Notes On The Front

A Participation Income

I will be participating in a seminar hosted by Basic Income Ireland this evening at 6:00 with Guy Standing and NERI's Tom McDonnell to discuss the Labour Movement and Basic Income.  I will be putting forward the proposal outlined below.

The pandemic crisis has understandably increased interest in proposals for a basic income.  Both the Programme for Government and the Arts Recovery Taskforce have both called for a trial of basic income.  And the success of the Pandemic Unemployment Payment in protecting people’s incomes has shown what an invigorated social transfer system can achieve.

One problem we face, however, is that the concept of basic income can a multitude of models from partial payments based on certain conditions, to full unconditional payments provided universally (that is, it is paid to all adults regardless of income or employment status).

The National Economic and Social Council have entered this debate with a suggestion:  to trial a version of basic income known as Participation Income.  Participation Income was first proposed by Tony Atkinson as a type of bridge between the current system and a full blown universal basic income.  It was particularly designed to overcome the ‘moral hazard’ objection – the risk that people would drop out of the labour market and live ‘off the state’ – and the issue of cost.

Participation Income is a basic income payment but with certain conditions; namely, that the recipients must be ‘participating in society’.  Proposed categories of participation are:

• Employment
• Caring (e.g. for a child, older person, a family member with a disability)
• Student in full-time education
• Participating or volunteering in community activities

A full Participation Income (i.e. paid at the level of the Jobseekers rate - €203 per week) would probably not be feasible on the basis of cost.  It would require considerable increase in tax revenue which would entail opportunity costs.  However, this doesn’t undermine the idea of a Participation Income.  Any move towards a full basic income would be phased in.

In developing any new model of basic income there are three principles we should be mindful.  First, that the new model is based on, and developed from, a current policy practice.  This provides continuity.  Second, that it is cost efficient.  Third that it addresses a particular issue (or set of issues) in the political economy.

Keeping these three principles in mind I would propose transforming tax credits into a basic payment.

The role and character of tax credits in the tax system is not fully appreciated, in large part because they operate below the radar.  A tax credit is a sum of money that is used to reduce a tax liability.  Here is an example:

• I’m a low-paid workers earning €25,000 per year. I am taxed at 20 percent.  Therefore my tax liability is €5,000.  However, my personal tax credits are worth €3,300 (indeed, everyone in work gets these personal tax credits).  These credits are offset against my tax liability so that my income tax bill is now €1,700.

All those employed get personal tax credits of €3,300 – whether you are low-paid or a senior executive.  However, the tax credit is worth more to the former.  In that sense, it is progressive.

A tax credit is essentially a flat-rate cash subsidy to all people in work.  However there is one major flaw:  people whose income is below the income tax threshold do not benefit from tax credits since they don’t earn enough.  This includes those on low-pay, in part-time work and those on precarious contracts.  How does that happen?

• I’m a low-income worker on €10,000. I am taxed at 20 percent.  My tax liability is €2,000.  My personal tax credit of €3,300 more than offsets my tax bill so I don’t pay any income tax.  However, I have ‘unused’ tax credits – the difference between by personal tax credits and my tax liability.  The unused credit is worth €1,300.  I don’t benefit from this amount.

The main beneficiaries of transforming personal tax credits into a basic payment for all those in work – approximately €65 per week - would be the low-income worker above.  They would get the full payment equal to the tax credit.  They would be €1,300, or 13 percent, better off.  The primary beneficiaries would be those below the income tax threshold (i.e. €16,500) or those with intermittent income such as those on precarious contracts.

Of course, this is limited to those in work.  And you can’t live or €65 per week.  However, once this is established, this Participation Income could be:

• Increased in value over time, and
• Extended to carers, full-time students and those active in civil society

This could be the foundation for the evolution of the Irish social protection state.

This proposal is consistent with the principles outlined above:  it is based on current practice (tax credits). It is cost efficient.  Social Justice Ireland estimates the cost of their refundable tax credits proposals – essentially the same thing as above – at €140 million though this may need to be updated.  It is certainly far more efficient than the Tánaiste’s recent call for income tax cuts. And it addresses a particular issue – that of low and intermittent income.

The great advantage of this proposal is that one does not necessarily have to buy into basic income to support it.  Therefore, it could attract basic income supporters who see it as a first step on the way to a full Universal Basic Income while winning support from those who want a more effective social transfer system.

With the Low Pay Commission due to come up with proposals for a basic income trial, this could be an ideal opportunity for basic income supporters and sceptics to come together and put forward a concrete Participation Income trial proposal.  In doing that, we might find we have more in common than we think.

The Coming Fiscal Battle Lines

The Government’s recently published Stability Programme Update provides economic and fiscal projections out to 2025.  In the best of stable times, such projections should be treated with caution; even more so given the uncertainty of pandemic’s medium-term impact on certain sectors (e.g. how long will it take for international tourism to return to pre-pandemic trends?).  Nonetheless, such projections are useful tools to guide policy. 

These projections are based on no changes to policy.  In other words, this is what would happen if there were no changes to taxation or expenditure.  As always in these type of exercises there is some good news, not so good news and, most importantly, warnings.

 No need for Austerity

It is now official:  there is no need for austerity to repair public finances.  There is no need for tax increases or spending cuts to bring the budget back into balance (though this is not necessarily a good idea – see below). 

We entered the pandemic with a small budget surplus: 0.5 percent.  This will turn into a deficit in 2020.  However, it starts to fall this year until, by 2025, we arrive at (broadly-speaking)  a balanced budget.  Similarly with the debt: it will top out this year and start falling next year.  By 2025 it will be lower than pre-pandemic levels. 

And all those budget fundamentalists should take note:  the debt starts to fall in 2022 and falls every year subsequently – even though the Government is still borrowing.  This shows that one does not have to balance the budget in order to reduce the debt burden.

Trapped in the Low Tax Model

The projections show that, without a change in Government policy, the economy will still be stuck in a low-tax equilibrium.   In 2019, Government revenue was 42 percent of GNI*.  By 2025 this will have fallen to 41.7 percent.  This may appear a fractional difference but, in money terms, it amounts to €2.2 billion.

It also means that we still trail the average revenue levels of other EU countries in our peer group – high income economies such as Austria, Belgium, Denmark, Germany, etc.  In 2019, we’d have to increase revenue by approximately €10 billion to reach our EU peer group average, factoring in interest payments.  In reality, we wouldn’t need to increase revenue this much given we have fewer pensioners and, so, need to spend less on pensions than other countries.  But we have a much younger population so we need to spend more on education and family supports. 

The big policy challenge for any government serious about boosting public services and income security will be how the revenue can be raised in a progressive manner without damaging growth prospects. 

Squeezing Public Services and Social Protection

The Government is projecting a significant increase in investment – increasing by 20 percent out to 2025 when inflation and population growth are factored in.  This is good.  What is not so good is that it will be paid, on current projections, by squeezing public services and social protection. 

Current expenditure will fall from 43 percent of GNI* in 2020 to 33 percent by 2025, or a real fall of 12 percent when population is factored in.  Some of this will be due to the fall in unemployment payments such as the Pandemic Unemployment Payment.  However, we will need to spend more to meet the challenge of an older population, especially in health and long-term care – never mind rolling out European level of public services and income security. 

Rejecting a Balanced-Budget Strategy

A big takeaway from these projections is the government’s determination to balance the budget by 2025.  As we saw above, this will occur without any policy changes.  However, a balanced budget is unnecessary.  It will unduly straight-jacket investment strategies, while squeezing public services and income supports.  We can give ourselves breathing room by adopting SIPTU’s proposed target of a 2 percent deficit over the medium-term.

How much fiscal breathing room could we expect?  Here is a static projection – static because it doesn’t factor in increased economic growth arising from the increased social and economic investment.

Whether that 2 percent is expressed in GDP or GNI* terms, the additional resources could be substantial – accumulating between €20 billion and €30 billion over this critical four-year period.  It’s not that we would spend all this money in any one year.  SIPTU has proposed that additional borrowing could be warehoused and spent later in the decade, addressing the necessary investment to tackle climate change, automation and the prospect of a low-growth future.  The point is that it would give any government considerably more flexibility and manoeuvrability in terms of increasing taxation (better to phase it in over the medium-term rather than sharp annual increases) and to maintain investment levels. 

* * *

The Government’s projections show that:

• There is no need for tax increases or spending cuts to bring public finances under control
• However, we will remain stuck in a low-tax model. It’s not enough to bring public finances under control, or to avoid austerity. 
• While investment is rising (good), public services and social protection will be squeezed. We will need to employ growth-friendly strategies to increase revenue in order to implement European-style public services and income security.

Most of all, progressives and trade unionists must challenge the balanced-budget orthodoxy.  This orthodoxy will hamper any government’s ability to address the big challenges coming at us – in particular, climate change and Just Transition.

A progressive alternative is an expansionary one (within the limits imposed by external forces – from international markets, the ECB and a revamped Fiscal Rules).  It is investment-based.  It aspires to best-practice public services, income security and employment conditions.

We got the vision thing.  Now we need a strategy to bring that to reality.  That is one of the big tasks for any government-in-waiting.

Dethroning King Cash

A NERI webinar on 'The Future of the Irish Social Welfare System' takes place on Wednesday, 24th March at 3:00. Dr. Helen Johnston will be presenting the NESC report and I will be responding.  The following blog post refers to one aspect of that report.

The National Economic and Social Council’s recently-published ‘The Future of the Irish Social Welfare System: Participation and Protection’ provides a progressive and coherent framework to ground the debate about transforming social protection in the post-pandemic recovery.  It identifies three overriding issues:

• economic inequality
• the mix of cash versus benefits
• the role of social insurance

The following looks at one particular issue in this framework – the relationship between cash transfers and public services /benefits-in-kind.  There is an over-emphasis on cash as the primary means to deliver social protection. 

Ever since the ESRI’s study of child poverty and child income supports published back in 2006, we should be wary about the near-hegemonic role of cash transfers.  At that time, the ESRI found that, in comparison with other EU countries, Ireland had a very high level of cash supports but still had high levels of child poverty.  Much of this was explained by the low level of public services and non-cash benefits directed at children and families. 

To illustrate our low level of services and in-kind benefits, let’s compare the Irish system with other EU countries in our peer group in two social constituencies:  disability, and families and children.

Disability

Women and men with disabilities face a particularly difficult time in Ireland.  According to the CSO, 37 percent of those unable to work due to permanent sickness/disability are at risk of poverty (compared to a national average of 13 percent); nearly one-in-five, or18 percent, experience consistent poverty (a grimmer benchmark), while 43 percent suffer multiple deprivation experiences – more than twice the national average.

Ireland is a low spender on social protection supports for those with disabilities when compared with our peer group in the EU.  In 2018, we’d have had to spend an additional €800 million, an increase of nearly a third (factoring in prices and the prevalence of disability).  But the structure of spending is even more lopsided.

In our peer group, benefits-in-kind make up nearly 40 percent of total social protection expenditure for those with disabilities; in Ireland, it is four percent.  But it gets worse.

Even of our small benefit-in-kind budget, nearly two-thirds of the spending is means-tested.  While it is not as means-tested as Netherlands or Austria, we can see that countries with much larger in-kind benefit expenditure have effectively no means-testing at all:  Finland, Denmark, Sweden, Belgium and France.

What makes up benefit-in-kind?  Eurostat gives a broad definition: 

‘ . . . lodging and possibly board provided to disabled persons in appropriate establishments, assistance provided to disabled persons to help them with daily tasks (home help, transport facilities etc.), allowances paid to the person who looks after the disabled person, vocational and other training provided to further the occupational and social rehabilitation of disabled persons, miscellaneous services and goods provided to disabled persons to enable them to participate in leisure and cultural activities or to travel or to participate in community life.’

Home helps, household supports, training to facilitate work, and goods and services that enable those with disabilities to participate in leisure, cultural and community life:  this promotes living standards and life quality.  If people do not have access to such publicly-provided goods and services then they must either purchase them on the private market or do without – both of which can depress living standards and income.

Families with Children

Whereas Ireland has a low level of disability prevalence in the population given its younger demographic, that same demographic means that a larger proportion of the population is made up of children and their families.  Again, using a back-of-the-excel-sheet estimate, we’d have to double spending on social protection supports for families with children to reach our peer group average (factoring in prices and the number of children below the age of 15). That would be about €2 billion.

And, again, within that expenditure we find a low level of services and in-kind support.

In effect, Ireland doesn’t spend money on benefits-in-kind for families with children (according to Eurostat categorisation).  In our peer group, however, over 40 percent of social protection support for families with children comes via benefits-in-kind.

And within our meagre benefits-in-kind budget, 98 percent is means-tested.  In our peer group (with the exception of Germany) means-testing is effectively non-existent. 

Returning to Eurostat’s definition of benefits-in-kind we find that they include:

‘ . . .  shelter and board provided to pre-school children during the day or part of the day, financial assistance towards payment of a nurse to look after children during the day, shelter and board provided to children and families on a permanent basis (orphanages, foster families, etc.), goods and services provided at home to children or to those who care for them, miscellaneous services and goods provided to families, young people or children (holiday and leisure centres).’

* * *

More research is necessary to compare particular programmes (or lack of programmes in Ireland’s case) with other EU countries.  Eurostat categorisation does not necessarily fit national definitions.  So all of the above should be treated indicatively.  However, it is reasonable to assume that

• Ireland spends less on social protection supports than other countries in our peer group
• Benefits-in-kind make up a smaller proportion of social protection expenditure
• Means-testing dominates our in-kind expenditure in contrast with our peer group

People’s experience of the pandemic has raised issues of social security that go beyond just dealing with a particular disease.  Therefore, we have an opportunity to begin a new debate about social protection – or how we protect the social.  This means going beyond poverty-amelioration.  That requires a greater emphasis on social insurance, income protection for low and average income groups, and a more universal approach to services and benefits-in-kind. 

The NESC report provides a number of proposals, ideas and suggestions – many of which people will disagree with.  However, to focus on the disagreements is to miss the point of NESC’s intervention.  They are not presenting a buffet of policies.  The strength of the report is to provide a coherent and logical framework through which we can debate different policies – one that guards against simplicities, rhetoric and meaningless comparisons. 

That is the real value of the NESC report.  That is why it should be the starting point for the debate on the future of our social protection system.

You can register for the NERI seminar on Wednesday, March 24^th at 3:00 pm here:  http://www.nerinstitute.net/events/2021/neri-webinar-future-irish-social-welfare-system

Falling Behind

When the CSO produced data on county incomes, attention was focused on the growing inequality between Dublin and the rest of the country.  This overlooked another interesting finding – the falling incomes in a number of counties in 2018.  Indeed, most counties have yet to return to 2008 levels of income – after a number of years of recovery. 

The CSO tracks disposable income per resident by county.   Let’s first look at the growth in income between 2008 and 2018.

First, we see that throughout the state disposable income per resident rose by only two percent.  This is pretty grim, caused by the significant collapse in incomes following the financial crash.  Between 2008 and 2011, disposable income fell by 16 percent.  Since then, disposable income has been rising.  And because we are dealing with ‘disposable’ income, we also see the effects of the tax increases that were part of the austerity programme.

However, not all counties have benefitted equally.  Only six counties have seen their disposable incomes rise above the state average over the last 10 years.  Limerick and Wicklow lead the pack with double-digit growth, following by Dublin and Kildare.

However, by 2018, most counties had not returned to pre-crash levels.  Their disposable income per resident lags behind where it was 10 years previously.  The worst-affected counties were Laois, Wexford and Cavan.  They have seen disposable income fall by more than 10 percent over this 10-year period.

In total, nearly half the population lives in counties where disposable income per resident is still below the 2008 level.

Many of these counties in negative territory have experienced annual increases since 2012 or 2013, when disposable income troughed.  However, such was the impact of the crash and so slow was the recovery that they struggled (and failed) to return to the 2008 high.  Let’s look at the country’s worst performer:  Laois.

Laois took a bit hit in the financial crash, with disposable incomes falling by nearly 20 percent between 2008 and 2011.  It returned to growth in 2012 but it was sluggish.  It was only 2016 when substantial disposable income started to grow.  But this was reversed in 2018.  A big negative hit, some growth and reversal:  that’s the story of Laois, and to a lesser extent most other counties.

And that reversal in 2018 was shared by a number of other counties despite disposable income rising in the state by 3 percent. 

While the graph looks a little better than the 10 year spread, there are counties that declined in 2018 – even though that was a year of growth in employment, wages and national income.

The Midlands region was particularly hard-hit with all the counties – Laois, Longford, Offaly and Westmeath – experiencing a yearly decline.  Indeed, Laois has not only been the worst performer in the decade up to 2018; it was the worst performer in 2018 itself.

The natural flow of capital is towards metropolitan and urban areas.  This results in capital moving out of many regions, especially those regions with more dispersed populations.  But we shouldn’t treat this as an iron law.  While accepting there will be inevitable disparities, we don’t have to accept that regional areas will, of necessity, experience falling income.

But we have to go beyond grant-aiding programmes if we are to counteract capital flows.  And here are the problems.  First, many of the still-depressed areas are unlikely to attract foreign direct investment.  FDI will cluster in areas where they are already strong, where there are skilled workers and where there is easy access to domestic and foreign transport links.

Second, private capital is unlikely to be mobilised in areas where there is population flight of young people, falling incomes, greater reliance on social protection and loss of a potential skill base.  While there will be investment in the larger towns and in activities that are not reliant on local purchasing power (goods and services intended for sale throughout the country), there is unlikely to be any significant investment in areas of perceived long-term falling demand. 

So how do we address this?  Clearly, if foreign and domestic private investment falls off, the only alternative is to mobilise public investment.  When we talk about public investment we usually talk about investment in ‘public goods’, in infrastructure that benefits all of us:  transport, telecommunications, transport, etc.  However, while many areas won’t have the benefit of these assets, even where they do it doesn’t guarantee market activity.

So public capital needs to be mobilised towards productive activity; namely the establishment of new companies and the expansion of existing ones.  This is not to replace private activity but to spur it.  Public capital could be invested in local public enterprises as well as joint ventures with local private capital in the form of equity.  There would also be a role for civil society enterprises (community enterprises, labour-managed firms etc.), along with third-level institutions.

However, to make this work we need to invest in the powers and resources at local levels.  There is a limit to what a central government department in Dublin can do.  Skills and ideas can best be mobilised at local or regional level; needs can be better assessed, strengths can be identified and deficits addressed.  This requires a bottom-up approach identified by the National Economic and Social Council when it discussed Just Transition initiatives:

‘A key feature of the just transition perspective is the commitment it brings to ‘leaving nobody behind’. Critical to achieving this is a people-centred, bottom-up and place-based approach: just transition is not an imposed view but one that is worked out with citizens and stakeholders in the areas affected by specific pressures for change and decarbonisation.’

In short, we need a significant decentralisation of power and resources to local and regional levels to make this work.  A first step would be to establish Regional Enterprise Boards with the powers and resources required to invest in market activity.

This isn’t the full answer.  There are many moving parts in addressing the issue of falling incomes and economic activity throughout so many areas.  But it is a critical part.  And if we start with people – their ideas, skills and experience – we are starting off on the right foot.

 

 

Cancel the Covid Debt

Over one hundred economists throughout Europe have called for the €2.5 trillion in government debt held by the European Central Bank to be effectively cancelled.  This makes up approximately 25 percent of total Eurozone debt.  It would be, as the signatories state, a first step in Europe’s recapture of its destiny.

Governments have seen their debt rise considerably during the pandemic crisis.  Eurozone government debt has risen from 86 percent of GDP in 2019 to 97 percent by the end of September last year.  Ameco estimates suggest this could rise to over 100 percent this year.  Debt could rise by over €2 trillion by 2022.

In Ireland we may well end up weathering this storm rather well – at least in terms of the GDP ratio, given the strong level of multi-national related activity.  Nonetheless, actual debt levels could rise by €50 billion out to 2022. 

Unlike during the last recession, when many could blame ‘fiscal irresponsibility’ on the part of countries that got themselves into a debt crisis (think Greece), no such blame can be levied against any EU country.  This was truly an external event, an unforeseeable natural catastrophe.  And debt was the inevitable result of states acting in the interests of public health. 

So, with much of this state debt being held by the ECB through their programme of buying up bonds on the secondary markets to maintain low interest rates, we have an excellent opportunity to redirect this debt into productive purposes.  According to the economists:

‘Our proposal is therefore simple: let us enter into a contract between the European states and the ECB. The latter commits to erasing the public debts it holds (or turning them into perpetual interest-free debts), while states commit to invest the same amounts in ecological and social reconstruction.’

So there is a quid pro quo:  the ECB cancels the debt and states use it for investment.  In this way, the debt levels don’t necessarily fall but a significant proportion is transformed from the dead hand of debt and debt repayments, into an ambitious investment programme to: 

‘ . . . immediately give European nations the means of their green recovery, but also heal the severe social, cultural and economic damages undergone by our societies during the devastating covid-19 health crisis.’

We already have a template:  the EU’s Recovery and Resilience Fund.  This is a €675 billion fund to finance investment and reform measures to boost a green and digital recovery throughout the EU.  With debt cancellation, this could be transformed into a €2.5 trillion investment and reform fund.  And, according to the economists, there are no legal obstacles to this course (despite initial objections, there were no legal obstacles to the ECB’s quantitative easing programme).  As always it comes back to policy innovation and political will.  We need a new ‘whatever it takes’ moment. 

In Ireland, the Irish Fiscal Advisory Council has estimated that approximately 75 percent of the deficit is a temporary response to the Covid crisis (the other 25 percent being a permanent increase in spending).  If so, we could see that upwards of €25 billion to €30 billion in Covid-related debt could be directed into a medium-term investment programme (this is just a back-of-the-excel-sheet estimate). 

This could be a transformative step in addressing the existential crisis of climate change and the challenge of automation and AI.  This has the real prospect of raising everyone’s living standards, reducing inequality, and bringing life-changing relief to the 70 million Eurozone residents living in poverty or social exclusion (over one million in Ireland).

Of course, we are just one nation – and a small one at that.  What does it matter what anyone says here?   It does, though.  We could deliberate this proposal at the highest elected level.   The Dail could debate a resolution calling for the transformation of Covid-related debt (or public debt held by the EU – it comes close to the same amount) into investment for green recovery and social reconstruction.

Were the Dail to pass such a motion, we could give leadership throughout Europe over the issue of debt transformation; if only by virtue of being first mover.  This could spur other parties, civil society groups and trade unions throughout Europe to take up a similar call.  From a small island off the west coast of Europe we could start a movement for democratic and progressive transformation across Europe. 

So the question is:  what party or group of parties will start that debate in the Dail?  Someone in Europe has to take a first step in the process of recapturing our destiny.  Why not start it here?

The Contrived Centre

The comment by Garda Commissioner that there were far left elements in the anti-lockdown riots in Dublin yesterday has produced considerable social media debate and raised a number of questions.  Who or what are these elements?  What does ‘far left’ mean, anyway? 

Away from the particulars of the riot, it also provides an insight into an ideological discourse aimed at limiting political options.  The association of far left and far right is promoted by those seeking to occupy a contrived centre ground.  For instance, Paschal Donohoe articulates the politics of a ‘radical centre’ (a phrase was used by Liam Cosgrave so it’s not new).  This is more than just branding.

And it is about more than just isolating a handful of parties and activists – a so-called ‘far left’.  It is about constructing a series of associations which can, at its extreme, smear all progressives.  Where do the boundaries begin and end:  from soft left to mainstream left to hard left to far left?  Throw in the term ‘populist’ (which has lost all meaning when it is just used to attack ideas that one doesn’t like) and you have a purposeful strategy.

This blurring has the potential to dismiss all politics with solidarity at its core as being outside the frame of ‘honest, decent’ politics.  And it warns parties and activists not to stray too far from an imagined centre.  Technical questions are allowed; transformative ones are, well, ‘populist’, ‘idealistic’, even ‘dangerous’ or whatever some desultory thesaurus throws out. 

It can become comical when listening to a Fine Gael TD (I forget who) recently describing his party as ‘centrist’, Fianna Fail as ‘centre-left’ and all others further on the scale – all the way to the far left.  How blessed must we be not to have a party of the ‘Right’ in our politics.

But it can have devastating effects when, during the last crisis, politicians claimed to take ‘tough’ decisions (i.e. austerity) with all others being cowardly or irresponsible.  Unfortunately, we couldn’t get the debate to consider the wrong decisions.

In this fantasy world of a donut-shaped ideological spectrum, to go too far down a transformative path risks linking up with the far-right.  Safer to stay cosseted in the centre.  Anything outside is darkness and wolves.

How do we confront this?  To deny a language is to be trapped in its vocabulary.  We must construct a new language, one that articulates policy options as both desirable and feasible (one without the other only pulls us back to the ‘centre’).  In other words, we must speak a common sense.

In an oligopolistic market, doesn’t it make sense for the state to retain its majority holding in a major bank, even transform it into a fully public bank?  Doesn’t it make sense to build public housing on public lands and rent units out at cost?  People shouldn’t lose their wage if they become ill – is that centre-left, far-left?  Progressive politics is the new common sense.  In this language descriptors such as ‘centre-common sense’ or ‘far-common sense’ make no sense.

Then it becomes a small step to describe Harris’ comments – and all those who propagate a contrived centre - as so much gobbledygook. 

* * *

NOTE:  The Garda Commissioner has 'clarified' his remarks this morning. 

'. . . despite initial indications, following further investigations, there is no corroborated evidence of extreme left factions being involved.'

Initial indications?  Corroborated evidence?  While the clarification is welcomed, it raises even more questions.

 

 

Low, Unequal and Going Backwards

Ireland is a low-earnings economy. 

There’s Ireland – at the bottom of our peer group table.  Median wages would have to increase by 16 percent to reach our peer group average (median earnings are that point where half of employees earns less and the other half earns more).

When compared to the entire EU, Ireland doesn’t fare well either.  We are only a small percentage (3 percent) above the overall EU average.  And that includes much poorer economies such as Poland, Romania, Greece, Portugal and Bulgaria. 

Not only are we a low earnings economy, we are a highly unequal economy.

In Ireland, employees the 9^th decile earns nearly four times more than employees in the 1^st decile.  The peer group average is less than three times while in Sweden it is twice.  We’d have to cut earnings inequality by half to compete for best practice.

We can get a further insight into our earnings inequality by comparing hourly earnings in the 1^st and 9^th deciles.

In the lowest-earning decile, Irish earnings are at the bottom of the table.  However, when we come to the 9^th decile, Irish earnings rank second.  This helps explain our high inequality ratio.  For a contrast, note Sweden’s rankings:  2^nd highest among the lowest earners and bottom in the 9^th decile.

It’s bad enough that we are a low earnings, highly unequal economy.  Another problem is that we seem to be going backwards.  Whether measured in Euros or purchasing power parities (PPS), average median earnings are falling over the medium term.  Between 2006 and 2018:

• Average median earnings fell by 0.8 percent (Euros)
• Average median earnings fell by 9.6 percent (PPS)

This was during a period when average median earnings (Euros) rose by 20 to 30 percent in other small open economies (Austria, Belgium, Denmark, Finland and Sweden).

Just to note:  we have to be cautious about earnings trends due to the composition effect.  For instance, if it was low-paid sectors or occupations that suffered a faster decline in employment than the national average then the composition of the workforce that we are measuring has changed.  And with fewer low-paid, the overall average would rise.

It’s one thing to point out the fact of wage inequality; it’s quite another to construct effective policies to close that gap.  There is a tendency to see low wages and earnings through the lens of the national minimum wage.  No doubt statutory wage floors can be a significant tool in the fight against low pay. 

However, it is worth noting that the economies with the lowest levels of earnings inequality and the highest level of earnings in the 1^st decile – Denmark, Finland and Sweden – do not have a statutory minimum wage.  How do they do it?  Through extensive collective bargaining where employees in the lowest paid sectors have a voice; combined with a more egalitarian political culture.

To close inequality gap, to raise people’s earnings and living standards we need a range of policy instruments.  But clearly, giving workers – especially those in low paid sectors – the tools that enable them to fight low pay is one of the best ways to get out of our low earnings rut. In short, we need more democracy in the workplace.

The Gini Coefficient and Sushi

When Marge suggests the family go out to a newly opened sushi restaurant Bart demurs.

Bart:  ‘Sushi?  Maybe this is just something one hears on the playground, but isn't that raw fish?’

Lisa:  ‘As usual, the playground has the facts right, but misses the point entirely.’

It started with Seamus Coffey’s piece in RTE’s Brainstorm series.  This was picked up by Pat Leahy.  NERI’s Ciaran Nugent, TASC’s Robert Sweeney and Mick Clifford in the Examiner have waded in while Conor McCabe has been making provocative observations on Facebook around this issue.  Who’d have thought the Gini coefficient would cause such a debate.

The Gini coefficient is intended to measure income inequality in society.  It ranks countries on a scale of 0 (where everyone has the same income) to 1 where only person in the group possesses all the income; that is, between perfect income equality and perfect inequality.  The lower the rating, the more ‘equal’ we are.

Seamus sparked the recent debate by claiming that income inequality was falling in Ireland, contrasted with other countries where inequality is rising. 

‘ . . this reduction in income inequality in Ireland gets little domestic coverage. This is surprising given how frequently inequality features on the op-ed pages of our newspapers and in discussions of policy and social outcomes on the broadcast media. At times, it seems like some contributors are more interested in outrage than outcomes and want to ignore the impact of policies perhaps because of their attitude to the people behind them.’

It would appear that Seamus is right – the Gini coefficient has declined.

In addition, another measure of income inequality - the income quintile share ratio which measures the ratio between the top and bottom 20 percent income quintiles - shows a similar trajectory with the Irish ratio falling since the early 2000s so that now it is below (that is, more ‘egalitarian’) than Sweden and Denmark.

Here it is good to remember a fundamental rule of statistics.  Data tells you what it tells you.  It measures what it measures.  The Gini coefficient measures a part of inequality (i.e. income) it does not measure all inequality relationships: wealth, wages, education, access to public services, living standards.  No one measurement can capture all that.  Each metric comes with insights and limitations.  The Gini coefficient has been criticised by economists and statisticians (what measurement hasn’t; think GDP). One researcher stated, after reviewing a range of income inequality measurements stated that ‘income distributions cannot be perfectly summarised in a single number’.

But a more serious problem is how we measure the impact of public services on income distribution, both on income and living standards.

Public Services

There is one major flaw in the Gini coefficient and the income quintile share ratio.  They do not include all income – in particular, the income, or in-kind benefit, from public services. 

Take childcare for example:  childcare in Ireland is the least subsidised in the EU which results in the highest fees.  In many other countries childcare is delivered through the public sector at below-market rates, or heavily regulated private and non-profit providers.  Let’s assume that it costs €866 per month (o €200 per week) to produce a full-time childcare place.

• Irish households pay, on average, €771 a month for a full-time childcare place

• Danish households pay, on average, €282 a month

In effect, Irish households receive a cash-equivalent or in-kind subsidy of €62 a month (the gap between the production cost and household payment) while the Danish household receives a subsidy of €585 a month.  Traditional income equality measurements do not pick this up as it can be categorised as a production subsidy or public service expenditure rather than a cash-equivalent income.  Amir Shohan writes:

‘Neglecting public, in-kind benefits when measuring income might give an incomplete picture of the distribution of economic inequality because in-kind benefits such as education, health insurance, and other public services actually constitute approximately one-half of the welfare state transfers in developed countries.’

Let’s look at the impact pre and post-childcare subsidy on households.  For this exercise I assume two households with €90,000 and €45,000 disposable income in both Denmark and Ireland.

While the ratio of disposable income between the Danish and Irish households are the same (90/45 or 2.0), when we include the subsidy to childcare costs, the Danish ratio falls well below the Irish ratio; that is income inequality is reduced.   That is because the income benefits of public services are highly progressive.  This simplistic example shows the impact on household income/living standards from public consumption.

This is just childcare.  The income/in-kind benefit delivered through other services can have a real impact on equality:  GP, healthcare, and prescription medicine; education (schoolbooks, transport, ‘voluntary’ contributions, third-level fees); public transport (e.g. in Copenhagen a monthly pass costs €68, in Dublin it is €130); social, affordable and cooperative housing, etc.  Income realised, or expenditure saved, from public services have significant, inequality-eroding impacts.  There is no overall database to inform us.

Eurostat and the OECD have acknowledged this omission and have attempted to measure this but it is extremely difficult, with various methodologies being employed and caveats aplenty.  In addition, both bodies refer to ‘service quality’.  There is little advantage in providing something for free but forcing people to wait for months and years to access the service – so much so that they are forced into the private sector (e.g. Irish healthcare, housing).  

In short, the Gini coefficient is not a comprehensive measure of inequality, only income inequality – and it is not even a comprehensive measure of that.

Living Standards

That failure to measure the impact of public services may help explain our poor living standard rankings.   For instance, with a Gini coefficient close to some Nordic countries, do we achieve Nordic-level living standards?

• The Gini coefficient in Ireland is only slightly above Danish levels (28.3 and 27.5 respectively)
• The income quintile share in Ireland is slightly below Danish levels (4.03 and 4.09 respectively)

Given this, we should expect living standard measurements to be similar.  They are not.

Denmark and Ireland may have similar income inequality measurements but when it comes to some of the living standard indicators, the two are wide apart (here and here and here and here). This should cause its own debate:  if Ireland has a decent ranking in income inequality, why can’t we translate this into comparable living standards.

It may be that reduced inequality needs to be baked into the economy and society before we see significant improvements in living standards.  Or maybe traditional income inequality indicators miss key inputs (e.g. public services) so that statistical income measurements are not related to what is happening on the ground.  Or maybe there is some other factor.  This should invite us to work harder to make the connections rather than claiming a single indicator as the definitive measure.  Indeed, doing the latter can create popular cynicism when data does not rhyme with lived experience.

We could have a situation where a government de-commodifies a number of important economic and social activities (that is, provide them on the basis of need rather than income):  housing, health, education, telecommunications (e.g. broadband), childcare, etc.  This provision could substantially increase living standards across-the-board - where deprivation is suppressed and hardly anyone has difficulty making ends meet.  But conventional inequality measurements don’t include this de-commodification and, therefore, give an incomplete picture.

Yes, sushi is raw fish.  But as the wise Lisa points out, if we focus on the particulars of one ‘fact’, we are in danger of missing the point.  Entirely.

Business in Ireland is too Important to be left to Irish Business

The following is a short preview of a talk to be delivered at SIPTU’s Workplace Democracy webinar on Wednesday, February 3^rd at 1:00.

Arguing for workplace democracy as a right is not sufficient to win over the public debate.  Opponents will counter with spurious arguments:  collective bargaining undermines competitiveness, adds costs, reduces business flexibility, and delays decision-making (a popular argument among anti-democrats).   In short, they will argue workplace democracy impedes economic growth.

We need to champion workplace democracy as a superior economic and social model.  A number of democratic workplace practices - collective bargaining, employee participation, co-determination, worker-directors, labour-managed enterprises – have been shown to increase productivity, innovation and efficiencies.   Countries where these feature more prominently, and firms where these are practiced, have higher levels of productivity, income and resilience.  Whether in politics or the economy, democracy works.

This superior model, however, is constrained by the current corporate culture and its emphasis on shareholder value and hierarchy (or, in the case of GameStop, a casino-frenzy that has absolutely nothing to do with the productive economy).  It is not a matter of grafting democratic practices on the current model. This invites us to reframe enterprise and business activity.  For instance, it may seem counter-intuitive, but no one owns a corporation.  This has long been known to business scholars.  A corporation is a social space – a commons.  In this space, complex networks of contracts between various stakeholders such as shareholders, workers, management, suppliers, creditors, state, community, and the environment are regulated by law (that is, by politics).

Shareholders may not ‘own’ the company, but they exercise power which is politically derived.  The corporation is not a natural market phenomenon but a product of law - shaped by power relationships in the economy and society; that is, by politics.  So when a Bernie Sanders or an Elizabeth Warren proposes worker-directors, employee shareholdings and stronger organising rights, they aren’t attacking business.  They are reforming the social space that is the enterprise – writing new rules for how business operates.  Whether it improves business efficiency is, ultimately, an empirical matter.  And most of the data we have strongly suggests it does.

To bolster this political shareholder control, we are fed bedtime stories of entrepreneurial heroes, their exploits and eventual victories over malevolent forces (taxes, government regulations, trade unions).  Of course, the lone entrepreneurial hero is a myth, much like the cowboy in the American West.  But the myth serves the purpose of marginalising the role of employees and the collective foundations for innovation.  We need to challenge this reading with another:  a democratic entrepreneurship that spurs collective innovation.  Quite simply, we are all entrepreneurs.   We all have a contribution to make to innovation in the workplace and wider society.  But most of us are not allowed due to the suppression of economic democracy.  And we are all the losers for that.

There is a ladder of democracy starting with the first rung:  collective bargaining. Every rung we climb, every increase in democracy and participation, leads to ever better outcomes.  These are not just confined to the economic sphere.  Health, environment, political and social participation are all impacted positively by increasing workplace democracy.  This is the single greatest challenge facing the trade union movement – to campaign politically and industrially for greater participation, greater democracy.

And it all starts from the simple proposition:

Business in Ireland is too important to be left to Irish Business.

 

US Polls: Sunday Summary November 1st

This is the last weekend before the election on Tuesday, November 3^rd.  90 million Americans have already voted.  In some states (Texas, Hawaii) more people have already voted than voted in the 2016 election.  Analysts believe this could be the highest turnout since 1908.  So where do the polls stand with only two days to go?

The race will be determined by the Electoral College which is based on who wins at state level.  Most states are fairly predictable.  However, there are 12 ‘competitive’ or swing states with 189 electoral votes (about 35 percent of all electoral votes) where the race will be won or lost. Of these 12 states, Trump won 10 with the Democrats winning two in 2016.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on November 1^st.  This uses the US electoral colours – blue is Democrats and red is Republican.

(a)          FiveThirtyEight

For Biden supporters, there is some good news and some not-so-good news. 

• Good news: the Democrats have increased their support in the key states of Michigan (8.9 percent) and Wisconsin (8.2 percent).  The two states would deliver 26 of the 38 electoral votes needed to win.  Further, Biden seems to have stabilised a smaller lead in North Carolina (2.6 percent) while enjoying the highest lead yet in Georgia, though it is within the margin of error (1.6 percent).

• On the other hand, Biden has slipped in Florida, falling from 4.4 percent to 1.7 percent. Though this is not a must win for Biden (it is, however, for Trump), it would make it a whole lot easier.  In another key state, Pennsylvania, Biden has slipped as well – from 7.2 percent three weeks ago to 4.9 percent.    And Trump has returned Iowa to the Republican column after Biden had been leading for three weeks. 

There is little likelihood of Trump picking up new votes (votes he didn’t get in 2016).  The only competitive states that went Democrat in the last election are Nevada and New Hampshire.  In Nevada, Biden has recorded a consistent 6 percent lead while in New Hampshire he leads in double digits. 

Still, it is all very close.

(b)          The Economist

The Economist, though it mirrors the FiveThirtyEight pretty closely, has slightly better news for Biden:

• While Biden is strengthening his lead in Michigan and Wisconsin, he is also consolidating his lead in Pennsylvania.
• While slipping in Florida, Biden has a slightly larger lead.

If the Economist is more on target, it will be a relatively early night.

The Electoral Vote Pathways

What are the ‘pathways’ to victory for Biden?  There are several.

• Florida: if Biden wins Florida it’s hard to see how he can be denied victory, especially with strong leads in Michigan and Wisconsin.  If this state goes Democrat, it will be an early night.

• Michigan and Wisconsin: if Biden doesn’t win Florida but takes these two states (as the polls strongly suggest), then all he needs is 12 votes.  Winning either Pennsylvania (20 votes), Georgia (16 votes) or North Carolina (15 votes) would do it.  So would winning Ohio (18 votes) or Texas (38 votes) but as things stand now, Trump looks likely to hold on to them – though they are still competitive and in the margin of error.

• The Nebraska Route: Here’s a pathway that will keep you on the edge of your seat.  Let’s say Biden wins Michigan and Pennsylvania but not any of the states mentioned above.  Biden can still win by taking Arizona (11 votes) and Nebraska’s 2^nd Congressional District.  Nebraska and Maine are the only two states that divide their electoral votes by congressional district (all others are winner-take-all).  Each congressional district is worth one vote.  In 2016, Trump won this district by 2 percentage points.  A recent poll put Biden up by 3 percent but there isn’t sufficient polling to put this in perspective.  However, Trump visited the state in the last few days.  Since he’s going to win Nebraska overall, this suggests that internal Republic polling sees the congressional district as competitive and important.

So the key states to look out for are Florida, Pennsylvania, North Carolina and Georgia.  If we don’t know what’s happening there (or it does south for Biden), then Arizona and Nebraska come into play.  However, if Biden loses either Michigan or Wisconsin then the advantage could be with Trump.

Will We Know on Election Night?

At this rate, only a minority of the electorate will be voting on November 3^rd.  More than 90 million Americans have voted – early, in-person voting and mail-in ballots.  This represents 43 percent of the electorate.  One of the problems this raises is how will polling companies do their exit polls?  Another problem will be how long will take to count ballots.  In modern times, we knew who won on the night.  This could be very different. 

Each state regulates the election so there are different rules regarding the counting of mail-in ballot papers.  This will affect how long it will get the final result in a close contest.  The more time they have to process the ballots before election day, the quicker the result. This is when states start counting mail-in ballots:

• On Election Day: Pennsylvania, Wisconsin
• One Day before Election: Iowa, Michigan
• Two to Five Days before Election: New Hampshire
• Six or more Days before Election: Arizona, Florida, North Carolina
• Before the Election but no set date: Ohio, Nevada

This is why we might expect Florida to report the final result early (they start six days early) but Pennsylvania doesn’t start until election day itself.

This is why you will hear the terms Red Mirage and Blue Tide.  The former indicates a situation where Trump has a lead in those voting on the day but early and mail-in ballots haven’t been counted.  The fear is that Trump will declare victory on incomplete vote counts.  The Blue Tide refers to Biden catching up to Trump when the early and mail-in ballots start coming in.

* * *

This is all too close to call.  If you’re a Biden supporter you’re probably in a slightly better space than a Trump supporter.  But the polls have to show that they have improved their methodologies, given how wrong many of them got it at state level.  That’s why the Democrats are on edge and the Republicans are hopeful.

We’ll know sometime later this week.

I will hopefully be live tweeting the election count on Tuesday night / Wednesday morning.  If you’re one of those late night election addicts (and can’t sleep), check it out at @notesonthefront

US Polls: Sunday Summary October 25th

The seventh Sunday summary of US state-wide polls and we are now in the home stretch with nine days left to the traditional polling date.  A strange election, though; over 50 million Americans have already voted – nearly a third – producing predictions of the biggest poll in a century.  And making poll trends coming into the election irrelevant for those who have voted.  But with the number of key battleground states still very close, even fractional changes could have an impact. 

The race will be determined by the Electoral College which is based on who wins at state level.  Most states are fairly predictable.  However, there are 12 ‘competitive’ or swing states with 189 electoral votes (about 35 percent of all electoral votes) where the race will be won or lost. Of these 12 states, Trump won 10 with the Democrats winning two in 2016.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on October 25^th.  This uses the US electoral colours – blue is Democrats and red is Republican.

(a)          FiveThirtyEight

If you’re a Biden supporter you’re probably biting your nails.  Trump is closing the gap in most of the states, notably Florida with its 29 electoral votes.  Florida is a must win for Trump; if he loses it has little chance of retaining the White House.  For Biden, however, it would be a blow to lose the state but it wouldn’t’ be fatal.  Biden’s lead has halved in the last two weeks.

Still, Biden supporters shouldn’t despair.  The three key Mid-East states – Michigan, Pennsylvania and Wisconsin – are still firmly in his camp, even if the gap is narrowing slightly.  Biden wins these three states, he wins.

 (b)         The Economist

The story is the same with the Economist aggregator.  Biden’s lead is slipping in many states – especially Arizona and Florida.  However, his support is holding up in the three key Mid East states which would give Biden the victory.

* * *

There are now 9 days left in the US Presidential race.  Millions have of Americans have already voted through mail-in ballots and early voting.  Much will depend on the success of Republican tactics in many states to suppress the vote.  This could tip the balance in tight races in Florida, North Carolina, and Georgia.    However, if Biden maintains his lead in Michigan, Pennsylvania and Wisconsin, it’s game over for the incumbent.

Next week:  the last summary before the election date.

US Polls: Sunday Summary October 18th

This is the sixth Sunday summary of US state-wide polls, focusing on the ‘competitive’ states in the US Presidential election.  We’re not quite in the home stretch but we’re coming up to the last bend.  Over the last few weeks we’ve seen Biden consolidate his lead in key swing states and even overtaken Trump where Republicans were leading.   Many national polls give Biden a double-digit lead at the national level but as we know, it is how the individual states vote that matter.  So where are we with a little over two weeks to go? 

The race will be determined by the Electoral College which is based on who wins at state level.  Most states are fairly predictable.  However, there are 12 ‘competitive’ or swing states with 189 electoral votes (about 35 percent of all electoral votes) where the race will be won or lost. Of these 12 states, Trump won 10 with the Democrats winning two.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on October 18^th.  This uses the US electoral colours – blue is Democrats and red is Republican.

(a)          FiveThirtyEight

The striking thing about the polls – starting in mid-September, is how stable they are which reflects the polarised nature of the contest.  The overwhelming majority of people made up their minds some time ago.  The small amounts of undecideds are not sufficient to significantly alter the race. 

For Biden, there are many positives.  His lead is consistent in the three key Mid-East states – Michigan, Pennsylvania, and Wisconsin.  If all other states vote as they did in 2016 and Biden wins these states, he’s taking up residence in the White House.

But he has alternative routes to victory, even if he stumbles in one of the Mid-East states.  If he wins Florida and/or Georgia and North Carolina, he will again cross the line.  Any number of combinations could bring victory to Biden – especially if we throw in Arizona and Iowa. 

For Trump, however, the situation is much more difficult.  Let’s assume that Texas and even Ohio stay in the Republican column; if he can’t bring Florida across the line he’s in a lot of trouble.  He also needs to hang on to at least two of the three Mid-East states with Pennsylvania being key.  The problem for Trump is that, while Biden doesn’t have to win all the competitive states, Trump has to come close – especially as he is unlikely to turn New Hampshire and Nevada, which voted Democrat last time out.

 (b)         The Economist

The Economist tells a slightly different story.  While Biden is still leading in key swing states – especially in the Mid-East – Trump is closing the gap over last week.  He has turned Georgia back in the Republican column (marginally) and has even pulled slightly closer in the key Mid-East states.  This might suggest that Biden has peaked and is now in a race to hold on.  This suggests the race is tighter than what many commentators are suggesting. 

* * *

There are now 16 days left in the US Presidential race.  Millions have of Americans have already voted through mail-in ballots and early voting.  Much will depend on the success of Republican tactics in many states to suppress the vote.  This could tip the balance in tight races in Florida, North Carolina, and Georgia.    If the Economist trend holds, Trump may climb back into contention in a number of state races.   If FiveThirtyEight holds Biden could be looking at an Electoral College landslide. And if the polls at state level get it wrong like they did in 2016 in many instances, it could be a long night.

No one should be calling this race yet.

US Polls: Sunday Summary October 11th

This is the fifth Sunday summary of US state-wide polls, focusing on the ‘competitive’ states in the US Presidential election.  What a contest this is turning into.  First, Donald Trump gets infected with Covid-19, calling it a ‘blessing from God’; then the FBI thwarts a far right kidnapping plot against the Michigan governor.  Can’t wait for next week.

The race will be determined by the Electoral College which is based on who wins at state level.  Most states are fairly predictable.  However, there are 12 ‘competitive’ or swing states with 189 electoral votes (about 35 percent of all electoral votes) where the race will be won or lost. Of these 12 states, Trump won 10 with the Democrats winning two.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on October 11^th.  This uses the US electoral colours – blue is Democrats and red is Republican.

(a)          FiveThirtyEight

• Biden now leads in all the competitive states, bar Texas. Back in mid-September, Trump led in four of them.  In the last week Iowa has turned from red to blue.
• Biden is building on his leads in the key Mid-East states of Michigan (8.2 percent), Pennsylvania (7.2 percent) and Wisconsin (7.2 percent).   If Biden wins these and all other states hold to the 2016 pattern, then he wins the election.
• Biden is also pulling ahead in Florida, Arizona and North Carolina – though not to the same extent as in the Mid-East states.
• Trump has almost no chance in picking up new states (i.e. states that voted Democrat in 2016).  Biden leads by 6.9 percent in Nevada and nearly 11 percent in New Hampshire.

(b)          The Economist

The Economist tells pretty much the same story as FiveThirtyEight; in particular, Biden’s lead in the three Mid-East states.  The only difference is that they are calling the races in Iowa and Ohio an effective tie.   

As it stands, Biden leads in nine of the 12 states with one a virtual tie.

* * *

There are now 23 days left in the US Presidential race.  While no one would call it yet, it is looking strong for the Democrats.  The number of undecided voters is very small and most voters are highly committed to their candidates.   From the very beginning of the campaign, Trump maintained a strong base but couldn’t reach out beyond that.  As for Biden, no one gets very excited about him.  As one commentator put it, this isn’t a race about ‘change’; it is about ‘putting an end to crazy.’

That being said, Trump will be returning to active physical campaigning.  Has Biden peaked too early?  Will voter repression measures being taken in a number of Republican-held states make a material difference?  Will far-right groups try to disrupt voting in strong Democrat areas (I never imagined I would be writing a sentence like that)? 

But taking the polls today, it would be an Electoral College landslide for Joe Biden. 

US Polls: Sunday Summary October 4th

This is the fourth Sunday summary of US state-wide polls, focusing on the ‘competitive’ states in the US Presidential election.   This is truly a summary of two halves.  The first half is prior to Donald Trump contracting Covid-19.  That half was looking like a strengthening of Biden’s position in key states as Trump managed to alienate significant sections of the electorate through his debate performance. 

As to the second half – following Trump’s illness – there is universal agreement:  No. One. Knows.

Let’s keep with the first half (there is no choice).    The race will be determined by the Electoral College which is based on who wins at state level.  Most states are fairly predictable.  However, there are 12 ‘competitive’ or swing states with 189 electoral votes (about 35 percent of all electoral votes) where the race will be won or lost. Of these 12 states, Trump won 10 with the Democrats winning two.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on October 4^th.  This uses the US electoral colours – blue is Democrats and red is Republican.

In this fourth summary week:

• Biden is maintaining his lead in the three key Mid-East states: Michigan, Wisconsin and Pennsylvania (in the latter he has extended his lead)

• Georgia has become fully competitive with Biden now leading for the first time in four weeks. Ohio, which turned to Biden last week, remains marginally in the Democratic camp.

• Biden seems to have stopped his slide in Florida

• At this stage, among all the competitive states, Trump can only be optimistic about Texas

• As it stands, Biden leads in 10 of the 12 competitive states

Remember, Biden needs 38 electoral votes to win.  If he takes Florida with its 29 votes, he’s well more than half way home.  If he simply takes the three Mid-East of Michigan, Pennsylvania and Wisconsin where he already has a lead – he gains 46 votes and the Presidency.  Biden has other fall backs – Arizona and North Carolina – with 11 and 15 votes respectively.  And if he can turn Ohio with its 18 votes and/or Georgia with its 16 votes, we could be looking at an Electoral College landslide.

 (b)         The Economist

The Economist tells pretty much the same story as FiveThirtyEight; in particular, Biden’s lead in the three Mid-East states.  Georgia has turned blue while Biden has stopped his slide in Florida.  The only difference is that Trump still maintains his lead in Ohio but it is narrowing.

As it stands, Biden leads in nine of the 12 states.

* * *

All in all, if you’re a Biden supporter you should be relatively happy – in particular the continuing strong trends in the Mid-East states with the potential to grab a couple of others.

Taking the polls today, this is the Electoral College count.  With 270 votes needed to win, in FiveThirtyEight Biden leads by 171 votes.  In the Economist, it is less due to Ohio remaining in the Republican camp.

That takes us up to the end of the first half with a month ago.  How will Trump’s illness impact on the election?  No one can say.  This is unprecedented.  Even long-time analysts and observers are not even venturing a guess.  So we will have to wait over the next seven to 10 days to see how this plays out.

Essential Workers, Essential Living Standards, Essential Tools

Throughout the pandemic crisis we have heard much commentary lauding essential workers and, in many instances, pointing out the poor wages and working conditions they endure.   The following looks at the hourly wage levels of occupations the Government listed as ‘essential work’ in the market economy (largely private sector).

There are a number of caveats regarding this table.  First, though this data is from 2016 (the last year for detailed occupations), the focus here is relative wages which are not likely to have changed much in the last three years.

Second, the categorisation of essential work does not easily fit into occupational wage data, so this should be treated cautiously.  For instance, only some retail, accommodation and food services were listed as ‘essential’; similarly, with construction.  Nonetheless, the wages for the essential parts of these categories are not likely to be much different.

Third, these are averages for the sector, including all employees – even senior management.  Production and service workers will receive considerably less than professionals and managers.  The CSO shows that production and service workers earn less than 50 percent of professional and managerial salaries.

Given these caveats, what we find is a wide disparity in wages among essential workers.  Occupations dominated by professionals are, unsurprisingly, pad well.  The problem lies in the low hourly earnings in many of the essential occupations.  This is compounded by poor working conditions:

• Many of the low-paid sectors are marred by precarious contracts and involuntary part-time work (i.e. part-time workers who want but can’t find full-time work). This results in a widening gap when weekly income is factored in.

• Higher-paid workers will enjoy benefits such as sick pay, company pensions and maternity top-ups – benefits which most low and average income earners are denied. These features widen the gap even further.

This throws up not only a wide income gap, but a gap in social security and living standards.

In a recent examination of the minimum wage the ESRI’s Paul Redmond writes:

'Finally, there are fears among academics and policymakers that the Covid-19 crisis could exacerbate inequalities in health and wages.  The evidence on the impact of minimum wages on inequality is particularly relevant at this time . . . the 2016 increase in the Irish minimum wage was associated with a reduction in wage inequality, with the ratio of wages in the 90th and 10th percentiles falling by 8 per cent . . . a minimum wage is particularly important during a recession; by preventing the wages of the lowest paid workers from falling below a certain level, wage inequality stays relatively low. Given that the Covid-19 crisis will result in an economic contraction, the minimum wage may be an important policy to counteract inequality.’

This puts the paltry 10 cent increase proposed by the Low Pay Commission into perspective.

However, the issue goes far beyond a statutory wage floor.  Ireland suffers from a high level of wage inequality.

In Ireland, high income earners make more than four times the wage of low-income earners.  In other EU countries the gap is much less, indicating a fairer distribution of wages. 

It is worth noting that the three countries with the least amount of wage inequality – Denmark, Finland and Sweden – don’t even have a statutory national minimum wage.  They drive wages and greater equality through collective bargaining and strong labour rights. 

Professor Frank Walsh of UCD showed how this works in a paper he gave at the Nevin Economic Research Institute’s recent labour market conference.  He found that, when controlling for age, education, gender, weekly hours, job tenure, occupation and industry, workers in trade unions earn 12.2 percent more than their equivalent counterparts who are not in unions.  And this premium is more pronounced among low and average income earners:

‘There is a substantial Trade union Wage premium on average and across the distribution . . . The evidence suggests that trade unions lower wage inequality.’

Unfortunately, our legal-industrial institutions do not vindicate workers’ right to collective bargaining.  They allow employers a veto over worker’s ability to bargain collectively.  Of course, there is more to reducing wage inequality than collective bargaining and strong labour rights.  Taxation, anti-discrimination policies, strong state-financed in-work benefits and a general social democratic political culture are all important ingredients as well.

But there is another dimension, something less tangible but nonetheless important; namely, how a society values work.  Chris Johns makes an important point when discussing the recent sweatshop scandal of Leicester factories that supply Boohoo, the on-line retailer of fashion clothing, where low pay, poor working conditions and exploitation of migrant labour are the foundations of Boohoo’s business model.

‘The factories concerned were mostly suppliers to Boohoo rather than directly owned: integrated supply chain management is a feature of many of today’s successful industries . . . [Boohoo] senior directors knew about these issues last December but “didn’t feel responsible for them” . . . The reason given goes to the heart of all this: workers in Leicester were so far down the supply chain they were “invisible” to Boohoo’s senior management. And to others who also should have known better: the local council, tax authorities and the health and safety agency.’

It’s a powerful insight – that the low-paid and the exploited are invisible.  Do we see the cleaners and the waste collectors?  Even when we look at the workers who check out our groceries and bring us coffee to our table, do we see them?  Do we fully appreciate how poorly they are paid, how precarious their work contracts can be, their lack of security that many of us take for granted? 

This calls us to a politics of empathy.  Such a politics is no substitute for the hard work of workplace organising and political reform.  But a politics of empathy is part of the crucial cultural struggle which helps determine what is socially desirable and economically feasible.  When public opinion turns on a practice, laws eventually follow.  This includes business practices.  When a business practices exploitation it should not be described as ‘innovative’ or ‘creative’ or ‘pioneering’; it should be called out for what it is:  exploitative, no different from the sweatshops of the past.

If we are to take wage inequality seriously, then we all have a role to play regardless how small: as a participant in politics (even just voting), as a consumer, through social media, wherever we can engage.  Wage inequality and exploitation require an all-of-society effort.

The first step is visibility as a prelude to concerted industrial and political action.

US Polls: Sunday Summary September 27th

This is the third Sunday summary of US state-wide polls, focusing on the ‘competitive’ states in the US Presidential election.  The race will be determined by the Electoral College which is based on who wins at state level.  Most states are fairly predictable.  However, there are 12 ‘competitive’ or swing states with 189 electoral votes (about 35 percent of all electoral votes) where the race will be won or lost. Of these 12 states, Trump won 10 with the Democrats winning two.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on September 27^th.  This uses the US electoral colours – blue is Democrats and red is Republican.

(a)          FiveThirtyEight

This third summary week is seeing a number of stories:

• Biden’s lead in Arizona and Florida is softening

• Trump’s lead in Georgia and Iowa is similarly shrinking

• However, Ohio has produced a big turnaround with Biden now in a marginal lead, after two weeks of Trump leading

• In the other key Mid-East states – Michigan, Pennsylvania and Wisconsin – Biden’s lead is holding up.

• And in the two states that the Democrats are defending – Nevada and New Hampshire – Trump is not gaining ground. It’s hard to see him winning ‘new’ electoral votes.

Remember, Biden needs 38 electoral votes to win.  If he takes Florida with its 29 votes, he’s well more than half way home.  If he simply takes the three Mid-East of Michigan, Pennsylvania and Wisconsin where he already has a lead – he gains 46 votes and the Presidency.  Biden has other fall backs – Arizona and North Carolina – with 11 and 15 votes respectively.  And if he can turn Ohio with its 18 votes, we could be looking at an Electoral College landslide.

 (b)         The Economist

The Economist tells pretty much the same story as FiveThirtyEight; in particular, Biden’s lead in the three Mid-East states.  While Trump is still in the lead in Ohio, his lead has shrunk considerably over the last two weeks.  And Trump is widening his lead in Texas – though it was always a long-shot that Biden would take the Lone Star state.

* * *

All in all, if you’re a Biden supporter you should be relatively happy – in particular the continuing strong trends in the Mid-East states with the potential to grab a couple of others.

Taking the polls today, this is the Electoral College count.  With 270 votes needed to win, in FiveThirtyEight Biden leads by 164 votes.  In the Economist, Biden leads by 128.  The difference lies in the split between the two aggregators over where Ohio’s electoral votes will go.

As we keep saying, it’s still early days.  But less and less so.  Early mail-in voting is already taking place in a number of states.  And according to most polls, the overwhelming majority of Americans have already made up their mind.  Still, the first of the Presidential debates will take place on Tuesday and that could swing the few undecided or soft supporters.  Even a fractional shift could make all the difference in the key swing states.

Employers Resign from the Minimum Wage

The employer representatives on the Low Pay Commission (LPC) have effectively resigned from the minimum wage.  This left the trade union representatives - no choice but to resign from the Low Pay Commission itself.  10 cents per hour increase, or one percent, was the most employer representatives were willing to propose.  This was the lowest increase, in percentage terms, since the introduction of the minimum wage in 2000, bar the short-lived cut in 2011 which was quickly reversed when the new government took office.

There will be all manner of arguments for why the minimum wage should effectively remain the same in these uncertain times but they will miss the point.  Increasing the wage floor, increasing pay and working conditions for the lowest paid, is not a cost – it is an essential part of a recovery strategy.  Raising people’s living standards is a pathway towards a stronger, more resilient economy. 

For instance, many sectors and companies were forced to close down or were negatively impacted by the fall in turnover.  But we have moved on from the low point in the crisis.  63 percent of businesses are operating at normal capacity, with 75 percent of wholesale and retail businesses – where a sizeable proportion of minimum wage employees work - trading at full capacity.  The latter should not be surprising given that retail sales have recovered and, in some cases, are now exceeding levels at the start of the year.  50 percent of businesses report no impact on turnover (and some of these have even seen increased turnover).

Of course, there are wide variations in the economy, with some sectors (e.g. hospitality) taking big hits – and continuing to do so in areas like Dublin.   To compensate for this, the Government has engaged in substantial subsidies to the business sector – and rightly so.  46 percent of all businesses have received a pandemic-related state subsidy, with most of these being businesses relying on domestic demand.  The Temporary Wage Subsidy Scheme alone delivered €2.9 billion to businesses.  But that’s not all.  As of July, there has been €6 billion worth of loan breaks for SME’s.  Then there are the restart grants (€0.5 billion), Local Enterprise grants, sector-specific grants (childcare, arts, sports, beef), commercial rates waiver, VAT cuts, etc.].  More will be coming on stream in Budget 2021. 

So let’s do the crudest of back-of-the-envelope calculations.  In the last quarter of 2019, there were 122,000 workers on the national minimum wage.  My own rough estimate is that minimum wage earners work, on average, 27 hours per week.  Therefore, every one percent increase in the minimum wage would increase total payroll for all minimum wage workers by €18 million per year (including social contributions).  Therefore, a three percent increase would come in at €54 million on total payroll increases.

I emphasise – this is crude.  There will be further impacts as raising the wage floor also lifts wages which are slightly higher than the minimum wage (e.g. maintaining differentials, etc.).  However, even if this cost is doubled given knock-on effects higher up the wage scale, we’re looking at costs of under €120 million. 

Now set that against (a) companies that are maintaining billions of Euros turnover and operating at normal capacity, and (b) the billions being spent on subsidies.  An overall and decent pay rise for minimum wage workers is only a small percentage of normal turnover and subsidies.

And, yes, there are still businesses that would find it difficult to pay a three percent increase.  But there is relief for these firms.  They can avail of relief through the Labour Court and be exempt from paying the increase for up to a year.  Indeed, businesses that can’t afford to pay would get relief from those businesses who can afford to pay.  This is because minimum wage earners are spenders, not savers and, so, would recycle their wage increase back into the economy and back into the turnover of those firms who are temporarily exempt from paying the increases. 

It is possible to connect labour market policies (such as minimum wage increases) and business subsidies.  But the conflict is deeper than just a monetary analysis; it poses alternative ways of viewing the purpose of enterprise.  For some, the business primarily exists for the benefit of owners and the production of goods and services is instrumental to that benefit.  For most, the business exists to provide employment and living standards, to provide the goods and services that we need or want to purchase. 

For some, business is primarily a private concern; for most, business is a social agency.  By refusing to go beyond 10 cents an hour, the employers’ representatives have staked out their position – that they do not see themselves as part of a wider social process; even if, in objective terms, enterprises perform better when they embrace that embrace that process. 

The Government has a chance to rectify this.  The LPC recommendation is only that, a recommendation.  The Government can see fit to vary the minimum wage according to wider social and economic criteria than the employer representatives.  In particular, the Government can signal that wage increases are not a drag on growth but actually one of the primary engines that will drive recovery.  In addition, the Programme for Government commits to:

‘Progress to a living wage over the lifetime of the Government.’

Here is the first test of that commitment – to raise the minimum wage significantly above 10 cents per hour.

Healing Our Sick Pay System

In the budget the Government will have to show it has drawn lessons from the pandemic.  One of those lessons is Illness Benefit.

When the crisis broke, the Government realised our Illness Benefit system was wholly inadequate.  Not only did potential recipients have to wait a week to access the Benefit (thus receiving no income support in their first week of illness), the level of benefit at €203 per week for a single person (22 percent of an average full-time employee wage),meant that many people could not afford to take time off, thus risking the spread of the virus.

In March the Government abolished the 6-day waiting period and increased weekly payments to €300 per week, followed by another increase to €350 per week.  However, this only applied to Covid-19.

Another feature of poor sick pay coverage emerged.  According to surveys, only 44 percent of private sector employers had a sick pay top-up scheme (meaning the employer topped up the social protection payment in order to protect the employees’ income – though not necessarily to the full wage and for varying periods of time).  The majority of private sector employees have no occupational sick pay scheme and are totally reliant on the social protection system.  With no sick pay obligations on employers, workers’ benefits are reliant on what sector and company they happen to work in.

Any reform of sick pay needs to be based on two principles:

• All employees should have equal access to a full sick pay scheme (universal)

• Illness Benefits should protect people’s income while they are out sick (comprehensive)

In most EU countries, employers are required to pay an employee their illness over the short-term. For instance, German employers must pay full salary up to six weeks.  Dutch employers must pay at least 70 percent of pay for two years while Belgian employers must pay a month in sick leave, depending on the contract and length of service.  ICTU has produced an informative meme giving one-line summaries of sick pay schemes in other European countries.

It is this principle that informs the Labour Party’s private member’s bill – Sick Leave and Parental Leave (Covid-19) Bill - to ensure that every employee is entitled to six weeks of sick pay at full pay.  This is a positive and progressive proposal.  However, it is constrained given that a private member’s bill cannot place a charge on the Exchequer.  Therefore, there are no provisions for increased public support to fund sick pay schemes. 

For instance, in Germany employers with fewer than 30 employees receive a public subsidy of up to 80 percent of their sick pay costs.  In other countries, employees move from employers’ sick pay to social insurance payments which still maintain 50 to 70 percent of an employee’s wage.  The Labour Party bill was barred from including such provisions.

There is a strong argument to channel sick pay through the PRSI system, rather than through employers.  Some companies and sectors are more exposed to illness than others.

Companies and sectors with a higher proportion of women, older workers, low/average income earners, and caring activities will face higher sick pay bills.  Indeed, it is those sectors with higher skills and income, along with a younger profile that have less need to access Illness Benefit – and in these sectors you’ll find the most generous sick pay schemes (e.g. ICT, financial, professional and modern manufacturing). 

Under a social insurance system approach, each company pays an equal social insurance contribution rate (a percentage of payroll).  If paid through employers’ social insurance, it becomes part of employees’ compensation and could be part of a wider collective bargaining process (if we had such a process).  And through the social insurance system, the cost is socialised meaning that sectors will below-average illness rates subsidise those sectors with above average-rates; as a rule this means higher income sectors subsidising lower income sectors.

In 2019, €603 million was spent on Illness Benefit from the Social Insurance Fund.  This would likely more than double under a reformed benefits system.   A one percentage point increase in employers’ PRSI would have raised €850 million in 2019.  Obviously, the amount would be lower today and, in any event, one wouldn’t start increasing PRSI until recovery is fully embedded in the economy.  But a long-term, incremental rise starting within two to three years would pay for a universal and comprehensive sick pay plan available to all employees.

A model to work from would be the sick pay plans that exist in many private sector companies and the public sector; namely, three months on full pay followed three months on half pay in a rolling one year period.  To help reduce costs, a payment threshold equal to the average full-time pay - €48,000 – could be introduced. 

Businesses and the Exchequer would benefit from such a programme.  Companies would no longer need to fund their own company sick pay plans (though they could subsidise income above any threshold), bringing about payroll savings.  Second, the increased income to households would help spending and maintain demand.  Third, such benefits would be taxed, boosting revenue for the Exchequer.

The Government can use the budget as an opportunity to announce their future intentions.  They could establish a working party made up of relevant stakeholders (e.g. employees, employers) to draw up the plans.  At that stage it could be decided which would be a better sick pay mechanism:  through social insurance or through obliging employers to make the payments, or a combination of the two.

More importantly, this would give concrete proof of the Government’s social goals.  Minister Paschal Donohoe, discussing the rebooting of the economy following the pandemic crisis, stated:

‘It is very clear that we can create a new economy and the country can recover from this.’

And at the heart of any new economy is the rolling out of new, enhanced in-work benefits and social protection payments which can bring about greater social security for households – such as a universal and comprehensive Illness Benefit.

US Presidential Polls: Sunday Summary September 20th

This is the second Sunday summary of US state-wide polls, focusing on the ‘competitive’ states in the US Presidential election (you can read the first summary here).  The race will be determined by the Electoral College which is based on who wins at state level.  Most states are fairly predictable.  However, there are 12 states with 189 electoral votes (about 35 percent of all electoral votes) where the race will be won or lost. Of these 12 states, Trump won 10 back in 2016 with the Democrats winning two.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on September 20^th.  This uses the US electoral colours – blue is Democrats and red is Republican.

(a)          FiveThirtyEight

FiveThirtyEight show the race in competitive states tightening.

Looking first at states won by Republicans in 2016, Biden leads in most of them.  However, in some of them, his lead is eroding; Florida and Wisconsin in particular.  Florida is a key state.  It has 29 votes – which would make up most of the 38 votes Biden needs.  If we turn to the mid-east states, Biden has stronger leads in Michigan, Pennsylvania and Wisconsin.  In 2016, Trump won each of these states with a margin of less than one percent.  Together, these make up 46 votes – enough to elect Biden. However, Biden’s lead is shrinking in Pennsylvania and Wisconsin.

Looking at the two states won by Democrats in 2016, Biden currently holds comfortable leads.

At this stage it is difficult to see Trump picking up ‘new’ votes.

(b)          The Economist

The Economist, on the other hand, shows Biden widening his lead and closing some of the Trump leads.

In Florida and Wisconsin, Biden has stretched his lead while cutting Trump’s lead in Iowa and Ohio.  In short, if Biden takes Florida and the three mid-east states – Michigan, Wisconsin and Pennsylvania – it is game over.  Biden could still afford to lose Florida if he can bring the mid-east states home.

And, again, Trump doesn’t look like taking some votes from the Democratic camp.

* * *

If you’re a Biden supporter, you’d be happier with the Economist poll count.  But with both of them, the shifts are, for the most part, minor.  We will need a couple of more Sunday summaries to see if there is a trend that both aggregators share.

Taking the polls today, this is the Electoral College count.  With 270 votes needed to win, Biden leads by 128 votes. 

But it is early days.  And the outcome in many states is within the margin of error.  And a number of polling companies called it wrong in several states in 2016. 

See you next week.

 

US Presidential Polls: Sunday Summary

In a little over seven weeks Americans will go to the polls.  So here is a summary of US polling in the Presidential election.  Currently, Joe Biden is leading in the national polls but as you may know, the American electorate does not directly elect the President.  The Electoral College elects the President.  The College is elected by people voting in their individual states which hold equal to the number of Senator and House representatives which are broadly proportional to their population (California has 55 votes, Alaska has 3 votes).  Sometimes the result can be perverse:  in 2016 Hilary Clinton won the national vote but Donald Trump won the Electoral College.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

Most states are fairly predictable.  California and New York are going Democrat; Oklahoma and Mississippi will vote Republican.  But there are a number of swing or competitive states which could go either way and will determine the winner. With the exception of Nevada and New Hampshire, all the competitive states were won by Trump in 2016.

What I will do here – and hopefully every Sunday – is summarise polling in these individual states.  I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on September 13^th.  This uses the US electoral colours – blue is Democrats and red is Republican.

Looking first at states won by Republicans in 2016, Biden leads in most of them.  Florida is a key state.  It has 29 votes – which would make up most of the 38 Biden needs.  While he holds the lead here – between two and three percent – it is fairly tight.

If we turn to the mid-east states, Biden has stronger leads in Michigan, Pennsylvania and Wisconsin.  In 2016, Trump won each of these states with a margin of less than one percent.  Together, these make up 46 votes – enough to elect Biden.

If Biden can manage to win one of the southern states (Georgia, North Carolina, Texas), he’d be in a very strong position. 

Looking at states won by Democrats in 2016, Biden currently holds comfortable leads.

If these polling results were replicated on election night, Biden would win comfortably.

But as they say, it is early days.  And the outcome in many states is within the margin of error.  And a number of polling companies called it wrong in several states in 2016. 

Next week we will hopefully start seeing trends:  is Trump closing the gap?  Is Biden holding firm?  Or even expanding his lead?

 

 

Reversing into a Crisis

Back in July the Tánaiste warned of a coming economic crisis that could be ‘very divisive’:

‘ . . . it’s a very serious economic crisis and one that’s very unequal . . . The country was very united during the pandemic. The economic crisis that is coming could be very divisive.’

Unknown to us (at least based on national statistics) was that a serious crisis was emerging in 2019.  The pandemic crisis is likely to give it legs and if we don’t act, it could run away from us.

The CSO has released its Survey of Income and Living Conditions (SILC) focused on the issue of enforced deprivation.  According to the CSO, the enforced deprivation rate measures the proportion of households that are considered to be marginalised or deprived because they cannot afford goods and services which are considered to be the norm for other people in society. Enforced deprivation is where a household experiences two or more of the following eleven deprivation items:

• Without heating at some stage in the last year
• Unable to afford a morning, afternoon or evening out in last fortnight
• Unable to afford two pairs of strong shoes
• Unable to afford a roast or an equivalent once a week
• Unable to afford a meal with meat, chicken or fish every second day
• Unable to afford new (not second-hand) clothes
• Unable to afford a warm waterproof coat
• Unable to afford to keep the home adequately warm
• Unable to afford to replace any worn out furniture
• Unable to afford to have family or friends for a drink or a meal once a month
• Unable to afford to buy presents for family or friends at least once a year

During the last crisis, 30 percent of the population experienced enforced deprivation.  Since that peak in 2013, the rate steadily declined.

Until last year when the enforced deprivation rate suddenly and unexpectedly rose.  In 2019, unemployment fell to 5 percent, numbers employed rose by 60,000, and wages increased by four percent.  Yet deprivation rose.  Even before the crisis, something in the social structure was wrong.

Those most at risk of deprivation are social housing tenants, those who can’t work because of illness or disability, and single parents.  The former two categories saw a sizeable increase in 2019, while close to half of single parents suffer multiple deprivation experiences.

We tend to assume that deprivation is associated with being out of work.  That would be a mistake.

Nearly one-in-eight people in work are categorised as deprived.  20 percent of households with one person working are deprived.  More surprisingly (and depressingly), even where there are two people at work in the household, more than one-in-ten suffer deprivation.  Clearly, in an economy with high levels of precarious working conditions and low pay, having a job is not a ticket out of deprivation and poverty.

And for children the situation is looking even grimmer.  In 2018, the deprivation rate for children (under-18s) was 19.7 percent.  It rose last year to 23.3 percent.  This is not only an indictment that nearly one-in-four children in the state suffers enforced deprivation; it also undermines future growth and prosperity for these households and society at large.

And in one final stat twist, 30 percent of the population still experience at least one enforced deprivation experience.

And all this in the year prior to the pandemic, during a year of growth and expansion.  This raises two questions:

• Will the pandemic accelerate these trends? As the Tánaiste put it – will it accelerate inequality and divisiveness?

• And if the answer to the first question is yes, then what are the policies that we need to put in place starting now in Budget 2021?

For we will need to do something.  If we go back to ‘normal’, we’re heading back into rising deprivation.

 

Stimulus, Deadweight, and Reheats

Any critique of the Government’s July Stimulus should acknowledge that they had to plan it in a metaphorical fog – not knowing the duration of the public health crisis, the extent of long-term economic damage, or the most efficient measures to employ in this unprecedented situation. 

Nonetheless, there are certain benchmarks we can use to assess the stimulus plan.  How much of the plan is actual additional spending (above what would have happened anyway)?  How much is just re-announcing previously announced measures?  How much is deadweight (that is, subsidising activity that would have happened anyway)? How much is targeted, going to the sectors most in need? 

None of these questions have black-and-white answers.  For instance, measure A may be more efficient than measure B, but the latter can be done almost immediately – urgency sometimes being the enemy of efficiency.  And, yes, this scheme may have deadweight, but do the benefits still outweigh the costs?  Fiscal policy, especially in a crisis, is not a slide-rule.

Given these caveats and the flying-in-the-fog acknowledgement, let’s see how some of the measures stack up.

Additionality and the Pandemic Unemployment Payment (PUP)

The PUP will be extended to April.  However, it will be closed to new entrants in mid-September.  There is no doubt this payment provided a life-line to many households.  The number of recipients reached nearly 600,000, but with businesses re-opening the numbers have fallen by half.  In announcing the extension of PUP to April, Minister Heather Humphreys stated:

‘The total cost of the payment, if modified as proposed, between now and April 2021 is estimated at about €2.24 billion. This is about €380 million more than would be paid out at standard jobseeker rates (that is, if the scheme was closed as planned in August).’

I’m assuming this refers to the overall cost since the PUP was introduced (though, in truth, it’s hard to say).  It suggests that while PUP has put €2.2 billion into households and the economy, ordinary social protection payments would have put in €1.9 billion.  The additionality of PUP was only €380 million, which while desirable from the household’s perspective is far less than the headline number and, so, far less stimulating.

Cut in Headline VAT Rate and Commercial Rate Waiver

The Government took everyone by surprise by cutting the standard VAT rate from 23 percent to 21 percent.  This will have almost no impact on prices but will assist business cash-flow.   A VAT cut is administratively simple compared to an expenditure-based subsidy with qualifying conditions.  Similarly with the commercial waiver.  But since they are across the board they are not very well targeted.  Many businesses that don’t need help will still benefit.

The CSO reports that 10.2 percent of enterprises had higher than normal turnover in June/July, while another 28.2 percent had ‘turnover at or close to normal expectations’.  Nearly 40 percent are not in urgent need of relief, yet they will benefit from these two measures.  However, businesses that have yet to open or have substantially reduced turnover (10 percent report turnover decline of 75 to 100 percent) may get limited benefits – especially in the hospitality sector.

The VAT cut and rates waiver, at a cost of €440 and €600 million respectively, could be highly inefficient at targeting relief at enterprises which need it most, though they are relatively quick to implement.  

Help-to-Buy, Staycation and Deadweight

The Help-to-Buy scheme will be enhanced.  The level of support available to first-time buyers will be increased to €30,000, up from €20,000, or 10 per cent of the purchase price of the new home/self-build property.  This will run to the end of the year.

The Parliamentary Budget Office found the scheme was fraught with deadweight:

‘41% [of recipients) had a loan to value ratio of less than 85%, which means that they already had the 10% deposit requirement and didn’t need the scheme to meet the macro-prudential rules. This could be seen as a deadweight loss.’

Dominic Coyle makes this excellent point:

‘What housing needs is more supply, especially of affordable homes, not further tinkering to sustain prices that are already beyond the reach of so many aspiring homeowners.’

The only good thing about this measure is that it will only cost €18 million.  Hopefully, it won’t be continued. 

And what about the Stay and Spend Incentive?   Taxpayers spending over €625 on accommodation, food and non-alcoholic drinks between October and April can get up to €125 back through a tax credit.  How much of this money would have been spent anyway?  How much new spending will it induce (especially since people won’t get the credit until 2022)?  How much of this will actually stimulate anything?

Public Investment

The stimulus plan envisages €500 million in accelerated capital projects covering schools, public transport, heritage and tourism, fishery and on-farm renewable energy investments, peatlands rehabilitation, local authority housing, and town and village renewal. 

The July plan goes further:

‘The Government is also committing to increasing capital expenditure in 2021 to €9.1 billion.  This level of capital expenditure represents an increase of almost €1 billion or 12 percent on 2020 levels.’

This sounds impressive – an additional €1 billion for capital spending.  But is it additional?

While we don’t have the numbers, capital spending would have slowed in 2020 due to the pandemic crisis.  So the Government is correct in saying that their projection represents an increase over this year.  However, it doesn’t represent an increase over what was already projected – in last year’s budget and this year’s Stability Programme Update.

A smaller example of this is the provision of €15 million for peatlands rehabilitation, an important element of the overall Just Transition strategy.  However, in Budget 2020 reference was made to €5 million to be spent from carbon tax revenues and a reference to €7 million under the Culture, Heritage and the Gaeltacht portfolio.  Does the €15 million announced include these already committed allocations or are they additional to them?  

[Note: some enterprising TD or political party might consider exploring this whole area of additionality and re-announcing previously announced measures through Parliamentary Questions and research].

The Road Not Taken

TASC’s Shana Cohen noted:

‘This first economic litmus test for this new Government fails to impress because it does not give the sense that the new FF-FG-Green alliance is prepared to think big enough to move beyond Covid-19 to a new normal that is predicated on equality, and – more profoundly – hope for the future.  Instead of generating jobs for the sake of employment numbers, the stimulus package could have hinged on linking job creation to wellbeing, climate change and economic democracy.’

One could reasonably argue that the urgency of the situation required immediate action without the luxury of longer-term thinking.  Conditionalities can take time to devise and implement.  Nonetheless, while a government in the middle of crisis might not be able to work out the vision thing in the short term, it could give some signals as to where it might be heading. 

Take for instance the biggest subsidy – the Employment Wage Support Scheme (which replaces the Temporary Wage Subsidy Scheme).  This will cost €1.9 billion, or over a third of the entire stimulus package.  Under this scheme firms which have suffered a 30 percent decline in turnover will receive a flat-rate subsidy of up to €203 or €151 per employee, per week, depending on the employee’s gross weekly pay.  This is a significant, well-targeted subsidy.

The government could have established sectoral oversight committees comprising the relevant stakeholders in the sector:  employees, employers and civil society organisations.  This was proposed by the SIPTU trade union. These committees could have monitored the roll-out and implementation of the scheme, reported back on any sharp practices, and put forward policies to improve administration of the scheme.  This would have signalled that the government was moving towards a stakeholder model which could eventually develop the type of conditionalities that Shana Cohen referred to above.

Alas, there was no proposal, mention, or even hint that the Government was looking down this road.

* * *

We have programmes which are not delivering the headline amount of stimulus as is claimed (PUP), are administratively simple to introduce speedily but not very well targeted (VAT cut and rates waiver), spending targets which are just old targets (public investment), and are full of deadweight (help-to-buy, staycation incentive).  All told, these schemes make up the vast majority of the stimulus spending.

Given this, will it be enough or will we have to return to the stimulus table?  One good thing: the Government can revisit these and other missed opportunities in the roll-out of the National Economic Plan and associated sectoral initiatives in Budget 2021.

The jury is still out.

Let Mayo Decide

With Dara Calleary replacing Barry Cowen, Mayo finally has a Minister.  This should assuage the Western People.  When the Government initially ignored Mayo and all other Connaught counties, the paper’s leader writer became very exercised: 

‘The new Cabinet is the ultimate and final betrayal of the people of the West, the people of rural Ireland, the people who get up early and go to bed late just to keep the lights on in towns and villages buffeted by one economic storm after another since the turn of this millennium. Yesterday in the National Convention Centre in Dublin, the triumvirate of Micheál Martin, Leo Varadkar and Eamon Ryan unveiled a Cabinet that Oliver Cromwell would have been proud to call his own. To hell or to Connacht, indeed.’

To what extent a single Minister can address this complaint is questionable.  But there is logic to it.  Would a Cabinet only made up of urbanites be fully sensitive to the issues faced by rural dwellers?  Would a Cabinet only made up of men be fully sensitive to the issues faced by women?  Would a Cabinet comprising only business owners be fully sensitive to workers’ issues?

But it goes further than being regionally, gender and class- balanced.  We have a system whereby Ministers are expected to ‘deliver’ for their constituencies.  As Diarmuid Ferriter pointed out when critiquing the Western People’s claim of victimisation: 

‘What was really at play this week had nothing to do with a pure, downtrodden people but with what the political scientist Jane Suiter referred to as “Chieftains Delivering” . . . : whereby “individual, powerful ministers in charge of the purse strings direct funds to their own constituencies” ‘.

So now Chieftain-Minister Calleary will be expected to go to Dublin and bring economic dividends back home. 

And therein lays the problem for the people of Mayo, Connaught and the country as a whole.  The issue isn’t access to power through individuals, but lack of direct access to power.  And this lack of power can be seen in the ultra-weak status of local government in Ireland.

Ireland’s weak local government system has been well documented.  A good summary is provided by Dr. Mary Murphy of Maynooth University in a paper entitled ‘Democracy Works if You Let It’ written for the trade union campaign ‘More Power to You’.  According to Dr. Murphy:

‘The international index of self-autonomy uses seven categories (legal protection, organisational autonomy, and institutional depth, fiscal autonomy, financial selfreliance, borrowing autonomy, and financial transfer system, and administrative supervision, central or regional access) to assess self-autonomy. Over 1990 to 2015 Ireland declined from the third least powerful local authority to the weakest across all Europe [among 39 countries surveyed].’

Another way of looking at local government power is to compare the level of expenditure at local government level.  Surprise – Ireland lies near the bottom.

[Note:  this excludes Belgium, Germany, Spain and Austria which have an extra sub-central tier in addition to local government; that is, regional or state governments.    However, even with this regional structure, local government in these four countries have spending levels far above Irish levels.]

Denmark has the most fiscally decentralised system, with nearly two-thirds of total public spending occurring at local level while Sweden comes in at half.  Ireland on the other hand lies at the other end, with less than 10 percent of public spending being spent by local authorities.  Irish local spending would have to increase by three times their current level to reach the EU average.

In many countries, health and education are delivered at local level – something that doesn’t exist in Ireland.  Given this structural feature, there is an argument for excluding these spending categories.  When this is done, EU local government spending falls to 23.1 percent while Irish spending increases to 12.0 percent.

Excluding health and education spending, Irish local spending would have to nearly double to reach the EU average.

Let’s return to Mayo.  Mayo County Council adopted a budget for 2020 that provides for €147.5 million in spending, funded by state grants, receipts from goods and services (council rents, pay & display, planning fees, etc.), recoupment payments (e.g. work carried out on behalf of Irish Water), commercial rates and local property tax.

If Mayo spent at an average EU level (excluding health and education), its budget would nearly double – rising from €147.5 million to €284.4 million; or an additional €137 million. 

What could it spend it on?

• Mayo could provide affordable childcare (fees of less than €60 per week) through the 60 community childcare facilities – and do this with enhanced wages and working conditions.

• Mayo has a higher proportion of older people than the national average (7.3 percent are over 75 against a national average of 5.5 percent). With nearly 10,000 people over 75 years, Mayo could directly employ carers in the community to supplement HSE activity.

• Mayo could launch a business start-up and expansion programme for SMEs in the market economy to grow competitive commercial enterprises. This could be done through equity stakes so that Mayo would benefit when businesses are successful (and help defray the costs for businesses that aren’t).  Equity stakes of up to €500,000 could see a minimum of 20 businesses each year getting support.

• Mayo could launch its own public transport company that would link up urban and rural areas with low fares and frequent scheduling.

There are a number of commercial and social activities Mayo County Council could engage in, including issuing bonds to pay for major once-off infrastructural projects.

It could also launch a programme of participatory budgeting at town and village level.  For instance, based on a crude population count, Castlebar could expect an additional €14 million spending Mayo could spend at the same level as the EU.  The Council could conduct a series of community meetings, on-line surveys, focus groups, etc. to empower the people of Castlebar to decide how some of that money would be spent – on public amenities, social services, business supports, infrastructural investments, etc. 

In short, what the people of Mayo – and all people throughout the country – need is more power and resources at local level, and more ability to influence decisions that have a direct impact on their lives.  They don’t need brokers (though it always helps to have friends in high places).  They need greater democracy and greater localisation. 

That’s a campaign that should be taken up throughout the country.  Starting in Mayo.

 

Biting the Wormy Apple

What has been hailed as a ‘victory’ for Ireland and Apple in the verdict of the EU’s General Court could turn out to be pyrrhic at best.  Indeed, the biggest loser from this court decision could be Ireland’s tax-based FDI policy (Foreign Direct Investment), as EU countries step up their drive to end the multi-national manipulation of national tax codes.

You wouldn’t know it by the reaction here.   The Irish branch of the American Chamber of Commerce said the decision would help the European Union as a whole to:

‘ . . . maintain its hard-won global reputation as an inward investment destination.’

Other EU countries would strongly disagree, especially as it is their tax bases that are being eroded.

Tax partner Peter Vale said:

‘From a distance, it seems that the commission originally attempted to rewrite historic tax rules based on current laws and mood.’

Mood?  Global tax avoidance is not a mood.  Nor is opposition to it.

KPMG’s head of tax, Tom Wood stated: 

‘The initial indication is that it is a clear ruling in the taxpayer’s favour.’

Taxpayer’s favour?  Which taxpayer?  Domestic companies that cannot manipulate international tax rules?  People who have to pay higher taxes to make up for the holes created by multinational tax avoidance?

Minister for Finance Paschal Donohoe has said Wednesday’s ruling should lead critics of the State’s corporation tax regime to

 ‘. . . reassess their view … and some of the statements that have been made about it.’

Does this include IMF research which has listed Ireland as a tax haven?

Brian Keegan of Chartered Accountants Ireland thought the court’s decision offers hope:

‘ . . .  should curtail EU commission posturing on State aid . . . It is to be hoped that the commission will accept the decision of the General Court of the European Union, and not seek to damage the country’s reputation further with protracted legal proceedings.’

He shouldn’t be hopeful.  The Commission has made it clear it will continue and accelerate its drive for tax justice.  Up to now, Ireland could fall back on a blocking mechanism through the use of its national veto.  The Commission’s strategy in the Apple case was to use state-aid as a means to clamping down on tax avoidance. This approach has failed (though it is only half-time).  Regardless of an appeal, new approaches are being devised:

‘In what would amount to an unprecedented legal assault, the European Commission is exploring ways to trigger an unused treaty instrument to reduce multinationals’ ability to exploit highly advantageous corporate tax schemes.  Crucially, unlike ordinary tax legislation in the EU, the initiative would only require the backing of a qualified majority of the EU’s 27 member states rather than unanimous support of all countries, restricting a government’s ability to wield a veto. The measure would also need approval from the European parliament . . . Officials [said] that the plans, under Article 116 of the EU’s treaty, were at a very early stage but would aim to identify certain competitive national tax schemes as distortions of the single market.’

The Irish Times reports that:

‘The European Commission declared it was more determined than ever to clamp down on what it sees as unfairly low taxation rates used by some member states to attract multinational companies after losing its case against Apple and Ireland in an EU court.’

The report goes on to quote Valdis Dombrovskis (EU Commission Vice-President). 

‘This ruling makes it even more urgent and more clear the need for corporate tax reform the largest corporations are getting away with paying 1 per cent maximum or in many cases less on their European profits. It’s just not sustainable from a tax fairness point of view, it’s not sustainable from a public revenues point of view, and it needs to be addressed and the commission is determined to address it.  This one tax ruling is not going to change the commission’s determination in this regard.’

It remains to be seen whether using Article 116 to confront global tax avoidance is a runner, given that it has never been used that way.  But that it is actively being considered shows the extent to which time is running out for Ireland.  In truth, it was always just a matter of time.  No one wins the global tax avoidance game.  But some countries are slower losers than others.  Ireland is a slow loser, but will still eventually lose.

So what is the progressive response?   Donning an over-sized green jersey and burying our heads in it while chanting ‘we are not a tax haven, we are not a tax haven’ will not and should not suffice. 

But we should also be cautious about the impact of EU Commission moves.  Ireland is highly reliant (in some cases, over-reliant) on multi-nationals – for corporate tax revenue, personal tax revenue, high value-added employment, exports, etc.  The fact is that tax justice would cost Ireland billions of Euros in tax revenue, and could undermine future employment and investment in our modern export base.

We need to accept the reality of a new regime which will hopefully reduce global tax avoidance while at the same time protect our economic interests.  Even if Ireland is a tax haven, it is not a tax haven of the classical letter-box kind.  There is productivity attached to our FDI. 

We need to get ahead of the inevitable curve – staking out a model that protects our interests with apportionment formulae that emphasise our strengths in assets, labour and sales.  This would help us protect our multi-national base.

But what we desperately need is a new FDI policy – one that emphasises economic and social infrastructure, skills and an accommodating immigration policy.  A location with high rents, traffic congestion, low level of public amenities and an unwelcoming environment for migrants is not a place that will attract as much investment – either foreign or domestic.

The EU Commission may have stumbled in the General Court, but they have the capacity and certainly the determination to put Ireland’s FDI model to the test.  Let’s hope they succeed.  And let’s hope progressives can ultimately lead the country to a better FDI model – one that doesn’t rely on low tax rates and eroding the tax bases of other countries.

PS.  Still, it would be nice to get our hands on the €13 billion.

Stimulating the Economy and Society: a Wishlist

The Government will be announcing its stimulus plan in the next few days.   This will continue with the announcement of sectoral initiatives under the National Economic Plan to be announced in Budget 2021.  We are in for weeks of doling out the dosh.

So here’s a wishlist – for stimulating the economy, giving people a voice in how we build a more socially-accountable economy while protecting households from poverty.  Some of these proposals will take a while to get off the ground (so best to start now).  Some of these proposals might not work so best to continually evaluate and reform).  But people and businesses are hurting. 

Youth Unemployment

Youth unemployment could be as high as 45 percent, with nearly 150,000 under 24s now unemployed.   Grants and incentives to businesses to hire young people might help in some respects.  But such grants do not create new jobs; they just prioritise certain categories – which mean non-young-people get pushed back in the queue.  The state needs to create jobs by directly employing young people.

A specifically designed ‘employer of last resort’ programme could be rolled out to provide for up to 25,000 - 50,000 jobs in time (here is how it can be implemented).  Young people would be employed in non-profit civil society organisations and public agencies (local government, etc.) on full-time, two to three year contracts.  These jobs would be integrated into training and education schemes.  Only the state has the ability to mobilise the resources to put people back to work while we re-structure the economy away from low value-added, low-pay activity to higher value- added, higher paid work.

Continue the Pandemic Supports

The Temporary Wage Subsidy Scheme (TWSS) should be continued on a sectoral basis into next year.  Clearly, hospitality and non-food retail should be targeted along with other sectors.  Enterprises outside the targeted sectors could also benefit on a case-by-case basis with clear benchmarks (reduced turnover, etc.).

This should be combined with continuing the Pandemic Unemployment Payment and the elevated Illness Benefit – until at least the end of the year when new, enhanced, income-related social protection payments could be introduced courtesy of Budget 2021. 

Helping SMEs

Business groups are queuing up for subsidies to re-open and stay open.  This is understandabl, given that many sectors will continue to suffer reduced demand owing to the health crisis (customer-facing businesses, sectors reliant on discretionary spending). 

The Central Bank Governor put the cat among the proverbial pigeons, stating that tax breaks such as VAT cuts may not be the best way forward given that they are not targeted.  I’d be inclined to agree.  A better way would be to focus on those businesses that have suffered a significant decline in turnover.  The 25 percent loss of turnover that is used for eligibility for the TWSS could be used.

To create efficiencies and a new revenue stream for the state, grants could be based on the actual amount of turnover loss or the number of employees (in full-time equivalents).  Subsidies could be based on either zero-percent loans or grants that are repaid through the tax system.  The latter would probably be more beneficial for firms, as they would only start repaying the loan when they have turned a profit; i.e. repay according to their means.  Under a loan, you have to pay regardless of your ability to meet the payment. 

If a tax-based grant system were used, the Government could apply a temporary VAT cut (one to two years) with the difference between that and the normal VAT rate being treated as a grant which would be repayable through the tax system.

Workers’ Voice

Any sectoral initiatives, such as continuing the TWSS as suggested above or sector-based grants, should be accompanied by the establishment of sectoral committees comprising representatives of employees, employers, government and other stakeholders.  The last government established a Tourism Recovery Taskforce to propose measures to support tourism.  This could have been useful but the Government hobbled the taskforce from the start by omitting to appoint employee representatives – the biggest number of stakeholders in the sector.

Sectoral committees would oversee the implantation of support schemes; draw up protocols (wages, working conditions, health & safety); report problems, etc.  In short, the sectoral committee would be a communication conduit from the ground to the policy makers and serve as early warning systems.  A key function would be to ensure that public supports and subsidies benefit all stakeholders. Disability campaigners used the phrase: 'No decision about us without us'.  This should be applied to all working people.

Household Supports

While the debate has been focussed on business supports and how to wind down the pandemic payments, what about households?  Many will be falling into debt, or more debt.  Many will be struggling, postponing key household repairs or purchases.  Prior to the crisis, nearly a third of households couldn’t afford an unexpected expense; that level is likely to rise with the Covid-19 crisis. 

For instance, according to the St. Vincent de Paul, quoting a Social Finance Foundation research paper:

‘ . . . there are an estimated 330,000 customers of moneylenders in Ireland, with an average loan size of €566. The majority of customers are female, in the lower socio-economic group and between 35 and 54 years of age. Most commonly loans are offered over 9 months at an APR of 125%.’

So why not offer a scheme (either a new one or retooling existing ones), operated though the credit unions or the Money Advisory Budgeting Service, which would roll up all such loans, redeem them and put people on a more sustainable interest rate/repayment schedule?  Such a scheme could be expanded to households facing rent, mortgage and credit card arrears.  There would need to be provisions to prevent moral hazard.

This could be complemented by an extension of the rent freeze and moratorium on evictions.  These steps, along with continuing pandemic payments until new social protection payments are introduced, should help households which are waiting for a return to full employment. 

Arbitration Panels

The Central Bank Governor sent another cat into the pigeon nest, calling on insurance companies to be more ‘consumer-centric’ when it comes to paying out on business interruption claims.  He identified three situations:  contracts that didn’t have a business interruption clause, those that did, and those where the position was uncertain.

There’s a very easy way to resolve this:  establish a binding arbitration panel through which businesses could pursue their claims, avoiding costly and length court proceedings.  The panel could rule that insurance companies must honour the claim in full (where it is obvious) or in part (where the situation is uncertain).

Similar arbitration panels could be established for commercial leases though which tenants could make a claim for relief; ditto for residential mortgages. 

These shouldn’t be treated as strictly private contracts.  Society has a stake in these claims as they impact on employment, incomes and economic growth.  Therefore, there is a legitimate public interest in resolutions that serve the social good.

New Asset Tax

The Government could announce that it will be introducing a net asset tax in Budget 2021 and set up a process of consultation on the best design.  A net asset tax, or wealth tax, would impact on the highest income groups and to ensure that everyone contributes to crisis resolution.  In any event, the super-rich seem to be warming to the idea.  88 billionaires wrote a letter to their respective governments calling for higher taxes on themselves:

‘No, we are not the ones caring for the sick in intensive care wards. We are not driving the ambulances that will bring the ill to hospitals. We are not restocking grocery store shelves or delivering food door to door.  But we do have money, lots of it. Money that is desperately needed now and will continue to be needed in the years ahead, as our world recovers from this crisis.

‘So please. Tax us. Tax us. Tax us. It is the right choice. It is the only choice.’

* * *

That’s my wish list:  getting young people back to work, continuing supports, rolling out repayable grants, giving workers a say, supporting households, arbitration panels to help the productive economy, and a new asset tax. 

There will be other and better ideas.  So it’s important to keep up this conversation.  Because while there will be an announcement next week of Government measures, this will only be the start, with the National Economic Plan and Budget 2021 coming in the next few months.

The State is a Job Creator

David McWilliams makes a provocative argument in his recent article for the Irish Times that ‘Governments can't 'create' jobs, so why do they keep pontificating about it?’.  I respectfully disagree.  Governments, states and public agencies are deeply, deeply involved in job creation, both directly and indirectly.  It is hard to imagine a modern market economy without the job-creating role of the state.

• The state directly employs nearly 340,000 in a range of areas: health, education, public safety, local authorities, administration, etc.  These make up 18 percent of all employees. 

• The state provides subsidies to private for-profit and non-profit enterprises with the express purpose of creating employment. Subsidies to early years’ education providers employ 10,600.  There are 13,000 Section 39 health sector employees – grant-aided by the public sector. These jobs are additional to the traditional public sector employee count.

• There are 42,000 employed by public enterprises – wholly-owned state corporations.

The state employs – directly, through subsidies or through corporations – over 400,000 employees.  However, it does not end there. 

• Through its capital investment programme the state creates employment. The Government estimates that for every €1 billion of investment 9,500 construction-related jobs are created directly and indirectly. These are, of course, temporary (once a bridge is built, the employment ends).  However, this doesn’t factor in the long-term productivity-enhancing employment benefits from investment projects.

• The state spends €8.5 billion annually on sourcing goods and services from the private sector to produce public services. In addition, private companies (early years, Section 39, etc.) also purchase goods and services with their state subsidies.  And public enterprises have considerable procurement contracts.   Billions of Euros of private sector activity – and, so, employment – are based on doing business with public agencies.

Another job creation and job retention feature of the state’s role in the economy are the grant aids and supports for market businesses:  IDA, Enterprise Ireland, Údarás na Gaeltachta, Local Enterprise Offices, etc.  These help direct jobs here from abroad (multi-nationals), create jobs for domestic enterprises breaking into export markets, and support employment in local areas.

And let’s not forget the jobs in the private sector that are dependent on the huge demand created by the states’ direct and indirect job creation activities.  Billions of Euro are spent by the men and women whose employment is in some way dependent – whether wholly or partially – on the state.  And this money is spent in businesses up and down the country.  How many jobs are created from this considerable purchasing power?  Lots and lots.

The state also plays key roles in promoting a modern economic base.  Take education for example: it is agreed by all across the ideological divide that education is one of the best investments that can be made.  A state that invests in education – from early years to post-third-level on to adult – is a state investing in its future innovative and entrepreneurial capacity.  However, Ireland is a laggard in educational investment.  It would have to increase such investment by over 20 percent, or nearly €2 billion, to reach our EU peer group average. 

R&D is another state investment in an entrepreneurial future.  And, again, Ireland is a laggard, needing a 90 percent increase (or nearly €1 billion) to reach our EU peer group average. 

To assess the state’s full role in entrepreneurial-creation we have to go beyond just employment and budgetary numbers.  Mariana Mazzucato has popularised the theory of the entrepreneurial state

‘How many people know that the algorithm that led to Google’s success was funded by a public sector National Science Foundation grant? Or that molecular antibodies, which provided the foundation for biotechnology before venture capital moved into the sector, were discovered in public Medical Research Council (MRC) labs in the UK? Or that many of the most innovative young companies in the USA were funded not by private venture capital but by public venture capital such as through the Small Business Innovation Research (SBIR) programme?

Mazzucato goes on:

‘Not only has government funded the riskiest research, whether applied or basic, but it has indeed often been the source of the most radical, path-breaking types of innovation. To this extent it has actively created markets not just fixed them . . . from the development of aviation, nuclear energy, computers, the internet, the biotechnology revolution, nanotechnology and even now in green technology, it is, and has been, the state not the private sector that has kick-started and developed the engine of growth, because of its willingness to take risk in areas where the private sector has been too risk-averse.’

Sean O’Riain makes a similar argument in the Irish context, noting that in the 1990s the key investor in high-tech indigenous sectors was the state:

‘The ‘Celtic Tiger’ is not a product of heroic entrepreneurs but is a (partial) success made possible by the embeddedness of entrepreneurs and workers in dense social institutions. There is a significant collective contribution to the success of those who have benefited (professional classes, entrepreneurs) which rests heavily on collective social and state institutions.’

This doesn’t deny the concept of entrepreneurs.  They are essential to bringing goods and services to market.  However, the above shows that drawing a line between the public and private sector is a highly misleading characterisation of a modern, complex market economy.  The goal is to create a new dynamism arising out of the obvious inter-dependency between the public and the private.

But even when discussing ‘entrepreneurs’ we have to avoid clichés.  Entrepreneurship is not only a social phenomenon, where new products and services arise out of collective effort;  it is – or should be – a democratic phenomenon.  The role of labour is rarely referred to in this context but the evidence is substantial:  greater employee participation in the decision-making process of the firm or enterprise equals greater productivity, innovation and firm performance.  The same holds for collective bargaining, as employees bring their experience, knowledge and ideas to problem-solving. 

Cyrine Ben-Hafaïedh notes that the hunt for the single, heroic entrepreneur was like ‘hunting the Heffalump’:

‘ . . . even when it was proven that this quest was vain, entrepreneurship scholars continued to embody entrepreneurship in a single person, a lone and heroic entrepreneur. But  . . . the 'entrepreneur' in entrepreneurship is more likely to be plural, rather than singular’.

Entrepreneurship should be a collective, democratic process. In this respect, everyone is an entrepreneur. The problem is that not everyone is allowed. This is a profound question of workplace democracy.

The Covid-19 crisis has shown us the degree to which private sector activity is dependent on public resources.  There are other grave challenges, notably climate justice and the fourth industrial revolution involving automation, robotics and AI.  We will need an organising agency (the state); we will need greater public intervention in the market economy (public capital); and we will need a more democratic entrepreneurial practice (workplace democracy).  Simplistic notions of public and private sector, of the individual ‘heroic’ entrepreneur, will not help us meet these challenges. 

We need an ‘all-of-society’ approach. 

We need to let a hundred entrepreneurial flowers bloom. 

In short, we need an all-encompassing democracy – from the workplace floor to the boardrooms and beyond.

Follow the Money

 ‘You follow drugs, you get drug addicts and drug dealers. But you start to follow the money, and you don't know where the f*** it's gonna take you.’

- Detective Lester Freamon, The Wire

The Programme for Government (PfG) has been touted as transformative, progressive, even left-of-centre.  A former Minister claimed it was so left-wing that ‘James Connolly and Che Guevera could vote for it’.  But in the fog of spin and a promised plethora of reviews and commissions, it is hard to see the woods for the trees, to assess whether the PfG will usher in ‘transformative’ policies, or just a new vocabulary of rhetoric and aspiration.

So let’s ‘follow the money’.  A strong social state – based on enhanced public services, social security and climate justice with a Just Transition – will cost money.  The increased current expenditure (day-to-day spending on public services, social protection, interest and subsidies) will need to be matched by increased revenue in the medium term.  We will need a substantial increase in investment – to get the economy back on track and to deliver the carbon-reduction targets.  The lack of detail is understandable given the highly uncertain environment.  But let’s see where following the money takes us. 

Deficit

The PfG seeks a ‘broadly’ balanced budget.  That the deficit will fall is merely a function of a recovering economy, as revenue rises and unemployment costs fall.  The Irish Fiscal Advisory Council gives a sense of this trajectory on a no-policy-change basis in their recent Fiscal Assessment’s Central Scenario.

The deficit falls dramatically next year and in 2022, before settling down to a slower reduction.  However, this scenario was based on pre-pandemic crisis spending projections.  These will increase, if only because of elevated unemployment costs.  And introducing a single-tier health service or affordable childcare would require further spending.  Therefore, without any revenue measures the deficit will in all likelihood increase. 

The PfG gives no time-frame for achieving a balanced budget; however, the Government will make clear its plans within a few months: 

‘At Budget 2021 . . .  we will set out a medium-term roadmap detailing how Ireland will reduce the deficit and return to a broadly balanced budget.’

So we will have to wait to assess the Government’s intentions.  The real issue is whether the achievement of better public services, stronger in-work benefits and social protection, and higher investment can be achievable within this falling deficit.  The answer is quite clearly no.  It will require fiscal adjustments – notably tax increases.

Investment and Debt

We get only some insight into the Government’s ‘investment’ plans.  They have proposed a National Recovery Fund which appears to represent the stimulus part of the PfG for the next two-three years, diminishing as the economy grows (which is to be expected from stimulus expenditure).  However, not all of the Fund’s expenditure will be investment; much of it could be continuing the Temporary Wage Subsidy Scheme and other current spending initiatives.

One concerning aspect of the PfG is its treatment of windfalls to the state:

‘We will use any windfall gains, such as the National Asset Management Agency (NAMA) surplus, the final resolution of the liquidation of the Irish Bank Resolution Corporation (IBRC), or the sale of the state shareholdings in the banks, to reduce our borrowing requirements.’

Why?  Does it really make sense to pay down debt (i.e. save) when there is a crisis?  One would have thought these windfalls would be ideal resources for the temporary National Recovery Fund.  The picture becomes even cloudier given this article from the Irish Independent (thanks to Conor McCabe for pointing this out):

‘Finance Minister Paschal Donohoe said yesterday that spending cash windfalls makes sense when the alternative would be to increase borrowing.’

Absolutely.  But where does that leave the PfG commitment above?

Again, we will get a better sense of the Government’s intentions in Budget 2021.  But for comparison purposes we should note that in last year’s budget the Government intended to invest  €50.5 billion in the five years 2021 to 2025 (or €39.4 billion up to 2024 – I’ve estimated up to 2025 based on trend).

This €50 billion investment envelope was projected at a time when the economy was in danger of over-heating.  Given that the economy will have a lot of slack, we should expect the investment envelope to increase; or at the very least, be maintained.  Any new green stimulus investment should be additional (otherwise we’re robbing Investment Peter to pay Investment Paul).  We won’t be able to assess this until the Government’s projections in October..

Taxation

There are three distinct taxation categories in the PfG

(a)          General Taxation

The PfG states:

‘We will utilise taxation measures, as well as expenditure measures, to close the deficit and fund public services, if required. In doing so, we will focus any tax rises on those taxes that tax behaviours with negative externalities, such as carbon tax, sugar tax, and plastics.’

The focus is on taxing environmentally-damaging activities which, while desirable, is inherently regressive.  Without some compensating mechanism, low-income groups will disproportionately carry the burden. There is also reference to increasing taxes on vaping and a review of motor taxes to capture nitrogen oxide and sulphur oxide emissions.

On the other hand, the Government has stated that income tax, USC, property tax (with minor exceptions) and corporation tax will not be touched.  Yet, these are progressive taxes.

In addition to freezing progressive taxes there are particular taxes mentioned with a view to cutting them (or increasing the tax break):

• The 3 percent USC surcharge for high-income self-employed
• Increase in the Earned Income Tax Credit (Self-employed)
• A cut in the Capital Gains tax
• Increase in the Home Carer Tax Credit
• Tax changes to facilitate remote working
• Tax changes to facilitate dairy enterprises in a volatile market
• Review the taxation environment for SMEs and entrepreneurs, with a view to introducing improvements
• From 2022 tax credits and tax bands credits to be indexed in line with earnings

This doesn’t mean all these will be implemented.  After all, this is a review, examine, consider and assess PfG which in many cases doesn’t give firm commitments.  However, the programme indicates intent.  The cost of some of these cuts would be significant, even factoring in the pandemic’s impact on fiscal performance:

• Abolishing the USC surcharge would cost €125 million.
• Capital Gains tax is currently set at 33 percent. Each percentage point cut would cost €32 million.  Fianna Fail’s manifesto pledge to cut capital gains tax to 25 percent would cost €256 million.
• Indexation of tax credits and allowances of 1 percent (that is, earnings rise by 1 percent) would cost €364 million.

These are serious tax cuts.  The story here is that regressive tax increases could well end up financing tax breaks, some of which would benefit the highest earners.

(b)          Carbon Tax

The PfG estimates the revenue over the next decade from increasing the carbon tax (by €7.5 per tonne each year up 2030) to be €9.5 billion.  This sounds like a lot money and it is, though it will only amount to approximately 1 percent of total spending during that period.

The PfG will ring-fence carbon tax revenue for three areas:  €3 billion for ‘targeted’ social protection measures to prevent fuel poverty; €5 billion for retrofitting; and €1.5 billion to encourage sustainable farming. 

The revenue will be spread out over 10 years.  But it will take a number of years to accumulate a significant sum in any one year.  From my own - admittedly back-of-the-envelope calculation - 45 percent of that €9.5 billion will only be realised between 2028 and 2030 inclusive.  So it will take time to accumulate.

(c)           Social Insurance

 ‘Consideration will be given to increasing all classes of PRSI over time to replenish the Social Insurance Fund to help pay for measures and changes to be agreed including, inter alia, to the state pension system, improvements to short-term sick pay benefits, parental leave benefits, pay-related jobseekers benefit and treatment benefits (medical, dental, optical, hearing).’

This is a positive proposal, a potentially decisive step towards a European-style social protection system.  Increasing employers’ PRSI opens up the possibility of enhancing in-work benefits such as Illness Benefit, Maternity Benefit and other family supports, and short-term unemployment payments.

However, except for carbon tax, the issues of taxation and social insurance will be kicked into a Commission on Welfare and Taxation.  This is not necessarily a bad thing (though we had a tax commission reporting back in 2009).  A Commission that looks in detail at all aspects of taxation and social protection could be a useful exercise.  However, there is a caveat:

‘It will review all existing tax measures and expenditures and have regard to the taxation practices in other similar-sized open economies in the OECD. It will have regard to the principles of taxation policy outlined within this document (i.e. PfG).’

If it has regard to similar-sized open economies, then the Commission will be looking at how to substantially increase taxes.  However, if it has regard to the principles in the PfG, it will be hamstrung given that the PfG has shut off so many areas for tax increases. 

* * *

Here are some very tentative conclusions;

• The PfG is committed to a ‘broadly’ balanced budget but we won’t know how quickly it intends to achieve that until October. If the trajectory follows the Fiscal Council’s Central Scenario, we will need a substantial increase in revenue to significantly improve public services and social protection.

• Windfalls from NAMA, IBRC and the sale of bank shares will be used to pay down debt, not for investment (maybe)

• We won’t know the extent of the medium-term investment programme for a few months. But if it falls below €50 billion out to 2025, it will constitute a cut compared to previous projections.

• There is little evidence that the PfG envisages a stronger social state. This would require a substantial increase in revenue to significantly improve public services and social protection, unless it is intended that social insurance do all the heavy lifting.  Issues such as Sláintecare, housing investment, Just Transition measures and education investment are either postponed, kicked into touch or reliant upon a Commission report.

• General taxation measures are unlikely to raise significant net revenue, especially given the references to potential tax cuts. The Carbon tax is a positive but could end up being highly regressive without compensation measures.  In any event, most of the revenue won’t accrue until the latter half of the decade.

The above has tried to follow the money but it hasn’t gotten us very far. There are few details.  However, the few indications in the PfG would suggest is that while we might increase spending, we will still labour under our historical low-tax status.

Hopefully, the incoming government will start to answer these questions soon.  Otherwise, James Connolly and Che Guevera will have to reconsider their support.

A Seedy Little Tax Cut

It is not the biggest issue in the Programme for Government (PfG).   But sometimes small proposals can speak volumes.  So what are we to make of the following commitment in the PfG?

‘The 3% USC surcharge applied to self-employed income is unfair and proposals will be considered to ameliorate this over time as resources allow.’

Reading though the lengthy document one might miss this or fail to grasp exactly what it entails.  After all, the 3 percent USC surcharge is not the subject of much political discussion – indeed, none at all.  Most would not be aware of it.  It is a minor tax.  But it’s one that is paid exclusively by the highest income earners in the economy – a 3 percent surcharge on self-employed income in excess of €100,000.

‘Proposals will be considered to ameliorate this tax over time  . . .’  Hats off to whoever came up with the word ‘ameliorate’.  We don’t cut taxes anymore.  We ‘ameliorate’ them.  And this amelioration would constitute a significant tax windfall to the highest income groups in the economy.

The surcharge originates in Budget 2011, which introduced the Universal Social Charge while abolishing the complex interaction of the income levy, health contribution and PRSI ceiling for PAYE employees.   This created an anomaly.  Prior to the budget, high-income self-employed paid a higher marginal tax rate because they didn’t have a PRSI ceiling (that is, they paid PRSI on the entire income).  When Budget 2011 abolished the ceiling for PAYE taxpayers, this resulted in a significant tax break for very high-income self-employed visa-a-vis those in the PAYE system (my post at the time highlighted this anomaly).

To fix this anomaly and return the situation to the pre-Budget 2011 status quo, the Government quickly amended their proposals and introduced a 3 percent USC surcharge on self-employed incomes above €100,000.  And that’s where things stand now.

Let’s do some quick stats, but note that these are probably overstated because the Revenue Commissioners treat married coupls and civil partners as a single tax unit.

• There are approximately 46,000 self-employed (including couples) whose incomes exceed €100,000
• They earn, on average, over €200,000
• There are 7,600 ‘cases’ (including couples) that earn over €275,000 – they average over €500,000 a year

Here are some examples of the tax benefit of abolishing the USC surcharge for those on high incomes:

Someone on €500,000 a year would gain €12,000 if the USC surcharge was abolished.  That’s a serious tax cut.

And how much would it cost the state to abolish (or fully ‘ameliorate’) the USC surcharge?  €125 million.  It’s not much in the grand scheme of things but neither is it small change.

Why would the new tri-party coalition consider cutting this surcharge?  It certainly can’t be because it is a disincentive to work (a common justification for cutting taxes).  Nor does the explanation lie in ‘promoting entrepreneurship’ (are these high earners going to work harder after the tax cut?).  And it certainly isn’t because it would be counter-cyclical.  These people would save, not spend, their tax windfall.

Maybe it’s because, as the PfG describes it,  ‘it’s unfair’.  There are two responses to this.  First, the self-employed are advantaged in the PRSI system.  They pay 4 percent PRSI contributions and now receive most PRSI benefits.  However, for employees the contribution rate is 14.75 percent - divided between employees (4 percent) and employers (10.75 percent).  Yes, employees pay the same rate.  However, if employers’ PRSI were abolished, wages would rise (mirroring the high-wage Danish experience which has no social insurance system).  Therefore, employees pay more through reduced wages.  Most European countries address this by charging the self-employed a contribution rate somewhere midway between the employee and employer rate.  We don’t do that here. The USC surcharge can be seen as a small nod towards equal treatment.

But, secondly . . . well, there are a lot of unfair things in this economy:  unemployment, poverty, business closures, growing arrears and debt.  Is the USC surcharge on incomes above €100,000 really in the same category?  Even if we were to concede it is ‘unfair’ (and I just can’t) then you would, at least, put righting-this-wrong at the back of the queue – the very back. 

There are many things we should ameliorate (cut) first:  ameliorate homelessness, ameliorate health waiting lists, ameliorate high rents, ameliorate joblessness, ameliorate workplace exploitation, etc. etc. 

The 3 percent USC surcharge is not one of them.

A Steeper Climb for Ireland

Ireland may well find it more difficult to restore the jobs lost during the emergency lockdown than most other high-income countries.  This is due to our over-reliance on sectors that are and will be the worst affected; not only because of the pandemic emergency but because of pre-crisis trends.   

First up is the hospitality sector.  Its reliance on foreign tourists and the impact of social distancing means it will restart slowly and may take over a year to recover.  With permanent changes in consumer behaviour, there is a good chance it will never be restored to levels that existed prior to the crisis.

We can estimate the damage to the Irish economy relative to our EU peer group by looking at the importance of hospitality in employment.

Market employment primarily refers to private sector activity.  Irish hospitality employment makes up 13 percent of total market employment, nearly twice as much as our EU peer-group average. 

Of course, there’s a good reason for a high level of hospitality employment.  For many foreign tourists, Ireland is a more appealing destination than Finland.  However, Austria has an even higher level of tourism but doesn’t rely as much on hospitality employment as Ireland, while France has tourism levels close to Irish ones (measured as tourists per capita) but with much lower jobs reliance in hospitality.  Whatever the reasons, the challenge of employment – or replacement employment – for a sector that will be hit hard over the medium term will be considerable.

We see a similar pattern with retail employment – another low-paid sector.

Again, Ireland leads the table although the gap with other countries is not as pronounced as with hospitality employment.  The retail sector faces particular challenges beyond overcoming the lockdown legacy.  Even before the crisis the sector was coming under pressure from online sales and automation.  Like hospitality, retail – especially non-food retail - is exposed to discretionary spending, so falls in disposable income will have a disproportionate impact.  Factor in commercial rents in major urban areas, and we have a sector under pressure on a number of fronts.

It should be noted that not only are these sectors low-paid, they are also heavily gendered.  Nearly 40 percent of women working in the market economy work in hospitality and distributive sectors.  If these sectors take a hit over the medium term, it will be women who suffer disproportionately.

One doesn’t have to be an expert in labour market economics to see the potential problems this will throw up.  If, for instance, hospitality is slow to resume normal business and there is a permanent loss of jobs (there were 170,000 employed in the sector prior to the crash), then the competition for what jobs become available will be intense.  We could see wages and working conditions being squeezed in a race-to-the-bottom.  This is all the more possible given the lack of sectoral or firm-level collective bargaining which could act as a bulwark against any degrading of working conditions (it’s noteworthy that the Tourism Recovery Taskforce has no employee representation). 

Many will call for supply-side strategies to tackle this employment shortfall; that is, retrain and upskill workers previously employed in hard-hit sectors.  That certainly would help.  However, there are two problems with this.

• First, Ireland doesn’t devote a lot of resources to active labour market policies.  Many other countries spend more.  Belgium, Denmark, Austria, France and the Netherlands all devote more than 2 percent of GDP on activation programmes (which include education, training and other supports).  Ireland spends closer to 1.5 percent (in GNI*).  That may not seem like much of a difference but it represents more than €500 million.
• Second, supply-side strategies assume there will be no demand-side problems.  However, we could retrain, re-skill and re-educate but if there are no alternative jobs to fill, unemployment will remain high while competition for what jobs are available will intensify.

There is no simple answer here.  The Irish domestic enterprise base has been dogged by stagnating productivity, and while continued foreign investment is welcome (and needed) it is unlikely to fill the gap of a sluggish recovery in low-paid sectors - if only because of a sizeable skill mismatch.

Historically, the Irish private sector has been attracted to property/construction or low value-added sectors.  We, of course, must create incentives to direct private investment in high-road enterprises but will that be enough?

We should start working out strategies of greater public sector involvement in the market (productive) economy – with new and expanded public enterprises, local public enterprises and public-led businesses such as labour-managed enterprises such as workers’ cooperatives. and community enterprises and cooperatives.

We either accept the need for substantial public capital intervention.  Or we resign ourselves to endemic and ongoing unemployment.

From Each Business According to Its Ability . . .

It is commonly asserted that we will have to be innovative, coming up with new solutions to the unprecedented challenges we face.  Of course.  The Financial Times’ Martin Sandbu has come up with such a new solution.  Referencing a policy letter from the Leibniz Institute for Financial Research SAFE, he writes:

‘Meanwhile, some smart new taxes can be introduced. A group of European economists has proposed helping small businesses not through loans, which can leave them overstretched in the recovery, but through grants combined with a later profit surtax — in effect mimicking government equity injections, even for sole traders and family companies.’

In effect, the Government would provide grants to businesses that would be repaid through a tax surcharge.  This would be superior to loans which negatively impact a business’s balance sheets.  Let’s compare a potential tax-based grant system with the SBCI’s (Strategic Banking Corporation of Ireland’s) ‘Working Capital Loan Scheme’.

• The SBCI scheme, open to micro-enterprises and SMEs, would provide loans of between €25,000 and €1.5 million with a maximum interest rate of 4 percent, to be repaid within three years.

• A tax-based grant scheme would provide similar loans but repayments would be based on profits – for instance, a company would pay their normal 12.5 percent corporate tax and then a 5 percent surcharge which would continue until the loan is repaid. Interest could be a marginal 0.5 percent.

The advantage to the business is that it wouldn’t be carrying debt, would only repay the loan when it was in profit, would spread out repayments as long as it took, and - if inflation exceeds 0.5 percent - the loan would be effectively written down over the medium term.

The advantage to the state is that it would recoup some of the subsidies to the business sector.  This would set up a revenue stream in the years ahead, though it wouldn’t recoup all the grant money as many businesses would still go under.  Nonetheless, effectively interest-free grants to be repaid over the medium-term and only out of profits, would increase the number of companies that survive.  Indeed by subjecting grants to a tax surcharge, the state can invest more in business supports.

Brian Keegan writes in the Sunday Business Post (pay-walled) of the bewildering range of business supports:

‘There are at least a dozen state-supported funding options announced from the Covid-19 working capital schemes to the SME credit guarantee scheme . . for many businesses owners struggling to deal with the day-to-day practicalities of handling a collapsing business, the range of options, terms and conditions can be bewildering . . . We need simple and quick supports to cope with the Covid-19 unemployment crisis, not a complex new industry of loans, grants, tax breaks and deferrals.’

Business groups are certainly not shy in making demands on the Exchequer:

‘Retail Excellence wants the Government to waive local authority rates for 12 months, give grants equal to 60 per cent of commercial rents for the period of the emergency, offer zero per cent loans for all impacted businesses as well as putting in place a Covid-19 compensation scheme.’

Without commenting on the efficiency of any particular proposal, far-ranging business supports will be needed.  Retail Excellence’s proposals could be easily wrapped up in an omnibus tax-based grant system.  We now have an opportunity to rationalise business supports into three main schemes:

• Equity provision for large companies, whereby the state gets a stake in a company in exchange for equity investment
• Tax-based grants as outlined above
• Direct, non-repayable grants (e.g. Temporary Wage Subsidy Scheme)

Rationalising and funding the schemes to the extent necessary to save as many businesses as possible has now become urgent.  It will be more equitable and efficient (e.g. avoid loading debt on business) if we adopt the following principle:

From each business according to its ability to pay, to each business according to its need.