Irish Left Review Journal - Issue 1: Jan 2013 by Donagh Brennan

Irish Left Review Journal January 2013 Editorial 1

Ireland and the Shadow Banking System, Part 1 Conor McCabe 7

Spin Dave Lordan 23

Irelandâ&#x20AC;&#x2122;s For Sale Sign: Corporation Tax Donagh Brennan 27

For the Living and the Dead Sarah Clancy 73

IFSC Clearing House: What the Irish Times Doesn't Say And Why It Matters Mark Malone 77

from after Rimbaud Sean Bonny 93

Interview: Richard Murphy 95 Riding Against the Lizard - On the Need for Anger Now William Wall 103

How the Shadow Banking Sector is Wrecking the Irish Economy Donagh Brennan 117

Irish Left Review Journal ~ January 2013

Editorial

Editorial It is well known that the catalyst for the most recent international financial crisis in 2007 was the collapse in the value of complex financial instruments, mostly sub-prime mortgage-backed securities, following the bursting of the US property bubble. The systemic problems occurred because of the dominance of financialisation over capitalist economies and the increased use of shadow banking within the credit system. The crisis in the Irish economy however, is seen as occurring as a consequence of an external collapse in banking internationally which knocked the stilts from under an economy that was unwisely over-reliant on the construction industry and the over-spending of private credit on property. So when the construction sector collapsed in 2007, we were told that economic recovery could only now occur though 'export led' growth and that the continuing growth of exports in computer services, financial services, and the pharmaceutical and chemical sector were 'the only show in town'. This is what characterises the current economic strategy of the Irish government - to weaken the domestic economy through austerity while providing as much support as possible to the export-orientated sector, which is largely dominated by foreign-firms. What is ignored by government and its supporters, often as they extol the success of attracting so many international export-orientated companies and business, is that this "export-led growth" has barely any impact on the Irish economy. Moreover, for all the years that the policy of supporting this sector has been in place it has never led to the creation of

Irish Left Review Journal ~ January 2013

Editorial

longer term structures to develop the economy. It is nothing more profit shifting and a process of massive international tax avoidance on the part of internationally trading firms. All this export orientated economic growth is a complete fiction.

Ladies and Gentlemen, We Are Floating in Space... In this issue we are looking at the Financial Services sector, that all-powerful group given complete freedom to create for themselves the conditions that best suits its business even though it occurs at the expense of the wider economy. In the first of two essays, the second to be published in the next edition, Conor McCabe examines Ireland and the Shadow Banking System. Currently over 40% of the world's alternative investments: hedge funds, managed futures, transferable securities, commodities and derivatives contracts are domiciled in Ireland. While Ireland had been a hub of the shadow banking system before the collapse of the financial system in 2007-8, with many of the major banks at the centre of the drama maintaining a subsidiary in the IFSC, we are now becoming an even more significant part of it. As Conor says in his introduction to the piece, this has come about because of the 'intermediary/middleman business model' which 'maintains and reproduces itself through the structures of the state'. In the past this model was based on selling the nation's resources to 'whatever bidder took the middlemen's fancy'. "The national resource that is for sale today is the right of an independent state to set its own laws and tax policy. In other words, it is Ireland as a mature democracy and legal jurisdiction, one that is recognised by international law that is traded by this middleman class for the private gain of its privileged players".

Irish Left Review Journal ~ January 2013

Editorial

As an understanding of the shadow banking system within modern capitalism is required this first part deals with the rise of the Eurodollar market and the decline of the Betton Woods system. The other way that Ireland sells its right as an independent state to set its own laws and tax policy is in how Ireland allows MNC's to use Ireland's loosely regulated tax regime and laws as a way of avoiding all of their international tax obligations. As Donagh Brennan shows in his essay, Ireland's For Sale Sign: Corporation Tax, it's by creating a careful mix of laws and agreements, exceptions and loopholes with a close eye on those gaps that exist in the tax laws in other jurisdictions while also turning a blind eye to obvious anomalies and lack of disclosures within MNCs financial structures, that Ireland has created a steady business in providing tax avoidance services for some of the most highly profitable companies in the world. While the state puts on the poor mouth by saying it is too small and open to attract investment in the traditional way, it has actively nurtured a particular service for MNC which only accrues economic benefit to financial services firms that administer the Treasury Management companies used by MNCs to move profit across borders tax free. This point is reinforced in the interview with Richard Murphy, co-founder of the Tax Justice Network and the most cited expert on tax justice internationally. In the interview we discuss the recent attempts to introduce a lower corporation tax in Northern Ireland and why this simply would not work for the NI economy. Murphy's understanding of the Irish system is informed by a period when he worked in Ireland and from following the amendments and developments in the Irish system as pressure increases on the Irish government to mend it's evasion granting ways.

Irish Left Review Journal ~ January 2013

Editorial

Mark Malone spends some time delving through what we know about the Clearing House Group, that quasi-governmental organisation - lobby group that is supposed to advise government on financial services policy, but more often than not designs the legislation used to facilitates the business needs of banks, hedge funds, treasury management and insurance companies to launder profits using Ireland's status as an OECD compliant and legitimate jurisdiction to do so. In between each of these articles we have been very fortunate to be able to publish poems by some very exciting new Irish writers, two of whom we have featured many times on the irishleftreview.org website. Each of the poems deal in one way or another with creative writing and politics - the twinned subjects that mainstream Irish cultural critics demand should be separated at birth. To cap this expression of literary writing and politics off we have a fine essay by the novelist William Wall, Riding Against the Lizard - On the Need for Anger Now, which discusses how many of internationally celebrated Irish contemporary literary fiction authors appear to be so comfortable within the Gombeen culture. He also points towards other internationally celebrates creative writers who have no problem showing their anger at the obvious injustices of the system while producing art of the highest order.

Irish Left Review Journal ~ January 2013

Conor McCabe

Ireland and the Shadow Banking System, Part 1 Bretton Woods and the Eurodollar Market

Conor McCabe

Ireland is a tax haven1. It is a hub in the shadow banking system. The dominant form of business in the Irish state, the one to which national economic policy shapes itself, is that which accommodates the needs of foreign capital and finance, to the detriment of productive and social activity. This business model is an intermediary model. It is conducted by a middleman class which has positioned itself between foreign capital and the resources of the state. These middlemen are found within law, accountancy, stockbroking, banking and construction. This is not to say that every successful business in Ireland is a middleman business, but rather that these businesses wield the most influence regarding national economic policy. The type of middlemen may have changed over the decades, but the way of conducting business has not. The intermediary/middleman business model maintains and reproduces itself through the structures of the state. In other words, the class which benefits the most from this economic policy is also the class with the most influence over the dynamics of Irelandâ&#x20AC;&#x2122;s legal, education and political systems. Governments come and go but the structural dynamics of the state remain the

Irish Left Review Journal ~ January 2013

Ireland and the Shadow Banking System, Part 1 same. As a result of the structural presence this class has within the state, policy change comes dripping slow. The current privileged status of international finance and wealth management within Ireland - that is, paper assets over production - is the latest field of play for this middleman class. Upon independence it was live cattle exports to the UK and the transference of credit to the city of London; in the 1960s it was free access to the UK economy for international companies with branches in Ireland, followed by similar access to the EEC/EU, giving rise to construction, land and property speculation; all of this was underpinned by the selling of the Stateâ&#x20AC;&#x2122;s gas, oil and mineral rights to whatever bidder took the middlemenâ&#x20AC;&#x2122;s fancy. The national resource that is for sale today is the right of an independent state to set its own laws and tax policy. In other words, it is Ireland as a mature democracy and legal jurisdiction, one that is recognised by international law that is traded by this middleman class for the private gain of its privileged players. The current emphasis on paper assets over production reflects the fundamental changes in economic power relations which have taken place over the past forty years in advanced capitalist countries. This period has seen the financialisation of everyday life and the re-emergence of rentier capitalism. The move towards profit-seeking in paper assets is in part a response to the decline in the rate of profit and a tendency towards overcapacity in global manufacturing industries.2 The pressure to return profits in a world of declining margins has seen reductions in social expenditures by national governments and stagnation in wages. The resultant decline in aggregate demand is an underlying factor in the explosion of price speculation over production. This is part one of a two-part article on Ireland and the shadow banking system. The rise of the Eurodollar market and the decline of the Betton Woods system is covered here. The emergence of shadow banking and Irelandâ&#x20AC;&#x2122;s role in its operation will be covered in the next issue.

Irish Left Review Journal ~ January 2013

Conor McCabe

BRETTON WOODS AND THE EURODOLLAR MARKET On 5 September 2007 the in-house journal of the world's largest bond investment company, PIMCO, published an article by its managing director Paul McCulley which discussed the problems within the American housing and mortgage markets. McCulley, an economist, had recently attended the annual symposium of the Kansas City Federal Reserve bank. It was held at Jackson Hole, Wyoming, on the edge of the Teton mountain range. 'Not every house on every street corner in America experienced a bubble' wrote McCulley.3 'The key question is whether enough of American homes on enough of America's street corners are suffering sufficient debt-deflation miseries to jeopardise either financial stability on Wall Street or sufficient spending to generate full employment on Main Street.’ The attendees were in agreement that 'Wall Street taking a financial bath on dud mortgages, dud structured products and dud leveraged buyouts' was not in itself 'a bad thing. ‘The problem was with the 'good thing going too far, with not just the foolish being taken out and shot, but the innocent too.' In other words, there was a real danger of the growing mortgage market risk transforming itself into actual systemic risk via a run on what McCulley labelled 'the shadow banking system.' This was the first recorded use of the phrase and the system McCulley was referring to was the opaque network of credit creation, lending and asset price speculation which exists, for all intents and purposes, outside of government supervision and regulation. Its power, size and influence is a return of sorts to the 1920s and the conceptual frameworks which dominated that era. The Great Depression and Second World War saw a realignment within western capitalism, one which consigned the free movement of capital to the status of ‘second-class citizen’ – a

Irish Left Review Journal ~ January 2013

Ireland and the Shadow Banking System, Part 1 position that finance clearly resented and fought long to overcome.4 The re-emergence of finance as a global force in the 1960s, the breakdown of the Bretton Woods Agreement in the 1970s, the sustained liberalisation of speculative capital flows in the 1980s and 1990s, and the current ‘alphabet soup of levered up non-bank investment conduits, vehicles, and structures’5 is commonly referenced as the financialisation of the world economy.6

‘…to drive only the usurious money lenders from the temple of international finance.’ Henry Morgrenthau, Secretary of the U.S. Treasury, 22 July 1944. 7

The United Nations Monetary and Financial Conference that took place at the Bretton Woods mountain resort, New Hampshire, USA, 1-22 July 1944, was attended by over 700 representatives from 44 allied nations. The delegates were set with the task of devising ‘a durable institutional architecture for global monetary affairs, an architecture capable of facilitating a massive increase in international trade.’8 It was believed by all that the economic nationalism and currency policies of the 1930s had set the scene for the outbreak of war in 1939. It was also believed that the first decade after the war would be crucial to any hopes of lasting peace and security. Three months earlier a technical group of experts from Canada, China, France, Great Britain, and the United States had issued a joint statement on the desirability of an international monetary fund to regulate the supply, demand and trade of capital between nations.9 The United Nations financial conference was called to devise practical ways of creating such a mechanism. The documents signed at the end of

Irish Left Review Journal ~ January 2013

Conor McCabe

the proceedings became known collectively as the Bretton Woods agreement. The new system created a currency exchange rate mechanism whereby all major currencies were tied to the Dollar, which itself was tied to the gold standard; it allowed for the use of capital control by individual states; and it established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (later the World Bank). Although it quickly came to be dominated by U.S. and Wall Street interests, the Bretton Woods system was in essence a rejection of the type of liberal financial policies that had destabilised the world in 1931. ‘The plan accords to every member government the explicit right to control all capital movements’ said John Maynard Keynes, the chief negotiator for the British government. ‘What used to be heresy is now endorsed as orthodox.’10 The social contract that post-war Europe and the U.S. demanded was incompatible with the business mechanisms of financial speculators. ‘The bankers’ wrote Michael Moffitt in his book The World’s Money, ‘weakened politically and economically by the depression, finally accepted the agreement because they really had no alternative.’11 The banks may not have won the debate at Bretton Woods, but they did not entirely lose either. There were enough compromises and structural fault-lines placed within the agreement to allow finance a solid base to launch a counterattack. The IMF was staffed primarily by former U.S. Treasury department officials, while the first presidents of the World Bank, Eugene Meyer and Eugene Black, had strong Wall Street backgrounds. From the start the agreement faced difficulties. The post-war reconstruction of Western Europe and Japan was financed primarily by the Marshall Plan and not by the IMF and the World Bank. The fixed-rate mechanism was complicated by the trade imbalances which arose between the US and the rest of the

Irish Left Review Journal ~ January 2013

Ireland and the Shadow Banking System, Part 1 world in the late 1950s. The emergence of Germany and Japan as industrial powerhouses cut not only into American exports but added to American imports as well. The economic costs of the Vietnam War compounded the situation. The glut of dollars produced by the U.S. in its role as administrator of the world’s only genuine international currency, as de facto international creditor of last resort, as well as the main market for the world’s products, put enormous pressure on the currency’s link with the gold standard. Finally, the restrictions on the movement of capital were circumvented by the storage and recycling of vast amounts of dollars in European banks and the establishment of the London-based euro-dollar market – the bedrock of the shadow banking system.

‘… they are particularly suitable for being used for speculative and arbitrage transactions of a disturbing kind .’ Paul Einzig, economist, September 1961. 12

In 1949 the Chinese revolutionary government began moving its dollar balances in the United States to disguised accounts in the Russian-owned Banque Commerciale pour l’Europe du Nord in Paris. In 1950, with the outbreak of the Korean War, the U.S. issued a trade embargo with China and blocked all Chinese accounts under its jurisdiction. ‘Soon after, the Russian bank in Paris and the Moscow Narodny Bank began disguising their U.S. dollar balances too, for fear that they might be similarly blocked.’13 This was the beginning of the European market for dollar deposits, ‘a kind of dollar market in exile where America’s adversaries could traffic in dollars without fear of political intervention.’14

Irish Left Review Journal ~ January 2013

Conor McCabe

As the 1950s progressed the supply of dollars worldwide increased, as indicated from 1957 onwards when the U.S. started to experience trade deficits. A significant amount of the excess dollars in Europe ended up on deposit with banks in Europe rather than placed on deposit with U.S.-domiciled banks, as would normally have been the case. The growth of these European-domiciled dollar surpluses added to a market that was completely unregulated. In 1960 the Federal Reserve Bank of New York undertook an investigation into what it called the ‘Continental dollar market’ and estimated that it exceeded ‘$1 billion, excluding any double counting for inter-bank deposits.’15 It found that the dollar balances had been supplied ‘mainly by Dutch, Swiss, Scandinavian and at times German banks, who may be joined by European central banks and by holders in the Middle East and south Asia,’ and that demand for euro-dollars came mainly from ‘Italian, French, British and Canadian banks, and recently from German and Japanese banks, as well as from branches of United States banks abroad.’16 By 1963 the euro-dollar market was causing significant trouble for the U.S. balance of payments. The U.S. Congress subcommittee on international exchange and payments heard evidence that ‘U.S. corporations have placed time deposits denominated in U.S. dollars with the Canadian chartered banks, to the amount of over $400 million’ and that part of that money had ended up in the London euro-dollar market.17 This was a direct drain on the U.S. dollar reserves, and the type of activity that Bretton Woods had been designed to prevent. The U.S. government responded with the Interest Equalization Tax which was introduced in order to discourage investment in foreign securities and encourage investment in domestic securities. Instead, the restrictions led to a boom in euro-dollar transactions and the creation of a new bond in London which was denominated in the euro-dollar. Despite the fact that the Bretton Woods system was being circumvented so easily, no coordinated action was taken to ban

Irish Left Review Journal ~ January 2013

Ireland and the Shadow Banking System, Part 1 the Euro-dollar. In fact this new, and entirely unregulated, market was given tacit support by both the U.S. and U.K. governments. As Eric Helleiner points out in his 1994 publication, States and the Reemergence of Global Finance, ‘Britain provided a physical location for the market, permitting it to operate in London free of regulation’ while ‘by the mid-1960s, U.S. officials were actively encouraging American banks and corporations to move their operations to the offshore London market.’18 The euro-dollar market seemed to give both countries a way of placating the demands of finance while facilitating productive growth and high employment within their respective borders. In the case of Britain, ‘it represented a solution to the problem of how to reconcile the goal of restoring London’s international position within the Keynesian welfare state and Britain’s deteriorating economic position.’19 In the U.S. ‘the Johnson administration overtly encouraged [corporations] to use the Euromarket to finance their overseas operations, in order to discourage their opposition’ to the various capital control programs brought in to tackle the U.S. balance of payments deficit.20 ‘U.S. banks continued to finance the foreign activities of their corporate clients’ wrote Moffitt, ‘they just did their lending from London.’21 By the late 1960s the euro-dollar market was estimated to stand at $10 billion, all of it unregulated.22 Moreover, the nature of the euro-dollar made it susceptible to speculators. ‘Gratifying as this progress towards an increasing internationalisation of the monetary system may appear’ wrote the economist Paul Einzig in 1961, ‘a close examination of the dynamic aspects of the new practice leads to some highly perturbing conclusions.’23

The amounts involved – which are large and are increasing steadily – are held in a particularly loose and liquid form, and by their nature they are particularly suitable for being used for speculative and arbitrage transactions of a disturbing kind. Operations in Eurodollars and similar deposits, instead of producing an

Irish Left Review Journal ~ January 2013

Conor McCabe

equalising effect, are apt to produce in given circumstances exactly the opposite effect… [The Euro-dollar market] enables banks to expand credit over prolonged periods beyond the limit deemed advisable by the authorities. 24 Less than 15 years after the signing of the Bretton Woods system, the unrestrained credit creation which that system had sought to curb was once again on the rise. Furthermore, this new credit was increasingly being used to fund financial speculation rather than actual productive growth. It was not long until such instability began to manifest itself in the currency exchange system. The US trade deficit and the costs of the Vietnam War added to this instability. On 15 August 1971 the US suspended the convertibility of dollars into gold in what became known as the ‘Nixon Shock’. The pound sterling broke from the Dollar in July 1972. One month later, on 15 August, the U.S. Treasury suspended all sales and purchases of gold. In March 1973 the then six members of the E.E.C. agreed to break from the Dollar and float their currencies. The Bretton Woods system had come to an end. By this stage the Eurocurrency market was estimated to stand at $132 billion, ‘from a net size of some $8 billion in 1964.’25 The end of the Dollar/gold standard was followed by a formal lifting of restrictions on international capital movements, first by Canada, Germany and Switzerland in 1973, and then by the U.S. in 1974. This was followed by Britain in 1979, ‘Japan in 1980, France and Italy in 1990, and Spain and Portugal in 1992.’26 Debt had become the world’s single largest tradable commodity, pushed on developing countries as a Trojan for rent extraction and lobbed like cluster-bombs into assets markets for the purposes of price speculation. ‘The sheer scale and speed of these flows’ wrote John Eatwell and Lance Taylor in Global Finance at Risk, ‘produced a succession of major financial crisis [including] Latin America’s Southern Cone crisis of 1979-81, the developing country debt crisis of 1982, the Mexican crisis of

Irish Left Review Journal ~ January 2013

Ireland and the Shadow Banking System, Part 1 1994-5, the Asian crisis of 1997-98, the Russian crisis of 1998, and the Brazilian crisis of 1999.’27 As early as 1975, however, the financial crises which came with deregulation were seen by officials within the IMF as the consequences of the moves by national governments ‘to retaliate against, rather than to recognise and adjust to, the realities of this interdependent world economy.’28 The solution was further financial deregulation, not less. And over the next 20 years the IMF officials got their wish.

‘Financial innovation is great, but you have to have some basic rules.’ Sheila Bair, Federal Deposit Insurance Corporation, December 2007.29

Derivatives as financial instruments date back centuries. The market for them, however, was small until 1971, when interest and currency exchange rates became highly volatile in the wake of the Nixon administration’s decision to end its association with the Bretton Woods system. It soon saw significant fluctuations in the exchange rates between currencies – a costly and damaging process for multinational companies who dealt with multiple currencies on a daily basis. These unpredictable fluctuations in exchange rates affected costs and profits. In 1972 the Chicago Mercantile Exchange began trading futures contracts on currencies, as a way of companies limiting their exposure to the market volatility of currency prices over time. The volatility generated by the ‘Nixon Shock’ offered new opportunities. ‘Money could be made out of that instability using financial derivatives’ writes Dr Jan Toporowsaki of the University of London, ‘and no one has yet invented a fool proof way to prevent

Irish Left Review Journal ~ January 2013

Conor McCabe

people with money from using it to make even more money no matter how ruinous the consequences may be for society.’30 The sale of these contracts was given a boost in 1973 when Fisher Black of the University of Chicago and Myron Scholes of MIT published a paper in the Journal of Political Economy entitled ‘The Pricing of Options and Corporate Liabilities’. They had developed an algorithm which advanced the way traders could price futures options in a way that limited risk exposure. It assumed ‘ideal conditions’ in the market for the stock and the option, and concluded that under these assumptions ‘it is possible to take a hedged position on the option, whose value will not depend on the price of the stock, but will depend only on time and the values of known constants.’31 The algorithm was further advanced by the economist Robert C. Merton in his 1973 article, ‘Theory of Rational Option Pricing’.32 This modified formula became known as the Black-Merton-Scholes model, for which Merton and Scholes received the Nobel Memorial Prize in Economic Sciences in 1997 (Black had died in 1995, and the award is not awarded posthumously). The effect of the Black-Merton-Scholes model was to give mathematical security to risk-hedging. ‘Almost immediately’ wrote the economist René M. Stulz, ‘[the model] was found useful to price, evaluate the risk of and hedge most derivatives, plain vanilla or exotic. Financial engineers could even invent new instruments and find their value with the Black-Merton-Scholes pricing method.’33 In 1974 Texas Instruments brought out a calculator that used the Black-Merton-Scholes model. ‘Soon, every young trader, many as second-year college drop-outs fresh from their first finance classes, was using a handheld TI calculator to trade options and was making more profit in a day than the college professors made a year.’34 The development of computers in the 1970s, and the exponential growth in speed, power and programming, made it easier not only to use Black-Merton-

Irish Left Review Journal ~ January 2013

Ireland and the Shadow Banking System, Part 1 Scholes to price derivatives, but also to develop new and ever more complex financial products, even to adapt them for individual clients. All of this was done with one purpose in mind: both the buyer and seller of OTC (over-the-counter) derivatives were trying to beat the market. They were trying to eliminate risk. The growth of the derivatives market also turned derivatives into financial assets in themselves. The sale of a derivative generates revenue. ‘The contracts can be traded, further limiting risk but also increasing the number of parties exposed if problems occur.’35 Furthermore, ‘losses suffered because of price movements can be recouped through gains on the derivatives contract.’36 Instead of helping to limit risk, however, ‘the models were used to justify a bigger appetite for risk.’37 The power of OTC derivatives to destabilise markets showed itself seemingly as an anomaly but became more frequent as the 20th century drew to a close. The multinational firm Proctor and Gamble reported a pre-tax loss of $157 million in 1994. It stemmed from OTC derivatives sold to it by Bankers Trust. The same year, Orange County, California, filed for bankruptcy. It lost $1.5 billion speculating on derivatives. Its dealer was Merrill Lynch. The county treasurer, Robert Criton, later pleaded guilty to six felony counts. In 1996, the Japanese Sumitomo business group lost $2.6 billion on copper derivatives. The Commodity Futures Trading Commission (CFTC) later fined Merrill Lynch $15 million ‘for knowingly and intentionally aiding, abetting and assisting the manipulation of copper prices.’38 In 1995 the UK-based Barings Bank was declared insolvent after it lost $1.3 billion due to the activities of one of its derivatives dealer, Nick Leeson. In September 1998 the New York Federal Reserve organised a bailout of the hedge fund management firm, Long-Term Capital Management (LTCM), which had lost ?4.6 billion during the 1997 and 1998 Asian and Russian financial crises. It ‘held more than 50,000 derivatives contracts with a notional sum involved in excess of $1 trillion.’39

Irish Left Review Journal ~ January 2013

Conor McCabe

The instability, lack of oversight, and toxic concentration of risk that was generated by OTC derivatives led Warren Buffet in 2003 to declare that ‘derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.’ By 2007 the five largest investment banks in the US – J.P. Morgan Chase, Citigroup, Bank of America, Wachovia and HSBE – were among the world’s largest derivatives dealers. Goldman Sachs estimated that from 2006 to 2009 somewhere between 25 per cent and 35 per cent of its revenues were generated by derivatives. The American insurance corporation, AIG, had sold credit default swaps totalling $79 billion ‘to investors in these newfangled mortgage securities, helping to launch and expand the market and, in turn, to further fuel the housing bubble.’40 In 2006 and 2007 the top underwriter of mortgage bonds in the US was Lehman Brothers. ‘When housing prices fell and mortgage borrowers defaulted’ said the Financial Crisis Inquiry Report, ‘the lights began to dim on Wall Street.’41 It is important to remember, however, that the crisis itself was not the result of specific financial instruments that had been placed in the hands of irresponsible financiers and their employees. Rather, the 2008 financial meltdown is symptomatic of a much deeper malaise. The growth of the Eurodollar market and the end of the Bretton Woods system are not unrelated. They were part of a sustained counter-move by finance in the wake of the Great Depression and WWII. By the late 1970s the financial world was centre-stage once again with monetism and deregulation its rallying-calls. The period saw the British government under the Labour Party move ‘away from wages and incomes solutions to monetary stringency and spending cuts.’42 In 1979, with the appointment of Paul Volcker as chairman of the Federal Reserve, the US undertook a policy of internal deflation. It did so through high unemployment, wage cuts and the breaking of the trade union movement. It also saw the quickening pace of deregulation. Cross-border capital flows - seen as highly unstable by Keynes and the delegates at Bretton Woods – were once again

Irish Left Review Journal ~ January 2013

Ireland and the Shadow Banking System, Part 1 unleashed. The wakening of profit-seeking in production made finance all the more attractive. The relative lack of employment in price speculation activities added to the downward pressure in aggregate demand. The solution â&#x20AC;&#x201C; to use consumer credit as a substitute for wages â&#x20AC;&#x201C; created its own set of problems. [End of part one. Part two will cover the rise of shadow banking and the relationship with the Irish state.]

Notes 1.

4. 5. 6.

7. 8.

United States Permanent subcommittee on Investigations, Repatriating Offshore Funds: 2004 Tax Windfall for Select Multinationals Majority Staff Report (October 2011), p.34. http://www.hsgac.senate.gov/download/?id=a17c69df-38f1-479e-8612-a165e33b29a5 (accessed 10 November 2012). 'Robert Brenner: A Marxist explanation for the current capitalist economic crisis,' Links: International Journal of Socialist Renewal (22 January 2009). http://links.org.au/node/957 (accessed 2 December 2012). Paul McCulley. "Teton Reflections," Global Central Bank Focus (September 2007). http://www.pimco.com/EN/Insights/Pages/GCBF%20August%20September%202007.aspx (accessed 17 July 2012). Lawrence Krause. 'Private International Finance,' International Organisation 25 (1971): 536. McCulley, "Teton Reflections". The phenomenon of financialisation is described by G. Epstein as 'the increasing importance of financial markets, financial motives, financial institutions, and financial elites in the operation of the economy and its governing institutions, both at the national and international level.' Quoted from G. Epstein, 'Financialization, rentier interests, and central bank policy.' Paper presented at PERI conference on 'Financialization of the World Economy,' 7-8 December 2001. http://www.peri.umass.edu/ fileadmin/pdf/financial/fin_Epstein.pdf (accessed 21 July 2012). Quoted in Eric Helleiner, States and the Reemergence of Global Finance (Ithaca: Cornell University Press, 1996), 4. David M. Andrews, 'Bretton Woods: System and Order,' in David M. Andrews (ed), Orderly Change: International Monetary Relations Since Bretton Woods (Ithaca: Cornell University Press, 2008), 6.

Irish Left Review Journal ~ January 2013

Conor McCabe 9.

10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25.

26. 27. 28. 29. 30. 31.

32.

33.

Joint statement by experts on the establishment of an International Monetary Fund, issued 21 April 1944. http://adlib.imf.org/digital_assets/ wwwopac.ashx?command=getcontent&server=webdocs&value=%5CBWC%5CBWC595-01.pdf. Accessed 18 August 2012. Quoted in Helleiner, Global Finance, 25. Michael Moffitt, The World's Money: From Bretton Woods to Camp David (New York: Simon & Schuster, 1983), 24. Paul Einzig, 'Statics and Dynamics of the Euro-dollar Market,' The Economic Journal 71, no. 283 (Sep 1961), 593. M.S. Mendelsohn, quoted in Moffitt, The World's Money, 46. Moffitt, 46. 'A Billion Eurodollars,' The Economist, 19 November 1960, 17. 16. 'A Billion Eurodollars,' 17. 'Euro-Dollars Are Our Dollars,' The Economist, 2 March 1963, 828. Helleiner, States, 82. Helleiner, States, 84. 20. Helleiner, States, 89. Moffitt, 47. 'Hambros Bank: The Year of the Eurodollar,' The Economist, 17 June 1967, 1281. 23. Einzig, 'Statics and Dynamics,' 593. Einzig, 'Statics and Dynamics,' 593. John Hewson and Eisuke Sakakibara, The Eurocurrency Markets and Their Implications: A New View of International Monetary Problems and Monetary Reform (Lexington, Massachusetts: Lexington Books, 1975), 2, footnote a. John Eatwell and Lance Taylor, Global Finance at Risk: The Case for International Regulation (Cambridge: Polity Press, 2000), 3. Eatwell and Taylor, Global Finance, 5. Hewson and Sakakibara, Eurocurrency, 157. The New York Times, 18 December 2008. Jan Toporowski, Why the World Needs a Financial Crash and Other Critical Essays on Finance and Financial Economics (London, 2010), 31. Fisher Black and Myron Scholes, 'The pricing of options and corporate liabilities', Journal of Political Economy vol.81, no.3 (May-June 1973), 641. Robert C. Merton, 'Theory of rational option pricing', The Bell journal of Economics and Management Science, vol.4, no.1 (Spring, 1973), 141183. RenĂŠ M. Stulz, 'Should we fear derivatives?', Journal of Economic Perspectives, vol.18, no.3 (Summer 2004), 177.

Irish Left Review Journal ~ January 2013

Ireland and the Shadow Banking System, Part 1 34. Henry C.K. Liu, 'Derivative market reform part 1: the folly of deregulation', Asia Times Online, 3 December 2009. http://atimes.com/atimes/ Global_Economy/KL03Dj02.html. Accessed 7 February 2011. 35. New York Times, 8 October 2008. 36. John Bellamy Foster and Fred Magdoff, The Great Financial Crisis: Causes and Consequences (New York: Monthly Review Press, 2009), 46. 37. Chelsea Wald, 'Crazy money', Science, 12 December 2008. 38. Financial Crisis, 47. 39. Andrew Glyn, Capitalism Unleashed: Finance, Globalization and Welfare (Oxford: Oxford University Press, 2007), 71. 40. Financial Crisis, xxiv. 41. Financial Crisis, xxiii. 42. Susan Strange, 'Interpretations of a Decade,' in Loukas Tsoukalis (ed.) The Political Economy of International Money: In Search of a New Order (London: SAGE Publications, 1985), 21.

Irish Left Review Journal ~ January 2013

Dave Lordan

Spin for Helen Lindstrom

Dave Lordan

Shhsssh! Silence is talking. Silence is driving the car. Shhssh! She is neutral and she dissapproves of all the gloom. What have you got to be so angry about? Would you just shut-up about the budget? Nice things, why can't we just talk about nice things: The lovely hedgerows and lawns hereabouts. Butterflies. Our far flung children, high achievers all. Old country recipes. Recent sporting victories. Weddings we have been to. Other public ceremonies. Our childhood in terms of its thoroughbred horses. The weather. The good local weather. Which is not strange.

Irish Left Review

Journal

~ January 2013

Spin

Stunned and fuming in the backseat, you and I being placed and viewed and spoken through like archaeology. We are fragments in a carton. Ashes in an urn. I wish that my container keeps a coiled snake and a cursebearing hieroglyph in it, and that yours is an aboriginal wand. Shhssh! Silence is priming her lashes, flinting her smile, cocking her teeth in the rear-view mirror. They ricochet and crack us both mid-forehead, fester in our brainwaves like eyes, like thrones and sceptres, like all the stations of the radio. We are monsters now. But this is not what silence calls a crisis. She would like to know exactly what our real problem is? Are you workshy? Or perhaps it's S.A.D Deal with it. Get a goddamn job like the rest of us. Go and sit under a stone-apple tree or swallow a Halogen lamp for yourself. Go get electrocuted. Go piss on electric wire. Didn't you hear about Berlin? Don't you know how much much worse it gets a thousand years ago? Silence takes her holidays in surgical resorts and has also the world's most incredible dentist, a true dambuilder. Shhssh!

Irish Left Review Journal ~ January 2013

Dave Lordan

Silence is only just paring the obvious: Detrital, byproducted hope is foam and it is cornerless. It boils away with heat and age like alcohol, like milk. Get doom, solidify, welcome to the real world, get a fucking grip. Shhssh! Silence floats about the sixties seeing it all before and whatever you think is going on back then it doesn't happen. It never ever. Silence do solemnly declare: I am the national peaceful unity co-operation thingy. I am fog on the lough, erasing shapes, maps, directions, memory. I am the calm that has settled after all hope has died. I am the broken promises factory skirting every Irish town. I am the Hotel Empty. My rating is five black-holes. I host the most magnificient cobwebs, prestigious cracks, glittering slug-trails, draughts of international importance. You are very welcome to attend my International Emptiness Conference. I am a warehouse of the unrequired. Defective mannequins. I am the vastest hangar in all of limbo, that one for the unexamined.

Irish Left Review

Journal

~ January 2013

Spin

I am the cage that traps the song, unbeknownst to the singer. I am the code and the guard and the museum of the future. Shhssh! Silence is driving us down to the pier. Shhssh! Silence is dragging us onto the yacht. Shhssh! Silence is taking us out on the lake. Shhssh! Silence is packing us up in a jar, diving us down to her black uninhabited realm, roots that throttle us in wrecks, grey silt-weeds and the drifting, boneless dead, their softening shells.

Irish Left Review Journal ~ January 2013

Donagh Brennan

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate Donagh Brennan

"As we edge towards the centenary of the events that comprised the revolution of the early 20th century, we face a stark conclusion. This is a State bereft of meaningful sovereignty due to its bankruptcy, and a State whose governing culture has been exposed as rotten. We may have little to cheer about in 2016. 1"- Diarmaid Ferriter on the outcome of the Mahon Tribunal March 2012 "But the 12.5 per cent corporation tax has become a touchstone of independence, defended vigorously against EU attempts to raise it. "This is seen as our one Green card," says Prof Ferriter. "The last vestige of our sovereignty." - Financial Times article on the Fiscal Compact Referendum - May 20122 There is no doubt that the 12.5% rate of corporation tax in Ireland has become emblematic. But is it a remaining emblem of Irish sovereignty, as Diarmaid Ferriter suggests? On the contrary, the 12.5% rate rather than being an emblem for the right of the citizens of a country to determine their own future, is instead a

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate totem for a sovereignty that is used to enrich those who have the power to put it at the disposal of non-Irish companies attempting to shield themselves from their global tax liabilities. Importantly, with the Irish economy remaining in deep shock with further damage being inflicted with each budget, the benefit of using it in this way does not accrue to the economy as a whole. Neither is it sufficient to be considered as a significant part of a long term industial policy. The 12.5% rate is just the 'for sale' sign for a system that offers much more than paying tax at one of the lowest corporate tax rate in the world. As the debate on effective tax rates in Ireland has shown, very rarely would a foreign company in Ireland be subject to it. Instead the much referred to rate is an advert for a tax system designed to allow certain types of foreign companies to avoid almost all of their international tax obligations. These companies tend to have a lot in common, such as an ability to dominate international markets, have disproportionately high profit margins and are geared towards profit maximization, operate large intra-group financing structures and can manipulate costs through the ownership and control of patents and intangible assets. Irelandâ&#x20AC;&#x2122;s ability to provide this is relatively unique and extensive, combining specific rules, the absence of certain laws enforced elsewhere to control tax avoidance, exceptions and copper fastened light-touch regulation which ensures these companies will not be investigated for aggressive tax avoidance. But the benefits Ireland receives for providing such a service has been hugely exaggerated. They are, in fact, pitifully small, in terms of jobs, investment, economic development and government revenue. The same policy that provides such generous reliefs for foreign investment that barely touch the real Irish economy has left those who do live and work in this economy with massive bank debts that they are being forced to pay for. As many of the companies currently under investigation in the UK, the US, France, Australia and India will testify, all of their very aggressive tax structures are completely legal in the

Irish Left Review Journal ~ January 2013

Donagh Brennan

countries that they operate. Given then that Ireland is the hub of so much of this international tax avoidance we have to conclude that Irish sovereignty, through our laws and loose regulatory environment, is being used as the means to bolster the income of one small sector: Ireland's tax avoidance industry, the disproportionately large band of tax experts in solicitor firms and accountancy offices. As this analysis of the effects on the Irish economy of the 12.5% rate (let's call it the 0.14% rate for accuracy), and Ireland's corporate tax regime illustrate, given its costs in terms of reputation damage and tax expenditure and grants there is very little that it provides to the real economy; not in terms of jobs, government revenue, additional Irish business or economic stability. It does not help to fund hospitals, schools or infrastructure all of which are available to be used by companies that avail of Ireland as a tax haven at zero cost. Most importantly it is a failure of its stated objective: 'to bring about recovery in the Irish economy'. Instead we have the dangerous illusion of false export figures being used as an excuse to force those in the real economy to bear the burden of illegitimate bank debts placed upon an economy and a workforce incapable of bearing it. The result is the beginning of a process of stripping out what social net exists and for the opening up of public goods for private speculation. Overall, by looking at the 0.14% rate and the corporate tax regime we are exposing the dynamics of class power in Ireland, and hopefully shedding light on how the narrow interests of Ireland's 'middle men' class sell the golden harp of Ireland's sovereignty like a hastily provided Irish passport to a visiting flank of dodgy foreign investors*.

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate

A Brief History of Ireland's Corporation Tax Regime Irish political discourse appears to be fixated with the introduction of the 12.5% rate in 2003, as if it was only then that a low rate of corporation tax for foreign-owned companies began. The rate itself seems to have talisman-like qualities, attracting FDI like sailors to a siren's song. In reality, foreignowned companies had been enjoying much lower effective tax rates than the 12.5% for 47 years. The change of course, was that after 2003 Irish-owned companies were now able to gain the benefit of the same ultra-low tax regime that had been gifted to foreign-owned companies operating in Ireland for decades. Ireland's history of providing tax relief on exports began with the introduction of the Export Profits Tax Relief (EPTR) by John A. Costello in 1956. The relief provided a 'remission of 50% income tax on profits of a manufacturing industry derived from increased exports' to be used 'for the expansion of the industry'. As a Department of Industry and Commerce note in 1950 suggested: 'It is possible that the granting of the concession may induce foreign enterprise to establish in this country industries capable of exporting goods to the dollar area.' This is the establishment of the 'cornerstone of Ireland's industrial policy' and the beginning of the love affairs between Ireland's comprador class and US capital. It was not until the 1970s that the IDA started to overtly market low taxation to attract FDI, however. Measures offered in the mid-70s included a fifteen year tax holiday for exporting firms, full depreciation and total tax relief on earnings from royalties and incomes from licenses patented in Ireland. These generous reliefs clearly did little to avert the problems for Irish economy in the 70s and 80s.

Irish Left Review Journal ~ January 2013

Donagh Brennan

Once Ireland entered the EEC, however, such tax incentives were judged to be discriminatory, and under European Union rules a change was required, although plenty of time was allowed for them to be implemented. This lead to a broad 10% tax rate for manufacturing in 1981, although a 32% corporation tax remained for other sectors. In the 1987 the legislation created to establish the IFSC allowed financial service companies operating there to only pay 10% corporation tax. This was phased out in 2005 for those companies that were established at this time. Then in the 1998 budget Minister for Finance Charlie McCreevey announced that he would bring forward legislation for a phased introduction of a new regime of corporation tax. On 1 January 2003 the 12.5% rate of corporation tax came into existence. The argument for maintaining the current tax incentive based system is that it encourages much needed genuine investment into Ireland, it increases tax revenue and it creates jobs. However, as we will see, the vast majority of investment that does come in is often the same size as the investment that goes out again. While corporation tax revenue has been lost through changes in the rate the return is still larger than that for corporation tax in most EU states. Yet this reflects the very high profitability of all those companies using Ireland as a tax haven and the level of corporation tax is still small compared to other tax returns such as VAT and PAYE. Finally, while FDI does create jobs the level has remained static at 7% of the workforce, including in manufacturing for decades. This static percentage remained even during periods of high unemployment as well as when the numbers joining the overall workforce increased significantly. Yet despite the fact that all this economic activity manages to bypass the domestic economy we are told that the rate is the cornerstone of the Irish economy and that FDI export growth is the 'only game in town'. Rather the rate is a fig leaf which only applies in very limited circumstance and it is our tax laws often

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate tailor made to suit specific businesses and an unwillingness to enforce what restrictions that do exist. All this requires a 'disproportionately high number of world class lease arrangers, asset marketing personnel and legal and tax advisors'3, those who benefit most from Ireland's very odd corporate tax regime.

Reducing the Rate Did Not Increase Government Tax Revenue Changing the rate has not lead to increases in tax revenue. From the point of view of foreign companies in Ireland the change in the tax rate to 12.5% made little immediate difference and any transition from the 10% rate would be slow as it wouldn't apply to them until 2005. Far more significant were the changes in how holding companies were treated in the legislation that introduced the rate change. The biggest impact, however, was on Irish businesses. These included Irish retail banks, supermarket, wholesale, fast food and betting shop chains, car dealerships, construction companies and the parts of property development connected with trade. It moved their corporate tax liability from 32% to 12.5% overnight. The resulting profits they enjoyed however were not invested back into their businesses but into property speculation. The property development sector also had a number of tax incentives created for it, including an additional exception on passive income reducing it to 20% which further encouraged this move. Again, there is no reason why Irish firms needed to be included in the flat 12.5% rate given that as a tax incentive a 10% rate applied to all manufacturing FDI since 1981 as well as financial FDI since 1987. This move obviously reduced tax income although this fact is never mentioned. Irish companies provided one fifth of all corporation tax returns on the day it was introduced in 2003 and 20% of all corporation tax returns collected in 2007, according to Revenue commissioner's data, came from the very small number

Irish Left Review Journal ~ January 2013

Donagh Brennan

of Irish firms that pay corporation tax4. However, despite this loss of revenue it was also highly unlikely that reducing the rate would increase tax revenue given that the structure of the tax system allows for the rate to be avoided, in many cases completely. But this move was not motivated by any desire to increase tax revenue. Through successive governments the continuous policy has been to ensure that government revenue has remained low. In the period 2002-2006 Irish government revenues was 34.9% of GDP, while the Euro Area average was 44.9% (Eurostat)5. In addition Ireland's tax revenue puts it at the bottom of the OECD scale6. Based on a 2012 report published by the tax and statistical divisions of the European Commission Ireland tax revenue fell from 32.7 per cent in 1995 to just 28.3 per cent of GDP in 2002. It reached a peak of 32% in 2006 and is now slightly lower than 2002 levels at 28.2%7. An argument regularly repeated is that if we increase the rate, we would lose tax revenue as companies would move out of Ireland. This ignores the fact that although Ireland has the highest level of profitability per employee among foreign-owned companies in the EU, by a significant margin, corporate tax revenue is decreasing8. Since the financial crisis struck corporate tax receipts have declined from 3.5% in 2007 to 2.6% in 2010. CSO data published in November 2012, however, show that from 2008 profits in MNCs using Ireland have increased even as the pace of investment fell9. According to Eurostat data for 2009 MNCs in Ireland made more than four times the profit per employees

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate than the average of the other EU-15 countries reporting ((100k per employee in Ireland against EU-15 average of 27.4k)10. Yet while Corporate tax payments as a percentage of total tax revenues are higher in Ireland than most other EU countries this is precisely because so many of the foreign owned companies that are highly profitable move so much of those profit gained worldwide through Ireland's incredibly loose corporate tax regime11. Looking at profits of non-financial firms operating in the Irish economy as well as the profit share, we see that profit share has been rising since 2008. Profit share is a proportion of total Gross Value Added, once the effects of subsidies and taxes on production are excluded. As the CSO notes, this increase in profit in Ireland is mostly due to foreign companies booking their profits in Ireland.

Irish Left Review Journal ~ January 2013

Donagh Brennan

That MNCs have been increasing profits while paying less in Corporation tax revenue in Ireland is not surprising. Although many MNCs operating in Ireland are unlimited companies, which means that full accounts are not published, news reports in recent years have shown that they are consistently increasing their 'administrative costs' each year thereby reducing their corporate tax liability here. The Irish state has shown no interest in challenging this.

Reducing the Rate Did Not Lead to Real Investment In a March 2011 debate on corporation tax in the Dรกil, Fine Gael Minister of State Brian Hayes suggested that the wording of the motion being debated in the chamber should be changed to "Dรกil ร ireann recognises that the 12.5% corporation tax rate will

support Irish economic recovery and employment growth by attracting foreign investment."12 The nostrum is that the sacrosanct 12.5% rate itself is capable of attracting and encouraging FDI investment to remain in Ireland.

We know that the rate itself cannot have this power of attraction because the effective tax rate is often considerably lower, and other measures within the taxation system for foreign companies are more important. There is evidence, however, that reducing the rate, not only reduced the amount of corporation tax returns from Irish companies, but also had the effect of increasing the amount of FDI leaving the country. Economist Michael Burke examined the inflow and outflow of FDI from 1998 to 201013 and found that after the rate was cut in 2003 'there have been many quarters with a net outflow of FDI

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate and the annual average total was an inflow of just 2.3bn euro. Before the rate was cut that annual average inflow was 17.7bn euro, and there was only one quarter of net outflow in FDI.' While this does not prove that increasing the rate would increase investment it does disprove the notion that introducing a flat 12.5% rate across the board attracts inward investment. We can see, however, that reducing the rate has always had a negative effect on investment. In the 4 years 1978-1981 average annual FDI inflows were US$300 million according to World Bank data but in the 4 years after the 10% tax rate was introduced FDI averaged at US$235mn. The high point of 1978 was not reached again in nominal terms until 1990. In real terms the decline was even more pronounced. That the outflow of direct investment should increase after the rate was reduced, however, would not surprise those aware of the wide number of studies which show that firms involved in direct investment consider other factors to be more important than the corporation tax rate when choosing where to invest. The ease of access to markets, a good infrastructure and availability of a well-educated workforce are often cited as the most important (Ireland also has one of the highest proportions of persons aged 20-24 with at least a higher secondary education in the EU14. Recently, in a survey of foreign direct investors in Ireland called Investing in Ireland the importance of various factors weren't ranked in terms of importance. Instead it refers to pillars - the four pillars are education, access to EU, loose regulatory environment and low tax. Why they chose not to rank the factors is curious given that there are numerous other survey's for other jurisdictions that put taxation as of much lesser importance but then they are for other jurisdictions)15. The reason, no doubt, is because a low tax rate undermines the ability of a country to provide the factors that is more important to those wanting to set up business in a country.

Irish Left Review Journal ~ January 2013

Donagh Brennan

Reducing the Rate had No Effect on Job Creation There is no doubt that US companies in particular have been using Ireland to shift profits since the early 80s but this increased significantly from the early 90s on when the value of exports from Ireland rose substantially. However, this increase has seen no change in terms of job numbers and the number of companies responsible for this increase has remained small. For example, even though Irish exports of goods and services went from 98bn euro in 2000 to 164bn euro in 2011, according to the CSO, employment in both foreign-owned and indigenous firms dealing with internationally tradeable goods and services was lower in 2011 than in 2000. This occurred even though the Irish workforce during this period increased by 25%. Foreign-owned firms are responsible for about 90% of all Irish tradeable exports yet the real value of goods exports has been almost static since 2000. About 9,500 direct Irish-based workers were responsible for ?58bn of services exports in 201116. Conor McCabe looking at the Census of Industrial Production reports published by the CSO between 1983 and 2006 found that "employment in foreign-owned companies

engaged in internationally traded services in Ireland in 2008 was 58,177 - or 2.7 per cent of the workforce". Service exports account for around 69% of total exports. "When we add [this] to employment levels in foreign-owned manufacturing companies the overall total for direct employment by foreign direct investment in Ireland is 152,267 - or 7.25 per cent of the workforce in Ireland in 2007."17

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate Using figures from the 1998 and 2008 Forfas annual reports he shows that direct FDI employment in Ireland in industry and services, from 1990 to 2008:

There is only around 40,000 staff responsible for ?56bn of chemical and medical devices exports with just over 40 companies being responsible for 69% of headline exports in this sector, yet as Michael Taft pointed out in 2010:

"Between 2000 and 2007, Chem/Pharm exports increased by nearly 16 billion euro, or just over 60 percent. However, employment remained static, rising by just 300. The problem is that there is almost no linkage between the Chem/Pharm sector and the rest of the economy. 85 percent of inputs in the Chem/ Pharm sector are imported. In other words, increased exports may create jobs downstream - but in other countries, not in Ireland." 18 Since then there has been many hundreds of job lost in the Pharmaceutical sector, with several hundred leaving Pfizer alone

Irish Left Review Journal ~ January 2013

Donagh Brennan

in the last two years as the company restructures its international operation19, 20. The chemicals and pharmaceuticals sector which is dominated globally by a relatively small number of major multinationals many of which have a presence in Ireland, accounts for over half of Ireland's merchandise exports, says Proinnsias Breathnach, a senior lecturer at the National Institute for Regional and Spatial Analysis at NUI Maynooth. They tend to operate in non-competitive markets due to their control of patents and the size of the companies and tend to be highly profitable.

"…profits as a percentage of revenues for pharmaceuticals firms in the US Fortune 500, on average, are typically 4-5 times greater than for other firms."21 The significant movement of their product through Ireland is not a job creating opportunity. Instead it's a means of further reducing their international tax liability and therefore an opportunity for increase profit margins in the absence of significant sales growth.22 In Ireland there is not a diversification of Foreign Direct Investment. Instead there is a concentration on MNCs which have a very high profit margin, low employment and where the cost and profit structure is based on patent ownership and the control of intangible assets within its intra-national. Within this concentration there are three strands - high tech computer service or IT firms, chemical/pharmaceutical/medical devises and financial service companies. In each case the enormous size of the company allows it to dominate its particular market. As Proinnsias Breathnach explains:

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate "Oligopoly is also a feature of other Irish export sectors. Microsoft (whose main Irish subsidiary had a turnover of 11.3bn euro in the year to June 2008 - the equivalent of 7.5% of Ireland's total exports in this period) is an obvious example, with profits amounting to 30% of revenues in 2008, over six times the average for Fortune 500 firms (the profit margin on Windows and Microsoft Office is reputedly of the order of 80%). Google, whose Irish operation has enjoyed spectacular growth since it was established in 2003, had a 2008 profit rate which was only slightly less than Microsoft's. Apart from oligopolised markets, a large proportion of foreign-owned operations in Ireland are largely involved in providing services to other units of their parent companies - they are not selling in open markets. This applies to units engaged in R&D and software development for their parent firms or providing centralised support services for affiliate units elsewhere in Europe and adjoining regions, and to IFSC operations providing insurance and treasury management services to affiliates. It is impossible to quantify the extent of such activities, but they certainly make up a substantial proportion of service exports which in 2008 accounted for 42% of total exports."" Again, according to ForfĂĄs it is only the financial sector which has seen real job growth within foreign-owned firms.23 Foreign firm employment in financial services increased from 6,300 in 2000 to 15,526 in 2010, while financial services exports rose from 3.5bn euro in 2000 to 13.3bn euro in real terms in 2010.24

Irish Left Review Journal ~ January 2013

Donagh Brennan

Jobs Quantity & Job Quality in Finance Sector In July 2012, in response to the question from Joe Higgins TD about the 33,000 people that the Taoiseach Enda Kenny claimed earlier on in the year worked in the IFSC Michael Noonan said the following25:

"Neither my Department nor the Central Bank compiles detailed information in relation to employment in the international financial services sector in Ireland. The figure to which the Deputy refers was sourced from a report compiled by the Finance Dublin Yearbook which provides a breakdown of international financial services related employment. Details are reproduced in a report compiled by Accenture and Financial Service Ireland (FSI) entitled "The IFSC: the international financial services sector in Ireland"26 published in September 2010 and which is available on the IBEC website. I understand that the details the Deputy is seeking is available from those sources." It says a lot that the regularly repeated claim of 33,000 is based on a brochure document put together by a business lobby group given the enormous investment by way of tax breaks that the state provides to financial services. The government appears to treat the FSI which is part of IBEC as an agency of the state. However, there are plenty of reasons to be skeptical that increasing activity in the IFSC, or within Financial Services leads to job growth. In a 2006 article "Financial Flows and Treasury Management Firms" Jim Stewart showed that Ireland is an important location for Treasury management firms (Luxembourg and the Netherlands are also important locations). Through an

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate analysis of available information on those companies his study group was able to identify as Treasury Management firms he showed that many have zero employees. This is because they are managed on an agency basis.

"A treasury management subsidiary is a common feature of MNCs. Treasury Management firms are the conduits for the global movement of intra-firm financial flows by MNCs. They often form part of a complex organisational structure whose immediate parent may be located in a tax haven (Stewart, 2005). (pg3) A database of all Irish registered companies was searched in order to identify Treasury management firms. Ultimately 41 firms with available accounting data were identified. These firms are of considerable economic interest. The median size in terms of gross assets in 2002 was $379 million, median profits in 2002 were $6.3 million ($9.6 if those reporting losses are excluded) but the median number employed was zero.(pg4)"27

Irish Left Review Journal ~ January 2013

Donagh Brennan

Table 1 is based on 41 firms illustrating the low impact such companies have in the economy. 24 out of 41 companies have no employees. In the FSI report, "The IFSC: the international financial services sector in Ireland" it's stated that the quality of the jobs available in Financial Services is high, and that the average salary earned is 60,000 euro. Given that the IFSC is a funds administrative centre which is about the movement of money between various jurisdictions, most often in an intra or intercompany basis is seems unlikely that this is the case. Similar to other tax haven locations which also manage funds, the majority of jobs are usually call-centre operatives and back office administration staff. A 2010 report The Economic and Fiscal Contribution of US Investment28 by Keith Walsh of the Revenue Commissioners provides some interesting data on income tax revenue from employment created by US firms in Ireland. According to table 11 B on page 23, income earned by those employed in the US-owned retail trade was a good deal higher than those employed in US-owned financial services:

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate

So, tax incentives designed to attract investment doesn't increase investment, it reduces it; it doesn't increase government revenue, indeed in the case of tax from Irish companies it reduced it significantly and as foreign companies maintain profitability it has declined; it doesn't increase job numbers which in most FDI dominated sectors have remained small and static . Overall in the last decade total job numbers in all foreign-owned companies have declined.

Tax Haven Gateway? Money in = Money Out What it has done is confuse any attempt to figure out where the value occurring in the real Irish economy ends and the money that circulating through Ireland courtesy of MNCs finance

Irish Left Review Journal ~ January 2013

Donagh Brennan

operations, Treasury Firms, Hedge Funds, and Reinsurance companies begins. Even the newscaster reading the 9 O'Clock News issues a caveat to viewers when mentioning current GDP levels and as Simon Johnson, former chief economist of the IMF mentioned in testimony to the US senate, no other country in Europe has as large a difference between GNP and GDP, with the former showing economic activity excluding repatriated profits. Johnson describes Ireland unequivocally as a tax haven and notes that the gap is so obvious that the IMF now remove all reference to GNP from their reports.29 This difficulty has increased in the last four years as companies avoiding the UK's desire to strengthen controlled foreign company (CFC) legislation in 2008 and following the Obama administration's decision to remove Ireland from a list of tax havens corporates has led to more corporates moving their Headquarters to Ireland. This, however, does not mean that they bring economic activity. As this article in the April 2012 edition of the Central Bank of Ireland's quarterly report points out30:

'Generally these headquartered MNCs have little real impact on the economy in terms of employment or manufacturing.' As the article illustrates these companies have considerable foreign assets which are registered in the country as foreign direct investment. However it's assumed that:

"all profits consolidated in Ireland will flow out of the country at some date in the future. There are two probable channels for these outflows - dividends to foreign shareholders or intra-group financing". Both methods have different effects on the measure of GNP.

Irish Left Review Journal ~ January 2013

Ireland’s For Sale Sign: The 12.5% Corporation Tax Rate "In the first channel, all profits that were consolidated by the headquartered MNC in Ireland, outflowed from the country, and therefore over time, had a zero net effect on Irish external macroeconomic accounts. Any lag between profit inflows and outflows will, however, cause volatility on the current account. In the second scenario, profits received did not flow out again through the current account but via the financial account of the balance of payments. As these investment income inflows are not offset by outflows on the current account, a permanent overstatement of GNP is recorded." This is important when discussing the possible benefits a tax rate has on investment. The fact is, because “the corporate tax

regime applicable to holding companies, research and development credits, intellectual property management, profit repatriation and double taxation treaty networks are important factors in multinational capital structure choices” the figures for investment in and out of Ireland reflect these intra-group structures. As we can see below inward and outward direct investment data for Ireland is dominated by Bermuda, the Netherlands and Luxembourg, all countries associated with massive tax avoidance measures.

Irish Left Review Journal ~ January 2013

Donagh Brennan

This is what Ireland's tax regime is creating - a system of money in/money out, protected from tax by having regulations that allow for the free movement of capital with it touching the real economy. This is what the tax system is designed to do, one designed by people who have become international tax experts at the expense of everything else.

Telesis - End the Tax Shelter Regime This lack of real economic benefit to the Irish economy from foreign direct investment is not unexpected. After all, it was outlined clearly if controversially in a report published around the time that one of the most successful high tech companies in the World first established itself in Ireland. The problems with the way that foreign-owned companies were investing in Ireland was highlighted in the Telesis report published in 198131:

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate

One can see that the hope expressed was that the success of the High Tech industry would bring about a restructuring of Irish industry similar to the Japanese model that Telesis highlighted as the means for countries with an initial disadvantage to develop a strong economic base. However, the problems with the means by which they were attracted was already apparent.

Irish Left Review Journal ~ January 2013

Donagh Brennan

The problem was not in attracting this investment, but the way that it was attracted and for what purpose. The objective should have been to use foreign investment effectively to move Irish industry towards the development of higher value-added Irish businesses - that is, export led growth is useless without some feedback occurring in the domestic economy and the retention of tangible benefits after those who have 'invested', often with substantial state support, choose to leave. It is striking that Ireland repeatedly failed to ensure this. The report highlights how Ireland had managed to attract 80% of the foreign direct investment which Northern Ireland, Scotland, Wales and Belgium were also competing for. Given this level of success, however, there was never an attempt to reduce the incentives available in order to get a better deal and to move the savings from unneeded incentives to the indigenous sector. For

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate the report Telesis interviewed 100 multinationals which had either located part of its operation in Ireland or had considered it, as well as discussing it with officials from other development agencies. "The distinct impression left by these interviews", the authors comment, "is that Ireland may be offering more than is

necessary, in many cases, to attract foreign-owned firms to the countryâ&#x20AC;? (Telesis, p29).

Irish policy makers were not interested in creating the conditions that would be necessary to spread the benefits of this investment more widely within the domestic economy. This is because they were only interested in providing steady income for those Irish businesses which did make contact with foreignowned firms. The business of these Irish companies, such as firms of solicitors and accountancy firms, was to know everything there was to know about the concessions and subsidies that were available and to suggest where more could be made. Their knowledge was such that they became perfect conduits for what concessions and incentives were required to be able to use Ireland as a way of avoiding international tax obligations. The transnational structure of multinational firms means that if they were to move money into and out of Ireland without reducing the value of their investment and assets certain grey areas in terms of the treatment of inter-group loans were required in the legislation and within regulation to ensure that this happened. Irish financial advisers have become experts in the manipulation of these grey areas, so much so that the Irish government doesn't feel self-conscious when it admits that legislation is designed by them, suggesting that they are best placed to understand the needs of MNCs. The excessive cost of spending on tax reliefs is not calculated, the effectiveness of the stimulus for investment is not measured and instead the justification is based on potential increase in terms of jobs. As we have seen, this increase does not occur.

Irish Left Review Journal ~ January 2013

Donagh Brennan

Ultimately the recommendation of the Telesis group was that Irish industrial policy needed to shift its emphasis. Instead of spending too much attracting foreign-direct investment which is only interested in using Ireland as a tax shelter within the European market and which offers only low-value employment with very few linkages to the Irish economy, it should instead use its resources to 'pick winners' in the indigenous sector and nurture them until they become strong, internationally traded companies in their own right. Instead, the message to 'pick winners' was distorted from requiring the development of the most promising indigenous Irish firms which could develop an export orientated business to picking those who were 'winners' with US capital and offering them enough incentives to locate a little bit of their business in Ireland. Rather than developing real growth in the economy, they wanted to service a small part of the growth happening elsewhere.

"I talked to an executive at Google a few years ago about their reasons for coming to Ireland. He told how the Irish authorities had lovebombed them in America when the company was investigating where they would set up in Europe. The tax breaks were one thing, a ready-made building was another, but a third issue was a guaranteed "dark light" fibre connection (with the UK if my memory serves me right). The 'dark' refers to the amount of unactivated capacity in the fibre network and gives Google 'fall over capacity' and future expansion capacity - something that would be business critical." 32 As Lisa Oâ&#x20AC;&#x2122;Carroll suggests, Ireland is providing Google with an unused dark fiber connection to the UK yet has failed continually to invest in a proper broadband network, and

Irish Left Review Journal ~ January 2013

Ireland’s For Sale Sign: The 12.5% Corporation Tax Rate currently has one of the lowest fixed broadband penetrations in the EU (22.1 per 100 inhabitants in 2011)33.

Niche Policies on Behalf of Industry In a report read to the IIIS in Trinity College, Dublin as a response to the Telesis report in 1981, the head of the IDA at the time Padraic White describes what policy his agency should pursuit:

“(iv) Identification and Development of Special Niches: In aiming to achieve high levels of output growth Ireland could identify and develop its own specialised opportunities for growth. Many attractive opportunities are beyond our aspirations in both financial and other terms. Ireland simply cannot afford the broad based technical approach of many developed countries. IDA possesses a unique combination of sectorial experience and commercial knowledge which will enable it to identify and develop suitable niches on behalf of industry: specialised computer software is an example.”34 This precludes investment in an industry that is set to expand internationally, according to White, but instead can identify and develop 'suitable niches' on behalf of industry. Perhaps the most important way of developing that niche was to make use of the changing tax environment in the US. As a result of the rapid increase in US companies using tax havens to hide corporate profits the US government introduced the Tax Deferral policy - the ability to defer the payment of tax by US

Irish Left Review Journal ~ January 2013

Donagh Brennan

multinationals on profits earned outside of the USA35. The consequence of this change means that profits that US MNCs earn in countries like Ireland are not repatriated when they are earned but are held by the company for as long as it chooses. The deferral is an interest free loan and allows the company to hold on to that money until such time as US authorities are willing to provide windows in the tax laws to allow for repatriation of earnings at a low tax rate. One such opportunity occurred under the American Jobs Creation Act 2004, which allowed US based firms to repatriate profits at a tax rate of 5.25% rather than the standard rate of 35%36. The Deferral mechanism was one of the niches that the IDA sought actively to exploit, not to create jobs or develop indigenous companies that might be able to link back to FDI. It was to create an environment that suited the Treasury Management firms that MNCs use to manage their intra-company capital while holding on to the deferred profit income prior to eventual repatriation. One example from the US Diplomatic cables (published in 2010 but referring to conversations recorded in the US Embassy in Dublin in Nov. 2004) shows how Ireland's industrial policy as implemented by the IDA under White was entirely dependent on the US Tax Deferral mechanism.

â&#x20AC;&#x153;8. (C) The U.S. policy of tax deferral for foreign subsidiaries of American firms, combined with Ireland's 12.5 percent corporate tax rate, underpinned the large influx of U.S. investment to Ireland during the Celtic Tiger period, observed Padraic White, former CEO of Ireland's Industrial Development Authority (IDA). White recounted his numerous trips to the U.S. House of Representatives, Ways and Means Committee to defend tax deferral, and

Irish Left Review Journal ~ January 2013

Ireland’s For Sale Sign: The 12.5% Corporation Tax Rate

he argued that Senator Kerry's plan to reverse tax deferral would have “killed Ireland,” had he been elected.” 37 The sector that White suggested the IDA should concentrate on was one that was only just beginning to develop; specialised computer software. Perhaps while responding to the Telesis report White was thinking of a new entity, Apple, which set up in Ireland in December 1980, the month the company went public offering $4.6 million shares at $22 each. A few months later Ireland adopted a 10% corporation tax rate for manufacturing. In 1981, according to the Telesis Report, 80% of the foreign companies that set up in Ireland said they did so to avail of the generous tax reliefs available.

Enter the “Double Irish” “My understanding of what Deputy Boyd Barrett describe as the “Double Irish” is that while it exists, it cannot be remediated by changes in Irish tax law. Our law applies a rate of 12.5% to the profits of corporations in Ireland. If the situation is to be changed, it is other countries' tax laws that need to be amended, in particular American laws, but it is not within my remit to do so.” - Michael Noonan, Oireachtas Debate on the Irish Tax Code, 4th Oct, 201238 Those involved with Apple in Ireland at senior management level would later claim to have invented the tax avoidance measure known now as the “Double Irish” as a means of holding on to deferred tax revenue without it being taxed anywhere.

Irish Left Review Journal ~ January 2013

Donagh Brennan

"In the late 1980s, Apple was among the pioneers in creating a tax structure - known as the Double Irish that allowed the company to move profits into tax havens around the world, said Tim Jenkins, who helped set up the system as an Apple European finance manager until 1994. Apple created two Irish subsidiaries - today named Apple Operations International and Apple Sales International - and built a glass-encased factory amid the green fields of Cork. The Irish government offered Apple tax breaks in exchange for jobs, according to former executives with knowledge of the relationship.â&#x20AC;? 39

But there is far more in the tax structure that Apple avail of than a tax break, and considering its advantage for the company there are very few jobs being provided to justify such a tax cost. The Double Irish and the Dutch Sandwich are now widely known, and definitions of how it works can be found easily, so there is no need to go into detail here40, 41. However, it's worth noting a couple of features. In effect it requires the creation of two Irish holding companies. A US corporation has the ability to own 'non-US' intellectual property, in an Irish company which is not an Irish tax resident. As the company is incorporated in Ireland, it's seen as Irish from a US point view, but from Irish Revenue's perspective it is a foreign company and therefore not subject to withholding tax. This conveniently ignores the fact that the non-resident Irish company is in a tax haven like the Cayman Islands or Bermuda. It then enters into a licensing agreement with an Irish incorporated and Irish tax-resident company (the second holding company), which from Irish revenue's point of view is subject to corporation tax. This second holding company acts as the EMEA hub where,

Irish Left Review Journal ~ January 2013

Ireland’s For Sale Sign: The 12.5% Corporation Tax Rate nominally, sales pass through. However, for the money to flow to the Cayman Islands or Bermuda it requires the use of the Netherlands. In the Netherland's another company is created called Netherlands Holdings B.V, for example. The case of Google is perhaps the best known, although the structure exists for many, if not potentially all companies. We know, for example, that the two 'Irish' holding companies are Google Ireland Holdings and Google Ireland Limited. So, when a French, Egyptian or Indian customer buys services from Google (such as Adwords or Adsense) their credit card is debited to a bank account located in Dublin and appears as a sale in Google Ireland Limited. While Google Ireland Limited takes the sale, it has to 'buy' the rights for the Google algorithm or Google trademark from Google Ireland Holdings, which is nominally in Bermuda. However, rather than the money moving directly to Bermuda it goes to a holding company in the Netherlands, Google Netherlands Holdings B.V, from which it is passed back to Google Ireland Holdings. The Netherland's entity, according to Bloomberg, "pays out about 99.8 percent of what it collects to the Bermuda entity, company filings show."42 This odd structure and the way it is treated by Irish revenue is put in place because of the perspective of US tax law. As Prof Edward Kleinbard put it in a 2011 academic paper published in the Florida Tax Review43:

“…from a US tax point of view, neither Ireland Limited nor Google BV exists at all. The United States sees only an Irish (not Bermuda) company (Irish Holdings) with a Bermuda branch, where most of its net income comes to rest.” It's important to remember that while we are mentioning geographical places no physical movement actually occurs. As the

Irish Left Review Journal ~ January 2013

Donagh Brennan

Bloomberg report showed the Amsterdam-based subsidiary lists no employees. Similarly, Google Ireland Holdings has no employees. It's a registered company in Bermuda: number 4531144 and is owned by Google Bermuda Unlimited. According to the French investigative magazine OWNI, "Google Bermuda only consists of a mailbox held by Conyers Dill & Pearman, a company which specializes in offshore arrangements. The firm is composed of several local business lawyers, working on behalf of multinational companies interested in this tax haven's benefits"45. Its unlimited status is important, as in Irish law this means that it doesn't have to publish its accounts. Google Bermuda Unlimited owns Google Ireland Holdings also an unlimited company, which owns Google Ireland Limited and Google Europe. However, the 'Bermuda' company Google Ireland Holdings and Irish company Google Ireland Limited are both registered at the office of a certain Dublin solicitor46. Google Ireland Holdings has to be registered in Ireland for it to be considered under US tax law as an 'Irish company'. When politicians and journalists talk about an MNCs, they associate their involvement in Ireland with the business the MNC conducts. What is never mentioned is the fact that it is just the Treasury management arm of the MNC that is operating through Ireland. This is what we are seeing with companies like Google. To requote Jim Stewart from earlier:

Treasury Management firms are the conduits for the global movement of intra-firm financial flows by MNCs. They often form part of a complex organisational structure whose immediate parent may be located in a tax haven.

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate

70 Sir John Rogerson's Quay, Dublin According to Senator Carl Levin, chairman of the Permanent Subcommittee on Investigations in the US Senate in a report published in September 2012 the "high-tech industry was

probably the number-one user of these offshore entities to transfer intellectual property." This is a fact that accounts for the

disproportionate presence of such high-tech companies in Ireland. The Subcommittee investigated Microsoft and HewlettPackard as test case companies to examine such tactics47. Microsoft cooperated with the investigation and provided information to the Subcommittee that otherwise wouldn't have been available as they are an unlimited company in Ireland. The subsidiaries of Microsoft in Ireland became unlimited companies in 200648 following a Wall Street Journal report49 in 2005 which showed how Microsoft funneled profits earned in the EMEA region through Ireland using a series of shell companies all of which have a registered address at 70 Sir John Rogerson's Quay,

Irish Left Review Journal ~ January 2013

Donagh Brennan

Dublin, the offices of solicitors Matheson Ormsby Prentice. In the same year, 2006, Apple and Google Ireland Holdings, among many others, became unlimited companies. Matsack Trust Limited, 70 Sir John Rogerson's Quay, Dublin 2, is company secretary for 1,295 companies and is "the in-house company secretary service provided by tier-one legal firm" Matheson Ormsby Prentice. Matsack is also company secretary for Microsoft Ireland and Google.50 As the Permanent Subcommittee on Investigations memo indicates, Ireland is often the hub of tax avoidance global infrastructure:

"Beginning in the 1990s, Microsoft began establishing a complex web of interrelated foreign entities to facilitate international sales and reduce U.S. and foreign tax. Microsoft established three regional operating centers in low tax jurisdictions, first in Ireland, then Singapore and Puerto Rico. Microsoft Ireland is responsible for retail sales to Europe, the Middle East and Africa, Singapore is responsible for retail sales in Asia, and Puerto Rico is responsible for retail sales in North and South America, including the United States. Microsoft makes efforts to maximize profits held in these three operating centers in order to reduce its tax liabilities." According to the report Irish Microsoft subsidiary provided the seed capital required to set up the Microsoft subsidiary in Puerto Rico which is used to avoid tax on US sales. This is Ireland's 'suitable niches' created 'on behalf of industry'. Ireland's tax legislation is designed specifically to enable companies like Microsoft, Google, Apple and many others to avail

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate of the US loopholes like the "check-the-box" regulations51 and the controlled foreign corporation (CFC) "look-through" rule52, both of which were created according to the Subcommittee, to undermine the tax code's Subpart F. Subpart F was put in place to prevent the shifting of passive CFC income/profits to tax havens to avoid U.S. tax.53

The Rate is Irrelevant In the 4th of October 2012 Dail Debate on the effective tax rate Michael Noonan claimed that 'our law applies a rate of 12.5% to the profits of corporations in Ireland', yet as we've seen the structure of the Irish tax code means that only a small proportion of sales that pass through Ireland would be subject to that rate. Irish law allows company profits to be hidden by 'administrative costs'. This has led to very low effective tax rates. As Der Spiegel reported in November 201254:

"Google Ireland reported revenues of ?10.1 billion in 2010, but they were almost completely consumed by advertising expenses and personnel costs for the company's 2,000 employees. The largest expense, about ?7.2 billion, consisted of licensing fees that Google Ireland paid to another Google subsidiary in the Netherlands. In this manner, almost all of the income was sucked away from Dublin." There is nothing forcing MNCs to declare any profits in Ireland. Other MNCs operating in Ireland have had an effective tax rate of close to zero. In the case of Boston Scientific, for example, it has been 0.53 while for Symantic it was zero for 2004-5 with a turnover of 275.1 million55.

Irish Left Review Journal ~ January 2013

Donagh Brennan

The debate in Ireland around real and effective tax rates has led some to suggest that we should set the rate at a more 'realistic' level to ensure that tax is collected at that rate56. However, this misses the point. The rate is irrelevant as it is the Irish regulatory system which facilitates the avoidance. As Jim Stewart explains57:

"One of the tricks in using Ireland and Bermuda is that you have an Irish resident company, but located in Bermuda. You have a company which is not located where its legal address is. You could have a change saying that a company has to be domiciled where its operations are." The important point to remember is that to make such a change would undermine Ireland's very specific selling point. Ireland is trading on the fact that it's not tax haven in the eyes of the OECD and the US in particular, yet can allow companies which otherwise would be taxed to use a tax haven. This is Ireland selling its sovereignty and getting very little in return. All Ireland is doing is selling a service of ensuring that a MNC's money can pass through the Irish legal jurisdiction without being taxed on its way to what is considered to be a tax haven by the OECD58. If Ireland was considered to be a tax haven by the US administration it would lose its advantage. An illustration of this can be seen with the movement of corporate headquarters to Ireland after Ireland was removed from a list of tax havens drawn up by the Obama administration to deal with significant corporate tax avoidance in the US. But while this lack of interest in how companies use Ireland to launder profits on their way to a named tax haven, there is plenty in the structure of the Irish tax system, as it applies to foreign-owned companies that make it a tax haven in its own right. The basic principle appears to be, if it's a foreign-owned

Irish Left Review Journal ~ January 2013

Ireland’s For Sale Sign: The 12.5% Corporation Tax Rate company then there is always an exception for any rule that might otherwise lead to profits being taxed. And if there is no exception, the rule won't be enforced anyway.

The structure of the Irish tax system geared to avoiding tax everywhere “Surely any objective commentator would agree that tax avoidance is a natural course of action for any individual or company and in no way reprehensible or undesirable.” KPMN column - Finance Magazine 2004 When Ireland's 12.5% corporation tax rate was introduced it was stated that the rate only applied to 'traded income'. Nontrading or 'passive' income would be taxed at 25% which could include foreign dividends, interest and royalties. However, exceptions are allowed for this. If the income is earned in the course of an active business (a trade) undertaken in Ireland, the profits are taxable at 12.5%. The websites of the solicitor firms, like Arthur Cox and accountancy firms like KPMG and Deloitte and Touche provide breath-taking detail on the many ways that foreign companies in Ireland can avail of all the exceptions and omissions of Irish tax law to avoid paying any tax whatsoever. For example, partners for the firm Grant Thornton Ireland in the July 2012 issue of the International Tax Review outlined the attractiveness of Ireland's current holding company regime: Ireland - Key Tax Facts for Holding Companies59 • Share disposal generally tax-free

Irish Left Review Journal ~ January 2013

Donagh Brennan

• Tax credit regime generally means dividends are received taxfree • Wide and expanding treaty network • Interest withholding tax generally nil • Dividend withholding tax generally nil • No CFC / Sub Part F equivalent • No thin capitalization rule • Limited transfer pricing regime • Tax relief for IP acquired /generous R&D tax credits • Low corporation tax rate on any trading profits There is one other item they omitted to mention, a "selfassessment" tax system and our pro-business 'lightly regulated economy’. As Richard Murphy, noted campaigner for tax justice said in his interview with Irish Left Review, Ireland has an incredibly soft touch when it comes to regulation. The reason for this is clear:

"You can't sell your country as a place in which to invest on the basis of tax and then have an aggressive tax authority. It just isn't possible". Ireland has plenty of rules around tax, but it doesn't enforce them. To do so would be counter to the reason why companies were attracted to Ireland in the first place, primarily because of tax. While access within a Euro country to the European market is essential in order to reduce currency exchange risk, it the tax structure in Ireland which has led to the phenomenal levels of money passing through the Irish economy, mainly from US high tech, pharmaceutical and financial firms. However, Richard Murphy continues, this light touch is replicated in legislation itself:

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate

"So although it has a comprehensive network of double tax treaties, transfer pricing is a legislation that has only very recently arrived in Ireland and is still quite frankly not considered as an issue. So therefore it is very easy to move money in and out of Ireland on the transfer pricing abuse without any questions being asked. It hasn't got a thin capitalisation rule, so you can actually therefore load your debt into Ireland and nobody is going to ask any questions. You can pay your royalties, in particular, and your copyright fees out of Ireland, which is a major exercise going on now with regards to companies like Google and well Facebook to come, Microsoft already. The payment out of Ireland of fees for the use of intellectual property is incredibly easy and it is really not subject to challenge in these cases. So what we are seeing is a situation where companies are able to bill from Ireland, are able to basically do this and enjoy the benefits of billing in this way without having any risk arising of tax withholding on payments to Ireland facing any real challenge because it is considered to be a compliant State". And therein lies the danger, because it is Ireland's status as a compliant state, one which controls its own sovereignty at least in terms of being able to set its own tax laws that is so important to the Irish government and those in the financial services sector. The problem is that while Ireland has to act like a tax haven it has to avoid getting a reputation for being one, as this undermines its attractiveness. The pressure to avoid this reputation has led to increasing criticism of Ireland and subsequently to the feeling that some form of arm's length transfer pricing rules was needed.

Irish Left Review Journal ~ January 2013

Donagh Brennan

In the 2010 Finance Bill Minister for Finance, Brian Lenihan announced

"the introduction of transfer pricing legislation to regulate arm's length trading between associated companies. […] The opportunity is being taken to introduce general transfer pricing legislation which will align Ireland's tax code in this area with the international norm".60 However, almost immediate it was clear that this was not genuine at all because by August of 2010 Irish Revenue had already provided in its statement of practice an important exception: no Irish withholding tax would apply on certain patent royalties paid to non-Irish resident recipients.61 As KPMG declared on their site62:

"This has followed on from submissions and lobbying by the tax profession, including KPMG, and industry. Payments made to associated companies in EU Member States and to tax treaty residents are already exempt from withholding tax, provided certain conditions are met. Essentially, this Statement of Practice extends relief from withholding tax on non-Irish patent royalties paid to other, non-treaty, jurisdictions." It was business as usual. Here is an entire economy which is completely dictated to by the financial services sector to ensure that they continue to gain millions in profits every year by providing advice to corporate clients trying to maintain high profit margins by reducing their international tax liability and all that the Irish people get in return are calls for public sector cuts and reductions in social welfare payments.

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate There are many examples of where the financial services sector have created legislation to assist their clients, but perhaps most telling is the piece of legislation created for Depfa bank. But that's another story.

Irish Left Review Journal ~ January 2013

Donagh Brennan

Notes: 1. 2.

Diarmaid Ferriter, State Now Morally As Well As Economically Bankrupt, Irish Times, March 26th 2012 http://bit.ly/T0X8x6 David Gardner, Irish voters left with bitter taste - Financial Times May 31st 2012 report by http://bit.ly/T0X8x6

* “However, the Mahfouz money that was paid for the passports has been fairly well tracked down. A "substantial" investment (believed to have been as much as £4m) went into a company called Leisure Holdings which was chaired by the head of the Kerry Group , Denis Brosnan, and backed by a number of senior Irish businessmen, including John Magnier and JP McManus.”

Haughey's lunch date with bin Laden's brother-in-law http://bit.ly/R0SOTd 3. Leasing in Ireland - deloitte.com http://bit.ly/UJd5NW 4. Keith Walsh, The Economic and Fiscal Contribution of US Investment in Ireland, Journal of the Statistical and Social Inquiry Society of Ireland, Vol. XL - also see Jim Stewarts comments on the paper on page 53. 5. Eurostat http://bit.ly/Ty6ALk 6. OECD Revenue Statistics - Comparative Tables http://stats.oecd.org/ Index.aspx?QueryId=21699 7. Taxation Trends in the EU, Main Results 2012 Edition http://bit.ly/ Ty6QtM (Annex A Table 1: Total Tax Revenue) The rise in 2006 of course, is entirely attributable to the massive surge in private sector credit between 2003 and 2007 feeding into increasing VAT receipts, capital gains tax and stamp duty. 8. Eurostat: http://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do;jsessionid=9ea7d07d30d7147e43802bd34ce1a206c83d379aa257.e34Mbxe SaxaSc40LbNiMbxeNahyLe0 9. Michael Burke: Ireland's 'Austerity' is working - for profits http://bit.ly/ Ty6Z06 Accessed Nov 07 2012 10. Michael Taft: Treasure Ireland Notes on the Front blog http://bit.ly/ Ty71VR And also Eurostat data http://appsso.eurostat.ec.europa.eu/nui/ show.do?dataset=fats_g1a_08&lang=en

Irish Left Review Journal ~ January 2013

Ireland’s For Sale Sign: The 12.5% Corporation Tax Rate 11. Jim Stewart: How Important is the 12.5% Corporate Tax Rate in Ireland? Sept 2011 http://bit.ly/Ty74B9 The rate is not responsible for this. Instead it is the ease and flexibility of the regulatory environment. 12. Corporation Tax: Motion, Oireachtas Debates, Tuesday, 22 March 2011 http://bit.ly/Ty78k5 13. Michael Burke: Corporation Tax Cuts Don’t Lead to Investment, 23 Jan 2011, http://bit.ly/Ty7do2 14. Sean Flynn, Highest ever number of secondary students staying on for Leaving Cert, Irish Times, Nov 8th 2012 http://bit.ly/SAPlWi 15. Ronan Lyons et al: Investing in Ireland http://bit.ly/SAPV6y 16. Michael Hennigan, Irish Economy 2012: At least a third of value of Irish services exports is overstated, April 12, 2012 Finfacts.ie http://bit.ly/ I466FD 17. Conor McCabe: Foreign Industrial Employment in Ireland, Aug 22 2011http://www.irishleftreview.org/2011/08/22/foreign-industrialemployment-ireland-19832006/ 18. Reading the Fine Print in Export Figures: Progressive Economy blog, Sept 2010 http://www.progressive-economy.ie/2010/09/reading-fineprint-in-export-figures.html 19. Pfizer announces job losses, Irish Times, 18th of May 2010 http://bit.ly/ Ty7s2i 20. Sean O’Riordan, More job losses likely at pharma giant pfizer, Irish Examiner, Thursday, June 07, 2012, http://bit.ly/Ty7w2f 21. Proinnsias Breathnach, Ireland’s export competitiveness: myths and facts

– Part 3: Alternative approaches to the measurement of export competitiveness, Ireland After NAMA blog, May 26, 2010 http://bit.ly/Ty7Ei1

22. U.S. Department of Treasury found that foreign profit margins, not foreign sales, are the cause for significant increases in profits abroad. In Foreign Taxes and the Growing Share of U.S. Multinational Company Income Abroad: Profits, Not Sales, are Being Globalized (2012) Harry Grubert wrote:

"The foreign share of the worldwide income of U.S. multinational corporations (MNCs) has risen sharply in recent years. Data from a panel of 754 large MNCs indicate that the MNC foreign income share increased by 14 percentage points from 1996 to 2004. The differential between a company's U.S. and foreign effective tax rates exerts a significant effect on the share of its income abroad, largely through changes in foreign and domestic profit margins rather than a shift in sales. U.S.foreign tax differentials are estimated to have raised the foreign share of MNC worldwide income by about 12 percent-

Irish Left Review Journal ~ January 2013

Donagh Brennan age points by 2004. Lower foreign effective tax rates had no significant effect on a company's domestic sales or on the growth of its worldwide pre-tax profits. Lower taxes on foreign income do not seem to promote 'competitiveness.'"

23. 24. 25. 26. 27. 28.

29. 30.

31. 32.

http://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/OTA-W2012-103-Multinational-Income-Globalized-Feb-2012.pdf (accessed 13/11/12) FORFĂ S: Annual Employment Survey 2011 http://bit.ly/Ty7RBP Michael Hennigan, ibid Written Answers - Financial Services Regulation - Dail http://bit.ly/ Ty808m The IFSC: the international financial services sector in Ireland, FSI & Accenture, September 2011 http://bit.ly/Ty83RN Jim Stewart, Financial Flows and Treasury Management Firms (2006), http://bit.ly/Ty89sw Keith Walsh, The Economic and Fiscal Contribution of US Investment in Ireland, Revenue Commissioners; IIIS (Dec 01 2010). http://bit.ly/ U4Og8y Simon Johnson, The Future of the Euro Area http://bit.ly/XpW39g note on page 5 Mary Everett, The statistical implications of multinational companies' Corporate Structures, Quarterly Bulletin, Central Bank of Ireland, April 2012 - page 56 http://bit.ly/Xq2Uj9 Telesis Report 1981 Stored online at: http://bit.ly/Ty8mfe - accessed Nov. 7 2012 Lisa O'Carroll, If Google is in Ireland for tax reasons, why are most of its profits in Bermuda? Guardian Ireland Business Blog | 24 March 2011 http://bit.ly/Ub9dTY - accessed Nov 20 2012

33. THE STATE OF BROADBAND 2012: ACHIEVING DIGITAL INCLUSION FOR ALL Report by the Broadband Commission September 2012 http://bit.ly/UPD9Bw -accessed 34. A CONCEPT OF INDUSTRIAL DEVELOPMENT IN THE 1980s, PADRAIC A. WHITE, http://bit.ly/U4OI6U - accessed Nov 29th 2012 35. Nicholas Shaxson, Treasure Islands (2011) 36. Jim Stewart: Financial Flows and Treasury Management Firms, ibid See also US Senate Permanent Subcommittee on Investigations 2011 report Repatriating Offshore Funds; 2004 Tax Windfall For Select Multinationals Majority Staff Report http://www.hsgac.senate.gov/download/?id=a17c69df-38f1-479e-8612-a165e33b29a5 for a discussion of how those corporations who availed of the windfall tax increased their

Irish Left Review Journal ~ January 2013

Ireland’s For Sale Sign: The 12.5% Corporation Tax Rate

37.

38. 39. 40.

41. 42.

43. 44. 45. 46. 47. 48. 49.

50.

51.

offshore deposits afterwards. There is also evidence of the 'round tripping' of funds, where corporations moved earnings which had been earmarked for investment in the domestic US economy as per the conditions of the 2004 Windfall tax back out of the US to a tax haven. US embassy cables: Top US official travelled to Dublin looking for 'secret' of Celtic Tiger's success - Guardian, Sunday 12 December 2010 - accessed Nov 29th 2012 http://bit.ly/U4PP6o Oireachtas Debate on the Tax Code http://bit.ly/Ty8knO - accessed Nov 29th 2012 How Apple Sidesteps Billions in Taxes, New York Times Published: April 28, 2012 http://nyti.ms/U4QzJ0 STEPHEN C. LOOMIS, THE DOUBLE IRISH SANDWICH: REFORMING OVERSEAS TAX HAVENS, St. Mary's Law Journal 6/15/2012 http:/ /bit.ly/U4QN2L J. Bryan Lowder, The Double Irish and the Dutch Sandwich, Slate magazine, March 2011 http://slate.me/U4QZPl Jesse Drucker: Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes, Bloomberg Oct 21, 2010 http://bloom.bg/Ty8tYi - accessed Nov 2012 Edward D. Kleinbard, Stateless Income, Florida Tax Review, Vol. 11, p. 699, 2011 http://bit.ly/QGO5Gd Review of Companies Register, Bermuda https://www.roc.gov.bm/roc/ rocweb.nsf/public+register/g+public+companies Bermuda: Google's Hidden Tax Haven http://owni.eu/2011/04/19/bermuda-googles-hidden-tax-haven/ accessed 26th Nov 2012 GUILLAUME DASQUIÉ, LES 12 MILLIARDS DE GOOGLE EN IRLANDE, 31 OCTOBRE 2012, OWNI magazine http://bit.ly/U4Rvgm Offshore Profit Shifting and the U.S. Tax Code, The Permanent Subcommittee On Investigations - Hearings http://1.usa.gov/U4RFEp Both Apple, Google, Johnson and Johnson in Ireland became unlimited companies in 2006 too. GLENN R. SIMPSON, Irish Subsidiary Lets Microsoft Slash Taxes in U.S. and Europe, Wall Street Journal, November 7, 2005 - accessed Nov. 2012 Conor McCabe SNAPSHOTS OF THE MODUS OPERANDI OF THE IRISH FINANCIAL SERVICES SECTOR, Irish Left Review, http://bit.ly/ XZCPaU (accessed 27 Nov. 2012) The "check-the-box" regulations (Treasury Decision 8697) were adopted in 1996. Also see 301.7701-1 Classification of organizations for federal tax purposes http://bit.ly/Ty61B8 and Internal Revenue Service Adopts "Check-the-Box" Classification Regulations, Partnership Tax

Irish Left Review Journal ~ January 2013

Donagh Brennan

52. 53.

54. 55.

56. 57.

58.

59. 60.

61.

Bulletin (December 1996), Pillsbury Tax Page http://bit.ly/Ty67IT accessed Nov 30 2012 The CFC look Thru rule was created in 2006 - Don't Renew the Offshore Tax Loopholes,Citizens for Tax Justice http://bit.ly/Ty6e7a See A History of Controlled Foreign Corporations and the Foreign Tax Credit, IRS Publications - http://www.irs.gov/pub/irs-soi/historycfcftc.pdf Multinationals Find Loopholes Galore in Europe, Der Spiegel11/14/2012 http://bit.ly/Ty9xLO Jim Stewart: How Important is the 12.5% Corporate Tax Rate in Ireland? Sept 2011 page 5, TCD, http://bit.ly/Ty74B9 The low effective tax rate has even led to Irish tax lawyers suggesting that the corporation tax rate should be reduced further, to between 5% and 2% to encourage the ownership of the royalty license to move to Ireland. As we have seen this would provide no additional benefit to the Irish economy. Cyrus Farivar: Dutch Sandwich with a side of tax relief may soon be off Google's menu, Arstechnica.com - Nov 13 2012 http://ars.to/Ty5yyQ Deirdre Keegan: The main structures used by companies form the US and Germany to invest in Ireland, Taxinstitute.ie March 1998 http:// bit.ly/Ty5Ky3 - accessed 30 Nov 2012 This article written in 1998 in the Tax Studies journal provides plenty of detail on the double Irish and use of the Netherlands - dutch sandwich but says 'In the current climate the use of Irish incorporated nonresident companies in this manner may be legislated against'. It's significant that Ireland never changed this legislation Peter Vale and Sarah Meredith, Ireland: Further positive changes to holding company regime: International Tax Review 30th of July 2012 http://bit.ly/Ty9L5I Statement published on the Dept of Finance Website providing detail on the Finance Bill 2010 http://bit.ly/Ty9Vdd Corporation Tax, Statement of Practice, SP - CT/01/10: Treatment of Certain Patent Royalties Paid to Companies Resident Outside the State, http://bit.ly/Tya0NY KPMG: Withholding Tax on Payments for Foreign Patents, http://bit.ly/ Tya5RS All websites accessed November 2012

Irish Left Review Journal ~ January 2013

Irelandâ&#x20AC;&#x2122;s For Sale Sign: The 12.5% Corporation Tax Rate

Irish Left Review Journal ~ January 2013

Sarah Clancy

For the Living and the Dead Sarah Clancy The truth is every ending predetermined truth is washing never ending lines of dishes, working, truth is every lie you told each intricate fiction; it's your blurtings truth is those specters that exist only in your wildest drunken ravings truth is every act you've ever made on instinct, every figment truth is every one you ever loved and those you fucked but didn't truth is Terence Wheelock getting his young life beaten in Pearse Street station truth is Bety dying, truth is Bety living, truth is Vittorio; it's resistance truth is Omagh, and saying it. It's Atenco. The Truth is Mariano Abarca; it's in there in the naming. truth is in the bureaucrats, the schemers, truth is Rachel Corrie; all those dreamers truth is every deportee, each exile who sings a cloying lament for passing truth is finished in the spectacle and truth is every single new beginning

Irish Left Review

Journal

~ January 2013

For the Living and the Dead

truth is in your here and now, your socks, your window cleaning truth is in the rules and structures, in weeds obsessed with sprouting truth is in the pot you burned and every single gourmet dinner served truth is in the poems you kept and the ones in your waste basket truth is the glib and mellow oldies station and the things your intellect can't fathom, truth is in the market for buyers, sellers and unrequited, it's in the hustle, truth is in the slipstream, it lurks in every trite denial truth is in the cast offs- in your hoarding truth is in the secrets; it's flamboyant on the billboards truth is on the busy streets there walking, truth is in isolated bogs wind-riven truth lives on deserted lanes and dies in sheltered corners, truth is in the fibres where your DNA's deciphered, truth is in the learning, more even- the forgetting, truth is truth and there's no true thing that doesn't end, nor even lies that last truth is bloated with its own importance when the truth is nothing matters; and every single thing is true.

Irish Left Review

Journal

~ January 2013

Mark Malone

IFSC Clearing House: What the Irish Times Doesn't Say And Why It Matters Mark Malone

At the risk of oversimplification, it seems reasonable to say that for generations the 'normal' means of getting information about the political, economic and social system we live with has tended to come organs of the mainstream media. At the very least state and privately owned corporations play a massive role in (re)producing narratives and ways of defining issues that perhaps can be best understood as 'official common sense'. We can agree or disagree with what we read in the Irish Times or Irish Independent, but the fact remains that the way social/ political/economic issues are framed by mainstream newspapers radio and TV will have much greater currency in the wider public sphere than the way in which you or I might seek to frame things. It is in this way that the current 'crisis' is perhaps most commonly understood in terms of government overspending on social welfare and public sector wages, rather than actually being a convergence of many types of 'crisis'. This line of thought didn't come out thin air. It has been pushed by the state and capital to deliberate deflect from factual realities. Its unfortunate that the organised left sometimes is reduced to playing out straw person arguments ourselves. Partly this might be because in countering

Irish Left Review Journal ~ January 2013

IFSC Clearing House: What the Irish Times Doesn't Say And Why It the hegemonic narrative of state over-spending, organisational spokespeople feel forced to argue within strictly materialistic terms of reference, but this itself is related to a rigid, and even dogmatic, iteration of capitalism as solely materialist in nature. What is often absent within this framework is an analysis and iterations about the power to create particular forms of social meaning. And this is one of the primary functions of mainstream media, one that often individual journalists might be reluctant to acknowledge. Many need not be aware of the function they play. At other times this is much more explicit. For example, just before the December budget The Sunday Business Post commissioned a RED C poll which contained questions about preferred government action. 88% supported the idea of tax increases for incomes of 100,000 euro. This figure is the largest percentage of any question posed, yet it was not reported or expanded by either the SBP or any other media. It brings into question not just the structural role of mainstream media but also the self impression of political and economic journalism in Ireland. Is the imagined role of existing political journalism something that is out of place in an increasingly media/politically literate population? And in 2012 why is it that most journalists and/or the companies they work for still do not make publicly available ALL information they receive under FOI's? This can hardly be because corporate media outlets lack the resources to do this as a matter of course. Free tools such as Scribd and Google Docs make it incredibly easy to upload and share such information, which then could be used by an active citizenry. Whilst media corporates like the Irish Times are dealing with the confluence of a changing media ecosystem and technologies, and social practices which pose an existential crisis, emerging new publics within that same ecosystem are recognising the limitations of media corporates in providing critical analysis of the substance of our lives. The tradition creators of official common sense are failing to provide a framing that makes sense of our experiences of growing

Irish Left Review Journal ~ January 2013

Mark Malone

poverty within what many understand is a capture state, where the logic of markets trumps the logic of either genuine democracy or simple care. That’s without even mentioning the vested interests of media ownership. In an attempt to exemplify what I mean by the above I will look at the recent coverage that The Irish Times has given to the IFSC Clearing House Group. Its worth noting that I only began looking in to this after reading the an Irish Times blog post, Political Seismologists1 written by Harry McGee and chatting to some friends who have a desire to understand what is actually going on in the state and the financial services. I’m not a professional journalist, rather I write primarily because I care. My main resources are curiosity, critical analysis and a broadband connection. The Irish Times made repeated mention of Freedom Of Information requests in its recent coverage. One tangential effect the use of FOI's gives is the air of investigative journalism. As these often take weeks or even months to emerge from government departments who may be less than keen on open transparency and public democratic scrutiny that's somewhat understandable. Essentially I feel the Irish Times fails not because it lacks criticism of IFSC Clearing House Group. Its articles by McGee and Carl O Brien2 and its editorial are explicitly critical in the context of an external body having undue influence on democratic decision making within government. O’Brien’s piece is a useful introduction to readers of the concept of lobbying and has nuance between lobbying and PR. Though given that Ireland's neoliberal democracy models its public political performance in the ultra-mediated and message controlled style made fashionable by the UK's perma-tanned Tony Blair, such boundaries are increasingly blurred. McGee has two pieces on Monday 8th October. The front page "Coalition to reappraise IFSC lobby group ties"3 reports that the present government is "reviewing the nature of its involvement with the IFSC Clearing House Group" after suggestions the group is too close to government. It

Irish Left Review Journal ~ January 2013

IFSC Clearing House: What the Irish Times Doesn't Say And Why It would be hard not for it to be close to government considering its headed by the top civil servant Martin Fraser, politically anointed appointed Secretary General to the Irish Government and Secretary General of the Department of the Taoiseach since 1 August 2011. A cursory Google search of the term IFSC Clearing House Group looking between the dates Jan 1, 1990 - Jan 1, 2007 shows 401 results. I picked the dates fairly randomly. From these results I have managed to established the following. As I've said the Irish Times articles and editorial framed the Clearing House Group as a lobby group. Such framing puts it in a broad category of organisations that are external to government but that seek to shape policies for their own benefit, and indeed O Brienâ&#x20AC;&#x2122;s. Such framing is completely wrong. Far from the Clearing House being a lobby group of the Irish government, it is perhaps best understood - given the rotation of personnel between the senior civil service, the Clearing House and its constituent organisations, members of the states political organisations and explicit, public statement made over the past two decades by ministers and Taoisigh - as an unelected extension of the government itself. The Clearing House Group is in fact part of the para legalfinancial infrastructure that has shaped the workings of the state over the previous 25 years, through its direct involvement in the internal workings of successive governments for its own accord. It is intrinsically part of the indigenous political/economic/cultural practices that see our state in the mess that it is in today. It is integral to the development of an indigenous shadow banking system that intentionally increases wealth inequalities and it has turned Ireland into a key hub of the international tax dodging architecture which ultimately undermines the notion of a democratic society. It does so not by lobbying but by writing laws within the Department of Finance and the Department of Taoiseach to suit the purposes of its constituent organisations. These organisations include a who's who of multinational

Irish Left Review Journal ~ January 2013

Mark Malone

financial, legal and banking entities but also critically almost the entire Irish indigenous class of financial-legal corporations that assist those same multi-nationals. That point is crucial. Enda Kenny and the Fine Gael /Labour government have attempted to create a narrative that the bank bailout was pushed upon us by European politicians. This is irrefutably a lie. The bailout was pushed and advised by our own indigenous corporations acting in their own interests as well as the interest of their golden goose clients. Your interest, or the interest of the common good didn't come into it. It has been a matter of public record that the Clearing House scripted governments approach to financial services generally and financial tax policy specifically. Heres a quote from Mary Harney, 'clarifying' questions raised in the Dail about Ireland being used as a de-facto tax haven:

"The above proposals will represent the Department's corporate view on how the IRNR problem should be addressed (even if IDA dissent) and, as far as the tax based solution is concerned, the intention would be to have this pursued urgently and vigorously at the Secretaries Group and/or the high level IFSC Clearing House Group with a view to having it adopted as the Government's primary response to the Irish Registered Non Resident Companies problem."4 In 2002 Bertie Ahern stated in a speech to Financial Services Ireland Annual Members Dinner that he viewed the governmentâ&#x20AC;&#x2122;s relationship with the Clearing House Group as something very different than lobbying.

"the Clearing House Group nd its sub-committees, which work closely with my Department, have been one of the earliest and most successful forms of public-private partnership"5

Irish Left Review Journal ~ January 2013

IFSC Clearing House: What the Irish Times Doesn't Say And Why It Also in 2002 Ahern stated in the foreword to the 'Strategy for the Development of the International Financial Services Industry in Ireland' that the state strategy

"is the result of intensive consultation between the different sectors in industry and the relevant Government Departments and Agencies. I would like to thank all those who contributed and, in particular, the members of the IFSC Clearing House Group and IFSC Working Groups which operate under the aegis of my Department" 6 In 2007 Ahern once again made the linkages between the functioning of state policy and The Clearing House Group:

"The Government believes that the time is opportune to re-affirm its commitment to the industry, to build on the work undertaken since 1999 and to implement an agreed work programme to ensure that we proactively pursue appropriate actions for the further development of the industry. My Department and the IFSC Clearing House Group, still maintains the central role it has occupied since the beginning of the IFSC in 1987 and it is intended that it should play an active part in overseeing the implementation of this report."7 It makes no sense to conceptualise the Clearing House Group as a lobby group akin to Barnardos or the trade union movement, or the IFA and in doing so the Irish Times makes a categorical mistake that is damaging to basic public literacy about how power and vested interests shape not just our economy, but the political decision making structures of democracy itself. Ken Oâ&#x20AC;&#x2122;Brien in an article in the Irish Independent 8 almost 6 years ago mapped this nexus of political and financial common consensus in great detail and itâ&#x20AC;&#x2122;s worth quoting extensively. Leave

Irish Left Review Journal ~ January 2013

Mark Malone

aside its self conscious congratulatory tone, though that itself is notable for its social detachment. Itâ&#x20AC;&#x2122;s written precisely at the time the arse was falling out of the construction industry and thousands were falling into unemployment. Think of it more as a emotionless spider diagram.

"In casting a paternal eye westwards he (Ahern) is abetted by two MEPs who sit on the Economic and Monetary Affairs Committee of the EU parliament (responsible for drafting and examining financial services legislation at an EU level), Eoin Ryan and Gay Mitchell. Other politicians have made key contributions, notably Michael McDowell , who, as A-G put a lot of effort into developing state-of-the-art law, such as the Covered Bond legislation, and Mary Harney in her time in the Department of Enterprise and Employment. Ruairi Quinn has been Labour's main player to date with his New Labour-style comment as Minister for Finance: "I'm for the IFSC - after all I'm on 10 per cent." The IFSC has been blessed by the work of skilled public servants, such as Frank Mullen of the Revenue Commissioners, who delivered key agreements at times when the status of IFSC tax schemes have been threatened. He has also overseen the establishment of a tax treaty network that now covers over 40 countries. Other key players were Maurice O'Connell (when the Central Bank was in charge of financial services regulation) and Dermot Quigley in the Revenue Commissioners.

Irish Left Review Journal ~ January 2013

IFSC Clearing House: What the Irish Times Doesn't Say And Why It The mantle of financial regulation has now passed to the Financial Regulator, where Pat Neary is probably the most powerful individual as far as IFSC firms are concerned. The Financial Regulator recently set up a board to mediate between it and the industry, and James Deeny, formerly chief executive of HSBC Ireland, holds the hot seat. The early vigilance to keep a clean corporate image was down to Felix Larkin in the Department of Finance, Frank Mullen, and, in the Nineties, Brendan Logue of the IDA, who, was part of a campaign to wipe out a mushrooming of Irish offshore shell companies in the late 1990s. Nowadays, influence in the IFSC operates at micro levels - where, much of the work of the centre involves the development of complex tax and regulatory arrangements, in structured finance and funds for example. In this the major lawyers and accountants have been key players - with names like Pat Wall, Mary Fulton, Marie O'Connor, PJ Henehan, Cormac Murphy, Paul Reck, KPMG's Paul McGowan, Brian Daly, and a little known back-office player - Frank Carr - one of the geniuses of Irish tax over the years of the IFSC. Among the lawyers, bright young Turks have come to the fore - such as Turlough Galvin, and Michael Jackson in MOPs, while long standing pillars of the IFSC include Paul Dobbyn, David Dillon of Dillon Eustace, Ronan

Irish Left Review Journal ~ January 2013

Mark Malone

Moloney, Kevin Murphy of Arthur Cox, Ambrose Loughlin, and John Larkin in William Fry. The lawyers have been central, and they will be pivotal to the success of the IFSC in the years to come. Alongside their growth has also been the Irish Stock Exchange - which, had it been anywhere else, might have shriveled up and died. Dublin would have gone the way of its Belfast and Cork counterparts, were it not for the vision of people like Maire O'Connor, who was instrumental in the development of Ireland as a funds listing centre in the early Nineties, and Tom Healy of the Exchange, who has overseen the emergence of the Exchange as Europe's largest listing centre for funds and asset backed securities (ABS), and for new hybrids of ABS that are constantly being developed. Alongside the lawyers and accountants, many of whom contribute to legislation in response to submissions from the industry, are the formal representative bodies. Because of its position as part of Ireland's Social Partnership structure, IBEC's body, Financial Services Ireland, has a special position at the right hand of Government - its chief executive Aileen O'Donoghue sitting on the Taoiseach's Clearing House Group (chaired by the Secretary of the Government, Dermot McCarthy), a body that discusses IFSC matterson a regular basis. Another position at the right hand of the Government is occupied by Pat Farrell of the Irish Bankers Federation, whose position derives not perhaps from the fact

Irish Left Review Journal ~ January 2013

IFSC Clearing House: What the Irish Times Doesn't Say And Why It that he represents banks - but also because he is former general secretary of Fianna Fail. The hard working representatives of the two other key sectoral pillars of the IFSC are funds representative by Gary Palmer, and insurance rep Sarah Goddard. Overseeing all sectors of the IFSC is Deirdre Lyons of the IDA. According to the Finance Dublin IFSC Yearbook, in December 2005 there were 453 international financial services companies - employing a total of 19,095 people, up by 1,485 or 8.4 per cent on the previous year. These are the real players who make the IFSC a reality. William Slattery has managed to combine being head of the biggest IFSC employer, State Street, with the time for passionate advocacy of the causes of IFSC development, and for its contribution to the Irish economy. Slattery has been a thoughtful forthright critic of the Government IFSC policy from his time as a regulator himself, and as head of FSI. When in the Central Bank, he created the foundation of the modern IFSC funds industry in the early Nineties through his progressive and far-seeing technical excellence. Other movers and shakers are Aidan Brady, chief executive of Citigroup , Mike Ryan, of Merrill Lynch Capital Markets Bank, Giovanni Lombardo of Pioneer, Gerhard Bruckermann, of Depfa, Henning Ludolphs of Hannover, Rick Hodgdon of Transamerica, Frank

Irish Left Review Journal ~ January 2013

Mark Malone

Monks of Nexgen, Rachel Panagiodis of Hansard, Michael Brady of XL, and John Gilsenan of Porsche, straddling both treasury and insurance. The life assurance sector too has been notable for the contribution of Colm Fagan, chairman of the society of actuaries, and whose entrepreneurial venturing has leveraged a whole sector of Italian life insurance companies into the IFSC. The two big banks have always been pivotal in their involvement in the IFSC - AIB initially represented by Michael Buckley, and in most recent years by Colm Doherty, and in Bank of Ireland Padraig Rushe. The funds industry is actually the most prolific sector in employment terms - rapid employment growth being experienced by the new firms like Joan Kehoe, Quintillion, and her former employer PFPC, Harley Murphy's Mellon, Gerry Brady, Capita, formerly Bank of Bermuda, Ronan Daly's BISYS, and Dermor Butler of CHAM. The IFSC is a growing empire, at whose head sits the Taoiseach. He recently said he was keen that it should remain a special responsibility of the department." The Irish Times editorial on the 9th of October9 ends with the line "Paying attention to representations from the IFSC is acceptable. But policy formation is a matter for Government". While this might reflect abstract theoretical political economy in a first year undergrad course, it bears little reflection to the reality and practice of how financial services policy formation has

Irish Left Review Journal ~ January 2013

IFSC Clearing House: What the Irish Times Doesn't Say And Why It actually worked in this state for the last 25 years. The Irish Times editorials rhetoric rests upon a two core, yet unsustainable assumptions. That first assumption is that there is a significant difference between the specific political/economic demands of the banking and financial sector actors who act through the Clearing House Group and the ideological stance of the main political parties in Ireland in government since Haughey chaired their first meeting in 1987. This doesn't stand up to scrutiny. The state set up the IFSC Clearing House Group and still asks it to provide legal and financial arguments for the government to use in its negotiations to get a debt writedown. It was and remains the governments baby. A debt itself that was imposed upon our society by the very same actors who argued for a blanket guarantee in the first place. It would be farcical where it not for the rising suicide, long term unemployment, mass emigration and multitude of other social malaise solely attributable to the working of financial capital. The second assumption is the conceptualization that the Government and the IFSC Clearing House Group can be understood as two separate entities with competing remits. Clearly this is something we would like to think is true, and abstract theory tells us its should be true. But the reality is that at the highest level in the country from within the civil service, the political organisation and the representative bodies of financial capital share the same interests and social imagination. One begot the other. This is why the lobbying frame of the IT is a failure of category. You don't need to lobby people you are in complete ideological agreement with. Even less so when one runs the other. This is why the current crisis cannot be understood merely as an economic one. When the system and personnel who have taken it upon themselves to resolve the crisis at a government level share the same limited social and political imagination as the system and people who caused the crisis, is it any wonder they see their options as limited. When the state advisors to debt negotiations are entirely made up of people from within the

Irish Left Review Journal ~ January 2013

Mark Malone

industry that caused the debt crisis - rather than the people it is impacting upon most, we would be suffering a collective delusion to believe that our interests are being served. The present and past government benefit from the historical revisionism of claiming the IFSC Clearing House Group is merely a lobby organisation. It has never been that. The real uncovering here is not about how some lobbying influence financial actors have in shaping certain little know financial services policies. (Though given this information is decades old and easily found using internet searches 'uncovering' seems to over-egg it a bit.) It involves substantial but as yet unasked questions around to what extent has the beneficiaries of the Clearing House Group and the wider financial-legal industry has actually captured the decision making structures of our society and state. Laws are shaped to benefit themselves with the full acquiescence and oversight of the political organisations that stand for election. When the facts, intentions and action of the actors are out in the open for all to see, its hard to not feel that we live in a captured state. One in which a mainstream media seems pretty illiterate when it comes to both financial capital and political economy. The implications for an informed democratic public means this would make a great case study for students of media and journalism. As for the rest of us? We need to decide whether we are happy to live with the normalisation of our own material poverty and growing inequality or whether we are going to get informed and remake our own common sense against the backdrop of ideological collusion of Ireland's political and financial pillars of power.

Notes 1.

Harry McGee, Political Seismologists, Irish Timesâ&#x20AC;&#x2122; Politics Blog. 23rd Oct 2012 http://bit.ly/11WezES

Irish Left Review Journal ~ January 2013

IFSC Clearing House: What the Irish Times Doesn't Say And Why It 2. 3. 4. 5.

Carl O’Brien, The dark arts of political lobbying, The Irish Times, Sat July 7th 2012 http://bit.ly/11WgysA Harry McGee, Coalition to reappraise IFSC lobby group ties, The Irish Times, Monday, October 8th 2012, http://bit.ly/11WhKfJ ...And What the Dail Wasn’t Told, Irish Independent, Feb 26, 1998 http:/ /bit.ly/UgCRCG http://www.taoiseach.gov.ie/eng/News/Archive/2002/Taoiseach%27s_Speeches_Archive_2002/Speech_at_the_Financial_Services_Ireland_Annual_Members_Dinner.html http://www.taoiseach.gov.ie/eng/Work_Of_The_Department/Economic_and_Social_Policy/International_Financial_Services/International_Financial_Services_Publications/ Strategy_for_the_Development_of_the_International_Financial_Servic es_Industry_in_Ireland.shortcut.html http://www.taoiseach.gov.ie/eng/Work_Of_The_Department/Economic_and_Social_Policy/International_Financial_Services/International_Financial_Services_Publications/ Ken O’Brien, editor of Finance Magazine and Finance Dublin, writing in the Irish Independent October 22nd 2006: http://www.independent.ie/ business/masters-of-the-universe-raking-in-billions-for-the-ifsc135979.html Irish Times Editorial 9th of October 2012 - http://www.irishtimes.com/ newspaper/opinion/2012/1009/1224325060171.html

Irish Left Review Journal ~ January 2013

Sean Bonny

from after Rimbaud Sean Bonny

of Downing Street, that assembly of ghouls & defunct regimes of the warm November wind, our absurd paupersâ&#x20AC;&#x2122; memories outside London it is all geometry, a euphemism for civil war I remember our cotton dresses, those ribbons and bows we skirted the disks of the city, its deserted, dying angles we were wearing flags and pretty flowers, but our memories at several intersections they opened into vast arched domes of that other life, its obnoxious circles, of relics and animal love the horrific quantity of force we will need to continue even to live * When you meet a Tory on the street, cut his throat It will bring out the best in you. It is as simple as music or drunken speech. There will be flashes of obsolete light. You will notice the weather only when it starts to die.

Irish Left Review

Journal

~ January 2013

from after Rimbaud

Irish Left Review Journal ~ January 2013

Interview: Richard Murphy

Interview: Richard Murphy Richard Murphy is known primarily as the author of one of the UK's most popular political blogs, Tax Research UK, but also as the most prominent critic of tax avoidance and tax havens internationally. As the foremost expert on the way that many corporations avoid tax in Europe his opinion is regularly sought as an expert for the increasing number of news stories about the tax shenanigans of companies like Google, Microsoft and Starbucks to name some recent examples. He co-wrote the seminal book on the topic, Tax Havens: How Globalisation Really Works, and as a founding member of the Tax Justice Network has perhaps done more than anyone else to highlight tax justice, including in an Irish context. With his 2010 report for the TUC and ICTU Northern Ireland, Pot of Gold or Fool's Gold?, he was the only person to challenge the claims that reducing the corporation tax rate in the North of Ireland to that in the South would provide a boost to the Northern Irish economy. There was no official response to the report, but since it was published, the proposal of reducing Northern Ireland's corporate tax rate to 12.5 percent has been quietly shelved. ILR: I wanted to talk about corporation tax in Ireland and the way that Ireland's tax regime is structured but also how the use of tax havens works within that.. First of all, though, congratulations of a sort, because I noticed on your blog (Tax Research UK) that the Stormont assembly has decided not to try to reduce the rate of corporation tax in Northern Ireland. Richard Murphy: And thank God they did. I mean reality reigned and I think we can actually say that is not down to me. It is down to Sammy and the DUP realising, quite unbelievably in a strange way, that they had no way of making this work and he really got the message to deliver the budget. But given at the time that I was the only person who actually really argued

Irish Left Review Journal ~ January 2013

Interview: Richard Murphy seriously against it, which was quite amazing, yes. It was certainly something I was very pleased had happened. ILR: Just to put it in context: in your report for the TUC/ ICTUNI, 'Pot of Gold or Fool's Gold?', you were making a comparison with Ireland and how the same conditions couldn't be replicated in Northern Ireland, mainly because of the amount of legislation in the UK that Ireland doesn't really have. Would you be able to continue that point, about what the difference is between the situation in Ireland and that of the UK? Because in it you highlight certain things that are quite unique in Ireland, like the lack of thin capitalisation rules and the use inter-group loans and other measures. Richard Murphy: Fundamentally, Ireland doesn't work in any way like the UK does with regards to corporation tax. Obviously, it inherited a tax system, which in a sense still looks like the UK's tax system to some degree, and it is quite confusing, actually. I have worked in Ireland for several years and you think, superficially, you know what is going on, when actually you don't. And there are two levels on which you don't know it. The first is the very obvious point that the tax rates are different, but secondly (and there will be a third), it is not just the tax rates that are different; it is actually the way in which the international relationships work. And the point about that is, there are two dimensions: you can't sell your country as a place in which to invest on the basis of tax and then have an aggressive tax authority. It just isn't possible. If you have an aggressive tax authority in that situation, you are going to end up with a situation where you go to all this effort to get a company into Ireland to actually locate and create jobs and so on and then discover you have completely alienated it by investigating its tax affairs. So Ireland has an incredibly soft touch with regard to the administration of tax. That is the second point. Number one is the tax rate, number two is the soft touch. Number three is the fact that that soft touch is reproduced in legislation. So although

Irish Left Review Journal ~ January 2013

Interview: Richard Murphy it has a comprehensive network of double tax treaties, legislation to deal with transfer pricing is a legislation that has only very recently arrived in Ireland and is still quite frankly not considered as an issue. Consequently, it is very easy to move money in and out of Ireland via transfer pricing abuse without any questions being asked. It hasn't got a thin capitalisation rule, so which allows you canto load your debt into Ireland and nobody is going to ask any questions. You can pay your royalties, in particular, and your copyright fees out of Ireland, which is a major exercise going on now with regards to companies like Google and, well, Facebook to come. Microsoft already. So you can use these fees as a cost for intellectual property. It's actually incredibly easy and these are not subject to challenge. What we are seeing is a situation where companies are able to bill from Ireland, and they can enjoy the benefits from billing in this way without having any risk arising from having tax payment to Ireland and without any real challenge to this because it seen as a compliant state. So Tthe money, therefore, flows straight out of Ireland again because of its lax regime-one, a lax regime simply by not asking questions and two, a lax regime because we've got the situation where, by not choosing, and I think it's absolutely right to say 'not choosing', to put in place regulation to stop the money flowing out. It is deliberately viewing itself as the conduit, in other words. And in a very real sense that is exactly what Ireland is. It doesn't have a participation exemption in the way that, for example, the Netherlands has, which is how it constructs itself as a conduit and earns income. Ireland acts as a conduit by not having effective transfer pricing regulations, and that creates its own environment for inward investment, which is presumably considered to be sufficiently attractive as a basis for the economy. Personally, I don't agree with that, but that is just my own opinion. But that is the underlying logic of what could not be reproduced. So when I said in the report that Northern Ireland could never really reproduce it, it is because the UK simply doesn't have that attitude towards transfer pricing. It is quite

Irish Left Review Journal ~ January 2013

Interview: Richard Murphy strict about transfer pricing. The UK has got a controlled foreign company legislation, even if it is being thoroughly undermined at the present; it has got thin capitalisation rules, and they are undoubtedly trying to be European compliant on this, whereas, frankly, I don't think anybody pays any attention to such issues in Ireland, nor does it seem that the EU worries. This means that the tax base in Northern Ireland is always going to be much higher for the same equivalent real economic activity than will ever be the case in the Republic. And that means it doesn't matter whether the rates are the same, the amount of tax paid in the North was always going to be greater than the South. It could never therefore have competed. And that was the conclusion I came to. ILR: Could you explain that royalty issue and how it is done? Because part of it is the way that not only is there a lack of legislation or that the legislation is done in such a way to allow for this, but it is how it works in tandem with tax havens that is so significant. I was just wondering if you could just briefly explain that. Richard Murphy: Well, if we look particularly at a US corporation (and this issue is very relevant with regards to a US corporation, which is taxed on a territorial basis, so property is only subject to tax in the United States when it actually arrives back in the States-unless it arises in the States), we end up with this absurd situation where a company like Google, as it's the company that's got the most attention given to it for using Ireland, is able to record all its profits arriving outside the USA largely in Ireland-over 92 percent of its sales outside the USA are in Ireland, on the basis of the last accounts I saw. But what it does is set up counterpart agreements with companies in each of the countries where it actually makes a sale, so there is a Google UK. Google UK gets 10 percent of the revenue billed to the UK by Google Ireland. And it has genuine costs to offset that.

Irish Left Review Journal ~ January 2013

Interview: Richard Murphy Google UK makes virtually no profit at all and pays virtually no tax because there is a genuine cost to offset. Google Ireland therefore gets a very, very clean revenue stream with relatively low cost because all the actual cost of making the sale of the advert pays through to Google UK. What does it then have as a cost? Well Google Ireland of course then would have a very high profit rate except for the fact that it has to pay Google parent, well perhaps not Google parent, but Google organisation, for the use of the Google search algorithm. Which is considered to be the core intellectual property of Google, of course. And so the way that is done is that Google, along with many pharmaceuticals and other IT companies, has recorded the ownership of that intellectual property in Bermuda, in the case of Google (Apple, for example, uses the British Virgin Islands for the same purpose). And the payment is then made from Ireland to Bermuda for the use of that algorithm. And the payments in question go from the operating company in Ireland to a parent company, which then pays it out. But we end up with this situation where the payment can be paid out of the Irish parent company to the Bermudan holding company for the intellectual property. And the consequence is that the money doesn't stay in Ireland at all. The money flows through Ireland, and this is what I mean by saying it is a conduit. Because Ireland doesn't have a mechanism to really challenge this, from the transfer pricing rules perspective, the payment made to Google's Bermudan holding company for the use of this intellectual property means , the money doesn't have to stay in Ireland. And so a US corporation just sees it as a gift. It is a way of actually reducing its worldwide tax rate outside the USA from what you would anticipate. In Google's case, the US tax rate is very close to the mainstream rate, quite surprisingly. They really aren't very good tax avoiders in the States; they are paying over 30 percent. You would expect them to be paying a 20 percent rate, probably, if they weren't able to use Ireland to exploit for the rest of the world, because that would be a sort of OECD

Irish Left Review Journal ~ January 2013

Interview: Richard Murphy average rate, somewhere in the mid-20s. But because of the interaction between Bermuda and Ireland, they can reduce it to 1 percent or 2 percent. ILR: One of the reasons we want to write about the corporation tax issue is because the 12.5 percent rate is hammered home time and again as the thing that is attracting investment into Ireland. You argue in your book that we need a courageous state but what exists, given its benevolence towards the speculative economy, is a cowardly state, which is how you characterise the current UK government in particular. Ireland is, I would consider, perhaps more of a craven state in that regard. Richard Murphy: Well yes, which is so deeply embarrassing. In a real sense I find that profoundly embarrassing. ILR: When you look at the benefits received within the wider Irish economy from providing tax incentives in this way, it seems to be actually quite small. There is very little indigenous entrepreneurship going on in Ireland and very little support for it traditionally over the years. It's almost as if the Irish government doesn't see the economy as being capable of producing anything itself. Instead it says things like 'governments don't create jobs, it only facilitates those others who do', which it did recently in its Action Plan for Jobs document. I am just wondering is that a consistent idea or does it seem to tally with... Richard Murphy: It is something that certainly has been accepted wholeheartedly in Ireland. I don't believe it is true. I believe that governments do create jobs and governments create sustainable jobs. My wife is a doctor and she often says to those who actually think that those in the public sector are merely a drain on the economy, that if they come in as an emergency at 4:00 in the morning, they can go to the back of the queue and stay there until they change their mind. Does a doctor add value? I think so. Does the teacher who is struggling to get my son to understand fractions add value? I think so. So this argument that there is no value in the public sector is just simply nonsense. I

100

Irish Left Review Journal ~ January 2013

Interview: Richard Murphy mean, it is the foundation in for my cappuccino idea of prosperity on which the private sector can build. The difficulty with the private sector in Ireland is that it has no loyalty to Ireland. The model that has been used is one, as I say, of a conduit. It isn't about actually fixing yourself in Ireland and it never was. I can remember back in the 1980s, when Lotus 1, 2, 3 were in Ireland and they were trying desperately to get the 10 percent manufacturing rate. Which meant they had to make something in Ireland when actually everything came in pre-made. And eventually they decided that if they stuck their label on the box in Ireland, that was how they qualified as manufacturers, and they got an agreement to do that. Well, actually, given that I was involved in cardboard manufacturing at the time, we actually then bid to put the label on the box for them. You know, it was pretty ludicrous, they didn't really make anything. And why did they want to be there? Because of the low tax rate, which was then around the Shannon Free zone, and you had the 10 percent rates that then existed. But it was all about, 'well as long as we can get this we will stay but if there is something better on offer we will move'. So we have in Ireland a state sector that doesn't really believe in itself and retains in a very real sense a collective chip on its shoulder. It doesn't have the confidence. There have been, obviously, some deep figures in Irish politics, not all of whom have been to its credit: Mr Haughey, dear old Charlie boy, wasn't he a disaster?! There have been all these figures, but they have all had this sense, somehow, of inferiority. So that has left, in the cappuccino metaphor, the black coffee with the state sector being is pretty damn weak and probably insufficient in size. Using the same metaphor, the milk private sector has been pretty willing to run away; it is very transient what is actually going on because there is no loyalty to a state that doesn't really believe in itself and frankly it is willing to sit down and be used. It leaves you in a very weak position.

This interview was conducted in April 2012.

Irish Left Review Journal ~ January 2013

101

Interview: Richard Murphy

102

Irish Left Review Journal ~ January 2013

William Wall

Riding Against the Lizard On the Need for Anger Now William Wall

How should we describe the extraordinary consensus that existed in this country - a consensus that united us all around core concepts like 'free markets', 'competition is the only way', 'private enterprise good, public enterprise bad', 'social partnership', 'entrepreneurship', 'greed is good', 'conspicuous consumption'? For a long time we lived inside a bubble. The walls of the bubble were invisible to us, they coloured everything we looked at but everything was that colour anyway so we thought it was colourless. It was, nonetheless, a bubble. What we hear these days, in the media, in conversations, in political speeches and union negotiations is the pop of the bubble bursting. We are faced with an absolute incongruence - between what we have been told and what we see. What this incongruence will tell us remains to be seen, but it makes us strange to ourselves, wakes us from our dream of shopping and eating and enables us to look back at our days in the bubble with at least the illusion of detachment. Sometime during his seven-year incarceration at the hands of Italy's fascists, the Marxist philosopher Antonio Gramsci developed a theory of ideological hegemony. It is probable that

Irish Left Review Journal ~ January 2013

103

Riding Against the Lizard - On the Need for Anger Now the idea first occurred to Gramsci during his meditation on another Italian philosopher and political analyst, Niccolo Macchiavelli, for that acute political analyst had observed the selfdefeating nature of oppression as a political weapon. What Gramsci argued was that in modern democracies the powerful do not maintain their power - their hegemony - by coercion alone. In classical Marxist thought the ruling classes have at their disposal the police and the army, the prison system and the courts, the market and the all-important threat of destitution. All of these weapons are experienced as coercive by the poor. None of it belongs to them, and all of it, including the law, favours the rights of property and power. However, it was clear to Gramsci that something else was needed to explain the fact the people voted for, or gave tacit consent to, a system that favoured a very small minority at their expense, actually voted to give power to the people who coerced them. The answer was ‘ideological hegemony’. In Gramsci's formulation, a vast number of actors within a state contribute to the exclusion of hostile ideas. Thus, in a liberal capitalist democracy groups such as the churches, charities, political parties, special interest groups, schools, environmental activists, trades union, etc., all contribute to an illusion of political debate. It is an illusion because all of these groups, though they would like to tinker with the details, are in agreement on the fundamentals. Gramsci called this the ‘common sense’ position. Genuinely radical voices are treated with contempt, and characterised as foolish and ‘ideological’ from the ‘common sense’ point of view, because the ideology of the majority is transparent to those who live within its confines - the bubble of my opening paragraph. Slavoj Zizek puts it succinctly:

“[I]n a given society, certain features, attitudes and norms of life are no longer perceived as ideologically marked, they appear as 'neutral', as the non-ideological common-sense form of life; ideology is the explicitly

104

Irish Left Review Journal ~ January 2013

William Wall

posited... position which stands out from/against this background.” For example, it is a given in Western Europe (a) that what we have is democracy (b) that our 'democracy' is the best form of democracy that can be achieved (c) that democracy and capitalism are inseparable (d) that western-style capitalist democracy is the form of government towards which all other systems are evolving. These propositions represent the ‘common sense’ view for most people. Nevertheless, in our ‘democracy’, electoral victory usually goes to the wealthiest; once a party has been elected it never consults its electorate for another four or five years; subsidiary democracy (i.e. elections and votes within parliaments) is considered to be adequate to reflect the will of the people; capitalism regards democracy as the perfect ground for its exploitative activities, and ‘democracy’ has guaranteed capitalism and awarded it a free reign by providing what is known as ‘political stability’. We should really coin some new phrase to describe it, something unwieldy like Competitive Plutocratic Subsidiary Democracy! To point to any of this is to question the god - and to be immediately labelled ‘ideological’, which in most cases is roughly equivalent to ‘crank’. So where has western democracy (and ideological hegemony) taken us in recent years? It has taken us to war with Islam, to the torture palaces of Abu Ghraib and Guantanamo, to 'greed is good', to Global Warming, to the wars of Africa, to The New American Century, to peak oil, to the credit crunch and the global depression, to the reduction of Gaza, to financial corruption on a grand scale, to mass unemployment, to blood diamonds, to the super-rich and hyper-poor, the jobbing politician and the cartel. In the meantime it has given us as consolation professional football, the celebrity spectacle, wall-to-wall television, talk shows, reality TV. The culture of complaint has drowned the culture of dissent. Television has drowned politics. Listening and looking have drowned hearing and seeing. To see

Irish Left Review Journal ~ January 2013

105

Riding Against the Lizard - On the Need for Anger Now any of this as an aberration of capitalism that ought to be corrected in some way is to miss the point: this is capitalism. What you see is what you get. Writing in the Guardian in response to the recent insurrection in Greece, Costas Douzinas said of politics in the western democracies:

Contemporary politics aims at marginal (re)distributions of benefits, rewards and positions without challenging the established order. In this sense, politics resembles the marketplace or a town hall debate where rational consensus about public goods can be reached. Conflict has been pronounced finished, passé, impossible. The convergence of political parties in the centre ground exemplifies this “conflict-free” approach. But conflict does not disappear. Neo-liberal capitalism increases inequality and fuels conflict. When social conflict cannot be expressed politically, it becomes criminality and xenophobia, terrorism and intolerance. Or a reactive violence, the emotional response of those invisible to the political system. So where do writers stand in all of this? What our private views are is of no consequence. Maintaining in private a hostile attitude to power is the prerogative of the servant and the prisoner - ‘We two alone will sing like birds in the cage.’ What is important is what we write because, as the legal maxim says, qui tacet consentire videtur - he who keeps silent is seen as giving consent. Two other courses are open to us: we can simply point to the 'commonsense', identifying and naming the ideological hegemony that has brought us to this pass, a useful function of art in itself, one of its best works, although tainted by the fallacy of objectivity; or we can take sides in the hope of influencing the

106

Irish Left Review Journal ~ January 2013

William Wall

outcome and thus become part of the debate. This essay advocates the latter. The traditional stance of the writer in the twentieth century has been oppositional - even in Ireland. That opposition has been by turns republican, nationalist, quasi-fascist, and socialist but, one way or another, it has always been on the side of the counterhegemony. Rarely has it been simply contrarian. In the interwar years, for example, Frank O'Connor, Sean O Faoláin, Peadar O'Donnell and Liam O'Flaherty harried the confessional Catholic and right-wing consensus, the latter two from very public leftwing positions. Even an allegedly 'pastoral' poet like Patrick Kavanagh could kick against the pricks in poems like 'To Hell With Common Sense' or ‘In Memory of Brother Michael’:

Culture is always something that was Something pedants can measure Skull of bard, thigh of chief Depth of dried up river Shall we be thus forever? Shall we be thus forever? But at no time in the recent past have writers been so integrated into the fabric of power and at the same time strikingly powerless as they are now. Writers, integrated into the fabric of power, I hear you ask, how can that be? The Arts Council, established in 1951 with Sean O Faoláin as its chairman, was originally conceived as a conduit for state funding for the arts, including grants and bursaries to writers and artists; Aosdána, a national body for writers and artists was established in 1981, its only useful function to disburse a cnuas or bursary to deserving members; two further organisations manage

Irish Left Review Journal ~ January 2013

107

Riding Against the Lizard - On the Need for Anger Now grants for translators of Irish literature and grants for Irish artists and writers to travel abroad. Most - probably all - of the festivals that take place around the country on a regular basis are partfunded by these government bodies; most travel by Irish writers benefits in some way from these organisations; many writers who would otherwise be in straitened circumstances draw an honourable pension from AosdĂĄna. It is, in fact, difficult if not impossible to be a writer in Ireland and not to become the beneficiary of government largesse in some form. And in addition to government funding, most arts organisations draw the balance of their sponsorship from local, national or international business, and, of course, government anyway sees its interests as virtually identical to those of commerce. I do not wish to suggest that a withdrawal of government funding is a good idea - quite the contrary, it is the business of government, among other things, to support the artistic life of the community - rather I am suggesting that it has never been easier for writers to abandon their traditional oppositional stance and cosy up to the political establishment. Of course the political establishment for the most part don't give a damn about them so long as they're not rocking the boat - the day when an Irishman might agonise about whether a play of his 'sent out certain men the English shot' is long gone. So is there a choice? To be with the hegemony or against it? Most Irish writers would reject the dichotomy. 'We are apolitical,' they say. In the place of Politics Irish writers place politically neutral 'causes' such as Amnesty and other human rights organisations and various charities which give the illusion of being political while studiously avoiding commitment within the national boundaries. To be fair, when a writer makes a political statement of any kind other than the prudent and banal he is soundly trounced by the press. Professional pundits with no better qualification than a career in 'opinion' writing are perfectly capable of rolling out the 'why should we listen to a writer anymore than anyone else' argument, and for years it has been fashionable, pace the USA, to condemn writers as â&#x20AC;&#x2DC;intellectualsâ&#x20AC;&#x2122;,

108

Irish Left Review Journal ~ January 2013

William Wall

although the gradual realisation that George W Bush and his cronies were particularly stupid took some of the tarnish off intelligence as a term of abuse. But we can as easily turn the complaint on its head and say, 'Why should writers be exempt from the general anger that shakes the people of world, why should we be permitted our private cynicism?' Nevertheless, the rain of odium that falls on a writer's head when she dares to step outside the common sense view is daunting for a trade that works in isolation often with very little support. Finally, none of this is good for sales, and writers must make a shilling the same as everyone else in this benighted world. ‘The times,’ as Sylvia Plath remarked, ‘are tidy’, at least from the point of view of the ruling classes, and there is indeed 'no career in the venture/Of riding against the lizard.' The reasonable thing to do in the circumstances is to adopt a ‘reasonable’ posture; to be critical where criticism can be voiced in safety; to be neutral where commitment can do damage; to support causes where those causes are respectable. Neutrality was the chosen position of Ireland's most famous poet, Seamus Heaney, for example. His most famous political statement was to claim Irish nationality as a reason for not accepting an honour from the queen of England. Terry Eagleton, in his witty review of the Beowulf translation, placed Heaney firmly within the confines of 'cultural colonisation'. Heaney's quietism, his solemn genuflection towards what Eagleton called 'eirenic liberal pluralism', has become the high tone of neutral Irish poetry. Novelists and playwrights tend to follow suit. The market rewards the neutrals handsomely. There are vast sums on offer for faux-fiction (or pseudo-faction, if you will), shortlistings and prizes for fictionalised biographies, carefully balanced or revisionist historical fiction, clever flights of fancy or books set in exotic locations. Poets celebrate the pastoral, the private, the perverse - anything but the Political. Revivals dominate the stage, gaining the longest runs, the tours and the best houses. Despite honourable exceptions, this is the tone of contemporary

Irish Left Review Journal ~ January 2013

109

Riding Against the Lizard - On the Need for Anger Now literature in Ireland. Where writers declare their politics it is always to rabbet themselves safely within this comforting wood. Probably the most successful of recent Irish novels is Colm Tóibín's The Master . Terry Eagleton described Tóibín as ‘tightlipped’ and a master of ‘extreme verbal evenness’ (in an extremely positive assessment of The Blackwater Lightship) but The Master is, as Hermione Lee called it, ‘an audacious, profound, and wonderfully intelligent book’. It won the 2006 International IMPAC Dublin Literary Award, was shortlisted for the 2004 Booker Prize, won the Los Angeles Times Novel of the Year, the Stonewall Book Award and the Lambda Literary Award, and was listed by The New York Times as one of the ten most notable books of 2004. It explores the psychology and creativity of Henry James in prose worthy of the man himself. Part of its attraction, for heterosexuals at least, is the fact that Tóibín, as an openly gay writer, clearly identifies with James who most probably was secretly gay or at least a repressed homosexual.

The Master, in fact, is a highly accomplished and successful piece of fictionalised biography. What it does not do is challenge the reader - either in her view of how a writer thinks, or in terms of prejudices towards homosexuality. On the contrary it advances an image of the 'safe', celibate gay man, together with an image of the writer as a private intellectual with no significant contribution to make to the polity other than the grace of his art. Indeed, in Henry James, Toibín chose a man peculiarly hobbled by neurotic invalidism and repression, paralysed by a fear of sex, the epitome of the suffering obsessive writer. The public loved it, and Toibín, a fine raconteur and personally charming, can discourse wittily and learnedly about his subject at interview and in readings. The book has all the qualities that the public loves: its tone is high-melancholy; its subject is safely dead; the writing is undeniably elegant; there are no challenging ideas - either structural or in terms of subject matter; finally, it is a classic-byassociation, being concerned with a canonised writer. In general terms, the book has many of the qualities that have made the

110

Irish Left Review Journal ~ January 2013

William Wall

poetry of Seamus Heaney so popular. In its own way it is equally eirenic, liberal and pluralist. However, Toibín has occasionally ventured into the political sphere. Predictably, his views are as prudent and reasonable as Heaney's. Most notably, in an article for the Guardian, he declared himself uncertain as to whether he should 'laugh or cry' about the EU/IMF intervention. What concerned him, he said, were 'the actual problems which many of [his] compatriots are facing'. These problems included wealthy doctors and political dynasties. Among the positive developments he cited were The Good Friday Agreement and the European Union. Toibín believes that the presence of the IMF in Ireland is a lamentable necessity brought about by venial politicians and that Ireland's problems arise from the failure of these politicians to tackle people like the doctors. There is no suggestion that the system itself might be the problem. And there is no suggestion that the 'actual problems' of his compatriots have any reality or arouse any strong feelings. I'm not saying Toibín is not aware of these problems, merely that he chose not to mention them in his article in the Guardian. It would, perhaps, have disturbed the even, reasonable tone. This is not just a stylistic choice, it is political one. And in an interview with Belinda McKeon Toibín declared that he was proud to shake the hand of Michael Fingleton on the grounds that Fingleton had given him his first mortgage when he wasn't 'the most solvent person in Ireland' (a practice we now know to have been widespread in Irish Nationwide under Fingleton). It was his Fenian blood, he said, and a grandfather who fought in 1916 (he mentioned the same grandfather in the Guardian article) that made him want to do it - at once making the gesture a definitively political one, and putting himself in that populous gombeen-republican tent most recently occupied by Fianna Fáil. Both his article in the Guardian and the Fingleton handshake stories are declarations in favour of the status quo.

Irish Left Review Journal ~ January 2013

111

Riding Against the Lizard - On the Need for Anger Now Sebastian Barry occupies an entirely different construction. This venerable tent was erected by the local subalterns who got on fine with the imperial administration here, thank you very much. Barry too resorts to the atavistic argument. He accounts for the positive view of British Ireland that dominates his work by reference to the actions of his grandfather, a chief superintendent who led a baton charge on the 1913 strikers in which four men died. No man can be held responsible for the actions of his antecedents, and there is no reason why Barry should take up the cause of a long-dead man. Nevertheless, it is worth acknowledging that such an ancestry may well be a heavy burden, and one of the many valuable functions of literature is to complicate our judgements of such people. As little as ten years ago the infantile nationalism of official Ireland and it's shadows in the Northern Troubles required this kind of balancing, but revisionism has long since come to dominate the discourse to the point that the 1916 rebellion and War of Independence can no longer be spoken of as anti-colonial actions. And the dead of the First World War are brought out on every occasion as proof that the greater and nobler sacrifice was on the imperial side, while the revolutionaries are depicted as venial score-settlers or terrorists. The First World War is a safe war now, because it has lost its political structure in the welter of commemoration and glorification, and the novelists and poets have had a hand in this stripping out of meaning. In Barry's case, the horrors of war (in A Long Long Way) are used to mask a nostalgia for the old regime and a fashionable distaste for the new republic. As a 'revisionist' Irish writer he is popular with both the Dublin literati and the English press, the human face of Unionism, let us say. In a fine review of On Canaan's Side that encompasses most of Barry's work, Terry Eagleton makes the point that Barry studiously avoids judging the political or personal actions of his characters; even Thomas Dunne, the fictional equivalent of Barry's grandfather, or Tadg Bere who becomes a Black and Tan.

112

Irish Left Review Journal ~ January 2013

William Wall

'If Barry is reluctant to make [such judgements], it is not because he is a spinner of fictions but because, to adopt a phrase from The Secret Scripture, he is 'master of the neutral tone, if not of neutrality'. We could look elsewhere for our models. Let us confine ourselves to two writers who have achieved similar success to Heaney, Toibín and Barry. José Saramago is the author of acclaimed political fables such as the masterly Blindness, or it's sequel Seeing, in which almost an entire population spoils its vote indicating a complete lack of faith in the political structures and precipitating a political crisis. A lifelong member of the Portuguese Communist Party, he put politics at the centre of his work. Closer to home, James Kelman, the Scottish author of, among other great books, How Late It Was How Late, takes a less direct political line in his fiction, but has written and spoken trenchantly on politics elsewhere. Kelman, of course, would rightly argue that his bare unflinching depictions of working class Glasgow life, delivered in a beautifully rendered Glaswegian idiom, are themselves political actions. The fable and the surreallist traditions of Portuguese writing enabled Saramago to address politics directly; on the other hand, no one could mistake Kelman's intent, even if his journalism did not make it clear. The narrator of How Late it Was, How Late puts it succinctly: It was just how the old man hated giving cunts anything, especially the fucking capitalists. Ye pay for hot water, he said, so ye've got hot water, so ye don't fucking turn it into cold. Don't give them the satisfaction, fucking fat bastards. As it happens, both writers achieved the kind of success won by Heaney and Toibín - Saramago was awarded inter alia the 1998 Nobel Prize for Literature, and James Kelman's How Late It Was, How Late won the Booker Prize in 1994. Even the most banal arguments in favour of art include the claim that it makes us see things differently. The artist's

Irish Left Review Journal ~ January 2013

113

Riding Against the Lizard - On the Need for Anger Now perspective is different, it is argued, and helps us to understand our world better. But if we all live within an ideological hegemony, inside a bubble in which there is no outside, and art fails to disturb that comfortable insulation, then art is not fulfilling that most basic of functions. Needless to say, art, graceful or otherwise, is always a public good, but in terms of ideological hegemony, ars gratia artis is really art for the status quo, and inevitably (especially now that the status quo has become status quo ante in the collapse of this particular phase of free-market capitalism) it must be nostalgic. But we need a poetics of anger not of nostalgia for, as the Palestinian poet Mourid Al-Bhargouti observed in another context, nostalgia is no more than a form of 'romantic impotence'. Iconoclasm, not nostalgia, must be our watchword now. Anything else is unconscionable. Anger is the spectre that haunts all of this 'eirenic liberal pluralism' because the first law of The Commonsense is there shall not be anger. Citizens may complain as much as they like, and there are organisations that deal with complaints and procedures for remedy, albeit slow and costly ones, but an angry citizenry is a dangerous entity. The planet is burning; the capitalists have stolen the world, including our land, water and air; health, social services, education are battered and impoverished; unemployment is at an unprecedented level; oilwars blight the lives of millions. Nevertheless, reasonableness, quietness, calmness, meditativeness, are continuously advanced as terms of affection by literary critics when the world calls for anger, savagery and satire. Where is our Jonathan Swift, our Shelley, our Saramago, our Neruda, our Kelman, our Orwell, our Huxley? It may well be that 'poetry makes nothing happen' as Auden would have it, but that is no excuse for not trying. 'Language implies boundaries,' Loren Eiseley wrote, '[a] word spoken creates a dog, a rabbit, a man. It fixes their nature before our eyes; henceforth their shapes are, in a sense, our own creation.' Thus it is possible to call into being our own reality in

114

Irish Left Review Journal ~ January 2013

William Wall

opposition to that of the market. Guy Debord's startling insight in the 1960s, that we no longer saw the spectacle but inhabited it has proved true, but the spectacle itself, capitalism incarnate, has presented us, as it does from time to time in different generations, with the one terrible chance to interrupt. It will take more than nostalgia to shake the structure. So let us begin at the first step, the simple process of naming our enemy. Firstly, a taxonomy of rapine, a genealogy of avarice. This is a modified version of an article originally published on Three Monkeys - www.threemonkeysonline.com. The original is also available as a PDF download on the 'Freetext' page of the author's website: www.williamwall.eu

Notes 1.

In a crisis, the antithesis between commodities and their value-form, money, becomes heightened into an absolute contradiction.' Karl Marx, Capital, Vol. I 2. Antonio Gramsci, Selections From The Prison Notebooks 3. Ibid, Gramsci 4. Slavoj Zizek, In Defense Of Lost Causes 5. 'Anglo Irish Bank is a major financial institution whose viability is of systemic importance to Ireland.' Minister for Finance on the decision not to allow Anglo Irish Bank to collapse. The 'systemic' nature of banks means that, by and large, they will be allowed to do their business unhindered and protected when they fail. 6. Costas Douzinas, http://www.guardian.co.uk/commentisfree/2009/jan/ 09/greece-riots 7. Shakespeare, King Lear 8. Yeats, 'The Man And The Echo' 9. For an interesting portrait of Eagleton check the Guardian at: http:// www.guardian.co.uk/books/2002/feb/02/academicexperts.highereducation 10. Terry Eagleton, http://www.guardian.co.uk/books/1999/nov/03/seamusheaney

Irish Left Review Journal ~ January 2013

115

Riding Against the Lizard - On the Need for Anger Now 11. Ibid, Eagleton, the term eirenic refers to a branch of Christian theology that sees pacifism, unity and reason as ultimate values and that rejects polemics. It would be difficult, I believe, to find a better single word to describe Heaney's stance. 12. Excluding Romantic Fiction or 'chick-lit', which is by far the most successful literary form in Ireland. Men have had the equivalent (in the form of westerns, war books and thrillers) for generations, but since women read more books, romantic fiction is much more successful. Nevertheless that doesn't stop men being patronising about it. 13. Source Wikipedia 14. http://www.belindamckeon.com/work/an-irishman-in-america-colmtoibin 15. Eagleton, T., 2011. Overdoing the Synge-song. Review of On Canaan's Side by Barry, S. London Review of Books [Online] vol. 33 no. 18 pp. 15-16. Available from http://www.lrb.co.uk/v33/n18/terry-eagleton/ overdoing-the-synge-song 16. Since the essay was first published, I've lost this reference, alas. 17. WH Auden, 'In Memory of WB Yeats' 18. Loren Eiseley, The Invisible Pyramid 19. Guy Debord, Society Of the Spectacle, may be downloaded free at The Situationist International, http://library.nothingness.org/articles/SI/en/ pub_contents/4

116

Irish Left Review Journal ~ January 2013

Donagh Brennan

How the Shadow Banking Sector is Wrecking the Irish Economy Donagh Brennan

The Irish government’s continuing inability to get a reduction on the enormous weight of Irish bank debt through negotiations with it’s larger EU partners and the ECB is a regularly returned to theme of Irish political comment. The Irish government, in response to criticisms, claim that the lack of success comes from the desire of the larger European economies to impose its interests ahead of the suffering of a less economically significant European nation. Enda Kenny, in October 2012 claimed that Ireland “had a European position imposed upon it, in the sense that there wasn't the opportunity if the Government wished to do it their way by burning bondholders”1. The logic behind this point is that the EU, largely directed by Germany is forcing this on Ireland to protect their own financial system. That the blanket Irish bank guarantee was imposed on Ireland is patently false, as the widely reported reaction to it at the time within Europe illustrates2. There is a sense in Kenny’s comment that he is trying to blend, in the understanding of the Irish people, the Irish bank guarantee and the IMF/EU/ECB bailout placed upon Ireland in November 2010.

Irish Left Review Journal ~ January 2013

117

How the Shadow Banking Sector is Wrecking the Irish Economy In order to untangle these two, it’s worth paying attention to Peter Bofinger, who spoke to Der Spiegel soon after the bailout for Ireland. Bofinger has been a member of the government-appointed German Council of Economic Experts, known as the “Five Wise Men”, since 2004 and as such is a key adviser to the current German Chancellor Angela Merkel. While it may indeed be the case that the bailout was necessary to ensure, from an EU perspective, that Ireland would be in a financial position to repay the money owed to European banks, it is the decisions of Irish politicians, directed by the priorities of the Irish financial services sector, which are responsible for both the situation that Ireland currently finds itself and for closing off sustainable ways to get us out of it.

“SPIEGEL: According to the Bundesbank, German banks with 166 billion euros are the biggest creditors of Ireland, of which nearly one hundred loans to Irish banks. How dangerous is the Irish financial crisis for Germany? Bofinger: The situation is very threatening. The federal government has a vital interest have to secure the solvency of the Irish state and its banks. SPIEGEL: The Irish Finance announced discussions on an EU bailout package. Germany should now also save Irish banks? Bofinger: The rescue of Irish banks also means the rescue of German institutions.The demands of foreign banks to Irish debtors amount to about 320 percent of Ireland’s gross domestic product. One has to ask the question of whether the Irish government would ever be able to stand up for such a high debt.”4

118

Irish Left Review Journal ~ January 2013

Donagh Brennan

Again in November 2010 the Irish Times reported Bofinger’s comment that Ireland has no alternative but to increase its corporate tax rate. The reaction to that at the time was to say that Ireland should not make itself ‘uncompetitive’ by increasing corporation tax in order to pay back German banks that lent recklessly in the first place. It’s an argument that conveniently sidelines so much about the type of services that Ireland provided German banks in the first place. It instead falls back on the narrative of competing national interests and how increasing the corporation tax rate here would undermine Ireland’s ability to dig itself out of its problems. Fortunately, Bofinger’s argument about Ireland using corporate taxes to resolve its difficulties is fleshed out in another Der Spiegel piece from December 2011 where he recommends that “debt-ridden countries like the United States, Ireland and Japan need to raise their taxes to a similar level to Germany”5. He goes on....

“But is it even possible for national governments to balance their budgets within the foreseeable future? For the OECD countries with the largest deficits — Ireland, the United States and Japan — the problem is clearly on the revenue side. These countries have government revenues which only amount to about onethird of gross domestic product (GDP), putting them at the bottom end of the OECD scale. Conversely, Sweden and Finland — both countries with high taxes — belong to the countries with the lowest budget deficits. If Ireland, the US and Japan managed to increase their public revenues to the level of Germany (43.2 percent of GDP), it would achieve a great deal.”

Irish Left Review Journal ~ January 2013

119

How the Shadow Banking Sector is Wrecking the Irish Economy

In order to develop his point about using increased taxes in this way he delves into recent German economic history:

â&#x20AC;&#x153;From an economic perspective, there is no reason not to use this approach to balance government budgets, assuming that the tax increases are not made abruptly. The example of Germany in the 1990s shows that it is absolutely possible for a country with high taxes to make ends meet during an economic crisis. At the time, then-Chancellor Helmut Kohl increased the top rate of income tax to 56 percent (including the so-called â&#x20AC;&#x153;solidarity surchargeâ&#x20AC;? which is levied on top of income tax) in order to finance German reunification. Government revenues reached levels of around 46 percent of GDP. Nevertheless, average economic growth in Germany in the 1990s was 2.1 percent. That was more than twice as high as in the last 10 years,

120

Irish Left Review Journal ~ January 2013

Donagh Brennan

when it was only 0.9 percent — even though the center-left government of former Chancellor Gerhard Schröder, which was in office between 1998 and 2005, massively lowered taxes on high earners and companies.” It is interesting then to look at what was happening in Ireland when Germany was bringing about this change. This table shows IFSC companies by nationality in 1991.

While it is not too surprising that Irish banks were the largest beneficiaries of the new 10% rate introduced in 1987 for IFSC companies, it may seem slightly odd that German banks were the second largest. Odd that is until we realise that the move to the IFSC was as a result of the actions of Helmut Kohl. German banks were avoiding the increase in tax that Kohl has imposed in order to pay for unification and Ireland helped them to do that.

Irish Left Review Journal ~ January 2013

121

How the Shadow Banking Sector is Wrecking the Irish Economy

Depfa’s Law There is no doubt that Ireland’s relationship with German banks is complicated, although some of that relationship is very straight-forward. For example, we can see how Ireland bent over backwards to facilitate German banks like Depfa to the point where the Irish government was willing to create legislation specifically to allow them to restructure their business in Ireland and avail of our minimal tax, minimal regulation regime. As Finance Dublin described the plans in 20006:

“Under the plans, the German parent group is preparing to split its public sector finance and property businesses into two separate divisions by 2002, as an interim step to becoming two completely independent banks. The move to base this part of the bank in Ireland is linked to the proposed Irish ‘Pfandbrief’ project which would allow the issuance of ‘Pfandbrief’ bonds by banks in Ireland. Legislation for this is expected to be introduced next year. DePfa-Bank Europe managing director, Dermot Cahillane, said that the plan to headquarter the public finance bank in Ireland was directly linked to this project but not dependent on it being approved. But he added that Irish pfandbrief would be a ‘natural refinancing product’ for the company. While the running of the public sector bank from Dublin would mean a natural expansion of activities in Ireland, Cahillane said that there would not be a dramatic

122

Irish Left Review Journal ~ January 2013

Donagh Brennan

increase in employees in Ireland as international staff will be coordinated from Dublin.” To show the Irish government is not embarrassed by the fact that it is willing to do whatever financial companies operating in Ireland want, they even included Depfa’s name in the piece of legislation:

Central Bank Act 1971 (Approval of Scheme of Depfa Bank-Europe Plc and Depfa Bank Plc) Order 2002 In a 2002 Annual report Depfa proudly stated that their securities were issued under Irish law7. Interestingly when Depfa got into incredibly serious trouble in 2008 it asked to be included in Ireland’s blanket bank guarantee. The application was rejected, the Irish authorities claimed, because of the sheer size of their liabilities and the fact that they didn't have an Irish retail customer base8. So, even though it added nothing to the Irish economy, did not operate in Ireland and the restructuring provided no additional jobs, the Irish government was still willing to create legislation specifically for it, and put its name in the title. The legislation for Depfa to structure its business in this way was so it could avail of the Irish Covered Bonds market which was created the year before in the Asset Covered Securities Act 2001. It was legislation, according to Finance Dublin’s publisher Ken O’Brien that Attoney General Michael McDowell worked so hard to bring about9. In a list of "Irish covered bonds" produced by AIB Global Treasury Unit in 2005 it showed that the vast majority were issued by Depfa and another German bank West LB.

Already the bond market has grown to 30bn. Significant issuance by IFSC based institutions has been the key to the success of the market to date. DEPFA ACS

Irish Left Review Journal ~ January 2013

123

How the Shadow Banking Sector is Wrecking the Irish Economy Bank has brought six large issues to the market, while West LB Covered Bond Bank has issued three bonds. These are public sector issues. Bank of Ireland, meanwhile, has issued two mortgage covered bonds.” Much of these moves were brought about by the vision of Gerhard Bruckermann, CEO of Depfa. Bruckermann is a colourful figure within German banking, having come to prominence through the setting up of a branch of Depfa in Cyprus which netting a huge profit by speculating on public sector loans in former Yugoslavia. The location in Nicosia allowed Bruckermann to enjoy an effective tax rate of less than 5%. It was Bruckermann plan to move Depfa’s headquarters to Dublin knowing that Ireland’s regulatory system would be very lax10. There is a sense that Ireland dodged a bullet when Depfa was bought by Hypo Real Estate in 2007. If they hadn’t Ireland might have been liable for the losses. After all it was an ‘Irish bank’ in the sense that it was able to operate in the “Irish covered bond market” according to legislation. When Hypo Real Estate bought Depfa they did so through Irish law11. The ambiguity was such that while organising the 35bn bailout for Hypo Real Estate, the German Finance Minister, Peer Steinbrueck suggested to Brian Lenihan in an informal phone call that Ireland make a contribution12. The fact that uncertainties remain around who is responsible for liabilities of foreign subsidiaries operating in Ireland illustrates the massive danger that the Irish Financial Services sector still poses. As it turns out the Central Bank of Ireland had to provide 17bn euro in Repo loans to Depfa in 2008. Although this ELA is provided through the ECB’s eurosystem of liquidity assistance these funds are ultimately guaranteed by the Irish state, as we know from the situation with Anglo Irish Bank. But to return to my original point about how Ireland could overcome its massive deficit problems by increasing corporation tax, or at the very least closing loopholes which allow MNCs avoid almost all tax liabilities. Considering that many of Ireland’s

124

Irish Left Review Journal ~ January 2013

Donagh Brennan

deficit problems are associated with the bank debt that it incurred through the bonanza earned by German banks through the creation of the Euro, it is irksome that any extra revenue earned via a raising of corporation tax should go back to those banks rather than funding Irish schools and hospitals. But the principal point remains as illustrated by the chart based on OECD data that Bofinger refers to and which I reproduced above. It would be far better for Ireland to deal with its deficit problem by increasing corporation tax or at least taxing them more effectively rather than grinding the economy into the dirt through austerity.

Where Would We Be Without Dodgy Banks? What if raising it would lead to banks like Depfa leaving Ireland (itâ&#x20AC;&#x2122;s still here after all)? Considering how European and US banks operating without impunity or regulation in the IFSC (since 2004 elsewhere in Ireland) were at the root of the financial crisis this would surely be a great thing, would it not? Those Irish companies that pay corporation tax (20% of all CT is paid by Irish companies), as well as long established ones and those that have deep infrastructure within in Ireland wouldnâ&#x20AC;&#x2122;t. As the Central Bank of Ireland reports, most of the FDI into Ireland goes straight back out again anyway, so if these companies choose to no longer have a HQ here the loss would be minimal. However, there is a deeper problem and the resistance to any move to change Irelandâ&#x20AC;&#x2122;s tax regime illustrate this. The tax rate is largely irrelevant. Rather it is the ability of these banks and hedge funds to operate in a jurisdiction which has the cover of OECD and EU respectability but which provides them with the freedom and accommodation of a tax haven, one which has a Central Bank which legislation has ensured must

Irish Left Review Journal ~ January 2013

125

How the Shadow Banking Sector is Wrecking the Irish Economy actively promote the interests of the Irish financial services sector and a government that is prepared to create a tax regime based exactly on the requirements of that sector. So, now Enda Kenny is claiming that “Ireland was the first and only country which had a European position imposed upon it”. The reference is to the pressure from the ECB, after the blanket nature of the Irish guarantee lapsed in 2010 not to default on the full payment of senior unsecured unguaranteed bonds. However, while it is beyond comprehension that Irish people should be liable for the debt that Irish and international banks accrued and that this must be restructured, there is also an official resistance to another “European position” which potentially would provide a more sustainable and better future for all Irish people. That resistance is based upon the needs of that very small body of people who get paid by the financial services companies who use Ireland as a tax haven. In case you want to check in on them, given how their priorities are given to the detriment of everything else in Irish society, here’s where they live:

126

Irish Left Review Journal ~ January 2013

Donagh Brennan

Notes: 1. 2.

As reported on RTE, 22nd Oct 2012 http://bit.ly/QC8YRy Der Spiegel, reporting in Oct 02, 2008, said that ‘Ireland's unilateral decision to guarantee all deposits has ignited a banking firestorm’: http:/ /bit.ly/QC9Up9

“Mention of the plan infuriated many across the EU who feel that the action will unfairly draw money away from other banks and toward the presumably safer Irish institutions. As an alternative to such unilateral responses, French Finance Minister Christine Lagarde suggested the creation of a “European safety net.” Fearing that it would be forced to make the biggest contributions to any such mechanism, Ger-

Irish Left Review Journal ~ January 2013

127

How the Shadow Banking Sector is Wrecking the Irish Economy many responded harshly to the suggestion, with Chancellor Angela Merkel saying that Germany “cannot and will not issue a blank check for all banks, regardless of whether they behave in a responsible manner or not.” 3.

http://www.spiegel.de/wirtschaft/soziales/wirtschaftsweiser-bofinger-dieirland-krise-ist-fuer-deutschland-bedrohlich-a-729724.html 4. Peter Bofinger Interview Der Spiegel Nov 2011 http://www.spiegel.de/ international/world/why‐the‐us‐should‐raise‐taxes‐german‐example‐ shows‐way‐out‐of‐debt‐crisis‐a‐779893.html 5. Finance Magazine December 2000 6. http://www.finance-magazine.com/display_article.php?i=3109&pi=134 7. Depfa Bank PLC Annual report 2002 http://bit.ly/V3WOBE 8. Lenihan Rules Out Role in Hypo Deal, Irish independent, June 4th 2009 http://bit.ly/V3T2Z0 9. Masters of the universe raking in billions for the IFSC http://bit.ly/V3Ydbj 10. Der Spiegel - June 2009 | In the grave of big money http://bit.ly/12wx0jJ 11. http://www.independent.ie/business/european/hypo-and-depfa-sharesfall-as-takeover-deal-in-trouble-1061035.html 12. Lenihan Rules Out Role in Hypo Deal, ibid

128

Irish Left Review Journal ~ January 2013