Category: Economic Performance

National Competitiveness Council Report

The National Competitiveness Council is a social partnership body set up in 1997. It “reports to the Taoiseach on key competitiveness issues facing the Irish economy and makes recommendations on policy actions to enhance Ireland’s competitive position.” As with all such bodies, the Council members are the usual smorgasbord of trade unionists, business and financial interests and civil servants, chaired by a safe pair of hands in the form of a former senior civil servant.

Today, the NCC released a report titled Getting Fit Again: The Short Term Priorities for Restoring Ireland’s Competitiveness. You can find it here.

The report makes various recommendations to the government. Some of them—like introducing a property tax, reforming the public sector and, uh, resolving the banking crisis—are generic and would be agreed with by the vast majority of economists and other bodies advising the government. A picky person like myself will find something to disagree with (such as the recommendation to prioritise capital spending) but most of it is fairly unobjectionable.

But that’s the problem. By and large, the report looks and reads like exactly what you’d expect from a body of this type. It’s a glossy and somewhat bland document that does not in any way challenge entrenched government positions (for instance, the document regularly pauses to praise the Smart Economy plan, which most informed economists that I’ve spoken with consider to be an excellent example of Emperor’s New Clothes).

There’s plenty of evidence to show that I’m not the world’s biggest fan of the Blueshirts. But on this issue, I was reminded of a passage from their Streamlining Government document. The FG document pointed out that social partnership

has given rise to the creation of new state agencies. For example, the desire of unions to show that they were using the social partnership system to assist their members who could not afford a home during the housing boom gave rise to the Affordable Housing Partnership (AHP). Unfortunately, it has not given rise to many affordable houses.

In a similar vein, business and corporate interests were given the National Competitiveness Council (NCC) so that they could tell their members that the social partnership process was being used to address Ireland’s loss of economic competitiveness. In reality, our competitiveness has continued to decline. When it comes to housing and competitiveness, we do not need more agencies, what we really need is the right policies and ministers who will to implement them.

The NCC believe the government should cut current expenditure. I reckon that eliminating their budget would be a good place to start.

The IMF and Institutional Reform in Ireland

The IMF report highlights two areas for institutional reform.  This is important, since institutional reform can be helpful not only in resolving the current crisis but also in preventing future crises. In particular, the IMF report advocates:

1.  A special bank resolution regime. “Such a regime would recognize the unique role played by banks in the economy and give the authorities the power to quickly transfer assets and deposits to another institution (a purchase-and-assumption transaction) or to establish a bridge bank (a new limited life bank into which the old bank is transferred to facilitate its sale).”

2. A statutory fiscal rule. “In this regard, a fiscal rule can create the basis of a public commitment to fiscal prudence. This would be valuable for navigating the ongoing politically-sensitive consolidation and maintaining long-term fiscal policy stability. In the context of the European Union’s Stability and Growth Pact, a statutory commitment to a medium-term objective of close to structural balance would be appropriate. This would need to be supported by a medium-term expenditure framework that outlines a detailed time path of expenditure reductions. Transparency and mechanisms to ensure the review of these objectives would limit the risk that they are diluted. While the authorities were supportive of such a rules-based framework, they were less sure of how quickly it could be implemented.”

Buiter on Reform of the Financial Sector

Willem Buiter has an interesting posting on the re-design of the financial sector here.

Baby Boomers

The number of births recorded in Ireland reached a twentieth century peak of 74.0 thousand in 1980 and fell to an all-time low of 48.2 thousand in 1994.

Births began to increase in the second half of the 1990s and the rate of increase has been rapid over the past five years. The latest figures released by the CSO (Vital Statistics Third Quarter 2008) raise the possibility that the 1980 peak may soon be surpassed, although of course this would still imply a significantly lower birth rate as the population is now some 30 per cent above its 1980 level. The TPFR (total period fertility rate – roughly the number of births per woman over her child-bearing life span) declined from 3.23 in 1980 to a low of 1.85 in 1994 but was back up to 2.03 in 2007.

These huge swings in the birth rate have serious implications for resource allocation, especially in the health and education sectors. The Dublin maternity hospitals are now bursting at the seams, while the educational system will continue to feel the impact of growing numbers of school-age children for years to come.

Will the number of births continue to grow? Population projections are notoriously uncertain, at best serving to illustrate the implications of alternative assumptions about key demographic variables.  The projections for 2011-2041 published by the CSO in April 2008 assumed that the TPFR would decline to 1.78 by 2011, which seems a high given the continuing buoyancy in the birth rate.

But there are reasons for believing that the birth rate could suddenly take a nosedive, as happened in the 1980s. The peak in the number of births recorded in 1980 was quite dramatic and the subsequent rate of decline steep. (The decline began shortly after Pope John Paul II’s visit to Ireland in September 1979, when he preached against contraception and abortion.)  More significant is that it coincided closely with the sharp rise in unemployment as Ireland entered the deep recession of the 1980s. The following graph shows the correlation between the number of births (four quarter moving average) and the seasonally adjusted numbers on the Live Register, lagged three quarters.  The coincidence between the peak in the number of births and the floor in the unemployment rate is striking.

The second graph is the comparable picture for the years 2005 to date (using the standardised unemployment rate in place of Live Register figures).

The unemployment rate began to increase dramatically in the second half of 2008, so it should begin to affect births registered from the second quarter of 2009 onwards.  The latest available data are for 2008Q3, but it is interesting to note that the graph shows the number of births plateauing over the period 2007Q4-2008Q3.  If the experience of the early 1980s is anything to go by, this graph will nosedive over the coming years. Watch this space!

The Central Bank of Ireland Commission

Minister Lenihan has announced  the new financial regulatory framework for Ireland: details here.