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The meat in the Budget mincer… yeah, that’d be us. October 23, 2008

Posted by WorldbyStorm in Irish Politics.
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I don’t want to belabour the point but yet again the Irish Times is hunting with the hounds and running with the fox, for in an editorial yesterday we read that…

…the Government has made a hames of this Budget. It looked after neither “the auld ones” nor “the little ones”. It is profoundly unfair to the vulnerable and the less well-off in our society. It completely lacks a vision of the new Ireland of the future. That is why the call for patriotic action made by the Minister for Finance, Brian Lenihan, to round off his Budget speech a week ago, is falling on deaf ears.

I think we’d all agree with that.

But wait!

The Government spent a great deal of time and energy conditioning the body politic for a hurting budget, one of the worst in the living memory of many voters. With the instability and uncertainty of the banking crisis across the world, the declaration of a real recession, the fall-off in consumer spending and the realisation that times are tight, the Government was given a golden opportunity.

Er… for what? Read on…

It fluffed it. It took a mid-summer report by the Economic and Social Research Institute to shock the Government out of its own complacency. And its response – in spreading the message that the economic climate had changed fundamentally and hard times were upon us – was both delayed and inadequate. The knee-jerk reaction by its own backbenchers to a range of budgetary measures that are already being viewed as inadequate says it all.

So, the Budget measures are both ‘profoundly unfair’ and ‘inadequate’? Now they can be one. Or they can be the other. But they can’t, in all reason, be both.

If you’re confused by this inconsistency, well join the club. Because the truth is as ever the Irish Times, and our political establishment are unwilling to say what they mean.

What they want is swinging cutbacks in services, ‘reform’ of our public services, the further reification of a business centric model that has been curiously rubbish in recent years.

But they can’t say that, any more than Minister of State for Health John Moloney or Fiona O’Malley, like lambs to the slaughter, were unable to justify the Medical Cards fiasco at St Andrew’s Church (and wasn’t it telling – the dazed expressions on all the politicians faces at that meeting? The likes of this haven’t been seen in at least a decade, not even the SIPTU march some years back had this raw anger).

So what they do is publish articles such as this one by Tony O’Brien, head of business consulting at accountancy company Grant Thornton who is, so it would seem something of an expert on public sector ‘efficiency’.

Now, let us remind ourselves that the financial sector just oversaw the essential collapse of the international banking system, so for advice on such matters to emanate from it might be considered just a tad suspect, but not for the Irish Times.

For Thornton has a new message… that being ‘Cut public jobs with a scalpel, not a chainsaw’.

He argues that…

IF THE Government is determined to even achieve its short-term public sector efficiency targets by way of redundancies it must lay-off 11,000 people almost immediately,

However, in reality, the State should be looking at savings well in excess of the three per cent outlined by the Department of Finance. This target aims to balance the budget for the next year and does not take account of the real potential for efficiency gains.

If tackled correctly we could be aiming for efficiencies of 10 per cent, which is equivalent to just over 36,000 positions.

Now what on earth does he mean by ‘efficiencies’? Well strangely he’s a bit coy about that.

The search for efficiency can be diverted too easily when organisations start talking about the outcomes they generate and not outputs. Outputs can be clearly defined, such as public sector houses; whereas outcomes can be achievements such as improved social integration. Anything can be justified if we focus on outcomes; true efficiency starts with deciding what outputs we need to generate those outcomes.

You see?

The second task is to ask how outputs could be provided most efficiently. This could be by the public sector; the private sector; the private sector acting as sub-contractor to the public sector or, in particular areas in the social sector, by voluntary bodies.

Which is interesting because earlier he notes that RTÉ in a bid to find ‘efficiency’ has…

…announced that it was targeting €25 million in savings but insisted there would be no forced redundancies among its 2,300 permanent staff. Meanwhile TV3 has been cutting staff for some time in reaction to the massive fall in advertising on television.

In reality, RTÉ is saying that it will only look at staff efficiencies as a last resort. This doesn’t mean large numbers of jobs will not be lost as a result of RTÉ’s savings.

Independent television production companies are already bearing the brunt of the advertising downturn. Some of these producers have already laid off more than half of their full-time workforce and their situation is likely to get worse.

RTÉ will, effectively, simply transfer redundancies from the public sector to the private sector.

Indeed. Which is presumably what he is proposing too – albeit by stealth – through a transfer of outputs to the private or voluntary sectors (incidentally something that was attempted in the US in recent times with extremely mixed results). And for those who laud the private sector as a model of efficiency, well, and this from personal experience in management positions so caveat emptor, my sense was of an area that wasn’t so much Fordist, or post-Fordist as expense account at any and all costs. Or to put it another way, the idea that the private sector is a monolith of efficiency is wide of the mark. Very very wide of the mark. And this is to presuppose that the models in the private sector can be imported into an actually quite radically divergent workplace.

Anyhow he continues that:

Thirdly, we should look at how public sector bodies organise themselves, particularly in those cases where there is a contact with the customer. Why is it that in many customer service areas of the public sector the more experienced an employee becomes the further away from the customer he or she tends to be? What could be achieved if customers could access the right people that can make decisions? While experienced senior people may have higher salaries, very often they need far less time to deal with a situation, and can be far more cost-effective.

The public service is used to benchmarking – for salaries. Benchmarking key operations such as finance or capital project management would be a very useful – and for the taxpayer – a very rewarding exercise.

Finally, we need to have sufficient flexibility to allow the public service to reduce staff where and when it is necessary. Real long-term efficiencies are best generated by focusing on the areas where savings are most likely to be achieved and being able to do what is necessary to achieve them.

But here is the thing. He himself, echoing what Fintan O’Toole has noted recently, accepts that excluding health and education where…

Employee numbers in health have grown by 73 per cent, while education numbers are up 42 per cent on 1995 levels.

…and that…

…there has been just a 5 per cent increase in public sector employees in all other areas. This is very small compared to the national labour force, which saw a 45 per cent increase from 1995 to 2006.

Now that is a derisory increase relative to the national labour force and calls into question the thesis about ‘efficiencies’ being found. As for Health and Education? The numbers employed in the former have been driven by political pressure from – that’s right – the electorate and the latter by demographic change.

It’s not as if, as with any structure contrived by humans, that there aren’t improvements to be made. That is an on-going process (and for evidence of same consider the near-acceptance of the ASTI that seniority can no longer be the sole determinant of promotion in secondary schools). And yet my interactions with the public sector which rose almost exponentially during the 2000s after a hiatus of some time would suggest – purely anecdotally – that there was already a shift in culture. And for the better. But it is the manner in which this particular debate is framed which gives the game away.

So what is this then? I’d argue that it is yet another attack on the public sector, which note is characterised as ‘bloated’ and ‘inefficient’ when the statistics tell another story entirely. And why? Because the centre right is currently casting around for something, anything, to soak money from in order to make good the mess that they created.

And they lecture us about patriotism?

******************

Meanwhile the unlikely troika of Cowen, Gormley and Harney appeared on our screens on Tuesday evening at a press conference. I don’t know how this will work for the Green Party – and here I’m considering this on a political level. I’m presuming the calculation is that their distancing over the weekend will have given them sufficient political cover to allow them to cosy up to the ‘solution’. I fear they may be disabused of that notion as other aspects of the Budget continue to work through the system. I’d bet that they’re going to take a hit from this one, the size of which remains to be seen.

Incidentally, can I say a few words of praise for Eamon Gilmore’s performance in the Dáil on Tuesday. He was, to my ears, in much better form than last week. Of course – as with the Government – he’s had a full week to contemplate the nature of the Budget, but the time hasn’t been wasted. And he asked a central question…

…if you start today withdrawing the universal entitlement to the medical card [for pensioners], where are you going to stop? Is it going to be the bus pass next year, is it going to be something else the following year?

But the obvious follow-on from that question is, who is next after the pensioners?

Comments»

1. Tomaltach - October 23, 2008

WBS,
I read that article too, and noted the waffle when it came to how to get ‘efficiency’. And also the point about growth in public sector excluding health and eduction. (Micheal Taft tackles a similar incongruity by Dan O’Brien in the Business Post)

But back to the inefficiency issue. First, I think you are right that in many of the public services there have been dramatic improvements in efficiency and also how customers are dealt with. These improvements probably explain why the services (education and health apart) can be delivered with just 5% more staff to a significantly higher population with much higher expectations than had the public 15 years ago.

You went on to say that it’s not as if the private sector is a bastion of efficiency. Absolutely right. But it is true that adaption takes place much faster in firms that are exposed to market forces and which have to be flexible in order to survive. And once the market turns down or their financial condition deteriorates, private firms take quick and often radical cost cutting measures. We both know that that can mean being told our services are no longer required.

Now, it seems to me undeniable that in the globalised market with not enough reigns on huge forces, it results in making the workers position precarious and terribly insecure. This is a huge problem with globalisation: its volatility. And just how volatile it is will be clear now as we plunge into a global recession. Hundreds of millions of households across the planet will find themselves in difficulty, all quite suddenly.

I digress. My point was that while private firms can and often are inefficient, when the cash stops flowing, they adjust rapidly.

The public service is at the other end of the spectrum. Jobs are basically for life. And adjustments come very slowly and often after significant pressure or, alternatively, big buyouts funded by the tax payer.

Surely between the two extremes there is something more balanced.

While the 5% figure for our public service growth (bar education and health) is impressive, I find it very hard to believe that during a sustained and unprecedented boom, there wasn’t significant growth in state agencies and organisations which don’t deliver their worth socially or economically. You know how organisations grow and perpetuate. I cannot believe there weren’t many unrequired expansions of a department here, or an agency there, simply because funds were flush and managers and directors found it easy to enhance their own positions by building bigger organisations and taking on pet projects. There were pushing against an open door for cash.

And if we pull health back into it. A 73% increase. Given that health is the biggest single tranch of expenditure, that figure needs to be looked at very carefully. We saw how when the health boards were merged, no efficiencies were gained in management. But there ought to have been – there must have been significant overlap and huge scope for efficiency in the merged organisation. Yet after 3 years it was possible for senior people within the health department to say that the HSE is an un-navigable mess and that basically, it was difficult to assess fair salary scales because whole layers of people didn’t know what they should be doing or didn’t know the chain of command.

At the ground level, in some hospitals, I feel that work practices are not just inefficient but give undue stress to patients.

In short – the public service in the whole has improved markedly during the boom. But I believe the improvements are unevenly spread and that there are large pockets where essentially, resources are been badly wasted. There remains massive scope for improvement in not just the quality of service but the value for money that it delivers.

So while talk of the ‘bloated’ public service is wrong, I also feel that it is also wrong to deny full square that there remains very significant inefficiency in parts of the service and that during the boom a certain amount of unrequired ‘fat’ was built up.

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2. Hugh Green - October 23, 2008

On what yer man from Grant Thornton was saying yesterday:

Why is it that in many customer service areas of the public sector the more experienced an employee becomes the further away from the customer he or she tends to be?.

Eh..would that be because it’s based on a model developed in the private sector and promoted by private consultants?

In fact, I would much rather ring Revenue or any other government agency than, say, Eircom. The people you talk to are able to answer your question straight away for the most part.

I too would dispute the notion that private sector firms are more ‘efficient’, as though there were a general measure of such a thing.

Private sector firms are concerned primarily with profit and producing a return on investment. How well they perform a particular task is well down the list of basic priorities. Radical cost-cutting measures don’t usually result in greater efficiency from the standpoint of the person who is supposed to receive the service.

In many if not most cases these measures just mean that tasks associated with acquiring the service required are transferred to the person who needs it. But most people don’t have a private secretary, a database, and whatever additional machinery and knowledge is needed to -I’m sinking into management-speak here- achieve the necessary outcomes. So the cost to the individual in achieving the necessary outcome is probably many times the cost to the organization that had originally provided the service.

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3. ejh - October 23, 2008

But it is true that adaption takes place much faster in firms that are exposed to market forces and which have to be flexible in order to survive.

Well, up to a point. But it’s also because private firms can choose which services they do and do not provide and can easily get rid of the ones that don’t make them enough money. Public sector operations don’t often possess that advantage.

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4. Tomaltach - October 23, 2008

Ejh,
I agree entirely with your point – in a downturn demand for PCs evaporates, but demand for say, the health services does not. ( For completeness :of course in a fully privatised world where health was simply a product and was bought, demand for it would reduce as people’s ability to pay diminished in a downturn.)

Still though, leaving aside layoffs, competition provides the urgency to continuously improve productivity in private firms. I saw that all the time where I worked (until laid off 😦 ). This didn’t make it easy, but is meant that there was never room for complacency – we knew that if we failed to keep up with our competitors in terms of our productivity and therefore cost base and price, we would lose business and some of us would lose our jobs. That’s exactly what happened!

In the public service – managers and employees generally know that, while budgets may be cut from time to time, so that there will be a freeze on travel, training budgets, petit cash or whatever, they generally know that their jobs are safe. The organisation will in general survive any downturn, more or less unscathed (in comparison with say the huge turmoil in the private sector). So there is bound to be less drive for increased productivity.

The trouble is this. What happens when overall macroeconomic conditions decline to the point where there isn’t enough money – by a long way – to fund the range of public services that exist right now? How can that be dealt with. Sure, taxes can be increased (though that is pro-cyclical). There is obviously a limit to how much taxes can be raised without accelerating the downturn (I’m not commenting here on the specific Irish budget). But beyond that, in order to stabalise the finances it would seem that resources to public services need to be cut.

If 85% of their current spending is on Salaries, it seems to me there is only two ways to make the cuts: fewer public service staff or those that are there take a pay cut or pay freeze. Indeed it is possible to conceive of a scenario where this is the only way to get things fixed in the short or medium term. But applying this solution to the public service is extremely difficult.

The above argument is not related the overall size or efficiency of the public service. It applies as much to France, with a much larger public service, as it does to Ireland.

I defend the public service against accusations of being bloated and ideologically I am under no illusions about the merits and flaws of the private firm. I’m merely trying to explore what I see as some real difficulties in terms of dealing with public finances when there is a dramatic downturn.

A final point. In Ireland, public service pay has increased very significantly over the last decade or so. Mostly rightly. They started from a very low base. And if we are to have public servants they ought to be well compensated for their work. But there are strong indications now that when all is compared that public service workers are on a better deal than equivalents in private. At senior level this has been very true where managers demanded basically the equivalent to what is earner in the private sector. Not acknowledging the differences – such as job security.

But if there is such a thing as sharing the pain – would it not be fair for public servants to have their pay scales frozen for a year or two. Thousands of the rest of us didn’t have our pay frozen, we had it stopped when we were laid off. And to be frank, I think it purely selfish and chronically unfair to see pay rises going to public servants (who are for the most part adequately compensated) while taxes need to be increased and many private workers lose their jobs.

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5. crocodile - October 23, 2008

Michael Taft’s piece is excellent.
A note on the word ‘efficiency’: it has come to be a synonym for ‘sackings’. What calls for ‘efficiency’ in the public service mean is ‘sack people’.
Now, if you manufacture widgets, you can achieve greater ‘efficiency’ by producing the same number of widgets with a smaller staff – or by getting more widget-production out of the existing numbers. This simplistic model doesn’t work with health or education or law enforcement. Higher pupil-teacher ratios or closed hospital wards may mean ‘efficiency’ in the sense of ‘lower personnel costs’ but not in the sense of ‘effectiveness, professionalism, competence’. The ‘efficiencies’ in education, for example, will simply result in lower standards : teachers don’t manufacture units and can’t up production rates to suit hard times.
When Fine Gael or Stephen Collins or Batt O’Keeffe refer to ‘more efficient’ public services, then, they’re saying worse, lower quality, substandard public services. Simple as that.

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6. ejh - October 23, 2008

Ejh,
I agree entirely with your point – in a downturn demand for PCs evaporates, but demand for say, the health services does not.

That wasn’t my point.

My point was that as a bookseller, I am free to decide exactly which books I stock and which I do not, based entirely – if I wish – on market forces.

Previously, as a librarian, I was (quite rightly) not. Indeed, part of my statutory duty was to stock books and journals that would not be very frequently used.

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7. skidmarx - October 23, 2008

“competition provides the urgency to continuously improve productivity in private firms”

Private firms try to restrict competition as much as they can. And there are many services where no productivity gains can make up for the mess that de-monopolisation creates, such as on the trains.

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8. Hugh Green - October 23, 2008

For me, ‘continuous improvement’ means identifying opportunities for getting rid of people. I should know: I’ve done it.

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9. ejh - October 23, 2008

Private firms try to restrict competition as much as they can.

They may, but surely few are in a position to do so?

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10. Tomaltach - October 23, 2008

ejh,
Actually I think there is a link between your point and what I inferred.

Private firms are always at the mercy of demand.

In the library, you were insulated from demand. The books you stocked were selected by command not demand.

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11. Joe - October 23, 2008

Harney’s agenda with the health sector is clear. She is deliberately letting the public health sector mismanage itself so that its image with the public is one of poor service and inefficiency. At the same time she is providing all the tax breaks they want to the private sector to open and run private health services. And of course, they then run these private services using staff and facilities paid for from the public purse. But where are the public service unions in all this? They badly need to cop on and shout stop. They need to show leadership to their members – that its a case of modernise and improve the service (eg by letting go of power bases and demarcations) or slow death by privatisation. They should never again back a social partnership agreement that doesn’t commit to an end to public funding and subsidisation of private health services in exchange for real modernisation and change from their members in the public health service. In other words, no social partnership with right wing governments.
Unfortunately, however, even the Labour Party probably wouldn’t make a stand against (or genuinely disagree with) Harney’s modus operandi as outlined above.

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12. ejh - October 23, 2008

In the library, you were insulated from demand.

But not insulated, no. I’m insulated in the bookshop, where I can respond only to demand (and where I can return books that I don’t think are going to sell). In the bookshop I am insulated from responsibility. In the library I was exposed, not to demand but to the difficulties of providing what was not necessarily immediately in demand.

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13. skidmarx - October 23, 2008

Firms that take government contracts, whether national or local, seem to compete as much on who they know as what their price is. I’ve just been re-reading Bukharin’s “Imperialism and World Economy” where he suggests the elimination of competition in the home market (and the raising of prices there) is a strong tendency in capitalism worldwide. He does ignore the US anti-trust Act (I think it’s the Sherman Act) of 1912

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14. skidmarx - October 23, 2008

Much of Microsoft’s profits have been made by the exclusion of competition through use of the patent laws.
For literary exposition of the limited freedom under capitalism, I recommend Pohl and Kornbluth’s “The Space Merchants” or “Gladiator-at-Law”.

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15. WorldbyStorm - October 23, 2008

skidmarx, write something up about it and we’d be delighted to post it up…

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16. Movements « Most Sincerely Folks - October 24, 2008

[…] some cheek, coming from an institution that, as Cedar Lounge rightly noted, ‘hunts with the hounds and runs with the fox‘, though the same is true of other papers. What reasonable comparison is to be drawn between […]

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