Notes On The Front

Stimulus, Deadweight, and Reheats

Any critique of the Government’s July Stimulus should acknowledge that they had to plan it in a metaphorical fog – not knowing the duration of the public health crisis, the extent of long-term economic damage, or the most efficient measures to employ in this unprecedented situation. 

Nonetheless, there are certain benchmarks we can use to assess the stimulus plan.  How much of the plan is actual additional spending (above what would have happened anyway)?  How much is just re-announcing previously announced measures?  How much is deadweight (that is, subsidising activity that would have happened anyway)? How much is targeted, going to the sectors most in need? 

None of these questions have black-and-white answers.  For instance, measure A may be more efficient than measure B, but the latter can be done almost immediately – urgency sometimes being the enemy of efficiency.  And, yes, this scheme may have deadweight, but do the benefits still outweigh the costs?  Fiscal policy, especially in a crisis, is not a slide-rule.

Given these caveats and the flying-in-the-fog acknowledgement, let’s see how some of the measures stack up.

Additionality and the Pandemic Unemployment Payment (PUP)

The PUP will be extended to April.  However, it will be closed to new entrants in mid-September.  There is no doubt this payment provided a life-line to many households.  The number of recipients reached nearly 600,000, but with businesses re-opening the numbers have fallen by half.  In announcing the extension of PUP to April, Minister Heather Humphreys stated:

‘The total cost of the payment, if modified as proposed, between now and April 2021 is estimated at about €2.24 billion. This is about €380 million more than would be paid out at standard jobseeker rates (that is, if the scheme was closed as planned in August).’

I’m assuming this refers to the overall cost since the PUP was introduced (though, in truth, it’s hard to say).  It suggests that while PUP has put €2.2 billion into households and the economy, ordinary social protection payments would have put in €1.9 billion.  The additionality of PUP was only €380 million, which while desirable from the household’s perspective is far less than the headline number and, so, far less stimulating.

Cut in Headline VAT Rate and Commercial Rate Waiver

The Government took everyone by surprise by cutting the standard VAT rate from 23 percent to 21 percent.  This will have almost no impact on prices but will assist business cash-flow.   A VAT cut is administratively simple compared to an expenditure-based subsidy with qualifying conditions.  Similarly with the commercial waiver.  But since they are across the board they are not very well targeted.  Many businesses that don’t need help will still benefit.

The CSO reports that 10.2 percent of enterprises had higher than normal turnover in June/July, while another 28.2 percent had ‘turnover at or close to normal expectations’.  Nearly 40 percent are not in urgent need of relief, yet they will benefit from these two measures.  However, businesses that have yet to open or have substantially reduced turnover (10 percent report turnover decline of 75 to 100 percent) may get limited benefits – especially in the hospitality sector.

The VAT cut and rates waiver, at a cost of €440 and €600 million respectively, could be highly inefficient at targeting relief at enterprises which need it most, though they are relatively quick to implement.  

Help-to-Buy, Staycation and Deadweight

The Help-to-Buy scheme will be enhanced.  The level of support available to first-time buyers will be increased to €30,000, up from €20,000, or 10 per cent of the purchase price of the new home/self-build property.  This will run to the end of the year.

The Parliamentary Budget Office found the scheme was fraught with deadweight:

‘41% [of recipients) had a loan to value ratio of less than 85%, which means that they already had the 10% deposit requirement and didn’t need the scheme to meet the macro-prudential rules. This could be seen as a deadweight loss.’

Dominic Coyle makes this excellent point:

‘What housing needs is more supply, especially of affordable homes, not further tinkering to sustain prices that are already beyond the reach of so many aspiring homeowners.’

The only good thing about this measure is that it will only cost €18 million.  Hopefully, it won’t be continued. 

And what about the Stay and Spend Incentive?   Taxpayers spending over €625 on accommodation, food and non-alcoholic drinks between October and April can get up to €125 back through a tax credit.  How much of this money would have been spent anyway?  How much new spending will it induce (especially since people won’t get the credit until 2022)?  How much of this will actually stimulate anything?

Public Investment

The stimulus plan envisages €500 million in accelerated capital projects covering schools, public transport, heritage and tourism, fishery and on-farm renewable energy investments, peatlands rehabilitation, local authority housing, and town and village renewal. 

The July plan goes further:

‘The Government is also committing to increasing capital expenditure in 2021 to €9.1 billion.  This level of capital expenditure represents an increase of almost €1 billion or 12 percent on 2020 levels.’

This sounds impressive – an additional €1 billion for capital spending.  But is it additional?

While we don’t have the numbers, capital spending would have slowed in 2020 due to the pandemic crisis.  So the Government is correct in saying that their projection represents an increase over this year.  However, it doesn’t represent an increase over what was already projected – in last year’s budget and this year’s Stability Programme Update.

A smaller example of this is the provision of €15 million for peatlands rehabilitation, an important element of the overall Just Transition strategy.  However, in Budget 2020 reference was made to €5 million to be spent from carbon tax revenues and a reference to €7 million under the Culture, Heritage and the Gaeltacht portfolio.  Does the €15 million announced include these already committed allocations or are they additional to them?  

[Note: some enterprising TD or political party might consider exploring this whole area of additionality and re-announcing previously announced measures through Parliamentary Questions and research].

The Road Not Taken

TASC’s Shana Cohen noted:

‘This first economic litmus test for this new Government fails to impress because it does not give the sense that the new FF-FG-Green alliance is prepared to think big enough to move beyond Covid-19 to a new normal that is predicated on equality, and – more profoundly – hope for the future.  Instead of generating jobs for the sake of employment numbers, the stimulus package could have hinged on linking job creation to wellbeing, climate change and economic democracy.’

One could reasonably argue that the urgency of the situation required immediate action without the luxury of longer-term thinking.  Conditionalities can take time to devise and implement.  Nonetheless, while a government in the middle of crisis might not be able to work out the vision thing in the short term, it could give some signals as to where it might be heading. 

Take for instance the biggest subsidy – the Employment Wage Support Scheme (which replaces the Temporary Wage Subsidy Scheme).  This will cost €1.9 billion, or over a third of the entire stimulus package.  Under this scheme firms which have suffered a 30 percent decline in turnover will receive a flat-rate subsidy of up to €203 or €151 per employee, per week, depending on the employee’s gross weekly pay.  This is a significant, well-targeted subsidy.

The government could have established sectoral oversight committees comprising the relevant stakeholders in the sector:  employees, employers and civil society organisations.  This was proposed by the SIPTU trade union. These committees could have monitored the roll-out and implementation of the scheme, reported back on any sharp practices, and put forward policies to improve administration of the scheme.  This would have signalled that the government was moving towards a stakeholder model which could eventually develop the type of conditionalities that Shana Cohen referred to above.

Alas, there was no proposal, mention, or even hint that the Government was looking down this road.

* * *

We have programmes which are not delivering the headline amount of stimulus as is claimed (PUP), are administratively simple to introduce speedily but not very well targeted (VAT cut and rates waiver), spending targets which are just old targets (public investment), and are full of deadweight (help-to-buy, staycation incentive).  All told, these schemes make up the vast majority of the stimulus spending.

Given this, will it be enough or will we have to return to the stimulus table?  One good thing: the Government can revisit these and other missed opportunities in the roll-out of the National Economic Plan and associated sectoral initiatives in Budget 2021.

The jury is still out.

Let Mayo Decide

With Dara Calleary replacing Barry Cowen, Mayo finally has a Minister.  This should assuage the Western People.  When the Government initially ignored Mayo and all other Connaught counties, the paper’s leader writer became very exercised: 

‘The new Cabinet is the ultimate and final betrayal of the people of the West, the people of rural Ireland, the people who get up early and go to bed late just to keep the lights on in towns and villages buffeted by one economic storm after another since the turn of this millennium. Yesterday in the National Convention Centre in Dublin, the triumvirate of Micheál Martin, Leo Varadkar and Eamon Ryan unveiled a Cabinet that Oliver Cromwell would have been proud to call his own. To hell or to Connacht, indeed.’

To what extent a single Minister can address this complaint is questionable.  But there is logic to it.  Would a Cabinet only made up of urbanites be fully sensitive to the issues faced by rural dwellers?  Would a Cabinet only made up of men be fully sensitive to the issues faced by women?  Would a Cabinet comprising only business owners be fully sensitive to workers’ issues?

But it goes further than being regionally, gender and class- balanced.  We have a system whereby Ministers are expected to ‘deliver’ for their constituencies.  As Diarmuid Ferriter pointed out when critiquing the Western People’s claim of victimisation: 

‘What was really at play this week had nothing to do with a pure, downtrodden people but with what the political scientist Jane Suiter referred to as “Chieftains Delivering” . . . : whereby “individual, powerful ministers in charge of the purse strings direct funds to their own constituencies” ‘.

So now Chieftain-Minister Calleary will be expected to go to Dublin and bring economic dividends back home. 

And therein lays the problem for the people of Mayo, Connaught and the country as a whole.  The issue isn’t access to power through individuals, but lack of direct access to power.  And this lack of power can be seen in the ultra-weak status of local government in Ireland.

Ireland’s weak local government system has been well documented.  A good summary is provided by Dr. Mary Murphy of Maynooth University in a paper entitled ‘Democracy Works if You Let It’ written for the trade union campaign ‘More Power to You’.  According to Dr. Murphy:

‘The international index of self-autonomy uses seven categories (legal protection, organisational autonomy, and institutional depth, fiscal autonomy, financial selfreliance, borrowing autonomy, and financial transfer system, and administrative supervision, central or regional access) to assess self-autonomy. Over 1990 to 2015 Ireland declined from the third least powerful local authority to the weakest across all Europe [among 39 countries surveyed].’

Another way of looking at local government power is to compare the level of expenditure at local government level.  Surprise – Ireland lies near the bottom.

[Note:  this excludes Belgium, Germany, Spain and Austria which have an extra sub-central tier in addition to local government; that is, regional or state governments.    However, even with this regional structure, local government in these four countries have spending levels far above Irish levels.]

Denmark has the most fiscally decentralised system, with nearly two-thirds of total public spending occurring at local level while Sweden comes in at half.  Ireland on the other hand lies at the other end, with less than 10 percent of public spending being spent by local authorities.  Irish local spending would have to increase by three times their current level to reach the EU average.

In many countries, health and education are delivered at local level – something that doesn’t exist in Ireland.  Given this structural feature, there is an argument for excluding these spending categories.  When this is done, EU local government spending falls to 23.1 percent while Irish spending increases to 12.0 percent.

Excluding health and education spending, Irish local spending would have to nearly double to reach the EU average.

Let’s return to Mayo.  Mayo County Council adopted a budget for 2020 that provides for €147.5 million in spending, funded by state grants, receipts from goods and services (council rents, pay & display, planning fees, etc.), recoupment payments (e.g. work carried out on behalf of Irish Water), commercial rates and local property tax.

If Mayo spent at an average EU level (excluding health and education), its budget would nearly double – rising from €147.5 million to €284.4 million; or an additional €137 million. 

What could it spend it on?

• Mayo could provide affordable childcare (fees of less than €60 per week) through the 60 community childcare facilities – and do this with enhanced wages and working conditions.

• Mayo has a higher proportion of older people than the national average (7.3 percent are over 75 against a national average of 5.5 percent). With nearly 10,000 people over 75 years, Mayo could directly employ carers in the community to supplement HSE activity.

• Mayo could launch a business start-up and expansion programme for SMEs in the market economy to grow competitive commercial enterprises. This could be done through equity stakes so that Mayo would benefit when businesses are successful (and help defray the costs for businesses that aren’t).  Equity stakes of up to €500,000 could see a minimum of 20 businesses each year getting support.

• Mayo could launch its own public transport company that would link up urban and rural areas with low fares and frequent scheduling.

There are a number of commercial and social activities Mayo County Council could engage in, including issuing bonds to pay for major once-off infrastructural projects.

It could also launch a programme of participatory budgeting at town and village level.  For instance, based on a crude population count, Castlebar could expect an additional €14 million spending Mayo could spend at the same level as the EU.  The Council could conduct a series of community meetings, on-line surveys, focus groups, etc. to empower the people of Castlebar to decide how some of that money would be spent – on public amenities, social services, business supports, infrastructural investments, etc. 

In short, what the people of Mayo – and all people throughout the country – need is more power and resources at local level, and more ability to influence decisions that have a direct impact on their lives.  They don’t need brokers (though it always helps to have friends in high places).  They need greater democracy and greater localisation. 

That’s a campaign that should be taken up throughout the country.  Starting in Mayo.

 

Biting the Wormy Apple

What has been hailed as a ‘victory’ for Ireland and Apple in the verdict of the EU’s General Court could turn out to be pyrrhic at best.  Indeed, the biggest loser from this court decision could be Ireland’s tax-based FDI policy (Foreign Direct Investment), as EU countries step up their drive to end the multi-national manipulation of national tax codes.

You wouldn’t know it by the reaction here.   The Irish branch of the American Chamber of Commerce said the decision would help the European Union as a whole to:

‘ . . . maintain its hard-won global reputation as an inward investment destination.’

Other EU countries would strongly disagree, especially as it is their tax bases that are being eroded.

Tax partner Peter Vale said:

‘From a distance, it seems that the commission originally attempted to rewrite historic tax rules based on current laws and mood.’

Mood?  Global tax avoidance is not a mood.  Nor is opposition to it.

KPMG’s head of tax, Tom Wood stated: 

‘The initial indication is that it is a clear ruling in the taxpayer’s favour.’

Taxpayer’s favour?  Which taxpayer?  Domestic companies that cannot manipulate international tax rules?  People who have to pay higher taxes to make up for the holes created by multinational tax avoidance?

Minister for Finance Paschal Donohoe has said Wednesday’s ruling should lead critics of the State’s corporation tax regime to

 ‘. . . reassess their view … and some of the statements that have been made about it.’

Does this include IMF research which has listed Ireland as a tax haven?

Brian Keegan of Chartered Accountants Ireland thought the court’s decision offers hope:

‘ . . .  should curtail EU commission posturing on State aid . . . It is to be hoped that the commission will accept the decision of the General Court of the European Union, and not seek to damage the country’s reputation further with protracted legal proceedings.’

He shouldn’t be hopeful.  The Commission has made it clear it will continue and accelerate its drive for tax justice.  Up to now, Ireland could fall back on a blocking mechanism through the use of its national veto.  The Commission’s strategy in the Apple case was to use state-aid as a means to clamping down on tax avoidance. This approach has failed (though it is only half-time).  Regardless of an appeal, new approaches are being devised:

‘In what would amount to an unprecedented legal assault, the European Commission is exploring ways to trigger an unused treaty instrument to reduce multinationals’ ability to exploit highly advantageous corporate tax schemes.  Crucially, unlike ordinary tax legislation in the EU, the initiative would only require the backing of a qualified majority of the EU’s 27 member states rather than unanimous support of all countries, restricting a government’s ability to wield a veto. The measure would also need approval from the European parliament . . . Officials [said] that the plans, under Article 116 of the EU’s treaty, were at a very early stage but would aim to identify certain competitive national tax schemes as distortions of the single market.’

The Irish Times reports that:

‘The European Commission declared it was more determined than ever to clamp down on what it sees as unfairly low taxation rates used by some member states to attract multinational companies after losing its case against Apple and Ireland in an EU court.’

The report goes on to quote Valdis Dombrovskis (EU Commission Vice-President). 

‘This ruling makes it even more urgent and more clear the need for corporate tax reform the largest corporations are getting away with paying 1 per cent maximum or in many cases less on their European profits. It’s just not sustainable from a tax fairness point of view, it’s not sustainable from a public revenues point of view, and it needs to be addressed and the commission is determined to address it.  This one tax ruling is not going to change the commission’s determination in this regard.’

It remains to be seen whether using Article 116 to confront global tax avoidance is a runner, given that it has never been used that way.  But that it is actively being considered shows the extent to which time is running out for Ireland.  In truth, it was always just a matter of time.  No one wins the global tax avoidance game.  But some countries are slower losers than others.  Ireland is a slow loser, but will still eventually lose.

So what is the progressive response?   Donning an over-sized green jersey and burying our heads in it while chanting ‘we are not a tax haven, we are not a tax haven’ will not and should not suffice. 

But we should also be cautious about the impact of EU Commission moves.  Ireland is highly reliant (in some cases, over-reliant) on multi-nationals – for corporate tax revenue, personal tax revenue, high value-added employment, exports, etc.  The fact is that tax justice would cost Ireland billions of Euros in tax revenue, and could undermine future employment and investment in our modern export base.

We need to accept the reality of a new regime which will hopefully reduce global tax avoidance while at the same time protect our economic interests.  Even if Ireland is a tax haven, it is not a tax haven of the classical letter-box kind.  There is productivity attached to our FDI. 

We need to get ahead of the inevitable curve – staking out a model that protects our interests with apportionment formulae that emphasise our strengths in assets, labour and sales.  This would help us protect our multi-national base.

But what we desperately need is a new FDI policy – one that emphasises economic and social infrastructure, skills and an accommodating immigration policy.  A location with high rents, traffic congestion, low level of public amenities and an unwelcoming environment for migrants is not a place that will attract as much investment – either foreign or domestic.

The EU Commission may have stumbled in the General Court, but they have the capacity and certainly the determination to put Ireland’s FDI model to the test.  Let’s hope they succeed.  And let’s hope progressives can ultimately lead the country to a better FDI model – one that doesn’t rely on low tax rates and eroding the tax bases of other countries.

PS.  Still, it would be nice to get our hands on the €13 billion.

Stimulating the Economy and Society: a Wishlist

The Government will be announcing its stimulus plan in the next few days.   This will continue with the announcement of sectoral initiatives under the National Economic Plan to be announced in Budget 2021.  We are in for weeks of doling out the dosh.

So here’s a wishlist – for stimulating the economy, giving people a voice in how we build a more socially-accountable economy while protecting households from poverty.  Some of these proposals will take a while to get off the ground (so best to start now).  Some of these proposals might not work so best to continually evaluate and reform).  But people and businesses are hurting. 

Youth Unemployment

Youth unemployment could be as high as 45 percent, with nearly 150,000 under 24s now unemployed.   Grants and incentives to businesses to hire young people might help in some respects.  But such grants do not create new jobs; they just prioritise certain categories – which mean non-young-people get pushed back in the queue.  The state needs to create jobs by directly employing young people.

A specifically designed ‘employer of last resort’ programme could be rolled out to provide for up to 25,000 - 50,000 jobs in time (here is how it can be implemented).  Young people would be employed in non-profit civil society organisations and public agencies (local government, etc.) on full-time, two to three year contracts.  These jobs would be integrated into training and education schemes.  Only the state has the ability to mobilise the resources to put people back to work while we re-structure the economy away from low value-added, low-pay activity to higher value- added, higher paid work.

Continue the Pandemic Supports

The Temporary Wage Subsidy Scheme (TWSS) should be continued on a sectoral basis into next year.  Clearly, hospitality and non-food retail should be targeted along with other sectors.  Enterprises outside the targeted sectors could also benefit on a case-by-case basis with clear benchmarks (reduced turnover, etc.).

This should be combined with continuing the Pandemic Unemployment Payment and the elevated Illness Benefit – until at least the end of the year when new, enhanced, income-related social protection payments could be introduced courtesy of Budget 2021. 

Helping SMEs

Business groups are queuing up for subsidies to re-open and stay open.  This is understandabl, given that many sectors will continue to suffer reduced demand owing to the health crisis (customer-facing businesses, sectors reliant on discretionary spending). 

The Central Bank Governor put the cat among the proverbial pigeons, stating that tax breaks such as VAT cuts may not be the best way forward given that they are not targeted.  I’d be inclined to agree.  A better way would be to focus on those businesses that have suffered a significant decline in turnover.  The 25 percent loss of turnover that is used for eligibility for the TWSS could be used.

To create efficiencies and a new revenue stream for the state, grants could be based on the actual amount of turnover loss or the number of employees (in full-time equivalents).  Subsidies could be based on either zero-percent loans or grants that are repaid through the tax system.  The latter would probably be more beneficial for firms, as they would only start repaying the loan when they have turned a profit; i.e. repay according to their means.  Under a loan, you have to pay regardless of your ability to meet the payment. 

If a tax-based grant system were used, the Government could apply a temporary VAT cut (one to two years) with the difference between that and the normal VAT rate being treated as a grant which would be repayable through the tax system.

Workers’ Voice

Any sectoral initiatives, such as continuing the TWSS as suggested above or sector-based grants, should be accompanied by the establishment of sectoral committees comprising representatives of employees, employers, government and other stakeholders.  The last government established a Tourism Recovery Taskforce to propose measures to support tourism.  This could have been useful but the Government hobbled the taskforce from the start by omitting to appoint employee representatives – the biggest number of stakeholders in the sector.

Sectoral committees would oversee the implantation of support schemes; draw up protocols (wages, working conditions, health & safety); report problems, etc.  In short, the sectoral committee would be a communication conduit from the ground to the policy makers and serve as early warning systems.  A key function would be to ensure that public supports and subsidies benefit all stakeholders. Disability campaigners used the phrase: 'No decision about us without us'.  This should be applied to all working people.

Household Supports

While the debate has been focussed on business supports and how to wind down the pandemic payments, what about households?  Many will be falling into debt, or more debt.  Many will be struggling, postponing key household repairs or purchases.  Prior to the crisis, nearly a third of households couldn’t afford an unexpected expense; that level is likely to rise with the Covid-19 crisis. 

For instance, according to the St. Vincent de Paul, quoting a Social Finance Foundation research paper:

‘ . . . there are an estimated 330,000 customers of moneylenders in Ireland, with an average loan size of €566. The majority of customers are female, in the lower socio-economic group and between 35 and 54 years of age. Most commonly loans are offered over 9 months at an APR of 125%.’

So why not offer a scheme (either a new one or retooling existing ones), operated though the credit unions or the Money Advisory Budgeting Service, which would roll up all such loans, redeem them and put people on a more sustainable interest rate/repayment schedule?  Such a scheme could be expanded to households facing rent, mortgage and credit card arrears.  There would need to be provisions to prevent moral hazard.

This could be complemented by an extension of the rent freeze and moratorium on evictions.  These steps, along with continuing pandemic payments until new social protection payments are introduced, should help households which are waiting for a return to full employment. 

Arbitration Panels

The Central Bank Governor sent another cat into the pigeon nest, calling on insurance companies to be more ‘consumer-centric’ when it comes to paying out on business interruption claims.  He identified three situations:  contracts that didn’t have a business interruption clause, those that did, and those where the position was uncertain.

There’s a very easy way to resolve this:  establish a binding arbitration panel through which businesses could pursue their claims, avoiding costly and length court proceedings.  The panel could rule that insurance companies must honour the claim in full (where it is obvious) or in part (where the situation is uncertain).

Similar arbitration panels could be established for commercial leases though which tenants could make a claim for relief; ditto for residential mortgages. 

These shouldn’t be treated as strictly private contracts.  Society has a stake in these claims as they impact on employment, incomes and economic growth.  Therefore, there is a legitimate public interest in resolutions that serve the social good.

New Asset Tax

The Government could announce that it will be introducing a net asset tax in Budget 2021 and set up a process of consultation on the best design.  A net asset tax, or wealth tax, would impact on the highest income groups and to ensure that everyone contributes to crisis resolution.  In any event, the super-rich seem to be warming to the idea.  88 billionaires wrote a letter to their respective governments calling for higher taxes on themselves:

‘No, we are not the ones caring for the sick in intensive care wards. We are not driving the ambulances that will bring the ill to hospitals. We are not restocking grocery store shelves or delivering food door to door.  But we do have money, lots of it. Money that is desperately needed now and will continue to be needed in the years ahead, as our world recovers from this crisis.

‘So please. Tax us. Tax us. Tax us. It is the right choice. It is the only choice.’

* * *

That’s my wish list:  getting young people back to work, continuing supports, rolling out repayable grants, giving workers a say, supporting households, arbitration panels to help the productive economy, and a new asset tax. 

There will be other and better ideas.  So it’s important to keep up this conversation.  Because while there will be an announcement next week of Government measures, this will only be the start, with the National Economic Plan and Budget 2021 coming in the next few months.

The State is a Job Creator

David McWilliams makes a provocative argument in his recent article for the Irish Times that ‘Governments can't 'create' jobs, so why do they keep pontificating about it?’.  I respectfully disagree.  Governments, states and public agencies are deeply, deeply involved in job creation, both directly and indirectly.  It is hard to imagine a modern market economy without the job-creating role of the state.

• The state directly employs nearly 340,000 in a range of areas: health, education, public safety, local authorities, administration, etc.  These make up 18 percent of all employees. 

• The state provides subsidies to private for-profit and non-profit enterprises with the express purpose of creating employment. Subsidies to early years’ education providers employ 10,600.  There are 13,000 Section 39 health sector employees – grant-aided by the public sector. These jobs are additional to the traditional public sector employee count.

• There are 42,000 employed by public enterprises – wholly-owned state corporations.

The state employs – directly, through subsidies or through corporations – over 400,000 employees.  However, it does not end there. 

• Through its capital investment programme the state creates employment. The Government estimates that for every €1 billion of investment 9,500 construction-related jobs are created directly and indirectly. These are, of course, temporary (once a bridge is built, the employment ends).  However, this doesn’t factor in the long-term productivity-enhancing employment benefits from investment projects.

• The state spends €8.5 billion annually on sourcing goods and services from the private sector to produce public services. In addition, private companies (early years, Section 39, etc.) also purchase goods and services with their state subsidies.  And public enterprises have considerable procurement contracts.   Billions of Euros of private sector activity – and, so, employment – are based on doing business with public agencies.

Another job creation and job retention feature of the state’s role in the economy are the grant aids and supports for market businesses:  IDA, Enterprise Ireland, Údarás na Gaeltachta, Local Enterprise Offices, etc.  These help direct jobs here from abroad (multi-nationals), create jobs for domestic enterprises breaking into export markets, and support employment in local areas.

And let’s not forget the jobs in the private sector that are dependent on the huge demand created by the states’ direct and indirect job creation activities.  Billions of Euro are spent by the men and women whose employment is in some way dependent – whether wholly or partially – on the state.  And this money is spent in businesses up and down the country.  How many jobs are created from this considerable purchasing power?  Lots and lots.

The state also plays key roles in promoting a modern economic base.  Take education for example: it is agreed by all across the ideological divide that education is one of the best investments that can be made.  A state that invests in education – from early years to post-third-level on to adult – is a state investing in its future innovative and entrepreneurial capacity.  However, Ireland is a laggard in educational investment.  It would have to increase such investment by over 20 percent, or nearly €2 billion, to reach our EU peer group average. 

R&D is another state investment in an entrepreneurial future.  And, again, Ireland is a laggard, needing a 90 percent increase (or nearly €1 billion) to reach our EU peer group average. 

To assess the state’s full role in entrepreneurial-creation we have to go beyond just employment and budgetary numbers.  Mariana Mazzucato has popularised the theory of the entrepreneurial state

‘How many people know that the algorithm that led to Google’s success was funded by a public sector National Science Foundation grant? Or that molecular antibodies, which provided the foundation for biotechnology before venture capital moved into the sector, were discovered in public Medical Research Council (MRC) labs in the UK? Or that many of the most innovative young companies in the USA were funded not by private venture capital but by public venture capital such as through the Small Business Innovation Research (SBIR) programme?

Mazzucato goes on:

‘Not only has government funded the riskiest research, whether applied or basic, but it has indeed often been the source of the most radical, path-breaking types of innovation. To this extent it has actively created markets not just fixed them . . . from the development of aviation, nuclear energy, computers, the internet, the biotechnology revolution, nanotechnology and even now in green technology, it is, and has been, the state not the private sector that has kick-started and developed the engine of growth, because of its willingness to take risk in areas where the private sector has been too risk-averse.’

Sean O’Riain makes a similar argument in the Irish context, noting that in the 1990s the key investor in high-tech indigenous sectors was the state:

‘The ‘Celtic Tiger’ is not a product of heroic entrepreneurs but is a (partial) success made possible by the embeddedness of entrepreneurs and workers in dense social institutions. There is a significant collective contribution to the success of those who have benefited (professional classes, entrepreneurs) which rests heavily on collective social and state institutions.’

This doesn’t deny the concept of entrepreneurs.  They are essential to bringing goods and services to market.  However, the above shows that drawing a line between the public and private sector is a highly misleading characterisation of a modern, complex market economy.  The goal is to create a new dynamism arising out of the obvious inter-dependency between the public and the private.

But even when discussing ‘entrepreneurs’ we have to avoid clichés.  Entrepreneurship is not only a social phenomenon, where new products and services arise out of collective effort;  it is – or should be – a democratic phenomenon.  The role of labour is rarely referred to in this context but the evidence is substantial:  greater employee participation in the decision-making process of the firm or enterprise equals greater productivity, innovation and firm performance.  The same holds for collective bargaining, as employees bring their experience, knowledge and ideas to problem-solving. 

Cyrine Ben-Hafaïedh notes that the hunt for the single, heroic entrepreneur was like ‘hunting the Heffalump’:

‘ . . . even when it was proven that this quest was vain, entrepreneurship scholars continued to embody entrepreneurship in a single person, a lone and heroic entrepreneur. But  . . . the 'entrepreneur' in entrepreneurship is more likely to be plural, rather than singular’.

Entrepreneurship should be a collective, democratic process. In this respect, everyone is an entrepreneur. The problem is that not everyone is allowed. This is a profound question of workplace democracy.

The Covid-19 crisis has shown us the degree to which private sector activity is dependent on public resources.  There are other grave challenges, notably climate justice and the fourth industrial revolution involving automation, robotics and AI.  We will need an organising agency (the state); we will need greater public intervention in the market economy (public capital); and we will need a more democratic entrepreneurial practice (workplace democracy).  Simplistic notions of public and private sector, of the individual ‘heroic’ entrepreneur, will not help us meet these challenges. 

We need an ‘all-of-society’ approach. 

We need to let a hundred entrepreneurial flowers bloom. 

In short, we need an all-encompassing democracy – from the workplace floor to the boardrooms and beyond.