July 18, 2016

Ireland can conjure a pot of sovereign wealth gold

Posted in Articles · 32 comments ·

We are told that the Irish economy grew by 26 per cent in 2015. Fortune is indeed looking up in Ireland: unemployment is falling while retail sales, tax revenue and government spending are moving along at about 4 per cent. But a 26 per cent growth rate? American economist Paul Krugman was right to dismiss the figures as “leprechaun economics”.


We are, however, facing a new reality and have to redefine the relationship between small states and global corporations. The statistical anomaly in the Irish growth figures may trigger new thinking that could benefit everyone.


In 2015, Irish exports rose 34 per cent; investment was up 27 per cent and imports rose by 22 per cent. If these numbers were true, it would suggest that the average worker’s annual income had reached €130,000. You do not have to live in Dublin to realise that this is nonsense.


Any small country hosting big companies is in for these statistical surprises. Last year, Aengus Kelly, the Irish chief executive of AerCap, the world’s biggest aircraft leasing company, moved his fleet to Ireland. Valued at more than €35bn, it added enormously to the country’s capital stock. There has also been a surge in unusual multinational-driven exports.


Ireland’s gross domestic product figures do not represent the real economy. Using these data, it is impossible to set meaningful macro-policy targets such as government budgets or conduct accurate international economic and social comparisons.


Irish economists will have to find more accurate indicators for economic wellbeing. GDP accounting is at least 70 years old, constructed when there was little international investment, trade was restricted and capital controls were prevalent. Today, Ireland is just one of the small, open economies that compete for capital. In a world of globalised free trade, everyone is part of someone else’s supply chain; the difference in exposure to that is a matter of degree. The smaller you are, the bigger the exposure.


Multinational investment is going to continue, so unless the world abandons globalisation, the Irish example is a taste of things to come. In reality, the size of the proceeds from multinational activity that goes into Irish people’s pockets is modest. The take from wages and corporate tax is only a fraction of what goes back, as dividends and higher share prices, to the shareholders of companies operating in Ireland. So it is shareholders, rather than workers or the exchequer, who are winning.


Why not let host jurisdictions become shareholders in the companies that are making profits and distorting GDP figures? Rather than taking all the money in tax, to be frittered away in the next political auction, why not take some in shares and invest it? Why not treat wealth associated with foreign capital as an annuity that accrues annually, much like wealth connected to an oil find?


By taking shares in multinationals, Ireland could create a sovereign wealth fund linked to the performance of the best-governed companies in the world, which would provide for future generations. In 2012, US multinationals made $100bn profit in Ireland, on which they are supposed to pay 12.5 per cent tax, or $12.5bn. In fact, they paid $4bn.


Why not encourage multinationals to pay the difference between what they pay and what they ought to pay in shares? Shares are permanent wealth, whereas taxes are transitory income. This is also attractive because shares or share options are cheaper for the company than giving cash. They already give their employees share options, so why not their host country?


Imagine a Fortune 500 Irish sovereign wealth fund, diversified across sectors operating in the Irish economy, with stakes in corporations such as Google, Facebook, Apple, Pfizer, Intel, IBM, Microsoft and AerCap. That would be a 21st century crock of gold.

  1. Sweet thought, but what happens when the shares collapse with a thud, as is inevitable? Everything’s laughably overvalued. You’d want to be conjuring that (actual) gold regularly, not just indulging the geese.

    • The state would be long-term investors, not day-traders.
      If/when there is a drop or market correction, you simply hold and ride it out.
      Nobody would be asked to time the market, which everyone knows is a fool’s errand anyway.

  2. swan4641

    Can we believe any of the statistics coming out over the past 8 years.?
    If this was China we would be looking at electricity consumption as an indicator of a real recovery ?
    We know about the increase in low payed employment but I also haven’t seen the total PAYE income earned in the state reported , has it exceeded the pre Crash yet ?
    Your comments would be appreciated

  3. michaelcoughlan


    It’s the dividends which are important not the shares as bills are paid in currency not share certificates.

    Also companies can fail making shares worthless. A stake in Deutsche Bank wouldn’t be a good idea. Corporate bonds may be more ideal. You would have to figure a way of stopping the politicians fucking it up as remember how the pension fund was raped.

  4. Pat Flannery

    Interesting idea. I wonder if it has been tried anywhere and if not why not. The accountant in me is imagining the journal entries.

    Using Google as an example the double entries would be: debit Google and credit ”Tax Revenue” with €Xbillion. Upon receipt of Google share certificates of equal value, credit Google and debit ‘’Google Shares’’. Result, the Government just bought Google shares with tax money forgone rather than received.

    Both the revenue and the investment would have to show up in the Government’s accounts as it is a Government transaction and would need to be reported in strict adherence to International Financial Reporting Standards (IFRS).

    The net effect would be that the Irish Government would now be engaged in commercial business and would have a conflict of interest with every competitor of that corporation. That would complicate the hell out of the IDA, probably making its work impossible.

    And as if politicians and public officials are not corrupt enough! Can you imagine the “Hide the Sausage” opportunities this idea would create, under the guise of ‘’Commercial Sensitivity’’?

    Sorry David but this is another non-starter, like your idea of banks taking equity positions in exchange for the over-leveraged part of home loans. Economics is an academic subject best suited for the classroom.

    • survivalist

      Hi Pat,

      I wonder if you see any connection between this idea (Ireland as a minor? shareholder in several corporations) and the present operation and future expansion of REITs in Ireland?

      In addition have you any thoughts with respect to Ireland’s public service expenditure being reliant on corporate dividends; legislation and practice introduced which would be pro high dividends, and the idea that this would be likely paid by debt securitized via national asset returns, water, power and of course rent.

      REITs is a device I do not understand in detail though I sense it is mixed up in this and the idea on the whole look like the road to hell-though this may depend on your attitude towards corporations and big business.

    • Sideshow Bob

      Hi Pat,

      As an alternative idea to the share based investment fund I would like to suggest something else for your consideration.

      I saw somewhere that American corporations can get tax credits (discounts) against money they donate or give to Local Social & Affordable Housing Associations ( I think I read it in a case study on a HOPE II program ).

      If that was to be copied here would that be a cleaner way of upping the contribution the multi-nationals make here? No, conflicts of interest money direct to non-profit agencies who could attempt to spend it usefully? The companies could gain a good-will too with tangible visible results for their `donations´.

      I was aware this approach existed but until you explained the conflict of interest problem that would exist for the share idea on this thread it didn´t make a lot of sense to me as to why it would occur ( corporations effectively sponsoring social and affordable housing for the general public ). Now it does. By passing the money on directly to it takes the Government and conniving politicians / kleptomaniacs out of the picture.

      So Pat, would you be able to confirm if you have seen this `tax credit´ solution in operation in the US and, if you have, do know if it works well?

  5. survivalist

    I believe that the basic foundation which is being presented here regarding the proper attitude which we should hold towards corporations is flawed.

    We need to understand the situation for what it actually is; not as is presented via corporate perception management.
    The reality is best summarised by Alex Carey;

    “The twentieth century has been characterized by three developments of great political importance: the growth of democracy, the growth of corporate power, and the growth of corporate propaganda as a means of protecting corporate power against democracy”.

    Multinational corporations present that their involvement in countries is constructive. However, that is an excuse to continue exploitative practices. Not to mention the problems caused to democracy and democratic nations directly by corporate tax avoidance.

    The idea that ‘the world’ has embraced globalization is simply PR. The world as that defines the general population, has not embraced globalization but in fact suffers under its effects.

    Globalization is a euphemism for amassing and hoarding of wealth and includes among other things, the offshoring of skilled labour jobs to countries that pay below poverty level wages to workers, thereby destroying the domestic productive market and at the same time results in the situation whereby the financial economy becomes ‘the only game in town’.

    When it is asked “Why not encourage multinationals to pay…” I think; how? How the hell can we ‘encourage’ these things to do anything against their fundamental reason for being?

    Unless by encourage it is meant force-then ok but there are problems.

    Consider that of the 100 largest economies in the world, 51 are corporations while only 49 are countries. This is not without an effect on democracy.

    The power held ‘over’ corporations is virtually extinguished and this relationship is ruthlessly ensured by them, power must not ever lie within the hands of the population or any democratic system. They do after all hate unions, not because of ‘union corruption’ (embrace that meme as you see fit) but because unions are a democratising force on business.

    Corporate takeover must be dismantled not submitted to.

    • Deco

      “The twentieth century has been characterized by three developments of great political importance: the growth of democracy, the growth of corporate power, and the growth of corporate propaganda as a means of protecting corporate power against democracy”.

      Thanks for that.

      That is bang on the money.

      • michaelcoughlan

        Not quite.

        It’s worse.

        Corporate power has usurped democracy not just protected against it.


  6. Pat Flannery

    survivalist: good morning. In answer to your questions I see a big difference between state-sponsored enterprises and any state taking equity positions in multi-national corporations.

    The former is done in order to better utilize some national asset or to achieve some national purpose. The latter would be done solely for profit and I have a problem with that, for the same reason you raise viz. that public services would become dependent upon multi-national corporate dividends. That would be very bad.

    As for REITs they are not part of this mix because they are not active enterprises as such. They are highly specialized passive investment vehicles, specifically confined to owning real estate assets. In the Irish context I see them as a largely untapped source of housing finance.

    As for multi-nationals I entirely agree with you. They are a menace to world democracy and probably at the root of the present political unease and distrust spreading around the world.

    The aims and objectives of multi-national enterprises and national governments are quite different and should be kept separate from each other. These differences arise not so much from political systems such as the degree of democracy present in any one national government, but from the very natures of government and enterprise themselves.

    A national government taking shares in a multi-national enterprise is like a football referee taking the free kick he had just awarded. Similarly instead of getting into bed with multi-nationals the Irish Government should be building firewalls between its own interests and those of the multi-nationals it hosts or is trying to attract. In the end this would benefit both parties much as a good referee makes for a better game.

    It is precisely because the opposite is happening, that our democratic institutions are being seduced and our democratic representatives are being seen to be sleeping around with corporations that there is serious political unease and distrust spreading around the world. The core political problem of our day is how to reap the benefits of free trade and free enterprise without surrendering the powers of government to corporations whose interest is to operate free of all government regulation national or international.

    In that context I believe there is safety in numbers. A large grouping of states such as the EU has a better chance of regulating the free-wheeling multi-nationals than any one single state. That is why I believe the UK will become open range for multi-national exploitation and that the UK working class will bitterly regret Brexit.

    That is why I believe David’s equity participation suggestion is a bad idea and that his constant knocking the EU as an institution is ill-advised. Enjoy the good weather.

  7. McCawber

    David’s suggestion, if implemented globally (eventually but we can be first), would form the gateway to Utopia/Sangrila.
    For project Utopia to be successful the people (via their governments) must own the technologies (the intellectual property) that will make Utopia possible.
    Nice one David.

  8. Peter Atkinson

    Great concept David and would work nicely in a perfect world but no thanks. I’d rather have the guaranteed income now than the possibility of a lotto win at some date in the future. No doubt someone would manage to piss on the paper shares. I’m still trying to figure out how Facebook is valued at such a high level. I for one haven’t parted with one single cent to them. I’d rather take their tax Euros now before the deck collapses.

  9. AlfieMoone

    Is this the pot of gold at the end of the Leprechaunomics rainbow?

    The problem with positing a ‘Sovereign’ wealth fund for the Republic of Ireland is that the Republic of Ireland is NOT Sovereign over it’s financial affairs as the Troika debacle proved.

    Given the Cyprus bail-in, how would any putative Sovereign wealth fund be ring-fenced from predation by the ECB?

    How would such a gaming of Corporate Tax laws be accommodated within EU law?

    As EU ‘harmonisation’ prepares to awake from it’s pre/post Brexit sedation, how would other EU countries react to this?

    Without a specific amendment to the Constitution to protect this proposed wealth-fund (with a parallel opt-out clause added to the Lisbon Treaty) it’s difficult to see how this ‘blue sky thinking’ proposal can move into consensual reality.

    Finally, GDP does not represent the ‘real economy’ as the absurdist Leprechaunomic metrics have shown. I would also venture that share prices/valuations often diverge wildly from the ‘real economy’. I assume there’s a handy NPV spreadsheet calc to do all the cost/benefit SWOT stuff on upfront tax income vs pie-in-the-sky P/E rations and so on and so forth.

    This is the kind of thing I’d expect from an Estonian think-tank when they got bored of droning on about Flat Rate Tax.

    It’s very hot tonight. I’m aware my mood is tetchy, so my comment may appear a bit bitchy. But….I…just….don’t….care!


  10. Interesting comments all around. Well done All.

    My only comment here is that government is involved with politics and corporations with business. Government does not do business very well and corporations twist government to favour one over another.

    The function of government is to look after the benefit of the citizens and to set the parameters in which business is conducted.

    They are separate functions. Keep them separated.

  11. When politicians are corrupted , anything goes.

    By Greg Hunter’s USAWatchdog.com (Early Sunday Release)
    Dear CIGAs,

    Financial expert and former Assistant Secretary of Housing, Catherine Austin Fitts, says the U.S. government’s actions with Hillary Clinton means it is more lawless than ever. Fitts explains, “The entire country now looks like Arkansas . . . we’ve all turned into Mena, Arkansas, now. It’s pretty tragic. I have watched for two decades while 80% of the federal budget and federal credit has been run outside the Constitution and the laws related to financial management. I have never seen anything as blatant and outrageous as Loretta Lynch, prior to Hillary Clinton’s interview with the FBI, meeting with her disbarred husband, who is either the husband of or the target of a criminal investigation, and basically briefing him, I am assuming and what I believe on what Hillary needs to know, so she can skate the (FBI) interview. What the President, Lynch and Comey don’t want is the investigative team recommending to indict. . . . If you know anything about civil or criminal procedures, this is so beyond the law. This is so over the top that I have never seen anything more outrageous. It’s beginning to look like Mena, Arkansas, during the Mena drug running.”

    Fitts says the corrupt way they handled Ms. Clinton is how they are handling the business of the federal government. Fitts contends, “We know the entire financial infrastructure of the government has been run as a criminal enterprise for quite some time. The government engineered the pump and dump housing market. The government was the one that let JP Morgan Chase skate on Madoff and many, many other situations. Yes, the government is being run outside of the laws related to money. That requires a double standard and a parallel universe between what you say you are doing and what you are really doing. The actual governance system is different than what the official story is, and that is the problem that you are seeing in every administration since the death of (President) Kennedy. Kennedy wasn’t doing what ‘Mr. Global’ wanted, so he was assassinated. . . . This is now a very, very deep problem. We are financially dependent on organized crime cash flows as an economy. The citizens are going to have to make up their mind if are they going to tolerate this level of corruption or not.”



  12. Sideshow Bob

    I want to follow on my comment above in reply to Pat Flannery by linking in the Government´s announcement on Social & Affordable housing to this topic.

    In the comment above I suggested that we copy the US model of giving tax credits to corporations who make donations to non-profit Social and Affordable Housing Associations. Of course we would have to be looking to enforce something close to the 12.5% rate and not the 4% we currently enforce. Money could go towards infrastructure like an underground for Dublin, too, as long as a safe non-governmental non-for profit agency vessel could be established.

    So on to my point of contrast: just yesterday the Irish government made a big carefully spun announcement that it was putting 5.5 billion into Social and Affordable housing. Yes, it is coming to save us from the crisis that has been carefully cultivated since 2009. And what with? Well, a very expensive form of debt in short, at a time when it can become indebted in much less expensive ways. Or not at all if it wants to. It looks very much like the 5.5 billion euro will be available only in the form of PFIs (PPPs) , but the spin isn´t revealing this as the last PPPs to be tried in this area crashed and burned badly in the late noughties (in Dublin with DCC) . The spin did mentioned about `rapid build houses´ which can only be housing with a large element of pre-fabrication involved, or as more commonly referred to as pre-fabs. I know in America this is common but we simply don´t know how to do it here.

    All in all this could well be a very, very toxic combination. We are talking about paying through the nose for essentially prefabs and, that could be also managed by private sector companies and leased back ( including the management service element) to us for 25 years ( approximately ) until ownership reverts to us. That is the normal format of PFI ( PPP) here.

    Essentially are talking about the privatization of public social and affordable housing provision by stealth and in all the worst possible ways. This is a solution perhaps worthy of a banana republic except that I know for a fact that actual banana republics actually have more sense than to financing social housing this way. I can point to examples of where they haven´t done so even when everything else in the country was up for grabs corruption-wise.

    So if this PPP BS somehow this goes through the Irish government will be effectively taking out a mortgage in our names of course at exorbitant rates (for grateful investors) for 5.5 billion for 5 years worth of construction, which may give anything from 15,000-25,000 units (I would guess or perhaps less given PFI´s track record globally) or about one third to half of what would be needed.

    PFIs in the format they are looking to undertake have NEVER worked for public housing anywhere (to my knowledge), so perhaps it will fall at the first hurdle and not attract investment. So this Irish approach is truly moronic. And it is not that I am wishing that to this will happen, far from it, as a nation we really need these units. However, I am digressing ever further here, so I will try to circle back to the main point of the article.

    The number that David McWilliams throws around above that we are losing in one year by not enforcing or collecting the full 12.5 percent is about 8 billion euro. This is 3.5 billion higher than the total sum that the Government is GOING TO BORROW to supposedly solve the housing crisis.

    The mind boggles but there is one thing that is clear here in this whole BS maneuver by the Government. Despite an election which threw out the government and said `stop´ to the economic self-harm of the last 6 years or so we are still completely in the hands of an obsequious and parasite economic and political `insider´ class who are continuing with those same rejected economic policies.

    • McCawber

      The biggest issue with any of this is the lack of trust.
      If governments are prepared to bare facedly rob our piggy banks then they’ll rob anything.
      The Irish Electorate gave the politicians a good kick at the last election but the Government is still in power and it isn’t funny.
      The civil servants don’t realise that they are part of the Government and are party to the lack of trust and moreover they don’t want to.

  13. McCawber

    @Tony – Re the biggest lie.
    Quinn Group was shorted out of existence once a few investors in the city realised its CFD situation.
    I can’t believe that “a lot of somebodies” haven’t twigged that there is an opportunity here.
    There has to be more to this.
    At a guess Official Everyone wants an orderly unwinding of positions or should want.
    The same would apply to Derivatives.
    So –
    Does official everyon know that this unwinding is necessary AND
    How would they go about achieving it without returning to what you might describe as honest money (because they are just not going to do that either because of denial ir ignorance or they’re are partt of the conspiracy)
    What are their options.

    • In terms of the record short positions taken in the silver market, officialdom wants an orderly fast resolution in the down direction of the price. not an orderly market.

      These shorts are being challenged by deep pockets who are betting the fundementals win out and the silver price should be much higher. Hence the record high derivative placements. One way or another the price will break, up or down. The authorities want it down. Ditto the gold price.

      rising PM prices expose the truth of the economy as the fiat currency is essentially devalued against commodity money. It exposes the true nature of the inflation which is many times higher than promoted by the manipulated basket of goods advertise by government. It exposes the lie of an efficient management of the economy rather than the debacle it is.

      The PM rices will be held down by the use of unlimited shorting, bare naked shorting, funded with the use of “free” central bank unlimited funds. This is producing the massive distortion in the PM Market. Eventually the physical market will break the artificial market as the markets run out of available metals to trade at such low prices. When that happens the price for PM’s will literally explode to the upside. This is not what the “official everyone” wants.

      We have to stop thinking that the officials are rationally regulating the markets. The regulators are in the hands of the manipulators and totally corrupted along with everything else. We are controlled by psychopathic minds where the ends justify the means. There is no moral judgement. That is why we are lied to and cheated at every turn. Simply said, so far evil reigns.

      They have to be overcome and as Bill Murphy says, carried out on a stretcher. The rule of law must be re-established.

      In the US we will see if Trump can oust Clinton. The people know something id dreadfully wrong as they receive the short stick but they do not yet know the true reasons they suffer. The bigger question is does Trump understand and if so will he be able to do anything. In the long run the people must be properly educated and then the politician can act with the peoples’ backing.

      This education must be undertaken by the the spread of the information by social media and sites like this. So far there is no debate from the leader of this blog. We will be getting somewhere when there is. It will be a Eureka moment and there will be no turning back once the “light bulb” goes on.

  14. Pat Flannery

    Sideshow Bob: In reply to your post I would like to make the following three brief points:

    1. Non-profits are inappropriate recipients of dues imposed on multi-national corporations. Such revenue should accrue only to government agencies responsible for capital improvements or services. In the US tax credits to non-profits have resulted in much abuse and dishonesty.

    2. In Ireland the nominal rate of 12.5% corporation tax would have to remain intact (albeit merely nominal which is another issue) otherwise we would rightly be accused of giving special tax deals to individual corporations in breach of international law.

    3. Introducing the concept of “impact fees” in Ireland, using local government to collect and spend them, would have far-reaching beneficial effects throughout Ireland.

    I would be happy to expand on how impact fees work in the U.S. at another time but suffice it to say here that housing, schools and infrastructure are obvious areas of high impact. The ability to impose impact fees at local level is a very powerful government tool which seems totally absent in Ireland.

    There are more ways of skinning the cat …..

    • McCawber

      Are you for real.
      The local authorities are just as wasteful as any other arm of government and get even less scrutiny.
      The council are currently in the process of constructing a high end cycle lane on Bray seafront that nobody asked for and even fewer wanted.
      Millions are being spent on it.
      That money could have been spent on housing.
      It was in some budget and therefore had to be spent.
      WHY exactly. The budgetary process has been f^cked up for years.
      Everybody knows it but nobody will fix it.
      WHY – maybe because it suits them and eff the people who pay for it.

    • Sideshow Bob

      Cheers Pat, for the quick feedback.

      I think the boat has sailed on the pretense of legitimacy of Ireland tax rate in relation to the multi-nationals. The question is more how much of a will exists at EU level to clamp down on it. As long as the likes of Jean Claude `´Tax avoidance´´ Junckers are around I think that result is sealed.


      I was hoping that if a number closer to the 12.5% was to actually be collected (particularly from the bigger companies) the state then could redirect part of it to housing and infrastructure, i.e. long term capital investment in the country. Be it via impact taxes or tax credits I don´t really mind, but that cat needs to be skinned, one way or another.

  15. central bankers are considering block chain technology. commercial banks would then be irrelevant.

    “Bank of England considers cutting commercial banks out of the payments system”

  16. TO McCawber

    a good article to read. It also mentions the fraud of investing in the large gold GLD fund and Silver SLV fund as they likely hold paper and not the bullion people think they have invested in.


  17. http://www.gata.org/node/16608

    “”We don’t need back-door nationalization by central banks.

    State control of the economy has always been a bad idea. It distorts the playing field, favours political lobbying over competitive excellence, and stops the market from allowing the best-managed businesses with the best products to flourish. Central banks are pushing it through the back door. They argue they are doing so to help revive demand and keep the economy alive. But as with so many of their recent innovations, from zero rates to printing money, the medicine is starting to look a lot worse than the disease.”"

    “Nuf said.

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