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  • irishtimes.com - Posted: July 21, 2009 @ 7:38 pm

    Bigger questions

    Harry McGee

    This half of the Politics blog has been away for the past couple of weeks. The village in the Swiss Bernese Oberland that I stayed in had the connectivity of rural Ireland. That, added to the extortionate rates that O2 charge for data roaming abroad (and I’m sure it is no exception) meant that little news from Ireland came through.

    I write this on my first day back, having no knowledge of the Bord Snip Nua report other than a couple of headline cuts it has proposed, plus its overall target. I also know that when I get a chance to trawl through it, little will surprise me.

    There are a couple of general philosophical points to be made about the McCarthy group, its remit and its outlook. My colleague’s Fintan O’Toole’s column today (read it here) demonstrates amply the narrow ideological base of the group and the skewed outlook they may have on what some people in society should except and what others in society deserve.

    There has been a reaction to the crisis in the media, among the oppositon, and among sectoral and vested interests that has – to be polite about it – been pavlovian; and – to be impolite about it – has been of the headless chicken variety.

    State revenues and expenditure form only a portion of the wider economy. Sure, the numbers of public servants employed, and their salaries, have risen disproportionately and need to be corrected (ie lowered). But you’d swear, reading and listening to some of the commentary, that grasping and grabbing public servants are the whole of the problem. They are not.

    The Government, through soft-policy solutions like benchmarking, facilitated the huge increase in spend. On the other side of the equation, it placed a reliance and trust in temporary windfall tax revenue as if property prices would continue to raise adinfinitum.

    Its biggest crime, though was to allow the continuation of property tax breaks for hotels, city centre developments, apartments, shopping centres etc long after there was a need for them. Both Charlie McCreevy and Brian Cowen as Ministers for Finance promised to end the schemes. But they both tarried. And allowed them such long phase-out periods that the greedy glut that the schemes encouraged continued apace.

    How many tax-break hotels have been built in Ireland over the past 15 years? How many rooms have been added? By what multiple do they exceed the actual tourist demand? Did any of the fancy spas and leisure complexes attached to every hotel in the country ever make a profit? How many will now go to the wall even with the benefit of genorous tax incentives?

    There are other wider questions about the society that we created collectively over the past ten years. And about the communal denial that the good times would ever end. It was viral – few remained uninfected by the disease.

    The details of McCarthy are details. They will be debated and parsed, tweaked, amended. The more fundamental questions are of a much broader nature. And they are the ones that need to be addressed. There are questions about the banks, driven by greed, going AWOL from their senses and driving their own foreign borrowings up from 7 per cent of GNP to a stunnign 45 per cent within a decade. It’s what happened with derivatives and sub-prime loans in the US. They were repackaged. And even though they were dodge, the financial houses put pressure on the three rating agencies to give them triple A. And because of the hype and the frenzied auction atmosphere, they all capitulated.

    Same here. Banks bowed over one another to give bad loans collateralised on bad loans. We gasped at how bankers were stupid enough to approve loans to that shyster Michael Lynn. But he wasn’t an exception. The more we learn, the more we realise that his case was the rule.

    I agree with Dan Boyle that at least some of those wearing snazzy ties and bespoke suits should have porridge on their breakfast menus for at least a couple of years.

    Nobody questioned the orthodoxies then.  

    And nobody is questioning the new orthodoxies that have replaced them now.

    One of the most unfortunate aspects of a settled democracy is that all the political parties come up with solutions that differ remarkably little from each other.

    What should we be questioning?

    I claim no expertise and can promise no exhaustive list.

    But these are some of the questions that have occurred to me. Nor can I provide any real answers?

    Are cutbacks in public services the only options open to the Government?

    Is our society really too small to try some form of stimulus package?

    Will getting public borrowing back to within 3 per cent of GDP by 2013 actually cause more damage than good, by flooring all acitivity within the economy?

    Should bond holders (specifically senior bond holders) be protected at all costs and treated exactly the same as depositors? Was there no risk inherent in their investment?

    Why did nobody question the orthodoxy that prevailed about low taxation for a decade, when it was clear it was all being funded by a property bubble? Why did Fine Gael, Labour – and even the Greens and Sinn Fein – fall into line on those?

    Why the focus on public spending and the banks? Where are the ideas in relation to the wider econonomy?

    • Liam says:

      We are where we are, the important question is what happens over the next few years. In the US, Biden came out with a priceless comment along the lines of, “We have to keep spending or else we will go bankrupt!” With that kind of quality analysis, we have nothing to worry about

    • Joanna Tuffy says:

      Just in relation to the point you make that the numbers of public sector workers rose disproportionately, that is not borne out by the OECD Report in to Irish public services, published last year. As I understand it that report found that in comparison to other countries Ireland’s public service was small and that although it had increased over the previous decade it was in doing so playing “catch up” with the public services in other countries.
      Something else that people need to be reminded of is that in 1995 there werer 40,000 community employment scheme places. There are about half that number now. How many public sector jobs that were created in the last 12 years in effect replaced community employment scheme jobs and the social employment scheme jobs that predated them? I remember people on employment schemes working in schools for example.
      I myself worked on a social employment scheme in a hospital. Are we, when the 17,000 jobs are gone in the public sector going to have to replace them again with community employment scheme places? And just to back up that that might be the trend, the City and County Managers advised an Oireachtas Committee last month that they had cut about 1800 staff in the past few months. What has it done since? It has applied to FAS to see if workers can be employed on City and County Councils on FAS schemes. Is that public sector reform Bord Snip Nua style?

    • robespierre says:

      Ah but in Biden’s case that is not so far from the truth. So much of Asia’s wealth is tied up in US Forex and Sovereign debt that the US can keep spending and eventually get its way out of recession. The alternative is to raise taxes punishingly and American’s particularly someone from Chicago as Obama kind of is, would be more of the supply-side persuasion.

      I cut costs in businesses and public sector agencies for a living. I do not have an ideology in my day job other than increasing effectiveness (making routine tasks more consistent and standard) and improving efficienicy (taking unnecessary waste out of processes). Sometimes this means replacing manual tasks with technology, sometimes it means stopping something totally, sometimes it means simplifying the way things are done or the number of services offered.

      An example of this is administration of benefits across all departments and agencies. The amount of general ledger adjustments alone that this creates on a monthly basis prevents any finance department from closing the books quickly each month and reduces the amount of time they have to act as an advisor to the Garda Commissioner for example on bang for buck.

      We should be focusing on simplifying tasks and freeing up high value resource time to concentrate on driving value from services that we are paying for. Where there is no value, the task / process /actvity should be stopped.

      That is what we do in business and it is done that way because shareholders want and deserve a dividend for their enterprise and the risks they take in speculating and creating wealth.

      It is not ideological to suggest that teachers should be measured and principals helped to get rid of poor performers without union interference protecting non-performers. There are thousands of hungry, trained teachers willing to grab a chance at a full-time job. I know of one school in wexford where over a thosand applications were received for one permanent teaching position.

      It is the willingness of Unions to protect poor performers that causes a lot of the inefficiency and lack of effectiveness as the most efficient and effective processes in the world still need people to kick them off and complete them.

    • Dan Sullivan says:

      Joanna, it should also be remembered that the public services offered in many other countries are more extensive and widely available than ours. In effect, we employ more to do less while spending more to achieve less. The most basic example is our public health spending. The NHS is an all embracing, cradle to grave public health system geared towards providing a comprehensive service for every man jack of the UK population and funded with that intent. Our health system with current spending that is not that far off the UK doesn’t provide free GP care for the bulk of the population nor does it even manage to provide hospital care completely free of charge either. So we spend more for less. And we don’t have to go much beyond our consultants to see that the rot starts at the top.

      Q. Are cutbacks in public services the only options open to the Government?
      No, they’re not and in the long term we have to broaden the tax base which is another way of saying people who don’t pay tax at the moment should pay it in future. But it takes longer for new tax to come in than it takes to make a cut in spending, hence the focus for now at least on spending. Fact is not alone did the banks, developers and politicians lie to the people down the years but the people were quite busy lying to themselves too. One of the most commons lies is that “my job is really hard” by which they mean harder than that of others. In other words other people’s jobs are easy, mine is hard, pay me more than them. Fact is most jobs are hard, that’s why what is involved is called work.

      I’ve also come across people bemoaning their woes about having to pay waste charges when they’re on a pension. There are people on pensions (old ladies on the state non-contributory) and there are ‘people on pensions’ (gents playing golf in their early 60s, whether former public servants or the self employed who can make generous provision for themselves.), just because someone is old and on a pension doesn’t mean they are poor. But you don’t get elected by telling people they’re not so badly off. The medical card for the over 70s is a classic example of thoughtless spending on some who didn’t need it. It should never have been given out as a universal benefit. In the same way with tax reductions I personally thought that we should never have had the permanent reductions in taxation but should have gone the American style rebate route instead.

      Q. Is our society really too small to try some form of stimulus package?

      A large scale centrally managed and distributed system wouldn’t do much and would need to be paid for by more borrowings or increased taxation. Some alternative that involved more local spending might be better, a workfare system directed at volunteer work. As Joanna references the CE schemes and such like are a good means to spend money that will stay local. But they should be for things we don’t normally expect the state to pay for or else they become a cheap substitute. The problem with the CES was that they become over time work on the cheap for the state and people involved thought of them as permanent positions for them and them alone i.e. their job. The schemes had been intended as a means to get work experience before moving on to other work thus freeing up the place for someone else.

      Q. Will getting public borrowing back to within 3 per cent of GDP by 2013 actually cause more damage than good, by flooring all activity within the economy?

      It should remain a desired goal but we should be clear about why it is a goal. Not because it is a nice number or to do with our commitments under the Euro but because it would mean we were close to living within our means. That is what we have to do live within our means. And we do need to get back to that, but it’s a bit like a target weight in dieting. You need the target but you shouldn’t necessary starve yourself to get to it. You need to make lifestyle changes that will as a consequence mean you should reach it in time but in the meantime the lifestyle changes will benefit you too. And above all you don’t get out a butchers chopper and lop off a leg just to make the weight.

      Q. Should bond holders (specifically senior bond holders) be protected at all costs and treated exactly the same as depositors? Was there no risk inherent in their investment?

      Nope. They should be let swing in the financial jungle that they love so much. We allow people to make large profits from risk taking; we must also allow them to make large losses from same. Dat’s the way der cookie crumbles as Wulf Sternhammer used to say, or so I seem to recall.

      Q. Why did nobody question the orthodoxy that prevailed about low taxation for a decade, when it was clear it was all being funded by a property bubble? Why did Fine Gael, Labour – and even the Greens and Sinn Fein – fall into line on those?

      A. Depends what you mean by low taxation. We had low headline figures for income tax for sure but the threshold for the higher exactly that high. I think there is reluctance on the part of the public to pay more taxes towards a public service system that has a long history whereby the more money spent the greater the inefficiencies and the blameless mistakes. Just take health, again. How often do we hear from government about how much spending has been increased by? It’s now up by a factor of 4 since they took office. Hurrah, we’re supposed to say. We’re not spending much, much more in order to get a bit more.

      As we’re on topic of not questioning the orthodoxy how much the media let the government dictate the news? Why is it that once the government decided the line that the media. Take decentralisation, it wasn’t decentralisation. The government decided to call it that and the media instead of saying this is really distributed recentralisation just went with the spin the government put on it. And let’s remember that the health service stopped publishing the waiting lists figures, and the media did nothing. The truth is that the media got lazy with the pre-packaged press releases that save many the journo from having to write up a story. And or example why repeatedly ask whoever is the Labour leader if they will do a deal with FF is that’s the only deal that works numbers wise in the next Dail?

      Why the focus on public spending and the banks? Where are the ideas in relation to the wider economy?
      Economic growth in the modern world has been largely predicated on the idea of controlled inflation and credit. Without credit to pay for things today that we don’t need until tomorrow then we’d make do with what we have. And in that situation our system of employment collapses. And without inflation why would you buy today if it would be cheaper to buy tomorrow. Inflation is like the slight incline that makes a river run. Consumerism isn’t about what you need but about what you want or desire. It is that notion which I believe is under more strain at the moment not capitalism and we haven’t looked at it yet because we have no idea what to replace it with. Cheap credit led the world to buy lots of stuff we wanted but didn’t need and fuelled economic. Consumerism is the 20th century version of the building of the pyramids. It makes perfect sense to those involved while the conditions are right but once the conditions change people wonder who thought it made sense to devote so much productive effort for what is essentially frippery. I’m not suggesting we will move beyond money and consumerism any time soon but I think the signs are there that we need to accept that the global economy is a closed system and that we need a longer term vision of what it is we’re doing all this for.

    • Liam says:

      Nice Post Dan , Ron Paul tried to sum it up in 2min. this week


    • Dan Sullivan says:

      Liam, there is a lot about that Ron Paul chap that makes sense but there are other things about him that would make a person cringe all day long.

      My apologies to anyone reading that comment of mine above. It is riddled with grammatical errors and has more missing words than an extended round on Have I got News for you. But I think the gist is there.

    • barratree says:

      On a quick partisan point Harry, the Greens were advocating raising taxes specifically in relation to property: the introduction of a site valuation tax and other changes recommended by the Kenny Report from 73. They repeatedly pointed out the property bubble would bust and was one of the reasons I joined ‘em.

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