Ireland is facing a competition for chip projects that is based in massive corporate welfare handouts

In 2009, Silicon Valley lost its silicon. That year Intel, one of the valley’s iconic companies, closed its last chip plant in the region. Even though the facility was at its home base city of Santa Clara, it wasn’t producing Intel’s most sophisticated chips. By then, the company’s most advanced plants were in three other US states, in Israel — and, of course, in Ireland.

Chip manufacturing was increasingly moving outside the US because countries such as Ireland and Israel offered better supports and incentives, lower tax rates and easier access to skilled employees. By 2009, the US was supplying just 14 per cent of global semiconductor capacity, down from 25 per cent just four years earlier. It’s been a long fall from 1990, when the US provided 37 per cent of global capacity, according to a 2020 US Semiconductor Industry Association (SIA) report.

That dribbled down to 12 per cent last year, when US politicians began to craft a Bill aimed at boosting domestic chip production. The pandemic had focused minds, making American chip impotence a matter of top-level concern. As with so many industries, the semiconductor sector was walloped by Covid-19, which affected chip production and global supply chains.

Dependent industries, from electronics to auto manufacturing, continue to be hit by a worrying shortage of chips. US policymakers realised the country was alarmingly dependent on imported chips, especially for the most advanced chips critical to cutting-edge technologies important for economic growth, and to defence and security.

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The result is the Chips (Creating Helpful Incentives to Produce Semiconductors) Act, a mammoth Bill stuffed with a staggering $52 billion (€51 billion) in industry subsidies plus another $24 billion in tax incentives towards building chip fabrication plants (fabs) in the US. The Act flew through last week with bipartisan support, even in a deeply divided Congress.

That 2020 SIA report had proposed this: “According to our analysis, a $20 billion to $50 billion federal-government program of additional grants and tax incentives for new state-of-the-art fabs built in the next decade would be effective in reversing the last 30 years’ declining trend in US semiconductor manufacturing.”

If you sought an example of the power of technology industry lobbies, and the way in which White Paper reports commissioned from industry analysts are put to work, there you go. That well-timed 27-page report, issued in September 2020 as lockdown impacts were readily apparent, was helpfully entitled Government Incentives and US Competitiveness in Semiconductor Manufacturing. It reads like a blueprint for the CHIPS Act.

A sceptic might note two things here. First, despite the anti-tech sentiment in the halls of many global governments — really, mostly aimed at the big platforms — the tech sector and its lobbyists retain enormous influence and sway. In areas that require specialist knowledge and nuanced, highly advanced understanding of manufacturing, deployment and potential long-term societal impacts, legislators globally repeatedly, lazily, default to industry.

Second, the glaring irony is that, yet again, the market as a whole, and the tech sector in particular, is demonstrably not a laudable, neutral playing field of merit, part of a self-regulating economic mechanism in which value and innovation rise to the top for open market reward. Oh no: it’s just a target for extraordinary state welfare support to powerful corporations across sectors that have seen the wealth of the few skyrocket amid the subsidised protection of well-paid jobs for a minority — even as those same national governments strip back support for the less fortunate for whom paying an energy bill right now may need to be balanced against adequately feeding a family.

Meanwhile, it’s worth noting — especially in the context of Ireland’s spot in chip manufacturing — that a single fab costs in the region of $10 billion or more to build. Some critics have noted that even $77 billion in supports and incentives isn’t going to hugely increase the number of fabs in the US, and certainly not any time soon, as these are years-long construction projects. Indeed, indications are that some subsidies will be utilised for US fabs already planned or announced.

Another US problem is the shortage of skilled technical labour — an area where Ireland has excelled, to its advantage, for years. While the SIA report touted plenty of advanced US expertise, companies differ, saying recruitment is difficult. Plus, much US expertise has always come from high-tech immigrant labour. The US will need to sort its immigration and work policies, another divisive issue in Congress.

So, Ireland retains many advantages in competing for developments from Intel, the big chip-manufacturing employer here. But Ireland must win cutting-edge projects not to become irrelevant and at risk of closures. As seen recently when one Intel high-end development went to Germany, competition will be tough.

And unfortunately, as the Chips Act shows, that competition is still going to be based significantly, and depressingly, around corporate welfare handouts in the form of global subsidies, grants and tax breaks — for one of the richest industry sectors the world has known.