Time to admit that job subsidies will not be effective

 

Even left-wing economists agree that the plan to spend €250 million on job subsidies will not work, writes SARAH CAREY

I NEARLY fell off the couch the other night. There I was with one eye on the Grey’s Anatomy season finale and another on the internet. Then I saw it – the pseudonymous blogger Sli Eile on “progressive economy” agreed with a post by UCD economist Karl Whelan on “Irish economy”. The marriage of the terminally ill but suspiciously healthy looking Izzie would have to wait.

Irish economy is the group blog of academic economists where the financial crisis is analysed using classical economic theory. The “progressive” economists set up a rival blog on which they interpret the crisis from a left wing perspective. Everyone’s terribly polite, but the tension is palpable.

Yet on this night, on one point, the economists were in agreement: the plan announced by the Government to reduce unemployment by spending €250 million on job subsidies will not work. If the lefties were willing to concede the point to the academics then it must be true. The benefits of subsidies are described as “marginal” which means minimal. The failures are well accepted.

They are a “deadweight loss” which means that money inevitably “saves” jobs that were never in peril. Subsidies interfere with the process by which jobs are lost, even in the boom years, as particular sectors die natural deaths. A subsidy for one company could result in another going under as they are placed at a competitive disadvantage. The potential for corruption is enormous. Remember Export Credit Insurance when someone decided that one company should get most of the cover? The subsidy becomes either a tool of political patronage or a bureaucratic nightmare. Where does the money come from anyway? The €250 million has to be found from cuts elsewhere.

Another person observed that “companies might take the subsidy as a substitution for dealing with their own structural problems”. Who was the critic? Oh, just the Minister for Finance Brian Lenihan on Morning Ireland last week explaining the flaw in his own plan.

The trade unions are the main drivers and they want €1 billion spent on the Plan That Will Not Work. I suppose Lenihan sees €250 million as a compromise. But if they both know it won’t work for €1 billion, why would it work for €250 million? Why not save the money for things that are good and efficient instead of bad and inefficient?

The usual reasons: cosmetics and politics. As Whelan observed it makes everyone look good. The Irish Congress of Trade Unions looks like they’re doing something about unemployment. Ibec gets money for businesses and politicians look like they are dealing with the jobs crisis. It’s another mess to come out of social partnership, the system which saved us in 1987 and which should have been dumped in 2002.

This plan is just an excuse to keep redundant structures alive. If this was Grey’s Anatomy Derek would be pulling a tearful Meredith away from the corpse and hoarsely whispering “time of death June 2009”.

There is nothing left in social partnership for trade unions. The only agenda – cutbacks – is one that materially harms their members. They threaten to walk away, but keep coming back. Why? Well, there’d be no more high powered meetings in Government Buildings; no more late night talks; no more being at The Table. The job subsidy plan might be a tenuous excuse to stay in the game, but it’s better than not playing.

There is a second possibility. The Ictu leadership may privately accept that harsh measures are necessary and in a spirit of patriotism and pragmatism is trying to sell the cuts to their membership. So far, cuts have been accepted relatively quietly but there are more to come. If they tried this on in France, there’d be riots. We had one spectacularly civilised march. Why? We are a terminally passive and conservative people, but perhaps behind the scenes the union leadership is quietly if cynically managing resistance. Give the members the odd march and have something to show for continuing talks – like €250 million that will supposedly help stem unemployment. As long as they can show a carrot – even one of those baby carrots that looks too orange and shiny to be real – they can claim it’s worth it.

What’s in it for the Government? Maybe they understand David Begg’s problem and see the €250 million as the price of peace. If it keeps the public sector off the streets, maybe it’s €250 million well spent.

But, it isn’t. Because as we know, job subsidies are pointless and the €250 million could be spent on something else – like children’s surgery or the national development plan.

How about dropping the charade and instead of managing the citizens like children we are treated as adults. What would really happen if Lenihan just admitted that job subsidies are more trouble than they’re worth at any price? Could Begg muster up faith in his own membership or his ability to lead honestly and bravely? “Comrades, I have nothing to offer you but cuts and taxes. The deeper the pain now, the quicker all this will be over.”

The games might prove how terribly clever the players are, but there comes a time when the price is too high. Aren’t we there yet?

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