Ireland’s Productivity Boom: A Closer Look at Guinness Brewery, Diageo, and the Role of Multinational Firms in Ireland’s Economy

Ireland, a small European country, has been making headlines for its impressive productivity growth. According to the Organisation for Economic Cooperation and Development (OECD), Ireland is the most productive country in the world, with a labor productivity rate that is two and a half times the EU average. However, this productivity boom has not been without controversy. Some economists argue that the high productivity figures are ‘artificial’ and skewed by the presence of multinational firms in the country. In this article, we will take a closer look at the productivity boom in Ireland, focusing on the Guinness brewery in Dublin, owned by global drinks giant Diageo, and the role of multinational firms in Ireland’s economy.

Behind the bustling streets of Dublin lies the sprawling factory site of one of Ireland’s most famous brands, Guinness. The brewery has been producing beer at its city factory since 1759, when Arthur Guinness took over a derelict building. Today, the operation, owned by Diageo, may appear far removed from Guinness’ beginnings, but Aidan Crowe, operations director for beer, says the basics of brewing beer have not changed that much. “Our core process is actually very recognizable to the processes that Arthur Guinness would have used,” he says.

The Brew House at St James’s Gate opened in 2013 and was the most efficient in the world at the time. Currently, the Dublin brewery produces 3.5 million pints a day – that’s 1.3 billion pints a year. “Technology has allowed us to be dramatically more efficient,” Mr. Crowe says. “We’ve made changes to how we manage things like cold water, steam usage, electricity usage, and so on.” Mr. Crowe believes there are more improvements to go after.

Guinness’ productivity growth is not an isolated case. Ireland’s economy has benefited from being the base for many multinational firms. According to the Central Statistics Office, foreign firms made up 56% of the gross value added in the Irish economy in 2022. The high concentration of multinational firms helps to boost productivity figures. Dr. Emma Howard, economist at the Technological University of Dublin, says, “If you look at our total labor productivity, it’s two and a half times the EU average. But if you break that down into the domestic labor productivity and the foreign sector productivity, there’s big differences.”

Ireland’s attractiveness to multinational firms is not just due to its low corporation tax rate. Its position as an English-speaking member of the European Union and a well-educated workforce are also significant factors. Across all age cohorts, Ireland has a higher proportion of workers with a third-level education than the EU average. Additionally, Ireland has a much higher proportion of STEM graduates than its EU counterparts.

However, some economists argue that the productivity figures are skewed by the presence of multinational firms. Stefan Gerlach, chief economist at Swiss bank EFG International and formerly a deputy governor of the Central Bank of Ireland, says, “It looks like it generates a lot of economic activity, but the draw from that isn’t that large. It’s all artificial in a sense.” He suggests that using gross national income (GNI) may be a more accurate way to discuss productivity for Ireland.

The gulf in productivity between international and domestic companies is significant, with overseas firms producing €414 per worker, per hour, compared to just €55 for domestic firms in the second quarter of 2022. However, using a misleading measure of productivity could send policy makers in the wrong direction. “There is a risk that policy makers over-estimate the benefits and under-estimate the potential risks of having a large international cohort within the economy,” says Dr. Howard.

Productivity can often come down to the daily interaction of staff and management. Robin Blandford, founder and CEO of D4H, a company that provides support to emergency response teams globally, based in a 19th-century lighthouse at Howth head, overlooking Dublin Bay, understands the importance of motivation and communication in productivity. “Productivity to me is when we’re all pulling in the same direction,” he says. “So really good communication, everybody understanding and over-communicating to people, understanding which way we’re going, how to make a decision.”

The pandemic has made productivity a daily challenge for many companies, particularly those with distributed workforces. Staff are less likely to be in the office, or might not even be in the same country. Mr. Blandford says, “As we’ve become distributed, what we’ve asked people to do is become part of their communities. Stop letting your workplace pick your friends.”

In conclusion, Ireland’s productivity boom is a complex issue. While the country’s high productivity figures are impressive, some economists argue that they are skewed by the presence of multinational firms. The gulf in productivity between international and domestic companies is significant, and using a misleading measure of productivity could send policy makers in the wrong direction. However, productivity is not just a numbers game. It comes down to the daily interaction of staff and management, motivation, and communication. As we move forward, it will be essential to find a balance between the benefits of multinational firms and the potential risks they pose to Ireland’s economy.