A report in this morning’s Sunday Independent flies the kite for a new State Agency to invest equity in private companies. Inevitably, this will remind some of Foir Teoranta, a state agency which was officieally described as a lender-of-last-resort to private companies in the 1970s and 1980s.
Founded in 1972, Foir Teoranta’s stated objective was “to provide reconstruction finance for potentially viable industrial concerns which are unable to raise capital from the normal commercial sources.”
I’m not aware of a systematic analysis of Foir Teo’s effectiveness in that period. Maybe readers can remember more. But my impression is that, on its dissolution in 1991, it was not widely regarded as having been a brilliant success.
So what would make a new company of this type successful? The Indo’s article confirms that it would be well-managed, so that’s all right. But what else? The intended emphasis is said to be on equity, rather than debt (which was Foir’s main instrument). But is that a strength or a weakness in the current climate? How would it complement the European Investment Bank’s EIF, which seems to be in the same territory?
Would it be better to think in terms of a partial credit guarantee scheme instead? After all, if the banks are to receive huge injections of government capital, should one not be thinking of them as a natural source of finance to keep viable firms going? Partial credit guarantee schemes have been the policy instrument of choice for governments wishing to expand credit to small and medium enterprises, and there is an astonishing number of such schemes around the world. However here too there are severe risks; my recent review of these schemes emphasizes the drawbacks and the need for careful scheme design, if damage is to be avoided.
10 replies on “Foir Teoranta Nua?”
Well managed, maybe but would it be independent? Massive risk that this could become a vehicle for rewarding patronage. There are also reports this weekend regarding bailing the motor trade and construction.
Good job the government dont have a bank as well….oh, wait….
Ok, this is great. The government is going to use my money to invest in failing companies. Its bad enough my money is going into failing banks, but now failing industries too. Give me a break. This would be a disaster. And exactly what do they mean by “ailing industries”? In the United States, the TARP programme led to enormous lobbying for funds by all “ailing” industries (not only by the auto industry, but also, incredibly, by the pornography industry too.) And to finance this charade, out of “national necessity,” theyd invariably raid whats left of the NPRF.
There is already a scheme in place, funded by the EIB to deliver loans of up to EUR 25m to small and medium businesses. The only bank that has bothered to paticipate is Bank of Scotland Ireland (see http://www.eib.org/attachments/lending/inter_ie.pdf). David Murphy in RTE did a bit of reporting on this.
I believe it was reported that the Irish banks thought the margins on these loans were too small to be workable for them.
There was a great deal of controversy when Foir Teo. was wound up with large-scale write-offs of taxpayers’ money. The Dail debate in May 1990 was instructive but the link is too long to post here. There is a somewhat later report from Magill which gives a journalistic flavour. I can’t read the whole article without a subcription but the headline gives the gist of it: “Foir Teo: Good Money after bad”
http://www.village.ie/Magill_Articles/Magill_-_Business/Foir_Teo%3A_Good_Money_after_bad/
The Sunday Indo. report is typical PR spin but, perversely, that – and Jody Corcoran’s byline – gives the report a ring of authenticity as the product of a Government “kite-flying” exercise.
The report’s use of “Rooseveltian” and “New Deal” to grab the mantle of FDR is classic spin-doctoring. I don’t believe the New Deal included anything like the proposed bail-out for failing businesses but the Sunday Indo readers will want to believe that an FDR will save us. (Interestingly, FDR’s legacy includes the current US system of financial regulation which is now under such pressure, including the Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (SEC) and, most troubled of all, Fannie Mae.)
Even more troubling than the resurrection of Foir Teo. would be the report’s suggestion of “direct State involvement to help the struggling motor industry and construction sector”. We don’t have a “motor industry” apart from multinational component manufacturers like Kostal who are suffering badly but who won’t want “direct State involvement”. Is it possible the Government are planning to bail out car dealers!?
The Government is already busy trying to bail out the construction sector (see http://www.homechoice.ie ) but the spin-merchants are quick to say, “it is emphasised, not big developers”. That will be a fine line to draw!
The abolition of PRSI would help generate employment but there are obvious difficulties with limiting it to new employees only. On the other hand, the public finances cannot forego PRSI contributions entirely.
I imagine this is wishful thinking.
Independent News & Media will probably be first on the for assistance. The company is hopelessly insolvent having been dumped full of debt to pay dividends to the O’Reilly family.
As per usual with Sindo leading stories, the leading paragraph’s claim that this is being described as ‘Rooseveltian’ is nowhere backed up in the story, unless it refers to the story’s own subhead. I presume some poor Winston Smith is beavering away in an office on Middle Abbey Street editing all the old anti-Biffo stories now that “the line” has changed!
Saving dying industries in Ireland will only postpone the inevitable and waste more tax payers money. We need to be investing in the next wave of industries that will pull us out of this mess. In Ireland that will mean hi tech, high end.
The US should not be trying to save all 3 major car companies or they will struggle forever. One at least has to go leaving the other 2 to pick up its business. It is the Darwinian theory of capitalism – the strongest will survive this, the weakest go to the wall.
Waterford Glass is a classic example – no one wants to see it go but apart from a visitor centre and the very high end glass cutting nothing else can be saved in the long run. Let the rest die, use the premises to encourage start ups. Frame tax incentives round these. We need more home grown businesses. Relying on FDI all the time means we will be forever playing catchup as their life span seems to be around 10 years or just until the grants don’t become repayable!
Rooseveltian?
Presumably this will lead to the US re-instating the 1933 Glass-Steagall Act, repealling all those Reagan-Clinton liberalisation measures?
re. a new Foir Teoranta. Those with lobbying skills and the right political connections would benefit especially if they could promise to “create” a few jobs locally eg. by stopping a car dealership from going under or a well-got builder whose ambition exceeeded his ability to finance his “development” projects. This will have nothing to do with enhancing the value creation possibilities of international market oriented firms, soome of whom may employ more people abroad than here in Ireland.
I compare it to the Railway Procurement Agency which has emerged as a Government sponsored means of enhancing property development in Dublin. Where else but in Ireland would a Government build two new rail lines that do not interconnect? A real-throw back to the mid-1800s!
Nor will a Foir Teoranta Nua lead to the emergence of new internationally oriented entreprises that emerged during the 1980s eg. Kerry Foods, Ryanair, FEXCO.
In working our way out of this crisis, we need to change the language we use. My first offering is a quote from Laurence Crowley “Jobs are earned, not created”.
My second offering is to refer to Bill Kingston’s (TCD) piece on financing innovation reprinted in a UK government report. This led to BES in the UK and then here. The aims of BES were subverted when it was extended to property-backed investments.
I suggest that this is the fate that awaits Foir Teoranta Nua – funding businesses whose success depends solely on the wider economy doing well. Such resources would be better allocated to thinking how to achieve this and ensuring that measures are taken to reinforce the need for us to trade internationally to ensure a common prosperity for those who want to live and work here. Among such measures is implementing the Kenny Report recommendation on controlling the price of building land.
I fully agree with Brian that it is a good job the government doesn’t have a bank as well.