Thursday, 17 April 2014

Ireland's National Risk Assessment

Paul Sweeeney: The Department of the Taoiseach just published its “Draft National Risk Assessment of Ireland” as promised in the Government Programme. This is extremely welcome and indicates fresh thinking on forward planning for unexpected shocks. It is very interesting reading indeed.

Its main categories of risk are i) Economic; ii) Environmental; iii) Geo-political; iv) Social; and v) Technological. But it covers food safety, infrastructural development, social cohesion, migration and integration, the banking system, pandemics, cyber security, terrorism and more.

However, it is both contradictory and disappointing in a few areas. It is thin on what the responses should be, but that should follow later, on revision, we hope.

This publication states at the very beginning that it seeks to avoid “group think.” Enda Kenny in his introduction specifically demands that “never again should dissenting voices be silenced”. It warns against “herding” and “selective reading.”

It was this “group think” which dominated property supplements and business pages of Irish newspapers and the selection of many economic commentators who urged endlessly that “you need to get on the property ladder” or be left behind.

What the Taoiseach and other commentators never say is the Group Thinkers who dominated were all from the Right. It did seem, for a while, that the unregulated free market worked, but boy, did it implode, necessitating massive public bail-outs of the private sector.

While wisely warning of the dangers of “group think”, the assessment paper immediately falls into “group think”. Workers are called “human capital” and competitiveness is defined solely as wage movements over the short term and not in its complexity. However, it is only a draft and that shows some foresight and we trust it will be amended, as it is important.

It has a crude reductionist view of competitiveness. This is surprising as Ireland has a National Competiveness Council (NCC) which examines the complex issue of competitiveness and has done so with continuing refinements for decades.

The NCC is recognised as a world leader in its area. Several countries are emulating its work. Indeed this risk assessment acknowledges the existence of the NCC and quotes one of its publications. Yet it is a clear the authors have not actually read the reports of the NCC. They are published by the Government, with forewords by the same Taoiseach. The NCC reports point out that wage movements are but one issue in a complex area.

It was not rising wages that caused Ireland's downturn, despite the needless battering of trade unions and workers by conservative economists and think tanks over the last 30 years.

Wage movements are important in an economy but less so than productivity, which is mentioned. The issue of competitiveness is much more complex than the crude depiction in this report.

In contrast, the report does not cover the dangers of “excessive profit-taking” directly. US MNCs famously make huge profits here it is stated in IDA reports. The assessment does cover this vaguely, in the sense that it is mentions Ireland’s over-dependence on a small number of foreign MNCs in a small number of sectors. This is a welcome and timely recognition. It also expresses concern about the low rate of Corporation Tax in a vague way, and while oblique, this recognition is long overdue but welcome.

The biggest issues facing Ireland’s competitiveness today are, in my own view: i) the cost to taxpayers of the infamous private bank guarantee; ii) the lack of credit for small businesses (i.e. via the banks); iii) the potential impact of a change in the US tax regime which wipes out the attractiveness of low effective corporation taxes overnight (the vague but welcome mention); and d) our reputation as a place to do business (ethics are too flexible in business and those in the elite are not brought to task, while private enterprise is becoming less transparent, with the growth of secret unlimited companies, deliberately obscure accountancy and other evasions).

The NCC has 16 members, 10 of who are representatives of business. Clearly it is a contested space, but yet it reports are sophisticated and contribute much to an understanding of what is a complex issue, provided they are read by policymakers; i.e. those who should do so.

The risk report also misses out in its lack of emphasis on inequality. This is the big economic and social issue of the 21st Century. Besides the terrible impact on poorer people, from an economic point of view it is leading to falling demand as the rich get richer without doing a hand's turn, and it is undermining meritocracy and democracy.

The other big issue neglected is media plurality. This is a defining issue for this Government for it was the lack of economic debate (which is admitted so forcefully by the Taoiseach in his Foreword) which allowed right-wing group think to rule the air and printed media. I would argue that the bias remains and may be deepening.

And while on the subject of “group think”, and the how deep the dominance of the language of the Tea Party and the Right has gone in discourse in Ireland, we should look at a recent publication by the Department of Finance. It is an interesting and detailed response to widespread publicity internationally on the extraordinarily low (and in some cases no) tax paid by highly profitable MNCs in Ireland. (Or not based 'in' Ireland yet stepping in and stepping out). For example, Jim Stewart’s revelations that the effective tax rates paid by many MNCs in Ireland are much lower than the low nominal rate of Corporation Tax.

The risk report deals with MNCs and never once referred to “transfer pricing”. This is truly remarkable!

In contrast, virtually every time it mentioned the word “tax” it appended the word “burden” to it. The term “tax burden” appears a staggering 24 times in the paper. This is a pejorative Tea Party term which no tax-funded civil servant should use, ever.

Why is my payment to the doctor a “payment” but the payment under a medical card a “burden”? The implication is that every civil servant in the same Dept of Finance is a “burden” because he or she is paid fully out of taxation, which is a burden.

What is even more laughable is that when it comes to Corporation Tax in Ireland the word “burden” is wholly inappropriate. For in Ireland the nominal rate is very low, the effective rate is even lower and the social charges paid by employers are among the lowest in the world. How can they be called “burdens”?!

I do not think that the authors even realise that they are using Tea Party language, so inculcated is it in the psyche of many. Even the Department’s PR section did not see the use of this degrading word which is attached to the word “tax” by those who want a small state and inequality.

Words are weapons.

Paul Sweeney is a member the NCC

1 comment:

Proinnsias Breathnach said...

Hi Paul

Thank you for a thoughtful contribution with most of which I would naturally agree. However, I would argue myself that the key to Ireland's export competitiveness (which essentially means our ability to attract and retain FDI) is investment in upgrading skill levels and in developing the economy's innovative capacity.

The "crude reductionist" view of competitiveness to which you refer was nowhere more in evidence than in the article on this topic which appeared under the name of Richard Bruton in the Irish Times on April 9. I have no idea who actually wrote this, but clearly it was written without benefit of the considerable research and publication output of the National Competitiveness Council which is located in Bruton's department. I sent a riposte to the Editor of the Irish Times but, despite pointing out how littered with misinformation Bruton's piece was, the "newspaper of record" chose not to correct the record in this case. I have reproduced this letter here.

The Editor
The Irish Times

A chara,
The article by Minister for Enterprise and Jobs, Richard Bruton, which appeared in your issue of April 9, constitutes an extraordinary mixture of error and misrepresentation.

The main thrust of the article is that an alleged loss of export competitiveness in the 2000s played a signficant role in the post-2007 downturn in the Irish economy. This loss of competitiveness, Mr Bruton argues, “destroyed a carefully built, export-led economy”.

In direct contradiction to this, World Bank/UN data show that the dollar value of Irish exports of goods and services doubled between 2001-2007 and grew by a further 12 per cent up to 2011.

Mr Bruton goes on to contend that Ireland’s share of export markets fell steadily from 2003 and “we lost large numbers of jobs in exporting companies”.

In fact, Ireland has substantially increased its share of global exports in those sectors in which this country specialises. This has been particularly the case with services exports, which now account for almost one half of Ireland’s total exports, and whose share of global services exports rose from 1.7% in 2001 to 2.7% in 2012.

Meanwhile, employment in foreign firms (which account for 90% of total exports) rose between 2003-2007 and while it fell by 19,000 (11%) over the following two years (due in large part to a sharp fall in global trade in 2009), these jobs had all been recovered by 2013.

By contrast, employment in the rest of the economy in 2013 was still 265,000 less than it was in 2007.

It is clear that, far from contributing to the post-2007 downturn in the Irish economy, the export sector played a significant role in counteracting the impact of this downturn.

In the rest of his article, Mr Bruton highlights delays in getting electricity connections and construction permits, high consumer prices and income tax as factors impinging negatively on Ireland’s competitiveness.

While the article refers several times to Ireland’s ranking in the IMD World Competitiveness Yearbooks, it ignores the factors identified in the most recent of these yearbooks as constraining Ireland’s competitiveness, including inadequate and costly ICT infrastructure and services, low investment in science and technology, high pupil/teacher ratios in education, poor business support from banking and financial services, substandard auditing and accounting practices, and poor health infrastructure.

There is a strong hint here of Nero fiddling while Rome burns. I would not be reassured of the efficacy of economic policy based on the quality of analysis represented in the Minister’s article.

Is mise

Dr Proinnsias Breathnach