Ray Kinsella on Ireland and the Euro Zone

Nat O'Connor: Earlier this week, Professor Ray Kinsella wrote a powerful critique of current austerity policy in the Irish Examiner.

For example: "The austerity doctrine imposed the burden of adjustment to the post-2008 economic collapse on the labour market. It is an indefensible misuse of economics that the eurozone “authorities” should seek stability on the back of tens of millions of unemployed — this month’s eurozone unemployment figures reached yet another record. It is equally indefensible that, within an economic epoch characterised by intellectual capital and innovation, youth unemployment should now stand at an average of 25% — and more than double this in some of the peripheral countries which are most in need of their intellectual capital and capabilities."

I agree with practically everything in the article, but not his conclusion that a break up of the Euro zone is inevitable and desirable for peripheral countries, including Ireland. While it may be inevitable, the example of Denmark is unconvincing, as their currency is strongly pegged to the Euro.

While Ireland could in theory use its own currency for quantitative easing or other monetary policy to create inflation and grow its nominal GDP, this could be a short-lived benefit compared to the long-term costs. If Ireland or other smaller countries go too far with expanding the money supply, we could quickly run out of dollars, sterling and euro as who would want to buy the New Punt if it kept losing its value in currency exchanges? Moreover, we'd lose our position as a hub of imports and exports, and we'd be vulnerable to currency manipulation and speculation by global funds.

But if we can't easily exit the Euro, what is more worrying is that there is no quick or easy solution to the flaws in the Euro monetary union. What the peripheral countries need to do is to meet and demand a new monetary policy regime for the whole currency area. That's maybe harder to do than simply exit, but there is no other way to fill the political void at EU level than for countries to come together in their shared interests.
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Guest Post: Vacant Land Tax to Incentivise the Development of Unused Land in Dublin

Kieran Rose: Incentivising the Development of Unused Land in Dublin City: The benefits of a Vacant Land Tax.

1. Summary
Dublin City has considerable amounts of vacant land especially in the centre city/inner city area. These extensive vacant lands are a great potential competitive advantage for Dublin as many of our competitor cities have fully developed centre city areas and have no space for the expansion of uses which need/prefer to locate in centre city areas. Uses preferring the centre city include major employers such as Google, many hotels, student accommodation, and third level colleges. So if we can achieve the development of these extensive vacant lands it would be a key element in our attractiveness as a competitive city.

These extensive vacant lands are also a significant challenge or problem for the city, including being damaging to its economic potential and general attractiveness and liveability. They can have a serious negative impact on the adjoining area, its businesses, investors, workers, residents and visitors.

Currently there is no disincentive to a landowner, including State landowners, leaving a site vacant for many years; the costs of such vacancy are borne by others and the city in general. (In contrast, in order to incentivize landlords to actively let their commercial buildings, 50 per cent Rates are payable on vacant commercial buildings.)

It should be remembered that many of these significant vacant sites remained undeveloped throughout the boom.

The proposal is that a tax be payable on vacant land to incentivize its development or sale to those who have the interest and access to resources to develop it. A proposal could be made to Government for legislation that would enable the City Council to introduce such a tax on vacant land.

2. Some Benefits of a Vacant Land Tax
A vacant land tax would have a range of potential economic benefits including encouraging the optimal productive use of city land and preventing dereliction, encouraging economic development and job creation, and with sustainability benefits in encouraging new inner city housing and less long-distance commuting.

Such a vacant land tax would also address the problem that vacant sites are also a significant economic disbenefit to adjoin businesses and residents who have invested in that particular area.

Such a tax encouraging the optimal use of land is particularly appropriate in city areas such as Dublin where there has been considerable public investment in providing services such as public transport (e.g. Luas); as these vacant sites are not delivering the economic return to the public and the city for such considerable public investment.

The Commission on Taxation (2009) considered these issues in detail and concluded:
“We are proposing a recurrent tax on zoned development land where such land is not being developed. This will be a useful policy tool to address the hoarding of land-banks and help to ensure that land is utilised in accordance with its planning categorisation.”

The Tax Strategy Group report (2010) set out the benefits of a land value tax as including:
• It encourages compact city centre development
• and the most productive use of high value land
• …. Those who have not developed valuable land are encouraged to do so
• It counteracts any market disincentive to develop the land.

3. Driving Innovation, Productivity, and Competitiveness
There is general agreement that density and proximity in urban areas drives productivity and innovation; so these extensive areas of vacant urban land are a significant drag on the city and national economic recovery.

According to urban economist Edward Glaeser in his great book “Triumph of the City”; 'the city creates productivity advantages' and 'cities speed innovation'. 'Cities are the absence of physical space between people and companies. They are proximity, density, closeness' Glaeser continues.

Encouraging the development of these extensive inner city lands provides a great opportunity to boost the productivity and innovation potential of the city.

Also, these extensive central city vacant lands are a great potential competitive advantage for Dublin in attracting international investment. Many of our competitor cities have fully developed centre city areas and have no space for the expansion of uses which need/prefer to locate in centre city areas. Uses preferring the centre city include major employers such as Google, many hotels, student accommodation, and third level colleges.

For example, Squarespace, recently announced it is to establish its EMEA Headquarters in Dublin stating: "We are a Manhattan-based company with urban sensibilities. We want to be in a large, vibrant, cosmopolitan city. Dublin was the obvious choice from that perspective."

If we can take steps to unlock the blockages to the development of these vacant central city lands, a key scarce resource, it gives us a great competitive advantage to attract highly mobile international investment.

4. City Development Plan Key Challenges and Policies
This vacant land tax would be a significant step forward towards addressing key challenges and policies set out in the City Development Plan. The City Plan recognises that considerable progress has been made in improving Dublin over recent years and this includes Docklands, Temple Bar and also Smithfield, Heuston etc. However, as the City Plan notes (p31) in its 'Approach to the Inner City'; there are the problems of 'isolated clusters' , 'a great sense of unevenness', and a 'significant number of vacant sites in the inner city that detract from its character and coherence'.

Accordingly the City Plan states; "It is a central aim … to consolidate and enhance the inner city in order to augment its crucial role at the heart of the capital city and the city region." (p22).

A vacant land tax would be a powerful way to address these key challenges for Dublin city.


Kieran Rose is Senior Planner with the Office of Economy and International Relations, Dublin City Council. This post is based on a report given to the May 2013 meeting of the Finance Strategic Policy Committee of Dublin City Council.
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Ireland at the Core of Apple's Tax Avoidance Strategy

Nat O'Connor: Apple is the latest big global company in the spotlight about its tax affairs and Ireland is named and shamed as assisting the tech company to avoid massive amount of corporate tax in the USA; for example, in this New York Times article.

TASC's recent publication on Tax Injustice gives more detail about how Ireland's tax regime is used to avoid tax.

The irony is that Ireland's Finance Minister is currently leading the EU's charge against tax fraud and tax evasion, but the line between illegal evasion and legal (but increasingly aggressive) tax avoidance is more and more blurred. While a lot of the focus may be on the loopholes in US corporate tax that permits Apple to avoid tax, Ireland's role in facilitating tax avoidance needs to be critically examined as a risky strategy that is attracting negative comment around the world.
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Google and Ireland's tax regime

Jim Stewart was on RTE radio 1 Morning Ireland today talking about Google and Ireland's tax regime. This can be heard here.
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Ethics and regulation: complements, not alternatives

Last week former Taoiseach and President of IFSC Ireland, John Bruton, said that the banking industry needed "to focus on ethics rather than regulation". As someone who strongly supports the idea of ethical codes and a more central role for ethics in business, I found this remark and the casual way it was accepted unhelpful on many levels. Ethics are not an alternative to regulation; rather regulation is needed to support ethical behaviour. 

First, what do we mean by ethics in business?  There are many approaches; to illustrate why ethics are not an alternative to regulation, consider just three. 

You can take a deontological approach, like that that of most religions, and impose an absolute moral code.  Something is either right or it is wrong, no exceptions. You can see aspects of this in some corporate codes of conduct: some things such as fraud, insider trading or forced labour are simply prohibited, regardless of the consequences at the time. These things are unethical – everything else is OK. Because of the inflexibility of prohibiting an action, the list tends to be a short one, and not very useful for complex “grey area” situations. 

In contrast, a utilitarian or consequentialist approach hinges on the idea that the morality of any action is completely determined by its consequences.  So in its purest form, faced with a decision, you could weigh up the impact on all parties and choose the course of action that minimises harm or maximises good. So while stealing might be “wrong” under a deontological approach, utilitarian ethics might allow it under some circumstances, such as the theft of food from a profitable business to save the life of a starving child. This is pragmatic and useful, but depends on the person making the decision having been really well trained; unless business schools and professional institutes put serious weight behind teaching the process of ethical decision-making, it is unreasonable to expect individual employees to respond in the best possible way when making snap decisions in a fast-moving and high-pressure environment.   

As a final example, a virtue-based approach to ethics comes from Aristotle’s ideas of how to be, rather than what to do.  A decision on a particular situation could be reached by asking, “Am I the sort of person who would ...?” or, “Are we the sort of organisation that ..?” This can work really well for individuals, but won’t work in business unless everyone in the organisation is aware of and supports the sorts of virtues or values that the firm as a whole espouses.  Since these values are not based on rules, they must be embodied by the leaders within the organisation – a kind of ethical role-modelling which be either positive or negative, depending on who’s in charge and how they behave. 

Now the question is: which of these approaches, bearing in mind that they are only three of a myriad of ways of describing and understanding business ethics, could credibly act as an alternative to regulation in an industry as cut-throat and prone to moral hazard as banking? 

The absolute moral code of deontological ethics is barely compatible with capitalism, and would be either limited or diluted by its application to profit-seeking financial innovation. The utilitarian approach is pragmatic but time-consuming, and depends heavily on training. Virtue-based ethics comes close to a personal ideal, but depends on individuals to an unsustainable degree.   

They are all good to have in an industry, but will never work alone.

The trouble with ethics in isolation is that unless they seem coherent with the overall climate in which an individual is working, he or she will lack the confidence to “do the right thing” even where the “right thing” is clear.  I might know that stealing is wrong, for example, but if all of my peers are routinely cleaning out the stationery cupboard and falsifying expense claims, then my personal belief is constantly challenged by the daily experience. This is where regulation – clear rules of law with penalties and consequences for non-compliance – will support ethical standards, reinforcing rather than replacing them.  

Of course regulation also has the happy advantage of being effective even for people who would never embrace an ethical code. Even sociopaths fear the law. In that sense, regulation has a wider impact than business ethics, and is a baseline if we are to expect better corporate behaviour. Without punishments, some people will never obey rules.  But most employees are not sociopaths, so training in ethical decision-making will also have a useful effect, enhancing the impact of regulation, and ensuring that it is implemented in spirit as well as in statute. 

What the industry needs is not "to focus on ethics rather than regulation," but to enforce regulation and resource ethical training. Then we might see the change we need. 

Sheila Killian

@islandtotheleft

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Stiglitz on the need to reform our (their) economic models

Paul Sweeney: Stiglitz on the need to reform our (their) economic models, on Social Europe Journal here. A bit long but a good analysis.
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TASC-FEPS Conference 'Reconstructing the European Economy (June 14th)

The TASC-FEPS Conference 'Reconstructing the European Economy' will take place in the Conference Centre Croke Park on Friday 14th June. We hope you can join us at what promises to be a very lively debate on the European crisis.

To register for the event please email Sylvia at sbyrne@tascnet.ie

Reconstructing the European economy will need evidence-based policy making and a willingness to challenge the status quo and prevailing conventions. The annual TASC-FEPS conference is an opportunity to hear progressive, evidence-based ideas on how sustainable economic recovery can be achieved in the European and Irish economies.

The Conference will be opened by Minister for Communications, Energy and Natural Resources, Pat Rabbitte TD.

Confirmed speakers include: Mr Lars Andersen, Managing Director, ECLM Denmark; Dr Hannah Bargawi, Researcher CDPR SOAS, University of London; Professor Malcolm Sawyer, Professor of Economics at Leeds University; Dr Susan Newman, Lecturer, Department of Economics of Sustainable Development at Erasmus University Rotterdam.

The afternoon keynote address will be given by Professor John Weeks, Professor Emeritus and Senior Researcher at CDPR, University of London.

Context
The European economy remains in crisis. Unemployment in the Euro zone has reached a record high of 12 per cent. Almost one third of Euro zone member states have already been forced into official bail-out programmes, while other member states’ economies remain enfeebled. The financial sector remains dysfunctional and the Euro zone itself is characterised by structural competitiveness imbalances and widely diverging economic prospects. The economic crisis is a systemic crisis that requires systematic solutions. The official response to the crisis has been insufficient and often incoherent. The current responses have been preventive and reactive rather than building the institutional and economic foundations of a system that would put European on a different developmental trajectory where job creation and equitable growth takes centre stage.

A Europe facing the prospect of stagnation and high unemployment needs innovation and reindustrialisation from modern evidence-based industrial policy together with alternative macroeconomic policies. Likewise, the institutions of the Euro zone proved to be inadequate to deal with the scale of the catastrophe in Europe’s financial institutions, and inadequate to prevent the explosion of public and private debt. Fundamental changes to ECB and Euro zone rules may be required if the currency is to assist job growth and a strong European economy in future. Design flaws must be rectified.

The quality of the economic policy debate must be strengthened at national and European level. Reconstructing the European economy will need evidence-based policy making and a willingness to challenge the status quo and prevailing conventions. The annual TASC-FEPS conference is an opportunity to hear progressive, evidence-based ideas on how sustainable economic recovery can be achieved in the European and Irish economies.
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Neither Fair or Equitable - The Impact of Government Cuts on Traveller Services

Pavee Point published a report yesterday, on the impact of cuts over the last five years on Traveller projects and services. The report, authored by Brian Harvey, can be downloaded here.

Pavee Point asked us to provide a brief response to the report at the launch yesterday, here is the text of that response:

One of TASC’s main roles is to analysis Government budgets and to make alternative policy proposals. We also focus on transparency and democracy. This report, published today by Pavee Point, has relevance for all those issues.

After five years of austerity policies, we should not be easily shocked. However, the details and figures contained in this report are extremely stark and tell a story that exceeds in its bleakness, many of the reports we have been hearing since the crisis began.

Where government spending has been cut by 4.3 per cent, the voluntary and community sector is seeing a yearly cut of 8-10 per cent.  Cuts of this level have a devastating effect on the communities these programmes and organisations serve.

However, cuts in the magnitude of 86 per cent in Traveller education and 85 per cent in Traveller accommodation, 63 per cent in Traveller organisations over the same period far outstrip those made in other areas and it is difficult to see an explanation for this level of cuts focused on a single community other than that of marginalisation and exclusion.

In drawing together these figures and presenting a picture of cuts over five years, this report has made it possible to view a more comprehensive and honest picture of how the Traveller Community has been disproportionally affected by Government policy.

However, as the report itself outlines, the compilation and analysis of these figures was a difficult task. The budgetary process and the lack of sufficient information and data released by Government hampers contemporary research and analysis into Government spending and outcomes.

Even by Ireland’s standards, Budget 2013 was backwards step in terms of budget transparency, with some departments, such as Justice and Equality, Environment, Community and Local Government and Education and Skills providing a weaker level of detail, or spending under subheadings than the previous year.

We had to wait months until the revised estimates gave greater information, by which time, most of the budget measures have been passed and the media debate had moved on. This makes it very difficult for civil society, communities and citizens to engage and mobilise on decisions which affect them.

As the report further demonstrates, much of the support available to the Traveller community comes by way of supports available to disadvantaged communities and is not Traveller specific. This means that again, it is difficult to assess the level of support accessed by the Traveller community and therefore the level of cuts suffered by it.

In 2013 there should be no excuse for the poor level of statistics in relation to Traveller participation and outcomes in the education sector and the monitoring of the consequences of the withdrawal of services as outlined in the report.

The current Programme for Government agreed by Fine Gael and Labour contains a strong commitment to openness and transparency. Not least, on page twenty three, the pledge that “We will open up the Budget process to the full glare of public scrutiny in a way that restores confidence and stability by exposing and cutting failing programmes and pork barrel politics.”

However, confidence and stability also comes from debating and understanding the rationale, and possible consequences of budgetary decisions.

A proper system of equality budgeting would assist in this task.

One of the consequences of the closed nature of budgetary decision-making over the past few years is that budgets are passed in a vacuum, where the multiplicity of impacts on certain groups in society is not adequately considered or debated.
If you decide to target secondary benefits for example, there is a good chance that those who are most dependent on social transfers will suffer the most.

This report demonstrates the cumulative effects of decisions made across different departments on one such group. Budgets should be examined for the cumulative effects on specific groups, including Travellers, across departments and on a multi-annual basis, rather than lurching from year to year.

One of the most disappointing aspects of Government policy during the crisis is that it threatens to roll back progress made in the preceding years. Progress, as stated in the report, which was hard fought and hard won.

The Government’s main task during this crisis, as articulated by the Government (previous and current) itself, the media and our European partners is to reduce the deficit and return to growth.

However, disinvestment in Traveller services and facilities, in particular, education and accommodation, is a false economy. A return to growth demands investment, in particular in education and in capital projects.

It is not clear what is to be gained in the long-run by further marginalising a community or disinvesting in its future.

Over the past number of years, many organisations and groups (e.g. TASC, SJI etc.), have provided alternative policies for closing the deficit, ones that would not increase inequality.

There is no need for any group in our society to bear the disproportional impacts of cuts that the Traveller community has, these are political choices, not economic ones.

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Debt, Growth and Coding Errors

Tom McDonnell: Reinhart and Rogoff's finding that the growth rate starts to decline once the public debt to GDP ratio exceeds 90% has become embraced as a stylised fact by the commentariat and in particular by the austerians. However, a recent paper by Thomas Herndon, Michael Ash and Robert Pollin has critiqued this finding. As Slate reports here, Herndon et al. find that the Reinhart and Rogoff result is attributable to a coding error, and they also raise other methodological objections. Herndon et al. find that overall the evidence contradicts Reinhart and Rogoff's claim that public debt loads greater than 90% of GDP consistently reduce GDP growth.


It will be interesting to see how Reinhart and Rogoff respond to the Herndon critique.


 
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Optimal taxation of top incomes

Tom McDonnell: You can find an interesting paper on optimal top marginal tax rates here.… The authors find that the optimal top marginal tax rate converges to about 2/3. You can read a synopsis of the findings here.
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Bringing Balance to Imbalance

Tom McDonnell: The results of the EU Commission's review of macroeconomic imbalances can be seen here. Andrew Watt attacks the partiality and findings of the report here.
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Conference on "Understanding the Changing Worlds of Capitalism", May 1st

Understanding the Changing Worlds of Capitalism:
New Perspectives on the Political Economy of Work, Production and Employment Regimes

A Research Conference
NIRSA/ Sociology
May 1st 2013, Renehan Hall, NUI Maynooth

Sponsored by the European Research Council and the Irish Research Council

The various forms of capitalism are in crisis, as are many of the theories that have dominated understandings of capitalism in recent decades.  This conference draws together leading international scholars to examine changing European capitalisms, with a particular focus on how the organisation of work, employment and production regimes is changing. We explore how theories must shift to account for changing capitalisms.

Speakers include Dorothee Bohle, Rossella Ciccia, Bernhard Ebbinghaus, Eoin Flaherty, Béla Greskovits, Peer Hull Kristensen, Frances McGinnity, Lars Mjoset, Mary Murphy, Seán Ó Riain, Luis Ortiz, Karen Shire, Markus Tünte. 

Full programme and information here.
 
The conference explores a variety of theories of political economy (e.g. Polanyian, institutionalist, pragmatist); different forms of capitalism in Europe (liberal, Christian democratic, social democratic, post-socialist, Mediterranean); and various institutions shaping work (e.g. welfare regimes, industrial relations, family, transnational work and technological change).

Registration is free but places are limited.
Please register here.
Enquiries to newdeals@nuim.ie
Click here for information on how to get to NUI Maynooth Campus by road or rail
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Workshop on Industrial policy in Comparative Perspective, Thursday April 25th

Whither Industrial Policy? The Future of Public Institutions and Economic Development

3-6 pm, Thursday April 25^th 2013
Institute of Bankers, 1 North Wall Quay, Dublin 1
Sponsored by NUI Maynooth (NIRSA/ Sociology) and UCD Geary Institute

Globalisation, regional economic clusters, open systems of innovation, financialisation, legal restrictions on state aid and a range of other factors appeared to have consigned industrial policy and the developmental state to history. However, as economies struggle to restore growth and seek models of sustainable prosperity, there is renewed interest in the role of public institutions in promoting industrial and regional development. Moreover, recent decades have seen significant experiments with new forms of ‘old’ institutions – ranging across the industrial development agencies of Israel and Taiwan, the state investment banks of Germany and Brazil and the diverse network of agencies promoting innovation in the US.

This workshop explores the new forms of industrial and innovation policy that have emerged in recent decades. It examines their distinctive features, limitations and potential and asks what futures there might be for a developmental role for public institutions.

3-4.20 Public Institutions, Innovation and Growth in the Knowledge Economy  

Chair: Seán Ó Riain, Sociology/ NIRSA, NUI Maynooth

Danny Breznitz, College of Business, Georgia Tech

“The Diverse Paths to Rapid-Innovation-Based Growth: The Strategic Role of the State”

Shiri Breznitz, School of Public Policy, Georgia Tech

“The Fountain of Knowledge? University Technology Transfer and Economic Development"

4.20-4.45 coffee

4.45-6 Round-table Discussion

The Role of the State in Development Strategies in a Changing Economic Landscape

Chair: Niamh Hardiman, Geary Institute and SPIRe, UCD

Short contributions from the following will be followed by discussion.

Seán Ó Riain, Sociology/ NIRSA, NUI Maynooth

Philip O'Connell, Geary Institute, UCD

Aphra Kerr, Sociology/ NIRSA, NUI Maynooth

Patrick Paul Walsh, School of Politics and International Relations, UCD

The workshop is funded by the European Research Council and the Irish Research Council for the Humanities and Social Sciences. It is sponsored by the ‘New Deals in the New Economy’ project at NUI Maynooth (NIRSA/ Sociology) and ‘The Political Economy of the European Periphery’ at UCD Geary Institute.

Registration is free but places are limited. To register please email geary@ucd.ie  with the subject line “Industrial Policy” before Monday April 22nd.

Information on Venue and Transport is available here 

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'Social Security for All'

Nat O'Connor: Compass in the UK have produced a short briefing document entitled 'Social Security for All' as a way of (re)making the case for the welfare system/welfare state. Although they are writing in a UK context, a lot of the principles and basic challenges they highlight are very relevant for Ireland.
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What's a Euro anyway?

Is a euro in a Cypriot bank, locked down by withdrawal limits and capital controls, the same as a euro in an Irish or French bank? 

Is a euro sitting in, say, a payroll account in Laiki with a balance of more than €100,000 (and subject to an unspecified “haircut” on Thursday ) the same an “Irish euro”?

They’re both euro, both promises to pay the bearer, but honestly, do you have a preference? Of course you do. You’d prefer your money to be outside Cyprus. You’d prefer an Irish euro to a Cypriot one. So they’re not the same. Do we even have a single currency now, then? What does the Euro mean?

And how did this happen? At least in part, it happened because all the finance ministers of the Eurozone sat around earlier this month and let the Cypriots leave the room with a proposal to make depositors pay for bank losses, including insured depositors with balances of less than €100,000. They rowed back on that part, but you can’t undo the damage of their having taken it seriously to begin with.  Imagine a snowed-in family just once agreeing “if we get really hungry, we can eat the rabbit”. You can take that back all you like – everybody knows the rabbit’s not safe any more. He’s not just a pet, he’s protein. Depositors aren’t just protected customers now, they’re also a source of money to save the bank. 

We sat back and let that happen – all the Eurozone countries did. We let deposits in Cyprus undergo that subtle shift in meaning. We let their banks be closed for ages, with devastating impact on small firms and families. We let their tax rate be changed. We let them hang out there, hoping it would save us, the rest of this uneasy union. Where does that leave solidarity, in this European Project under our presidency?

Just now, you’d prefer an Irish euro to a Cypriot one. Remember that feeling, because, as Martin Niemöller might have written were he more interested in money, and living in more peaceful times, “First they came for the Cypriots ...”

Sheila Killian

@islandtotheleft

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