Friday 22 September 2017

The task is not creating jobs it is to create better workers

Progress on retraining has been slow.
Progress on retraining has been slow.
Brendan Keenan

Brendan Keenan

IF ONLY old Charlie Haughey had been around to see that supposedly hostile portrayal of him in the recent TV series. There he was; architect of the peace process, leading European statesman, scourge of the perfidious Brits. Just the way he would want to be remembered.

However it was spun, the programme-makers managed to leave out one other "service to the State", as Haughey described his legacy. He was a great creator of jobs.

Some of them were even genuine jobs - such as those in the International Financial Services Centre. The rest were pure Haughey - conjured up by his personal fiat or maintained with whatever amount of public money it took.

Mr Haughey did what governments always claim to be able to do; "create" jobs, which means make them out of nothing. Fortunately, governments don't usually do it on the Haughey scale but, given half a chance, they invariably put the number of jobs ahead of their quality, or cost.

Now we have the government target of 40,000 jobs by 2018. There have always been such targets. They are quite clever - a bit like promising a good summer.

It could well happen and, if it does, the promiser can claim the credit. If not - well, I'm not sure anyone notices much.

The economy may well add around 40,000 jobs over the next three years. How many more would it add if governments followed job-friendly policies - as distinct from "creating" jobs which should probably not be there - and how many fewer would there be if it did not?

There is no way of telling. That is a pity, of course, but it is now even more than a human or political pity. The statistical fog which has descended on Ireland, what with transfer pricing, royalty payments and, now, contract manufacturing overseas, means the conventional measure of economic performance, GDP, is pretty well useless.

National income, GNP, is better but still severely compromised. We are pretty much left with just tax revenue and employment as guides to how the economy is really performing. The trouble is that the exact relationships between output growth, tax revenue and jobs are not well understood.

Government actions are supposed to apply policies which will maximise job growth for any given level of output, while abandoning those which damage existing jobs or deter new ones. This has become even more urgent as technology threatens to replace existing activities and international action raises the distinct possibility that the Irish strategy of attracting particular kinds of foreign investment will be severely curtailed.

This strategy is so ingrained that the official response has been to look for new ways of achieving the same end which might pass muster abroad. No harm in that, but it is unlikely that anything can be found to equal the tax avoidance schemes of the old regime, if they are curtailed.

Even if they are not, it is high time Irish barriers to job growth were identified and dealt with. Counting jobs is a meaningless political exercise.

The Irish data - especially the extraordinary proportion of jobless households - suggests that, whatever the number, it is not as high as it should, or could be.

It is not just Ireland, even though the tax regime makes it a special case. The Eurozone in particular needs to be more employment friendly. Potential growth in many of its members is now put at less than 2pc a year.

Ireland is one of them, although many economists think that estimate is too low. But, as with all the indebted countries, there will be little scope to create jobs with borrowed money - the standard strategy which Mr Haughey applied with unprecedented fervour.

Creating more jobs in this unfriendly environment is the topic of a recent OECD report, 'Going for Growth 2015'. The Paris-based think-tank believes the right kind of reform can help increase jobs and productivity. Freer trade and more investment would help, certainly, but are not enough on their own.

It is certainly right, as OECD Secretary-General Angel Gurría said, that change is needed "to prevent the development of a vicious circle whereby weak demand and growing inequalities undermine potential growth and confidence, possibly leading to persistent stagnation".

It is pretty obvious that countries like Italy and Spain have created systems which inhibit employment. The irony is that many were devised as a way of protecting jobs. As the Aer Lingus saga shows, it is always difficult to trade existing jobs against future possible jobs, even if there might be more of the latter. If the effort is never made, there will be fewer jobs all round in the end.

The Irish case is less obvious than these others, but there are some surprising findings in the report. Who would have thought that the aspiring "best little country to do business" is rated one of the worst in the EU for encouraging enterprise?

The OECD says the operation of licences and permits required to start and operate a business is one of the most restrictive. Enforcing contracts and registering property is also difficult. Its recommendations include a reduction in the high fees for planning permission in favour of more property taxation and the establishment of a real estate conveyancing profession.

One can easily identify the vested interests, commercial and political, which would stand in the way of those changes. Change is the hardest thing for modern democracies and the report finds that, as the financial crisis recedes, so the pace of change slackens, although the indebted countries are doing more.

As the report says, labour productivity remains the main driver of long-term growth in advanced economies. For Ireland the short-term challenges are to switch a few percentage points of GDP from public current spending to investment, and find better ways to encourage private research and technology transfer than doling out yet more tax breaks.

The longer term task is to beef up education, in the widest sense of the term - what the jargon calls "human capital". The shortage of skills for the information technology sector, and the scandals of the training system, are at least as black a mark on previous governments as the banking crash - and maybe as expensive in the long run.

The report notes the steps taken by the Government to deal with the retraining and placement of the unemployed and low-skilled. But progress has been slow. What it calls "labour supply disincentives embedded in the design of some social benefits" are not even up for discussion, despite strong circumstantial evidence that they have much to do with the jobless households phenomenon.

At the other end of the scale, the OECD's call for a few centres of excellence to improve the lamentable record of native R&D contrasts with the actual policy of more universities in diverse places as a way of creating jobs. Haughey jobs.

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