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Economic Sovereignty and the Blame Game

Allow me to preface this blog by saying that I am not remotely extreme to the left or to the right in terms of my political views, I have no party affiliations and, whether I like or agree with them or not, I comply with the laws of the land. Additionally I have always felt myself to be as European as I am Irish and firmly believe in the economic and social benefits of closer integration and cooperation with our neighbours. (I should also point out that this is probably the most serious matter that has ever triggered me to write anything on my personal blog!)

However, the recent pronouncements on Irish taxation regimes (in addition to those of the Netherlands and Luxembourg) and the now seemingly constant misgiving murmurings of some of our European neighbours on the choice of corporation tax rate in Ireland have gotten me to thinking, “who’s economy is it anyway?” and “if it bothers you that much what is to stop you doing the same?”

As someone in a TV ad once said, “Ireland is a small economy on the periphery of Europe”, we had decades in the last century of attempted self-sufficiency and economic protectionism….and guess what? It failed as an ideology! The result?  Economic stagnation, massive unemployment, rural depopulation, urban decay and enormous levels of emigration. In the teeth of this economic stagnation, Irish governments took hugely brave and costly moves in introducing free secondary and then free third level education creating a more educated and skilled labour force, setup government backed training schemes (the fact that some of these failed is an irrelevance with respect to the initial intent) and ultimately played a little fast and loose with the corporation and other business tax rates, taking massive gambles with regards to lowering corporation tax rates to 12.5%  for example on the premise that this would help to drive more foreign direct investment versus whatever would have to be foregone from the previous level at a higher rate.

This was further empowered by the creation of state bodies with a remit of driving FDI by roadshowing the country globally with the support of senior government ministers. Furthermore, in order to make up the short term tax shortfall the Irish public paid through the nose with exceptionally high levels of personal taxation and neglected social services in areas such as health and more recently through the governments protection of the European banking systems by making private debt in Irish banks sovereign debt in order to prevent their collapse. Additionally, Ireland has remained committed to the Euro despite its central bank governance working almost diametrically opposite the best interests of the Irish economy in terms of interest rate policy in order to maintain Eurozone membership as an attractive proposition!

In the light of the level of work and sacrifice (bearing in mind that we have just again begun to exit very straightened times) the fact that Ireland can boast of its attractiveness to global technology and pharma companies in particular and notable domestic success stories such as Ryanair (one the top Airlines in Europe by profitability and customer volume) is something that Irish citizens should continue to be exceptionally proud and protective of. The fact that the best measure of success of the irish economy is GDP as opposed the more commonly used metric of GNP is testament to the importance of FDI in Ireland.

Which brings me to the crux of my argument (rant), the results of the economic and social investment of the last number of decades should not be fair game for political point scoring from our larger international neighbours. In recent days we have heard stories of the German finance minister being unhappy with patent tax breaks that are causing certain German companies to offshore certain activities in other EU countries, President Obama come out publically against the practice of tax inversion and David Cameron complaining that Irish corporation tax rates put Northern Ireland at a competitive disadvantage when it comes to attracting FDI….and my response, which covers all these scenarios, is this; the economic conditions created in certain geographies, and Ireland in particular, were done so at a cost and a risk to those that live in and govern those economies, if others have a problem with this there is nothing stopping them from similarly rolling the dice and taking the chance to create those opportunities themselves.

In short;  if German businesses are offshoring certain business elements to capitalise on more preferential tax regimes then perhaps there is something that should be amended fiscally to retain that internally; if Mr Obama has a problem with the practice of Tax inversion perhaps he should look to create the conditions domestically so that those businesses do not have to seek this entirely legal loophole and lastly; if Mr Cameron has a problem with competitiveness in attracting FDI in Northern Ireland then he should devolve power to the local executive to set corporation tax rates and invest in the regional infrastructure that is badly needed to enable it to compete.

So why are these leaders not following making these decisions and opting for the route of attempting to coerce others around to their less successful policies? Well, it’s probably down to a number of factors but for me it is perhaps interesting to see that in all of the referenced examples there is pressure on their political powerbases, most notably in Mr Cameron’s case from the more conservative elements of his party obsessively concerned with loss of power to the nascent UK Independence Party which is euro-sceptic and primarily concerned with national identity and national sovereignty fostering an “us against everyone else” competitive stance.

But then again perhaps it’s easier to blame someone else rather than look at what is in your own control that you haven’t done….

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