CO-OPERATION OFSTATE AND BUSINESS:IRELAND AND LATVIAMarc ColemanLeading Irish Economic Commentator
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_conf Marc Coleman, BA M Econ Sci ASP MBA Economist (formerly ECB) Broadcaster (Newstalk 106fm), Columnist (Sunday Independent) Author of 2 bestselling books Keeping the “ Growth Flame” alive by state-business cooperation
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confThis Presentation:1. Ireland & Latvia 1912-2012: (Non-identical) twins.2. How to influence government policy3. What Government can do for business, Part 1: Foreign Direct Investment & Choosing winners.4. What Government can do for business, Part 2: Other policies5. Conclusion
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confPart 1, Ireland & Latvia: 1912-2012 (Non-identical) Twins
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_conf1912-1916 Country loses half of population 1845-1858. Loss of national language near complete. Country reconciledto British Empire. But artistic & cultural national revival and WW1 leads to 1916 rebellion and independence process1918-1922 End of WW1, Decl. of Independence, Anglo Irish treaty & Civil war. De facto Independence for south1939-1945 Neutrality during war understandable given legacy of British persecution but leads to misunderstanding & economic isolation1972 – 1987 Entry into EEC. Sense of new potential, new alliances and horizons But disastrous economic failure, rising government spending, taxation and stagnation1987-1992 Drastic fiscal consolidation & mix of relative internal + external devaluation. 1992 saw irrevocable commitment to EMU – this was key to beginning of our boom.1992-2004: Genuine high productivity boom. Population rises by a quarter, living standards by one half2004-2009: Disastrous regression – for political reasons - to policies of high spending, weak financial regulation and socialisation of economy and bank debt2009-2012: Government remains too large as a result of 2004-2009 spending growth and socialised bank debt still a chronic problem. Internal devaluation more modest than Latvia due to rigidities in public sector & other sheltered sectors of economy.2012: Irish external economy is recovering and the fiscal correction has been hailed internationally for its courage and ambition. But bank debt and failure to extend internal devaluation to sheltered economy remaincritical challenges. Unfortunately our national language has – 100 years later – still to recover from previouscentury. Challenge of globalisation & dominance of English.
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confPart2: Influencing Government policy Specialist media (initiation) Govt policy Popular Networks media & events (popularise) (disseminate)
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_conf Part2: Influencing Government policySpecialist Media: Academic journals Business magazines / sections of newspapers Trade / professional journalsCreates acceptability for ideas amongst policy elites/intelligensia. A vital first step.Events/meetings/conferences: Business / employer conferences and dinners Professional org. / Trade Union congresses Political party or special policy conferencesThese events are crucial to identify key stakeholders in a policy decisionPopular media: Newspapers Radio/ TV Social media including twitter, facebookIf a policy idea faces resistence these are crucial to ensure politicians
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_conf 1. Irish Times Economics Editor 2. Academic papers 3. Presentations 4. Think tank www.nationalforum.ie 1. Stamp duty (property tax) cut from 7% to 1% 2. Social partnership model reformed (less power to public interests now) 3. Emphasis of fiscal 1. Newstalk radio show correction more on 1. Business & employer spending cuts events & dinners 2. Sunday Independent column (1m readers) 2. Government sponsored policy 3. 2 books events 4. TV appearances 3. Meetings with other journalists & politicians
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confExample 1: Failure!Warningsabout economic 2004 Dublin Economic Workshop conf: “Why Stability Treaty gravely weakened http://www.marccoleman.ie/wp-content/uploads/2012/01/ESRI-paper-on-stability-pact.pdf Later a paper of the Economic and Social Research Instituteoverheating Sept „05 (Irish Times) I interview ECB President Jean Claude Trichet who indirectly warns Irish financial authorities to tackle credit growth http://www.marccoleman.ie/wp-content/uploads/2012/10/Trichet.pdf July „06 (Irish Times) “Aimless, lopsided and unsustainable, our economy needs remedial action now” http://www.marccoleman.ie/wp-content/uploads/2012/01/He-had-a-good-run.pdf 2007: In various articles covering June 2007 election I warned that economic forecast of parties were unrealistic, also promised based upon them No impact on Govt or on political July 2006: I proposed contingency plan for a recession at Govt party conference. parties Oct. 2006: At Irish Small & Medium Employers conference I warn recession No would begin in 2008 popular Feb-May 2007: At political party eleciton briefings I challenge economic forecasts of all media main parties and ask what they will do if these forecasted growth rates don’t materialise?
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confExample 2: Success! 12 Dec. 2005: In Irish Times business section I use technical arguments to argue against EU plans to harmoniseDefence of Ireland’s corp. taxlow corporation tax http://www.irishtimes.com/newspaper/finance/2005/1202/11323302629 64.htmlregime. Specialist media (initiation)In Sunday Independent –readership 1 million – Govt policyI argue againstharmonisation ofcorporationTax using arguments andideas from Popular NetworksIrish history media & eventshttp://www.independent.ie/national-news/no-surrender-to-others-getting- (popularise) (disseminate)their-hands-on-our-taxit-is-time-that-we-showed-the-rest-of-europe-a-bit-of-steel-writes-marc-coleman-1092510.html I raise this this issue extensively at press conferences held by Government and at general election briefings by political parties
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confExample 3: Success! 1 Jan 2006: I call for abolition of stamp duty, a tax on family homes http://www.irishtimes.com/newspaper/finance/2006/0113/113411 7224050.htmlCall for abolition of 6 June 2007: In Irish Times business section Istamp duty on the repeat this call and warn of electoral consequences:family home. http://www.irishtimes.com/newspaper/finance/2007/0608/118072 1263038.html Specialist media (initiation)18 Nov 2007: In SundayIndependent – readership 1 Govt policymillion –I frame argument as battlebetween overpaidbureaucrats who want taxmaintained and majority of Popular Networksvoters & taxpayers media & eventshttp://www.independent.ie/opinion/analysis/ministers-must-face-down-the- (popularise) (disseminate)mandarins-1222400.html I raise this this issue extensively at press conferences held by Government and at general election briefing by political parties
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confOther Examples & Results Book 1 (bestseller) “The Best is Yet to Come” (Dec. 2007) The book warned about crisis to come despite title, which is based on confidence in recovery by 2020 if Gov’t is tough & thinks in long-term Credible optimism based on long term trends, e.g. growth from 3.6 million in 1996 to forecasted 5 million by 2020 It stresses long-term supply side challenges including Reform of electoral system to reduce influence of organised lobby groups Better urban spatial and regional to channel population growth Spending and tax reductions Increased competition in markets. Book 2 (bestseller) “Back from the Brink” (Nov. 2009) I called for overhaul of financial regulation & banking. This begins in early 2010 I called for fair balanced reduction in public pay This occurred in December 2009 I called for reform of social partnership model New government committed to this in March 2011 These books contained ideas I expressed on radio (Newstalk 106-108fm) and in my articles (Sunday Independent). But by putting them in book form they acquired a permanence and credibility, allowing them to be taken seriously by policy makers
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confOther Examples & Results - Abolition of “Groceries Order”, an anti-competitive ban on below cost selling - 16 Sep’t 2005: Article in Irish Times warns that high cost of living could lead to a new political movement: http://www.marccoleman.ie/wp-content/uploads/2012/10/A-silent-unhappy-majority-arrives-at-the-tipping- point1.pdf - Although written in “specialist media” business supplement of Irish Times, a TV programme at the same time raises public concern and anger at rising price levels - In January 2006, the Groceries Order is abolished - In “Back from the Brink” I called for government to incentivise Research and Development spending and direct third level research funding towards job creation. - See next section for results - Call to defend programme of infrastructure spending against spending cuts - More productive in long term - Danger that this is cut too much as the “easy option” - I challenged all political parties in 2007 election to promise not to use Capital spending as “line of least resistance”
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confPart 3:What Government can do forBusiness: Foreign Direct Investment& Industrial Policy
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confIndustrial Development Authority (IDA)• Note: Ireland has all-island population of 6.5 million but Republic is just 4.6 million• 1st country in world for value of Investment & 2nd country in world for Inward investment per capita (IBM 2011 Global Location Trends report)• 2nd most attractive country globally for FDI (2011 NIB/FDI Intelligence Inward Investment Performance Monitor).• Attracts more US investment than China, India and Russia combined.See link for sources: http://www.idaireland.com/invest-in-ireland/fdi-in-ireland/
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_conf How was it done?Part 1: Industrial Development Authority (IDA)• Established in 1959• Vital policy supports from: (a) Low corporation tax base (b) Infrastructure policy, flexibly targetted (c) No red tape (d) A “one-stop shop” approach from government: IDA handles all policy issues• Paraig White, IDA boss “The IDA laid the basis for pioneering foreign investment when Ireland was an agricultural country … we identified the parmaceutical and emerging electronic industries and then set about marketing Ireland as an environment with no red tape, a one-stop shop and repackaging and presenting what was essentially zero tax on exports.• 1982 IBM convinced that having HQ in a small country doesn’t prevent access to larger ones• 1985 Microsoft chooses Ireland• 1992-1997 Dell, Intel, Merck Sharpe & Dohme, Pfizer
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_conf How was it done?Part 1: Industrial Development Authority (IDA) … cont’d…1992: A critical year: -Irreversible commitment by Ireland to EMU, hence “inside” the club -But good links & language connections with $ & £ economies -Start of period of globalisation of world economy -Also start of High tech FDI boom1992-1996 -Dell, Intel, Pfizer, Merck Sharpe & Dohme, Hewlett Packard and many more high profile companies locate in IrelandNow -1,004 overseas companies employ 146,000 people & export €110bn -Ireland exports €9 billion per month and exports rising at 18% p.a. -Exports to China up 20% on August figure. -Exports of indigenous companies to China up 10% in 2011 -Exports of indigenous companies to Germany, Eastern Europe, Baltic States and Russia up 27% in 2011
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_conf Enteprise Ireland (EI)Goal… …. to repeat FDI success with indigenous exportersSectors chosen include:- Software- Medical devices- Cloud computing- High technology food- Traded services such as education (third level tuition)2009- Irish exports fell by 10%- But thanks to EI Research & Development spending rose and as focused on commercially relevant projects- By 2010 exports had regained 70% of 2009 losses. In 2011 total exports recovered fully and are now growing at healthy rates- Follows Finnish example: Despite 25% spending cut after 1991 crisis R&D rose 20%- Sean Baker, chairman of Irish
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_conf Enteprise Ireland (EI)Main functions:1. Funding company start-ups and expansion2. Exports: Preparing companies to enter international markets with market research assistance, international office support and trade events. Also leveraging Irish diaspora and diplomatic network to develop contact base for Irish exporters3. Research and Development: Funding and advice for R&D & innovation activities4. Management: Develop and pool management resources of small companies5. Productivity: Conduct regular “health check-ups” of small firms and benchmark their performance against international databases of productivity indicators.
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_conf Lessons for Latvia 1:It can be done, but takes (at least 2) decades to come to fruition.It requires stable, cross party support so that investors know policy regime will not change if thegovernment changesDomestic economy not necessarily obstacle to FDI success. But: - Patience and long range vision are vital - Tax regime is vital. - “One stop shop” approach of government to investors is vital. - Flexibility - to adapt infrastructure and other policies to FDI needs – is vitalChoosing champions? – Ask the Danes as they are the experts, leveraging simple agricultural base of economy into production of Agricultural machinery, Insulin and wind energy – Or the Finns and Swedes. Excellent 3rd level education. Hence Volvo, Ericsson, Nokia – Finnish system of state sponsored innovation systems “Citra” is well worth studying. – With exception of Food industry (Kerry Group, Avonmore) “choosing winners” not a strong element of Irish policy to date. Ryanair is most successful Irish international company and government did everything it could to kill it. – Choose not sectors, but clever companies with potential to grow to at least €100 million euro turnover within 10 years. Then focus resources on 2 or 3 of them.
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confLessons for Latvia 2• There are some 37,000 Latvians in Ireland alone.• Around 90,000 in the USA http://latviansonline.com/news/article/7862/• Famous Latvian-Americans include – Konstantīns Počs, Co-inventor of AWACS (Airborne Warning and Control System) – Mark Rothko, painter – Bob Dylan, musician – Juris Upatnieks Physicist & Inventor of 3D holography• The American Latvian Association cultivates cultural and historic links http://www.alausa.org/en/what-we-do/conference-of-latvian-diaspora-archives-and- material-culture/• Question: What about economic links ?• For IDA and Enteprise Ireland strong diaspora network is a huge help to their work.• We are formalising diaspora policy with by hosting next year “The Gathering” for its diaspora.• Latvia should host and develop similar event and using it to develop small but useful networks.• Consider collaboration with fellow Baltic states to achieve Economies of Scale.
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confPart 5:What Government can do forBusiness: Other Policies
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_conf3 Categories:1. Monetary, exchange rate and banking policiesIreland’s success from 1992 to 2004 shows that commitment to EMU and strong monetary regimeworks. Average growth was over 6% per annum during this 12 year period.Ireland’s crisis from 2004 to 2007 shows that when safe banking regulation is abandoned and wheneconomy is allowed to lose competitiveness, disaster results.The Lesson: Internal monetary discipline must mirror commitment to external discipline.2. Fiscal policies1987-1992: Ireland fails to cut spending, raises taxes. Result = average GDP growth of 0.3%1987-1992: Ireland cuts spending by 10% GDP. Result = average GDP growth of 3.3%2008-2012: Success of Latvia’s adjustment – international devaluation and strong fiscal consolidationproves that Latvia has learned lesson that Ireland learned in 1980sThe Lesson: When properly designed – cutting spending rather than raising taxes - austerity works.When Austerity focuses on tax increases it is destined to failure.The Irony: Ireland has forgotten the same lessons, taking too long to reduced spending.
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_conf3 Categories, continued…3. Supply side policiesIreland’s internal competitiveness failure given by some stark figures:Between Jan. 2000 and July 2007 – the height of our boom: - average price level rose by 34.5% (CPI) - but educ, medical & local govt costs rose 73%, 103% & 232% respectivelyIreland’s internal devaluation since crisis too concentrated on private sector and as a resultweak.Success of our exporters in Ireland is stunning. But small businesses with mainly domesticdemand face huge costs of doing busieness, driven mainly by state or semi state sector.Latvia more successful in this respect
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confBut Ireland has been successful in stabilising business conditions andemployment losses at 2005 levels by using a number of strategies:- Strict avoidance of any increase in Ireland’s 12.5% corporation tax rate.Also strong resistance to any proposals to harmonise Corp. tax base.- Strict avoidance of further increases in tax rates and increase in taxthreshold for lower income workers- Introducing a 3 year relief for start-up companies from payment ofcorporation tax.- A 25% R&D tax credit applied to the first €100,000 of qualifying spending.This helps the vital job creating Small Medium Sized sector- Greater flexibility in types of spending that qualify for thisA Procuring Innovation Initiative to give SME’s better access to market forgovernment contracts.
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confSuccessful Irish supply side strategies, continued.- Creation of a new Micro Enterprise Support structure (influenced by Finnish “Citra”)within Enterprise Ireland to provide office support and advice to small companies- Creation of mentoring and management development networks with Long-termdevelopment programmes to cultivate business leadershipIntroduction of credit guarantee scheme to target small business affected by the creditcrisis. Establishment of a Credit Review Office for businesses encountering problems withbanks.- Creation of a €100 million micro Finance fund to help lending to small business.- Establish a Global Irish Network of advocates to maximise investment, export and financingopportunities of our Diaspora- Foreign Earnings Deduction from income tax to help incentivise highly skilled individuals to workoverseas
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confConclusions:- Ireland and Latvia have very similar histories and challenges.- You can influence government policies by “triangular” approach ensuring that you begin with specialist media, use networks and then use popular- Media to ensure politicians have necessary support from public- Ireland & other nations can learn from Latvia‟s impressive & successful fiscal policies and flexibility of its economy to devalue internally- Ireland is still a world beater and model nation in relation to Foreign Direct investment. Also enterprise development strategy is worth copying- Nordic countries, particularly Denmark and Finland are better models for “picking winners” regarding industrial policy- Ireland has a good model for general pro business tax incentives and company start up supports But Ireland lacks flexible internal markets and is subject to stagnation in domestic demand and credit constraint-
SMS jautājumi – LTC un JAUTĀJUMU sūtiet uz 157 Tvītiem – #LTC_confHigh level conference chairing and participation
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CITIES, CULTURE ANDTHE NEXT 100 YEARSKen LivingstoneMayor of London, 2000 - 2008