Ireland and Iceland: Did Devaluation boost Iceland's Exports?

The following is a contribution to a thread on the Irish Economy Blog, comparing Iceland and ireland during the Great Recession.

Iceland’s total export value is split about 40% each between marine products and the aluminum industry, linked to its geothermal resources.

The biggest annual changes in exports in recent years have been in 2008.

The banking system collapsed early in Q4 2008.

In 2008, marine product exports jumped 33% in value on a volume rise of 13%. This was against a backdrop of global food prices rising to record levels.

Aluminum exports jumped 127% in 2008 and volume increased 71%. US giant, Alcoa, opened a new smelter in East Iceland in mid 2007.

Fish export volume fell 4% in 2009 but the export value jumped 22%; aluminum export volume rose 6% in 2009 but the value of exports fell 6%.

Fish export volume fell 5% in 2010 and the export value rose 5%; aluminum export volume rose 1% in 2010 and the value of exports jumped 30% - - the average aluminum price on the London Metal Exchange in 2010 rose 24%.

As for marine products in 2010, the movement of large shoals of mackerel north to cooler waters off Iceland and the Faroe Islands prompted both countries to unilaterally hike their catch quotas.

Iceland raised its 2010 quota from 2,000 tonnes to 130,000 tonnes and to 147,000 tonnes in 2011.

Without the mackerel windfall, the volume of its fish exports would have fallen more than 5% in 2010.

So the big export volume and value changes happened before the currency collapsed; the price of aluminum fell 40% in Q4 2008.

Paul Krugman identified six ’supertrading’ economies as existing in 1990 - - Belgium, Hong Kong, Ireland, Malaysia, the Netherlands and Singapore and the OECD added six more in 2000.

These economies are dependent on the “slicing up of the value added chain” on an international basis.

US multinationals based in Ireland mainly export to their units in other European countries, Exports to Asia are insignificant and short-term exchange rate movements would not impact supply decisions.

Iceland has an unemployment rate of 7% — almost half the Irish level - - and about 9,000 are employed directly in the fishing and aluminum industries.

This is only 5% of the total workforce.

The equivalent Irish ratio for the internationally tradeable goods and services sectors is almost 13%.

Comparing Iceland and Ireland

Ireland, unilateral debt default and worst case scenarios

A thread on the Irish Economy blog (see below) in response to an article this wee, in the Financial Times by its economics commentator Martin Wolf, has prompted a number of Irish academics and others to recommend unilateral debt default if the European Union institutions will not agree to Irish debt restructuring.

It's striking that despite a thread of many words, no advocate of unilateral default has detailed a worst case scenario - - which should be an essential aspect of consequential decision making - - be it for the aspiring entrepreneur or political leader.

It’s easy to be on the sidelines making proposals without having any responsibility.

The Irish banks are dependent on funding from the European Central Bank.

The ATMs would be shut down if the ECB also pulled the plug on its lifeline.

“Ah shur, that would never happen” would be the typical excuse to avoid having to address what should be done if the “what if” materialised.

On Sept 29, 2008, the night when a blanket State guarantee was provided to Ireland's banks, it’s very likely that Taoiseach Brian Cowen did not consider the consequences of the builders' bank Anglo Irish Bank collapsing because in his mind, such an eventuality would have been so GUBU that it would have been crazy to even worry about it - - now the price to pay for negligence and incompetence is very steeep.

Irish Economy Blog: Martin Wolf: Ireland Needs Help With Its Debt

Finfacts article: The Irish debt burden and the market for simple solutions

2010 US Presidential Medal of Freedom Ceremony

President Obama presents 13 exceptional individuals with the Presidential Medal of Freedom. Honorees include former President George H.W. Bush, German Chancellor Angela Merkel, author and poet Maya Angelou, financier Warren Buffett, and Boston Celtic great Bill Russell.



Website

Irish debt default and 'burning' bondholders

The European Central Bank opposes cutting the debt of senior bank bondholders because of the fear of contagion across the Eurozone; many Irish people say taxpayers shouldn't carry the burden of bank debt.

The European Union's Economic and Monetary Affairs commissioner, Olli Rehn, said on Tuesday that EU finance ministers have 'simply no appetite' for Irish bank senior bondholder 'haircuts' - - forced cuts in the amount of the debt owing.

The commissioner said the restructuring of Ireland's banking sector should be done in line with undertakings already agreed with the EU and the IMF.

"We only expect that this will be done according to the memorandum of understanding which sets the frame for restructuring and reform of the Irish banking sector so that it can become again healthy and resilient," Rehn told reporters after a meeting of the Ecofin council of European Union finance ministers in Brussels.

He added: "There is simply no appetite for considering senior bondholders in this context because we want to avoid any kind of potential contagion effect and therefore this issue is not at the table and that was made very clear yesterday in the meeting of the Eurogroup."

The Fine Gael party's election manifesto, which was published on Tuesday, says imposing losses on senior bondholders in Irish banks would only be extended as part of a European-wide framework and would focus on Anglo Irish Bank and Irish Nationwide Building Society, which are being wound up.

Would we be burning ourselves:

UCC economist says more than half Irish bank bonds owned by investors in Republic of Ireland

Irish Economy Blog Threads:

Burning Bonholders

Gormley On the Guarantee: The McWilliams Option

Ireland when cost of 1 Dublin house would buy 9 similar in Houston, Texas

In 2006, an international survey compared over 300 metro areas using the standard of a 2,200 square foot, 4 bedroom, 2 ½ bath home that would be typical in an area favoured by a management level family. It found that for the cost in Dublin, Ireland at US$1,406,497, you could have bought nine similar houses in Houston, Texas, three in Amsterdam, two in Sydney and almost two in Tokyo.

We hadn't even struck oil; we were host to large American companies and a lot of us were deluded into believing that the fairytale of riches from selling each other houses, would keep going.

A year later, the nternational house price comparison index for 2007 ranked Dublin, Ireland and Beverly Hills, California in top ranks for world's most expensive comparable management level family homes.

Finfacts 2008: International house price comparison index for 2007 ranks Dublin, Ireland and Beverly Hills, California for world's most expensive comparable management level family homes

Finfacts 2006: Global Survey: Cost of typical management level house in Dublin, Ireland, could buy 9 similar houses in Houston, Texas, 3 in Amsterdam, 2 in Sydney and almost two in Tokyo (old format page)

Seven things you should never do on Facebook

Stuart Miles of Yahoo! News says there are some things that you should never do on social networking site, Facebook:

Click here

Ireland: Debt default on sovereign and bank debt or not?

Apart from an adjustment of the interest rate in the EU-IMF bailout terms, agreement with the European Commission and European Central Bank on defaulting on both sovereign debt and senior bank debt will not be forthcoming in the short-term.

Basically, before reforms are implemented, as with Greece, the argument that we cannot sustain debt of say 130% of GDP, will not wash.

If the EU-IMF reform programme is implemented, the then view of the IMF on growth prospects and the debt burden, would hopefully have some weight in Brussels and Frankfurt.

The following are reports and presentations from the current week:

Presentation by Lorenzo Bini Smaghi, member of the Executive Board of the ECB, London Business School, 9 February 2011: Slides from the presentation (pdf)

IMF staff report on Ireland: Lingering domestic perception of inequitable burden sharing persists

European Commission’s staff report on Ireland is available here

Goodbody Stockbrokers arguing for debt sharing: Debt Dynamics - With a little help from our friends (scribd)

Irish General Election 2011: The 'Democracy Now' soufflé

Sarah's Carey's op-ed article in today's The Irish Times: Angry men lack the courage of conviction

This is my comment:

This is an excellent article as it forensically debunks the excuses put forward for the collapse of the 'Democracy Now' soufflé.

It also comes from a commentator who is not an insider in the cosy media club.

I term it a soufflé because there was not much of substance to it; it is easy to be against villainous bankers but if there is an avoidance of inconvenient truths for voters, then it's a repackaging of Bertie Ahern's politics, albeit with some transparency.

Late last year, Fintan O'Toole addressed a public protest organised by the trade union congress, ICTU, and standing beside him was the general secretary who was a board member of the Central Bank from 1995 to 2010.

This is conservative Ireland after all, where the buck stops nowhere system!

The Dublin Chamber of Commerce calls today for “root and branch” reform of the public sector but it has zero to say on a system where lawyers as public contractors can get paid more per day than the claimed bribes they are investigating, while becoming multimillionaires in the process.

Yes to public reform but also for reform in the protected private sector where the Sate is the biggest supporter.

There is no evidence that these 'Democracy Now' folk were going to be iconoclasts and according to Colm Keena's report in the IT on Tuesday, when 5 putative candidates dropped out, the project collapsed.

Credit where it's due to Shane Ross, but the other big names found that it's easier to be a hurler on the ditch.

There was a confusing newspaper headline this week: 'David McWilliams plans Obama-style campaign' - - showing the conflict between the pull of the public limelight and hard choices, including fear of failure - - and Colm Keena also reported that Elaine Byrne, IT columnist and political scientist, got the impression after 3 meetings that McWilliams was planning to stand in the election but he apparently is giving a contrary impression.

Prof. Kenneth Rogoff of Harvard University and co-author of the celebrated book, 'This Time is Different,' in 2002 when he was chief economist of the IMF, wrote an open letter to Prof. Joseph Stiglitz, highlighting how easier it is to be a commentator than a policymaker.

"Joe, as an academic, you are a towering genius. Like your fellow Nobel Prize winner, John Nash, you have a 'beautiful mind.' As a policymaker, however, you were just a bit less impressive."

Open Letter

Finally, I could be fairly termed a hurler on the ditch myself. However, I have stood in a national election and I have the experience of leaving the security of a multinational and starting a business myself - - it takes more stamina than a 4-week campaign!

The Finfacts General Election Page 2011

Michael Lewis on the financial crashes in Ireland, Greece and Iceland

Former bond trader, Michael Lewis, author of "Liar’s Poker," "The Big Short" and "The Blind Side," has written for Vanity Fair on the financial crises in Greece and Iceland. In the March issue, he turns his attention to Ireland.

“The Irish became obsessed with their own property market,” he says. “The Icelandic tycoons got obsessed with conquering the world outside of Iceland.”

Lewis said he found it “amazing” that the Irish government has “socialized” the banks—some $80bn in senior and subordinated debt—and made it the financial responsibility of Irish taxpayers, who didn’t create it.

During that period, Lewis said, Merrill Lynch received hefty fees to underwrite bonds by some Irish banks. When a Merrill Lynch employee in London characterized some Irish bankers as “irresponsible,” said Lewis, the firm fired him.

Quoting one of his interview subjects in the Vanity Fair article, Lewis said, “The problem with the Irish, you push them, you push them, and they take it, and one day they go wacko on you.”

When Irish eyes are crying

First Iceland. Then Greece. Now Ireland, which headed for bankruptcy with its own mysterious logic. In 2000, suddenly among the richest people in Europe, the Irish decided to buy their country–from one another. After which their banks and government really screwed them. So where’s the rage?

Beware of Greeks Bearing Bonds

As Wall Street hangs on the question “Will Greece default?,” the author heads for riot-stricken Athens, and for the mysterious Vatopaidi monastery, which brought down the last government, laying bare the country’s economic insanity. But beyond a $1.2 trillion debt (roughly a quarter-million dollars for each working adult), there is a more frightening deficit. After systematically looting their own treasury, in a breathtaking binge of tax evasion, bribery, and creative accounting spurred on by Goldman Sachs, Greeks are sure of one thing: they can’t trust their fellow Greeks.

Wall Street on the Tundra

Iceland’s de facto bankruptcy—its currency (the krona) is kaput, its debt is 850 percent of GDP, its people are hoarding food and cash and blowing up their new Range Rovers for the insurance— resulted from a stunning collective madness. What led a tiny fishing nation, population 300,000, to decide, around 2003, to re-invent itself as a global financial power? In Reykjavík, where men are men, and the women seem to have completely given up on them, the author follows the peculiarly Icelandic logic behind the meltdown.

Q&A: Michael Lewis and the Irish Politicians That Sank Ireland

Sovereign debt exposure and confusing Bank for International Settlements data

We shouldn’t be confused by the ‘facts’!

Bank for International Settlements data is often quoted in relation to sovereign debt exposures but it adds confusion to an issue short of hard facts.

In March 2010, Germany’s top bank, Deutsche Bank, had a combined €14.8bn of gross sovereign debt exposure to the “peripheral” EU states of Greece, Spain, Portugal, Ireland and Italy, of which €10.4bn was to Italy.

The FT Jan 31, 2011:

French and German banks have the largest exposure to Greece, according to the Bank for International Settlements, with €59bn and €40bn respectively as of last September. German banks are also among the most exposed to Ireland, with €154bn outstanding.

The FT Nov 25 2010:

The Bundesbank also played down German banks’ exposure to Ireland, estimating direct exposure at about €25bn. This is much lower than the Bank for International Settlements estimates, which suggested about $140bn.

Officials said the difference reflected some indirect exposure such as business routed through Dublin-based special purpose vehicles or subsidiaries.

These Are The 20 Banks Most Exposed To The European Sovereign Debt Crisis

Deutsche Bank have broken down the debt threat facing Europe's banks, and it isn't pretty for many of them.

However, the level for Bank of Ireland does not seem correct, if it is just sovereign exposure.

Irish General Election 2011: Irish Waste Policy and Gombeenism

The Fernwärmewerk Spittelau incinerator/heating plant, Vienna. It supplies more than a quarter of a million houses and over 5,000 industrial consumers with heating and is also a tourist attraction. Source: Wikimedia Commons

Click for Finfacts Irish General Election 2011 Page

Former Irish environment minister John Gormley who is also Green Party leader, in office since 2007 until last weekend, spent much of his time trying to counter the economics of a government decision in 2007 to build a waste incinerator in his constituency of Dublin South-East.

In recent weeks, Gormley wrote to his constituents informing them that the incinerator “cannot go ahead” because of planned new levies.

Meanwhile, Dublin City Council has said that it is implementing Government policy.

The cocktail of gombeenism and Nimbyism (not in my backyard syndrome), means that according to 3 State agencies - - Forfás, IDA Ireland and Enterprise Ireland - - in a submission to the Department of the Environment, Heritage & Local Government in April 2010, that in terms of municipal waste treatment, while Ireland has made progress on recycling, rates have slowed in recent years.

Ireland continues to have a high reliance on landfill for municipal waste treatment, landfilling 62% of municipal waste in 2008 (compared to the Eurozone average of 32%). The submission said that it is notable that Ireland currently has no municipal waste-to-energy incinerators and limited incineration capacity (3%) compared to the Eurozone average of 24%. It said it is also worth noting that many countries that are currently expanding waste-to-energy capacity, such as Denmark and Germany, also have the highest recycling rates.

In Germany in 2009, 35.4m tonnes of waste were disposed of in landfills, 6m tonnes or 14.8% less than in the preceding year. As reported by Destatis, the federal statistics office, this week, this is the lowest level since the amounts of landfill waste began to be recorded in 1975. Thus there is a continuing trend to treat or burn waste instead of dumping it.

According to Evridiki Bersi of the Greek newspaper, Kathimerini, Germany had around 50,000 landfills in 1970. Now, in a country of 83m inhabitants, there are less than 300 and they don t take unsorted garbage. They only accept what is left after recyclable items have been removed and the rest has been subjected to various processes that compress it into an inert mass. In 2020, those landfills will be out of operation because by then Germany plans to make use of all garbage and the energy produced by it.

Landfill is a serious threat to water supplies.

The German Business Institute (IW) estimates that Germany saves €3.7bn a year thanks to recycling and the production of energy from waste.

Proper waste processing saves the German economy 20% of the cost of metals and 3% of the cost of energy imports.

The 55,000 old garbage dumps have been replaced by 70 incinerators, 60 biological and mechanical waste-processing factories, and 800 units producing compost from organic waste.

Dublin City Manager John Tierney said in February 2010, that he was implementing Government policy! He said €59.5m had already been spent on the project -- €34m on acquiring the site of the former Poolbeg power station and €25.5m in consultants’ fees.

Consider a well-run country in contrast, Austria, where the unemployment rate is just over 4% - - among the lowest of the EU27 countries.

There is of course a fat chance of the Irish acknowledging the lamentable record of public project implementation and looking to what can be learned from countries like Austria.

Small minded politicians and much of the public who want to have their cake and eat it, leave the country always racing to catch up with standards thankfully set by the reviled bureaucrats in Brussels, where there is claimed to be a “democratic deficit.”

Of course, we are blind to the deficits under our noses.

We had to be shamed by the EU and the contamination of the water supply to the city of Galway to get action on water quality.

It’s always the same old story: respond to a problem only when there is a crisis…sorry…I should say: a dire crisis.

Vienna has three incinerators according to an Irish Times report and one of them supplies more than a quarter of a million houses and over 5,000 industrial consumers with heating.

A total of 9 incinerators in Austria are only one aspect of a sophisticated waste management and recycling system.

In 2010, Austria will generate 78.1% of its electricity from renewable sources - - the highest in the EU - - compared with 13.2% in Ireland.

Forfás, IDA Ireland and Enterprise Ireland Submission to the Department of the Environment, Heritage & Local Government, April 2010

ESRI slams Gormley's gombeenism on incineration; Irish waste policy has “no underlying rationale”; Likely to impose “needless costs on.. economy"

Irish Jobs and FDI

Irish jobs in the exporting FDI (foreign direct investment) sector are back to 1997 levels.


Every time Tesco opens a new shop, the United Nations' agency UNCTAD's data includes it as a ‘greenfield’ FDI investment, which of course it is but our surplus on food and drink trade with the UK is evaporating fast and as Ireland’s exports in the sector dipped 15% 2009, the UK posted a 6% rise.

It's good to have services export growth.

However, data from for example the aircraft leasing industry can distort the picture.

Goodbody estimated in 2007 that the aircraft leasing companies based in Ireland were managing a combined fleet of 1,600 across global markets.

Nearly 500 jobs are anticipated to be created over the next three years in the aircraft leasing industry in Ireland, according to the Irish Aviation Authority (IAA). In 2010, about 1,000 people were employed in the leasing industry and the authority predicted a growth of around 45% - - that may well be the usual bs from a state agency!

Avolon, the aircraft leasing group headquartered in Dublin, today announced an additional capital raising of US$465m, bringing the total value of funds raised since it was established in May 2010, to in excess of $2.5bn.

Irish Economy 2011: Rising Irish exports, the 'smart economy' and a jobless recovery

Foreign-owned firms accounted for 91% of Ireland's tradeable exports in 2009; Food & drink exports fell 15%

ECB Director Bini-Smaghi: ‘Ireland’s meltdown is the outcome of the policies of its elected politicians’

September 2010 Executive Board, European Central Bank: Back row (left to right): Lorenzo Bini Smaghi, José Manuel González-Páramo, Jürgen Stark. Front row (left to right): Gertrude Tumpel-Gugerell, Jean-Claude Trichet (President), Vítor Constâncio (Vice-President).

The Irish Times published an interview with Lorenzo Bini-Smaghi, a member of the Executive Board of the European Central Bank, on Saturday, Jan 15, 2010.

The following is one of Michael Hennigan's contributions to a related Irish Economy Blog thread.

Bini-Smaghi is correct when he implies that there was strong public support for boomtime policies and the slow-motion response to the banking crisis resulted in the eventual collapse of market confidence.

1. If the global credit crunch had been deferred to 2013, the most likely result of the 2012 Irish general election would be a Fianna Fáil-Labour coalition.

While I don’t buy the argument that the whole population had been transformed into a shower of eejits, absent a global downturn that would be much worse than 2000/2001, fiscal prudence was never likely to be popular with the majority of the electorate who had become obsessed with the paper-profits of the bubble.

For older people with their mortgages paid off and the attraction of equity release, they no longer had to dream of summer days competing with pushy Germans for deck chairs on a tacky beach in Spain but they could aspire to their own place in the sun — even if it was somewhere they had never heard of.

2. The credit crunch broke out in early Aug 2007, 7 months after HSBC Bank announced big subprime losses in the US and revealed the rickety state of the US housing market; by mid-Sept 2008 when Lehman Bros. collapsed, Irish political leaders and the Department of Finance were still relying on reassurances from the financial regulator and the banks themselves on the strength of the banking sector.

Using the Pareto 80/20 rule, how long would it have taken to establish the true state - - who was meeting interest obligations etc? One week?

Anglo made a powerpoint presentation to DoF officials days after the Lehman collapse and Fingleton of Irish Nationwide was also reassuring; liquidity not solvency was the problem.

3. Whatever was discussed on the Trichet-Lenihan phone call a week before, the Irish government was the only member of the Eurozone to guarantee existing bank debt and it was presented as a fait accompli to the ECB and both the Ecofin and Eurogroup. The decision of Sept 29/30 was made without access to crucial information by the political leadership or their advisers.

4. Anglo was nationalised in Jan 2009; in Jan 2010, the head of NAMA said on the detail of property loans presented by the banks: “We opened it up and said, ‘Oh, my God,’ What they are telling us is not the reality.”

5. I have seen no credible analysis to support the case that outside of the euro, the same individuals who were responsible for the economic crash would have behaved prudently at a time when the carry-trade would have been attracted by Ireland’s ‘miracle’ economy.

6. All the wealth hasn’t evaporated; some €60bn was invested in commercial property mainly in Europe; investments were made in prime properties in for example New Bond Street in London, where values have recovered and tenants are usually sound PLCs.

The focus has been on the transferring of homes in Ireland; there are surely many overseas investments in shelter vehicles that are difficult to source.

Irish per capita GNP is at the average of the EU27.

7. As for restructuring, in March 2010, Germany’s top bank, Deutsche Bank, had a combined €14.8bn of gross sovereign debt exposure to the “peripheral” EU states of Greece, Spain, Portugal, Ireland and Italy, of which €10.4bn was to Italy.

So depending on the number of countries involved, German banks should be able to handle bond losses well in coming years.

While it should be easy for Greece to make its case for a ‘haircut,’ with a public debt GDP ratio of over 150%, how could Ireland’s case be accepted without including say Italy and Belgium?

Include private debt and argue that Irish consumers weren’t as prudent as Italian counterparts during the credit boom!

8. If parliamentary pay and allowances are an indicator of public costs, Ireland has still some road to travel.

Sweden is one of Europe’s fastest growing economies and the members of the Riksdag receive a basic, monthly pay of SEK 56,000 (€6,200), a sum that is subject to income tax - - and is at a higher level than Ireland’s.

Members living more than 50 kilometres from the Riksdag are entitled to reimbursement of up to SEK 7000 (€780)/month spent on overnight accommodation in Stockholm. However, the Riksdag has about 250 overnight apartments which are provided free of charge for members.

Fifty TDs only get the basic Dáil salary of €92,672 and their overall earnings in 2010 were at an average of €112,000

A TD living in the range 60-90km from Leinster House can claim €30,350 annually with effect from March 2010.

Chart here of Irish bond yield spreads since early 2008:

http://www.finfacts.ie/irishfinancenews/article_1020984.shtml

Battle ahead in developed world with public sector unions

Weekly sick leave in Irish public service

The Economist says in its current issue that while union membership has collapsed in the private sector over the past 30 years (from 44% of the workforce to 15% in Britain and from 33% to 15% in America), it has remained buoyant in the public sector.

Public-sector unions combine support for higher spending with vigorous opposition to more accountability. Almost everywhere they have demonised competition, transparency and flexible pay.

While union membership has collapsed in the private sector over the past 30 years (from 44% of the workforce to 15% in Britain and from 33% to 15% in America), it has remained buoyant in the public sector.

In Britain over half the workers are unionised. In America the figure is now 36% (compared with just 11% in 1960).

The Economist says people in the private sector are only just beginning to understand how much of a banquet public-sector unions have been having at everybody else’s expense. In many rich countries wages are on average higher in the state sector, pensions hugely better and jobs far more secure. Even if many individual state workers do magnificent jobs, their unions have blocked reform at every turn. In both America and Europe it is almost as hard to reward an outstanding teacher as it is to sack a useless one.

In many countries including Ireland, there are also powerful combinations in the protected professional sectors, which act no differently to public sector unions.

The Economist: (Government) workers of the world unite! Public-sector unions have had a good few decades.  Has their luck run out?

Finfacts:

Sick leave in Irish civil service almost doubled since 1980s; Average employeeabsent for over 11 days in 2007

Could the Irish public sector benchmarking fiasco provide a case for the DPP?

Irish trade union boss David Begg, 'status,' denial and the economic crash

Irish public sector pay/pensions to rise 16% in period 2005-2010; Pay up 11%:Pensions up 66%; Pensioner numbers rise 43% to 103,400

Irish taxpayer to provide €1bn bail-out of FÁS and university pension funds

Hans Rosling's 200 Countries, 200 Years, 4 Minutes - The Joy of Statistics

The growth of global wealth and well-being over the past 200 years.


Finfacts article: Sweden's Gapminder shatters economic and environmental myths with online animated graphs

The Joy of Stats: Hans Rosling says there’s nothing boring about stats, and then goes on to prove it. Only with statistics can we make sense of the world and harness the data deluge to serve us rather than drown in its confusion.

A one-hour long documentary produced by Wingspan Productions and broadcast by BBC, 2010.

Finfacts article: Global population to grow to 7bn in 2011; Family photo of all humanity could be taken in area of Los Angeles city

An Angry Irishman and the [Expletive Deleted] Celtic Tiger

Clip of an angry Irishman venting about Ireland's economic woes with a rich lacing of expletives!

Taoiseach Brian Cowen says sorry!

Ireland's Bertie Ahern and inventing the Free Lunch, March 2000

The clip below illustrates how difficult it was in 2000, to challenge conventional wisdom, self-interest and the likes of Taoiseach (Prime Minister) Bertie Ahern, a former hospital bookkeeper, sailing against the wind that the free lunch hadn't been invented in Ireland.

Irish Economy: The 2001 economic consensus that paved the road to economic ruin

Irish Economy: Ahern, Harney, McCreevy, Cowen and the other individuals/ group swith responsibility for the economic crash

The Daily Show and Fed's Bernankee Printing Money

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
The Big Bank Theory
www.thedailyshow.com
Daily Show Full Episodes Political Humor & Satire Blog</a> The Daily Show on Facebook

Ireland, reform and the IMF

The empty Dáil Éireann chamber of the Lower House of the part-time Oireachtas (Irish Parliament). The members are amongst the best-paid in the world - - typical pay before last December's Budget was equivalent to that of a United States Senator's $169,000 plus tax-free expenses, which can amount to more than 100% of pay - - but the Parliament only holds about 90 plenary sessions annually and the shutters are pulled down each year for a 3-month summer break in common with teachers and the highest earners at the State broadcaster RTÉ.   Two members of the current Government - - who remain on the payroll of the Department of Education - - are building up credits for 3 public sector pensions while the majority of private sector workers do not have one occupational pension.

In 1940, Deputy James Dillon said in the Dáil in reference to the three year sentence to an industrial school, that was given to a child who had stolen some grapes: “Can you imagine the son or the daughter of a resident of Fitzwilliam Square being brought down to Morgan Place and sent from there to an industrial school because he stole 5/- (32 euro cent) worth of grapes?”

How times have changed! Or maybe not.

The IMF is possibly our best hope for a fairer society.

From the early 1950s, when the Catholic Church opposed ’socialised’ medicine and found common cause with devotees of the God Mammon in medicine, the protected professions have comfortably handled the schizophrenic existence of being both socialists and capitalists.

Even the free market side operates via what is effectively a tax (health insurance) as a dual system is the main plank of public policy. The ‘cartel’ charges at consultant level are simply obscene.

On independence, the English inspired legal system continued; why would any of the big wigs have changed it?

Payments to barristers by the DPP rose 11% to €15.2m in 2009 despite an 8% cut; the Irish Times reported last April that its own columnist Noel Whelan was the 5th highest earner at €234,766 (inclusive of VAT).

Lawyers become multimillionaires on the public payroll investigating corruption which should be confusing or ironic and besides reform of the underlying cause of one aspect of corruption, land rezoning, is a taboo issue.

“If you’re not inside, you are outside, OK?" the Gordan Gekko character says in Oliver Stone’s recently released ‘Wall Street.’

Robert Frank of Cornell University has written of “winner-take-all markets.”

These are markets in which small differences in performance (or even small differences in the credentials used to predict performance) translate into extremely large differences in reward.

While these markets have been evident in entertainment and sport for many years, when applied to professional cartels, it’s not just a pioneering surgeon like the late Maurice Neligan who gets big rewards but everyone who manages to get inside the circle.

Then there is a cascade ripple effect beyond.

American CEOs, for example, earned 419 times as much as the average worker last year, up from only 42 times as much in 1980. The top one percent of US earners have seen their real incomes more than double since 1979, a period during which the median income has remained essentially unchanged.

Over time, some of these CEOs will be shown to be duds.

As for the ‘independent figure’ proposed in the four-year plan, just three years ago, an ‘independent’ panel containing at least two multimillionaires proposed lavish hikes in the salaries of politicians and senior public officials.

The Dublin City Manger, just 18 months in his job, got a hike of 36% as did his retired predecessors and so it went.

In the legal world, to take silk should be more like taking nylon.

The Competition Authority (CA) says the legal profession in Ireland is organised into a highly rigid business model: access to barristers for legal advice is limited to a few approved clients, barristers cannot form partnerships or chambers or represent their employers in court.

There is no profession of “conveyancers” in Ireland, as in other common-law countries, and this limits competition in conveyancing services; the title of senior counsel is inclined to distort rather than facilitate competition; junior counsel generally charge a fee equal to two-thirds of the senior counsel’s fee, regardless of the work done by each barrister, despite the fact that this practice was identified as anti-competitive in an independent report on the legal profession 16 years previously; establish objective criteria for awarding the title of senior counsel.

The level of solicitors’ fees in the High Court increased by 4.2% above general inflation annually over the period 1984 to 2003 while the level of senior counsel fees in the High Court increased by 3.3% above general inflation annually over the same period.

The public sector is the biggest customer of the legal profession as with other professional services.

If not now, when will it change?

Transparency and political will to clear the dust from several CA reports is all that’s needed.

Meanwhile a report by the Comptroller and AuditorGeneral says sick leave has jumped since the 1980’s in the Irish  civil service  with the absence rate rising from 3.3% to almost 5%  of available working time, which was lost to sickness absence in  2007.

On average, 59% of all staff employed availed of sick leave in  that year.

The average employee was absent for just over 11 days.

Irish Economy Blog: More on the Four Year Recovery Plan

Finfacts article: Four Year Budget Plan: Ireland's first steps in long march; Real reform dependent on IMF

Irish State Bank Guarantee and the arrival of the IMF in Ireland

Office of the Taoiseach, Dublin - - In this building on Monday, Sept 29, 2008, Taoiseach Brian Cowen made the most cataclysmic economic decision in the history of the State.

The Financial Times said the State bank guarantee turned the State and the banks into one entity from the viewpoint of financial markets and there is a direct link between the issue of a blanket guarantee on Sept, 30, 2008 and the arrival of IMF officials in Dublin m on Nov 18, 2010.

The English writer William Somerset Maugham (1874-1965) said: “It's no good crying over spilt milk, because all the forces of the universe were bent on spilling it.” Nevertheless, it's important to recognise the enormous consequences of the guarantee of existing bank debt in the State guarantee that was issued on Sept 30, 2008.

Ireland and Denmark were the only countries during the global financial crisis to guarantee existing bank debt and on the first day of the Irish guarantee, Minister for Finance Brian Lenihan said: “We are not in the business here of bailing-out banks.”

Advisers Merrill Lynch had warned that an extensive guarantee of liabilities at the State’s main banks could “hit the national rating” and allow poorer banks to continue in operation. However, they advised the minister against a policy of liquidation or letting a bank become insolvent, saying “this was the worst thing that could be done” as it would accelerate trouble for all other institutions. Merrill Lynch proposed an alternative to the guarantee scheme in the form of a “secured lending scheme” for banks whereby commercial property could be exchanged for Government bonds or cash.

There were exactly four months between the collapse of US investment bank Lehman Brothers and the announcement in mid-January 2009 that Anglo Irish Bank would be nationalised.

Strauss-Kahn referred to "one big bank" but there was also the recklessly run Irish Nationwide Building Society (INBS) and the bail-out of the two institutions will cost at least €40bn -- more than 25% of annual gross domestic product. INBS had become a commercial property lender with almost half its commercial loan book for property in the London region.

Minister Lenihan had declared the bank guarantee “the cheapest bailout in the world so far,” but it prevented a restructuring or orderly closure of two insolvent institutions and left taxpayers with the huge bill.

The period post-Lehman period was marked by the collapse of Icelandic banks and several rescues across Europe. Ireland would not have been an outlier in restructuring its banks and imposing losses on bondholders at that time.

Some months later, the Obama administration restructured General Motors in that manner.

Finfacts article, Nov 2010: Brian Cowen - - Ireland's Herbert Hoover in denial to the last as curtain falls on the Age of the Irish Scrounger

Finfacts article, April 2010: Irish Economy: Ahern, Harney, McCreevy, Cowen and the other individuals/groups with responsibility for the economic crash

Prof. Morgan Kelly of University College Dublin and Brendan Keenan, Group Business Editor of Independent Newspapers on Sept 30, 2008, the day the guarantee took effect. Kelly in a stunning tour de force, accurately presents the enfeebled state of Irish banking:

On October 02, 2008, Patrick Neary, the chief executive of the Financial Regulator appeared on RTÉ's Prime Time television programme, and in possibly the most bizarre performance by a public official on Irish television, since its launch in 1961, said that bad lending by Irish banks had nothing to do with the then international crisis which was all about liquidity. He said the banks had plenty of capital to absorb any losses on property loans and he did not believe that over-exposure to the property market was a weakness of the Irish banking sector.

US Federal Reserve returns to Jekyll Island

President Barack Obama stands with Ben Bernanke before making a statement on his reappointment as chairman of the Federal Reserve during the President’s vacation on Martha’s Vineyard, Massachusetts, Aug. 25, 2009.

US Federal Reserve chairman Ben Bernanke spoke on Nov 06, 2010, at a conference held by the Federal Reserve Bank of Atlanta to commemorate the centennial of the Fed's birth, which was shrouded in secrecy on Jekyll Island in Georgia.

The conference took place at the Jekyll Island Club Hotel on Jekyll Island, Georgia - -  the same building where the 1910 meeting occurred.

In the 1830s, the US Congress with the support of President Andrew Jackson, refused to renew the charter of the then central bank, the Second Bank of the United States.

The secrecy of the 1910 Jekyll Island  meeting, has fed many conspiracy theories about the birth of the central bank, which Finfacts outlined last year:

The Federal Reserve and the paranoid style in American Politics

The following is a summary on the birth of the Fed from the Federal Reserve Bank of Atlanta:

Meetings can have lasting meaning, and a meeting on Jekyll Island, Georgia, 100 years ago this month was an important moment in the evolution of U.S. central banking. That meeting is also the reason for the gathering being held here today. An important outcome of the 1910 meeting was a proposal for an institution with multiple branches, which became the model for the Federal Reserve System.

The Aldrich-Vreeland Act of 1908: After a series of financial panics culminating in the Panic of 1907, Congress passed the Aldrich-Vreeland Act in 1908. This act established an eighteen-member National Monetary Commission chaired by Senator Nelson Aldrich of Rhode Island. The commission was charged with finding a way to reform the nation's monetary system. Progress toward that proposal began with the commission taking trips to major European banking centers and holding hearings in the United States. But by 1910 the commission could not agree on a plan.

The Jekyll Island Meeting of 1910: Aldrich then took matters into his own hands, meeting secretly with a group of bankers on Jekyll to formulate a plan. The group included Henry Davison, Frank Vanderlip, and Paul Warburg; also present were Aldrich's secretary, Arthur Shelton, and A. Piatt Andrew, a Treasury official. Warburg's attendance was critical because of his knowledge of European banking practices. Aldrich was well aware that his meeting with bankers outside of the commission proceedings would generate controversy; for this reason, the group met in private at a remote location.

Over the years, the clandestine nature of the meeting has been criticized as allowing undue Wall Street influence over the founding of the U.S. central bank. However, the meeting itself was just one step in the process that led to the creation of the Federal Reserve.

The Aldrich Plan: What emerged from the Jekyll meeting was the so-called Aldrich Plan, which was presented to the National Monetary Commission as a legislative blueprint.

The Aldrich Plan was a catalyst for debate about the role of the government and banking in the central bank's governance. The plan, and the bill that followed in 1912, proposed that a National Reserve Association would function as the U.S. central bank. The association would consist of a federation of regional bank associations, each presided over by boards of directors elected by local banks. This diffuse governance represented a departure from the centralized governance of European central banks. Aldrich's proposed central bank would promote macroeconomic stability. The proposals that came out of the Jekyll meeting remained the core of the subsequent steps in the creation of the Federal Reserve.

Aldrich put forward his central banking bill to the U.S. Senate in January 1912. The Senate did not act on it.

The Glass-Owen Bill: After the election of Woodrow Wilson in 1912, Congressman Carter Glass of Virginia assumed leadership of monetary reform. Glass had served for ten years as a minority member of the House Banking and Currency Committee and had led an investigation into concentration of power on Wall Street. Also working on monetary reform was Oklahoma Senator Robert L. Owen.

The Glass-Owen Bill kept the key macroeconomic stabilization mechanisms of the Aldrich Plan, but it differed in terms of the proposed institution's structure and governance. The Glass-Owen Bill provided for eight to twelve districts, with a reserve bank in each district—a departure from the Aldrich Bill, which called for fifteen districts, with a central bank branch in each. However, the most salient difference was the governance of the central bank. The debate about a U.S. central bank had been mired in disagreements about who would control the system—bankers or appointed government officials. The Glass-Owen bill limited banking interest representation. Of the nine-member reserve bank board of directors, only three could be bankers. Three other directors engaged in commerce, industry, or agriculture were to be elected by bankers, and the remaining three directors were to be named by the Federal Reserve Board in Washington, D.C.

The bill also identified the Federal Reserve Board as the controlling agency. The Board was made up of two ex officio members—the Secretary of the Treasury and the Comptroller of the Currency—and five other members appointed by the president and confirmed by the Senate.

The Federal Reserve Act of 1913: The reconciled bill was passed as the Federal Reserve Act and signed into law by President Wilson in 1913, and the twelve Reserve Banks opened about a year later.

Jon Stewart - - the king of US satire

President Barack Obama waves to the audience after taping an interview for The Daily Show with Jon Stewart at the Harman Center for the Arts in Washington, DC, Oct. 27. 2010. The irreverent 'news' show is one of America's most popular TV programs.

On Saturday, Oct 30th, three days before midterm elections, tens of thousands of people packed the National Mall in Washington DC at a rally organised by Comedy Central satirists Jon Stewart and Stephen Colbert, looking for a laugh and the opportunity to display their disenchantment with what the comedians said was a rally to restore sanity to America's political discourse.

It was a twin rally with Stewart leading a Rally to Restore Sanity while Colbert held his rally under the banner March to Keep Fear Alive and the comedians made clear their dismay with the angry mood of the nation.

Jon Stewart who presents a satirist's view of the news in his The Daily Show program, which is popular with liberal audiences, spoke on Saturday of 'fake news,' which he called, “the country’s 24-hour political pundit perpetual panic conflictinator,” that he added, “did not cause our problems, but its existence makes solving them that much harder.”


“The press can hold its magnifying glass up to our problems bringing them into focus, illuminating issues heretofore unseen or they can use that magnifying glass to light ants on fire and then perhaps host a week of shows on the sudden, unexpected dangerous, flaming ant epidemic,” he said, to roars of approval from the crowd.

Earlier in the week, President Obama appeared on The Daily Show to reach out to a young audience but he met some flak.

Clive Crook of The Atlantic magazine commented that the joke was on President Obama.

The president had come, on the eve of what will almost certainly be the loss of his governing majority, to plead his case before Jon Stewart, gatekeeper of the disillusioned left. But instead of displaying the sizzle that won him an army of youthful supporters two years ago, Obama had a Brownie moment.

The Daily Show host was giving Obama a tough time about hiring the conventional and Clintonian Larry Summers as his top economic advisor.

"In fairness," the president replied defensively, "Larry Summers did a heck of a job."

"You don't want to use that phrase, dude," Stewart recommended with a laugh, in a reference to President George W. Bush's infamous praise of his disaster agency head during the the Hurricane Katrina relief fiasco in 2005: "Brownie, you're doing a heck of a job."

Crook said the indignity of a comedy show host calling the commander in chief "dude" pretty well captured the moment for Obama.

There was worse.

"You wouldn't say you'd run this time as a pragmatist? It wouldn't be, 'Yes we can, given certain conditions?'"

"I think what I would say is yes we can, but..."

Stewart, and the audience, laughed at the "but."

Crook said actually they were laughing at Obama.

Bloomberg Game Changers: Jon Stewart; Bloomberg profiles Jonathan Stuart Leibowitz, now Jon Stewart.

Obama on The Daily show

Life as Steve Jobs' boss

Apple CEO Steve Jobs at the All Things Digital conference, Tuesday, June 01, 2010.

Prof. John Kay wrote in his Financial Times column in Oct 2008 that John Sculley was chief executive of Apple from 1983 to 1993. He gave an extended account of his experiences to Fortune magazine, which posed the question: “Sculley – chump or champ?”

Sculley’s tenure included a period of great success - - Apple’s graphical user interface brought the present computer within the capabilities of everyone; and a period of serious failure -- Microsoft achieved almost complete dominance of the industry. How could one man have been both so right and so wrong?

Prof. Kay said the analysis overlooked the obvious answer - - that neither Apple’s success nor its failure had much to do with Sculley, an able corporate bureaucrat who rode the roller-coaster of high technology.

He said by describing Napoleon’s Russian campaign through the eyes of individual participants, Leo Tolstoy rejected the notion of history as the lives of great men. Of the battle of Borodino, he wrote: “It was not Napoleon who directed the course of the battle, for none of his orders was carried out and during the battle he did not know what was going on.”

On September 12, 1985 Steve Jobs stood up at an Apple board meeting and after years of internal political turmoil and power struggles, said in an unemotional voice, "I've been thinking a lot and it's time for me to get on with my life. It's obvious that I've got to do something. I'm thirty years old."

He returned to the company he co-founded in 1997.

John Sculley has given an interview on working with Steve Jobs:

Steve had this perspective that always started with the user's experience; and that industrial design was an incredibly important part of that user impression. He recruited me to Apple because he believed the computer was eventually going to become a consumer product. That was an outrageous idea back in the early 1980s. He felt the computer was going to change the world, and it was going to become what he called "the bicycle for the mind."

The one Steve admired was Sony. We used to go visit Akio Morita, and he had really the same kind of high-end standards that Steve did and respect for beautiful products. I remember Akio Morita gave Steve and me each one of the first Sony Walkmans. None of us had ever seen anything like that before, because there had never been a product like that. This is 25 years ago, and Steve was fascinated by it. The first thing he did with his was take it apart, and he looked at every single part. How the fit and finish was done, how it was built.

Apple became the leader of the mobile music market with the success of the iPod digital music, which was launched in 2001 .

Bloomberg BusinessWeek: Being Steve Job's Boss, Oct 2010

John Kay, Oct 2008: Could Napoleon have coped in a credit crunch?

Finfacts article, May 2010: Apple overtakes Microsoft as the world's most valuable technology company

Finfacts article, Oct 2010: Apple posts 70% surge in quarterly earnings eclipsing profit reported by IBM

Bloomberg Game Changers: Steve Jobs - - VIDEO: Through interviews with friends, former colleagues and business associates, GAME CHANGERS reveals the many layers of the intensely private Steve Jobs - his style of leadership, management and creative process. Interviews include Apple co-founder Steve Wozniak, former Apple CEO John Scully, journalist turned Venture Capitalist Michael Moritz, Dreamworks CEO Jeffrey Katzenberg, former Apple "Mac Evangelist" and Silicon Valley Entrepreneur, Guy Kawasaki and Robert X.Cringely, technology journalist and former Apple employee.

Irish State broadcaster RTÉ enters property selling market

Irish State broadcaster RTÉ has entered the property selling market in partnership with online property service Daft.ie.

RTÉ.ie stated as the website of Radio Telefís Éireann, Ireland's National Public Service Broadcaster, which relies partly on mandatory licence fees payable by Irish resident owners of television sets, has launched the service 'RTÉ Property' and it is focusing on residential, commercial and holiday property sales.

The Irish obsession with property coupled with lax banking regulation, cronyism, a corrupt land rezoning system, poor planning and little concern for conflict of interest, has doomed the Irish economy.

During the bubble, senior politicians publicly urged citizens to buy houses in case they missed the boat; many of them did as the bubble headed for a peak in the crazy year of 2006 and they are now sinking with negative equity.

Maybe RTÉ might be able to get away with claiming that its property service is an advertising vehicle but in a well-run European country such an excuse would not wash.

If you present a business service to consumers under your name, you are responsible and excuses about partnerships would not matter.

The following is from a comment that was made in August on an online forum relating to issues of planning and conflict of interest.

The case that the planning system should be examined and reformed with the same seriousness that is being given to the banking crash, is very strong.

It was inevitable that in a small country with 88 planning authorities and a culture where conflict of interest is almost an alien concept, there would be serious consequences for the economy and much of the population, when there was a spike in demand for development land.

Development land is the main driving force of corruption across the globe and Ireland has been no exception.

In Ireland, the rezoning system has been used to create an artificial scarcity of land and during the boom site costs as a proportion of the cost of a house jumped and a small number became immensely wealthy from the system.

Restrictive planning is a big factor in house price inflation and in England, Tory controlled shires have traditionally restricted housebuilding to preserve the so-called green belt while in the cities, it has been in the interest of the Labour Party to keep populations hemmed in to preserve their core support base. In one year in recent times, there was no new house built in David Cameron’s constituency!

In Ireland, local government power had been transferred to county and city managers to reduce the opportunities for corruption but local councillors were left with the power to rezone agricultural land for development. It gave the often uneducated elected officials, a powerful means of raising funds, ostensibly for election campaigns.

RTÉ’s Prime Time programme in Nov 2007, disclosed statistics about the involvement of elected representatives in the land development and property business.

A total of 22% of councillors dealt in or developed land through their day jobs as estate agents, landowners and builders. In Mayo, that figure rose as high as 45%, in Offaly it was 44% and in eight other counties it was 33% or more.

Prime Time found that in Clare, declarations of interest showed that 97% of elected members had no beneficial interest even in their family home. In ten counties, two-thirds or more of the councillors had not declared an interest in the family home.

In Scandinavian countries, if a councillor intervened behind the scenes to influence a planning or rezoning decision it would be considered corruption – a criminal offence – but in Ireland, it’s the norm.

So in a country that is estimated to be 4% urbanised and despite the huge rise in new stock, Ireland has poor housing conditions compared with other countries with similar living standards, with floor areas per person of around a fifth less than the western European average, even though a large number of dwellings (45%) are detached houses.

The UK’s Policy Exchange think tank, argued during the boom that the Irish planning system creates too many ‘starter homes’, of often mediocre quality on monotonous estates, and allows insufficient quantities of larger, better quality properties. The lack of better properties has fuelled house price inflation, it argued, so that the high headline housebuilding figures gave a misleading picture of the true supply situation.

The quality of some apartments built in Dublin during the boom is a national disgrace; occupiers have not only to deal with negative equity but very limited storage space and poor soundproofing. In the Gas Works development in South Dublin, bicycles have to be stored on balconies. At least they don’t have to worry about storing coal in the bath — that’s if they have one!

Irish corporate tax rate and FDI (foreign direct investment)

US chip giant Intel is Ireland's largest industrial employer. Since 1989, Intel has invested over $7 billion transforming the 360 acre former stud farm campus in Leixlip, Co. Kildare into a state of the art manufacturing centre of excellence. Intel had peak employment in Lexlip of over 5,000; In 1930, Henry Ford, son of a native of Ballinascarthy, near Clonakilty, West Cork, had 7,000 employed at his Cork plant.

The following are contributions to a thread on the issue of the Irish corporate tax rate of 12.5%, on the Irish Economy blog.

A tax exemption on export profits was introduced in 1956; a 10% tax on manufacturing - broadly defined: it included growing mushrooms under galss - was introduced in 1981 as some companies were due to see their 1956 exemption expire.

Intel for example began on a 10% rate in the early 1990s.

The EC agreed in 1997 to one rate of 12.5% replacing the general corporate tax rate and the two schemes as outlined above.

The challenges for Ireland

A significant downscaling of costs and reform to have a governance system comparable with the Nordic model is necessary to meet the current challenges.

Declare open season on sacred cows; despite the crash, it’s private sector workers and business collapses where the real pain has been experienced.

The rest have experienced baby-step adjustments.

We have got most of the big US companies that are likely to locate in Ireland; the key challenge now is keeping them. This is why the recession period fall in costs is just not enough. Rivals in Eastern Europe have also had big drops.

Why has Intel got its original plant idle in Leixlip?; it has to have a strong reason to invest $3bn in another plant in coming years when the centre of economic gravity is moving eastward.

Research should focus on the food area; amazing isn’t it that Ireland’s cheese output could be as low as Sweden’s?; lower than in Spain and Greece while production in the Netherlands is six times the Irish level.

Amazing too that a New Zealand company could capture almost 40% of international trade in dairy products.

The the main focus of increasing exports should be in the single currency area.

Taoiseach Brian Cowen said last week there should be more trade missions to regions like Asia; we can’t be all over the place like a company with too many products or a restaurant with too many choices on the menu.

We have little recognition in Asia; Roy Keane and Boyzone gave us some; logistically it is also a big challenge.

I have some idea of what I’m talking about as I live in Kuala Lumpur!

EU Commissioner Olli Rehn recently said, Ireland has to prepare to be a higher tax economy and suggested that an increase in the corporate tax rate should be considered.

The European Commission is also critical of tax competition from Switzerland.

At present, companies in Lucerne for example, pay an average 23% combined local, cantonal and federal taxes on their profits depending. In two years time the burden will be reduced to 15%.

Adjacent canton Zug is well established as a location for the European headquarters of international firms, while Schwyz, Nidwalden and Obwalden also offer better incentives.

A KPMG study shows that global corporate tax rates were reduced by 7% between 1999 and 2009 with EU countries slashing their tax by 12% on average and Switzerland by 6%. Guernsey and the Isle of Man top the table with zero taxes on company profits. The British islands are followed by Montenegro (9%), and a group of countries – Bulgaria, Cyprus, Serbia, Albania and Bosnia & Herzegovina – on 10%.

In the canton Zug, about 30 minutes drive from Zurich, the corporate tax is about 16% but can fall as low as 9.5% for companies that do most of their business outside Switzerland.

Such a location may not suit big manufacturers.

There are 3 key tax factors in the attraction of Ireland for multinationals.

1) There is no tax on patent income

2) the corporate tax rate of 12.5%

3) R&D tax credits — it’s a while since I worked in MNCs but my hunch is that ‘R&D’ would be broadly defined and with capital allowances, the effective tax rate would be in single digits for big firms.

Microsoft operates 2 tax haven companies in Ireland.

Income from patents parked in Ireland is routed through Flat Island; licensing fees from 20 or more EMEA countries are routed through Round Island One.

As Round Island One paid over $300 million in Irish taxes in 2004, it is possible that half the corporate taxes paid by US MNCs are from the tax haven activities.

The tax haven income may well be worth up to $2m in taxes paid in Ireland - - 40% of total MNC tax paid.

As regards the zero tax on patent income, given that there is now an R&D tax credit, I don’t know what is the justification for it.

Irish residents are also tax exempt on patent income - - it is hardly the key motivator for innovation.

Intel CEO Paul Ottilini said in July in Aspen, Colorado that a new semiconductor factory at world scale built from scratch would cost about $4.5bn - - in the United States.

He said: “it costs $1bn more to build, equip and operate a semiconductor manufacturing facility in the US. Ninety percent of the cost difference is the result of tax and incentive policies.”

He said in Aspen: “At Intel, we generate 75% of our revenue and much of our profit abroad. The US tax treatment of that income makes it extremely expensive to repatriate that profit and invest here.”

Obama said this week that he is open to cutting the headline tax rate of 35% if it would be revenue neutral — eliminating various breaks.

FDI investment in Ireland has plateaued and while the country has been run in an appalling manner for decades, the positive aspect is the parallel MNC world.

As I have said before, without FDI, think of Albania or a big Sceilig Mhichíl theme park for American tourists.

We have had some new small scale projects in the past year and employment in the sector is back to 1998 levels.

We are not likely to be very attractive to emerging economy MNCc - - so we should keep the Yanks tuned up.

Ex-Intel boss Craig Barratt said Ireland is over-reliant on FDI. However, behind all the spin about developing the indigenous sector and advice from chairborne experts to put Mandarin on the curriculum, in the medium term Ireland has nothing else to rely on but the MNCs.

I reported earlier on Finfacts that Irish goods exports to China in H1 2010 were 1.9% of the total and only 6% of that 1.9% were from indigenous firms.

In the bubble years as the Irish became the second biggest investors in commercial property across Europe, policymakers didn’t give a damn about how new markets would be developed.

The reality now is that it takes years of perseverance, as long as key variables are positive, to develop new export markets.

Irish Economy blog: thread on FDI

Finfacts article: 1) Ireland can choose a path to greatness or perdition

2) EU-China Summit: EU27 exports to China in H1 2010 rose 43%; Germany accounted
for almost 50% of total; Ireland had trade surplus