ESRI economist warns against protectionism

GRANTING “BESPOKE protection” to certain markets may have an adverse impact on Ireland’s ability to take advantage of the recovery in the international economy, according to a senior economist with the Economic and Social Research Institute (ESRI).

In a paper to be delivered today at the ESRI/FFS Budget Perspectives conference, Paul K Gorecki, research professor with the ESRI, argues that protectionism “inflicts large enduring costs on both consumers and the wider economy”.

According to Prof Gorecki, politicians come under particular pressure from interest groups and professional associations during a recession. This leads to protection being granted to small concentrated groups, a policy that rarely benefits the consumer or wider public. Prof Gorecki cites two recent examples: the proposed reintroduction of a cap on the number of new taxi licences issued; and the decision by Minister for Energy Eamon Ryan earlier this year to intervene in the Commission for Energy Regulation’s pricing strategy.

Prof Gorecki is critical of members of the Oireachtas who support the proposed moratorium on taxi licences, even though a Goodbody report this year found that such a move would have “ adverse effects” on consumer welfare.

He argues that “it is not clear what market failure would be addressed by putting a cap on numbers” and says there is “no guarantee” a cap will raise incomes of existing taxi owners unless other restrictive rules are introduced.

Prof Gorecki also criticises Mr Ryan’s decision to review electricity prices after hearing complaints from business leaders during partnership talks about high energy prices. According to Prof Gorecki, such action “clearly undercuts the perceived independence of a major regulator and thus increases regulatory risk for a very short-term gain”.

He queries the rationale behind the decision: “If there are systematic problems with the regulatory regime they should be addressed directly rather than through ad-hoc policy interventions.”

Prof Gorecki proposes three mechanisms that should be adopted by the Government to ensure policy decisions achieve optimum results: the introduction of a regulatory budget that sets out the costs of new regulatory interventions; the provision of better information on the impact of bespoke protection; and the introduction of tests that must be satisfied before bespoke protection is granted.