Toespraak commissaris McCreevy over investeringen in Ierland (en)
SPEECH/06/673
Charlie McCreevy
European Commissioner for Internal Market and Services
Facing realities to deliver results
Investment Bank of Ireland 40th Anniversary Dinner
Dublin, 9 November 2006
Ladies and Gentlemen,
thank you for inviting me to be with you this evening. It is tremendous to see so many IBI clients and staff – past and present - gathered in this room - entrepreneurs and financiers who have contributed so much to the development of the Irish economy since Investment Bank of Ireland was formed in 1966.
No country in Europe has changed as much - or come as far - as Ireland has since then. It's interesting to look at some of the Irish company stock exchange listings back in the year IBI was founded - Irish Ropes, Irish Wire Products, Irish Worsted Mills, W&R Jacob, Maguire & Paterson, Newbridge Cutlery. The Irish and UK stock exchanges were combined in those days, and between them had 3,852 companies listed with an aggregate value of just under 40 billion euro. Today, the number of listed companies on the two exchanges has fallen by almost two thirds - but their aggregate value is 70 times higher. The contraction of listed companies on the main exchanges reflects of course significant industry consolidation as well as the increased role of private equity.
For many people, the mid-1960s were tough and uncertain times. But the seeds for much of our subsequent success were sown around then. And since then IBI - and the clients it has served - have been in the vanguard of that success.
But however innovative, fleet of foot, and ambitious a corporate finance house is, if its highest ambitions and those of its clients are to be realised, the public policy framework within which it has to operate must be facilitating and conducive to enterprise. It was in the years immediately before IBI was founded that public policy making began to come right in Ireland. After decades looking inward and being protectionist, our country had begun opening up. Openness can sometimes be difficult to sell politically. But it is the only way long term progress is made economically. It was around the time of IBI's foundation that we began stepping up our investment in education, and to make educational opportunity, attainment and advancement a realistic prospect for all. For Ireland and for Europe, education and life long learning must remain top priorities.
Paths to success however rarely run in straight lines. There are always turns and potholes in the road. As a nation we were pushed into some. And we walked into others. In the late 70s and early 80s policies that were fundamentally hostile to enterprise saw unemployment and debt soar, saw many of our brightest people emigrate, and by the mid-80s we were swimming in a public debt pool the servicing of which absorbed almost every penny that we collected in income tax. We were in a vicious downward spiral. Fortunately, we learnt some good lessons from those wrong turns. Lessons that we still live with and that I hope will not be forgotten.
Sound public finances, a light regulatory burden, good infrastructure, stable industrial relations, steadily improving productivity, a competitive tax environment, an educated, skilled workforce and the wherewithal to innovate. These are – and will remain - the vital ingredients to sustain Ireland's and Europe's competitiveness in the years ahead.
There is no room for complacency or for own goals. We must value what we have and work hard to improve it. Our policy framework needs to be continually adapted to the ever-changing competitive and global economic landscape. And we must stop seeing regulation as a panacea for every ill. Regulators must recognise that while they like to work in black and white, market participants operate in many areas of grey and uncertainty.
Some people think that regulation can regulate risk out of existence. It can't. Some people think illiquid markets can be regulated into liquid ones. They can't.
Some people think that labour market regulation produces labour market security. It doesn't. In fact it does the opposite. The only sustainable path to improved labour market security is for companies and workers to continually adapt: To respond to customers needs at the right time, with the right quality, and at the right price. The only winners from regulation that ties business up in knots or that makes it impossible to restructure are our competitors beyond Europe's borders. That’s why this European Commission has made better regulation – and less regulation – its mantra, even if that message takes time to percolate and be absorbed throughout parts of the system.
Of course some regulation is necessary. It is particularly necessary to get rid of the fragmentation, artificial barriers, and protectionist reflexes that have become increasingly prevalent across Member States. Businesses must be able to get the scale economies that only an open single market can deliver. That means they must have free access for their goods and services, and that there must be free movement of people and capital across Europe. We must and we will act to rid ourselves of the many loopholes that Member States use to stand in the way of these basic Treaty freedoms. And we are becoming more vigorous in initiating infringement proceedings to enforce the legislative framework we have in place to underpin those freedoms.
We have to ensure that we keep the bracing winds of competition blowing because only then can we ensure that businesses will serve their customers well. Open markets drive scale economies, incentives to innovate, and output efficiencies which in turn underpin higher living standards, fuller employment and sustained competitiveness.
I do not want to enter into the current Ryanair / Aer Lingus battle. But let me say this, nowhere have the benefits of competition and open markets been more obvious than in the areas of transport and communications. I know that IBI brought Ryanair to the stock market. When it comes to drawing up a list for the economic history books entitled: Which Irish company transformed Ireland fastest? Ryanair will be at or near the top of the list .
On so many fronts Ryanair has been a phenomenal success story. It has transformed people's lives, transformed businesses opportunities, even transformed attitudes. With a more than ten fold increase in passenger traffic into and out of the country since it brought competition to the market, it has transformed activity levels in a multitude of connected businesses – care hire, aircraft maintenance, baggage handling, hotels, guest houses, pubs, restaurants, retailing and leisure activities. Not to mention helping to transform the tax base: I suspect that Michael O'Leary and his company have paid more in corporation tax and capital gains tax in Ireland in one year than other, much longer established entities have paid in their entire history.
I mention this because I have noticed over many years - sometimes in parts of the public sector - so much begrudgery towards this great success story.
But before you run scared that I am going to go on all night talking about all of IBI's clients, let me assure you that I am not. Your successes are too many. But I think there is one man here whose company I upset during my time as Minister for Finance. I am delighted to see that he is here at the table with me - Maurice Pratt. In one budget I dramatically hiked the price of his core cider product to put it on an equal footing with beer.
Well Maurice, you have certainly proved that if any company can recover from a hammer blow it is yours. I see that your share price has nearly quadrupled over the past year – all on the back of your cider brands. I know you must be nervous that my good friend Gordon Brown will do to you in one of his budgets what I did to you in one of mine.
But hopefully he will give you time, as I did, and wait until your share of the UK long alcohol drink market has risen to the 9 per cent level. As I watch the dramatic growth of your Magners brand there it mightn't be long before you get to that position - and we'll see another 300 per cent on the share price. In the meantime, I promise you I won't put any bad thoughts into Gordon's head. On a more serious note, Magners is just one example of the rapidly developing expertise of many companies in this room in the area of international brand marketing - a competence that was identified to build upon in a competitiveness review undertaken here a few years ago.
Ladies and Gentlemen, the things that drive performance measurement in the private sector, that deliver more productivity, better service quality, and more innovation cannot forever remain dirty words among public sector pay negotiators. Because it is these things that can deliver sustainably higher living standards for everyone and underpin sustainable employment. But rigorous and comprehensive performance measurement and compensation systems cannot for ever remain confined to the private sector.
As Minister for Finance I was responsible for the public service and I know there are critics of the benchmarking process which was initiated during my time. Tonight, time does not permit to explain all the details of the process but I will say this: Benchmarking was a major step away from the previous daft system that lasted for 50 years where pay was adjusted on a relativity basis and resulted in an endless upward spiral of copycat deals. The first phase of benchmarking enabled us to break out of that crazy system. It was the first major step in the reform process. Of course, time has moved on and much, much more needs to be done.
Right across Europe it is now time for governments and politicians to address assiduously the trends that prevail in the public sector – in terms of rising headcount, inflexible pay policies, poor controls on capital investment, inadequate measurement of productivity, variable service quality, and rapidly increasing liabilities for pensions. The competitiveness implications for Europe's businesses of having to shoulder the ever expanding burden of these things cannot for ever be ignored. There is ample scope to drive public sector costs down while driving public sector productivity, service quality, and public sector living standards up. And for delivering a win win for public servants and taxpayers alike. I have huge admiration for the dedication, commitment and ability of the public servants I have worked with over many years. But I have less regard for the payment and reward systems under which they have to work. They are systems that leave the superior performance of the many unrecognised, and the under-performance of the few unpenalised. This is a lose lose situation for business, for the taxpayer, for competitiveness and for the future.
That’s why in my view public sector reform will be one of the big issues across Europe over the coming decade. The longer the matter is postponed the more difficult it will become to tackle. Because without the incentives and the capital investment to improve productivity, public sector headcount will continue to rise. And the more it rises the more politically powerful the public sector will become. The more politically powerful it becomes the more difficult for politicians to tackle it becomes.
Governments - as the trustees of taxpayers money - must deliver the best deal possible for public servants. But only for public servants who deliver the best deal possible for the taxpayer. That means the public service must deliver more on innovation and on procurement. They must use technology more effectively to drive productivity up and bring costs down. And performance must be properly measured - because what doesn't get measured won't get managed.
There is nothing radical about this. Policies on the public sector can't just be designed to please. They must be designed to deliver. In politics, if you want to make real progress it is not enough to be nice. Policies designed solely to please nearly always fail eventually.
That’s why the time has come to set objectives, impose timetables and stick to them. Politicians across Europe must present their public sectors a future rooted in reality, not in fantasy.
I know that over many years IBI has been deeply involved in advising clients on their overseas expansion ambitions. At a European level one of the issues at the top of my agenda is to stamp out the protectionist tendencies that have become increasingly evident across the EU Member States and that have served to block cross border takeovers.
We have seen many attempts by Member States to stand in the way of free movement of capital across the Union. To date I have threatened infringement proceedings on many occasions - but I also intend closing loopholes in the existing legislative framework that enable Member State regulators for example to block or unduly delay cross-border takeovers of financial services institutions on regulatory grounds that are not properly justified. That’s why I have indicated that I will be proposing legislative initiatives in the banking, insurance, and securities fields to introduce clear, transparent and consistent rules when assessing mergers and acquisitions in the financial sector. I want to leave no room for political interference or protectionism. There will be clear procedural rules and a closed list of criteria for the conduct of supervisory assessments of proposed acquisitions. And I will be proposing too specific deadlines and formal communication processes to ensure both efficiency and transparency throughout the process. This is not just about standing up for a principle. It is about standing up for a real benefit - the benefit that free capital movement provides by enabling industry to operate, merge, and restructure across Europe, to facilitate the delivery of efficiencies and scale economies that will deliver value for shareholders and lower costs to consumers.
The Investment Bank of Ireland and its clients have everything to play for. In our globalizing world where opportunities are vast, and where capital can flow freely it will be those countries and businesses who are not burdened by excessive regulation and red tape, who make it easy for business not just to set up but to get a decent after-tax return on their capital, and who provide the framework for continuous education and innovation that will win out. I am confident that Ireland's success can be sustained provided we keep our eye on the ball and don't duck the hard balls. The fundamentals that drive economic success in the future will not change. Most of the framework is in place to allow open markets to function and for Irish companies to continue to compete and win. And by the end of the term of this Commission I hope and believe that further progress will be clearly evident.
Across Europe at least some of the deep routed problems that have held back business in some of the larger Member States are now being tackled. Enlargement will provide more opportunities and bigger and more seamless markets. I have no doubt that IBI and its customers will thrive in this environment.
Ladies and Gentlemen, whether we are in politics, business, banking, or the professions, whether we are employed by the public sector or the private, we will all have to face up to some significant competitive challenges in the years that lie ahead. None of us can foretell the future. But all of us must play our part in shaping it and in building on what this country has already achieved. Here - and in Europe - we must face the challenges not with illusions, not with doubts, but with realism, and determination. We must have the will to take risks, the will to overcome obstacles, and the will to understand what it takes to succeed.
I am delighted that several of the founding directors of IBI are here at this celebration this evening. The foundation stones they laid, the entrepreneurship they inspired, the flair and the professionalism they brought to their task, and their good succession planning, created the solid base for the sustained growth of this business ever since and for the leadership position that IBI won and has maintained in Irish corporate finance. The task of building on the legacy now and of leading this business to further success falls on Roisin. And I am in no doubt that with such a formidable Kildare woman at the helm, the best is yet to come.
Thank you very much and enjoy the rest of the evening.