SPEECH: Micheál Martin TD at SFA Annual Conference, 24th May 2018

Published on: 24 May 2018

I would like to thank you for the kind invitation to speak today and to engage with you in a question and answer session.  I very much value opportunities such as this to have a good exchange of views and to talk about constructive solutions.

I have been told that it is not uncommon for politicians to limit these speeches to reciting well-known statistics about the importance of the sector and to outlining small policies incapable of tackling big problems.  I would like to take a different approach today.

I want to first outline what I see as the overall economic challenges we face and then detail five specific areas of action where we need a new commitment to underpin and strengthen the vital role of smaller firms as lynchpins of basic economic and social progress.

We all know that firms with fewer than 50 employees account for nearly a million jobs that are vital to our economy.

But what is far less clear is the role intended for this sector in our social and economic future – or whether there is a real commitment to addressing entrenched problems which are likely to grow unless addressed with a new urgency and ambition.

Your Association has been very direct in saying that we should be seeking a transformation in the sector and in pointing to major threats to competitiveness.

I believe that this is one of the most important moments to face our country since the economic transformation begun by Lemass sixty years ago.  We face deep challenges which go as far as to demand that we renew and innovate with key industrial and economic policies.

Yet the reality is that policy has been largely static in recent years. The basic industrial strategy today is effectively indistinguishable from the one put in place a decade and a half ago.

The core structures of support for innovation remain largely the same, though lacking the scale or priority which was originally intended.

In a world where the pace of change and disruption keeps accelerating, we are taking a serious risk if we assume that more of the same is the route to continued success.

And the most important challenge we are failing to meet is how to prevent the development of an entrenched two-tier economy, where many people, businesses and areas are very successful but many others are left far behind.

Our national success in attracting major investment and world-leading corporations is something we should celebrate and work hard to maintain – but simply have done nowhere near enough to support the same level of progress in the economy as a whole.

The very things which we value as Irish people – our pride of place and sense of community – demand that we give all groups and all sectors the opportunity to thrive.

To sustain a successful economy and high standards of living we have to have a diverse economy, where businesses of all sizes and in all communities get the chance to secure prosperity.

We have to understand that the large manufacturing facility focused on the export market is just one part of the picture.  It must be accompanied by strong indigenous sector – ranging from small local services up to specialist manufacturing.

The success of the main street and stand-alone businesses should be as important as the success of the industrial park – they are equally critical elements of sustainable growth.

Our economy is strong at the moment because critical investments and policies over many decades continue to give us a competitive advantage – particularly our investment in skills and a wide knowledge base.

However the pace and impact of that growth is today more uneven than before and a growing polarisation is obvious not just in the statistics but also to anyone who looks around them.

I have absolutely no doubt that we can sustain a dynamic base of small enterprises as a foundation for our economy but to do this we have to be willing build a new agenda where the state becomes a more active advocate and supporter of businesses of all sizes.

Before giving some specifics on this let me say a few words about the general fiscal climate.

The massive savings achieved because of the policies of the European Central Bank have allowed new flexibility on public spending and taxation.

To be frank with you, I and my party are more than a bit frustrated about the inability to get clarity about what the exact situation is likely to be for the next few years.

In spite of formal arrangements covering this information, we have seen quite a bit of spinning to newspapers and attempts to play political games rather than be open and transparent.

We have insisted that the Rainy Day Fund which we proposed be implemented. We proposed it as it makes sense to have resources put aside which can be deployed when the economic cycle takes an inevitable turn for the worse at some time in the future.

We are currently living in strange times and there is genuine uncertainty about the international economic climate.

There is not room for a dramatic expansion of spending or cutting of taxes.  I hope that we don’t see a repeat of the situation last year where there were months of leaks and hype wildly disproportionate to what was delivered.  This distorts expectations and distracts from serious discussions about priorities.

This said, there is room for important improvements and part of this is the need to support action critical to the success of our broad national base of smaller enterprises. I support the need for and your call for a National Small Business Strategy.

The agenda is a wide one, so I would like to address five specific areas for action.  These are costs, staff, diversification, Brexit and the chronic delivery deficit in Government.

In every part of the country and in every part of the small enterprise sector costs come up as perhaps the most important issue undermining competitiveness and viability.

I strongly support the push in many councils to hold down business rates.  There is no doubt that we have to find a new approach which both funds local services and does not discourage small enterprises.  Rates which push people out of business are a lose-lose outcome for everyone.

But there is a wider and urgent agenda on costs to be tackled.

Insurance costs in Ireland are a disgrace.  By every like-with-like comparison with other countries, the Irish insurance market is dysfunctional and penalises individuals and businesses.  Be it car insurance, flood insurance, public liability or any other insurance product, costs are excessive.

The raid on Insurance Ireland was a dramatic illustration that all is not normal in this market.  Whatever comes of that probe the undeniable fact is that we have a non-transparent, non-competitive insurance market.

We recently proposed an extensive motion on insurance costs in Dáil Éireann and one of the core demands is for an end to delay on implementing existing recommendations from 3 years ago on areas such as requiring justifications for premium increases and regularly updating compensation to reflect real costs to stop the ongoing ratcheting-up of settlements.

The cost of finance is also a core problem and reflects a dysfunctional banking system when it comes to small enterprises.

If you look at countries where smaller firms are a critical part of strong industries you always find a different approach to finance.  In Germany for example, the mittlestand sector which is their economic powerhouse benefits from a banking system where interest rates are kept close to the bank’s cost of borrowing, where there is a long-term relationship with firms and where banks are far more open to investment in innovation.

The Irish system fails on all three measures.  Interest rates are often the highest in the Eurozone even though the banks have the similar core borrowing costs.  Branches are being closed at a rate which undermines long-term relationships.  And in terms of innovation, bigger projects continue to be a priority thereby holding back a potentially more dynamic and wider base of activity.

We simply have to have greater competition in banking and an incentive to serve personal customers and small enterprises better.

And of course compliance costs are a serious concern.

It is very easy to stand up and call for a bonfire of red tape and ignore that many compliance costs relate to policies which are either not optional or are increasingly important to achieving basic social, health or environmental objectives.

We have to continue to review and simplify regulations – but equally we have to look at new models for helping businesses with these costs.  We have to be more active in identifying new compliance costs and linking them to other measures to either fund them or to cut equal costs elsewhere.

The next broad area for action is in relation to staffing – both in terms of costs and availability.

While I understand the serious concern of many businesses with wage costs, in a wider economy where costs for individuals are increasing and areas such as housing are in crisis, I think we have to continue to look at new measures which can protect and promote lower value employment.

In terms of staff availability, I believe we have to give a substantial priority to small enterprises for training places.  In particular we need a new package of measures to help small enterprises to develop skills, such as certain technical certifications, linked to the supply chains of multi-nationals.

The need for diversification and meeting the challenge of Brexit are linked and urgent priorities.

I strongly support the idea of increasing supports which bring smaller enterprises more into the international supply chains of larger firms.  To do this we have to empower the sector with easier access to affordable capital and trained personnel.

We can already see from many sectors such as agri-food that smaller enterprises can respond rapidly to new developments – or indeed drive the creation of new sectors.  It is notable that this is a sector which has a very separate approach to supporting product development, market access and marketing support.

The Brexit mess created by the dishonest Leave campaign two years ago has brought home to us all how exposed many businesses and communities are to one market.  Diversification of products and markets must become a more urgent priority.

As the negotiations proceed there is no proposal anywhere near the table which prevents there being serious damage from Brexit.  As the country worst hit by the decision I believe we are entitled to seek new approaches to helping badly affected businesses and communities.

During the periods of transition to membership countries are given many sectoral-specific exemptions from state-aid rules and other EU measures.  I believe Ireland must seek that the same approach be allowed as we adjust to a major departure.

Small loan schemes go nowhere near addressing the needs of businesses that need to respond to the dramatic impact of Brexit.  In terms of funding for product development, market access and marketing direct aid is required at a scale not yet planned for.

The final area where I believe we need a new departure is to address the enormous delivery deficit which has opened up in terms of promised state investment programmes.

Improving the quality and design of launches does nothing about the fact that the gap between plans and reality is growing all the time.

The failure to extend modern broadband to all parts of the country has had a direct negative impact on thousands of employers and their staff.  Ireland has gone from a place where we were keeping pace on technological infrastructure to one where we are in danger of lagging behind quite dramatically.

The same delivery deficit can be seen in areas like housing – with escalating prices and rents limiting people’s ability to move and driving wage demands.  The near-systematic failure to deliver social and affordable housing targets is not just central to the scandalous rise in homelessness, it is impacting on the ability of firms to hire and retain staff.

Fixing the delivery deficit requires first that it be acknowledged rather than spun-away.  And then it requires an open and urgent approach to monthly reporting and clearer accountability.

As a nation we have many great things in the past and have built major infrastructure to ambitious timings – and we can and must do so again.

I have no doubt that we can have a strong and successful economy well into the future which supports good standards of living and strong communities.  To do this we have to start thinking in terms of all parts of the economy and not just the headlines.

We have to work to a new agenda which shows an urgency and ambition to tackle costs hitting small firms particularly badly, which makes sure that staff are available, which addresses the immediate threat of Brexit and the permanent need to diversify – and which fixes a delivery deficit in government which is delaying urgently needed projects.

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