We are told that the Irish economy grew by 26 per cent in 2015. Fortune is indeed looking up in Ireland: unemployment is falling while retail sales, tax revenue and government spending are moving along at about 4 per cent. But a 26 per cent growth rate? American economist Paul Krugman was right to dismiss the figures as “leprechaun economics”.
We are, however, facing a new reality and have to redefine the relationship between small states and global corporations. The statistical anomaly in the Irish growth figures may trigger new thinking that could benefit everyone.
In 2015, Irish exports rose 34 per cent; investment was up 27 per cent and imports rose by 22 per cent. If these numbers were true, it would suggest that the average worker’s annual income had reached €130,000. You do not have to live in Dublin to realise that this is nonsense.
Any small country hosting big companies is in for these statistical surprises. Last year, Aengus Kelly, the Irish chief executive of AerCap, the world’s biggest aircraft leasing company, moved his fleet to Ireland. Valued at more than €35bn, it added enormously to the country’s capital stock. There has also been a surge in unusual multinational-driven exports.
Ireland’s gross domestic product figures do not represent the real economy. Using these data, it is impossible to set meaningful macro-policy targets such as government budgets or conduct accurate international economic and social comparisons.
Irish economists will have to find more accurate indicators for economic wellbeing. GDP accounting is at least 70 years old, constructed when there was little international investment, trade was restricted and capital controls were prevalent. Today, Ireland is just one of the small, open economies that compete for capital. In a world of globalised free trade, everyone is part of someone else’s supply chain; the difference in exposure to that is a matter of degree. The smaller you are, the bigger the exposure.
Multinational investment is going to continue, so unless the world abandons globalisation, the Irish example is a taste of things to come. In reality, the size of the proceeds from multinational activity that goes into Irish people’s pockets is modest. The take from wages and corporate tax is only a fraction of what goes back, as dividends and higher share prices, to the shareholders of companies operating in Ireland. So it is shareholders, rather than workers or the exchequer, who are winning.
Why not let host jurisdictions become shareholders in the companies that are making profits and distorting GDP figures? Rather than taking all the money in tax, to be frittered away in the next political auction, why not take some in shares and invest it? Why not treat wealth associated with foreign capital as an annuity that accrues annually, much like wealth connected to an oil find?
By taking shares in multinationals, Ireland could create a sovereign wealth fund linked to the performance of the best-governed companies in the world, which would provide for future generations. In 2012, US multinationals made $100bn profit in Ireland, on which they are supposed to pay 12.5 per cent tax, or $12.5bn. In fact, they paid $4bn.
Why not encourage multinationals to pay the difference between what they pay and what they ought to pay in shares? Shares are permanent wealth, whereas taxes are transitory income. This is also attractive because shares or share options are cheaper for the company than giving cash. They already give their employees share options, so why not their host country?
Imagine a Fortune 500 Irish sovereign wealth fund, diversified across sectors operating in the Irish economy, with stakes in corporations such as Google, Facebook, Apple, Pfizer, Intel, IBM, Microsoft and AerCap. That would be a 21st century crock of gold.
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Sweet thought, but what happens when the shares collapse with a thud, as is inevitable? Everything’s laughably overvalued. You’d want to be conjuring that (actual) gold regularly, not just indulging the geese.
David
Can we believe any of the statistics coming out over the past 8 years.?
If this was China we would be looking at electricity consumption as an indicator of a real recovery ?
We know about the increase in low payed employment but I also haven’t seen the total PAYE income earned in the state reported , has it exceeded the pre Crash yet ?
Your comments would be appreciated
Hi,
It’s the dividends which are important not the shares as bills are paid in currency not share certificates.
Also companies can fail making shares worthless. A stake in Deutsche Bank wouldn’t be a good idea. Corporate bonds may be more ideal. You would have to figure a way of stopping the politicians fucking it up as remember how the pension fund was raped.
Interesting idea. I wonder if it has been tried anywhere and if not why not. The accountant in me is imagining the journal entries. Using Google as an example the double entries would be: debit Google and credit ”Tax Revenue” with €Xbillion. Upon receipt of Google share certificates of equal value, credit Google and debit ‘’Google Shares’’. Result, the Government just bought Google shares with tax money forgone rather than received. Both the revenue and the investment would have to show up in the Government’s accounts as it is a Government transaction and would need to be reported in strict… Read more »
I believe that the basic foundation which is being presented here regarding the proper attitude which we should hold towards corporations is flawed. We need to understand the situation for what it actually is; not as is presented via corporate perception management. The reality is best summarised by Alex Carey; “The twentieth century has been characterized by three developments of great political importance: the growth of democracy, the growth of corporate power, and the growth of corporate propaganda as a means of protecting corporate power against democracy”. Multinational corporations present that their involvement in countries is constructive. However, that is… Read more »
survivalist: good morning. In answer to your questions I see a big difference between state-sponsored enterprises and any state taking equity positions in multi-national corporations. The former is done in order to better utilize some national asset or to achieve some national purpose. The latter would be done solely for profit and I have a problem with that, for the same reason you raise viz. that public services would become dependent upon multi-national corporate dividends. That would be very bad. As for REITs they are not part of this mix because they are not active enterprises as such. They are… Read more »
David’s suggestion, if implemented globally (eventually but we can be first), would form the gateway to Utopia/Sangrila.
For project Utopia to be successful the people (via their governments) must own the technologies (the intellectual property) that will make Utopia possible.
Nice one David.
Great concept David and would work nicely in a perfect world but no thanks. I’d rather have the guaranteed income now than the possibility of a lotto win at some date in the future. No doubt someone would manage to piss on the paper shares. I’m still trying to figure out how Facebook is valued at such a high level. I for one haven’t parted with one single cent to them. I’d rather take their tax Euros now before the deck collapses.
Is this the pot of gold at the end of the Leprechaunomics rainbow? The problem with positing a ‘Sovereign’ wealth fund for the Republic of Ireland is that the Republic of Ireland is NOT Sovereign over it’s financial affairs as the Troika debacle proved. Given the Cyprus bail-in, how would any putative Sovereign wealth fund be ring-fenced from predation by the ECB? How would such a gaming of Corporate Tax laws be accommodated within EU law? As EU ‘harmonisation’ prepares to awake from it’s pre/post Brexit sedation, how would other EU countries react to this? Without a specific amendment to… Read more »
Interesting comments all around. Well done All.
My only comment here is that government is involved with politics and corporations with business. Government does not do business very well and corporations twist government to favour one over another.
The function of government is to look after the benefit of the citizens and to set the parameters in which business is conducted.
They are separate functions. Keep them separated.
When politicians are corrupted , anything goes. By Greg Hunter’s USAWatchdog.com (Early Sunday Release) Dear CIGAs, Financial expert and former Assistant Secretary of Housing, Catherine Austin Fitts, says the U.S. government’s actions with Hillary Clinton means it is more lawless than ever. Fitts explains, “The entire country now looks like Arkansas . . . we’ve all turned into Mena, Arkansas, now. It’s pretty tragic. I have watched for two decades while 80% of the federal budget and federal credit has been run outside the Constitution and the laws related to financial management. I have never seen anything as blatant and… Read more »
I want to follow on my comment above in reply to Pat Flannery by linking in the Government´s announcement on Social & Affordable housing to this topic. In the comment above I suggested that we copy the US model of giving tax credits to corporations who make donations to non-profit Social and Affordable Housing Associations. Of course we would have to be looking to enforce something close to the 12.5% rate and not the 4% we currently enforce. Money could go towards infrastructure like an underground for Dublin, too, as long as a safe non-governmental non-for profit agency vessel could… Read more »
@Tony – Re the biggest lie. Quinn Group was shorted out of existence once a few investors in the city realised its CFD situation. I can’t believe that “a lot of somebodies” haven’t twigged that there is an opportunity here. There has to be more to this. At a guess Official Everyone wants an orderly unwinding of positions or should want. The same would apply to Derivatives. So – Does official everyon know that this unwinding is necessary AND How would they go about achieving it without returning to what you might describe as honest money (because they are just… Read more »
Sideshow Bob: In reply to your post I would like to make the following three brief points: 1. Non-profits are inappropriate recipients of dues imposed on multi-national corporations. Such revenue should accrue only to government agencies responsible for capital improvements or services. In the US tax credits to non-profits have resulted in much abuse and dishonesty. 2. In Ireland the nominal rate of 12.5% corporation tax would have to remain intact (albeit merely nominal which is another issue) otherwise we would rightly be accused of giving special tax deals to individual corporations in breach of international law. 3. Introducing the… Read more »
central bankers are considering block chain technology. commercial banks would then be irrelevant.
“Bank of England considers cutting commercial banks out of the payments system”
http://silverfarm.podbean.com/e/andy-hoffman-audioblog-153-global-monetary-revolution/?token=7d44fabbe4b59ed627536efb43933bb4
TO McCawber
a good article to read. It also mentions the fraud of investing in the large gold GLD fund and Silver SLV fund as they likely hold paper and not the bullion people think they have invested in.
https://srsroccoreport.com/something-big-happened-in-the-gold-market-must-see-charts/
http://www.strategic-culture.org/news/2016/07/17/why-pentagon-and-nato-are-bluffing.html
http://www.gata.org/node/16608
“”We don’t need back-door nationalization by central banks.
State control of the economy has always been a bad idea. It distorts the playing field, favours political lobbying over competitive excellence, and stops the market from allowing the best-managed businesses with the best products to flourish. Central banks are pushing it through the back door. They argue they are doing so to help revive demand and keep the economy alive. But as with so many of their recent innovations, from zero rates to printing money, the medicine is starting to look a lot worse than the disease.””
“Nuf said.