Brendan O'Connor: The opportunity cost – and lost in the top-ups row
Giving top-ups to Kiely and Co meant less funds for disabled children
Published 01/12/2013 | 00:30
THERE is an economic concept that is central to the debate about salary top-ups. That is the notion of opportunity cost. The opportunity cost of a choice is the value of the best alternative forgone.
So if you could be making €100 a day working in one job but you choose to do voluntary work instead, then the opportunity cost for you of doing the charity work is the €100 a day you are forgoing. Equally, if you choose to spend a tenner on ice cream, but you could have bought life-saving medicine for yourself with that tenner, then the opportunity cost of the ice cream is fairly high. You get the idea? Scarce resources mean we make choices and we are constantly weighing up these choices. Will I go out tonight or will I stay in and buy a new dress or shirt tomorrow instead. Okay?
So plant that in your brain and now let's look at the big names who have emerged in the top-ups scandal. What you find is that while some of it is as grubby as it gets, all the top-up recipients should not be lumped in together.
First, let's look at Rhona Mahony, the Master of Holles Street. Even though her "top-up" was not near the largest given to a charity or hospital boss, her situation got an inordinate amount of attention. There seems to be a certain fascination with Dr Mahony because she is a woman, because she is reasonably young, because she is stylish and because she has been seen at times to be outspoken. She is also, arguably, someone who has been a more public Master of Holles Street than some of her predecessors, possibly due to more of an emphasis on fundraising. Whatever the reason, there has been an inordinate focus on Rhona Mahony, and outrage over the fact that she received a €45k supplement to her salary, which she says was for seeing private patients.
But the real issue we should perhaps be looking at here is opportunity cost. Rhona Mahony is at the peak of her earning power right now, having studied and trained until she was into her 30s to get to this point. Rhona Mahony could be earning, by some estimates, up to a million a year right now if she focused on delivering babies at five grand a pop minus costs, which would be the going rate for an in-demand obstetrician in Dublin. Delivering babies, while not high up the list in medical snobbery, is generally regarded as being second only to dermatology in the money-making stakes. You can pull down €200k from the Government for your public work and then a multiple of that for private work. Even if we say that Rhona Mahony could conservatively be making half a million a year delivering babies, the opportunity cost to her of being the Master of Holles Street is still over €200k a year, for a seven-year term that she has taken on when she should be at the peak of her career. That's €1.4m forgone. While Dr Mahony has not chosen to go public on how the €45k "top-up" she got was made up, you'd be surprised if she only delivered 10 babies privately last year. Maybe she did.
She could certainly be making 10 times that in private practice if she was so inclined. So the next master of Holles Street will be expected to take not only a substantial pay cut from what they could earn working privately, but they can also expect to be vilified for taking that cut. They will be queuing up to take on all that extra responsibility.
It is more difficult to ascertain what the opportunity cost was for Paul Kiely of staying as head of the Central Remedial Clinic (CRC). Up to now, there has been little public focus on
Kiely and how he did his job. You would have thought that he wouldn't run the same risks as someone delivering babies or running a hospital where thousands of babies are delivered every year, a situation where the slightest cock-up can ruin lives and costs millions.
But still, we have to accept that Kiely was worth every penny of the nearly €250k he pulled down in his latter years. So what do we think the opportunity cost was to Kiely? Were other people begging Kiely to go and work for them? Were they offering him 300 grand a year? We don't know. Maybe they were and maybe that's why the CRC paid him so much extra out of charitable donations to keep him there for so long. Maybe the opportunity cost for Kiely of staying at the CRC was huge. Maybe he could have been making fortunes somewhere else. What you would say is that Kiely's alternatives would not seem as obvious as Rhona Mahony's, and the reason for his top-up, which was four times hers, and for his salary, which wasn't far off hers, wouldn't be as obvious.
But let's look at Kiely's salary from the other side of the equation. What was the opportunity cost of giving him and several more of the management at the CRC top-ups that ran into hundreds of thousands at one stage? What was the best alternative forgone there? Well, the opportunity cost of giving that money to Kiely and his management was that there was less money to help disabled children. But clearly the board of the CRC, and the people who ran the Friends and Supporters of the CRC (which included Kiely), decided, in their wisdom, that it was more important to top up Paul Kiely's salary and those of others than it was to put that money into speech therapy, or physical therapy, or helping kids to learn to walk, or to do other basic things.
You may argue that it is not fair to compare Paul Kiely's salary directly to spending that money on services. But the notion of opportunity cost demands we do that. If the CRC didn't give that money to Kiely, what could it have done with it? It could have cut services by less. It could have given more kids speech therapy. It could have used its scarce resources to help even more of the most vulnerable people in our society. It could have used that money to give some kid who hadn't many chances in life a small bit more of a chance.
But it didn't. Because the CRC apparently needed to pay Paul Kiely more than his salary in a top-up in case he was poached away from it by someone offering 300 grand. The kids who go to the CRC do not have a right to anything. Any services they get are charity, and they should be thankful to Kiely and Co for them. They understand that while they are not getting enough services, they are lucky to be getting any. Because that is what the outsourcing of the functions of the State has done to these kids. Instead of rights, it gives them the crumbs from the table. Ask their parents. They will tell you how they are made feel lucky and grateful for any bit of help their child gets. They will tell you how they know it is never enough but they are afraid to kick up because they fear getting even less, or being labelled as difficult. Ask parents all over Ireland, particularly outside of Dublin, who know that early intervention is critical in helping children with disabilities and who then proceed to wait months or years for the most basic supports. Ask the parents who mortgage their houses to go to Atlanta for months for specialist intervention when they have a kid with Down syndrome because they are afraid to wait around to see what they get in Ireland.
Let's look at one more opportunity cost. What is the opportunity cost to the ordinary person of giving money the Central Remedial Clinic? What are the alternatives forgone? Whether we realise it or not, we weigh these things up unconsciously. So the average person thinks – well, I could do with this money to pay the bills, or put towards a holiday or buy a few pints, or put it towards Christmas. But I won't. I will forgo all those options because it is more important to me that I give this money to help those less fortunate than me. That is important to me, so I will go without something else in order to give money to the CRC. That is a rational economic thought. People prioritise their scarce resources in the way that they wish to.
But what if we were to tell people that they were, in fact, forgoing that pint, that bit of Christmas, paying that bill, in order to give money to someone who was better off than them, to help pay to have Paul Kiely's salary more than doubled? What if we told them they were making a sacrifice in order to pump €3m into the pensions of CRC workers?
If those people knew where that money was going, would they have made the decision to give it? No they wouldn't. You could almost say there was a level of misinformation given to people which caused them to make irrational economic decisions they wouldn't have made otherwise. Ordinary people would not have sacrificed €3m worth of forgone opportunities in order to put money into someone else's pension fund. They would not have sacrificed €136k a year out of their own lives in order to pay Paul Kiely more money.
Of course. All of this points back to the weird no-man's land we have created in this country between the HSE and the charity sector, and indeed hospitals, where the State bankrolls all these institutions but has little or no control over them, where no one can seem to keep an eye on where the money is going, where we are then asked to contribute top-ups through charity, despite the fact that we already pay for the running of these places in our taxes.
The CRC, with its stockpile of €14m, while it is getting €19m a year from the Government, is a prime example. The CRC claims the stockpile is for capital projects – as well as for paying wages top-ups and pension fund bailouts. It is well for it that it can be contemplating large-scale capital projects right now. I know of no other charity that is doing anything but trying to maintain its current level of activities at the moment, or perhaps a diminished level.
Perhaps there is a lesson in this for all of us, about this Wild West where charity meets HSE. Perhaps there shouldn't be a charity sector for providing essential services to sick people or people with disabilities.
We don't rely on flag days to pay people on the dole, so why should we reduce the sick and the disabled to being afterthoughts, reliant on charity? Perhaps it is time to clean it all up now and for the State to provide for the needs, and the rights, of its most vulnerable citizens.
No one wants charity, and the events of the last few weeks prove that it doesn't work very well anyway.