Tuesday, 22 February 2011

The manifestos and economic policy

Jim Stewart: The publication of the various party manifestos has not been accompanied by detailed scrutiny of many of the policies proposed. There are exceptions (see, for example,the analysis of Parties' proposals for pension reform by Gerard Hughes and Jim Stewart here). One reason for this may be that without expected electoral success, a party manifesto is irrelevant. It may also be because control over the budgetary process and much of economic policy is prescribed by the EU/IMF Memorandum of Economic and Financial Policies which is subject to extensive monitoring (weekly, monthly and quarterly reports). Nevertheless, in some areas there is discretion.

All parties propose renegotiating the terms of the EU/IMF agreement. Electoral change in Germany may make this more likely as the German Governments hard line stance is to some degree determined by electoral strategy (see Quentin Peel, Financial Times, February 21, 2011). As regional elections take place in Germany with defeats for the ruling government, electoral strategy may also lead to a change in economic strategy in relation to EU policies towards peripheral countries, and the role of the European Financial Stability Facility.

The Fine Gael manifesto is of particular interest, as Fine Gael is likely to form the largest party in the next Dail and may even have an outright majority.

Fine Gael Policy Areas/Statements that Require Analysis

The decision to sell state assets (Less Waste, Lower Taxes, Stronger Growth, p. 4) deserves considerable analysis. The assets to be privatised are listed as Bord Gais, ESB Power Generation, ESB Customer Supply Companies, and RTE Transmission Network (Working for Our Future p. 21). Fine Gael criticise (and rightly) the forced fire sale of bank assets (Credit Where Credit is Due, p. 6), yet any sale of Sate owned assets would amount to just that. The economic justification for privatising assets is poorly developed. In addition, the EU/IMF Memorandum of Understanding states “under the period of this financial assistance programme, any additional unplanned revenues must be allocated to debt reduction”. This means selling State assets will be used for debt reduction as in the case of Greece (see Guardian Newspaper 18/11/2019 ‘Greek PM denies plans to sell off national treasures’);

The statement that our effective corporate tax rate is actually higher than that of most EU countries (p. 7) is not supported by the most reliable data available, that is US Bureau of Economic Analysis data;

It is proposed to replace the HSE by new systems by 2016 (Less Waste, Lower Taxes, Stronger Growth, p. 13). In another document it is stated “that the big top down bureaucracies like FAS and the HSE will have been replaced by new systems” (Less Waste Lower taxes Stronger Growth, p. 13). The Manifesto (p. 47) states that the ‘dysfunctional HSE will be dismantled’. Is the fixation with structures really the solution? Are we facing into another five years of chaos while the health system is restructured at the expense of services? It is not clear what institutional structures would replace the HSE, how the new social insurance model will work and how budgets would be allocated.

The Department of Finance is criticised because “it failed to deliver good value for money for taxpayers through public service modernisation and because of the excessive breath of its responsibilities and its culture of centralised control and distrust of the front line” p. 20, See also Reinventing Government, p. 26)).
The Department of Finance can be criticised on many points, but the main failure in economic policy was the destructive policies pursued by McCreevy (decentralisation, deregulation, etc.). Avoiding the pursuit of catastrophic policies in future requires change at many levels, including the near ‘monopoly of the consensus’ in discussions/writing about economic policy, and the consequent silencing of alternative voices.

The formation of an ‘independent’, unelected, fiscal council to which the Minister for Finance will be obliged to either “comply or explain (p. 20) poses many questions. Are we not voting with the intention that those candidates with a majority will have a democratic mandate to form the next Government and be responsible for fiscal policy? Who will be appointed to this independent Council? Many ‘experts’ are not independent of vested interests and especially not independent of an outdated and failed ideology (see blog by Paul Sweeney, A Code of Ethics for Economists). How will such a body avoid being captured by the cosy consensus?

There are welcome proposals, such as the proposed introduction of a loan guarantee scheme. (Working for Our Future p. 265) - but why is it being introduced as a ‘temporary’ measure?

The proposal to use existing banks to administer such this scheme will largely neutralise the scheme and end up subsidising banks as existing loans will be displaced by loans issued under the guarantee scheme.

(1) For example, there is an analysis of Fine Gael and other Parties proposals for pension reform by Gerard Hughes and Jim Stewart at http://www.tcd.ie/business/assets/pdfs/Pensions-Reform_&__Party_Manifestos%5B1%5D.pdf

1 comment:

Anonymous said...

Stewart has raised a number of very important issues. Any sale of strategic state assets regardless of whether such sales are demanded by the EU/IMF must be rejected out of hand. We have seen the disastrous privatisation of our telecommunications infrastructure result in our moving from top ranking in the world in terms of telecommunications infrastructure to one of most lowly ranked in the OECD area. While this degrading of our telecommunications infrastructure was occurring, private equity vultures pocketed billions from the privatised company by stacking it up with debt and failing to invest in maintaining the infrastructure.

Privatisation of our strategic assets is nothing short of a ruse to enable the enrichment of private equity vultures while at the same time also enriching the Wall Street looters by paying them immorally exorbitant fees. In short it constitutes legalised criminality.

Another important issue raised in Stewart’s piece relates to the formation of an ‘independent’, unelected, fiscal council. Such a council would be just another platform for prima donna economists to strut on. That we should be considering allowing people who are mired in an obsolete ideology and whose closed minds have nothing of value to offer society to dictate to our elected government is nothing short of anti-democratic and constitutes a grave threat to our already fragile democracy.

Given the damage which economists have already done to our country and their total incapacity to relate to the challenges facing the country, this proposal is not only dangerous but utterly absurd. It must be resisted.