Use of the phrase ‘productive investment’, without chapter and verse, and within the hearing of job-desperate politicians, is dangerous.
No matter how bad the economic outlook, foolish policy measures can always make it worse. The spectre of politicians seeking to create 100,000 jobs through extra public spending is every economist’s nightmare. The government has announced a New Era programme, funded through privatisation proceeds or otherwise, intended to create 50,000 jobs in the state sector and another 50,000 elsewhere. The state’s 50,000 are apparently to come mainly in the water, telecoms and energy industries, the remaining 50,000 through some mystical process yet to be disclosed.
With the unemployment rate in the mid-teens there is inevitable pressure on government to do something, or at least to appear to be doing something, and it is difficult for governments to preach patience when it comes to job creation. However it is inconceivable that sustainable employment on the scale envisaged can be magicked into existence through initiatives from above. The previous government in 2009 produced a ‘Smart Economy’ plan to produce, coincidentally, 100,000 jobs, and which has to date produced no more than sustenance to public expenditure dependants in the universities and barrow-loads of public relations.
Job creation schemes will win plaudits in the popular press and gratitude from subsidy junkies in the business community. But they cost money we do not have and cannot borrow. Diverting more funds to public capital ‘investment’ presumes that worthwhile projects are available. Indeed the scale of the New Era scheme presumes that such projects are abundant. Little detail is available on the projects to be pursued, an unacceptable feature in itself. Major commitments should never be made until the details have been scrutinised.
The three sectors indicated as having job potential, energy, communications and water, have one thing in common. These are capital, rather than labour, intensive businesses. Once the construction of new facilities is complete, it is not clear that these industries need large additional workforces on a continuing basis. In any event the total workforce in these three sectors is currently about 30,000. It is inconceivable that tens of thousands of extra permanent jobs are required in these areas. The electricity industry has been shedding jobs over the years and I have yet to meet anyone who believes that the ESB is understaffed. The gas distribution network now reaches all of the urban areas in the country that can be served commercially, so there is no job potential there either.
As for water, the government intends to meter all users, but this only has to be done once. There will be no permanent jobs in the once-off installation of meters, which will presumably be read remotely, so no jobs there either. The government’s intention is to create a single national water authority to replace the current inefficient and fragmented system of delivery through city and county councils. This is presumably intended to create opportunities for economies in staff numbers, not for a hiring fair. The merger of the regional health boards into the HSE seems to have been a disaster, not least in the creation of new layers of expensive administration. Surely the government is not planning a HSE for water?
There was a depressing discussion of these matters on RTE’s The Week in Politics programme last Sunday evening which paraded three Dail deputies, a junior minister and an RTE anchor none of whom seemed to grasp any of the issues involved. A recurring notion, apparently shared by all five, was that the dividends receivable from state companies (a surprisingly modest sum given the amounts of capital they consume) constitute a recently-discovered treasure trove freshly available to finance job creation schemes. These dividends are part of the government’s current revenue and are already spoken for. A further illusion shared by the participants seems to be that devoting privatisation proceeds to debt reduction, rather than to the New Era schemes, would be tantamount to wasting the money.
Patience in pursuit of a feasible macroeconomic plan will halt the rise in unemployment and eventually deliver a recovery in the demand for labour. This is the declared view of the government itself. The strategy of reducing the deficit over the currency of the EU/IMF rescue deal and seeking to stabilise the rocketing national debt is the best plan available and will be de-railed by half-baked and panicky job-creation schemes.
The government seems to lack the courage of its declared convictions. If the macroeconomic strategy is to be subverted with ill-considered job creation schemes, the return to a better jobs market will be delayed. Fortunately the deployment of privatisation proceeds for any purpose other than debt reduction requires sign-off by the troika of EU, ECB and IMF. They should ask the government to explain, in detail, how this plan to conjure up100,000 jobs contributes to national economic recovery