2013 A Pivotal Year for Government’s Economic Strategy

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I have an op-ed in today’s Irish Times – it is here.

16 Responses to “2013 A Pivotal Year for Government’s Economic Strategy”

  1. DOCM Says:

    I posted this comment on another thread.

    The broad thrust of what is in the article can hardly be questioned. The proposal with regard to salaries in the public sector has the merit of drawing attention to the major problem confronting the country but has no chance of being adopted. The main reason IMHO is that the reform programme undertaken to date suffers from the unwillingness to face up to the most obvious reality one could imagine viz. the public sector is not homogeneous.

    One cannot, for example, apply the same measures to the veterinary and meteorological services. Each area has to be examined in terms of function, organisation and output. Some could be wholly or partly privatised and salaries set relative to performance in the market place, as is the case in the private sector.

    Such an approach would have the merit of attracting support from within the public sector itself which is slowly freezing up under the weight of the inconsistencies of the present approach and locking many into stultifying dead-end careers.

  2. paul quigley Says:

    Thanks Philip

    Although your op-ed is very gentle in tone, the central message is ‘more cuts’. More PS functions will undoubtedly be outsourced/privatised in years to come, as the interest payments mount remorselessly. There will be significant adverse consequences for most of the affected staff in terms of employment security, and there will be natural resistance and resentment.

    The PS is indeed far from homogenous. Departmental function is one way of analysing it, as DOCM notes, but there are other ways of looking at the sector. While the terms and conditions of most employees are defined by pay and entitlements, some posts are of a very different order, with of course many shades of grey in between. There are always honourable exceptions and brilliant individuals, but ‘plum posts’ are ‘plum’ mostly because they offer opportunity for massive private gain eg:

    • Shunting internal PS resources towards one’s own function, thereby increasing the space for patronage and promotions
    • Managing or influencing the selection of private contractors to the state
    • Membership of committees and working groups which enhance respectability and ‘bottom’, and open doors to private sector consultancy work, ‘headhunting games’ etc
    • Leveraging PS resources to service a parallel private sector career/business

    All of these phenomena are endemic in Ireland, so the core issue in reforming our PS is that integrity of the leadership is in tatters. Competition for top PS jobs, is, in many cases, competition for the opportunity to farm the spoils of office. As Joe Lee set out (Ireland 1912-85) many years ago, our governance is up the spout, and the possessor principle has overcome the performer principle. That’s why so many PS careers have to be ‘dead end’. Dedicated public servants are a nuisance.

    It is an Irish paradox that most of our ‘entrepreneurs’ are securely employed and well placed PS players, who consider it entirely right and proper to put family before country in their workplace. Initiatives are fostered to the extent that have powerful sponsors and stakeholders, and not otherwise.

    This noxious model of ‘success’ has become deeply engrained at mid-level of the PS too. One of the prime reasons for the benchmark escalation of salaries was the widespread perception that the professional classes were tearing the ar5e out of it. All the evidence is that the perception was entirely correct.

    Our PS ‘movers and shakers’ have enjoyed, and still enjoy, the rewards without the risk. And when it all goes tit5 up, the great and the good are ‘naturally’ bailed out. Heads down lads and wait for it to blow over.

    As long as we accept that sort of attitude, we are banjaxed as a people.

  3. John Corcoran Says:

    Philip–happy new year and thanks for keeping the Irish economy site alive.

    Below is the link to another Irish economist who advised our distinguished and informed current political leaders ,Enda Kenny and Comrade Gilmore of the Nicolae Ceausescu wing of the Labour Party, of a major economic problem looming. What did they do?

    http://www.youtube.com/watch?v=vzNO4u8AU3Y

  4. DOCM Says:

    @ All

    As it seems that 2013 – from media press coverage this morning, at least – may indeed turn out to be the Year of Reform, it may be useful to recall the Programme for Government.

    http://per.gov.ie/wp-content/uploads/ProgrammeforGovernmentFinal.pdf

    Notably;

    “Showing Leadership

    Politicians should be treated in the same manner as all other public servants.” (!) (Page 20).

    “Empowering the Civil Service

    We will legislate for a reformulated code of laws, replacing both the Ministers and Secretaries Acts and the Public Service Management Act, which will spell out the legal relationship between Ministers and their civil servants and their legal accountability for decisions and for management of Departments.” (Page 29).

    Politicians are paid from the public purse but they are public representatives, whose major task is to levy taxes and oversee the spending of the resulting revenue, not public servants whose job is, as the name implies, simply to implement correctly the tasks assigned to them subject to appropriate performance and disciplinary rules. By and large, the latter carry out their tasks with integrity and commitment and blanket criticism is not justified.

    Neither is the issue of “empowering” public servants – whatever that means – but of resolving the ambiguity in the division of responsibilities between them and elected representatives that vote a government into power. This confusion of thought and action seems to permeate the entire body politic and the result is that no one appears to be responsible.

    That this situation is rather comfortable for all concerned will be confirmed if there is continued inaction on the commitment to scrap the inadequate and pernicious legislation underpinning the present situation and that remains in place. It seems that the budgetary situation may be forcing the pace. In fact, it is evident that tailored solutions based on function, organisation and output are already being designed, notably with regard to the creation of executive agencies – without unnecessary boards providing opportunities for patronage and little else – to collect the new charges established on the insistence of the troika and bringing the country into line with other European economies.

    It is time to put these welcome but piecemeal developments into a radical reform framework.

  5. Michael Hennigan - Finfacts Says:

    Muddle it is and muddle it will be whether it is Ireland or France for example.

    Do ministers even know how the so-called programme of public sector reform is actually operating in practice?

    Just over a third of the 48 State agencies/quangos targeted for abolition or merger in 2012 were expected to have completed the process by the end of the 2012.

    The blarney about being the best little country to do business in, is a standard set against some of the best economies in Europe and to meet requires more than a laundry list of aspirations.

    Note the urgency in legal reform and the Health (Pricing and Supply of Medical Goods) Bill 2012, which provides for the use of generic drugs in line with other European countries, years into the crisis, is up for debate this year.

    As for the medium term and recovery scenarios, Prof John FitzGerald of the ESRI appears to have gone to ground.

    Beyond the spin, this crisis has many more years to play out. Pre-2008 is not coming back but after the ballyhoo about reclaiming sovereignty, the challenges will not go away. Employment will rise but far from enough.

    New York Times columnist, Thomas Friedman, wrote in 2010:

    “We baby boomers in America and Western Europe were raised to believe there really was a Tooth Fairy, whose magic would allow conservatives to cut taxes without cutting services and liberals to expand services without raising taxes. The Tooth Fairy did it by printing money, by bogus accounting and by deluding us into thinking that by borrowing from China or Germany, or against our rising home values, or by creating exotic financial instruments to trade with each other, we were actually creating wealth.

  6. Frank Galton Says:

    Would the pensions be based on Part A pay or total pay? And in practice given the irreversibility of level of salaries under CPA, isn’t this a proposal that any future pay increases be Part B?

  7. DOCM Says:

    @ MH

    I think that the point needs to be made that there is nothing wrong per se with quangos. The problem arises when the functions that the staff, whose functions they supposedly took over from the parent department, remained in place.

    It is rather comical to think that the Devlin Report, more thah half a century ago, came up with the approach which events may now be forcing upon us i.e. separation of the policy formulation function from execution and the farming out of the latter to tailored executive agencies on the Scandinavian model. As I never tire pointing out, Sweden, not the most inefficiently run country, manages its affairs with a core staff of civil servants of less than 5,000!

  8. DOCM Says:

    @ MH

    4,350 to be precise!

    http://www.government.se/sb/d/2856

    The Swedes also know the difference between a politician and a public servant unlike the inept drafters of the relevant section of the Programme for Government.

    And we have not even touched on the situation with regard to higher education!

    http://www.government.se/sb/d/6943

    It is in the interest of all in public employment to agree the necessary changes. Otherwise, an entire generation, or possibly two, will endure a working lifetime which can best be described as a penance rather than a career.

  9. Examiner Says:

    @Philip

    An interesting and though-provoking piece. On a two-part system for determining public sector pay you write the following:

    “Such a two-part pay system would guarantee the vast bulk of agreed pay rates (subject to meeting productivity and reform targets) as secure “Part A” pay, while reserving the option to cancel or hold back a portion of “Part B” pay in the event of a specified decline in macroeconomic performance…..[T]he trigger for any such pay adjustments should be explicitly specified to allow for external third-party monitoring and forestall any disputes on the meaning of the agreement. ”

    I am curious as to how you would design the trigger mechanism for determining “Part B” given the difficulty in estimating Irish macroeconomic aggregates. GDP estimates in Ireland come later than most of the developed world. Due in part to the size of the multinational sector both GDP and GNP display also considerable short-term volatility (http://bit.ly/136nUve) and are highly subject to revision. Migration flows are also large and volatile, as a result estimates of the level of employment were recently revised up by a non-trivial 2% (http://bit.ly/13aixKJ).

    Any pay formula based on very fresh macroeconomic estimates would run the risk of subsequently being revised away. An alternative formula which would wait until historical estimates are settled down would run the risk of being inappropriate as macroeconomic conditions would by then most likely have changed.

  10. John Gallaher Says:

    @Examiner agreed,in reading the very well put and reasoned piece my initial reaction was what ‘trigger’ or metric would be utilized to evoke basically a pay freeze.
    If I’m not mistaken the current agreement “Croke Park” has a MAC or materially adverse change clause…which has not been triggered….
    But a very welcome contribution to the debate which tends to get quite emotional.The “deal” on the US fiscal cliff,included a continuation off the pay freeze on civilian federal employees.

  11. Aidan R Says:

    Are their comparative case studies (in other small open economies) to assess the effectiveness of the proposal for a pay A and pay B in the public sector?

  12. Shay Begorrah Says:

    This seems misguided. Civil servants should be paid the equivalent wage to those doing the same kind of work in the private sector, taxation needs to be high enough to support these costs.

    The argument seems part of a pattern where an attempt is made to make the modern state compatible with the Alice in Dreadland logic of European Economic and Monetary union

    I would also note that policy suggestions of this type seem to be following a pattern of market liberal thinker displacement activity in the EU.

    Problem: Private financial sector market failure needs staggeringly large government rescue.
    Market liberal solution: Fiscal rules for the government!

    Problem: Our low levels of taxation are insufficient to pay public sector wages.
    Market liberal Solution: We need to cut public sector wages to match our low taxes!

    Problem: One size fits Germany monetary policy horribly mismatches other countries needs.
    Market liberal Solution: Make every country like Germany!

    I have a feeling there are several more examples of this kind of reasoning in the centre right economic and political consensus Europe seem to be trapped in (suggestions welcome) but they all boil down to:

    Problem: Economic and Monetary Union is incompatible with national economic survival of the smaller peripheral states.
    Solution: Sacrifice their economies!

  13. John Gallaher Says:

    @Adrian R its frequently quoted in US as a 60 Billion “saving”, the pay freeze.No idea if this has been implemented elsewhere.
    “The White House said at the time that the pay freeze would save $2 billion for the remainder of fiscal year 2011, $28 billion over the next five years, and more than $60 billion over the next 10 years”
    http://www.fedsmith.com/2012/12/27/end-of-the-federal-pay-freeze-announced/

  14. Rob S Says:

    @Examiner

    “Any pay formula based on very fresh macroeconomic estimates would run the risk of subsequently being revised away.”

    You reckon?

    Nearly three years since the CPA agreed and the “deterioration” clause has not been invoked despite constant downward revisions to GDP forecasts, a doubling of the bank bailout costs, and increasing unemployment.

  15. paul quigley Says:

    @ DOCM

    ‘Politicians are paid from the public purse but they are public representatives, whose major task is to levy taxes and oversee the spending of the resulting revenue, not public servants whose job is, as the name implies, simply to implement correctly the tasks assigned to them subject to appropriate performance and disciplinary rules. By and large, the latter carry out their tasks with integrity and commitment and blanket criticism is not justified.’

    You are failing to distinguish between ordinary level public servants and those who are in a position to game the PS systems in a serious way. Perhaps you can perceive lots of ‘integrity’ and ‘commitment’ among our banking fraternity also.

    The distinction which you purport to make between public servants and public representatives is a very limited one. The more urgent distinction (or at least an important distinction) is between those suits who use their position and those who misuse it.

    Any ‘reform’ which dodges that issue will not be worth the papoer it is written on.

  16. seafóid Says:

    @ PQ

    I saw something in the book “reinventing Ireland” that I thought was relevant

    http://www.bookshop.kennys.ie/book/IE/KNH0011975/Reinventing_Ireland:%20Culture,%20Society%20and%20the%20Global%20Economy%20(Contemporary%20Irish%20Studies)

    “the individual as consumer is pampered, petted and praised while the individual as citizen is left increasingly powerless to effect change in the immediate political and economic environment ….

    Unemployment, poverty, disadvantage powerless are individualised as problems and the solutions on offer are the therapeutic services provided to privatised paying customers. The individual solutions are predictably no match for the social problems so imaginary answers are produced to mark the democratics deficit. P 204

    and “Tearing the Arfe out of it” is such a wonderful phrase.

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