Tackling Ossified Oligopolies, and other God’s work, on one side of the Irish Sea

Before Christmas, John Fingleton tweeted a link to a talk by John Kingman, outgoing second secretary of the Treasury.

In the speech [here] Kingman reviews what the Treasury had achieved to improve the performance of the British economy over the decades since Nigel Lawson’s 1984 Mais lecture, which argued for a switch to have microeconomic policy seek to promote growth (supply side) and macroeconomic policy control inflation (demand side), a reversal of the post-war policy. He estimates less than 10% of Treasury staffing was subsequently devoted to supply-side policy and the talk discuss the institutional challenges of internalising the new supply-side role.

He reckons the successes of supply-side policy were in
– fighting bad ideas (“God’s work”): not to prop up failing industries
– labour markets: improved ratio of job losses to output loss
– competition policy: the 2002 Competition Policy and the decisions to introduce criminal penalties for cartels, and to take Ministers mostly out of merger decisions (Ministers are mostly captured by sectors whose names appear in their departmental title)
– science, innovation and universities; he points out that the UK has far more top-ranked universities than all of the rest of Europe and the whole of Asia.

Where does he see remaining supply-side problems? In
– planning and housing, where the public has not been persuaded to modify land policy
– education and skills (other than elite universities) where spending is high but outcomes “mediocre”
– the “absurd cost” of infrastructure: he doesn’t use this example but the cost of an additional runway at Heathrow exceeds that at Dublin by a factor of one hundred! (€0.25bn versus €25bn.)
– (obviously) migration.

In discussing the failures, Kingman distinguishes areas where the solution is known but the public has not been convinced (planning, migration), and ones where the ways to ‘crack’ the problems are just not known (effective non-elite education, distinguishing between investments that will prove to be grand projets rather than plonkers).

A comparable review of policy successes and failures Ireland would make for valuable reading but, at a high level, some of the UK’s successes are patently not ours (elite universities, vigorous competition enforcement – tackling ossified oligopolies), while some of their failures may have been avoided here (migration) to date. How to fit the enclave MNC sector into an evaluation is not clear. Lots of supply, albeit exaggerated, but possibly disguising problems in the non-MNC economy.

PS Some similar themes (from a regulatory perspective) were discussed by John Fingleton in a talk last December to the IIEA here.

Author: Cathal Guiomard

Cathal Guiomard is a Lecturer in Aviation Management in DCU. Between 2006 and 2014, he was Ireland's Commissioner for Aviation.

20 thoughts on “Tackling Ossified Oligopolies, and other God’s work, on one side of the Irish Sea”

  1. Many thanks for providing the link to this interesting speech. And I think you’ve captured the key points that may have some relevance beyond Britain. (However, it is interesting to observe Kingman trying to say something positive about Brexit in passing. As is his failure to comment on the accidental coalition of empire and WWII nostalgics, common law fetishists, asset rich nimbies and of the millions who are simply fed up of being exploited by rent-extracting elites that generated a yes to Brexit. Britain is currently in thrall to a narrow-minded, inward-looking, bitter public spasm. And some deluded elements of the Brexit supporting elites believe England’s buccaneering of the first Elizabethan era can be recreated. How long this will last is anyone’s guess.)

    As for a comparable review of policy successes and failures in Ireland it might be interesting, but it would be a labour in vain. If the fall-out of the triple (fiscal, banking and property) blowouts in 2008 failed to curtail the rent-extracting activities of the powerful and influential vested interests, then no policy can be conceived or, crucially, implemented that would succeed. Indeed, if it were possible no one with the knowledge or competence and the ability to bring it to the attention of those exercising economic and political would be so brave or foolish to do so.

    Only external policy changes – such as President Trump’s proposed corporate tax changes, the fallout of Brexit or the implementation of EU policies tackling egregious economic behaviour – might force the greedy rent extractors to take their snouts, temporarily, out of the trough in which they gorge themselves at the expense of the vast majority of citizens.

    1. When you (Paul) refer to the ‘vast majority of citizens’ and the OP (Cathal) refers to ‘the public’ there seems to be a difference of opinion. I think that you underestimate the extent to which a decent chunk of the public in Ireland are complicit with the rent-extraction you correctly highlight.

      Case in point – healthcare. Our consultants are well paid. Most of them have lucrative private income which is piggy-backed on their public work. But in order to do this you need a public that are willing to accept paying for private health insurance in order to gain preferential access. Access that in many cases gets them no clinical benefit and exposes them to a lot of harm. Private obstetric care for healthy women in Ireland is highly medicalised with unnecessary scans and appointments (if you’re paying you have to get something right?). This increases the risk of false positives, unnecessary interventions and the stress associated with waiting for results. But there is such demand for it that some obstetricians have to turn patients away (and of course lobby for the State to hire more obstetricians).

      Same for education – I have many well meaning colleagues who know the pernicious effects of private education on social cohesion and are well able to lecture on it – but still send their kids to private schools.

      Mutliply this effect by a zillion when it comes to housing and land. Everyone who owns a house in Ireland has being extracting rent since the recession in the form of housing policies that favour house price increases over everything else.

      My basic point is that the ‘insider-outsider’ division in Ireland isn’t that neat – and the outsiders are often hungry to get to the inside if they can.

      1. @John Browne,

        Thank you. I agree completely. Rent extraction is a circular process – the big fleas have lesser fleas upon their backs to bite ’em, etc. But there is a hierarchy of troughs with the massive ones being at the very top. And, as you note, there is a hunger to ascend this hierarchy. That’s perfectly natural and may be observed in all economies and polities. The policy challenge is to curtail the double economic cost that rent-seeking and rent extraction imposes. It’s just that the rent extraction is more pronounced in Ireland because the MNC enclave generates so much of the measured economic activity relative to the “domestic” or “inland” economy – and the domestic economy may be largely characterised by endemic and pervasive rent extraction. Those who are unable, for various reasons, to participate fully in this rent extraction are compensated via the tax system (exclusion from income tax) and the social welfare system in what I call the Great Re-distribution. The various left-wing and pseudo left-wing factions, groupuscules and elected individuals make enough noise and achieve sufficient political representation to ensure this re-distribution is relatively generous and the governing factions are prepared to cough up to secure a measure of political acquiesence from those on low incomes and those who are otherwise disadvantaged.

        However, the political allegiances of the vast majority of centre and centre-right voters, previously represented by FF, FG and Labour, are fragmenting and many of these voters are electing so-called independent TDs from the FF/FG gene pool. The evidence is patchy, but some indications suggest that these are lower income private sector workers and their families who gain little benefit from the Great Re-distribution and who are not sufficiently resourced or empowered to indulge in serious rent extraction. In a sense these folks are the Irish version of Theresa May’s “just about managing”. In a number of respects they are the main prey of the rent extractors in the sheltered public, private and semi-satte sectors – even if individually they’d love to be the predators – and they’re beginning to realise this. They’d never make common political cause with those benefiting from the largesse of the Great Re-distribution or support the usual left-wing headbangers because they believe they are paying too much for this largesse. And the mainstream parties have usually been adept at encouraging this animosity. Divide and rule is the order of the day. But they are falling out of love with the mainstream parties – and it was they, in effect, who deprived both FF and FG of being in a position to secure a governing majority.

        Brexit in Britain and Trump in the US allowed their counterparts there to give vent to their increasing disgust and anger. The general election in the Netherlands in March, the presidential election in France in May and the German Bundestag elections in September will give vent to similar anger and disgust in these countries. It’s only a matter of time before they discover their political power in Ireland.

  2. Cathal: your piece is very timely and to the point. There are plenty of bad ideas infecting the Irish body politic, such as:
    • The notion that free water is a basic “right”
    • The notion that “free” higher education is a basic right
    • The idea that enlightened public servants always know what’s good for us
    • The idea that free trade only benefits multinational corporations (and of course Mexicans , if you live in the USA)
    • The idea that a public sector monopoly is OK, and somehow not nearly as bad as a private-sector monopoly

    One could go on…. As economists we should be worried that the current populist fever is something which has a lot to do with the failure to understand basic economic concepts. For example, we try to explain to our students that economic activity can (under certain conditions of course) benefit both parties to a transaction, and that this applies to international transactions. The old quasi-Marxist idea that life is a zero-sum game, that just because I gain someone else must lose, is one that dies hard. One of the greatest failings of the economics profession is to communicate this message. It seems that only bitter experience will teach people, hence the terrible potential costs of Trumpism.

  3. The conundrum outlined has been discussed many times on this blog. With little or no change resulting, either at the level of the academic discussion or in the public debate. Whether things are moving in the electorate remains to be seen.

    One could pose a few simple sample questions.

    Why are the vast majority of those employed in the areas of health and education in Ireland paid from the public purse and on the basis of rigid stratified salary scales which are not open to easy adjustment and which make it impossible to relate pay to performance; with near total loss of the capacity to manage staff?

    And why is not the value of their direct benefit pensions included in any calculations of the actual emoluments they receive?

    Asking these questions usually results in accusations of “bashing the public sector”. That is not my purpose. Equalisation of the basic salary and pay conditions of all workers across the economy has been shown, notably in the Scandinavian countries, to boost both economic performance and job satisfaction, with notable benefits with regard to the latter, not least because of the ease with which employees can move between the “public” and the “private” sectors.(The distinction is so blurred as not even to figure greatly in discussion).

    It can be assumed from various statements by the ministers responsible that there is, at least, an awareness of the issues. Whether this will lead to any fundamental changes must be considered doubtful. What we have is an Irish solution to an Irish problem. The present shaky equilibrium seems set to continue. It has, after all, persisted since independence.

  4. Kingman: “For a start, all Governments actively limit growth the whole time. they operate complete systems whose purpose is to do that. !he planning system ‘ a system of development control ‘ is precisely that. So is the migration regime.”

    He seems to be saying migration adds to economic growth, most would agree. The UK did not form an immigration strategy (particularly wrt accession countries) under Labour (it was never a priority and regarded, in private, as rather too tricky), and immigration was left alone to a large extent.

    Cathal, are you referring to the time lagged political backlash against this when you say: “A comparable review of policy successes and failures Ireland would make for valuable reading but, at a high level, some of the UK’s successes are patently not ours (elite universities, vigorous competition enforcement – tackling ossified oligopolies), while some of their failures may have been avoided here (migration) to date.” ?

    Presumably, Britain’s absorption of migrants would be regarded as an economic success, not a failure, by Kingman.

    Kingman: “Moreover, we know that the single best way to undermine productivity is to prop up failing and unproductive businesses ‘ yet I have never known a Government of any complection which wasn*t frequently struggling with pressure to do just that.”

    I wonder if this is meant to include action to prop up failing banks a few years ago?

    On universities, should Ireland follow what seems to be as suggestion to emphasise science, and introduce significant fees?

    “If you ask yourself ‘ what, honestly and objectively, are the truly world class economic assets that Britain has ( It is a short list. Our strong science base would self-evidently be on it. ! This is why the Treasury has invested in this agenda, consistently now over a long period ‘ as well as constantly pushing for, and achieving, real progress on improving commercialisation. That is on top of brave decisions taken on student fees ‘ with, in the round, a transforming effect on the finances of Britain*s universities.”

    Here is a follow-up question on universities. It is much more expensive for Irish students to go to English universities than Irish ones, because of the fees (if we ignore the proportion that go to the university close to where they live. If there were broadly equivalent fees in Ireland, how would the Irish universities, in general, fair in competing for undergraduate applications with those of similar cost in England? In other words what is the pricing power likely to be? I don’t know what current competition from German, Dutch or Scottish universities suggests on this – anyone know?

    1. A small point Cathal. The Dublin runway is about 3% of the cost at Heathrow, for about the same amount of runway, not 1%. The extraordinary cost at Heathrow includes terminal 6 etc but also the demolition of a suburb. At €320 million the runway at Dublin will be the cheapest at a major airport anywhere in recent times. The modest cost at Dublin is due to folks, probably no longer with us, who had the foresight to sterilise land forty years ago, when Dublin was a small airport. How do you incentivise people to think this far forward in political Twitter-land?

  5. Ah, I see where the reference to “failure” on migration comes from. He is throwing it in as a ‘political-consequence-failure’ (which, thus far, Ireland has not experienced). Nevertheless, there has been a significant boost to the UK economy from it – not least in terms of another of his ‘successes’ – labour market flexibility.

    However that ‘flexibility’ has been encouraged by migration, and is deeply resented by many Brexit voters as to a similar extent to the migration itself. So it, inspite of economic gains, migration can be labeled a ‘failure’, can the same argument be used to label (excessive?) labour market flexibility as also a ‘failure’ of a sort?

    This might be a good example of economics loosing touch with politics.

  6. On the ‘failure’ of STEM education for those who don’t go to university in UK, he points out that post-16 education in UK, strangely, need not include maths, and comments: “Our education system is not by any means all bad ‘ but it works far better for the slice of the population which goes on to higher education than the slice that does not and of course a child’s chances of getting into that higher slice are still depressingly closely correlated with social background…We have particular weaknesses in so%called STEM subjects science, technology, engineering and mathematics, due to continuing appalling shortages of qualified teachers in these subjects instate schools..”

    Presumably there are similar issues wrt qualified teachers in STEM subjects in Ireland, but with the fees / student loans regime being very different, does that lead to an uptake of third level education in Ireland less skewed in terms of social background. This was a key part of the argument surrounding the tuition fees debate in England.

  7. “Presumably there are similar issues wrt qualified teachers in STEM subjects in Ireland,”

    From my Irish experience its not a lack of STEM teachers – its a thoroughly bad combination of inappropriate syllabi; the lack of specific teacher training in how individual STEM subjects should be taught; the manner in which pupils’ attainments are assessed and of course that violent, all-or-nothing, terminal examination with its completely unnecessary Higher and Lower levels.

    On the vexed matter of economic ‘growth’ and immigration. They occur in that order; not the alternative manner. If our economic rate-of-growth is less than 3% p/a (compounding) and our natural increase in population is 1.5% (compounding) – then we do not need any extra (permanent) economic immigrants. We may well need different skill sets, but our current pair of second and third level education systems, as currently configured, are quite incapable of responding either appropriately or promptly enough to achieve a suitable outcome. I’ve been there. Its like trying to unravel the deep tangles in a mono-filament fishing line. Chuck the line: its a sunk cost. Buy a new one.

    ps: What’s with the kerfuffle about our CB’s gold bars allegedly being in the BoE vaults. Are they even there? Just curious.

  8. It’s good to see a few named commenters on this thread – even if we run the risk, as is so often the case, of being overrun by those hiding behind pseudonyms.

    As I’ve noted above, the major shifts required to remedy the policy failings outlined may be forced by external factors – even if the typical reaction is for the powerful and influential interest groups to batten down the hatches at everyone else’ expense, but they are probably more likely to emerge eventually from the political expression of the fully justified disgust and anger of those who are “just about managing”. It’s unlikely to be pretty; it isn’t in any of the other advanced economies. But it would be very surprising if Ireland were to avoid some presentation of this phenomenon. The business-state elites (and their armies of well-heeled and pampered functionaries and flunkies) will have no idea how to respond. And this is similar to their counterparts in other jurisdictions.

    I would also take issue with the assertion that there is “vigorous competition enforcement in Britain”. The total optical illusion of competition enforcement and economic regulation in the utility sectors Britain makes the absymal implementation of competition and the application of economic regulation in Ireland appear almost forceful and effective – even if the reality is that it is an even bigger optical illlusion.

    Those who are “just about managing” may not be clued in to the detail of the antics of the utility firms and those who are supposed to police and regulate their behaviour, but they are becoming aware increasingly that it is a sick and costly joke at their expense while they are being ripped off mercilessly.

  9. The main planning failure of the U. Kingdom economy over many decades is lop-sided growth between England, especially the South-East of England, and the Celtic countries (which are in fact colonies of England). At the time of the Act of Union in 1801, England had 50 per cent of the U. Kingdom population, but today its 85 per cent and rising every year. This is resulting in a large infrastructural deficit in South-East England, characterised by extremely expensive housing, overcrowded public transport, gridlock on the roads and so on. While, at the same time, N. Ireland, Scotland and Wales are the poorest countries in western Europe. Scotland got a temporary boost from North Sea Oil, but that’s fast running out. All this isn’t so much failure of policy as the intended result of policy determined in London. There is no solution for it, other than independence for Scotland and Wales and N. Ireland rejoining the Republic of Ireland.

    The main planning failure of the Irish economy in recent decades is failure at times to predict (and therefore plan for) rapidly-growing population. Between 1961 and 2016 the population of Ireland (26 counties) rose by 65%, which was over 3 times the EU average and higher than any other EU country bar Luxembourg. The main problem is that whenever there is a recession (1984-1986 and 2008-2010), the country gets deluged with predictions of economic armageddon, mass emigration and depopulation, Consequently, spending on infrastructure gets run down far more than is justified. Following the 1984-86 recession, there was a lull in population growth for a few years, but it then surged again from the early 90s on. This led to large infrastructural bottlenecks, which were rectified only when Bertie Ahern became Taoiseach and launched the National Development plan. For this, of course, he was vilified by the same people who had totally failed to predict that the population was likely to grow rapidly. One might have thought that people would learn from such mistakes. Alas, no. Consequently, come the 2008-2010 recession, and the country was again deluged with predictions of economic armageddon, mass emigration and depopulation. Again these have turned out to be nonsense and again the economic recovery from recession has led to a surge in population growth and infrastructural bottlenecks. Its a case of deja-vu.

    I was pleased to see that John Fitzgerald wrote something similar in the Irish Times last Friday.

  10. One of the most enduring ossified oligopolies is surely the structure of the banking system in Ireland.

    The two-pillar bank strategy is seeking to go back to a pre-building society, pre-credit union era, where two and a half banks took the savings of the country and had exclusive control over their allocation.

    It is disturbing, just today, to read that the boom-time developers are back in the news, with the savings of the country headed into their maw once more.
    The opportunity to restructure banking, into a three fold banking structure, comprising building societies, general enterprise and commercial banks, and investment banks (from where ‘developers’ would get loans), would appear to have been lost, deliberately.
    The result is that the two pillar banks alone make decisions on whether to allocate funds, to the aspiring householder, to a job creating and sustaining commercial enterprise, or to what is in many cases speculative property development; the latter area populated by many so-called high-fliers.
    It is time that economists, gave some thought to the conflict at the heart of such an allocation process. This conflict resulted in a complete over-emphasis on bank losses caused by house loans, as distinct from bank losses caused by speculative property investment, the latter being the primary reason for bank failure. Consequently banks have been able to divert attention away from the losses to high fliers, and onto hapless and often helpless householders, with proper public public policy being being stymied by the perception created.

    The other ossified but barely mentionable concept, is that multi-pensioned ministers and well-pensioned public servants can proceed, ad nauseum, to lecture the pension-less on competitiveness etc, and to do so generally with a straight face. The fact that pension poverty now awaits a majority of the population barely registers on the policy consideration dial. On top of the difficult personal issues involving pension poverty, surely there are economic growth issues resulting from the societal drop in income that awaits the country.

  11. ” … surely there are economic growth issues resulting from the societal drop in income that awaits the country.”

    There sure are. Real (physical or organic) economic rates-of-growth have slowly, slowly trended lower for four, possibly five, decades and are now as close to ‘stagnation level’ as makes very little difference. The evidence is in the lowish levels of the median wage and salary changes since the 1970s as opposed to the proportionally larger increases in asset values and prices since 1996. OK, so these took a hit a few years ago, but they are now back with a bang – thanks to all those QEs. Pension poverty might be one of the lesser political problems. We may have nasty levels of both youth and general unemployments and no way to deal with them. Energy costs are slowly tic ticking upward. If interest rates start doing the same – expect real economic (hence political) difficulties to emerge.

    1. You will be interested in the launch of the ‘spatial strategy’ consultation document being launched in Maynooth today. It must be about the umpteenth spatial strategy attempt.

      “Mr Coveney says the population of the country will increase by around one million by 2040. Over a fifth of the population will be over 65, an extra 500,000 people will be at work, and a further 500,000 homes will be needed ”

      http://www.irishtimes.com/news/ireland/irish-news/government-warns-of-dublin-overheating-amid-skewed-growth-1.2959942

      Lets see what it says, but in a country that has managed to mess up its housing requirements so much within the space of 15 years, one has to temper hope in relation to looking towards a plan for 2040.

  12. Here is a commentary that identifies where the real problem lies as far as comparisons with the UK are concerned i.e. the fact that the UK suffers from the debris of an industrial era and empire which Ireland (Republic of) never experienced. What the UK has held on to is the City of London, which is largely independent of the UK – Venice from a previous age without the canals – and can thrive whatever the international circumstances for the rest of the UK.

    https://www.lrb.co.uk/v38/n15/john-lanchester/brexit-blues

    There are, however, a few uncomfortable shared experiences e.g.

    ” If I had to pick a single fact which has played no role in political discourse but which sums up the current position of the UK, it would be that most people in the UK receive more from the state, in direct cash transfers and in benefits such as health and education, than they contribute to it. The numbers are eerily similar to the referendum outcome: 48 per cent net contributors, 52 per cent net recipients. It’s a system bitterly resented both by the beneficiaries and by the suppliers of the largesse.​”

  13. DPER and DOF and the other departments do not have the expertise or competence to review and effect changes at the micro level.

    It is hard to see the channels where those who see opportunities for supply side reforms and innovations can have their ideas considered by Government. Apart from a lack of formal feedback channels, the Departments are very weak on consultation, generally paying lip-service to the concept of consultation after they have their minds made up on what they are doing. We have a genuine crisis of competence and management.

    Compare our paltry and sometime regressive efforts to handle the construction industry with the significant research and trials carried out by the UK’s cabinet office. We publish bland expressions of desire and implement unfair lopsided government contracts while the UK trials and provides guidance on new technologies, procurement practices and progressive contracts. I fear that this abject lack of understanding of how the micro side of the economy work pervades our civil service.

    The advent of the career politician is also a drag on these reforms coming through. Members of political parties find it very hard to contribute to policy debates as those at the top concentrate on keeping all power and prefer to get their insights from civil servants and then promote them as their own. This is reflected in reduced engagement by members of political parties. We have hollowed out our civil service and our political parties and have not replaced what has been lost with an alternative source of impetus to ensure constant innovation in the different sectors of the economy.

    Obviously people can innovate themselves and we still do ok, but we have to consider whether that is enough in the age of a discontented middle class and in the run in to the problems of multiculturalism (where we are at least 20 years behind most other countries with few adult second generation immigrants).

    1. ” We have hollowed out our civil service and our political parties and have not replaced what has been lost with an alternative source of impetus to ensure constant innovation in the different sectors of the economy.”

      I’d differ with the above. The so-called ‘hollowing out’ is in fact a slow, deliberate process of internal contraction followed by a seamless merging of interests by both the elites of our main-stream political parties and the public service. Its been going on for quite some time now. Basically both groups have a carefully crafted – but never acknowledged, agenda: we need each other; we will think and act alike and we will stick together. Perversely, if they did actually manage to solve some of our more pressing economic problems – what would happen to them? Better conjure up some un-solvable problems to keep them in busywork.

      DOCM – that Lanchester piece is neatly crafted; “…48 per cent net contributors, 52 per cent net recipients.” I believe that’s the economic externality cost of our contemporary FIRE economies. Its been five decades (so far) in the baking. Like Hemingway’s bankrupcy: at first it was slow; then it was quite quick. When those nett contributors drop below 36% political contestation will likely be conducted on the streets and will be very ugly indeed. Such episodes have occurred in the past. 20th Century Social Welfare transfers seem to have assisted in keeping the more violent episodes at bay – so far.

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