Thursday, 28 May 2009

Surely we can do better than this?

Sli Eile: Writing in the Irish Times, Michael Casey a former chief economist with the Central Bank argues that a ‘Change of Government will not solve our economic woes’. He goes on to list seven reasons why there is little an alternative Government can do:

We lack the power to devalue currency or change interest rates (just as well?)

Public finances are stuck between a hard rock and a hard place (cut and be damned or reflate and be damned, it is said)

Social partnership will not, cannot, deliver an ‘appropriate incomes policy’ (what would that look like if it included all incomes?)

Public Sector reform will take years (if not decades?) to deliver

Toxic Banking is a poisoned chalice and nobody wants to drink from it (before, during or after NAMA has run its course in 20 something)

‘No political party has formulated an alternative industrial policy’ (not entirely true actually)

‘Most important economic decisions are made in Brussels, Frankfurt and Washington’ (it used to be London, and that was a key argument for joining the Common Market’)

And there the article ends. Is that all that there is to say? One may argue with many of the above claims, but there is an underlying truth – business as usual is gone and in a post-recession world we are left standing on our own two feet. I contest that these two feet should be:

- A new economic policy based on internationally traded services and products with completely new indigenous public, private and community enterprises;

- A new social and democratic contract that will replace the existing model of partnership and ensure the provision of a basic income for all and a 21st century European level of public services.

But how will this be paid for? And how will we dig ourselves out of the present financial hole? And where will be the political momentum come from?

What has progressive economics to offer? What could contributors to this blog suggest? What have non-readers who prefer to read to say?

What is the minimum that a progressive coalition of economists, thinkers, politicians and social commentators and activists could agree on? Let's see. How about a set of ‘contestable’ statements to start a debate:

1 Banking – get this right as a top priority. It is a complex area but you don’t need to be a financial whiz kid to arrive at an obvious conclusion – only full ownership and control of Banking by the State can save this sector and the rest of the economy. Why wait for it to happen, and then say it is our only option. I appreciate that not everyone agrees with this …..

2 Fiscal policy – public finances are in dire straits and nobody denies this (at least since the start of this year). So, let's raid the rich (and not so rich) with much higher capital, new property, local residential and high-income taxes, while closing as many of the tax loopholes and reliefs which have long outlived their economic usefulness (if they every really had any). At the same time increase (yes!) public spending in a planned and strategic way to improve public services, capital infrastructure and job-retention and training while increasing public borrowing through a brokered ‘off-balance’ approach.

3 Jobs – a fiscal stimulus carefully targeted and forensically tested could arrest at least some of the jobs haemorrhage. Although there are no magic solutions, let's accelerate a programme of investment in select areas of research and development and link these to new enterprises – temporarily nationalising those firms that still have a viable future but are about to close, aiding firms in trouble through a new credit agency, converting unused land banks into productive social use and identifying potentially new growth areas for international services such as education, health and green technology. Fine Gael have made some valuable proposals in regard to a slate of new State companies and green technology (Rebuilding Ireland - a New Era for the Irish Economy)

4 Public Services - we need more, and not less, by way of health, education and protection against poverty. We are still among the most prosperous countries in the world but we need to move from being a society of nouveau riche and haves and have nots to a society where citizens and communities share the cost of providing an acceptable level of income, nurture, care and protection.

5 Reform of Corporations and Public Services
Linked to a reformed and enhanced public service is the need to democratise institutions (as well as reform public sector institutions, work practices and responsiveness). Our education and health sectors (to take just two examples) remain profoundly undemocratic and exclusionist in spite of all the talk about customers and inclusion. Likewise, the workplace needs to become a place where skills, team-working and decision-making are not the preserve of the shareholders or the managerial elite. Openness, transparency and accountability must reach into every public, private and voluntary organisations (but especially those in receipt of State subsidies or in charge of delivering some part of public or social services).

A new deal for a new Ireland. Five principles to start a national and international/EU debate. Who is up for it? Comments, disagreements, suggestions?

Or should we resign ourselves to waiting out the storm and someone else (IMF, ECB, EIB, ECion, London, Washington) will bail us out eventually ….? Surely we can do better than this.


paul sweeney said...

Mike Casey is, of course, wrong. He is indulging in the anti-politics idea that "all politicians are the same". Of course, they are not. The major issue is one which voters are fully aware of. It is that the bulk of the present government were in power during the boom. While it is clear that this government is not as neo liberal as its predecessor was - with the elimination of the ideological storm troopers, the PDs, and their chief policy executioner, Mr Charles McCreevy, it is largely the same. And voters know it, too!
The FF/PD government blew the boom with their very ideologically motivated a) tax-cutting policies in a boom; b) with massive ill-considered subsidies to the worst of business (enterprise) people, the speculators and so-called developers, with c) no regulation of the banks and of many other sectors. No one anticipated what a rotten cocktail the neo liberal agenda was. We all see the material result of this failed ideology in our reduced pay packets this weekend!
On the challenging issue of public service reform, I, as a trade unionist, have argued for years that this is and will continue to be a major and a difficult policy issue for ANY government. It is not simply that the “trade unions are blocking reform” as some outsiders glibly say.
There is a dearth of good managers in the public services. There is often a lack of strategic thinking to inform the many good managers. Money is a perennial problem (even in the good days) and its management and oversight is another constant problem in the public service. Is the micro-management of the smallest decisions by the Dept of Finance the modern way to deal with funding and long term planning? But on the other side, how do you ensure that money is not wasted by inexperienced or unaccountable managers?
Are staff embargoes the best way to go? Of course not, but what are the alternative way of saving money in a crisis? Staff mobility is an issue too and the de-centralisation was a huge and costly policy mistake – one of many by Mr McCreevy. It has undermined efficiency for years to come in many areas and greatly reduced staff morale. Are the staggering number of public bodies or quangos an efficient way to manage? No, is the obvious answer.
However, it would be interesting to see constructive and some detailed criticism of the public sector from some opposition politicians, who seem to be simply hostile to those paid from the public purse.

Tomaltach said...

Your comment about the cocktail of neo-liberalism is spot on. And I think you ask some good questions about how we might improve the public service.

One of the biggest successes of proponents of the free market was that they managed to get control of the debate over the economy. We have arrived at a scenario where the default position of commentators and media is to be biased against the public sector, against univseral provision, against organised labour, and so on.

In relation to the public sector there is an amazingly widespread view among the general populace that the public sector is some kind of big, lethargic, money gobbling monster. We know it needs improvement and some areas are seriously sub-standard (though in many cases a prime, though not the only, cause is how political failure or ideology made progress almost impossible).

The one thing I can say is that I have noticed in my dealing with the public service over the last decade, in most areas there has been a vast improvement. And there are some services which would make any private enterprise blush.

And this is a point that WorldByStorm makes repeatedly on his rather excellent blog
( It is that automatic reponse of public sector = waste, private sector = efficient is quite remarkable when we pause to think about how so many of the private sector services have become sub standard and have terrible customer service, are inefficient, etc. Not only that, the myth about anyone who underperforms in the private sector, especially managers, just get fired (and therefore there is always a strong incentive to perform).

Personally, having worked in the private sector for 15 years I would say that good leadership, sound strategic thinking, and great people management skills are the exception rather than the rule.

At a higher level we have seen in the banking sector how the board / shareholder / executives structure of corporate governance has spectacularly failed to solve the 'agency' problem and how the whole thing manged to destroy itself. (And it's not just banking. Remember Enron, WorldCom, Nortel Networks)

These are a handful of examples which everyone knows about, yet the right wing manages to sustain, among the population at large, the falsehood of black and white dichotomy between the private and public sectors in terms of efficiency and effectiveness.

How can this argument be turned around?

Michael Taft said...

Tomaltach asks the most important question – how can this argument be turned around; and not just on the public sector. Brian Cowen claims ‘that European Commission has stated the Government's budget . . . that the ESRI and most economists say that the Government's strategy for the public finances is the right one’ ( Untrue, yes, but you wouldn’t know it from the state of the debate. That is why Sli Eile’s call for a progressive coalition around a new narrative is fundamental to any attempt to get back into this debate. To complement his ‘statements’:

A full-blown critique of the Right’s deflationary project. The ESRI’s and EU Commission’s projections show clearly it will fail in bringing the fiscal deficit under control. Only a ‘smart’, forensic stimulus programme – financed by borrowing and taxation on high and unearned incomes and unproductive capital – can turn this around. Let’s join the battle on debt and borrowing. We can win if we don’t lose our nerve

Roll-out public enterprise: direct and indirect job creation by the state; enterprise development, start-ups and rescue; stand-alone or through public equity and/or public-private partnerships. Target our degraded physical infrastructure (there’s years of work to be done ), key skill-set activity, worldwide brands and enterprises of regional importance. Good grief – even Fine Gael wants to establish new public enterprises to create 100,000 jobs.

Wages and living standards are not the problem but the solution. ICTU’s starting negotiating position last spring was spot-on: flat-rate pay combined with local bargaining within social partnership. Disproportionately benefitting low/average income groups, sustaining demand where possible and increasing social protection measures (Family Income Supplement, re-introducing pay-related to unemployment benefit, etc.) can boost economic activity.

Repeal the April budget’s increase in levies – again, for low-average groups. It is incredible that anyone can defend the proposition that we should reduce disposable income while consumer spending is collapsing.

Nationalise banks, of course; but as Terence McDonagh has pointed out, cleaning them up and returning them to the same class of ‘investors’ will only prop-up a discredited status quo. Establish, as a priority, an Enterprise Credit Bank as Jim Stewart has argued – to get credit flowing to SMEs. Establish a public enterprise retail bank capable of competing commercially but with a radically different mission statement of working with households and enterprises to make credit productive, not parasitical. Reboot and reconfigure the banking architecture.

In relation to Tomaltach’s and Paul’s points on the public sector – this could be an object lesson of how we enter the debate. Anyone aware that even the National Competiveness Council refers to studies showing the Irish public sector to be the fourth most productive in the EU? Or that according to the OECD we would need to hire over 20,000 more civil servants just to reach EU staffing levels? Take on those who manipulate wage data and payroll numbers. Point to the real culprits – the ultimate political management (it wasn’t public sector unions who created the two-tier monstrosity of the health sector, or dictated that private fee-paying schools should be subsidised, or neutered local government). We must stop being defensive and go on the offensive. Why not challenge the real devaluationsists to produce one single bit of evidence for their assertion that wages are ‘uncompetitive’; show that their proposition would debilitate the Exchequer and economic activity – do it from; put them the orthodoxy on the back foot.

Starting from a set of cogent principles as Sli Eile suggests would facilitate an alternative discourse and, within that, allow contributors to develop the points in further detail. In this way, we can challenge the domination of a backward orthodoxy. Otherwise, we’ll have to be content with mere ankle-biting.

John Barry said...

I would agree with all that's been said - but even more than (or at least as well as) a new progressive coalition challenging the neo-liberal orthodoxy on the economy (public sector 'inefficient/bad' etc) there also has to be a challenge to the neo-classical economic model itself. What I mean by this is that we need to challenge not just the neo-liberal 'language' but the neo-classical 'grammer' i.e. the very 'rules of the game' as it were. of course both are necessary but without displacing neo-classical economics as the 'natural' way of thinking about the economy, we'll end up with modest reforms. Therefore the task, as I see it, is to a) question the assumptions on which the debate about the economy is being made and b0 reveal the ideological and value-assumptions at the heart of neo-classical economic thinking.

Slí Eile said...

How about letting bad debt take its natural course? Basic income provision and moratoria on home repossession could be the safety net as the large toxic debts wind themselves down. You gamble, you gain you lose. Sorry chaps your loss.
Key thing is to take main banks into public ownership. Banking is too important to be left in private hands. Have we learned anything from the most extraordinary economic history of the early 21st century?