Sir, – Karlin Lillington is right to have some scepticism toward the prospect of competition between the US, the EU and its member states through “corporate welfare handouts in the form of global subsidies, grants and tax breaks – for one of the richest industry sectors the world has known” as they seek to attract investment to establish microchip manufacturing capacity within their respective jurisdictions (“Ireland is facing a competition for chip projects that is based in massive corporate welfare handouts”, Opinion, Business, August 4th).
Your columnist fails to consider the alternatives available to Ireland and the EU to achieve their stated policy goals and the possibility of effectively designing these subsidies such that they achieve public interest objectives without unduly enriching already well-resourced companies.
There is little else that Ireland and other EU member states can do in order to achieve their goal of establishing more chip manufacturing capacity within the EU without using some form of subsidy or tax incentive. While quality of infrastructure, skilled workforces and access to markets will inevitably play some role in attracting such investment, these factors are more difficult to improve in the short term. Moreover, subsidies may be required to compete with areas that have more established networks of chip manufacturing industries and benefit from cluster effects. It is also worth noting that any such competition between EU member states will be regulated and moderated to some extent by the EU’s state aid rules.
Such measures also appear more attractive in light of the opportunity costs. The objective is to locate such manufacturing facilities in the EU not only to generate employment and other spin-off benefits for the EU economy, but also to ensure access to these vital goods. If we are unwilling to pay the cost of some subsidies or incentives to ensure that some of this manufacturing capacity is in the EU, we should be sure that the cost of importing microchips and of possible interruptions in supply do not outweigh those costs.
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Perhaps most importantly, it is not inevitable that the use of subsidies and tax incentives in this way will involve excessive deference to the private sector in the manner described by your columnist. Instead, measures can be designed with appropriate conditions to ensure the State gets a meaningful return for its investment. If it is designed well, the proposed European Chips Act could allow the EU and its member states to take an active role in co-ordinating private-sector production and research. – Yours, etc,
CHRISTOPHER
McMAHON, BL
Adjunct Assistant Professor,
School of Law,
Trinity College Dublin,
Dublin 2.