I thank the joint committee for inviting us to talk about the cost of doing business in Ireland. This important topic goes to the core of the socioeconomic well-being of our country. It is the key to competitiveness, sustainable jobs and sustainable housing. We hear a lot about costs in Ireland. Several years ago, Eddie Hobbs presented a television programme called "Rip Off Republic". In 2005, Phil Hogan made an impassioned speech to the Dáil on competition law reform. He said his motion on the issue was inspired by "the complete refusal of the Government to deal with rip-off Ireland, its complete inability to tackle the vested interests [and] its complete antipathy to consumers and small businesses as a result of the flourishing anti-competitive practices it is happy to ignore". It is now 2018 and we are still talking about high costs, but we are not doing anything.
I have noted the contributions of the many other groups that have contributed to this discussion. I will take a more generic approach to the cost of doing business in Ireland. I will consider the issue from a macroeconomic point of view because I believe there are significant misconceptions about price and costs. Price, in itself, does not determine profit. Instead, profit is determined by price minus costs. Importantly, price determines competitiveness and we are not good at competitiveness in Ireland. As a country, we owe a lot to Whitaker and Lemass for setting the foundation for our incredibly successful foreign direct investment programme. Perhaps we have overcooked it. When Deputy Enda Kenny became Taoiseach in 2011, we wrote to him to argue:
Our high cost base is the reason why our corporate tax rate is so crucial to economic recovery. We should not have put ourselves in this position .... we in Ireland must act swiftly to radically reduce our cost base.
These words have turned out to be prophetic. In the past seven years, our foreign direct investment policy has come under heavy and sustained attack. The US and the UK have committed to very significant cuts to corporate tax rates. The EU is moving towards a federal tax regime. The OECD is working to create a fairer corporate tax environment by aligning profits with economic activity. The European Commission's decision in the Apple tax case has put a spotlight and even more pressure on Ireland's corporate tax model.
We can no longer rely on our decades-old foreign direct investment policy as a panacea for providing mass employment. We will have to place a greater focus on our indigenous economy, which has often been neglected even though it has massive potential. For example, there is potential for exponential growth in added value in the agriculture and aquamarine sectors. A whole new industry can be created by effectively processing the fifth quarter from the beef, pig and sheep sectors. The shoe-making sector can be revived. We have seen what competitiveness has done for the craft brewing sector. I admit that the competitiveness in this example is somewhat false, given that it is driven by substantial excise credits, but it shows that competitiveness works.
I would like to draw the attention of the committee to Article 45 of the Constitution, which is dedicated to competition. Our forefathers crafted Article 45 because they understood competitiveness. Even though Article 45 is a cornerstone of how we are supposed to be running our country, it continues to be ignored by the body politic at large.
Why have we let a small number of large corporations dominate so many key sectors? Why do we give them monopoly and duopoly market power when they constantly abuse it? Perhaps Transparency International nailed it. It stated, “Legal corruption played a role in the poor regulation and weak oversight of financial institutions which led to Ireland’s banking crisis”. It went on to describe “legal corruption” as taking many forms, including "cronyism, patronage and state 'capture’ - when powerful groups manipulate policy formation to serve their own interests rather than the public interest”.
We have the view of an expert. In 2004 the former head of the Competition Authority Dr. John Fingleton told the Committee of Public Accounts that there was a considerable shortfall in what the economy needed in terms of competition and that cartels amounted to theft because people met to decide that the customer was the enemy and the competitor their friend and to make an agreement to charge artificially high prices. He said there were wide sectors of the economy in which there were serious competition problems and that we were not putting enough resources into enforcing competition relative to the historical legacy. He also said private enforcement of competition law had absolutely failed and that it would not be until judges decided to convict people who were members of the same golf clubs, of which they themselves were members, that we would really see white-collar crime being tackled. He then estimated that anti-competitive practices were costing, in today’s terms, more than €5 billion per year. That equates to circa €3,000 per household per year. We believe this figure to be very conservative.
Article 45(2)(iv) of the Constitution states, “That in what pertains to the control of credit the constant and predominant aim shall be the welfare of the people as a whole”. We all know that is not what happened in the banking sector. Why do we continue to give the pillar banks a monopoly in the creation of credit? Pumping up the balance sheets of the pillar banks by allowing them to charge artificially high interest rates that far exceed those in other EU member states is entirely incompatible with driving the indigenous economy. It is worth looking at how German industry is structured, which I have outlined in Appendix 2. Germany’s economy is 70% funded through public and community banking. Ireland committed to introducing competition to the banking market as a prerequisite for the bailout but no such competition has been introduced. The Strategic Banking Corporation of Ireland is a manifestly flawed and expensive approach to re-banking Ireland. The real answer then, as now, was to introduce public and community banking. Currently, there are huge concerns that a potential competitor, the post office network, is set to be captured by the pillar banks in what would be an extraordinary setback in the quest to lower the cost base while credit unions are subject to a host of anti-competitive restrictions that prevent them from offering competition to the pillar banks.
In short, the core issue is that the economy is riddled with cartels and other market abuses which have, in turn, created an artificially high cost base, thus eroding our competitiveness. For example, beef farmers are being squeezed out of existence by excessive input prices and unviable trade terms for their end product, primarily due to the structure and behaviour of the market. There are very significant cost issues in the banking, agriculture, legal, housing, construction materials, insurance and pharmaceutical sectors, to name but a few, together with a decidedly unhealthy dominance in the media sector. The main problem is that Ireland’s competition law enforcement regime has been an abysmal failure in its 27 year life. It lacks independence, power, competence, adequate resources and, most of all, the culture to carry out its statutory function in any meaningful way. I have no doubt that we can turn Ireland into the best little country in the world in which to do business, but we must tackle the culture of high costs.