Tuesday, 25 April 1989
Dáil Éireann Debate
Minister for Finance (Mr. Reynolds): Fóir Teoranta were established in March 1972 under the Companies Act, 1963, as provided for in section 2 of the Fóir Teoranta Act, 1972. They were designed to fill a gap which was perceived in the range of State services available to manufacturing industry at the time. The purpose was to provide an orderly procedure for restructuring ailing, but potentially viable, industrial concerns which encountered financial difficulties and which were unable to obtain their financial requirements from commercial sources.
Fóir were established in a period of structural change in Irish industry prior to EC membership in 1973 and the removal of many trade barriers. The progression to the open economy which we now have was taking place rapidly, and it was not unnatural that the Government at the time took the view that transitional measures aimed at helping Irish industry to adapt to the new more competitive  conditions would be reasonable. Furthermore, during the recessionary period of the early eighties, Fóir provided very substantial assistance to Irish industry, mainly in the traditional sectors such as textiles and clothing, footwear and leather, furniture, mining, etc. Unfortunately, despite Fóir's best efforts, the traditional sectors of the economy had a fall in output of about 2 per cent per annum on average over the period 1973-86, along with a consequential fall in employment. In 1988, the performance of the traditional sectors has been turned around, and a growth in output of about 3 per cent was achieved in that year. It would be difficult to assert that Fóir Teoranta had anything but a marginal effect on the overall performance of these sectors one way or the other over the period since their establishment.
Ireland joined the European Community in 1973, just after Fóir Teoranta were established. Since then, there have been wide fluctuations in the economic performance of the country. In part, fast growth periods were stimulated by increased Government expenditure and borrowing. These borrowings eventually became unsustainable and this Government embarked upon the implementation of a Programme for National Recovery which had as one of its central aims the improvement of the environment for industry so that industry would be in a position to stand on its own feet and compete in the world marketplace.
The aim is to reduce unnecessary Government expenditure thereby reducing Government borrowing and lessening the upward pressures on interest rates and inflation. State props such as those provided by Fóir Teoranta have no place in this environment. The best action which the Government can take in relation to the survival of firms is to contribute as much as possible to lowering the input cost of industry thus avoiding altogether the need for firms to receive financial hand-outs from the State when  it is probably too late. Real sustainable employment will only be created on such a basis rather than on the basis of protection and State props for industry.
In 1973, 31 per cent of the Irish workforce was employed in industry. That proportion reduced to 28 per cent by 1988, while the services sector increased, and agriculture continued its long term decline. It is a primary aim of Government policy to promote the expansion of industry so as to offset the structural decline in agriculture and to create the basis for higher employment directly in industry and also in the services sector. Since 1960, manufacturing output has increased on average by 5 per cent per annum. In the last two years, the growth of manufacturing industry increased to more than twice this rate.
The Government's forecast of 13,000 net new jobs for the economy in the current year is achievable. Higher employment now taking place is due to sustained export growth and also to a resumption of demand on the home market. The European Community is now growing at its fastes rate for 30 years and, as in the past, Ireland can expect to participate in this expansion. It seems likely that we can match average European employment growth in the current year.
The link between higher economic growth and employment is as true today as it ever was. Experience suggests that growth of between 2 per cent and 3 per cent is necessary to maintain employment and that the total number of jobs increases proportionately when economic growth exceeds that figure. It follows that the only way to create sustainable jobs is to increase economic output by producing more goods and services. The key contribution of industry is to increase output as a result of which jobs will be supported, either directly or indirectly. Without higher output, more jobs cannot be created on a sustainable basis.
 Jobs will always be won and lost in any sector of industry and in particular firms. However, what is of crucial importance is that employment overall in the economy is increased, and that the new jobs are sustainable over the longer term. We do not need a Fóir Teoranta to fulfil this objective. Indeed, the evidence is that it was already too late for many of the firms who went to Fóir Teoranta and obtained State assistance. This assistance was then only useful in many instances to enable the firms to carry on for a while longer. Some firms assisted by Fóir Teoranta prospered and are trading successfully today, but the main point is that the thrust of Government policy is to get the overall number of jobs up in the economy by creating the right conditions for growth rather than by propping up individual firms at a high cost to the Exchequer.
The level of activity in Fóir Teoranta has tapered off considerably in recent years, from a peak of about £23 million in disbursement in 1983 to about £7 million last year. The number of applications received, cases approved, and the average size of approved cases have also substantially reduced.
In line with the fall-off in demand for their services and the virtual disappearance of large cases, together with buoyant own resources, Fóir's requirement for Exchequer funding also declined in recent years. In fact, the last occasion when the company needed to call on the Exchequer was almost two years ago. Since then, they have financed their operations from ongoing income from their investments by way of interest and capital repayments as well as a considerable element of pre-payments. At the end of December 1988 cash in hands or at short notice stood at £5.7 million. Following the Government decision to wind-up Fóir, the Exchequer allocation of £3 million originally provided for in the Abridged Estimates as an ongoing entity was withdrawn.
Since Fóir Teoranta is a lender of last  resort, it is not perhaps all that surprising that a high degree of failure has taken place among Fóir Teoranta client firms. The failure rate experienced by Fóir however, has been at very considerable cost to the Exchequer. The failure rate may be measured by the fact that, of the currently outstanding advances given to Fóir Teoranta by the Exchequer of £96 million, about £75 million has in effect already been written-off by the company. While many firms have prospered with Fóir Teoranta assistance, there has nevertheless been a heavy loss of the Exchequer money invested in Fóir Teoranta.
The level of write-off in Fóir Teoranta is a reflection of the fact that many firms assisted failed, despite the assistance given by Fóir Teoranta. Many such firms left it far too late to go to Fóir Teoranta for assistance. Where, nevertheless, assistance was given in such cases, the damage had already been done and the firms eventually went to the wall anyway. While there may be economic benefit from keeping jobs in existence longer rather than being lost at the outset, there is the fact that the prospect for long term sustainable employment may be better if firms are transferred to new owners quickly in the receivership-liquidation process than if the firms are kept in existence, with Fóir assistance, but with existing debt levels and perhaps poor management and other weaknesses.
This is the background against which the Government considered the future of Fóir Teoranta. Their decision that Fóir should be wound up, as indicated in the announcement I made on 22 February was grounded on the following: (i) the low level of demand for Fóir Teoranta's services over the recent past; (ii) the very much changed industrial environment now, as a result of the firm action taken by this Government, as compared with when Fóir Teoranta were established; (iii) the soon to be enacted provision in the latest Companies Bill allowing for the appointment by the courts of an examiner  in order to prevent a potentially viable company from going into immediate liquidation; and (iv) the need to prepare Irish industry to be ready to meet the challenges of the more competitive régime which will apply when the internal market is in place after 1992.
I have already mentioned the decline in demand for Fóir's services. This decline is due to a number of factors — the new climate of confidence in the economy and the favourable environment for industry are obviously major influencing factors. I will deal with these in more detail shortly. Another important consideration is the fact that finance for industry is available on a much wider scale now than ever before from private sector individual and institutional sources. Individual investors have the powerful advantage of State-backed tax schemes such as the business expansion scheme. The BES now has funds of over £32 million invested, and has clearly been a substantial source of equity funding for Irish business which in the past has been perhaps too heavily dependent on debt finance. The restrictions on the BES contained in the Finance Bill which I introduced recently are not directed towards investment in manufacturing industry, the area in which Fóir Teoranta were involved.
Venture capital funds also exist on a significant scale, with an important role in this regard being played by NADCORP and the investment arm of the Industrial Credit Corporation. Given these developments, it was inevitable that, leaving aside the improvements in the economy generally, demand for Fóir Teoranta services would be considerably lessened and the need for such an organisation diminished.
As I have said, the industrial environment now is also very much changed from the one which existed when Fóir Teoranta were established 17 years ago and during their main periods of business. Business confidence has never been greater. Interest rates are at their lowest levels for over a decade, inflation is at its  lowest level since the early sixties. The Confederation of Irish Industry, in a survey of their member firms in 1987, concluded that industry would “prefer to have a competitive cost environment than seek to compensate for deficiencies in the environment through cash grants” etc., from the State. Clearly, we are living in an environment much more conducive to getting industry back on its feet, and achieving increased long-term industrial employment. The Government have got the conditions right. Industry itself must now deliver, without the aid of State props, for individual firms which find themselves in difficulty.
Everything we in Government are doing is aimed at increasing growth and jobs in our economy. The problems and development needs of the economy are such that there can be no question of doublethink or lack of consistency between the different parts of the Government's overall strategy as set out in the Programme for National Recovery. Everything must hang together in a consistent and carefully targeted approach aimed at securing more growth and more jobs.
In view of the recent comprehensive debate in the House on the National Development Plan I do not propose today to deal at any great length with the economic situation. However, there are a few general points on the economy which deserve to be aired again so that the context in which the decision was taken to wind up the activities of Fóir Teoranta can be more readily appreciated.
This year's budget won widespread support throughout the community. Developments since the budget suggest that the strategy on which it was based is firmly on course. The Exchequer returns for the first quarter were very encouraging. They support the view that the strengthening in economic activity which was projected in January is, in fact, taking place. There is a strong recovery  in consumer spending. Retail sales in January were up by 7 per cent in volume on the year before. Unemployment in the first quarter of this year was substantially lower than in the first quarter of last year. Manufacturing employment in the final quarter of 1988 — the latest period for which figures are available — shows a year to year increase for the first time since 1980. In the building industry, employment in the larger firms in January and February was some 7 per cent higher than in the corresponding two months of 1988. This, together with the increase of 30 per cent in housing starts in the first two months of the year, is an indication of the substantial recovery which is now underway in the building industry after several lean years.
The trends so far support our expectation of a further substantial balance of payments surplus this year, of broadly the same order as last year. Exports have risen by 24 per cent in value year to year in the first two months of this year. This reflects the continued buoyancy of our export markets and the all important improvements in competitiveness which have been made here. There has also been strong growth in the value of imports. Imports of capital goods are up by 20 per cent — a good omen for investment and future output. As expected, imports of consumer goods are also strong in response to the recovery in private consumption. The challenge to domestic producers is to capture a growing share of this recovery in consumption and not to lose out, through price increases or otherwise, to overseas producers selling into our home market. Inflationary pressures at present in the economy will have to be resisted by every means at our disposal.
The overall prospect for 1989 remains one of strong economic growth. I am confident that the budget time prediction of a 3½ per cent increase in real GDP will be realised and might be bettered. In this new realistic and competitive industrial  environment the demand for Fóir Teoranta's services had fallen dramatically.
Everybody is taking heart from the developments in the economy. There is a new air of confidence. It is good to see new investments and projects springing up all around the country. While problems remain, people now see that the earlier pattern of despondency and economic decline can be broken.
It is not part of my task to dampen this new enthusiasm — the opposite is the case. I must underline again, however, that in taking satisfaction from the progress made to date we must keep our feet firmly on the ground. Easy options must be avoided. An increase in costs and inflation — even from the low base we have achieved — is no substitute for higher productivity and efficiency. Jobs will be lost, not made, if we do not continue tight control of costs right across the economy. In areas where we ourselves have control, we must be ruthless in our approach.
For this reason it bears repeating that much of the rise in prices in the three months to February — over 1 per cent, leaving aside non-recurring budget effects — originated within our own economy rather than abroad. If we are not to put at risk our hard-won success in getting inflation down, all sectors must continue the restraint in evidence up to recently, and avoid rekindling domestic inflation pressures. Renewed inflation can only do harm to our international trading prospects, diminish our growth potential and ultimately inhibit the recovery in employment now under way. This Government are determined to resist such conditions thereby obviating the need for State services such as that provided by Fóir Teoranta.
The improvement in the public finances over the past few years has been dramatic. The trends so far this year suggest that, yet again, the budget targets may well be bettered. In this area too, however, we cannot allow our guard to  slip. The annual addition of new borrowing is still too high. The exceptional overhang of debt still constrains our economic progress and eats up large resources that could be put to much better use. The Government are determined, therefore, to press ahead with the reduction of borrowing and debt.
We are already considering how best to achieve further necessary savings in expenditure in 1990, so as to make room for new investment within an overall improving budgetary trend. This work will be advanced in the coming months. The policies for the rationalisation of State bodies, of which the decision on Fóir Teoranta was part, will be continued in that context.
Much progress has been made in the past two years in the reform of the tax system including reductions in the corporate tax system. These reforms were impossible to implement while the public finances were in disarray. The actions on the tax front were made possible in large measure by the curbing of public expenditure during the past two years, while the overall reduction in the Exchequer borrowing requirement was not compromised. These changes have been crucial to the general economic recovery. There can be no exceptions to the rigorous and ongoing examination of public expenditure, aimed at ensuring that the general economic environment for business is continually inmproved. Bodies which have outlived their usefulness have no part to play in the new approach of realism to the public finances and competitiveness in the economy.
The provision in the latest Companies Bill allowing for the appointment by the courts of an examiner to companies in financial difficulty is modelled on the similar Chapter 11 process in the United States. The aim is to prevent a potentially viable company from going into immediate liquidation. This approach is one advocated by Fóir Teoranta for some years past. It allows for a stay of the rights of creditors while the examiner attempts  a reconstruction of the company's finances. One of my objectives in preparing the Bill was to provide a new procedure which would help to obviate the need for a separate State company to deal with industrial rescue. Conditions in the economy are now such that the Government are satisfied that such a company is no longer required. Fóir Teoranta will, therefore, no longer be one of the participants in the examiner procedure as had been envisaged when the Bill was published. I am satisfied that the effectiveness of the new procedure will not be impaired as a result. There will be ample scope under the new arrangements for genuinely viable firms to stave off closure if they are threatened by merely short term financial difficulties.
There is no justification, as has been suggested, for holding Fóir Teoranta open until the new procedures are actually enacted. The timing differences will be quite short, and the essential point is that firms have to stand on their own two feet, in the new industrial environment, without recourse to the taxpayer for handouts. This is a view supported, as I have said, by industry itself.
It must be remembered that we as a nation have to gear up to the challenges that the creation of the European internal market will bring in 1992. This applies to all sectors of the economy. Irish industry will have to meet the competitive pressures without State feather bedding. Lame ducks will no longer be able to look to the State — the taxpayer in other words — to bail them out. This is an economy that is itself open to competition, and expects that the doors of its trading partners will be equally open to our exporters. This Government are convinced that they are adopting the correct approach in the interest of ensuring that Irish industry is best equipped to meet the challenge about to face it, and to ensure that the maintenance and growth of industrial employment — and employment generally — in this country on a  long term secure footing is continued. With this in view I should add that already expenditure on industry was increased by £11.5 million Structural Fund money, in the budget, which is almost four times greater than the saving of £3 million in the Exchequer allocation to Fóir Teoranta in 1989 as a result of the Government's decision.
To sum up, the Government have taken their decision in this matter in the light of prevailing circumstances. The Government's view is that with the other sources of finance available for investment in industry and with the economy in such good condition, there should be little if any adverse impact on employment as a result of the closure of Fóir Teoranta. As regards the view that a need may arise in the future for the State to be actively involved in industrial rescue should economic conditions deteriorate, it has to be made clear that the days of feather bedding Irish industry are over. Irish industry must be able to compete in the marketplace and, in an intensive effort to ensure that this will be the case post-1992, the Government are already devoting greater resources to industry in the context of the EC Structural Funds over the next few years. There is therefore no lessening in the level of resources being devoted to industry. It is the purpose for which those resources are used which is important, and we will be ensuring that the funds involved are put to best effect in order to secure good solid progress in attaining the employment targets set out in the Government's Programme for National Recovery.
I said in my statement of 22 February that immediate discussions would take place with Fóir Teoranta on the implication of the Government decision for the staff and the company. These discussions began on 23 February and are continuing. They are designed to allay whatever fears the staff may have as to their position and to cover the options that will be available to them by way of  redeployment, early retirement or whatever. This is an on-going situation as the House will appreciate but one which in the interest of all concerned, most of all staff themselves, is being progressed as rapidly as possible. I am hopeful that the arrangements being put in place will lead to an early and satisfactory outcome acceptable to all. The clear aim of policy in this regard is that there would be no compulsory redundancies in Fóir Teoranta, and every effort is being made to ensure that this result is achieved.
Deputies will recall that in my statement of 22 February, I said that new applications for rescue assistance would not be accepted by Fóir Teoranta from Thursday, 23 February 1989. In case of any doubt, I should say here that all other applications, that is, those received by the company up to and including 22 February, are being processed and decided on in the normal way. I also said that appropriate alternative arrangements for the administration of Fóir Teoranta's existing portfolio of loans and equity holdings would be made by the end of the winding up period so as to ensure that the Exchequer investment in the firms in question is protected. My Department are considering the options in this regard. As well as protecting the interest of the Exchequer, it is important that the arrangements to be put in place will be such as to maximise the benefit of the Fóir Teoranta assistance granted to the firms concerned. I can say at this stage that there will be no question of throwing to the wolves Fóir Teoranta's existing client base. Without committing myself, I would envisage that the portfolio will be continued to be managed within the public sector.
Finally, I would like once again to express publicly my appreciation of the work done by Fóir Teoranta since their establishment including the management advice service provided by the company, which had become a more significant part of their work in recent years. I wish to  pay tribute to the hard work, commitment and dedication of the staff, management and directors of the company over the years.
Mr. J. Bruton: I think I have demonstrated in my career in public office that I am no lover of unnecessary bureaucracies or of excessive public spending. It is in the light of that record, and my experience over many years as Minister for Industry and Commerce, that I say I believe that the decision of the Minister, Deputy Reynolds, in abolishing Fóir Teoranta was a superfical and impetuous one made solely for the optics, in order that the Minister could give the appearance that he was taking action without any regard to the merits of the case and without any prior consideration of the issues involved. As evidence of this I adduce the fact that there was no consultation whatever with the board of Fóir Teoranta prior to the making and announcement of this decision. Furthermore, two months after the decision being announced large numbers of loose ends still remain to be tied up. If this was a decision that was taken with care and consideration all of those loose ends would have been tied up prior to the day of the announcement but the Minister decided that he would make the announcement first and worry about whether or how it could be implemented afterwards.
For example, I draw the attention of the House to the fact that the Minister two months after he made his announcement still is unable to tell the House who will be responsible for managing the portfolio of loans and investments for which the board of Fóir Teoranta were previously by law responsible for managing. I would remind the House that the board of Fóir Teoranta have loans outstanding to them of £37 million or more and have investments for which they are responsible of £24 million or more. Up to 22 February Fóir Teoranta, and their board, were responsible for  looking after those investments but for the last two months nobody knows who is responsible for them. Two months after his announcement the Minister is talking about envisaging that somebody in the public sector might be responsible.
Mr. J. Bruton: A company who are still there but who have been told they may not be there in a month's time or may still be there in six month's time, who are living from day to day and do not know what is the perspective within which they are operating, are not able to manage the portfolio of investments or loans properly.
Mr. J. Bruton: I do not believe that  just because a person has got a clean bill of health following a check up by a doctor he or she should decide to cancel a life assurance policy. The fact that there is not great demand for the services of Fóir Teoranta at the moment, and the fact that there are considerable sums of money available now from business expansion scheme funded venture capital bodies is not a reason for abolishing Fóir Teoranta who are there as a lender of last resort in bad times. We happen to be in good times in terms of availability of funds for investment and I will be the first to acknowledge that.
Fóir Teoranta was established not to deal with good firms in good times but to deal with the problems of good firms in bad times. In abolishing Fóir Teoranta the Minister is abolishing an agency established by law to operate in good times as well as bad. To adduce, as did the Minister, as an argument for the abolition of Fóir Teoranta the fact that it is not an argument at all. Fóir Teoranta was never established simply to be active was never extablished simply to be active solely in good times which, as everybody knows who has any length of recollection, is a temporary phenomenon.
The last time the operations of Fóir Teoranta were considered in any serious manner in this House — I do not regard this debate as a considered one on the subject at all because there is no opportunity for the Minister to reply to questions — was when the Oireachtas Joint Committee on Commercial State-Sponsored bodies considered the matter. I want to give one short quotation from the 17th Report of that committee, dated 8 April 1981. Paragraph 51 reads:
“In summary, Fóir Teoranta performs a most valuable function, on the basis of rational criteria, by helping  industrial firms in temporary difficulties to survive and recover profitability. Its services are of particular value in times of exceptional economic difficulties.
Those are the views of the Department of Finance, a body which has a well-earned reputation of being antipathic to unnecessary State bodies. They, as a Department, with the approval of their then Minister — who was, I believe, a Fianna Fáil Minister — expressed those views about Fóir Teoranta.
I am not relying solely on civil servants to bolster my case in this matter. The all-party committee that received that advice from the Department of Finance came to the following conclusion which I shall quote:
That is the considered view of an all-party committee, including a number of Deputies of the Minister's party, of mine and of the Labour Party on this subject. It is also the view of the primary Department of State in this country.
For the Minister, without consultation with the board of Fóir Teoranta, without consultation with anybody, without having made arrangements to deal with the consequences of his decision in terms of deciding who would administer the portfolio, to just abolish this body purely in order to give himself a good appearance in certain hostelries where economic matters are discussed, to my mind, is not a very rational approach. I am well aware of the Doheny and Nesbitt school of economics. I am well aware of the talents of those who are there but I never allowed myself to be so swayed by that advice as to make decisions that I did not believe to be rational simply because people who  were fully paid-up members of that school expressed the view. That is the reason the Minister took this decision.
I reiterate that no money will be saved by the abolition of Fóir Teoranta. In fact, Fóir Teoranta will show a surplus of £2 million on their operations this year. Therefore, far from this being a tremendous blow for the taxpayer, this decision will be quite the reverse.
Fóir Teoranta are not, and never were, an easy touch for a loan. Under their terms of reference, established by the late Deputy George Colley when he introduced the necessary legislation, in order to qualify for aid from Fóir Teoranta a company must: (1) be engaged in industrial activity; (2) have significant employment involved which is either nationally or locally significant; (3) there must be a sufficient contribution of money from the owner of the company going in at the time of the rescue; (4) there must be reasonable prospects of profitability on a permanent basis; (5) its continuance is in doubt because of inability to obtain its financial requirements from commercial sources and, finally, failure to receive assistance would have serious repercussions either nationally or locally. All of those criteria must be complied with if a company is to get aid from Fóir Teoranta. There is no question of Fóir Teoranta ever being used simply to bale out the banks because, under the law, if a company can get assistance from the banks, they cannot get it from Fóir Teoranta. It is only companies that cannot get assistance from the banks that are qualified to receive assistance from Fóir Teoranta.
I believe there are a number of types of companies which need help, need continually to have the knowledge that help is available, if necessary, from an agency such as Fóir Teoranta. I would identify three categories. There are, first, young companies with new products, particularly in the high tech sector in the first year or two of their operations. It is well  known that companies with a good product get into temporary difficulties early on in their first years of operations. The Minister might say: suppose they go bust, what is lost? The fact of the matter is that many new companies constitute a brain-based operation, based on the knowledge and contracts of a particular entrepreneur. If that entrepreneur is put out of business the fact that somebody else can buy the assets of the company saves nothing and that job-creating project is lost for ever. In such circumstances a rescue agency has a role to play, not in the majority of cases but rather as an agency to deal with minority cases or circumstances as they arise.
The second category in respect of which Fóir Teoranta aid is necessary — which will no longer be available — is in the case of mature or older firms which need to buy time to diversify but which, if they close and are broken up, will never come together again. They can receive aid in those circumstances. There are examples of companies that have received aid in that category, such as Irish Country Bacon, Manford Clothing, C & D Pet Foods. All of those are companies which have justifiably received assistance from Fóir Teoranta. They fit into those categories and should have received such assistance. I might add that, as Minister for Finance, I was happy to approve assistance for some such companies. There will be a continuing need on the part of such companies to receive assistance.
Finally, there is a third category, that is virtually all firms in the manufacturing sector in bad times, when interest rates are high, when demand is low and it is a question of simply preserving the industrial infrastructure of the country until times improve. That is when one needs Fóir Teoranta. The year 1983 was a particularly bad one for the Irish economy. In that year Fóir Teoranta had their largest ever demand for assistance in recent times. Many companies were  saved in 1983 and their employees are in secure employment today but that would not be the case had not Fóir Teoranta saved their companies. Approximately 24,500 jobs were saved between 1983 and 1986 by Fóir Teoranta. I believe the majority of those people would be on the dole today were it not for the availability of Fóir Teoranta aid.
The Minister makes the case that, of course, such companies can turn now to the business expansion scheme and other such agencies for assistance. That is not the point. There is money available by way of the business expansion scheme in good times because people have money to spare to invest in various tax concessions of that kind. But if we again, as we will inevitably — it does not matter who is in office; this is not a political observation — find ourselves in bad times, there will not be people with money to spare to invest in the business expansion scheme, there will not be people ready to take over any company that gets into difficulty, people who have money available for acquisitions. They are available now and do not need Fóir Teoranta now but if we get into a downturn of the economic cycle, the very time that interest rates are at their highest and most companies are in difficulty will be the very same time when there will be fewer people in the private sector available to help them. Therefore, the whole purpose of Fóir Teoranta is to act in a counter-cyclical capacity, so that they would be available to help when there is a downturn in the economic cycle.
I would be perfectly happy if the Minister had made a decision to say he was suspending the operations of Fóir Teoranta for the next two years because it was his estimation that Fóir Teoranta were not going to be needed for the next two years, that the staff would be reduced and they would continue to manage their existing protfolio for that time. But that is not the decision the Minister took. The Minister decided to abolish the body altogether so that it is not available as a  life assurance policy whenever we get into bad times again. This was done simply because he wanted to appear to be a brave man taking a big decision, and not because economic and commercial fundamentals justified any such decision.
It is essential that we know clearly what the arrangements are going to be for the management of Fóir Teoranta's portfolio because, as I have said, it is necessary for the commercial management of any such portfolio that those who are administering it know they have a mandate that stretches ahead into the reasonable future and can make decisions about the administration of that portfolio on a reasonable basis. I do not believe that the Minister has yet even made up his mind, as indeed he admitted in this debate, about how he is going to manage the portfolio of the body he has decided to abolish.
I do not believe it is right that a situation should exist in which a statutory body who are essentially in a form of suspended animation with no authority of their own, because they know they are under a death sentence, are supposed to be administering loans and deciding which loan they will foreclose on, which loan they will allow continue on for a little while more, which investment they will sell and which investment they will not sell. A body who are under sentence of death do not have the independence necessary to make those decisions. I do not think it is right that the Minister should be in a position where ultimately the responsibility for these decisions rests with him because the body who were established by law to deal with these matters are essentially under a death sentence and have no continuing or long term mandate. That creates an unnecessary embarrassment for the Minister, or for any Minister for Finance, and it is an embarrassment which he should not draw upon himself by making an ill thought out decision, such as the one he made in this case.
 It would have been far more appropriate for the Minister, if he wanted to suspend Fóir Teoranta's operations, to suspend them but to have said that the board, the body and the chief executive would continue in office until whenever they were needed again in more difficult economic circumstances, that in the meantime they would retain their statutory long term responsibility for managing their portfolio. Instead the Minister has made the foolish decision of saying that the body will be done away with, he does not know what he is going to replace them with. In the meantime nobody in particular has responsibility for managing the portfolio but ultimately the book stops with him. I do not think any Minister should find himself in the position of having to make decisions of that kind in regard to outstanding loans and so on to individuals.
Mr. J. Bruton: I have said all of the things I wanted to say, except one. The Minister made the point that he believed that the new amendments in the Companies Bill, which have not yet even been debated in this House and which will provide for a form of private sector rescue of companies, would suffice in place of Fóir Teoranta. Nobody knows whether these arrangements are ever going to work. The legislation may not be on the Statute Book for the next two years — judging from the lack of urgency on the part of the Government in time-tabling it, I think two years would be an optimistic timescale in that regard — and nobody knows whether it is going to work. To say that that arrangement is somehow a substitute for Fóir Teoranta is to say something which is plainly unreasonable because nobody knows yet whether this arrangement will work at all. It has not even been debated in this  House, it is not law and has no prospect of being law for quite some time. That is also a superficial argument to use and its use indicates that the Minister had no argument for his decision and had to cobble together a statement to justify this top of the head decision.
Mr. Cullen: There may be various themes as to what has underlined this decision to abolish Fóir Teoranta but I believe that the principle of it is the correct one. I do not believe it is necessary any longer to have a State operated company involved in supporting basically lame duck companies, who have failed by every criteria of business to remain in business with support from the legitimate banking sector and all of the other agencies, who are able to turn to Fóir Teoranta, who in many ways had an impossible task, to prop them up. It is ironic that when moneys were given over to Fóir Teoranta they were given over to the very people who in many instances had brought about the demise of the companies they were being given finance to try to save. Surely this was a contradiction in terms in many ways.
The reasons for the establishment of Fóir Teoranta in the early seventies reflected the thinking at that time and was probably the correct step for the Government of the day to take. If one looks at the graph of activities of Fóir Teoranta it is apparent that at that time, particularly in the mid-seventies, when not alone the Irish economy but the world economy was in serious disarray, Fóir Teoranta were very active. However, Fóir Teoranta were principally established to modernise many traditional Irish companies who did not have resources and were unable to modernise at the pace at which technology was moving at that time. Of course, this is no longer the case but there are two very clear failings in the Irish economy today which have never been properly recognised.
 We have a plethora of expertise in the banking system, management companies, institutions and a whole range of organisations but yet the only way which seems open to saving companies is the financial package — throw the money at the company and that will solve the problem. This procedure has gone very seriously wrong. I want to highlight an example of this within the context of the Irish banking system which operates at present. I firmly believe that the major banks are going to have to reassess how they operate and how they fund commercial activities. The system in operation at present is basically a secured lending system and is far removed from the equity based system which operates in many countries throughout the world. I do not understand why major institutions such as some of the major banks do not put some of their expertise into, as Deputy Bruton said, small start-up companies to help them get off the ground. Many of these companies do not fail simply because of financial reasons; they fail because of inexperienced management and management who are unsure of where they are going and what direction they should be taking. Yet the very people who are providing vast sums of money to these companies stand back and see their investment, from a tunnel vision point of view, go down the tubes. Surely there is something contradictory in this approach.
The Irish banking system must reassess its position in this area. I believe it should take some form of equity in many of the companies — not all of them but in specific areas, and decide where they want to be operational — appoint some of their experts, not on a permanent or daily basis in management of director positions where they will be aware of what is happening in those companies. Surely this makes common sense. It is an Irish failing that if Irish managers do not have 110 per cent of the cake they believe it is not worth having.
I think I am right in saying in this House  tonight that many small companies in Ireland are not facing up to 1992. They should be out there asking: “Am I better off to have a much smaller stake in a much larger and more viable company than trying to maintain the status quo? All right, I own 100 per cent of this company but I may end up with 100 per cent of nothing.” This message is still not getting through to many companies today. It is not through lack of finance in many instances but rather a lack of management expertise, although this expertise is available throughout the length and breadth of Ireland. Why then is the lead not coming in organising small and medium sized companies into thinking in terms of getting involved with other more viable companies, sharing the burden and management expertise, and pooling their resources long before their business has got into difficulties and they are searching around trying to get money when it is apparent that the business venture has already gone down the tubes?
The aim is to reduce unnecessary Government expenditure thereby reducing Government borrowing and lessening the upward pressures on interest rates and inflation... The best action which the Government can take in relation to the survival of firms is to contribute as much as possible to lowering the input cost of industry,
The first action this Minister took in his budget was to do a sleight of hand on a 5p increase on petrol. Surely, the Minister must recognise that this is one of the dearest input costs of many companies. Yet he stands here before us tonight and states the opposite to what he is doing. The Minister cannot have it both ways, and he knows that. It is easy to put the words down in flowery speeches but his actions are what he will be judged by. He may have the desire and the inclination to  implement what he is saying here tonight, but his actions are the opposite to his desires.
Another issue which is very much hyped by this Government — the Minister took a good deal of time to refer to it this evening — is consumer spending, which seems to be booming and all sorts of wonderful things seem to be happening. In certain areas for example, the motor industry, there is at last an upward trend. In building and housing I am also delighted to see there is an upward trend. One of the best ways of measuring whether you are actually gaining employment in the economy is through consumer spending on a range of products, particularly those in the domestic market, not money borrowed to fund imports, which are a dead asset for an individual. If you go to the Revenue Commissioners or ask any tax inspector about VAT returns the first thing they will say is that there is no increase in VAT returns because the ordinary punter does not have the money in his pocket. Therefore, there is not an increasing demand for the ordinary goods and services which are provided indigenously. That is one of the fundamental reasons we are not at present creating the type of jobs in this economy that are so vital to us.
It is easy to talk about 7 per cent in retail sales, etc. When you look behind that 7 per cent, it is in areas of high borrowings rather than in areas that spread out into the domestic economy, for example, clothing where we would have many people employed and in the creation of domestic goods which are repeated on a weekly basis or, even on a fortnightly basis, in the domestic economy which the consumer and the housewife buys. The consumer spending in all these areas is not increasing. The result of that and the underlying trend, is that we are not creating the type and the number of jobs that are needed to sustain us. There are still too few of us working to support the numbers of people who  either have no income or who are unemployed.
Why are we in this position? The Minister knows as well as I do that the consumer and the taxpayer simply do not have the money in their pockets to spend on a continual basis. When interest rates were low the consumer took the chance to borrow — much of it at the fixed rate of 8 per cent — from the finance companies to purchase cars, etc. The Minister in one sense is giving a false picture by talking — I am trying to put it in very simple laymans terms — of consumer spending and the great increase in this area. This is not happening in an area that will create many jobs, it will create some but it is not broad based enough to create the run of jobs that we need.
Increased output, as the Minister rightly identified, is the only way to create jobs. Unless companies see the demand for their goods and services increasing at a much more accelerated rate than at present, we will not get the volume in terms of jobs either from the national plan or the Programme for National Recovery.
There is another area with which I would like to take issue with the Minister that is an extraordinary contradiction within this Government. They continually talk about 1992, and in speeches such as this the Minister is happy to refer to open competition — which I fully support — and all the things which will happen. Yet, when measures are suggested by this party and Fine Gael, as has happened over the past number of months, to try to lay down some ground rules for open and fair competition, this Government turn around and totally oppose any move in this area. The Minister cannot constantly come into this House and talk about open competition, the single market, 1992, and sit on the Government benches and expect things to happen in Ireland unless he and his Government take action in certain areas. There is widespread operation of cartels  in Ireland today. Why is that? Because no legislative action has been taken to free that area, to break up these cartels or to force real competition. We are supposed to help the people who are working day in and day out and yet we like to glorify the ideal without putting it into operation.
The Minister for Finance was serving in this Dáil long before I ever thought I would be here. I can look back to 1972 and 1973, shortly after I had left school, and remember the great things we expected to happen in Europe. What was the result? The rhetoric was fantastic but the actual application was practically nil. Are we now talking about 1992 without allowing for an orderly planned admission — in a sense — into the smooth operation of the Single Market? The Minister is one of the people in Government for whom I have a lot of time but in his heart and soul, he knows there is an enormous amount of flannel being talked about here. The hard reality is that the mechanisms necessary to allow the very things we want to happen are not being put in place. I reject, and I will get up here on every occasion to reject the hype and PR the Minister's party in Government are engaging in. In all my days I have never witnessed the amount of hype——
Mr. Cullen: ——engaged in this country. The most hard working Department in the Government is the Press Office. They spend morning, noon and night trying to find flowery phrases and good news announcements which, when one looks behind, one finds very little substance and depth. It might seem funny for me to ask here tonight — and this might raise a smile in the Dáil — what is the reality for the emigrants and what is happening for job creation?
The fundamental questions behind the Government's inactivity in putting the  real hard core structures into place are, what is happening for the emigrants and job creation. These questions should challenge the Government rather than hyping up the flannel, of which the Government are so capable. It has been an education to me to see the mileage the Government can get from some of the things they put to the people.
Mr. Howlin: One success has been the operation of the business expansion scheme. This scheme, I hope, is only scratching the surface of the type and volume of investment that can be got together under that scheme. There is no doubt it is a mechanism that can be used more and more for investment in this country. Without increased investment under that sort of scheme we will be without the knock-on effect of job creation. It is easy to talk about peripheral areas, but if we do not create jobs we will continue to lose people out of the country.
We must have a rethink on the type of scheme that the BES represents and to try to come up with more involvement not just of the public sector but of the private sector in areas of venture capital and equity funding. There is an opportunity in the present climate to move in that direction. If more people get involved there is an opportunity to develop some kind of national equity fund that could be subscribed to by ordinary people. I do not like to see the State having to underwrite it but there might be some opportunity for a combination  of the private sector and the public sector to create a properly managed fund that will generate a substantial amount of money for new companies or small companies who want to expand. That is the way forward. We should not throw money at loss-making operations that will eventually fold. There must be a more enlightened approach from the public and private sectors.
The private sector as well as institutions in the public sector have had too easy a ride and it is about time they faced their responsibility in this regard. I hope the removal of Fóir Teoranta will change the way they will approach investment in industry and in jobs so as to create wealth. I want companies to make a profit. I do not ask companies to be good Samaritans. Without profit there are no jobs. The more profit a company can make, the more jobs will be available, but companies must do this in a more responsible and imaginative way. If that can be achieved we will have gone a long way towards putting this country on the right road.
Tomás Mac Giolla: This was a very rushed decision without reference to the Dáil or to the social partners who signed the Programme for National Recovery. The decision seems to have been taken rather hastily leaving a lot of loose ends. Perhaps the Minister who gave some indication that there is to be some substitute could elaborate on the position? The decision to scrap Fóir Teoranta without providing a viable alternative mechanism to rescue companies and jobs in difficulties will have grave implications for employment in many vulnerable industries.
The Minister said that Fóir Teoranta was established because of the difficulties facing many companies on our entry to the EC in the seventies. Grave difficulties arose and many of our industries shut down and many were rescued with the assistance of Fóir Teoranta. In fact, many people are at work today and paying their  taxes who, without the assistance of Fóir Teoranta, would be on the dole. This position is particularly onerous in view of the intensification of competition which many Irish Companies will face after 1992. At least that is what all the hype says, that 1992 will be the crunch year, that the floodgates will open and we must be ready for this mad rush when all from the Continent will rush into Ireland and swamp us.
I do not believe a word of the hype. It will be a gradual process after 1993. However, we are given to understand that 1993 will open the floodgates. The Government seem to want to give that impression. Seeing that Fóir Teoranta was established because of the grave difficulties that would arise from our entry into the EC, surely the Minister will now see that there will be even greater difficulties for many industries after 1992. Perhaps the Minister does not believe the Government's propaganda about the effects of 1992. There have been estimates that as many as 40 per cent of Irish firms will disappear either through mergers, takeovers or collapses. That might be exaggeration but nevertheless there will be changes in companies and company structures and there will be a number of collapses.
The Minister when speaking today gave the impression that all company closures were over. However, closures are occurring every day of the week. Only today Bradbury's in Athy closed down with the loss of 54 jobs. I am not saying that these companies would qualify for assistance from Fóir Teoranta, but the closure of factories and industries has not ceased because of what the Minister says is the enormous improvement in the economy that has taken place over the past two years. There are closures and job losses in the Minister's area as well as throughout the country. The Government are abdicating their responsibility for restructuring companies which face difficulties, and for saving jobs. The most  important function of Fóir Teoranta was to rescue the workers and not just the company. The workers do not know what cause the problems. They are never told and suddenly they find their livelihoods and the future of their families at stake because of something they know nothing about.
We have always been concerned about the way Fóir Teoranta funds have been used. In many cases they let the banks off the hook. Many banks getting fed-up with a customer who was a bit late with repayments would send him to Fóir Teoranta who would pay off the bank and leave them laughing.
Tomás Mac Giolla: In some cases at least it is true that Fóir Teoranta paid off the banks. They saved many other companies but it is also true that companies who would have been justified in receiving Fóir Teoranta funds did not receive them. I know of one case down in west Clare where up to 60 jobs were lost for the sake of a small sum like £25,000 short-term assistance. Three months assistance from Fóir Teoranta would have rescued them and they would be working today if they had received it.
Tomás Mac Giolla: I will tell the Minister if he wants to know. Our main concern is the maintenance of employment and its expansion. If Fóir Teoranta are to be abolished without alternative structures being established, what will happen? Deputy John Bruton made the point of asking about the legal standing of Fóir Teoranta loans and equity, etc.  and about who takes the company over. What is the future in that area? The Minister says that company law will provide assistance because apparently the new Companies Bill speaks about providing for the appointment of an examiner to companies in financial difficulties. Apparently Fóir Teoranta were under the impression that they would be the examiner to be appointed for companies that would be in difficulties under the Companies Bill. They felt that this would be their future. As I understand it, Fóir Teoranta were not tossing money to everybody — certainly not in recent years. They were assisting in certain cases where there were management difficulties.
In many cases financial difficulties arise from management difficulties and the problems of bad management. Fóir Teoranta were giving some assistance to a small pool of people who assisted companies in restructuring their management, rather than giving them money. This would be a very important part of the job of some company rescue operations. We never agreed with the idea of tossing grants to people and hoping that jobs would result. They never result unless they are under a very strict code, with projects established, deadlines met, etc., before grants are continued. We would not agree with a company like Fóir Teoranta handing out money in the hope that the company would do something with it. Aid in the form of management assistance will help to maintain the workforce in their jobs. Financial difficulties brought on by bad management have the effect of killing off the livelihood of workers and seriously affecting their families. They might have seen for years how bad the management was but there was nothing they could do. There is need for some rescue operation. I have no clear understanding on the appointment of an examiner.
Tomás Mac Giolla: Perhaps the Minister could explain this to us. The area of the appointment of an examiner, whether it be to Fóir Teoranta, or ICC, or whoever, is very important in the rescue of companies, particularly in view of 1992 and the difficulties that many will have in facing up to competition and changing of management structures within the company.
As Deputy Bruton said at the beginning of his contribution, this is not really saving any money. In 1987 Fóir Teoranta drew only £700,000 of Exchequer funds and since then, as far as I know, they have not drawn any. They are dealing from their own income which has increased. There was no need for any great rush. We would like to have seen what alternatives were being put in place by the Minister before he suddenly chopped off Fóir Teoranta. Fóir Teoranta were themselves in a restructuring position, thinking out how they would remain viable from their own funds and still continue their rescue operations, in a totally different manner from what they had been doing before, possibly, but still in the business of rescuing companies who got into difficulties, perhaps from bad management, or maybe with good management, but who lacked expertise in developing new projects, new ideas or whatever. Fóir Teoranta were assisting companies in that way to remain viable and retain their workforce. I would like to hear from the Minister as to the total package to replace Fóir Teoranta in regard to assistance to companies or does the Minister now believe that everybody should be left wide open to attack and let the best man win — as Progressive Democrat, Deputy Cullen, says, let who will go to the wall, it is not worth keeping their heads up anyway because——
Tomás Mac Giolla: That is how I know what Deputy Cullen was saying, basically. The Minister believes that many Irish companies will still need some assistance, not necessarily financial, but perhaps some short term financial assistance. They will need assistance in meeting the changes that are coming post-1992. I would like to hear from the Minister as to how he sees that being done.
|Last Updated: 24/05/2011 01:53:18||Page of 103|