Inside the world of business
Businesses need Elderfield muscle
BANK OF Ireland chief executive Richie Boucher’s shareholders – and his newly acquired American ones in particular – will no doubt be pleased to see him aggressively moving to improve lending margins. Less so business customers, who are being moved off Euribor and on to the bank’s own blended cost of funds.
The net hit for business customers is 0.7 of a percentage point and for many it may well be the straw that breaks the camel’s back.
The dilemma that faced Boucher was whether the short-term gain of pushing up margins was greater than the longer-term pain involved in more customers going out of business.
The short term tends to dominate the thinking of publicly quoted companies. And given the efforts on the part of the Government to keep Bank of Ireland out of State ownership, it would be somewhat disingenuous of it to berate Boucher for squeezing his business customers.
You can’t really hold out a €1.1 billion investment in the bank by US funds as a vote of confidence in the Irish economy, and then criticise the management of the same bank for trying to generate a return for the investors in question.
But the situation is clearly analogous to the variable mortgage issue identified by Financial Regulator Matthew Elderfield. He has left the banks in no doubt that he will not tolerate them pushing up variable rates to compensate for losses on tracker mortgages – a key reason being that it will force many mortgage holders over the edge.
Given that the trajectory for interest rates is now downward or flat at best, one suspects Elderfield has played his hand rather cleverly. He will look both tough and effective, and the banks will be no worse off.
But the fact remains that variable mortgage holders now have a powerful advocate in Elderfield. Business could do with one too.
How to feed the healthcare monster
DARK LAUGHTER rippled through a room at the Economic and Social Research Institute this week when Mark Pearson, a health economist at the Organisation for Economic Co-operation and Development, narrowed the problems in the Irish health service down to “primary care”, “hospitals” and “pharmaceuticals”. That’s pretty much all of it then.
Pearson had some interesting insights in his comparison between the Irish healthcare system and those in other OECD countries.
There was no “magic bullet” as to how to engineer a more efficient healthcare system. The “op-ed” view of healthcare provision, where private is more efficient than public, or vice versa, and that competition always works, is not reflected in studies of OECD healthcare systems.
“What matters is the leaky roof. You identify where the roof is leaking, and you stop it leaking. That’s far more important than grand designs.”
The name of the game is to improve the “efficiency frontier”, or the meeting point on a graph of healthcare spending versus life expectancy. Ireland’s surge in healthcare spending in recent years has not been matched by the improvement in health outcomes that the OECD would expect for that outlay.
While proposals to move the Irish system closer to the Dutch model are likely to improve equity, an improvement in efficiency is “open to question”, he argued. The Dutch system had cut prices and waiting lists and had improved hospital mortality, but it was “absolutely not controlled health spending”.
Cutting other areas of public spending to “feed the monster” that is healthcare is a scary thought when, as Pearson noted, “for most economies, health remains completely a black box”.
But starving the monster doesn’t bear thinking about. As such, “invest to save” healthcare spending should remain on the Government’s agenda.
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