Tuesday 24 October 2017

'Time to get the country back working'


THE broadcaster Pat Kenny put forward a startling suggestion at the start of the recession. Since national income had fallen suddenly to the levels of 2002, why didn't we all cut our pay and prices to 2002 levels as well?

In Mr Kenny's case, this might represent a particularly generous offer, but would it make any sense? Economists would dismiss it as a recipe for catastrophic deflation -- although Estonia and Iceland have gone through something not dissimilar.

Most people, especially those with mortgages, would say they just could not afford it. But, of course, the slow debt reduction through which the economy is struggling will amount to something similar in the end.

With the four-year plan following the two-year emergency programme, to be followed by the rebuilding of surpluses, it is tempting to think it might be better to get it all over with as quickly as possible.

But the damaged finances are a symptom of things that went wrong, not the cause. There is indeed a case for looking backwards to see the best way of moving forward, but it involves more than money.

Soft times make people flabby, and the 2000s were the softest of times. Falling interest rates increased disposable income. These higher incomes, along with easier credit standards, allowed more scope for borrowing. The pool of euro funds meant that scope could be fully utilised -- and more than utilised -- which is exactly what happened.

Everybody could feel like a success, whether they were or not in reality. For those in business, there was no shortage of customers who were not a bit fussy about the prices charged.

For those in the public sector, there was no shortage of money to pay for new functions and extra staff even when, if the truth be told, there was little benefit from the functions and many of the staff were underemployed.

The best way of launching recovery is not to wait for those eager customers to return, or the staff and budget cuts to be reversed, but to recall, or discover, how things were before all the cheap money arrived.

The obvious starting point is that there was a lot more confidence about 10 years ago. The economy had boomed all though the 1990s and seemed poised to rival the most advanced in Europe.

With that went ambition. Many Irish companies were determined to become world-beaters in their field. Quite a few did. The IDA responded to the end of the information technology boom with a new drive for pharmaceutical and services investment. Enterprise Ireland was refining its system of investing venture capital in promising local firms.

There was a general belief that the Irish education system had become one of the best and most responsive in the OECD. Key government ministries, such as Enterprise and Employment, and Communications, were tasked with providing the infrastructure and networks needed to keep Ireland at the forefront of economic development.

Much of this impetus and belief appears to have been lost in the past decade -- or perhaps a bit earlier. It is easy to measure the financial degradation of the last decade -- the quadrupling of foreign borrowing by the banks; the 50pc increase in public spending; the one-third increase in earnings; the explosion of the construction industry.

These are the direct causes of a recession which has reduced economic output by 17pc. It is much more difficult to assess the loss of confidence, ambition and expertise which accompanied the bubble and burst.

A new sense of confidence depends on a realistic assessment of where things stand. It is worth remembering that the collapse of the building trade is responsible for around half the loss of output. The reduction of activity in the rest of the economy is far less dramatic.

The foundations of the 1990s economy are still in place. The task is to remove some of the jerry-built superstructure and replace it with something more durable.

The tools are still the same: a good, responsive education and training system; adequate infrastructure; first-class public services; cost competitiveness; and an international image as a good place to invest, visit or do business.

Any reading of the various analyses of the Irish economy, particularly those of the National Competitiveness Council, shows how much work there is to be done under all these headings. Ireland ranks badly on most of them, and mostly worse than it did 10 years ago. A worthwhile national objective would be to regain positions we held in 1999.

This would be a task, not just for government, but for every business and institution -- public and private -- in the country. It must also be the task of the individuals who work in them. Their futures depend not on evading unpleasant realities for themselves but on doing their bit to make the country leaner, more focused, more efficient and able to maximise its potential.

The Government's task is to create the climate where the restoration of that kind of belief is possible. The election campaign, far from doing so, seems to have made the public mood more gloomy, with the use of the same old tactics and meaningless promises.

At least election campaigns are short. The new parties in power will have to realise that governing in the old tired way will not undo the damage of the last 10 years, no matter how they handle banking costs and national debt. Instead they must signal to everyone, at home and abroad, that this time is different.

That may require new investigations into what went wrong and more naming and shaming of those who fell down on the job, as well as those guilty of wrongdoing. Neither foreign investors nor domestic citizens will believe that things have changed unless some of the comfort blanket that has been wrapped around those events is removed.

The new Government pledged various kinds of political and administrative reform in the campaign. These political promises, at the very least, will have to be implemented if people are to have the motivation to reorganise how they do things, the environment to make it possible, and the belief that it can happen.

There is an old saying that bad politics make bad economics. The economists, who deal in equations rather than sayings, have gradually seen their mathematics come to the same conclusion. A badly-run country is unlikely to have a successful economy; a well-run country can hardly fail to do so.

We may, indeed, have to look back further than 10 years -- back a few decades -- when Ireland's only chance of creating a better standard of living for its people was to sell more abroad, whether directly or through the operations of foreign firms.

One encouraging statistic is that Ireland's balance of payments in its dealings with the rest of the world moved into surplus in the third quarter of last year -- the first such surplus in seven years. This underlines the fact that Ireland is more competitive than the other stressed euro countries -- Greece, Portugal and Spain -- which have marked balance-of-payments deficits.

But this surplus comes against the background of immense idle resources. Unemployment is over 14pc, employment is falling and emigration is high. There is a huge oversupply of office, hotel and shopping space. There are far too many houses in some places, and perhaps not enough in others.

If the country is not to return to large balance-of-payments deficit -- and the foreign finance to pay for it might not even be available -- these resources will have to be put to use generating foreign income, rather than domestic consumption.

Exports must be central to every recovery effort, just as they were in the 1960s. We know the objective, and it is pretty clear what the methods must be. It's time to get to work on it.

The best way of launching recovery is to recall, or discover, how things were before all the cheap money arrivedThe Government pledged political and administrative reform. These promises will have to be implemented

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