Whose 'culture of entitlement' exactly?

According to Aviva CEO Andrew Moss Ireland has a "culture of entitlement". Quite so, writes Paul Walsh, but it's one that prevails only amongst multinational corporations like Aviva.

On 19 October Aviva Ireland announced a restructuring programme in which a number of “initiatives” proposed by the company “could result in a total reduction of 950 roles in Ireland over two years.”

All announcements of job losses are unwelcome for our struggling economy, but what lent this one a particularly sour taste for workers was the contention by Aviva CEO Andrew Moss that Ireland had a “culture of entitlement”, which he said had to change. He pointed to the fact that Aviva was paying its Irish employees 20% more than those in the UK, which in his opinion was “not sustainable”.

Let’s put aside the fact that Andrew Moss earns £1.8 million per year while the average salary in Aviva Ireland is €35,000. We can also ignore the obvious difference between the cost of living in Ireland and the UK, not to mention the fact that Ireland is the second most expensive country in the EU27 in which to live, so as not to blow more holes in Mr. Moss’s argument. Instead let’s concentrate on his central point - namely Irish workers and their “culture of entitlement”.

An all out assault

The minimum Irish workers expect is a job; but jobs have become precious commodities since the recession’s effects were first felt in 2008. 200,000 jobs were lost from 2008 to 2009. In percentage terms, unemployment rose from 4.7% at the end of 2007 to 14.5% in August 2011. So, as the number of people out of work has increased, those lucky enough to have a job have had their entitlements, conditions and pay eroded in a savage and constant attack on workers.

As wage levels have fallen across the economy, not even the most vulnerable have been protected.  In February 2011, the Fianna Fáil/Green government left the nation with a parting gift as it reduced the minimum wage by €1 to €7.65. The opposition to this measure was vehement, with Jack O’Connor of SIPTU commenting: “This has been slickly presented as a response to the EU-IMF negotiation when in fact it was already the objective of the Minister for Finance. It follows an established trend whereby the Government tries to correct the mess it caused at the expense of the most vulnerable workers.” The minimum wage was restored to its original rate by the new Fine Gael/Labour government as part of June’s controversial Social Welfare and Pensions Bill.

Lest you think our new leaders had a genuine interest in protecting lower paid workers, this was soon dispelled when Jobs Minister Richard Bruton announced reform of the Joint Labour Committee (JLC) and Registered Employment Agreement (REA) systems. This policy was, according to the minister, an effort to encourage businesses to hire more people. JLC agreements covered workers in low-pay sectors such as retail, restaurants and hotels. Following last summer’s reforms, the number of JLCs was reduced from 13 to six; the premium for Sunday pay was taken out of the purview of the JLC system, and bosses are now able to seek derogation from the agreements through a new inability to pay clause.

Add in the reduction in child benefit in Budget 2010, the Universal Social Charge introduced in Budget 2011, Bord Gáis increasing gas prices by 22% in October 2011 and the second highest food prices in Europe, and a “culture of entitlement” in reference to Irish workers seems to be way off the mark.

SIPTU’s Frank Connolly agrees. He says, “Workers in Ireland have come under sustained assault since the crisis unfolded in 2008 with wages and incomes cut in both private and public sectors, cuts to public services and welfare payments, mass unemployment and emigration. There has been an attempt to blame workers for the causing the crisis when they were nowhere near the scene of the crimes committed by bankers, property speculators, as well as incompetent regulators and politicians.”

It's all just take take take

Perhaps Andrew Moss was misquoted; perhaps he was in reflective mood and the “culture of entitlement” he referred to related to multinational corporations such as his own company, Aviva. In Ireland, any questioning of the low corporation tax rate, and the various multinational (MNC) attracting policies followed by successive governments is greeted with hysterical cries of heresy. Indeed, in the 2011 election campaign the only point the mainstream parties could agree on was that they were all committed to the preservation of Ireland’s corporation tax rate of 12.5%. We are constantly told that this tax rate, along with all those other tax breaks available to MNCs, are key to foreign investment and job creation in this country. However, this should not stop debate on and analysis of what we provide for these companies, and in turn their responsibilities to this state.

A report published in April 2010 by Irish accountancy firm Grant Thornton set out in detail the range of benefits that multinational companies enjoy in Ireland. The jewel in the crown is the standard 12.5% tax rate for active business profits, which is well below countries such as France (which has a 33% rate). While this is the headline tax rate, there are a plethora of other benefits for MNCs, such as an attractive research & development (R&D) tax credit regime. This allows companies claim a 25% tax credit for qualifying R&D expenditure. The credit can be used to offset current or future corporation tax liabilities. A tax credit is also available for expenditure incurred on qualifying R&D buildings, with a further tax exemption on gains from disposals of qualifying shareholdings.

As well as these generous tax breaks, corporations can avail of state grants. For example there is a training support grant of up to €250,000 that can be claimed. Another lucrative moneyspinner for the multinational sector was a tax exemption on patent income, although this gravy train was stopped after Budget 2010.  However, during its existence it enabled extraordinary sums of money to be released tax free. For example, The Sunday Independent reported in November 2005 that the patent royalty exemption legislation had allowed top executives at Dell’s Irish operation share in nearly $3.8m in tax-free dividends since 2003. Did these benefits and vast sums of tax-free cash engender a sense of loyalty in Dell? Not in the least. All those gifts which we give to multinationals, and to which they feel entitled, are not enough to stop their eventual relocation - as Dell proved in January 2009, when it announced the closure of its Limerick plant and the loss of 1900 jobs.

Surely the attractive tax regime is not the only lure for large corporations. According to Socialist Party TD Claire Daly there are other reasons. She says, “They arehere for other reasons, education, language etc. Relocating comes at a cost.”We are told we also have a highly skilled and educated workforce which these large corporations are also keen to benefit from. However, Craig Barrett the former chief executive and chairman of Intel, the American-owned semi conductor manufacturer, gave an interview on the Last Word on Today FM in February 2010 in which he criticised the Irish education system and said that the only reason American companies still invest in Ireland is the low corporation tax rate. He stated that Ireland had a great reputation for producing educated engineers when Intel first arrived on our shores 20 years ago, but in his opinion the education system has deteriorated badly since. "Your primary and secondary schools are only average," he said. "It is no longer good enough to be average. You have to be excellent at what you do ... at the end of secondary school your young people are average. Your education system is being challenged by improvements in the rest of the world. Things have changed, the educational attainment of other countries has been increasing, and that increases competition for attracting investment."

The contradiction of urging a government to increase its spend on education to produce highly skilled workers, while expecting companies not to increase their tax contribution, seems to have not occurred to him. Daly certainly sees a contradiction. “There exists a taboo in official Ireland that the Socialist Party is not afraid to confront. It concerns the low corporation tax applied on profits in country. The cost at which this has come in terms of depriving our public services is too great so we have to demand a bigger share from big business.”

A recent article by economist Michael Burke shows that multinational companies increased the profits of their Irish operations by €2.5bn between 2009 and 2010. Operating profits of non-financial corporations increased from €35.2bn in 2009 to €37.8bn in 2010 while wages declined from €37.3bn in 2009 to €34.9bn in 2010. This increase in the income of the corporate sector achieved by reducing wages has not lead to any increase in investment. Investment fell from €7.5bn to €5.8bn between 2009 and 2010. Given these figures, it seems that the corporate sector has got the funds to invest in the Irish economy – something which the Government clearly does not. Given all that multinationals have gained from our generous tax and grant regimes, one might have hoped for some reciprocity. Alas, no.

A global solution

To return to Dell for a moment, that company’s decision to close their manufacturing operation in Limerick was due to a €52.7m aid package offered to them by the Polish government. This, along with the cheaper cost of labour in Poland, made their move inevitable, despite all our pro-MNC policies. As Nicholas Shaxson writes in his book Treasure Islands: Tax Havens and the Men Who Stole the World, tax havens “offer escape routes from the duties that come with living in and obtaining benefits from society”.  Ireland’s tax policy has been part of a global race to the bottom, as countries are willing to offer ever more sophisticated tax loopholes to attract these huge MNCs. Frank Connolly of SIPTU says that ICTU (the Irish Congress of Trade Unions) have made proposals to change our relationship with MNCs: “The Irish Congress of Trade Unions in its pre-Budget submission has proposed that multinationals could help Ireland by deferring the repatriation of some of their profits for a period and to set up an investment fund on a commercial basis to invest in new or exiting Irish based enterprises and infrastructure.”

These are measure that merit serious consideration, but unless there is a global renegotiation of power between corporations and sovereign states, then any changes will be used as an excuse by MNCs to move to countries with more advantageous tax regimes. Clare Daly agrees: “This is not a race Ireland can win. Eastern European countries are already offering lower rates. Dell and others have already left. We need an economic strategy that weans us off a dependency on Foreign Direct Investment precisely because we have so little control over the decisions they make to move.”

One thing is clear - as far as Connolly is concerned it is the large corporations and their executives that have a “culture of entitlement” rather than hard pressed Irish workers. “I would think that it is people like Andrew Moss that enjoy a culture of entitlement with excessive salaries, bonuses and other remuneration.”

Image top: World Economic Forum.