Investment vital to cultivate growth
OPINION:Imposition of austerity measures will only serve to push economy into deep depression, writes DAVID BEGG
THE SAD truth about the crisis is that there are no green shoots of recovery. Almost daily there are new sightings in ever more obscure areas of the economy, with statistics tortured to make them reveal the news we desperately want to read. But that doesn’t make it real. The fact is without investment stimulus to create jobs and generate domestic demand, this Government’s austerity policies will drive us into deep depression.
But don’t take my word for it. Consider the views of the arch-conservative Lex column of market bible the Financial Times: “The process of fiscal adjustments across the euro zone is so arbitrary, so unco-ordinated, and – in countries like Ireland and Greece – so savage, that the cure is as likely as is the disease to kill the patient.”
The Financial Times considers Lex as its agenda setter. These are no throwaway comments. The imposition of austerity measures as the sole instrument of fiscal policy – allied to the “hope” that exports will save the day – is not simply a pragmatic Government response to our troubles. It is a deeply ideological response, a product of the same flawed philosophy that brought us to this sorry pass.
It is based on the theory of “Ricardian equivalence”, the belief that private spending by consumers will automatically compensate for the money the Government sucked from the economy. Our Fianna Fáil-led administration is not alone in their embrace of this notion – the Tories are on the same ideological page. The Ricardian concept is riddled with holes and short on supporting evidence. And it was this fact that may have motivated Larry Elliot, the economics editor of the Guardian, to describe the UK budget as “very, very risky . . . a colossal gamble”.
Here, the dice has been rolled and 439,100 jobless people await the outcome. Today, 13.7 per cent of our workforce – 3 per cent over the EU average – exists in a state of idleness and dependency. And this is almost certainly an understatement: count in those forced abroad, those staying in or returning to education, and you are closer to 20 per cent.
The personal tragedies that lie behind these numbers are known to unions. That desperation seeped into the national media recently when a former building worker told Liveline he was reduced to stealing milk. His self-employed status meant he had no access to social welfare benefits.
I have no doubt his situation is common, given that bogus self-employment was endemic in the construction industry to help employers evade the financial and other responsibilities of direct employment.
In these dreadful circumstances, for the Government to have no plan for jobs is not only inexplicable, it is unforgivable.
In February 2009, Ictu made jobs and employment the cornerstone of the alternative strategy we proposed. We suggested two principal initiatives:
Save existing jobs through work-sharing and State intervention in the labour market, as seen in 20 other European countries. Germany has suffered no rise in unemployment despite suffering a 7 per cent decline in output, using this approach;
Increase spending on infrastructure to mitigate the effects of the collapse of the construction industry. The case for investment in infrastructure is compelling, economically and socially. The industry has seen a 50 per cent collapse in employment, from 286,000 in 2007 to 129,000 today. Many of the jobless are moving into the category of long-term unemployed and the longer they stay there, the harder it will be to get them back to work and the greater the cost for the exchequer.
Every €1 million spent on infrastructure can create eight to 12 jobs. Moreover, by focusing on labour-intensive projects, the employment impact of investment is maximised. There is also a multiplier effect, as every person working creates demand for goods and services.
Investment is the keyword. Quality infrastructure services a social need and we still have major deficits. Investment in water supply, broadband and roads will boost competitiveness. We cannot afford to deplete our productive capacity and our skill base so much that we lose the means to effect recovery. Unless we create growth, the deflationary policies of the Government will fashion a spiral of decline from which it could be impossible to recover. Growth cannot occur without investment.
Two US academics – Carmen Reinhart and Kenneth Rogoff – have examined financial crises in eight countries. They conclude that
it is not possible for a country to export its way out of a global crisis. If the Government persists with its ideological obsession to cut borrowing below 3 per cent of GDP by 2014, they will break the back of this country. It is as stark and as simple as that.
David Begg is general secretary of the Irish Congress of Trade Unions