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.