Tuesday 27 September 2016

Edward Walsh: We need a strong government to resist irrational pay claims

A rejuvenated Ireland is once again the poster boy of the EU, but the future is unpredictable, writes Edward Walsh

Edward Walsh

Published 10/04/2016 | 02:30

ECONOMIC FORTUNES: Ajai Chopra, left, Deputy Director of the European Department of the IMF, and a colleague pass a beggar as they make their way to the Central Bank for crucial talks with the government in November, 2010. Photo: AP
ECONOMIC FORTUNES: Ajai Chopra, left, Deputy Director of the European Department of the IMF, and a colleague pass a beggar as they make their way to the Central Bank for crucial talks with the government in November, 2010. Photo: AP

By the year 2000 Ireland had become the fourth most competitive country in the world. Growing at 11pc, the economy was the most successful in the EU. There was full employment. The budget was in surplus. Public debt, at around 20pc, was, after Luxembourg, the lowest in the EU.

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Less than a decade later, Ireland was insolvent and in the hands of the Troika. Competitiveness had plummeted by 35pc, unemployment was growing towards 15pc. The public sector pay bill had become so great and social welfare payments so generous that Ireland became bankrupt and one of the EU's most indebted countries.

During the preceding years of mismanagement, public pay policy was ceded to an unelected group: Social Partnership. Annual pay awards were made, unrelated to productivity or competitiveness, and in the decade, while Germany limited growth of public spending to 8pc, Ireland astonished international observers by permitting spending to grow by 120pc. Public sector wages surged upwards to amongst the highest in the EU.

As the quality of the health service deteriorated, the number employed more than doubled; from 65,000 to 112,000. Money was thrown at mismanagement problems and the health budget grew from €8.5bn in 2002 to €15.5bn in 2009. Health worker pay became 31pc greater than that in Britain.

Expenditure and employment in education grew similarly. Irish teachers' pay became 37pc greater than British teachers'. Pay awards rippled upwards and Bertie Ahern's salary became 12pc greater than that of the President of the United States.

Members of the Troika would not have pondered for long after their arrival in Dublin on November 28, 2010 before realising that public sector pay was seriously out of line with EU norms and harsh cuts had to be made. As a result, the Government was forced to make various creative inroads and public sector take-home pay was significantly eroded.

Against this backdrop the turn-around of Ireland's economic fortunes, under Troika guidance, has been remarkable. Unemployment has almost halved in four years, from over 15.1pc to 8.6pc; emigrants are returning; the Budget is well within the targets set by Brussels and economic growth at 7.8pc makes Ireland, once more, the success story of Europe.

The Government parties that achieved such remarkable success might well expect to be applauded by the electorate. So did Churchill, having guided Britain to victory, but the electorate evicted him from Downing Street immediately after the war.

So. Here we are now: with one of the worlds most successful economies; yet with future prospects that are ominous and at best unpredictable.

There is one certainty though: a minority government, if formed, would be faced with a torrent of demands from Independents and be wrong-footed, when it suited politically, by the major opposition party. A coalition, or tightly structured partnership between Fine Gael and Fianna Fail, offers by far the best prospect of coping with the mounting industrial relations problems and the dysfunctional health system.

The ludicrous claim of Luas drivers is a union stalking horse. Whatever is conceded will form a template for awards in the public and private sector. The queue is forming. Indeed, some awards have already been made: student nurses and midwives have just received a 20pc pay increase. Dublin Bus drivers demand pay parity with Luas operators, Irish Rail workers have lodged a 25pc claim. Gardai are unhappy, teachers are making remuneration demands that amount to over 30pc for new entrants. Local authority councillors, God bless them, top the lot with a pay demand of 39pc. Were there rampant inflation, these demands might be open to some consideration, but at a time of close to zero inflation, and still an enormous national debt, demands that would bring Ireland back towards the crisis days can only be resisted. A robust partnership between the two main parties offers the only prospect of coping with the tsunami of wage claims on the near horizon.

Managing public sector wage claims and sorting out health represent the two great challenges for any new government. Some new approach to provide a structure for rational pay policy is essential. Returning to the ruinous fictitious process of benchmarking under Social Partnership is not a rational option.

However, benchmarking against pay levels in a basket of competitive well-managed EU countries such as Finland, Germany and the UK might be worth considering.

Increasing the health budget is not the solution. Indeed, studies have shown that if we correct for Ireland's young-age profile, total health expenditure per person is the highest in the EU and almost as great as in the US. Indeed were the Irish health system managed as effectively as the Swiss or Australian, the health budget could be cut by well over €1bn and quality would be transformed .

Of the 103,000 on the HSE payroll, only some 10,000 are medical doctors. We have too few senior front-line people and far too many paper shufflers. To sort out health and bring it into line with international norms, the number of GPs and consultants must be doubled and the number of administrative staff halved. Other countries have managed to do this and redeploy resources from administration to the front-line by installing a single integrated national computer system.

We tried to do this and failed: we must try again and succeed. Sweden sorted out its inefficient public health system by going out to tender and bringing in the private sector to run its public hospitals and much of its primary care system.

The trolley situation in Ireland will only be solved by diverting significant resources to primary care and step-down nursing, so that only seriously sick people are permitted to take up space in expensive acute hospitals. A&E is not the place for drunks or those with minor problems; these should be sorted in a network of local 24-hour primary care centres. The solutions are blatantly obvious: the courage to implement has been blatantly lacking.

Without strong government to confront irrational pay demands and drive competitiveness, recovery will grind to a halt and Ireland will head back towards the troubled terrain from which the Troika rescued us six years ago.

Dr Edward Walsh is the founding president of the University of Limerick

Sunday Independent

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