It is incumbent on any Member of this House or, indeed, any citizen to wish well to an initiative whose purpose is to try to tackle the problems of unemployment and the regeneration of a healthy climate for enterprise. It is proper that we should wish the NDC well and hope that it succeeds.
That is not to say that we should be unquestioning in our benevolence. I should like to raise a few questions which I trust might afford the Minister, in due course, the opportunity to present to us perhaps a more substantial case than he has had the opportunity to present thus far in the House for the existence of the National Development Corporation. It would seem that one of the criteria which should attend the setting up of any new institution of a State or semi-State nature particularly, should be to assess whether or not existing agencies have the capacity to deal with the venture which has been given to the new agency as its responsibility and to assess whether or not there were fundamental deficiencies in the existing agencies which would not allow them to be transformed into a suitable vehicle for doing that job. They should be quantified. Anybody who has witnessed the incredible spectacle of growth in the areas of public expenditure and the very central role which the State now occupies in handling our economy, would need very strong convincing to accept readily that any new State or semi-State agency should be established unless the case were not just presented but proven beyond all reasonable doubt. All of the examples in the past 15 years give us cause for great concern in the event of the setting up of a new agency without that case being adequately proven. It is difficult to welcome readily any new agency unless that context has been put in.
The central role of the State is really quite extraordinary in our economy. I have no doubt that it is one of the most stultifying factors inhibiting enterprise and initiative and reform of our tax and other systems. The burden is simply too great. In that context we have to be very cautious about the establishment of a new agency such as the NDC. This year, as per Government budget forecasts, gross current expenditure was projected to be £9,015 million and the PCP £1,806 million. These two combined amount to some £10,821 million out of a GDP at market prices forecast by the ESRI in July 1985 of £17,517 million and a GNP forecast from the same source of £15,657 million. When all that is boiled down it means that gross Exchequer current and capital payments for 1985 equal 62 per cent of GDP or 69 per cent of GNP. With other public authorities at local and regional level included, excluding Exchequer transfer payments which would represent double counting, Government at all levels now control some 70 per cent of GDP. The highest previously on record in any western democracy at our level of real GDP per capita was France in 1965 where the figure was 37 per cent.
In layman's language I am saying that there are eastern bloc countries where the dominant role of the State in managing economic affairs is not nearly so great or so fundamental. There are many members of the Communist Party in Yugoslavia who I am sure would be envious of the manner in which we have managed to facilitate the powerful central role of the State here in handling the economy. It is important that the NDC should not add to that preponderance of State management but should affect a qualitative change for the better. I am not sure whether that has been proven to the House or not. It would certainly be unacceptable and intolerable if a new semi-State agency were to be established which would simply add to the bureaucratic clutter without affecting qualitative change overall. Public expenditure in Ireland as a proportion of GNP has gone from something like 45.8 per cent in 1977 to 61.9 per cent a year ago. This brings home to us the path along which we are moving. There is no point in crying for reform of the taxation system or greater incentives for this or that unless we recognise that to continue along that path is not simply reckless but suicidal.
A central element in the hoped-for success of the NDC will be the degree to which it can effect a qualitative change and not simply be another tier of overlapping, duplicatory assessment and monitoring when a would-be applicant has gone through all the others, the IIRS for the technical side, the IDA, CTT for the export area and perhaps Fóir Teoranta if they are in trouble and need to be bailed out. That is a legitimate worry. I would not like anyone to misinterpret the expression of that concern as a lack of enthusiasm about a venture which we hope will be successful. It is simply a reasonable question to put and one which, I trust, has an answer.
It is important to state that this concern also finds an echo in the increasing number of regulatory-type Bills in the House and the dominant role of the State in handling our economy. It appears the prevailing philosophy is that virtually every area of commercial activity, and in some cases social intercourse, is to be strapped down in some way, as the Lilliputians strapped Gulliver in Gulliver's Travels. It is that kind of idea where every movement has to be regulated in triplicate and controlled. I am inclined to think that it is time for a fresh look at the labyrinth of regulations and an examination of whether we have gone too far in some areas. De-regulation in some respects might not be just helpful but fundamental if we are to get enterprise moving again.
Many of us would have a preference for the State to act as a catalyst in relation to industrial development, leaving the main operational aspects to the private sector and market forces, with due acknowledgment of the place for State-sponsored commercial enterprise where appropriate and deemed right by the Government of the day. It is not reasonable as a philosophic base for this discussion to suggest that the State should be in the business of complementing, supplementing and assisting and facilitating all of us to go about our daily lives. It should not be in the business of being the first guarantor in every case. It should not be in the business of living our lives for us. It is a question of outlook, attitude and philosophy. My view is that the best Government is more often than not the least Government, not just because I am a democrat but because for pragmatic reasons it is less expensive, less cumbersome and in most cases more efficient to have it that way. Those are the fundamental questions which a debate such as this allows us to ask. Such questions would concern the degree to which the State should not be the first in but the last in, the degree to which the State should be involved or if it should be involved at all. Every time a measure is introduced in this House by the Government the State should prove that it has to be so involved. It should not assume that it has the right to be involved. It should not assume that it has the right to control airwaves or to tell people what seeds to plant in the soil. It should prove that it has an obligation to do so in the common good. In many cases it will be able to demonstrate that, but it should not assume that it has the right to order our affairs for us. The State ultimately is the servant of the people and should be reminded regularly that that is the case.
I gather that the financial sector at present has ample funds available for investment. The problem is possibly twofold. It is a shortage of viable commercial projects and a discouraging taxation climate. These projects can only be generated if the climate for enterprise is right and if there is the opportunity to earn adequate reward to compensate for commercial risks. There are people in the House who might not like the though of that but it is the real world. Business people do not put a shilling anywhere unless they hope to get two shillings back. It is nothing to do with theology or philosophy or policy orientation; it is simply a pragmatic assessment of the way the world works. Some of us might not like it but that is the way it is. Industrial development, product and service, depend on the development of people and the encouragement of people who have ideas for viable, new and improved products and services and who have the skills, motivation and resources to bring these ideas to successful commercial fruition on home and overseas markets. It is my thesis that in general — there are exceptions — the State can help to develop these people and can and should support them by real resource transfer payments from other productive sectors of the economy but that the State cannot perform the function of entrepreneurship on their behalf. Unless it proves that it has to do so, the State should not attempt to perform the function of entrepreneurship. First, it does not have that automatic right, and second, regrettably it has been very bad at it whenever it has attempted to do it.
It is reasonable to suggest that at the very least we should be given a careful, considered justification for the NDC. A report from the OECD recently told us clearly that the key to industrial growth in Ireland lies in private capital rather than State grants, and its success would lie in the capacity of our country to help people to bring on stream their own projects rather than the State assuming that it has the wisdom, the flair and the capacity to do it on behalf of the people. That point has to be dealt with.
If we look carefully at the rationale for setting up the NDC we must consider four issues. First of all, we must show that to some extent all existing agencies are in some way not suitable or are deficient, or are not capable of being made suitable or appropriate to the job in hand. Because the NDC will be concerned particularly with equity and investment, we must deal with the implication that the existing capital supply arrangement is deficient in some way. That is the implication, that the NDC will see that it will work efficiently. Third, we must be able to show that the identified weaknesses, those in respect of which the NDC will be the answer, demonstrably can be dealt with by the NDC. Fourth, we must be able to deal with the degree to which the NDC will be able to operate on commercial criteria free from the constraints of policy input, of political pressure by the Government or Members of the House or other institutions.
In his speech, the Minister dealt in a sense with why, for example, the NDC has to be set up when we had the NEA. He gave reasons. For example, he said that the NDC are being set up by law of the Oireachtas whereas the NEA had been set up by administrative means. I suggest that that in itself is not a reason why the NEA could not do the job they were designed to do. I always felt that the NEA were in a state of hold from the beginning and I had a certain sympathy for them because they were shackled in their attempts to do what they were supposed to do. The corporate status of an institution, provided it has the capacity to enter into agreements, to underwrite guarantees and so on, in itself would not be a major problem, or if it was it could be corrected by re-establishment on a suitable basis. I am not suggesting that the NEA had the right shape or structure for the job the NDC are designed to do.
The Minister said: "This legislation provides the NDC with a proper capital base, the lack of which was a serious inhibiting factor to the operations of the NEA". Why were the NEA not given something more than a nominal share capital? That was simply a matter of operational mechanics and it was not a fundamental reason why the NEA could not work. The Minister said that the NDC would have statutory power to operate and to invest in areas as defined in the Bill. It is true to say that the NEA did not have the power to do that.
In essence, I am saying that I am not sure, after carefully reading the Bill and studying the issues, that one or other of our existing agencies, or two or three of the existing agencies integrated, would not have been able to do the job the NDC will be asked to do. In the Bill some of the work of the NDC in the business of propping up some industrial projects through advancing loans has administrative echoes of much of the work of the IDA, Fóir Teoranta, CTT or the NEA, and I am worried not just about duplication but about repeating the work five fold. As Chairman of the Committee on Public Expenditure during the past two years I have noticed the degree to which there is obvious overlapping and wasteful duplication in the way State agencies assess projects, people having to go through the same hoop on many occasions. I hope this will not simply be one more hoop. I hope it will be a new dynamic approach to the country's problems.
Are the NDC the right answer? Similar agencies abroad and the experiences they have had do not augur well for the success of the NDC. As far as I can gather, only Sweden has had a reasonably successful state enterprise agency. Other national organisations would lead one to be concerned. We might consider the examples of other countries which have failed in this so that we might learn lessons.
A recent study by the Trade Policy Research Centre in Britain examined public investment companies in a number of countries, Belgium, France, Germany, Holland, Sweden and the UK. In all of those cases, for a variety of reasons there were failures. The Italian experience was a disaster because social objectives came very much to the fore, as one would expect in a country with the physical, economic and demographic structures it has. The lack of clear objectives in the way the Italians handled their affairs conflicted fundamentally with the economic and commercial criteria of that agency. The Italian agency was liquidated in 1977 with substantial redundancies and record debts. There was a similar picture in the State Reconstruction Company, established in 1972 to modernise sections of Italian industry. Under political pressure it wilted and ended up a disaster.
An analysis of Belgium's national investment company is given. It was a State holding company established in early 1960. It managed to achieve a negative real rate of return in every year of its operation. It lost the equivalent of half of the initial investment in every one of the 16 years of its existence. I assume that the Belgians, the Italians and the Dutch are not fools, but they failed. The United States experience was even more unsatisfactory. The Reconstruction Finance Corporation was established in 1932 — designed to deal with the depression in the United States — and had boom years in the forties and fifties. However, it then got into what might be described as the more exciting market opportunities, took to financing the construction of bars, drive-in movies, those areas. Unfortunately, usually these deals end up becoming involved in political and financial anomalies — to use a charitable word — and the RFC was wound up in 1953.
In most European countries it appears that the experience to date of State investment companies has been less than satisfactory. They start with good intentions, highly motivated, with good staff. However, political pressure then commences, pressure to invest in a particular project in a depressed area. We have had echoes of that in this debate already today. One of this morning's papers carries a story about people who want the NDC to come in and help to develop their town centre. I read a story yesterday about a political grouping who want to ensure that they will have a certain number of nominees on the board. The National Development Corporation has not yet been established, yet the tugging and pulling has commenced. We had better be very clear about what we are setting up before we do it if those auguries are not to be other than solidly based. The simple truth is that, in general, State investment companies have not worked, for the reason that they are precisely that — set up by the State, accountable to the State, open to manipulation by the State, to pressure by the State and in this case possibly every one of us in this House. Perhaps the National Development Corporation is the right vehicle but, if so, it would be relatively unique on the European landscape.
The question of policy directives, set out clearly in the Bill, arises. What is a policy directive? When can it be given? How will it affect commercial criteria? For example, will it mean that the NDC will find that every time there is a change of Government there will be a change of direction? Will it mean that investors will say, "I cannot get involved in a medium term investment situation when, for example, the next Government might direct the National Development Corporation to pull the plug?"
Obviously it is not easy to suggest that we should set up an agency totally removed from some form of public control and accountability. At the very least we shall have to spell out clearly the degree to which the National Development Corporation can deviate from commercial criteria alone. If those commercial criteria alone were to be used — after all they constitute the key to return on investment and entrepreneurship — I have no doubt that the NDC would reach precisely the same decisions in general as the private capital market reaches at present. Therefore the extent to which they will deviate from them has to be clearly spelled out, the occasions on which they can deviate the extent to which they can do so, the basis for such policy directives as is mentioned in the Bill. All of those things must be clear.
Once social objectives become relevant the public agency simply has a discretion to depart from conventional commercial wisdom. Once it has that discretion, sloppy standards slip in, excuses for inefficiencies, for waste, apologies for not achieving targets. Not alone that but, in fairness to the executive of the National Development Corporation, whoever they will be, there would be frustration if there was to be an open-ended injection of "policy directives" on any suitable political occasion. Therefore, I have that sense of foreboding also. Obviously that discretion will be particularly attractive to us. It will become very fashionable for people like me to stand up here and demand that the NDC goes in to bale out company X despite the fact that that is not their role. I have no doubt that inevitably Ministers will have to respond to that to some extent and eventually that will percolate through to the way in which the National Development Corporation is run. The scope to pursue non-commercial criteria brings the whole company's investment approach down to the area of political and public choice and, when one gets into that quagmire, none of us could be overconfident.
It appears to me that if the industry is to be given a chance of working satisfactorily it will have to be free of political pressure to the maximum extent. The extent to which it will be accountable to policy directives will have to be clearly spelled out. A guarantee of day-to-day autonomy, such as many of our State agencies have at present, is not adequate and has not worked to date. In his remarks the Minister talked of policy directives, the possibility of Government giving direction to the agency as if we should be consoled about that. Frankly, and with respect, I am not. I am not because the Department designed to handle the NDC — I say this with respect to the people involved and with particular admiration for the current Minister who handles that Department — have proven themselves less than totally satisfactory, to put it mildly, in being able to handle and monitor the work of many of the agencies under their remit at present. Whether they be semi-State agencies or others, whether they be the ICIs, the PMPAs, the Irish Shippings, or whether they be the agencies at present under their remit, the Committee on Public Expenditure have reason to be less than totally satisfied about the manner in which that monitoring has gone on. Within the past fortnight the secretary of the Department admitted to our committee that they had not got at present a proper cost evaluative technique for price per job created by the agencies under their remit. How then can we be assured, happy, that yet another responsibility of this Department will be handled, not in the same way — because the same is not good enough — but better, different? I, for one, will need some convincing on that.
When it comes to the area of policy directive and monitoring by the Department, whereas perhaps the ordinary layman should be consoled that somebody is looking after our interests, I am not consoled, I am discouraged on the evidence to date. I am asking that the extent to which this National Development Corporation can depart from commercial criteria be spelled out in this House, in this Bill, so that we shall all know exactly what is meant by social objectives. None of us here is not in favour of creating jobs. The weighting to be given to different non-commercial benefits should be made explicit to this House so that management can be made accountable for deviating from those criteria. Whether even that will provide adequate insulation, as it were, from the political process and its inevitable effect in encouraging a departure from commercial criteria, whether that is sufficient, I leave to people to decide for themselves but at least it might give the National Development Corporation a fair chance to get off the ground.
The definition of social objectives elsewhere in cases where State enterprises abroad have been set up has rarely been defined. A State investment company inexorably tends to become what I might term a political investment company rather than a vehicle untrammelled by the political forces and devoted exclusively to industrial growth. That concern also is reasonable. Why this difficulty should arise I am not so sure except that sometimes in these discussions we make a basic assumption, a basic mistake that jobs are created. I have been hearing about job creation since I came in here. Nobody creates jobs as an end in themselves. Jobs are created as a means to an end. People do not set out to create jobs. In the private sector people set out to make profits, and there is nothing wrong with that. If they need to employ people they do so, but they do not set out to employ them. In this technological age if they can avoid employing people they will. The assumption that there is an end called job creation, that the State has the wisdom to create those jobs in a productive sense which can be self-sustaining and self-financing is a myth. Therefore, when the State says that one of its social targets is to create jobs it really means that it intends to create a climate of investment in which people will be encouraged to set up enterprises which will have jobs as a by-product. The State can obviously influence that by encouraging investment in labour-intensive areas. We do not do this at present and our tax system is an example.
One of the fundamental reasons for setting up the NDC is the supply of capital on the market. The problem, which was acknowledged in the White Paper on Industrial Policy, is that our tax regime has persistently encouraged loan finance and benefited investors in property and services rather than in manufacturing. The White Paper gives as an example the tax relief on new equity introduced by the Finance Act, 1984, as a move to redress the problem. If Professor McAleese was correct in suggesting that there was no overall capital shortage in Ireland, then it appears that the loan equity balance should be capable of being corrected in its own right by appropriate tax adjustments and not by a new State agency. I am not sure if the case is proven for setting up the NDC. We are trying to redress the problem because we did not ask the right questions in the first place. A pell-mell rush by the State to set up a corporate entity which can create jobs may not have cottoned on to the truth which is that jobs create themselves in a healthy economic climate; that that self-creation is because people set up enterprises for reasons which have nothing to do with going to bed with semi-State organisations. This has nothing to do with ideology or any of the nonsensical claptrap to which we have been listening for the last few weeks. It is simply an understanding of how the world works. Indeed that aspect often worries me in regard to the House because many Members — myself included — have very little, if any, experience of the business world which we move around on the chess board in here. When we have a problem set up another State body.
I note from the Minister's speech that there is to be an operating agreement between the IDA and the NDC. Obviously that has to be done but, unquestionably, many of the functions of the IDA, NDC, CTT and the IIRS are parallel if not overlapping. The IDA, for example, give grants and loans and the NDC will also give loans. In many cases the same entrepreneur will go to all the different agencies, groups of civil servants examining the same applications. Is that good State management? Maybe it is but it has not been proven to my satisfaction.
I mentioned the way the world operates in relation to jobs. If unemployment continues perhaps we will have to say that it is right and proper, as a social objective, to set up jobs as an end in themselves. We should not hope that things will be all right on the day if we plough enough money into State enterprises. However, that is a long way off. The implication of such acceptance is that we think it would be better for people to be employed rather than festering with nothing to do. We may agree that there is a price to be paid for such involvement and that we will marry the resource of unemployed people with the undoubted work potential in the community and pay for it, because it is good for everyone to have the dignity of work. However, that is not our present thinking.
If the NDC are here to stay — I am sure they will outlast many of us — how should they operate? I hope they succeed. We all really want them to succeed because there is nothing so destructive human potential than the waste that is evident at present in the unemployment area. I bow to nobody in stating that my constituency epitomises that area of despair. I see it daily. It is destructive and deadly and, for that reason, I hope the NDC works. This affords us a wonderful opportunity for public participation. Let us consider that we might, for a change, make every pound of public money which we pay out buy a little public participation and interest. The OECD examiners' report, 1985, entitled Innovation Policy in Ireland dated 18 September 1985, which is a restricted publication of the OECD, reference DSTI/SPR, page 37, states:
While under present circumstances it is understandable that the initial injections of capital in NDC will be State originated, the opportunity should not be missed to offer part of NDC's equity to the general public and/or venture capital funds under especially attractive terms regarding issue price payment terms for taxation treatment.
We have an opportunity now to let the public buy in and to take an interest in these corporations which they fund indirectly through taxation. This approach could help to extend the base for share holding in the community and to develop the Stock Exchange. The main emphasis should be on giving the individual taxpayer the opportunity to participate in ownership of a successful State commercial enterprise. It is incredible to think that we pay hundreds of millions of pounds of public money and yet no taxpayer can say that he has even a toehold in regard to ownership or interest of many of the enterprises which he funds. That would have major qualitative and quantitative advantages and would bring about a fresh attitude in terms of interest by the people and in encouraging investment. For example, if a constituent of mine had shares to the value of £25 in Telecom Éireann or Aer Lingus he or she would be a little more watchful about his or her investment and would take an interest in reading company reports. Leaving aside the question of whether he or she is entitled to that as of right——