Time to give the Celtic Tiger a decent den

 

In early October the European Commission published data indicating Ireland had one of the lowest burdens of taxation in the EU. The issue caused a mild flurry of comment, but quickly receded from public debate. These figures, of course, were nothing new, with similar data with the same implications published last year. For over 20 years the Commission has published such comparative data for all EU members.

In fact, the trend evident in these figures and the closely related figures on government expenditure make very interesting reading. The figures on government expenditure for international comparison purposes are expressed as a percentage of Gross Domestic Product (GDP). Such expenditure levels range from the low 60s for some Scandinavian countries to Ireland's 34 per cent, which is the lowest in the EU. The average EU figure is 48 per cent.

Of course this was not always the case in Ireland. In the 1970s and 1980s the figure was over the 50 per cent mark. But the real problem with public expenditure then was not its level but the fact that a significant amount of it was funded by borrowing and a minor proportion was wasteful. This deficit funding, which gave rise to unsustainable overall levels of debt, gave public expenditure a bad name. Thus, in the popular mind, to this day public expenditure, even if fully funded from taxation, has a resonance of wastefulness and danger. And this sentiment is latched on to by those on the political right who are opposed to government provision of necessary community-funded services, which is the hallmark of a decent and just society.

Public expenditure in Ireland at 34 per cent is now six percentage points lower than in the UK. The UK figure is all the more striking as they had an 18-year experiment of Thatcherism on reducing public expenditure. In recent years in Ireland government expenditure as a percentage of GDP has fallen by about one percentage point a year. A continuation of that trend would bring us to a figure of 30 per cent in four to five years.

Pursuing this trend constitutes a remarkable political choice which has merited little debate to date. It represents the most extreme choice in Europe. It represents a decision that as far as possible our successful wealth creation benefits should be privatised to the maximum. And it reflects a view that our current level of public provision is adequate.

Shortly before the publication of the EU data the UN published a report which calculated the level of poverty in the top 17 industrialised countries. This showed that Ireland was second worst in terms of poverty. The only country with a worse situation was the US, which also has a very low level of public expenditure. Not surprisingly, the country which was third last was the UK, the country in the EU with the second-lowest level of public expenditure after Ireland.

At the other end of the spectrum, the countries which figured prominently at the top of the UN table - countries with the least poverty - were countries with medium to high levels of public expenditure. The country with "least poverty" was Sweden, where government expenditure is the highest in the developed world at over 60 per cent of GDP.

Now all of this is not an argument that sloshing around public money solves problems. Of course that is not what medium and high public expenditure societies do. Rather, they consistently, with long-term projects, fund activities and service provision in society to eliminate the inevitable consequences of inequality generated by markets.

Markets are extraordinarily useful instruments in economic activity, but by their nature they create inequalities. Thus they need strong countervailing structures to deal with the inequalities they generate.

These countervailing measures have been at the heart of the architecture of the European social market model for the last 50 years. They have involved significant government expenditure on education, health, social security and on housing and the other physical infrastructures.

Not only has such expenditure ensured social cohesion and reduced inequality, but of itself it acted to improve economic activity.

We have much evidence of this latter point. We ourselves have boasted in a generalised way of the role education has played in our recent economic success. But there are other specific examples. Michael Porter, a leading world authority on competition, cites the case of Swedish expenditure on health being a significant factor in Swedish health care companies achieving international competitive success.

Public investment in training has been acknowledged to have provided Germany with huge competitive advantage over the UK. Last summer, when Gordon Brown announced significant increases in education expenditure, the move was welcomed by the CBI, a significantly different response to the usual knee-jerk response of some Irish business organisations to almost any increase in public expenditure here.

It is ironic that the highest level of direct State aid to business in the EU is in Ireland, being twice the EU average. Yet the business sector is often the most vocal in denouncing State expenditure for the rest of society.

On visiting wealthier northern European countries one is struck, not by the level of ostentatious private wealth, but by the display of public wealth - good roads, super railways, quality subsidised public transport that encourages universal public use. Such countries have public child care facilities which help make equality of opportunity for both parents a reality. Their health care systems are genuinely based on need, not on the ability to queue-jump with a chequebook.

Their public recreational facilities for all citizens leave many of the elite private leisure clubs of Irish society in the shade. We invested £20 million in Croke Park, and rightly so. But the physical and social dereliction one encounters as one walks to this outstanding facility is an outrage. Last week, after the publication of the estimates a stockbroking firm, no less, severely criticised the level of investment in public housing. But our deficits are not all on the capital side. Current expenditure in primary and second-level education, in health care and child care, constitute woefully inadequate provision. Health and safety legislation is almost unenforcible on building sites, because of a failure to provide adequate enforcement staff.

Our educational provision, while nominally free and with high levels of participation, has a derelict face too. We have the largest classes in Europe, bar Turkey. Parts of many school buildings have a shantytown dimension of disintegrating prefabs. A significant number have no indoor recreational facilities. Non-teaching support services are sketchy. In summary the reality of a lot of educational provision is on a different planet from that provided in many other European countries.

Education is a major instrument of reducing inequality. We pay lip-service to eliminating school dropout and recurring intergenerational unemployment. But we will not fund the depth and range of educational infrastructure at a capital and current level that would constitute one of the key elements in providing the support our children need to fully optimise their potential and eliminate some of the great disparities in our society.

We are happy to bench-mark our economic performance against other EU countries. But we should also bench-mark social infrastructure. We have had some worthwhile improvements in recent years. But the Celtic Tiger, despite its sleek coat, squats in a shabby den.

James Wrynn is senior lecturer in Business Policy in the faculty of business, Dublin Institute of Technology. He was programme manager to Niamh Bhreathnach, Minister for Education between 1993 and 1995. He is also deputy chairman of the ESB.

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