Crowd sourcing the solutions to Ireland’s woes…

Right, it must be becoming obvious to readers of Slugger O’Toole that the two parts of this island are in now two very different pyschological states of mind. Whilst the Stormont administration appears to be ignoring a £1 billion deficit in current accounts, the Department of Finance in the Republic is predicting a spend of €700 per southern head in Northern Ireland, the search for a solution, any solution to the southern economic problems are getting increasingly desperate creative… World by Storm dissects the reasoning behind Aileen O’Toole’s one woman crusade to crowd source solutions to the Republic’s current malaise The Ideas Campaign… Good idea, but as WBS comments, despite the impressive list of patrons, that well, “it’s not that its nothing, it’s just that it’s so little.”

It’s not that I’m dismissive of new approaches, or indeed using the internet as a tool to deal with the recession. But I suspect that its utility will develop organically and in ways we can’t easily predict, not in this sort of an enterprise.

But as with the call for ‘national government’ this seems to me to be indicative of a hope that there are simple, relatively painless and easily implemented short-cuts from our present situation to a better one. It’s almost identical in its proposition that ‘normal’ political activity is irrelevant and that somehow by pulling ourselves up by our bootstraps all will be well.

It is very similar in its implicit assumption that those who are successful in ‘business’ are somehow able to transfer that ’success’ to the vastly more complex area of running an advanced capitalist economy. I think (and I know ejh of these parts has also made this very point) that that is a dangerously simplistic assumption and one that has been shown time and again to be flawed, not least in the very evident inability of large numbers of capitalist ‘leaders’ both here and abroad to run their own enterprises successfully and their continual resort to state and government.

Added to that I think it ignores or misunderstands the very nature of government within a state and what governments and states do and can do. And despite the fact that our present government is of the right that does not in and of itself detract from its potential, what ever about its ability, to activism.

There is a need for some kind of creative sourcing of new ideas into what often feels like a stale debate amongst the usual suspects in the Irish MSM… The UK too, for all its size and copious provision of think tanks have an enormous shortfall in fresh ideas…

In this case, you have to admire the ambition, not to mention the capacity to muster such a substantial roll call of support… But WBS is dead right when he notes, that the solutions – when and if they come – will need to be many and various, and the instruments to catch them will not be quite as broad and ‘catch all’ as this one…

  • Mack

    And there I was thinking things were looking less bleak. From what I’ve been reading there is little chance that Ireland won’t be able to sell government bonds and the ECB have given us until 2013 to sort out the deficit.
    Given government debt is relatively low, I think we have the space to sort the fiscal mess out – I’d still cut the salaries of the top earning civil servants and put the rest on a pay freeze until they bench mark 20-30% below private sector wages. An Bord Snip will hopefully cut away at as many of the useless quangos as possible.

    House prices continue to collapse, as do rents, making life more affordable for our young workers, meaning they can live more comfortably on lower wages.

    Retail prices continue to correct downwards towards European levels, again making life in Ireland (Republic) more affordable.

    The commercial property collapse can only continue to drive down commercial rents.

    The private sector is getting more and more competitive by the day, there are large (and growning) numbers of umemployed who I’m sure would work for a competitive wage. If we can keep the low tax structure that has served us so well up until now, we’ll be in a good position once the world economy turns around.

  • Mick Fealty

    Mack,

    I’m working on a idea I’d like to share with you in advance, to sanity check as much as anything else… drop me a line if you are interested? email top right…

  • John East Belfast

    Mack

    A major problem for the ROI is the Salary levels converted at a strong Euro.

    I am aware of a Northern Company who almost emeployed somebody from the border region for a middle management role but were pipped by his current Employer for Eur 70k plus a car.

    That was bad enough when the Euro was 1.42 18 months ago but at 1.06 it is an increase of about £16k.

    It was also about £30k above what an equivalent role in NI would command

    The elephant in the room are unsustainable ROI Wage rates with a Euro linked to a strong Germany.

    It is simply too expensive to employ people in the ROI – especially for FDI – and the attractiveness of the UK (not to mention Poland etc) as a viable alternative will not go unnoticed.

    The Euro is now part of the ROI’s problem unless it can deliver a 30% wage decrease across the board

  • Dave

    “The private sector is getting more and more competitive by the day, there are large (and growning) numbers of umemployed who I’m sure would work for a competitive wage. If we can keep the low tax structure that has served us so well up until now, we’ll be in a good position once the world economy turns around.”

    Sanity check? They will indeed be willing to work for “a competitive wage” but the jobs are vanishing at the rate of 1,000 a day, and there are no new jobs to replace them. FDI, the driving dyanamic behind the government’s economic development strategy for creating employment, has totally collapsed in Ireland, with Ireland now having negative FDI. No new investment is coming into the country whatsoever: none, zero, zilch. While the 1.2 trillion in external debt that was borrowed in the last 5 years to fuel the boom will now all have to be repaid sans the means to generate the wealth to repay it. In other words, in that inflow will now be in reverse until the country defaults. Likewise, 94% of Ireland’s export are from non-Irish businesses, and those exports stagnated when we joined the Eurozone, and are now at lower that 10 years ago. The countries we are competing with have an average monthly wage that is half the level of unemployment benefit in Ireland and they also now have low tax rates (Estonia has abolished corporation taxs). As for you wish to “keep the low tax structure that has served us so well” I can only assume you meant that as a joke. We will end up with the highest tax rates in Europe a lot sooner than you think.

  • Mack

    Main point – The Irish government will be able to raise capital & we’re coming from a low base. They’ve already made spending cuts twice in six months, more coming on the 7th.

    JEB – Luckily not all our revenues are in Sterling, neither are our wages priced in Sterling. I appreciate the differential matters to some companies, but not all, and not even a majority. Let’s be clear – it’s not that the Euro is appreciating, it’s Sterling that is collapsing! The southern company you mention would not have offered that salary if it did not make business sense. Also, the potential dollar collapse as Helicopter Ben runs the printing press, would mean increased European revenues for US companies operating here.

    Dave – We’re in the midst of a global depression. $50 trn worth of wealth destroyed with the collapse of the shadow banking system, the baltic dry index fell 90% or so at one point – who would invest abroad in that environment? We have an advanced skills base here now, no reason why the locals can’t do it for themselves. We’ll see how it pans out in a few years. If the multi-nationals pull out, unemployment will rise, but entreprenuers could then come in and take advantage of the skills base (and capital assets) and start over with from a lower cost base.

    And if we end up with the highest tax rates in Europe (in particular corporation tax, employers prsi) then the country will be permenantly shafted. I don’t think we will, at least not where it matters.

  • Mack

    JEB – One more point on wages. It’s easy (relative to most of Europe anyway) to fire people in Ireland. The company I work for recently had a round of redundancies, while the process was a lot slower for ‘European’ employees, in Ireland we were grouped with the US employees. This fact should mean Ireland will remain an attractive place to invest once the global economy picks up. Unemployment is over 10%. If companies need to cut costs, they can make some existing workers redundant, and there will be lot’s of people willing to work for less when the economy rebounds.

    I guess I’m highlighting the advantages of having a flexible workforce, particularly within a monetary union where competitive devaluations (currency debasement) is ruled out. Our sky rocketing unemployment rate, while worrying, does show we do have a flexible workforce.

    Where we’re not flexible is in the public sector – who are paid even more than the private sector. We need the government to sort them out.

  • Mack, that statement about the public sector being paid ‘even more’ than the private sector is highly contestable, parity in some areas would be much more accurate. Michael Taft of Notes on the Front has dissected that particular trope. But this is on foot of the public sector having very low wages in comparison to the private sector. The OECD, not known for its statism or taste for Keynesian interventionism, has reported that Irish expenditure on the public sector is very low by European standards and that the public service has not matched the growth in population across the last decade. Which makes me less cheery about statements like ‘needing government to sort them out’… what precisely does that mean?

    As for the low tax base, that is by any measure at the root of our troubles with a massive over dependence on one sector (construction) to fuel revenue and with a completely negligent approach to broadening the tax base to cover what by any standard is a fairly minimal set of public services.

    A flexible workforce? That’s pretty easy to say, but the reality of costs to the state of keeping people in welfare in a context where there are no surplus jobs is something that I know directly the government is trying to tackle. There’s more, but I’m on my way to work…

  • Mack

    WorldbyStorm –

    Irish public spending is low relative to GDP. This is thoroughly a good thing and says nothing about wages. It merely means less government spending (i.e. our Public Sector is smaller, less people, less projects).

    CSO stats are pretty clear. The average industrial wage is €36,000 in the public sector it’s over €50,000.

    That’s not to say there aren’t low paid civil servants – absolutely they are. But we pay Mr. Cowan more than Gordan Brown and Barack Obama.

    We pay John Hurley head of the Irish Central Bank more than Jean Claude Trichet of the ECB.

    Just look at the salaries of our TD’s.

    David McWilliams did a comparision of public sector wages relative to private sector wages across Europe. Irish public sector wages were high relative not only to Irish private sector wages but public sector wages across Europe.

    We’ve had this conversation on Slugger many times, and I’ll tell you the northern commenters are shocked by the wages in the south!

    –>

    What it means is, if we need to regain competiveness, market discipline will enforce that competitiveness in the private sector. Either your company can compete or it can’t.

    In the public sector it’s up to the government to set the wages. What should it do? Force lower paid private sector workers to subsidise protected public sector workers? I think not..

  • Mack

    Worldbystorm –

    I agree 100% about the unsustainable nature of construction related tax revenues (VAT & Stamp Duty). All workers benefited from personal taxes lowered to unsustainable rates (like public sector wages, and private sector wages related industries) due to bubble revenues.

    That’s not what I’m refering to though. Allowing wealth creators to keep and invest their capital has been crucial to Ireland’s success in attracting investment and growing the economy. If corporation tax and employers prsi are kept low, once the world economy rebounds Ireland would be better positioned to take part in that, than if they were raised.

  • Mack

    Worldbystorm –

    A flexible workforce? That’s pretty easy to say, but the reality of costs to the state of keeping people in welfare in a context where there are no surplus jobs is something that I know directly the government is trying to tackle. There’s more, but I’m on my way to work…

    Certainly it is – welfare currently costs the state 21 bn per year. (By the way, I’m not opposed to government borrowing to fund a stimilus package where we will see a return – I am opposed to government borrowing merely to pay excessively high wages).

    There are two alternatives, though.

    1. You make it easy to hire and fire. Companies hire during good times and let people go during bad. Unfortunately, now that means high unemployment and an intolerable burden on the state.

    2. You make it difficult to fire people.

    If we go the later route (with say the government changing employment law), ultimately more Irish based companies will go bust or will simply pull out as the get beaten by competitors. When the world economy recovers they won’t invest and hire here (at least not to the same degree), because they know when the economy turns down it will be costly.

    The reality is, we joined a monetary union where the bankers running the Union believe in the primacy of price stability and in currencies function as a store of value.

    What this means is that while our competitors print money and devalue, the Euro will remain relatively strong, pushing up our relative costs. Furthermore, within the Eurozone we are already more expensive per unit of productivity than many of our competitors. So what would you do, when our competitors can produce goods and services for less?

    At this stage, I’m just highlighting that while Irish wages are probably too high, there is a silver cloud. A large pool of potential workers, who will work for less.

    A huge medium term downside however, is that our well-paid, cosseted public sector workers are going to add to the world-wide perception that we are a basket case, that shouldn’t be touched with a barge pole, next Monday 🙁

    As if we didn’t have enough problems with the delinquent bankers..

  • Mack

    Incidentally, here are our elected representatives salaries :-

    TD: €100,190.68

    Senator: €70,133.58

    Minister and Ceann Comhairle: €202,678

    Minister of State and Leas Cheann Comhairle: €139,266

    Taoiseach: €257,024

    Tánaiste: €220, 290

  • Okay, where do we agree? On some points more than you might think…

    You’ll hear no argument from me as regards the pay rates for politicians which I absolutely agree are excessive and unreasonable. The same is true of the instances you site as regards the Central Bank, etc, etc. Still, I think it is reasonable to note that those are the big fish salaries. Further down the food chain the picture, as ever becomes considerably more murky.

    Nor am I against public sector workers paying for pension provision in fully equitable fashion and properly introduced the pension levy could be just such an instrument. It should though be noted that since both the 2007 benchmarking report, the current pension levy and stretching further back to 1995 when new entrants moved onto a different scheme in terms of PRSI the rate of monies taken from salaries for pensions is largely equivalent to similar private sector pensions. Perhaps that’s cosseting, or perhaps it is of a certain utility in a society to have the concept of pensions as an element of public sector employment (and one I’d like to see extended to the private sector).

    Let’s take the CSO figures you cite. The average figure is all but unusable, not least because it is skewed upwards by the figures of the higher paid echelons within the public sector. We need the median figure. David McWilliams analysis ignored that entirely. We can also look at http://www.finance.gov.ie/documents/circulars/circ21of2007.pdf to get some sense of actual wages within the civil service which is illuminating as regards the mid and lower level grades.

    Furthermore skipping back again to the 2007 benchmarking report already factored in pension provision etc as an element of wages (discounting it by 20% due to the pension IIRC). All this in the context of public sector wages in general being lower than those in the public sector prior to the 2000s, and at best (at the average figure, which remains flawed as an instrument for determining salaries in either area) gaining parity with average industrial wages – and even on the average figures the spread across the areas considered is considerable from civil servants to those employed in semi-state companies.

    I’ll refer you to Michael Taft’s thoughts here on this very issue which demonstrate that even taking the ‘average’ figures we deviate not a jot from the Eurozone norm which makes this idea of ‘cosseted public sector’ largely rhetorical:

    http://notesonthefront.typepad.com/politicaleconomy/2008/12/david-mcwilliams-has-produce-a-table-in-fact-two-tables-through-these-tables-he-spreads-the-gospel—to-avoid-bankruptcy-a.html

    I’m a lot less sanguine about ‘market discipline’. The example of the last ten months tells us that markets are anything but disciplined and ultimately will turn to the state as the guarantor of last resort. And the idea that the ‘wealth creators’ are what has fuelled the economy seems a little thin. I’d argue that a strongly proactive IDA and state activism is the major reason for our success in FDI. Indigenous entrepreneurial activity has been frankly lamentable in its absence.

    In regard to employment law – well, I’m unsure why you’ve thrown that into the mix. Who precisely is calling *at this point* for radical changes to it? But I think your point about ‘a large pool of potential workers’ will probably simply reflect the large pool of ‘potential’ (i.e. non-existent jobs). I lived and worked through the 1980s. I don’t face the prospect of a reprise with anywhere near the level of confidence you do.

  • Mack

    Worldbystorm –

    It’s the average and not the median that matters economically because the cost depends on the average (although perhaps individuals might prefer to compare to the median). If it’s skewed upwards by a few high earners then that’s a simpler problem to fix.

    Also on wealth creation – doesn’t matter whether it’s indigenous entreprenuers or foreign multi-nationals. Certainly the IDA did an excellent job, but they were attracted here in large part because they could keep and reinvest more of the wealth they generated.

  • Mack

    Worldbystorm –

    I took a look at that analysis by Michael Taft. I thought he made some good points in particular in also looking at the total cost of employing a public sector worker when comparing across Europe. I think the important point to bear in mind here is Ireland is a lower tax economy than the rest of Europe so that needs to be the case. For the individual, of course, the higher salaries are nice and what matters.

    In addition the figures (David McWilliams) were from 2004 and we’ve had many pay rises since then. The average wage in the public sector is over 50k now which will have pushed up the total cost signifantly.

    A few points though.

    1/ It’s ludricous to suggest you need to compare wages in the same currency at purchasing power parity. You don’t. The value of your employment will depend on your productivity. Irish civil servants should be paid more in nominal amounts than French ones if they are more productive, not because Galway is more expensive than Marseille. Also, because he’s trying to prove a particular conjecture he’s free to chose whatever calibrations he wishes that aid that case and reject those that don’t (you can prove anything with statistics / lies, damned lies and statistics – e.g. as Ireland is expensive to live in (because of the bubble that boosted public sector salaries) adjusting for PPP reduces any number it’s applied to. It’s obviously going to reduce the public / private gap).

    2/ It is ludricous to pay people more money for doing the same job simply because they have a degree. This practice is endemic in the public sector, and by itself a high level of qualifications is meaningless with respect to pay.

    –>

    It’s a long article and I’ll defo look at it again, but it does look like he’s attempts to prove his point by shifting the goal posts via cleverly obsfuscating the European comparisions, using statistical tricks to reduce the differential, and by comparing apples to oranges (of course public sector workers – even Patrick Neary and the like earn less than the very, very highest earners).