Bringing the Household Back in: Comparative Capitalism and the Politics of Housing Markets

Some readers might be interested in this new working paper at UCD’s Geary Institute.

The core argument is that to understand heterogeneity in house price inflation, it is vital to understand the interactive dynamics in two markets that determine homeownership: First, the labor market, which shapes households’ incomes and; second, the market for mortgages, which shape households’ access to credit financial resources.

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The Rotten Apple: Tax Avoidance in Ireland

Readers might be interested in this article.

It’s a descriptive overview of the legal/ethical issues involved in Ireland’s role in faciliating Apple’s corporate tax avoidance strategies.

The conclusion is as follows:

In light of the European Commission’s investigation into state aid, Apple has generated the largest bill in unpaid taxes, as compared to Starbucks, Google, and Amazon, which were also investigated. The Commission has ordered Ireland to recover these taxes plus interest, but Ireland has refused and has appealed the Commission’s order in the EU General Court and, if necessary, will appeal to the European Court of Justice. Apple has also decided to appeal. The issues here are whether tax avoidance is ethical and whether Apple should pay the $14.5 billion plus interest that the Commission is demanding. In both of these issues, the conclusion is no. While Apple’s tax avoidance is legal, it is clearly unethical in its use of tax havens, mainly Ireland, and shell companies like Apple Sales International. Through these schemes, Apple has avoided paying taxes in any country, although it technically should have been taxed in the U.S. However, Apple should not have to pay the $14.5 billion plus interest because the repercussions outweigh the possible benefits, and the Commission should not have sought recovery of past transfer pricing rulings under its new approach. Instead, the U.S. and the EU should work together to close the loopholes, and Apple should be sanctioned by the U.S. because, ultimately, the U.S. is the country that should have received those taxes. This would also help reduce other corporations’ tax avoidance, both in the U.S. and by U.S. companies in Europe.

CCCTB – Bye, Bye Irish Veto?

Corporate tax avoidance is a high salient political issue in Brussels.

This is largely a response to demands from citizens across the EU to ensure that large MNC’s, particularly from the US, pay their fair share of taxes when operating in the EU single market.

Ireland, as we all know, has been called out, and challenged on this issue.

The companies that the EU have in mind are large Silicon Valley firms, and finance firms operating in the shadow banking sector.

The Commission have recently called for the introduction of a common consolidated corporate tax base (CCTB), to be introduced over two stages. They are also keen to introduce a financial transaction tax (FTT).

These are directly aimed at tackling corporate tax avoidance.

Ireland has said it would veto any attempt to introduce either of these at the EU level. But it was Britain that was most vocal about it.

It’s therefore worth noting that Jean Claude Juncker stated in his state of the union address this morning that he is in favour of moving toward qualified majority voting (QMV) on decisions related to the CCCTB and the FTT.

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A post-Brexit EU is going to be a very different terrain for Ireland.

QMV will be used more often. This empowers German and French interests in the European Council, and the numbers stack up to ensure they get what they want.

Is the writing on the wall for Ireland’s veto against the CCCTB?

Full speech:



Brexit: Accelerating the Drive Toward Corporate Tax Harmonisation?

Brexit means the UK is no longer bound by EU Directives aimed at tackling tax avoidance and aggressive tax competition, an issue that has become a high salient electoral-political issue among citizens in EU member states.

The UK will not be bound by the forthcoming Anti-Tax Avoidance Directive (which contains five legally binding anti-abuse measures that all member-states must implement by 2019); the Directive on Administrative Co-Operation (aimed at improving cross border transparency and the exchange of information); and they will most certainly not be bound by the proposed Common Consolidated Corporate Tax Base (CCCTB), should it be agreed and implemented by the Council.

The UK was the loudest and most vociferous opponent of the CCCTB, and successfully blocked its implementation in the Council in the past. Whilst the “unanimity” rule still applies to fiscal policies, which means Ireland still has a veto in the Council, there can be no doubt Ireland has lost its biggest ally in arguing against a common consolidated tax base.

In the context of uncertainty (and in the absence of a CCCTB), most legal-accountants are correctly pointing out that Brexit provides an opportunity for Ireland to take advantage of the present international tax situation. UK firms no longer benefit from those Directives aimed at the Single Market. Brexit means UK firms will no longer have a “one stop shop” for their EU trades. Many have an incentive to merge their businesses to an Irish subsidiary. Some will also consider moving their EU parent companies to Ireland, to ensure they can continue to transfer prices.

Of course, in the medium-to-long run, everything depends on the EU-UK negotiations. As it stands, it would appear that some sort of Swiss+ type deal is the most likely outcome, with priority accorded to a sectoral-industry specific deal for London finance, including the question of passporting and equivalence. Whatever the outcome, a Swiss+ type deal (or the WTO default) will give the UK much greater scope to adopt an aggressive corporate tax regime, which, whilst subject to WTO and OECD rules, would encourage a regulatory race to the bottom in Europe.

This is not good for Ireland.

Further European integration reflects the direction of travel for the remaining EU member-states. This is particularly the case for those countries in the Eurozone (with growing calls for a Eurozone Treasury/Budget and even parliament). Macron and Merkel, and their finance ministers, have made it perfectly clear that the Franco-German preference is for more integration. They know the risk associated with turning the UK into the Singapore of northwest Europe, and they have publicly declared that the harmonisation of corporate income tax systems will be central to their drive toward more integration.

The Commission fully support this Franco-German preference for greater tax harmonisation, which is best reflected in their recent proposal for a CCCTB. It is no surprise that Pierre Moscovici put it back on the agenda directly after the Brexit vote, despite it being defeated previously. Anyone who spends time in Brussels will know that the CCCTB is now a core priority for the EU, and they will persist until it is eventually agreed.

The new CCCTB proposal is slightly different to the previous proposals. It will take place over two stages. The first stage will seek to agree a single set of EU rules to calculate the profits of MNC’s in Europe (i.e. establishing the common tax base). The second and more controversial stage will be aimed at agreeing how to divide up the profits, which is the taxable income given to member-states (based on assets, labour and sales). Ireland will lose out as MNC’s based in Ireland will no longer be able to transfer the profits of their sales in other countries back to Ireland.

The second big change is that the CCCTB will be mandatory for all firms with revenue in excess of 750 million, and that there will be an R/D scheme aimed at supporting small and medium sized enterprises. But perhaps the biggest change is that the CCCTB is now being framed to explicitly tackle corporate tax avoidance in Europe. The Commission have launched a concerted campaign aimed at EU citizens to win support.

Brexit will accelerate the drive to harmonise corporate income tax systems, and the probability of this being successfully passed has increased, not least because of a change in the number of votes. The EU Council now looks completely different: the votes are significantly stacked in favour of the Franco-German alliance. But on CCCTB, qualified majority voting cannot be used, as unanimity is required. However, what this means is that Germany and France will seek to win Irish, Danish, Dutch and Baltic support through consensus, and side-payments.

Whether or not Ireland chooses to completely veto any attempt to introduce a CCCTB is, of course, a political question, and likely to be determined by the partisan colour of elected government. But it is worth asking whether Irish citizens would support policies aimed at harmonising the tax base, even if Irish elites would not? Ireland is already in the spotlight for facilitating global tax avoidance (not least with the Apple case). Further, Ireland makes up less than 1% of the EU population (even if one adds the Dutch, Danes and Baltic states, combined they are only a small percentage of the EU whole). Hence, is it really in Irelands long term strategic interest to veto those EU policies aimed at strengthening the problem solving capacity of Europe, post-Brexit?

The future of the Eurozone is a Franco-German growth model, not an Anglo-American one. Ireland needs to decide which way to go.

The Silicon Docks and the Housing-Rental Crisis

The latest Irish rental price report has just been released. As always, Ronan Lyons has done great work documenting rental-price inflation.

Rental prices are at an all-time high. But Dublin is clearly diverging from the rest of the country, with what can only be described as rampant and runaway rental-price inflation, which is completely unsustainable.

The media – and housing economists more generally – have correctly pointed out the importance of high-demand and weak supply. In turn, the focus is explaining the weak supply of rental properties: AirBnB etc.

But what about the role of income-demand in driving up rental prices?

Surely, the high-wage ICT sectors of the economy have a role to play in driving up the price of domestic non-tradeables in Dublin city?

The elephant in the room is the role of inward migration, and the impact of non-Irish employment in Dublin’s Silicon Docks.

The two graphs below are taken from my research on FDI flows into the ICT sector. It shows two things: FDI in the ICT sector is central to the Irish recovery, and ICT is the highest paid sector in the economy.

So, who are these workers, and where do they all live?

Google opened it’s offices on Barrow Street in 2004. An additional 80+ Silicon Valley firms have since followed. By 2016, the sector had grown to around 16,000 employees. Most of the growth (labour market cluster effect) is driven by inward-migration of skilled multi-lingual graduates.

Might the Silicon Docks, and the inward migration of high-paid sales/tech workers from across the EMEA, explain the rental-price inflation?

This is not an argument against inward migration, nor the positive effects of Dublin’s high-tech sector. It’s been great. But it has a cost, which policymakers are clearly incapable of responding to: the rapid increase in non-tradeable prices, particularly housing-rental prices in Dublin.

It seems to me that it’s only a matter of time before a populist rhetoric emerges along the following lines: the Irish government use low corporate taxes to lure global MNC’s from Silicon Valley to employ mobile multi-lingual graduates from across the EU/globe, who pay 2,000 euro a month for 1-bed apartments, whilst the Irish serve them pints in the local bar.

FDI projects

Source: Regan & Brazys (2017); IDA and authors calculations.
Weekly wages

Source: Regan & Brazys (2017); CSO and authors calculations.

Why people prefer unequal societies

Some readers might be interested in this post/article just published in Nature – Human Behaviour. The title is “Why People Prefer Unequal Societies” (a slightly misleading title), and the main findings are:

Drawing upon laboratory studies, cross-cultural research, and experiments with babies and young children, we argue that humans naturally favour fair distributions, not equal ones, and that when fairness and equality clash, people prefer fair inequality over unfair equality.


Figure 1: Income inequality in Europe and the United States, 1900–2010.

Income shares

Figure 2: The actual US wealth distribution plotted against the estimated and ideal distributions across all respondents:

Ideal and actual distirbution


Figure 3: Percentage of children earning more than their parents, by birth year.

Parental earnings

Radical economics, rethought, an episode from Financial Times on Spotify

Some readers might be interested in this podcast with FT writer Martin Sandbu and Cardiff Garcia. They discuss economic ideas that would have been considered unthinkably radical a few years ago, but which are now generating serious discussion. Well worth a listen!


Central Bank – Revisiting the 26% Growth Debate

Readers might be interested in the first quarterly central bank bulletin of 2017.

Unsurprisingly (and importantly) the bulletin focuses on the downside risks to the economy associated with Brexit, which are well worth reading.

But something else caught my attention whilst reading the piece. They briefly return to the 26% growth rate and conclude:

the large and increasing share of intangible assets, mainly held by multinational firms, and the assets of Irish based aircraft leasing firms can use headline investment figures to diverge from underlying investment trends.

This would imply, officially at least, that the role played by contract manufacturing, intangible assets and aircraft leasing are recognised as the core determinants behind the 26% growth rate, and leprechaun economics?

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Launch of World Wealth and Income Database

Readers might be interested in the new World Wealth and Income Database, which was just launched at the American Economic Association (AEA) annual meeting in Chicago.

It is coordinated by a small core team located at the World Inequality Lab at the Paris School of Economics.

The presentation slides from the AEA are available here and the corresponding explanatory paper is visible here.

The database aims to offer open access to the most extensive available database on the historical evolution of the global distribution of income and wealth, both within and between countries.

From an Irish perspective, what’s most notable is the paucity of data on the distribution of income and wealth, something that Patrick Honohon commented upon as governor of the central bank in 2014.

However, there does seem to be updated data (most likely from Brian Nolan), on the top 1% income share from 1938-2009.

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Celtic Phoenix or Leprechaun Economics?

Readers might be interested in this UCD Geary working paper, which was featured in the Sunday Business Post yesterday. The title of the paper is “Celtic Phoenix or Leprechaun Economics: the Political Economy of an FDI-led Growth Model in Europe”.

Our core argument is that Ireland’s post-crisis economic recovery was driven by foreign direct investment (FDI) from Silicon Valley, and whilst this growth model was made possible by Ireland’s low corporate tax rates, it was also a result of inward migration, with these firms using Ireland to directly access the European labour market.

We also demonstrate that Irish fiscal and wage policies have not redistributed gains from the FDI recovery to the broader population. As a result, the economic recovery has been most actively felt by those in the FDI sectors, including foreign-national workers from the EU and beyond.

We suggest that this experience indicates that Ireland’s FDI-led growth model has created clear winners and losers. The FDI growth regime been made possible by inward migration and European integration, but given the unequal distribution of the economic benefits that this generates, it is unlikely to be politically, or electorally, sustainable.

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Trade Surpluses and German Economic Nationalism

Sone readers might be interested in this excellent blog post by Thomas Piketty on the alleged asymmetry between Germany and France.

The core takeaway is that both countries have similar levels of productivity – measured in terms of GDP per hour worked.

The difference between Germany and France is that they use their high-levels of productivity in very different ways. France consumes and invests what it produces. Germany sells it abroad.

The excessive and persistent trade surpluses in Germany (outside small oil producing states and tax havens) “are unprecedented in economic history”. Europe has a German problem.

Labour productivity (GDP per hour worked) 1970-2015

Domestic consumption and investment in % of GDP (1970-2015)


The Political Economy of Brexit; London Will Adapt.

Everyone is trying to second guess the negotiating strategy of Theresa May, and how the EU will respond. No country should be more concerned about this than Ireland, the only EU country to share a border with the UK. Next week, the Irish government will host an all Ireland civic dialogue.  Political economy considerations have never been more important.

In hindsight Brexit might be conceived as a long-term inevitability, which can be traced back to the structural fault-lines of EU enlargement, and the free movement of peoples into Europe’s largest ‘open’ labour market. Helen Thompson, a professor at Cambridge has suggested as such:

  1. The euro crisis politicized the city of London, which became the default offshore finance centre for euro clearing.
  2. EU enlargement, and then the euro crisis, turned Britain into Europe’s employer of last resort, turning it into an offshore labour market.
  3. This spurred and politicised a latent immigration concern within large swathes of public opinion, and the electorate.
  4. Very quickly, the euro crisis, and the response to it, not least the Fiscal Compact Treaty, exposed the future of Europe as a two tier Union: between the Euro area, and the rest of the EU.
  5. The balance of power (i.e. the rise of Germany) changed and weakened Britain, who were increasingly “outside” the EU process, despite being the employer of last resort for the euro area.

In terms of the political economy of Brexit, the biggest risks don’t really pertain to the city of London (who’s core priority will be to allow some sort of system for the free movement of workers within their sector). The city’s strengths, paradoxically, make it a source of weakness. The Conservative government are confident London’s financial service based economy will adapt. This is much less the case with medium-tech trade and manufacturing (think Nissan and car manufacturing).

For all sectors of Britain’s political economy, a Norway style deal is probably preferable (European Economic Area). Theresa May, and political elites, are not likely to push for this, as it implies complete free movement, and won’t wash electorally. However, Theresa May will want access to tariff free trade, primarily to ensure that the North of England is not badly effected, and that firms such as Nissan in Sunderland don’t pull out and move to Spain. Manufacturing has more to lose than Finance.

This implies that Theresa May will push for a customs union – tariff free – allowing imports for British based manufacturing supply chains. The question then is whether it is a customs union for everything? Theresa May could opt out of agriculture, and then use this as a bargaining card in negotiating other international trade deals, outside the EU.

The question of free movement will be determined by how Teresa May considers Ireland. If she gives priority to maintaining free movement within Ireland (north and south), which I think she will, then this implies there will be no visa controls at the British borders. Hence, it is probable that Theresa May will aim to get a series of sectoral deals – and allow for the free movement of people within sectors, particularly ICT and Finance. This is what ultimately matters for the city of London.

Those most affected within the City of London will be legal services. British lawyers, who predominately rent off the finance sector, will no longer have a hearing on mergers and acquisitions within EU law. But I can’t see Theresa May negotiating a strategy to ensure British lawyers have access to EU courts. What she will want to ensure, on behalf of business and finance elites, is that the city remains a magnet for high-skilled talent. This could be achieved with sectoral deals.

Britain’s main bargaining card is that their consumption-oriented economy, and open labour market, in addition to a high-tech cluster in London, has carried the employment burden of the Eurozone’s labour market woes, in addition to absorbing so much labour from central and eastern Europe. Germany has done little, if anything, to increase domestic demand, to compensate this. So it’s worth asking, absent the liberal-oriented British economy, where will unemployed EU workers go?


Ireland ranks poorly in Western Europe in latest WEF competitiveness report

The World Economic Forum (WEF) have released their global competitiveness report. Ireland ranked 23rd, which was one of the lowest in Western Europe. Eleven other countries in Western Europe were ranked higher: Switzerland, Germany, Netherlands, Finland, Sweden, UK, Norway, Denmark, Belgium, France and Austria.


Inadequate supply of infrastructure was identified as by far the biggest deficiency, and the most problematic factor for doing business. In light of the upcoming budget it’s probably worth noting that all European countries who scored better than Ireland have a higher tax to GDP ratio. Revenue as a percentage of national income is higher in all these countries, which can be probably be taken as a measure of state capacity.

The full report can be read here, and the full listings here.

The European Commission Have Sparked a Revolution Against Corporate Tax Avoidance

The European Commission made a decision yesterday that is likely to revolutionise corporate tax law. To understand this, it’s important to step outside the narrow lens (and self interest) of ‘Ireland Inc’ and consider the global political background, from the EU perspective.

Globalization has made it much easier for footloose capital and international firms to move across borders, and avoid paying tax. This means it’s increasingly difficult to apply the principle that tax should be paid in the country where profits are made. It’s estimated that more than half of the foreign profits made by US firms are booked in tax havens.

In response to this, scholars in international political economy have long argued that to manage the worst effects of globalization, whilst retaining the democratic legitimacy of the state (tax and spend capacity), governments should shift governance up a level, beyond the nation-state.

The EU is perhaps the most successful example of this type of supranational governance in the world. It has an executive arm (the EU Commission) with legislative agenda-setting powers, and a supranational Court. In effect, European integration can be conceptualized as a political response to market globalization. But it has no tax and spend capacity.

The core actor driving the process of integration is the Commission. This was most obvious during and after the Eurozone crisis, where member-states, including Ireland, agreed to delegate more economic governance powers to Europe. This included the two-pack; the six-pack; the macroeconomic imbalance scorecard and the European semester. Lest we forget, the Commission was part of the Troika, who actively intervened in fiscal policies of the state, not least in terms of water charges.

All member-states of the EU have actively delegated sovereignty to the Commission to manage a whole raft of policy areas: agriculture, trade, fisheries, competition, the single market, regulation, health and safety. For members of the Eurozone, this pooling of sovereignty is even deeper, and explicitly includes monetary and fiscal policy competences.

Hence, to suggest the Commission has suddenly started intervening and undermining Irish sovereignty is somewhat disingenuous.

Social democratic oriented economies, such as France, Sweden or Denmark, have always tended to view the Commission as an agent of “neoliberalism“. It is perceived as having a narrow commitment to market liberalization, with no capacity to tax and spend. The implication is that the EU cannot build those social institutions that are necessary to compensate for the negative effects of increased market liberalization.

Liberal market oriented economies, such as Ireland and the UK (and parts of the German polity), have tended to view the European Commission as an agent of bureaucratic interference. It is perceived as a political actor that tries to expand it’s executive powers in those policy areas that should remain at the level of the nation-state: employment, social protection, welfare and taxation. The EU is a single market, and should be designed to reduce the transaction costs of trade, nothing more.

These two competing visions of the EU came to a head yesterday.

But for anyone who spends time in Brussels, it’s been a long time coming. In a world of global capital flows, the argument across European capitals has been that, at a minimum, the EU Commission must ensure tax coordination, to ensure that MNCs pay their taxes where profits are made.

Those governments, such as Ireland, that turn a blind eye, and facilitate corporate tax avoidance, have been increasingly viewed with hostility, as they are effectively robbing European citizens of scare taxable resources. This has often been missed in Ireland, as there has not been a public debate on corproate tax avoidance, and therefore it’s not a salient issue.

The EU response to this growing demand in Europe to stop corporate tax avoidance has always been, well, how? It’s a massive collective action problem that requires an assertive Commission, willing to confront rogue member-states, challenge capital interests, and be open to legal challenge. This is exactly what happened yesterday. The Commission concluded that those tax benefits that enable multinationals to avoid tax is a form of illegal state aid, and falls directly under competition law.

The fight is on.

More precisely, the Commission found that Ireland enabled Apple to avoid taxation on almost all of the profits generated by the sale of Apple products in the EU single market. In effect, Ireland facilitated Apple’s ability to build a colossal stock pile of cash that amount to hundreds of billions of dollars. As the Guardian editorial noted today, this is nothing more than “a rainy day fund for the super-rich“. If the Irish government challenge the Commission’s ruling, they are effectively legitimising this, even though they have closed off the tax loophole that made it possible.

All of the focus within Ireland has been whether the government should take the 15 billion. But again this totally misses the point. It’s not Irelands money. It’s tax that should have been paid in Portugal, Greece, Spain, Germany, France and other member-states of the EU, who, like most European countries implementing austerity, are pretty cash strapped.

This is why Ireland has been rightly called out.

In essence, it’s a distributional conflict. Ireland has facilitated one of the richest companies in the world to engage in corporate tax avoidance (money that should have been paid to other governments in the EU). In ordinary language use, this would be called theft.

In responding to the Commission, a clever strategy by the government would have been to accept the ruling; highlight that they have closed off the tax loophole; admit they are in a bit of a legal bind now; and then focus on what really matters in the long run for high-tech FDI: the human capital externalities of thick labour markets, which has been made possible by the process of European integration.

The EU Commission has acted in the general interest of European citizens and business. Hence, it’s decision is being welcomed almost everywhere outside Ireland. The EU Commission has shown that it can act as a supranational counterweight to the untrammelled forces of globalization.


New Release: The Central Bank Quarterly Bulletin 2016

The central bank have just released their 2016 quarterly bulletin. Box A on Page 11 discusses the farce of the 26.5 per cent growth.


“These developments reflect the statistical ‘on-shoring’ of economic activity associated with a level shift in the size of the Irish capital stock arising from corporate restructuring and balancing sheet reclassification in the multinational sector and also growth in aircraft leasing activity”.

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The housing crisis is all about the politics of debt.

Everyone agrees Ireland has a huge housing crisis. The housing “market”, if one can call it that, is completely dysfunctional. There is a massive shortage of supply, particularly in Dublin, and growing demand. Competitive firms are losing mobile workers by the day. Homelessness is on the rise. Rents are sky rocketing. Dublin house prices are back to silly-levels. The price-quality dynamic is totally out of kilter. Yet there is absolutely no reason why housing “supply” should be restricted.

There are literally thousands of empty properties around Dublin, loads of green and brown field sites, and tons of opportunities for housing development. Dublin is not San Francisco, where there is literally no where to build. The problem is that the banks are not lending. The government is intervening in a belated and piecemeal way. The fundamental question, therefore, is why? This is where economics meets politics. Constrained supply means rising prices. Rising prices makes it possible to manage the debt dynamics of the state. Supply is being restricted. It’s not a coincidence. It’s an outcome of incentives.

Yesterday’s “rebuilding Ireland” report is obviously welcome. However, all the policy focus on social housing and homelessness, whilst important, completely misses the core problem, which is that the banks control the market. The banks control the supply of mortgages and the supply of loans for development. In a housing market, if you control mortgages, property and builders, then you control the outcomes. It’s not in their interest to see a rise in supply. A rise in supply would reduce prices and expose the underlying debt dynamics of the bank’s balance sheets.

This is the real structural constraint facing government.

The banks don’t want anyone to sell under the asset (house) price to ensure that they can maintain their debt problem. If they can’t manage their mortgage debts, then the taxpayer has to step in and bail them out again, which clearly the government does not want to do. The structural problem underpinning the housing crisis is the bank-state nexus.

If NAMA or the banks fire sell housing assets to solve the housing crisis, then all those under performing loans/mortgages will be exposed. The debt dynamics of the banks will be exposed. The government will be exposed. Then the ECB is exposed.  It’s a house of cards and the only thing holding everything together are rising rental and house prices. Those renting (and those who don’t own mortgages) are ultimately picking up the bill for the last crisis, of which they had no part.

Hence, the structural constraint underpinning the housing crisis is a convergence in the incentive structure to maintain sky-high rents and rising house prices. It’s not in the interest of the Department of Finance, the banks, NAMA, and mortgage holders to see a rise in supply and a potential fall in prices. This is not to suggest that all these actors are sitting around a table conspiring to restrict supply. But all these actors are clearly aware that rising house prices means lower debt and more wealth. The politics of debt is about the politics of housing capital.

The real policy solution is radical intervention to fire sale the assets.

Compel the banks to lend for real development. Compel builders to borrow. The objective should be to bring down rental prices and house prices. Let the banks take the hit, then let them pass it on to the government, then let the government pass it on to the ECB. In the end, Ireland will be back to where it started: in a one-to-one negotiation with the European monetary system. Except this time, the Irish government should say to the ECB, tough shit, you pay. Our public policy priority is ensuring proper housing for our citizens as a social right.

This policy response is obviously dreamland. But you get the point.

This blog entry is based on two research papers I am working on: “Housing Capital is Back” and “House of cards: the real politics of the Irish housing crisis”. Most of the data to empirically corroborate the claims I have made can be found either at the Central Bank (the “Financial Summary” statistics pack), and/or in the Ratings Agencies of the Irish banks.

Property development

The farce of Ireland’s national accounts: let’s go plane watching!

Wow! Exports are up 34%; Investment is up 27%; imports are up 22%. Wham, bam, the economy grew by 26%. Sensational. Per capita income per person in employment has increased from a whopping 88k in 2010 to 130k in 2015. I’m sure you can feel the booming economy in your pocket? Of course you can’t, the national accounts are a sham.

So what’s really going on?

The increase in investment, although you can’t see it in the national accounts, is being driven by airline leasing. My hunch is that this has increased by about 110%. Airline companies of the world are effectively transferring their financial activities (as new aircraft machinery) into Ireland for tax purposes. As a student of mine nicely put it: imagine all those massive Boeing planes flying around the world, then imagine them in Ireland, and hundreds of people working on them. Where are they?

In truth. We couldn’t even fit these planes in Ireland. It’s just around 20 people managing a financial fund for tax avoidance purposes. Then using the generated money for profit redistribution. That’s what’s really go on.

The increase in exports, although more real, and somewhat more complicated, is a result of a similar dynamic. It’s large corporations transferring assets and IP patents into Ireland – with no real connection to employment – and then booking it as real investment, for tax purposes. There can be no doubt Ireland has an export-led economy, and this is being driven by US FDI. But these massive jumps in growth are not linked to real goods/services. They shouldn’t be in the GDP figures.

The 26.3% makes for a great media headline. But if the media want to go find this growth, they might as well go plane watching at Dublin airport. It’s a farce. There is simply no credibility to the national accounts. Most serious observers looking in at Ireland, know this. And this is what should really concern the government and civil servants.

Follow me on twitter @aidan_regan


The rise and fall of social partnership: do governments need trade unions?

During the 1980’s one of the core economic problems facing the Irish government was minimising strikes and controlling wage inflation. The rise in inflation was widely attributed to individual trade unions using their collective bargaining strength to push up wages at the expense of competitiveness. This policy continued despite the rising unemployment crisis. Over 50% of the workforce was unionised, and 70% of it was covered by some sort of collective bargaining agreement. Crucially, unions were organised in the core export sectors of the economy.

From 1981 to 1986 the Fine Gael/Labour government employed a simple strategy: they ignored unions. They excluded them from policymaking and promoted firm-level wage setting. This was fine in theory, but in practice, it meant chaos. It meant that a fragmented union movement, with little or no coordination from the ICTU, continued its strategy of wage militancy. Unemployment soared. Spending on social welfare increased by over 200%. In the decade from 1980 to 1990, there were over 400,000 days lost to industrial action, one of the highest recorded in the OECD at the time. The government responded by raising income taxes. These were followed by a series of mass demonstrations, initiated by the ICTU, leading to one of the largest public mobilisations against an elected government in the history of the state.

Eventually, through engaging with the ICTU and the employer associations, the new Fianna Fail government of Charlie Haughey brokered a new centralised political deal with ICTU – key to this, was the unions’ acceptance of wage restraint in the interest of national competitiveness (to complement the gains of the 1986 currency devaluation). In return trade union leaders would only end their strategy of wage-inflation and industrial militancy if they were granted political access to the public policy levers of the state (particularly fiscal policy). The unions were off the streets, and it was the beginning of twenty years of national ‘social partnership’.

What ICTU could offer a weak government during this period was stability. It could refrain from industrial action, negotiate reform and get its members to comply with wage restraint. All of this, however, was dependent upon the ICTU having the legitimacy to be considered a representative of working people. In the 1980s, this legitimacy was generated from having a broad and inclusive membership in both the traded and non-traded sectors of the economy. But throughout the late 1990’s and 2000’s, trade union membership was increasingly narrowed to the public sector, with the implication that ICTU became a weakened social partner.

From 2008-2009, during the economic crisis, FF eviscerated social partnership and cut public sector pay twice. ICTU attempted to mobilise public opinion against government austerity. The strategy backfired. All attention focused on the rise in public sector pay from 2002, as part of the benchmarking process. Public distrust in unions jumped from 30 to 55%. Unlike 1987-1992, trade unions were increasingly perceived as a public sector interest group, lobbying government in defence of overpaid civil servants, and labour market insiders.

The weakened ability of ICTU to be considered a social partner is intimately bound up structural changes in the labour market, which have affected all western economies. Collective bargaining coverage (the percentage of workers covered by a negotiated agreement) declined from approximately 71% in 1981 to 40% in 2010. In the late 1980’s, most of the Irish export sectors, and the commercial semi-state sectors, were highly unionised. In 2011 the 400,000 days lost to industrial unrest had dropped to 3,700, the lowest ever recorded.

What does all his mean? ICTU has lost the stick of protest to threaten government and the carrot of problem solving. Overall trade union density has declined from 35 per cent in 2007 to 27 percent in 2015, an all time historic low. In the private sector, density has declined from 24 per cent to 16 per cent. In the public sector, density has remained strong at over 60 per cent, whilst collective bargaining remains at least 85 per cent. Unions in the public sector are simply too strong to be ignored.

Outside the public sector, it has been assumed that the government no longer need private sector unions to guarantee national competitiveness, or to ensure industrial and political stability. The recent LUAS strike, however, challenges this assumption. Previously this strike would have been solved within the institutions of social partnership. SIPTU shop stewards would have been brought into line for breaking a national agreement. Much like the 80’s – in the absence of a strong ICTU, and a national process to solve wage and labour market problems, individual unions are now free to pursue their own self-interest without constraint.

This creates a strange paradox. In the context of EMU currency constraints, the only policy instrument left to government, aimed at coordinating cost competitiveness, is wage and labour market policy. During the crisis, collective bargaining was re-centralised in the public sector and de-centralised to the market in most of the private sector. But contrary to a lot of neoliberal market assumptions, it was the centralised institutions of collective bargaining in the public sector that made possible a coordinated “internal devaluation”. In the absence of the public sector agreements (Croke Park and Haddington Road, in particular), it is highly questionable whether the government could have implemented their fiscal adjustment policies whilst retaining social peace.

This observation complements a large body of research in comparative political economy, which suggests that coordinated wage setting, rather than the market, is better placed to generate the conditions for national competitiveness. Think Germany.



Globalization, Brexit and the prospect of European disintegration

Britain has voted to leave the European Union (EU), or more accurately, England has voted to leave. The majority in Scotland, Northern Ireland and Gibraltar voted to remain. The opinion polls, the bookies and the markets did not predict this outcome. The mood of the nation, it would seem, is becoming increasingly difficult to measure. Or is it?

There is a lot of data suggesting that ‘immigration’ was the dominant concern for those who voted to leave the EU. This should not be too surprising. In the latest Eurobarometer data, immigration was cited as the main concern of UK citizens, alongside Germany and Denmark.

According to YouGov data, which is more revealing, income was the best predictor as to whether someone intended to vote to leave or remain. Basically, the lower your income, the more inclined you were to vote leave. Some have referred to this category as ‘those with lower education’. But let’s be honest, it’s called social class.

Another predictor as to whether someone was more inclined to vote leave was age. Younger, more liberal voters, were much more supportive of remaining in the EU. The only problem with this category of voter, is that they failed to turn out en masse to vote. According to the data, electoral turnout among 18-25 year olds was fairly weak. Older conservative citizens were much more inclined to vote.

The precise data on how particular communities and constituencies across England voted is perhaps most revealing. The poorest twenty districts in England overwhelmingly voted to leave the EU. Or to get at it another way, according to this report, those areas with the most stagnant wages are the same communities with the most anti-EU attitudes.

What can we infer from all of this? What should EU policymakers infer from all of this?

The core inference is that England is a deeply class divided society, and that the poorest in England are increasingly venting their anger at immigrants and the EU. Further, and not captured in the Brexit data, right-wing political parties are now mobilising working class England.

Those same electoral constituencies most likely to vote leave, and with the most stagnant wages, are the same constituencies most likely to vote for the far-right populist UKIP party. In addition, they are the same people most likely to be discursively conscripted into the anti-immigrant lies of England’s infamous red-top tabloid press.

Class politics in England increasingly overlaps with enthno-nationalism, whereby identity and immigration, rather than economic self-interest takes precedence in shaping electoral behaviour.

In political science, there is a large literature on economic voting. One of the core findings of this literature is that in times of crisis and economic austerity, voters punish incumbent governments. This is partially what happened in the UK. Disenfranchised working class voters punished the Tories, liberal elites, the EU and the city of London.

However, the economic voting literature, whilst useful in describing why voters punish government, tells us very little about who these voters turn to, when expressing their social grievances.

In theory, those voters most affected by austerity, unemployment, underemployment and precarious work, would turn to parties on the left and those parties committed to reducing economic inequality. Most research, particularly within Europe, however, suggests, working class voters are turning to the ethno-nationalist right.

To put it simply, those affected by austerity and right-wing economic policies don’t necessarily vote in their class interest; they increasingly vote in their ethno-nationalist interest. UKIP’s economic policies are aggressively libertarian, not social democratic.

Economic liberalisation, rising inequality, and the complete free movement of peoples has social and electoral consequences. Societies will react to this disruption in different ways. Nationalism provides a sense of meaning, community and belonging, to those most affected by liberalisation. Far-right parties, such as UKIP, know this.

This realisation, however, does not seem to have seeped through to policymakers in the EU or  Germany, who, despite a near complete destabilisation of the parliamentary party system in Southern, Eastern and Central Europe, remain committed to their failed neoliberal economic adjustment of austerity induced cost competitiveness.

Most political science research in the aftermath of the great recession increasingly suggests that not only are electorates losing trust in the EU, but that the support for national democracy, in general, is in decline. When the politicians change, yet the policy remains the same, voters lose trust in the institutions of liberal democracy.

The question for national leaders in the European Council, and policymakers in the European Commission, is whether they need to wait for the election of Trump in the US, Le Penn in France, or the Five Star Movement in Italy, to realise that their economic policy response to the crisis has failed, and must fundamentally change?

Polities disintegrate when they begin to loose control of their external borders and their internal legitimacy. Or, as W.B Yeats poignantly wrote in 1919, “things fall apart; the centre cannot hold; mere anarchy is loosed upon the world“.  The UK and the EU are now faced with the potential for disorderly disintegration. Political scientists are accustomed to thinking that ‘more EU integration’ is inevitable. This is wrong.

Yeats wrote this after WW1, which coincided with the end of the first wave of free-market globalisation, when economic inequality peaked, much like today. In many ways Brexit can be interpreted as Europe’s Polanyi moment. It was a counter-reaction to a political economic system that is perceived to be designed in the interest of the comfortable elite.

It would be naive to assume that the popular reaction to rising inequality, precarious work, economic uncertainty, liberal elites and fear of immigration will lead to something politically progressive. The wave of anti-immigrant, nationalist sentiment, sweeping England, clearly shows that it won’t. France could be next. The EU should not wait to find out.