Tuesday 25 July 2017

Emmet Oliver: Here are seven things you can be sure won't happen this year...

Pain is inevitable, suffering is optional. After the economic cataclysm of 2010, the Irish economy badly needs an intellectual time out.

After a year of short term, panicked, fire fighting by Mssrs Cowen and Lenihan, 2011 is more likely to be about changing course, seeking out new territory and coming up with a bold new template for the Irish economy. A spot of GDP growth would be helpful too.

Within three months Ireland will have a new Taoiseach, a new finance minister and a battery of fresh faced special advisors and programme managers on generous salaries.

Idealism will be in the ascendant, Fine Gael/Labour policy wonks will be on every street corner, and we'll all claim to have had no truck with the bankrupt thinking of the last administration. People will literally be trading in hindsight.

But what will get done? Probably not enough of what should be done, is the depressing answer.

Unfortunately the record of all Irish governments follows a predictable pattern. The initially radical impulses of Ministers soon become blunted by the civil service/special interest groups and the members of the government console themselves with simply tweaking the system around the edges, rather than radically reforming it.

Maybe this time it will be different, but Irish business is not holding its breath. We've all read formidable lists of things to look out for in 2011, but what of the things that will never leave the political drawing board?

Here is just a small selection of things our political masters probably won't be brave enough to try in 2011, even though they know they should:

1. Debt forgiveness:

Everyone knows it should happen, both for homeowners and also for some companies, but yet one tiny objection holds the entire project up.

This objection is that some unspecified mortgage holder somewhere in commuter land is going to get their mortgage written down, even though they don't deserve it and shouldn't have taken the mortgage out in the first place.

Upon this narrow objection, a whole economy has to remain mired in levels of personal and corporate debt that will restrain growth for years.

With the IMF and EU on board, we are about to stage the biggest reshaping of the Irish banking system in a generation. We are also about to recapitalise virtually every bank in the land. Yet not a single cent of this money will be used -- officially at least -- to proactively write down debt for households, or companies that would otherwise be perfectly viable except for property-related debt they've taken on.

Something very radical should be done here to liberate the economy and boost growth, but sigh, it won't be done.

2. Selling off state-owned companies:

Advisor and economist Colm McCarthy will make radical proposals on this and an "everything must go'' approach will be popular for a time. But apart from Bord Gais, the National Lottery and a few older ESB stations, most of the state-owned sector will remain in the tender embrace of the government for years.

With the next government composed of Labour and Fine Gael, there will be little appetite for a radical privatisation agenda and to be frank a whole host of state-owned companies are simply firms offering a social service dressed up as commercial entities. Even with the private sector discipline these companies (CIE for instance) cannot be made profitable and will attract no outside investment interest.

3. True public sector reform:

This is something everyone claims to be in favour of, but nobody has any real sense of how one does it. Proper redeployment in the civil service -- can anyone really see that happening? The Croke Park agreement signs up the unions to outsourcing -- does anyone think this will happen? Remember the outsourcing is to private sector employers, who have been told they cannot alter -- in any way -- the existing terms and conditions of employees. All very laudable, but how does the private sector alternative then deliver the service any cheaper than it has been delivered previously by the state? Answers on a postcard please.

4. Industrial policy/ promoting indigenous industry:

Remember this quaint idea? That the State should seek to direct investment flows and intellectual capital towards certain future proofed industries, but not others. It was in vogue in the 1960s and championed by the likes of UK Prime Minister Harold Wilson. But was abandoned in Ireland in the 1990s when we moved closer to Boston than Berlin and decided that whatever industrial policy we needed would simply be about offering multi-nationals a 12.5pc tax rate.

We need to re-invent Irish industry and pick a few winners. The State may not be very good at doing this, but it certainly needs to be done. It would be nice if we finally realised that high end manufacturing of all things could be worth backing, now that wages have fallen. Virtually every economist in the State is against such an idea, so the politicians are likely to ignore this idea for now.

5. Let NAMA really do its job:

We are going to spend €40bn on this jamboree, but we have given the organisation so many overlapping mandates, it is a virtual certainty the agency will fail in the long term and be a drain on the state's resources.

Let the agency do real deals with developers who are viable (after writing down debt) and force the agency to close the others down, real soon. But of course this is awkward, unpopular and laborious, so its unlikely to happen.

6. Lower the cost of bank rescues with some help:

Yes it is time to enjoin senior bank bondholders in the costs of rescuing our banking system.

Yes it would help if it came with an EU seal of approval, but endless delay on this subject, just costs more money as coupon payments and principal payments leave banks every quarter, forcing taxpayers to pony up the replacement cash.

Nobody is suggesting anything is done to restructure sovereign debt and in case anyone hasn't noticed, we will not be in that market for another three years anyway.

As for the banks, they are already shrinking their balance sheets and funding themselves with ECB money. Nobody is suggesting they burn short term lenders so it should still be possible to avail of funding from that group in the normal way.



7. Make the education system responsive to the needs of the economy:

Now here is something that definitely won't happen this year or next. Could we get more science, business and innovation on the curriculum?

Could we lengthen the school day and the school year? Could we make Irish optional so there is more room for other disciplines to take up the slack? No, no, no and no.

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