A Critique of Irish Economic Policy Post author By Philip Lane Post date May 26, 2009 Eoin O’Leary provides a critique of the government’s overall economic policy strategy here. Categories In Economic Performance Tags Irish economic policy 7 Comments on A Critique of Irish Economic Policy ← Adjustment in Latvia → NAMA Purchases of Good Loans 7 replies on “A Critique of Irish Economic Policy” The term ‘big government’ is applied wrongly. Irish government is inherently small because there are only 4 million people in the country. Make it much smaller and you run into a shortage of competent people to fill posts and inefficiencies due to duplication of effort. This weird parochial instinct to administer the place as if it was 100 million people has riddled the health system with under-utilized hospitals. It’s striking how little debate there has been since 2006 on the €8 billion fairytale goal of becoming recognised as a “world-class knowledge economy” by 2013. Last week, the OECD Dec 2008 broadband rankings, put this goal in context. Ireland fell one rank in the league table of broadband penetration for the 30 mainly developed member countries of the organisation. Ireland ranked 21st at the end of 2008 with 20.57 subscribers per 100 inhabitants. This compared with 17.62 at the end of 2007 and 37.2 in Denmark, the topped ranked country. Oireachtas members are either not interested or haven’t the capacity to discuss the issue, while the science community has a cornucopia of goodies to try and hit the jackpot until at least 2013. There is little in the downside at university level as it’s all public funds and some of the small number of announced collaborations also appear to be lopsided. At the announcement of the research link-up between TCD and UCD, a TCD prof. spoke of the possibility of having a eureka moment with the possible creation of another Nokia. It would be a good thing of course but the comparison wasn’t very apt. Nokia evolved from an old company and sold toilet paper in Ireland, before mobile phones. Ministers get get carried away with jargon and superlatives but it’s not clear if the goal of the plan is provide an incentive for US multinationals or create an indigenous commercial research capability. Last year when the leading home-grown tech firm Iona Technologies, which had developed from a Trinity project, was sold to a US firm of more recent vintage, there was silence from policy makers. Iona had to be sold but the normal route for Irish start-ups with potential is a cash-out by the promoters. Over the past decade, the enterprise agencies in public, have followed ministerial marketing spoof and it’s unclear what input they can have in policy formulation. Science Foundation Ireland said last month, that over the next 5 years, it expects 40 money-earning technology licences and 30 start-ups based on local research discoveries. 30 start-ups with a survival rate of about 20%, is not much to write home about. Denmark and Sweden once again led the rankings of The Global Information Technology Report 2008-2009, released last March by the World Economic Forum. They were followed by the United States, Singapore (4), Switzerland (5) and the other Nordic countries together with the Netherlands and Canada complete the top 10. Ireland got a 23rd rank. http://www.finfacts.ie/irishfinancenews/article_1016299.shtml @ John I think the term ‘big government’ in this context would be defined as Government Share of GDP. I’m not saying that I agree with Dr O’Leary’s analysis, but I think that this descrption would be accurate, relatively speaking. I think that Dr. O’Leary’s analysis is so obviously true that comments such as ‘I’m not saying that I agree with Dr O’Leary’s analysis, but I think that this description would be accurate, relatively speaking’ have to count as more Irish denial masquerading as nuance. Sorry Dathi, you’re not my intended target. But things are so serious and O’Leary’s piece so clearly belongs in the filing cabinet under ‘Bloody Obvious’ that I’m not willing to take ‘maybe’ for an answer. It’s just that – well – enough is enough. Firstly, Philip Lane and Alan Ahearne support tax increases. I don’t know why they do. I mean they are PhDs in economics. Bright guys but by the time you’re halfway through some foundation text like Mankiw and can look out of the window and see what’s happening outside TCD and are approaching the end of your first semester in TCD Economics you really, really ought to know that, if Ireland needs a wide range of reforms and policies right now, tax increases are not among them. Why? Well it’s quite simple but I will try to make it really, really simple: 1) By and large the overwhelming cost of the public sector is in salaries and pensions 2) The Irish public sector is about the best paid in the developed world 3) The European Commission found that the Irish state gets least value for taxpayers’ money in the EU (yes this is connected to 2) above) 4) We got 1) 2) and 3) because of social partnership a.k.a. the politicisation of economic decision-making down – in the case of the public sector – to the level of micro-managment decisions: i.e. there was no reform or improvement there. Social partnership was merely the codification and legitimisation of the looting of the exchequer that in the 1980s was done in an ad hoc ‘corrupt’ way. (Question: did Frank Dunlop ‘bribe’ councillors or was he the bag man working for the councillors who were, in fact, extorting money from developers who, even as corrupt citizens, deserved a proper due process in their engagement with the organs of the state? Answers on a post card please) 5) Because the system is politicised (remember Lenihan’s suggestion that we collectively decided to have a property bubble?) the solution gets politicised. We have to ‘share the pain’. The concept is meaningless. If the argument is that we need a social welfare safety-net then I have no argument with it. But what it means is: we will tax the private sector to avoid reform in the public sector. Period. If international investors are ‘impressed’ by the Irish government’s ‘difficult decisions’ then it’s because the country is so small it never occurs to them that exploded out to a US or UK scale these ‘difficult decisions’ would spark revolution. They see Irish decision makers and they do not see power: they see the hapless global village idiot State and they feel (delete whatever doesn’t apply in the situation) 1) charmed or 2) pity. Even many of you guys are mesmerised by their impotence. Because you bump into them at this or that event you are charmed and lazily impressed by their job titles and you’re too polite to remember the destruction of the futures of hundreds of thousands of people that their policies wil ensure. The decisions to hike taxes are not difficult for the Government or the elite, highly paid academics who advise them. Their after-tax income will still be far above the EU / UK average. As Dr. O’Leary says: ‘Experts are often paid to spin or support current opinions rather than to offer alternatives’. That would be Alan if-I’d-uttered-this-rubbish-at-the-Fed-I’d-have-been-shot Ahearne. This entire site is a ghetto of academic denial. Kevin (O’Rourke). Do you really think – given that Ireland’s deficit is heading for 10 times that of Califoria on a pro rata basis – that anyone gives a flying fig about whether we can do PR spin on an IMF confab in the UK? I mean, really?. We have easily the worst economic policy in the OECD. Worse even than the UK or US and not only is there not a whisper of serious criticism on this site but there isn’t even any demonstrable curiousity that the government might be committing grave policy errors right now. One more thing The reason why international ‘investors’ are not overly critical of Ireland is becuse the stakes are too low. Their real opinion of Irish economic policy if reflected in the interest payable on government debt. Forget what they say and look at what we pay. Paul, what I was trying to say was that I was setting aside the actual validity of the analysis, and that I was just addressing the definition of ‘Big Government’. @ Daithi Share of GDP is a reasonable definition but I think remoteness is an important dimension of the bigness of a government. It is difficult for people in Brussels or Washington to quickly understand events ‘on the ground’ at great physical and cultural distances from themselves. This, more than moral decay or foolishness, explains some of the defects of big government. Share of GDP is probably a good metric if you think the defects of big government comes from expenditure of resources without the discipline of a profit motive. Comments are closed.