Monday, 20 July 2009

Is public spending in Ireland too high?

Slí Eile: Simple question. But not so straight forward when it comes to it. Too high relative to ‘what we can afford?’, ‘too high relative to what we get out of it?’, ‘too high relative to taxes, borrowing and EU rules on borrowing?’, ‘too high relative to some ideal balance of public and private endeavour?’ It’s a loaded question especially in current-day Irish political economy. Discussion about ‘economics’ used to be kind of nerdy. Now, its not only hot but very political as well.
The OECD Review of the Irish Public Service published in 2008 found that the overall level of public sector employment and spending was modest in Ireland compared to other OECD countries.

Let me answer the question first – no – public spending in Ireland is not too high. Human beings deserve five basic things in life:
1. Love
2. Health
3. Education
4. Work
5. A chance to contribute and participate to society, culture and politics

Now, ‘the State’ (not such a clear-cut concept) can’t do everything nor should it try. Neither can the ‘Market’ (not so clear-cut either). Where the balance lies is a matter of personal and societal choice, at least in democracies.

The Bord Snip/’Special Group’ Report is ideologically loaded. It starts from the simple idea that the State’s role should be kept to a minimum and proceeds on the assumption that much of existing state spending is inefficient and wasteful. Some folks on the left – I fear – have fallen for the argument that:

• Things are bad, very bad;
• We have to cut, we have to cut;
• Sure there is lots of wasteful public sector spending and employment arrangements;
• We should come across as the Nice, Respectable, Responsible and Realistic people that we are, and welcome the broad outline of the Report; and
• We will accept some cuts as necessary (and in any case tactically unavoidable) in exchange for some progressive concessions.

This is dangerous and false reasoning. In my view we should be

• defending the public services and public service workers line by line;
• defending the gains made by public sector workers in terms of employment, tenure, conditions (rather than play off one sector of society against another);
• promoting more public spending and not less in the current economic downturn in order to (i) further close the gap in terms of public services which remain very inadequate here compared to what should be considered right for a country at our level of economic development and (ii) stimulate domestic consumption and investment demand;
• reforming a public service that is inefficient, not well run in many cases, bureaucratically and centrally managed and overly politicised; and
• reducing spending in some areas only to divert it to other areas and increase the overall spending level.

The point is that public spending in Ireland is too low and not too high. We need a Bord Athbheo to:

• Revitalise public services through reform and reallocation of spending from areas and activities of waste to areas of need and new opportunity
• Completely change the existing way of organising work away from inflexible, top-down and bureaucratic work organisation practices.
At the same time, there is scope for an orderly increase in taxes on:
• Property including local-based taxes
• High-income earners via ending non-standard tax reliefs and other tax breaks not necessary for economic activity
• Carbon taxes.

An irony of the current restrictions on employment in the public sector is that a whole industry of control, sanctions and upward delegation of responsibility from lower to higher grades and from line Departments to Department of Finance is happening. This runs exactly counter to what the OECD Review team on the reform of the Irish public service recommended last year. We are going back not forward, in this regard


Proposition Joe said...

Do you see any tension at all between these goals:

"- defending the public services and public service workers line by line;
- defending the gains made by public sector workers in terms of employment, tenure, conditions"

Lets examine two mythical countries, A and B.

In the People's Republic of A, public sector jobs attract a wage premium of 25% over comparable private sector positions and also have very generous pension arrangements attached, giving a total extra cost in the ballpark of 50%.

In the Democratic Republic of B, public sector workers earn about 5% less than comparable private sector workers but have quite generous pensions to compensate, giving an overall extra cost of circa 10%.

Which of these countries can afford better public services, baring in mind that such services are highly intensive in labour?

Extra credit question: can you name any actual countries that match the profiles of A and B?

Tomaltach said...

I'm with Joe.

Slí Eile said...

Dear Proposition Joe
Yes I take your first point - sometimes there can be a tension and conflict between quality of public services and the employment position of public service workers. Partnership approaches in the past provided a framework within which change could take place and improve services. Think of what was achievecd in the Revenue Commissioners - for example. Many called it a disaster in the 1990s and industrial relations would not enable progress. But change did happen and for the better I think.
On the example of countries A and B you had in mind of course Ireland for case A. i am not sure if you had any specific country in mind for B.
That there is a pay gap between public and private sector wage income is a fact. The scale of it may be disputed as well as the interpretation (see other blogs).
To jump from this to suggesting that there is necessarily a trade-off between PS pay and quality of services is a leap in faith. Teachers in Ireland (primary and post-primary) are relatively well paid internationally but not when standardised for GDP per capita. About average (see OECD data). My guess is that they were probably paid around average for 3rd level graduates up to 2005 (latest year for available data). Now, on the 'output' side students in Ireland fare very well in standardised international comparisons.
My point is that we can aim to defend conditions in the public service, make compromises where these are required and at the same time expand the scope of public services in a PS starved society in the Boston mode. However, a key point you don't get into is the extent of non wage income inflation and inside trader profit margins. I am thinking of retail profit margins (now we know we were being fleased), dentists fees etc. Remember the deferred AIB bank profit levy some years ago? That's what is generating so much anger among PS workers - it is all so unfair and the media is unfairly singling out PS workers as the cause of the problem in the first place. A more balanced, data-informed debate is called for.
(I see that the Govt has asked for a report by 'the end of the year' into earnings of particular professional groups. Whow. Can't wait.)