The tiger catches cold?

All sorts of goings-on at Redfellow Hovel have got in the way of serious blogging. Normal service may be about to be resumed. However, the family hooley would have been as nothing in comparison to the weekend hyperactivity chez Brian Cowan, Tánaiste and Minister for Finance. It would indeed be instructive to know what his briefings were on the potential collapse of the property market, the associated down-turn of consumer expenditure, and the health reports on panthera tigris economica hiberna.

Nevertheless, Malcolm starts with an important piece, Soft options will cost us dear, in yesterday's Irish Times, by Michael Casey, formerly the chief economist for the Irish Central Bank, and now a board member of the IMF.

Casey gives a stinging critique of successive RoI governments’ tendency :

to adopt soft-option policies whenever possible ... the line of least resistance ... to maintain the status quo.

He is looking at the Republic, but Malcolm feels a qualm that it might equally be a warning about the parallel developing culture in Northern Ireland:

Most important decisions on Irish life are now taken not by Irish governments but by the EU and the US. At one bound Ireland has gone from one colonial master to two others. We now have no control over a large swathe of social legislation, domestic interest rates, the exchange rate. We have less control over the fiscal policy and, because of the US multinationals, little effect on the supply-side of the economy. And deep down this is exactly how we want it because it protects us from the burden of decision-making…

It is ironic that we have more Ministers than ever at a time when the need for political decision-making has virtually disappeared. The notion that the government ‘runs the country’ is absurd.”

Casey argues that populism leads to:

Clientism and stroke play [which] run counter to the notion of excellence, hard work and real decision-making. Short-term political strokes also give rise to a culture of petty corruption which is bad for business especially in a global environment. The emergence of real entrepreneurship has been impeded by strokes and wheezes. Entrepreneurs are supposed to take risks, not operate on the risk-free basis of inside information.

His punch-line is devastating:

Social partnership can be viewed as a soft-option policy. We cannot afford strikes because they would discourage US investment here. So, under the guise of social partnership income taxes are reduced to keep the unions happy. Governments make up the revenue through stealth taxes. The irony is that as a result of all these convolutions wage growth bears no relationship to productivity, is excessive by international norms so that the national competitiveness is being eroded all the time and inflation is much higher than it is abroad. We are too clever for our own good.

Now that the economy is weakening and tough decisions may be called for will any government be able for the task? Not a chance. Already the Government is preparing to go down the soft-option road of borrowing yet again. In any case, because of low skills levels, there is no analytical apparatus to facilitate real problem-solving. Spin has replaced that. Irish governments never matured into fully-fledged decision-making executive bodies and now it is too late.

There is obviously more than an element of partisan special-pleading here. Casey has been saying much the same for some years. All technocrats believe they could direct the economy better than innumerate politicians (and, Malcolm says, heaven help us when that happens). Casey may well have a point about the competence-deficit in the higher echelons of the Irish Civil Service (though, when the stars show up -- T.K.Whitaker, the Cruiser, Martin Mansergh -- they are truly of celestial quality).

Equally, this is Casey's "ranging-shot", in anticipation of what Frank MacNally anticipates as today's "tough budget". McNally, in passing, does a nice piece of verbal pyrotechnics in An Irishman's Diary, linking the budget with the death of Evel Knievel, whom McNally concludes:

achieved the most that gravity-defying stunt men and tiger economies can hope for, which is a soft landing.

The 'tiger economy' is based on two feet of clay: a young, high-skilled, flexible and (as Casey noted) quiescent work-force, and a constant source of foreign investment. The former needs regular refreshment (and a willingness to discard skills no longer relevant, which bodes ill for the older worker), so watch for education and training being ring-fenced in any spending constraints. The later is the great unknown.

The Republic's economy is in hock to a small number of powerful multi-nationals. Dell, all on its own, is 4% of Ireland's GDP. Gulp.

Malcolm does not have the latest facts at his finger-tips, but he recalls an article by Martin Sullivan which considered the period 1999 to 2002 (the tiger's loudest roar). In that short time-frame Sullivan found that profits made by US companies in Ireland doubled from $13.4 billion to $26.8 billion, while profits in most of the rest of Europe fell. In his analysis Sullivan termed Ireland a 'semi-tax haven' for US firms. Dell was having its patent royalties rendered through Ireland, to a total of $91.7m in retained profits, none of which was subject to tax under Irish legislation. Microsoft was up to the same trick, to the tune of half a billion dollars.

The result? Well, try this:
That's today's CSO report on earnings, hours and employment costs. It tells us that over the last financial year:

• Average hourly earnings were up in the financial sector rose by 11.7%, but up 5.9% (which is still pretty inflationary) in the industrial sector.
• There were 5,000 more jobs in finance, but nearly as many lost in industry and manufacturing.
• The financial sector (labour costs totalling €4,862 million) is now worth nearly half the whole industrial sector (€10,829 million).

Meanwhile, last month 2,387 Irish workers were laid off - a rise of 15% on the same month in 2006. Another graph which is not just decorative:

Remember: that's historical. At least two of those lines have since headed precipitously south. As if to prove that, here's just this morning's news:

Nearly 500 people face losing their jobs when one of the State's biggest multinational investors closes a manufacturing plant in Galway next year.

Pharmaceutical and medical devices group Abbott told workers at its Galway facility yesterday it intends closing the plant as part of a plan that will see it cut about 1,200 jobs worldwide.

There was a third item in yesterday's Irish Times which is also relevant here: a letter by Alan Dukes (a former Finance Minister, remember) on health policy. Not surprising, from a Fine Gael man, he deplores that there is no consensus on health issues in Ireland. He continues:

In a wide range of contacts with professionals involved in the delivery of health services ... , with suppliers of services to the system and with people who rely on it to provide them with health services, I have found widespread doubt about the system's ability to deliver and innumerable examples of failure.

Healthcare is the other cost of a "tiger economy". let's memorialise it yet again: 49% of the Irish population are covered by private health insurance; the GMS health card provides free (but limited) care for something like 20% (including children). So perhaps a third of the population has no health cover at all. Throw in the cancer-care scandals, and now the shortage of TB-inoculations, and it is amazing that Mary Harney is not burned in effigy (hopefully, only in effigy) on a daily basis.

So, over to Brian Cowan presenting his budget this afternoon ....
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And Malcolm got through that without using the word 'kleptocracy' or mentioning the Tribunals at all. Well done, Malcolm!
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