The heads of UCD and Trinity reflect on the findings of the Innovation Taskforce is today’s Irish Times. I think they provide a timely clarification on the rationale for supporting university research. The idea that the purpose of research is to generate discrete technologies that can be commercialised by Irish firms has gained surprising currency. While this idea does get some empirical support from the literature on localised knowledge spillovers, it is too weak a foundation to support a costly investment programme. A more encompassing rationale includes the role of research—and particularly the integration of teaching and research—in ensuring the broad innovation capabilities of Irish graduates. Brady and Hegarty sum up this broader human capital rationale well:
Author: John McHale
It is not surprising that economists raise a cynical eyebrow at corporate-speak-filled innovation reports. Last week we had the IDA’s Horizon 2020; this week it was the turn of the Innovation Taskforce with its Innovation Ireland. But it would be a mistake for Irish economists to disengage from the debate given the impressive body of literature on the economics of innovation we have to draw on.
Colm McCarthy makes a strong case for a bank resolution regime in today’s Sunday Business Post (article here). If I understand intent of the argument correctly, however, Colm is proposing the regime as a critical element of a new regulatory system for the long term. He is not proposing it as a means of imposing loss sharing on existing creditors. Looking to the longer term, he argues that a resolution regime will make it possible to withdraw the guarantee.
The wide-ranging guarantee of bank liabilities announced at the end of September 2008 runs out in little more than six months. Assuming that the banks have been recapitalised by then, the government can minimise subsequent risk of exchequer cost through getting out of the guarantee business as quickly as possible.
Bank resolution legislation – clarifying the power of the authorities to ensure that all providers of risk capital share quickly and appropriately the losses incurred by failed banks – is an important component in the state’s exit strategy from the banking collapse.
I believe the more pressing issue is to have a resolution regime in place for the period after the current guarantee expires and before existing subordinated bonds mature. If the banks are insolvent, or at least incapable of reaching minimum capital adequacy requirements on their own, there should be a willingness to impose these losses on creditors, most likely as part of the debt-equity swap long advocated by Karl Whelan.
The new National Pensions Framework is available here (press release here).
Details are surprisingly sparse in places for a document so long in the making. But the proposed reforms are generally sensible. It is also good to see recent behavioural economics research having an impact on policy. Some highlights:
· The retirement age is to rise in stages, reaching 68 by 2028. While this is unlikely to be the end of the increases, it provides a good start in terms of reducing long-term fiscal imbalances. Getting better control over long-term finances will also help boost near-term creditworthiness, especially as the NTMA attempts to issue 30-year bonds
· The new auto-enrolment scheme (to be launched in 2014) is well informed by work in behavioural economics. The design details generally make sense: automatic enrolment (with automatic re-enrolment after two years for those who opt out); matching government and employer contributions; low administrative costs through utilising the PRSI system, and low-cost investment defaults
· Tax relief standardised at 33 percent rather than at the marginal rate. This is high enough to provide an incentive for pension provision, while getting rid of a regressive feature of the old system
Yesterday’s QNHS (Q3 2009) release provides a timely update on trends in the immigrant workforce. In the period from the third quarter of 2008 the number of non-Irish nationals in employment fell by 61,600. This is equals half the fall in the employment of Irish nationals (123,200), even though non-nationals represented only 13.6 percent of the workforce in Q3 2008.
It is also evident that many immigrants are returning home, with the total population of non-nationals (15 and over) falling by 41,000 over the year. This might be welcomed in the short run if it limits the rise in unemployment. But returnees also ease the downward pressure on wages. Over the medium term, it is not a bad rule of thumb to view a country’s equilibrium unemployment rate as independent of the size of its labour force.
Looking to the longer term, the return to net emigration is a worrying development. As is often observed, Ireland’s high degree of factor mobility makes the economy operate more like a regional than a typical national economy. An expanding skilled workforce gives the economy the scale, diversity and connections to support innovation-intensive growth. Indeed, the empirical regional/city growth literature points to initial human capital as a strong predictor of subsequent growth (see here). A truly smart “smart economy strategy” will recognise the value of getting–and keeping—talented people here.