Nat O'Connor: Minister Brendan Howlin’s opinion piece in the Irish Times is to be welcomed. It is valuable to have a Government Minister engaging with the vital arguments put forward in the joint opinion piece of Friday 6th April by 39 economic analysts, many of whom are members of TASC’s Economists’ Network.
There are a number of areas of agreement between both pieces. Both seek to achieve recovery through growth and both acknowledge the important role of achieving productivity and efficiencies in the public service. Most significantly, both agree with the importance of investment, and Minister Howlin’s piece identifies similar sources for investment as those identified in the original article, such as the NPRF and pension funds.
There is potentially a significant difference of opinion in the articles about what would be the role of investment now. Minister Howlin confusingly supports investment yet dismisses stimulus as short-term only. It appears to be on this basis that he claims the Government can go no further in the direction of counter-cyclical policies. The depiction of investment as mere stimulus fails to see the win-win scenario that is possible from targeted investment in specific infrastructure and human capital (such as broadband and education) which will also result in an increase in the economy’s long-term productive capacity. Ireland would in future reap the rewards of these investments, as they create opportunities to create and expand businesses that would not be possible without such investment.
Minister Howlin rightly points to the scale of the problem confronting the State, in terms of the enormous gap between tax revenue and spending. However, he fails to address the options for structuring taxation differently to increase revenue and to balance some of the injustice of regressive tax measures, like the increase in VAT. Likewise, the problem is ultimately not just the State’s finances, but the finances of the country as a whole, including private debt and the crisis of unemployment.
Surprisingly, Minister Howlin does not mention unemployment and job creation, although in fairness, they may be implied by his discussion of increasing investment. However, it is important that growth in sustainable jobs is the measure of success, not just GDP growth statistics. In the context of jobs, Minister Howlin does not explicitly mention the demand-side to job creation (that is, the need for more demand in the economy to permit job creation) but again this may be implicit in his emphasis on investment.
It is unfortunate that Minister Howlin does not address the economic and fiscal costs of social disinvestment. Public service cuts can lead to social costs such as more young people leaving education early, worse educational outcomes overall, less early intervention in health and mental health problems, and so on. These costs have a real effect on the economy, by lowering its long-term productive capacity – the reverse effect of productive investment.
Moreover, social problems have a real effect on the Exchequer, as a euro saved today may result in crime or health issues that cost many more euros tomorrow. If preventing social problems now (through early intervention or education supports) is cheaper than paying to deal with them in future, Ireland’s lenders can accept that this increases rather than diminishes Ireland’s debt sustainability. The 'troika' care more about the debt being repaid than the means used to do so, and they are open to rational cost-benefit calculations such as this.
There is some agreement between the articles on the importance of action at the EU level. However, Minister Howlin only focuses on the role of the European Central Bank, whereas arguably there has been a failure of leadership by both the Council and Commission. The dogmatic pursuit of price stability by the ECB is also unhelpful, and needs to be tempered by an equal focus on employment and sustainable growth in the Euro zone economies. Yet, there is little sign of this kind of thinking at EU level, where there are the resources for an EU-wide programme of productive investment.
Minister Howlin offers a defence of the fiscal compact treaty, which will require Ireland to reduce its structural deficit to less than half of one per cent. From a Keynesian perspective, it is economically correct to have some kind of mechanism that will oblige a Government to save during good economic times. However, Minister Howlin is factually incorrect when he suggests that having the compact would have caused the previous administrations to stow away more savings. This is because major institutions, like the IMF and ECB, claimed that Ireland had a structural surplus during the boom. It was only retrospectively that these calculations were substantially revised to show structural deficits in the last years of the boom. The difficulty in defining and measuring structural deficits – let alone forcing governments to act on them – should not be underestimated.
Minister Howlin acknowledges that he simplifies the argument made by the original contributors. We were certainly not arguing that there is a simple or pain-free way to achieve Ireland’s social and economic recovery. The Fianna Fáil policies of 1977 he dismisses were focused on increasing current spending as a crude stimulus, which is far from what is being proposed by the call for productive and targeted investment through capital spending on infrastructure and human capital.
What is at stake is whether or not there is a viable set of economic policies that would address the jobs crisis and social problems resulting from the current crisis, while also addressing the fiscal crisis that the State faces, as an alternative to the economic approach being taken by the current Government, which in many of its core aspects is a continuation of the policies of the previous administration.
Building on the areas of agreement, such as public service reform and the need for investment, the following arguments (and points of disagreement with Minister Howlin) are reasons to believe the alternative being proposed is viable:
• Productive investment is much more than short-term stimulus because it will increase our economy’s future productive capacity and job creating capacity, which in turn will raise the State’s revenue;
• Much more could be done to restructure taxation to make it more just and to bridge the State’s deficit;
• Social problems through social disinvestment will cost more to solve than they will to prevent – and lenders can be persuaded of that;
• The EU could do much more to solve the crisis, including changing the mandate of the ECB to include maximum employment and sustainable growth.
Showing posts with label alternative economic strategy. Show all posts
Showing posts with label alternative economic strategy. Show all posts
Thursday, 12 April 2012
Responding to the Minister
Michael Taft: The Minister for Public Expenditure and Reform, Brendan Howlin, has responded to the open letter signed by 39 economists, social scientists and analysts. It is welcomed that a Government Minister is willing to engage constructively as this can only improve the public debate. That the Minister claims there is considerable common ground between the contributors and the Government is further welcomed. But ultimately the Minister doesn’t believe the strategy outlined by the contributors is viable. I’d like to address some of the issues the Minister raised in his article. I speak, of course, only for myself and not for any other signatory of the open letter.
The first problem we confront is a disconnect between what the Minister claims and what is actually happening in the economy. He states:
‘The importance of growth is factored into our budgetary figures. Our own economy has returned to modest growth and indeed, the greatest impediment to future growth is the state of the global economy.’
The problem here is that the economy has actually returned to recession – a double-dip recession. The latest quarterly data we have – from the second half of last year – shows GDP in decline. When we turn to the domestic economy, we find the biggest fall since the dark days of 2009. It is difficult to reconcile the statement ‘our own economy has returned to modest growth’ with the fact that we are back in recession.
The second problem is a denial of what the Government is actually doing.
‘Contrary to the view articulated (by the contributors), the Government is not pursuing an “austerity” strategy. The opposite is the case.’
Again, it is hard to reconcile this with what the current Government is doing. In the last budget, the Government engaged in a fiscal contraction equivalent to €4.3 billion (according to the EU Commission, factoring in the carryover from Budget 2011). This was made up of tax increases – primarily regressive VAT increases – and spending cuts, in particular a significant €750 million capital investment cut.
This will have a profound impact, not only on the social fabric, but on economic growth. The Minister for Finance has estimated that for every €1 billion in cuts/tax increases, the GDP falls by €500 million. On this basis, the Government reduced growth by €2.15 billion or over 1 percent off real GDP.
It is worth noting that the Government is now at pains to distance itself from the word ‘austerity’ – such is the low esteem it is now held among people since it is a by-word for low-growth, job losses and rising debt. However, to maintain that you are not pursuing austerity while at the same time doing just that is slightly disingenuous.
From these highly contestable propositions – that the economy has returned to growth and the Government is not actually pursuing austerity – the Minister takes critical aim. But it is not clear exactly who he is aiming at. First, he claims:
‘It is perplexing then to see a problem of this scale (the deficit) effectively dismissed by the suggestion that there is a better, simpler, pain-free way.’
Clearly, this does not refer to the open letter which sets out a very rational approach to fiscal consolidation – ‘smart’ or ‘growth-friendly’ fiscal consolidation:
‘Such an investment programme must be accompanied by “smart” fiscal consolidation, focusing on the least contractionary forms of fiscal adjustment. This requires progressive and equality-proofed taxation targeting high-income groups, property assets, unproductive activity and passive income, as well as environmental measures.’
I doubt there is any Government minister that would disagree with this formulation. And this certainly doesn’t suggest ‘a simpler, pain-free way’ – though it does suggest a ‘better’ way.
Ultimately, the issue is not whether there should be fiscal consolidation or whether it should be pain-free, but what is the most effective and efficient means. According to the ESRI, spending cuts are the least efficient and effective means of deficit reduction for the reason that they most contractionary forms of adjustment. Again, the Minister would be aware of this research – and the common sense behind it.
It also overlooks the fact that investment itself is an effective means of deficit reduction. Putting people back to work, increasing the productive capacity to grow cuts both the general and the structural deficit. In this regard, the Nevin Economic Research Institute’s (NERI) recent report puts the growth potential of investment in perspective.
Second, the Minister claims:
‘The idea that we would use all of our available resources in an all-or-nothing attempt to kick-start the economy strikes me as more Fianna Fáil circa 1977 than John Maynard Keynes, bearing in mind that the sum mentioned, €15 billion, equates to approximately one year’s exchequer borrowing requirement, money borrowed to pay day-to-day costs.’
There is, of course a difference between Fianna Fail’s economic adventurism and the investment-based approach advanced in the open letter. In the late 1970s Fianna Fail gambled that cutting taxation and boosting Government consumption would lead to increased consumer spending. As a result, the indigenous private sector would expand to meet growth among indigenous firms which they assumed would respond with a surge of expansion. This didn’t happen, of course; all we got was the stagflation of the 1980s.
The open letter strategy, however, is to address the economic and social deficits through investment which will grow the productive capacity - a strategy completely at odds with the badly misjudged Fianna Fail strategy of pump-priming consumer expenditure.
In this context, the ‘all or nothing’ reference is curious: it is hardly ‘all or nothing’ to roll out a next generation broadband, to invest in education from pre-primary to lifelong learning, to modernise our water & waste system. This is not about kick-starting, it is about creating new assets that will generate income and reduce spending in the future.
The phrase ‘silver bullet’ only reinforces the notion that the Minister was debating other positions. Even the reference to the ‘€15 billion’: the open letter didn’t propose a €15 billion programme (though NERI has). It merely outlined the sources where investment could commence – the €5 billion in the pension fund, the €15 billion in cash balances, the use of public enterprises’ commercial potential. Regarding the cash balances, even the Government has admitted that using €6 billion of this amount to write-down debt would still leave the balance ‘relatively healthy’. Why not redirect this amount into building our productive capacity?
While it is welcome that the Minister has publicly engaged with the open letter, it is disappointing that he argued from highly contestable premises while failing to address the real and practical propositions that the letter put forward. We are still left with the need for the Government to actually put forward concrete evidence that spending-based fiscal contraction is economically efficient; that privatisation will enhance our net investment position; that an economy that has returned to recession and suffering from rising joblessness and poverty can somehow, at the same time, repair its public finances.
We are still left with the need for the Government to admit that its austerity strategy is not going as planned and, therefore, that it is willing to canvas alternatives.
The first problem we confront is a disconnect between what the Minister claims and what is actually happening in the economy. He states:
‘The importance of growth is factored into our budgetary figures. Our own economy has returned to modest growth and indeed, the greatest impediment to future growth is the state of the global economy.’
The problem here is that the economy has actually returned to recession – a double-dip recession. The latest quarterly data we have – from the second half of last year – shows GDP in decline. When we turn to the domestic economy, we find the biggest fall since the dark days of 2009. It is difficult to reconcile the statement ‘our own economy has returned to modest growth’ with the fact that we are back in recession.
The second problem is a denial of what the Government is actually doing.
‘Contrary to the view articulated (by the contributors), the Government is not pursuing an “austerity” strategy. The opposite is the case.’
Again, it is hard to reconcile this with what the current Government is doing. In the last budget, the Government engaged in a fiscal contraction equivalent to €4.3 billion (according to the EU Commission, factoring in the carryover from Budget 2011). This was made up of tax increases – primarily regressive VAT increases – and spending cuts, in particular a significant €750 million capital investment cut.
This will have a profound impact, not only on the social fabric, but on economic growth. The Minister for Finance has estimated that for every €1 billion in cuts/tax increases, the GDP falls by €500 million. On this basis, the Government reduced growth by €2.15 billion or over 1 percent off real GDP.
It is worth noting that the Government is now at pains to distance itself from the word ‘austerity’ – such is the low esteem it is now held among people since it is a by-word for low-growth, job losses and rising debt. However, to maintain that you are not pursuing austerity while at the same time doing just that is slightly disingenuous.
From these highly contestable propositions – that the economy has returned to growth and the Government is not actually pursuing austerity – the Minister takes critical aim. But it is not clear exactly who he is aiming at. First, he claims:
‘It is perplexing then to see a problem of this scale (the deficit) effectively dismissed by the suggestion that there is a better, simpler, pain-free way.’
Clearly, this does not refer to the open letter which sets out a very rational approach to fiscal consolidation – ‘smart’ or ‘growth-friendly’ fiscal consolidation:
‘Such an investment programme must be accompanied by “smart” fiscal consolidation, focusing on the least contractionary forms of fiscal adjustment. This requires progressive and equality-proofed taxation targeting high-income groups, property assets, unproductive activity and passive income, as well as environmental measures.’
I doubt there is any Government minister that would disagree with this formulation. And this certainly doesn’t suggest ‘a simpler, pain-free way’ – though it does suggest a ‘better’ way.
Ultimately, the issue is not whether there should be fiscal consolidation or whether it should be pain-free, but what is the most effective and efficient means. According to the ESRI, spending cuts are the least efficient and effective means of deficit reduction for the reason that they most contractionary forms of adjustment. Again, the Minister would be aware of this research – and the common sense behind it.
It also overlooks the fact that investment itself is an effective means of deficit reduction. Putting people back to work, increasing the productive capacity to grow cuts both the general and the structural deficit. In this regard, the Nevin Economic Research Institute’s (NERI) recent report puts the growth potential of investment in perspective.
Second, the Minister claims:
‘The idea that we would use all of our available resources in an all-or-nothing attempt to kick-start the economy strikes me as more Fianna Fáil circa 1977 than John Maynard Keynes, bearing in mind that the sum mentioned, €15 billion, equates to approximately one year’s exchequer borrowing requirement, money borrowed to pay day-to-day costs.’
There is, of course a difference between Fianna Fail’s economic adventurism and the investment-based approach advanced in the open letter. In the late 1970s Fianna Fail gambled that cutting taxation and boosting Government consumption would lead to increased consumer spending. As a result, the indigenous private sector would expand to meet growth among indigenous firms which they assumed would respond with a surge of expansion. This didn’t happen, of course; all we got was the stagflation of the 1980s.
The open letter strategy, however, is to address the economic and social deficits through investment which will grow the productive capacity - a strategy completely at odds with the badly misjudged Fianna Fail strategy of pump-priming consumer expenditure.
In this context, the ‘all or nothing’ reference is curious: it is hardly ‘all or nothing’ to roll out a next generation broadband, to invest in education from pre-primary to lifelong learning, to modernise our water & waste system. This is not about kick-starting, it is about creating new assets that will generate income and reduce spending in the future.
The phrase ‘silver bullet’ only reinforces the notion that the Minister was debating other positions. Even the reference to the ‘€15 billion’: the open letter didn’t propose a €15 billion programme (though NERI has). It merely outlined the sources where investment could commence – the €5 billion in the pension fund, the €15 billion in cash balances, the use of public enterprises’ commercial potential. Regarding the cash balances, even the Government has admitted that using €6 billion of this amount to write-down debt would still leave the balance ‘relatively healthy’. Why not redirect this amount into building our productive capacity?
While it is welcome that the Minister has publicly engaged with the open letter, it is disappointing that he argued from highly contestable premises while failing to address the real and practical propositions that the letter put forward. We are still left with the need for the Government to actually put forward concrete evidence that spending-based fiscal contraction is economically efficient; that privatisation will enhance our net investment position; that an economy that has returned to recession and suffering from rising joblessness and poverty can somehow, at the same time, repair its public finances.
We are still left with the need for the Government to admit that its austerity strategy is not going as planned and, therefore, that it is willing to canvas alternatives.
Response to Mr Howlin
Paul Sweeney: Mr Howlin’s considered response to the letter from the group of economists, of which I was one, is very welcome. His response is serious and measured and set out the case for the Government programme and its actions to date.
It reads far better than the crass headline of the article – which implies the authors of the letter were simply proposing “a silver bullet” to resolve Ireland’s deep and complex economic problems.
First, is it important to acknowledge that Mr Howlin in a government whose hands are tied by the Troika Agreement and the destruction left by the pro-cyclical, tax-cutting, tax-shifting and anti-regulation policies practiced with such vim by the last government. It has had to shift a lot of dung from the Aegean Stables of the Irish State before it can make progress. He is also in a government led by a bigger, deeply conservative party.
To my reading, Brendan Howlin acknowledges in a cautious way – as one would expect from a Minister in a government which is being underwritten by the Troika – that Europe and the ECB is not really dealing effectively with the crisis. We economists and social scientists can say it explicitly and see their repeatedly failure, but it is very difficult to this government to bite the hand. The EU/ECB approaches are partial, piecemeal and doomed to failure and repeated revisions. Further, an EU-wide stimulus would lift many economies from recession, but with 23 of the 27 states being led by conservative parties, this may be wishful thinking, for the moment.
As Minister for Public Service Reform he has had the most difficult task, especially in such a deep crisis, and he pays tribute to the role of public servants in their actions. Ireland is also fortunate that it has a Minister who is committed to public service – notwithstanding the dire circumstances we are in – and this shows in his dealings in the complexity of the reform programme.
His response demonstrates a cautious but welcome commitment to investment and that the government “is open to using the NPRF to leverage investment” in jobs and the economy. I read this as someone who implying that he needs support from progressives to help persuade his conservative colleagues who, over-awed by neoclassical economic view of the dreaded word “leakage” from a small open economy, are afraid of taking action in effecting this investment.
One can debate on whether the government is pursing “austerity” (I’m beginning to dislike the word almost as much as that other abused word, “neo-liberal”) or not. He is correct that they are “borrowing enormous sums of money to sustain the state,” and so are not pursuing austerity, in this sense. But by the end of this year, a staggering €24.4bn will also be taken out of the economy.
I also think that the time period is too short. It was to be 3 years originally and it is clearly not working as we have no green shoots except exports. A puny rise in GDP last year tells more about the activities of MNCs than about the Irish economy where domestic demand continues to collapse – aided and abetted by too high a level of cuts in too short a time period, and with too little in progressive increases in taxes.
Where we can have productive debate is on where the cuts are being made and where taxes are being raised. I, for one, will say that this government has shifted the balance somewhat from cuts to taxes, but the tax mix has not been what is optimum or best needed. For example increasing VAT by 10% is both regressive and deflationary (from 21 to 23%) and not increasing income taxes or introducing wealth taxes or getting a few bob with say a 2.5% increase in the low CT rate from the booming, exporting corporates is not good economics. (I also acknowledge that there have been some good progressive taxes on unearned income). Of course, if there had to be cuts, have they made the right ones? I’ll skip over this debate as it is complex and most people will disagree with each other on the detail.
Mr Howlin ends with the comment like “we would use all of our available resources in an all-or-nothing attempt to kick-start the economy strikes me as more Fianna Fáil circa 1977 than John Maynard Keynes”. Yet did I not hear conservative Mr Noonan on the Politics Programme a few weeks ago go further? He was talking of the possibility of investing the €5.3bn AND leveraging (borrowing) it for more investment, AND New Era AND EIB money.
So maybe the Government will finally work out where it should invest and get moving on it, sooner. But is also needs to re-examine where it is cutting and taxing.
Finally, it is not good enough for the government to simply blame the EU recession for its failure in generating any growth (in GNP and Domestic demand). The role of government in the cuts and taxes to date has had a major negative impact on “growth.”
Constructive criticism is aimed at assisting.
It reads far better than the crass headline of the article – which implies the authors of the letter were simply proposing “a silver bullet” to resolve Ireland’s deep and complex economic problems.
First, is it important to acknowledge that Mr Howlin in a government whose hands are tied by the Troika Agreement and the destruction left by the pro-cyclical, tax-cutting, tax-shifting and anti-regulation policies practiced with such vim by the last government. It has had to shift a lot of dung from the Aegean Stables of the Irish State before it can make progress. He is also in a government led by a bigger, deeply conservative party.
To my reading, Brendan Howlin acknowledges in a cautious way – as one would expect from a Minister in a government which is being underwritten by the Troika – that Europe and the ECB is not really dealing effectively with the crisis. We economists and social scientists can say it explicitly and see their repeatedly failure, but it is very difficult to this government to bite the hand. The EU/ECB approaches are partial, piecemeal and doomed to failure and repeated revisions. Further, an EU-wide stimulus would lift many economies from recession, but with 23 of the 27 states being led by conservative parties, this may be wishful thinking, for the moment.
As Minister for Public Service Reform he has had the most difficult task, especially in such a deep crisis, and he pays tribute to the role of public servants in their actions. Ireland is also fortunate that it has a Minister who is committed to public service – notwithstanding the dire circumstances we are in – and this shows in his dealings in the complexity of the reform programme.
His response demonstrates a cautious but welcome commitment to investment and that the government “is open to using the NPRF to leverage investment” in jobs and the economy. I read this as someone who implying that he needs support from progressives to help persuade his conservative colleagues who, over-awed by neoclassical economic view of the dreaded word “leakage” from a small open economy, are afraid of taking action in effecting this investment.
One can debate on whether the government is pursing “austerity” (I’m beginning to dislike the word almost as much as that other abused word, “neo-liberal”) or not. He is correct that they are “borrowing enormous sums of money to sustain the state,” and so are not pursuing austerity, in this sense. But by the end of this year, a staggering €24.4bn will also be taken out of the economy.
I also think that the time period is too short. It was to be 3 years originally and it is clearly not working as we have no green shoots except exports. A puny rise in GDP last year tells more about the activities of MNCs than about the Irish economy where domestic demand continues to collapse – aided and abetted by too high a level of cuts in too short a time period, and with too little in progressive increases in taxes.
Where we can have productive debate is on where the cuts are being made and where taxes are being raised. I, for one, will say that this government has shifted the balance somewhat from cuts to taxes, but the tax mix has not been what is optimum or best needed. For example increasing VAT by 10% is both regressive and deflationary (from 21 to 23%) and not increasing income taxes or introducing wealth taxes or getting a few bob with say a 2.5% increase in the low CT rate from the booming, exporting corporates is not good economics. (I also acknowledge that there have been some good progressive taxes on unearned income). Of course, if there had to be cuts, have they made the right ones? I’ll skip over this debate as it is complex and most people will disagree with each other on the detail.
Mr Howlin ends with the comment like “we would use all of our available resources in an all-or-nothing attempt to kick-start the economy strikes me as more Fianna Fáil circa 1977 than John Maynard Keynes”. Yet did I not hear conservative Mr Noonan on the Politics Programme a few weeks ago go further? He was talking of the possibility of investing the €5.3bn AND leveraging (borrowing) it for more investment, AND New Era AND EIB money.
So maybe the Government will finally work out where it should invest and get moving on it, sooner. But is also needs to re-examine where it is cutting and taxing.
Finally, it is not good enough for the government to simply blame the EU recession for its failure in generating any growth (in GNP and Domestic demand). The role of government in the cuts and taxes to date has had a major negative impact on “growth.”
Constructive criticism is aimed at assisting.
Monday, 30 January 2012
Alternatives to Current Austerity Policy
Nat O'Connor: A wide range of Irish and international economists and commentators were interviewed for an article in last Saturday's Irish Times, including Nobel Prize winner, Joseph Stiglitz who warned about the historical evidence, which shows "There have been almost no instances of successful austerity. ... The prospect of austerity working in Ireland is very bleak. ... the probability of failure is huge."
Yet as Professor Karl Whelan from UCD argues in the same article, those proposing alternatives are "duty-bound to say where we would get the money."
Well, there is no magic solution, but there are increasingly detailed alternative economic policies being developed here and internationally.
I want to deal with three things in this post: (1) what I mean by 'austerity'; (2) what is needed at European level; and (3) alternative economic policies suggested in the UK and Germany.
(1) Austerity is unfortunately a loaded word. Technically, a policy of reducing the deficit through a package of measures to increase revenue and reduce public spending is 'austerity'. But the word is emotion-laden; cuts to education or welfare tend to be more often labelled austerity than measures to cut waste or increase taxes on higher earners, yet the latter measures are also potentially part of austerity measures.
So, to be clear, I am critical of current austerity policies because they have unfairly targetted lower earners and the services upon which they rely; and because the austerity measures are strangling the economy due to insufficient measures to sustain and increase demand to boost economic activity. An alternative economic policy must still deal with the deficit and the national debt. As such, this will involve some 'austerity'. However, any cuts should be balanced by higher public spending in other areas. And increased taxes should target people who can better afford to pay. What would also be different is measures to boost demand, foster sustainable jobs and protect people who are vulnerable.
(2) The Government's reported involvement with an initiative to boost trade and growth in Europe is welcome, but this should not overshadow more profound changes needed at European level that have - to date - been absent from the crisis talks and treaty proposals. For example, the European Central Bank should have a mandate to boost sustainable economic output and maximise employment, similar to the US Federal Reserve. This, among other effects, would allow for inflation targets to vary from the current two per cent to higher levels (maybe four or even six per cent) when this serves Europe's economies better. Controlled higher inflation would help reduce the extent of national and private debt across Europe. Other elements of possible enhanced European co-operation that seem to be missing from the proposed treaty are Eurobonds and a Europe-wide financial transactions tax.
When the final text of the proposals is revealed it will be possible to say more about what exactly they imply.
(3) I recently noted that President Obama's state of the union address echoes some of what has been called for by opponents of Irish austerity policies. The above-mentioned Irish Times article opened by reference to our call for a Plan B.
In a similar vein, Compass in the UK are promoting their own Plan B (published in October 2011), subtitled "A Good Economy for a Good Society".
In summary, Compass is calling for:
- A halt to public spending cuts;
- Quantitative easing to invest in a Green New Deal;
- Tax reform to curb avoidance and increase progressivity;
- Strategic Government support to business (such as a state investment bank);
- Better regulation of banks (including the full separation of retail banking from financial investment banking);
- Social investment, with a focus on prevention;
- A move to shorter paid work time;
- Raising the minimum wage;
- Tackling high pay;
- More employee participation in corporate governance;
- Public service reforms.
In their words, "Plan B shows there is an alternative, not just to cuts, austerity and stagnation, but to a return to business as usual and all that means for growing inequality, climate change and people's well-being."
Another report on similar lines is from the German Friedich Ebert Stiftung. They released a policy paper in January 2012 entitled "Social Growth - Model of a Progressive Economic Policy".
This includes a ten-point programme:
1. Guarantee a stable supply of credit with effective financial market regulation;
2. Use education policy to boost the forces of growth and expand opportunities for all;
3. Open up new areas of growth with industrial policy;
4. Strengthen the position of employees by means of minimum wages and codetermination;
5. Fund public tasks properly and fairly by reforming tax policy;
6. Stablilise the economy and the debt situation by means of an anti-cyclical fiscal policy;
7. Strengthen forces for growth in Europe by means of a robust public financial architecture;
8. Provide for more stability in the Eurozone by means of economic policy co-ordination;
9. Ensure decent work for all by means of European and global standards;
10. Manage globalisation by means of a new economic and monetary order.
Both the Compass Plan B and Friedrich Ebert Stiftung's Social Growth documents articulate in more detail the social democratic critique of current orthodox economics and the dead-end austerity policies it proposes. The alternative policies are not being presented as a panacea, but are suggestions for wide-ranging economic policy reform, built on extensive research and evidence. They represent a viable set of economic policies that governments can pursue to improve people's wellbeing, while restoring sustainable economic output and jobs.
In Ireland's case, we will still no doubt hear voices claiming that such policies wouldn't work here. Well, no doubt they would have be tailored for Irish circumstances. But there is still much of interest in what is being proposed, not least because the proposals see equality and sustainability as core attributes of economic reform, not 'side issues' to be addressed once some kind of mythical 'rising tide' is restored.
And Ireland has some resources that could be immediately mobilised, without altering the IMF/EU agreement. This includes using the remaing NPRF (c. €5 billion) for targetted, productive investment and likewise ring-fencing for investment any money saved from delaying payment of the Anglo promissory notes, which could be one or two billion euro a year for several years. Crucially, it is not just about substituting spending for austerity. There remains a need to reform Ireland's tax system, regulate banking, move public spending to where it is most needed, and a host of other things. While some of such measures may, technically, quality as 'austerity', they differ crucially from current policy in that they would maintain incomes and living standards, promote jobs and sustainable development and lead, ultimately, to a socially just and sustainable recovery.
Yet as Professor Karl Whelan from UCD argues in the same article, those proposing alternatives are "duty-bound to say where we would get the money."
Well, there is no magic solution, but there are increasingly detailed alternative economic policies being developed here and internationally.
I want to deal with three things in this post: (1) what I mean by 'austerity'; (2) what is needed at European level; and (3) alternative economic policies suggested in the UK and Germany.
(1) Austerity is unfortunately a loaded word. Technically, a policy of reducing the deficit through a package of measures to increase revenue and reduce public spending is 'austerity'. But the word is emotion-laden; cuts to education or welfare tend to be more often labelled austerity than measures to cut waste or increase taxes on higher earners, yet the latter measures are also potentially part of austerity measures.
So, to be clear, I am critical of current austerity policies because they have unfairly targetted lower earners and the services upon which they rely; and because the austerity measures are strangling the economy due to insufficient measures to sustain and increase demand to boost economic activity. An alternative economic policy must still deal with the deficit and the national debt. As such, this will involve some 'austerity'. However, any cuts should be balanced by higher public spending in other areas. And increased taxes should target people who can better afford to pay. What would also be different is measures to boost demand, foster sustainable jobs and protect people who are vulnerable.
(2) The Government's reported involvement with an initiative to boost trade and growth in Europe is welcome, but this should not overshadow more profound changes needed at European level that have - to date - been absent from the crisis talks and treaty proposals. For example, the European Central Bank should have a mandate to boost sustainable economic output and maximise employment, similar to the US Federal Reserve. This, among other effects, would allow for inflation targets to vary from the current two per cent to higher levels (maybe four or even six per cent) when this serves Europe's economies better. Controlled higher inflation would help reduce the extent of national and private debt across Europe. Other elements of possible enhanced European co-operation that seem to be missing from the proposed treaty are Eurobonds and a Europe-wide financial transactions tax.
When the final text of the proposals is revealed it will be possible to say more about what exactly they imply.
(3) I recently noted that President Obama's state of the union address echoes some of what has been called for by opponents of Irish austerity policies. The above-mentioned Irish Times article opened by reference to our call for a Plan B.
In a similar vein, Compass in the UK are promoting their own Plan B (published in October 2011), subtitled "A Good Economy for a Good Society".
In summary, Compass is calling for:
- A halt to public spending cuts;
- Quantitative easing to invest in a Green New Deal;
- Tax reform to curb avoidance and increase progressivity;
- Strategic Government support to business (such as a state investment bank);
- Better regulation of banks (including the full separation of retail banking from financial investment banking);
- Social investment, with a focus on prevention;
- A move to shorter paid work time;
- Raising the minimum wage;
- Tackling high pay;
- More employee participation in corporate governance;
- Public service reforms.
In their words, "Plan B shows there is an alternative, not just to cuts, austerity and stagnation, but to a return to business as usual and all that means for growing inequality, climate change and people's well-being."
Another report on similar lines is from the German Friedich Ebert Stiftung. They released a policy paper in January 2012 entitled "Social Growth - Model of a Progressive Economic Policy".
This includes a ten-point programme:
1. Guarantee a stable supply of credit with effective financial market regulation;
2. Use education policy to boost the forces of growth and expand opportunities for all;
3. Open up new areas of growth with industrial policy;
4. Strengthen the position of employees by means of minimum wages and codetermination;
5. Fund public tasks properly and fairly by reforming tax policy;
6. Stablilise the economy and the debt situation by means of an anti-cyclical fiscal policy;
7. Strengthen forces for growth in Europe by means of a robust public financial architecture;
8. Provide for more stability in the Eurozone by means of economic policy co-ordination;
9. Ensure decent work for all by means of European and global standards;
10. Manage globalisation by means of a new economic and monetary order.
Both the Compass Plan B and Friedrich Ebert Stiftung's Social Growth documents articulate in more detail the social democratic critique of current orthodox economics and the dead-end austerity policies it proposes. The alternative policies are not being presented as a panacea, but are suggestions for wide-ranging economic policy reform, built on extensive research and evidence. They represent a viable set of economic policies that governments can pursue to improve people's wellbeing, while restoring sustainable economic output and jobs.
In Ireland's case, we will still no doubt hear voices claiming that such policies wouldn't work here. Well, no doubt they would have be tailored for Irish circumstances. But there is still much of interest in what is being proposed, not least because the proposals see equality and sustainability as core attributes of economic reform, not 'side issues' to be addressed once some kind of mythical 'rising tide' is restored.
And Ireland has some resources that could be immediately mobilised, without altering the IMF/EU agreement. This includes using the remaing NPRF (c. €5 billion) for targetted, productive investment and likewise ring-fencing for investment any money saved from delaying payment of the Anglo promissory notes, which could be one or two billion euro a year for several years. Crucially, it is not just about substituting spending for austerity. There remains a need to reform Ireland's tax system, regulate banking, move public spending to where it is most needed, and a host of other things. While some of such measures may, technically, quality as 'austerity', they differ crucially from current policy in that they would maintain incomes and living standards, promote jobs and sustainable development and lead, ultimately, to a socially just and sustainable recovery.
Monday, 10 October 2011
Inequality and Budget 2012
Sinéad Pentony: In the run up to Budget 2012, the discourse is going to be dominated by the scale of the fiscal adjustment (€3.6 billion) and the breakdown of taxation and spending cuts. Currently, the position is that the adjustment will be made up of €2.5 billion in cuts (€2.1 billion in current and €0.4 billion in capital spending) and €1.1 billion in taxation measures. The adjustment is part of the agreement with ‘troika’ – EU/IMF/ECB. However, the breakdown of the adjustment is at the discretion of the government.
On the basis of the current breakdown of taxation measures and spending cuts, we are likely to see further cuts to social welfare as well as reductions in health and education services. If this comes to pass, the budgetary measures will have a disproportionate impact on low income groups – again. These measures are also likely to reduce aggregate demand even further, lengthen the dole queues and suck more money and confidence out of the Irish economy. So we will have growing inequality combined with a stagnant economy, with the exception of the export sector, which has the features of an ‘enclave economy’. And even the export sector is also under threat with the uncertainties that exists across the global economy.
Income inequality has been shown by the IMF to be one of the major contributing factors to the onset of the crisis. More recently, Stiglitz has said that “to understand what needs to be done, we have to understand the economy’s problems before the crisis hit”. He identifies a number of problems including the fact that “shifting income from those who would spend it, to those who won’t, lowers aggregate demand”. He also identifies the need for the “structural transformation of the advanced economies, implied by the need to move labour out of traditional manufacturing branches”, but notes that this is occurring too slowly. He goes on to say that “the prescription for what ails the global economy follows directly from the diagnosis: strong government expenditure, aimed at facilitating restructuring [of the economy], promoting energy conservation, and reducing inequality, and a reform of the global financial system...”.
On the issue of inequality, FEPS has recently publish a paper on the relationship between inequality and wealth, and it finds that a comparison of the levels of wealth and inequality in different countries shows that countries with a high degree of inequality in general have lower levels of wealth. While this might sound counter-intuitive, the paper sets out the empirical evidence that supports the hypothesis. It finds that rising inequality results in a lower level of prosperity. In addition, higher inequality also results in a lower level of economic prosperity, lower levels of education and poor institutions that have more corruption, more political instability and lower levels of democracy.
The government is undoubtedly in an economic straightjacket – but there is always wriggle room. The government may not be Houdini, but there is most certainly sufficient wriggle room to make budgetary decisions that can reduce inequality and start the process of reversing economic decline.
On the basis of the current breakdown of taxation measures and spending cuts, we are likely to see further cuts to social welfare as well as reductions in health and education services. If this comes to pass, the budgetary measures will have a disproportionate impact on low income groups – again. These measures are also likely to reduce aggregate demand even further, lengthen the dole queues and suck more money and confidence out of the Irish economy. So we will have growing inequality combined with a stagnant economy, with the exception of the export sector, which has the features of an ‘enclave economy’. And even the export sector is also under threat with the uncertainties that exists across the global economy.
Income inequality has been shown by the IMF to be one of the major contributing factors to the onset of the crisis. More recently, Stiglitz has said that “to understand what needs to be done, we have to understand the economy’s problems before the crisis hit”. He identifies a number of problems including the fact that “shifting income from those who would spend it, to those who won’t, lowers aggregate demand”. He also identifies the need for the “structural transformation of the advanced economies, implied by the need to move labour out of traditional manufacturing branches”, but notes that this is occurring too slowly. He goes on to say that “the prescription for what ails the global economy follows directly from the diagnosis: strong government expenditure, aimed at facilitating restructuring [of the economy], promoting energy conservation, and reducing inequality, and a reform of the global financial system...”.
On the issue of inequality, FEPS has recently publish a paper on the relationship between inequality and wealth, and it finds that a comparison of the levels of wealth and inequality in different countries shows that countries with a high degree of inequality in general have lower levels of wealth. While this might sound counter-intuitive, the paper sets out the empirical evidence that supports the hypothesis. It finds that rising inequality results in a lower level of prosperity. In addition, higher inequality also results in a lower level of economic prosperity, lower levels of education and poor institutions that have more corruption, more political instability and lower levels of democracy.
The government is undoubtedly in an economic straightjacket – but there is always wriggle room. The government may not be Houdini, but there is most certainly sufficient wriggle room to make budgetary decisions that can reduce inequality and start the process of reversing economic decline.
Friday, 25 February 2011
Problems and Solutions
Sli Eile: Due to Blogger formatting problems, can't post this directly - but click here for a breakdown of the economic issues facing us, counterposing orthodox and unorthodox analyses and responses.
Friday, 31 December 2010
Rebuilding the Economy
Paul Sweeney and Danny McCoy (IBEC) present different views on rebuilding the economy in today's Irish Times, which is also the theme of today's editorial.
Danny McCoy laments the lack of evidence-based policy-making. Whereas Paul Sweeney presents a critique of those, like Donal Donovan, who suggest the current economic strategy is in any sense working.
Danny McCoy laments the lack of evidence-based policy-making. Whereas Paul Sweeney presents a critique of those, like Donal Donovan, who suggest the current economic strategy is in any sense working.
Wednesday, 29 September 2010
Shifting debates ...
Last month, in the UK, Labour leadership contender Ed Balls gave a seminal speech at Bloomberg arguing against cuts and for investment. Until Balls' speech, UK polls showed people heavily in favour of cuts. The impact was immediate,a Populus polls for the Times on Sep 14, just a few days afterwards, put support for govt. cuts at 22%, slower cuts with more tax increases (Labour's policy then) at 34%, and prioritising the poor and the unemployed over the deficit at 34%. Yesterday, it could be argued that new Labour Leader Ed Miliband echoed many of the points originally made by Balls. Even without such interventions, it seems that public opinion here is turning against a continuation of current economic policies: 64 per cent of respondents to the current Irish Times online business poll believe that the recent disappointing economic growth figures should force a change in economic strategy.
Thursday, 10 June 2010
FEPS / TASC Seminar on 'Stimulating Recovery'
Speakers at a seminar organised by TASC and the Foundation for European Progressive Studies (FEPS) today emphasised the need for an investment strategy to grow the economy, create jobs and counter the current deflationary spiral. The emphasis was on ‘investment towards fiscal consolidation’, and the speakers presented a set of complementary arguments demonstrating that the Government’s fiscal policies have failed, are failing and will continue to fail.
The papers (by Professor Ray Kinsella of UCD, TASC Head of Policy Sinéad Pentony and Michael Burke) can be downloaded from the TASC website (www.tascnet.ie)
The papers (by Professor Ray Kinsella of UCD, TASC Head of Policy Sinéad Pentony and Michael Burke) can be downloaded from the TASC website (www.tascnet.ie)
Monday, 12 April 2010
Fine Gael's Economics
Nat O'Connor: Fine Gael leader Enda Kenny is quoted as saying that Richard Bruton will be Minister for Finance under any FG-led government and that this is "non-negotiable". While this may simply be political posturing, and the outcome of any possible future coalition negotiations will depend on the numbers of seats each party brings to the table, the message to any possible future coalition partners would appear to be that Fine Gael will control the economic paradigm that will guide them in government. So what's different from the present paradigm, if anything, about Fine Gael's economics?
Fine Gael has published a number of economic policy papers recently, including New ERA (its stimulus plan - revised November 2009), A Fresh Start for Jobs in Small Businesses and Hope for a Lost Generation (a plan to cut youth unemployment by a third). These documents are a fair place to start, to look at what Fine Gael proposes to do in office and to see to what extent this represents a break from the economic paradigm that got us to where we are today.
This is not intended to be a point-by-point critique, as I am only looking to identify Fine Gael's economics, not dispute the detailed costings, etc.
NewERA is essentially about managing the semi-state sector better, including using them to borrow money for investment in infrastructure (and creating 105,000 jobs), for which they will seek a commerical return through charges on customers. The major plank of this is renewable energy (Ireland to use 50 per cent renewable energy by 2020). A major broadband roll-out is envisaged, as is upgraded water infrastructure.
So far, this could be a policy objective from the left, right or centre. However, the proposed mechanism is a commercially driven semi-state company (NewERA Ltd) which will manage five merged/restructured semi-states. It will operate commercially, with the CEO and board appointed by the Taoiseach. A big, cross-utility merged regulator will ensure more powerful, "pro-consumer" regulation.
Fresh Start is sub-titled "18 ways to support small business and save jobs". In an introductory message from Enda Kenny, Fine Gael "commit to preserving our low tax model as the best means to promote growth, enterprise and employment." The 18 specific measures include: employers PRSI exemptions/subsidies; a national recovery bank; reducing VAT; abolishing the travel tax; reviewing Employment Regulation Orders (legally-binding pay agreements in hotels, retail, etc); prompt payment from State bodies; cutting red tape; business and employment units in local authorities; reducing energy costs; freezing local authority rates; and supporting start ups.
Hope for a New Generation includes: a national internship programme; a back to education schmeme; Community Employment schemes; workshare; and the above 'jobs tax cuts' (on employers PRSI).
From this snapshot, I can conclude that Fine Gael intend to refocus the State's involvement in the economy towards jobs. There is a recognition of the high multiplier effect of State investment in capital projects. Likewise, the policies also recognise the fact that SMEs provide many Irish jobs and that supporting them is important. There seems to be a reliance on tax cuts or tax expenditure (credits, allowances, etc.) to stimulate economic activity. There is also some long-term thinking about Ireland's energy security and the potential of a good return from investment in renewable energy generation.
The economics underlying the proposals seem orthodox and do not address the major problems shown by the global economic crisis. Although the decisions of recent government added miseries to the Irish case, the global crisis still requires all parties to re-think the received wisdom of economics in a much more fundamental way.
As an example of such a rethink, Social Justice Ireland have published "An Agenda for a New Ireland" (Full PDF here). They argue that "Ireland’s policy-making for more than a decade was guided by many false assumptions" including the assumptions such as: "Economic growth was good in itself"... "Infrastructure and social services at an EU-average level could be delivered with one of the lowest total tax-takes in the EU." ... "The growing inequality and the widening gaps between the better-off and the poor that followed from this approach to policy-development were not important as everyone was gaining something." ... "Low taxation was good." ... etc.
The failures which stem from these false assumptions include: "Failure to take action to broaden the tax base or to promote tax equity."... "Failure to overcome infrastructure deficiencies,"... "Failure to adequately address high energy costs or to promote competition in sheltered sectors of the economy," ... and "Failure to appropriately regulate the banking and financial services sector or to manage the growth of personnel numbers in the public service."
The SJI document alone poses questions for the Fine Gael policies. And the criticisms of recent Government economics cannot all be dismissed as part of 'crony capitalism'. There are genuine questions to be answered by advocates of the orthodoxy. For example, if Fine Gael are commited to Ireland's low tax model, how do they define that? Does it leave scope for a restructuring of the tax system to make it more egalitarian? Does it leave room for some increase in tax, as you simply can't have average European level of services without average European levels of tax?
Indeed, Social Justice Ireland proposes retaining relatively low tax (35 per cent of GDP, p. 26), versus recent suggestions by the ESRI's Prof. John Fitz Gerald, who would prefer Ireland to move to EU average levels (45 per cent of GDP). Where is Fine Gael on this issue?
On a more fundamental level, what about economic growth? Have Fine Gael seriously considered alternative ways of measuring economic progress, including quality of life, health, education, environment, distribution of wealth, etc? What about suggestions that the economic situation of most people could improve, despite a fall in GDP, if there was better organisation of the economy? In the long-term, a green economy cannot rely on continued growth models.
Fine Gael's policies seem to reflect a belief in the commercial sector and market forces that is not based on the evidence of the global crash. For example: banking regulation failed; corporate governance failed; long-term planning did not occur; and wealth was further concentrated in the hands of fewer people. So, why should we have faith in a "commercially driven" semi-state sector or in continued adherence to Ireland's disreputable low tax strategy?
Looking for more insight into the above, Richard Bruton's blog posts add some more detail. In March 2009 he posts the press release for the launch of the NewERA idea. The familiar buzz word "competitiveness" seems to be the driving force behind it. More recently, in January 2010 he discusses the Competitiveness Council’s Reports. These are referenced as reasons underpinnng the NewERA proposals. For example, "dissipation of responsibility across 34 separate public authorities has resulted in poor planning and appalling waste"... "it is no longer essential that the State owns all of the capacity for producing gas or electricity, though the grids must remain publicly owned." ... "All of the investments will be on strictly commercial terms. The companies involved will commit to servicing their loans without a State guarantee. This will bring a new element of commercial realism into the operation of companies and force new disciplines into their operation." This post has a press release feel to it too, nevertheless it further clarifies what Fine Gael envisage 'competitiveness' means.
A serious consequence of the above policies seems to be a shift from taxation to charges - charges for water, waste, energy at "commercially driven" rates. How will waiver schemes work in this context? Currently, private commercial waste collection firms don't always offer them. There is a real risk of a set of charges being levied on household incomes in lieu of a more broad-based and progressive tax system. This would be regressive in effect, as those on lower incomes would pay proportionately more of their incomes.
Another logical consequence of the above policies include weakening local authorities - by freezing rates for five years and limiting their role in water services to being "agents" of the proposed Irish Water national utility company. There is a pressing need to reform local authority funding, and a rates freeze sends the message of 'no change' for five years, while local services (like roads) continue to deteriorate. How can we have new local politics without funding reform? Also, it is glib to suggest that water leakage stemmed from "dissipation of responsibility" across the authorities. There has been a lack of capital investment in water (and other basic infrastructure provided by local authorities, like sewage and flood protection), which in turn was due to Ireland's low tax base and, in particular, the inadequate funding of local government.
Also, in terms of injecting "commercial realism" into the provision of utilities, what is to stop the State being stuck as the 'insurer of last resort' if commercial power plants threaten to turn off the lights? How will the commercial operation of firms be regulated to prevent short-term profiteering or asset stripping at the expense of long-term investment?
Whether a general election occurs in 2012 or sooner, Fine Gael is reasonably likely to lead the next government. If so, Fine Gael's focus on jobs and stimulus is welcome. But the above documents are more about suggestions for how FG would manage the State's role in the economy, broadly based within current constraints and without challenging the dominant economic orthodoxy.
Hence it is important to begin a more in-depth, open, public discussion about the assumptions Fine Gael (and other parties) make about economics. As a number of posters on this blog have commented, alternative or progressive economics is not the sole preserve of the 'left' (howsoever defined).
If Fine Gael are seeking to control Ireland's Ministry of Finance for the five or ten years after the next general election, then - especially in the context their proposals on New Politics, including open government - I hope that Fine Gael will publish more about their economic perspective and assumptions so that we can examine alternative options and discuss what economics represent the long-term public interest.
One thing Richard Bruton blogged in December 2009 about the budget was "To successfully implement change, you have to build a broad-based coalition to implement it." I hope this is Fine Gael's belief about economics, because any claim to offer "new politics" is an illusion if the economic paradigm to be adopted is "non-negotiable".
Fine Gael has published a number of economic policy papers recently, including New ERA (its stimulus plan - revised November 2009), A Fresh Start for Jobs in Small Businesses and Hope for a Lost Generation (a plan to cut youth unemployment by a third). These documents are a fair place to start, to look at what Fine Gael proposes to do in office and to see to what extent this represents a break from the economic paradigm that got us to where we are today.
This is not intended to be a point-by-point critique, as I am only looking to identify Fine Gael's economics, not dispute the detailed costings, etc.
NewERA is essentially about managing the semi-state sector better, including using them to borrow money for investment in infrastructure (and creating 105,000 jobs), for which they will seek a commerical return through charges on customers. The major plank of this is renewable energy (Ireland to use 50 per cent renewable energy by 2020). A major broadband roll-out is envisaged, as is upgraded water infrastructure.
So far, this could be a policy objective from the left, right or centre. However, the proposed mechanism is a commercially driven semi-state company (NewERA Ltd) which will manage five merged/restructured semi-states. It will operate commercially, with the CEO and board appointed by the Taoiseach. A big, cross-utility merged regulator will ensure more powerful, "pro-consumer" regulation.
Fresh Start is sub-titled "18 ways to support small business and save jobs". In an introductory message from Enda Kenny, Fine Gael "commit to preserving our low tax model as the best means to promote growth, enterprise and employment." The 18 specific measures include: employers PRSI exemptions/subsidies; a national recovery bank; reducing VAT; abolishing the travel tax; reviewing Employment Regulation Orders (legally-binding pay agreements in hotels, retail, etc); prompt payment from State bodies; cutting red tape; business and employment units in local authorities; reducing energy costs; freezing local authority rates; and supporting start ups.
Hope for a New Generation includes: a national internship programme; a back to education schmeme; Community Employment schemes; workshare; and the above 'jobs tax cuts' (on employers PRSI).
From this snapshot, I can conclude that Fine Gael intend to refocus the State's involvement in the economy towards jobs. There is a recognition of the high multiplier effect of State investment in capital projects. Likewise, the policies also recognise the fact that SMEs provide many Irish jobs and that supporting them is important. There seems to be a reliance on tax cuts or tax expenditure (credits, allowances, etc.) to stimulate economic activity. There is also some long-term thinking about Ireland's energy security and the potential of a good return from investment in renewable energy generation.
The economics underlying the proposals seem orthodox and do not address the major problems shown by the global economic crisis. Although the decisions of recent government added miseries to the Irish case, the global crisis still requires all parties to re-think the received wisdom of economics in a much more fundamental way.
As an example of such a rethink, Social Justice Ireland have published "An Agenda for a New Ireland" (Full PDF here). They argue that "Ireland’s policy-making for more than a decade was guided by many false assumptions" including the assumptions such as: "Economic growth was good in itself"... "Infrastructure and social services at an EU-average level could be delivered with one of the lowest total tax-takes in the EU." ... "The growing inequality and the widening gaps between the better-off and the poor that followed from this approach to policy-development were not important as everyone was gaining something." ... "Low taxation was good." ... etc.
The failures which stem from these false assumptions include: "Failure to take action to broaden the tax base or to promote tax equity."... "Failure to overcome infrastructure deficiencies,"... "Failure to adequately address high energy costs or to promote competition in sheltered sectors of the economy," ... and "Failure to appropriately regulate the banking and financial services sector or to manage the growth of personnel numbers in the public service."
The SJI document alone poses questions for the Fine Gael policies. And the criticisms of recent Government economics cannot all be dismissed as part of 'crony capitalism'. There are genuine questions to be answered by advocates of the orthodoxy. For example, if Fine Gael are commited to Ireland's low tax model, how do they define that? Does it leave scope for a restructuring of the tax system to make it more egalitarian? Does it leave room for some increase in tax, as you simply can't have average European level of services without average European levels of tax?
Indeed, Social Justice Ireland proposes retaining relatively low tax (35 per cent of GDP, p. 26), versus recent suggestions by the ESRI's Prof. John Fitz Gerald, who would prefer Ireland to move to EU average levels (45 per cent of GDP). Where is Fine Gael on this issue?
On a more fundamental level, what about economic growth? Have Fine Gael seriously considered alternative ways of measuring economic progress, including quality of life, health, education, environment, distribution of wealth, etc? What about suggestions that the economic situation of most people could improve, despite a fall in GDP, if there was better organisation of the economy? In the long-term, a green economy cannot rely on continued growth models.
Fine Gael's policies seem to reflect a belief in the commercial sector and market forces that is not based on the evidence of the global crash. For example: banking regulation failed; corporate governance failed; long-term planning did not occur; and wealth was further concentrated in the hands of fewer people. So, why should we have faith in a "commercially driven" semi-state sector or in continued adherence to Ireland's disreputable low tax strategy?
Looking for more insight into the above, Richard Bruton's blog posts add some more detail. In March 2009 he posts the press release for the launch of the NewERA idea. The familiar buzz word "competitiveness" seems to be the driving force behind it. More recently, in January 2010 he discusses the Competitiveness Council’s Reports. These are referenced as reasons underpinnng the NewERA proposals. For example, "dissipation of responsibility across 34 separate public authorities has resulted in poor planning and appalling waste"... "it is no longer essential that the State owns all of the capacity for producing gas or electricity, though the grids must remain publicly owned." ... "All of the investments will be on strictly commercial terms. The companies involved will commit to servicing their loans without a State guarantee. This will bring a new element of commercial realism into the operation of companies and force new disciplines into their operation." This post has a press release feel to it too, nevertheless it further clarifies what Fine Gael envisage 'competitiveness' means.
A serious consequence of the above policies seems to be a shift from taxation to charges - charges for water, waste, energy at "commercially driven" rates. How will waiver schemes work in this context? Currently, private commercial waste collection firms don't always offer them. There is a real risk of a set of charges being levied on household incomes in lieu of a more broad-based and progressive tax system. This would be regressive in effect, as those on lower incomes would pay proportionately more of their incomes.
Another logical consequence of the above policies include weakening local authorities - by freezing rates for five years and limiting their role in water services to being "agents" of the proposed Irish Water national utility company. There is a pressing need to reform local authority funding, and a rates freeze sends the message of 'no change' for five years, while local services (like roads) continue to deteriorate. How can we have new local politics without funding reform? Also, it is glib to suggest that water leakage stemmed from "dissipation of responsibility" across the authorities. There has been a lack of capital investment in water (and other basic infrastructure provided by local authorities, like sewage and flood protection), which in turn was due to Ireland's low tax base and, in particular, the inadequate funding of local government.
Also, in terms of injecting "commercial realism" into the provision of utilities, what is to stop the State being stuck as the 'insurer of last resort' if commercial power plants threaten to turn off the lights? How will the commercial operation of firms be regulated to prevent short-term profiteering or asset stripping at the expense of long-term investment?
Whether a general election occurs in 2012 or sooner, Fine Gael is reasonably likely to lead the next government. If so, Fine Gael's focus on jobs and stimulus is welcome. But the above documents are more about suggestions for how FG would manage the State's role in the economy, broadly based within current constraints and without challenging the dominant economic orthodoxy.
Hence it is important to begin a more in-depth, open, public discussion about the assumptions Fine Gael (and other parties) make about economics. As a number of posters on this blog have commented, alternative or progressive economics is not the sole preserve of the 'left' (howsoever defined).
If Fine Gael are seeking to control Ireland's Ministry of Finance for the five or ten years after the next general election, then - especially in the context their proposals on New Politics, including open government - I hope that Fine Gael will publish more about their economic perspective and assumptions so that we can examine alternative options and discuss what economics represent the long-term public interest.
One thing Richard Bruton blogged in December 2009 about the budget was "To successfully implement change, you have to build a broad-based coalition to implement it." I hope this is Fine Gael's belief about economics, because any claim to offer "new politics" is an illusion if the economic paradigm to be adopted is "non-negotiable".
Monday, 29 March 2010
Guest Post by Gerry O'Hanlon S.J.: Asking the Right Question
Gerry O’Hanlon: We are understandably concerned about economic recovery in Ireland these days. But given that ‘recovery’ might be taken to imply a return to a previously desirable state, perhaps we need to reframe the question that we ask. If we ask ‘how do we recover’, we are in danger, in our public discourse, of letting conventional indicators like a pick-up in retail sales, an increase in property values, a rise in consumer sentiment, even – the Holy Grail! – growth in GDP and GNP, become the sole normative criteria for what might too easily become a return to ‘business as usual’. That would be a pity. Given what we have learned about the serious flaws in our ‘business as usual’ model, it might be better to ask a different sort of question that might push us in a more radical direction – so, for example, ‘how do we create a new economic model that is sustainable’?
The predominantly neo-liberal, infinite-growth model of the recent past has let us down. It was shot through with an economism which meant that an obsession with economic growth trumped so many other human values. It was riddled with inequalities both within and between nations, in ways which made solidarity unsustainable. And its focus on consumption did serious damage to our planet, as well as failing to make us happier.
In this context the reflections of the former Chief Rabbi of Ireland, David Rosen, are apt. Rosen quotes an old Jewish commentary on those who, according to chapter 11 of the Book of Genesis, showed hubris in attempting to build The Tower of Babel up to the heavens – ‘if in the course of building, a human being fell and was even killed, no one batted an eyelid: but if a brick fell and shattered, they all sat down and cried’. In other words, in this story of an ancient industrial collapse, work and growth were more important than human beings, and the enterprise went to the heads of its developers, showing ‘a profoundly distorted sense of values in which human life and dignity are subordinated to material achievements’.
Of course ‘material achievements’ are important: we want a future where people can work, where basic needs are satisfied, where human dignity is respected. But can that perhaps be done within a vision of the future articulated in terms of ‘prosperity without growth’ (Professor Tim Jackson), a ‘steady-state economy’ (Hermann Daly), ‘the richness of sufficiency’ (Bangkok letter of ecumenical group of Asian Churches in 1999)? And within that vision perhaps we need to create a culture which values society as well as the individual, a culture of the common good that respects solidarity and fairness and that commits itself to responsibility for inter-generational care of the earth?
That kind of new vision, those kinds of values, would have concrete implications. Banks would need to recognise that they have obligations to all stake-holders, not just to share-holders, that they have a social function in serving the ‘real economy’. Financial traders would need to be regulated in such a way that short-termism is eschewed – the introduction of a Tobin or Robin Hood tax on international currency and financial transactions might be a relatively simple and effective first step in this respect. Our economic priority should be to favour labour rather than capital, to put work and jobs as a prime target, and to consider salary caps or more progressive redistributive tax policies in order to bring about greater equality. It is estimated that CEOs in the USA were paid 344 times the average worker’s wage in 2007, as against 42 times in 1989. Why shouldn't we take up the suggestion of Paula Clancy of TASC and consider what it would be like if a policy objective was inserted in the Constitution that limited the top 20 per cent in Ireland to an income of 10 times, or even 5 times, that of the bottom 20 per cent?
The New Economics Foundation (The Great Transition, 2009) has tried to spell out concretely what such an economic model, with those kinds of values, might mean for Britain. They speak in terms of a fall of GDP by a third (to 2001 levels); of a four-day working week, to allow for full employment with less economic activity and to give a better work-life balance; market prices reflecting social and environmental costs; a redistribution of income to Danish levels of equality; capital markets functioning in such a way that company profitability would be linked to social and environmental value, so that share prices for listed companies would reflect this – and so on. All this would be premised on a democratic national determination of what the UK as a society deemed to be of social and environmental value, with government retaining the right to make determinations between competing interests. The net result, they estimate, would be a growth in ‘real value’, despite a reduction in consumption and economic growth.
Are we doing enough to raise these kinds of questions and research these kinds of solutions in Ireland? What is involved is a change of culture; a political class which is capable of the kind of leadership given at the height of the Northern Ireland crisis when a more radical approach was taken; a religious input that transcends the evil evidenced in Murphy and Ryan, not to mention the mediocrity of the kind of social conservatism so common in post-independence Ireland but which – as Habermas, Putnam, Rawls and Sandal all acknowledge – can draw on inspirational sources of self-transcendence which encourage believers to engage in a critique of the status quo and to join with fellow-citizens in the search for a better way forward.
Gerry O’Hanlon, S.J., Jesuit Centre for Faith and Justice, author of recently published Theology in the Irish Public Square, Dublin: Columba Press, 2010.
The predominantly neo-liberal, infinite-growth model of the recent past has let us down. It was shot through with an economism which meant that an obsession with economic growth trumped so many other human values. It was riddled with inequalities both within and between nations, in ways which made solidarity unsustainable. And its focus on consumption did serious damage to our planet, as well as failing to make us happier.
In this context the reflections of the former Chief Rabbi of Ireland, David Rosen, are apt. Rosen quotes an old Jewish commentary on those who, according to chapter 11 of the Book of Genesis, showed hubris in attempting to build The Tower of Babel up to the heavens – ‘if in the course of building, a human being fell and was even killed, no one batted an eyelid: but if a brick fell and shattered, they all sat down and cried’. In other words, in this story of an ancient industrial collapse, work and growth were more important than human beings, and the enterprise went to the heads of its developers, showing ‘a profoundly distorted sense of values in which human life and dignity are subordinated to material achievements’.
Of course ‘material achievements’ are important: we want a future where people can work, where basic needs are satisfied, where human dignity is respected. But can that perhaps be done within a vision of the future articulated in terms of ‘prosperity without growth’ (Professor Tim Jackson), a ‘steady-state economy’ (Hermann Daly), ‘the richness of sufficiency’ (Bangkok letter of ecumenical group of Asian Churches in 1999)? And within that vision perhaps we need to create a culture which values society as well as the individual, a culture of the common good that respects solidarity and fairness and that commits itself to responsibility for inter-generational care of the earth?
That kind of new vision, those kinds of values, would have concrete implications. Banks would need to recognise that they have obligations to all stake-holders, not just to share-holders, that they have a social function in serving the ‘real economy’. Financial traders would need to be regulated in such a way that short-termism is eschewed – the introduction of a Tobin or Robin Hood tax on international currency and financial transactions might be a relatively simple and effective first step in this respect. Our economic priority should be to favour labour rather than capital, to put work and jobs as a prime target, and to consider salary caps or more progressive redistributive tax policies in order to bring about greater equality. It is estimated that CEOs in the USA were paid 344 times the average worker’s wage in 2007, as against 42 times in 1989. Why shouldn't we take up the suggestion of Paula Clancy of TASC and consider what it would be like if a policy objective was inserted in the Constitution that limited the top 20 per cent in Ireland to an income of 10 times, or even 5 times, that of the bottom 20 per cent?
The New Economics Foundation (The Great Transition, 2009) has tried to spell out concretely what such an economic model, with those kinds of values, might mean for Britain. They speak in terms of a fall of GDP by a third (to 2001 levels); of a four-day working week, to allow for full employment with less economic activity and to give a better work-life balance; market prices reflecting social and environmental costs; a redistribution of income to Danish levels of equality; capital markets functioning in such a way that company profitability would be linked to social and environmental value, so that share prices for listed companies would reflect this – and so on. All this would be premised on a democratic national determination of what the UK as a society deemed to be of social and environmental value, with government retaining the right to make determinations between competing interests. The net result, they estimate, would be a growth in ‘real value’, despite a reduction in consumption and economic growth.
Are we doing enough to raise these kinds of questions and research these kinds of solutions in Ireland? What is involved is a change of culture; a political class which is capable of the kind of leadership given at the height of the Northern Ireland crisis when a more radical approach was taken; a religious input that transcends the evil evidenced in Murphy and Ryan, not to mention the mediocrity of the kind of social conservatism so common in post-independence Ireland but which – as Habermas, Putnam, Rawls and Sandal all acknowledge – can draw on inspirational sources of self-transcendence which encourage believers to engage in a critique of the status quo and to join with fellow-citizens in the search for a better way forward.
Gerry O’Hanlon, S.J., Jesuit Centre for Faith and Justice, author of recently published Theology in the Irish Public Square, Dublin: Columba Press, 2010.
Thursday, 18 February 2010
Your Country Your Call
Nat O'Connor: In the spirit of Kennedy, asking us to think of what we can do for our country, President McAleese has launched a national competition: Your Country Your Call.
"Your Country, Your Call gives you the chance to share your creativity to give life to new industry, revitalise or revolutionise an existing market, or even change the way we do business entirely. It's not about creating new products. It's about creating something that will make a long term positive impact on the future of Ireland, its people, and its economy"
Rather aptly, the competition website has a 'ticking clock' with 72 days allowed for entries. The top 20 ideas will be listed and two final winners will receive €500,000 and other support to implement their ideas.
You can read more about it in the Examiner or Irish Times (which also summarised the competition rules).
This competition is an open door to give some progressive ideas a wider hearing...
"Your Country, Your Call gives you the chance to share your creativity to give life to new industry, revitalise or revolutionise an existing market, or even change the way we do business entirely. It's not about creating new products. It's about creating something that will make a long term positive impact on the future of Ireland, its people, and its economy"
Rather aptly, the competition website has a 'ticking clock' with 72 days allowed for entries. The top 20 ideas will be listed and two final winners will receive €500,000 and other support to implement their ideas.
You can read more about it in the Examiner or Irish Times (which also summarised the competition rules).
This competition is an open door to give some progressive ideas a wider hearing...
Monday, 18 January 2010
Who benefits from current policy?
Michael Burke: There is a clear disparity between the economic policies of the Irish government and those of the other industrialised countries. While every single country in the G20 adopted in some sort of stimulus measures last year and (with one exception) will do so again in 2010, Ireland's unique contractionary experiment continues to depress activity and tax receipts, boosting only the unemployment level and the budget deficit.
Supporters of government policy argue There Is No Alternative, having learnt their economics from Mrs Thatcher. But, clearly the G20 have a myriad of alternatives, even though many have deficits as large as Ireland's and most still have higher levels of government debt. Separately it is argued that adding to the deflationary trend in the economy is good for business, helping to improve competitiveness.
But Sean Quinn is the latest serious business leader to bemoan the fact that government policy is depressing activity and forcing a revival of mass emigration. He also argues, in complete contradiction of government spokespersons and their supporters, that wages are not an issue and speaks of his own experience with a highly competitive workforce in re-orienting to export markets: "Policymakers should focus on investment for the creation of sustainable jobs".
This follows an intervention by Jim O'Hara, general manager of Intel in Ireland, who has previously criticised the downgrading of Irish manufacturing capacity and argues that the key to competitiveness and new job creation is investment in education and in R&D. "We are competing in a global market to create, attract and retain the highest quality jobs. Unless there is the foundation of a highly educated workforce and an internationally recognised commitment to and reputation for research and innovation, Ireland will not be considered competitive."
As the heads of two of the largest employers in the country, one multi-national and the other indigenous, you would think their views might hold sway with a pro-business government, or at least with IBEC. But that isn't the case.
IBEC has over 7,500 members, very few of them as large or as dynamic as Intel or the Quinn Group. It has led the calls for across-the-board wage cuts, which stand in sharp contrast to the representatives of major firms such as O'Hara and Quinn. In effect, IBEC represents the views of comparatively small producers; a shopkeeper mentality that hopes to stay in business by pay cuts for the shop staff. It was disastrous for 1,406 insolvent businesses last year, with barely a murmur from IBEC.
The current government represents an alliance of these forces with those of the property speculators and their banks. Their disastrous showing in the opinion polls suggests they have, for now, been numerically reduced to these layers along with some of their traditional rural base. Their supporters are the minority.
For all progressives, the key task is to build an overwhelming majority around the axis of 'Investment, Not Cuts'.
Supporters of government policy argue There Is No Alternative, having learnt their economics from Mrs Thatcher. But, clearly the G20 have a myriad of alternatives, even though many have deficits as large as Ireland's and most still have higher levels of government debt. Separately it is argued that adding to the deflationary trend in the economy is good for business, helping to improve competitiveness.
But Sean Quinn is the latest serious business leader to bemoan the fact that government policy is depressing activity and forcing a revival of mass emigration. He also argues, in complete contradiction of government spokespersons and their supporters, that wages are not an issue and speaks of his own experience with a highly competitive workforce in re-orienting to export markets: "Policymakers should focus on investment for the creation of sustainable jobs".
This follows an intervention by Jim O'Hara, general manager of Intel in Ireland, who has previously criticised the downgrading of Irish manufacturing capacity and argues that the key to competitiveness and new job creation is investment in education and in R&D. "We are competing in a global market to create, attract and retain the highest quality jobs. Unless there is the foundation of a highly educated workforce and an internationally recognised commitment to and reputation for research and innovation, Ireland will not be considered competitive."
As the heads of two of the largest employers in the country, one multi-national and the other indigenous, you would think their views might hold sway with a pro-business government, or at least with IBEC. But that isn't the case.
IBEC has over 7,500 members, very few of them as large or as dynamic as Intel or the Quinn Group. It has led the calls for across-the-board wage cuts, which stand in sharp contrast to the representatives of major firms such as O'Hara and Quinn. In effect, IBEC represents the views of comparatively small producers; a shopkeeper mentality that hopes to stay in business by pay cuts for the shop staff. It was disastrous for 1,406 insolvent businesses last year, with barely a murmur from IBEC.
The current government represents an alliance of these forces with those of the property speculators and their banks. Their disastrous showing in the opinion polls suggests they have, for now, been numerically reduced to these layers along with some of their traditional rural base. Their supporters are the minority.
For all progressives, the key task is to build an overwhelming majority around the axis of 'Investment, Not Cuts'.
Wednesday, 13 January 2010
A Progressive Plan for Dublin (and the Country)?
Nat O'Connor: Dublin City Council have launched the Draft Dublin City Development Plan 2011-2017 and are actively seeking "conversations with, and feedback from, citizens, thinkers, agencies and other stakeholders."
Many commentators have asked where is the Government's plan for economic recovery, jobs and sustainable development. In the absence of a national plan, the Dublin plan might be the nearest thing we've got. So, with the acknowledgement that not everything will be apt for those living and working outside of the greater Dublin area, I thought it was well worth asking whether the Dublin plan is progressive and a possible model for sustainable economic development nationally.
The plan's vision statement is premised with the following message:
"It would be folly to adopt projections from either the economic boom years or the recent downturn as the basis for a vision for the city. Instead, the city must, collectively through its citizens and civic leaders, develop a shared vision of what sort of city we aspire to, not in the six-year lifetime of a development plan, but over the next 25 to 30 years. It is only by developing a shared vision for Dublin that we can deliver the core strategies of each successive Development Plan as crucial stepping stones towards the long term vision. This Development Plan is not so much based on short-term forecasts, but on ‘backcasting’ from the 30-year vision. Without a vision which enjoys broad support, short-term, often competing interests will prevail, ultimately to the detriment of the city." You could insert Ireland for Dublin and country for city in the above, and you would have the kind of positive, forward-looking statement that has been missing on the national level.
The Vision for the City is:
"Within the next 25 to 30 years, Dublin will have an established international reputation as one of the most sustainable, dynamic and resourceful city regions in Europe. Dublin, through the shared vision of its citizens and civic leaders, will be a beautiful, compact city, with a
distinct character, a vibrant culture and a diverse, smart, green, innovation-based economy. It will be a socially inclusive city of urban neighbourhoods, all connected by an exemplary public transport, cycling and walking system and interwoven with a quality bio-diverse greenspace network. In short, the vision is for a capital city where people will seek to live, work and experience as matter of choice."
The plan covers six themes: Economic, Social, Cultural, Urban Form and Spatial, Movement, and Environmental.
Obviously, the plan in incomplete from a national perspective, as the city council cannot comment on health infrastructure, social welfare, criminal justice or many other policy areas. Nevertheless, the broad thrust of the plan is 'progressive economics', insofar as economic development is not just described in terms of 'growth' but it seen as built on sustainability and the provision of an attractive, well-run place where people would want to live and work, and which would both foster native creativity and attract highly-skilled mobile workers from around the globe. Those of you who are most interested in a strictly economic perspective might be interested in the proposals in Chapter 9 'Revitalising the City's Economy'.
The plan has long lists of policies and objectives; 313 policies and 214 objectives in total, across nine areas:
- Shaping the City
- Connecting and Sustaining the City's Infrastructure
- Greening the City
- Fostering Dublin’s Character and Culture
- Making Dublin the Heart of the Region
- Revitalising the City’s Economy
- Strengthening the City as the National Retail Destination
- Providing Quality Homes in a Compact City
- Creating Goods Neighbourhoods and Successful Communities
(For those interested in local government issues, the policies are also a useful list of the things that the council currently does.)
It is worth noting the verbs used in the plan, in order to get a feel for how aspirational it is. For example, a lage number of policies begin with verbs that indicate the city council's reliance on external actors (state or private): 85 policies begin with the verb "promote", 26 with "support", 12 with "encourage" and 10 with "facilitate". In contast, more active verbs are rarer. Only 20 policies begin with "ensure", 16 with "protect" and 8 with "require". The objectives have a more even balance between weak and strong verbs , with 10 "facilitate", 11 "support" and 13 "promote" versus 16 "implement", 10 "provide" and "6 ensure". This is only a crude analysis, but it is a reminder that this kind of plan requires a lot of public-private co-operation as well as joined-up-government.
I am particularly struck by the various means in which the city council is attracting feedback from Dubliners. The Irish Times reports that "the facilities at the Wood Quay Venue will allow the public to make video submissions on the plan or to use an interactive map to see how the plan will affect their neighbourhood". In addition, there is an online submissions form for comments and suggestion, and an online discussiuon forum for anyone who wants to discuss the plan in detail.
I am not going to start a critique of the plan right now. I really just wanted to open it up as a topic for discussion. If nothing else, I think it is good that they suggest "developing a shared vision" for the future. That's what all of Ireland needs right now.
Many commentators have asked where is the Government's plan for economic recovery, jobs and sustainable development. In the absence of a national plan, the Dublin plan might be the nearest thing we've got. So, with the acknowledgement that not everything will be apt for those living and working outside of the greater Dublin area, I thought it was well worth asking whether the Dublin plan is progressive and a possible model for sustainable economic development nationally.
The plan's vision statement is premised with the following message:
"It would be folly to adopt projections from either the economic boom years or the recent downturn as the basis for a vision for the city. Instead, the city must, collectively through its citizens and civic leaders, develop a shared vision of what sort of city we aspire to, not in the six-year lifetime of a development plan, but over the next 25 to 30 years. It is only by developing a shared vision for Dublin that we can deliver the core strategies of each successive Development Plan as crucial stepping stones towards the long term vision. This Development Plan is not so much based on short-term forecasts, but on ‘backcasting’ from the 30-year vision. Without a vision which enjoys broad support, short-term, often competing interests will prevail, ultimately to the detriment of the city." You could insert Ireland for Dublin and country for city in the above, and you would have the kind of positive, forward-looking statement that has been missing on the national level.
The Vision for the City is:
"Within the next 25 to 30 years, Dublin will have an established international reputation as one of the most sustainable, dynamic and resourceful city regions in Europe. Dublin, through the shared vision of its citizens and civic leaders, will be a beautiful, compact city, with a
distinct character, a vibrant culture and a diverse, smart, green, innovation-based economy. It will be a socially inclusive city of urban neighbourhoods, all connected by an exemplary public transport, cycling and walking system and interwoven with a quality bio-diverse greenspace network. In short, the vision is for a capital city where people will seek to live, work and experience as matter of choice."
The plan covers six themes: Economic, Social, Cultural, Urban Form and Spatial, Movement, and Environmental.
Obviously, the plan in incomplete from a national perspective, as the city council cannot comment on health infrastructure, social welfare, criminal justice or many other policy areas. Nevertheless, the broad thrust of the plan is 'progressive economics', insofar as economic development is not just described in terms of 'growth' but it seen as built on sustainability and the provision of an attractive, well-run place where people would want to live and work, and which would both foster native creativity and attract highly-skilled mobile workers from around the globe. Those of you who are most interested in a strictly economic perspective might be interested in the proposals in Chapter 9 'Revitalising the City's Economy'.
The plan has long lists of policies and objectives; 313 policies and 214 objectives in total, across nine areas:
- Shaping the City
- Connecting and Sustaining the City's Infrastructure
- Greening the City
- Fostering Dublin’s Character and Culture
- Making Dublin the Heart of the Region
- Revitalising the City’s Economy
- Strengthening the City as the National Retail Destination
- Providing Quality Homes in a Compact City
- Creating Goods Neighbourhoods and Successful Communities
(For those interested in local government issues, the policies are also a useful list of the things that the council currently does.)
It is worth noting the verbs used in the plan, in order to get a feel for how aspirational it is. For example, a lage number of policies begin with verbs that indicate the city council's reliance on external actors (state or private): 85 policies begin with the verb "promote", 26 with "support", 12 with "encourage" and 10 with "facilitate". In contast, more active verbs are rarer. Only 20 policies begin with "ensure", 16 with "protect" and 8 with "require". The objectives have a more even balance between weak and strong verbs , with 10 "facilitate", 11 "support" and 13 "promote" versus 16 "implement", 10 "provide" and "6 ensure". This is only a crude analysis, but it is a reminder that this kind of plan requires a lot of public-private co-operation as well as joined-up-government.
I am particularly struck by the various means in which the city council is attracting feedback from Dubliners. The Irish Times reports that "the facilities at the Wood Quay Venue will allow the public to make video submissions on the plan or to use an interactive map to see how the plan will affect their neighbourhood". In addition, there is an online submissions form for comments and suggestion, and an online discussiuon forum for anyone who wants to discuss the plan in detail.
I am not going to start a critique of the plan right now. I really just wanted to open it up as a topic for discussion. If nothing else, I think it is good that they suggest "developing a shared vision" for the future. That's what all of Ireland needs right now.
Thursday, 17 December 2009
Using the recession as an opportunity for Irish economic development
Tom O'Connor: The ESRI expect national income GNP to fall by 9.4% overall in 2009, and by a further 1.8% in 2010, with growth returning in the last quarter of 2010. Accompanying these are falls in investment of 15.5% in 2009 and 30.5% in 2010. The ESRI prediction of a return to growth at the end of 2010 is consistent with Brian Lenihan’s statement that at the end of 2010 we will have turned the corner economically.
There is a dangerous complacency about these projections. Firstly, it is hard to see how growth will resume in the end of 2010 when the fall in investment is double what it was in 2010. The four billion Euro taken out of the economy next year, given that it is in wages and social welfare, is likely to have the effect of taking €8 billion in spending power out of an economy which is also predicted to see investment fall by a massive 30%.
The more likely outcome for 2010 is that GNP growth will not resume in the last quarter, and the outturn for the year is likely to see GNP fall by 4%. The figure of a 30% fall in investment would signal that there is no real expectation that the banks will start lending strongly in 2010. In fact, this has been strongly hinted at by senior bankers themselves.
As a consequence, we are unlikely to see live register unemployment fall below 400,000. The danger here is that, with combined business investment falls of 45% over 2009 and 2010, positive investment may only start in 2011 from a position where it has been going backwards for two years. This will delay significant reductions in unemployment as existing and new businesses are starved of cash.
Prof. Patrick Honohan of the Irish Central Bank told a Dail Committee yesterday that the banks would need further capitalisation. He wasn’t prepared to put a figure on this, or state whether it would be a 50% ownership by the state or more. It is believed by many that the banks will need another 9 billion, and that this will come from the National Pension Reserve Fund.
The Bank of Ireland and Allied Irish Banks have been recapitalised by €7 billion to date. This is written down as an ‘investment’ by the NPRF in the banks. A further investment of €9 billion would leave 5 billion in the National Pension Reserve Fund. This capital injection is seen as the final intervention to fully stabilise the banks.
As a result of the choreography needed to put NAMA and recapitalisation in place, money will not start to flow; this which underlies the ESRI projection of a 30% fall in investment. In the meantime, there are viable investment opportunities available which will not happen unless a new source of investment is found.
There are about 350 incubated companies at the moment, mainly in the high knowledge area, and the government has been and continues to pour €1 billion a year into them from exchequer funding. There are over 10,000 researchers, including PhDs, working here.
13 companies were ‘spun out’ as fully fledged trading companies. However, once they are spun out, they are at the mercy of venture capitalists to secure capital. This restricts their growth to employing only about 8 people per company, as they need to grow slowly, resulting from venture and other capital investment in them as businesses - which is far too low. Indigenous small high-knowledge companies of this type are either kept small or else bought up by huge global companies who can then make handsome gains on the research and development that was paid for by the Irish state.
This then further weakens our indigenous company base, and makes us more and more susceptible to global economic shocks where global companies shut down and set up elsewhere. It also involves a knowledge-stripping of Irish companies which the Irish taxpayer has paid for, which delivers the innovation profits to companies based in New York or elsewhere. This may make a handful of Irish entrepreneurs immensely wealthy overnight after the takeover of one of these Irish companies, but it delivers poor returns to the country.
Paradoxically, given the recession, we have an opportunity to try to redress this problem to some extent. If the Irish government were to use some or all of the €5 billion left in the National Pension Reserve Fund to spin hundreds of high knowledge companies on the market with sufficient capital to allow them to become large players rather than fledgling ones employing less than 10 people, a significant opportunity for long-term sustainability of Irish-owned high knowledge companies could be created for the first time.
Fledgling companies are currently bought out by huge global companies because they are too small to survive, despite their excellent business ideas. They do not have the economies of scale to compete seriously. The government now has an opportunity to spin out large companies with a large capital and asset base to allow them to compete on their own on International markets.
These in turn, within a reasonably short period of time, can employ hundreds of workers each at the very least, and become internationally sustainable. In turn, this would contribute to an improvement in our balance of payments as these Irish companies would not engage in either transfer pricing or profit repatriation, which most of the large global Trans National Corporations do.
The alternative to not investing significant resources from the NPRF and generating significant employment creation is that most of the 10,000 researchers, including PhDs, will continue to do more post docs as they do now, or emigrate; there will still be only a trickle of a dozen or less than 20 companies at most which will be spun out into the market, and because of their small venture capital funding and small size they will employ less than 10 people - and then get taken over by TNCS who will reap the benefits of years of Research and Development which will have cost the state up to €3 billion. Thus, the Irish state acts as a nursery for global capital. Once knowledge has been harvested, these companies may then site elsewhere.
A plan of this nature could create thousands of jobs. It would create sustainable employment and start the process of making Ireland a leader and not a follower. It would be attractive to all social partners, benefitting workers and entrepreneurs. It would also give the country an opportunity to start breaking the high-risk twin dependence on both construction and global capital.
Global companies will always play a huge part in Irish economic development, but we need to start the process of taking control of our own economic affairs. Through large Irish companies, in high-knowledge areas going forward, such as sustainable energy, biomedical, telematics and food, we can start to insulate the country from the economic shocks which cause recessions. In this way, the current recession can be used as an economic opportunity.
There is a dangerous complacency about these projections. Firstly, it is hard to see how growth will resume in the end of 2010 when the fall in investment is double what it was in 2010. The four billion Euro taken out of the economy next year, given that it is in wages and social welfare, is likely to have the effect of taking €8 billion in spending power out of an economy which is also predicted to see investment fall by a massive 30%.
The more likely outcome for 2010 is that GNP growth will not resume in the last quarter, and the outturn for the year is likely to see GNP fall by 4%. The figure of a 30% fall in investment would signal that there is no real expectation that the banks will start lending strongly in 2010. In fact, this has been strongly hinted at by senior bankers themselves.
As a consequence, we are unlikely to see live register unemployment fall below 400,000. The danger here is that, with combined business investment falls of 45% over 2009 and 2010, positive investment may only start in 2011 from a position where it has been going backwards for two years. This will delay significant reductions in unemployment as existing and new businesses are starved of cash.
Prof. Patrick Honohan of the Irish Central Bank told a Dail Committee yesterday that the banks would need further capitalisation. He wasn’t prepared to put a figure on this, or state whether it would be a 50% ownership by the state or more. It is believed by many that the banks will need another 9 billion, and that this will come from the National Pension Reserve Fund.
The Bank of Ireland and Allied Irish Banks have been recapitalised by €7 billion to date. This is written down as an ‘investment’ by the NPRF in the banks. A further investment of €9 billion would leave 5 billion in the National Pension Reserve Fund. This capital injection is seen as the final intervention to fully stabilise the banks.
As a result of the choreography needed to put NAMA and recapitalisation in place, money will not start to flow; this which underlies the ESRI projection of a 30% fall in investment. In the meantime, there are viable investment opportunities available which will not happen unless a new source of investment is found.
There are about 350 incubated companies at the moment, mainly in the high knowledge area, and the government has been and continues to pour €1 billion a year into them from exchequer funding. There are over 10,000 researchers, including PhDs, working here.
13 companies were ‘spun out’ as fully fledged trading companies. However, once they are spun out, they are at the mercy of venture capitalists to secure capital. This restricts their growth to employing only about 8 people per company, as they need to grow slowly, resulting from venture and other capital investment in them as businesses - which is far too low. Indigenous small high-knowledge companies of this type are either kept small or else bought up by huge global companies who can then make handsome gains on the research and development that was paid for by the Irish state.
This then further weakens our indigenous company base, and makes us more and more susceptible to global economic shocks where global companies shut down and set up elsewhere. It also involves a knowledge-stripping of Irish companies which the Irish taxpayer has paid for, which delivers the innovation profits to companies based in New York or elsewhere. This may make a handful of Irish entrepreneurs immensely wealthy overnight after the takeover of one of these Irish companies, but it delivers poor returns to the country.
Paradoxically, given the recession, we have an opportunity to try to redress this problem to some extent. If the Irish government were to use some or all of the €5 billion left in the National Pension Reserve Fund to spin hundreds of high knowledge companies on the market with sufficient capital to allow them to become large players rather than fledgling ones employing less than 10 people, a significant opportunity for long-term sustainability of Irish-owned high knowledge companies could be created for the first time.
Fledgling companies are currently bought out by huge global companies because they are too small to survive, despite their excellent business ideas. They do not have the economies of scale to compete seriously. The government now has an opportunity to spin out large companies with a large capital and asset base to allow them to compete on their own on International markets.
These in turn, within a reasonably short period of time, can employ hundreds of workers each at the very least, and become internationally sustainable. In turn, this would contribute to an improvement in our balance of payments as these Irish companies would not engage in either transfer pricing or profit repatriation, which most of the large global Trans National Corporations do.
The alternative to not investing significant resources from the NPRF and generating significant employment creation is that most of the 10,000 researchers, including PhDs, will continue to do more post docs as they do now, or emigrate; there will still be only a trickle of a dozen or less than 20 companies at most which will be spun out into the market, and because of their small venture capital funding and small size they will employ less than 10 people - and then get taken over by TNCS who will reap the benefits of years of Research and Development which will have cost the state up to €3 billion. Thus, the Irish state acts as a nursery for global capital. Once knowledge has been harvested, these companies may then site elsewhere.
A plan of this nature could create thousands of jobs. It would create sustainable employment and start the process of making Ireland a leader and not a follower. It would be attractive to all social partners, benefitting workers and entrepreneurs. It would also give the country an opportunity to start breaking the high-risk twin dependence on both construction and global capital.
Global companies will always play a huge part in Irish economic development, but we need to start the process of taking control of our own economic affairs. Through large Irish companies, in high-knowledge areas going forward, such as sustainable energy, biomedical, telematics and food, we can start to insulate the country from the economic shocks which cause recessions. In this way, the current recession can be used as an economic opportunity.
Thursday, 5 November 2009
Social Justice Ireland Alternative Budget
Slí Eile: Social Justice Ireland is to be commended for taking on the Dublin Consensus by working on an alternative budget. SJI has gone through the numbers to come up with a more just way of fiscal adjustment - taking the €4bn adjustment as a given it takes up the previous commitment to raise taxes by €1.9bn and cut spending by €2.25bn. In a paper summarised here, it takes some ideas from the McCarthy report on cutting some areas of public spending while defending - at all costs - those in poverty and low pay through no reduction in social welfare.
It places the challenge
'If we are going to have Romanian levels of taxation then we have to be prepared to accept Romanian levels of social services and infrastructure as well as Romanian levels of salaries.'
On the downside, I see major disadvantages in operating within the framework, assumptions and parameters set by Government. In other words, instead of falling into the 'cuts or taxes' and 'right limb or left leg' dilemmas we need to pursue a twin track approach of investing in infrastructure and helping to boost economic activity and, secondly, widening the tax base to bring in our wealthier brethren into the net.
Thursday, 3 September 2009
Evidence of public desire for alternative economics
Nat O'Connor: Today's Irish Times/TNS mrbi poll can be interpreted as showing public desire for progressive alternatives to the political and economic consensus.
"Reflecting perhaps the public’s frustration with the established parties, today’s poll confirms a drift towards the left in Irish politics. ...
"Support for Labour, Sinn Féin and Independents/Others combined is now higher than at any time since the Irish Times/TNS mrbi series of polls began in 1982."
"Reflecting perhaps the public’s frustration with the established parties, today’s poll confirms a drift towards the left in Irish politics. ...
"Support for Labour, Sinn Féin and Independents/Others combined is now higher than at any time since the Irish Times/TNS mrbi series of polls began in 1982."
Friday, 28 August 2009
A Smart Approach
Nat O'Connor: I agree with some of what Philip R Lane wrote today about taking a smart approach to balancing the public finances.
I agree when he says that “a smart approach to expenditure cuts would avoid crude, across-the- board solutions in favour of a clear ranking of projects and programmes, by which those expenditure lines that offer the highest economic and social benefits suffer the least.”
He argues that due to a lack of cost-benefit analysis “it seems clear that the pre-crisis levels of public spending in many areas were not set at the socially optimal level.” I’m not so sure about “many”, or the infallibility of CBA, but I agree that some programmes probably need to be seriously revised. In fact, I believe that the Government should take a hard look at every year’s Budget and cut out poorly performing programmes of expenditure, but I might disagree about the criteria for measuring success and hence which ones are poorly performing. I would question the value for money of many tax incentives for example.
Professor Lane argues that “The long-term level of public spending must be closely matched by the sustainable level of government revenues” and I agree with that, although logically there are always two ways to achieve this: cut spending or raise revenue. And raising revenue doesn't have to mean an increased tax burden, as it can also result from additional economic activity.
But then I disagree. Professor Lane argues that as “A richer population will typically desire better-quality public services” and Ireland’s income per capita looks likely to decrease, so “the economic forces driving demand for higher public spending in many areas will be quelled.” I would argue instead that a better educated population, and one in which more people have travelled or worked abroad, will be more critical of public services here. And once the population has tasted the fruits of better services, it is not going to cease wanting them during a recession. So I think demand for public spending will remain high.
I don’t disagree that some public expenditure can be cut, if we can agree on the evidence of inefficiency. But I also think that there is plenty of scope for continued public spending, funded by borrowing (within limits) especially if it lays the foundations for sustainable economic development in the future. There is a pressing need to generate new areas of economic activity as part of the solution to the crisis, from which higher revenue can be raised and better public services can be funded.
Finally, I have a problem with the suggestion that “Once the crisis phase is over, a new fiscal debate will be required concerning the optimal level of long-term public spending in the economy.” That debate is needed now, and is happening now, as the role of the state in the economy, including the level of public services that people desire, is a major part of what path we take out of the current crisis.
I agree when he says that “a smart approach to expenditure cuts would avoid crude, across-the- board solutions in favour of a clear ranking of projects and programmes, by which those expenditure lines that offer the highest economic and social benefits suffer the least.”
He argues that due to a lack of cost-benefit analysis “it seems clear that the pre-crisis levels of public spending in many areas were not set at the socially optimal level.” I’m not so sure about “many”, or the infallibility of CBA, but I agree that some programmes probably need to be seriously revised. In fact, I believe that the Government should take a hard look at every year’s Budget and cut out poorly performing programmes of expenditure, but I might disagree about the criteria for measuring success and hence which ones are poorly performing. I would question the value for money of many tax incentives for example.
Professor Lane argues that “The long-term level of public spending must be closely matched by the sustainable level of government revenues” and I agree with that, although logically there are always two ways to achieve this: cut spending or raise revenue. And raising revenue doesn't have to mean an increased tax burden, as it can also result from additional economic activity.
But then I disagree. Professor Lane argues that as “A richer population will typically desire better-quality public services” and Ireland’s income per capita looks likely to decrease, so “the economic forces driving demand for higher public spending in many areas will be quelled.” I would argue instead that a better educated population, and one in which more people have travelled or worked abroad, will be more critical of public services here. And once the population has tasted the fruits of better services, it is not going to cease wanting them during a recession. So I think demand for public spending will remain high.
I don’t disagree that some public expenditure can be cut, if we can agree on the evidence of inefficiency. But I also think that there is plenty of scope for continued public spending, funded by borrowing (within limits) especially if it lays the foundations for sustainable economic development in the future. There is a pressing need to generate new areas of economic activity as part of the solution to the crisis, from which higher revenue can be raised and better public services can be funded.
Finally, I have a problem with the suggestion that “Once the crisis phase is over, a new fiscal debate will be required concerning the optimal level of long-term public spending in the economy.” That debate is needed now, and is happening now, as the role of the state in the economy, including the level of public services that people desire, is a major part of what path we take out of the current crisis.
Friday, 12 June 2009
Towards an alternative economic strategy
As part of its commitment to facilitating the development of an alternative economic strategy, TASC - the think-tank for action on social change - will be publishing a series of papers prepared by a range of individuals and organisations. We will be asking the authors to write a guest post highlighting the main features of the papers in question, which will be available on the TASC commentary page.
The first paper in this series - International Competitiveness and the New Economy: the Role of Diversity and Equality - was prepared for GLEN, and argues that supporting equality and diversity is key to attracting and retaining the skills on which advanced sectors of the economy depend. The paper was researched and written by Eoin Collins, GLEN's Director of Policy Change.
The first paper in this series - International Competitiveness and the New Economy: the Role of Diversity and Equality - was prepared for GLEN, and argues that supporting equality and diversity is key to attracting and retaining the skills on which advanced sectors of the economy depend. The paper was researched and written by Eoin Collins, GLEN's Director of Policy Change.
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