Wednesday, 22 February 2017

Bill Gates Proposes a Tax on Robots

Paul Sweeney: There has been a lot of media discussion recently about the increasing possibility of robots displacing workers. 

When Bill Gates, founder of Microsoft, suggests an income tax on robots, then we know the potential disruption by robots of jobs is serious. “You ought to be willing to raise the tax level and even slow down the speed” of automation, Gates argues here.

Monday, 20 February 2017

The Rich Will Always Be With Us?

Nat O'Connor: Programmer, investor and essayist Paul Graham has written a thoughtful counter-argument about economic inequality (link). It is worth reading in full. For me, it exposes some central ideas that need to be discussed about economic inequality.

In brief, Graham makes the case that startups--and he is probably thinking of Silicon Valley tech startups--create wealth but also increase economic inequality (as measured by the Gini Coefficient or quantile ratios). Graham argues for reducing poverty and for preventing those with wealth from buying politicians. But he argues that increased economic inequality is inevitable because of the link between technological development and the possibility of an individual making a great deal of money. Hence, 'If accelerating variation in productivity is always going to produce some baseline growth in economic inequality, it would be a good idea to spend some time thinking about that future. Can you have a healthy society with great variation in wealth? What would it look like?'

Sunday, 19 February 2017

Ireland’s New Capital Investment Plan and its New Industrial Strategy

Paul Sweeney: A major speech made by the Taoiseach last Thursday 16th February on proposed changes in Irish economic policy was lost in the chatter about his departure.  

The Taoiseach set out two major economic plans: a ten year capital investment programme and the development of a new industrial strategy. 

Wednesday, 15 February 2017

The modern company: too important to be left to the shareholders alone?

James Wickham:  Is there only one way to run a company?  If any group of people get together for a common economic activity, must they organise themselves as if they were a private limited company?

TASC has started a project 'Everyone's Business: Employee voice and the modern company'  to explore these questions.

Within Ireland it is usually taken for granted that the purpose of a company is solely to create the maximum possible value for its shareholders.   Such a model assumes that employees are simply resources for the company to use or discard as it sees fit; it assumes that employees have no independent voice; it posits that other possible stakeholders (customers, suppliers, the local community…) have a purely financial and contractual relation to the company.

Dominance of  shareholder value

Yet this ‘shareholder value’ understanding of the company is relatively new and is certainly not the only possible form of economic organisation within a market economy.  Indeed, the dominance of shareholder value is often seen as contributing to the recent expansion of economic inequality and job insecurity.

The dominance of shareholder value models now goes way beyond the private sector.  First of all, state-owned companies appear to be increasingly managed as if they were privately-owned – by shareholders.  Even more bizarrely, the governance systems of charities, NGOs and even housing associations and co-operatives are increasingly copied from the private sector – and a very particular private sector at that.

Alternative traditions

Elsewhere in the European Union there is a long tradition of employee representation within companies. For example in countries such as Germany employees are directly represented on the company’s supervisory board; in many more countries employees have representation at enterprise level through various forms of works councils.  By contrast in the UK employee voice is effectively limited to employee share-holding.  Some other European countries also facilitate co-operative forms of organisation which ensure the democratic participation of all involved.

In Ireland there is a strong tradition of co-operative enterprises within the. agri-food sector.  Nonetheless Ireland has become increasingly dominated by the ‘Anglo-Saxon’ shareholder value model of the enterprise, despite some experiments with workplace ‘partnership’ in the 2000s.  There is however one exception.  The Worker Participation in State Enterprises (1977) enabled the election of worker directors to the boards of state-owned companies. 

Thinking about employee voice

In 2012 the National Worker Directors’ Group commissioned a report from TASC on the effectiveness of worker directors on state company boards1.  Our new project firstly updates that report through a study of the current experience of worker directors in Ireland; secondly it places the Irish experience in the European context of other forms of employee representation.  The project aims to facilitate public discussion of forms of economic governance that can facilitate employee voice.

TASC Discussions on Employee Voice

Central to the project is a series of TASC Discussion events:
  • Saturday 25 February 2017  ‘What would you do for work’  Public discussion of workers’ rights after screening of the film ‘7 Minutes’ as part of the Dublin International Film Festival.  Cineworld, Parnell Centre, Dublin 1, 14.00 - 16.30. 
  • 11 May 2017 ‘No one way: Forms of employee voice in Europe.’ Expert discussion, GPO O'Connell Street, Dublin 1, 18.30 - 20.00
  • September 2017 Report launch: ‘Everyone’s Business: Employee voice and the modern company’

TASC’s project is not about putting forward any one simple solution – it’s about making public the different experiences of company organisation and it’s about imagining different ways of organising firms in the  modern world.

James Wickham is Director of TASC.

Tuesday, 14 February 2017

Who’s going to take care of our carers? Precarious work in the homecare sector

Sinéad Pembroke: As anyone who has a family-member in need of homecare knows, private homecare is very expensive. But like childcare, what do we really know about the working conditions of carers in the private sector? And are the high fees going towards providing decent working conditions for our carers?

Monday, 13 February 2017

Airbnb: Sharing, Disrupting or Predator?

Paul Sweeney: Airbnb argues that “Airbnb and our community are part of the new Collaborative or Sharing Economy, a movement that enables people to access new economic opportunities, promotes entrepreneurship, strengthens communities and conserves resources.”

                                                        Go live to the map above (Live only on computer)

Sunday, 12 February 2017

Is Ireland Getting More Equal?

James Wickham:  Latest CSO figures...
On February 1st the CSO released the latest Irish results of the EU-SILC (European Union Survey on Income and Living Conditions).   It’s important to notice that these figures are for the year 2015 so they don’t necessarily describe the situation today in February 2017.  If the trends identified in these figures in 2015 have continued, the situation today should be even better.

Things are getting better?

Overall these figures show some welcome improvements: employment of course has been rising, but also for nearly everyone income has risen and for most people deprivation rates have fallen.  Crucially there has been a small but significant reduction in income inequality.

Do these results challenge the claim that inequality and deprivation continue within the recovery?  In terms of the Gini coefficient as a simple measure of inequality, certainly inequality has fallen somewhat:  in 2015 the Gini coefficient for annual equivalised income was 30.8, down from 32.0 the year before (Chart 1). 

Chart 1

But there is an enormous caveat.  These figures refer to the amount of disposable income that people have.  They say nothing about what people spend this money on.  If essential services (childcare, health, education, public transport) are effective and free, then the society will be more equal than in a society with a similar level of inequality in disposable income.  Furthermore, it may be the case that specific price increases (or increased taxes or charges) effect those on low incomes most.  In Ireland this seems to have happened with housing costs increasing – but most for those in the lower income groups. Nonetheless it is certainly possible that there has been some small reduction in income inequality. 

Measuring poverty

A crucial aspect of inequality is the extent of poverty.  This gets us closer to people’s actual experience.  The simplest measure of poverty is the so-called ‘at risk of poverty rate’, that is to say those people whose income is less than 60% of the median.  That hardly means that the poor are always with us.  It’s perfectly possible for nobody to have an income less than 60% of the median. Indeed in these terms some societies with broadly similar GDP to Ireland do better than us    – and many do worse (Chart 2).  Unsurprisingly, the at risk of poverty rate is lower in Denmark and Sweden than in Ireland.  Equally unsurprisingly, the rate is dramatically higher in Greece.  According to the latest CSO figures, the proportion of those at risk of poverty in Ireland stood at 16.9% of the population in 2015 – a non-significant fall compared to 2014.

Chart 2
Source: Eurostat [from EU-SILC]

Measures of material deprivation get us closest to the real experience of inequality.   The CSO defines the deprivation rate as the proportion of the population unable to afford two or more items from a list of eleven basic requirements (e.g. heating the house, a warm waterproof coat…).  This deprivation rate did fall from 2014 to 2015 but was then still 25.5% of the population.  The deprivation rate is significantly higher in households with children.  As Chart 2 shows, in Ireland the deprivation rate is significantly higher than in Scandinavia and indeed marginally higher even than Greece.  However, if we focus on extreme deprivation, the lack of four or more items, then Ireland appears more like a normal European country and now very different to Greece (and indeed most of the New Member States).    

A final statistical measure is that of ‘consistent poverty’, that is to say, the proportion of the population who both have an income below 60% of the median and live in a household without two or more of the list of basic necessities.  The new data shows the rate of consistent poverty staying essentially unchanged between 2014 and 2015 (it fell from 8.8% to 8.7% but this is not statistically significant).  As we have seen, overall deprivation rates have fallen, but worryingly for those in consistent poverty they have hardly changed at all.  In many ways therefore, those most at risk of poverty have actually been falling behind.

Comparing what matters

All of this depends on looking at net income – income after tax and social benefits. Every now and then you will hear people claiming that Ireland is the ‘most unequal society in Europe’ because of the inequality of gross incomes (i.e. before tax and transfers). Yet what matters for people’s living standards is not their gross pay, but how much money they actually have to spend – after tax and after any benefits.  To focus on gross income inequality while ignoring tax and benefits is like saying that Ireland’s summer is sunnier than Spain’s. Well, if you just count the hours of daylight that’s true, but there is the little matter of clouds and rain…

Chart 3
Source: Eurostat

In these terms the problem in Ireland is not that compared to other European countries we are uniquely unequal.  Chart 3 shows the Gini coefficients for all EU28 member states and ranks them from left to right in terms of inequality of disposable income:  states range from Slovakia, in these terms the most equal, to Lithuania, the most unequal.  Ireland is roughly in the middle.  Just a normal European country you might say.  However the right hand column shows the inequality of gross income, excluding transfers, and here Ireland is clearly the most unequal.  Furthermore, we have the largest gap between gross income and disposable income.

In Ireland the state has to work extraordinarily hard even to ensure our ‘normal’ level of inequality.  So much state expenditure has to go on income support that there is little left over for services and capital investment.  And in turn, the resulting deficiencies in education, childcare and health mean that as soon as they can afford it (and even if they can’t), people opt for private provision.  Rather less obviously, there is the question of state competence.  In some areas the Irish state is efficient and effective, but it clearly lacks the competences skills and institutional knowledge to organise effective healthcare and social services and is notoriously incompetent in physical planning and infrastructure.

Wednesday, 8 February 2017

Researching Ireland and the MNEs

David Jacobson:  The recent announcement that HP Inc is to shed almost 500 jobs as it closes its global print business in Kildare is a stark reminder of the role that Foreign Direct Investment (FDI) plays in Ireland.

Saturday, 4 February 2017

If Apple won’t pay tax what hope is there for civilisation?

Paul Sweeney:  Multinationals owe responsibility to a wider group than their shareholders. 
As the Apple tax case moves towards the European Union courts, €13 billion has been transferred to Ireland. The implications of the case will effect how multi-national companies implement taxes across Europe.
Brussels has been accused of “bending the rules” in its pursuit of Apple for €13 billion in taxes it says should have been paid in Ireland. But in truth it is the multinationals and their corporate lawyers and accountants who have twisted the rules on taxation almost out of existence.
The tax system had been “captured” by the tax avoidance industry. Multinationals were paying less and less tax and states were reduced to tax wars against each other in failing efforts to attract them.
The public needed a champion to restore some order on the chaos and it got it in Margrethe Vestager, the European commissioner for competition. Under her the directorate general for competition did what the directorate general for taxation and directorate general for economic and financial affairs were unwilling or unable to do.
I was a dissenting member of the government advisory group that recommended the low 12.5 per cent rate of corporation tax in the early 1990s. I dissented because I believed that the rate should only be reduced to 20 per cent from the 35 per cent nominal rate then prevailing. I believed if it was only 12.5 per cent after legitimate deductions, companies might only pay an effective rate of 6 or 7 per cent.
I was so naive. Today some companies pay nothing and too many pay very little. Apple paid a mere 0.005per cent on its European profits in 2014.
It is too easy for multinationals to pay what they like in taxes, aided by globalisation, technology, multitudes of subsidiary companies in different jurisdictions and none, armies of tax-avoiding lawyers and accountants and by regulatory capture,
In a recent article on Apple’s dispute with the European Commission, Liza Lovdhal-Gormsen (the director of the Competition Law Forum) draws on the quote by Judge Wendle Holmes: “I like to pay taxes. With them, I buy civilisation.”
Lovdhal-Gormsen argues that certainty of law is central to this contract, but if the world’s biggest and most profitable company is reluctant to pay taxes and aggressively uses an array of subsidiaries to avoid tax, what hope is there for civilisation?
Lovdhal-Gormsen is correct to say that people are losing faith in EU institutions, but we are also angry when profits are untaxed and when public services are failing. Indeed Vestager has restored some faith in the EU with her ruling regarding Apple.

Bending the rules

The EU is accused of the “aggressive use of state aid rules to pursue its corporation tax agenda”. But it is the multinationals who are bending the rules, because they can, in the globalised world. For them corporate social responsibility means their fiduciary duty is only to their shareholders and it excludes all others.
The commission did not apply these state aid rules to tax subsidies for many years. If it had, it may have lessened Ireland’s collapse because it might have stopped the many tax subsidies thrown at property investors by governments from the mid-1990s. Tax “incentives” are subsidies and are at last included in the determination of state aid.
The Apple tax case is not undermining the OECD efforts to bring order to the international tax system, but is complementing it. Lovdhal-Gormsen correctly says the corporate tax system needs reform. But she claims that state aid enforcement is not the appropriate tool. On the contrary, it has to be an integral part of the system. For example, suddenly giving a 100 per cent write-off in year one to a new hotel can wipe out existing hoteliers who did not have such a subsidy.
Tax competition or tax wars between countries is promoted as “good” by the tax industry and our Government. However, tax wars are won by tax-avoiding multinational corporations (MNCs) but are ultimately lost by sovereign states.

Indigenous industry

We do not know the truth of her prediction that “this ruling will make companies more wary of investing in Europe”, but is abundantly clear that Ireland also needs to seriously address indigenous industry.
In recent years, the proportion of sales MNCs make outside their home states is falling, as are their profits, and the flow of new multinational investment has been declining relative to GDP, according to the Economist (January 28th).
The issue is much bigger than the €13 billion tax to be paid by Apple under this ruling. Ireland has been one of the greatest beneficiaries of globalisation. MNCs have contributed much, but globalisation is under threat. One reason is that the little people are angry that big companies are not paying their fair share of tax. What is “fair” is debatable, but paying virtually zero on big profits is not fair.
Apple makes wonderful products, employs many in Ireland (unlike some big tax avoiders). However, its bosses see tax minimisation, which is easy in today’s world, as a core objective. They need to move back to the stakeholder model of corporate governance where companies owe responsibility to a wider group than its shareholders. Then civilisation will survive.

Paul Sweeney is Chair of TASC's Economists' Network.
This article was first published in the Irish Times  2 February 2017

Wednesday, 1 February 2017

How dependent is Ireland on trade with the UK?

Proinnsias Breathnach:  On Thursday last, Professor Ted Malloch, adviser to Donald Trump’s election campaign and would-be US ambassador to the EU, was interviewed by Seán O’Rourke on the latter’s RTE Radio morning programme.  During the course of the interview, Malloch – predictably an ardent Brexit fan – stated that 45% of Ireland’s exports go to the UK and used this alleged level of dependence on the UK to argue that it would be in Ireland’s interest to also leave the EU.  By remaining in the EU, Ireland, he said would be “an island in the middle of the Atlantic unconnected to the larger global economy”.
This was a rather strange depiction of a country which has been identified in various surveys in recent years as one of the most globalised countries in the world. Yet Seán O’Rourke allowed this arrant nonsense to pass without challenging it.
Despite all the debate about the impact of Brexit on the Irish economy, ignorance of the actual level of connectivity between the Irish and British economies remains widespread, including, ominously, among policy makers and supposedly authoritative commentators.  Thus, for example, Noel Whelan wrote the following in his regular Irish Times column in January 2016: “The Irish economy is unique in that it’s part of the euro zone but earns most of its living from the sterling zone and the dollar zone”.
It doesn’t help that the Central Statistics Office (CSO) does not provide definitive data on Ireland’s foreign trade – an extraordinary state of affairs in a country which is so dependent on such trade.  The CSO has a section (called, misleadingly “External Trade”) which gathers very detailed data on merchandise trade but none at all on trade in services which makes up about one half of Ireland’s total exports.  Instead, data on services trade is acquired as a by-product of the compilation of Balance of Payments data from a separate CSO section.
It might seem straightforward to simply add together the merchandise and services trade data produced by these two separate CSO sections to arrive at a figure for aggregate foreign trade.  However, the two sets of data are derived by very different methodologies and are not directly comparable.
This is indicated by the fact that the Balance of Payments section also produces data on merchandise trade which vary very significantly from those provided by the External Trade (i.e. merchandise trade) section.  This is illustrated by the following table:

Thus, the merchandise exports total under Balance of Payments is 22 per cent higher than under External Trade while the imports total is 14 per cent higher.  The net effect is that the trade balance under Balance of Payments is 39 per cent higher than under External Trade.  It seems likely that if the CSO External Trade section used a similar methodology for collecting services trade data as it uses for merchandise trade, the resulting totals would be similarly lower than those emanating from the Balance of Payments section.  However, there is no way of knowing that this is definitely the case and, if it is, what the level of difference might be.
When it comes to breaking down the aggregate level of foreign trade by destination countries (for exports) and origin countries (for imports), there is no alternative to using the merchandise trade data compiled by the CSO External Trade section, as the Balance of Payments data do not provide any geographical breakdown for merchandise trade.  However, they do provide a geographical breakdown of services trade, and, bearing in mind the methodological caveats involved, this is used in conjunction with the External Trade merchandise data to calculate the total trade figures in the tables below.
Table 2 shows the shares of Irish exports which went to the UK, the Rest of the EU, and the USA in 2015.  In that year, just 16.8% of Irish exports went to the UK, a far cry from the 45% share claimed by Ted Malloch.  The share of the rest of the EU was over twice that of the UK.  This shows clearly how important it is for Ireland to remain part of the EU after Brexit.  Ireland is as much dependent on the USA as an export market as it is on the UK.
Table 2 also disproves Noel Whelan’s assertion that Ireland earns “most of its living from the sterling zone and the dollar zone”.  Assuming that these zones refer to the UK and USA, between them they only account for one third of Irish exports and less than the share taken by the Rest of the EU (most of which goes to the Eurozone).
The share of Ireland’s imports sourced in the UK (13.7%) is even less than the share of Irish exports going to that country (Table 3).  While the same applies to the Rest of EU, the latter is still more than twice as important as the UK as an source of imports to this country.  The USA is a substantially more important import source than the UK, reflecting the high level of penetration of the Irish economy by American transnational firms.

Brexit will inevitably have a negative impact on the Irish economy, although there are growing indications that this could be at least counterbalanced by post-Brexit relocation of British-based activities to Ireland especially if, as seems likely, there will be a “hard” Brexit.  Clearly an Irish withdrawal from the EU would be much more harmful, given our much higher level of integration with our continental neighbours.
Ted Malloch’s gross exaggeration of Ireland’s dependence on the UK is typical of the torrent of “alternative facts” emanating from the Trump camp.  Malloch himself is no ignorant simpleton from the American outback.  A highly-qualified academic, he has held positions in a number of universities (including Oxford and Yale) and has served on a range of prestigious institutions.  Most tellingly, he is a current member of the academic advisory council of the ultra-rightwing think tank, the London-based Institute of Economic Affairs.  The presence of such influential, clever and capable alt-right ideologues in the Trump administration is seriously disturbing.

Proinnsias Breathnach is Senior Lecturer Emeritus in Geography at Maynooth University