If it were done when ’tis done, then ’twere well it were done quickly

One of the things that Philip has been emphasising since the start of the year is that if wages are cut to the point where workers feel confident that they won’t be cut further, they will then start spending again. On the other hand, workers who fear their wages will be cut in the future will, quite rationally, save for the rainy days ahead. The worst of all possible worlds, from the point of maintaining domestic consumption, would be a situation where wages fell, predictably, in slow motion, over a number of years.

So it is a matter of concern to read articles like this.

A further note: public sector wage cuts are required to reduce the possibility of a ‘sudden stop’ in lending to the Irish government. Private sector wage and price cuts are required to prevent unemployment from rising further: Ireland is still an unacceptably expensive place in which to live and do business. It is a matter of deep regret that these are not happening in an across the board manner, and that wages in significant sectors of the economy have actually been rising. Allowing the focus to be on public sector wage reductions alone misses this essential point, and represents a serious political failure on the part of the government.

We are seeing just how difficult it is to achieve nominal wage and price reductions in a modern economy, and just how useful it is to have a currency to devalue. But we don’t have one, and can’t leave EMU. Given that wages are proving to be sticky, and that there is no central Eurozone fiscal authority to help maintain demand here, emigration is the most likely margin of adjustment for our economy in the short run. These are the constraints that we signed up for under Maastricht, as Neary and Thom pointed out in the 1990s, and it is too late to start complaining about it now.

70 replies on “If it were done when ’tis done, then ’twere well it were done quickly”

The prospect of future wage cuts has been given a significant boost with the Minister’s statement on budget day re: wage cuts of higher-paid public servants. ‘Those at the top will lead by example in this national downward readjustment of pay.’ This is, as far as a I know, the most explicit endorsement of real devaluation by the Government, giving the green light to private sector employers to follow suit. How workers will react to all this, concerning their consumption, is an open issue. However, given the prospect of such future wage cuts and the Minister’s proposals to introduce a property tax and abolish mortgage interest relief – all this against a background of future rising interest rates and households’ attempts to get out from under debt; it’s not the best scenario to start loosening up spending.

@Kevin. Doesn’t this (together with Karl’s post below on misleading representations of the pension levy) tend to confirm the view that the ‘debate’ on public sector pay is really about much more than increasing wage competitiveness? It is in fact a political debate (some of might go so far as to say it’s a political campaign) about the kind of state we want to live in, rather than simply a technical debate about how best to address the fiscal crisis.

@Jane: indeed, and I say that as someone who accepts the technical arguments for fiscal consolidation and an effective devaluation. It isn’t just the left who takes the view that you should never waste a good crisis!

By Post Author

The 1997 Neary/Thom article is frighteningly prescient.

But, in terms of public debate and most debate on this website, EMU has escaped largely unscathed as the principal cause of our 1997 -2007 boom and currrent bust. That is not to say that domestic policy errors were not made. But they were small by comparison to the distortions which EMU brought with it.

See the graph on Page 6 of John Taylor’s “The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong” to see how deviations between the EMU base rate and the rates that would have been appropriate for EMU members correlated with increases in housing investment in those countries.

http://www.stanford.edu/~johntayl/FCPR.pdf

Note that the three outliers (Ireland, Greece and Spain) are also those EMU countries suffering the most financial distress.

@Cormac
“That is not to say that domestic policy errors were not made. But they were small by comparison to the distortions which EMU brought with it.”
Pah, we could have been trading small parcels of land with jerrybuilt structures on them and still gotten into the trouble we did… 😳

Aside from Iceland, independent currencies haven’t saved the UK, Sweden, Denmark from having to bail out their banking systems. It doesn’t matter what currency you use, money will find a bubble…

Allowing the focus to be on public sector wage reductions alone misses this essential point, and represents the latest serious political failure on the part of the government.

@ yoganmahew

Examine past credit / property busts and you will see a close correlation (in time) between currency devaluations and stock market bottoms.

Look, by contrast, at Japan which managed to keep money supply growing (the monetarist solution) and which ran a large budget deficit (the Keynesian solution) but which saw its currency rise strongly in the early 90s. Its economy stagnated. (There were other factors at play as well: poor demographics and a lack of domestic reform).

If you graph the ISEQ index as a ratio of any Eurozone index you will see that there has been no recovery yet in Irish stock prices. I am concerned that there may not be for some time to come.

(It could be argued that policy makers can confortably afford to disregard stock prices. But if the price of company assets traded on the stock market falls so too does the incentive to invest in new company assets.)

Could we not agree, with our employers, public & private, to take an agreed percentage cut on the condition that the money is spent on hiring and training new recruits?

The professional fee issue is significant and I’m wondering what kind of government policy could put pressure on those to (personally I am sooo annoyed having to pay a doctor €55 to tell him what’s wrong with me – his fee keeps going up as my income comes down). These are the kinds of costs that need to be a core part of the simulated devaluation. But what can the government do about that?

@Sarah Carey –

Would now would be a good time to move towards a Dutch or Singaporean health system? Free at the point of service & guarantee a high minimum standard of health care for all.

Make more places available on medical courses and have a cheap/subsidised state run health insurer drive down professional fees via it’s buying power.

@Kevin,

“Ireland is still an unacceptably expensive place in which to live and do business.”

I think there is an excessive focus on wage cuts as the key component of the internal devaluation required. In this context I have penned the following missive to Madam Editor of the IT:

“The Minister, in his Budget speech, declared that “..the adjustment process must be made by way of reductions in wages, prices, profits and rents.” Wages in the public sector – and social welfare benefits – have been cut. And some prices have fallen. But much more needs to be done. The Government has the power, and indeed, the responsibility to pursue this adjustment process, both directly and via strengthened competition law and enforcement, to root out inefficiencies, unjustified costs and profit-gouging in the state, semi-state and sheltered sectors. There is potential to reduce the cost of living – and the cost of doing business – by up to 10% across the board.

This would be the most effective stimulus to the economy and would address the perceived inequity of cutting social welfare benefits and public sector pay for low and middle income workers.

But is a government that shelters bankers and developers from the full implications of their folly – and is unwilling to concede its complicity in this folly – capable of doing this?”

I doubt it will be published, but I think the case for a broader focus on inefficiencies and unjustified costs is compelling.

@Kevin

If we still had a currency, there’d be widespread consensus around the need for devaluation to restore external competitiveness and re-balance the economy. In the absence of this option, we need some type of “national competitiveness and employment” pact to co-ordinate and mimic the competitiveness and distributional effects of a currency devaluation in a way that most groups can regard as fair:

– cut in employment costs, with some Gov. contribution from employers’ PRSI (financed by tax broadening)
– more aggressive competition policy to cut monopoly profits
– new corporate governance norms/laws to cut boardroom pay
– cuts in professional fees

This won’t be easy but I don’t see too many other options. And it is why social partnership, despite all of its faults over the last decade, remains an essential tool in economic recovery.

Andrew

@ Sarah C,
“(personally I am sooo annoyed having to pay a doctor €55 to tell him what’s wrong with me – his fee keeps going up as my income comes down)”

The government should look to pharmacists. They’re hungry at the moment. I’d be happy for a pharmacist to decide if a dose of antibiotics was a reasonable first step. I sure this is true for a number of drugs. A little cross-profession competition would help.

@kevin if some wages are rising or holding is that not evidence of their own market having enough value to warrant it? We can’t force certain industries to devalue, only those that either naturally acquire it (eg: construction) or where the state is the paymaster (public sector).

surely if we want cheaper doctors the answer is solve the industry not the currency, you could give a visa to any doctor from around the world, put them in one of our many vacant NAMA houses, pay them 25k a year to run a GP service and after 6yrs they can become a citizen. While that idea is full of flaws, on a micro level it is the way in which we solve problems, rather than the manner in which we address macro issues that we need to get on top of.

My own experience is that professional fees, rents and profits are decreasing.

However, the State’s (particularly Revenue Commissioners) tactic of heaping liability and administrative burdens onto individuals, professional advisers and their insurers will swallow up the reductions in profits and wages accepted by professionals and will increase transaction costs overall. The focus on cutting work and risk for the State just pushes that burden onto private entities who are less efficient at carrying out the tasks and who are less able to bear the risks involved. Somebody has to pay for the extra work and risk and that somebody is the consumer and the economy generally.

“These are the constraints that we signed up for under Maastricht, as Neary and Thom pointed out in the 1990s, and it is too late to start complaining about it now.”

I think we have a right to complain about the economic illiteracy of our public representatives who did not even debate this issue at the time, presumably because they were utterly ignorant of it.

@Sarah Carey – Why don’t they create an online doctor where you can see them via a web-cam & get an email prescription sent to your nearest pharmacy? For something complex you do need to be there, but if you have a sore throat does it make sense to go and wait in a room full of other sick people to be told you have something you figured out yourself? The thing stopping that would be the medical profession themselves, but if I am happy to make a decision that might detriment my health (such as accepting the limitations of a webcam diagnosis) I should be free to do it as long as it doesn’t hurt others, ffs, ppl are allowed to smoke! (for instance)

@Kevin

I’m not clear why this article is a matter of concern?

I think you are using a rather tenuous argument about the power of ministerial statements, to disarm the Government in what will be an important tranformation process ahead in the public service. It is important that the case is made strongly by Government that public sector reform is in the interest of both public sector workers and society as a whole.

The argument that such statements will have any appreciable effect on the savings rate is weak. First, the savings rate is determined by lots of things other than wage rates, notably the rate of change of unemployment, and peoples personal circumstances. While future wage expectations in a 2-3 term horizon could be a factor, I suspect it would be a minor one.

In so far as you think what ministers say is important (which I don’t believe they are), this article also gives the clear message that the Government intends to make cost savings that will limit the need for future tax rises.

As an aside, private sector wages in Ireland are not excessive. For businesses, non-pay costs are high (though HICP rate relative to Eurozone is back to April 2002 levels), though the importance of pay costs means that aggregate buiness costs are not excessive. I don’t believe that the statement that Ireland is an unacceptably expensive place to do business is true. I have argued at length before that there is no evidence that Ireland suffers from an external imbalance, so I won’t get into that again.

@ Kevin O’Rourke and others,

Dwelling on the spilled milk of EMU is not useful in terms of forumlating a coherent policy response to the current crisis. In any event, it’s a very thorny counterfactual with no clear answers, at best.

It is much more sensible to focus on cost competitiveness. Specifically, we should focus on those aspects of cost competitiveness over which we have the largest control.

This is surely land prices, the number one non-tradable cost which is ruined the state finances and is now ruining competitiveness.

As I have argued before, the high rate of home ownership impedes the proper functioning of the rental market. This is in part a function of a number of bad policies (lack of tenants rights, tax breaks on imputed rents, lack of property tax, zoning laws) which promote home ownership at the expense of rental.

But the mother of all wrongheaded land policies is surely the Nama land bank, which is actively stopping the market from adjusting to its new post-tiger equilibrium level.

It is all well and good desiring wages to fall, but the reality on Daft.ie today is that you still have to shovel 50% of your pay into decent accommodation. This has to change.

@Ronnie,

I have no desire to make of meal of this, but the following is from the October IMI/NIB MNC Survey which you co-authored:

“As with other years, respondents indicated that
Ireland’s cost base was significantly higher than
in comparable locations. When asked to
compare a number of costs in Ireland, the most
expensive area highlighted was energy. Eighty
six percent of respondents indicated that energy
costs were more expensive in Ireland than in
competing locations. Labour costs, at 81%,
were rated as the second most expensive
operational cost in Ireland relative to sister
operations.

None of the areas respondents were asked to
rate were thought of as less expensive in
Ireland, while telecommunications costs were
seen as being in line with the international
average by two fifths of respondents.” Section 2.1, p14.

and the following quotes from respondents were included:

“Cost is the major challenge facing our Irish
operation. Virtually all offices globally have a
competitive advantage over our Irish operation. I
have no doubt that if our company did not now
have a substantial presence in Ireland we would
almost definitely not establish one.”

“The cost base of the Irish operations is
significantly higher than those overseas making
products relatively uncompetitive.”

I accept that the competitivenenss situation is improving and I also accept that a wide range of factors impact on MNCs’ investment and locational decisions, but I still think we are shooting ourselves in the foot with regard the costs and prices in a number of sectors.

@Cormac,

your analysis of the impact of EMU on the IRish economy has much merit but I fell you are being disengenous when you state that the contribution of doestic policy errors were “small”. The 2002-07 FF/PD coalition committed a number of policy howlers whic exacerbated the situation. These included
i) restoring interest relief for investors in the property market (2002)
ii) extension of capital allowances for proeprty investment …hotels, golf courses etc
iii) taking short term bubble tax revenue and entering into 50year pay employment contract for public servants. The FF/PD version of borrowing short and lending long
iv) deciding to stop financial regulation.
Nobody shouted stop, least of all the FF watchdog which by that stge had turned into a flea ridden poodle

“If it were done when ’tis done, then ’twere well it were done quickly”

Does the same adage apply to sovereign default???

Mack: As far as I know, the Singaporean health system is not free at the point of service (see http://en.wikipedia.org/wiki/Health_care_in_Singapore).

In general: Lower salaries are needed, but so are great efficiencies. There are vast wedges of inefficiency. The archaic conveyancing system, for instance, adds at least one percent to the cost of a house. The bureaucracy of things like motor tax and education grants (just as an example) is completely overwrought and unnecessary in the modern world. Public transport is not as efficient and good as it should be and this causes all sorts of issues. More general example – delivering goods and services to homes is made extremely difficult because of not having proper house addresses.

@Paul Hunt

The perception that Ireland is very expensive is true. This is why survey’s like this are important: regardless of whether it is true or not, if people believe Ireland is very expensive, then we have a problem. And their are particular areas (energy for example) where we do stand out as being very expensive. However, looking at statistics, it is hard to argue that Ireland has an external competitiveness problem:

1. CA Deficit not big enough to account for domestic imbalance + external imbalance;
2. Most attractive to Greenfield FDI in Northern Europe;
3. Alone amongst Western economies in maintaining export levels in 2009;
4. Manufacturing wages half way between Northern Europe and the Med;
5. Private sector ervices wages ditto;
6. Huge investments in infrastructure in recent years to rectify a historic deficiency;
7. Other competiitveness advantages (corp tax rate, english speaking etc)

The perception that Ireland has a huge external imbalance, and Miniters contant restatement of that ‘fact’ IS a problem. Look at the FT idea to give a sense of the scale of misinformation on Ireland’s competitiveness position.

@Ronnie,

Thank you. I know you’re getting frustrated being dragged down this road again and again, but I remain convinced that there are costs under domestic control that could be cut significantly. Perceptions and sentiment are very important and have to be managed. For example, the severity of the budget was very much focused on the perceptions and sentiment of the international capital market. It may not be enough to ensure that cost levels are broadly in line with our major trading partners; it makes sense to re-forge the competitive edge that existed at the end of the ’90s – and to make a lot of noise while doing it.

And there are significant benefits from cutting costs in the domestic economy.

@Paul

100% agree. In fact, my other hobby horse is wondering why unions are not demanding reforms in local professions as a means of driving down unecessary costs in the economy. Unions are being asked to change their work practices, lawyers are not.

@Antoin –

I’m aware of that, and of the fact that some people end up excluded in Singapore, but making the suggestion for a public / private mix along the lines of the Dutch / Singaporean systems (public health insurance, private health care) but free at the point of service & excluding no-one.

There is no way out of the Euro. It is interesting that Lenny in his speech cited 3 reasons for our crisis and the Euro appreciation was not one of them, in fact he hailed the Euro as our great saviour.

The problem started in 1979. We made the fateful decision to join the ERM as independent participants. This was the one link with Britain which none of the earlier republicans would dare break. We thought that the snake would keep us effectively linked to sterling. Note what Luxembourg did. They did not join the snake as independents but remained umbilically tied at parity to the Belgian Franc. We should have done the same with sterling.

By the time 1999 came along we had been enjoying the best of both worlds, depreciate with sterling but benignly neglect the punt when sterling appreciated. We were at about 85p in 1999, having earlier found it impossible to hold onto 105p. We had no choice but to join the Euro as the correct course of rigid parity with sterling had been lost forever. All we could do was cross our fingers and hope the UK would quickly join the Euro before one of those periodic sterling wobbles.

It didn’t happen and now we are trying to live with a punt/£ ratio of 1.15.

@Kevin O’Rourke
The minister has used public sector wages cuts to:
– divert public outrage at the country’s collapse
– distract public attention from the €65 Bn bailout of developers and bank investors through NAMA
– ensure that FF pork spending identified in McCarthy is not cut
– preserve low taxes and tax shelters for the superrich
– build up a right wing base by not increasing income taxes
– reduce wage levels for the lower paid while preserving the position of the professions
– keep FF’s semi-states and protected sectors intact

“It isn’t just the left who takes the view that you should never waste a good crisis!”
Spot on.

@Graham Stull
The minister is deliberately focusing only on reducing wages. He is keeping “profits and prices” in the protected sectors high. He is only cutting non-pork government spending including wages. Most criminally of all, he is actively inflating property prices and rents.

Any falls in prices have nothing to do with his policies. Lenihan is driving the entire adjustment in the economy through reducing wages and welfare and is impeding even this by his €65 Bn property market intervention.
It is truly scandalous.

@ E65 Billion and added tagline,

Honestly, my friend, I think you are being harsh on the budget issue. We agree on Nama, but it’s hard to envisage any recovery without fiscal stability. And it’s hard to envisage any fiscal stability without spending cuts. Spending cuts, in turn, mean wage cuts in the public sector because that is the bulk of what the govt spends money on.

Even if the banks were healed tomorrow, at no cost the taxpayer, we would still have to make large fiscal adjustments.

Though I do agree with you that Nama will impede the property market adjustment.

On the issue of domestic services costs:

Has the Competition Authority post-John Fingleton gone quiet? Go to Google, search for “The Competition Authority” (pages from Ireland), Show Options, Timeline. It clearly shows that the attention the Competition Authority got rose steadily up to 2006, and started declining thereafter. This of course was the point that Fingleton left (though trial by google may be a tad unfair).

The operation of the private sector labour market has a very different dynamic to the public sector and this difference needs to be well understood.
In the completely flexible priv sector model, (non-unionised) firms are free to reduce labour costs subject to contractual issues regarding individual staff. Typically, priv sector firms tend to to firstly reduce headcount. This is because this is regarded as likely to have the most lasting impact on labour costs. After that, firms can address either direct salaries or indirect employee costs(pension, VHI, other employee costs , such as canteen subsidy etc..
What each firm will do depends on it’s own business dynamic as regards revenue and profits. This is as it should be, in my view.
In the unionised private sector, unfortunately, the agreement signed in mid-2008 has a most negative impact on pay determination from a competitiveness point of view.
This is because the the people who paid were first the commercial semi-states, then, unbelievably,the major banks. Both of these sectors are price imposing on the traded sectors.
Of even more concern was that the formula of words used to suspend, ended up forcing the unionised multi-nationals to pay out, (due to a toxic interaction between “ability to pay” language and the operation of the Labour Court). My view is that this will have had a negative impact on the perception of Ireland within the unionised multinationals, at a particularly sensitive time.
This appears to be what is causing the recorded growth of private sector earnings, to be positive.
The above is not the whole story, however.
In the exposed part of the private sector, there have been some dramatic drops in incomes, ie anyone connected with construction and related services, those who have otherwise become unemployed, professional services firms, the retail sector etc, This collectively represents a large number of people, taking 250k employees in construction as a base, I believe the total of the seriously affected people in the private sector is 500k plus.
This is driving a major improvement in marginal employee costs in the traded sector.
ie new hiring costs are coming in 20/30% below historical levels, which in my view has a major positive impact on competitiveness:the traded sector more or less has the pick of the whole new graduate population, a transformation on the position which existed a few years ago.
So the actual impact of the recession in the private sector is highly uneven, depending on the position of individual firms, including especially in the sheltered sectors, but also much more substantial in aggregate than is widely commented upon.

@ronnie

“In fact, my other hobby horse is wondering why unions are not demanding reforms in local professions as a means of driving down unnecessary costs in the economy. Unions are being asked to change their work practices, lawyers are not.”

This was really the original point I was trying to come at – not so much about my personal GP but what are the policy options for the government to drive down costs. They can’t actually say “Lawyers fees must come down. Make it so”.

They can do with the public sector because they have control but when its not under their control, is there anything they can actually do?

@Sarah,

The one that sticks out is the law library, where the most blatant restrictive practices continue to be suffered. Further, self regulation remains a feature of a number of local professions.

In terms of many of the other professions, I am not sure where the exact situation stands following the competition authorities market investigations. I know that they regularly review the progress of their old reports (I know this from their banking study), though it would be helpful if they were to publish these reviews and call-out where no progress is being made.

In the Government’s smart economy document they promised a full response to any competition authority recommendation into the professions, with the implication being that they intend to take these reports more seriously in the future.

I don’t want to be unfair to the compeititon authority as I don’t know much about what’s going on at the level of each of the professions, though my impression is that they haven’t been taking advantage of the fact that they are now pushing at an open door.

To add to the list of statistics Ronnie O’Toole gave, I could add the fact that employers’ payroll taxes (mostly PSRI) are far lower in Ireland than in most EU countries. I calculated the following from the Deloitte Remuneration Survey for 2007 (link below). I should make it clear that I am totally in favour of keeping these taxes low. In fact, I’d even reduce them. But, if they are much lower in Ireland than in most EU countries, the least we should expect is that organisations like IBEC and ISME show some recognition of and gratitude for this fact and not indulge in a 24/7 whingefest about how uncompetitive their costs are.

http://www.finfacts.ie/biz10/Rumuneration2008.pdf

employers’ payroll taxes as a percentage of employees’ remuneration:

Denmark 1.3%
U. Kingdom 10.0%
Cyprus 10.0%
Malta 10.0%
Ireland 10.7%
Luxembourg 11.4%
Netherlands 15.6%
Slovenia 18.4%
Poland 20.0%
Germany 20.1%
Portugal 23.8%
Latvia 24.1%
Finland 26.7%
Greece 28.1%
Spain 30.6%
Austria 31.1%
Sweden 32.4%
Belgium 32.7%
Estonia 33.3%
Hungary 34.6%
Czech Rep. 35.0%
Slovakia 35.2%
Italy 37.3%
France 46.5%

A major element that contributes to our high wages/costs is the isolated world in which the Multi-nationals, operating here, can exist in. Ireland is a profit taking centre for a large proportion of their foreign operations and so they can afford to pay way above the odds for relative menial type jobs. It’s a form of “ hush money” and that distorts the labour market in no small way. It may suit their purposes, but it has been a major contributor to our unrealistic cost structure – Disneyland, Irish style!

@Andrew McDowell

“cut in employment costs, with some Gov. contribution from employers’ PRSI (financed by tax broadening)”

I understand that you are a Fine Gael economic advisor? If I have got you mixed up with someone else, my apologies and ignore this post.

How on earth do you justify this as a policy at the present time?

Are you under the impression that employment costs (labour taxes) here in Ireland are excessive in comparison to other EU countries? Is that what your policy is based on?

I’m not trying to make a party political point, as I’d say Brian Lenihan’s policy on this point is very similar to your’s and equally ridiculous.

In my post above, I gave figures from the Deloitte Remuneration Survey for 2007 which showed that employment costs in Ireland were among the lowest in the EU. Now below there is a link to the German Statistical Office (Destatis) which gives figures for employment costs in 2008. Again, they confirm that employment costs in Ireland are among the lowest in the EU. According to DeStatis, additional employment costs (sometimes called labour taxes) in Ireland in 2008 were 17% of employees remuneration, compared with 50% in France, 48% in Sweden and so on. Only Malta was lower than in Ireland.

Now consider the Irish economy in late 2009 – it has two features:

(a) exports have held up sensationally well – in fact, its almost certain that exports from Ireland as a percentage of EU exports will be at an all-time
high in 2009, beating the previous record year of 2002

(b) consumer spending and retail sales have collapsed – retail sales are still falling as today’s figures show

In response to this, you wish to put extra taxation on consumers whose spending has collapsed (your phrase is ‘financed by tax broadening’) and then give the proceeds to employers to reduce their employment costs (labour taxes) still further, even though these are allready the second lowest in the EU and even though exports are doing remarkably well?

Your policy is like that of a doctor, who is presented with two patients, one anorexic and the other obese, and decides that the best thing is to take some food off the plate of the anorexic and give it to the obese person.

To repeat what I said in my post above, I’m strongly in favour of keeping employers’ labour costs low. I’m delighted that (according to Destatis) they are one-third of those in France. However, the idea that it should be a priority at the present time to reduce them still further and finance this reduction by putting extra taxation on consumers, when consumer spending has collapsed is economic illiteracy.

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/VerdiensteArbeitskosten/Arbeitskosten/Tabellen/Content50/Lohnnebenkosten,templateId=renderPrint.psml

Yearly estimation labour costs

Non-wage costs in relation to gross earnings in the private sector in 2008 European Union member states EUR … of non-wage costs were paid per EUR 100 of gross earning in 2008
EUR
1 Value refers to 2007.
2 Value is provisional.
Score: Calculations by Destatis based on Eurostat, online database.
European Union (EU 27) 36
France 50
Sweden 48
Italia 46
Belgium 46
Hungary 42
Lithuania 41
Austria 39
Czech Republic 38
Spain 37
Estonia 37
Greece 36
Slovakia 35
Romania 34
Netherlands 32
Germany 32
Portugal 30
United Kingdom 28
Latvia 28
Finland 28
Poland 25
Bulgaria 25
Denmark 20
Slovenia 20
Luxembourg 19
Cyprus 18
Ireland 17
Malta 12

@ Graham Stull

You wrote “Dwelling on the spilled milk of EMU is not useful in terms of forumlating a coherent policy response to the current crisis. In any event, it’s a very thorny counterfactual with no clear answers, at best.”

I could not disagree more. If EMU interest rates that were too low over the period 1997-2007 spawned our credit / property bubble / bust then surely it behoves us to examine EMU interest rates today?

The Taylor Rule is the standard method used to estimate what the appropriate interest rate should be. It is essentially driven by two real economic variables: actual inflation (compared to target) and spare capacity in the economy (or the output gap).

These two real economic variables have shifted in Ireland (relative to the Eurozone average) so that a decade of interest rates that were too low will be replaced by a prolonged period of EMU interest rates being too high.

Between 1997 and 2007 Irish inflation clearly exceeded the Eurozone average. Now it is clearly below it. Between 1997 and 2007 Irish unemployment (a proxy for spare capacity) was well below the Eurozone average. Now it is clearly above it. The swing in each of these two factors means that we have moved from Eurozone interests that were too low to Eurozone interest rates that will be too high.

An ECB policy rate of 1% plus average bank margins of 2% mean borrrowing rates averaging 3% at a time when inflation equals about -6% (CPI) or -3% (HICP). That translates into real interest rates of +9% or +6% in the middle of a depression, depending on your choice of inflation rate.

Brian Lenihan asserted that we had turned the corner. Maybe we are in sight of that point in terms of national output. But not in terms of national wealth. Our wealth is still overly invested in Irish residential property. IMHO that is set to fall considerably considerably further in price while debt levels remain. That will put further pressure on private sector balance sheets (more negative equity) and downward pressure on retail activity etc. etc.

DEBT DEFLATION IS OUR FATE

Or is anyone ready and able to do a cost/benefit of exiting the Euro? Probably not. Excommunication would probably be the result. Look at the excoriation Morgan Kelly and David McWilliams have had to endure largely for their unforgivable sin of getting it largely right when their professional peers got it largely wrong. Better to be a mediocrity with the erroneous herd than to work in adversity and get it right!

@ Kevin O’ Rourke,

Looking at your last paragraph above – we can’t leave the EMU, and emigration is the most likely adjustment that will take place. I can only say some words about the immediate small field I happen to know of the economy in Ireland. I read in yesterday’s Irish Times budget pull-out supplement some suggestion by an economist to develop our construction, engineering and design sector into an export lead business.

I don’t know. It could work.

But one thing was very clear to me over the past decade – Ireland as a region within the EU was over-provision-ed with construction and design professionals. Way over provisioned.

Yeah, maybe there was a scarcity, maybe employers here demanded additional help. I am not really sure. But there seemed to be a crushing weight of construction professionals based in this small, tiny section of the EU area. Far beyond what a small population such as ours was likely to sustain.

An interesting thing has happened recently in the Irish construction sector of the economy. People with huge, huge sets of experience and knowledge have been simply brushed aside. Guys with basic experience in finance and the cost-ing side of the construction business, is all that is left driving the ship. It is very frustrating that. Because ideally speaking, human resources should be allowed to move around an organisation. To offer assistance and opinion. To combine together and benefit from as many viewpoints as possible.

Maybe some of the un-employed construction and design professionals would be willing to move into the financial side of the business? To become re-trained and re-skilled? I don’t know. It is frustrating to witness so much experience and knowledge available to us, and very little of it being exposed to the problem. That is a huge area of ‘waste’ in our economy. One that I quite literally hate with a passion.

This point about ‘waste’ in the private sector, may relate further to points about ‘waste’ in the public sector I have mentioned down below.

I chose this following paragraph from the Martin Wall Irish Times article:

“The proposed deal included specific agreement on the redeployment of civil and public servants, within and between organisations. There was also provision for long-sought changes such as the introduction of an extended working day in the health sector. The unions maintained that this could allow for longer opening hours and for increases in day care, community health services, outpatient and diagnostic capacity.”

Donal Casey wrote a good article in the Irish Times on the 23rd of last month. An articel in which he described how some of Ireland’s problems are probably to be found in the system itself.

http://www.irishtimes.com/newspaper/opinion/2009/1123/1224259297267.html

Other regular columnists such as Elaine Byrne etc write about Ireland’s out-of-date political apparatus. But going back to the Martin Wall paragraph quoted above.

It is not in my opinion ‘people’ that we need to move between one government department or another. I mean, that sort of messing around could go on forever and we would never have the right sort of arrangement. A bit like I am always re-arranging the furniture and fittings in my too-small accommodation, and never seem to get it right.

On the other hand, what I argued a long while back, is a system of public infrastructure and service in Ireland, which enables the ‘funding’ for each department to be mobile. It cuts out the feature of a department spending beyond its means in order to increase its own budget relative to everyone else.

No one division in the public service should receive a budget. There should be a floating amount available to serve needs, and needs arose. We could implement some system, whereby if a department was hoarding its money in it’s own silo, it would receive a penalty. It would be forced to release cash back into the system. What I have in mind is some sort of ‘internal economy’ within the public service.

Departments within our public sector could be encouraged to provide and bid for contracts issued by other departments. That would avoid the need for civil servants to be moved around in a musical chair kind of situation. The idea came to me recently again, while listening to Eddie O’Connor. When he worked for Bord Na Mona he wanted to set up that division to supply clean renewable energy to other sectors like the ESB. But his plans were ‘sabbotaged’ by other civil servants.

A good reference here would be to George Monbiot. In his blog I read months back, Monbiot described some alternative proposals that the first world nations were looking at to construct a monetary system. If I find the blog again, I will link below. Another reference that comes straight off the top of my head is Digital Equipment corporation. Which was really a behemoth organisation something equivalent to the size of Ireland’s public service. They tried to set up an internal economy between departments at the end of their run, but it didn’t work out. Nonetheless it was fairly interesting.

We talk about ‘productivity’ in the public sector. But we cannot begin to have a meaningful debate about productivity, until we broaden the scope of our discussion to include concepts such as an internal economic system within the public service. This idea of public and private sector is a red herring in my opinion. For a small country, we need to buy things through a flexible, organic and versatile public sector. It is the only way we can afford things to be honest.

I mean, this is how other small economies such as Finland manage to get by. There is so much ‘taken care of’ by the public sector, through various means and mechanisms, that that enables to the private sector to devote huge resources at one area like ‘Hi-tech’.

This is the point that David McWilliams and others don’t seem to realise. It is because countries such as Finland have such a thriving public sector ‘internal economy’, they also manage to have a thriving private sector, which benefits from the former. There is a virtuous connection rather than a poisonous relationship like in Ireland.

In Ireland, much of the private sector is busy trying to pick up the slack to provide essential services, which the public sector, bloathed and well resources as it is, cannot seem to organise and do. That is not a good thing for the private sector in Ireland. Rather it is tying up the private sector and the public sector in areas which are not high value added. Here I refer to the example of Finland again.

This brings into the equation, the capital investment projects in Ireland. We do need investment to flow into utilities, services and infrastructure. This needs to happen somehow through the public system. In turn that will unlock efficiencies in the private sector which we will all benefit from.

We need to seriously look at places like Dubai. How come they have so much to show for so (relatively) little toxic debt. Ireland has a mountain of nuclear waste on its doorstep. But one wouldn’t mind, if the projects were at least there, to show for it. They aren’t.

The Office of Public Works – if I was minister for Finance tomorrow, I would take ‘sickle and scythe’ to. I mean, if you are looking for waste on a vaste scale, look no further than that. It is not to say, I do not adore some of the projects the OPW have carried out down through the years, in retaining, reinforcing and organising the public building stock in this country. They have performed an excellent job. But there are areas of that department which have got seriously out of whack with reality.

It also relates to my initial point above. We were over provisioned with construction, engineering and design professinals in Ireland. We have far too many suggestions in Ireland for ways in which we might improve our environment, natural and man made. Not least of all from the Green party direction. There is only one small flaw in these plans.

We are living on an island that the British basically ‘gave up on’ a century ago. Because we were looking at building up a large enough, potentially tax-paying domestic population in the mid 1880’s. (That is stretching things a bit I know) But ever since the Land League etc we have struggled to sustain a population the size of a regional British city.

(Tom Garvin’s book on Lemass casts some interesting light)

We have an office of Public works, and a program for building and development, which would be fine and appropriate, if the Famine hadn’t happened. If mass emigration to the new world hadn’t happened. And if Ireland was still that well-run, profitable centre that the British Empire maybe sought to build it into.

In short, we are still trying to ‘punch above our weight’ and trying to live up to some image of ourselves which has nothing to do with reality. We are still trying to prove that we have a population of 10 million people and afford services and infrastructure like the UK does.

Apologises if some of the above contradicts itself – I was throwing out as many ideas and suggestions as I could think of.

@ Cormac Lucey
there you go again like a broken record. Yes we know that loose monetary policy contributed to the boom in credit and yes we know that tight monetary policy will prolong the road to recovery. However, before criticising the conduct of policy makers you need to examine your own conscience. If I am not mistaken you were the adviser to the Tainaiste in the last government. This was a government which could have run a tight fiscal policy to at least try and offset loose monetary policy. Instead this government expanded the structural deficit, caved into the public sector unions and increased the public sector pay bill. Moreover, to make matters worse it increased the fiscal incentives to property investment.

What was your advice to your minister at the time? Whydid you not resign?

One final point I have to offer. I predict that the former eastern block countries in the EU zone will power ahead of economies such as Ireland in the immediate future. The reason being, they have a skilled workforce often like Ireland does. They can also obtain a workforce like Ireland did. But most importantly, when they get over their scrupples about the old communist system – they may begin to invent a sustainable and efficient form of social democracy.

That is, to get this virtuous interaction between public and private sector – where a high quality public sector, is able to free up more and more resources within the private area, to compete and excel in the global marketplace. Countries like Ireland and Britain simply don’t have the economics know-how to build such a system. Countries like Ireland and Britain only have some dying corpse of capitalism to cling onto. That will be their downfall.

That sounds a bit daft and silly. It is a bit daft and silly. But I think you can get a picture of what I mean.

Cormac Lucey
The overall benefits of cheaper financing in the EMU outweigh the stupidity of the lack of fiscal management. That can be remedied? As we pay off the nearly 100,000,000,000 rounded up! in euro over the next twenty years we can reflect on how we are responsible for voting in and goading an administration that ignores prescient warnings!

Another John M

The division of the voters is a political stroke! The taxation issues will be dealt with in due course. They are making good use of a crisis, albeit one they prepared earlier!

The idea that an economy is dependent upon consumer spending is relevant only in a Kondratieff Summer and Autumn! We are in Winter now. The spending bird has flown south for the duration. Get over it. We must now cut down in every sphere except infrastructure. Putting the capital into the banks is also not productive as some will make foolish loans.

No more debt? No more lending!

The contraction is literally awful to see. All the little service industries built upon consumer conceit and banksters deceit will shrivel and dry and be blown by the winter winds. Celebrity chefs? Eating out will return to being a luxury. Fewer ulcers from bacterial infection!

Saturn rules now! Cast a very weary, bleary eye on every investment opportunity. Reverse all the rules we learned over the last forty years. The signs were there and the path is known. What happened in the thirties? And the forties? Ahh, stimulation by warfare! A war on a noun, any noun! Drugs, Terror, terra, carbon. Choose one, choose them all!

Human folly. Twill be done very slowly as if in Japan, and twill be very thorough, and twill last until people spit into the dust when someone asks does it make sense to invest in a bigger house!

PROPERTY GAL

Ooooh! What a gal! Now we know why some adopt anonymity! Well said though. I wonder will he answer? Part of the problem of a corrupt public process is that there is no accountability. Asking advisers to account is a good start!

Have you given advice and been paid for it, Property Gal?

Brian O’ Hanlon

They have some chance but I suspect that vodka will overtake them. And illegal drugs, Afghanistan is the source of 90% of the worlds opium we are told. The Taliban were rather naughty to women and deserve destruction, but they also stopped production of all poppies! Oh dear! No no no! We need a war OF drugs! Who needs tariffs if we can peddle drugs to the competition? This is a matter of survival Brian! Much better than a real war?

Brian O’ Hanlon
Why do we need office space? All the cubicles and rooms? We can work from home on broadband if it existed. No need for new school buildings either! Why not privatize the needs of the public service and allow public servants to compete?
By the way, the ps is under resourced. Very inflexible and as you rightly say, the need for flexibility can be met and will increase efficiency.

I like to read your ramblings. Ireland produces too many graduates in architecture. Thoise who comtrol the construction industry always cut corners and regard good quality buildings as unnecessary it seems. Ticky tacky is OK?

Sad.

Cormac Lucey

I agree that a debt deflationary spiral has started in Ireland. It will teach all those who live, or try to live there, a much needed lesson.

I am a contrarian, as they say. You seem to advocate it also. But it is not being a contrarian to seek the easy way out Cormac! Rather take the less worn path and see what it brings. The lesson is unavoidable and postponing it will merely add to the cost! Being responsible and mature does not mean abandoning violence, else we would all abandon our standing armies! Violence may not be necessary and can be unpleasant but again, we should not take the easy choices!

Depriving people of resources is harsh but may not result in abject poverty. Confronting the fat cats with the fate of the losers may help them to decide to stop overcharging. Ireland is a cesspool. Succeeding there is not a matter of pride! Too many stupid laws and too many cronies mean that everyone with a conscience is sick of what has happened. But the lesson is unavoidable, Cormac. You now have to go through with it. Learn to live properly. Respect each other. Look after all, not just those who can be useful to you in your materialistic fantasies. Life is what happens to you while you are climbing the greasy pole. Some elements of competition are despicable. Irish people know these as they have had to put up with a bad neighbour for a long time. Now we are out competing but we neglected the golden rule. Who has the gold makes the rules! By feeding the cuckoo of unrestricted banking we fouled our own nest. The USA did it as a means to an end, Ireland did it through what, exactly? Whom can we blame? What is the lesson, Cormac?

@Property Gal
My advice to Michael McDowell remains private.

But it corresponded with the view I articulated publicly under my pseudonym Sean Sexton at Magill magazine in their April/May 2005 edition:

“Where is all this leading? Simple. We can’t keep increasing our borrowings forever. The constraint on our indebtedness will not be interest rates as in previous decades. It will be our debt capacity. We risk maxing out on debt and thereby making ourselves vulnerable to any short-term economic set-back. The closest parallel may prove to be the Japanese economy. They too experienced a growth miracle built on a credit bubble induced by politically-determined interest rates. Their bubble was pricked in 1991. If their experience is anything to go by, the bursting of the Irish bubble would be a nightmare. The economy would prove impervious to monetary and fiscal stimulus, as individuals and corporations sought to curtail spending in order to reduce their bank borrowings. A downward spiral of asset prices, forced liquidations and further falls in asset prices could result. Growth would prove elusive and the financial sector would be in permanent crisis. That’s the bad news.

The good news is that we may still have some distance to go before we hit our debt limit. So enjoy the party while it lasts. But don’t be taken in by it. And be wary of those economists who failed to predict this bubble, who don’t explain it and who certainly won’t dare to predict its end.”

The fundamental problems were however:
a. I am not an economist.
b. I was advising the Justice minister and not the Finance minister.
c. My viewpoint corresponded with no official advice.
d. When the party is going strong, nobody wants to read “alcohol awareness” leaflets however apposite they might be.

My question is where were the “professional” economists when all this was plain to see? The warnings of the Central Bank and ESRI were wholly limp-wristed and represented downside, risk scenarios and not central, baseline scenarios. Yet they still get paid by the State and get their indexed pensions.

@Cormac

Good answer to PG. That might keep “him” quiet for a while. So there were voices whispering in the Tainaiste’s ear that domestic fiscal policy was inappropritate. If another course had been chosen from 2002 and property incentives scaled back in 2002 not 2006, public sector pay growth constrained and if the CB had followed its own advice in the mid decade the current situation would not be avoided but perhaps mitigated.

Yet as you point out, all of those drawing official salaries when these decisions were taken are still on the payroll whether as employees as pensioners. Moreover, the pensions of the elite PS who did the damage have yet to be touched while all those below who suffered due to these decisions have had their pay slashed.

@ Cormac Lucey,

“The warnings of the Central Bank and ESRI were wholly limp-wristed and represented downside, risk scenarios and not central, baseline scenarios.”

They did give us a warning….

They told us “we where the second richest country in Europe”.

Did you ever hear anything so ridiculous in your life!!! I remember listening to one afternoon show on radio, where housing was appreciating in value per day at a faster rate than a persons daily wage!! Your house earned more money than you could in a day!!! “The Emperor has no clothes”… history continues to repeat itself again and again.

Unfortunately most of us believed it, and now we are paying the price.

@ All,

A summary of discussion – A way to make a collage of viewpoints and contributions

Maybe, a useful way to pull the discussion back together again, because it is quite confusing to follow the entire thread sometimes, is if someone makes ‘flag’ sort of like the one above, and offer their services to do a quick summary or compilation of useful contributions above, which may connect to on another.

Furthermore, a feature of the message board system system here, which I recently figured out for myself – is you can ‘click’ on the date underneath a commentator’s name and link directly to their comment, in another discussion if needs be.

I am going to employ this nifty feature in a moment, to try and ‘pull’ some of the points from nearby conversations, and place them in the middle for this one for reference.

@ Cormac Lucey,

Sorry I am responding to you very late – possibly not worth it at this late stage in the thread – real life keeps getting in the way of my attempts to exist virtually.

You wrote: “If EMU interest rates that were too low over the period 1997-2007 spawned our credit / property bubble / bust then surely it behoves us to examine EMU interest rates today? ”

We all new the risks that Irish interest rates would be too high or too low when we entered the euro. No need to do a Taylor rule for that. No one is arguing that EMU didn’t contribute to the credit bubble, of course it did!

But there were also clear and difficult-to-measure advantages to being in the euro club, even if that meant taking the ‘wrong’ interest rates up the nose, as other posters have pointed out. It would all make a lovely research paper in a few years time, but that is not going to get the country back on a sound economic base.

My point is that no one now seriously feels we should leave the euro, therefore the question of whether interest rates are too high or not is moot. They are what they are, and its up to Irish policymakers to set policies (fiscal and regulatory) which make sense in that exogenous context.

I always point out that there is a relatively limited capacity for govt to absorb policy messages, get them past the asteroid field of political expediency, and transform them into actual legislation. Talking about what should have been done does not advance the Millenium Falcon of Irish politics through that particular asteroid field.

@Graham: you are surely right that there is a limit to what our political masters are capable of processing. But I think there are at least three reasons why it is helpful to recall the debate about EMU and the risks that entering it implied.

The first is that it helps us to identify the appropriate policy response, give that we cannot devalue: wage and price cuts across the economy. As several posters pointed out, that implies inter alia measures to cut professional fees, and increase competition in sheltered sections.

The second is that it should discourage excessive optimism about the economy — which is important as we think about fiscal policy going forward.

The third is that it reminds us of the tiny impact that mainstream economic thought has on policy-making in this country. Peter Neary is Ireland’s most distinguished academic economist. Rodney Thom was the head of the UCD department. Both of them told anyone willing to listen about the risks of entering EMU without the UK. They were supported in this by most of the UCD department.

Given the economics of the situation, there were two sensible things the government could have done. The first was not to join EMU. The second was to join, but accept the constraints that EMU membership logically implied: very conservative fiscal policy in good times, and keeping a lid on wage and price growth, as the Germans have been doing. The government adopted a third approach, as we know.

Unless we find institutional mechanisms that wiill allow more economically literate, long term policies to be followed by governments, there may well be a third boom-bust cycle during my adult lifetime.

@ Kevin O’ Rourke,

I grew up in a very sheltered professional sector of the economy myself. The profession of architecture. So I know the people who live and operate in those sectors. I also know precisely what to expect or not to expect of them. To be honest, the standard at the moment is fairly dismal. I am not sure if it has got better or worse. But I do know the implications are very painful for those people working in the sheltered sections. It is not good for people within those sheltered sections either. A few do well but the general population of members of the ‘sheltered section’ suffer in many ways – lack of debate, lack of opportunity and lack of rewards.

It is a catch 22 situation Kevin. You look at a newspaper like the Daily Mail the other day and it leads with front page and inside page coverage of Paul Gogarty’s hit YouTube contribution to the house last week. In fairness to him, he did get across his point, “We are screwed as a country because of the wrong doing of others”.

But if a major portion of the country is okay with this as a standard of public debate in the main house, how are the ‘sheltered professions’ ever going to have pressure put upon them to innovate and explore new ground?

The major mistake we will make when looking at sheltered sections of the economy, is to do exactly that, only look at those sections. What we really should be doing is to try and raise the bar or standards in general, across the board. That in turn will exert the pressure necessary on ‘sheltered sections’ to try and do better.

That is what is so wonderful about the Green party in my opinion. You have guys like Eamon Ryan who freely admits he grew up himself as part of a ‘lost generation’ in Ireland. He knows all about it. What the Green party does is it gathers together a whole lot of people who had better aspirations to improve themselves and push standards upwards. Even coming from such a low base in terms of debating capabilities and speech-making charisma, it is amazing how much the Green party has done for guys like Paul Gogarty. It has raised their horizons and given them at least some confidence level.

I have gone and done some re-mix-ing of the above contributions, to try and see if I could tie it together in some way that might make sense to me. A lot of ideas swimming around in the pool above.

http://designcomment.blogspot.com/2009/12/irish-economy-compilation-wages-and.html

As I have mentioned above, this system of re-organisation and presentation of ‘content’ available through the vein of the Irish Economy blog might be useful. My experience in ‘brainstrorming’ has been, that processing of the ideas ‘captured’ through the process is one of the heavier weight tasks to be done.

It always involves some kind of subjective assembly of the material – perhaps even leaving out bits that are worthy of inclusion – to try and develop some ‘picture’ of where the current debate might be at. Or going.

@Graham

We need to examine EMU interest rates for the same reason we examine the weather: not because it is something we can influence but because it is something that influences us. The impact over the coming years (decade?) of EMU interest rates that are too high will be huge given our starting point of massive over-indebtedness.

@Graham @Kevin @Brian

You are both right about the limited ability of political leaders to absorb many conflicting economic viewpoints.

But does it not say something about the broader system’s limited desire to observe such viewpoints that the Irish Times has, since the death of Paul Tansey some years back, not had a specialist economics correspondent/editor? And ditto for RTE that has, until very recently, not had a specialised economics correspondent/editor since the departure of George Lee to contest the Dublin South bye-election?

These events took place in the middle of a depression having a massive impact on the finances, readers,viewers and listeners of the two media organs concerned. In fairness to the IT and RTE they have both had extensive economic coverage over recent periods but can you imagine either organ operating without specialist sport journalists for a single day?

There is a problem with an aspect of our national culture which can tend to regard learning as bothersome and costly rather than enlightening and useful.

Kevin O’Rourke said: “As several posters pointed out, that implies inter alia measures to cut professional fees, and increase competition in sheltered sections.”

Is this an echo of Mary Coughlan’s ill judged comments about certain professions having not felt the “chill winds” of economic contraction? The only sheltered sector I can think of is certain parts of the medical/dental professions and they are not an input cost for most businesses. What professional services are an input cost for businesses and are sheltered from competition/downward pressure?

@Cormac Lucey:
“There is a problem with an aspect of our national culture which can tend to regard learning as bothersome and costly rather than enlightening and useful.”

But it is bothersome and costly. It takes three to four years to get even a basic understanding of a single discipline. A citizen’s views and choices may require an understanding of several disciplines; gaining that level of understanding, while not a full-time student, is a huge task.

Of course it may also be enlightening and useful, but the citizen needs two things: (a) the costs of gaining that understanding need to be reduced and (b) the citizen needs to be convinced that the benefits outweigh the costs.

Citizens reading this blog are probably convinced of (b) and most of the contributing economists are willing to help with (a), but the gap in depth of understanding is still huge. But is there somewhere similar for political science, sociology, law, technology …? Or is it back to Wikipedia?

bjg

@Brian J Goggin

You’re right that building up expertise in economics can be bothersome and costly.

But so too can be building up an expertise in rugby, football, hurling, soccer or whatever and they are unlikely to have anything like the same impact on one’s life as economics. Yet people happily devote huge attention to sports because they offer escapism whereas economics appears to offer just constraints, hard realities and bitter choices.

As for those who wish to be enlightened, a subscription to The Economist would be a good start and a welcome Christmas gift. And the web offers huge opportunities – such as this website – for those who seek enlightenment.

@Cormac Lucey:
“But so too can be building up an expertise in rugby, football, hurling, soccer or whatever and they are unlikely to have anything like the same impact on one’s life as economics.”

I accept that (and I have no interest whatsoever in where chaps put their balls). But the citizen’s problem is that expertise in economics alone is not enough: there are all those other subjects as well. So many worlds, so little time.

bjg

Zhou Enlai said,

“What professional services are an input cost for businesses and are sheltered from competition/downward pressure?”

Architectural design services are very much an input cost for the construction industry. The fact is Zhou, if you had grown up, trained and worked in one of the ‘sheltered sections’ of Ireland’s economy, you would not like it. It is repressive to say the least.

The competition authority did a study a number of years ago. I still have the PDF on my hard drive somewhere and have been meaning to study it. But there is a very poor competition in architecture.

You cannot compare being in a backward profession, to something like computers, or finance, or even medicine where modern-isation is so much better.

Two examples.

(1)

I know the editor of a couple of the construction trade journals here in Ireland. She came to her job from working in a medical journal before. She noted in medicine there was no shortage of people willing to submit material to the journal for publication on this and on that. You know, modern research and ideas in treatment of patients.

Anyhow, when she started to edit the construction magazine she assumed getting material and contributions from architects would be no problem, as in the medical field. But no, there wasn’t any architects who wanted to put their name to any submission, much less take the time to write up something.

This is why Frank McDonald of the Irish Times is the lone voice in the wilderness for published commentary about architecture. Because the remainder of the profession are content to allow Frank stand up there and be the only one with anything to say. Even though Frank is no more an architect than the man in the moon. (Frank is very good at national spatial planning, global environment and does an okay attempt at buildings etc, but nothing like a real professional would)

When Cormac Lucey refers to the lack of a dedicated economics editor at the Irish Times and at RTE tv studio, it is sort of like the same thing. Duncan Stewart was a tutor of mine in college and though he has done a lot of work to draw attention to design and construction in the media, he tends to be dismissed by many in the construction industry.

(2)

I had a pal who used to meet me at Stillorgan some days for lunch. This is in weekdays. His job was as an architect at the OPW in St. Stephen’s Green. He would drive out from town to meet me at Stillorgan and we would have pub grub. Then he would sit back into his car and be back in time for work.

I was listening to some old recording on the radio not so long ago with John Bowman. He was talking to some poet or artist about his life. He described how in Dublin, it was not uncommon for professional gentlemen to travel home to the inner suburbs to have lunch with their wives. That was the ‘pedestrian’ kind of tempo of life there was in Dublin of the 50s.

I cannot help but think that architecture is stuck in that time warp. Heck, I used to work for a developer who rented a lot of space to the OPW. We all knew that in meetings with the OPW, you had to find a reason to ‘break up’ the meeting. Otherwise, they would want to hang around, drink coffee and chat all day long. It was notorious. On the one hand, you had to get some work done but at the same time you had to ‘entertain’ the OPW professional staff!

Lastly, there is the problem of ‘shuffling around paper’ at the OPW. The same design project can go through several generations of staff, without anything happening to it. A recently completed office building project admired by Frank McDonald in his wrap-up of the decade was seven years on the drawing board. I am told by reliable sources, the trick in the OPW, is not to do any new drawing – simply change the name on the title block to your name and put it back in the drawer. Sometime after the seven years it might come out and go to construction stage. It is the same drawing with the ‘drawn by’ name changed several times!

The point I am trying to make, is that none of the professionals in the OPW want to operate in this mode. Many of them came from small private practices which work at a similar pace. But where job stability is hopeless. While the OPW isn’t exactly ground zero for innovation, the do treat people fairly and squarely. On the whole, I would say the return on investment for our taxpayers money in public building works has been okay. The point is, we would all prefer a more dynamic, modern work environment.

BTW, I tried to elaborate a small bit on the interaction of small professional servcies and larger ‘productive’ enterprise in Ireland here:

http://www.irisheconomy.ie/index.php/2009/12/13/the-irish-banking-system-unfinished-business/#comment-28263

@ Cormac Lucey,

“In fairness to the IT and RTE they have both had extensive economic coverage over recent periods but can you imagine either organ operating without specialist sport journalists for a single day?”

Wow, you are right, that would be serious.

Civil unrest.

Or maybe peace demonstration.

Within hours it would be like the crowds that gathered spontaneously when the Berlin wall was about to fall.

@ Brian J Goggin,

“Of course it may also be enlightening and useful, but the citizen needs two things: (a) the costs of gaining that understanding need to be reduced and (b) the citizen needs to be convinced that the benefits outweigh the costs.”

Great point Brian.

On the other hand, I have watched the US federal TV station PBS on the web lately. There is a program on it called ‘The Frontline’. It does fit squarely into the category you describe of giving it to ‘citizens’ in an hour long chunk they can digest and go away happy with. It is a good program and well put together.

However, and I direct this to David McWilliams also in my criticism – there is a trend nowadays for young people my age (30’s) to buy heavy books by Robert Fisk, Joseph Stiglitz or Noam Chomsky. Put them on a self and then go to You Tube to find something ‘like that’ that can explain it in half an hour. You go to a rock concert and you can stumble into a tent and find David McWilliams engaging in a row over economics.

Sure people consume info-entertainment like this today. In fact, many of the anti-establishment protesters in streets etc are pumped up on this stuff. It has to be a bit cheap, it has to be a bit sensationalist. Its not the real thing. It will never be the real thing. The question is, I read Alan Greenspan’s autobiography. But I will not get any ‘advantage’ in pub talk conversation, because many of my friends have watched the ‘Frontline’ documentary, one hour duration, on PBS website which ‘refers’ to Alan Greenspan’s autobiography.

I know people who bought Naomi Klein’s book ‘No Logo’ and ‘Shock Doctrine’ to decorate their selves with. It makes them feel subversive, like wearing a Chez Gavara T-shirt. They are essential assessories if you have angst about the world. But the same people base their opinions on watch-ing of the DVD box set of the BBC’s spy series, Spooks. Which I am informed is based on ‘The Shock Doctrine’ by Naomi Klein.

Bearing in mind, Klein’s literature is baked for ease-of-consumption to begin with. So my best guess, is that David McWilliams reads the Shock Doctrine, everyone else watches the Spooks DVD box set and they all get together in the tent at the Oxygen festival because they like the sounds of their own voices sounding knowledge-able about global power instability!

Cormac Lucey said,

“As for those who wish to be enlightened, a subscription to The Economist would be a good start and a welcome Christmas gift. And the web offers huge opportunities – such as this website – for those who seek enlightenment.”

Excellent point, and you can also find it on the shelves in the magazine shop alongside Wired magazine, Vogue and car mechanics/superbike.

I have to confess, I am a ‘Trout and Salmon’ kind of guy myself. But putting it bluntly, at 35 years of age, I am old enough to know that reading is good, it is positive and it may assist younger people not to flunk out of college. Like I said, I have a PHd in fly-fishing, but not much else unfortunately.

Thumbs up to the Economist too.

I also recommend, if you are a working man like me, a visit to Illac public library and photo an article or two from the Harvard Business Review that might grab your fancy. The articles are usually 8-pages long and photocopy cards are 2.00 euro at the desk.

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