Social Europe Journal has a caustic analysis of the narrative that Ireland has been in some way a star pupil and success story here.
Meanwhile, starting on page 181 of this compendium, you can find Daniel Finn's critique of the Irish policy response to the economic crisis.
Showing posts with label economic policy. Show all posts
Showing posts with label economic policy. Show all posts
Thursday, 21 February 2013
Wednesday, 30 January 2013
New CEPR paper on the contribution of IMF recommendations to the ongoing crisis in Europe
The Center for Economic and Policy Research (CEPR) in Washington D.C. has published a paper examining the policy recommendations made by the IMF to European Union Countries for the years 2008-2011.
Under Article 4 of its Memorandum of Understanding, the IMF is charged with "(i) overseeing the international monetary system to ensure its effective operation and (ii) monitoring each member's compliance with its policy obligations." (IMF) As part of this 'surveillance', the fund continually monitors the economy of member countries, including country visits and consultations with stakeholders. It also makes policy recommendations.
The CEPR paper examines the advice given by the IMF over four years and finds a consistent pattern of policy recommendations, "which indicates (1) a macroeconomic policy that focuses on reducing spending and shrinking the size of government, in many cases regardless of whether this is appropriate or necessary, or may even exacerbate an economic downturn; and (2) a focus on other policy issues that would tend to reduce social protections for broad sectors of the population (including public pensions, healthcare , and employment protections), reduce labor's share of national income, and possibly increase poverty, social exclusion, and economic and social inequality as a result." (CEPR)
Its is unsurprising, perhaps, that this is the path chosen by the IMF. However, as the paper points out, the IMF is overwhelmingly influenced by European governments through its governance system and these same European governments also subscribe to broader European Union goals, such as those articulated in the Europe 2020 strategy of a sustainable and inclusive economy. The paper points to the tension between these goals of a reduction in social exclusion, an increase in research and development and climate change goals, and the fiscal consolidation and cuts to social expenditure as advocated by the IMF.
The paper recommends that the IMF engage in an Independent Evaluation Office (IEO) review of its policy advice in Europe, which might enable it to "play a constructive role in Europe's recovery" and "demonstrate the IMF's commitment to the goals of accountability and transparency in its role as 'trusted advisor'". (CEPR)
The paper can be accessed here.
Under Article 4 of its Memorandum of Understanding, the IMF is charged with "(i) overseeing the international monetary system to ensure its effective operation and (ii) monitoring each member's compliance with its policy obligations." (IMF) As part of this 'surveillance', the fund continually monitors the economy of member countries, including country visits and consultations with stakeholders. It also makes policy recommendations.
The CEPR paper examines the advice given by the IMF over four years and finds a consistent pattern of policy recommendations, "which indicates (1) a macroeconomic policy that focuses on reducing spending and shrinking the size of government, in many cases regardless of whether this is appropriate or necessary, or may even exacerbate an economic downturn; and (2) a focus on other policy issues that would tend to reduce social protections for broad sectors of the population (including public pensions, healthcare , and employment protections), reduce labor's share of national income, and possibly increase poverty, social exclusion, and economic and social inequality as a result." (CEPR)
Its is unsurprising, perhaps, that this is the path chosen by the IMF. However, as the paper points out, the IMF is overwhelmingly influenced by European governments through its governance system and these same European governments also subscribe to broader European Union goals, such as those articulated in the Europe 2020 strategy of a sustainable and inclusive economy. The paper points to the tension between these goals of a reduction in social exclusion, an increase in research and development and climate change goals, and the fiscal consolidation and cuts to social expenditure as advocated by the IMF.
The paper recommends that the IMF engage in an Independent Evaluation Office (IEO) review of its policy advice in Europe, which might enable it to "play a constructive role in Europe's recovery" and "demonstrate the IMF's commitment to the goals of accountability and transparency in its role as 'trusted advisor'". (CEPR)
The paper can be accessed here.
Friday, 4 March 2011
Progressive London conference
Sinéad Pentony: Progressive London is a broad alliance for progressive policies, and they hosted their annual conference on 19th February, bringing together leading figures from the British Labour party, local government, the trade union movement, civil society organisations, academics and many others to discuss building the widest possible alliance against the British Government’s policy of cuts to public spending and services in London and beyond, and to show that there is an alternative. Sound familiar? They were keen to know what lies in store for them should their government continue on its current path and one of the parallel sessions focussed on ‘lessons of the Irish economy’; other speakers included PE bloggers Michael Burke and Michael Taft.
I was particularly interested in the analysis being put forward by those opposing the cuts in the UK, and the active campaign that has emerged in response to government policy that has put itself on the path of reducing the deficit at all costs – jobs, growth and equality...
While there are certainly differences between Ireland and the UK – such as the scale of the fiscal and economic crisis; a banking crisis and monetary policy - there are interesting comparisons that can be drawn between the responses of progressives on both sides.
Progressives in the UK have put forward a clear analysis of why they reject the assumptions underpinning the government’s policy (the main assumption being that cutting spending is the best way of cutting the deficit), and of how the cuts will make Britain more unequal. Intellectual support for this position is being provided by a long list of experts ranging from Nobel Prize Winners in Economics (Stiglitz, Krugman and Pissarides) to Financial Times columnists. This analysis is the driving force behind a growing campaign that is resisting the cuts and highlighting the tangible impacts of cuts to public spending and services across the UK.
Political leadership is being provided by various actors, and the trade union movement is mobilising its constituency. Presentations at the Progressive London conference put forward the view that the current government’s fiscal policy is a ‘choice’ which is ideologically motivated, and that the real agenda is a dismantling of the welfare state, privatisation and deregulation.
The economic analysis of the current situation in the UK is underpinned by a strong class analysis, which is being borne out when the impact of the cuts is being felt most by low paid workers, women and migrant communities. This analysis has not emerged to any great degree during our own home grown crisis, but may yet do so depending on the policies pursued by the next Government.
I was particularly interested in the analysis being put forward by those opposing the cuts in the UK, and the active campaign that has emerged in response to government policy that has put itself on the path of reducing the deficit at all costs – jobs, growth and equality...
While there are certainly differences between Ireland and the UK – such as the scale of the fiscal and economic crisis; a banking crisis and monetary policy - there are interesting comparisons that can be drawn between the responses of progressives on both sides.
Progressives in the UK have put forward a clear analysis of why they reject the assumptions underpinning the government’s policy (the main assumption being that cutting spending is the best way of cutting the deficit), and of how the cuts will make Britain more unequal. Intellectual support for this position is being provided by a long list of experts ranging from Nobel Prize Winners in Economics (Stiglitz, Krugman and Pissarides) to Financial Times columnists. This analysis is the driving force behind a growing campaign that is resisting the cuts and highlighting the tangible impacts of cuts to public spending and services across the UK.
Political leadership is being provided by various actors, and the trade union movement is mobilising its constituency. Presentations at the Progressive London conference put forward the view that the current government’s fiscal policy is a ‘choice’ which is ideologically motivated, and that the real agenda is a dismantling of the welfare state, privatisation and deregulation.
The economic analysis of the current situation in the UK is underpinned by a strong class analysis, which is being borne out when the impact of the cuts is being felt most by low paid workers, women and migrant communities. This analysis has not emerged to any great degree during our own home grown crisis, but may yet do so depending on the policies pursued by the next Government.
Monday, 31 January 2011
Off to a dismal start
Michael Taft: Even before the election has been officially announced, the debate has gotten off to a fairly dismal start. Yesterday, Labour’s Eamon Gilmore made the simple proposition that the target date for Maastricht compliance should be postponed until 2016. The reaction from Fianna Fail and Fine Gael has been extreme. You’d think Labour was proposing the end of capitalism as we know it.
Let’s get a grip on the real world. The IMF released an analysis of the Government’s four-year plan last December and assessed its potential to repair public finances. They found that by 2014, the deficit would be -5.1 percent of GDP (the Government is aiming for -2.8 percent). By 2015, it won’t be a whole lot better. The rate of deficit reduction slows to -4.8 percent. If this rate holds in subsequent years, Maastricht compliance won’t be achieved even by the end of the decade.
This shouldn’t be too surprising. The ESRI signalled that under a low-growth scenario, the deficit would still be below the Maastricht guideline by the end of decade.
So all Labour is acknowledging is what everyone knows (though only a few will say so publicly).
Why is this happening? Because the weight of the austerity programme is crushing growth. The IMF projects average annual growth up to 2014 to be 2.1 percent compared to the Government’s 2.8 percent. This lower growth projection will result in stubbornly high unemployment – estimated to be 11 percent in 2015 by the IMF. This burden, along with sluggish income growth, undermines the targets in the Government’s four-year plan.
John McHale refers to this in a thoughtful article in the Sunday Business Post. He posits three conditions to achieving debt stabilisation and regaining market confidence. First, a credible deficit-reduction plan; second, assurance that there are no additional losses on our banks’ balance sheets, and third, that nominal GDP growth ‘evolve broadly in line envisioned in recent IMF, ESRI and government forecasts’.
Regarding the first, we don’t have such a plan (austerity, as we have seen in the past two years, only deflates income and growth, but not debt); regarding the second – the markets continue to be wary and only the most stringent tests will assure them. Regarding the third point, however, we have a problem as the IMF, ESRI and government forecasts are telling us different things. Here are the latest nominal growth projections over the next two years:
Government: 6.8 percent
ESRI: 4.2 percent
IMF: 4.0 percent
EU: 4.0 percent
The IMF and EU project that nominal GDP growth will be 40 percent less than what the Government is hoping for. The ESRI’s projection isn’t a whole lot better.
But when it comes to GNP – the driver of most tax revenue and, therefore, the key to deficit reduction - the gap between the forecasts widen considerably.
Government: 5.6 percent
EU: 1.2 percent
ESRI: 0.8 percent
IMF: 0.5 percent
Now we can see why both the EU and IMF projections show the Government’s four-year plan will fail. Anaemic growth and high unemployment is a sure-fire recipe for high deficits and rising debt.
So when Labour calls for the Maastricht target deadline be postponed until 2016, all they are doing is taking a realistic account of the actually existing economy. Indeed, under current policy that deadline won’t be reached even by then.
If the argument centres on deadlines then it will be a dismal debate. Instead, what we need is a debate over a substantial and sustained investment drive (the only means to create sustainable growth that will translate into deficit-reduction) and alternatives to austerity measures.
That debate has yet to start in earnest.
Let’s get a grip on the real world. The IMF released an analysis of the Government’s four-year plan last December and assessed its potential to repair public finances. They found that by 2014, the deficit would be -5.1 percent of GDP (the Government is aiming for -2.8 percent). By 2015, it won’t be a whole lot better. The rate of deficit reduction slows to -4.8 percent. If this rate holds in subsequent years, Maastricht compliance won’t be achieved even by the end of the decade.
This shouldn’t be too surprising. The ESRI signalled that under a low-growth scenario, the deficit would still be below the Maastricht guideline by the end of decade.
So all Labour is acknowledging is what everyone knows (though only a few will say so publicly).
Why is this happening? Because the weight of the austerity programme is crushing growth. The IMF projects average annual growth up to 2014 to be 2.1 percent compared to the Government’s 2.8 percent. This lower growth projection will result in stubbornly high unemployment – estimated to be 11 percent in 2015 by the IMF. This burden, along with sluggish income growth, undermines the targets in the Government’s four-year plan.
John McHale refers to this in a thoughtful article in the Sunday Business Post. He posits three conditions to achieving debt stabilisation and regaining market confidence. First, a credible deficit-reduction plan; second, assurance that there are no additional losses on our banks’ balance sheets, and third, that nominal GDP growth ‘evolve broadly in line envisioned in recent IMF, ESRI and government forecasts’.
Regarding the first, we don’t have such a plan (austerity, as we have seen in the past two years, only deflates income and growth, but not debt); regarding the second – the markets continue to be wary and only the most stringent tests will assure them. Regarding the third point, however, we have a problem as the IMF, ESRI and government forecasts are telling us different things. Here are the latest nominal growth projections over the next two years:
Government: 6.8 percent
ESRI: 4.2 percent
IMF: 4.0 percent
EU: 4.0 percent
The IMF and EU project that nominal GDP growth will be 40 percent less than what the Government is hoping for. The ESRI’s projection isn’t a whole lot better.
But when it comes to GNP – the driver of most tax revenue and, therefore, the key to deficit reduction - the gap between the forecasts widen considerably.
Government: 5.6 percent
EU: 1.2 percent
ESRI: 0.8 percent
IMF: 0.5 percent
Now we can see why both the EU and IMF projections show the Government’s four-year plan will fail. Anaemic growth and high unemployment is a sure-fire recipe for high deficits and rising debt.
So when Labour calls for the Maastricht target deadline be postponed until 2016, all they are doing is taking a realistic account of the actually existing economy. Indeed, under current policy that deadline won’t be reached even by then.
If the argument centres on deadlines then it will be a dismal debate. Instead, what we need is a debate over a substantial and sustained investment drive (the only means to create sustainable growth that will translate into deficit-reduction) and alternatives to austerity measures.
That debate has yet to start in earnest.
Friday, 16 April 2010
UK Election and Economic Policy
Nat O'Connor: Beyond the glitz of party leaders in TV debates, the very fact of a UK general election is likely to influence Ireland. Election fever in the UK, and its echoes in the media here, may or may not put psychological pressure on the Government and its narrow Oireachtas majority. Regardless, it is near certain that the UK election will be fought on the economy and this should present people in Ireland with a more robust discussion of economic policy options than have been presented domestically (albeit for the UK's recovery and future rather than our own). From that point of view, it is interesting to see what the main parties are proposing.
The BBC provides a General Election page where summaries of the policies of all the UK's parties can be compared, with links to their full manifestos.
I won't repeat the details here, but familiar questions arise in the UK debate: How fast to cut the deficit and national debt? What efficiencies and cuts in public service can be made without impairing frontline services, especially health? What minor tax/social insurance changes can be made to raise revenue and/or promote economic activity? What further reform of banks is required? Should banks' retail and investment arms be separated? etc.
There are not too many new suggestions, even from beyond the main threesome. The Greens are championing Tobin Tax (aka Robin Hood tax) on financial transactions. UKIP have taken up the flat tax argument (replace all income tax and national insurance with a single rate of tax). Plaid Cymru propose to "create a council of ministers, business leaders, industrialists and trades unions leaders to take a strategic overview of debt reduction". The Scottish Socialist Party propose replacing Council Tax with an income-based "Scottish Service Tax".
The DUP are contining their policy of a business rates freeze, whereas Sinn Fein want to "force banks to allow mortgage holders to reschedule repayments and allow movement from fixed to variable rates without financial penalties".
Meanwhile, the newer TUV (Traditional Unionist Voice) "Oppose moves towards an all-Ireland economic policy" but "believe that a 'low taxation economy', with 'optimum business freedom', will maximise growth." So what part of Southern economic policy are they not converging with?
The third TV leaders' debate, to be held on BBC 1 on Thursday 29 April, will focus on the economy. The BBC will also be hosting a debate between Northern Ireland's party leaders, which may give insight into the future policies likely to be adopted by Northern Ireland's Assembly.
The BBC provides a General Election page where summaries of the policies of all the UK's parties can be compared, with links to their full manifestos.
I won't repeat the details here, but familiar questions arise in the UK debate: How fast to cut the deficit and national debt? What efficiencies and cuts in public service can be made without impairing frontline services, especially health? What minor tax/social insurance changes can be made to raise revenue and/or promote economic activity? What further reform of banks is required? Should banks' retail and investment arms be separated? etc.
There are not too many new suggestions, even from beyond the main threesome. The Greens are championing Tobin Tax (aka Robin Hood tax) on financial transactions. UKIP have taken up the flat tax argument (replace all income tax and national insurance with a single rate of tax). Plaid Cymru propose to "create a council of ministers, business leaders, industrialists and trades unions leaders to take a strategic overview of debt reduction". The Scottish Socialist Party propose replacing Council Tax with an income-based "Scottish Service Tax".
The DUP are contining their policy of a business rates freeze, whereas Sinn Fein want to "force banks to allow mortgage holders to reschedule repayments and allow movement from fixed to variable rates without financial penalties".
Meanwhile, the newer TUV (Traditional Unionist Voice) "Oppose moves towards an all-Ireland economic policy" but "believe that a 'low taxation economy', with 'optimum business freedom', will maximise growth." So what part of Southern economic policy are they not converging with?
The third TV leaders' debate, to be held on BBC 1 on Thursday 29 April, will focus on the economy. The BBC will also be hosting a debate between Northern Ireland's party leaders, which may give insight into the future policies likely to be adopted by Northern Ireland's Assembly.
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".
Friday, 9 April 2010
TINA can no longer be tolerated
Tom McDonnell: It is impossible to know in advance with one hundred per cent certainty what the best economic strategies for Ireland are. Despite this, the decisions themselves must of course be made in advance of the outcomes. So what is the rational thing to do?
The rational thing to do is to weigh the potential outcomes and then choose the best action as judged by the likely consequences. We cannot expect, and we do not require, certain knowledge of the consequences. Our powers of forecasting and prediction are fallible in the extreme. We are not immune to unintended consequences. The Government’s obligation as responsible decision-makers is thus simply to objectively consider all of the options based on existing evidence and then make a judgement informed by reasoned expectations.
Progress and improvement in the status quo, whether on an individual or a national level, requires constant questioning; investigation; self reflection and judgement. Yet the TINA (There Is No Alternative) mantra that is being promulgated by the Government and by elements of the mainstream media dogmatically rejects even the consideration of alternative strategies. As such TINA is an attack on rationality and the decision-making process itself. This is particularly ironic because economics is supposed to be the science of decision-making subject to constraint. The sheer paternalism and anti-intellectualism of TINA is simply staggering. The philosopher kings have spoken and we are to acquiesce. There will be no consideration of alternative strategies.
Yet the advisors and decision-makers in Government cannot know with certitude what the actual consequences of their chosen actions will be, particularly in a complex system like the macroeconomy. So where does the justification for the claim that there is no alternative come from? Perhaps their record of economic management and forecasting is so impressive that we should simply trust that they know what they are doing? These, of course, are the people that felt it was a good idea to construct budgets whose very sustainability was dependent on the bizarre assumption that a particular asset price would continue to rise indefinitely. Are we now to assume that these people have suddenly gained such an understanding of the probabilistic outcomes of each competing strategy that their judgement is infallible?
What was the argument for the light touch regulation and Thatcherite individualism of the last decade? Was that strategy chosen based on a probabilistic analysis of what was in the interest of the citizens of Ireland? Or was it simply a dogmatic implementation of a laissez-faire economic ideology?
Similarly, what are the intellectual underpinnings for the current Government strategies? Were the current strategies chosen based on a thorough analysis of the likely outcomes of a set of competing alternatives? Or are the current strategies the result of groupthink?
Where are the economists in this decision-making process? There needs to be a full debate within the economics profession in Ireland. What does economic theory suggest, and what does historical experience suggest? Everything should be considered and weighed on its merits, and we must accept that there is probably no best alternative. Choices have to be made and that implies sacrifices. Nonetheless, the goal should be to minimise the hardship.
The economy is broken and appears to be in a vicious cycle of decline. Revenue continues to fall and unemployment continues to rise. Intervention of some kind is required. One suggestion is that a stimulus through Government investment is the best way to intervene. The arguments against investment are, of course, that we simply cannot afford it, and that even if we could it wouldn’t work. The crowding-out argument suggests that no permanent increase in employment can be obtained through state spending on capital projects, and that the only effects of stimulus will be inflation and market distortion. But the crowding-out of private investment is only likely when the economy is already close to full employment, and so this argument is not relevant in the present context.
Identifying the best strategy comes down to correctly analysing whether there is something preventing the proper workings of the economic system, or whether the system will naturally be able to correct itself on its own after a period of time. If the former is true, then we can expect either economic stagnation or for the vicious cycle of decline to continue, but if the latter is true then we may reasonably expect a return to potential output.
The cost to the budget cannot easily be dismissed. However, if it can be shown that a strategy of temporary Government investment can boost economic growth and employment, then investment can lead to a smaller budget deficit as a proportion of nominal GDP. The success of such a strategy will depend on the value of the multiplier. What is important is that a scatter gun approach to investment must be avoided. Investment must be made on a case-by-case analysis of the probabilistic outcomes. Such an analysis can identify where the largest multipliers are likely to be found.
It is time to move away from unquestioning acceptance of the current strategy. A national debate is needed and the economics profession needs to take a lead role. The likely consequences of all the various strategies need to be analysed, and the results of these analyses need to be articulated and widely disseminated at all levels. The TINA mantra can no longer be tolerated.
The rational thing to do is to weigh the potential outcomes and then choose the best action as judged by the likely consequences. We cannot expect, and we do not require, certain knowledge of the consequences. Our powers of forecasting and prediction are fallible in the extreme. We are not immune to unintended consequences. The Government’s obligation as responsible decision-makers is thus simply to objectively consider all of the options based on existing evidence and then make a judgement informed by reasoned expectations.
Progress and improvement in the status quo, whether on an individual or a national level, requires constant questioning; investigation; self reflection and judgement. Yet the TINA (There Is No Alternative) mantra that is being promulgated by the Government and by elements of the mainstream media dogmatically rejects even the consideration of alternative strategies. As such TINA is an attack on rationality and the decision-making process itself. This is particularly ironic because economics is supposed to be the science of decision-making subject to constraint. The sheer paternalism and anti-intellectualism of TINA is simply staggering. The philosopher kings have spoken and we are to acquiesce. There will be no consideration of alternative strategies.
Yet the advisors and decision-makers in Government cannot know with certitude what the actual consequences of their chosen actions will be, particularly in a complex system like the macroeconomy. So where does the justification for the claim that there is no alternative come from? Perhaps their record of economic management and forecasting is so impressive that we should simply trust that they know what they are doing? These, of course, are the people that felt it was a good idea to construct budgets whose very sustainability was dependent on the bizarre assumption that a particular asset price would continue to rise indefinitely. Are we now to assume that these people have suddenly gained such an understanding of the probabilistic outcomes of each competing strategy that their judgement is infallible?
What was the argument for the light touch regulation and Thatcherite individualism of the last decade? Was that strategy chosen based on a probabilistic analysis of what was in the interest of the citizens of Ireland? Or was it simply a dogmatic implementation of a laissez-faire economic ideology?
Similarly, what are the intellectual underpinnings for the current Government strategies? Were the current strategies chosen based on a thorough analysis of the likely outcomes of a set of competing alternatives? Or are the current strategies the result of groupthink?
Where are the economists in this decision-making process? There needs to be a full debate within the economics profession in Ireland. What does economic theory suggest, and what does historical experience suggest? Everything should be considered and weighed on its merits, and we must accept that there is probably no best alternative. Choices have to be made and that implies sacrifices. Nonetheless, the goal should be to minimise the hardship.
The economy is broken and appears to be in a vicious cycle of decline. Revenue continues to fall and unemployment continues to rise. Intervention of some kind is required. One suggestion is that a stimulus through Government investment is the best way to intervene. The arguments against investment are, of course, that we simply cannot afford it, and that even if we could it wouldn’t work. The crowding-out argument suggests that no permanent increase in employment can be obtained through state spending on capital projects, and that the only effects of stimulus will be inflation and market distortion. But the crowding-out of private investment is only likely when the economy is already close to full employment, and so this argument is not relevant in the present context.
Identifying the best strategy comes down to correctly analysing whether there is something preventing the proper workings of the economic system, or whether the system will naturally be able to correct itself on its own after a period of time. If the former is true, then we can expect either economic stagnation or for the vicious cycle of decline to continue, but if the latter is true then we may reasonably expect a return to potential output.
The cost to the budget cannot easily be dismissed. However, if it can be shown that a strategy of temporary Government investment can boost economic growth and employment, then investment can lead to a smaller budget deficit as a proportion of nominal GDP. The success of such a strategy will depend on the value of the multiplier. What is important is that a scatter gun approach to investment must be avoided. Investment must be made on a case-by-case analysis of the probabilistic outcomes. Such an analysis can identify where the largest multipliers are likely to be found.
It is time to move away from unquestioning acceptance of the current strategy. A national debate is needed and the economics profession needs to take a lead role. The likely consequences of all the various strategies need to be analysed, and the results of these analyses need to be articulated and widely disseminated at all levels. The TINA mantra can no longer be tolerated.
Friday, 29 January 2010
There are smarter ways to economic recovery
Stephen Kinsella: The smart economy is a nice idea, perhaps even a good idea. But like most nice ideas, when exposed to reality, the smart economy just breaks down. The smart economy as a concept takes no notice of the detail: who is looking for what type of job right now, and how long will it take those people to train for new ones? When confronted by the facts, we have to augment our industrial development strategy if we want to protect the real, on-the-ground, economy.
A smart economy is supposed to drive economic growth by bringing in or creating 'high value added' jobs for well-qualified people, who, because these jobs pay really well, make and spend lots of money locally, and pay lots of taxes, thus boosting the local and national economy. The smart economy idea has merit, but if we created the smart economy in full, no-holds-barred, tomorrow, if the smart economy succeeded beyond our policy makers' wildest dreams, it wouldn't help most of the people in the Mid West region who are unemployed for 3-5 years. This is because the idea of the smart economy is at variance with the facts of the type of unemployment in the Mid West right now.
The fact of the matter is that most of those newly unemployed come from construction and services, and will require significant and costly retraining, which may take years, to make them elligible for 'smart economy' jobs, even if those jobs were plentiful. The reserve of labour the Mid-West has right now, to be clear, is best helped by intensive retraining and retooling of a portion of the workforce, while providing state-stimulated projects to help workers and the local economy while retraining. Three infrastructural projects with long-run benefits to the region that are shovel-ready are the Links project, the expansion of Foynes port, and the Regeneration project, not to mention the 20+ recommendations of the Mid West Taskforce. Implementing large capital projects concurrent with up skilling, retraining, and business development programmes takes care of the time lags involved in training workers, boosts the local economy, and does not overly harm the debt: GDP ratio of a country running headlong into +100% debt: GDP territory in any case. The question to answer when thinking of borrowing for these types of projects is: does the long term social benefit exceed the long term social cost? If the benefits are a halt or reduction in the increase in unemployment, the creation of new capital and a reduction in social maladies like poor health and lawlessness, combined with an increase in local consumption and investment, coupled with the retraining of a large portion of the unemployed workforce, then, set against the cost of borrowing a fraction of the cost of NAMA's €54 billion to achieve those ends is, for me, worth it. I'd welcome any costings on such projects--if the long term benefits turn out to be less than the costs, I'll shut up.
You might ask why the MidWest is different, why it should receive special treatment ahead of other regions with similar, if not worse, problems. The answer is historical. The MidWest has underperformed economically relative to the rest of Ireland throughout the boom years. There are many reasons for the region's underperformance, but the fact remains. To focus exclusively on creating high-value added jobs is to disenfranchise tens of thousands of unemployed persons in the Mid West region, because they just won't get those jobs. The smart economy, rather than helping the newly unemployed, has hurt them, by diverting funds which could have helped them to other uses.
I'm not arguing for a return to the days of the construction boom: those days are gone, and good riddance to them. I'm asking that we look squarely at the data first, talk to people on the ground, and ask them what they need. Couple that to local and international expertise, and get something credible, accountable, and practical started inside of 6 weeks. Not 18 months. Not 24 months. Certainly not 3-5 years. Our unemployed can't wait that long.
A smart economy is supposed to drive economic growth by bringing in or creating 'high value added' jobs for well-qualified people, who, because these jobs pay really well, make and spend lots of money locally, and pay lots of taxes, thus boosting the local and national economy. The smart economy idea has merit, but if we created the smart economy in full, no-holds-barred, tomorrow, if the smart economy succeeded beyond our policy makers' wildest dreams, it wouldn't help most of the people in the Mid West region who are unemployed for 3-5 years. This is because the idea of the smart economy is at variance with the facts of the type of unemployment in the Mid West right now.
The fact of the matter is that most of those newly unemployed come from construction and services, and will require significant and costly retraining, which may take years, to make them elligible for 'smart economy' jobs, even if those jobs were plentiful. The reserve of labour the Mid-West has right now, to be clear, is best helped by intensive retraining and retooling of a portion of the workforce, while providing state-stimulated projects to help workers and the local economy while retraining. Three infrastructural projects with long-run benefits to the region that are shovel-ready are the Links project, the expansion of Foynes port, and the Regeneration project, not to mention the 20+ recommendations of the Mid West Taskforce. Implementing large capital projects concurrent with up skilling, retraining, and business development programmes takes care of the time lags involved in training workers, boosts the local economy, and does not overly harm the debt: GDP ratio of a country running headlong into +100% debt: GDP territory in any case. The question to answer when thinking of borrowing for these types of projects is: does the long term social benefit exceed the long term social cost? If the benefits are a halt or reduction in the increase in unemployment, the creation of new capital and a reduction in social maladies like poor health and lawlessness, combined with an increase in local consumption and investment, coupled with the retraining of a large portion of the unemployed workforce, then, set against the cost of borrowing a fraction of the cost of NAMA's €54 billion to achieve those ends is, for me, worth it. I'd welcome any costings on such projects--if the long term benefits turn out to be less than the costs, I'll shut up.
You might ask why the MidWest is different, why it should receive special treatment ahead of other regions with similar, if not worse, problems. The answer is historical. The MidWest has underperformed economically relative to the rest of Ireland throughout the boom years. There are many reasons for the region's underperformance, but the fact remains. To focus exclusively on creating high-value added jobs is to disenfranchise tens of thousands of unemployed persons in the Mid West region, because they just won't get those jobs. The smart economy, rather than helping the newly unemployed, has hurt them, by diverting funds which could have helped them to other uses.
I'm not arguing for a return to the days of the construction boom: those days are gone, and good riddance to them. I'm asking that we look squarely at the data first, talk to people on the ground, and ask them what they need. Couple that to local and international expertise, and get something credible, accountable, and practical started inside of 6 weeks. Not 18 months. Not 24 months. Certainly not 3-5 years. Our unemployed can't wait that long.
Wednesday, 30 September 2009
Northern Ireland review of economic policy
John Barry: To balance the focus of this blogsite on political and economic developments in the Republic of Ireland - here's one about Northern Ireland.
In Northern Ireland, the Barnett review - Independent Review of Economic Policy (DETI and Invest NI) - - published yesterday, is weighty and provides much food for thought in terms of the economic challenges and opportunities for NI. However whether the NI executive (aka Sinn Fein and the DUP) will use it to create a new economic strategy or whether it will sink only time will tell (my bets are on the latter). Some of the main findings of the report - commissioned by the Department and Enterprise Trade and Investment - are outlined below.
While the report finds that Invest Northern Ireland has contributed to job creation and NI's overall economic performance, it confirms the views of those, like me, who have viewed NI's economic strategy as partly a 'race to the bottom' in terms of seeking low-wage and insecure service sector jobs. As the report puts it:
"When compared to other UK regions, NI has attracted a higher number of new foreign-owned investment projects and promoted a higher number of jobs per head of population. However, many of these jobs, particularly those in the service sector, offered wages below the private sector average (e.g. contact centres). Furthermore, a significant proportion of support was associated with safeguarding jobs in the manufacturing sector" (p.7).
While recognising that a lot of the policy drivers affecting economic performance lie outside the NI Executive, it also notes the lack of improvement in NI's productivity and sees R&D as a key driver of economic growth, which it views as - surprise, surprise - FDI attracting and export-led. One of the report's most striking recommendations - and one likely to cause perhaps most political upset within the NI executive - is the proposal for the creation of a single 'Department of the Economy' - (requiring the amalgamation of two existing Departments - DETI (which the DUP hold) and DEL (which the UUP hold)). Re-carving political power within the 4 party executive - especially given the increasing hostility betwene the DUP and UUP - is not politically feasible, even though it make make economic and policy sense (but then when did the latter have anything to do with how the NI executive operates?!).
Another, unsurprising finding is that Universities should support STEM and 'Innovation relevant' subjects more (which in the current financial constext facing Universities in NI means less 'non-economic' subjects, and further increasing the trend towards viewing the primary role of University as providing skills for the economy), and create more industry-university innovation links. However, the report also suggests the creation of: "A new institution for commercially-oriented research should be explored in NI, along the lines pioneered by the successful VTT institute in Finland. The institution should be outside the University system and not subject to the constraints of the Research Excellence Framework (REF)" (p.10). So, speaking as an academic, the authors of the report either thought universities were not deemed to be up to the task, or were inappropriate, or that it was accepted that there is some scope (just) and rationale for universities to also engage in non-economic research and teaching. If the latter - how big of them!
There is mention of the 'Green New Deal' (and indeed support for the social economy) for NI but this is not seen as a central plank for economic recovery. Here the report echoes the short-sightedness of the Matrix report - http://www.matrix-ni.org/ which likewise viewed a green, low-carbon economic strategy as something that was of future, but not of immediate relevance to the regional economy in NI.
It views the Green New Deal not as a distinct, innovation-led strategy to provide jobs,enhance energy security and begin the process of putting Northern Ireland on a 'low carbon' path, but as something which merely contributes to 'energy saving and conservation' (p.11) as part of the 2008 Strategic Energy Framework. Sadly, this indicates to me the authors of the report did not either read what the GND is about and what they possibilities are for a GND in NI, or did and decided rather to present a conventional 'business as usual' economic analysis and set of recommendations.
While the report does outline some good ideas, provides a wealth of information, data and critical analysis of the NI exeutive's economic policy, it is regretable for a report that focuses on and arguges for the centrality of 'Innovation', that it contains precious little innovative economic thinking.
In Northern Ireland, the Barnett review - Independent Review of Economic Policy (DETI and Invest NI) - - published yesterday, is weighty and provides much food for thought in terms of the economic challenges and opportunities for NI. However whether the NI executive (aka Sinn Fein and the DUP) will use it to create a new economic strategy or whether it will sink only time will tell (my bets are on the latter). Some of the main findings of the report - commissioned by the Department and Enterprise Trade and Investment - are outlined below.
While the report finds that Invest Northern Ireland has contributed to job creation and NI's overall economic performance, it confirms the views of those, like me, who have viewed NI's economic strategy as partly a 'race to the bottom' in terms of seeking low-wage and insecure service sector jobs. As the report puts it:
"When compared to other UK regions, NI has attracted a higher number of new foreign-owned investment projects and promoted a higher number of jobs per head of population. However, many of these jobs, particularly those in the service sector, offered wages below the private sector average (e.g. contact centres). Furthermore, a significant proportion of support was associated with safeguarding jobs in the manufacturing sector" (p.7).
While recognising that a lot of the policy drivers affecting economic performance lie outside the NI Executive, it also notes the lack of improvement in NI's productivity and sees R&D as a key driver of economic growth, which it views as - surprise, surprise - FDI attracting and export-led. One of the report's most striking recommendations - and one likely to cause perhaps most political upset within the NI executive - is the proposal for the creation of a single 'Department of the Economy' - (requiring the amalgamation of two existing Departments - DETI (which the DUP hold) and DEL (which the UUP hold)). Re-carving political power within the 4 party executive - especially given the increasing hostility betwene the DUP and UUP - is not politically feasible, even though it make make economic and policy sense (but then when did the latter have anything to do with how the NI executive operates?!).
Another, unsurprising finding is that Universities should support STEM and 'Innovation relevant' subjects more (which in the current financial constext facing Universities in NI means less 'non-economic' subjects, and further increasing the trend towards viewing the primary role of University as providing skills for the economy), and create more industry-university innovation links. However, the report also suggests the creation of: "A new institution for commercially-oriented research should be explored in NI, along the lines pioneered by the successful VTT institute in Finland. The institution should be outside the University system and not subject to the constraints of the Research Excellence Framework (REF)" (p.10). So, speaking as an academic, the authors of the report either thought universities were not deemed to be up to the task, or were inappropriate, or that it was accepted that there is some scope (just) and rationale for universities to also engage in non-economic research and teaching. If the latter - how big of them!
There is mention of the 'Green New Deal' (and indeed support for the social economy) for NI but this is not seen as a central plank for economic recovery. Here the report echoes the short-sightedness of the Matrix report - http://www.matrix-ni.org/ which likewise viewed a green, low-carbon economic strategy as something that was of future, but not of immediate relevance to the regional economy in NI.
It views the Green New Deal not as a distinct, innovation-led strategy to provide jobs,enhance energy security and begin the process of putting Northern Ireland on a 'low carbon' path, but as something which merely contributes to 'energy saving and conservation' (p.11) as part of the 2008 Strategic Energy Framework. Sadly, this indicates to me the authors of the report did not either read what the GND is about and what they possibilities are for a GND in NI, or did and decided rather to present a conventional 'business as usual' economic analysis and set of recommendations.
While the report does outline some good ideas, provides a wealth of information, data and critical analysis of the NI exeutive's economic policy, it is regretable for a report that focuses on and arguges for the centrality of 'Innovation', that it contains precious little innovative economic thinking.
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