Although Ireland is a good example of how a small country can prosper, Lithuania will not be able to implement all its lessons, according to financial expert and BMI Institute lecturer Eamonn Walsh. In a conversation with the IQ reporter Gytis Kapsevicius he revealed his approach to the future of small agriculture, populism and tax incentives.
There is an impression that both in Lithuania and elsewhere in the world the economic sector is becoming increasingly concentrated. Do you see opportunities for small businesses to change this map and more easily enter the market and compete?
- In some businesses, high concentration is necessary – in aviation, for example. Here you need a lot of investment to create a single model of aeroplane, and there are also many challenges in the market itself.
Talking about simpler sectors in which a large investment is not required, I see this situation more from a financial than an antitrust perspective. When there is a monopoly, the dominant company earns a lot – like Boeing 40 years ago let’s say, but it only encourages other players to enter the market.
It might be fair to say that if you want to compete, suppose, with Maxima, it would be very difficult to do; however, Lidl succeeded – it entered the Lithuanian market and got quite a big part of it. The same happened in other countries where the market was highly concentrated.
However, such invaders are supported by large capital – in the case of Lidl, a hundred million euro foreign business.
- In this case, everything comes down to one question: should we create special conditions for inefficient businesses to compete with big efficient companies? Answer: it’s better to be a bigger and more effective player if you want to come and compete. It is better for both the consumer and the public. I don't know any strong arguments to suddenly limit the rising market share of large companies to 30% and create space for inefficient beginners.
It is of no use to anyone and reminds me of the EU's agricultural policy. There are big and efficient manufacturers, but we, as consumers, give subsidies for small and inefficient ones – that’s not very good.
Such an approach is rational, but some people still evaluate small farms or small businesses on other criteria, seeing them as more traditional.
- Small family farms are going through changes, their members would more like, say, to go to Vilnius and get university education, rather than what their parents did – milking cows. That's inevitable, and I believe that this is happening in all countries. Traditional agriculture is changing and production is more efficient – this is just better for the consumer.
But this is also a dangerous moment that populist politicians exploit. There are still many traditional farmers and the thinking goes that if these farmers vote for me, I will get a big boost. So what am I going to do? I will go and propose a policy that they will love to get votes for very cynical reasons – so that I could push my political career forward.
What you say is somewhat reminiscent of the situation in Lithuania.
- In Ireland, a similar example could be the current debate on Brexit. Some businesses may receive a lot of benefit from it, as the share of English speakers in the EU will fall from 15% to 1%.
So, if you need professional services and specialists who really know the language, the Irish would do very well. But we have a group of old-fashioned, inefficient farmers who are already talking about threat and compensation.
Such things are happening in other European countries, in, say, the mining industry. We can see that the trade unions hold the political system in their grip and decisions on the national scale are made to satisfy one group’s interests rather than the entire population.
Ireland is today referred to as a role model. Is it possible for Lithuania and other Central European Countries to replicate its leap forward?
- Ireland is a small country without useable minerals. In a short time we did very well. In the 1970s Ireland was one of the poorest in Europe, and today it is an example of how small countries even with shortcomings can grow very fast. It is necessary to take into account the things that Ireland had, however, that no other country has today. The first is the language. Speaking English is a huge advantage. The second is the Irish diaspora in the US and the UK.
I have spoken to some people who were interested in how it would be possible to apply Ireland’s foreign investment model in Lithuania. That model is adaptable, but Lithuanian emigrants in the US are different from Irish emigrants. In the 20s and the 50s of the previous century there was massive emigration, but the bridge between the US and Ireland was supported from generation to generation. That allowed Ireland to prosper. Most foreign direct investment came from the US, so it may be difficult for other small countries to replicate it. Thirdly, we had an edge in education. Free secondary education was introduced in the 1960s, and, later in the 1990s, free higher education.
In the 1980s, residents emigrated to the US and Great Britain – not just unskilled workers, but engineers and similar professionals who later became employed by larger companies. This coincided with the period when large companies were looking for new countries for development. The Irish were there. So, we were able to attract Intel, Microsoft, and Dell – most such companies came to Ireland in the 1990s. It was an important factor that stirred up the market, but we found ourselves at the right time and place. If this had to be done today, it would be difficult.
Also about taxes – we have been applying taxes incentives for quite some time to preferential policies. Ireland was an agricultural country with a high profile local production monopolies and very small exports. Tax incentives were introduced to promote exports – when exporting, not paying profit tax. The companies no longer paid this tax, they exported more, created jobs and helped the economy grow. This happened even before joining the EU.
We basically had nothing at all, so this solution cost us nothing. Inviting companies here to be set up to export we lost almost no taxes. There was no discrimination, foreign investment created jobs, and kept people in Ireland. So there is nothing bad in such a government plan that I can see. When we became members of the EU, it was said, no, you can't apply a zero rate, you must change it. We changed the tax system, but companies still found ways to not pay. Of all the investment in Ireland one case is special – Apple. What has happened has made it one of the most profitable companies in history, now only Saudi Aramco is ahead of it. It happened that Apple started negotiating with the government about tax relief a month before releasing the iPhone. I think it's important to remind you because people in Brussels are saying that such a situation is a big evil. But after the negotiations it actually introduced the most profitable product to consumers. That is why I feel very offended when people call Ireland pirates or other words. The Apple case was very specific. I do not think that the financial institutions of the country could have foreseen the massive success of the iPhone. This event is a national shame, but if the institutions had predicted the future and had all the facts, they would have done otherwise. On the other hand, to charge the company with taking advantage of the situation is very dangerous and to be avoided.