Friday, 27 January 2012

There is an alternative

Tom Healy: A copy of a paper I gave at the Dublin Economics Workshop today is available here. The conference provides an opportunity for a large number of people to debate economics policies. The current workshop is part of a series of its kind on the economic crisis which goes back to January 2009.

A key focus of the paper is on unemployment - especially youth. The impact of fiscal austerity on the domestic economy is outlined and the implications of this for the future of public services here. Unless current economic policies are reversed Ireland will emerge with an even lower level of public spending and revenue than is currently the case. It is very unlikely that the Troika can succeed in reaching the 3% deficit target by 2015, especially as the European economy of the Eurozone heads into a new recession in 2012. In short we need a Plan B and we need it very soon.


Paul Hunt said...

"...raising skills, better harnessing natural resources, investing in social and economic infrastructure and laying the basis for a stronger indigenous sector exporting services and products on global markets."

Is that it? Is that the alternative? Do you really believe that, in a balance sheet recession, throwing more of 'other people's money' at the problem will solve it? Where is the focus on increasing efficiency and productivity in the sheltered sectors (which is probably the principal available means of boosting economic activity and generating sustainable jobs)? Labour isn't the only factor of production..or maybe you still believe in the labour theory of value?

And the progressive-left wonders why voters are not flocking to its banner. Who could blame a majority for being repelled?

Tom Healy said...

@Paul Thanks for reading the paper and commenting on it. I would agree that it needs further work and consideration of policy alternatives. A key conclusion is 'The policy of coordinated deflation across Europe is destroying European economies, including our own, hollowing out public services and endangering social cohesion and thereby the whole European project itself. This has to be stopped and reversed before it is too late. If we need a
European ‘lender of last resort’ – and many believe that this is the only way to save the Euro and
possibly the European project itself then we need a European ‘investor of last resort’. Why do we have a Troika here? How about a Quartet that includes the European Investment Bank which is
mandated to ramp up its investment further in partnership with Governments and the private
I agree that throwing more money is not the only solution. But it is part of the solution. We need to throw lots and lots of money towards sustainable growth, employment and investment - state, private and voluntary. We need to replace our huge dependence on fossil fuel imports.
You guess right. I am an unrepentant neo-Keynesian. And I don't believe all this talk about the country being broke and other people's money. huge sums are being hoarded in savings as people have stopped spending. The richer are getting richer (EU-SILC). Profits in a small number of MNCs are booming and some people have done very well out of the celtic tiger with assets and wealth held offshore and on-shore.
Spend, Spend Spend. that's part - part- of the way out. its our money and we have choices. If just 10% of socalised private debt were put towards job creation it would help. Spending will generate demand. Even in a Small Open Economy it is possible to target spending in high-yield areas. Natural resources are a key along with human. I agree with the need to reform public and private sectors. I would like to see much greater competition in the banking sector with at least one state investment bank and one state retail bank. I accept that majority public opinion does not back this approach right now. However, what is your alternative and where is the crisis leading? Moderate voices on the left need to pose a clear alternative. Its never too late. Neo-liberalism has failed. Third Way has collapsed under its non-weight. Marxism/leninism is discredited. We need a new departure founded on sound socialist and democratic principles

Paul Hunt said...

"...what is your alternative and where is the crisis leading? Moderate voices on the left need to pose a clear alternative. Its never too late. Neo-liberalism has failed. Third Way has collapsed under its non-weight. Marxism/leninism is discredited. We need a new departure founded on sound socialist and democratic principles."

You can't pour new wine in to old wineskins. I thought for a old time that I was the only person calling as loudly and insistently as I could for meaningful structural reforms, but, at last, I'm not alone:

These reforms should have been initiated once the situation had been stabilised after the bubble burst, but better late than never.

Neo-liberalism hasn't failed. It was abused - and allowed itself to be abused - as a convenient front for neo-conservatism. The Third Way collapsed because its proponents foolishly thought they could secure some ground in the Neocons' den. Instead they were eaten alive. Marxist-Leninism may have been, quite rightly, discredited, but many on the left still fail to understand precisely why it has. And we still have examples such as the Democratic People's Republic of Korea to remind people what so-called 'democratic socialism' so easily turns into - indeed is almost compelled to turn into under the pressures of self-preservation.

The quality of democracy is best judged by the manner in which those who oppose the views and policies approved by the majority - or who are threatened by these views or policies - are treated. 'Democratic socialism' does not have a record of which it may be proud. The state tends to be too large and to require such an enormous apparatus to replace and supplant, in a dictatorial manner, what well-governed markets can achieve that it crushes liberty.

By all means resurrect Marx's critique of capitalism and the language and concepts he used to critique it - they are as relevant now as they were 150 years ago, but ignore his conclusions and prescriptions. And use them to empower citizens acting collectively to demand the structural refroms that are in ther interests.

Tom Healy said...

@Paul - lets stick to the point. We are agreed on the need for reform - of public and private sectors. The point is do we agree that 'there is no alternative'. Colm McCarthy reiterates the 'no alternative' view in today's Sunday Independent. This is the dividing line and we need to come off the fence and say which side we are on. Fiscal austerity is killing domestic enterprise, increasing unemployment and undermining confidence. The risks to democracy and social cohesion are clear if this continues.

Paul Hunt said...

Hi, Tom,

You're obviously new to the game here. You're not expected by our hosts to continue engaging with me. You run the risk of ending up agreeing with me that the left may have to shed some cherished ideological baggage or to discard some 'household gods'. The consensus here is that, if some is called for, it is better to cease engagement as soon as it might seem decent, but it is far, far better not to engage at all. And it obviously is far beneath the dignitiy of some of the 'big-wigs' here to engage with a pipsqueak like me.

But, since you have persisted...

"..let's stick to the point. We are agreed on the need for reform - of public and private sectors. The point is do we agree that 'there is no alternative'."

The point is that effective democratic governance failed seriously for the first time in the decade from 1977. It went through another loop of even more devastating failure from 1997. Indeed it could be contended that democratic governance has never functioned effectively since the foundation the state. There is much more to democratic governance than putting a pencil to paper in a polling booth. The Irish people have jealously, and quite rightly, guarded their inalienable right to decide who governs and to decide how much governance they will consent to, but there have never sought to exercise effective democratic control of how they are governed between general elections.

Native power elites, whose composition has changed considerably over time, have never been subject to effective democratic governance. That is the point and that is the challenge. It's all very well saying we are agreed on the need for reform (trades unions have a long history of being in favour of reform, in pricniple, but in practice...), but, apart from easy swipes at egregious behaviour in the private sector, some financial repression to finance public and semi-state investment and a solid defence of the wonders of the Croke Park Agreement, there has been nothing of any substance from the so-called 'progressive left'. When I have raised this failure I have been invited to provide suggestions for pillory and demolition. This is the area where some hard graft is required to increase efficiency and productivity so as to boost economic activity to counter-act the inevitable impact of fiscal adjustment.

"..Colm McCarthy reiterates the 'no alternative' view in today's Sunday Independent. This is the dividing line and we need to come off the fence and say which side we are on."

Colm indeed reiterates that view, but the whole point of his piece is that widespread and meaningful structural reform is required to counteract the impact. And he roots that in a valid and reasonable assessment of what a majority of citizens voted for last February.

"..Fiscal austerity is killing domestic enterprise, increasing unemployment and undermining confidence."

Let's cut to the chase here: Fiscal austerity, WITHOUT WIDESPREAD AND MEANINGFUL STRUCTURAL REFORM, is killing domestic enterprise, increasing unemployment and undermining confidence.

"..The risks to democracy and social cohesion are clear if this continues."

Is this a threat? I realise the trades union movement could bring the country to its knees if it chose to do so - indeed the ESB Group of Unions could do it on its own. But what would that achieve?

Most people are conflicted as producers of goods and service (or as retired producers, or as aspiring producers, or as those who contribute indirectly to production) and as consumers of good and services they pay for either individually or collectively, generally through taxation. This confict is natural, healthy and unavoidable in any demecratic polity. But it is no longer possible in Ireland to supress this conflict and to seek to resolve it behind the scenes to the advantage of groups of producers and to detriment of the vast majority of citizens collectively.

Tom Healy said...

@Paul We agree on the need for reform. However, 'reform' can mean different things. For example reform of competition or public service delivery can entail privitisation, outsourcing, user charges. Or it could mean improving performance, ensuring transparency, greater democratic accountability.
The issue I raised was fiscal austerity as a way of fixing public finances and renewing economic activity. That is the central challenge.

Paul Hunt said...


The price level of private household consumption in Ireland remains 15% above the EZ average. The exposed sectors have taken a price hit and that, with some pay cuts, has improved competitiveness. But the sheltered sectors have been able to maintain, if not increase pricess. The detailed CSO sub-indices highlight this.

We have to close this 15% gap. I agree that fiscal austerity on its own is going to retard economic recovery, but there is no economic future unless the deficit is reduced. It needs to be accompanied by stuctural reforms - which is precisely the point Colm McCarthy is making and with which I fully agree.

And why are reforms that rely on 'privitisation, outsourcing, user charges' and those that employ 'improving performance, ensuring transparency, greater democratic accountability' mutually exclusive?

Tom Healy said...

@Paul I would be curious to know the source of the 15% estimate (NCC?). There are 4 deficits to be concerned about - human skills demand, trade surplus/deficit, private/corporate, public. Best way to fix public deficit is to grow economy rather than leading into a debt trap. Regarding the inexorable trend towards privitisation - are you supportive of this in general? where is the evidence that this works? is it not more ideology than hard evidence.?

Paul Hunt said...


Have a look at this:

I know it's 2010, but I haven't seen anything since then that suggests the gap is narrowing. And the 2011 data should be out soon. Must check with the Eurostat chaps/chapesses.

Policy-makers are hemmed in. Export propsects are largely in the hands of the MNCs in the short term; previously favourable demographic factors may be turning a little against us; and, in case you haven't noticed, Ireland is in an official support programme which, for good and bad reasons - but all out of Ireland's immediate control - limits the potential for a fiscal stimulus.

The principal remaining source of growth is increased efficiency and productivity in the production of the goods and delivery of the services that consumers here and abroad value. This is something entirely within Ireland's control and that is why my focus is insistently on this.

As for privatisation, I see the good Drs. Reeves and Palcic, occasionally of this parish, have an op-ed in the IT:

Perhaps you, or one of your fellow posters here, might post on this to generate some discussion.

Damian said...

@ Paul Hunt - relative purchasing power (the data you cite) is not a particularly good measure of an economies efficiency or productivity. Japan is far more expensive than Bulgaria – but it is in a far better economic condition than Bulgaria.

But I agree with you that utility companies can do far better on prices – but this is a global issue and not restricted to Ireland. The assumption that private energy markets are virtuous and self correcting is misleading (no more than the same assumption applied to banking) - hence ownership may not be the crucial issue.

I am also confused about your interpretation of a balance sheet recession. In a balance sheet recession your best proposal is austerity and structural reforms – one has to assume based on your logic that we should "hope" the savings generated from structural reforms will counteract the negative effects of austerity? In a balance sheet crisis this is surely about as useful as Quantitative Easing via the banking system – the money goes straight to the balance sheet and stays there! Citing Colm McCarthy as backing for this is not a resounding endorsement - to the best of my knowledge Mr McCarthy has not advanced any particular theory of economic growth nor has he any particular international standing in this area.
Surely you can do better?

Paul Hunt said...


"Surely you can do better?"

And what would you suggest? Please don't tell me you're also another believer in what 'should be' or in some utopia that will never be. I'm trying to address what I see in front of Ireland and what, in very constrained circumstances, is possible. Wishing things were different (or that somebody somewhere would that we want them to do or believe they should do) isn't any use- but it seems to provide a warm and comfortable defense against any change.

Nice try on Bulgaria and Japan, but neither is in an imperfect currency union as part of a single market. If the costs of living are higher than those in other members of the zone, pay demands will be higher and attempts to protect higher levels of pay will be stronger. If this doesn't impact on economic activity and performance, then I must be missing something.

The fact that the EU has a half-arsed approach to the liberalisation of utility services doesn't mean that ireland should not do what it can to reform these in the interests of its citizens.

It's always a lot easier to seek to preserve the status quo and find fault with any changes proposed than it is to advance changes that are possible and potentially beneficial.

You're in a big club.

Damian said...

@paul hunt
big clubs and vested interests...anything else?

what I did do was draw attention to your flawed interpretation of the Eurostat data and the consequence of a balance sheet recession. For change to be beneficial it must be based at least on correct assumptions. Even within the Eurozone the association you put forward is tenuous at best - Germany vs. Spain, vs. Italy etc. The facination with costs as an immediate source of competitive gain is often misplaced. Look at BEA data on international returns and labour costs – the relationship that you propose does not hold! This is not to say that costs are irrelevant; but to make them the focus of correcting a balance sheet recession, when as you admit, policy options are limited - you can do better!

I also drew attention to your "hopeful" interpretation of the effects of structural reform in correcting a balance sheet recession and that it was akin to QE. In a balance sheet recession policy makers need to be far more robust in directing investment – QE has not cut it and neither will utility privatisations. At the European finding a better way to recycle surpluses and deficits would be a good start.

But I guess you won't find that in the Sindo!

Paul Hunt said...

I'm not trying to 'correct' a balnce sheet recession; just trying to identify changes that might ameliorate its impact, given the constraints that exist. Voters in the EU's 'creditor states' have been lied to for far too long. It will take a long time for their politcians to re-secure their trust.

So 'finding a better way to recycle supluses and deficits' may happen eventually as I agree it is a major cause of the malaise. But it won't happen any time soon.

So having eliminated QE and utility privatisations, is that all you've got?

Tom Healy said...

Good discussion. Lets admit that liberalism has failed not because of the neo-cons but because markets and market ideology was allowed to run right due to liberal thinking from Reagan and Thatcher onwards. We need to look at unit profit costs here to understand the role of costs.

Damian said...

Thanks for initiating Tom.

Paul, just to clarify, if you (re)read my post I did not "rule out" QE - I said that in a balance sheet recession it was not good enough to be "hopeful" or adopt a purist monetary policy. States need to be far more robust in directing investment - otherwise it sits on the balance sheets of banks and the private sector won’t do it. But that requires policy and imagination.

Since surplus and deficits must exist in the Eurozone, talking about the voters in creditor countries being lied to is equally applicable to voters in debtor countries (e.g. Greek private debt 10 years ago was very low) - who lied the most? Learning to manage this would be no small step.

Paul Hunt said...

Hi, Tom & Damian,

Indeed, many thanks to you,Tom, for kicking this off and for continuing to engage - and to you too, Damian.

Tom, I totally disagree with your first point, but I couldn't agree more with your second.

Liberalism hasn't failed. It simply lost its way and was subverted by the Neo-cons. Liberalism did all the intellectual heavy-lifting for the the post-war social democratic/social market settlement in Europe. In terms of the Anglophones, just think of Keynes, Beveridge and, from the 'one nation' liberal centre of the Tory party, RAB Butler. There was a veritable army of these people in Europe before, during and after the war. Jimmy Carter has people like Fred Kahn, a lifelong Democrat, and amny others implementing a reforming, genuinely liberal agenda. Thatcher and Reagan harked back to the economic liberalism of Trevalyan who prefered to let Irish people starve. And it was accompanied by a mercantislism that favoured 'big government' (thing of the deficits Reagan built up and how Thatcher used (indeed wasted) North Sea oil and gas revenues). But it was 'big government' that favoured the interests of capitalism and repressed labour and the vast majority of citizens.

But I suppose I'll never convince anyone on the left that it was the abuse, and not the proper use, of markets that was and is the problem.

But you are spot on in your focus on unit profit costs. I just want to shift the focus away from labour costs. Labour costs are high in some sectors because other factors of production are either being applied inefficiently or being rewarded or excessively. Capital can be adjusted much more rapidly than labour; and labour cannot, nor should it be expected to, adjust, in terms of deployment or reward at the same pace as capital. Tackle non-labour costs first, and then we can see how labour costs might be adjusted. The current policy obseesion is on labour costs and on labour costs alone. I reject this totally.

Damian, I agree that re-directing investment requires policy and imagination. Those on the left won't like it, but the best way is to provide a safe home for the 'good money' that pension and saving funds have to invest. This will not be achieved by 'financial repression'. That contributed to the implostion of the post-war social democratic/social market settlement. These funds are either not willing or are prevented from investing in the bonds issued by many sovereigns. So, privatise state-owned enterprises in a manner that will provide them with a 'safe home' for their 'good money'. And restrict investment only to these long-term investors. It's a win-win as governments will be able to reduce their debt and they will no longer have to directly finance (or not finance in Ireland's case) infrastructure and utility investment.

Ax to who was lied to most, I don't buy this reative morality stuff. "We might be bad, but hey're worse" will get us nowhere. All voters in the PIIGS know they were lied to and the liars have been evicted. Voters in the better-governed countries know they were also lied to, but, most seem to be prepared to give their governing politicians a chance to make amends. And even if they change them, the overall thrust of policy seems to remain unchanged. There's a message there for the left, but there seems to be a reluctance to acknowledge it.

Tom Healy said...

@Paul @Damian Thanks for comments. Much appreciated even if there are areas of considerable disagreement. This is a debate needed and urgent. Pity so few are commenting.

Paul Hunt said...

@Tom (and Damian),

Many thanks for maintaining the engagement. We should not fear disagreement or even conflict - once it's 'jaw-jaw' and not 'war-war'. Robust adversarial disputation based on facts, evidence and analysis is the best means of securing some common ground and making progress on the numerous challenges that Ireland confronts at the moment.

I sometimes think I am the only (persistent) contrarian voice here. The problem as I see it is that most of the posts here are preaching to the converted or reassuring the unpersuadable. Hddling together is warm and comfortable, but the progressive-left has a duty to take the fight in to the big arenas and to seek to engage and align with those on the liberal-left. Yes, we do exist and may not be as few in number as you may think. But such an engagement might require the shedding of some ideological baggage and discarding some 'household gods'.

And this it seems is what the 'progressive-left' fears most of all - and probably even more than the inevitable vicious attacks from those on the 'hard left' who cling to the hope of suppressing or supplanting capitalism.