Posts By Donagh Brennan

Whatever Happened to Workers’ Playtime?

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Jennifer O'Connell has a lifestyle feature in the Irish Times today that takes on David Graeber's essay in Strike! Magazine about bullshit jobs with a 'sure wasn't ever thus?' type of argument. But one of the ironies of it is that while she largely agrees with Graeber she can only do so by avoiding an important element of his central premise – that it's about capitalism.

In his essay Graeber says:

“In the year 1930, John Maynard Keynes predicted that, by century’s end, technology would have advanced sufficiently that countries like Great Britain or the United States would have achieved a 15-hour work week. There’s every reason to believe he was right. In technological terms, we are quite capable of this. And yet it didn’t happen. Instead, technology has been marshalled, if anything, to figure out ways to make us all work more.”

What this doesn't address, however, is that Keynes argument was originally a lecture which he presented to mollify those of his students in Cambridge in the 1930s who were being attracted to Marxism and Communism.  Keynes, later Lord Keynes, hated Marxism, despised the USSR and was happy to declare that when it came down to it he would always side with his class, the capitalists against workers. His arguments about providing full employment and increasing wages were deployed as the best way to maintaining equilibrium within capitalism and not about improving the living standards of the majority, per se. Maintaining this equilibrium, however, depended on the ‘euthanasia of the rentier’, the suppression of reckless financial speculation and the promotion of productive investment. In his lecture, which Graeber and O'Connell refer to without acknowledging this context, he was telling his students, sure capitalism is doing badly now and is making things difficult for everyone, but within their lifetime working hours would be reduced and capitalism would provide the kind of conditions that are envisioned within a worker's republic. Capitalism works, stick with it.

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Interview: Mark Blyth’s The History of a Dangerous Idea

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Mark Blyth’s The History of a Dangerous Idea is a great book and slays many myths including a couple about how Ireland is the best example of a country obtaining growth through ‘fiscal consolidation’ aka austerity in the late 80s and early 90s as well as more recently being considered as a ‘poster child’ for austerity in Europe, a model for Greece etc.

But the sharpness of the book, its informativeness and the conciseness of the arguments are no match for the bite of Blyth’s delivery of them in this interview on The Business.

George Lee usefully gets some excellent sharp responses to recent events, about Ireland being a tax haven, the Anglo Tapes and the recent ESRI report that says the government should keep on with austerity. Highly recommended.

Click the link below to listen online: 

RTE’s The Business – Extended Interview with Mark Blyth

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More WTF than Why: How to Frame the Wrong Question about the 2008 Bank Guarantee

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Fintan O'Toole has some interesting questions that he suggests any future banking inquiry should tackle, but won't. The questions are worth considering because they illustrate a systemic trend regarding the class nature of Irish politics and the underlying cause of our regular banking scandals. I provide some information but not answers to these questions here. However, one of the final questions suggests that despite providing an indication of a pattern of behaviour which, if examined properly would bring us closer to a fuller understanding of how Irish society really operates, he actually hasn't a clue.

“Why were there no prosecutions or disbarment of directors after the Dirt inquiry found in 2001 that the banks had engaged in a massive fraud on the State?”

Well, Irish Revenue knew since 1976 that offshore tax avoidance by Irish residents was occurring. In 1985 the Irish government created DIRT legislation to tax deposits, but guessed at the time that 25% of those with deposits in Ireland were using fake addresses to avail of Irish banks non-residents account facilities – tax dodging in short. Note, that was a guess, they had no idea how big it was as officials assured banks that they didn't want to frighten away genuine foreign depositors who were using Ireland to avoid tax in their own country. They did nothing until 1998 when the story broke after an Irish banker got into a professional spat with another banker and somehow his claim, made in 1991 that AIB was liable for £100m in unpaid DIRT tax got into the papers. Incidentally, in his book which he published after the reports and the DIRT scandal broke he admitted that he pulled the £100m figure 'out of his ass'. AIB finally settled with Revenue for £98m. There were several tax amnesties in the 80s and 90s, yet often the money held in these account was not declared, as an inquiry into the DIRT scandal revealed.

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REITs for the (Property) Czars

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Recently the rating agency Fitch highlighted the massive connection between shadow banking and mortgage REITs, a property investment vehicle that has increased hugely on the back of the collapse in the US property market. While REITs have been around for a while (first legislated for in 1960 by President Eisenhower ) they didn't make much of an impact, as other forms of investment through asset speculation dominated the stock market.

With a financial crisis on the back of a bursting property bubble however, REITs finally came into its own as it seemed that the financial collapse deflated values in property sufficiently to make them a worthwhile investment given that prices in certain markets (mostly major capital cities) would likely rise again. As one of the requirements of REIT is to disperse up to 80% of its profits to shareholders, it is considered to be 'safe' from a regulatory point of view.

However, the Fitch report was written to highlight the considerable risk that mortgage REITs might pose, as they are being financed through the shadow banking system.

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NAMA: Speculating on CUI BONO

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One of the main criticisms of NAMA, and there are many, is that rather than dealing in the most effective way, both in terms of cost and social benefit, with the legacy of bad debt created by frenzied speculators during a credit bubble, it is instead designed to soften the losses for those who benefited substantially from that socially manufactured glut of liquidity and to reignite the property market speculation that got us where we are today.

Proving that or even making such a claim is not straight-forward of course, due to the opacity of the institution itself and the length of time that it is supposed to do its work, for the benefit, we are told, of those who live and work in Ireland.

However, I couldn't resist the temptation to provide a rough sketch of what appears to be going on at the moment. The following is a bit scrappy, so I apologise in advance if its difficult to follow my point, but these posts are often an attempt to work things out with a view to improving on them at a later date.

Of the original NAMA portfolio fifty-four percent are in Ireland, around 34 percent in mainland Britain and 13% in the rest of the world, which oddly includes Northern Ireland.

Around eighty percent of NAMA's sales so far have been in Britain.

This suggests that much of the UK portfolio has been sold off.

NAMA is viewed by international investors as having been a very good idea,” U.S. billionaire Wilbur Ross, whose WL Ross & Co. owns 9 percent of Bank of Ireland Plc, said in an e-mail. The strategy of focusing on U.K. sales first “provided near- term proceeds from a relatively stronger market while not flooding the Irish market before the sovereign had stabilized,” he said.”

So NAMA is now focusing on selling it's Irish portfolio as the market 'has found its floor'.

Floored

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Ireland’s Country Capture is Complete

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Arthur Beesley in his May 22nd article Scrutiny of Ireland Begins to Bite in Apple Tax Enquiry suggests that foreign companies come to Ireland primarily for the tax benefits, but does so by using inaccurate information. So the reason for the movement of investment into Ireland, according to Beesley, is entirely due to our ability to facilitate tax avoidance even though the government has gone to some lengths to deny that. But in order to make that argument he has to distort what is already widely known.

Note the use of 'continual improvement' in the following:

“The continual improvement of the tax terms Dublin offers investors has fostered a huge increase in the amount of business funnelled through the Irish operations of multinational companies. The headline tax rate was reduced to 12.5 per cent in 2003 from 38 per cent in 1997, when the combined net profit of US corporations in Ireland stood at $8.58 billion. By 2005, this had risen to $48 billion.”

The increase is due to a number of factors, but the change in the headline corporate tax rate in 2003 was not one of them.

Dr. Proinnsias Breathnack of NUI, Maynooth corrects him in a letter to the Irish Times on the 4th of June.

A chara, – Arthur Beesley (Business, May 22rd) wrote that Ireland’s rate of corporation tax was reduced from 38 per cent to 12.5 per cent in 2003. This is incorrect.

Prior to 2003, the rate of corporation tax on profits from manufacturing and international (ie export) services – which covers most activity of foreign firms operating in Ireland – was just 10 per cent. The 38 per cent rate applied to all other corporate activity, and related to non-manufacturing activity within the Irish economy (mainly conducted by Irish businesses).

Following a finding by the EU that this distinction was discriminatory, a standard corporation tax rate of 12.5 per cent, applicable to all corporate activity in Ireland, was introduced in 2003. Thus, what was, in effect, the tax rate applying to foreign companies was increased in order to compensate the government for the tax lost through the reduction of the tax rate on domestic non-manufacturing activity.

As it happens, the “headline” rate of 12.5 per cent is of little relevance as far as the foreign corporate sector is concerned, as the average rate of tax paid by this sector is nowhere near this level. – Is mise,”

Not only did the headline rate for foreign companies increase in 2003, for many years before that it was officially zero. Apple and many other MNCs that set up here in the 80s were able to enjoy a 10 year tax holiday, for example. So why does Beesley distort this well established fact?

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Facilitating Corporate Tax Avoidance is at Heart of What is Wrong

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Here we have two investigative pieces in the Irish Times and the Guardian which show that jobs created by MNCs in Ireland are not necessarily the high quality, well paid types of jobs those defending Ireland’s tax avoidance system claim. The first illustrates that most of these are call centre jobs created to provide tech support for sales that may be registered in Ireland but are in fact generated in countries within and beyond Europe, Africa and the Middle East. As they require language skills far greater than even very well educated Irish workers normally have (Ireland has one of the lowest proficiencies in a second language in the OECD ironically enough) these are not jobs created for those who have been through the Irish education system. This is despite the fact that we are told that it’s not tax that attracts these companies but our well educated workforce. Again, this is attractive and is a credit to Ireland’s high level of completion at second level which is well above the EU average, but it’s being undermined and many of the skills that these companies require are in law and accountancy which narrows considerably the ability of people to think beyond the servicing of MNCs law and accountancy needs. It is hardly a coincidence that Cathy Kearney, which the Guardian describes as Apple’s ‘top lieutenant in Ireland’ is an accountant.

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Terrorising Children For Profit: Comment on Last Night’s Prime Time

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Richard of Cunning Hired Knaves makes an important point about the issues underlining the Primetime Investigates program last night about how certain crèches treat children in their care.

“Calls for assault charges to be brought against the childcare workers exposed in last night’s RTE Prime Time programme are not only missing the point, but obscuring it. The programme focused on a small sample of crèches. Not all crèches operate according to the same cost model as Giraffe or Little Harvard, but many of them do, with workers forced to cope in stressful, under-equipped and poorly supported conditions. Therefore it would be highly unlikely if the same pattern of violent abuse and degradation of infants were not replicated in many other crèches across the country, and the problem is not therefore one of the actions of particular workers, but a systemic violence perpetrated against small children, in the interests of profit.”

Read the whole thing on Cunning Hired Knaves.

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Corporation Tax: Ireland’s For Sale Sign

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Because of the ongoing coverage of Apple’s Irish tax arrangements and the fact that Ireland is considered to be a Tax Haven by the US Senate once again, we have decided to publish a PDF version of my article Corporate Tax: Ireland’s For Sale Sign.

Over the weekend, the Sunday Times article, which uses new research by Jim Stewart where he shows that Ireland is the third largest tax haven for the US after The Netherlands and Luxembourg, got a fair bit of coverage. This finding shouldn’t be too surprising to anyone who was good enough to buy the first issue of Irish Left Review, or for matter, if they read the article by Mary Everett in the Q1 Quarterly Report from Central Bank of Ireland (April 2012, p56). In it the following table is used to illustrate how hard it is to figure out what is real economic activity and what is merely the movement of intra-company funds for the purpose of aggressive tax avoidance.

Box3Table1

The fact that 90% of Ireland’s export activity comes from US companies and that the majority of that activity is the funneling of profits through tax havens we can see that the vast majority of Ireland’s export activity is simply tax avoidance. But that is not to suggest that this money remains in tax havens waiting to be repatriated. Ireland, like The Netherlands and Luxembourg, is only a conduit. The money actually resides in US bank accounts.

Over the weekend too, it’s reported that the Department of Finance is considering closing the double Irish scheme “created by Charles Haughey in 1990”, according to the Sunday Business Post. However, as Jim Stewart argues in his paper, “changes in tax law happen all the time because Ireland prides itself on being responsive to business needs. Apple did a big reorganisation of its company around 2005 and as part of that it would have had to renegotiate its tax liability with Revenue”. Indeed Apple were not the only company to reorganise in 2005. Apple, Microsoft and Johnson and Johnson all became unlimited companies, which shields their accounts from scrutiny. Google, which also uses unlimited companies, benefited from a change introduced last year which had been lobbied for by the American Chamber of Commerce in Ireland. According to Jesse Drucker of Bloomberg this led to the Dutch Sandwich, which routed profits from an Irish subsidiary to a letterbox company in the Netherlands back to an Irish incorporated company which is registered in the Bermuda for tax purposes also being no longer necessary. Now the money goes straight to the Irish company registered in Bermuda. This helped to cut Google’s tax bill by at least $2 billion a year, according to U.S. and overseas securities filings.

The following is taken from the opening section of my article, which provides an overview of the argument, but you can read the whole thing as a PDF here.

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Yes, Say it Again: Ireland IS a Tax Haven and it’s Worked Hard to Be That Way

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So the US Permanent Subcommittee on Investigations has declared that Ireland is a tax haven and Apple executives giving testimony to the committee have said that the Irish government gave them a special 2% rate. Rate in this context is irrelevant however, as the mechanism ensures that what Apple declares as taxable income is completely up to them. As many reports have suggested, Apple could pay as little as 0.05% on income earned and passed through Ireland, and the revenue appears to be sales tax on Apple products bought in Ireland. In addition they have also said that their Irish companies are not registered for tax anywhere, so that none of the $30 bn global income earned in the last number of years was taxed.The Irish government denies that it has provided special tax treatment to Apple, and that it is not a tax haven. This is the surest sign that it is one, according to Richard Murphy of Tax Research UK.

If you haven't already you could do worse than get one of the remaining handful of copies of the first issue of Irish Left Review, which includes a good interview with Ricard Murphy about the Irish system. There is also a long article about Ireland and corporation tax which deals this in a fair amount of detail.

However, with all the coverage I am drawn back to a post by Conor McCabe from July 2010 written around the time he was working on the chapter on the cattle industry in Sins of the Father. (Good news, the 2nd edition of Sins of the Father, with a new chapter on more recent developments will be published towards the end of 2013).

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Ireland Allows Google To Send it’s Profits Straight to Bermuda Company Which is Actually in Ireland

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In my long article in the first issue of Irish Left Review on Ireland’s corporate tax regime I made the point that Ireland in effect sells its abilities to make tax laws to profit hungry MNCs, in much the same way as it sells to the rights to our natural resources to large oil companies. That is, whatever economic benefit there is, and its small, goes to the ‘agents’ who negotiate the deal, with very little, if any, benefit appearing in the economy.

Still, with all the attention being on Google for a while now, there was one fact about the Irish government’s arrangements with the search engine company that I had missed.

Recently these arrangements, known as the Double Irish with the Dutch Sandwich have been given a lot of attention and are often explained. For example, see this New York Times info graphic. However, while listening to Jim Stewart’s interview on Morning Ireland last Friday in a conversation about Google’s ‘grilling’ before the UK’s Public Accounts Committee on taxation, I found out that the ‘Dutch Sandwich’ is no longer used, and instead Google’s earnings from its EMEA market goes from Google Ireland to Google Ireland Holdings, which is registered in a solicitor’s office at 70 Sir John Rogerson’s Quay and also in Bermuda. So, by passing these to the Bermuda registered company, the earnings go straight to Bermuda. Google Ireland Holdings has no employees and is ‘owned’ by Google Bermuda which also has no employees. Both are unlimited companies, so under Irish law, they do not have to publish accounts.

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Why Ireland’s 2008 Blanket Bank Guarantee Decision Was Taken? Part 4

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For many the detail about the pressure which was widely reported to have been applied by the ECB for Ireland to enter the 2010 Troika bailout has coloured their understanding of the original blanket guarantee. The extent of the guarantee and the large sums being poured into our failed banks ensured that a bailout would be required. It was hardly a coincidence that the bailout occurred in the months after the blanket guarantee ran out on the 29th of September 2010.

The ECB’s insistence that the promissory note for Anglo Irish Bank and other unsecured unguaranteed bonds should be paid have led people to think that it was ECB pressure that led to the 2008 – 2010 guarantee in the first place. I have tried over the previous posts to unravel this myth and show that it was an Irish decision alone put in place for very local reasons. In fact, the ECB warned the Irish government that under Maastrict (where the cost of borrowing is dependent on maintaining a good credit rating in the financial markets) the guarantee could cause substantial funding problems for the sovereign. Other events disprove it, including the fact that an attempt by the Greek government to also bring in an unlimited guarantee immediately after the Irish made their announcement was rescinded due to pressure from EU Commission. Neelie Kroes, EU competition commissioner at the time said “A guarantee without limits is not allowed”.

Of course, the myth has its own political uses and it’s not surprising that there has been very little examination to date of the guarantee. But even any future Public Accounts Committee examination and its ‘who said what in the room on the night’ scope will not provide much clarity. Looked at from the perspective of class and power, however, examining the guarantee reveals much about how both work in Ireland. Such a focus would not fixate on the technical detail of whether dated subordinated bonds should have been included, or whether Dermot Desmond was there behind the curtain throwing his voice in to the mouth of Brian Cowen. Instead, the focus should be on the decisions made in the context of how the Irish government behaved in the past when other Irish financial institutions went into freefall. We tend to see 2008 as a rupture, but in terms of understanding why certain decisions are made it’s more useful to examine the continuities. After all, this was not the first time that Ireland provided a blank cheque for Irish banks.

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Why Ireland’s 2008 Blanket Bank Guarantee Decision Was Taken: Part 3

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This article follows on from Why Ireland’s 2008 Blanket Bank Guarantee Decision Was Taken: Part 1 & Part 2.

Hindsight provides 20-20 vision, but in light of more recent events political spin and a sense of justifiable grievance can cloud the popular understanding of what happened in the past. There is, of course, the accuracy of the historical record to correct the flawed collective memory.

One ‘flawed memory’ is that the bailout by the Troika was forced on Ireland in order to ensure that money from Irish tax revenue was used to pay back French and German banks, and that since the bailout was a consequence of the guarantee, that it too was forced on Ireland by the ECB to ensure that European banks got their money back. At the time that the bailout was announced, Brian Lenihan began the process of conflating the terms and conditions of the program with the guarantee:

“There is simply no way that this country, whose banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of the ECB. Those who think we could do so are living in fantasy land.”

But when Irish politicians provided an unlimited guarantee the credibility of the guarantee and therefore its effectiveness in upholding the banking system depended on the willingness of the ECB to prevent a country from defaulting on its sovereign debt.

This is not to say that the actions of the ECB, its rules and structures or even the way that the single currency is arranged and the orthodox thinking that underpins it in the interests of private banking is correct or just. Far from it. However, a clear order of cause and effect must be followed, and the ECB is not responsible for the far reaching consequences of providing an unlimited guarantee.

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