Month: November 2009

A guest post by Paul Hunt

The case for a pro-cyclical fiscal contraction accompanied by a significant “internal devaluation” has been convincingly demonstrated by many commentators and, in particular, on this site by Philip Lane (most recently here).

But Philip has been equally strong on the requirement to tackle rent capture and inefficiencies that increase costs and prices and, to some extent, justify calls for the retention of current nominal pay levels, as in:

“As a complement to pay reductions, it is also vital to more vigorously tackle monopoly power in many sectors of the economy, since a reduction in markups and monopoly rents (often shared between owners, managers and workers in these firms) is an important source of real depreciation and improved competitiveness.” (Irish Economy Note9, p3)

However, apart from a recognition of the importance of this task, it appears that little attention is being paid to what could be done in the short to medium term. There can be no doubt that the bubble economy facilitated increased rent capture and inefficiencies in the sheltered sectors of the economy, but quantifying the scale and extent – not to mind devising effective remedies – is a daunting task. And the political and economic power of the beneficiaries is not insignificant. So it is, perhaps, not surprising that there is little evidence of these problems being tackled effectively.