Saturday, March 13, 2010

Economics 13/03/2010: Why Farmleigh report falls flat

I must confess, last week produced a bumper crop of new (and old) 'proposals' for fixing Ireland. Tasc had one (the Letter of 28) - it was utterly unworkable, self-interested and dogmatic - despite the fact that its desired objectives were predominantly positive. Task Force on Innovation had one - it was painfully lengthy, saccharine and dogmatic in its own way. An idea that Ireland can create high-tech jobs bu busloads was simply beyond any support and the analysis produced in Chapter 13 to support this assertion is exceptionally naive.

In between, largely unnoticed, was the missive issued by the Department of Foreign Affairs titled simply "Progress Report on Follow up to The Global Irish Economic Forum".

This unassuming publication is, nonetheless, the official endorsement of the expensive, though originally ambitious (deflated by the DofFA bureaucrats/organizers who went through the original list of invitees with a red pencil removing any potential 'trouble makers' - aka original thinkers) undertaking back in September 2009. It is full of woolly and teary-in-the-eyes stuff that doesn't deserve much attention, except that it puts Ireland Inc to international public view. DofFA aims this report not so much at us, the residents, but at the foreign 'diaspora' - and through them - at international markets.

So let's take a quick scalpel to that boil.

Per DofFA: "The emphasis in the Budget [2010] on encouraging innovation, maintaining Ireland as a friendly and supportive environment for international business, and highlighting emerging strengths in areas such as renewable energy, green technology, scientific research and innovation, all reflect the concerns and views put forward by those present at Farmleigh."

Of course, DofFA would do well to read the Budget. It has a tax break for booze (un-passable to consumers) and a tax break for new cars (passable to German, Japanese and other producers of these). Which part relates to 'encouraging innovation' etc? On Green - there is a new tax, but no 'highlighting emerging strengths'. Page 3 of the said DofFA report therefore already contains a very sever stretch of 'truth in reporting' concept.

The report, worryingly, brings up numerous references to direct and indirect Exchequer financing for expanded post-Farmleigh 'Network' of 'Global Irish' (or shall we call them 'Glorish'?). On our knees economically, we, the resident population will be floating financially such worthy causes as 'regional' Farmleigh-style gatherings around the world, Ministers participation at these, an hereto invisible organization called Irish Technology Leadership Group in Silicon Valley, and one Irish Innovation Centre, plus other activities. 'Glorish Youth Farmleigh' junket is planned as well.

Perhaps the most grotesque (and from my point of view is the idea of going to the Irish diaspora worldwide hat-in-hand to get some cash for the Exchequer. "Diaspora Bond: the Minister for Finance announced in Budget 2010 that the NTMA and his Department will develop a National Solidarity Bond which will be available for investment in 2010. Initially, the bond is expected to be available to Irish residents. The NTMA, the Department of Finance and relevant Departments are examining the feasibility of extending it to non-residents and how to successfully market it abroad, including through Irish Diplomatic Missions."

I commented before on the notion that our Government (and some of its close allies on the Left) have somehow gotten into their minds that they can sell this 'Tin Whistle & Shamrocks' bond for more than they are selling ordinary bonds. It is simply naive. Any yield offered on these bonds will require a premium over ordinary bonds issued to the international investor community. Why? Because this Government has shown to the entire world that it is willing to sacrifice domestic investors for the sake of protecting foreign bond holders. They are doing this with the banks. And as a result, any investor in a 'special' bond will ask for extra return in exchange for surrendering the protection granted to institutional foreign investors.

But read carefully above - there is an idea that such a bond can be marketed to retail investors outside Ireland via our diplomatic missions. Have they heard of MiFID or its equivalent regulations around the world? Imagine:

Our diplomatic mission in, say NYC, with a sign: 'Paddy Bonds: Buy Em Here'. A bureaucrat/ diplomat at the desk. A gentleman walks in and says: "Can you tell me about this fine bond offer?" Our man starts blabbing about Budget support for innovation and the fantastic opportunity to get X% on your investment, should you buy this Y-year bond. Another man walks in. Shows a little card, saying "SEC" at the top and asking to see our mission representative's authorization to sell retail investment products. Zoom forward ten second. The bureaucrat is led in handcuffs, Fox News outside with a camera crew and SIPTU/CPSU rep running after them shouting "Social partners will not stand for such treatment of ordinary workers!". NYTimes headline next day: "Erin Bonds Bust". Within a week - the same happens in all civilized nations protecting their citizens from unauthorized dealers in financial products.

Anyone in Farmleigh scratched their head over this possibility? Or did they all think we can get our missions staff to re-train (in our knowledge economy) to become authorized advisers all around the world? Nope - swept in a collective enthusiasm for 'radical, man, thinking' they just popped out this pearl of wisdom.


Forget all the nearly macabre pedaling of the tourism offers in the report - the ones that occupy several pages. Take a look at the beefy parts:

Section 32: "A new €90 million National Energy Retrofit Programme, ...was announced in Budget 2010. The programme will draw together existing retrofit programmes into a more coherent, overarching framework, leveraging the relationship between energy companies and their customers to promote energy efficiency improvement measures and energy services to end-users. This new programme has the potential to be the most innovative, ambitious, energy-related initiative ever introduced in Ireland. The 2010 activity alone, disbursing €130 million, will support energy efficiency improvements in up to 60,000 homes in 2010, support 6,000 jobs directly and will create energy efficiency savings worth a total of €570 million over their lifetime."

Ok, figures check: how can a €90 million programme disburse €130 million? Do money now grow on the Gov offices lawns? And notice the reference to 'energy companies' and their customers. Of course, most of this funding is therefore destined to settle into ESB, Bord Gais, and Bord na Mona coffers. To promote energy efficiency of the least efficient generators who happen to - courtesy of the state protection - be the dominant market players. But wait, 130 million for 60K homes runs to an average of €2,167 per home. Now apply arithmetic: at least 20-30% of every Government programme is consumed by admin and own costs. Then there's VAT on services and supplies. In real terms, we will be lucky if the €1,198 per house actually gets disbursed. It is better than nothing, but it is hardly qualifies as having "the potential to be the most innovative, ambitious, energy-related initiative ever introduced in Ireland".

The idea is good, don't take me wrong. It is just being devised to suit the wrong crowd - the crowd that got us where we are in terms of inefficient, severely polluting and excessively expensive energy market.

Incidentally - has this anything at all to do with Farmleigh? Nope - it was announced two years before Farmleigh took place and was budgeted for the first time in 2008.


The entire section on economic development - from mid page 8 through mid page 10, accounting for 1/5 of the substantive sections of the report has absolutely nothing to do with Farmleigh. In the end, roughly 1/3 of the report relates to ideas discussed in Farmleigh, with the rest being
  • either tripe as the talk about the St Patrick's Day junkets for ministers (as if these never happened before Irish Diaspora gathered in Dublin last September), or
  • something that has been announced/planned for before the Farmleigh, e.g. Dermot Desmond's 'Culture Ireland' Uni (don't get me started here).

What Farmleigh report does well, then? It shows a deep degree of incompetence and insecurity amongst the political and bureaucratic masters of Ireland Inc. It's comprehensive lack of new ideas, lack of departure from the status quo are frustrating, especially since we know - many of those who were at Farmleigh last September really do have good ideas.

It is simply that DofFA and this Government had no desire to hear them speak their minds. Which brings me to the revelation that was not made before (to my knowledge) about Farmleigh. In months of preparation for Farmleigh, DofFA took over the lists of invitees, prepared by the idea originators and mercilessly cut out all potential invitees they did not approve of. From that list gone were a number of public figures very active in policy debate in this country and internationally. They then added a number of those, deemed by the bureaucrats as representative of the Social Partnership. How do I know this? The original owners of the Farmleigh idea actually told me this a week before Farmleigh took place!

Sounds familiar? Yes - Farmleigh, despite sporting some very good corporate leaders, was just another state-run, state-owned junket, designed to appease our ruling elite. The 12 page report on it that took DofFA 4.5 months to compile reflects exactly this reality.
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