October 2016        

Biting into a rotten Apple

Eoghan M. Ó Néill

There has been a bit of an outcry over the EU’s decision to rule against the Government’s sweetheart deal with Apple, which if upheld will mean Apple paying €13 billion, with interest, into the Irish exchequer.
     The greatest portion of this was generated by super-exploited labour in the global south and rightfully belongs to them.
     Both Apple and the Government are appealing the EU decision, much to the derision of the Irish left, and indeed the Irish people, who see the €13 billion and change as a windfall that could be used to pay for social projects such as housing, job creation, etc., thereby to some extent assuaging the damage done to the working class after eight years of austerity and the crippling criminal debt burden of European bankers imposed on the Irish people.
     Of course it will do nothing of the kind.
     This fracture within the capitalist camp bears further examination and with even a cursory analysis exposes a number of areas of imperialist exploitation.
     Whether or not Apple pays the €13 billion, it is the duty of the left to pull apart this fracture and to emphasise the extent of exploitation perpetrated by Apple and all transnational corporations. We need to go further than just populist posturing over how we might spend this windfall and dig down to expose the roots of Apple’s super-profits, how Apple and other transnational corporations accumulate such profits, and who are the real generators of such wealth.
     We need to expose the super-exploitation of our comrades in the global south and demonstrate that Apple is not a one-off: such super-exploitation is endemic to the operation of all transnational corporations.
     Neither is the Irish sweetheart deal unique to Apple. The Irish corporate tax rate of 12½ per cent is more myth than real. We need also to expose the many ways by which TNCs use Ireland to support their super-exploitation of global labour and to deny states their rightful taxes.
     This rift between the EU, Ireland and Apple uncovers the dependence of the Irish economy on transnational corporations, revealing the imperialist grip on the Irish state, raising questions about our sovereignty and democracy. It further reveals the shifting of the tax burden from transnational corporations to the working class, and the huge transfers of wealth from those without to the top 1 per cent.
     Nor is the EU an innocent in this. The action of the EU Commission in declaring against Ireland and Apple must also be subjected to analysis. The EU is not concerned with Apple’s super-exploitation of workers, only with the dividing up of the imperialist rent (in the form of taxes).
     This falling out between capitalists has opened a small chink in the armour of imperialism. The left has to be careful that it does not get sidetracked into concentrating all its attention and energy on the issue of the €13 billion, attractive as that is, but must use this opportunity to expose the extent of imperialist subjugation of the international working class.
     The politicians and the media would have us concentrate on the €13 billion, encouraging us to dream of what we could do with it, and to argue over the rights and wrongs of whether we should accept it or not. It is our purpose instead to expose the fault lines that are emanating from this tiny chink, and in that exposure to contribute to the raising of the consciousness of our class.
     The debacle over Irish Water, the debt burden, austerity, the growing shelter crisis and the imposing of exploitative trade agreements are all helping to lift the scales from the eyes of the Irish working class. This self-inflicted wound of capitalism can help further move those scales, but only if we are capable of seeing beyond the captivating aura of the robbers’ gold.

Dependence and the transnational corporations

Apple is not the only transnational corporation in Ireland. Nor is it the only one with some kind of sweetheart deal with the Government. Google, Dell, Metronic, Pfizer, Actaris, Oracle and CRH are only a few of the thousand-plus transnational corporations based in Ireland. They dominate our export trade, pay 40 per cent of corporate taxes, and have created a dependence among many of Ireland’s indigenous industries.
     The Government is also dependent upon them. As a comprador government, it seeks to disguise this dependence behind a screen of easy job-creation options, showing that the employees of TNCs pay taxes and are consumers. While TNCs pay only a small portion of the corporation tax they are supposed to pay, at the same time they artificially inflate Ireland’s GDP and growth figures, making the economy appear wealthier than it really is. This plays into the Government’s illusion of Ireland having a wealthy economy.
     The Government would have us believe that TNCs are attracted to Ireland because we have a young, well-educated population with direct access to Europe. Until Brexit, Britain offered all these, only more so.
     So what else has Ireland to offer? Natural resources?—not unless you count magnificent scenic views as a natural resource. What Ireland does have is the lowest corporate tax rate in the EU.
     The Matheson Ormsby Prentice index of foreign direct investment states: “Ireland scored the best when it came to corporate tax rates, corporate tax regime, interest rates, government incentives, physical infrastructure and IT environment and access to a pool of local skilled labour at appropriate levels.”
     Access to Continental Europe and English-speaking workers were also in there; but the incentive to TNCs locating in Ireland was more economically grounded than the demographic of Ireland’s young population. Not satisfied with the lowest level of corporation tax in the EU, TNCs have sought sweetheart deals whereby they pay corporation tax as low as 2.2 per cent. Last year Apple paid only 0.005 per cent, or €50 for every million of profit.
     TNCs do not even have to produce anything in Ireland. Dell, for example, ceased production in Ireland in 2009, with the loss of 1,900 jobs, and moved production to Poland. However, the corporation retained an office in Ireland, and profits produced in Poland and elsewhere were trafficked through here in order to benefit from Irish tax laws.
     Big Pharma, some of which do still produce some products in Ireland, also set up here to benefit from Ireland’s tax laws, making super-profits by locating patents in Ireland. Writing on the pharmaceutical TNCs based in Ireland, Chris van Egeraat and Frank Barry, in their report “The Irish Pharmaceutical Industry over the Boom Period and Beyond,” stated: “Apart from the import of raw and intermediate materials, all of Ireland’s foreign-owned manufacturing sectors make substantial payments to their overseas parent companies in the form of royalties and licence fees and payments for miscellaneous business services.”
     These internal licence fees, royalties and payments for miscellaneous services are a tactic employed by all TNCs to further reduce their tax liability. Data from the US Bureau of Economic Analysis demonstrates that, on average, American TNCs make an annual profit of $970,000 from each of their Irish employees, while they paid corporation tax in Ireland of only about $25,000. Apple, for example, with income of a little less than €200 billion, employs only 5,000 people in Ireland.
     At present, TNCs make up only 9.4 per cent of the Irish manufacturing sector but account for 83.4 per cent of value added. It is a similar tale in the services sector, where TNCs represent only 1.9 per cent of the sector yet command 42.9 per cent of the value added. Furthermore—depending on the statistics you use—TNCs control between 75 and 90 per cent of Irish exports. Either figure is a serious cause for concern.
     These figures are an indication of the level of dependence that the Irish economy has on TNCs. This is worrying, for two reasons. Firstly, TNCs are very fluid. They come and, when it is more profitable to move elsewhere, they go. One of the reasons the Government has given for challenging the EU Commission’s decision on Apple is the fear that Apple and other TNCs might leave for more compliant countries, and that others would be deterred from setting up here. Turkey has already invited Apple to set up there, promising that in doing so Apple would not be disturbed by interference from the EU.

Foreign direct investment

The second concern is the shift from inward foreign direct investment to contract production. Inward FDI is declining, not only in Ireland but in the EU. The Government recognised this in its Policy Statement on Foreign Direct Investment (July 2014). In this statement it notes the “substantial reduction” in FDI into Ireland and the EU. In 2007, FDI stood at a record $859 billion, which fell to $286 billion in 2013. Inward FDI to the EU has fallen to just over a quarter of what it was a mere six years earlier.
     This is a worrying trend for a small open economy such as Ireland’s, which is so heavily dependent upon inward FDI. It is difficult to be certain, because the data is not there, but the assumption is that a good portion of the missing FDI can be accounted for by the movement by TNCs away from FDI towards contract production, a relatively recent phenomenon that John Smith describes in his book Imperialism in the 21st Century as becoming increasingly important to TNCs.
     The example of Dell above is one demonstration of how contract production works. Contract production is most prominent in the pharmaceutical and technology sectors.
     In the 2016 edition of Pharmaceutical Manufacturing the magazine states that global contract pharmaceutical manufacturing (contract production) would grow to $79.24 billion by 2019, from a base of $54.54 billion in 2013. Given that pharmaceutical TNCs account for 58 per cent of Irish exports, this is not good news for the Irish economy.
     Such is the extent of TNC contract production that the Government’s Fiscal Advisory Council reported that it accounts for 43 per cent of Irish GDP in 2014. In other words, 43 per cent of the country’s GDP was not based on solid trade produced in Ireland but on the repatriated profits moving through Ireland. This fact alone illustrates the precariousness of the Irish economy in its dependence on TNCs.
     As TNCs move from FDI to contract production, this will have a detrimental effect on the Irish economy, resulting in job losses. Most of the indigenous industries that rely on TNCs’ production in Ireland will be sacrificed. Consumption will drop, as will revenue in the form of PRSI and VAT.
     Those special deals with TNCs that the Government has been engaging in since 2007 are a last-ditch effort to retain some form of TNC presence in Ireland. Having failed to develop a strong base for indigenous industries and instead becoming increasingly dependent upon TNCs, the Government is bereft of ideas for planning a sustainable indigenous industrial base.
     Apple is the biggest of the TNCs in Ireland. Its rise embodies the global rise of all TNCs. An analysis of Apple will expose the capitalising of the super-exploitation of workers in the global south, the tax havens, such as Ireland, and the accumulation of record profits and cash reserves. As with all TNCs, the beneficiaries are the company’s management and shareholders. Indeed never before have TNCs been awash with so much cash. The rest of the world, the workers who create the wealth, citizens and even national governments hardly get a look in.
     Essentially, Apple’s and the other TNCs’ massive accumulation of wealth is based on two interconnected strategies: the exploitation of workers, and dodging tax.
     This massive accumulation of wealth by TNCs has a flip side, with trends in high unemployment, the increasing precariousness of labour, increasing inequality, fiscal austerity, increasing taxes (often in the form of new taxes), reduced public services and the privatisation of those same services, lower wages, and consumption fuelled by debt. This is unsustainable. On one side, TNCs continue to make profits they cannot reinvest in the real economy, so instead they inflate the financial sector; on the other side, there is rising public and personal debt.
     We have been here before, and the outcome will differ only in its intensity and devastation.
     By looking at Apple and at TNCs in general we can discern the broader interconnecting trends that are shaping the economics of both the global north and the global south. In the global south we see (1) the super-exploitation of low-waged workers and (2) the capture of imperial rent by means of financial and structured incentives, and tax-dodging, resulting in massive corporate profits.
     In the global north we see (1) declining wages, (2) lower nominal taxes on capital, and (3) lower corporate taxes, again resulting in massive corporate profits.
     In both cases we see (1) a massive transfer of wealth from the working class to TNCs and (2) the movement of the tax burden from TNCs onto the shoulders of the working class, resulting in the scaling back of socialised public services and their replacement with privatised, commodified services for profit.
     According to the United Nations Conference on Trade and Development there has been a global decline in wage share from 64 per cent in 1980 to 54 per cent in 2008, signifying a huge transfer of money from workers, communities and societies at large to the owners of capital amounting to $7 trillion in 2013.
     The report also shows that the assets held by foreign affiliates of transnational corporations rose from $3.9 trillion in 1990 to $102 trillion in 2014. Global sales by foreign affiliates of transnationals rose from $4.7 trillion in 1990 to $36.4 trillion in 2014. In 2013 UNCTAD estimated that 80 per cent of global trade took place between and within transnational corporations, i.e. affiliate companies conducting business with one another within a corporate conglomerate. This is one of the means that TNCs use to dodge tax.
     Since the 1970s we have witnessed a new international division of labour, seeing corporations move production from high-wage to low-wage economies in order to lower production costs and increase profits. These developments are part of a global neo-liberal programme of accelerated policies, with states around the world enacting policies of deregulation, liberalisation, and privatisation.

The European Union

The EU appears to be quite upset with Ireland and Apple. It claims that Ireland gave Apple a deal that is not available to other TNCs and therefore breaches the EU rules on competition and state aid.
     This is a dubious concern of the EU. Ireland has separate deals with a number of the thousand and more TNCs established here. The Government allows them to repatriate profits produced in Ireland, to channel profits from contract production through Ireland, and likewise with profits from patents located in Ireland and other means, such as transfer-pricing, by which TNCs can dodge paying taxes due in other countries, and indeed in Ireland.
     But Ireland is not the only EU state to do this. The Netherlands and Luxembourg also have deals with Apple whereby little or no tax is paid. France, which has a stated corporation tax of over 30 per cent, has deals whereby TNCs pay only 8 per cent. So what is behind the EU problem with Apple’s Irish deal?
     Basically, the EU is an imperialist entity, largely controlled by Germany and France. For some time it has wanted to extend its control over member-states, particularly in the economic arena. Centralised fiscal policies have been on the agenda since the Lisbon Treaty of 2009. The EU already exercises some control over VAT, and tariffs for external trade; and there is the Stability and Growth Pact, which restricts the amount a member-state can borrow to spend on social policies.
     The EU summit in Bratislava in September 2016 has on its agenda proposals for greater economic and fiscal centralisation. Could perhaps the hue and cry over Apple be a mere coincidence, given that the Commission’s decision came immediately before the Bratislava summit and has forced the issue onto the summit’s agenda? The centralisation of tax, and in particular corporation tax, will be discussed in Bratislava. The debacle over Ireland and Apple will set the tone of the debate—no doubt strengthening the hands of the central European powers of Germany and France.
     The secret negotiations by the EU with Canada and the United States on CETA and TTIP will, if ratified, further increase the dependence of EU national states on both the EU and TNCs, with the power of national governments to conduct trade deals and to enact legislation being severely curtailed. National parliaments will be reduced to grandiose county councils. Even the national judiciary will be sidestepped, with TNCs being able to sue states through private courts, administered by corporate lawyers. The threat of these courts will curtail any action by governments to improve the lot of their people, including minimum wages, health and safety, the environment, and financial regulation. Indeed the pursuit of profit will take precedence over the well-being of the people.
     A question that has to be addressed is, Is this dispute between Ireland and Apple on one side the EU on the other part of a power play between the imperial powers of the United States and the EU?

Conclusion

The questions surrounding Ireland and Apple are not simply about EU rules, or the repayment of €13 billion. They are about the nature of global monopoly capitalism, about TNCs’ production processes and financialisation and their monopolistic control of the markets; they are about the manoeuvres of the imperialist triad of North America, Europe and Japan for hegemonic control; they are about the economic and political sovereignty of states; and they are about the accumulation of wealth and the exploitation of workers.
     The three interlinked characteristics that define this period of capitalism—neo-liberalism, financialisation, and globalisation—have shaped the 21st-century form of imperialism. Imperial hegemony is becoming entrenched in the core capitalist economies, while it is extending into regions where it has previously not been as strong. Trade agreements such as NAFTA, CETA, TTP, TTIP and TISA have been designed to copperfasten that hegemony and to further centralise economic and political control in the imperialist core and away from peripheral states.
     We are seeing the results of this imperial strategy unfold before us: the concentration of wealth in fewer hands. In Apple we see the massive accumulation of wealth by TNCs and the growing subjugation of national economies to the interests of TNCs in their pursuit of greater profit.
     This dichotomy is particularly seen in the peripheral states. The worst excesses of monopoly capitalism are played out in the periphery. We are witnessing high levels of unemployment, greater precariousness in employment, wage reductions, higher and more taxes, the loss of public services, increasing inequality, and massive transfers of wealth from workers to the capitalist class.
     How are we to challenge this capitalist onslaught? It is necessary to go beyond reacting to each cut and each outrage: we must go beyond defensive reactions, which leaves the initiative with the capitalist class. Our struggles must be framed within a purposeful strategy of breaking the link with capitalism.
     Capitalism is by its nature polarising and imperialist. This must raise the question whether peripheral countries can catch up. Can peripheral economies become fully capitalist? If not, this in turn raises the question whether globalised monopoly capitalism has shut off the possibility of peripheral economies becoming fully capitalist as a stage towards socialism.
     Many peripheral economies have become industrialised and some financialised, but these economies are subordinated to the interests of the core imperialist economies. The methods of production, componentisation of production, contract production and monopolistic control over distribution and retail networks, in tandem with the huge burdens of increasing national and personal debt, militate against the ability of the peripheral economies to emerge from the shadow of the imperialist centre and become fully capitalist economies in their own right.
     Imperialism itself has become centralised. Although dominated by the United States, the imperialist core of North America, Europe and Japan are no longer in serious dispute with each other. They have developed global management tools, such as the World Trade Organization, the World Bank, NATO, the IMF, the OECD, and G8, as a means of ensuring continued imperialist hegemony, thereby preventing the possibility of most peripheral economies going it alone. Even China, with its massive economy, is vulnerable and is under attack through the Trans-Pacific Partnership (TTP).
     Modern capitalism is a globalised system. It is no longer a number of independent capitalist systems living side by side and in constant competition with each other. As John Smith stresses in his book Imperialism in the 21st Century, the capitalist core is no longer in competition within itself. Instead it encourages competition between peripheral economies, both as a means of lowering production costs and as a means of control.
     The Marxist economist Samir Amin argues that it will take the concerted effort of workers in both the global north and the global south to make the break with capitalism. That much is self-evident. Amin also argues for the de-linking of peripheral states from capitalism. His argument is that underdeveloped peripheral economies cannot progress under capitalism, let alone catch up. Monopolistic control of the markets by TNCs, increasing government and personal debt, along with downward pressure on wages and the marginalisation of national governments in the economic sphere, prevent emerging economies from catching up. Nor is it in the interests of the imperialist core that they do so.
     Peripheral states in Europe may be more developed economically, at least on the surface. However, economies such as those of Ireland, Portugal, Spain, Greece and Italy are in hock to the TNCs. Wages are depressed, debt is increasing, and the ability of national governments to control their economies has been eroded by the EU, the fear of not satisfying the interests of TNCs, and the proposed trade agreement of CETA, TTIP, and TISA.
     We need look no further than recent history to see what happens to peripheral economies that try to fight back while remaining within the capitalist fold: the destruction of Greek democracy and economy, the technocratic government put into Italy, and the dictating of Ireland’s economy, even to the point of placing the lion’s share of private bankers’ debt onto the shoulders of the Irish working class.
     The economic policies of the EU peripheral states are increasingly being dictated by the EU, the ECB, the EU Commission, and international capitalist tools of dominance: the IMF, the World Bank, and of course the TNCs. As long as the peripheral states remain in the EU and the capitalist camp they will remain as appendages to the imperialist core. De-linking from the EU and from capitalism and pursuing a socialist path is the only option.
     De-linking is both a national and an international struggle. It requires fighting on the home front while building international alliances with comrades in other states. It means building a shared programme for de-linking. Such a programme is not a vision but the cold application of the tools of Marxist analysis. We need to build the economic and political models that de-linking would entail.
     Inward foreign direct investment to Europe is falling as TNCs move towards contract production, and exports are dominated by TNCs that repatriate the profits. Overall, the future for European peripheral economies is not bright. They will stagnate before collapsing. One thing they will not do is progress.
     The Apple model of extracting massive surplus value while dodging taxes will continue to weaken economies as debt increases and consumption falls. Such a model is unsustainable. The only solution is socialism. The de-linking of the European peripheral economies from the EU and from capitalism offers an alternative of a new core of socialised economies, designed on need rather than on profit.
     Such a project would challenge the myth of the capitalist “end of history” and forge new links among the international working class.


Source: Rodrigo Fernandez and Reijer Hendrikse, Rich Corporations, Poor Societies: The Financialization of Apple.

How Apple works
In their report “The Financialization of Apple,” Rodrigo Fernandez and Reijer Hendrikse state: “Besides offshoring production to low-wage countries to minimize costs, the accounting behind Apple’s global product sales, profits and cash reserves has been reorganized to minimize the company’s tax returns. Apple’s Irish operations located in Cork initially included production, but since the late-1990s reorganization of Apple this is no longer the case.”
     Ireland is the centre for Apple’s financialisation (see the attached graph). It has two companies registered at the same Cork address: Apple Operations International and Apple Sales International. According to the US Senate, AOI “has not declared tax residency in Ireland and has not paid any corporate tax to any national government in the past five years.”
     Apple has in effect used AOI to exploit a difference between US and Irish residence rules to avoid paying tax. To complicate things, AOI does not employ any staff: it is in fact managed by another Apple subsidiary, Braeburn Capital, based in Reno, Nevada. Nevada has 0 per cent corporation tax.
     “Apple has assigned partial ownership of its Irish subsidiaries to Baldwin Holdings Unlimited in the British Virgin Islands, a tax haven, according to documents filed there and in Ireland. Baldwin Holdings has no listed offices or telephone number, and its only listed director is Peter Oppenheimer, Apple’s chief financial officer, who lives and works in Cupertino.”
     The second Apple affiliate in Ireland, Apple Sales International, is a subsidiary of Apple Operations Europe, which is owned by AOI—a circle that begins and ends in Ireland. ASI also operates without being tax-resident (see the graph). Between 2009 and 2012 ASI accumulated $74 billion, paying little or no tax.
     As with AOI, ASI did not employ anyone, at least until 2012, when 250 employees of AOE were assigned to ASI. Apple continues to claim that ASI is managed outside Ireland, and that it is not tax-resident in either Ireland or the United States.
     Commenting on Apple’s labyrinthine tax-dodging, the US Senate states: “In addition to shielding income from taxation by declining to declare tax residency in any country, Apple Inc.’s Irish affiliates have also helped Apple to avoid U.S. taxes in another way, through utilization of a cost-sharing agreement and related transfer-pricing practices.”
     Of course Apple has other affiliates in Europe and throughout the world, including the Netherlands, Luxembourg, and Singapore—not counting its worldwide network of retail affiliates. However, as Apple transfers its economic rights in Apple products to Ireland, many countries are seeing little if any tax returns from the company. For example, in 2011 Apple recorded 84 per cent of its non-US operating income through ASI in Ireland, resulting in a tax liability of nil for Apple’s French and German retail affiliates.
     John Smith in Imperialism in the 21st Century argues that contract production hides the wealth that is being extracted from workers in the global south. All Apple’s production is done through contract production, in numerous factories in numerous countries. In some cases these are subcontracted by European affiliates to industries in the global south, adding another layer to the Apple labyrinth. This surplus value is trafficked through Ireland, hiding the level of exploitation and allowing Apple to dodge tax in the counties of production and minimise tax paid in Ireland.

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