytime soon.

A related issue is the shortage of the raw materials that go into the chips – some of which are rare elements to begin with. Miners also didn’t work for months due to the threat of Covid.

This year, agreement on a new minimum 15 per cent international corporate tax rate, and a shift in where taxes must be paid, followed years of very public global arguments

And alongside shortages, there’s rising awareness and growing scrutiny of the environmental and human rights issues connected to the mining industries in many of the poverty-stricken and, often, environmentally sensitive regions in which they operate.

While the pandemic has exacerbated the problem, the shortages preceded the pandemic. Ironically, many green technologies such as wind turbines and electric vehicles rely on these mineral resources, creating a demand for more mines – a tech conundrum that won’t be easily resolved.

Employee power

As for employment, on many fronts, 2021 has certainly been the year of the tech employee rather than the tech employer, with employees gaining in power and influence.

Yes, the tech sector is seen as a cushy employer, with good pay and plenty of perquisites and pampering. But the pandemic showed employers that what employees wanted was not so much free lunches in chef-run company canteens or offers to freeze eggs so women could have company-funded IVF treatments at a more "convenient" career moment, but plain old WFH – work from home – opportunities.

That’s all very inconvenient when many of the tech giants and ambitious start-ups are paying for pricey urban offices or have developed expensive properties (what is Dublin’s Silicon Docks, after all, but a big property play by a number of tech multinationals).

The work from home message has been given loud and clear by employers across some of the tech sector's best-known companies. Even as employers such as Google indicated they expected employees to return to the office for most of the week, employees said no.

Given that so much of the tech workload can be done virtually, using the same cloud services the sector hypes to its clients, employees also wanted to work in their physical location of choice, which might not be just down the road from Palo Alto or Dublin's city centre, but thousands of miles away.

And at the lower end of the pay and benefit scales, tech employees, many of whom were frustrated by pressures to work in Covid-risky, public-facing gig economy jobs, just walked.

Rideshare companies such as Uber and warehouse and driver-dependent companies such as Amazon have lost workers tired of that lifestyle, or experienced extremely high turnover. In a double wallop, Uber and Amazon also saw their main company internal employees demanding more access to work from home. With pro-union rumblings continuing at several tech companies, it's looking a lot more like an employee-power trend rather than a pandemic blip.

Tax reform

Taxes are the challenge to the sector that most people easily recognise. In 2021, international sentiment finally hardened into real action against the clever manipulation of international tax systems by multinationals bolstered with armies of financial and legal expertise.

This year, agreement on a new minimum 15 per cent international corporate tax rate, and a shift in where taxes must be paid, followed years of very public global arguments over the legality of some corporate manoeuvres and nationalistic finger-pointing at countries – step forward, Ireland – seen as being helpfully acquiescent in global asset shuffling.

The historic deal saw more than 130 countries agree to changes pushed for by the Organisation for Economic Co-operation and Development (OECD), but the pendulum really only began to swing when the Biden administration backed the proposals.

The United States was always the key player here. The companies affected are primarily American multinationals headquartered in the US, many of them from the tech sector. As long as the US tax system – and US politicians, handily laying blame abroad – accommodated an unofficial system of regular tax amnesties where US companies were allowed to quietly repatriate their burgeoning offshored assets, it mattered little what Ireland or Singapore or the Bahamas did.

But now, a new tax floor exists, though Ireland stalled before confirming it would back the deal. Perhaps those in Leinster House thought they should at least appear reluctant to placate the all-important foreign direct investment (FDI) companies. After all, it’s no exaggeration to say Ireland’s tech multinationals kept the State in a fairly fit economic state despite Covid, allowing the Irish economy to actually grow during a pandemic.

However, those same companies made clear through the mouthpiece of the American Chamber here that the multinationals actually wanted Ireland in rather than out. Why? Simple: stability is preferable to uncertainty, even at a (modest) cost. A shift from 12.5 to 15 per cent was never going to create multinational panic here.

Move to regulation

Perhaps the greatest blow for the sector, though, was the clear movement towards greater global regulation of company activities and structure. In 2021, the parade of technology company executives before various legislative houses around the world continued, and the welcome mat was not laid out for their arrival, indicating the general public and regulatory mood.

On one side of the Atlantic, US president Joe Biden came into office with plans for managing Big Tech on the agenda. His choices to head the two big regulatory agencies, the Federal Communications Commission (FCC) and, in particular, the Federal Trade Commission (FTC) are both seen as tough on tech issues.

For the first time in years, antitrust law is getting a dusting off and a closer look. Pressure also continues for a federal privacy and data protection law akin to Europe’s General Data Protection Regulation (GDPR).

If Washington DC won’t act, a growing number of states have shown they’ll keep bringing in their own data protection laws, which in itself creates an unwanted, ongoing, multijurisdictional compliance headache for companies. Once again, companies would rather have the clarity of one federal law, even a tough one, than wrestle with bits and pieces across 50 states.

On this side of the ocean, Europe is moving towards stronger regulation with its pending Digital Services Act and Digital Markets Act, which will place significant obligations on tech giants identified as market "gatekeepers".

The view into 2022 isn't looking any easier for the tech sector, with all the big issues of 2021 carrying forward

National data protection authorities in the EU states bearing the most regulatory responsibility for technology companies – Ireland and Luxembourg – are under multipronged pressure to apply adequate punishments and larger fines to companies found in breach of GDPR.

In Brussels, the European Commission has also indicated it is ready to consider utilising EU antitrust and other significant powers against Big Tech. None of this will bring much pleasure to tech company executives or boardrooms.

Looking ahead, you can see only more of the same. The view into 2022 isn’t looking any easier for the tech sector, with all the big issues of 2021 carrying forward into the coming year.

That potential turmoil is raising concerns, which were reflected in the financial markets as 2021 drew to a close. Technology shares are volatile and have been sliding. Some analysts feel they have long been overvalued, and that adjustments are overdue. But that didn’t bring any tidings of comfort or joy to Big Tech’s holiday season.