Brendan Keenan: EU crisis has given us a chance to get our own house in order
IT'S an ill wind that blows no good. The old proverb suggests there are such winds -- events so unpleasant that no compensating factors can be found. But I'm not sure I've ever seen one.
The gale which broke upon us three years ago is, in WB Yeats's phrase, truly bitter and black. Yet it would be wrong to say it did no good at all.
It blew away destructive attitudes and practices, along with a few people -- albeit perhaps not enough -- who deserved to be scattered to the winds.
Pity it came a bit too late. Enormous damage had already been done. But things could have been even worse had the global credit bubble lasted a few more years. In the famous phrase from economics, some of the destruction was "creative".
NCC report
As a result, one of the most depressing annual events has turned into something mildly cheering. This is the report produced by the National Competitiveness Council.
It is a bit of an old favourite of mine, although one has to approach it with caution. There are all sorts of arguments about how to measure competitiveness -- even how to define it -- and there are difficulties of interpretation with almost every one of the hundreds of statistics contained in the report, the latest edition of which appeared last week.
But its very regularity means it should offer a reasonable guide to trends. The mild cheer comes at the sight of so many coloured lines in the graphs turning upwards, instead of continuing downwards.
That was the reason it was depressing for so long. Economic growth might be booming, government finances might be in surplus, there was full employment and immigration, but the NCC statistics showed everything that mattered was going in the wrong direction.
Costs were rising faster than elsewhere; productivity was declining; infrastructure was falling behind; educational standards were slipping. Meanwhile, the social partners, who were supposed to base their decisions on information like this, were shovelling fuel on the inflationary fire like demented stokers, while ignoring all the signals to reverse engines.
Arguments will rage forever about how much policymakers should have foreseen the credit bubble and the looming banking crash, but there is little or no excuse for the Ahern-led governments' ignoring of clear evidence that much of the progress of the early 1990s was being eroded.
Once or twice, Mr Ahern and his ministers said as much themselves -- on occasions with elaborate public launches of policies to restore competitiveness. But they did little or nothing, and in the end had little or nothing to say either.
The ill wind presents an opportunity to begin to repair that damage, but only an opportunity. The creative destruction will not be enough on its own; not even where it has had the most dramatic effect on the landscape -- costs.
Labour costs
Irish labour costs have been falling since 2009. The trend was still accelerating at the beginning of this year, with costs down 2pc on 2010, while they were up 2pc in the euro area as a whole.
There is still a way to go -- and a lot of changes in attitudes are required. Pay in manufacturing has moved back to the OECD average -- which is where it was in 2008.
That still leaves it higher than in Britain or Italy, and a long way above Spain. High wages in the multinationals distort the figure, but they also put pressure on indigenous manufacturing to match their rates. This is a policy problem which has not been addressed.
One was a bit dismayed to see the NCC report rank pay in terms of purchasing power -- otherwise known as the cost of living -- without any accompanying health warning.
The fact that higher prices bring Irish living standards down to the EU average is regularly used to back claims for higher wages. It is signalling exactly the opposite.
Irish wages must in future be set with reference to productivity and increases in the core of the eurozone. If not, we shall find when the wind subsides that the same dreary inflationary steeples are still standing.
A change of attitudes is required, although there is not much sign that such change is coming. It will require more than changes of attitude in the other areas where damage must be repaired and improvements made.
The three big ones are education, productivity and infrastructure -- probably in that order of importance.
That may also be the order of difficulty, although none of them are easy. There was no great challenge in improving the ghastly education system of the 1960s, although it took political courage to do it.
It is a much more daunting task to move Irish education on and put it on a par with the best elsewhere.
There is still a problem with productivity, centred mainly on the inadequacies of much Irish management. This has been recognised for decades.
Productivity
The Irish Management Institute and the Institute for Public Administration both have their origins in attempts to improve how things are done in private companies and the government service.
There have been improvements, but not enough to catch up with the best of the rest.
Such poor progress in spreading the dark arts of management make it hard to be optimistic, but we must keep trying and, if we fail again, fail better.
As for infrastructure, cruising happily along the near-empty motorways, it is tempting to think that this problem has been solved, but wrong.
The fact that so many motorways are under-used, and that they cost so much, means they will bring no economic return. They probably represent a loss.
This happened because politics, especially local politics, took precedence over economic strategy, and there was money to burn.
The clear danger is that capital investment will be cut to levels which make it impossible to bring other, inadequate, facilities up to standard, and what money there is will be spent with electoral considerations foremost.
All this may seem a bit irrelevant as the European crisis deepens, threatening to spread another pall of gloom.
There is not much we can do about that crisis, but we can determine that we will take those upward trends, and work to keep them climbing. At the very least, it would give us something else to think about.
Originally published in
