Tuesday 16 January 2018

In the eye of the storm

Ruane faces her most challenging test in the weeks ahead as she guides the ESRI through working paper controversy

The withdrawal of a working paper claiming that up to 44pc of those unemployed were better off on the dole made this the most uncomfortable week of Frances Ruane's five-and-a-half-year tenure as head of the Economic and Social Research Institute (ESRI).

It was by any yardstick a humiliating climbdown. On Wednesday, the ESRI issued a statement saying: "The working paper entitled 'The costs of working in Ireland' was removed from the ESRI website yesterday because senior ESRI researchers, who are experts in this area, concluded that the analysis it contains is seriously flawed."

The withdrawn working paper, co-authored by former ESRI Professor Richard Tol, concluded that up to 44pc of unemployed families with children and as many as 15pc of unemployed people without children would be better off on the dole than if they returned to work.

The working paper, which had been first posted on the ESRI's website on May 22, only generated controversy when its conclusions were published by the Irish Independent on Tuesday, almost three weeks later.

The controversy may have been delayed, but once it erupted, it was intense. The Department of Social Protection strongly criticised the working paper's conclusions, claiming that the vast majority of the almost 437,000 people on the live register would have an incentive to return to work if they could find a job.

Conclusions

Within hours of the department's intervention in the debate, the ESRI had capitulated and withdrawn the offending working paper. However, Prof Tol, a plain-speaking Dutchman who left the ESRI for the University of Sussex earlier this year, stood by his conclusions.

"As far as I know, the numbers are still correct and I still stand over them. However, there are, of course, serious issues with the data, because unfortunately in Ireland there is no real data set that really goes to the heart of this, so we had to combine two sets of data that were collected for different purposes. But as far as I know, we have done that correctly," Prof Tol told RTE Radio's 'Morning Ireland' programme.

Prof Tol concluded that it costs working parents up to €10,000 a year just to get themselves to work.

He also calculated that childcare costs consumed around 30pc of average incomes. Data published by the CSO in 2009, which estimated the average weekly cost of non-parental childcare for a child aged under 12 at €144 per week, would appear to lend some credence to Prof Tol's conclusions.

The fact that, at the time of going to press, a full three days after the controversy first erupted, the Department of Social Protection had yet to release the data that it claims proves that the vast majority of the unemployed have a financial incentive to return to work, would also tend to support Prof Tol.

In the end Prof Tol accepted new research published yesterday evening, but the controversy has shone an unforgiving light on the ESRI and its director, Professor Frances Ruane.

With the annual €3.1m grant it receives from the Department of Finance accounting for a quarter of its total €12.2m income and an undisclosed proportion of its €8.8m research income also coming from public bodies, just how independent of the Government is the ESRI?

Cosy

In 2010, the State took over responsibility for the ESRI's pension fund, which at the time had a €9m deficit. This means that the ESRI staff are de facto state employees. Can the organisation afford to bite the hand that feeds it?

Apart from these financial ties, the ESRI is also very much an integral part of the public sector/academic establishment. Central Bank governor Patrick Honohan and TCD economics professor Philip Lane are both members of the ESRI's ruling council.

These two men were academic colleagues of Prof Ruane's when she taught economics at TCD. ESRI research professor John FitzGerald is a member of the Central Bank Commission.

Another member of the ESRI council is Gerry O'Hanlon, the former director general of the Central Statistics Office. Prof Ruane served as chair of the National Statistics Board, which oversees the work of the CSO, between 1996 and 2003.

How very, very cosy.

The latest controversy to engulf the ESRI comes as it is still struggling to deal with its failure -- in common, it must be said, with most other professional economists -- to predict the economic and banking collapses.

As late as the summer of 2008, the ESRI wrote in its 'Medium-Term Review': "The economy has the potential to grow at around 3.75pc a year over the coming decade, despite significant short-term problems. When the current global economic downturn ends, with appropriate policies, the economy should recover quite rapidly."

Oh dear! The domestic economy has since shrunk by almost one-fifth in real terms and any recovery still seems to be as far away as ever.

And that wasn't the only clanger dropped by the ESRI. It assured us in its summer 2007 'Quarterly Economic Commentary': "As the housing boom comes to an end, the economy must move resources to other areas of economic activity, such that the transition is as smooth as possible in terms of output and employment. We are optimistic that such a smooth transition will occur."

Since then, house prices have fallen by almost 50pc, mortgage arrears have risen to over 10pc, almost two-thirds of all home loans are in negative equity, 170,000 construction jobs have disappeared, while bailing out the banks has cost the Irish taxpayer €63bn.

One shudders to imagine just what is the ESRI's definition of an unsmooth transition! A native of Tuam, Co Galway, Prof Ruane is a career academic economist. After graduating from UCD with bachelors and masters degrees in economics, she went on to receive her doctorate from Nuffield College, Oxford.

After short periods at the IDA and the Central Bank, she joined the academic staff at Trinity in 1977, first as an economics lecturer, and from 1991 as associate economics professor.

As an economist, she specialised in foreign direct investment, Irish economic development and labour market policy, and the impact of research and development on company growth.

A consummate networker, Prof Ruane also served in a wide variety of other roles, both inside and outside of academia.

These included stints as economics editor of the 'Economic and Social Review' and president of the Irish Economic Association, as well as spells on the boards of Bord Gais, the Abbey Theatre, the IDA, Forfas and Depfa, the German-owned, IFSC-based real estate bank which had to be bailed out in 2007.

As a well connected insider, her appointment to succeed Brendan Whelan as ESRI director in 2006 came as no great surprise.

Coincidentally, Tom Considine, the then secretary general of the Department of Finance, was a member of the selection committee that recommended her appointment.

Prof Ruane will need all of these connections as she attempts to steer the ESRI through what is rapidly shaping up to be the most serious crisis in its 52-year history.

Over the next few weeks, she must show that her decision to pull the working paper was not the result of political interference.

If she doesn't, then both her own and the ESRI's reputations may well become the latest casualties of the post-Celtic Tiger bust.

Irish Independent

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