Middle Men and Market Forces - An interview with Conor McCabe

Date:

The following is an edited transcript of an interview cum dialogue with Conor McCabe, author of the 2011 book “Sins of the Father” on the economy of Ireland since independence and researcher on financial shenanigans and corporate misdeeds in the Republic. I keeping with the theme of this issue of IAR on the institutions of power in Ireland, we wanted to explore how money and market forces operate through the specific structures and class composition of Irish society.

 

 

Paul Bowman: When we’re talking about how market forces rule here in Ireland, presumably they have to do that via a local capitalist class or people who are the interface between market forces and so on. What would you say were the main things that were different in Ireland about how that class works with both local capital markets and international capital markets, as opposed to how it works with our neighbours next door in the UK.
 
Conor McCabe: Yeah. The main thesis I put forward is that if you see it in the global chain/system, there’s kind of a middle-man class in Ireland whose job is not at the receiving end, it’s not at the production end. It’s the class that gets sent away in the Hitchhiker’s Guide to the Galaxy. You seen that?
 
PB: [laughs] yeah - the phone sanitisers...
 
CM: There’s those that own everything and there’s those that do everything, and then there’s those in the middle who just seem to do stuff. That’s kinda who runs Ireland at the moment. One of the problems in talking about Ireland in terms of structure is that, you can talk about Ireland in terms of the economic structure of the country, and then there’s the economic power in the country and there’s an assumption that they’re both the same. And I would question that.
 
A lot of what happens in Ireland is in spite of the economic policy decisions that are being made, not because of it. If you look at what’s actually keeping Ireland going now, it’s not the IFSC. It’s not tax from that, it pays only about half a billion in tax anyway. It’s the 1.9 million people who are working day in, day out. That’s your backbone. It’s your 300,000 public sector workers, that’s your backbone thats what stops us falling into the Atlantic.
 
The narrative is that it’s exports and it’s Intel and it’s Google. No its not. That’s what makes a certain class in Ireland very, very rich. That doesn’t actually mean because they’re the ones that’s setting economic policy, that’s what’s actually ticking over the country itself. Ireland’s agricultural exports are in value around 12 billion a year. But the sector employs about 140,000 people, including secondary services.
 
If you take the half [by value] of Ireland’s exports, which are pharmachemicals, it employs 38,000 people that’s less than 1.8% of the workforce. It’s absolutely huge because it’s pharmachemicals, intellectual property, etc. And also if you start looking at the imports of physicals in Ireland, there seems to be a lot of creative accounting going on there as well because they’ve been able to do more with less. Because Ireland imports all these chemicals and the imports have been dropping but the exports have been rising. Which is a little suspect. Unless they’ve done a “Scotty” and broken the laws of physics. I don’t know how they’re doing this. This goes back to creative accounting which is at the heart of it.
So one of the problems of dealing with the structure of the Irish economy is that there’s an assumption that when we talk about the power in Ireland, that that’s what keeps Ireland going and it’s not. I would say that no, it’s actually different things. I would say that Ireland keeps going in spite of this class, not because of it. Even down to the latest OECD report that said that Ireland was a victim, which is really funny, of tax avoidance - which has been national policy since 1952, or 49 even. But even they said, if you were to tighten up all this tax avoidance rules you wouldn’t really lose any jobs, because there aren’t any jobs here anyway. Companies like Matheson, Goodbody, Arthur Cox, McCann Fitzgerald, KPMG, they’re the ones who would lose out, Davy Stockbrokers. Because they’re the ones who have all the contracts. And they’re the ones who have the ear, or the pocket (maybe) of the political class.
 
So I would see that disconnect with where decisions are made on a national level. Of how this class uses the state to protect itself from the state - which is quite interesting - uses the very structures of the state to protect itself from the actual citizens. And yet what actually keeps all this shit going, theres a Venn diagram, a cross-over, but its not as big as they make out. So if we are to talk of the economic structure of the country that would be a different narrative, quite boring as well, I’d say, that would start with jobs, at a local level…
 
PB: I guess a lot of that is the kinda social reproduction stuff that has to go on everywhere?
 
CM: That has to go on anyway. What’s keeping Ireland going is not exports it’s the internal dynamics. 85% of jobs in Ireland are in the non-export sector, and that’s being generous giving 15% to the export sector. Its about 7.5% in indigenous Irish exports and then 7.5% in foreign-owned exports, roughly the same. The difference in volume is enormous. The Irish-owned is certainly less that 20 bn but the foreign exports maybe 65-70 bn per year
 
PB: Are some of those figures distorted by the flow of intellectual property revenue, like the Googles and Apples etc, shift through Ireland on the way to Bermuda or wherever?
 
CM: Yeah. The CSO in its Mapping Irish Progress, 2012, talked about this and said if you looked at Ireland’s GDP and GNI, there’s a real disconnect. The only other other country where there’s a gap of more than 7% between these two figures is, for some reason, Luxemburg [PB: that makes sense - laughs]. So they talk about all these flows and then they say: that shows the importance of foreign direct investment into Ireland. Now I find that really funny. Its quite Orwellian how you set up a statement that these flows don’t seem to have any real impact on national income… and that’s why its important… to national income. That’s Orwellian language, that’s just crazy.
 
Now the central bank is a lot more forthcoming. In their Quarterly report in 2011. Donagh Brennan has done some really good work on this in Irish Left Review. They just call it. Under OECD definitions, investment does not really mean investment as such. Investment means ownership. So it’s foreign ownership - foreign direct investment under the way the OECD sets up what is investment, means that the funds or the company is owned by a foreign party. It’s not that its an investment in the country. So it’s ownership not investment, but it’s called investment. So you have a situation where the single largest source of foreign direct investment into the Irish state is Bermuda. But Ireland exports… it’s also a contributor to investment outside its borders. The largest single recipient, in 2011, of investment from Ireland was Bermuda. The money comes in, the money comes out again.
 
PB: The popular understanding of investment would be that people were putting money into some kind of physical capital, some kind of plant in order to do something…
 
CM: OECD hasn’t had that definition for 25-30 years, maybe more. [PB: so it’s a pure monetary flow?] Well its about ownership. As the nature of profit seeking in capital has shifted into monetary flows, rather than production… it hasn’t replaced it, but there certainly has been a shift in profit-seeking then maybe that investment ownership... Maybe that would have made sense 30 years ago. But ownership of a plant, ownership of an investment fund in some lawyers filing cabinet, is not the same thing as far as investment. But no, it hasn’t been that way now for decades. But that’s the narrative. But that’s how you get into the whole thing of dancing on the edges of Gramsci here - hegemonic language and how the language then is used.
 
So, if you look at what’s traded now. I make the argument that this middle-man class has its origins really in... it’s there from the 1700s onwards. But it really takes off after the Famine clearances and the move into grazing. Whereas 50-60 years ago, what Ireland exported, Ireland’s selling point then, was cattle. A raw material for value creation in the UK. What that class sells now is the ability of the sovereign state to sell its own tax laws and have those tax laws then recognised internationally. That’s highly profitable if you’re part of that.
 
Now what I don’t go into in any of my work, and its something that I have to address, is that I tend to treat that business class in Ireland as one homogenous block. There’s a danger in that as well. In 1978/79 there was a push, I think from elements within the department of finance, to open Ireland up as a proper tax haven. It had been used for hot money in the UK for decades. But to actually go full haven. I think the Central Bank shot it down, saying “this smacks of being a banana republic”. Now I may have gotten my two blocs mixed up It may have been the Central Bank who were arguing for it and Finance shot it down. But one of them said “this smacks of being a banana republic”. But in less than 10 years it was national state policy.
 
There’s a tension going on in that class that I don’t really delve into. But see, in their spats I don’t think we should confuse an intra-class spat from inter-class spat. Its like in Julius Caesar, nobody, none of the senators are arguing for the plebs to be part of this decision-making process, once we’ve killed Caesar. None of them are saying that. They’re saying, no, we kill Caesar but - there’s no debate about this - we’ll still be in charge. So they’re having their fights, and it’s all drama, but it’s in their class. That’s kinda how I see it. We’re still outside, the menders of bad soles. That’s all of us on the edge.
 
So if that is the selling point now for this class. That’s where you get into the myths of what around what actually generates activity in this country. Now we know from other tax havens or financial city states, that a city is pretty much the size of what can benefit from this activity. Look at Ireland you see that all over again. In the UK of course that’s London.
 
PB: I’ve just written about this recently in relation to the Scottish referendum and Paul Mason did a piece a few weeks back on how increasingly the UK economy is dividing into London and “the rest”. Something about financialisation seems to be focusing activity onto the city where the money and credit flows are traded and then just the hinterland.
 
CM: Yeah, I need to do some more work on them myself. I’m sure geographers have done some really good work on it. There’s definitely something about that. You have a single port. There’s something about city states or island states that really seems to work for this. Ireland seems to be the very same. Anyone who drives past the M50 [Dublin’s M25] you get a sense of the so-called boom.
 
PB: Bearing in mind our international audience - I heard a figure around the region of, nearly half the working population of the Republic are working either in Dublin or in some environment connected to Dublin.
 
CM: That rings true to me. If you take the Dublin catchment area which goes, up North, not quite as far as Dundalk, just shy of it, as far West as Mullingar, talking 50 miles. So you’re talking 50 miles, 80 km, circle all around. You’ve got about half the jobs. [PB: which makes it one of the most centralised countries in Western Europe] Yeah and it’s a highly centralised state anyway and that’s a legacy of Dublin Castle. When the pro-Treaty side took over, they had the state apparatus that was all set up to coerce a hostile population. For the pro-Treatyites they said “this is brilliant, this is absolutely perfect” and when Fianna Fail came along they said we’ll just keep on using it then. The whole kinda city managers system, the county managers system. There’s no local government in Ireland. It all goes through this highly centralised state. For the size of it, its incredible.
 
PB: While there seems to be this tension we’ve already talked about, between sections of the ruling class on occasion, there still seems to be much more consensus on a number of issues. Particularly the relationship with Europe. There’s no UKIP in Ireland and there’s not about to be. It appears from the outside that the ruling class here, is completely agreed that we don’t want to piss off Frankfurt or in some way endanger the relationship to those capital markets. Is that a fair comment?
 
CM: I don’t know if I’d see it purely in economic terms. I’d see it very much in cultural/ideological terms as well. If you look - again this an argument I put forward in the book briefly, it’s up for discussion - how I make sense of it in my own head is that, Ireland never had that post-war, welfare, “spirit of ‘45” contract. But it still had something there, in place. What it had in place was this corporatist, neo-corporatist, Catholic social teaching view of things. However weak that may have been as a social contract, that is our social contract. That didn’t start breaking down at the same time as neoliberalism. it’s actually breaking down now. This is what I’m putting forward. So it didn’t break down in 1987, its actually breaking down since 1997, so its a bit slower. But because it was already a right-wing compromise, we didn’t quite notice it as being a compromise until probably quite recently. And that’s what’s under attack right now. And I think that;s where there’s a lot of confusion among the Irish middle class. Because their frame of what this country is, is being changed at the moment. Britain went through this in the 1980s, they’re going through it in the last ten years. And they’re rabbits caught in the headlight. However weak of a compromise that may have been, it was still one. It involves the whole social partnership model. That doesn’t start in 1987, that goes back to 1946 with the Labour Courts being set up and the first wage agreements already in the 1950s and then there’s ones in the 1960s. So this kind of corporatist or neo-corporatist spirit, a very Catholic way of dealing with class conflict. That’s what passes for liberalism in this country. A great example of is Fintan O’Toole. I always think that Fintan O’Toole’s hands must be porcelain at this stage, you know? He’s always wringing them. It’s that thing about fairness and justice, and blah, blah, blah. Its never about power, and its never about rights. It’s always about justice and fairness and that. I see Rerum Novarum in that. I see that going back to 1880s. So that also goes through the right wing in Ireland and it has a strange mutative effect on them. So you’ll still get, even in the right wing in Ireland, you’ll still have struggles of that kind of Catholic social teaching running through them.
 
PB: How does this relate to attitude towards Europe?
 
CM: I think - and this is the more advanced elements - what they see is a transnational capitalist class in formation in Europe, and they want to make sure that they have the same role in that transnational capitalist class as they have now in terms of finance and what was once the British Empire. That they’ll be there bidding for them, that they’ll look after all the books for them, they’ll be back-room boys for this transnational European capitalist class, that is in formation.
 
PB: There’s always this mentality that we exist, economically, always in relation to something larger than ourselves
 
CM: Yes. And we have to. Because our job is to administer these things rather than actually run them.
 
PB: To be the middle-man, you actually need things to be in the middle of...
 
CM: Yeah. But it’s also what our education system was set up for. At pre-independence it was to be civil servants for the Empire. After 1922 it was to be civil servants for Rome. They were teaching Latin in the primary schools in Ireland up until the 1960s. There’s a deep culture in there of having that position. Its not as homogenised as I’m making out. I do think they have more punch than the other elements, the Dermot Desmond's maybe, who would be genuine capitalist class. He wouldn’t be a middle man anywhere. And also a lot of Northern indigenous capitalist class after partition as well. They kinda died out in the North. But in 1922 there was the like, where was the capitalist class in Ireland? Well, that’s where it was.
 
PB: To come back to financial flows and last week’s OECD report promising to cut down on the “double Irish sandwich” and all the rest. Is there any chance of that actually happening? Are all the blazing headlines on the Irish Independent that this is going to be the end of the world, and so on, does any of that matter?
 
CM: Its a strange thing because I’m still trying to work out where the pressure for this is actually coming from because its not coming from the social movements. There has to be something happening at that level that they say that we have to sort this out
 
PB: I guess from the USA the Obama administration has expressed frustration about not being able to collect taxes from their companies?
 
CM: The reason why Ireland had to end its special status from 1987 up to 2003, [was] because Germany and France were going crazy because the amount of tax that they were losing because their companies were using Ireland as a tax haven. Since the crash or crisis of 2008 those countries have been suffering in terms of income. The pressure is definitely coming from the top rather than the bottom. Which means that we have no say over its direction. It also shows that what will happen in Ireland as was pointed out by the OECD, its never about 12.5%, its always about the secondary benefits. If they start going after them, there’s always a chance that the Irish state will start to get more income. Because since 2003, you do not have anymore special zones for foreign companies. [PB: so like the IFSC no longer…]
 
There was a controller and auditor report done for 2011 and buried in, like, chapter 8, paragraph 31, there’s this gem saying that most Irish companies don’t pay corporation tax. There’s like 38,000 companies paid any level of corporation tax and 2/3rds of it came from the 200 most profitable companies in the country anyway. Which means that that year there was around 190,000 active enterprises in the Irish state, employing over 1.3 million people. Less than 20% of them were paying corporation tax at any level, So instead of having a special tax zone up until 2003, it was told to either close it down or lower the tax level for everyone, and Ireland lowered the tax rate for every single company in this state. So the entire state now is a tax haven. Which means if they have to close down some of those tax loopholes that would apply to foreign as well.
 
If you take your man Gallagher who ran for president a couple of years ago, like the Fianna Failer who wasn’t a Fianna Failer. He was doing exactly what Google were doing. He had two companies. One was based in Bermuda, had a patent on some device he had, he’d created. It charged one company he had in Ireland for the use of that. It was then used as a cash write-off. This is exactly what Google does with its search engine. And that was entirely legal.
 
So what’s killing us is not the multinationals. Wherever corporation tax is paid in Ireland, they’re the ones that actually pay it. Its the Irish companies out there that are getting away with paying absolutely nothing in corporation tax. The Marian Finucane's of this world who are set up as a company. The Joe Duffys - Joe Duffy’s company is named after the Dublin Corporation street he was brought up on in Ballyfermot. He actually names his tax avoidance… [PB: that’s cause he’s a man of the people...] Claddagh Green its called, right? He actually named his tax avoidance structure, right, - because it’s called a company, but give me a break, it’s a tax avoidance structure - after the very social housing that put a roof over his head [PB: remembering his roots!] you know what I mean? I mean talk about two fingers, you know? But that’s what we’re talking about. And they know it!
 
There’s that element to it as well. It’s never mentioned in any kind of debate around tax in Ireland that any of the benefits of the multinationals applies, even this place [Irish Film Institute, where this interview was held] applies for every single company in Ireland if they have enough revenue coming in to justify the avoidance - you know to hire all the… There was a great clip from Tony O'Reilly about the oil company that he runs, and he talks about how they had gotten in some big investors to come in and look for oil off the coast of Cork. And he’s asked, he said “and what do you bring to the table?” he says, “youse don’t drill, youse don’t look for any oil. What do you bring?” and he goes “we bring all the local expertise. We know how to get through all the labyrinth of the Irish rules and all the loopholes and that’s what these companies like. They like to bring on somebody who’s local who knows how to hold their hand and walk them through all Ireland’s tax laws” that’s where we get into why…
 
PB: And you’d find people in China saying that’s what we do for companies here.
 
CM: And that’s what the name comprador comes from, it comes from China. It comes from the local people who’d work for the Portuguese who would manage the companies and who know how to get things done. And how to deal with all the locals. Because you are one of the locals and you know how to sell this shit to them. So that’s what it sells.
 
PB: OK, I’m going to move on the final area which is really to ask you what your areas of research have been since the publication of Sins of the Father. What you’re looking at, at the moment.
 
CM: I’ve just gotten more and more into finance and Ireland. And its really about Ireland and its position in the global financial system. That’s basically what I look at now.
 
PB: People have vaguely heard of the “Dutch Sandwich” and the “Double Irish” and so on. But is there other stuff out there that people haven’t become aware of yet? Or are you looking at the mechanics of how that all actually works?
 
CM: Yeah, it isn’t quite drilling down into it at that level, its more looking into who are the players in all of this. When you see certain names keep popping up again and again. Certain law firms keep on popping up. Certain accountancy firms keep on popping up. [PB: Davy...]. Davy? Yeah. I mean they walk between the raindrops. Absolutely. They’re ensconced on Dawson Street there [i.e. next door to the Dail]. Arthur Cox, Matheson - huge one, they have a lot of that directorship market as well. There’s new aspects of it happening. I’m still trying to catch it. Aubrey Robinson has been doing a lot of work on it. It’s more looking at it from a power point of view. The finance is interesting, but its more about the power relations, is really what I’m interested in. And how they play out in an Irish context.
 
One of the things about doing a kinda systems analysis is that… If you start drilling down, you’re fucked basically. My strength is, its a big weakness as well, my job is to know a little about a lot. And then see how the mechanism works. Then hopefully that will paint enough of a picture for then other people to… to actually find out what the hell is going on. So it’s one of the problems is that, if I start getting into… like I have Ireland’s tax law on my shelf and I have the guides of how to avoid tax in Ireland. How I dip into that is if I need to find out stuff that doesn’t make sense to me, then I dip into it. But its only in part of painting that whole picture.
 
So hopefully that will bring something to the table in terms of the Irish activist movement. But that’s all that it can do. Then hopefully that’s enough to say, listen this is worthwhile and then they’ll find out more and more and more. The other thing is that the work I do, it can only be at best a sketch. Did you ever do chemical engineering at school or technical drawing? [PB: No]. If you’re doing any kind of technical drawing, there’s your guidelines you draw in very light pen, and then you rub out afterwards. That’s what I do. All of my research, if I do it right, it should be out of date in a few years time. Because other people have done more and more work with it. I don’t think its there at the moment, but if you get that bit done, then that might bring a bit more clarity into how power works in Ireland. And hopefully it’ll be out of date in ten years time because more and more research will have been done. So in terms of actually drilling down into the actual every single tax avoidance one. I can’t do that, because I’m trying to get a sense of the whole thing.
 
PB: No, well, the whole notion of the machine is to make something complex enough that you need armies of specialists to guide you through this system that allows you to create loopholes. So its not something that as an individual researcher you can afford the time to get ensnared in too much.
 
CM: No. However I do know enough now that, as a fundraiser we should…
 
PB: Set up a company [laughs]
 
CM: Hire a room in the Shelbourne Hotel. Get someone from Asia and from either Austria or Germany over. Have them launch some kind of investment fund, saying that its for a new business park outside of Hong Kong. There’s a new train line being built to it. You’d make a mint from it. Because as you can see now, its almost back to... they’ve hit the restart. We should get in now at the bottom [PB: laughs] and make some real money for the WSM, you know? No more fucking garages up in Mountjoy Square. And its taking money from upper class idiots. It’s a victimless crime....[both: laughter]
 
PB: I like that. I guess that’s a good enough place to finish. Thanks again Conor.
 
 
Words: Paul Bowman
 

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This article is from issue 10 of the Irish Anarchist Review

 

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