Deadweight Government has us stuck in the blocks
WHEN a business lays-off workers in a recession, our trade unions demand more costly job protection.
The politicians ask for more subsidies and state jobs for the local area.
The Government sends out Mary Coughlan to find a bunch of unemployed architects or a multinational retailer to blame for our falling competitiveness.
All of them are wrong.
No other place in the entire developed world has seen such a vast and rapid destruction of core jobs as Ireland.
Nor should any of this come as news to us.
Over recent years, virtually every multinational company has reshaped its operations here.
At first, product-cycle erosion took large volumes of specific goods and services out of production here.
This was accompanied by shrinking investment by multinationals in upgraded facilities or a fall-off in the domiciling of new products here.
Apple, Pfizer, GSK, Dell, Intel, Microsoft, even Google, the list can go on, but all of these multinational companies share one trait -- they all have been reducing their employment here and/or redirecting new product teams away from Ireland.
All of this is driven by one single economic force -- the rising cost of doing business in this country.
Even our main comparative advantage, the low corporate tax rate has, by now, been fully eroded by the levies collected by the State and its monopolies to pay high wages and other costs in the public sector, and by our ever-rising, state-controlled and regulated, prices for energy and other inputs.
Year after year, since at least 2002--2003, the EU Commission, the OECD and the IMF have warned about the uncompetitive business environment here.
A number of reports since 2001 highlighted the fact that pricing in publicly regulated sectors like health, education, energy, transport and in the labour market was out of line with what is required for a small, open economy reliant on foreign direct investment and foreign equity finance.
The response from our policymakers to all of this was to sign up to even more social partnership deals (giving up more of the nation's wealth and productive capacity to the public sector unions) and to create an army of task forces, quangos and regulators to oversee the rapidly decaying markets for state services.
Today, Ireland employs thousands of apparatchiks and consultants in the Commission for Energy Regulation (CER), Eirgrid, the Department of Communications, Energy and Natural Resources, and the ESB to operate an electricity system equivalent to four mid-sized French power plants.
According to the latest National Employment Survey from the Central Statistics Office, we are paying our energy sector workers, on average, €71,572 per annum in wages and bonuses -- 90pc more than average earnings in the wider economy. ESB employees earn even more than that. This luxury has a price -- and it is measured in jobs lost elsewhere in the economy.
Our entire system of electricity production can be run off a series of interconnectors to the UK and mainland Europe, which would allow us to buy cheap energy during off-peak hours -- at a fraction of what we are paying for electricity now -- and to store this for use during the day.
Landlocked Switzerland -- with no storage sites as advantageous as those on Ireland's west coast -- resells stored French electricity back into the grid, earning almost €1bn per annum on this arbitrage.
Ireland, in contrast, has to feed an army of grossly overpaid state employees to produce some of the most environmentally dirty and import-dependent electricity available in the OECD.
Two recent reports -- one produced by the Irish Academy of Engineers and another by the Spirit of Ireland project have proposed alternative energy policies -- one focused on nuclear energy and the other on energy storage.
Both could form the backbone of a vibrant energy sector here. But both have a snowball's chance in hell of becoming a reality because our ESB-dominated, CER-regulated system -- planned by civil servants -- is hell-bent on building follies, like the Poolbeg incinerator, in place of a serious modern energy infrastructure.
As deflation grips the private sector, Ireland's energy costs continue to spiral out of control.
While the intermediate goods industries wholesale prices index stood at 88.3 (100 being 2000 prices) in May 2009, the wholesale price index for electricity was 167.4, having risen 1.3pc in a year. Despite high taxes, wholesale prices for petrol dropped 7.6pc, diesel 23.5pc, gasoil 36.4pc, and fuel oil 22.9pc at the same time.
Virtually the same problems are present in other state-controlled sectors of the economy. Again, according to the latest CSO figures, economy-wide prices fell 5.4pc in 12 months to the end of June 2009.
But in health, prices rose 3.4pc and in education the rose 4.5pc. In transport, prices fell 6.1pc on the back of a massive fall in fuel prices, and the cost of sea and air transport. But bus prices rose 10.9pc and rail fares went up 9pc.
As a result, between January 2000 and May 2009, our output price index for domestic sales went up by 21pc, while the same index for goods sold for export declined by 16.5pc, implying a loss of competitiveness of around 40pc in prices alone.
This week, Mary Coughlan has highlighted the need to reduce the cost of professional services in Ireland.
While this is a laudable objective, a glance at the little data we have shows where the real problem lies. Within health, dental services prices rose 2.3pc in the 12 months to June 2009, compared to a whopping 9.1pc rise in the cost of Government-controlled hospital services.
If our Tanaiste is concerned about Ireland's competitiveness and job losses, she would do better focusing on the rip-off culture promoted by her own Government's policies, including the draconian hikes in taxation.
Failing to deal with this elephant in the room will see new waves of bad news on the jobs front in the months ahead.
Dr Constantin Gurdgiev is an economist and adjunct lecturer in finance with Trinity College, Dublin, and a blogger on trueeconomics.blogspot.com
