A major speech made by the Taoiseach last Thursday 16th February on proposed changes in Irish economic policy was lost in the chatter about his departure.
The Taoiseach set out two major economic plans: a ten year capital investment programme and the development of a new industrial strategy.
The new investment plan may mean that the Government is going to throw out the sadly unambitious “Building on Recovery”. He said “as a direct response to Brexit, I have asked the Ministers for Finance and Public Expenditure and Reform to prepare an ambitious multi-annual 10-year capital plan that will make Ireland a far better place in which to live and work.”
He said “That plan will make prudent and effective use of our own resources, as well as resources available to Ireland as a member of the European Union.”
Secondly, Mr Kenny announced that the government is bringing in a new or at least a modified industrial strategy, updating Enterprise 2025, this year.
Remaining at the Heart of Europe
The Taoiseach also said “we must remain at the heart of Europe” and he
pointed out that “the Treaty of Rome, which we will celebrate on its 60th anniversary next month, is one of the greatest peace agreements in history.”
He also said that “I utterly reject any suggestion that we would leave the European Union.”
A New Industrial or Enterprise Plan
Because “Brexit is a serious, direct threat to Ireland’s economic prosperity” he said we need “a hard-headed, radical and innovative response” and this includes the new industrial policy to be completed this year, 2017. “It will prioritise policies and investments to make Irish enterprise more diverse and resilient.”
He said that “this updated Enterprise 2025 Strategy will include a medium-term stabilisation and adjustment plan for those businesses who will be most affected by Brexit.” He said it is proposed “to develop a consensus on our national priorities, on our key vulnerabilities and on how we can collectively work together to address them” and he plans to meet with unions and employers.
While Foreign Direct Investment continues to be important, he also said that “Government will now take decisive economic measures at home”, and “we will focus on growing strong domestic markets capable of sustaining indigenous enterprise and employment, on developing a wider base of strong Irish companies which employ more of our national workforce, and on exporting to traditional and new overseas markets”.
Interestingly at a conference on Ireland’s low corporation tax the next day, Mr Kenny reiterated the mantra that “the 12.5% remains the cornerstone of our industrial policy.” But later on the same day, at the same conference, Minister Catherine Zappone contradicted him, saying she “never believed the low 12.5% rate was at the centre of industrial policy.” Not the first time the two have been at odds in one week.
What is worrying is that Mr Kenny, in the face of the Apple judgment by the European Commission, Trump’s pending tax changes, is still obsessing around the low rate of corporation tax. The game has changed. Tax wars to attract foreign direct investment are a zero sum game for governments.
Unless the proposed new industrial policy faces up to the rapidly declining role of low corporation taxes as others drop their rates in futile attempts to be “competitive” and new ideas are proposed, such as securing control of AIB, our biggest credit institution, the plan will not be new but may be just a rehash of old ideas.
TASC and FEPs are also developing a new enterprise strategy, which will be published later this year.
AIB, Ireland’s top bank to be sold to a Vulture Fund?
A key part of any industrial policy must include the role of credit for business and the ownership and behaviour of our banks. After the collapse of all six Irish banks, the subsequent costs of state rescue and the ensuing lack of credit for business, these are important issues in enterprise policy.
Whether the government has the wit to use some of the expected €20bn which will be flowing from the sale of the publicly owned banks in the next few years instead of repaying the already diminishing National Debt remains to be seen.
Further, no indication has been given as to whether the government will be happy to sell AIB, our biggest indigenous bank, to a Vulture Fund. All indications are that the sale will be based largely on price and not guided by a coherent new industrial strategy.
It is remarkable how little debate there is to-date around the sale of this important Irish company. I have argued that some of AIB (25-30%) should be retained by the state to ensure it never goes back to its old ways of thieving from its customers or to reduce the possibility that has to be bailed out yet again because of the actions of its previous overpaid executives.
Of course if AIB is owned by a foreign vulture fund, its future collapse will not fall on Irish taxpayers, but Irish business and individuals will not fare so well. The ownership and control of key businesses should be part of industrial policy. Partial state ownership is one way of blocking takeover by vulture funds.
A Multi-annual 10-year capital plan
The Ministers for Finance and Public Expenditure and Reform are to prepare “an ambitious multi-annual 10-year capital plan that will make Ireland a far better place in which to live and work.”
That plan will make “prudent and effective use of our own resources, as well as resources available to Ireland as a member of the European Union” and capital will be sought from the European Investment Bank. Worryingly, no mention is made of using the capital which is already flowing into exchequer from the sale of AIB shares some of which should be prudently used for investment in Ireland.
“That new Plan will show how we will invest in roads, in public transport, in energy, in water, in schools, in higher education and in hospitals and health facilities.” It will detail the completion of the national road network, including links between Dublin and Derry and Donegal (in Northern Ireland), and to accelerate delivery of critical public transport infrastructure. Broadband is not mentioned, but it will be part of it, one assumes.
It will include substantial investment in the ports and airports and importantly, it “will support the achievement of our international climate change obligations and our national objectives for sustainable development and environmental protection.”
It is not stated how much funny money will be sought with off-balance sheet financing mechanisms such as PPPs but these costly and cumbersome vehicles to give finance capital a slice of the public sphere “under EU rules” now need to be abandoned.
The original plan from the last government, “Building on Recovery: Investment and Capital Investment 2016-21” was so unambitious that in Year 1, which was last year, public capital investment would be at the lowest level ever in the history of the state. It would not even cover depreciation. Already announced in recent months was a plan to augment this. It is assumed this decade-long plan will go much further again.
TASC proposed an alternative called A Time for Ambition, which would increased the proposed investment from €27bn to €42bn or from an annual average of a far too modest 1.84% of GDP to 2.8% a year. The public investment had averaged 3.9% in the six years to 2007, albeit in a boom time.
The Taoiseach’s response to the threat from Brexit (and Trump) is welcome, with a review of industrial policy and a new capital investment programme. Both are welcome but they must be more ambitious and be innovative in a rapidly changing world.
Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He is a member of the Economic Committee of the ETUC and chair of TASC’s Economists’ Network. He was a President of the Statistical and Social Enquiry Society of Ireland, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.