Another week another inversion — one of the world’s largest meat companies, JBS, signalled that it would relocate its HQ to Ireland. It also noted that this HQ company would be controlled from an office park in Herefordshire.
The reasons for this have nothing whatsoever to do with anything real, all to do with favourable tax and legal reasons.
This is unlikely to have any effect on GDP, unless of course, JBS decide to start using intellectual property and patents to start to shuffle money around, thus creating “exports” from Ireland.
At one level one might think that this is unlikely. Ranching and slaughtering and processing beef is not a particularity patentable business.
But what about our brand new Knowledge Box? The Knowledge Box allows for write-offs for intellectual property (IP) developed in Ireland. Qualifying assets for our Knowledge box include marketing IP – brands and suchlike.
Ireland has developed a business model over 60 years which is reliant, at least at the level of political economy, on the idea of foreign direct investment (FDI). There is nothing wrong with FDI.
The problem we have seen grow, however, is that more and more FDI may well not be manufacturing and jobs related but instead of the profit shuffling, job-poor, tax-driven corporate inversion model.
Gross domestic product, GDP, is the standard metric worldwide for measuring how much is created in an economy. There is a handy comparison chart here. GNP, Gross National Product, measures how much of this is created by citizens. GDP is how much is created within the geographical boundaries.
There is a crucial difference: things classed as created within Ireland but which never actually impact on our lives, like massive increases in aircraft leasing via Irish holding companies, can increase GDP by massive amounts.
Thus the 26% growth rate we saw recently, widely derided as meaningless but accurate.
We have created a situation where increasingly the headline figure everyone else uses as a measure of national wealth has become meaningless here.
Commentators have known for some time that this is the case and have proposed alternatives. Patrick Honohan has recently suggested that we need to abandon GDP, and indeed GNP, as meaningful measures of what’s happening in the Irish economy.
On an economic level, he is probably correct. But on another level, he misses the point.
We have, uniquely almost, created an economic model which renders impossible measurement on the same basis as the rest of the planet It is not the measurement that is out of line.
It’s us. We need to have a national conversation on what sort of economy we want to have.
There is no point in having booming but meaningless headline figures while have parents skipping meals to send children to avail of ‘free’ schooling, while we have record numbers of people on waiting lists for public medical consultations, while we have record child homelessness and so on.
An economy must serve society as a whole, not just the most loosely connected parts of same. These meaningless figures for GDP and GNP reflect a decision made not to have that.
© Irish Examiner Ltd. All rights reserved