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Don’t tell the children… that public address to the nation… and… joy in heaven for ever sinner who repents (even just a little). January 28, 2009

Posted by WorldbyStorm in Economics, Economy, Irish Politics.
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I like John Gormley, I genuinely do. He’s one of our more thoughtful and sensible politicians. That he sits at the Cabinet table, even in the current circumstances, is no bad thing, whatever about the lack of clear positive outcomes or influence on issues close to our hearts. But one has cause to wonder… like yesterday… for reading his thoughts on the calls for a television address to the nation by the Taoiseach there’s something a little odd about his response…

…speaking on RTÉ’s Morning Ireland , Mr Gormley, whose Green Party is in Government with Fianna Fáil, appeared to signal he was against such a move, saying “a state of the nation address has echoes of Charles J Haughey”.

Which is bad how?

Mr Gormley said he was mindful of public anxiety concerning the economy but insisted Government and the social partners were engaged in a process to take corrective measures.

Well, that doesn’t answer the question.

He said: “The situation will be dealt with. There will be €2 billion in cuts. The political class will lead and we will have to take cuts ourselves.”

And nor does that. What’s particularly odd is that he comes from a political background which elevates discussion and consensus to an almost infeasible level. Look at the discussions prior to the entry of the Green Party to the current Coalition. And, let it be said, that can be a good thing.

So it’s curious to see him taking the opposite tack here. Although of course to suggest that an address to the nation is quite the same as a consensus drive approach is – of course – not entirely correct.

But, consensus led decision making does require one basic ingredient, that being information. And it is clear that Gormley recognises this when he makes mention of the ‘public anxiety’.

Let’s also be clear… it’s not just ‘anxiety’, it’s profound concern. And to me this points to the scale of the problems that the political class faces. As I noted on the comments to a previous thread, it seems more like the incomprehension of the political class rather than an incomprehension by the public – and incidentally isn’t that an unlovable little notion that is doing the rounds, that somehow we ‘don’t get it’. Problem is that we do, and what we appear to be being served with is reheated neo-liberalism dressed up in the glad rags of the economic crisis. In other words, let’s cut the state because there is simply no sense of an alternative path.

I’m not suggesting that that is the view of John Gormley, but I am suggesting that the narrow focus by the Green Party in this government on very specific ambitions, and an equally narrow conception of a broader public good (to the point that the noises on the Dublin Bus issue have been simply lamentable) has left them terribly exposed to the depredations of their larger Coalition partner.

And think about it. On the one hand this isn’t 1979, and yet on the other we are continually told by our media that this is the worst and most intractable crisis that we’ve faced in a generation, in two generations, since the foundation of the state… take your choice. Nor has the government been coy about making such claims.

Note yesterday’s utterances from the Taoiseach:

During the debate, Mr Cowen warned the country is facing a “huge economic challenge” that would require major expenditure savings and taxation changes.

Mr Cowen said the scale of the challenge is such that we cannot say with any certainty that any constituency or cohort of people will stay immune from impact of the adjustment.


Mr Cowen last night told the Fianna Fáil parliamentary party that cuts of up to €15 billion would be needed over the next five years.

Now either this is serious serious stuff, whatever our views on the best way to tackle it… or it’s not. And if it is the former then the very least we as a citizenry are entitled to is a basic outline of the facts as the government sees them. Not mediated through the Dáil but in clear and concise terms.

But, we’re not hearing that. Instead we’ve been given the opportunity to listen to various proxies whinge about the public sector and bemoan our feckless and ignorant populace.

Still… what’s this? The Irish Times series on the economy, the equally unlovably titled “What’s To Be Done?”… such jokers… actually had something worth reading in it.

Alan Ahearne of NUI Galway made some half-decent points, and a couple of not so decent ones. But let’s consider the former.

For here is a man willing to state the bleeding obvious

One issue is the difficulties that wage reductions may create for households with large mortgages and personal debts. International evidence shows that the main cause of debt defaults is unemployment. Keeping as many people in employment as possible through wage reductions will minimise financial distress. Reducing average public sector pay will go some way towards addressing the situation in the public finances.

So far so typical of our econometariat.

But…

But?

…an often overlooked point is that even large-scale public sector pay cuts would only have a moderate effect on the fiscal deficit.

Well, overlooked by some. Pray do continue Mr. Ahearne.

A 10 per cent reduction in public sector pay and pensions, for example, would reduce Government spending by €2 billion. But when account is taken of the associated loss of tax revenues (both direct and indirect), the net reduction in the budget deficit would be a little more than €1 billion.

Now granted this point was raised here on the CLR yesterday, but it bears repetition. As does his next thought…

Comparing that figure to the €16.5 billion in spending and tax revenue adjustments that are required to restore fiscal balance by 2013 underscores the enormity of the task facing the Government. Reducing public sector pay is a necessary part of the effort to improve Ireland’s cost competitiveness, but fiscal consolidation will require many other adjustments.

But if you like that, even in part, then you’ll love this…

I suspect that much of the rhetoric in the media about public sector pay and reform is an attempt by some of the least well-informed commentators to distract attention from the main source of our economic woes. The mess in which the Irish economy finds itself largely stems from the house price bubble, not from problems in the public sector. It is probably not a coincidence that some of the most vocal critics of the public sector today were among the most conspicuous cheerleaders for the housing boom.

Ahearne can’t resist lapsing a little…

That is not to say that major public sector reforms are unnecessary. During the boom, surging tax revenues from the property sector allowed the Government to meet the increased demand for public services without major improvements in productivity.

Or indeed this…

The meltdown in the public finances means that a more radical programme of reform is needed if spending cuts are not to translate into excruciatingly painful reductions in services. Parts of the public sector are wedded to archaic structures and systems that act as barriers to improvements in efficiency and sap employee morale. A more agile and entrepreneurial public sector is sorely needed.

An aside. What exactly would the shape be of an ‘agile and entrepreneurial’ public sector? HSE staff stepping across the midlands in tight formation selling pills and potions? Dole office employees leaping in one bound across counters to wrestle malefactors to the ground. How does it work? It sounds good… I’ll grant you that. But it is essentially meaningless.

There are good structural reasons why the public sector is not ‘entrepreneurial’. And a clue is in the name.

Aside over.

Anyhow, there’s not much different in Ahearne’s prescription, despite his nod towards the public sector than in McHale’s the previous day.

The international experience provides evidence about how best to approach fiscal consolidation. Studies suggest that consolidation is unlikely to be successful if it relies on reductions in productive capital spending. Cuts in current spending and transfer payments usually result in a faster escape from the fiscal doldrums.

Still, he has some thoughts on the presentation which are worth considering in light of the aversion to an address to the nation.

Second, the consolidation programme was designed as a comprehensive package. Presenting the consolidation measures in one package made it clear to all interest groups that they were not the only ones being asked to make sacrifices.

Third, the government communicated honestly with the public while the programme was running. As a result, the public knew that large sacrifices from everybody in society were required.

And he points also to another obvious issue…

There is a strong argument for broadening the tax base using a residential property tax, as recommended recently by the National Competitiveness Council. Income tax rates should not have been cut during the boom when the economy was overheating, and will now need to rise. The higher tax band will likely have to be increased to a level well beyond the 48 per cent rate favoured by the Irish Congress of Trade Unions if the current budget deficit is to be eliminated by 2013.

Yet he notes something that many of our more red-blooded commentators seem to willfully ignore as they urge us to soak up the ‘pain’.

Public acceptance of this painful medicine is critical if we are to avoid the social unrest that is occurring in Greece and Iceland. The public will presumably not be willing to put their shoulders to the wheel unless the burden-sharing associated with the fiscal consolidation is perceived as equitable. That means requiring those who benefited most from the property bubble to make the largest contribution.

And…

Extraordinary gestures of sacrifice from our political leaders and other figures of authority who oversaw the bubble and whose misguided policies contributed to the current crisis would be helpful in securing social solidarity…Those who are responsible for the horrible economic morass in which we find ourselves must be held to account.

That’d be nice.

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Comments»

1. Damian O'Broin - January 28, 2009

That would be nice indeed. Ahearne’s piece was a bit of a mixed bag alright, but did contain some decent points – which is more than any of the other wise men have managed in this series.

Fine Tan’s piece in the same paper had some interesting thoughts as well – such as capping all public sector salaries at €80,000 and introducing progressive taxation to keep private sector salaries at the same level. But how would Messers Cowen and Lenihan survive on a mere €80k a year?

Returning to Ahearne, I’m sure his last point about holding those responsible to account struck a chord with many people. For many reasons – justice, solidarity, moral hazard – there needs to be a reckoning. People did wrong and profited from it – at ordinary people’s expense. They must indeed be held to account, but who really thinks they will be?

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2. CMK - January 28, 2009

Damian has hit upon the critical problem for the political elite: how to give the impression that those transparently responsible for the crisis are being held to account, while simultaneaously working to let them off lightly. I think the current propaganda onslaught against the public sector is part of that process and evidence of the elite’s self-healing mechanism kicking in. Bankers, developers, economists etc won’t be held to account by the politicians for reasonable human reasons. I’d be reluctant to publicly humiliate a mate, a neighbour, a parent of a friend of my daughter, an in-law, a close relative etc,for f**king up, and the politicans won’t go there, given the close knit personal and professional relationships among elite groups. Public anger has to be displaced and, the target du jour is the public sector. That can only last so long and is only the delaying the inevitability for the elite to move into a much more explicit “class war” position. The intellectual mono-culture that’s inherent to Irish neo-liberalism is entirely circular and, once you’re trapped within it, you can’t escape. Which is why the Irish Times’ “What is to be done” is basically repeating the same arguments over and over again. Like the potato during the Famine, once the staple fails (in this case low taxes, low public investment, property bubbles, unsustainable reliance on foreign investment, privatisation etc) there’s very little left to live on and disaster ensues. I really hope I’m wrong and that we get out of this mess, but it’s looking less likely by the day….

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3. ejh - January 28, 2009

The problem for the blame-the-public-sector strategy, though, is that most public sector workers actually carry out important functions: that’s why they exist. You can pick numbers out of the air for how many you want to cut, anybody can play that game, but if you’re actually going to carry out cuts you have to identify specific areas – and bagger me if it doesn’t nearly always turn out that real people will be deprived of something valuable when you do. The pundits don’t actually have to take these decisions so they can mouth off all they like, but when the decisions actually do get made, people don’t like them and you get a response.

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4. Damian O'Broin - January 28, 2009

I think you’re right there CMK. But it just points up the immaturity of our democracy. Because if we were serious about it, we would be holding people to exacting standards. And Cowen and his cabinet, the Governor of the Central Bank, Sean Fitzpatrick, the leadership of all the domestic banks and many, many more have manifestly failed. If we had in place the much lauded business approach in our politics, then all of the above would be unceremoniously out the door. But, of course, we don’t even have that business culture in our businesses.

… Another point to pick up on in your piece WbS is the extraordinary (and uncharacteristic of him) arrogance in Gormley’s words – essentially, we’ll fix it, you don’t bother your little heads about it (just take the inevitable pain we dish out). It reminds me of the madser on Matt Cooper’s show yesterday claiming that environmentalism had clear roots in National Socialism, that Obama and Clinton were fascists in disguise and that the new president would be calling round to your house to check that you were eating healthy food – and god help you if you’re not. Maybe he was right after all…

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5. WorldbyStorm - January 28, 2009

Can I say how much I agree with both you CMK and Damian. I genuinely hope we start to see a serious response.

Also, ejh, I think you’re absolutely right. I’ve been discussing this very issue with people closer to power than you or I, and I keep hearing about Health Service Executive managerial wages as something that has to be ‘cut’. Perhaps so but even if one accepts that it still doesn’t amount to much in the overall scheme of things…

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6. ejh - January 28, 2009

What I do think they will do in practice, both in the UK and Ireland, is try and end public sector pension schemes* in their current form. If they try and close them to new entrants they may get away with it, too, though I don’t see that this would actually save them anything in the present situation. I don’t know if they would be able to say to people presently in these schemes (I’m talking about people still working, not recipients) and if they can legally do that, it wouldn’t remotely surprise me if they did.

[* these do still exist in the private sector, though the media attack hounds don't tend to say that very often ]

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7. Dan Sullivan - January 28, 2009

I think the reference to “agile and entrepreneurial public sector” is more about flexibility and agility in responding to changes so say when we had a reduction in unemployment levels and hence less of a requirement for people in that area that they could easily be move to another department without too much hassle. As for ‘entrepreneurial’ I would say that encouraging some public sector workers to have a greater appreciation for those using the service first and foremost. I dislike the idea that citizens should be viewed as or referred to as ‘clients’ and ‘customers’ when using a public service they have paid for through their taxes but it’s better than they being viewed as a hindrance and a nuisance. There are basic things like ensuring that people who have travelled furtherest to access a service been seen on time instead of the haphazard system that all too often occurs.

There is a perception which is neither 100% true nor completely without merit that you can’t get a member of the public sector to move from one desk to another in the same office without giving them disturbance money and a few days training at nice hotel in how to sit facing in another direction.

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8. ejh - January 28, 2009

That’s a laugh. When I had my first public sector job we used to rearrange sections all the time. Managers’ offices aside, there wasn’t a room in the building I hadn’t had a desk in at one time or another.

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9. CL - January 28, 2009

Ireland is running a massive budget deficit equal to an estimated 10% of GDP. Despite this huge fiscal stimulus, projections are for a massive fall in output of 5% or more this year. Clearly a seriously deflationary downturn.
Wage cuts in this environment would aggravate the deflationary spiral, and risk turning the recession into a depression.
The economists, many of them on the public payroll, are clearly part of the problem.

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10. Dan Sullivan - January 28, 2009

ejh, like I said it is a ‘perception’ which is “neither 100% true nor completely without merit”. Just take one example re: the Irish rail drivers who got more money in salary and lump sum not to do any more work themselves but just in order to allow new drivers to be trained to just drive the DART.

Also, this idea that reducing wages would lead to deflation is not necessarily true. If we buy less stuff in and of itself that is not deflationary though it would make the recession worse, if we bought the same amount or more stuff but at reduced prices then that would be deflationary. But if our costs are too high and we can’t sell our stuff overseas then a reduction in prices is needed.

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11. CL - January 28, 2009

Ahearne was a little more blunt a few weeks ago about the campaign he and his fellow economist ideologues are waging against the working class.
“Real exchange rate depreciation will probably translate into noticeably faster export growth only when the global economy recovers. The task for policymakers, therefore, is to convince the Irish population of the need for a cut in wages (and living standards), thereby positioning the economy to benefit from that recovery.”-Alan Ahearne

http://www.eurointelligence.com/Article.599+M5d2ad5bde88.0.html

The Irish Times articles by the practitioners of the dismal pseudo science are part of this ideological offensive against working class interests.

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12. WorldbyStorm - January 29, 2009

And to add to your thoughts, the nakedness of the idea that we are a society in support of an economy is really coming home. I was discussing this today with someone arguing that if the words they were using about the public sector being ‘unsustainable’ were correct then perhaps it was time to reconsider every aspect of the way this state (and I’m talking about the 26 here) has functioned in the past 90 odd years.

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13. CL - January 29, 2009

One of the chief ideological functions of the economics profession is to ‘naturalize’ the disembedding of the economy from society: but there is of course nothing ‘natural’ about this historical process. As Polanyi has shown it required considerable state intervention.
The current crisis can teach important lessons. If the state owns the banks, it is appropriate to ask who owns the state? All these questions are now being thrown into sharp relief. The legitimating orthodoxy has suffered a sharp defeat, and its practitioners are on the defensive, but they haven’t gone away you know.

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14. WorldbyStorm - January 29, 2009

True. I like the point about who owns the state… now we know.

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15. Oh wait… it is an enormous crisis… and there truly is no alternative… at least not from our main opposition party « The Cedar Lounge Revolution - January 29, 2009

[...] Posted by WorldbyStorm in Economics, Economy, Irish Politics. trackback I want to apologise if yesterday I gave the impression that John Gormley was understating the crisis, particularly when I quoted him [...]

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