Ireland’s enterprise policy contradictory, letting down indigenous firms
AIB Group HQ – “Minister for Finance Michael Noonan says the objective is to have a “stable banking system” and he intends to do this by maximising the cash price for AIB rather than optimising its value by getting some of the upside profits and retaining a measure of control over a vital utility.” – Photograph: Alan Betson
‘Ireland’s low corporate tax rate is the cornerstone of our enterprise policy.” This is the cry of virtually all politicians, especially recently as this policy has come under threat. But is Ireland’s enterprise policy simply a one-trick pony – a neoliberal mechanism delivering low taxes to foreign multinationals?
Or is it a sophisticated, heavily State- interventionist policy, costing billions in subsidies annually, with thousands of public servants helping build foreign and indigenous enterprise? Crucially, is it all about attracting foreign firms while paying lip service to building an indigenous enterprise base of scale?
It will be seen that our policy is liberal, but also deeply State-interventionist – and contradictory. In spite of the good intentions to support indigenous firms, it is the foreign multinational companies (MNCs) that matter. The photo of a Minister with the billionaire founder of a tech firm promising 300 jobs is worth more than one with the local fella who might create 10 jobs a year. Photo opportunities aside, the foreign MNCs matter because they generate 90 per cent of our exports, add immense value and employ 151,000 people (8 per cent of the workforce) directly, and more indirectly; and some even pay taxes.
However, we have some very successful Irish multinationals and this is in spite of the recent collapses of the top indigenous firms – the banks, Quinn and “the developers”. But enterprise policy is unclear and is focused more on foreign firms and this is exceptionally successful, at present.
The State is highly interventionist and spends between €4.7 billion and €6.2 billion a year supporting enterprise (half to agribusiness and farmers under the European Union). The equivalent of 5,200 full- time e public servants support such firms. Foreign firms play a key role in all small, open economies, but here their role is disproportionate because we do not have enough successful indigenous firms of scale.
Four areas for policy changeEnterprise Ireland
Second, perhaps the biggest challenge to small and medium enterprises (SMEs) is access to capital. There used to be two State development banks, but these were privatised in 2001. During 2014 the Strategic Banking Corporation was established, but it appears to lend only through the retail banks, which are risk-averse. What we need is a process, facilitated by sectoral industrial experts, whereby loans to SMEs are based on assessments of the potential growth of the business and not solely on risk against repayments and assets.
Third, a number of the largest successful indigenous firms have been sold to foreign MNCs – not by their private owners seeking gains – but by the very governments that say they trying to build indigenous enterprises. They recently privatised Bord Gáis Energy, most of Aer Lingus and the National Lottery, sold off profitable parts of the ESB and may sell off what remains of Aer Lingus and AIB.
Minister for Finance Michael Noonan said the objective was to have a “stable banking system” and he intended to do this by maximising the cash price for AIB rather than optimising its value by getting some of the upside profits and retaining a measure of control over a vital utility.
The EU-IMF troika, driven by ideology, forced the Government to sell “up to €2 billion in sales of non-strategic State assets”. This has been greatly exceeded, with €2,955 million in privatisation receipts to date, or almost 50 per cent more than required. How can politicians be taken seriously on building indigenous enterprise of scale when they have sold off some of the largest and most profitable Irish indigenous firms?
enterprise policy It is difficult to comprehend this hostility to S
tate-owned firms when one considers, for instance, the Eircom privatisation fiasco and the many failures of the biggest and “best” of private firms. The practice of selling good, commercial State firms to repay some of the debts of the failed private banks demonstrates how short-sighted and ideological our enterprise policy is.
State companies have also paid dividends to help pay down these debts. For example the ESB paid the State €1,200 million in the past decade, money that could have been used to build an even more successful (State) company. Commercial State companies played a big role in our development and should continue to do so.
Fourth, enterprise policy and the State agencies need to take a long-term view of development and to have blue water between them and the short-term demands of politicians if they are to revert to giving properly independent advice.
In conclusion, Ireland’s enterprise policy is not simply a one-trick pony of low taxes but also a sophisticated but expensive State-interventionist one that is partly successful in its unclear objectives. If it is to work better it is now time for a cold reappraisal.
Paul Sweeney was a member of the National Competitiveness Council and contributed to TASC’s Nuts and Bolts of Innovation: new perspectives on Irish Industrial Policy