Making Ireland Competitive Again
The economic crisis of 2008 is now drifting towards becoming a national calamity of unprecedented proportions with the prospect of bringing Ireland to its knees again. Unless a survival plan is produced during the coming weeks lack of confidence in government could reach a point where the country slides into the kind of irretrievable economic crises that has waylaid Argentina.
The tsunami-like economic events and the international deterioration of Ireland’s standing and reputation is driven by two separate issues: one economic, the other political.
The economic dilemma is stark. The cost of running the country each year has more than doubled[1] in a decade, spiralling to €55 billion. Tax revenue has collapsed to €35 billion, so now a €20 billion shortfall looms. This month we managed to borrow €6 billion. But, because international agencies have less confidence now in Ireland’s ability to repay our rating has been reduced from stable to minus, we had to pay above the odds to borrow the money. The remaining €14 billion budget deficit has yet to be addressed.
In the short term the €20 billion National Pension Fund provides a cushion and Ireland’s international debt is relatively low. So we can hope to borrow more and, if necessary, raid the pension fund in some way to see us through 2009. But from 2010 onwards, unless Ireland is seen to be delivering a robust plan towards balancing its budget, the international institutions could be reluctant to lend, and the government would then be faced with the ultimate catastrophe: inability to meet pay, pension and public service bills.
The second issue is the political one. There is growing concern nationally and internationally that the members of the Cabinet and senior public servants are so dazed by the catastrophic events unfolding since last summer that they have lost their confidence, their ability to think clearly or act decisively. The Lisbon defeat, the u-turns on the relatively minor cuts of the October budget, the failure until recently to communicate the enormity of Ireland’s economic problems to the electorate, the appearance of drift and indecision all combine to give the impression that, not only does Ireland have enormous economic problems, but it lacks the political ability and will to address them.
What should be done? We need what was blatantly obvious since last July: an action plan to pull Ireland out of a nose dive. The action plan must focus on one word, the same one adopted by Lemass and Whitaker 50 years ago: competitiveness.
Since 2000, when Ireland was ranked the 4th most competitive economy in the world, 151,000[2] have been added to the public pay roll, while Ireland’s competitive position has steadily declined to 12th place. Most of the new jobs have gone to education and healthcare and neither area has shown much improvement. Indeed in many ways they have deteriorated. Ireland’s international school ranking in Science and Math is depressingly low at 20th and 22nd respectively. There is no robust quality control in the school system: ineffective teachers are retained, continue to receive incremental pay increases while damaging the prospects of their students.
Yet teacher salaries have increased year after year to the point where Irish teachers are now paid some 35% more than their UK counterparts. Irish health and social workers are paid almost double that of their counterparts in Finland and 30% more than those in the UK[3]. Irish public sector pay is seriously out of line with the rest of Europe.
Benchmarking served to increase pay levels during the good times now it should be used again to bring public pay into line with the private sector. The unions are familiar with the Benchmarking process and it offers the best way of adjusting public pay in a recession. A two-month emergency exercise could deal with the most obvious anomalies and the process could be refined subsequently. That exercise offers the potential of reducing annual public sector pay by some €6 billion.
There are many other savings to be made. The number of public sector organisations has grown to over 700. There is good reason to target cutting this number by half, transferring activities back to the parent department, and reducing the associated cost and bureaucracy that burdens both enterprise and the tax-payer.
Revising legislation and policy in a number of areas can achieve savings while improving competitiveness. For example:
- · The 23 pieces of labour legislation and the 8 regulatory bodies that make Ireland one of Europe’s most regulated countries needs attention to bring our labyrinth system into line with international good practice and to encourage enterprise to locate in Ireland and remain.
- · One Government Department spent over €300,000 implementing the Official Languages Act in a single year. The total cost of doing so in the 700 organisations is unknown, but could be radically reduced by an amendment to the Act providing for electronic translation.
- · Ireland’s ill-conceived energy policy has resulted in the highest industrial electricity prices in Europe, and needs radical review, with the prime objective of getting costs down again below the EU average…where they were a decade ago.
- · Funding structures for higher education are in need of reform. Fees should not be reintroduced, but the Australian and New Zealand system should. There graduates start to repay the cost of their higher education though the income tax system in later years once their income exceeds a certain level.
- · The planning and management of Ireland’s regional cities is inhibited by the failure of successive governments to face down local political interests and provide each city with a boundary that corresponds to the urban area and a single council to run it. Limerick has been blighted by the presence of three local authorities squabbling over the city for the past 50 years resulting in bad planning and inefficiency. There is much hope that Minister Gormley, who understands the issue, will change this by signing an order extending the city boundary. It should correspond to that of the LimerickCity electoral area.
- · Until Ireland adopts the List System taking necessary but controversial political decisions will remain difficult. Most EU countries have done so. The List System makes it easy for those who have distinguished themselves nationally to be elected to parliament. In most cases half the members of parliament are elected from local constituencies while the other half are national figures who are elected from national lists. The latter are not particularly worried about re-election and have no hesitation in taking difficult decisions that are in the long-term interests of their country. While there are recommendations to introduce such a system for Irish Seanad elections there is little prospect that this will be addressed immediately. But there is clear need to provide the Taoiseach, when selecting Ministers for key posts, with access to the best talent available. Obama is doing just this at present. His cabinet, and those who will shape the economic recovery of the US, will not be elected members, but will be drawn from amongst the most successful and talented citizens Obama can identify. A means exists under Article 7.2 of the Constitution for doing something similar on a small scale. Garret Fitzgerald was the last to use the mechanism when he nominated James Dooge to the Seanad and then appointed him as Minister of Foreign Affairs. Until such time as the list-system is introduced in Ireland this provision, which is limited to two ministerial posts, could be used with good effect by the Taoiseach in bringing additional talent to the Cabinet table.
In the depths of our last major economic difficulties Alan Dukes, the leader of Fine Gael, acted with great statesmanship when he adopted the Tallaght Strategy. In effect he provided a national government and supported the Cabinet in putting in place the necessary harsh measures that made the country competitive again. Unfortunately Fianna Fail expressed little gratitude and Fine Gael is now wary of repeating the offer. Ireland needs something similar again and the Government should put forward a generous working arrangement with the major opposition parties. Business as usual in the Oireachtas is a formula for tragedy.
The unfolding crisis is potentially much more serious than that of the 80s when the unemployed could move abroad with good prospects of jobs and starting a new life. Now this safety valve is closed. There are few places to go and many are lumbered with personal debt from which it is difficult to escape. Unless the Government restores confidence and is seen to be implementing a good recovery plan public order may be at stake and the recent riots in Athens are a stark warning.
The potential for public unrest is heightened by the widespread belief that leaders of big business have immunity from the law. In particular there is surprise and disquiet that legal proceedings have yet to be issued against certain banking leaders. Directors who have consciously, deliberately and routinely signed company accounts as true and fair records reflecting the actual status of the company, when in fact they do not, deserve no immunity from the full sanctions of the law, nor do those in the associated public or private organisations, who must have knowingly conspired with them in breach of the Companies Act.
Those of us who are, or were, public servants have now a special responsibility to give leadership by advocating benchmarked pay and pension cuts and contributing to the Government’s difficult task of implementing the harsh measures necessary to stabilise and rebuild Ireland’s economy.
Sunday Independent
18 January 2009
[1]http://www.finance.gov.ie/documents/REV2008/REV2008English.pdf
[2]http://www.cso.ie/releasespublications/documents/earnings/current/psempearn.pdf
[3] McCoy, Danny. Public sector pay – international comparison. Irish Independent. Nov. 2007.