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Analysis/Comment Last Updated: Dec 30, 2010 - 9:32 AM


Ireland, optimism and King Lear's 'great stage of fools'
By Michael Hennigan, Founder and Editor of Finfacts
Dec 20, 2010 - 9:12 AM

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Snow at Amsterdam Airport, Schipol, December 18, 2010. Picture taken by Michael Hennigan

As the current year draws to a close, it has been hard to conjure up optimism as we face into another bleak year that is the result of reckless mismanagement and the default three-year slow-motion response to the banking crisis. In 2011, some will leave what William Shakespeare called the 'great stage of fools' in King Lear but it will still remain well populated.

There is an innate optimism in the human spirit as reflected in the closing line of Percy Bysshe Shelley's poem Ode to the West Wind: "If Winter comes, can Spring be far behind?"

The tradeable business sector has to look beyond the current grimness and the competing voices of the well-heeled from protected sectors, with their firm grip of the public megaphone.

There is almost 86% of the workforce in employment and for some apart from scaling back on bubble era overpayments and perks, the severe recession has had little impact. At the other end of the spectrum, are the unemployed, some no doubt in a desperate struggle to keep their lives intact. The trade unions now  largely represent the privileged in secure employment while the minority of the private sector with an occupational pension have had average annual fund losses in real terms (inflation adjusted), over the past 3,5 and 10 years with more to come.

University academics can advocate massive debt restructuring across Europe, while retaining the "legitimate expectation" of added pension years which has resulted in a State bailout of their pension funds, while the sought after bondholder 'haircuts' would hit private sector pensions.

We have seen little solidarity from the powerful vested interests during this severe recession and for example, it would be a shock if a current university president was to announce that his institution could do more with less.

The former president of the University of Limerick, Dr. Ed Walsh, said last October that Ireland’s current crisis had resulted from gross mismanagement of public affairs during the past decade.

"The addition of 70,000 employees to the public pay roll, public sector pay increases and social welfare increases that far exceeded those of our competitors have resulted in an additional annual pay bill of some €15bn, a narrow tax base, and an unbalanced budget without precedent," he said.

Dr Walsh told a Society of Chartered Surveyors Conference: "Everyone in the public sector is paid too much including myself -- 20% more than the private sector."

"Teachers unions criticise the lack of spending on school facilities but their unions have managed to divert €5.5bn of the €6bn education budget into their members' bank accounts. Yet school performance had dropped 15%."

If the Government was "to benchmark public servants' pay to those in Northern Ireland we could save €15bn, and if we were to bring key social welfare benefits down to those in Northern Ireland we would save a further €8bn a year," he added.

Snow blankets the White House grounds during a blizzard, February 6, 2010.

What is striking is the eagerness of pundits and commentators to focus only on the banking crisis - - a symptom of a failed governance system - - while avoiding the issue of fundamental reform for fear of losing favour with some or other vested interest.

There is the challenge of creating 200,000 net new jobs, which also gets little serious attention.

Minister for Enterprise and Innovation Batt O'Keeffe, can get attention for announcing a project with new jobs at 15 per year for 5 years but there is no credible strategy.

IDA Ireland, the inward investment agency, will issue its end-of-year statement this week and in advance we have asked for an estimate of job losses in the foreign-owned sector this year.

We have seen a ramp-up in announcements of new projects in recent weeks but we believe that the development of a credible strategy must begin with a reality check. Excluding estimates of indirect jobs, stressing the number of 'wins' without any data on total investments and ignoring job losses, would be consistent with the endurance of spin at the enterprise agencies.

The British politician Enoch Powell once said that all political careers end in failure.

In Ireland, the failure is gold-plated and reflects what we have called the Age of the Scrounger.

The Sunday Tribune reported on Sunday that each retiring TD is in line for a payout in the region of €225,946.

Justice minister Dermot Ahern will be paid €318,000 in the first year after his retirement. This is comprised of a pension of €140,861, an initial tax-free sum of €177,636 and an annual pension worth €128,291 for the rest of his life.

Similarly, Noel Dempsey stands to receive payments of over €316,000, which includes a tax-free pension lump sum of €159,000, initial termination payments of €56,900 over the first six months, €29,500 over the second six months and €70,730 in graduated ministerial payments. After the first year, he will receive a combined TD and ministerial pension of around €134,000.

There will be others who will line up for the bonanza including the likes of Mary Harney.

In early 2009, Minister Noel Dempsey said those accused of wrongdoing in Anglo Irish Bank, had engaged in “economic treason.”

He told Fianna Fáil party members, that a small number of "money manipulators" had endangered Ireland’s economic survival.

"There’s no parallel in history for the damage they have done to this nation - -  except perhaps Cromwell.

"And even Cromwell was motivated by reasons other than personal gain," he said.

A brass neck surely has served the likes of Dempsey well.

In a sign of the changing model of globalisation, François Musseau in the French newspaper Libération reported this year that Portuguese are heading for Angola, a former Portuguese colony, which was devastated by a civil war from its independence in 1975 until 2002.

While more than two-thirds of Angolans still live in deep poverty, the Angolan economy is “beginning to take off” as diamond and oil reserves are developed, and Angola needs Portuguese-speaking college graduates to fill many jobs.

More than 100,000 Portuguese have settled in Angola in just the past two years and the main motivation is the prospect of high salaries.

The “privileged émigrés” see Angola as a new “El Dorado.”

Christmas 2010 at the Pavilion Shopping Centre, Kuala Lumpur, Malaysia.

On the issue of globalisation, Nitin Nohria, professor of Business Administration at the Harvard Business School, explored in an article the weakening connections between business growth and job creation. He says the industrial economy of the 20th century ensured that growing firms would need to add workers, but the increasingly globalized and information-based economy of the early 21st century makes it possible for businesses to increase profits without adding significant numbers of employees.

Two factors that once supported the link between business growth and job growth have fundamentally changed. Businesses in the 20th century were both more industrial and more local than they are today. To grow, an industrial firm had to expand mass production and mass distribution. An increase in the demand  for products, whether cars, washing machines, or TV sets, eventually created additional jobs on the assembly line and in the supply and distribution chain.

These jobs were local, and over time they became well-paying middle-class jobs. As a result, in the US for most of the 20th century the rise of business coincided with the rise of the middle class, creating confidence in the system and establishing the American Century.

Prof. Nohria  says when Google, Facebook, or another of the amazing companies that exemplify the new American economy doubles in size, it doesn’t  multiply jobs the way fast-growing industrial firms once did. A hedge fund trading billions of dollars needs far fewer people than would a traditional bank handling similar sums. And often new jobs are going to a few skilled, highly paid knowledge workers rather than to many middle-class workers.

Some key articles from 2010:

Ireland: Barometers of stress rise as reality and fantasy compete in economic discourse

US, China and the rickety state of conventional globalization

Apple overtakes Microsoft as the world's most valuable technology company

Historic milestone as China overtakes Japan in the second quarter to become world's second biggest economy

Irish Innovation: Ireland banking on the faith-based smart economy strategy

Harsh Budget inevitable but not a 'Domesday' verdict for everybody

We are in holiday mode from this week but will provide updates on some key issues through the holiday period.

We wish our visitors a happy Christmas!

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© Copyright 2010 by Finfacts.com

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