A wish list: asking for the right policies

For those of you who missed it, here is my take on Mr Cowen's White House visit - an unedited version of the article in yesterday's Irish Daily Mail.


There is always much ado about the Taoiseach’s visit to the White House on St Patrick’s Day. And yet, for all the opportunities such occasions present, it is only in rare instances of major crises, either North or South of the Border, that any meaningful discussions take place. Well, it is the Annual Shamrock Presentation Ceremony today and we are in a crisis of monumental proportions. So, within the context of the long-running tradition of crisis requests, what exactly should Brian Cowen be asking of Barack Obama today?

First and foremost, a flight of fancy - he should ask for the US to allow Ireland to adopt the dollar as our currency. What a prospect that would be. Set at roughly $0.80-0.85 to 1 euro at conversion, the dollarization would lead to an instantaneous and adequate repricing of our labour, business and capital costs to ensure that these are reflective of our true productivity and real inefficiencies. It would also allow us to fall into the US interest rates regime which is much closer to our real economy’s need than the Germany-focused ECB rates can ever be.

As a side benefit, dollarization would bring our real per capita income in line with that of the median US State – a slightly optimistic valuation, given our lower standard of living. But a good starting point for bringing a sense of reality to our political elites who still believe that we are all fat kittens of the Celtic Tiger when it comes to taxing our incomes.

Too drastic? Indeed, I hear the protests already from the Department of Foreign Affairs. When I asked a senior Irish academic as to what his top priority for the White House visit would be, his reply was: 'Number one? A statehood for Ireland or something similar to the Puerto Rico model!' Now, that might be going a bit too far.

Humour aside, we can restore Irish competitiveness through an alternative, much longer and more painful process of deflating our real wages and cutting excessive fat in the public sector spending. Instead of dollarization-induced devaluation, we can opt for a, say, 30% cut in public sector wages, plus a 20% cut in public sector employment numbers, leading to a ca 40% cut in the Government’s current expenditure. Add to this some 20% cut in the private sector average earnings (by now we are almost half way there in real terms), and we will be on the road to a recovery.

Mr Cowen should also ask the US to fully open bilateral labour and capital markets with Ireland.

In practical terms, the former would imply Brian Cowen announcing today that any US citizen or legal resident can work and reside in Ireland without any restrictions. Following this unilateral opening,the Taoiseach should ask President Obama to reciprocate by opening up the US labour market to Irish citizens and residents.

As a side-benefit, we can also open our education systems to students from both countries, guaranteeing that American students coming to undertake their degree studies in Ireland will face EU resident tuition rates, while Irish students traveling to study in the US will have access to the same merit-based study grants and tuition as US students.

While a less dramatic broadening of the work visa regime is likely to be acceptable for Mr Obama, Ireland should stake a more ambitious goal of achieving a fully mobile labour flow between the two countries.

Extending this mobility to education will make it possible for Ireland to become a real player in international knowledge economics and give us a significant competitive advantage over our EU counterparts. In effect, the UK is already enjoying relatively free mobility of its students when it comes to top US universities, with the likes of University of Chicago even opening a campus there. For Ireland to be able to supply a better educated labour force than that of our closest neighbour, and to compete globally for best students, Brian Cowen needs to either bring about strong incentives for US universities to set up their European campuses here, or to gain access for our best students to US education system, or both.

In capital markets, we should aim to maximally align our regulatory standards while preserving Irish competitive advantage in the area of taxation. Of course, President Obama might have a question or two about our corporate tax regime, especially when it comes to the repatriation of FDI-generated profits. Brian Cowen should stand firm on the issue, asking the White House to exempt Ireland from any forthcoming legislation aiming to restrict US multinationals’ ability to book overseas profits.

During his election campaign, Mr Obama made some sweeping statements about the role played by the ‘temporary’ tax exemptions for corporate profits earned outside the US in fueling the drive for ‘outsourcing of American jobs’ to other countries, including Ireland. This is misguided from the US economy’s perspective, and extremely dangerous from the point of view of Ireland. Mr Cowen can do the US and Ireland a favour by reminding President Obama that higher value activities in the US operations (e.g R&D, managerial innovation, marketing and sales) depend crucially on companies ability to access restricted markets of Europe including via Irish operations.

In exchange, as a goodwill gesture and, coincidentally, to the benefit of our own traded services sector, Mr Cowen should promise President Obama to veto all and any EU proposals for unified international financial regulation. This is something that the US Administration opposes because of the threat such bureaucratization poses to the largest services sector in the world. Incidentally, this is also something Ireland should oppose if we were to retain and expand our competitive position in the sector.

Closely linked to this should be a request to extend US accountancy and governance rules to Irish plcs. Think of the benefits that Securities and Exchange Commission (SEC) oversight and law enforcement would have brought to the Anglo Irish Bank shenanigans or to the financial acrobatics at the Irish Nationwide and the IL&P? In the wake of the latest annual results publication, only SEC had the guts to question AIB’s bad debt provisions.

Think of the savings to the Exchequer and the gains to regulatory efficiency that this country would have achieved were our regulators acting under the US conditions. Of course, Mr Cowen might suggest that Ireland and the US also jointly do something about restricting careless lending practices by the banks in the future and limit the excessive risk-adjusted gearing in the countries’ financial systems.

Mr Cowen might also ask President Obama to extend his latest US Federal Government pay containment measures to Ireland. In fact, Mr Cowen can benchmark our public sector wages to those in the US – starting with a ca 60% cut of his own and Cabinet’s salaries. Our senior regulators and civil servants can also enjoy US-comparable earnings at a ca40-50% discount to their current wages.

Lastly, as a personal favour, I would like Mr Cowen to ask the US President to place a limit on the number of Irish public and local authorities officials flying to the US for St Patrick's Day celebrations and to impose a strict limit on FAS’ spending during its visits to NASA, Disneyland and Sea World in the future. As vital as these locations might be to generating future employment for numerous Irish astronauts, aquarium minders and fantasy castles managers, we are, after all, in a crisis. Time to slim down and get fitter. Presenting shamrocks and drawing pints will have to wait.

A foreigner? We are not too welcoming in our Public Sector...

Few months back I was invited to a presentation by the Immigrant Council of Ireland, attended amongst others by a senior civil servant in charge of one of our core Government Departments. During a lively discussion about racism and discrimination in Ireland, our brave Public Sector employee professed to be concerned about discrimination in the private sector employment. I, somewhat rhetorically, asked him if he perceived a disproportionately small number of foreign nationals employed in the public sector (inclusive of our state enterprises), as compared against their much stronger presence in the private sectors to be a sign of something dodgy going on in the state employment. He flared white with indignation.

Hmmm… figures from CSO’s Foreign Nationals: PPSN Allocations and Employment, 2007 (here) released on January 8 give my concern a strong backing.

Table below lists employment (per CSO) by sector (including foreign share of employment) of foreign nationals in Ireland in 2007.
Note: PS stands for ‘Public Sector’, while NPS denotes ‘Non-Public Sector’. * marks percentages reflective of a slightly different categorization used by CSO in listing various time series.

The share of non-Irish nationals in overall employment in the economy in 2007 was ca 20.1%, with foreign national comprising 30.6% of employment in the broadly defined private sector economy and 6.5% of employment in the public sectors.

Setting aside two public sectors with significant contribution by foreign non-nationals: Education and Health, the rest of public sectors had only 1.4% of their entire employment pool covered by the foreign nationals.

For a foreign national residing in Ireland, the probability of ending up in Public Sector employment ranged from 11.1% in Health & Social Work, to 3.9% in Education, to ca 2.2% in our semi-state companies and 1.6% in Public Administration. In other words, a foreigner is 19 times (!) more likely to gain a job in our private economy than in the most insulated and unions-protected Irish Public Administration sector!

It is also worth noting that within the Education category, only 663 foreign staff were employed in secondary education (heaviest unionization), the rest were working in either primary (1,068 – virtually un-unionized) or tertiary education (less unionized). In Transport, only 98 were in Transport via railways (unionized), while the largest share were employed (6,844) in less unionized Other Land Transport.

At the same time, there is absolutely no sign of lower level of skills amongst the foreigners as compared to Irish workers.

Why wouldn’t our workers’ rights defenders, like SIPTU, ICTU, Impact etc, take up the case of finding out what is going on inside our state-controlled employment?