The Cedar Lounge Revolution

It’s interesting how a political viewpoint will stick, as it were, forcing the writer down particular conceptual paths. I’m as guilty of that as anyone, and I guess it’s not necessarily a bad thing, at least if it’s understood what the viewpoint is from the start. But it can lead to problems, a certain narrowness of focus, a tendency to not see the wood for the trees, and what finer example of that is in yesterday’s piece by Sarah Carey, now establishing herself as a sort of popular economics maven for the Irish Times.

She has dipped her toes back in the blogosphere and, to a degree, she likes what she sees…

I nearly fell off the couch the other night. There I was with one eye on the Grey’s Anatomy season finale and another on the internet. Then I saw it – the pseudonymous blogger Slí Eile on “progressive economy” agreed with a post by UCD economist Karl Whelan on “Irish economy”. The marriage of the terminally ill but suspiciously healthy looking Izzie would have to wait.

Irish economy is the group blog of academic economists where the financial crisis is analysed using classical economic theory. The “progressive” economists set up a rival blog on which they interpret the crisis from a left wing perspective. Everyone’s terribly polite, but the tension is palpable.

Yet on this night, on one point, the economists were in agreement: the plan announced by the Government to reduce unemployment by spending €250 million on job subsidies will not work. If the lefties were willing to concede the point to the academics then it must be true. The benefits of subsidies are described as “marginal” which means minimal. The failures are well accepted.

They are a “deadweight loss” which means that money inevitably “saves” jobs that were never in peril. Subsidies interfere with the process by which jobs are lost, even in the boom years, as particular sectors die natural deaths. A subsidy for one company could result in another going under as they are placed at a competitive disadvantage. The potential for corruption is enormous. Remember Export Credit Insurance when someone decided that one company should get most of the cover? The subsidy becomes either a tool of political patronage or a bureaucratic nightmare. Where does the money come from anyway? The €250 million has to be found from cuts elsewhere.

From there it is but a hop skip and a jump to the idea that:

The trade unions are the main drivers and they want €1 billion spent on the Plan That Will Not Work. I suppose Lenihan sees €250 million as a compromise. But if they both know it won’t work for €1 billion, why would it work for €250 million? Why not save the money for things that are good and efficient instead of bad and inefficient?

Now I might tentatively suggest that the effects of €1bn would be appreciably greater than €250 million and therefore might be worth examining on their own terms, but that approach is not for her for she has decided that €1bn won’t work, although Whelan and Slí Eile only reference the €250 milllion. I’ve always thought that one attempted to extrapolate from the given figure, not the other way around…

The inequities of the trade unions are detailed as follows in what we might term the Grey’s Anatomy school of economic discourse. You may not have heard of it previously:

The usual reasons: cosmetics and politics. As Whelan observed it makes everyone look good. The Irish Congress of Trade Unions looks like they’re doing something about unemployment. Ibec gets money for businesses and politicians look like they are dealing with the jobs crisis. It’s another mess to come out of social partnership, the system which saved us in 1987 and which should have been dumped in 2002.

This plan is just an excuse to keep redundant structures alive. If this was Grey’s Anatomy Derek would be pulling a tearful Meredith away from the corpse and hoarsely whispering “time of death June 2009”.

Yes. Very convincing.

There is nothing left in social partnership for trade unions. The only agenda – cutbacks – is one that materially harms their members. They threaten to walk away, but keep coming back. Why? Well, there’d be no more high powered meetings in Government Buildings; no more late night talks; no more being at The Table. The job subsidy plan might be a tenuous excuse to stay in the game, but it’s better than not playing.

There is a second possibility. The Ictu leadership may privately accept that harsh measures are necessary and in a spirit of patriotism and pragmatism is trying to sell the cuts to their membership. So far, cuts have been accepted relatively quietly but there are more to come. If they tried this on in France, there’d be riots. We had one spectacularly civilised march. Why? We are a terminally passive and conservative people, but perhaps behind the scenes the union leadership is quietly if cynically managing resistance. Give the members the odd march and have something to show for continuing talks – like €250 million that will supposedly help stem unemployment. As long as they can show a carrot – even one of those baby carrots that looks too orange and shiny to be real – they can claim it’s worth it.

Except she thinks that’s not good enough (In passing, what’s with ‘terminally passive and conservative people’? Previously she’s used the ‘conservative people’ trope as a good thing, now it’s ‘terminally’? Hmmmm)…

What’s in it for the Government? Maybe they understand David Begg’s problem and see the €250 million as the price of peace. If it keeps the public sector off the streets, maybe it’s €250 million well spent.

But, it isn’t. Because as we know, job subsidies are pointless and the €250 million could be spent on something else – like children’s surgery or the national development plan.

How about dropping the charade and instead of managing the citizens like children we are treated as adults. What would really happen if Lenihan just admitted that job subsidies are more trouble than they’re worth at any price? Could Begg muster up faith in his own membership or his ability to lead honestly and bravely? “Comrades, I have nothing to offer you but cuts and taxes. The deeper the pain now, the quicker all this will be over.”

The games might prove how terribly clever the players are, but there comes a time when the price is too high. Aren’t we there yet?

Ah, we have to be ‘adult’ about this, don’t we? We have to see pain. We have to talk pain. We have to have to have it inflicted on us. And union leaders have to stop being…well, union leaders and become cheerleaders for the economic right.

It’s the old fantasy of trying to get everyone to think as one does. And it’s a fantasy that unfortunately she indulges in on a continuing basis, not least and most recently where she demanded that the Labour party become in effect Fine Gael redux.

Let me stop right here and note something odd…

Like Slí Eile (and indeed in fairness, Carey) I’m very dubious about the job subsidies scheme, at least as currently structured, but… does Carey realise that standing beside Beggs promoting it would be Mark Fielding. Perhaps not arm in arm… but… y’know.

Mark Fielding? Who you ask?

According to ISME (Irish Small and Medium Enterprises Association) Chief Executive, Mark Fielding, “There is no doubt that the problem has escalated once more, beyond what official sources anticipated. The Government’s ‘blinkered approach’ has contributed to a rapid rise in unemployment, even though strident warnings have been given. Talk of introducing a workplace subsidy scheme, while a step in the right direction, is still a case of doing too little”.

In conclusion Fielding outlined, “The Authorities are creating an environment of uncertainty, which is negatively impacting on employment. What is required is the immediate introduction of a National Action Plan to address the core issues of concern to business, including the lack of credit, late payments rising costs, together with addressing the cost of employment”.

Strange in the extreme, is it not, that ISME doesn’t get a walk on part in the IT critique of the unions? But perhaps that might spoil the story a bit, muddy the waters, introduce a note of unwelcome complexity.

Even beyond that inconvenient fact, the entirety of her piece is founded on a fallacy, that being that the only alternative of the left (or more particularly the unions) is an employment subsidy. But if one goes back to the original piece by Slí Éile one will see that s/he argues as regards the job subsidies package:

If – according to media reports – the main carrot on the table during the current round of Partnership talks is an employment subsidy, one is forced to ask:

* Is there hard and compelling evidence from the recent past, internationally, that such subsidies work in terms of creating genuinely new jobs or saving existing ones?
* Even if the answer to the above is yes, how much would it cost on average – per job, per firm and in the aggregate? Would alternative expenditures of the same amount be more effective?

As matters stand, the latest EU figures on taxation indicate Irish taxes on labour are way out of line (very low reflecting a poor tradition of widespread social insurance). Irish employers’ contributions to social protection were 9.7% of total taxes in 2007 compared to a (weighted) EU average of 18.0%.

And we are talking about subsidies to employers?

Would it be easier to just drop payroll taxes on particular groups (say unemployed or particular types of employment and sectors). The problem with targeted interventions is not only deadweight effects, but the problem of excluding some sectors and categories and not others (like why would non-traded sectors be entirely excluded if they were producing sustainable social value?)

Karl Whelan has argued on irisheconomy.ie (with good reason I think):

….the principle reason for rising unemployment is a sharp reduction in labour demand owing to the steep nature of the recessions. Policies that are looking to offset this reduction in demand using wage subsidies are unlikely to have more than a marginal effect.

He goes on to argue:

one of the lessons emphasised by Jim Poterba in last week’s excellent Geary Lecture was that if we need to raise more revenue, it is best to do so by broadening the tax base while keeping rates low. Measures like this, which erode the tax base and have little effect on employment, are a step in the wrong direction.

Read his entire comment on these issues along with many comments on wage subsidie here.

Now, some might say this is simply unfair carping on my part, that Carey is looking at the specific union response which is – and I think many of us whatever our position will agree – far from stellar and the concentration on the job subsidies alone and in particular its minimal nature is far from heartening. That she might – whisper it – be right on this matter.

But the problem isn’t just the narrowness of the focus of the Irish Times piece, or that it explicitly comes to a conclusion which seeks to portray all centre left proposals as inadequate and implicitly childish… “…the only agenda is cutbacks”… but the fact that the column completely ignores the context within which Slí Eile and Whelan came to their convergent conclusion.

Because Slí Eile is not arguing that beyond the job subsidies proposal there is no other alternative approach being proposed by the left and that therefore we might as well fold our tent, take down our banners and go home ceding the field to the economic right.

For note that Slí Eile contextualises the above comments in relation to the following:

According to today’s media reports, the ICTU has ‘doubts over aspects of plan for recovery’ but argues that the Government proposals were ‘the only show in town’.

Lets hope not. Can we get back to some parts of the ICTU ‘Ten-point plan’ of last February? Remember. It advocated:

1. Protecting Jobs & Tackling Unemployment (including ‘reprioritising the Public Capital Programme to support job protection and labour intensive activities’)
2. Sorting the Banking System & overhaul of corporate governance (with ‘public control, either through Recapitalisation or Nationalisation’)
3. Competitiveness (through reduction in energy prices, professional fees and other costs plus productivity-enhancing investments)
4. The Pay Agreement 2008 (ICTU has made the case that wages have not been cut in 2008 as claimed by some)
5. Fairness & Taxation (our tax system is woefully skewed and unfair with large tax breaks for the better off and widespread legal avoidance)
6. Restoring Consumer Confidence (‘Surely the most sensible option is to stimulate the economy, rather than dampen spending and growth?)
7. The Public Service ‘Pension Levy’ (‘Workers did not create the problem, but will contribute to resolving it – as long as the wealthy also contribute. The problem with the course currently being pursued by Government and employers’ organisations is that the weakest suffer, while the wealthy contribute nothing.’)
8. Pensions (use ‘a state backed annuity and the possibility that private pension funds could have the option of voluntarily surrendering their assets to the state, in return for a certain level of guaranteed pension.)
9. Employment Rights Legislation
10. National Recovery Bond (‘ It could also be targeted at specific sectors such as school building or public transport, so people could see tangible gains’)

In other words Slí Eile is arguing precisely for those approaches laid out by ICTU in February as being of better value and worth more than a job subsidies programme. It’s not a choice between ‘pain’ and job subsidies with no other options available, it’s a choice between a serious and coherent left driven programme that will see the state take a lead role in sustaining and encouraging growth and employment across a range of areas and the ‘pain’ agenda.

Which implicitly means that Beggs would not come out with Comrades, I have nothing to offer you but cuts and taxes. The deeper the pain now, the quicker all this will be over.” but instead would be seeking those ten points, or at least those which have not been superseded by events, to be implemented. Maybe he wouldn’t have Mark Fielding at his side, or perhaps he would… who can tell in this topsy turvy world we live in these days.

But that small, yet crucial, detail, is – as I said earlier – completely ignored. Odd that, eh?