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News : Irish Economy Last Updated: Jun 27, 2013 - 10:25 AM


Irish Economy: No jobs engine but €6.4bn to plug the dyke
By Michael Hennigan, editor and founder of Finfacts
Jun 15, 2013 - 9:36 AM

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Pat Rabbitte (l), minister for communications and energy, and former Labour Party leader, smiling like a Cheshire cat, presumably because of the cornucopia of goodies he will have available, Michael Noonan, finance minister, Brendan Howlin, minister for public expenditure reform, and Fergus O’Dowd, minister of state with responsibility for NewEra - - the public spending programme that is more old era than new and has the potential of leading to the costliest pork barrel election, since Fianna Fáil , the builders party, won the 1977 general election. The party on its own in the period 1977-1981 trebled the national debt and in 1978 a budget deficit of almost 18% was recorded - - the largest according to the IMF in the period 1970-2008. Times have changed but not the style of governance. Launch in Dublin, June 13, 2013

Irish Economy: With no credible jobs engine that could result in the creation of 200,000 net sustainable jobs in coming years; no prospect that an international recovery could trigger the "rocket" growth that Michael Noonan, finance minister, waxed eloquent about in 2012; ministerial economy with the truth in respect of the economy and challenges ahead; international tax rules likely to be changed for the first time since Ireland began using tax policy to promote inward direct investment in 1956; a weak indigenous sector illustrated this week by Elan, the onetime biotech firm reduced to a shell and putting itself up for sale while DCC, the trading conglomerate, bailing-out from the Dublin stock exchange; and a Labour Party, the junior member of the governing coalition on the ropes mid-way in the election cycle, provides the backdrop to this week's  announcement that the €6.4bn left in a public pension fund after bank recapitalisations, will be transferred to an Ireland Strategic Investment Fund (ISIF) to create jobs.

Elan: Most valuable Irish firm becomes cash/ royalty shell

In contrast with the success of the Little Dutch Boy in the 19th century American story, the planned infrastructure spending is akin to plugging a hole in the dyke, while the structure is crumbling.

Some spending programmes may well be merited but there is a big political element to the programme. In a country of limited or no accountability on public spending, the temptation to provide a costly window dressing that would mask failed policies leading up to a general election, is too good to ignore. In the conventional system, much of the investment will flow down a sinkhole. Is there a senior civil servant or member of the overpaid staff of the National Asset Management Agency, the debt agency, who would rock the boat? Look at the record -- of course not.

Besides, the bitter truth is that we Irish have a very poor record in project management.

Crucially the political direction of the programme will work unimpeded given the very poor record and standard of representation of both Houses of the Oireachtas, coupled with a weak media. Crucially as well, all the older men involved are likely to be in superannuated bliss by the time the money runs out.

“In the past year since we launched the Action Plan for Jobs we have seen more than 2,000 extra jobs created in the private sector every month, with exporting sectors leading the way," Richard Bruton, enterprise and jobs minister, said on Friday.

"Exports are leading the recovery and in recent years our exporting sector has remained vibrant, competitive and robust. The services sector is playing an increasingly significant role in export growth, having grown by 9.4% over the first three quarters in 2012, and now exceed the level of goods exports by just over a billion euro. This owes much to the significant price and cost adjustments that have taken place in recent years," Michael Noonan said last February.

I have asked the Department of Finance for the evidence that the surge in services exports reflects competitiveness but there was no response. This week, a House of Commons committee reported on Google UK and exposed the ministerial lie.

Bruton knows that the claim that the private sector is adding 2,000 jobs a month is highly misleading. A rise in part-time jobs and self-employment does not reflect export activity.

There was a total of 507,000 on the Live Register and in publicly-funded activation programmes in May.

Kenny's bogus Irish effective tax rate claim - - including report on Google UK. The Taoiseach also has been economical with the truth on corporate taxes.

Irish Economy 2013: Unofficial rate of unemployment remains over 20%

The target for the Action Plan for Jobs is to increase employment by 100,000 in the period 2012-2016 and with €6.4bn available for construction, energy projects and other investments with no ultimate responsibility for performance -- ministers and public sector staff and well-paid external advisers -- there are going to be lots of big ministerial announcements.

The record is that the implementation/ performance seldom matches the initial PR and spin.

There is a classic case of an inflation-adjusted investment of €23bn spent over a decade on the goal that Ireland would become a "world class knowledge economy" by 2013.

The failure has been met with silence from ministers; both Houses of the Oireachtas, the universities, other vested interests, the science editor of The Irish Times and tech journalist cheerleaders.

Never fear: there is an audacious or delusional new target: "in which Ireland in 2020 is the best country in the world for scientific research excellence and impact."

It would be good if this was a joke but this is policy making in Ireland 2013, five years after time was called on the fairytale that the free lunch had been invented.

All these policy makers and supporting eco- system are of course well-taken care of.

I will chance my arm in trying to get Craig Beaumont, IMF Ireland Mission chief, to argue for an independent oversight board, with some external members.

The Irish Fiscal Advisory Council should also support such a proposal.

Silence in the past has destroyed the lives of tens of thousands of fellow citizens.

Apple, taxes, Irish economy and creating 200,000 net jobs

Irish Science Policy: 2020 replaces 2013 as target to be 'best country in...world for scientific research'

Irish Economy: Innovation, a failed enterprise policy and inconvenient facts for 2013

Irish Economy: Sustainable growth dependent on foreign firms since 1990; Now FDI has peaked

The Irish Times: Timidity in turbulent economic times

Is it too much to hope that this time could be different -- because of external pressure?

Government press release

Government presentation [pdf]

Sir Mervyn King, outgoing Bank of England governor, says in a Lunch with the FT feature today with Martin Wolf: “I’m always struck when I speak to not just ministers but people who work in the Treasury that it is actually quite difficult to produce the investment projects. It’s very easy to spend money but in a way that maybe doesn’t add to the real gross domestic product.”

The New York Times said in a February 2009 article that the main legacy of very high Japanese infrastructure investment, is a good standard of infrastructure (excluding many white elephants) and a massive increase in debt:

[It is not enough just to hire workers to dig holes and then fill them in again,” said Toshihiro Ihori, an economics professor at the University of Tokyo. “One lesson from Japan is that public works get the best results when they create something useful for the future.”

In total, Japan spent $6.3tn on construction-related public investment between 1991 and September of last year [2008], according to the Cabinet Office. The spending peaked in 1995 and remained high until the early 2000s, when it was cut amid growing concerns about ballooning budget deficits. More recently, the governing Liberal Democratic Party has increased spending again to revive the economy and the party’s own flagging popularity.

In the end, say economists, it was not public works but an expensive cleanup of the debt-ridden banking system, combined with growing exports to China and the United States, that brought a close to Japan’s Lost Decade. This has led many to conclude that spending did little more than sink Japan deeply into debt, leaving an enormous tax burden for future generations.]

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