Tuesday, 22 December 2009

Taking stock: 2010

Slí Eile: Following previous blogs about the principles underlying a progressive strategy for economic recovery with fairness, here are another four:

NAMA is not the only game in town – even now. There is a strong case for:
* Using every means to pay much less for liabilities transferred to NAMA (should be referred to as the National Liabilities Management Agency);
* Take a majority holding in one or more publicly quoted banks sooner rather than later; and
* Establishing a State Retail Bank along with a State Investment bank capitalised from holdings of existing state enterprises – these banks, subject to public scrutiny but with delegated independence, would compete with private banks on the global market taking deposits and extending loans
* As a matter of urgency a State Industrial Lending Agency – along the lines of the old ICC. This should be established to guarantee loans to small and medium enterprises and ensure that businesses stay in business and people stay in their jobs.
* Establish agencies to provide long-term and infrastructural financing – something that, historically, private sector banks have failed to provide.
The FT carried an interesting article, recently, (‘How to take moral hazard out of banking’)
reporting that Mervyn King, Governor of the Bank of England has called for ‘utility banking’ which would limit banks to their legitimate purpose – financial intermediation and payment facilitation.

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). We need to begin a process of reform of our political institutions to restore accountability, transparency and openness.

The necessary progress towards a low-carbon economy means more than just carbon taxes; it constitutes new relationships between sustainable production and consumption. This can revive the economy through an innovative, resource-efficient society with environmental and business payoffs. We will need new financing mechanisms (e.g. Green Bonds), joint public and private enterprise initiatives, and greater grass-roots participation and collaboration.

We need a major shift towards ‘stakeholder governance’ in our political and economic institutions – private and public. The growing inclusion of employees, consumers, communities and environmental interests in decision-making process has been shown to add to productivity and sustainability and can lay a new foundation for prosperity.


Joanna Tuffy said...

Slí Eile,

I would be interesting on your take on the ESRI claim reported today that the impact of the last 3 budgets taken together was progressive.

Joanna Tuffy (Lab)

Joanna Tuffy said...

Sorry that should be interested not interesting.

Anonymous said...

Couldn't agree more. In particular your commentary on public health and education systems. The gross inequity on how resources are shared (or rather not shared), the lack of transparency on decision making, the top down arrogant approach within those systems, the dominance of HR systems (and inappropriate hike in salaries of same) the gross lack of respect for many highly skilled workers, the emphasis on outdated systems such as performance management tools, shown not to work in private sector and fraught with problems for measurement of quality of clinical care etc., etc., etc., See Peter Lunn's Basic Instinct. OK rant over...

progressive-economy@tasc said...

from Paul Sweeney
@Joanna - you might notice that the ESRI diplomatically lump the last three savage Budgets together to get the word “progressive.” However, in their conclusion, the authors of the section in the Quarterly Report, Callan, Keane and Walsh on this distributional impacts of the Budgets, explicitly and unequivocally condemn the recent Budget as “clearly regressive.” But for some reason, they have taken the last three Budgets ie the two 2009 Budgets and this one, to get a more positive spin on progressivity. Why they did this is unclear.

They benchmark the Budget against “changes in wages” which they believe is a neutral mark. There are a number of problems with their approach. First is that the selection of the three budgets gives a wholly different outcome from the selection of just the last Budget. Secondly there is no good data available on wages in Ireland except occasional ones from private companies which are as reliable as an ISME survey of its members! So I assume they meant earnings data. With weekly earning falling, whereas hourly are rising in the private sector, it is unclear as to what data within the CSO earnings data they used. Thirdly, the latest data on wages published on the same day as their study shows some marked changes.

Fourthly, is it useful just to compare Budget changes in welfare and tax against earnings, when so many other changes in each Budget impact on income and welfare distribution? For example, I have campaigned since 1981 against tax expenditures (against section 84 Leasing, initially) as costly unnecessary and regressive. No one paid a blind bit of notice, until recently. After the collapse of the Irish economy last year, most economists have now suddenly discovered them! (this makes me happy! I am no longer a spoiling, anti-business, eccentric! Shure, the tax breaks don’t cost anything!).

The Budget systems of taxing – or not taxing – wealth, inheritances, gains, housing, consumption, excise, stamps, etc all can have huge distributional impacts. In fairness to these authors, they do not claim to judge the whole impact of the Budget, but as the ill-informed media commentariat do so, based on studies such as this, the full story of the distributional impact are never revealed.

Interestingly, the ESRI also hits back at SIPTU on a paper by Manus O Riordan on the public private wage gap on its website. Is the Institute a little obsessed with this subject? It has written a lot on it and seems to be campaigning now.

Slí Eile said...

In a rush of enthusiam, parts of today's media focus on the 'good news' story that wages, after all, are declining in the private sector and - when allowance is made for the 'pension levy' - so also for the public sector. The 'competitive devaluation' is in train - so it is claimed based on data from the CSO to the second quarter of 2009.

This taken in conjunction with the ESRI QEC article on the impact of the budget is being presented by some media commentators as a signal of effective adjustment with some element of progressivity (although the reporting is garbled and contradictory in parts). A difficulty on commenting at this point in time is that the source article is not generally available (particularly to those in the bottom quintile of the income distribution!). It will be necessary to study the article once a copy is available. I wouldn't rely on just the papers ...More on this later in the week perhaps. Others with access to the article might comment.
One other observation - the juxtaposition of earnings data in the private and public sectors in the Business Page of the IT today suggests that the psychology of the new sectarianism is well entrenched. Marx is being re-written:
The history of all hitherto existing society is the history of the public versus the private sector.....

Slí Eile said...

Before having the opportunity to read the said ESRI article some questions could be posed:
does the SWITCH model differentiate the impact of price inflation on different income groups?
which types of income are taken into account - profits, dividends, rental income, earnings from employment?
which budget is taken into account?
how do you compare the difference between a 10% cut in income of €100K p.a. and a 5% cut in €20K p.a.?
how do you compare a same absolute cut in income between two groups with very different access to wealth and assets as well as networks of power and leverage?

Joanna Tuffy said...

Slí Éile and Paul,

Thanks for that analysis. Need to mull over it.

Thanks also for the analysis on this website over the past year which is a great resourse for people like me.

Wishing you a Happy Christmas and New Year.

Slí Eile said...

@Joanna Your positive comments are appreciated. Thanks and best festive greetings to all who blog, comment and read this site. Hopefully, the debate and analysis can be extended to many more contributors in 2010 and the work deepened to reflect a diversity of views across a much needed 'progressive consensus' to what some of us are terming the 'Dublin Consensus'.
It is very positive to see more people using this site.

Antoin O Lachtnain said...

What exactly are you proposing at VII and IX? Government-appointed directors at private companies?

Why would you take a big stake in a private bank (in return for billions in equity, presumably) and then start another bank (requiring another two or three billion in equity) in competition with it?

Slí Eile said...

@Antoin re banking (VII) - argument for more than one publicly-owned bank is to create a competitive model as well as differentiation of roles in regard to retail, industrial banking. ICC and ACC models were far from perfect - but wish we had something like that right now. Problem with nationalising existing banks is that one would be nationalising liabilities as well as assets. However, I think the balance of argument is for nationalising AIB and BOI. Anglo is a done deal in many ways and we are left with massive inter-generational liability and exposure even post Sept 2010 guarantee. It should never have been guaranteed in first place. That set in motion a disastrous course of reations from nationalising them to now injecting more and more life blood into them as the expense of public service, income protection and pension security long-term.
Re IX corp governance - I suggest good old fashioned worker and consumer democracy. Take a leaf from the 1975 Bullock report

Antoin O Lachtnain said...

Bullock 1977 you mean? That was a plan for an industrial economy, when unions were still a critical part of industrial relations. Things have moved on. We are in the post-industrial era now. (Perhaps you are just making fun of me.)

How many banks do you think we need in an economy this size? It appears to me that we are over-banked. If the banks were differentiated then there wouldn't be any increase in competition.