Jeff Madrick on how austerity is killing Europe

Jeff Madrick: When it was announced that Ireland's national income virtually collapsed in the fall of 20011, it should have been a death blow to those confident that austerity economics works. Ireland had been held up as the first great hope of the austerity advocates.

[Reprinted from the New York Review of Books]On the last day of 2011, a headline in The Wall Street Journal read: “Spain Misses Deficit Target, Sets Cuts.” The cruel forces of poor economic logic were at work to welcome in the new year. The European Union has become a vicious circle of burgeoning debt leading to radical austerity measures, which in turn further weaken economic conditions and result in calls for still more damaging cuts in government spending and higher taxes. The European debt crisis began with Greece, and that nation remains the European Union’s most stricken economy. But it has spread inexorably to Ireland, Portugal, Italy, and Spain, and even threatens France and possibly the UK. It need not have done so. Rarely do we get so stark an example of bad — arguably even perverse — economic thinking in action.

Over the past two years, the severe 2009 recession, which started in the US but spread across Europe, have imperiled the finances of one European country after another. As a result, Portugal, Ireland, Spain and Italy are coming under pressure from the EU to cut government spending and raise taxes to reduce their deficits if they wanted to qualify for a bailout. All have done so. Ireland and Portugal sharply cut spending and still had to take tens of billions of euros to help meet financial obligations as of course did Greece. The European Central Bank bought the bonds of Italy and Spain. Britain’s Conservative government led the way in ruthless government cutbacks in 2010. France has adopted its own austerity package, and even Germany, the supposed economic leader of Europe, has planned to cut its deficit by a record 80 billion euros in 2014.

Proponents of austerity claim that as nations take control of their finances businesses become more convinced that interest rates will not rise and that growth will resume. Their reasoning has been abetted by the financial markets, which drove up rates on Greek debt and soon enough on the debt of nations like Portugal, Spain and Italy. Should these nations not be able to pay their debts, bond buyers wanted a high enough interest rate to compensate for the risk.

But this is pre-Great Depression economics. How could the EU so misread history and treat with contempt the teachings of John Maynard Keynes, who argued that during recessions governments must expand economies through spending and tax cuts, not the opposite? In practice, making large-scale budget cuts or raising taxes, as Keynes showed, will reduce demand for goods and services just when an increase is needed. Faltering sales will undermine the confidence of businesses far more than fiscal consolidation will embolden them. By ignoring this, European policy makers will deepen, not solve, the financial crisis and millions of people will suffer needlessly.

Indeed, austerity economics has not worked in one single case in Europe in the last two years. When David Cameron’s government imposed a first round of harsh spending cuts in 2010, it utterly failed to revive the British economy as promised. To the contrary, it probably cut a budding recovery short. Unemployment and the deficit as a percent of GDP remained high. Some pro-Conservative observers I met at the time assured me that the Cameron team, led by George Osborne, the Chancellor of the Exchequer, was pragmatic and would reverse course on austerity if it wasn’t working. Yet when growth basically ground to a halt in late 2011, the Cameron team only doubled down, making further cuts. We need more of the same medicine, they told their citizens, a record number of whom are unemployed. Britian is a hair’s breadth away from outright recession only two years after its last one.

In November, meanwhile, Spaniards voted out of office a once-popular Socialist government, in part for its failed austerity program of the past year. The Socialists had earlier presided over a boom and even built a budget surplus. But then the housing and banking crises struck and private Spanish banks ran amok. In response, in 2010 the Socialists sharply reversed an earlier stimulus policy, cut spending, and raised taxes to the tune of about 5 percent of GDP. Government debt is still not high in Spain, and interest rates have not risen the way they have in Italy. But economic growth stalled after these measures were implemented, because reduced public spending weakened the demand for goods and services, pure and simple. With Spain’s official unemployment rate now 21.5 percent, the Socialists lost the election badly—paradoxically pushing voters to elect a conservative leadership that is calling for more austerity. In Spain, recession is now inevitable.

And then there is Ireland. The recent experience of this once booming country should be deeply embarrassing to those who advocate austerity economics. For six months early last year, its national income started growing again after a couple of years of dramatic collapse following its own financial crisis. Ireland guaranteed all the debt of its over-aggressive failing banks to appease investors and then paid for it by cutting social spending sharply. Ireland’s leaders said with almost religious authority that this painful self-discipline was necessary to right the economy, and officials in Ireland and across Europe hailed the country’s brief rebound in 2011 as proof that it works. But then the Irish economy plunged in the third quarter of 2011 at its fastest rate ever. The upturn in the economy proved only temporary under the restraints of austerity economics. It may yet need another bailout.

Climbing out of the morass left by the financial crisis and now the European debt crisis would not be easy even if the right steps had been taken as they unfolded. While the American economy has gathered a little strength, recession in the peripheral nations and possibly Britain could take down France and other stronger nations—particularly in the absence of a coherent policy beyond austerity.

There is a far better solution. And it would not require the failure of the euro. The eurozone and perhaps the entire EU must act like a unified country, ready to recognize that it must take responsibility for the drastic social effects of rapid spending cuts. The US is no shining example of enlightened policies, but the European Central Bank must guarantee the debt of its members just like the Federal Reserve guarantees the debt of the US Treasury. It can then force restructuring of debt in these nations, with some private investors taking losses. A financially unified Eurozone must then issue bonds to raise the money to pay back debts but also to provide a social net for the people of nations that are cutting back their spending on social programs to meet their remaining financial commitments. (This is what the US does, for example, by sending Social Security checks and aid for the unemployment to every state in the union.) This can be accompanied by demands for reforms in nations like Greece where taxes must now be collected more efficiently and unusually excessive public spending stopped.

Germany has the financial wherewithal to lead this rescue. But it is blocking the fiscal union from acting like a single nation with compassion for all Eurozone citizens. It is also refusing to underwrite a substantial new fiscal stimulus—good-old fashioned Keynesianism. Is this a new national arrogance? I hope not. So far, Germany is benefitting from the crisis as investors buy German bonds as safe havens from the turmoil. In fact, the failure to act will soon affect the German economy. It will take financial losses on its banks’ loans to the peripheral nations and its export markets will weaken. The bond buyers who are now gobbling up German debt, thus keeping rates low while they rise in Italy, Greece, Portugal, and Spain, will likely stop doing so.

The EU leaders must get over their obsession with eliminating deficits. They now want to reduce every country’s deficit to less than 0.5 percent. This is disaster. It will lead to very slow growth for a long time. Instead, they must use temporary deficits to restart growth. Rarely has policymaking been this poor. Sooner than later, the citizens of these nations will say, No more!, and political instability will result.
Jeff Madrick is senior fellow at the Roosevelt Institute and the Schwartz Center for Economic Policy Analysis. His latest book, Age of Greed, The Triumph of Finance and the Decline of America, 1970-Present, is published by Alfred A. Knopf. Jeff Madrick spoke at the 2011 FEPS/TASC Autumn Conference. This article was first published in the New York Review of Books; reprinted with kind permission.

Guest post by Sheila Killian: An Audit of Irish Debt

Dr Sheila Killian is head of the Department of Accounting and Finance at the University of Limerick and lead researcher on the debt audit project. The results of the audit, commissioned by AfRI, the Debt and Development Coalition and UNITE, were released yesterday.
An Audit of Irish Debt is the result of 5 months of research from my colleagues Frances Shaw and John Garvey and myself, which has been an interesting journey that we hope has led to a useful picture of the current situation. The banking crisis and the decision in September 2008 to support all of the Irish banks has brought our debt far beyond sustainable levels. Through the Celtic Tiger years, our total long-term bonds increased, but remained comfortably below 40billion. Now they stand at over 90billion, or roughly twenty thousand euro for every woman, man and child in the country. We can add to this our contingent liabilities: the debts of the banks that we have guaranteed, the NAMA bonds, promissory notes, emergency overnight lending and guaranteed deposits. These potential liabilities come to 279bn euro, over three times the already inflated total for government bonds.

The Audit report spells out in clear language where these different categories of debt have come from, how they are inter-related, and discussed the nature of the anonymity that surrounds the names of bondholders. We also discuss other market activities which impact on the risk of Irish debt, such as Credit Default Swaps and short selling. We are grateful for the support of Afri, Unite and the Debt and Development Coalition, and we hope that the report is useful to all concerned people who want to learn more, and forms a foundation for future work in the area.

Thomas Palley on a global minimum wage system

Thomas Palley is Bernard L. Schwartz Economic Growth Fellow with the New America Foundation. This piece was originally published in the FT Economists' Forum. The proposal is drawn from his forthcoming book, From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economic Ideas, Cambridge: Cambridge University Press.
The global economy is suffering from severe shortage of demand. In developed economies that shortfall is explicit in high unemployment rates and large output gaps. In emerging market economies it is implicit in their reliance on export-led growth. In part this shortfall reflects the lingering disruptive effects of the financial crisis and Great Recession, but it also reflects globalization’s undermining of the income generation process. One mechanism that can help rebuild this process is a global minimum wage system. That does not mean imposing U.S. or European minimum wages in developing countries. It does mean establishing a global set of rules for setting country minimum wages.

The minimum wage is a vital policy tool that provides a floor to wages. This floor reduces downward pressure on wages, and it also creates a rebound ripple effect that raises all wages in the bottom two deciles of the wage spectrum. Furthermore, it compresses wages at the bottom of the wage spectrum, thereby helping reduce inequality. Most importantly, an appropriately designed minimum wage can help connect wages and productivity growth, which is critical for building a sustainable demand generation process.

Traditionally, minimum wage systems have operated by setting a fixed wage that is periodically adjusted to take account of inflation and other changing circumstances. Such an approach is fundamentally flawed and inappropriate for the global economy. It is flawed because the minimum wage is always playing catch-up, and it is inappropriate because the system is difficult to generalize across countries.

Instead, countries should set a minimum wage that is a fixed percent (say fifty percent) of their median wage - which is the wage at which half of workers are paid more and half are paid less. This design has several advantages. First, the minimum wage will automatically rise with the median wage, creating a true floor that moves with the economy. If the median wage rises with productivity growth, the minimum wage will also rise with productivity growth.

Second, since the minimum wage is set by reference to the local median wage, it is set by reference to local economic conditions and reflects what a country can bear. Moreover, since all countries are bound by the same rule, all are treated equally.

Third, if countries want a higher minimum wage they are free to set one. The global minimum wage system would only set a floor: it would not set a ceiling.

Fourth, countries would also be free to set regional minimum wages within each country. Thus, a country like Germany that has higher unemployment in the former East Germany and lower unemployment in the former West Germany could set two minimum wages: one for former East Germany, and one for former West Germany. The only requirement would be that the regional minimum wage be greater than or equal to fifty percent of the regional median wage. Such a system of regional minimum wages would introduce additional flexibility that recognizes wages and living costs vary within countries as well as across countries. This enables the minimum wage system to avoid the danger of over-pricing labor, while still retaining the demand side benefits a minimum wage confers by improving income distribution and helping tie wages to productivity growth.

Finally, a global minimum wage system would also confer significant political benefits by cementing understanding of the need for global labor market rules and showing they are feasible. Just as globalization demands global trade rules for goods and services and global financial rules for financial markets, so too labor markets need global rules.

In sum, globalization has increased international labor competition, which has contributed to rupturing the link between wages and productivity growth. That rupture has undermined the old wage based system of demand growth, forcing a turn to reliance on debt and asset price inflation to drive growth. It has also increased income inequality. Restoring the wage – productivity growth link is therefore vital for both economic and political stability. A global minimum wage system can help accomplish this.

Guest post by Colm O'Gorman: Linking human rights and economics

Colm O'Gorman: We do not know where money allocated in the Irish budget goes. We do not know how effective it is, whether it gets to where it is needed, or how its impact is monitored.

A survey carried out for Amnesty International late last year by Lansdowne found that 81 per cent of people felt they did not understand how Government ministers make decisions about how our money is spent. The same number did not believe there were effective systems in place to ensure the money goes where it is supposed to.

A September 2009 report carried out by Indecon Consulants showed the Health Service Executive could not explain how its mental health budget is spent because of flaws in its accounting systems.

At a recent symposium on economics and human rights organised by Amnesty International Ireland, Dr Mícheál Collins of Trinity College explained that, of 131 identified government tax breaks, figures only exist for the cost of 89 of them. And in some cases where there are figures, all we have are the rough estimates that were provided when the tax break was introduced by the Oireachtas.

In bringing together economists and experts in the field of human rights, we were trying to investigate how we can make Ireland’s budget more accountable. It is the first time we have held an event like this; indeed, it’s a first as well for our global organisation.

But why is this a human rights issue at all? Why is an organisation best known for working to free prisoners of conscience or to end the death penalty taking an interest in the labyrinth of the Irish budgeting process?

It is because decisions made around how we spend our money affect our human rights in Ireland. You have a right to health, a right to education, a right to social security. These are not figures of speech or slogans: they are rights laid down in legally binding international human rights treaties signed and ratified by Irish governments.

Under international law, governments are obliged to deliver on these human rights. But the resources available to a country to deliver them must be taken into account.

It is not up to human rights organisations, nor the courts for that matter, to decide how taxpayers’ money is spent. That’s the job of our elected representatives. But in making those decisions, they must fulfil their responsibility to ensure resources are allocated in a transparent way that protects our human rights and grows our economy.

It might seem that talking about these issues at a time of economic recession, when the IMF is effectively in charge, is a luxury we cannot afford. But the current economic climate is also an opportunity to change the old rules. We need better quality standards, more information about how public services are delivered and paid for. Those people using services, and those providing them whether in the public or private sector, need more information from our budget process.

One of the reasons that we, as a nation, have found ourselves in this place is the lack of accountability in our financial and budgetary system. In the middle of such a grave economic crisis, it has never been more important to examine how we allocate scarce resources.

How do we ensure the decisions around our budget are made in a way that protects human rights and is effective, efficient and accountable? How do we decide where we spend our money and ensure we’re getting good value? And how do we do this in a way that ordinary people can understand? Unless we work to restore faith in our budgetary system, we will have failed to learn from this crisis.

And in the discussions about bondholders, banks, interest rates and bailouts, we must focus not only on the numbers, but on the bigger question of the kind of society we want to build. Our vision for Ireland must be of something more than simply a balanced set of accounts.

It must include a society where our government ensures our fundamental human rights. Later this year the United Nations will review the progress made on fulfilling those rights for people living in Ireland. While there have been improvements there is no doubt they will find a lot left undone, so much that could have been accomplished during the boom years had human rights been a priority.

Included in the Programme for Government is the line “we will require all public bodies to take due note of equality and human rights in carrying out their functions”. This must include all government departments, including finance and public expenditure in particular. And yet, how will that happen and how will it work in practice?

There is an extraordinary level of distrust in our budgetary system, but given recent events that’s hardly surprising. Only once we begin to appreciate how the system works can we start to properly investigate how our money is spent and, most importantly, ensure accountability in the allocation of our resources. Political and economic reforms being contemplated by our new government must take this into account.

Human rights activists need to understand more about economics, about how wealth is generated and growth sustained. Economists need to appreciate that human rights is not necessarily about spending more. It is about transparency, about ensuring accountability in how we spend our money and in how we make those decisions. It is from that common ground that we can work together.
Colm O’Gorman is executive director of Amnesty International Ireland. He was previously founder and director of One in Four.

Guest post by Arthur Doohan: The place to be is Mr. Justice Kelly's Commercial Court room on Monday morning

Buried in the terms of the latest buyback of AIB bonds is an explicit attempt to reverse the 'hierarchy of credit'.

Doesn't sound like much, does it?

Well how about saying that the Government have attempted to establish a precedent that would, potentially, invalidate every contract in the country. Does that get your attention?

You can read more of the details here and here.

The Government appears to have tried to slip through a change that would allow it to pay whom it chooses to pay and to not pay others if it chooses not to, despite any previous contracts entered into. It seems as if the Government has decided to try to empower itself to selectively not repay the interest on some bonds, while paying the due return on the preference shares issued to the NPRF for the stake in the banks that was forced into the NPRF.

This would set a ground-breaking precedent. Appeals have already been lodged and are due to be heard on Monday next. It the Government doesn’t have its way, it will be a huge climb-down for them. Equally, it seems unlikely that a successful appeal would be greeted with equanimity by the Troika. Something has to give.
Arthur Doohan is a former banker currently promoting a public policy debate on alternative solutions to the debt crisis in Ireland and to bank restructuring

Guest post by Martin O'Dea: Concrete progress

Martin O'Dea lectures in Management and Human Resource Management at the Dublin Business School
There is an understanding of the errors in our current political and economic strategies among most people now, and also a realisation that things must change fundamentally in the window of opportunity that currently comes from this politicisation and appreciation among the general population; as well as the outrage at the continuous revelations of politico-economic faults. What is required to couple with this outrage and enthusiasm is a whole sea of ideas. All one can do is spend as much time as possible contemplating and presenting one's own contribution, and awaiting the response of others as to the degree to which they are helpful before recharging the batteries and going again. This is the central tenet of a ‘smart society’ and it is with this in mind that the suggestions below are offered.


1. Tell banks that they will reduce personal mortgages for all citizens to an upper value of €1 million and one property per adult mortgage owner; by 20%
• Reduce the amount the banks owe in terms of government investment repayment preferential shares etc.). Or (reduce from ownership by Irish state and have available to bondholders’ equity credit to the value of this reduction (approx 16 billion).
• This is money already borrowed from the ECB under the guise of NAMA and would then act as an ongoing stimulus to the most indebted sector of the population of on average €240 per month, which would not have the difficulty of instantaneous withdrawal and would stimulate mostly indigenous growth as it would progress as long as mortgages run (It is hard to see that the Irish people have not given enough to the banks at this point)
• The long-term and ‘re-found’ nature of this stimulus should guarantee its spending through the economy
• There should be a significant decrease in the future levels of mortgage defaults which looks set to become a major economic and social issue as things are currently
• Offer a direct government stimulus to those in the rental market while ensuring that the benefits be kept from landlords for adult citizens without mortgages

People really cannot be evicted from their homes because they have lost a job building houses that were erroneously built as a result of complete banking mismanagement created a housing market where these people had to become heavily indebted to have a family stead; while all the while having the unemployment benefit that they contributed to, and now need, reduced to pay for these same banks.

2. Recapitalise the country (give the bondholders who invested in the private banks in Ireland a debt-equity swap. This must be done with our European partners and in the understanding that the European Union cannot continue to follow markets sentiment only but must show strength and cohesion that will lead the markets to reinvest in a Europe they see will thrive. A new Irish government can pursue this course of action with a mandate from the Irish people.

3. Immediately create an incentive to the public sector workers which offers each individual who suggests and documents a money saving measure in their workplace 10% of that saving. From major schemes to purchasing canteen milk at a cheaper rate the employees who highlight these savings will receive their 10% savings from their senior managers who will need to achieve major reductions in costs or lose their positions, ala department heads in NYPD in the 90’s. We know beyond any doubt that there are massive wastages in this system which grew unchecked again with government mismanagement. However, incentivising staff’s ingenuity in this way will triumph where a continued governmental fight with a completely incoherent management structure has failed so often.

4. Form online and physical based 'Innovation Centres' around the country. Innovation centres should form a ‘public’ option for citizens seeking employment – in much the same way as one may attend a public or private school or college. These centres will concentrate on varying levels of information management and data mining. These projects may well be part funded by private enterprises and technology companies who may have first refusal to some of the data generated. A keen understanding of the potential information management here will allow one to see this as akin to a government finding minerals underground and employing members of the public to mine (the reduction of welfare and taking of income tax forming much of the funding and added by governmental stimulus and some private investment)

5. Remove unnecessary middle management and others from the health service and other areas and move them to running elements of these innovation centres.

6. Colleges and Universities and the department of education should work quickly towards providing online education courses made available on mobile phone apps as well as simple internet connections. These courses (with interactive and video based tutorials and assessments) should initially prepare people for re-entry into education (preparatory courses for a variety of professions and skill sets) but future development of this public education should be allowed to develop with the advancement of those receiving the education as the main drive.

7. Set about straight away creating an Irish educational institute that will focus on RESEARCH and will attract genuine international leaders in their fields. Locate this institute in a region of the country that can accommodate its needs but would benefit greatly from a decentralised spatially aware investment. Set up arrangements with leading firms to locate near this ‘green field’ institute site to create a fulcrum of learning and innovation and their implementation

8. Form an open government programme, under the website opengov.ie where all information with the exception of some sensitive defence material (perhaps) will be made accessible to the public. The providers of this service who will be a group of non-affiliated capable individuals will provide a web space that will allow citizens have debates, post queries with representatives at the various levels of governance, and pursue those issues through responses, associated laws or new bills etc. This would include budgetary information at a certain time each year, ideally before the final publishing.

9. Provide localopengov.ie and utilise it as one means of a number to encourage local level participation by citizens

10. Increase foreign aid significantly. Appreciate that principals of fairness will permit a growing economy and that a 1% GDP investment to areas of the world historically disadvantaged where absolute poverty and disease are still suffered

11. Utilise innovation centres who will have network coordinated infrastructural support to invest in health providing technologies, and reap a direct benefit in major reductions in health management costs (including smart house, and mobile, technologies that can monitor individuals health while they are in their homes on an ongoing basis and can feed the relevant information to the primary and secondary level of health care) as well as by exporting same technologies.

View from the front line: impacts of cuts to community employment

Guest post by Dr Rory Hearne
In an effort to highlight what are the potential real human and economic impacts of some of the proposed December budget cuts I asked a few young women on the FAS-funded Community Employment scheme in the area where I work if they would tell me their approximate weekly income and expenditure.

One woman, with three young children, explained that her total weekly income is €517. That included a ‘double payment’ of €305 a week from FAS and €212 from Social Welfare. Her total weekly basic expenditure, at the minimum, is €461. This included €90 a week on the crèche, €25 on bus fare, €38 on rent, €30 on ESB, €30 on Gas, €200 on food shopping, not including kids lunches, €20 on mobile phones, €28 a week on football and other kid’s training costs. That leaves €56 at the end of the week. The other women were in similar situations. Another woman, for example, with two kids, had a weekly income of €405 (FAS and Social Welfare). Her basic expenditure was €385 including €60 a week on the crèche, €50 on rent, €30 on gas, €30 on ESB, €50 on travel, €150 on food shopping and €15 for mobile phone. Leaving her with a tiny sum of €20 euro to spare at the end of the week.

These people are finding it extremely difficult to survive at the moment on their low incomes. Just think about it. How do they afford additional costs of clothes, shoes, pharmacy medicines (not always covered under medical card), additional bus and rail travel, birthday parties, Christmas? Not to mind what many would consider basic things to do and have, such as going out for a meal or a trip to a leisureplex an odd time. They spoke similarly of the difficulty of paying for activities for their children - boxing clubs, dancing, football – which could cost anything from €40 to €50 a week. Even if these overall income and expenditure figures approximated to the truth, it demonstrates two things.

Firstly, further cuts in social welfare in the budget or increases in gas and ESB prices will have a terrible human impact. Those on such low incomes will ‘get by’ only with huge difficulty. As a result, and already we are witnessing as Christmas approaches, the use of money lenders is on the rise. Their grip of harassment and intimidation hanging over a family can be devastating.

Secondly, it provides strong supportive evidence to the argument that cutting welfare spending directly impacts on economic growth. Look at the areas of expenditure of these welfare recipients. It is on the local crèche, the local authority, Bord Gais, ESB, Dublin Bus, local and larger supermarkets, phone companies, local sports organisations etc. It is all being spent directly in the Irish economy. Indeed much is on the state and semi state sectors.

A notable double-edged sword for the Irish state is that the local authority rent is set according to the individual’s income so if their welfare payment is cut the local authority’s income will be reduced, requiring further subsidy from the state. The state thus cuts itself.

Another point that these figures raise is that the reduction in income will mean a reduced spend on the services being provided in the communities they live in – such as the crèche, local shops and sports organisations etc – so the retrenchment will hit the lower income sections of our society at two levels: as individuals experiencing a reduction in direct income and, as local areas, geographically. This is because lower income areas will have less spent in those areas after the budget as the individuals living in them experience income reductions. Thus the poor and vulnerable get disproportionally affected on multiple scales.

Interestingly it highlights also the important role of social housing. With significantly higher rents these people would simply not survive financially.

From a human perspective, how will children growing up in this household feel? The poverty causes depression. There is the stress of not being able to provide a ‘proper’ birthday party and presents or a ‘good’ Christmas. Where is the money to give to the teenagers for a new top or for the cinema? How stigmatised will those teenagers feel as a result? What social impacts will this have on mental health, on youth anti-social behaviour, crime, vandalism, education drop out? What wider costs will this have to Irish society and the economy?

The so called ‘double payment’ as part of FAS’ Community Employment scheme clearly plays a vital role in the lives of these individuals, and therefore, should not be cut in the budget. The schemes also provide much needed support in these communities in service provision providing employees for homework clubs, crèches, senior citizen support and others.

Guest post by Dr Rory Hearne: Why aren't the Irish protesting?

Rory Hearne: A short while back, I was asked the question for the This Week Rte Radio 1 show was ‘why aren’t the Irish protesting?’

I thought about it and on reflection developed this analysis. What is it about France, Spain, Greece, Iceland – that they have all had significant protests in the last year against the cuts to public sector, increasing retirement age, fiscal austerity and bailing out of the financial system. Why are we not seeing any here? The answer is complex. It’s not just a case that Irish people just like to ‘moan’ from bar stools or on liveline and no other action.

When the first austerity budget was being proposed in late 2008 the pensioners organised (through, amongst others, the Irish Senior Citizens Parliament) themselves and protested. They successfully managed to get a roll-back on the plan to abolish their automatic entitlement to a medical card.

However, their momentum and success did not translate or effuse into the wider population. Last year, as the economic crisis deepened and the recession continued, there was an emergence of a division between ‘public’ and ‘private’ sector approaches. The public sector, represented through the unions, planned and held strikes against pay cuts. They explained that they didn’t cause the crisis and, therefore, why should they be paying for it. The emergency budget in April 2009 imposed a levy on the public sector and left the private sector generally untouched (either taxed or provided employment support). The private sector and the newly unemployed argued that they were suffering pay cuts and job loss while the public sector should feel lucky to at least have jobs. This division was heightened and manipulated by Government and other interests in an attempt to divide and conquer.

Then this year as the scale of the property collapse, the billions required for the bail outs, the drop in tax revenue for the government and economists and government threatening that the IMF and the ECB could have to come in with even more severe austerity, all led to a fear and associated paralysis taking hold in the Irish people. A fear that, literally, the country was going to be shut down through bankruptcy. The fear was successful from the point of view of the establishment as the scale of the crisis terrifies people. Unsurprising then in April the majority of the public sector unions agreed, on the basis that there was no other alternative, to the Croke Park deal and it was ratified by their members in June.

Throughout this period then while ICTU have argued for their ten point plan, in reality the Croke Park deal meant they have been restrained in the strength to which they can argue and organise protest for the other aspects of the plan such as stimulus through employment schemes, increasing taxes etc. Their case for an alternative approach has not gained popular support.

Meanwhile Labour has articulated different ways to tackle the crisis. But they have been unclear to the extent it is very different from the Government’s approach. Their position has been, not to organise protest, but, in line with its history and tradition, to argue that change will come through an election.

When we look at other countries it is the trade unions, large left political parties and civil society that have organised the protests. Here in Ireland, we can see from above some reasons for why such sectors have not led protests against the Government’s approach in the last few months.

In terms of Civil Society, there are small movements happening – the local hospital protests, the community sector mobilisations – for example. There is the Claiming Our Futures conference on October 30th which is looking to build, from the grassroots, an alternative vision.

But there is also something more fundamental going on. The Celtic Tiger period promoted an individualism that was underpinned by, in essence, the values of the American Dream. Big money was being made – by many people - apprentices, carpenters, builders, architects, retailers, hoteliers, developers, financiers, bankers ... the list is very long.

The unions had partnership where they won significant wage increases for their members. Concepts, values and policies of solidarity, discussion on what sort of public services do we need, of the distribution of wealth, taxation, and the organisational structures that would require articulation and mobilisation around progression on such issues were dismantled, were replaced by the values of individualism, and money was thrown by Ahern’s government at whoever made any noise. Now we are suffering from the fallout of 20 years of ‘partnership’ and the Celtic Tiger. This has left us divided, unorganised and, intellectually, unable to mobilise for or articulate alternatives.

Of course, our history has also had an impact. The left in Ireland is relatively weak in comparison to other countries. The North dominated politics for the majority of the history of our State. Social issues and the debate about what type of society we lived in were secondary. Just when the North was being ‘sorted’ in the late 1990s and social issues began to be raised, the Celtic Tiger repressed them again. Protest is not the key issue or question. Change is. How can we bring about a fundamental change so that we get away from the unsustainable boom bust model?
Dr Rory Hearne has worked for the past three years as a regeneration community worker in Dolphin House

Guest post by Michael O'Sullivan: Who's fooling whom?

Michael O'Sullivan: Government ministers are now talking of an economic recovery. While this is what most people will want to hear, it will at the same time jar with the many experiencing unemployment, heightened job insecurity and rising mortgage payments to name but a few of our economic problems.

It is true that economic data suggest that output in our economy is beginning to recover from the steepest drop that any developed world economy has suffered since the Great Depression and this is very welcome.

What is not true however is that we in Ireland are going to experience a normal economic recovery along the lines of text book business cycles. The danger is not only that our politicians would try to convince us that this is the case, but that they fall for the same confidence trick themselves.

The apparent rationale behind 'talking up the recovery' is that by creating a sense of confidence, consumer and investment spending will follow. This 'if you say it, they will come' approach to economics is absent from most good economics textbooks, and utterly misplaced in an economy where the banking system is broken, government finances labouring under the burden of the banking sector bailout and where there has always been a puzzling lack of commitment by Irish savers to Irish entrepreneurs and industry.

Instead of talking about recovery, our policymakers and politicians should talk of repair, reform and restructuring. Addressing the policy making errors of the past and preparing for a dramatically changing world economy would be the ideal way forward.

Ireland's economy is in many ways an adolescent one. It is not yet fully developed, especially in terms of having a set of robust domestic sectors that can drive growth independent of the global economy.

As such the lesson from the catastrophe of our economic collapse is that we need to reform policy making in Ireland, build new institutions to replace the 19th and 20th century ones that we have in place, resist the temptation to talk about fashionable economic trends like the green economy and focus instead on developing domestic industry and services. What would be even more desirable would be a core set of values that could act as a guide to how society, public life and the economy should interact.

Instead, I suspect most of our leaders will find it easier to close their eyes, avoid the lessons that the financial crisis holds for us and mumble the 'recovery' mantra.

In economic terms the danger of this is huge because absent a magical pickup in household demand (which has rarely occurred in the context of such high borrowing levels) the result will be deflation and ongoing depression.

This is not scaremongering but a warning that the Irish economy needs radical surgery. Even in the large economies of the world the debate leans towards the need for government spending to continue to stimulate growth. The state of our finances means we don't have this luxury, but it also implies that structural reform is the only way we can really recover.

Talking up a recovery is not a strategy. The recent downgrading of the NAMA business plan and the Moody's government debt downgrade should be a warning that things are not as rosy as our politicians suggest. The great risk is that they continue to look the other way.
Michael O'Sullivan is the author of Ireland and the Global Question, and co-editor of What Did We Do Right? Global Perspectives on Ireland's Miracle, recently published by Blackhall Publishing

Guest post by Niall Douglas: Progressive pluralist economics or left-wing economics?

During the next few days we will be putting up a number of guest posts arising from the TASC Autumn Conference - Towards a Progressive Economics - held over the weekend. The first critique is by Niall Douglas.

Niall Douglas: I attended the TASC Autumn Conference - Towards a Progressive Economics - and managed to make it through from start to finish, despite having woken at 3.30am in order to travel to Dublin. I found it most illuminating and I offer my thanks to its organisers and speakers for a most welcome discourse.

Much was spoken of the failings of Neo-Classical Economics and Neo-Liberal Economics – the two not being the same, I might add, as the former is the (supposedly) apolitical collection of theories and models and the latter is the avowedly political application of those theories. Suggestions for improvement seemed to me to centre around the need for the reintroduction of pluralism within economic discussion, and the transfer of power from “the markets” to political control which could be more rationally and humanely directed than the necessarily chaotic, and often psychopathically selfish, free market. This, it seemed to be implied, is the only form of “progressive” that there is.

This is simply untrue: there are progressives on the right just as much as there are on the left – indeed, throughout human history one finds that which side is the more progressive alternates across the decades. From inspecting the last century, I would personally say that both left and right-wing politics have enacted just as much progressive legislation across the world as the other.Human rights and welfare have without doubt been improved dramatically since the 19th century, and both sides can take credit.

Most people know of the great suffering presently endured by far too many in our planet, and anyone humane feels angered and motivated to create change by their plight. What makes a person politically progressive is a profound and deep-seated belief that it IS possible to improve the state of our world and that the Thomas Malthuses of our world are wrong (I should hasten to mention that Rev. Malthus did not believe that humankind was doomed, and ascribing such negativity to the man does him an historical injustice).

Every progressive is united by a burning desire to enact social and environmental justice, to bring equality of both opportunity and outcome to all, to provide a better world for our succeeding generations and to instil freedom and democracy at every level of our world.

If TASC is a think-tank dedicated to progress, then in my opinion it needs to bring the progressive right into its debate as well – most especially its economic debate. Much of last weekend’s conference had (in my opinion) those speaking to the already converted, which is surely nothing like as progressive as advocating progressive ways ahead to a politically mixed audience.

For example, the progressive religious right in the USA are just as appalled with the events of recent years as anyone on the left: they have been instrumental in withdrawing the support of the religious right away from the Republican Party which so failed them. Without their efforts – and their progressive ideas – Obama would never have become elected, nor would he be expending so much political capital on bringing the Republican Party on board with his legislation in health, climate change and so many others still to come.

One cannot but conclude that the progressive right are instrumental to the near-term future of this world.

A good start would be to add a few voices of the progressive right to this blog – I don’t doubt that the comments will wonder who I would suggest, so I will freely admit that I have no idea as I am profoundly ignorant of the current political scene: I do look forward to seeing who commentators might suggest. I am sure that, by providing a counterfoil to left-wing arguments, the quality of the overall debate would become greatly improved and intellectually more robust: so much so that government, business and the markets would find it hard to ignore the arguments for progressive change.

In the end, pluralism is a double-edged sword: if you truly believe in it, you have to let it cut you from time to time, and in so doing hopefully become better and stronger than before.

Niall Douglas holds degrees in Business Information Systems, Economics and Management and Software Engineering. He is a member of the international Toxic Textbooks movement

Guest post by Donal Palcic: Next Generation Broadband and the Smart Economy

Donal Palcic: I read with interest the recent first report of the DCENR’s Knowledge Society Strategy process (entitled Technology Actions to Support the Smart Economy). The report claims that Ireland is now one of the “most advanced countries in the world for wireless and mobile broadband technologies” and that a “competitive market is delivering broadband speeds for Irish consumers from a range of broadband providers”. The report goes on to detail a number of action areas that will deliver the critical next generation network (NGN) infrastructure necessary for the development of a smart economy. The majority of the report then devotes most of its space to describing initiatives such as the recently announced Exemplar network.

Nowhere in this report are any of the key issues surrounding the development of a true NGN mentioned or discussed. The report’s claim that we have a competitive broadband market is also highly questionable given Eircom’s dominance of the fixed-line market and Ireland’s perennial position towards the lower end of most EU/OECD broadband scorecards. The Forfás response to last year’s NGN consultation paper shows that Ireland is currently not well placed to take advantage of future trends in broadband. Although the number of broadband subscribers has increased significantly since 2005, Ireland’s relative position has not improved as other countries are moving ahead at an even faster rate. The fastest speeds available in Ireland currently lag those of our European counterparts while the cost of our fastest broadband services is relatively higher.

A quick perusal of the latest ComReg quarterly market data (for Q1 2009) shows that there are now over 1.27 million broadband subscribers in Ireland. An examination of the breakdown of broadband subscriber numbers by subscription type presents some interesting facts:

DSL subscribers make up approximately 53% of overall broadband subscribers in Ireland, while the mobile broadband market, which has recorded explosive growth in recent years (over 90% increase in subscribers over the past year alone), accounts for some 28% of subscribers. Eircom dominates the DSL market where it provides 96.6% of DSL access either directly (Eircom retail) or indirectly (wholesale bitstream). Only 3.4% of DSL access is from unbundled local loops (LLU), which is significantly behind the EU average where LLU constitutes 44% of all lines supplied by competitors (ECTA Broadband Scorecard Q3 2008). The lack of local loop unbundling and the high price of line rental charged by Eircom is arguably a significant factor behind the considerable growth in mobile broadband subscribers (particularly in the residential market) and further evidence of Eircom’s dominance in the fixed-line market.

So where do we actually stand in terms of developing a next generation network? The Knowledge Society Strategy report ignores the most important obstacle to developing a NGN in Ireland, namely Eircom’s fixed-line network and the critical local loop (last mile) infrastructure. The last mile is a key area of concern given the lack of investment by Eircom in this area. The current local loop infrastructure, which is largely twisted pair copper, is fast becoming incapable of delivering currently available bandwidth-intensive services. The services of the future (3D TV etc.) will require even higher levels of bandwidth. While cable operators such as UPC are investing in infrastructure capable of providing speeds of up to 100Mbps, such services are only available to a relatively small (mainly urban) portion of society. In order to develop a true NGN, the deeper rollout of fibre across the national network (i.e. to the kerb (cabinet), to the home etc.) is necessary. Eircom’s local loop infrastructure thus constitutes the most significant bottleneck in the future development of next generation broadband services.

Two possible options available to the Government are:

1) Take Eircom’s network infrastructure back under public ownership (or if a deal on obtaining the network alone cannot be reached, take Eircom as a whole back under public ownership, separate the network element from the remaining business elements which can then be sold off while retaining the network). Eircom’s fixed line network should then be amalgamated with the entire portfolio of State telecoms assets (MANs, NBS, and the telecoms networks of the ESB, Bord Gáis, Irish Rail etc.) and managed by a new State-owned telecoms network company. The new company can then provide network services to private operators on an open-access basis across every level of infrastructure (first, middle and last mile).

2) Amalgamate all of the existing State telecoms assets under a new public network utility as above and construct a new national NGN in a greenfield approach.

Option 1 need not cost the Exchequer significant sums of money. A new State-owned telecoms network utility will be able to finance investment through revenues generated and its own borrowings. Eircom is currently up for grabs for approximately €100 million. While there are obvious issues surrounding the level of Eircom’s approximate €4 billion debt, the strategic importance of Eircom’s network is simply too large for the Government not to take radical action now and bring Eircom’s network back under public ownership. A failure to do so will simply ensure that Ireland falls further behind her European and international counterparts. Even if the Government has to take on some part of Eircom’s debt in order to obtain the network, this does not have to add to our ever increasing national debt and can be managed by the new State-owned network. When Telecom Éireann was corporatised from the Civil Service back in 1984 it inherited a loss-making business, approximately IRP£1 billion in debt and a network in dire need of investment. As a commercial public enterprise, it returned the company to profitability within four years, spent significant sums of money upgrading the network and managed to deleverage its balance sheet, all without any assistance from the Exchequer.

While Option 2 does not involve taking Eircom’s network back under public ownership (and therefore taking on some/all of Eircom’s considerable debt), the problem of access to, and investment in, the local loop infrastructure remains. Given that the local loop is currently one of the key barriers to the development of high speed broadband services, Option 1 is arguably superior to Option 2.

Provision of access to a fully integrated national telecoms network on an open wholesale basis would facilitate increased customer choice without any requirement for the Government to re-enter the business of telecoms service provision. It would also facilitate improved competition amongst service providers and equitable investment in infrastructure, whereby a State-owned network company can be mandated to invest in rural areas, preventing the deepening ‘digital divide’ which is already occurring as private operators only invest in more economically attractive, densely populated urban areas.

Given the rapid pace of technological development and the constantly increasing information needs of business and society, our telecoms infrastructure is as important, if not more important, than other strategically important infrastructure such as our road and rail networks. Simply put, high-speed broadband is now a necessity for everything from economic growth to social inclusion. While the initiatives outlined in the DCENR’s latest Smart Economy report are to be welcomed, the issue with the local loop infrastructure is far more important. If the Government acts now it can create a realistic physical platform for a truly competitive telecoms market and the basis for growth towards a smart economy, and in doing so facilitate Ireland’s future economic growth once it emerges from the current crisis.
Dr. Donal Palcic lectures in economics at the University of Limerick

Guest post: Growing the economy

Michael Taft: UNITE the union has published a set of economic proposals – Growing the Economy – as a challenge; both to the orthodoxy which dominates the current debate, and to progressives, to start constructing an alternative framework. It is a first step towards a new narrative – but only a first step.

Its starting point is the failure of current Government policy to stop the recessionary slide (indeed, it argues that Government policy has actually deepened and lengthened the recession). Its alternative is rooted in identifying very real deficits of our productive capacity and how, by addressing these, we can at the same time create/save jobs and, so, address the fiscal deficit. In other words, it is unemployment and the lack of productive investment that is the disease, the fiscal crisis is the result:

• Our physical infrastructure is ranked as one of the worst in the industrialised world, while our social infrastructure is European in name only;

• Whatever the fall-out in the banking crisis, the immediate priority is to establish a bank dedicated to extending credit to SMEs – the first step in a broader reform of our banking structures.

• That people’s income and living standards are not an obstacle to growth but rather part of the solution – particularly those on low and average incomes; therefore, it calls for a new wage agreement, which disproportionately benefits these income groups through flat-rate payments.

• That it is cheaper to save jobs rather than create them; therefore, we need payroll subsidies for enterprises that short-time workers rather than resort to redundancy.

• That the development of an indigenous enterprise can start with an expansion of public enterprises to modernise our physical infrastructure through ICTU’s proposed State Industrial Holding Company (something Fine Gael has copied to argue that new public enterprises can create up to 100,000 jobs).

These measures can ensure that on the other side of the recession we will have a stronger infrastructure from which we can better exploit the eventual recovery in global demand; we will have saved a number of viable enterprises that would have otherwise collapsed owing to the credit crisis; that key skill-sets will have been saved through payroll subsidies and public equity; and we will have new enterprises under ICTU’s proposal – with the downstream jobs created/saved as a result.

Of course, there is a question of financing. However, as UNITE points out, our deficits and borrowing requirement are on the verge of spinning out of control under current policy (the EU Commission predicts the deficit to rise to over 15% next year). However, even on current trends, our overall debt level will remain under the Eurozone average for the next two/three years. This, in effect, is our window. By increasing our borrowing levels to European averages, we can direct expenditure towards these investments – which will reduce unemployment and increase economic activity, thus lowering the annual deficit.

A range of other measures would accompany this: increasing taxation on less-deflationary sources of revenue (unproductive capital, unearned and high incomes); reform of regressive tax expenditures; and the issuing of Economic Recovery Bonds to take advantage of our growing savings ratio.

Ultimately, UNITE claims that the way out of this crisis is productive investment, employment and growth. It has put forward a menu of other proposals (some developed here as Jim Stewart’s proposed consumer vouchers). It challenges the deflationist orthodoxy. But it is not the last word, merely the first.

Most importantly, it invites other progressives – trade unionists, left political parties, social organisations – to get into this debate with enthusiasm. There are, no doubt, other and better ways to achieve what UNITE is attempting to sketch out.

We won’t know that, however, until we engage in the hard work of constructing an alternative, a new narrative. The quicker we start that task, the better it will be for the economic debate – and for the future of the Irish economy.
Michael Taft is research officer with UNITE

Guest post: International competitiveness and the New Economy - the role of equality and diversity

Eoin Collins: This paper on International Competitiveness and the New Economy: the Role of Diversity and Equality has been prepared by GLEN as an input into the Economic Strategy for the Dublin City Region being prepared by Dublin City Council. It argues that the importance of diversity and equality in growing the advanced economic sectors critical to Ireland’s economic future means that our equality infrastructure can be viewed as a part of our economic infrastructure and a component of international competitiveness and economic renewal.

A theme consistently highlighted in a broad range of economic development and recovery strategies produced by Government and policy bodies, including the NESC and the ESRI, is that Ireland has moved to a period where competitiveness will be based on the application of knowledge, creativity and a highly skilled, creative and adaptable workforce. To develop the advanced sectors, where skill has become a more central factor of production, a key challenge for policy makers across a whole range of sectors is how to nurture, attract and retain the skills on which these sectors depend.

Supporting diversity and equality, (for example across the grounds of the equality legislation), is an important factor in meeting this challenge. For example, meeting the targets set by government for education at all levels, including lifelong learning, will be diminished if areas of education are considered appropriate for one age group or gender. Equally, creating the educational basis for critical and creative thinking and developing the personal capacity and confidence for life-long learning will be undermined if bullying or harassment on the basis of any diverse quality is tolerated and not addressed.

The economic significance of equality and diversity can be observed across other policy areas also. Many of companies in the advanced sectors of the knowledge economy have strong diversity policies which are considered essential not only for recruitment and retention, but also for creating the conditions under which innovation can thrive. These policies will be undermined if the city or country in which the firms locate is perceived or experienced by diverse workers as hostile or unsafe.

US economist Richard Florida has identified a broader impact of what he describes as ‘tolerance of difference’, namely that tolerance and acceptance of diversity is seen by companies and people as an indicator of an underlying culture and eco-system that is conducive to creativity, a key quality driving new economic sectors. Florida states: “Economic growth in the Creative Economy is driven by 3T’s: Technology, Talent and Tolerance….. But technology and talent have been mainly seen as stocks that accumulate in regions or nations. In reality both technology and talent are flows. The ability to capture these flows requires understanding the third T, tolerance, the openness of a place to new ideas and new people. Places increase their ability to capture these flows by being open to the widest range of people across categories of ethnicity, race, national origin, age, social class and sexual orientation.”

Viewing equality and diversity in social justice terms and as key components of our economic infrastructure is a kind of policy shift, or at least a change in thinking, that has happened in other policy areas. As Professor Frances Ruane, Director of the ESRI, has noted in relation to education:

“The notion that human capital is our key economic factor is now being acknowledged widely. I was on some government committees in the mid 1990s and expenditure on education was still being seen at that time as social expenditure. It was only when the skills shortages came to light some years later that people began to link education to growth and that led to its economic importance being appreciated”.

Eoin Collins is Director of Policy Change with GLEN.

Guest Post: Response to Richard Tol on 'Green New Deal'

John Barry: Richard Tol, over at Irish Economy, has an ‘interesting’ take on one of the components of a Green New Deal for Ireland.

Focusing on the conventional economics for recycling he (and others who have responded to his post) use this one aspect of a ‘Green economy’, or the Green New Deal now promoted, to dismiss not only the Greens in government but the idea that somehow the greening of the economy as outlined in a Green New deal is ‘not economic’. Only by conveniently (and standardly in neo-classical economic thinking) excluding both the social and ecological ‘bottom lines’ does this even begin to stack up. With thousands losing jobs in Ireland and a long established (though largely localised) ‘social economy’ recycling industry, are we to simply dismiss the prospect of creating ‘green collar’ jobs here in the recycling industry? Especially if we limit or eradicate the market distorting effects of a rush towards incineration (few jobs, high capital cost and environmental/health costs) there are jobs to be created in an indigenous recycling industry. Why does Richard assume recycling in Ireland has to be capital and energy intensive?

How do Richard and his buddies explain the fact that according to a recent report - HSBC’s Climate Change research ‘A Climate for recovery’ - China, India, South Korea as well as the US are spending so much of their stimulus packages on the environmental goods and services sector? South Korea is spending almost 80% of its entire package on the green economy and climate change sector, while China is spending around 33%. And guess what, they are not all ramping themselves up for the deluge of recylates from Ireland and Europe – but a serious bid for first mover status in an emerging market and the next industrial revolution of the inevitable shift to a sustainable, low carbon economy. According to HSBC, Europe is seriously lagging behind.

But then, trapped in the neoclassical, ‘business as usual’ economic logic, what could one expect from Richard and fellow-travellers? The real ambition for a green economy is to get rid of the notion of waste completely from the production and consumption process, as promoted by the ‘zero waste’ strategy now endorsed by New Zealand and long championed by ecological economists such as Robin Murray (Creating Wealth from Waste).

I particularly enjoyed the exchange between Richard Tol and Brian Lucey to the effect that the greening of the economy is driven by ideological concerns (i.e. the Greens in coalition) and not by ‘economics’ – as if the neo-classical economic position espoused by both Richard and Brian is not itself ideological! Precious! Perhaps both would like to contribute to the recently launched campaign to remove ‘toxic economic textbooks’ from undergraduate economics courses - that is, remove the dominance of the neo-clasical model and allow some genuine debate and pluralism within economics.

The current economic meltdown is not the result of natural causes or human conspiracy, but because society at all levels became infected with false beliefs regarding the nature of economic reality. And the primary sources of this infection are the “neoclassical” or “mainstream” textbooks long used in introductory economics courses in universities throughout the world”

The Greens, just like Richard and Brian, are engaged in political economy – economics driven by underlying political values – to think that a neo-classical economic position is somehow ‘value free’, ‘objective’ or ‘neutral’ is not only just plain wrong but disingenuous. ALL economic proposals are ideological, period. So let’s have a grown-up debate about political economy - not this nonsense that somehow there is a ‘scientific’ and objective position from which we can analyse and make proposals about the economy.

And, as an afterthought, have any of these neo-classical economists thought of the impact of the massive carbon subsidies (vastly greater than the 13 million euro being talked about here for the stimulation of an indigenous recycling industry) which have locked us into a carbon dependent infrastructure for decades to come? A Green New Deal and the creation of a green, low carbon economy is not simply about government investment, but also the removal of perverse carbon subsidies in order to incentivise and encourage public and market actors. But then why let a good argument get in the way of cheap political and ideological-based point scoring?

Guest post: Towards a Green New Deal

John Barry: Last summer the influential think and do tank, the new economics foundation, published what turned out to be a prescient report. Called A Green New Deal: Joined-up policies to solve the triple crunch of the credit crisis, climate change and high oil prices, it analysed the interlocking crises of climate change, peak oil and the credit crisis. This report demonstrated that the urgency of making the transition towards a post-carbon economy, i.e. an energy economy not based on declining and volatile fossil fuels, could also promote secure jobs and investment, jobs that cannot be off-shored, but that managing our planned retreat from fossil fuels not only demands clear government leadership but also requires re-regulating and re-structuring the financial sector to ensure it does not undermine the ‘real’ economy. Its predictions have proved not only prescient but prophetic, in that it predicted the current credit and banking crisis and pointed out the reasons in the de-regulated, complex and high-risk strategies that the majority of banking and financial institutions were engaged with.

Then, in October, the United Nations Environment Program, together with the International Labor Organisation and the International Organisation of Employers, launched a major report: Green Jobs: Towards decent work in a sustainable, low-carbon world.

This report pointed out the millions of secure, well-paid jobs available across the world – but especially in the developing world – in the sustainable, green economy, especially renewable energy production and installation, waste management, water management, building construction, food, agriculture, forestry, transport and and other sectors. As the report states, “It now appears that a green economy can generate more and better jobs everywhere and that these can be decent jobs”.

The election of Barack Obama was based, in part, on his promise of a Roosevelt-style ‘new deal’ for America to help its ailing economy and prevent the haemorrhaging of jobs. The stimulus package just agreed by Congress is a ‘Green New Deal’ in that the infrastructural investment focus is on energy conservation, renewable energy projects, jobs and training. Across the media, economic commentators and political parties, there is a growing acceptance that a Green New Deal is what major economies in the world need: forms of Green Keynesianism and greater public investment and management of the economy. A Green New Deal tackles the issues that global and national economies face in relation to rising unemployment, reducing our addiction to and dependence upon fossil fuels, and also dealing with the threat of climate change. However, there are differences within this emerging agreement around a ‘Green New Deal’.

Those, like most governments including the UK, who see this as part of a temporary ‘blip’ in the global economy and believe that ‘normal service will be resumed’ in a couple of years; and those like the European Green Parties who are campaigning on a common platform in the upcoming European Parliamentary elections, based on viewing the current ‘triple crisis’ as an opportunity which should not be wated to re-design global and national economies in the transition to sustainable, green and less inequitable economies focused on quality of life and economic security – rather than orthodox economic growth.

Across the UK there have been meetings and conferences, as well as media and other commentary, on the outlines of a Green New Deal. In Wales, for example, there was a conference on the Green New Deal entitled ‘A Prosperous Way Down?: Exploring Green Economic Futures for Wales’, while in Northern Ireland, Friends of the Earth held a workshop on the Green Economy in late January, followed up with another in March with contributions from the Northern Ireland trades union movement and Northern Ireland employer representatives. An initial meeting around a Green New Deal for the Republic was held at the end of April.

The Green New Deal is, I strongly believe, one that the unions should get fully behind. I also believe that universities, in particular, should explore the possibilities of providing the space, time and support for workshops and think-ins etc about how to design policies and programmes for the inevitable greening of the economy. At the same time, universities have a unique role and opportunity in this time of crisis to provide expert knowledge and advice on a whole range of issues confronting politicians, policy-makers, businesses and communities. Academics (unionised or not) should be urging their universities to ‘do their bit’ in this time of crisis, and to offer their knowledge, expertise, space and support for genuine dialogue and innovative problem-solving to help our societies get out of this current economic and environmental mess.

Dr. John Barry is Policy Advisor to the Northern Ireland Region of the Green Party. He lectures in the School of Politics, International Studies and Philosophy at Queen’s University, Belfast, and is Assistant Director of the Institute for a Sustainable World, QUB

Guest post: Is the World Bank Reforming Itself?

David Joyce: Earlier this week, the World Bank issued a memorandum to its country and sector directors instructing them to stop using the "Employing Workers Indicator" (EWI) of its highest-circulation publication, "Doing Business" (DB).

The DB labour indicator gives the best ratings to countries with the lowest level of workers' protection and has been used by the IFIs to push dozens of developing countries to undertake labour market deregulation.

In the memo, Bank staff are informed that "the EWI does not represent World Bank policy and should not be used as a basis for policy advice or in any country program documents that outline or evaluate the development strategy or assistance program for a recipient country".

The World Bank will furthermore remove the EWI from its Country Policy and Institutional Assessments (CPIA), which the Bank uses to establish countries' overall level of eligibility for loans and grants allocated by the Bank's concessionary lending arm, the IDA.

The IMF took a similar step several months ago, in August 2008, when IMF management told regional directors and mission chiefs that "in light of various methodological problems with the index, ... mission teams should refrain from using the EWI in any public documents ...". The IMF kept this directive confidential until the WB announcement, but the EWI has not appeared in most Fund country policy documents, such as Article IV consultation reports, since late 2008.

The World Bank also announced that it intends to convene a working group that would include the ILO, trade unions, employers and others to advise the Bank on revisions to the EWI, the development of a new "worker protection indicator" and an examination of DB's "Paying Taxes Indicator" (PTI), which deals with contributions to social protection programmes and other tax issues.

The IFIs' decision to suspend the use of the DB labour indicators follows several years of criticism of the indicator by the ITUC, Global Unions Federations and many trade unions at national level – including ICTU. Unions were particularly critical of that fact that the IFIs used the indicators to pressure individual developing-country governments to dismantle or weaken workers' protection legislation, such as rules on minimum wages, maximum hours, advance notice and recourse in case of dismissal, and limitations on short-term contracts. The unions also engaged with the ILO, a small group of Washington-based critics of the DB labour indicator (including Barney Frank, a Massachusetts congressman who is chairman of the financial services committee of the US House of Representatives) and some governments. During hearings on the topic in October 2007 Frank said: "It is simply wrong for the major international institution in the world, the World Bank, to be putting out a report in which the worse you treat your workers, everything else being equal, the better you are rated." Last June, the World Bank's own Independent Evaluation Group issued a report in which it questioned the methodology of the EWI and the PTI and noted that it had found no evidence for DB's long-standing claim that countries with higher EWI ratings (and less labour regulation) showed improved performance in employment creation.

“In the context of the current global economic crisis, where 50 million more workers could become unemployed this year and pressures to decrease wages and workers’ living standards are intensifying every day,” said ITUC General Secretary Guy Ryder, “it is significant that an important development institution like the World Bank is turning the page on a one-sided deregulatory view on labour issues and proposing to adopt a more balanced approach where adequate regulation, improved social protection and respect for workers’ rights will be given a higher profile.”

Ryder offered the Bank the ITUC’s full cooperation in developing an alternative approach that promotes the creation of decent work. The Bank’s decision to pay greater attention to issues such as these is consistent with the commitment of G20 leaders at their London summit to ‘build a fair and friendly labour market for both women and men’,” said Ryder. “We invite the Bank to work closely with the ILO on this theme,” he added, noting that the G20 statement called upon the ILO to assess appropriate employment and labour market policies.

This is an important step in terms of the World Bank correcting and clarifying the message it sends to developing country governments about successful and sustainable economic strategies via the Doing Business report. The real test of this very welcome development however will be the impact that it has on country-level discussions with the Bank. It is hopefully another nail in the coffin of casino capitalism and if effectively implemented has the potential to create space for the promotion of strong social safety nets, vibrant and democratic labour movements, and respect for people’s fundamental rights at work.
David Joyce is Development Policy Officer with the Irish Congress of Trade Unions

Guest post by Duncan Green: Is the Crisis Deep Enough to Trigger the Changes We Need?

Duncan Green: The latest figures from the IMF, released last week, are shocking. The global economy is now in full recession, predicted to fall by 1.3% this year (at least until the next downward revision of forecasts). At first glance the developing world isn’t doing quite so badly as the rich countries – it is predicted to achieve sluggish positive growth compared to the horrible 3.8% fall in the advanced economies, but look closer at the numbers and the impact on poor people looks very worrying indeed. In per capita terms (i.e. allowing for population growth), developing country economies are shrinking, after years of progress. Using the World Bank estimate that a loss of 1% of global economic output pushes 20m people into poverty, in 2009 alone, 135 million more people will be living below $1.25 a day than would otherwise be the case. Stop and read that last sentence again. $1.25 a day.

That is what economists call a ‘shock’, and a big one. But the question that strikes me is ‘is it big enough?’ Crises are often needed to effect profound change – women won the vote in the UK after World War One had transformed their role in society; in the US the Great Depression led to the New Deal. Rahm Emmanuel, Obama’s chief of staff, famously remarked ‘You never want a serious crisis to go to waste’ and this crisis and there are signs that this crisis too is triggering some profound changes.

First, the geopolitical shift – the crisis has crystallized the rise of China. After keeping its head down during three decades of ‘peaceful rise’, Chinese diplomacy has suddenly become far more assertive, openly blaming the West for the crisis and calling for major reforms of the international financial system. The era of the G2 begins here. More broadly, the G8 is now looking increasingly obsolete – real power has shifted to the G20, with far greater recognition of the role of emerging economies such as Brazil and India, as well as China.

Second, the end of the Great Deregulation. Since finance was let off the leash in the mid 1970s, it has boomed and come to dwarf the real economy. By 2007 the daily flow of capital across borders was 100 times greater than world trade. Backed by the power to make and break economies, the whims and prejudices of financial markets acquired absurd political importance. That has now given way to an era of reregulation and shrinking. Good thing too.

But other impacts are worrying or absent. At the G20 in London this month, the world gave a huge cheque to the International Monetary Fund, in return for promises of reform. But it is far from certain that the IMF can transform itself from being a pro-cyclical devotee of the ‘Friedmanite tourniquet’ (in Polly Toynbee’s phrase) to being an advocate of the kind of Keynesian reflation that is needed in poor countries right now.

Climate change has so far taken a back seat and that is deeply worrying. The G20 largely ignored the issue, progress in the UN talks that culminate in Copenhagen in December is (appropriately, perhaps) glacial. Some argue that we should sort out the economic crisis first, and then turn our attention to the longer term issues such as climate change, but that is to ignore the role of crises in driving change.

The creation of the UN, World Bank, IMF etc – the global order of the second half of the 20th Century, was the product of both the Great Depression and World War Two. My fear is that we will need the climate equivalent of a World War before leaders act on the shift to a low carbon world. The scale, human impact and irreversibility of such a climate shock make that a very bad last resort.

Duncan Green is Head of Research at Oxfam GB. He was in Dublin last night to launch his book ‘From Poverty to Power: How Active Citizens and Effective States can Change the World’, which is published in Ireland this week. Duncan Green’s blog can be found on http://www.oxfamblogs.org/fp2p.

'From Poverty to Power' is available from all good book stores or visit or visit the From Poverty to Power site.