Friday, 31 December 2010

Rebuilding the Economy

Paul Sweeney and Danny McCoy (IBEC) present different views on rebuilding the economy in today's Irish Times, which is also the theme of today's editorial.

Danny McCoy laments the lack of evidence-based policy-making. Whereas Paul Sweeney presents a critique of those, like Donal Donovan, who suggest the current economic strategy is in any sense working.


Paul Hunt said...

The 'buzz phrase generators' must have been working overtime in the ICTU's and IBEC's respective HQs. It is profoundly dispiriting to find this dreary dogma being churned out unthinkingly. Still, I suppose, it provides a tonic for the troops on both sides and feeds into the respective 'spin-machines'.

Anonymous said...


The Government’s deflationary plan has choked domestic demand ... cutting public sector wages, (when private sector wages remain relatively stable)

The stability of private sector wages is irrelevant to the necessity for cuts in the public payroll.

Public pay had to be cut, simply because it had grown too high and the state could no longer afford to treat its own employees vastly better that other workers (though they remain on average better off, only by a narrower margin).

If wage rates had also fallen significantly in the private sector (as did hours worked and the numbers employed), this would have required even bigger cuts in public pay.

Abandon the “internal deflation” of attempted wage-cutting, in favour of collective bargaining to allow workers purchase the goods and services of a dynamic private sector.

Or as is more likely, allow workers to hoard any extra pay they receive.

Which is what anyone still employed with spare cash is doing currently.

Together with stakeholders drive public sector reform, because when this key part of the economy is efficient, the whole economy gains and employees are better motivated.

Literally, how many times have we heard this one? Has the much-trumpeted reform ever delivered on its promises?

Its alway just beyond the horizon, next year we'll make the hard decisions, maybe give up fundamentally dishonest work practices (bank time to cash imaginary cheques) if other slightly less dishonest ones are copper-fastened (privilege days to travel up on the slow-coach from the country).

Feet-dragging, resistance, dilution at every turn so that in the end what little reform arrives a day late and a dollar shy.

The key targets are a) full employment;

We didn't even achieve that at the height of the boom. It would take a serious dose of harshness in the social welfare code to come anywhere close to full employment.

b) rising living standards;

Impossible. Our currently level of living standards is still heavily inflated by external borrowings.

c) economic stability and sustainability;

A stable state of gloom maybe.

d) social cohesion;

Would require abandonment of the mé-féin-ery deeply embedded in the Irish psyche.

e) equitable income and wealth distribution;

We already have a massively progressive tax system.

But how do you propose to redistribute wealth? Forced collectivization? Death or internal exile to Athlone for the kulaks?

f) poverty reduction.

Official measures of poverty has been reduced significantly by the recession. Which goes to show that the metrics based on relative poverty that were peddled through-out the boom are in fact a nonsense.

Slí Eile said...

And I note that we have another whopper about a high minimum wage. Guess what - N=2 Ireland and Washington DC are used as comparators in the Donovan article.
I have already cited, recently on this site,the OECD Minimum Wage Database. It shows, for 2009, that the statutory minimum wage in Ireland was 6th highest out of 17 countries for which information was available. Users can download the data from here
and by using the US dollar exchange rate correct for purchasing power parity you can work out a table for 17 countries. Ireland was US$14,165 - seventh place behind Portugal, Belgium, Australia, France and Netherlands. In a separate table you can extract data showing Ireland in 4th place out of 21 countries in terms of the ratio of the minimum wage to the median wage in the country. You can get the UK Low Pay Commission international comparison by going to the 2009 Report here
Figure A5.1 shows Ireland at 32% - below the G7 average for ratio of minimum wage to median earnings. See also Table A5.1 where Ireland was below the UK even before the recent cut.

Paul Hunt said...

@Sli Eile,

Your comment reminded me of the conclusion to a Jim Stewart post back in October:
"But IMF/EU intervention similar to that in Greece is unlikely. However closer monitoring by the ECB, and EU bodies is certain. This will lead to policy changes but in addition considerable negotiating skills are required to try to ensure that external policies, encourage rather than hinder the prospects for economic success. There needs to be careful monitoring of policies and economic data in other EU countries, in particular those in the eurozone so that Ireland can be presented as ‘average’ rather than an outlier."

The last phrase sums up the tactics here. "Avoid getting into detailed objective analysis of the economic situation in Ireland; focus on international comparative data that shows ireland in a good light."

Not to mind being an 'outlier' Ireland was off in an orbit of its own during the property bubble. The bank guarantee added so much garbage that it risks crashing and burning and doing serious damage to other economies. The problem the EU and the IMF have is to figure out how - and how much to spend - to get Ireland (and the other peripherals) back onto a sustainable orbit.

Slí Eile said...

@Paul You may find this link of interest

Paul Hunt said...

I have just added this comment:

which you may find of interest in return.