Select Committee on Northern Ireland Affairs Minutes of Evidence


Examination of Witnesses (Questions 340 - 355)

TUESDAY 9 MAY 2000

MR TOM MCKEE AND MR TOM GILLEN

  340. Just to finish off my question, you mentioned there are some positive spin-offs, will there be a point when we will see the competitive nature of trying to attract inward investment separately leading to both sides losing out?
  (Mr Gillen) Maybe I can put that the other way around. Given the fact that the Republic of Ireland is finding it difficult to get all the work that it needs, we should be establishing some kind of a strategy which says, "You do not have to go there, we have the people here, we have the market here." We want to keep those people here. That is the spin-off, that is what we should be trying to do. I do not know if the Agreement is going to work but if both Governments are serious about having a north-south-east-west co-operation, then it is incumbent on the Government and the Republic to look towards creating employment in Northern Ireland as well.

  341. Would I be right in thinking that the ICTU attitude towards Europe is slightly more positive than perhaps the TUC's?
  (Mr Gillen) I do not know the detail of the TUC's attitude but certainly the Irish Congress of Trade Unions embraced with open arms the concept of being Europeans, particularly in the context of the Republic of Ireland and the young population. Our Deputy General Secretary is on the General Council of the ILO. The Republic of Ireland has benefited substantially from its membership of the European Union and they have played the game very well. They are committed Europeans, they embraced the euro right away and—I am repeating myself but I think it is worth the emphasis—Britain in the longer-term will lose out if it does not get some kind of a policy which will allow us to get into the euro. That haemorrhaging that I am talking about is a direct consequence of living right next door to a euro-land country.

  Mr Clarke: Thank you. I will now hand over to the Chairman.

Mr Peter Brooke took the Chair

  Chairman: Let me apologise, first of all, Mr Gillen and Mr McKee, for our late arrival. As you will have gathered there was fog at Heathrow. The old joke about "fog in the Channel, Continent isolated" clearly can be translated as "fog at Heathrow, London isolated". I think Mr Grogan is going to ask the next question.

Mr Grogan

  342. Thank you, Chairman. It has often been argued to us that, but for the Troubles, the level of inward investment would have been significantly higher, perhaps double. What is your opinion? Has it been a decisive factor, do you think?
  (Mr Gillen) It has been a factor, quite obviously. I think if someone is looking to invest, they want to be assured they are going to be able to produce their goods and services free from the threat of violence or terrorism. I know in the past the decisions on a lot of inward investment have not been taken so much on financial grounds but on what the wife thinks as to whether or not it is safe for the family to go into a certain country, and that is not as funny as it might sound to some people, it was a very serious factor. I think when industrialists were being kidnapped it was not a particularly encouraging factor either. Yes, it is a factor but I do not think, as we have developed and grown, it is as determining as a lot of people would put it, but certainly it has kept jobs and investment out of Northern Ireland.

  343. Is there evidence that inward investors lift the standards of indigenous industries? Related to that, would you characterise inward investors generally as good employers or is it a mixed picture? What is the effect of inward investment on conditions for employees?
  (Mr Gillen) A lot of inward investment has failed. A lot of companies which have come in have not lasted that long. There is in the literature evidence that the public money that has been put in to some of those companies has been a net loss to the Exchequer. This has been because I think the right product has not come in, so therefore you have to identify the product for inward investment, if it is going to be supported by public money, is the right one. In an ideal world, and I think I tried to say this earlier, a good company coming in should assist local employers—that linkage mechanism which I referred to. They should bring in new skills, new opportunities, better management. A lot of these companies failed in the past because the management was not up to speed. There should be some kind of a clustering of businesses, some kind of sharing of resources and experience. We know that some companies do that. BT, for example, liaise very closely with the local community, provide training skills for them, and that is the sort of thing which will assist us. Yes, a good company will have a spin-off effect in other companies in the Province, but only if the proper linkage mechanisms are set up. As I said earlier on, local sourcing is something which hopefully the EDF and the DETI will look at.

  344. Finally, is there a risk of Northern Ireland becoming overly dependent on inward investment? Is there a sort of optimum level of inward investment, do you think?
  (Mr Gillen) I do not think we have been dependent on inward investment; there has not been that much of it about, particularly recently. I think we are going to have to make ourselves competitive. We are going to have to identify our own markets and our own products. Of course, we want companies to come in but we want them to come in to stay. It is no good if we are going to establish an assembly plant or any kind of plant, what we want is the corporate headquarters. We want the corporate headquarters, we want the research and development located in Northern Ireland, we want the financial structures of the company located in Northern Ireland, and we want an on-going commitment. We want an awful lot in Northern Ireland. Those are the right things to want.

Mr Pound

  345. Perhaps continuing with the shopping list, Chairman, Tom Gillen particularly in some of his earlier comments was robust in his critique of the IDB, I remember the expression was that they had been "hammering away at them for quite a while". While we are in the area of shopping lists or wish lists, would either of you gentlemen, or both of you, care to say for the record how you would change the IDB to make it a more effective organisation for attracting inward investment? What changes would you make, either directly to the IDB or even related policy areas? This is your chance! You do not have to mention individuals!
  (Mr Gillen) No, I know that! As I said earlier, we did have two members on the IDB board, and membership of the board places onus and responsibilities and I am not sure there has ever been an integration of boards in the way there should. I did say earlier on that the IDB board is advisory. We do not think that they have listened as much as they could have to the points that were put to them. They have a budget and they say they have to spend it and that was part of the criticism that we had. The issue of targeting social need, as I said, Mr Pound, is something they did not think was their responsibility and we felt that was a lost opportunity for IDB. We have put that to them repeatedly. As a board we only get the opportunity to meet officials once a year. We would like to be more integrated with them. That opportunity is presenting itself now through the Economic Development Forum but, with the Executive again and I go back to that, we could not stress enough the importance that we have our own local regional devolved government which can deal with these issues. There is room for improvement and there are models being worked out at the moment. I am not directly involved in those but we will, if it is permissible, write to you on some of those issues.

Chairman

  346. I think that would be very helpful.
  (Mr McKee) As someone from the education sector, I have noted Tom's experience of IDB but one thought I would offer would be that there must be a temptation for a body like the IDB to go for the short-term return, to create the jobs, if it has a budget to say that it has created X jobs in the short-term, and really the approach to the problems in Northern Ireland have to be much longer-term than that. If there is going to be sound investment, it has to be based on strategy, I would have thought a long-term strategy, and that will come into conflict with the understandable pressures on a body like the IDB to satisfy public opinion and politicians like yourselves that it is spending the money and is creating something in the short-term. The Northern Ireland economy will not be improved solely by tactical considerations of that kind, if they are going to be solved they have to be on the basis of sound strategic policy.

Mr Pound

  347. You mentioned earlier on when you were talking to the then Chairman of the Committee, Mr Robinson—the once, future, past, present Transport Minister for here, now and the future—we have this situation where we have had an Assembly, the devolved assembly, we may have a reconstituted assembly, and you talked about the circumstances of this impacting on the attraction for inward investment. Is there that causal linkage? Do you think there was a reduction in inward investment when the devolved institutions were suspended? Do you anticipate that there will be an increase if they are reinstated? Is that linkage there or is there another track moving in Northern Ireland?
  (Mr Gillen) I do not think there would be any evidence available to say inward investment declined because the Executive was stood done. It is such a short period, Mr Pound, but it goes back to Mr Grogan's question earlier in relation to how much have the Troubles exacerbated the situation of lack of investment and job creation. I think it has to be sensible and reasonable to say that if you have a stable, peaceful society, then there will be a general good feeling about the place, people will be going about their work, and I think working harder, producing goods and working to higher quality standards, and potential inward investors will be looking at that with some kind of an interest. But we have to have available to a potential investor those elements which make it attractive for them to come. The grants will not make people come and we do not want people to come because of the grants, we want to have an infrastructure of those things which accompany needs to produce goods and move forward. I would be repeating myself if I were to go through those again.

  Mr Pound: Thank you very much indeed.

  Chairman: Having caught my breath since arriving, let me thank Mr Robinson very warmly for having taken the Chair during my absence. There is always a hazard in those who come late into a series of questions of this sort in asking a question when they have not heard all the previous evidence given, but let me just verify whether Mr Barnes or Mr Hunter do actually want to ask questions at this stage? I have one question I want to ask myself.

Mr Barnes

  348. Mr Grogan was asking about problems with employers when inward investment was received and about what the employment was like and what the conditions were as far as the workforce were concerned. In answer, Mr Gillen gave details of things which were required to be done in order that employment was decent, reasonable employment and people got out of the inward investment what was needed. Is that an indication that the experience is that on balance there are problems with employment that has been established, in terms of maybe getting procedural agreements and adequate substantive agreements out of people?
  (Mr Gillen) Obviously there are those multi-national companies which will not recognise a trade union. Hopefully with legislative changes we will be able to make inroads into that area. There have been problems, as you would get anywhere, with on-going day-to-day relationships. I would not be fair if I was to say that there have been major industrial upheavals over companies which have come into the country. We have had difficulties with some companies in getting recognition agreements with them but usually they have worked their way through. Our unions take a very reasonable approach to these issues because we want to work in the spirit of partnership. There is no industrial anarchy in Northern Ireland. We feel that we have a responsible attitude to working with employers. They will not give you any more than they have to but we are still interested in old-fashioned collective bargaining and we are prepared to work hard to produce a product and a profit for a company, and what we want from them is a fair wage and safe working conditions. I think I would have to stress safe working conditions because most recently we had what was called an ICTU Day of Warnings at a ceremony in Belfast City Hall which was highlighting the risks to workers and young workers on current sites, and as that was going on a 61 year old worker fell to his death at a building just 400 yards away from Belfast City Hall. So if I say we are comfortable with all employers, we are uncomfortable with employers who cut on health and safety issues, and those are the issues we would go into conflict with an employer on. In general terms, Mr Barnes, we are happy that we are competent to deal with any issues which come up and I would not be telling the truth if I said that there are major problems in that area.

Mr Hunter

  349. On reflection, Chairman, there is a question I would like to put, the same one in fact I put to the IDB when we met them. You may have covered this already, if so, please say so and I will read the minutes in due course. The point I would like to hear you talk about is the argument that inward investment or jobs created by inward investment to a certain extent displace existing jobs and are not complete net gains in the employment market. Do you accept that line of reasoning and, if so, to what extent?
  (Mr Gillen) I do not know whether you were here, Mr Hunter, when I referred to the fact that we have not got best value, which is an "in" phrase, from a lot of public money which has gone to inward investment companies. A number of them have failed rather quickly. The research of some years ago said that a LEDU-founded company lasted around an average of three years and an IDB company was lasting just around five years. I think that was partly to do with product choice and, as Tom McKee said earlier on, the short-term pressures to try to address unemployment problems. I could not say to you that there is direct evidence that new jobs created have made other workers unemployed. I do not have evidence that would support that. It may be out there somewhere but I would be disingenuous to say that I know of that as a fact.

Chairman

  350. Let me follow on that particular line of question which Mr Grogan put originally, and you have alluded to your answer to Mr Grogan in responding to Mr Hunter. I quite understand that some inward investors have failed and that might be held to be a reflection on those who helped to encourage them to come in the first instance, which was I think mildly implicit in your answer, but if as a generalisation Governments are not very good at picking winners, why are they going to be better at picking losers?
  (Mr Gillen) I do not know the answer to that one. Maybe I am giving you the impression that everything is wrong and bad in the IDB. If I am doing that, maybe I should try to weaken that ever so slightly. We are very distant from a lot of the markets. We had massive structural unemployment, no natural resources, and we seemed to lack a strategy which would tackle those structural problems, and in the literature which we sent to you in relation to Strategy 2010 we refer to those various strategies which would seem to be coming out every three to four years without any sort of synergy amongst them; no long-term strategy that Tom referred to and no tangible, sustainable result in tackling unemployment at the end of it, or increasing the skills or getting that linkage across from the inward investor to the indigenous companies. That is seen not to have happened over, say, 1990 to 2000, which is perhaps a good period to look at. As you are aware, Strategy 2010 is out there somewhere, but there has not been an awful lot of consultation on Strategy 2010 as a matter of fact, there has been none of a structured nature in the way there was with Shaping our Future where the DOE went out to the hills and byways and got people's views on those very important issues. We think that if that sort of exercise is undertaken by the Economic Department, we might be able to answer some of those questions better because we would have a greater involvement and participation in tackling what are problems for all of us.

  351. When you made the original observation, I was thinking back to the arrival in Great Britain of Campbell Soups, who were a dominant company in the United States market. There were every grounds for supposing they were a well-managed company, they came in with a product which sold extremely well in the United States and which the British found singularly unattractive, as a result of which for a series of years after that the Campbell Soups' annual report contained the spectacular euphemism, "internationally our costs have continued to exceed our sales". I think there are problems in terms of the selection process as to whom you back and whom you do not and I do not know what strategy obligation the IDB have in terms of that, but we have had an adequate exchange on that. Can I just, and it may well be a subject which has come up before, ask you about the role of local authorities in the whole of this process? Is it a subject which has come up previously? If it has not, do you think local authorities do have a role?
  (Mr Gillen) It is a very topical issue at the moment, frankly. I will deal with local authorities at the basic level first and then try to pull it out into the European issues which are going on. My understanding of our local authorities is that they have very little authority, they do not cover major industrial issues. That is not to say they are not interested because I know they are. They do have an economic development budget, which is 3p or maybe 5p in the pound, which they are allowed to take out of ratepayers' money. They do assist local industry and they do a lot of promotional work. It is not an awful lot of money but they can impact at the macro level. There is a proposal at the moment coming through which would perhaps allow local authorities to have a greater say. We do not know what is going to happen to our local authority structure, Mr Brooke, because there are all sorts of things hanging around out there. We have 26 district councils at the moment and we do not know what proposals will come from an Assembly or even from a direct rule minister in the near future. The European Structural Funds are a very strong element of what goes into local authority areas, and local authorities have a very strong say on where that money goes, and a lot of this money is used for the issues we talked about earlier on—skilling, training, tackling social need. We have now an interim shadow monitoring committee for the Structural Funds and local councils are involved in that along with social partners, but not at the level we want. For example, we do not have parity on that committee with the employers' groups which is something we shall be looking for. There will need to be a review. If local authorities want to get involved generally in the major industrial issues then there probably will need to be some restructuring of how funding takes place. Belfast, Newtownabbey, Derry, Londonderry, all the local authorities are very active in going out and seeking employment for their own districts and do an incredible job in that area. But they do not have the resources which would be necessary to create the level of employment which is needed.

  352. Thank you very much for that. Given the necessarily interrupted nature of the questioning which you have had to receive because of the weather conditions at Heathrow, is there anything you would like to say of a concluding nature, pulling together the evidence you have already given, which would certainly have a virtue for those of us who arrived late, but do not feel under any compulsion to do so? In particular, and I am now reverting to the other side of the exchanges which you had with Mr Grogan and subsequently Mr Hunter and myself, is there anything which you think distinguishes those inward investors who really have made a success of it; factors which have in fact been responsible for the particular success that they have had?
  (Mr McKee) Chairman, while Mr Gillen is collecting his thoughts on that one, could I come in on one issue which has been touched on briefly, both before the break, if you like, and after the break? There is one distinguishing feature between the Republic and Northern Ireland which was highlighted in the Seven Ages Programme quite clearly. One of the contributory factors in the improvement in the Republic's economy was the Partnership Agreement. As I say, it has been touched on obliquely in questions today. There is no doubt it has worked well despite pressures. It is still continuing to work in the Republic and it is something we do not have in Northern Ireland. Obviously, it does not exist in the United Kingdom although some people have thought about it. It would bring serious problems for the trade union movement, particularly in terms of pay negotiations where many groups of workers have traditionally pursued a policy of pay parity with England, but the Irish Congress in its reports has paid tribute to the effectiveness of the Partnership Agreement in the Republic, and has put its money where its mouth is by co-operating in that initiative, and that could well be one element in Northern Ireland if we have a devolved Executive in operation. If we are going to look at emulating the growth in the Irish Republic's economy, is that one factor which we should give real and urgent consideration to?
  (Mr Gillen) I will be very brief in concluding, Mr Brooke, but I will try to deal with your final question about successful businesses as I finish. I think for emphasis I would want to say again that our share of the manufacturing industry has been concentrated on low technology and low value-added industries. If we are to make progress then we need to attract fast growing, knowledge based industries, and to do that we need to provide those skills which are needed. We need to have a skilled, available labour force, we think that is much more important to any potential investor than a grant. If we provide the resources which a company needs to be successful, then I think they will be prepared to put in the capital, and in doing that then we would be getting better value for public money. I think the linkages between existing companies and any future ones have to be improved, both the foreign investor and the local ones, and that can be done through some form of clustering and sharing of skills. I have referred to the haemorrhaging both of people and money from Northern Ireland into the Republic because of UK Government fiscal policies, the hardships which are placed on those people who try to get a living out of the haulage and transport industry is one of those and that impacts on the whole community. I think there needs to be in any strategy a policy which will tackle social need in all its elements and that there will be very serious consideration given by IDB and by T&AE to encourage companies to go into TSN areas, but they will not go in if the skills are not there. There is a danger, and maybe I should finish this point, that even Britain could marginalise itself if it does not get some kind of policy together soon in relation to the European Union and Monetary Union. I have not mentioned this, and I am surprised nobody mentioned it, but that is corporation tax. A lot of people have said that we would prosper much better if we were to have a lower rate of corporation tax. The Republic of Ireland has a low rate and is moving to a rate of 12.5 per cent soon whereas we are at 30 per cent, or around that area, at the moment. There are very serious Treasury problems obviously in allowing a region of the United Kingdom to vary from what are UK rates and I am sure that the concordat which exists between the regions in this area and in other areas might be raising very serious questions if we were to get such a facility made available to us, particularly as we are moving out of Objective 1. Having said all that, if we were to get a reduced rate of Corporation Tax, provided that it did not lead to a reduction in public expenditure—

  353. To make certain there is clarity between us, you are arguing for a reduced rate of Corporation Tax for inward investment?
  (Mr Gillen) Not particularly. I am just saying it is an issue which has come up. I am saying if we were to get a reduced rate, we would not argue about it, provided it did not lead to decreased public expenditure or increased private taxation. It is not something we are arguing for one way or the other, it is something which is part of fiscal policy. I thought I might mention that. Finally, what is a successful enterprise? I think it is one that has something which is competitive, something which people want to buy and is being well produced to a high quality standard. I think we can produce any product to a high quality standard. Those companies which are still here have come in with a product which people want to buy. They have been able to be competitive but they have worked closely with their workforce and their workforce have been able to take the ups and the downs with them, but they have come in with a commitment, they have identified and got their research right, they saw something which was there for them which made it possible for them to compete in the market place, and they came in with the intention of making it work and committed themselves to it. I think that is as simple a way of putting it as I possibly can.

  354. I will press one particular case, as I have with a previous witness. The Committee went to see Seagate, outside Londonderry/Derry, and were greatly struck by the fact that, unlike the significant number of low technology industries to which you were referring, this was quite clearly not only a high technology industry but one which was operating in a very competitive environment with a need to reduce their cost levels on an absolutely regular quarterly basis because of the way in which the world market was moving. Why do you think Seagate came, against the background of all the other inward investments?
  (Mr Gillen) I have no particular knowledge of Seagate, I have to say to you. I would imagine that the skills that they needed were made available to them. It is the nature of an industry that we want to attract. I am not going to comment on the employment practices of that one—I think there may be a wee story about them but I do not want to say something which I cannot stand over. Obviously they were able to find their skilled workforce. I do not know the detail of any financial package which they got but I would have thought that that kind of industry would be well-assisted but I cannot comment on it in particular, I am sorry.

  355. I only asked because they are so striking a contradiction, and with some of the other remarks which have been made it seemed sensible at least to explore it. Thank you. Thank you very much indeed. On behalf of Mr Barnes, Mr Hunter and myself briefly, and the rest of the Committee for the whole length of time, thank you most warmly for having come to give evidence and for quite clearly having given it in a manner very similar to that in which you gave evidence to us before which we still remember with pleasure.
  (Mr Gillen) Thank you very much.





 
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