Monday 23 October 2017

'Worst is behind us'

The former ESRI forecaster has given the most positive outlook by a prominent public figure for a long time, but is he correct?

IBEC director general Danny McCoy claimed this week that Ireland will be able to trade its way out of the current economic difficulties.

Those with long memories will be hoping his forecasting record has improved since his five-year stint editing the ESRI's Quarterly Economic Commentary during the first half of the last decade.

Mr McCoy stated that: "Despite recent market turmoil we are not at present heading towards a global double-dip recession. While growth is clearly slowing in the main developed economies, world trade will continue to expand.

"Irish exporters still have the capacity to thrive and grow market share even in this more challenging global context.

"The Irish economy remains on track to grow this year and next. The value of what we produce in Ireland will increase by about 3pc this year and over 4pc next year, and this augurs well for the plan to fix the public finances."

Mr McCoy then went on to argue against the imposition of any further austerity measures beyond those already provided for in the Government's four-year plan.

"Austerity measures greater than those already planned would be at odds with the economic needs of the country at this time," he wrote.

Doom and gloom

After all the economic gloom and doom of the past three years, Mr McCoy's article was by far the most positive outlook presented by a prominent public or business figure for a very long time.

While he might not have been proclaiming the end of our current economic difficulties, he was certainly indicating that the worst was behind us and the prospect of better days lay ahead.

During a week when global equity markets were in free fall and the very existence of the euro remained in doubt, Mr McCoy's contribution to the economic debate was, depending on one's point of view, either bravely optimistic or just plain foolhardy.

Of course when it comes to economic forecasting Mr McCoy is no novice. He was editor of the ESRI's flagship Quarterly Economic Commentary from 2000 to 2005.

These were the years during which the Celtic Tiger morphed from a genuine economic miracle into the greatest credit-fuelled, property-price bubble in recorded economic history.

It was the popping of this property-price bubble from 2007 onwards that first bankrupted the Irish banks and then, in November 2010, effectively also bankrupted the Irish State, forcing us to seek a bailout from the EU and IMF.

So how accurate were Mr McCoy's economic predictions during his time at the ESRI? Was he one of the tiny minority of professional economists who identified the enormous threat to our economic well-being posed by the property bubble?

Not quite. The closest he got was in the Autumn 2004 Quarterly Economic Commentary, which stated that: "Current levels of housing completions [then running at almost 80,000 a year] are substantially above the levels required to meet long-term housing needs. The underlying demographic demand for housing is estimated at around 30,000 units per annum."


In July 2005, in what was to prove to be his last Quarterly Economic Commentary before leaving the ESRI to become IBEC's director of policy, the publication warned of the dangers that the rapid unwinding of investment in new housing posed to the economy over the next few years.

In other words, while Mr McCoy was not completely blind to the dangers that the housing and property bubble posed to the economy as a whole, he -- in common, it must be said, with the vast majority of the economics profession -- completely failed to realise just how devastating the consequences of pricking that bubble would be.

With the benefit of hindsight it is clear that only a handful of mavericks and outsiders such as UCD professor Morgan Kelly and Irish Independent columnist David McWilliams were fully alert to the dangers inherent in the property bubble.

Most 'insider' economists, including the vast bulk of those in the universities and state-funded research institutes such as the ESRI, along with those in the banks, consistently downplayed the danger.

Following his stint as Quarterly Economic Commentary editor, Mr McCoy joined the employers' group IBEC. At IBEC he succeeded Brian Geoghegan as director of policy, effectively the organisation's chief economic spokesman and lobbyist.

Ever since it was formed from the amalgamation of the Confederation of Irish Industry (CII) and the Federation of Irish Employers (FIE) in 1993, IBEC has been dominated by the FIE side of the house. Its first two director generals, John Dunne and Turlough O'Sullivan, were old FIE hands.

This made sense when social partnership ruled the roost. With IBEC centrally involved in negotiating a series of trilateral pay deals along with the Government and trade unions, the industrial relations expertise which the FIE brought to the organisation was at a premium. It was for this reason that Mr O'Sullivan pipped the widely fancied Mr Geoghegan for the top job in 2000.

By 2009, with Mr O'Sullivan due to retire, this had all changed utterly. As the full extent of the economic downturn began to become apparent, social partnership, which had brought such excrescences as benchmarking in its wake, quickly fell from favour. It was rapidly transformed from being the Celtic Tiger's 'X Factor' to the root of all economic evil.

With the demise of social partnership and reduced subscription income from member companies, IBEC lost €1.4m in 2009, meaning that the organisation urgently needed to re-invent itself if it was to stay relevant in a post-social partnership world.

After having been led by two industrial relations veterans for the previous 16 years it was time for IBEC to re-emphasise its lobbying function.

This meant that it was Mr McCoy who got the nod over either Brendan McGinty or Pat Delaney when Mr O'Sullivan retired as director general two years ago.

Despite not being an industrial relations specialist Mr McCoy's record wasn't entirely unblemished by social partnership.

One of the legacies of social partnership was that IBEC always had a representative on the FAS board.

Indeed Mr Geoghegan had been chairman of the now-discredited state training agency from 2000 to 2006. When Mr Geoghegan retired from IBEC he also stepped down from FAS and he was succeeded as a director of the agency, but not as chairman, by Mr McCoy.

This meant that it was Mr McCoy who was the IBEC representative on its board when FAS director general Rody Molloy was forced to quit in November 2008 after details of his lavish travel expenses and runaway spending at the agency came to light. Mr McCoy resigned as a FAS director when a new board was appointed in January 2010.

If Mr McCoy is correct -- and most of us hope that he is -- that the worst of the economic crisis is over, major challenges remain for IBEC.

While a drastic cost-cutting programme has eliminated the organisation's deficit, with IBEC recording a surplus of €950,000 in 2010, it still faces major difficulties in the years ahead.

Having been virtually subsumed by social partnership it must now carve out a new role for itself. Mr McCoy still has it all to do.

Irish Independent

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