Wednesday, 14 October 2009

Crises: Not 5 but 7

Slí Eile: The National Economic and Social Council (NESC) has recently published its Next Steps in Addressing Ireland’s Five-Part Crisis: Combining Retrenchment with Reform. You can download the full report here and the executive summary here.

The title by-line ‘retrenchment’ with ‘reform’ gives all away. Following earlier work by the Council – which represents the various social partners – it attempts to pull together various strands of the current economic crisis and to propose an ‘integrated approach’. This is welcome. To the five-part crisis (banking, fiscal, competitiveness, unemployment and reputation) must be added a sixth dimension as pointed out by a speaker at last week’s TASC Economic Conference: a political crisis. I would even suggest a 7th: a moral crisis. Do we care enough about people, their well-being and the planet in which we survive? Markets, States and non-governmental actors have failed, so far, to act with sufficient moral responsibility.

Like all NESC documents there is a good conceptual framework underlying its work. But, inevitably, reflecting its structure, function and composition there is a strong element of ‘on the one hand and on the other hand’. Here is a sample:

It is necessary to combine unavoidable retrenchment with major reform in a range of policy areas and systems.

‘unavoidable’ mirrors a highly held view these days:
TINA – There-Is-No-Other-Way (e.g. deflation)
TOGIT – The-Only-Game-In-Town (e.g. NAMA)

Joseph Stiglitz has warned us about being intimidated. Other adjectives used in the NESC document are ‘severe retrenchment’ (p7) and ‘immediate retrenchment’ (p9)

Interestingly, the NESC document goes on to say (p60):

The deterioration in the labour market, in the lives of many households and individuals, is being compounded by falling disposable incomes and retrenchments in some areas of current public social spending.

Government has achieved savings of c10.5 billion or 6.3 per cent of GDP and published the McCarthy Report. But there continues to be a huge gap in the public finances.
Policy and public debate on the fiscal, economic and social aspects of the crisis still seem dominated by short-term, immediate and zero-sum aspects; it has not proven possible to secure support for a perspective based on long-term mutual gains.

on page 61, the Report rightly draws attention to the way cuts in public spending can impact adversely on vulnerable and low-income groups.

In its response, the Government clearly sees this work of NESC as offering a talking and thinking platform on which to get buy-in for a new a ‘agreement’ (From the Govt Press Release: "In response to the challenge set out in the Report, the Government proposes to invite the Social Partners to meet to discuss whether there is sufficient basis for entering substantive negotiations to secure an agreed national response to the current economic crisis")

A classic nescism is the following:

There remains a tendency for opinion on the fiscal crisis to polarise into two camps, with one stressing the need to reduce the gap between spending and revenue and the other the need to maintain existing services and conditions. These positions tend to cancel one another out, rather than pushing the debate into new terrain in ways that makes policy decision clearer and public understanding greater.

But, in the meantime, the following questions have to be faced: The General Government Deficit is in the order of €20bn this year
Government can either (i) cut spending (ii) raise taxes (iii) borrow more or draw down on cash reserves (it is too late, apparently, to divert NPRF cash since Government diligently pre-paid next year’s amount as well as this years – called APCS – Acute Pro-Cyclical Syndrome). NESC clearly favours raising the share of taxes as % of GDP to bring us up closer to EU norms. But, it does not specify its stance on some of the major issues:
Pay cuts
Welfare cuts
Which areas of public spending would be cut
Instead it opts for ‘severe retrenchment’. Then again, it is hard to imagine the partners to NESC agreeing to a common approach on the above.

1 comment:

Nat O`Connor said...

In terms of Government's options, there must also be a plan for (iv): Growth in GDP; without which (i), (ii) and (iii) combined will not be sufficient.

NESC is right to call for "a perspective based on long-term mutual gains." There is no doubt that Ireland's economy has to move from simple to complex. That is, away from the FIRE model (Financial, Insurance, Real Estate) and towards a diversity of small, medium and large enterprises, across a wide range of different economic activity. This is necessary to make us less vulnerable to a collapse in any one sector. We are also unlikely to be able to rebuild the economy and re-employ 500,000 people in just one or two sectors.