Thursday, 24 September 2009

The value of public service

Slí Eile: In the midst of the shrill debates on public sector workers, their pay, their pensions, their tenure and a host of other matters such as social welfare, health and education it is good to step back and ask ourselves what sort of society do we want.

Every society decides its own mix of public, private, community effort, responsibility and obligation. Underlying all this is a set of civic values and objectives. In terms of international comparisons Ireland tends towards the lower end of public provision with a mix and pick of universalism, means-testing, meritocracy and a very patchy provision of public health (think of the quality and extent of dental care for all children) low corporate taxes, low capital taxes, low local taxes and a narrow tax base.

Currently, proposals are emerging for a huge and sustained attack on our public services by means of an 'adjustment' of some 3-4 billion in 2010 and the same again next year (but for every €1bn adjustment only part of it will reduce borrowing due to higher unemployment, lower taxes etc). The stage is being set for across-the-board pay cuts, social welfare cuts and service deterioration. We will hear a lot about wasteful public spending, things we can no longer afford, FAS trips, rich people getting child benefit and medical cards as well as quangos, overpaid public servants. That there is scope and need to reduce spending in some areas and redirect these to more urgent priorities and defence of frontline services is not disputed. That the overall level of public spending must be cut and that there is no alternative to this is disputed.

Before any recession we had an inadequate public service. Our society was and continues to be an unjust one with unjust distribution of income, wealth and opportunities for social participation. The recession is greatly exacerbating these problems. The slash and burn and amputate policy will erode our services, damage the health of the nation and lead to higher levels of social inequality. In the coming weeks we will hear and more and more of the following:

better to cut public sector pay than social welfare
better to cut social welfare than vital health services
better to cut all public spending than be taken to the cleaners by IMF or ECB

Like a desperate patient in the trenches - we will be told 'we can amputate just this leg otherwise we can take your arms'. Sensible people with social consciences will be driven to despairing, boxed-in, tunnel-vision, Liveline type 'if you don't go for X then you are effectively bringing abougt Y.

The economic analysis and political values behind this rush to amputate our public services is wrong-headed, badly thought through and potentially ruinous for our future. It must be opposed and positive alternatives argued for.

Above all, we need Hope, we need Vision, we need an Economic Strategy to get Ireland back to work and not condemn us to a lost generation and a lost opportunity to address inequality.


Anonymous said...

We also need an extra 20 odd bilion a year. Any idea where that is going to come from?

Proposition Joe said...

Always with the conflation of public sector pay levels and the quality of service provision.

So a cut in pay rates would automagically lead to a proportionate decline in service levels?

Does the converse also hold? Did we wake up one morning in 2003 to find our public services had improved by a dramatic 8.9% overnight as a result of the Benchmarking I awards?

Martin O'Dea said...

Anonymous. Why do we need to find an extra 20billion a year. This is the deficit. It is not the overspend in public pay. Remember this came about beacuse of a sharp drop in income (see stamp duty collaps). We must also bear in mind that no matter how often the government and associated media try to convince people that it is the greedy nurses and gardai that are causing the financial crises we must know that there are three ways to get beyond the deficit, we can cut spending, increase income or both.

This is why Sli Eile's other post today that talks about new leadership, vision where people can get to spend again in a less borrowed way is so important - as well as making the expedinture cuts that can be made. It is more than possible to continue to cut in a negative manner with a government with no support until income is continuously depressed so the cuts try to play catch up as you head further into a depression.

Dismissing the grievance that people have with their wages beng cut and telling them that they are not being realistic seems to me a btit like a couple with limited income going for a night out. He looses six months wages in a poker game and then gets angry at the money being spent on her drink. In fact we could stretch the analogy to encompass NAMA and see him further adding that she can no longer go out until he has repaid his debt to the point where he can gamble again.

In the last decade and a half it would have been beneficial to have a government that did not waste money in an almost unbelievablly reckless fashion and yet they can now present the arguement to the private sector that the public sector is not laying ball and that all wages need to be cut. Lacks fairness, credibility and intelligence on the givernments part

Slí Eile said...

@Anon thanks for comment. 'Where that is going to come from' (€20bn annual borrowing flow). Clearly, it could only come from one or all of the following: expenditure cuts, revenue increases (including non-exchequer flows) and increased borrowing (whether off balance sheet or what is counted in for SGP purposes). I am against expenditure cuts in the aggregate because (i) their impact on borrowing, employment and competitiveness is limited (going by ESRI Hermes modelling and (ii) it is better to redirect spending from inefficient and inequitable ways to more effecive and equitable purposes and (iii) our overall level of public provision is sub-standard. That leaves us with two options. You guessed - I am in favour of raising taxes - but not by €20bn. The latter figure breaks down, roughly, into three thirds: capital, structural current and cyclical current. Cyclical is driven by the collapse in revenue flows (stamp duty etc) plus escalation in uneployment and medical card costs. Structural is a result of having a low tax economy (less than 30% of GDP in 2009 counting all types of revenue flows compared to a comparable EU27 average of about 37%). It is legitimate to borrow in a recession against cyclical and capital components (while project appraising the latter to orientate towards more labour-intensive and high domestic import content). The scale of potential of 'off sheet' borrowing via ECB for NAMA shows what can be done. That plus cash reserves and suspension of National Pension Reserve Funds would make it possible to ride out 2-3 years. As for the other third - structural - the answer here is more taxes (roughly by 7€bn. Taxing capital, high incomes, closing tax reliefs on most of the '111 tax breaks' is the way to do it.
Incidentally, I disagree with the view that our total revenue take should move up to the EU27 average and stay there. Rather, it should exceed it. EU27 is just an average of everything including Slovak Republic and Sweden. If you think that this is reckless try deflation in three years running and you get .... more deflation.

Slí Eile said...

@Proposition Joe: You are concerned about the level and trends in public sector pay and wish to point out that they do not correlate (necessarily) with improvements in productivity and quality of service to the public (e.g. in regard to security, health, teaching etc) You are right in that regard. They don't. My view is that top earners in the public services (who constitute a minority) were awarded too high increases in recent years. Lack of linkage to demonstrable improvements in individual and service-wide performance and flexibility is a problem. There are ways of tackling the size of total public sector pay (€20bn):
A cut or cap pay for those over a certain threshold (150K pa; 100K; 80K?)
B raise taxes progressively on all income earners
C link existing pay levels or future increases to demonstrable improvements in performance or flexibility (e.g. teaching and working hours contracts, redeployment of staff in health sector)
Of the above, B and C seems the fairest compared to a plain salary cut in A - which impacts on those who already are suffering in the recession and previous reductions.
The implication of the widely quoted ESRI study is that low-paid workers in the PS were relatively better paid than low-paid workers in the private sector (even when controlling for age, education, experience etc). The implication some draw from this that we should race further to the bottom by levelling low-paid PS workers to their counterparts in retail, hotels etc. (and of course level them all, in turn, to 'internationally competitive' levels until we can price ourselves back in world markets where we should compete with low-wage and low-skill economies). I call this stone-age economics.

Two issues arise here:
fairness to PS workers on average to below average incomes 'who didn't cause the problem' in the first place
impact on consumption and domestic demand (where pay cuts would exacerbate our economic problems and raise unemployment and public spending even further in the SW budget - ceteris paribus).
It should be pointed out that morale is an issue in the PS sector as uncertainty prevails. This contrasts with total demoralisation among those who have lost their jobs or fear losing them. Rather than spread more gloom and deflation lets try new and innovative ways of reorientating our public services, 'getting Ireland back to work' through targetted stimulus packages, using taxes and spending to get a consensus on how to tackle the crises. Few want strikes and disruption. The best way to avoid it is to develop a national recovery plan based on fairness and sound economics.