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May 19, 2010



Unemployment benefit(s) are a cost to the state. But state intervention to create jobs is also a cost.

This is fast becoming an article of faith debate. You are either in the camp that says we are simply too indebted already to borrow more money for stimulus.

Or we can borrow the money, or get it through increased taxes or whatever.

The two camps dont seem to be finding common ground sadly.


Hi Michael,

I think the core problem (and hence objection to) with statist solutions is that the state tends to behave differently than private corporations.

#1 The state rarely sells up. The sale of statist industries tends only to occur when those idealogically commited to privatisation take power.

#2 Continues to subsidise failing entities (i.e. holds onto once successful entities for too long)

#3 Failures are a scandal (e.g. e-voting etc). If you take a look at Techcrunch or any similar site, you'll find details of dozens of startups trying to create similar companies. Most will fail. Failure shouldn't be a scandal, but a learning experience.

There is an opportunity cost to the state holding on to state companies. If the state could achieve a fair price, representative of future cash flows - where is the problem in selling state assets to invest in new state companies now? (i.e. Could statism become more like private enterprise, just at the point we need public investment to take up the slack?).

E.g. If we need a next generation broadband infrasctructure - could we sell some of our semi-states and create a new semi-state to provide that infrastructure (which itself could be sold off in future)? Wouldn't this create jobs?

Is it possible for people on both sides to move out of the idealogical trenches to produce rational solutions (even if this one is a non-runner?)

Michael Taft

Mack - not every boost to investment or job creation is 'statist'. If the state had backed the management buy-out of SR Technics, this would be state-supported but I doubt anyone would call this 'statist'. Simialrly with temporarily reducing VAT on labour-intensive activies as the French did with the restaurant sector - to maintain demand and, so, jobs.

Let's take the example of creating a new public enterprise company to roll-out Next Generation Broadband. Here is an opportunity to leverage in private sector investment as Donal Palcic refers to in the Singapore example. Indeed, this model should probably be rolled out in other areas as the private sector, as Davy reports in its analysis of investment over the pas 10 years, can't be relied on to make smart productive decisions.

In this case, there is no need to sell off current public enterprises to fund this one. As Fine Gael rightly suggests, the 'public' funding could come via a single holding company which would have the power to debt-finance; something many public enterprises are already doing to good effect.

As to selling off a public enterprise, the issue should be examined in light of past experience. It's not just a matter of holding up Eircom all the time (though it is salutory). If we had the ICC / ACC we would have two instruments ready to extend credit to SME's, something we don't have.

The larger question is whether privatisation would enhance our productivity base. Again, Palcic and Reeves suggests our own experience is not very good. You might be interested in this paper:

If the long-term goal is to develop a strong indigenous sector, then it might be counter-productive to start selling off strong indigenous companies. Rather, we should be expanding them.

Michael Taft

Barry - I would argue that job creation as per an investment into the productive economy is not a cost. If it were, no business would ever invest. Investment earns a return. The ESRI estimates that the return (based on their analysis of various NDP and EU funding) is somewhere in the region of 10-15%. If this were achieved (of course, dependent on a sound investment project), this would provide returns in excess of interest payments, with the investment itself paid for within seven to ten years. If this is the case, the issue then becomes what investments into what part of our economy; and from where do we source the investment resources (i.e. the cheapest source).


Michael -

I'll take a read of that article - thanks. But surely the issue now is the funds aren't there for the state to invest in new industries, or stimulate the economy by tax cuts or tax rises (magical bank bailouts not withstanding)?

How likely is it that we can conjure up private investment at home or abroad for risky new investments such as a next gen broad band network (esp. when Eircom don't seem willing to invest in it themselves)? They might invest in established state industries - and we could use the funds raised to invest / stimulate.

I'm not sure the eircom experience was a complete disaster either - we have a decent (but not spectacular) telecoms network in this country. Much better than what existed 20 years ago. There is competition the telecoms market (to such an extent I don't have to use the behemoth Eircom at all). The state appears to have gotten a decent price - given that the share price collapsed shortly after the sale. Broadband uptake levels are significantly above those in the north (BT's domain).

But even if it is held to be an unmitigated disaster - the privatisation of Aer Lingus seems to have worked out very well. I doubt we need the state to keep a 30% stake in this day age either. If worst comes to the worst (and every airline were to pull out of Ireland, why??) we're not a poor country, I'm sure we could purchase some new planes..

I'm not trying to persuade you to idealogically accept the benefits of privatisation, just to consider it as part of a package that might help deliver jobs. Part of the problem with the alternatives suggested thus far is they haven't been holistic, they've defended special interest groups and left big holes in terms of how they'd be funded. If you won't raise money by selling state assets, and the bond market is effectively closed, and the EU are on our back, then how?

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