Speaking Truth to Power(lessness)

One of the more remarkable episodes in the recent French presidential election, and with wider lessons, was a heated debate in Amiens between Emmanuel Macron and workers at a Whirlpool factory under threat of closure.

While Macron was holding talks with city and union leaders in the chamber of commerce, Madame Le Pen arrived unexpectedly outside the factory gates, took a number of selfies with workers, promised unspecified special measures to save the factory, denounced Macron and was driven off in her election bus.

After his meetings, Macron arrived at the same factory gates to face booing and jeering and cries of ‘Le Pen for President’. After explaining why he had met the leaders ahead of the workers (because, he said, leaders of a trade union that behaves responsibly should be engaged with), he promised to answer all questions, and he did for an hour. The following is my attempt to summarise the subsequent questions and answers; it involves some rearranging.

Q: Why don’t you close the French border, for instance to imports from Poland where wages were low.
A: I won’t close the borders or roll back globalisation because it will cost French workers thousand of jobs if they work for firms that need to be able to export.

Q: There no work, it’s too late for us to find other work, we are unemployable.
A: Absolutely not true. There is work but it is different work and it requires retraining.

Q: Why are companies allowed to pay dividends at the same time as they are closing factories?
A: Stopping dividends, or banning factory closures is not possible. It would end foreign investment into France, and all the jobs those investments bring.

Q: Our factory needs special measures.
A: It is the responsibility of the workers and managers to make a success of the business. It’s not the responsibility of the Finance Minister, who should firmly and even-handedly apply policies and laws that support long-term economic development. Even with the best policies and laws, unfortunately some factories will still close.

Macron’s reaction to almost every single thing said to him is an impassioned ‘Non, non, non.’ It is difficult to think of other examples, anywhere, of a politician, during an election, in front of the television cameras, telling voters he would not do what they asked because it would not be in their interests, but would instead support the policies the voters blamed for their difficulties. I won’t do things that won’t work, he says at one point. That’s not the policy I support, he says at another.

45 minutes of the discussion is to be found on the last video link on this page of the En Marche! party website. The first 9 minutes is an argument over why Macron went first to the chamber of commerce, and why he waited until the second round of the election to visit factories such as Whirlpool’s; the policy debate begins after that. In parts of the recording, Macron plunges into the crowd and the exchanges can’t be heard very clearly.

In praise of being unable to pronounce Aer Rianta

Writing about the shortcomings in the Gardaí’s treatment of whistleblowers, yesterday’s Irish edition of The Times commented:

The problem with the organisation as it is currently configured is that all senior posts are filled by members who have spent their entire careers in the force. Under that system, there is very little opportunity for critical self-examination. It is about time this changed.

In fact, this same ‘closedness’ is widespread throughout the Irish public sector – in the civil service, the semi-states, the regulatory agencies and so forth. While these bodies may not be quite as sealed as the Gardaí are, true outsiders are rarely found.

One result is what Dan O’Brien calls the ‘decent skin’ problem – excess sympathy for under-performers. A given manager/CEO is acknowledged to do their job poorly, but as they are a decent skin on a human level, there is reluctance to judge them too harshly.

A second result is ‘capture’, in its many manifestations. Concerning the regulatory aspect, recruiting a proportion of high-quality foreign staff is a substantial barrier to capture generally as well as, in my experience at least, adding to what The Times called a culture of ‘critical self-examination’ in an agency. Even if the persons concerned struggle to pronounce some phrases (e.g. Aer Rianta, An Bórd Pleanála).

A tiny society, where practically everyone is someone’s cousin, on a tiny island, where practically everyone is someone’s neighbour, is at risk of a culture where the indigenous flinch from holding failures to account.

One way to compensate for the costs of smallness, capable of reasonably rapid application, would be to aim to have a minimum proportion of senior managers in key organisations recruited from abroad. Outside the central bank it is hard to think of examples where this has happened.

European Aviation Conference coming to Dublin on 13-14 November 2017

Many aspects of air travel now taken for granted derive from the obscurely named ‘Third Aviation Package’ of air travel liberalisation measures that took effect on 1 January 1993, nearly 25 years ago.

The impact of these measures – areas of success and failure, and areas still needing resolute action – will be the broad theme of the European Aviation Conference to be held in Dublin (for the first time in Ireland) in November. The conference will be hosted by DCU, home of the Dublin Aviation Institute and of undergraduate and postgraduate degrees in aviation management, on Monday and Tuesday November 13-14 November. Updates will be available as arrangements advance here.

On the following two days, DCU Business School will host a COST meeting on air transport and regional development (ATARD). The COST webpage here will provide additional information in due course.

The third package liberalised two main areas. Airlines were allowed to fully determine their own ticket prices and obtained an unrestricted right to offer air services to other EU states. The package replaced the arcane ‘bilateral air service agreements’ that preceded it – but that still dominate international air travel.

Academics and others with an interest in these events can contact me in DCU should you wish.

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.

Reformed central bank regulators criticised for being, uh, ‘awake at the wheel’

Three people bid for a house, each using a mix of savings and borrowings; the highest bidder wins. Now suppose each had been prepared to spend more, and each bidder’s bank had extended an additional €100,000 of credit. Nothing changes in the aggregate – one house is bought and sold – except that the buyer has an additional €100,000 of debt (and the seller an additional €100,000 of cash.)

How is that a better overall outcome?

When supply is constrained, credit limits are needed (from a central bank, or internally to the banks themselves) to prevent lending driving up house prices and household debt as borrowers compete against one another for a fixed supply of accommodation. Under boom-time conditions, prices rise to levels Ireland saw ten years ago. Any sensible regulator would seek to put a stop to such a spiral, and should expect to receive the support of politicians, the media and a responsible industry.

But the Irish Central Bank’s mortgage lending controls seem to leave it standing almost alone, criticised by the building industry, the banks, politicians and journalists for being – what? – ‘awake at the wheel’? These controls protect buyers from over-paying. Yet the Central Bank is pictured as punishing the consumers it is protecting. (‘Only the rich can now afford housing’ says the newspaper headlines, but without credit limits only the over-indebted could.)

This is remarkable on many counts.

The Crash is not over, but already many seem to have tired of financial regulation. Denounced for failing to act in the boom, the Bank is now denounced for limiting wasteful bidding wars. Meanwhile, largely uncriticised and indeed not much commented on, local authorities construct elaborate and costly planning rules that increase housing costs. That’s without considering what Colm McCarthy calls (in today’s Sunday Indo) the ‘elephant in the room’: the planning and zoning restrictions that create an artificial housing shortage in the first place. Curiously, we criticise regulations that protect us and not the regulations that harm us.

The media present the lending rules as adjustable but house prices as fixed. The opposite should be the goal of policy. If today’s prices and lending limits require a level of savings impossible for most intending house-buyers to achieve, this means house prices are too high not that regulatory rules are too tough. Do we want everything else to be cheap but the most substantial purchase – housing – to be dear? Perhaps we do; Aidan Regan has recently argued on this blog broadly along these lines. When the number of house owners dwarfs the number of marginal buyers, the intergenerational political economy gets very ugly.

To tackle the housing shortage we should leave bank regulators to do their job, and deal with the policy obstacles that cause so few houses to be built. Don’t tackle one problem by creating a second. And don’t fuss over bank regulation to avoid looking at underlying planning, zoning, intergenerational and NIMBY problems.

A scarcity of accommodation is not solved by lending limits. But house prices are lower, mortgages smaller, banks safer, and taxpayers sleep more peacefully; admittedly miscellaneous middlemen may earn lower fees and journalists have to search elsewhere for a story.

Credit limits protect house buyers when there are more buyers than the kinds of houses they want to buy.

Aviation conferences and meetings in November

The 2015 meeting of the European Aviation Conference (EAC) will take place this year in Cranfield University on November 19th and 20th. Academics, business and industry figures will debate whether the momentum behind airline liberalisation over past decades is now spent, as some evidence suggests.

The conference programme may be inspected and a booking made on the conference website.

Preceding the EAC will be the 2nd COST Workshop on Air Transport, Regional Development, Airport Hubs & Connectivity, which will take place at the University of West London (17 November) and Cranfield University (18 November). The program for the Workshop is available on the German Aviation Research Society (GARS) website where, as always, aviation-research-related information is updated continuously; see www.garsonline.de