The prospect of the crisis recurring will be reduced if independent body examines issues, writes GARRET FITZGERALD
LAST WEEK, I stressed in this column the importance of ensuring that the proposed inquiry into the causes of our distress should extend to the policy errors of the early years of this decade which made our economy uncompetitive before the housing bubble reached a critical stage in the years after 2003. In that article, I emphasised the importance of avoiding any politicisation of such a process. There are at least three reasons for this.
First of all, there is the practical reality that the Government was bound to reject as potentially partisan a straightforward Oireachtas inquiry.
Second, objectively, responsibility for what happened in the early years of this decade is not confined to the government of that period. For, as I have pointed out on several occasions both in this column and elsewhere, neither the business community nor the trade unions, nor the media seriously challenged the anti-competitive policies adopted in that period.
Moreover, the Opposition parties failed to challenge the Government’s disastrous policies – justifying this later on the grounds that they could not risk losing electoral support by opposing Fianna Fáil on economic issues. And when it came to the 2007 election, the Opposition parties joined Fianna Fáil in proposing further tax cuts and spending increases.
While none of this excuses the Government’s behaviour in inflating our economy and wrecking its competitiveness in the years before 2003, it certainly argues against a politicised approach to the issue through a parliamentary inquiry.
Finally, such a politicised approach would be unlikely to yield a positive outcome in reducing the prospect of the economy being wrecked for a third time by imprudent political action, such as took place in the early 1980s and again in the first years of the last decade.
Instead, such a politicised process, in which each side would seek to shift the blame, would be likely to merely inflict further damage to the credibility of politicians.
The issues involved in our loss of competitiveness need to be examined objectively by an independent expert body containing a key external element.
This is the best hope for something positive to emerge that would reduce the chance of such a disaster happening again.
An independent expert body could consider whether there are any fiscal constraints that could be introduced to avoid a repetition of the two crises of the past quarter of a century.
Even if the search for such measures were eventually to prove fruitless, highlighting this issue would put politicians under much more pressure to face the fact that within the euro zone, devaluation is no longer possible as a solution to the inflation of a national economy at a faster rate than elsewhere in the monetary union.
Many of the issues that arise in this context are raised in two reports published by the National Competitive Council – the first last August and the second from earlier this month.
Both reports contain a huge amount of relevant data with respect to many aspects of our loss of competitiveness – and identify a range of issues that we need to tackle urgently if we are to recover our lost capacity to compete on world markets.
The council’s report points out that “we now lack a clear, agreed vision of the approach required to develop and implement an integrated and nationally supported plan across the wide range of Government, economic and social stakeholders who have a role to play in responding to the enormous challenges we face”.
Not a very inspiring message.
A public response by the Government to the challenges posed in these reports, with firm commitments to and a credible timetable for necessary action under each heading would assuage a lot of the legitimate public dissatisfaction.
The absence of such a plan to resolve our crisis is weakening public confidence.
I have to add that the council’s structure may have inhibited that body from effectively addressing a key element in our loss of competitiveness – that of pay – in Ireland and in the rest of the euro zone in the early years of this decade.
The council is basically a social partnership organisation, for its 14 members include two representatives of employers’ body Ibec, two trade unionists, and a senior civil servant. Some of these members might have been seen by the council staff who wrote this report as having difficulties with a frank analysis of the inflationary process during the years preceding 2003.
It is notable that in the first of these two reports – Benchmarking Ireland’s Performance – that one page of text out of almost 30 is dedicated to the issues of prices and pay costs, and just six pages of graphs out a total of almost 100 pages.
Moreover, nine of the 13 graphs in this section cover only the period since 2004-2005, and one of the other four graphs deals with exchange rate changes, over which we have no control.
None of them identify the key inflationary period as having been the years up to 2003; nor is this referred to in the text.
Moreover, in the second of the council’s two reports, less than one page out of almost 30 is devoted to the need to “adjust incomes and prices” and that section does not emphasise the need for an adjustment of our incomes and prices to restore competitiveness.
Unhappily, we still lack reliable data on the extent to which pay in different parts of the private sector has so far been reduced, and we seem unlikely to secure such data from the Central Statistics Office.