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Does this even make sense? Ireland shuns the EU financial recovery plan… and continues to obssess about public service reform. November 27, 2008

Posted by WorldbyStorm in Irish Politics.
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Reading the news last evening that

Ireland is unlikely to join a €200 billion economic recovery plan unveiled by the European Commission, the Department of Finance indicated this afternoon.

One might wonder what exactly the state is playing at. On the one hand we’re told by the great and the good that:

the State has “no room for manoeuvre in terms of a further fiscal stimulus”.

This is because next year’s general Government deficit is budgeted to be 6 per cent. Under existing spending plans the State’s capital investment will increase to 5 per cent of GNP, which the Department says is almost twice the EU average.

Yet curiously the Commission also notes that:

The commission says the national budget stimulus packages should be timely, temporary, targeted and co-ordinated to ensure maximum impact.

They should also comply with the stability and growth pact, although there will be significant flexibility allowed for states to breach the 3 per cent budget deficit limit.

“The budgetary stimulus should be foreseen for a maximum period of two years (2009-2010) following which member states’ budgets should commit to reverse the budgetary deterioration and return to the aims set out in the medium-term objectives,” says the proposal, which argues that a longer timeframe for tax cuts would only persuade consumers to save rather than spend, reducing the overall impact of the fiscal package.

So, let’s get this straight. We can’t do this because we’re trying to fulfill EU financial criteria, yet the EU is simultaneously loosening those criteria in order to deal with the financial crisis.

Nor are we somehow unique in our situation.

The EU move is a bid to bridge gaps between those EU states already embarking on national growth plans – such as Britain, Germany and France – and others, including some east European countries, who protest they cannot afford such fiscal largesse.

Although, naturally, the Government is at pains to argue that the increase in our capital investment ” will increase to 5 per cent of GNP, which the Department says is almost twice the EU average and …coupled with “relatively low tax rates for the employed” are broadly consistent with the commission recovery plan, the Department suggested.”.

Doesn’t look like that to me. For a start consumer spending isn’t getting much of a boost here. But the Department is exercised by the following analysis…

The priority for countries like Ireland, with relatively high general government deficits, is to get the public finances back in order, it indicated.

A spokesman said not all member states have a similar capacity to provide their economies with a further financial boost by relaxing their finances.

He said the Government would be given time to reduce its deficit below 3 per cent and said this must be achieved or face having the State’s commitment to maintaining credible public finances called into question.

Look, I’m all for credible public finances. But these are incredible times. This does not appear to have struck the Department, or the Government. And in a context where the United States has essentially part-nationalised their financial sector, their mortgage sector and with more to come, one has to ask what precisely is the definition of ‘credible public finances’. The deficit hawks on this island are some sight to behold. Or is that chickens coming home to roost?

But look, we’re still cleaving to our own brilliant path in other economic and social policy areas… Brian Lenihan is of the opinion that:

“total state investment” would be a “last resort” and said that in any move the public interest would have to be safeguarded.

When the Irish Bank Officials Association argues to the contrary and notes that his favoured plan of private equity investment “would be a “disaster” for Irish banks and the economy” one knows that we’re in strange times.

Got to laugh too when Lenihan has to retort that ‘
“I do not agree with the characterisation of investors as predators or parasites’. Well Brian, investor led capitalism has worked such a treat over the past year or so, I’m sure you right.

Meanwhile the rush towards public sector ‘reform’ continues apace. ‘Twas only this morning that the Irish Times in its editorial argued that:

Crude across-the-board cuts would damage worker morale and undermine public confidence. The reform process must be both necessary and transparent and, to the greatest extent possible, conducted in co-operation with civil and public servants. That said, any resistance to necessary change by vested interests should be rejected. The Government will have to show vision, courage and leadership in this exercise.

Not to mention destroying already frayed services in various areas. The IT, though, has kind words for the patient, just before the scalpel is wielded…

At this time, when many private sector workers are facing into unemployment or a wage freeze, public servants should be willing to accept more efficient and flexible work practices in return for their privileged and protected positions and extremely generous pension entitlements. By and large, the public service does a good job. It is not the bloated, inefficient monster that is sometimes portrayed by its critics. But, like all long-established organisations, it can benefit from change and restructuring. In particular, it should concern itself with providing flexible, integrated services that meet the needs of citizens.

Oddly no mention of some serious alternatives, such as universal ‘generous’ pension provision (and not a word about the reality that even public pensions are paid into by public workers), or the entirely dismal record of the private sector in providing pensions to their workforces.

But it’s not just the IT that dispenses it’s kindness. For who’s this but the now ubiquitous Brian Lenihan striding towards the public sector with honeyed words that do little to divert attention from the axe he happens to be carrying…

“I deplore the kind of demonisation of the Public Service that has featured in public debate over recent months,” he said.

Chop!

“We need to move away from this shallow criticism and knee-jerk reactions, which are not helpful to our economy and are damaging social cohesion.”

Chop! Chop!

And Brian Cowen is more than happy to chip in…

“The objective of the Government is to secure greater efficiency in delivering public services in an affordable way – while at the same time improving the work environment for public service workers,” he said.

With friends like that…

Anyhow, what are the instruments with which to generate a leaner meaner public sector?

The establishment of the Special Group on Public Service Numbers and Expenditure Programmes was announced this evening by the Government as part of its Transforming Public Services Programme.

The Special Group will examine each Government Department and recommend programmes for reductions in expenditure. It will identify posts and activities that are not essential in all parts of the Public Service and will recommend reallocation of staffing or expenditure resources between public service organisations. It will also recommend further rationalisation of State Agencies beyond those set out in the Budget, which targeted 41 state bodies for amalgamation or closure.

That should make for fun. One wonders how long it has to report.

And then there is the idea that “the performance of all staff in all sectors of the Public Service is to be assessed, including teachers, nurses and gardai”.

How does that work? Look across the Irish Sea to see a polity tied up, particularly during the Thatcher ear, with claims that ‘performance’ in these areas can be easily assessed. Working in education myself I’m far far less sure of the certainty of such claims. Sure, there’s no question that some who teach shouldn’t, but beyond weeding out that sort of problem where does one go next? And for nursing and gardai? A world of pain awaits.

No, wait. It’s already here. The response has been… shall we say… negative.

Hence the headline “Public sector reform plan gets negative response”

Opposition parties, trade unions and business bodies were largely negative in their reaction to the Government’s proposals to reform the public sector, announced today.

With Fine Gael the problem is, despite the rhetoric of their entertaining advertising campaign, that these measures do not go far enough… Richard Bruton said it was “a pale reflection of the changes that really should be undertaken”.

Which are?

…[there are] no commitment that in future, agencies would only get money if they entered into agreements to deliver specific results, in order to meet Government priorities.

There were also no new mechanisms to reward success in the delivery of these targets and to penalise failure, or were there new ideas about performance contracts for senior managers…

And one can only concur with Joan Burton’s very reasonable point that…

“On public service numbers, for instance, it says that ‘there is an immediate necessity to ensure that numbers employed in the public service are no greater than necessary to deliver public services’.

“This is hardly a great revelation and one would have assumed that this would have been the approach of any government at any time.”

The Unions aren’t too happy either, not least because as they note:

“The OECD’s study did not call for staff reductions. That’s because Ireland spends proportionately less on its public services, and employs proportionately fewer staff, than similar countries.

“This doesn’t make it any easier to balance the books now that we’ve entered a recession and the public finances are in crisis. But it does prove that there is very little ‘fat’ to cut. No doubt there is some scope for savings and redeployment to meet changing priorities, but large scale redundancies will hurt services and the people and communities that need them.”

And here’s the thing. It’s convenient (although correct) for the Fás debacle to come to light now, although the issue is broadly speaking restricted to the higher echelons within that organisation (incidentally, the news that Mary Harney had travel expenses paid for by Fás is but a straw in the wind as to the sort of interconnections between government and subsidiary agencies, one that yet again makes one wonder was any of this thought through as regards potential collateral damage?). But the reality is that there isn’t much meat on the bones of our public services. Hence the continuing complaints about services throughout the ‘boom’ years.

And the talk about removing ‘jobs for life’ from the public sector is headline grabbing, but again, has it been thought through either? Cowen claims that:

State employees have “well-paid employment, with good pensions and a greater degree of security of employment than exists in the private sector presently and for the foreseeable future”, he added.

But in the very process of the ‘reforms’ it would appear that all those elements (which incidentally weren’t quite as amazing say in 2001 or so when many – but far from all – private sector wages shot way ahead of the public sector, hence the labour aristo’s revolt in the ASTI) that supposedly make the public service a cushy and safe number will be removed. Except to judge from his words above, they won’t. All very confusing.

And this is the most interesting paradox that both Government and Fine Gael face. They can huff, and they can puff, but the gains they might hope to make from such measures affecting the public sector are fairly limited in the broader scheme, if not indeed limited simply by the position of that sector as a component of the society and economy. Consider too the US experience where the Democrats ran, in part, on the idea of valuing public service, through…er…wages and conditions… in order to increase optimal outcomes.

It really is difficult to view these developments and not come away with a sense that there is no real strategy mapped forward, that much of what we’re seeing is being made up on the hoof, and as a consequence this may all go even more horribly wrong than we might otherwise expect.

Finally, to end on a slightly less gloomy note can I point to one good idea hidden away amongst the rest which is the idea of:

…a National Operations Unit (NOU) within the Office of Public Works to allow all central Government Departments and offices, agencies and non-commercial bodies to acquire a range of goods and services more efficiently and at better value for money.

Having some experience of seeing how distorted contracts by the state sector with commercial bodies can be in terms of overly high specifications filled with needlessly expensive equipment I have to say that can only be for the best. That said I’m a little concerned by the following…

The NOU will offer professional procurement advice to the Public service and will develop web-based e-tenders and e-auctions for some goods and services. Staff at the unit will be redeployed from existing resources.

I really dislike the modishness of ‘web-based e-tenders and e-auctions’. They may play a part, but what is really needed are staff with the requisite knowledge of equipment who can judge when they are being sold a wildly overpriced pup. That said I’m dubious that the savings will be anything like that envisaged by the proponents of these schemes.

But that such a Unit does not exist today, or has not in the past, tells us all we need to know about just how seriously such expenditur has been taken by our political classes and their entirely too indulgent approach to the interface between commerce and state.

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Comments»

1. John Palmer - November 27, 2008

I hope it does you no harm, WbS, but I very much agree with what you write. The two main problems with the Cowen government appear to be: 1/ A failure to understand the potential depth of the recession which is upon us and which most informed opinion fears could well last a decade or more 2/ A more widespread refusal to understand that – of the main factors of production – capital is grossly under taxed globally and especially in Ireland. There is a third failing but this is more widely shared with the “political class” in large parts of Europe: a reluctance to see this crisis as a potential launch pad for an alternative energy/climate change economy strategy. This is not just about a far greater willingness to back the new sustainable energies with massive investment but also a reluctance to accept that the recent period of over rapid growth based on a disastrous debt inducing neo-liberal policies (taken to criminal excess by the Gods of the financial markets) is finished and that we are heading for slower but hopefully more sustainable growth in the medium term. Of course this will pose very sharply quiestions of greater equity in income and capital as the burdons have to be shared.

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2. Crocodile - November 27, 2008

Polly Toynbee identifies what the Brits are doing to tackle the crisis: it’s good, old-fashioned social democracy as advocated by good, old-fashioned Garret in the IT:

http://www.guardian.co.uk/commentisfree/2008/nov/25/pre-budget-report-economy1

What if we’re wrong and they’re right? Disaster. But wait – what if we’re right and they’re wrong? Just as bad, probably, given the degree of dependency of our economy on theirs.
As for the other main point in your bang-on analysis, wbs, I think the next few years are going to be very bad times to work in the public sector. Not because the public sector caused the slump, or not because hammering it will do much to cure it, but because making public servants’ lives miserable will mollify the pro-business right and give the illusion that there is something Cowan and Lenihan (or Bruton and Varadkar) can do and they’ll get away with it when things are so bad generally.
My prediction is that public service pay will not be cut but conditions will be hugely undermined. ‘Accountability’ will be the excuse to give accountants even more power over professionals in the public service; expect something like the British target-and-testing obsession in education, for instance, which has no basis in educational value but plays well to the value-for-taxpayers lobby.

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3. CL - November 27, 2008

Clearly this is not a good time to be contemplating reducing employment in the public sector.

But F.F. has no ideological problem with a Keynesian-type fiscal stimulus. With a budget deficit of 6% of GDP and heading upwards such a stimulus is already underway. So its not the Maastricht limits that prevents Lenihan from participating in the EU-proposed stimulus.
The Irish government has guaranteed all liabilities of Irish banks, banks that are undercapitalized and heavily exposed to the collapsing property market. So Ireland’s credit rating internationally has declined, and further attempts to borrow threaten Irish state solvency. The prospect of the once proud Celtic Tiger going with cap-in-hand to the I.M.F is not relished by any Irish politician.

The appropriate American analogy for Ireland is with an individual state of the union, neither having the power to create money, to set interest rates or the rate of exchange. The big difference being that an individual state in the U.S will receive aid from the federal government, while in the EU its unlikely that there will be a co-ordinated response to the crisis, or a sufficiently large fiscal stimulus given Germany’s continued fear of inflation. The European project is being called into question.

And its not just the Irish who are unlikely to participate in the EU plan.

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4. Eagle - November 28, 2008

My problem with any (additional) stimulus here is that I don’t think it will really help us. Too small a portion of our spending is actually spent on goods/services that originate here. We import a lot and export a lot.

What we need is our main export markets – the US & UK – to be stimulated, to begin growing again AND their currencies NOT collapse. If we get those conditions we’ll soon be humming again. I don’t really see what putting us in an even bigger debt hole will accomplish other than boosting our interest payments and providing money for those companies that import goods from abroad.

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