Northern Ireland’s Fourth Estate has a vital role in upholding quality of economic debate

By Peter Doran with Andrew Charles

 

Given the nature of our regional democratic institutions, notably the lack of a formal opposition, the role of the fourth estate – or the press in its various electronic and paper forms – in driving critical and informed debate is of particular importance in this part of the world.
The role of the fourth estate is normally associated with keeping our formal democratic institutions in check, by providing a relatively accessible and transparent tier of accountability for our politicians and other decision-makers. Just as important in today’s political climate is the role of the fourth estate in economic and financial commentary. After all, the partition of economics from the political is entirely a social construct designed to obscure the nature of capitalist power.
The past couple of weeks have witnessed a couple of examples of poor economic coverage. First, on BBC Radio Ulster’s Sunday Sequence (5.8.2012), broadcaster William Crawley, invited Peter Quinn (brother of fallen business tycoon, Sean Quinn) on to his programme to offer an account of the business tycoon’s travails. For the most part, Peter Quinn’s defence of his brother’s financial and business actions went unchallenged by any detailed questioning while Quinn was allowed to put forward a series of spurious allegations that cast his brother in the role of an unlikely ‘outsider’ and ‘victim’. The interviewee could not have been given an easier time if he had, instead, been invited onto a fantasy edition of Desert Island Discs hosted by the Quinns’ confidant AKA BBC Radio Ulster celebrity chaplain to the stars Father Brian D’Arcy.
More significant, was the appearance of a prominent article by the Belfast Telegraph Political editor, Liam Clarke (9.8.2012). With the headline, ‘Top expert warns Northern Ireland economy is facing meltdown’, the article consisted of an interview with ‘tax consultant’ Eamonn Donaghy, followed by a piece penned by Donaghy himself. Using some colourful turns of phrase, Donaghy certainly showed some expertise in seizing the news agenda during the traditional ‘silly season’ in an attempt to reinvigorate the corporate lobby for a cut in Northern Ireland’s corporate tax rate. The Telegraph’s description of Donaghy as a ‘top expert’ is problematic, however, in the absence of a clear and critical description of his senior role as an ‘industry insider’ with KPMG, one of the ‘Big 4’ global companies (with PWC, Deloitte, and Ernst and Young) who have monopolized the market in the provision of consultancy (and advocacy) services for the world’s multinational corporations. Donaghy spends most of his time, apparently, providing tax advice to property developers, investors and the manufacturing and distributive industries.  Since the start of the financial crisis, the ‘Big 4’ have been accused of taking their eye off the ball and worse, in the years leading up to the meltdown. Financial blogger, broadcaster and journalist, Ian Fraser, summed it up with this comment: “The ‘Big 4′ firms have become so commercialized and bluntly greedy that they have permitted their own organizations to become rife with conflicts of interest. Audits have been devalued and managements are rarely challenged.” Fraser’s mentor, Prem Sikka, Professor of Accounting at the University of Essex, goes further, observing that auditors collected £2142m in audit fees from FTSE-100 clients in 2002 to 2008 and a further £2159m for consultancy services to their audit clients in 2008. They advised banks on the formation of special purpose vehicles, tax avoidance schemes, securitisation and structuring of transactions, all of which are central to the crisis. They then audited the results of their own advice and inevitably said that all was well. Sikks is a good match for Donaghy when it comes to a turn of phrase. She adds: “Auditors of banks could not tell the difference between a tent on Brighton beach or AAA security. They too easily accepted management valuations and permitted banks to show toxic assets as good and report profits that did not exist. At least $5 trillion of assets and liabilities simply vanished from bank balance sheets. These audited accounts would easily have won the Man Booker Prize for Fiction. Yet no auditing firm has been investigated for its role in the banking debacle.”
That’s the general accusation about the “Big 4”. What about Donaghy’s KPMG in particular? Well there’s an interesting story there too that might interest Liam Clarke. On 4 January 2007, the Washington Post reported on a scandal over the sale and marketing of abusive tax shelters that had the potential to consign the American arm of KPMG to history. In August 2005, after frenzied negotiations, KPMG reached a deal with the U.S. attorney’s office in the Southern District of New York, opening its operations to scrutiny by former Securities and Exchange Commission leader Richard C. Breeden and agreeing to pay the Government $456 million to settle. Its schemes enabled clients to generate at least $11bn in phony tax losses which cost the United States at least $2.5bn in evaded taxes. Six former KPMG partners and its former deputy chairman were criminally prosecuted for tax fraud conspiracy, relating to the design, marketing, and implementation of fraudulent tax shelters.
Just reading between the lines of Donaghy’s advocacy of a corporate tax cut for wealthy investors is enough to put the wary reader on guard. Consider, for example, a number of Donaghy’s points: he recycles the meaningless rhetoric about the ‘absence of a Plan B’ for the economy, thus implying somewhat illogically that a cut in corporation tax is tantamount to ‘a plan’. This is clearly not the case. Competitive corporation tax rates can only serve as part of a much more comprehensive and long-term structural plan for economic transformation, notably tangible public investment in education and training and sufficient support for public infrastructure. Tax cuts for wealthy investors, where these signal that a government is not prepared to make sufficient investments in education, training and infrastructure can negatively impact on FDI decisions. And when did you last hear a capitalist offer the following advice to a commercial customer?:”“We have got to get this thing agreed in principle and then see what the numbers will look like later on.” This gem, offered in the context of Donaghy’s call for a reduced rate of corporation tax, is the antithesis of the iron logic that informs dominant capital’s approach to capitalisation and the calculation of future earnings. Implicit in Donaghy’s argument is that Northern Ireland Plc must compete with the Republic of Ireland’s ability to attract investment. But why, as recently as 2011, has Taoiseach Enda Kenny denied that the Irish Republic’s low rate of corporation tax (12.5%) has been decisive in attracting so many international technology companies set up their European headquarters in Ireland. As Donagh Brennan argued earlier this year on the website, Politico (20.2.12), any government that has made various tax reliefs the ‘cornerstone’ of its industrial policy for 50 years would be an admission of its failure to develop. “In short, reliance on a low rate of corporation tax is evidence of a failed state: tax relief can be part of the first phase of industrial development, not the cornerstone 50 years later.”

Donaghy invites the reader to ‘Ask yourself this question — why would a company come to Northern Ireland to invest when it can go to the Republic of Ireland and pay half the corporation tax on its profits?’ Together with other economic and political commentators, Donaghy – on behalf of his corporate clients who stand to gain most from a tax cut – invites the reader to engage in a spurious comparison. A close examination of the Republic of Ireland’s industrial and investment policies shows that they have been failing and offer few lessons for Northern Ireland. Dr. Jim Stewart, lecturer in Finance in Trinity College Dublin, has found that direct investment in the Republic, which is associated with manufacturing and creating jobs, reached a peak in 2003 and has since fallen. Foreign investment in the form of portfolio and other investment such as the financial assets of banks and financial services in the IFSC continued to rise until 2007 and fell in 2008 reflecting the financial crisis. Much of this is just capital moving in and out of the country thanks to the Republic’s loose regulatory system, with little in the way of jobs impact.
Northern Ireland’s economic commentariat and political representatives are certainly in need of a big idea. There is little sign that it will come from the self-interested interventions of KPMG. It is also disappointing to find that a representative of one of the institutions that stands accused of acting as a midwife at the birth of the global financial mess is rewarded with the description ‘top expert’. Just as our Executive must urgently invest in building up indigenous expertise in global financial, industrial and ecological strategies (independent of corporate interests articulated through local branches of giant consultancy firms), so too our fourth estate must take their responsibilities more seriously.

 

 

  • Old Mortality

    The local press (including the BBC) lacks the resources and intellectual confidence to challenge the conventional wisdom even if it was inclined to do so. There is probably also an assumption that their audience is uninterested in such arcane matters.
    Unfortunately, the only public dissent from the proposition comes from the trade unions defending the selfish interests of their members in the public sector. Shrinking the public sector is essential to resolving NI’s economic malaise.
    Enda Kenny’s denial of Irish corporation tax’s potency is almost certainly designed to defend it from EU hostility. Donagh Brennan is close to the mark in arguing that ‘reliance on a low rate of corporation tax is evidence of a failed state’. However, that reflects a failure to develop strong indigenous enterprises which may not be entirely the fault of government policy.

  • DMac

    Is it the ignorance or the lethargy of political representatives and commentators that allows self-interested “experts” to frame and control the conversation about the economy?

  • Old Mortality

    I meant to add that Slugger is the best forum for a serious debate about the corporation tax issue if only people like Donaghy could be persuaded to participate.

  • Comrade Stalin

    Sorry lads, but could you fix up the paragraphs a bit ? It’s not easy to read as presently formatted.

  • DC

    Northern Ireland’s Fourth Estate has a vital role

    that Hillsborough or something?

  • My disappointment with Sunday Sequence’s treatment of the Quinn affair is derived from my very high expectations of the programme and its staff who are surely among the most intelligent and rigorous programme makers in BBC Northern Ireland.

  • jthree

    Also Mr Donaghy proved himself an economic genuis by clubbing together with his mates to make unsecured loans to property developers in the midst of a giant asset price bubble. An enterprise which seems to have caused a few sleepless nights.

    http://www.bbc.co.uk/news/uk-northern-ireland-13015949

    http://www.bbc.co.uk/news/uk-northern-ireland-16175732

  • Old Mortality

    j3
    I’d forgotten about that. His inner culchie obviously got the better of him.
    I reminds me of a joke doing the rounds a few years ago: “What’s an Irishman’s idea of portfolio diversification? Switching from residential property into commercial property.”

  • Old Mortality

    I’m having second thoughts as to whether Slugger is a suitable forum for dsicussing serious matters like this when I note that Chris Donnelly’s excited rants over a minor altercation have attracted more than 200 comments.
    I believe that Mr Donnelly nestles in the warm embrace of the public sector as no doubt do many of his commenters. What possible interest could a complicated issue like corporation tax be to them?
    It makes you despair.

  • aquifer

    It is best to play golf with more than one club.

    The republic has an honest well educated ambitious English speaking workforce, and had other advantages including a cultural orientation to America and a positive attitude to enterprise technology computers and engineering. It has a common law system like most of the English speaking world, and had already reached a high level of social development before the Atlantic Tiger years, with high levels of home ownership and with many farmers owning their own land. Its infrastructure is world class.

    Low corporation tax the Euro and a simple tax system were only part of the story.

    The North is not very different except the currency and the engineering is rusting in parts. The public sector bureaucracy has tended to swamp the place culturally without doing much redistribution or innovation, though those steady salaries were great for bringing up educated kids for export.

  • This blog entry spends a lot of time attacking the record of Donaghy’s employer, and considerably less so tackling him or his argument.

  • Greenflag

    ‘Northern Ireland’s economic commentariat and political representatives are certainly in need of a big idea.’

    Not just Northern Ireland’s . The IT technology revolution continues apace and whatever theoretical balance was presumed a decade or so ago that new ‘technologies’ would create as many if not more jobs than they would destroy is no longer assumed . These technologies while they have massively improved communications and enhanced life for millions around the world have also displaced even more millions.

    Whats happening now in the world economy and particularly in the high cost western anglophone countries is that employment growth if any is skewed towards the bottom half of the wage/income/salary pyramid while much fewer well paying jobs are created for that minority of qualified individuals who have the requisite technological skills and backgrounds.

    Even the broad administrative class of white collar workers are being decimated as their jobs are no longer deemed necessary .We see this in the City of London and everywhere else too.

    The widening income and wealth gaps between the top and bottom of western societies has now expanded to within the top 20% with a tiny 1% or less continuing to amass massive wealth partly due to the nature of current technological innovation and the wealth amassing power of worldwide markets and distribution channels .Thus not only is the bottom half of the population falling further behind the middle but even the middle is now being reduced to an inevitable emisseration . This will not change in Northern Ireland or the Republic or the UK or the USA until such time as this issue is tackled and resolved by the elected authorities .Failure to do so will inevitably lead to ‘blood ‘on the streets sooner or later 🙁 it always does !

  • UnderCover Big4

    Old Mortality – Some accountants/tax advisers are interested in politics and, more imortantly, policies for improving society’s lot (and yes there may be extra fees as well in the tax cut proposition – but what’s wrong with a win-win ?).

    I agree with acquifer that a corporation tax cut shouldn’t be the only club in the bag – but we’ve already got quite a few good clubs/advantages: education, infrastructure, legal/political system (yes, I did say advantage !), etc. – and some disadvantages: in particular, against the London region, distance from the market/consumers. Why can’t we demand a real competitive advantage – especially if we pay for it ?

    In terms of the requirement for a “comprehensive industrial strategy”, we’ve got DEL/DETI/Invest NI/Centre for Competitiveness and a whole host of other institutional “fob offs” that the UK government (and the NI local authority, sorry “Executive”) continue to appease us with.

    Cut the corporation tax rate, cut civil service wages (to stop stealing private sector talent and to pay for the tax cut – we don’t need to cut health and education, as trade unions would have us fear) – and sit back………

  • Old Mortality

    UnderCoverBig4

    ‘Cut the corporation tax rate, cut civil service wages (to stop stealing private sector talent and to pay for the tax cut – we don’t need to cut health and education, as trade unions would have us fear) – and sit back………’

    I entirely agree with you although I am sceptical as to the direct stimulative effect of lower corporation tax.
    The requirement to reduce public expenditure by a matching amount will be of much greater benefit if it is used to reduce pay rather than cut services. We have to make public sector employment much less attractive at all levels than it is currently.

  • ForkHandles

    aquifer, I’m fairly sure you are talking about the Republic of Ireland, so this phrase had me wetting myself

    “Its infrastructure is world class.”

    🙂

    I lived in the ROI during the good years of the Celtic Tiger. The infrastructure hadn’t changed since the 50s and there was, and still is, much built infrastructure that must date back to the 1900s. In other words much of the ROIs infrastrucure hadn’t changed since it was part of the UK !
    Dual carrigeways and motorways and improved road infrastructure only arrived when the state had a bit of money in the late 90s. I remember the road from Dublin to the boarder was a winding potholed country road. occasionally it was wide enough for 2 lanes but there would be no painted lane markings so half the time you found you were driving in the hard shoulder. 3.5 hours Dublin to Belfast.
    10 years of cash in the 90s does not make 19th century narrow cris crossing road networks in the ROIs cities into world class infrastructure!

  • Greenflag

    ‘In other words much of the ROIs infrastrucure hadn’t changed since it was part of the UK !’

    Go to school -directly to Braille School or take off the very very very very dark orange glasses.

    The problem with cutting public sector wages given the current NI economy is that it would reduce demand in the local economy leading to further unemployment in whats called the talent starved private sector . The ‘accumulated ‘ public sector dependency which NI ‘enjoys’ has been a factor almost since the State was established .Apart from the war & post war interim of significant economic growth in the private sector 1939-1969 it’s been a gradual continuation of ever further dependency on the munificence of the British State and it’s subsidisation of the NI economy in terms of keeping the economic wheels turning .

    The Republic went through a brief period in the mid 1980’s when public sector spending as a percentage of the total economy reached almost 50% at which point MacSherry the Finance Minister pruned back public sector spending and reduced it’s growth to such an extent that he ‘hari karied ‘his future political career as a potential Taoiseach .

    There is no easy out of the economic cul de sac in which NI has backed itself . Neither a corporation tax rate similar or lower than the republics nor major cuts in public sector wages will do the trick either together or separately and I think policy makers and politicians are aware of that stand off ! The current world economy outside NI is also a hindering factor to any radical economic policy departures .

    And then there is the log jam of the parties in mandatory coalition who will probably be at opposite sides of the ideological spectrum when it comes to deciding on which route to take .

    Inertia rules K.O and so does Deja Vu! .

  • ForkHandles

    Greenfleg, your frothing is most amusing in the context of slugger’s micro world of amoeba like us and them type posts. It is amusing to read your lengthy posts that attempt to divert from the current subject. For some reason you are comparing NI to some sort of mention of ROI spending plans. You should note that I am not comparing NI infrastructure to ROI. I am merely pointing out the real state of the ROI given that it hadn’t changed since it was part of the UK. Motorways appeared in the first world countries of Europe in the 1960s. Nothing like that happened in the ROI because it was a penniless economy until the late 1990s. You and I both know that the road layout of the main cities in the ROI still has not changed since British horses and carts traversed the roads in the early 1900s. There are no ‘Belfast Westlink’ type road networks within the ROI cities. Go on, I dare you to admit the actual poor state of ROI infrastructure 🙂

    I don’t actually mind if you can’t bring yourself to admit the truth, I am only ringing the bell of what makes sluggerites get worked up for my own amusement 🙂

  • UnderCover Big4

    Greenflag – It’s not going to be an instant fix, but that doesn’t mean you bottle it. The only right answer is a rebalancing of a bloated state with the starved private sector.

    In the short term, you have to start cutting public sector wages, but use the salary savings for investment (= infrastructure projects and a phased corp. tax cut) or else demand stalls, as you rightly state.

    In the medium term, Old Mortality, you need both wage cuts and then reduced numbers – and for services to remain unimpacted. We need to follow the Republic’s lead with a McCarthy Report – and get some of these great public sector minds focused on making and selling things.

  • Greenflag

    @ undercover Big 4 ,

    ‘The only right answer is a rebalancing of a bloated state with the starved private sector.’

    I don’t disagree the practical question is how can this be politically implemented given the limited powers of the NI Assembly ? Even the Republic with it’s greater powers in theory is in practice hand strapped in the fiscal policy area .BTW ‘bottling ‘ is not what I suggested as a solution – but ‘bottling’ has become the default economic and fiscal policy of not just the NI government but that of the UK , USA , and Germany , France etc .

    Has the thought ever dawned that we are perhaps in a new paradigm where it has become ‘impossible ‘ for the private sector to ever again create ‘full’ employment ? Not because of government policies per se but because of the changing dynamics of the worldwide shift in trade and wealth to the east and the demographics of western ‘geriatric ‘ societies ?

    Of course ‘real ‘ jobs are only ever created by the private sector longer term and it’s patently true in the case of NI and in ROI in the 1980’s that the public sector had become an albatross around the neck of the overall economy . But then the actions that ROI took then are not as easily transferable to NI today nor would they be as effective for NI today as they were for ROI back then .

    To hope for wages cuts and numbers then to be reduced without necessary services being impacted is imo akin to having ones cake and eating it . Perhaps you place too much trust in the ‘experts ‘ who can cut waste and reduce inefficiencies while raising ‘productivity ? Its a difficult enough task in the private sector . It should not be demonstrably more difficult in the public sector -but it is -and this is primarily due to the nature and traditions built up over centuries of ‘government ‘ employment and the vested interests of those political parties who make use of those traditions to eh reward their supporters and donors in one way or another .

    As for the great public sector minds focusing on making and selling things ? Good luck with that -just remember to keep those great minds away from ‘financial services ‘.

  • Greenflag

    @ Forkedtonguehandles

    The thread topic is

    Northern Ireland’s Fourth Estate has a vital role in upholding quality of economic debate’

    and yet you comment

    ‘ I am merely pointing out the real state of the ROI ‘

    Ergo if I’m frothing then you must have the full blown rabies 😉

    BTW rabies is not amusing and the cure is worse . It requires placing lead in the ear with the aid of precision weaponry I’m told . The methodology applied can take the form of Russian or Japanese Roulette the latter being of the most certain effect . If nerves fail due to an advanced stage of the rabies then Irish Roulette is the preferred cure methodology . Its similar to the Japanese method of six chambers and six pieces of lead but it requires the services of another person with a steadier hand .

    Now back to topic -you are easily amused 😉

  • Greenflag

    addendum to post above at 29/8/2012 – 1.32 pm

    Good luck with that -just remember to keep those great minds away from ‘financial services .

    I’m sure you recall the many great minds who created world wide chaos across the global economy for the past decade and who are today no nearer a solution than they were in 2007 .

    Sometimes ‘great minds’ are contained inside the contents of blind and selfish and irresponsible biped piggies disguised in custom cut Armanis or Saville Row 🙁

  • jthree

    One of the great ironies of a Big 4er demanding public spending cuts is the absolutely epic troughing of the Big 4 during the fat years of public spending.

    As two random examples Deloitte took £800k out of NI Water between 2007 and 2010 (I think PwC did even better.) Deloitte also billed £86k for their banal ‘cost of divided NI’ report.

    And given the utterly anemic state of the private sector here the Big 4 are explicitly keen to squeeze more out of the public sector.

    Take for example the piece Jackie Henry (Deloitte again) wrote for the Bel Tel at the time of the Lucid Talk poll – which they helped pay for.

    It’s carefully written along with lots of touchy-feely bollocks about being ‘thought leaders’ for ‘reform’ and ‘starting a debate.’

    But only a completely dufus, perhaps one with MLA after their name, would fail to realise that this is all about forcing the ‘debate’ to a renumerative conclusion for Deloitte and its clients.

    The poll question on which her piece is predicated was hopelessly loaded. The question was in essence ‘Would you be OK with privatisation so long as no reduction in service was guaranteed?’ In reality such a guarantee would either not be given or else be worthless.

    In reality there is some pretty sharp ideological manouvering going on here. But the people involved, whether honestly or dishonestly, present themselves as basically unideological technocrats who are only interested in ‘policies for improving society’s lot.’

    http://www.belfasttelegraph.co.uk/news/politics/time-to-debate-the-future-of-public-services-16172760.html

  • Old Mortality

    Greenflag
    ‘To hope for wages cuts and numbers then to be reduced without necessary services being impacted is imo akin to having ones cake and eating it.’

    No, it isn’t. It’s highly unlikely that we would see wage cuts but an indefinite pay freeze would eventually make it difficult for the public sector to attract and retain staff. If you believe that the public sector could not maintain the existing level of service with fewer people, then you must ask yourself whether the quality of public service has improved over the years because more people are employed.