Political Economy

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Paper Tigers and Real Ones

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This is a guest post by Michael Burke.  Michael works as an economic consultant. He was previously senior international economist with Citibank in London. He blogs regularly at Socialist Economic Bulletin.  You can follow Michael at @menburke . It was originally posted on Notes on the Front.

Most people don’t care much about GDP (Gross Domestic Product) or most other acronyms that get bandied about on the economy. For good reason.

The purpose of economic policy is, or ought to be, about achieving the optimal sustainable improvement in living standards for the population. If businesses produce goods that no-one buys and they accumulate as unsold inventories, or if the buying power of businesses or households declines so that imports fall, both of these count as increases in GDP.

What really matters is if the economy and society as a whole is moving forwards, if people see an increase in their living standards and reasonably expect that the next generation or two will see the same.

In that light, the latest forecasts from the Central Bank of Ireland are not very encouraging. Sure, there is a forecast of 2.1% real GDP growth for the economy in 2014. But in terms of real wages, on average they will be zero as a projected 0.5% increase in wages is effectively wiped out by the anticipated level of inflation. Government current spending is also expected to fall in 2014 more than it did in 2013, so living standards for most people will actually decline again.

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A Dialogue on Democracy and the Republic, Part 2

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Here is the second part of a dialogue with philosopher Juan Domingo Sánchez Estop on the idea of the republic. This is a continuation of the discussion started here on the 29th of October last.

Juan Domingo Sánchez Estop taught modern philosophy in the Universidad Complutense de Madrid from 1981 to 1986. He translated Spinoza’s correspondence into Spanish and, as a member of the Association des Amis de Spinoza, has taken part in seminars and congresses in France and Italy. He is currently working as a senior translator in the Council of the European Union and is specialized in foreign policy matters. He is an advisory editor of the review Décalages (on Althusserian studies). He writes in European and Latin-American publications on Spinoza, Althusser, modern philosophy and political philosophy. His latest book is La dominación liberal (Liberal Domination. Essay on liberalism as a power apparatus) (Tierra de Nadie, Madrid, 2010). He is currently linked to the Philosophy Center of the Université libre de Bruxelles, where he is preparing a PhD on Spinoza in Althusser. His blog, in Spanish, is Iohannes Maurus.

RMcA: I’d like to relate what you’ve been saying here to the present situation in Europe. Before I do, a couple of comments. I think you -and the rest of the line of the damned!- are right about the common-wealth as an originary reality underlying capitalism itself. Indeed, the legal architecture of a capitalist State rests, at a very basic level, upon a conception of something that is common to all. And it’s also true about the way neoliberalism puts knowledge of this originary reality to its own ends.

 

JDSE: There is much to say on common-wealth or even on communism as the very fabric of any society, even of the one which most utterly denies it, capitalism. What we, on the “line of the damned” construe as the commons, has in bourgeois legal terms, an equivalent: the “public” as synonymous with State-owned and/or -managed. This is, of course, a mystification of the common ground of society, placed as a transcendent One above the multitude. This is exactly the way Hobbes thinks of the union of a Commonwealth in his political works. Against this we consider the multitude as rooted in the common, as an ever open set of incomplete singular individualizations as the French philosopher Simondon put it, in a very Spinozist way (even if he never was aware of this connection). From this point of view, the common is always-already political, and the relevant question is not the one about the origin of the political or the common, but the one about individualization and its modes.

Neoliberalism is an effort -possibly the last effort- by capitalism to get asymptotically as close as possible to the communist fabric of society, and even of the human species, in order to exploit it. That’s why it has been identified by Michel Foucault as “biopolitics”. Life and the reproduction of capital are getting ever closer to each other. The very span of labour time or space is nowadays indefinite and becomes identical to human individual and social life. There is no longer a closed space and a definite time for labour, as was the case in the classical Fordist or even pre-Fordist (Dickensian) factory. Today, life reproduction and labour are the same: Marx would say that we have entirely completed the “real subsumption” of labour under capital.

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Tales of Ireland the Tax Haven: To Hell or to Arthur Cox

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Joanne Richardson is stepping down as head of the American Chamber of Commerce Ireland. To mark the occasion the Irish Independent are providing the usual frothy interview. First all, she says that the level of US investment here is all about the tax regime:

“…but it’s no secret that the favourable tax regime makes it particularly appealing.”

The recent controversies, US Senate Subcommittees and international debates on Ireland as a tax haven are mentioned but brushed aside. Their impact is apparent, however, in the reference to ‘regime’ rather than the 12.5% ‘rate’.

No one believes that one any more. A well-publicised report, published on the 25th of November 2013 by the World Bank and the large accountancy firm PricewaterhouseCoopers, claims Ireland has an effective corporate tax rate very close to the official rate of 12.5%. From the headline of the press release:

“Ireland has an effective corporate tax rate of 12.3% compared to an EU average of 12.9% and 16.1% globally.”

Feargal O’Rourke, Head of Tax, PwC Ireland said:

“The survey further demonstrates that Ireland’s statutory headline rate on profits is broadly similar to the effective rate. For many EU countries, the statutory headline rate is significantly higher than the effective rate.”

Feargal was described by Jesse Drucker in a recent Bloomberg profile erroneously as a ‘local hero’ who made Ireland a ‘tax avoidance hub’, but people might recognise him as the son of Fianna Fail politician Mary O’Rourke and nephew of the late former Minister for Finance, Brian Lenihan.

But, PwC, as a leading accountancy firm in making this claim is running at odds with the advertising made available on the websites of the Irish offices of other prominent accountancy firms.

The most well known in an Irish context is Arthur Cox, who the Irish Independent suggested were the legal brains behind the 2008 Irish bank guarantee. They have been saying that Ireland has a 2.5% effective corporate tax rate in their advertising since at least 2011:

“Intellectual Property: There are numerous advantages for multi-national companies with large Intellectual Property (“IP”) portfolios who locate and manage these portfolios in Ireland. The effective corporation tax rate can be reduced to as low as 2.5% for Irish companies whose trade involves the exploitation of intellectual property. The Irish IP regime is broad and applies to all types of IP. A generous scheme of capital allowances as well as a tax credit for money invested in research and development in Ireland offer significant incentives to companies who locate their activities in Ireland.

A well-known global company recently moved the ownership and exploitation of an IP portfolio worth approximately $7 billion to Ireland.”

(Michael Hennigan suggests that the company in question is Accenture.)

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On the Irish government’s “precautionary credit line” and “exiting the bailout” – The Emperor has no clothes

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Statement from the Communist Party of Ireland

The Communist Party of Ireland today warned Irish workers not to fall for the latest ruse by the bankrupt political establishment with its announcement that this failed state will leave the “bail-out programme” — which is in fact a restructuring programme — by 15 December with or without a “precautionary credit line.”

This will not mean an end to any of the current or planned cuts in health, education, or social welfare, nor end the drive for privatisation. Nor will it prevent the need for continuous cuts in the future. The servicing of the debt is costing the Irish people nearly €9 billion per year — similar to the annual education budget. Austerity will be a permanent feature of the lives of working families far into the future.

Debt has become the principal political means for strengthening external mechanisms of control by the EU Commission – dominated by Germany – not just of this state but all member states and in particular over the other heavily indebted peripheral states. The capacity of the peoples across the European Union to democratically affect political and economic changes is being rapidly diminished. Democracy is being hollowed out.

It is simply not in the interests of the Irish political and economic establishment to assert independent actions, their interest lies in ensuring that the current process continues and deepens.

Ireland continues to be at the mercy of “the markets” – those who control the markets are those who control the troika.

Debt is also being used to push through the long-term strategic imperative of economic restructuring that is intended to restore lost inequalities and to impose new ones, not only in Ireland.

The announcement today has more to do with appearances than with reality. Just as we were the poster boy for economic development during the “Celtic Tiger” period, we are now being touted as the poster boy of good behaviour for accepting austerity without a whimper.

The European Union has to show to the people of Greece, Spain, Portugal and other EU member-states that if they take the austerity medicine without resistance, it works.

The system itself is in a deep and deepening structural crisis with debt and stagnation just the latest manifestations.

The emperor has no clothes.

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The November Issue of Socialist Voice is Out Now

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The November issue of Socialist Voice is out now. Download it here, or view it online. Also available to read below.

  • Will we or won’t we? [EMC]
  • Departments I, II and III and economic crisis [NL]
  • Pension benefits wiped (part 2) [Brendan Ogle]
  • Printing money to support the debt bubble [NL]
  • James Connolly and 1916 [NOM]
  • There is an alternative (part 2) [EON]
  • Time for more independent leadership [NOM]
  • Rail and bus transport: Why nationalisation was the obvious answer [RNC]
  • Political statement
  • International Meeting of Communist and Workers’ Parties, Lisbon: Speech by Eugene McCartan, general secretary, CPI
  • The unseemly rise of Qatar [BG]
  • A serious defeat for workers and their union [TMK]
  • Willie Walsh floats again [MA]
  • Letter: Ionad Buail Isteach

Will we or won’t we?

It is now clear that the Irish state will leave the “bail-out” or restructuring programme some time in December. The Government is spinning the argument that when we eventually get the EU-ECB-IMF supervision off our backs we will “regain our sovereignty” and independent action.

The question has to be asked, When have we ever had full sovereignty and independence?

They are claiming that Government policies have worked to such a degree that they may not need any “precautionary credit line” from the European Stability Mechanism, the euro-zone rescue fund. For this state to get access to such funds would require parliamentary approval from a number of countries, including Germany.

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From The Republic of Confiscation

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After Seamus Heaney’s death, the Irish Times sought contributions from its online readers about what Heaney meant to them. One reader recounted meeting him at a reading at Harvard:

After the reading, I joined the throng that inched its way toward him bearing my copy of Opened Ground. When I finally reached him, to my surprise he looked me over and asked, “Ah, now. what do you do.” Flabbergasted, I told him I was a Boston Public School teacher. His response: “Ah, now, that’s a real job.” He scrawled the words, “Keep going” in my book.

Heaney himself, of course, was a teacher. He trained as a teacher at St Joseph’s Teacher Training College in Belfast, and taught at a secondary intermediate, St Thomas’s, in Ballymurphy, West Belfast. He then trained other teachers at St Joseph’s, and when he moved south, got a job teaching trainees at Carysfort College. His wife was a teacher too, as were his sister and brother.

By becoming a teacher, Heaney was taking advantage of possibilities created by the 1947 Education Act in Northern Ireland. In his superb book of interviews,Stepping Stones, Heaney recognised that neither he nor his brothers and sisters would have gone to university were it not “thanks to the system put in place by that Labour government in Britain.”

This isn’t strictly true: the 1947 Education Act, though introduced in Northern Ireland under a Labour government in Britain, was modelled on the 1944 Education Act in England, brought in by R. A. Butler under a Conservative government. However, it’s certainly true that prospects for disadvantaged young people in Northern Ireland in the 1950s were shaped for the better by the building of the Welfare State that occurred under the Attlee government elected by landslide in 1945, so the gratitude isn’t misplaced.

Nonetheless, Stepping Stones reveals Heaney’s unease at the inequalities that the new system imposed: between those who went on to a grammar school education and those who didn’t. In recalling his time spent teaching at St Thomas’s, a school for the supposedly “non-academic”, he saw how “instead of a school where equal attention was paid to all abilities, there was this favoured upper stream and then the great non-academic flow-through. My job, for the year I was in the school, was to teach English at first-year and fourth-year levels, to two of the exam-oriented classes. And I had a PE class with a group of really low-ability first years, 1G, for God’s sake, in a ranking that began with 1A.”

He said the “school was attempting to inculcate a regime of respectability and conformity, a kind of middle-class boarding-school style, but the home culture and the street culture of working-class Belfast was very different”, and recognised “disadvantaged homes and impoverished conditions generally as a barrier to growth and self-realization”.

For all its drawbacks and inequalities, the education system in the North of Ireland for working class children, sustained by gains won by the labour movement in Britain, compared favourably to what was available south of the border.

It wasn’t until 1966, the fiftieth anniversary of the Easter Rising, that free secondary education was formally introduced in the Republic. But despite its constitutional claim to be a democratic state, the Irish State continues to fund teaching at exclusive private schools. In Enough is Enough, Fintan O’Toole highlights the fact that a fifth of all university students had paid fees at second level in 2008, and that 43% of students at UCD came from either fee-paying or grind schools. The attitude of the current government to education in line with democratic principles can be glimpsed in the fact that the 2012 Finance Bill allowed high earners to write off private school fees of up to €5,000.

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Bloody Disaster

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A good friend of mine took one look at the CSO’s National Quarterly Accounts released today and described it in two words:  ‘f****** awful’.  As this is a family-friendly blog I’ll just content myself with ‘bloody disaster’.

Ireland’s recession is continuing and even accelerating.  GDP has fallen for three quarters – with the first quarter of this year registering a fall of 0.6 percent.  Since the summer of last year the economy has fallen by 1.8 percent.  Let’s put that in perspective.  This is the biggest fall over three quarters since 2009 when the economy went ballistic.

Let’s survey the main points:

  • Consumer spending has fallen through the floor – falling 3 percent in one quarter.  This is the biggest quarterly fall in the recession.
  • Investment is continuing to fall – over 7 percent.
  • Exports fell by over 3 percent.  They have fallen in three out of the last four quarters.  So much for the export-led recovery.

We are in now in the middle of a perfect storm – falling exports (due to irrational austerity being pursued at EU level) and fall domestic demand – due to our home-grown irrationality.

Let’s knock this GNP-thingy on the head.  No doubt, supporters of austerity and government policy will try to claim that the 2.9 percent increase as somehow ‘more reflective of the domestic economy.’  This is not true.

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You Don’t Earn Much Money – Get Used to It

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It is reported that the Minister Richard Bruton will propose that tax cuts are needed to keep the economy on course. Well, at least this has the virtue of consistency since this is the same Minister who proposed that high-paid company executives should pay hardly any taxes at all. Over the next few months we will get a Goldilocks debate over taxation – is it too hot, is it too cold, is it just right. But there’s an elephant in the room ready to stomp on the poor girl – and this will hardly get a mention.

For we are a low-waged, low-earning economy – and it is getting worse.

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According to Eurostat Irish earnings have always been below EU averages. Even in 2008, when Irish earnings peaked, we were still well below average. Today, after four years of wage stagnation, we are falling further behind.

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Childcare: On the Verge of Losing Another Social and Economic Opportunity (Again)

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We are on the verge of avoiding the fundamental issue regarding the childcare crisis; namely, that a private sector model of delivering childcare will keep the service beyond the reach of most parents (except at an exceptionally high cost) and will undermine the quality of care for children. Fintan O’Toole gets it:

‘Preschool education is a vital public good. There is an overwhelming public interest in the provision of high quality early education to all children, regardless of their family circumstances. . . Childcare is a public project, an expression of a shared social commitment to common values. . . .This was recognised in the commitment of public resources to the provision of one year of free preschool education. But that commitment is trumped by a very different imperative – the logic of profit. Instead of childcare being a collective public project, it has been turned into just another business. . . The outrageous practices of some of the biggest commercial childcare providers are not throwbacks to the past. They are harbingers of the future.’

In the weekend media there was a fight back against any idea that childcare should be a public affordable service accessible to all parents regardless of means. We had Brendan O’Connor with these bon mots:

‘What was most evident from last week’s discussions is that the State is not even able to get it together to properly inspect crèches. How this proves it should be running them instead is beyond me.’

Ooookkkkaaaayyyy – let’s see if I get the logic of this. Public sector inspections cannot keep up with the negligence of certain commercial childcare providers. This is proof that we must continue to rely on . . . those same commercial childcare providers. Geez, it must be great to write for the Sunday Independent.

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Provisional University: Talk by Peter Linebaugh plus contributions from research collectives based in Spain, Ireland, USA and the U.K.

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The Provisional University Presents…

A day of talks and discussions with acclaimed historian Peter Linebaugh, author of The Magna Carta Manifesto

plus research collectives based in Spain, Ireland, USA and the U.K.

Time: Saturday, May 18, 2013 11:00am until 5:00pm

Location: O’Connell House, 58 Merrion Square, Dublin 2

This event is open to the public and admission is free but booking is advised.

RSVP: commonsevent@gmail.com

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China is winning the new global industrial contest

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The international financial crisis brought about a radical change in the structure of international industrial competition, and China is winning this new contest. That is the only conclusion that can be drawn from the pattern of industrial expansion and contraction in the major industrial centres in the five years since the beginning of the international financial crisis in 2008.

As taking comparisons only for single years can obscure this fundamental trend, Figure 1 shows the changes in industrial output during the entire last five year period in the world’s four major industrial centres – China, the U.S., the European Union (EU) and Japan. The pattern is clear and striking.

  • U.S. industrial production on the latest data, for February 2013, remained 1.3% below its level five years previously – essentially stagnating over the five year period taken as a whole.
  • Industrial output in the EU remains at 12.2%, i.e., significantly below its level five years ago. EU industrial production has fallen since February 2011.
  • Japan’s industrial production remains at 19.2%, i.e., substantially below its levelof five years ago and has also fallen since February 2011.
  • China’s industrial output is 76.1% above the level five years previously.

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Ireland is Hardwired into the Tax Evasion Network

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As reported today, “[Eamon Gilmore] did not believe that multinationals having headquarter operations in Ireland that used offshore locations as part of their tax avoidance strategies, put the country in a difficult position when it came to the subject of tax havens”.

The Tax Justice Network has made a point in recent years of replacing the term ‘offshore’ and tax haven with ‘secrecy jurisdictions’. This is their reason for creating the Financial Secrecy Index which lists Ireland at 31.

“The Tax Justice Network has estimated, conservatively, that about $250 billion is lost in taxes each year by governments worldwide, solely as a result of wealthy individuals holding their assets offshore. The revenue losses from corporate tax avoidance are greater. It’s not just developing countries that suffer: European countries like Greece, Italy and Portugal have been brought to their knees by decades of secrecy and tax evasion.

These staggering sums are encouraged and enabled by a common element: secrecy. Secrecy jurisdictions, a term we often prefer instead of the more widely used term tax havens, compete to attract illicit financial flows of all kinds, with secrecy as one of the most important lures. A global industry has developed where banks, law practices and accounting firms provide secretive offshore structures to their tax dodging clients. Secrecy is a central feature of global financial markets – but international financial institutions, economists and many others don’t confront it seriously”.

Irish politicians don’t take it seriously either, for the obvious reason that it remains good business for the Irish executives who operate the subsidiaries of foreign banks here, and who work in the law practices and accounting firms that advise large multinational firms on the international tax strategy. For a relatively small economy Ireland has a disproportionately large number of experts on international taxation.

So it’s unlikely, when talking about the need to attract foreign direct investment, or saying that that the Irish economy has to become more competitive to boost the export sector as a means of reducing the deficit that Eamon Gilmore or Enda Kenny would say that as a means of doing that we have to build on our excellent relationship with our largest trading partner: Bermuda, the off-shore the tax haven.

Taken from Mary Everett, The statistical implications of multinational companies’ Corporate Structures, Quarterly Bulletin, Central Bank of Ireland, April 2012

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