Tuesday, March 16, 2010

Economics 16/03/2010: What's wrong with 'spend now' economic development

Please, tell me if I have woken up on some planet called 'Wealth, Prosperity and Boom Times'? The last couple of weeks have positively turned into some sort of a macabre Hollywood serial where by every other day some new 'Group', 'Taskforce' or a plain 'White Paper' or 'Strategy' comes out with a cheerful idea of spending more money we do not have on thing we do not really need. All of this is cloaked in a veil of economic 'programmes' and 'targets' that inevitably promise thousands/tens-of-thousands/hundreds-of-thousands of new and ever-better-paying jobs sometime in the next 10 years.

I stretch my arms, rub my eyes and slowly rise to the dawn of the 'new prosperity'. For prosperity, with a massive capital 'P' is what it will take to actually get a single job out of the Innovation Task Force, the TASC L28, the Farmleigh Report... and now, the ideas that some of our University heads have.

So let me briefly outline another Grand Project 'Irish Awakening' installment. Albeit more modest (it would only cost a handful of million to set up and as much to operate annually), the idea of setting up a separate Minister (with her own Department) for the 3rd level education, floated out by DCU president Prof Ferdinand von Prondzynski in the end bears about the same relation to addressing the real problems of Ireland Inc as Eskimos' annual seals hunt does to flyfishing in New Zealand.

Prof Prondzynski is right in identifying continued underfunding of our universities as a major problem. I agree with him here, although we disagree (and only partially) on what this funding should deliver and also on where it should come from.

But setting aside these differences, how can such an experienced and accomplished university head confuse the appointment of a high office of a Minister with a functional policymaking and regulatory/funding outputs? All that a separate Ministry would do is suck massive amounts of funding to finance pay and perks of its own employees, sprinkled with rows upon rows of addictive junkets for the Minister and her entourage.

Take current 50 bureaucrats administering Universities funding. Put them into a separate Department, appoint a senior minister for that and you have 80-100 headcount of new paper pushers. The cost? Oh, at an average wage in the public sector, plus trimmings, plus employment-associated costs, junkets and so forth - conservatively starting at €8 million per annum. Oops, there goes a large chunk of funding for some 3rd level institution.

More fundamentally, to say that adding a new layer - whether independent or not - of bureaucrats to the already cumbersome, nearly Byzantine system of controls, budgetary appropriations and regulatory constraints will make Universities funding any more visible or transparent is a strange sort of logic.

The problems with our Universities funding can be ranked, in terms of their gravity, and thus priority, as follows:
  1. Lack of direct relation between university performance (in terms of quality of its academic research and teaching) and funding (disconnect between end-user / customer - corporate and students). This can only be resolved through introducing fees-based competition and through more direct corporate funding of research (not as a pure substitute for public funding, but as enhanced addition to it). Setting a Ministerial office for 3rd level institutions will do nothing here;
  2. Lack of direct managerial capability over staffing (the problems of centralized wage setting and tenure). Again, this cannot be addressed through a Ministerial remit, but will have to involve decentralization of management and finances to give Universities more autonomy;
  3. Lack of private sector funding for R&D - a problem that is extremely acute and cannot be resolved through any Ministerial diktat. Only significant improvement in research system transparency, allowing the best universities and researchers (including those from DCU, where Prof Prondzynski should be credited with achieving serious and positive transformation on research front) to directly and openly compete for research funding can do the job. If anything, Universities research funding activities must be also seen as a potential avenue for exports from Ireland of knowledge economics and in this, Universities can and should be assisted by Enterprise Ireland and other export-development agencies. Again, however, a separate Minister for 3rd level education will do absolutely nothing here.
  4. Difficulty of accessing new R&D funding streams (e.g EU funds). Again, to address this problem Universities need to become more competitive and more aggressive in cutting through the fog of 'collaborative research' simulacra. Only truly productive collaborative research should be pursued and the idea that collaboration is of value on its own - as currently pursued by our funding authorities - must be dealt away with. This cannot be done through more centralization of decision making - as consistent with single Ministerial authority.
So none of the real problems and opportunities faced by our Universities require a new Ministerial post. And, of course, our budgetary constraints hardly permit such a lavish addition to the ranks of policy boffins.

And thus, returning back to the general theme of economic policy by 'borrow more now to get hundreds of thousands of jobs tomorrow', let me tell you an ancient fable that aptly describes what I think of all the proposals for setting spending-based targets for future growth. Back in the Middle Ages - around 13th century - there was a great character employed by Sultan. His name was Hoca Nasreddin. One day he came to his friends to tell them that he was just employed by Sultan to teach Sultan's pet donkey how to read. His friends were alarmed, as none of them believed this can be done. They were concerned that Sultan, upon learning of Nasreddin's inevitable failure to perform the task will have Nasreddin's head cut off. "Do not worry, my friends," replied Nasreddin. "In ten years, when contract is up, either Sultan will be dead, the donkey will be dead or I will be dead."

Ditto for all the promised hundreds of thousands of jobs by 2020 - how many heads of authorities or political leaders responsible for producing these targets today are likely to be there in 2020 to account for these plans? Of course, in the mean time, they all want us to pay for these now. Spot the fools in this scheme?
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