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Taoiseach from Mars, A Guest Post by Richard Fedigan

New blog commenter, Richard Fedigan, has initiated some interesting discussions on recent threads on topics ranging from Ireland’s reputation and influence in Europe to the need for a new industrial strategy.   Richard gathers his views in this guest post in the form of a briefing to the new Taoiseach. 

In an attempt to simplify and cut through all past and present recriminations and political posturing surrounding what will culminate in the election of a new Irish leader in a matter of weeks, the following is a three-point briefing note for a “Taoiseach from Mars”.

The note is intended to brief a reasonably intelligent alien, familiar only with the concept and reality of being what is known on earth as a CEO, but free from all awareness of cronyism, parish pump politics or the emotional hangovers of Irish history, particularly anything to do with the Civil War or the tragedy of Irish emigration. He/she/it would have a “translator” to explain terms like unemployment, democracy, growth, exports, ECB, IMF MNCs, FDI BRIC, etc. but not in great detail because the Taoiseach, it is understood, would have a team of accountable people to propose and formulate strategy, get it approved appropriately and then communicate and execute it.It is most likely that, in carrying out the above programme, it will be necessary to completely re-organise the existing semi-state landscape, audit your entity’s real capabilities and capacities and that this may imply radically different governance and accountabilty structures for the overall entity.

1.) The entity you have been elected to lead was once, but no longer is, a “going concern”. It has an underlying economy that is healthy in some respects but rotten in others.

It arrived at its current, sorry impasse by creating and tolerating inadequate political and economic structures ( particularly banks), leaders and governance. These had the support of most of the people for quite a long time, but the people, even those who benefitted most, now recognise that past behaviour must be forgotten even if some mechanisms need to be put in place to punish those who behaved criminally.

The entity’s sovereignty has been severely constrained and many policies and strategies that you come up with will have to take account of commitments already made to other entities like the EU, ECB and IMF to whom “you” owe a lot of the people’s money. Many of the people whose money “you” owe to  other entities believe, rightly, that they were “conned” into borrowing this money in the first place, were not properly consulted about taking responsibility for paying it back, and would prefer not to pay it back. This is not a realistic option open to you

There is also widespread and justified belief among your people that the banks in the entity you’re about to govern were aided and abetted, for reasons of profit, by banks outside the entity who should have been better regulated and supervised by European institutions which have been shown to be inadequate for this task.

Furthermore, the people believe, rightly, that the political leaders of the main European states that make up the European Union, particularly, the Eurozone,  are “punishing” peripheral entities like yours, that admittedly behaved irresponsibly, to protect their own irresponsible banks and the Euro.

In addition, your the people believe, rightly, that some of these European political leaders, for their own electoral benefit and survival, are whipping up xenophobic and protectionist sentiment against the peripheral entities to cover up their own political ineptitude and lack of courage over many years.

Your entity will have to negotiate very hard with these European political leaders, but more importantly, with their bankers, in order to get the European entity to face up to its own resonsibilities while not reneging on yours. This will require you to urgently appoint a very tough and appropriately qualified and experienced negotiation team. Preferably NOW.

2.) The entity you are about to lead used to be a very poor, agriculture-based ex-colony of a neighbouring bigger entity ( Britain) and the people became used to a choice of staying at home to farm or emigrating, sometimes to Britain but also much further away to places like the USA, Canada and Australia where they generally did very well economically and socially but seldom came back permanently.  (Some did come back “permanently” in recent years but are now re-emigrating in bitter disappointment. at policies pursued in your entity.)

This all changed over 40 years ago when a fairly good government adopted the suggestions of a (good) public servant called Whitaker (TK) and the entity developed an “industrial” policy.

In simple terms, this policy, (later developed into something of a strategy through semi-state entities like the IDA, Enterprise Ireland, Bord Bia and many others) succeeded in leveraging your entity’s membership of the European Union, and later its Euro currency, to attract mainly US MNCs ( initially computers and electronics and later pharmaceuticals, chemicals, internet technologies and services and financial services) wishing to export to those markets.

This policy was so successful that it transformed the entity’s economy away from dependence on agriculture, diversified the entity’s exports away from the former coloniser’s market to EZ markets and back to the US, created lots of high value employment both in the MNCs and to some extent in companies feeding into these MNCs.

It must be said that the policy was much less successful in lifting the exports of the indigenous sector, particularly the employment-critical food and drinks sector which, by and large has remained dependent on the ex-colony’s market,has not developed international brands and has been less successful in creating high value employment in your entity.

Your peoples’ educational standards and skills were improved enormously ( but not to “world standards) and the entity came to depend almost entirely for growth on these exports.

At the beginning, there were many perceived reasons for these MNCs to invest in the entity, including low costs but, over time, it became clear that the main reason for this investment was the low Corporate Taxation rate ( 0% initially, then 10% and now 12.5%).

The policy was so successful and the entity attracted so much FDI that some of the political leaders mentioned in 1.) above became annoyed about the jobs that could have been created and the taxes generated in their countries by your entity’s MNC exports to their markets.

This led recently to these political leaders raising serious questions about this CT rate, particularly because of their perception that they have loaned your entity a lot of  money so that your entity may one day become a “going concern” again.

While it is critical to negotiate hard to retain the low CT rate that attracts these MNCs, particularly since they account for 90% of the entity’s export-driven growth, there are now serious questions about how long these companies will continue to use the entity as a base for exports to the EZ markets which are now becoming relatively less important for the MNCs than the “emerging” BRIC markets.

You should note that, at the time of this briefing note,your entity exports virtually nothing to the fastest growing markets on this planet.

A further concern is the fact that employment in these MNCs appears to have peaked some time ago and that even continued success in this arena will not “mop up” the 450,000 people currently unemployed in your entity.

3.) You should note that the international reputation of your entity, which is so dependent for the growth necessary to paying its heavy debts on export markets, is at possibly an all-time low.

Over the years government departments and some of the many excellent semi-state organisations  in your entity have employed promotional slogans ranging from “The Young Europeans” to, “The Smart Economy” to “The Irish Mind” to “The Food Island” to “Where Innovation comes Naturally”.

It has not always been clear to those observing your entity from outside, frequently the target audiences, that these slogans have been reflections of real, substantive policies, much less fully-developed strategies.

You should know that all of these slogans, and more importantly, the lack in many instances of real strategies behind them, are now redundant. They will certainly make no meaningful contribution to alleviating the single biggest challenge facing your entity today, unemployment.

It is certain that, whatever its extent, emigration has and will become an everyday reality for the people of your entity and can be expected to  increase appreciably over the coming five to ten years.

You are faced with the choice of ignoring this reality or  ( by telling the truth) beginning a process of transforming your people’s often emotional perception of emigration into one that sees it as an opportunity to acquire skills, education, experience and revenue that will be needed in any event by your entity in the coming years as it competes in a truly globalised economy.

This is more easily understood and apprehended by the young, the better educated and those with networks already established in “export” markets. It is likely, however, that even the less young and less well-educated will need to tap, build and develop wider international networks to survive and thrive in the current and future contexts.

ACTION

1.) Your immediate priority is to recruit, brief, incentivise and clearly “mission” an experienced negotiation team to engage aggressively but in a spirit of clear recognition of your entity’s irresponsibility with both the “monkeys” ( European politicians and heads of institutions) and organ grinders ( European bankers) to renegotiate what is possible to ease the terms of the ECB/EU/IMF deal to which you are already commited

2.) Begin immediately the recruitment and “missioning” of a small Task Force, definitely incorporating experienced international strategists from outside your entity, to study the above agenda and recommend early, concrete, measureable and accountable mechanisms to SOLVE the issues it raises, most notably, the need for a new ” industrial” strategy and a  different attitude toward emigration.

Richard Fedigan was born in Dublin and has worked, mostly in the private sector, in the US, Ireland, West Africa and France where he’s been based for almost 30 years while remaining an Irish citizen.   He is former President & CEO of CIES-The World Food Business Forum www.ciesnet.com and was made a Chevalier of the French Republic in 2004.

83 replies on “Taoiseach from Mars, A Guest Post by Richard Fedigan”

Nice little take, but in my opinion it kind of misses the target in its analysis of answering: what happened and what is urgently needed now?

There is a need to reshape our ‘industrial’ strategy but it was not necessarily a failure in industrial policy which brought about our dramatic collapse. The issue was extremely poor economic governance. The policy itself, while in need of a shakeup, was not doomed to propel us rapidly to catastrophe.

Our exports wilted under competitiveness drift, yes, but are showing reasonable resilience now again. We still remain attractive for FDI. We still have a reasonably business-friendly environment and with quite a flexible labour market (as opposed to say continental europe). All of these areas need to be continually reviewed and improved. But they are not the critical issue.

The key issue is a desparate state of domestic demand and a credit supply which is practically frozen. The whole NAMA and banking scene has failed to do one of its main jobs: get credit flowing.

The other thing is demand. Sentiment is terrible and the drag of very high unemployment and falling disposable incomes is crippling. Our banking debt and chronic fiscal imbalance are extremely daunting. This is where the focus on renegotiation is important but still not a panacea.

The best possible outcome for re-negotiation would be a small knock down in interest rate and perhaps a go ahead to renegotiate with more bond holders. But even still, the bulk of our debt problem will remain.

I don’t think there is any grand plan which will significantly make matter better. Just a whole lot of little things that we need to start knitting together over the medium term, trying to claw back to stability and build a platform where businesses – not government as many of the parties in the campaign suggest – can create jobs.

I appreciate Richards Fedigans attempt to get to the meat of the issue but globalisation is a consequence of banks – the more globalised a country the more it is banked – its the same thing in reality.
At least a partial rejection of these entities which in reality control everything is now necessary as they are drunk with power , witness how we wait for the weekly ECB balance sheet as if it is a script transcribed directly from God himself – this is not a failure of the nation state , this is a failure withen the walls of the great central banks who are drunk with power.
Blaming Brian Cowen or Edna Kenny in the future for these great capital flows is absurd – the poor men are but country bumpkins.
If you accept that Lemass was a realist then he had no choice but to open up the country to these great capital flows which was a manifestation of great oil wealth converted into symbolic credit.
Even if the state was efficiency run back then it could not set our mediocre capital base against such raw power – we had to submit , this was in reality a great disaster for the idea of a independent republic but we had no choice – they held all the cards.
Now if you accept this premise and also accept that global oil production is reaching its peak then the core western states will need to recapitalise – this will deprive Ireland of this credit as in the past this was considered excess to the basic requirements of the great states.
The IDA model is dead – we just don’t know it yet
It is probably nearly impossible to re nationalise now given that multinationals who depend on the great central banks for credit hold all the human expertise that is left after this great inflation but we will have to turn inwards and build whatever we can with the bits we have left before we enter the next stage of this cataclysm.
This will either be a great inflation or a great deflation – depending on the power dynamics of the time – for instance if people accept the Euro as money above all else the Central Bank can create a deflationary catastrophe by not expanding its balance sheet further – destroying bank deposits not on its balance sheet – this could be done when all or most of its client bonds have been cleaned before rollover or it may decide to inflate via a freegold mechanism on its balance sheet.
The power of national executives is tiny relative to such raw diabolical power.
Our national policey should now be geared to how we feed ourselfs not how to develop some middleclass existence.

@Paul Hunt

Paul Quigley’s (posted) thread is fair comment.

All I’ll say at this point ( having run a “Davos” of the global food business for some years but without politicians or bureaucrats) is that the CEOs of the non-financial sectors are just as bewildered as the man/taxpayer in the street by the ‘arcanities’ (sic) of that branch of capitalism.

Most non-financial capitalists ( manufacturers, services companies, retailers etc.) are just looking for a stable economic and political environment in which they can sell their products and services to customer-citizens not panicked by political or economic upheaval so they can generate a return for their owners/shareholders.

“Capitalism”, like the term or not, is ultimately what generates all wealth, wages and the taxes that finance government, social services, pensions etc. I suppose you’ll say I would say that, but even Communist! China operates on this basis.

@Keith Cunneen

Ultimately you’re right in (pretty much) in all you say, particularly about the “tiny relativ” power of national executives. This includes nations that considered themselves to be “The Powers” in the past, Britain, France and even Germany.

Politicians can only read these powerful forces on behalf of those who elect them, in “our” system at least.

Pretending to be in charge of the forces, particularly through meaningless slogans, is folly.

That said, can’t we generate a cadre of political and economic “readers” that can empower us to feed ourselves…and a little bit more? Not to much to expect of ourselves!

@Tomaltach

We seem to agree that no grand plan, particularly a government plan, will make things significantly right now. That’s why I didn’t propose such a plan.

The suggestion that we need a new industrial strategy, for new circumstances, in no way implies that the old approach brought about the current difficulties.

Tough negotiating for a small repayment reduction will not “cure” our problems ( caused, we seem to accept now, mostly by our own lax bank regulation) but the negotiation still needs to be done and its main objective is to “Europeanise” the solution, based on the reality of past and present lax inadequate fiscal governance, wobbly banks and the real threat to the Euro those banks repesent.

The real possibility that we could be first to default gives us at least some cards to play with.

I’m not sure domestic demand will come back until there’s some form of European “fix”. Everyone’s nervous…. of spending. And here comes inflation!

@Richard Fennigan
Yes I wish we could empower ourselfs even in a limited fashion as the banks accepted after independence.
This is what I don’t really understand – republics in many respects were the product of Banks rebelling against the landed royalty , they seem to have rejected this inheritance and have become the new royalty.

Brussels will not allow us to engage in a new Industrial policey especially in a monetory union as this will transfer wealth from the core and they see this as perhaps inefficient and against the goals of this new Holy Roman Empire.
I find it quite funny that our own modest but successful achievements in the bogs department has been overtaken by a Finnish company – I don’t think we have anything to give anymore – we are a broken people.

We will always be poor aull wretches but we cannot even believe in something beyond ourselfs – we have lost our dignity.

Usually “negotiate” means offering something in return for something you desire. What exactly do you plan to offer?

I know that this is a bit off topic, but it is a point often overlooked by economic analysts, and therefore one worth mentioning.

Our institutions have failed. We need radical institutional reform in 5 areas: Legislative, local government, electoral, open government and public service reform.

ReformCard.com plan to rank political parties commitments, as expressed in their soon to be published manifestos, to reform in these five key areas using 25 indicators.

More information available here:http://www.facebook.com/pages/Political-Reform-Scorecard-Reformcardcom/130049577060172

in advance of website launch friday.

@Dominique
You are pushing it – do you want us to enter some railway carriage hidden in some dark French Forest ?

I think there are a few points on which Richard’s is misguided.

First, it’s not clear that we need a radically new industrial strategy. The one we had before the construction boom worked pretty well, and the simplest explanation for why it is not working now is that we have had a severe loss of price competitiveness relative to the latter half of the 1990s.

Second, while there is always a lot to be said for bringing in people from outside to shake up thinking that may have gone stale, there is actually a very strong industrial policy capability within the state sector already. Its ability to deliver has been largely neutralised by high costs and by the competition for entrepreneurial and professional talent that property development, construction and rent-seeking service industries have imposed over the last decade. There’s no harm in a new task force, and it may even do some good, but there’s no good reason to think that it will deliver something radically better than the folks doing industrial policy already.

One caveat to that. All the political parties seem impervious to recognising, or drawing rational policy conclusions from, our cost competitiveness problem. Presumably because rational policy conclusions would cost them votes. If an international taskforce could provide them with cover for policies to seriously lower costs in the economy, that would be very valuable.

Third, the direct challenge for FDI and exporting Irish firms is not 450,000 jobs. It’s a much more achievable figure somewhere in the region of 80,000 net new jobs. Before things started going haywire, each FDI/exporting job supported about 4 jobs elsewhere in the economy. When I work from that and take various things into account, including the generally accepted number for unemployment being about 300,000, I end up with a number in the region 80,000.

@BeeCeeTee
True State dependent commercial entities ability to raise money is tied to the states solvency – it cannot compete no matter how efficient with multinationals which feed off the commercial bank spigot backed by the big central banks.
The ESB / Bord Gas private venture / competion is beyond farcical.
What exactly are they ?
Are they state owned or are they quasi corporate possibly prototype national socialist entities.

These multinationals will always attract the best people as they can pay money created inside banks – remember European states are not allowed to create much credit – the ECB wants states to effectively tax the private credit creation to get revenue.

@Keith,
I would say that as enterprises (distinct from their role in providing essential infrstructure expensively) ESB and Bord Gais are only marginally relevant to industrial strategy. Numbers employed are not that big, and in the case of ESB should probably be a lot smaller.

They do some stuff that could potentially incubate new businesses capable of trading internationally, but don’t have a track record of success in the area.

@MD: I appreciate the time and effort in composing, and you bravery (or foolishness) in putting it on public display on this site. Here be Dragons!

I shall not comment on your Action Proposals, other than to ask you the following;-

1. Please state you economic Model-in-Use: Permagrowth, Flatline or Sustainable.

2. Make it abundantly clear that you know, understand and appreciate the consequences of – the FIRE (Finance, Insurance, Real Estate) Economy – as opposed to the parallel, and now subsidiary, PC (Production Consumption) Economy.

3. You absolutely agree that Debt = Money.

Now, for my nasty bit of bone picking (nothing personal you understand). Just to set the Record straight.

“…. very poor, agriculture-based ex-colony of a neighbouring bigger entity…”

Beg to differ Michael. Ireland was never a colony. Our own people ruled us, albeit not very well (so what’s new!). We elected our own MPs to Westminister. By 1890s the ‘land question’ (which was the main contention) was settled. We were only non-sovereign for 120 y of a much longer historical embrace with our island neighbour. I appreciate that this (colony thing) may be your Reference Frame (and it is held by many), but it is in-accurate.

If Ireland had had the resources to deploy the equivalent military and naval endowment as our nearest neighbour … … Hmmmm.

Again, I welcome and appreciate your commentary, though there is much I would dispute with you. Perhaps later.

BpW

@Richard,

No problem with your take on capitalism, but the relationship between capitalism and those who craft and enforce public policy and who regulate must be robustly adversarial. Bill Hogan, a US ‘guru’ on electricity sector reform summed it up nicely in a lecture to the Royal Society in 2000:

“Where you stand depends on where you sit. I sit in a chair at the Kennedy School of Government at Harvard. Many of you may be more familiar with Harvard’s Graduate Business School. As I tell our prospective students, there is at least one simple difference between these schools situated on opposite sides of the Charles River. At the Business School, my colleagues teach their students how to seek out or create advantage, and generally find protection from competition; all this in the interest of maximizing profits. At the Kennedy School, we teach our students how to structure the rules of the game so that these businesses succeed individually in the short run but fail collectively in the long run in avoiding competition; all in the interests of greater efficiency, where competition
eats away excess profits while leaving the improvements in products and services.”

@BeeCeeTee
I have no doubt that these ESB workers abused their postion – they were considered the shock troops of the Independent Ireland at the time.
But wages is still a small factor in capital intensive utilities.

I would like to see a unbiased economist giving the capital inputs in nominal and % terms since their inception
Also the wage / capital input ratio.

I believe the wages paid to the ESB workers is a canard , I am also not concerned with the numbers employed in these agencies – their function is not employment.
The slaves of Louisiana was the Brent crude of the time / the function of energy creation is to create core wealth.
Employment comes from the energy surplus created and this may create service or manufacturing jobs.
I believe we had a catastrophic energy policey since maybe 1987 when the state capitulated against monetarist policies.
Using natural gas for our base load electricity will destroy industry in this country – when Money point retires our base load electricity requirements will have its ass hanging out into the Gas market.
The fact that there is no nuclear or coal plant to replace it on the drawing boards is amazing.
100s of billions on friggin houses and no capital for capital intensive but low input high output power stations is a recipe for a slave society.

@Dominique Jean-Raymond

Negotiate? OK.

We will take Brittany, lovely Celts those Bretons. Wasted on the French.

And in return, we will also take Nicolas, and give him free rein on his own island in the outer Blaskets. We can also supply a white horse; and visiting rights to Christine and Angela on alternate weekends.

Sounds like a win, win, win, win, win to me.

@Brian Woods

Although I made clear in previous comments on other threads that I am neither an economist nor an economist, John McHale ( whom I don’t know by the way), in graciously inviting submission of a guest post, should perhaps have made this/these facts doubly clear in letting me loose on you.

Before posting, I had already made it clear that I have much to learn from you. And enjoy doing so.

So, Brian, I have no trouble admitting that, with the exception of knowing very well that debt = money, the other models-in-use, FIRE etc. are mysteries to me. More to learn!

As to bravery, foolishness and “Here be Dragons”, shure I don’t mind those imposters at all, at all.

@DJR
You have hit the nail on the head so to speak.
From another French man (well maybe Italian!):
“Men are Moved by two levers only: fear and self interest”
Realistically we have more leverage on fear than self-interest

@Richard Fedigan

“( caused, we seem to accept now, mostly by our own lax bank regulation)”

I like the way you slipped in that one as though it was self evident – hardly worth mentioning at all. If you believe that comment we desrve all we got and more.
Only problem is it is nonsense. This kind of faulty logic explains why some people (like Barrosso and Bini Smaghi) feel the burden of bank debt should be put on the Irish taxpayers shoulders rather than where it really belongs, and that I suggest is wholly on the shoulders those who broke and ignored the regulations- i.e the bankers. You can argue that they were not policed effectively enough to prevent the crisis, but blaming the regulators is like blaming the LAPD police for the Manson murders.

@ MF: Thanks for your reply.

If you have time (and stomach!) go over to http://www.itulip.com and trawl thru their archives for FIRE Economy.

Permagrowth: Annual, incremental increase in aggregate economic output – ad infinitum – well, until the fossil fuel production stalls, then its,

Flatline: Aggregate economic output oscillates up and down – no discernible trend, ‘cept in fossil fuel prices which go stratospheric, then its,

Sustainability: Annual, decremental decrease in aggregate economic output – ad infinitum – well until … … actually that’s it, more or less.

‘Good’ news is that liquid fossil fuel production is stalling*. Reprise of how we got to here: wood -> coal -> oil -> coal -> Sh1t Kreek! The Uranium/Thorium bulls won’t save us. We have an absolute economic need for a min level of liquid fuels. – road and sea trans.

Thanks again. See you around.

BpW

* Export-land Model of fossil fuel extraction, production and domestic use. http://www.theOilDrum.com.

@Dominique

Allow me to repeat the question posed in the european parliament.

On what moral basis are the debts of private european banks who gambled money on a property frenzy, to be foisted onto the backs of people who neither borrowed or loaned out the money in question.
Pour encourager les autres?
Particularly in France that reason must send a chill down the spine of people. It is time to limoge the european elite.

@ Richard and all

Interesting stuff. I agree about the need to Europeanise the solution to our economic woes and the need to build in more mobility into the national consciousness. Australia looks nice but it is very far away.

@ Brian Woods

‘Ireland was never a colony. Our own people ruled us, albeit not very well (so what’s new!). We elected our own MPs to Westminister. By 1890s the ‘land question’ (which was the main contention) was settled. We were only non-sovereign for 120 y of a much longer historical embrace with our island neighbour. I appreciate that this (colony thing) may be your Reference Frame (and it is held by many), but it is in-accurate’

Janey mac as we used to say long ago. Ireland was invaded by Norman barons long before the British state was centralised. Some of the barons settled here, but they remained feudal lords. If you call that ‘ruling ourselves’ you are right, but the folk memory says different. We had a ruling class, of which the remnants are still about.

The task of Catholic (native) Emancipation is only now coming to completion (in Ulster) after two centuries of struggle and emigration.
Part of that struggle involved the 19th c land question, but land as a factor of production had become less imporant economically after the Industrial Revolution.

Industrialisation never happened in Ireland, as a result of a number of factors, not least the land tenure system and the destruction of the Dublin crafts by the Act of Union. Having MPs at Westminister was a poor substitute for powers of taxation and public expenditure. We exported food and imported manufactured goods. Hamsters on the old terms of trade wheel.

See Trade Development and Foreign Debt Michael Hudson 1972 in 2 neat volumes. The world economy was, and is, structured for the benefit of creditors.

What someone from abroad might find a bit surprising is that nobody in Ireland has been held to account.

Nobody wants to pay for the failings, someone has to pay for them.

-The boards of the failed banks failed in their responsibilities towards their shareholders. They had internal auditors reporting to them & nothing could (in theory) be hidden from them. These people had more information than any external bondholder could possibly get hold of. What did they do with this? Still, they walked away & nothing more has happened. Or?

-The Irish bank-regulator failed in his responsibility. He had a team & had more access to the banks ledgers and processes than any potential bond-buyer. What was done with this? He walked away & nothing more happened. Or?

-External auditors. Did the accounts show ‘a true & fair view’ of the banks position? Did the auditors sign off on them?

Was responsibility just a word used to justify high wages? Had any of these people been paid on their responsibility I can’t see that they should have been paid at all.

Ireland want moral, justice & fairness? Apply it within Ireland. How come nobody is guilty of anything for Anglo or INBS? In the land where nobody is guilty, everybody are guilty.

Richard Fedigan’s piece was brilliantly written, highly-entertaining and very funny. Especially the way it refers to ‘country’ as ‘entity’, which no doubt is the term that the continental establishments use when they are having their nightly wet dreams about a future in which countries, nations, faith, and self-government have been abolished, and the many peoples of Europe are ruled by diktat from Brussels. It would have been ideal for the week between Christmas and New Year when people aren’t looking for anything too serious, or anything that has figures, but want something light-hearted to relax the brain instead. It would have been a surefire hit, if it had been acted as a pantomime sketch around then. However, being posted in early February, it has come a month too late. It has been overtaken by events. In particular, in the past week alone, the economic data shows: (a) manufacturing output in January growing at an 11-year high (latest PMI on Tuesday) (b) a record monthly fall in unemployment (CSO yesterday) (c) redundancies in January down by one-quarter on a year ago (Dept of Employment yesterday) (d) tax revenue in January ahead of target (that doom-mongers said was absurdly over-optimistic) and the budget deficit in January down by one-third on a year ago (Dept of Finance yesterday) (e) services output in January surging ahead (PMI this morning) (f) new car sales in January up 29% on a year ago (SIMI on Tuesday) (g) merchandise exports volume in October up almost 20 per cent on a year ago (CSO on Friday) (h) Irish household net financial wealth in Q3 2010 up 59% from Q1 2009 (CSO yesterday) (h) average house price up in Q2 2010 (Dept of Environment yesterday) (i) new house completions up in Q4 2010 (Dept of environment yesterday). It is a mark of Richard Fedigan’s well-deserved eminence and reputation that, in a week in which all these economic statistics were published, and on a site called Irisheconomy.ie, they had to give way (quite rightly in my view) to his little light-hearted comedy piece.

@ PQ: Thanks for reply.

Lots of things we could discuss there. As I mentioned to MF its your Ref Framing that decides how you deploy your ‘values’, which in turn drive your behaviour (what we say and do, etc). I’ll leave it at that. May I presume you are familiar (read + studied) Cormac O’Grada, Ireland: New Economic History and J.J Lee’s writings. If not, they are both very informative about our ‘economic’ non-development.

The Michael Hudson ref: have you any further detail? Thanks.

BpW

@all

EuroIntelligence this morning is, again, worth a read ….

‘Large parts of the German banking system are not merely undercapitalised. They are effectively un-capitalised. ‘ [imho Angela still in De-Nial …. And Joe an Joan Irish citizen-serf paying for it ……..

“Coercive Default in Ireland and Sinn Fein influence on FG/Labour”

Tom O’Connell on Crony Corporate Governance in Irish Financial System – and luddite boards – appointed by PD/FF

Portugal ‘surely insolvent’

Citizen Stiglitz on Austerity [responding to JTO (-;]
http://www.eurointelligence.com/article/article/germany-pushes-for-recognition-of-silent-capital-through-the-backdoor.html?tx_ttnews%5BbackPid%5D=901&cHash=d755cb7b739000e3dfb6dcca905a7462

[B. Cowan discovers a conscience and to launch the nuclear option on Default tmoro …!! I wish …]

‘Low point’ reached as agency rates us alongside Botswana.

Botswana is a truly beautiful, and reasonably run, African country. My apologies to the people of Botswana for being lumped in with the servile, supine, deferential Irish administration [present and near-future] that sells its citizens serfs into slavery for the Vichy-Banks.

http://www.independent.ie/business/irish/low-point-reached-as-agency-rates-us-alongside-botswana-2523127.html

@Richard Fedigan

Send next Taoiseach for Breakfast on Pluto – the beings on Mars have balls …….

Richard Fedigan raises some important issues. I agree that industrial strategy is a key issue.

In the period Q1 2004 to Q4 2007 (peak) more than half the job growth (absolute numbers) was accounted for by construction and the public sector (broadly defined). During that period employment in industry fell and the non-(internationally) traded sectors recorded substantial growth. In other words over that period growth was essentially domestically driven. We know what happened to construction employment (-58% since peak), we are having trouble affording the public sector and the non-(internationally) traded sectors depend hugely on domestic incomes and expectations. This leaves us more dependent on FDI than ever.

Having all your eggs in one basket is a risky strategy – remember we were putting our eggs largely into the non-traded economy basket during the boom and see where that got us! There is no evidence of employment growth in industry, indeed employment is still shrinking. In that context and given the high level of unemployment a discussion about ‘industrial’ policy and how we can create sustainable jobs is warranted.

Even if there were lots that we are doing right (and this is certainly open to debate) it is always worth having a look to see if we could do better. Competitiveness is part of it but there are also institutional and administrative issues.

@Edgar,

Many thanks. Hopefully this will get the thread back on track. You are right to highlight the institutional and administrative issues, because this is an area where the state plays a dominant role. Getting things right here can facilitate much progress, but there are limits to what the state might be able to achieve in terms of direct intervention in industrial policy. “Governments are poor at picking winners; but losers always pick governments.”

In this context, Dieter Helm, an economics prof at Oxford, has penned an interesting take on the boundaries of the state (which may be downloaded at this link):
http://www.dieterhelm.co.uk/node/940

The role of the state in terms of facilitating the enhancement and sustainability of physical and social infrastructure should be relevant in this thread.

@ BeeCeeTee

Our FDI mainly comes from the US; price competitiveness is not the main issue as our past success means that we are only now getting small projects.

In the pharma/medical devices, financial services and electronics sectors, we have got all the big players.

In the UK, even in the research area, Pfizer decided to shut a centre with 2,400 jobs and open one in Shanghai.

About 20 firms are responsible for 60% of merchandise exports.

Summary of key trends here:

http://www.finfacts.ie/irishfinancenews/article_1021514.shtml

As for the 1:4 FDI/indirect jobs ratio, that does not seem credible.

@EM: “Competitiveness is part of it …”

Comp. is indeed relevant, but this means we significantly reduce the following costs:

1. Energy

2. Services: insurance, fees, charges. etc., etc.

3. ALL salaries and wages.

and:

4. Scrap our Health and Safety regs.

5. Allow indiscriminate disposal of effleuents etc.

6. Subsize fuels – Hmmmm! Here be problem.

So where do we start? Ah yes, with Welfare Transfers. Great!

@PH: “…the state plays a dominant role.”

Yep. That is indeed our predicament.

Q: So how to change.

A: No more tax subsidies, breaks or incentives to anyone, private or commercial! Now the taxpayer (aka: the State) is effectively out of picture. QED! I wish!

BpW

@Edgar

We could start with Software Professionals – capacity to educate in 3rd level exists – but students fail to take up the opportunites – 2000+ highskilled jobs have to be filled annually through inward immigration …….. Ireland has great small software firms ………

@Michael Hennigan

A bit personal – but did you ‘run’ as an independent or for FG or PD or FF?

It is fantasy to believe that there is an industrial strategy that will result in an increase in industrial employment, any more than there is an agricultural strategy that will result in an increase in agricultural employment. . Technology has made it a pipedream. In my business, a computer can generate a map in 5 minutes, that in the 1970s would have taken dozens of cartographers weeks to do. All this is a good thing, not a bad thing. It is the reason why living standards have soared at an unprecedented rate for the mass of the people in the past 100 years.

The fact that industrial employment does not increase does not mean that there is anything wrong with the industrial strategy. The purpose of industry is to create wealth (as measured by output), not jobs. The jobs are created when the wealth earned by those engaged in industry gets spent, whether in the form of investment by companies, or consumer spending by the employees of those companies.

There is nothing unique to Ireland about all this. Industrial employment has been falling across the developed world since the 1970s. This is a graph that show it for the U. States:

http://www.epi.org/publications/entry/bp171/

As can be seen, industrial employment fell from nearly 20 million in the 1970s to 14 million in 2006. It is down to almost 10 million now. Yet, during that time, the net increase in employment was far greater than anything in recorded history. Likewise for all developed countries. In the U. Kingdom, manufacturing employment has fallen from over 8 million in the early 1970s to 2.5 million today, yet the total number in employment across the whole economy is far higher.

Ireland’s industrial strategy since the 1980s has been hugely successful. Its main fetaures are:

(a) An increase in manufacturing output unparallelled in the developed world. Manufacturing output in 2010 was almost ten times what it was in 1980 (link below). No other developed country comes remotely close.

http://www.cso.ie/px/pxeirestat/Dialog/Saveshow.asp

(b) Stable industrial employment. The number employed in manufacturing in Ireland now is approximately the same as in 1980, some years up a bit, but other years down a bit, but broadly flat. This compares with the dramatic falls I mentioned above for other developed countries.

(c) A huge increase in employment elsewhere in the economy as the wealth earned by those engaged in industry got spent.

Looking at the current situation in Ireland, after a fall during the recession that was much less than in other countries, industrial output and exports are soaring again. The annual increase in industrial output in November was 15%. The annual increase in merchandise exports in November was almost 20%. The January PMI showed manufacturing output rising at an 11-year-high. The fact that the Central Bank and ESRI forecasters failed completely to predict this industrial and export growth in 2010 doesn’t make it less real. For the reasons indicated above, there is no reason to expect or to worry about the fact that this will lead to few jobs in industry itself. But, following the pattern of previous years, there is every reason to exect that it will lead to increased employment elsewhere in the economy as the wealth earned by those engaged in industry gets spent.

@DO’D: “… … but students fail … …”

Capacity to educate: Yes. But any guesses as to the rates of non-completion for 3rd level, science and computer science courses? You might not be best pleased!

2000 employment positions p/a is impressive. Do we have an equivalent of myHome or Daft for ‘Positions Available’? EThat is, electronically match potential employer with potential employee: Recruitment costs are not negligible (reduction needed). The number of positions being currently advertised seem a tad sparse.

There is also the niggly little problem of geographical distance between where employee resides and employment is. Commuting costs are escalating fast.

BpW

@JohnTheOptimist

I’m very pleased you found the post entertaining. One tries!

In comments on previous threads I have invariably put inverted commas in my references to “industrial” policy in an attempt to make clear that I am referring not only to manufacturing and that I consider the term an anachronism.

And you’re quite right that “industrial” policy may indeed be considered a great success if it creates wealth but not jobs.

The point, surely, is that the amount of wealth created/earned per MNC worker by continued successful competition for FDI ( IF it doesn’t choose to be increasingly “mobile” in the direction of the fastest growing “emerging” markets) would have to increase exponentially to compensate for the fallen demand/spending in the Irish domestic market.

Which is why, I suggest, it is far from untimely to be working on a new “industrial” strategy incorporating a new approach towards the emigration being caused by the diminishing ( proportionately) number of jobs ( not) being created by the FDI on which our growth is so dependent!

I wonder how many of the political parties would risk communicating your essentially correct assertion ( “our policy is to create wealth, not jobs”) as their political credo right now?

@JTO – first of all note that I wrote ‘industrial policy’. I suppose I could also have called it enterprise policy, but that also does not quite hit the mark.

As a small country we will always find it diffult to get scale economies. In that context we are better off developing in a range of niches rather than to specialise in just one sector. We should also build on current strenghts – traded services seem to be one, as are traded activities at the interface between manufacturing and services. As I see it there is too much emphacis on S&T and not enough on the services.

A lot of our FDI is in manufacturing, and while you correctly highlight that manufacturing exports are growing, employment is not, and indeed my worry is about the internationally traded side of the economy not just manufacturing (I thought that was clear but perhaps it was not). You are right there is nothing unique about industrial employment falling, but actually Ireland was unique in that it experienced manufacturing employment growth when other countries were not and that was directly related to our industrial strategy.

The problem is that this old strategy is not enough. Yes it is part of what we need to do but we need to augment it. Pretending that everything is OK is hardly a credible strategy.

There are over 440,000 people on the live register (350,000 unemployed according to Q3 QNHS). I suspect they care little about exports growing if it does not result in jobs growth for them.

@Brian Woods – Germany seems to have improved its competitiveness, but you could hardly argue that they dismantled their welfare state to do so. Nor have they dropped standards.

@Paul Hunt – you are right, the state is important but that only goes so far. Picking winners is not what I have in mind. There are however lots of things the state can do that would help improve the ‘business environment’ – cutting red tape, legislation that helps reduce costs (e.g. existing leases) etc. There are also public good type activities that are important especially in a depressed economy.

@EM: Thanks for comment.

I accept we have a deep-seated predicament wrt replacing employment. I just wonder about using tried-and-true policies which have either failed or are failing. With Kapital (sic) as mobile as an electron – what implications are there for ur Trade/ Employment policies if production can be off-shored for a price that is simply so low that we cannot compete?

We may only be left with the non-mobile elements of indigenous Labour to play-around with.

BpW

@ Brian Woods

Thanks.
The ref is Trade Development and Foreign Debt Michael Hudson Pluto Press 1992. His website is also interesting.

Joe Lee has certainly asked all the right questions down the years. I’m sure you will agree that he didn’t get many answers.

@ Jesper has asked a few questions of his own above. Accountability starts at the top, but the old saying about low standards in high places applies. ‘Keep the heads down now lads/chaps, and wait till the row blows over. The its back to (insider) busines as usual’

I will bet that the ‘cute’ approach to economic development has passed its sell by date. As Reinhardt and Rogoff might say, This Time is Different. lhe Irish public is better educated and less credulous, largely because our Leaders have replaced all older ideologies with business/consumer ideology. The only trouble with that is people have to have some prospect of rising consumption.

Paradise is nowhere in sight. Our leaders and leading social groups are going through the motions of reform, but there’s not much appetite for hard questions yet. Luckily we have the irisheconomy.ie

@Brian Woods – your are right with respect ot basic production (e.g. sewing T-shirts). However, it is not all negative. We are part of a larger market, we are good at some things and we have a head start in a few. The issue is how best to make use of this. Production (of goods and services) that is dependent on human capital is easier to tie to Ireland, but that of course supposes that we have the appropriate ‘environment’ (in the broadest sense).

Spent some time trying to find out what has happened in the aftermath to the failed Swedish bank. It was put into involuntary liquidation in August 2010, no charges have been filed for prosecution yet.

The latest I could find (in English):
http://www.thelocal.se/29304/20100928/

If I was a betting man & could bet on which investigation would be sooner finished:
Sweden’s HQ Bank or Ireland’s Anglo Irish Bank I think my bet would be for the bank in Sweden. Probably just because I’m Swedish 😉

I’m not in Ireland so I might not be aware of the latest developments. It seems like:
– the election is about re-negotiating a deal but no concessions are to be made by Ireland? One thing Ireland could offer would be lowering corporation tax but that is worth more than any possible concession from the EU?
– I’m not aware if anyone is trying to the elected saying: ‘Never again & I’ll make sure it doesn’t happen again’. So ‘light touch’ regulation & paying for the consequences (or rather having others paying for it) is what Ireland wants?

Is it true that Ireland is still trying to sell itself as a good place for financial firms using the ‘light touch regulation’ as a selling argument?
Not quite sure if I’d like to invest money in a bank with operations in Ireland. Shareholders of Hypo Real Estate bank & a few shareholders of the British banks operating in Ireland might have something to say about the wisdom of operating in Ireland….

Funny how this seems to be coming back to where I joined some of you guys before Christmas just after Dominique Jean-Raymond raised the issue of what’s been called “fiscal dumping” by diminutive leader(s) here in France!

(PLEASE no diversions into discussions/polémiques about my place of residence, its policies or its leader(s)!):

Could it be that we’re getting closer to hardball negotiations about threats that we (Ireland) pose to “Europe” through defaulting and maybe “Europeanised” solutions that would benefit Ireland but also give the politicians something “European” to deliver to their angry taxpayers in return for really cracking down on the mysterious people benefitting from “speculation” and “tax havens”.

That’s the kind of message “European” citizen-voter-taxpayers like to hear

@Richard Fedigan

Could it be that we’re getting closer to hardball negotiations about threats that we (Ireland) pose to “Europe” through defaulting and maybe “Europeanised” solutions that would benefit Ireland but also give the politicians something “European” to deliver to their angry taxpayers in return for really cracking down on the mysterious people benefitting from “speculation” and “tax havens”.

That’s the kind of message “European” citizen-voter-taxpayers like to hear

JTO again:

There is no possibility whatsoever of such blackmail being acceded to by an FF government. It is possible that a government that includes the Labour Party might do so, given that the Labour Party is led by Marxist ex-Stickies, who have long been in favour of high taxation on business. If so, the U. Kingdom government should push ahead as rapidly as possible with its plan to lower the CT rate in N. Ireland to 12.5%. I’m sure that the Conservative party over there doesn’t give a monkey’s for “European” citizen-voter-taxpayers. The main thing holding it up at present is loyalist dislike of anything that smacks of cross-border harmonisation. But, if Ireland was forced to change its CT rate on demand from Messrs Merkel and Sarkozy, that would no longer apply, and they’d jump at the chance to have a competitive advanatge within the island of Ireland.

@Richard,

It hasn’t taken you long to establish that the exchanges do go round in circles here and that it is almost impossible to shift the narrative to contemplate the things that Ireland can do to improve the current situation.

Many thanks for highlighting the need to engage at the EU level in terms of what’s possible. The reality is that most of the banks’ liabilities that could have been ‘haircut’ have been socialised in the Irish Central Bank, the ECB and in the ongoing sovereign commitment to recap the banks. There probably isn’t much left that could be ‘haircut’. That bird has flown.

Even though the burden continues to be borne disproportionately by Irish citizens, with every day that passes it is a burden that will have to be borne by all EU citizens. Politicians rarely, if ever, think strategically; tactics are all. So any ‘quid pro quo’ that might emerge will have to be conceived in purely tactical terms. This is a pity because some fundamental governance and strategic issues should be addressed as serious failures in these areas were the primary cause of this mess.

It would be wonderful if Ireland were to take steps to curtail the executive dominance of government as an elected dictatorship in parliament and to pursue badly needed structural reforms in the public and private non-tradable sectors. But, even though these are major contributors to the current mess – and reform would demonstrate a serious intent to mend our ways to our EU partners, why would we do that when we can blame some external players?

So it will have to be tactical and to shift the terms of the debate we could point out the difficulty – damn near impossibility – of taxing mobile corporates and that shifting taxation from labour and capital to pollution, atmospheric emissions and rents that endure would be a much better deal for the EU in terms of economic activity and the climate change agenda.

It’s far from sufficient, but it would be a start.

@Jesper

I was at a consultant breakfast a few weeks ago in Switzerland where the opening slide was something the Irish Financial Regulator had to say about light touch regulation in 2005 and everyone had a great laugh about it.

@Paul Hunt

My piece contained only two “ACTION” points, the ( urgent) first, the negotiation had/has to be done anyway.

The real situation is (quietly) known to virtually all of the key players anyway. And “Europeanisation” of the real ( banking and Euro threat) is also a quiet process already happening ( starting, only, with new stress tests).

In Ireland, we need to anticipate what will be said about us ( to European voter-taxpayers, who believe they’re paying for us to fiscally dump on them!) after the negotiation BEFORE the negotiation!

There is concern in the US that more companies will emulate Silicon Valley company Applied Materials which moved much of its production to China and then its main R&D function.

Pay in manufacturing jobs tends to be higher than many service areas; labour unions maybe a factor but someone doing what may be unproductive work for high pay on Wall Street, may not see merit in that.

Services also depend on manufacturing.

Intel co-founder Andy Grove says US companies moving manufacturing overseas breaks the innovation and job-creating chain, what he calls “scaling up” where companies “work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.”

While Ireland’s light engineering sector is expiring, for Germany’s Mittelstand companies: “Globalisation has been a godsend to these companies: they have spent the past 30 years of liberalisation working quietly but relentlessly to turn their domination of German market niches into domination of global ones,” according to the Economist.

@ David O’Donnell

I stood as an independent on the NUI panel for the Seanad in 1987; got 827 votes and I then moved to a country where the Holy Quran is their constitution!

A comment in the FT about Egypt reminded me of another country deposing a useless party and leader as a result of the financial crisis:

http://www.ft.com/cms/s/0/71dd971e-2f08-11e0-88ec-00144feabdc0.html#ixzz1CuSlVjhD

“Mubarak started a limited economic reform programme in 2004. It has made progress at the macro-level but prospects are constrained by the distortions of crony capitalism – a narrow tax base, budget-busting subsidies, epidemic corruption and political networks for access to banking and credit”

@ EM: Yep. I had in mind the massive increase in L in east Asia, that is L that was sterilized from ‘global’ markets for decades. Now its free to interact – but L mobility is low. The K/L endownment ratio in east Asia is changing, large increase in K, not so much in L (varies a lot between countries). Here in Ireland our K/L is also in flux: K is decreasing (a lot), whilst L* is increasing.

Factor prices are also changing – and I would have considerable concerns about both w and r. Those current oil prices are very nasty => sharp increases in essential commodities and threats of Base-rate interest increases. Interesting times.

Presumably this means (if our Intnl. Trade models are to be invoked) that we need to shift our employment emphasis here in Irl. Do those-who-are-about-to-lead-us have any real understanding of our economic predicament? I’ll assume they do, unless they behave otherwise. So far its not looking too promising.

If 1,000 Min Wage (L intensive) jobs could be put on-stream in the next 6 months (I know!!) – what might be the uptake if recruitment and commuting costs were negligible? I think we might need some changes in Soc welfare codes and regs.

BpW

*Resident, nett supply.

@BpW – things change a little if you have two types of L (indeed you could try two types of K too, but then the algebra gets a bit more tricky!). My worry is that we could get overtaken on that too and then we are stuffed. However, that is a problem throughout the Western world.

@Paul Hunt
Is the currency created in the Irish central bank a Liability for it or anybody ?.
I am no expert on monetory mechanics but if a multinational withdraws lets say 1 Billion and the central bank creates this currency with no asset behind it – is this not a great thing for the Irish state – we are creating money without the burden of interest.
It only becomes a liability for the ECB when it becomes cash yes.

Long may it continue but it does go against the Free gold mentality of the ECB yes.

@Keith,

Those far more knowledgeable than I am have debated this question on this board, but can’t find the relevant link readily. I’m not sure if a landing were reached. I agree that the German dread of any hint of QE will force a rationalisation of the ECB’s bloated balance sheet eventually.

@Michael Hennigan

You did well. Methinks I was not too far away from you around that time …. little matter of paying off banks. These days I simply advocate DEFAULT, especially when the vichy-debts are not mine … backed up by leading international economists such as Roubeni, Rogoff, Stiglitz, Gross, Krugman et al and leading international economic commenters such as Lewis, Hennigan, et al (-;

Ahlan wa Sahlan!

@Paul Hunt
Well the honest thing to do is to increase the ECBs balance sheet dramatically via incorporation of the entire M1 money supply at the very least with the disposal of bank bonds to at least partially reward prudent savers but if the ECB wants to play games I don’t see why we cannot – although they probably gave the nod given the distortions caused by the non default on bank bonds in this state.
The ECB may want to increase their balance sheet but German poltical considerations may be forcing a delay.
Who really knows what really goes on in Frankfurt

@Keith

On “monetary mechanics”, y’see, as a former CEO I have friends who understand that and I could ask them. But I don’t understand it, the “Taoiseach from Mars” won’t understand it and I suspect that Messrs. Kenny and/or Gilmore don’t understand it either.

Apart from amusing JTO, a worthwhile achievement in itself, my little piece was an attempt to explore a medium term strategy and a short term tactic, both of them actionable today.

Better suggestions?

I’ll be incommunicado for a few days ( rumours flying here about some sort of match in Rome!) so I may be able to get some European viewpoints from Italy.

It’s so lonely ’round the fields of Ath….. or something like that! Bon Courage.

@Richard
I am open to correction – but the more withdrawals from lets say multinationals and the like the better it is for the Irish State , if if the ICB is allowed to continue with this back filling operation.
You see we cannot service these liabilties – if we produce just plain money and not debt money it will release this burden.

On Your more specific point – I hope that someone in the Irish central bank could explain this to these guys .
Then again I could be completly wrong – maybe a professional in this sphere can enlighten us.

@Richard

Better suggestions ?

Well I would argue that the EU is too anti – statist , it goes against 200 years of history in Europe – you just can’t break that down and expect Nirvana – their agenda in to centralise power in the core and to hell with cultural and economic differences.
Brussels in particular needs to stop interfering in basic state utilities that were built up over generations – to my mind these are the trees of a financial and economic forest – the smaller private companies are the little furry animals – if you cut down the trees you are left with a very sparse degraded ecosystem – some will survive but the biomass of the economic jungle will be few and far between.
The old tradition in America is to have low profit / low risk operations which is also fine but I feel it is best to not go against tradition in Europe which is tied to the notion of the nation state.

In a Irish context a medium term strategy would be to transfer the deposits of a bank – lets say AIB to a state industrial bank.
The bond holders can have the loan book.
Its assets are its remaining infrastructure in ESB and other state bodies and its liabilties are Irish peoples deposits.
It could easily service the interest on these deposits and also finance new developments
They will have to be a European wide agreement that state companies with assets outside their jurisdiction will have to surrender their assets with perhaps a European cash compensation for any anomalies.

This divorce of money from capital creation has to be stopped now.

Numerous projects with a low but steady return – unattractive to speculative capital flows could be started pretty quickly.

I am thinking of a couple of sugar beet factories and a couple of small turf power stations on the west coast as well has a Luas project for Cork city.

When he gets truely up to speed it can finance a nuclear station to replace Money point
This can be done.
We can both increase the money supply and increase the capital base – lets do it.

Another difference between Ireland & Sweden would be that in Sweden the board of directors is blaming the auditor while the auditor is blaming the board of directors. Presumably with some information or possibly even evidence. As both are blaming each other I’d assume that the investigating police has it easier than in Ireland where nobody blames anyone & all are keeping quiet. Kind of reminds me of hardened criminals well versed in the prisoners dilemma thus knowing that by keeping quiet all will get away.

What is the Irish equivalent of the word ‘omerta’? What kind of whistleblower protection is there in Ireland?

@ Joseph Ryan

To quote Richard Fedigan:
“Your entity will have to negotiate very hard with these European political leaders, but more importantly, with their bankers, in order to get the European entity to face up to its own responsibilities while not reneging on yours. This will require you to urgently appoint a very tough and appropriately qualified and experienced negotiation team. Preferably NOW.”
My question was not intended to be facetious. I was merely inquiring about what kind of bargaining position he thinks Ireland is in.
You tell me that the present predicament of the Irish people is totally unfair. I agree with you (at the same time I still cannot comprehend how a government could be stupid or corrupt enough to guarantee without limits the liabilities of its banks).
The fact of having been victimized is not in any way a strong bargaining position particularly at a time when the European public opinion does not know the facts (and could not care less).Ireland is entering an electoral period during which every political party is going to promise a “renegotiation”. There won’t be any such thing because you have nobody to negotiate with.
I think the best chance of the Greek and the Irish is that at some point in time your creditors will realize that you simply cannot respect your engagements and that it is more practical for them to lower the interest rates or spread out the repayments rather than have you default. There is not very much you can do to hasten this day.

@Dominique Jean-Raymond

“… I still cannot comprehend how a government could be stupid or corrupt enough to guarantee without limits the liabilities of its banks.”

Neither can I Dominique. Nor can I understand why the FG/Labour political parties are also going along with this lunacy on bailing out the Vichy-Bank infestors – and the FF/GP/PD lot are still claiming it as an achievement.

As Foucault might put it, were he still alive, “That Place is an Asylum …. they must all be Mad.”

DEFAULT IS THE ONLY OPTION.

p.s. any openings for reasonably sane heterodox heretics in The Legion these days? … and I know at least four more sane heterodox heretics on the island … we could do a front-5 … touch … pause … engage

@David
The culture is not crazy – it is showing all the signs of chronic addiction to outside credit.
This problem has been with us since the 70s and agricultural transfers , also with multinationals and the like.
We made some half arsed attempts to create internal capital and then gave up as outside credit or direct transfers were too easy.
Think about it – our largest company is CRH which is dependent on EU road transfer payments.
The entire economy is a absurdity.

@Dominique

The old adage about loans should be borne in mind.

When YOU owe the bank €100, YOU have a problem.
When YOU owe the bank €100billion , THE BANK has a problem.

The Irish have not been victimised. We are merely victims of our own stupidity. A stupidity that was easily taken advantage of.

re Who to negotiate with.

I have some experience of trying to collect money and in that humble experience the debtor is very often in a more difficult position than the creditor, particularly if the creditor simply cannot pay.
Personally, I simply would not pay another cent to any of the bank bondholders. Come what may.

@ Michael H,

The 1:4 is simple enough so that you should be able to duplicate it yourself in a few minutes. Employment in internationally traded industry (as measured by employment at clients of the industrial development agencies) ran at about 19% of total employment until the construction and healthcare employment booms. That’s a ratio of about 1:4 traded to non-traded employment.

So much of what everyone in Ireland consumes is imported that pretty much all other employment must be supported by the people generating those overseas earnings that stick in Ireland (or by suckering in borrowings from overseas).

The construction boom/bust and inflated size of healthcare/education/public admin employment provide a reasonable explanation why the 19% does not hold right now, but might still be close enough to holding under equilibrium conditions.

Poor cost competitiveness provides a good explanation of why all inward investment projects are small right now.

@ Jesper

‘Kind of reminds me of hardened criminals well versed in the prisoners dilemma thus knowing that by keeping quiet all will get away’

You are on the right track. Keep chipping away at those layers of social and professional respectability.

@BeeCeeTee How exactly does education employment have an inflated size since the ration of educators to students is pretty much the highest in the developed world? Should we have less students?

@dd,
It’s inflated in the sense that we are spending an unsustainably high share of GNP on publicly funded services. Take your pick as to how to allocate the problem across employment in education, healthcare/social and public admin, or pay levels in all three.

@Edgar, of course it makes sense to try to improve on our industrial strategy.

My point it that this is not exactly virgin territory. We already have people working on improving our industrial strategy all the time, frequently bringing in outsiders in an effort to stmulate new and better thinking. What Mr. Fedigan is proposing is not a new approach to developing our industrial strategy. It is business as usual.

It would be absolutely wonderful if another iteration of the process was to come up with something big that had been missed previously, but it’s foolhardy to shy away from tackling the glaring cost competitiveness problem on the basis of a low probability assumption that another round of strategising will produce an easy way out.

This isn’t an abstract issue. The Labour Party’s manifesto is built around the same logic as Mr. Fedigan has put forward, but dressed up in some extra institutional change.

@BeeCeeTee – my interpretation of Richard’s post is that he believes that what we have been doing on industrial strategy is not up to much – we are behind the curve rather than ahead.

Of course we are wasting our time if we can’t tackle competitiveness issues. However, we should not separate competitiveness from industrial strategy – they are intrinsically linked. Indeed some of the past successes of industrial strategy was to have a more joined up approach e.g. to deal with skilled labour supply while attracting FDI. At some point we stopped doing that and instead of training electronic engineers we trained civil engineers……

@ BeeCeeTee

I misread your metric; I was thinking of the IDA ratio of 1 new FDI job results in 0.7 additional indirect jobs (this of course ignores other job losses).

The biggest problem about enterprise policy is that there is no credible apparaisal of the challenges.

So we get the Labour Party going along with FF’s hyping up the potential of the BRICs when experienced people in exporting would say to concentrate on the markets nearer home.

Then we have the bizarre ‘smart economy’ strategy where the facts of failure are ignored and even techie journalists are afflicted with Stockholm Syndrome.

Hardly a week goes by without some group dangling the prospect of a big jobs target, only if the State provides the funds.

On Thursday, a press release from Bord Gáis began:

“At a meeting today of Irish and international Ocean Energy experts, John Mullins, CEO of Bord Gáis spoke of his concern that not enough investment and planning is being put into developing Ireland’s ocean energy resources, an industry which could create up to 70,000 jobs and create a cumulative benefit of €120 billion to the economy.

Mr Mullins said that as Ireland searches for a more sustainable economic model, we must look at our natural resources, including the potential of wave and tidal energy. He welcomed the publication last November of the draft Offshore Renewable Energy Development Plan but said it needs to spell out clearly what Ireland is going to do and how, to develop offshore renewable energy with specific time-bound actions.”

Where the 70,000 jobs target came from, isn’t clear.

@Michael Hennigan:

“ABOUT twenty years ago Ireland instead of being burthened with a national debt, had at the end of every sessions of parliament from fifty to sixty thousand pounds, surplus revenue in the Exchequer, at the disposition of parliament: this money was voted for public works. The members of the the house of commons, at the conclusion of the sessions, met for the purpose of voting the uses to which this money should be applied; the greater part of it was among themselves, their friends, or dependants; and though some work, of apparent use to the public at large, was always the plea, yet under that sanction, there were a great number of very scandalous private jobs,which by degrees brought such a discredit on this mode of applying public money,that the conclusion of it, from the increase of the real expences of the public, was not much regretted. It must, however, be acknowledged, that during this period, there were some excellent works ot acknowledged utility executed, such as harbours, piers, churches, schools, bridges, &c. built and executed by some gentlemen, if not with economy, at ieast without any dishonourable misapplication; and as the whole was spent within the kingdom, it certainly was far from being any great national evil.”

“[…] how melancholy a consideration is it, that in a kingdom which from various causes had been so fortunate as to see a great portion of public treasure annually voted for public purposes, so abominably misapplied, and pocketed by individuals, as to bring a ridicule and reproach upon the very idea of such grants. There is such a want of public spirit, of candour and of care for the interests of posterity in such a conduct, that it cannot be branded with an expression too harsh, or a condemnation too pointed: nor less deserving of severity is it, if flowing from political and secret motives of burthening the public revenues to make private factions the more important.”

Arthur Young *A Tour in Ireland: with general observations on the present state of that Kingdom. Made in the years 1776, 1777 and 1778 and brought down to the end of 1779*. Printed by George Bonham, for Messrs Whitestone, Sleater, Sheppard, Williams, Burnet, Wilson, Jenkin, Wogan, Vallance, White, Beatty, Byrn And Burton. Dublin, 1780

bjg

@Paul Quigley,

when needed,I don’t mind chipping away at the layers of social and professional respectability, in fact I like it. However, it would be good if Irish citizens (more than at present) were doing the same.

Election coming up. Politics is the art of the possibilities. From what I gather there seems to be a lot of focus on the impossible. Default is not a threat, negotiating without concessions from both negotiating parties is impossible. Ireland isn’t willing to concede anything -> no negotiation is possible. I believe there might be more reasons making negotiations impossible.

I do believe it is possible to improve governance in Ireland, however, from where I am now I can’t see that anyone is campaigning on that theme. Maybe things will be different after the election. I don’t know. Ireland has got and will get the leaders it deserves.

People follow their leaders. Irish leadership sees no waste in having unvouched for expenses & being better paid than their european counterparts. The result? People will follow their leadership i.e. they won’t be looking after the cents & will expect better wages than their european counterparts. What is the saying about looking after pennies & the pounds will?

As for accountability: I believe it to be impossible to expect politicians & people skilled enough in office-politics to be promoted to the top to behave responsibly without ensuring they know they’ll be held to account. If nobody is ever held to account, then I’m not surprised if people in positions of responsibility are behaving irresponsibly.

@Jesper,

Re accountability, one thing you might need to bear in mind is that, in relation to business or anywhere in the public sphere, Irish people have a capacity to suspend judgement indefinitely. (Some people took offence at the last quarter of Michael Lewis’s Vanity Fair article that went out about fairies and rural unsophisticates, but he was conveying more than background colour).

The only judgements that are accepted are an election result (when there are no grounds for a re-count) and a court judgement (when no leave for appeal is allowed). Even parliamentary cttees cannot make a ‘finding of fact’.

So, outside of elections and court jusgements, how do you think accountability can be enforced on holders of public office (both appointed and elected)? It goes totally against the Irish mindset. And as for a genuinely open and adversarial disputation of policy proposals where the decision is made on the basis of the evidence presented, for and against, you can forget it. This would be totally unseemly and inappropriate, almost rude.

@BJG,

This FG offering deserves its own thread. Is it safe to treat it as an election stunt to outflank the ‘default now’ brigade that will never be used in anger? We’re unlikely to have a properly functioning government by the time the European Council decides on EFSF & fiscal governance on 24/25 March.

Was about to make a comment about this & if it might damage Irelands reputation :

http://www.independent.ie/national-news/courts/developers-son-offers-to-pay-off-euro100-a-month-on-euro17m-debt-2523006.html

Will leave that for later 🙂

@Paul Hunt,

easy question to answer. It can’t. Elections & court judgments are the mechanisms in which accountability is enforced in democracies where rule of law is upheld. The court will make judgments in accordance with law (in the above case I’m surprised by the ruling/law). Maybe some laws could be improved & maybe the elected legislators can do so.

Irish press might shine a light on some behaviours & some people can be shamed into behaving more appropriately. An engaged citizen will make his/her decisions based on actions & behaviour of politicians. A citizen who sells his vote for bread & the spectacle of a circus will get what he/she deserves. The bread will run out & the circus will stop when all the money has been wasted.

An individual TD might not be able control the whole of the Irish government or budget, however, each individual TD gets a budget/allowance/renumeration which he/she solely controls. If the TD can’t manage to be prudent with even this tiny portion of the publics money, how can that TD be trusted to manage the rest prudently? & a TD who says he/she is to busy to do that should at least know enough about delegation to delegate and monitor such an easy task. If not, then I wouldn’t put my vote on that TD.

I can understand the feeling that it might be unseemly or even rude to hold people to account. The alternative is to suffer the consequences.

@Paul Hunt:
“This FG offering deserves its own thread.”

Agreed. And perhaps a separate thread for today’s proposals from Lab and SF?

“We’re unlikely to have a properly functioning government by ….”

So what would be new?

bjg

@BeeCeeTee
@Edgar Morgenroth

“My interpretation of Richard’s post is that what we have been doing……..not up to much…. he believes that we are behind the curve rather than ahead.”

Edgar has summarised my starting point, a starting point that is not intended to denigrate in any way the past and continuing sterling work of the IDA and others in attracting high value employment-generating investment.

I contend, simply that a “Europeanisation” of the current, essentially banking crisis presents Ireland with both strategic and tactical threats and opportunities.

The strategic threat is that the “Europeanisation” of this crisis, evident in last Friday’s “pact for competitiveness” proposals from Merkel and Sarkozy will call into question the low CT rate that is the lynch-pin of our existing “industrial” strategy which, some of you will remember, is where I joined this discussion before Christmas.

This “Europeanisation” also presents Ireland with a tactical opportunity to negotiate somewhat kinder terms within the existing EU/ECB/IMF agreement we have signed up to, in exchange for not defaulting and “contagioning” the banks of Germany, the real “motor”/paymaster of “Europe”.

The Germans, who only really gave up their Dmark and went along with the “European” thingy ( particularly the Euro) in return for unification, are/have now moved to repair the fundamental flaw exposed by the financial/banking crisis i.e. monetary union without economic convergence or political union. ( France is supporting this because it is the only way it can sustain at least part of its pretence that France is an integral part of the European economic “motor”.)

The critical issue with this turning point ( the “summit” is scheduled for March) is that the new structure will be orchestrated by governments, NOT the “European” thingy’s executive, the Commission.

Germany will lay down the criteria on which “competitiveness” will be judged and these will include taxation and”fiscal dumping” ( Ireland, Estonia, Slovakia won’t like it) and wage policy, (France & Belgium will kick & scream).

It is in this context that the “Taoiseach from Mars” should appoint his tough negotiation team ( my first “ACTION” point).

Our existing “industrial” policy can only continue following successful negotiation enabling us to preserve our low CT rate, for now, but this doesn’t change the fact that continued success in attracting mainly US FDI will not mop our unemployed regardless of the ratio of MNC worker to “feed-in” worker. Neither will it quickly replace the demand missing from the “domestic” economy.

This is why we need a creative Task Force (“ACTION” point 2.) to work on a “New” “Industrial policy.

AND this new policy will need to take account of the fact that BOTH well-educated people ANd less skilled people will need working exposure to non-Irish employment as part of their life skills portfolio.

“Emigration”, or leaving Ireland to acquire/enhance skills, experience and revenue must be an integral part of this strategy, NOT a scourge to be incessantly moaned about.

Not only Ireland needs to embrace this last FACT!

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