Industrial Policy: A Discussion Document from the Dublin Region (February 2015)

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Industrial Policy

A discussion document from the Dublin Region of the Workers’ Party ENVIRONMENT ENVIRONMENT

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WOMEN WOMEN

ECONOMY ECONOMY

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THE WORKERS PARTY

THE Workers’ Party EDUCATION EDUCATION


Industrial Policy

A discussion document from the Workers’ Party

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mongst economists and the business press, the “health” of the economy is often talked about in very abstract terms: in terms of GDP, interest rates, trade balances, inflation, productivity etc.

bankers and investors use when they want to know how much richer they’ll get.

For the bulk of the population however, these are not actually the key indicators of what would be a well functioning economy. For us, the humans who live in the economy, what matters is our ability to lead healthy, meaningful and fulfilling lives. For us, the real measures of a well functioning economy is our quality of life. This means access to decent, well-paying jobs, a high quality of food, housing, healthcare, education, transport, entertainment and a good work/ life balance that doesn’t stretch us too thin.

Those who control investment control the entire development of the economy. They control what gets produced, who produces it and in what way. These investors, or capitalists are driven by the concern for the profit rates of their investments and care about little else in terms of the ramifications of their choices. By contrast, the vast majority of society makes its living through wage labour, either directly, or indirectly through family members. This group in society has a real interest in the manner of society’s development and how that impacts quality of life and not in the endless pursuit of profit rates. This section of society is the working class.

Unfortunately, as things currently stand, the economy is only functioning well for a very small few. And yet even as this occurs, we can hear the media trumpet such signs of economic “health” such as “the return to the markets”, the increase in property prices, higher profit rates, etc. We have been trained to accept measures that the financiers,

We need to move to a human economy, and away from an economy for investors. A human economy which puts people first is one in which the general public control the reins of development, investment and innovation and direct this for the benefit of society at large. This would be a system with the most effective and democratic control

of investment and production for people possible, that is, socialism. But is it possible to have an economy that is run for the benefit of the many, and not the few? Can we have an economy that is environmentally sustainable and pays attention to our quality of life? We can, and we should, but to get there is not so simple. This document is intended to put forward positive proposals of options that are feasible and to spark debate on what practical steps we need to take to build up the confidence, power and political activity of the working class.

Multinationals, FDI and corporate tax rates The development of an economy where investment is done by a very small number of people for their own benefit has rarely ever yielded benefits to the general public. It is only under threat that the investors invest in benefits to the majority. This presents us with a real conundrum. As we will see, the structure of Ireland’s economy makes it difficult to make credible threats to investors and thereby to leverage power for the general public benefit.


fictional either. Many of these companies will do a simple calculation to see if the costs of tax increases exceed relocation to another country. Many peripheral countries internationally are in a race to the bottom, all attempting to undercut each other on corporate taxation to induce FDI. Encouraging those enterprises most interested in low tax rates is dangerous when attempting to create a healthy economic situation. According to Dr. James Stewart of Trinity College:

2012 Ireland Products Export Treemap [Gordon.silvermanaz - Own work. Licensed under CC BY-SA 4.0]

Ireland’s economy is extremely open. This means that most of the goods used in Ireland are imported and most of the goods we produce are for export. Any country the size of Ireland is going to be fairly open simply by consequence of size. However, in Ireland’s case it is also directly linked to a long term strategy of a particular form of economic development. Starting in the 1970s Ireland began actively engaging in a project of promoting Foreign Direct Investment (FDI) by multinational enterprises in Ireland’s economy. This involved enticing foreign investment in specific industries and the creation of high-tech sectors. Ireland has since developed into a mecca for multinationals. The inducements to come to Ireland have included a welleducated, English-speaking population, and state support for Research & Development. FDI is often promoted on the basis that it encourages very important technology transfer to

help improve the efficiency and technical competence of local economies. However, in Ireland it is plain that virtually the opposite is occurring, with the public funding technology which is then transferred to multinationals. Most critical to the strategy however, is the combination of a low corporate tax rate and a network of tax treaties with other countries which facilitate tax avoidance strategies1. The consequences of this programme has been a weak domestic economy in which foreign multinationals can dictate the terms under threat of leaving if the tax system changes. Multinational corporations see Ireland merely as a place to report profits and a pool of reasonably priced labour, which they will pay wages to. While the threat of leaving if corporate taxes are raised is exaggerated, it is not wholly 1 “Corporation Tax: How Important is the

12.5 % Corporate Tax Rate in Ireland?”, Jim Stewart, https://www.tcd.ie/iiis/ documents/discussion/pdfs/iiisdp375.pdf

Tax rates may be very important for some companies. But the more dependent a company is on low corporate tax rates, the more `footloose’ the company. The greater the importance of tax factors the less likely they are to have linkages with local firms, the degree of embededness will be much lower.

Historically, higher corporate tax rates have not led to increases in GDP, or increases in domestic investment. The relocation of tax avoiding firms leads only to a moderate increase in wage labour jobs, and in the case of many financial firms, even this does not occur. The former senior international economist with Citibank in London, Michael Burke has stated that: The corporation tax rate was cut drastically and a 12.5% rate was phased in up to 2003. The 10-year period of GDP growth since has been the worst in the history of the state. Yet it is still widely claimed that a low rate of corporation tax determines Irish prosperity. This claim is evidently false.


Property speculation and the banking crisis Perhaps even more useless than the low tax rates and small number of jobs offered by multinationals is the domestic property market as a space for international property speculation. Part of the explosive collapse of the Irish banking system was directly related to massive speculation in the domestic property market. Once the world economy suffered its financial collapse the Irish property market likewise collapsed. The assets on the books turned out to be far too little to maintain confidence in the solvency of the banks. This in turn led the Irish government of 2007 to decide on a programme of guaranteeing all the creditors for Irish banks and eventually led to massive public debt. This public debt, which now must be paid back by the taxpayer, is the reason for the continual increases in taxation simultaneous with the cutting back of public services, often known as “austerity”. The media have consistently portrayed increases in property prices as a major signifier of improvements in the economy. The idea that property prices increasing is beneficial makes perfect sense from the standpoint of the investors in the banks who found their assets had radically depreciated after the collapse of a speculation bubble. But in terms of the general situation for a well functioning human economy, it is complete nonsense. Increases in prices of property do nothing to improve the productivity of the economy, they are in fact merely a drag on the economy. They raise the cost of

housing for the general public which serves to diminish quality of life.

Developing Ireland for People The solution to this problem is to embark on a very different development programme which gives the public more power (and eventually all power) over the course of events. One which is more resilient and less dependent on the whims of foreign multinationals, bond-holders and investors. It needs to be one which helps grow our strength for asserting the power of the public to guide their own future, for cooperative, rather than profitdriven economics. Ultimately it will not be possible for Ireland to ever wrest itself free of the profit driven economics of global multinationals and the world financial system by itself. It will need to cooperate with other countries who are interested in charting a different path. However, this should not stop us from taking steps along the road. To do this we should seek to create a vibrant sphere of state, semi-state and cooperative enterprises which can make a dynamic economy with no incentive to leave, since the interests of these firms are designed to align with the interests of the public. This economy will create good jobs with living wages so we can ensure everyone has access to a decent standard of living. For a moment, let us imagine what one enterprise along these lines might look like: A high tech cooperative, in let’s say robotics, is funded by and profit shares with a publicly owned

and administered industrial bank. This cooperative crossfertilises technologies with public universities and technical institutes to ensure skill development of the work force, while getting publicly assisted research & development.

Profits in the enterprise would accrue to the general public, helping to fund the industrial bank. It would create jobs in the public institutions of learning, and in the cooperative itself. Further, the surpluses over capital costs and wages would stay in Ireland. This model is in sharp contrast to the multinational firms attracted to Ireland because of the low tax rates. These firms will always be fly- by-night, have no incentive to invest in the local economy, and will never keep any of their surpluses in Ireland. They will always demand a “beggar thy neighbour” policy of taxing lower than other countries or pull up stakes and leave when it becomes cheaper to do so.

An Outline of a Programme The programme should have the following components: • A debt audit to assess which debtors ought to be paid which amounts. • A debt writedown following recommendations from the debt audit. • Utilisation of NAMA properties for public needs. • Creation of a state enterprise board to assess areas of the world market in which Ireland can utilise its resources to produce high value outputs. • The creation of a public industrial bank to provide investment for cooperative, state and semistate enterprises, with special attention to those areas which


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the state enterprise board has flagged. Implementation of funding for a public industrial bank. Preferential taxation for cooperative, state and semistate industries only. Abolish corporate welfare programmes such as jobbridge. Systematic programme for reducing the costs of living. Legislation to give greater latitude to the trade union movement.

Debt Audit In order to eliminate some of Ireland’s odious debt it is important to know precisely what is owed to whom. It is not, in general, a good idea to completely eliminate all debt, as some debt will be debt to schools, or to pension funds or any number of other socially important functions. Once we have outlined which debts provide payment for socially useful enterprises we can move on to a writedown.

Writedown Ireland’s austerity programme has been virtually ensured by the huge amount of public debt that has been taken on when the banks were given a blanket guarantee. This debt is odious and not the responsibility of the Irish public. We should utilise recommendations from the debt audit to eliminate this debt. In addition, we should insist that repayments of debt still outstanding after a writedown are growth-financed such that Ireland is not responsible for the repayments in such a way that shrinks the economy, ensuring sustainability of the repayments

and stability of the economy. Further, no repayments should be made for a moratorium period such that Ireland can return to growth.

become a serious player. It could be anything from the creation of finished food products to computer software systems.

We will also need to coordinate a writedown with other states around the EU periphery that have accumulated odious debts due to the financial collapse. This could potentially force the EU to act as the coordinator or suffer a multilateral but non-EU, peripheral approach outside of the EU. In particular, it is critical that the peripheral countries collaborate in eliminating the EU’s Growth and Stability pact.

Industrial Bank

NAMA Because the state ultimately became guarantor for the bonds held by investors in the insolvent banks such as Anglo-Irish, and the property market was in free fall, it was decided that the state would administrate the property assets of the insolvent banks. The state could utilise these properties for public needs. Utilisation of these properties for workers and enterprises could allow the property market to be deflated moderately while lowering the bar to entry of new enterprises in the cooperative state and semi-state areas.

State Enterprise Board Ireland has a well educated population and a number of high quality technical institutes and universities. A state enterprise board should be created which assess a number of areas in which Ireland has the most technical and skill strength to leverage and in which areas there is a niche in the international market in which Ireland could

In order to actually create enterprises means having the means to credit for the creation of these enterprises. For this reason Ireland should create an industrial bank meant to fund these enterprises. This bank should give money only to state, semi-state and cooperative enterprises. The arrangements for loan payment from these enterprises should be either through profit sharing or through payment of interest, which accrues the benefits of the enterprises to the industrial bank allowing further ventures. These enterprises should be incorporated in such a way that the workers of the enterprise receive rewards of their industry and that no controlling shares go to mere investors. The stakeholders of the enterprises should be the general population in Ireland and the workers of those enterprises. A charter should be formed which outlines the character of institutions which the bank would fund. The form and type of institutions which should be funded might include workers cooperatives, non-profit organisations, community trusts and community development organisations. While such a strategy is beneficial to the public, it is of questionable legality under EU law 2. However, the EU already allows states to 2 TFEU Article 107, http://eurlex.europa.eu/legal-content/EN/ ALL/?uri=CELEX:12008E107


subsidise both agriculture and in research & development funding. It is arguable that the programme could be legal under some of the exemptions given in article 107 which it might be argued, allow it to be ignored for agriculture and Research & Development. The legality would ultimately it would be decided in a European court.

2011. Through a combination of a moderate increase in corporation tax and attempting to plug the holes which allow such low effective rates to be paid, we would seek to raise around €1 billion, an increase of about 25% on the total corporate tax paid in 2011.

The appropriate steps towards avoiding regional favouritism in the EU are clearly for the EU to embark on a similar programme, rather than insist that Ireland does not. A programme of an industrial bank building up a powerful social production infrastructure in the state and cooperative sector at the EU scale would be a threat to the system of capitalism itself. This approach is however not going to happen until a large scale movement for socialism exists in a majority of EU member states, and even then, not without a fight.

The Ireland Strategic Invest Fund is specifically chartered to make investments in the productive domestic economy. The funding of an industrial bank would take this role seriously. The fund is currently valued at around €7 billion and could provide substantial resources for an industrial bank. Another potential source of revenue would be to insist that deposit taking institutions “invest” a small percentage of deposits in the industrial bank.

Preferential taxation Funding options There should be an investigation into funding options for the industrial bank, and whichever are most expedient should be chosen with an aim to raise sufficient funds to grow the sector of domestic cooperative enterprise relatively rapidly. Options include a moderate increase in the corporate tax rate which could be earmarked for use in the industrial bank, utilisation of state pension funds, and bond sales amongst others. The current nominal corporate tax rate is 12.5% for Ireland. Yet according to the US Bureau of Economic Analysis, US multinationals in Ireland paid around 2.2% effective tax rate in

Since those enterprises funded out of the public industrial bank would be accruing surpluses directly to the state, it is only sensible that they have some of their obligations in corporate tax forgone. This can help to improve the competitiveness of these cooperative enterprises without diminishing their obligations to fund public development.

Ending corporate welfare Part of the problem of creating useful enterprises is in providing decent paying jobs for everyone of working age. Programmes such as job-bridge, and the existence of zero-hour contracts directly undermine this aim. These should be abolished. If internships are introduced they

should be in the state, semi-state and cooperative sector with real migration pathways to well paying jobs. The private sector, whose surpluses accrue neither to the workers or the public, should not be given subsidies. Instead we should actively subsidise productive enterprises where the public yields the benefits.

Cost of living A systemic housing policy which includes the creation of a large number of new, high-quality public and cooperative housing options is required. This will reduce the cost of living for workers and make wage rates more competitive on the world market allowing new enterprises to be more successful. The “market” has been terrible at addressing the needs of the population in terms of housing, instead preferring to speculate and completely incapable of effective supply management. As moderate increases in house construction costs have been coupled with vast increases in the cost of homes. The solution to efficiency in housing is clearly a directed state programme of creating housing. Currently in Ireland, deposits for private rental accommodation are held by the landlord. Given that there is no oversight into how this money is spent, it is essentially a zero interest loan to the landlord. Many countries around Europe have a state body which holds the deposits in escrow and adjudicates payment. Ireland has a body, the Private Residential Tenancies Board (PRTB) who is responsible for overseeing registration and dispute resolution between renters and landlords.


Deposits could be held in escrow by the PRTB and used to help fund a project of building social housing. This would create building jobs, reduce the cost of housing, all while improving tenant rights. 327,000 households in Ireland currently live in rented properties. A conservative estimate would be that each of these households pay â‚Ź1,000 in the form of a deposit. This would amount to approximately â‚Ź300 million which could be utilised to invest in social housing.

2. Childcare

According to the Independent, childcare costs take up 40 percent of the average wage. This places Ireland as a country with one of the highest childcare costs in the EU. The state should actively develop a programme of state funded childcare centres to help bring these costs down and to abandon the market-driven model of child care which is currently being used. This again will help improve the general quality of life without the need to directly increase wages. Public childcare

has proved to be extremely effective and efficient in countries like Sweden which guarantees universal access and ensures affordability through the state.

3. Transport Transport is also a very important cost to workers. Ireland has low subsidies on public transportation leading to very high costs for public transport. At the very minimum, subsidies to public transport should be increased to the EU average. In order to help fund this, it is possible to copy models such as the one in France,

where businesses are required to pay a per worker transport fee. We plan to put forward more comprehensive documents which include models for transport, housing and childcare to supplement this overview.

Conclusion While it is not easy to recast an economy which is currently so structured for the benefit of the

few, it is also not impossible. To get such a radical change will require a big and coordinated effort and the active involvement of a large section of the public. If we do not stand up and try to take the reins of the economy into our own hands, then there is no chance of a change in political direction and an end to austerity. Investor led solutions have proved to be terrible solutions for the vast majority of the public. We need people led solutions as an alternative. The policies which are suggested in this document are insufficient to obtain a socialist society and much more work would be needed beyond this to truly create an economy where development was for the benefit of the majority. However, these changes do present a way to build up a base of more significant power which would be less subject to the whims of international investors. Eventually we will need to link up with the broader socialist movement in Europe and elsewhere to build a really vital socialist economy, but we can only take steps to do that by building from where we are now.


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