Tuesday, September 15, 2009

Economics 15/09/2009: Why there is no hope...

This is, to put it in PMD's words, why there is no hope for long term growth in Ireland (here).

Throughout the years of Celtic Tiger, the Social Partnership presided over:
  • The planning system and spatial development strategies that assured the current crisis in property markets and locked tens of thousands of Irish residents in the 'commuter belt' - slaves to cars, spending hours on the roads, and now also facing punitive taxes (here);
  • The tax system that created all the incentives for generation of the housing and credit bubble in the economy as it benefited the political, unions and 'Social Pillar' partners at a cost of gross mismanagement and even abuses of public trust;
  • The system of governance and policy formation that made FAS, Benchmarking and the likes of HSE inevitable outcomes of paucity and culture of entitlement that exemplify Ireland;
  • Vast transfers of wealth from the private sector taxpayers to public sector and political classes via ESOTs, privatization payoffs and exclusive employment contracts that are the legacy of the state in former state enterprises;
  • Inchydoney Accord, Bertie Ahearn's 'Socialism' and Brian Cowen profligate spending in the budgets of 2005-2008 all were the direct corollaries of the unaccountable and feudal system of economic policy formation that relied on this cronyist 'Good Old Boys Club' operating behind the closed doors - the princely court at which the Bearded Men of the Social Pillar/Unions were outnumbering 3:1 the business representatives and at which the taxpayer was represented by the economic pie being sliced and served;
  • Retarded competition in the domestic markets that benefited the clients of the state, and so on.
Cui bono?

The self-appointed guardians of the public interest - our NGOs and trade unions - had their leadership firmly at the trough which was filled by the Government with the taxpayers cash. It is their signatures that grace every Partnership Agreement. It is their leaders who enjoyed FAS hospitality on the state body board. Their counterparts on employers' side, at the very least, had a better taste of not pretending to stand in for the little man's interest.

Now that the pipeline is dry, the Partnership unravelled. Yet, instead of fighting the legacy of the clientilist, anti-democratic, corporatist reminders of the 1930s, our 'Opposition' parties prefer to advocate the continuation of the political order that assured the current crisis.

Irony? It would be, if not for the lack of alternatives at a voting booth.

Future growth, especially future sustainable growth, will have to rely on freeing economy from the shackles of the policy making exercise that is conducted by those who add no value through their labor and are reliant only on state transfers (of money via subsidies or customers via restricted access) to stay in business. It is that simple, folks. Public sector, FAS, Forfas, all of our Departments add no real value to either productivity growth in this country or to the productive capacity of this country in general. At the very best, they can provide support. Companies are not run by their administrative assistants they are run by entrepreneurs and key personnel at the coalface of productive processes. Neither are economies.

Until the entire political class of Ireland understands it (and thus accepts the logical proposition that follows from it, namely that the Social Partnership is a problem, not a solution), my forecast for Ireland's long term growth will remain 0-1%pa. Good luck sustaining Brian Cowen's salary on this...
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