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Fintan O’Toole: Governments need to resist corporate blackmail over bailouts

A repeat of the last crash, with ordinary people bled dry, would be catastrophic

You, me and Mrs Murphy down the road are currently subsidising Donald Trump. The staff at his Doonbeg golf resort in Co Clare are having 70 per cent of their wages paid from funds we are borrowing on international markets.

And rightly so. Those jobs matter. Trump’s Irish employees have the same right to protection as the other million members of the workforce who are currently having all or most of their wages paid from public funds. But the longer this crisis goes on, the more uncomfortable this State support for self-proclaimed multi-billionaires will become.

Ireland, in common with all of our neighbours, has to face a momentous question: which businesses should to be bailed out and which should go to the wall? As they confront that choice, governments will also have to face down the biggest extortion racket since 2008.

Over the next year, governments everywhere will be subjected to a multi-billion extortion racket

No country knows better than ours the price a society pays for a bad bailout. A bad bailout is one in which companies that should be have been allowed to die manage to blackmail governments into giving them vast amounts of public cash. There can be few better examples of this than Ireland’s response to the last big crash, caused by the implosion of the banks.


The current estimate is that the coronavirus crisis will cost the State €30 billion. The net cost to the State of the bank bailout, as of the end of 2018, was €42 billion, with around €1.3 billion or so still bleeding out every year in debt-service costs. (This figure takes account of the money the State has earned back from the banks it nationalised.)

The vast bulk of this staggering bill is blackmail money. Of the €42 billion, two casino operations, Anglo Irish Bank and Irish Nationwide – both effectively large-scale Ponzi schemes – account for €36 billion. Thus, over 85 per cent of the bailout money went on "saving" two banks that were (a) actively harmful to the economy and society and (b) not possible to save anyway.

Why? Because these institutions managed to convince a panicked government that they were "systemic" to the economy and had to be bailed out at all costs. That government failed completely to distinguish between the companies that really did have to be rescued – Bank of Ireland and Allied Irish Bank – and the ones that were irredeemably toxic.

Over the next year, governments everywhere will be subjected to a multi-billion extortion racket: give us your money or we shoot the company and you lose jobs. The super-rich are shameless hypocrites – their credo has always been, as Martin Luther King put it, "socialism for the rich, rugged individualism for the poor". They believe in Darwinian economics for other people, while they themselves are protected species worthy of being conserved and cossetted.

In 2009, for example, Richard Branson told the BBC that "companies need to stand on their own two feet, and the weak ones need to go to the wall". But in the current crisis, he has demanded, from his private island, that his airlines, Virgin Australia and Virgin Atlantic, be rescued by ordinary taxpayers. (Interestingly, though, even while the US was setting aside $50 billion to bail out airlines, the conservative government in Australia held its nerve and allowed Virgin Australia to go into administration.)

What we’re seeing, in other words, is a radical modification of capitalism in which governments are the lifeboat crews with too few lifeboats for all the passengers, forced to choose who will be saved and who will be left to drown. It is true, of course, that states have always played a far bigger and more influential role in the success and failure of businesses than the myths of the “free market” would allow.

But we're facing into a period of rebuilding in which national governments and international public bodies such as the European Union and the European Central Bank will be front and centre. The distinction between the public sector and the private economy will be more irrelevant than it has been for decades.

Three criteria

In this context, politicians will have to be clear about which demands they will meet – and, just as importantly, which they will resist. If governments are not to be bullied, they must adopt three obvious criteria.

First, company owners should use their own cash first: no dividends, no share buy-backs. Put your own money into your company and then we’ll see where we are.

Many businesses are now owned by private-equity funds who took control of them using borrowed money which was then loaded on to the company’s own balance sheet, making them especially vulnerable in this crisis.

Governments will have to make value judgments about what kind of public support is compatible with the long-term survival of civilisation

Yet these funds have vast unused resources – according to the Financial Times, private-equity funds are sitting on “unspent cash that totals almost $2.5 trillion”. To put that sum into perspective, it’s more than twice the financial package the EU agreed to last week. Why should taxpayers stump up to protect people who have more money than many governments?

Second, no bailouts for companies that refuse to pay fair taxes. Last week, France, Denmark and Poland announced that companies registered in tax havens will not get a cent of public cash. Ireland and every other government should follow suit. But governments will need to go further: they will have to define fairness by setting a minimum level of tax paid in order to qualify for public aid.

This is an awkward issue for Ireland, which has a very dodgy record in relation to global tax justice. But it has to be faced honestly. A repeat of what happened in the last crash, with ordinary people being bled dry while giant corporations were allowed to go on shamelessly avoiding their duty to pay fair levels of tax, would be politically catastrophic.

The woeful response by most western governments to the last crisis generated a cynicism that has left democracy itself on life support. Another bailout for parasitic entities could pull the plug entirely.

The third condition is the most difficult. Businesses that get public money have to be worth saving. But what does that mean in the context of the other, ongoing, crisis of climate change? It means that it is not the weak that should go to the wall; it is the dirty. We cannot use public money to sustain the unsustainable.

Governments will have to make value judgments about what kind of public support is compatible with the long-term survival of civilisation. They will have to perform a kind of social and moral triage, prioritising the companies that have shown the will to be environmentally responsible over the ones that make money by degrading our planetary life-support systems.

That’s not capitalism as we have known it since 1980. But it may be the beginning of a recognition of what this crisis has taught us: that businesses cannot survive if societies are falling apart.