Notes On The Front

No, We are Not Becoming a 'Big State'

‘Big state’ is all the rhetorical rage.  Ireland is a ‘big state’, is becoming a ‘bigger state’, how are we going to pay for this ‘big state’, etc. etc.  The idea that spending is so large we are becoming (if we haven’t already become) a ‘big state’ has already embedded itself in the public debate. My favourite headline comes from last year:

‘How are we going to pay for the Irish big state utopia?’

The problem is that this is completely wrong.  We are not becoming a big state.  The Government is intent on maintaining our historical low-tax, low-spend, low-service model. 

There are two ways to test this ‘big state’ thesis.  First, by looking at our historical levels of tax and spend.  This shows we are returning to pre-crash levels.

In terms of spending on public services, we’re pretty much back to pre-crash levels.  Between 1995 and 2007, spending on public services averaged 18.4 percent of GNI*.  The Government is projecting public service expenditure to be 18.8 percent in 2025. In fact, the Government’s 2025 projection will put public service spending below the pre-pandemic level of 2019 which was 19.7 percent.

[Note:  the spike during the recession / austerity period does not indicate an increase in spending on public services.  During that period public service spending was cut.  The reason for the spike was that national income fell even faster.]

When it comes to primary spending (total spending excluding interest payments), again we’re pretty much back to where we started in 1995, with the same caveat about the spike during the recession/austerity period.  Spending in 2025 is projected to be lower than in 2019, the year before the pandemic hit.

When we turn to taxation, we find a similar pattern.

Once again we see that government revenue reverts back to 1995, with the 2025 projection coming in below 2019 levels.

So if we are to look at this historically, we do not find a ‘big state’ nor are we ‘becoming a big state’.  It’s the same ol’ low-tax, low-spend state that we have been mired in for decades.

The second way to test the ‘big state’ thesis is to compare our spending and taxation levels with other EU countries; specifically, our peer group in the EU – other high income economies.  In this test, while we have Irish government projections out to 2025, we don’t have projections for other EU governments.  I have used the average spend (as a percentage of GDP) between 2014 and 2019 for EU countries and assigned that to 2025. Therefore, this should be treated indicatively.

Ireland comes at the bottom of the table of our EU peer group, lagging well behind average. But as has been pointed out, Ireland doesn’t need to spend as much as other EU countries (and, so, doesn’t need to raise as much revenue) due to a lower number of pensioners.  Factoring this in would reduce the gap between Ireland and the EU peer group average by about two-thirds. Therefore: 

• For total government spending to reach the average of our EU peer group, we would have to spend an additional €9.3 billion in 2025

• For total government revenue to reach the average of our EU peer group, we’d have to increase taxes by €8.7 billion

In gross terms we would need to increase spending on public services by €9 billion in 2025 to reach our EU peer group average.  The impact of an older demographic would be balanced by the need to spend additional money on education given our youth demographic.

Whichever way you cut this, we fall well behind our peer group average.  Compared to that benchmark, we remain a low-spend, low-tax, low-service economy.

No, we are not a big state.  We are not becoming a big state.  Indeed, if the trends continue beyond 2025, we are getting smaller and smaller. 

Big state Ireland is just a myth.

 

Squeezing the Social

The Government’s head-long drive into a balanced budget is premature, unnecessary and potentially damaging to our social infrastructure.   Progressives and trade unionist should unite to oppose this strategy. 

It’s been a bit of a roller coaster this year regarding medium-term projections.

• Back in April the Government was targeting a small deficit of €800 million or -0.2 percent of GDP by 2025.

• A few months later, in the Summer Economic Statement, the Government revised this target to a deficit of €7.4 billion, 1.5 percent of GDP, by 2025.

• Now, in yesterday’s Budget 2022, the Government is projecting a surplus of €875 million, or 0.3 percent of GDP.

This turnaround – from a deficit of €7 billion to a slight surplus – has occurred because of sharp post-pandemic recovery resulting in higher tax revenue and lower expenditure – namely, unemployment payments.

So what’s wrong with that?  Isn’t a balanced budget a good thing?  After all, it’s being achieved without any spending cuts.  Well, here’s the rub.  Current spending is being squeezed.  Let’s look at expenditure on public services. 

Spending on public services will decline to 2023 and start to rise again.  But in 2025 it will still be lower than what it was this year;  1.4 percent lower.  It should be noted that this squeeze is happening at a time of upward pressure on spending due to older demographics, especially in health. 

Another way of looking at public service expenditure is to measure it as a percentage of GNI* - in other words, how much of our national income do we set aside for public services.  Let’s take a long look.

We’re pretty much back to pre-crash levels.  Between 1995 and 2007, spending on public services averaged 18.4 percent of GNI*.  The Government is projecting public service expenditure to be 18.8 percent in 2025. In fact, the Government projections will put public service spending below the pre-pandemic level of 2019 which was 19.7 percent.

Big state indeed.

[Note:  while spending on public services rose as a percentage of GNI* during the austerity period, as shown in the graph, this was not due to increases in spending.  During that period spending was actually cut.  It rose because it is benchmarked against a rapid decline in national income.]

The situation regarding Social Payments is more difficult to analyse because we don’t have a breakdown of its components.  But here’s what the projections tell us.

Social Payments falls considerably.  Between 2021 and 2025 it falls from €37.4 billion to €31.7 billion factoring in inflation; or from16.7 percent of GNI* to 12 percent.

It can be argued this is due to falling unemployment and to some extent this is true.  But to what extent is debatable.  Let’s look at the three-year period from 2022 to 2025.

• Real spending on social payments falls by over €1 billion

• Unemployment falls from 7.2 percent in 2022 to 5 percent in 2025. In actual numbers, it falls from approximately 183,000 to 135,000 – a decline of 48,000 on the Live Register. 

• However, during this period we should expect an additional 60,000 pensioners.

So the growth in pensioners will more than cancel out the decline in unemployment.  Yet real expenditure on social payments falls.  Something has to give (that is, squeezed).  Payments?  Qualifying conditions? 

There is an alternative strategy.  SIPTU has proposed that we maintain a deficit of 2 percent out to 2025 which would give the Government greater fiscal flexibility.  However, let’s assume a more modest target – one that maintains compliance with the currently suspended Fiscal Rules.  This would allow the Government to target a 1 percent deficit by 2025.  It seems like a small amount but in Euros it adds up.

• In 2025, it would provide an additional €6.2 billion in spending.

• Between 2022 and 2025 it would provide an additional €21.2 billion in spending

Those are substantial sums.  And they would be available to the Government if they just followed with the Fiscal Rules.  Unfortunately, the Government is going further and faster that what those rules require. 

With those resources we could target spending on the key drivers of long-term economic growth.  Three leading drivers are: 

• Education and R&D: investment in human capital

• Childcare: to promote labour force participation

• Eliminating Child Poverty: maximise skills and life opportunities

There are other areas, including additional resources for housing if supply constraints ease, which could also benefit and which help build a robust and resilient social infrastructure.

[Note:  if the government spent this money it would generate additional revenue from more people employed and higher economic activity.  This would mean the net impact on the deficit would lower it and, so, we would be well in line with the Fiscal Rules.]

So the issue is not whether there is the money.  It’s there – and for cheap on the international markets.  The issue is that the Government has decided not to avail of it.  Of course, they may be giving themselves some wriggle room in their medium-terms projections.  If so, we have to force them to do lots and lots of wriggling. 

For as it stands now they have made a political choice to squeeze public services and social protection to the point that they are falling in real terms  in order to fast-forward an unnecessary balanced budget. 

It’s that political choice we must challenge.

Some Employers Get It

There is a column in the Food & Wine supplement in the Business Post titled, ‘The Secret Restaurateur’ (pay walled).  It is anonymous and written by an ‘industry insider’:  a hospitality employer.  I hadn’t come across this column before but thanks to Senator Marie Sherlock (@marie_sherlock) for referring to this contribution on her Facebook page. 

The employer-cum-columnist takes aim at his/her peers in the hospitality sector who are scapegoating employees for their recruitment problems.

‘I have heard employers describe workers as choosing their couch and Netflix over returning to work. Others ask if those claiming the payment are in Ireland at all.  The language used is clearly crafted to attack and demean those who have relied on the supports. Too often the commentary has descended into welfare bashing - the peddling of a pernicious narrative stigmatising those on the PUP [Pandemic Unemployment Payment].’

This is a far cry from the narrative coming from employers’ organisations who seem to think that abolishing PUP would solve the labour shortage problem in the hospitality sector.  However, the evidence suggests otherwise. 

First, hospitality workers are coming off PUP at a faster rate than almost all other sectors.

Between early February, when the number of PUP recipients peaked and the last date we have data for, September 28^th, the number of hospitality workers receiving PUP declined from 112,000 to 18,000 - a reduction of 94,000.

So what’s all this about a labour shortage?

Of course, just because you formerly worked in the hospitality sector doesn’t mean that you will return to that sector when you sign off of PUP.  You might find better-paying work in another sector (e.g. retail).  You might return to education or take up a SOLAS course to gain a new skill.  You might be leaving Ireland (i.e. go home) or to some part of the country.  You might take up primary caring responsibilities in the home while your partner works. 

Whatever the reason might be, it’s not people lying around in their underwear, drinking Red Bull and binge watching some zombie series on Netflix.  It’s that people are working somewhere else.  Our Secret Restaurateur has this to say:

‘These are people whose lives changed fundamentally when they were hurtled into unemployment. Many of the [hospitality] jobs now being offered to them are part-time and unreliable. It is unreasonable to expect workers to leave the security of the PUP when there is no part-time payment support option.’

Issues with staff turnover and recruitment and retention issues have existed in the sector for a long time, pre-dating the financial crash.  This study asked employees who had left their hospitality employer what would have ‘definitely’ made them stay:

• 28 percent said higher pay
• 20 percent said career progression
• 15 percent said more flexible working hours
• 13 percent said working less social hours
• 10 percent said improved benefits packages
• 8 percent said better training

Pay, career, flexibility, benefits:  the lack of these are driving the crisis in the hospitality sector – a crisis that goes beyond just the post-pandemic period.

In a follow-up column, the Secret Restaurateur continues this theme (I don’t know if it is the same author):

‘ . . the message reaching the public is that we [employers] blame workers for our woes with the subtext that some of them are social welfare cheats.  Fáilte Ireland, meanwhile, undertook a rather pointless survey of tourism employers to ask them why they believed workers were taking up their job offers.  If the goal of this research was to discover why workers are not taking up jobs, perhaps it might been better to ask the workers themselves?

‘In the meantime, a video of a business owner extolling the monetary benefits of the pandemic does the round and a young worker collects his wages in the form of a bucket of coppers.  It is beyond farcical.’

Yes, farcical is a good word.  But this leads us to an important insight for progressives and trade unionists; namely, there are some employers who get it.  They understand that the long-term future of hospitality and, indeed, any sector is built around a skilled and motivated workforce, working within inclusive practices and institutions.  There is no future in race-to-the-bottom strategies – whether that is wage-suppression, lowest common denominator working conditions, or denial of employee voice.

These employers (who also need help from being undermined by low-road operations) can be helpful allies in putting the businesses on a high-road path.  What these employers must do, however, is to find a way to collectively make their voice heard and champion the same issues trade unions highlight in the workplace, in spite of the opposition from their own peers.

As the Secret Restaurateur concludes:

‘Instead of taking the easy option and blaming our workers, it might be wise to refocus on the real reasons for poor retention in our industry: high business costs, the black economy, low pay, and inadequate training and career development.  It would help if employers showed greater respect for their employees too.’

Indeed.

 

Living Up to the Living Wage

The Living Wage Technical Group has announced that a single full-time employee would need to earn €12.90 per hour to achieve a minimal and socially acceptable standard of living. 

This is grim.  It’s a 60 cent rise – from €12.30 last year.  It is the biggest single year increase since the Living Wage was first launched in 2014.  And there’s one reason for the increase:  housing costs; namely, rents.

The Living Wage is based on the price of necessary goods and services, everything from food, utilities, transport, communications, clothing and other items.  The price of this total basket rose by €15 per week.  Rents accounted for nearly €12 of that price increase. 

Indeed, when we go all the way back to 2014, housing costs have accounted for all the increase in the Living Wage.

When you remove housing costs from the basket of goods and services that make up the Living Wage, we find that prices actually fell.  As the Technical Group states:

‘If rents had moved in line with other prices, the reference Living Wage rate would now be €10.70.’

The Living Wage would be much lower, and far fewer people would be earning below a Living Wage if rents increased at the same pace as prices in the economy.

This is a key insight.  Many have proposed that to bring everyone up to the Living Wage, we just increase the National Minimum Wage.  However, this could exacerbate the situation whereby wages are chasing rents.  In a market where demand exceeds supply, more money in workers’ hands will disappear as rents rise further.  And in Dublin, rents make up nearly two-thirds of the net Living Wage.

If we don’t bring housing costs under control it will be extremely difficult to bring everyone up to the Living Wage.  And in attempting to do so in a regime of high rents, wage increases will essentially be subsidising rents.  That would be extremely damaging to the productive economy.

We need a sophisticated multi-prong strategy to ensure that the Living Wage becomes the wage floor.  Here are three areas.

(a)          Living Costs

Reduce high living costs which would reduce the Living Wage.  We have seen the impact of housing costs on the Living but there are other areas:

• Public transport fares: we have one of the least subsidised public transport systems in Europe, resulting in high fares.  Increased subventions would mean lower fares.

• Healthcare: reduce insurance, GP and prescription medicine costs – through a free, universal health service (i.e. Sláintecare)

• Communications: Ireland is a high-cost country. Consumer prices are 40 percent higher than the EU average. Why?  It would be helpful if the Government commissioned a study into all prices to get a real handle on the reason for our high living costs – rather than assume that current market pricing is somehow ‘natural’.

(b)          Collective Bargaining

Second, provide for collective bargaining at company and sectoral level.  The Irish private sector is generally low-paid compared to our EU peer-group.  It also has much lower collective bargaining coverage.  This is especially so in the traditional low-paid sectors – retail and hospitality. 

In our peer EU peer group Ireland is at the bottom of the table bar Austria and is below the overall EU average.  It should also be noted that in Denmark, Sweden and Finland there is no statutory minimum wage, yet their wages are significantly higher.  How do they achieve this?  Through collective bargaining.

By providing workers with the tools to bargain together, they can drive up wages consistent with economic capacity and, so, bring workers closer to the Living Wage.  Further, workers can better protect themselves collectively if employers try to claw back wage increases by degrading working conditions.

(c)           The Minimum Wage

The minimum wage has an important role in reducing low pay.  For example, minimum wage increases could be linked to overall wage increases in the private sector but instead of expressing them in percentage terms, they could be expressed in terms of a flat-rate pay increase or a combination of the two.  This would use general wage increases as parameters but express the increase in terms of an egalitarian calculation.  In this way (and in other ways), the minimum wage would rise as a proportion of the average or median wage.  This is only one of many ways to link minimum wage increases to transparent and verifiable benchmarks.

* * *

This three-pronged approach would help bring workers above the Living Wage while reducing living costs, which would be a benefit to all workers and the productive economy.

In short, the drive to achieve the Living Wage for all workers must take place at a social level (living costs), in the workplace (stronger workers’ rights) and in law with a solidarity minimum wage strategy.

This can help the Irish economy to live up to the Living Wage.

 

 

 

 

Derailing the Pension Age Train

The front page headline in the Irish Independent reads: 

‘Increase in State pension age to 67 should be delayed by seven years, report to recommend.’

Apparently the Commission on Pensions is recommending that the pension age increase should start to rise to 67 in 2028.  Each year subsequently it will rise by three months - 66 and three months in 2028; 66 and six months in 2029 and so on until 2031. Then it will start to increase in phases to 68, but that won’t be complete until 2039.

You can read this proposal in a number of ways but whichever way one reads it (and we will have to await the full report to see the rationale), it is clear that the position of those opposed to pension age increases has been strengthened.

Here is the backstory. The pension age was due to increase from 66 to 67 years back in January as per legislation passed in 2012.  In late 2019 the Stop67 coalition was formed, made up of four groups – Active Retirement Ireland, Age Action, National Women’s Council of Ireland and SIPTU – who started campaigning on the issue.  Shortly after its formation the general election was called.  During the campaign the pension age issue took hold and became the third biggest issue on the doorstep – behind housing and healthcare.  All political parties, bar Fine Gael, opposed the pension age increase.

The new Programme for Government committed established a Commission on Pensions to examine the age issue.  Meanwhile, the pension age increase was scrapped through legislation.  Now the Commission has reported to the Minister for Social Protection, Heather Humphreys.  And we have this leak.

There are two reasons why the position of those opposed to pension age increases has been strengthened.  First, the Commission’s proposal lets the current Government off the hook but ensures that the pension age will, once again, feature prominently in the next general election.  Never mind the phasing in; the issue will (rightly) be presented in stark terms:  do you support raising the pension age. 

What party, apart from Fine Gael, is going to campaign to increase the pension age?  The same number as last time – none.

In short, the Commission took the pension age issue and plopped it right back in the middle of the electoral cycle, repeating what happened prior to the last general election.  And given the widespread opposition to raising the pension age, they will have home field advantage in the next general election.    

Second, the principal fiscal argument against raising the pension age was that it would actually save very little money.  The long-term phasing in of this proposal suggests that the Commission has acknowledged this.  If there was an urgent fiscal necessity to raise the pension age, they would have proposed an immediate start to 67 with the pension age rising to 68 within the decade.  Apparently, that urgent fiscal necessity doesn’t exist, which vindicates the analysis put forward by opponents to age increase.

There might be an attempt to get the current Government to legislate for the increase in 2028 but what would be the point of that?  This government can’t lock in the next one.  Indeed, it was this government that ‘unlocked’ the decision made back in 2012.  In any event, why would any government backbencher address such a contentious issue seven years before the Commission’s proposed implementation date?  Would they really want to go on the doorstep justifying that vote?  A lot of people live by the adage, ‘put off to tomorrow what you don’t have to decide today’; politicians included. 

The pension age increase has now been returned to the political sphere. In the last general election the opposition stopped the pension age from increasing. In the next general election they will be in a strong position to finally kill off future pension age increases.  And the Commission’s seeming acknowledgement that there is no immediate fiscal urgency to raising the pension age only strengthens that prospect.

The ‘pension-age-increase train’ has not been put in reverse.  But it certainly has been derailed.  The next big task is to ensure that no one puts it back on the tracks. 

Rents, Noise and the Government Housing Plan

One of the more damning critiques of the Government’s housing plan came from Eoin Burke-Kennedy, who had only a few days before reminded us that growing supply won’t reduce prices:

‘There are two fundamental forces fuelling the housing crisis here: supply and price. One is too low, the other too high. Everything flows from these two points, the rest is just noise. The Government is wedded to the notion that supply will resolve the pricing issue and make homes more affordable.

The problem is, it won’t.’

It gets even worse when it comes to private rents.  ‘Housing for All’ states that: 

‘Rent increases are unsustainable and are causing affordability issues, particularly for those with low incomes . . . ‘. 

But it doesn’t acknowledge that rents are already too high.  Nor does it acknowledge that this situation could get worse. 

As demand for rental accommodation increases, supply is already falling.

The number of tenancies has fallen from 313,000 tenancies to 298,000 in the last three years – caused by the failure of new supply to make up for properties withdrawn from the market. 

The policy document doesn’t refer to this trend, content to assume an average annual increase of 6,500 in ‘new private rental homes’ up to 2030.   They may be hoping that the combination of new cost-rental units (an average of 2,000 new units per year up to 2030), new affordable housing and increased social housing supply (which would reduce the number of HAP-subsidised private tenancies) will open up new units for rent. 

Will this lead to rents falling to the levels that exist in the capital cities of our peer group in the EU? 

Probably not, especially as the ‘Housing for All’ plan does not have a commitment, never mind the policy instruments, to significantly reduce rents.

The Government is hoping that cost-rental units will reduce rents by 25 percent against market rents.  However, they are projecting only 2,000 units per year up to 2030, which they accept that, in the short-term, won’t impact on the market - that is, provide low-rent options that would force private rents down.

We are still playing in the ‘supply reduces prices’ sandbox.  But, as Burke-Kennedy reminds us, increased supply won’t necessarily reduce housing costs.  Rory Hearne takes us even further into the market: 

‘The plan is simply insufficient and will not reduce rents at this scale.  This, I think, is the intention.  The market is not to be disrupted, because they are still looking to incentivise the private market to provide the supply of rental homes, including investors.   And they want to keep rents high so it remains an attractive investment for institutional investment funds.’

There is considerable evidence to support Rory’s analysis.  First, Irish rental yields (rents as a percentage of the property purchase price) are high by international comparison.  The Global Property Index shows Ireland with the highest rental yield among our EU peer group (based on a 120 sq.m. apartment in major city centres).

In some cases Irish yields are more than twice those pertaining in other countries. 

According to the Business Insider, Ireland has the eighth highest rental yield in the world, with an average rental yield of 6.6 percent.

And Numbeo shows a similar high rental yield in Dublin compared to capital cities in other peer group countries – both inside and outside the city centre.

These percentage differences may seem small, but their impact can be significant.  An indicative guide is that for a city-centre one-bedroom apartment, one percent in the yield is equal to €270 per month or €3,200 per year.  Imagine the reduction if percentage yields fell to the levels of Vienna or Stockholm.

Of course, there is more to rental profits than just the yield.  The gross yield does not include taxation, maintenance, debt-servicing, etc.  An older building is likely to need more maintenance than a newer building, for example.  But the starting point is Ireland’s high gross yields. 

And this is where it gets grim.  The main drivers in the rental market are institutional investors and large landlords.  While they make up only a small proportion of the market nationally (though higher in Dublin), they can effectively set the rent benchmark.  This is because (a) they can enter the market at any price (rent caps don’t apply to new property); and (b) other smaller landlords use this higher price as a benchmark.  Landlord businesses don’t really like competition.  It is easier to let the large actors set an ever higher price and follow that.

The Government’s rental sector policy is, as Rory points out, based on increasing institutional investment as they are the ones building rental accommodation and bringing it to market, replacing smaller landlords leaving the market. But this comes at a steep price.

The Residential Property Board has published some useful assessments of the rental market from the landlords’, tenants’ and letting agents’ perspectives.  And they point out the risks of relying on highly mobile capital. 

‘If investment returns decline.  If rental levels decline then the return on investment will decline and investment funds may seek to go elsewhere.

‘If alternative investments generate a return.  Interest rates and returns on bonds remain low currently. But they will rise at some stage and then they may present a viable alternative.’

A government policy of actively reducing rents through market intervention could cause investment funds to go elsewhere.  And rental yields need to be kept high in the event that a recovery creates alternative investment destinations (e.g. bond returns).

The government is reliant on these internationally-mobile funds and, so, is effectively prevented from taking any action that might undermine the investment returns.  High rental yields are locked into the system, business landlords continue to expand.  It is only the tenants - and the productive economy – who suffer.

Dr. Lorcan Sirr suggested that Housing for All appeared to be:

‘ . . . designed to not make market prices fall.’

This is certainly the case when it comes to rent prices.

In my previous post I argued for creating alternative markets; in particular, an alternative rental market which would see an expansionary public component in what has been, to date, a private market.  However, if we start down a rent-deflationary road we could see a significant private sector withdrawal or slowdown.  This could exacerbate the market, leading to higher rents and/or diminishing supply.  Reducing rents requires a different market configuration.

And this is probably the most depressing aspect of ‘Housing for All’.  Not only are there no proposals to significantly reduce rents; there is not even a discussion of the market itself – the role of institutional landlords, long-term finance, public sector interventions.  This failure to discuss the private rental market shows either a failure of evidence-based policy making, ideological bias, confusion or, at its worst, a surrender to ‘the market’.

Whichever, it makes for a bad day’s work.

 

They’re Going to Let It Happen All over Again

This week the Government will launch its new housing policy.  Cliff Taylor is right:

‘It will be hard to get beyond the noise when the Government publishes its new housing plan . . . .’

We’ll have a surfeit of targets, high-sounding initiatives and policy proposals crafted with good intentions.  But the impact on the ‘market’ will be another thing.  Unforeseen and perverse consequences abound in something as complex as the housing market.

For instance, the Government’s shared equity schemes, intended to help people buy a house, will only add demand to a supply-crisis and, so, push up prices.  Landlords are reluctant to reduce rents because they don’t want to get caught by the rent-increase cap.  So they leave the accommodation empty.  Labour shortages, Brexit-fuelled shortages, higher than EU average interest rates  and time-consuming procurement process – and those are only part of the problems.

And as Eoin Burke-Kennedy reminds us, ramping up supply will not resolve Ireland’s housing crisis. 

‘The supply mantra – the notion that increasing supply is the answer to the problem – is now enshrined as an article of faith with Government, industry and much of the public . . . History unfortunately tells us [otherwise]. Ramping up housing supply has never once in our recent history improved affordability. Even at the high-water mark of construction in 2006, when a record 92,000 homes were built, property prices rose by 14 per cent.’

Yes, we need more house-building to meet future demand.  But we need a reform of the market itself or, more specifically, to create a new public housing market.  Markets are not a natural phenomenon, born from some big bang of supply and demand.  They are socially constructed.  We need new market tools; otherwise, the upward pressure on prices and rents will remain.  And whatever the progressive reforms (and there are many options), they would all lead back to a substantial and sustained public intervention based on non-speculative principles.

Here are three areas to consider. 

Unitary Rental Market

The most radical intervention in the debate over private rental accommodation and rents was NERI’s ‘Ireland’s Housing Emergency -Time for a Game Changer’ which built on the proposals by the National Economic and Social Council.  Essentially, they proposed the fusing of social housing and private rental sectors through a cost-rental model – what can be called a ‘unitary’ market. This would end the idea of social-housing-for-the-poor and replace it with a new public housing market.

Essentially, the means-test for social housing would be abolished.  The state would build affordable rental accommodation open to all applicants regardless of income or employment status.  Rents would be based on ‘cost’,  and where tenants cannot not afford the rent, they would receive a housing payment (a redesigned HAP,  but with the big difference that now these payment s would remain in the public sphere).

The distinction between the means-tested social housing sector and the wider rental market would be abolished.  The state would still build traditional ‘social housing’ targeted at groups with specific needs (e.g. the homeless, older people, tenants with disabilities, Travellers).  But otherwise, public housing would be available to all.  And the competition with traditional private rental accommodation (institutional investors, REITs,) would put downward pressure on their rents. 

The public realm becomes the main driver for affordable rents. 

Non-Speculative House Purchase Market

The state would intervene in the house purchase market through non-speculative housing.  Houses and apartments would be built and sold to first-time purchasers at cost-price.  This would open up the house purchase market to average income groups.  However, the house would remain in the public sphere.  Purchasers couldn’t sell them on the open market (to make a capital gain).  They could only sell them back to the public body that built and sold them,  based on a formula which would include original price, inflation-index and the value of any improvements. There could be limited provisions for inheritance to children who are also first-time buyers.

Climate-Proofed Housing

Rory Hearne points to the inter-related issues of housing need and climate change:

‘The housing and climate crisis are two of the main issues we have to solve . . . we have the opportunity to address the housing crisis and raise people’s living standards through improved homes, while also solving the climate crisis. It is an investment in the future of humanity. In crude accounting terms, the state will reduce costs in health spending associated with poor housing — asthma, bronchitis, mental health impacts.’

A progressive roll-out of a major retro-fitting programme would initially target the lowest income groups.   17 percent of the lowest income decile lives in pre-1918 accommodation.  A major problem is the cost.  The current grant system favours those who already have resources.  Therefore, retro-fitting should be free upfront with repayments based on income,  with the outstanding balance paid off whenever the dwelling is sold or transferred.  This allows the environmental and social benefits to start immediately. Two further steps could be made to climate-proof our housing stock:

• New houses built under new climate-proofed regulations
• Mandatory energy upgrading of second-hand houses put on the market

While these would increase the cost of housing, we need to integrate energy costs (for the household, economy and the environment) as part of a new way to assess the long-term cost of housing.  If there is a need to assist people in the market to pay for the increased upfront cost, ultra-low interest rate ‘green mortgages’ can be provided alongside market mortgages to cover the climate-proofing costs.

* * *

A unitary rental market, non-speculative house purchase market, climate-proofing market interventions – these are attempts to steer housing away from speculative and financialised activities while turning housing into an instrument of climate justice.  This requires a new public housing market while reforming the current one based on the principal of public housing for all.

However  this is done (and others will have more and better ideas),  let’s at least not be seduced by the idea that building more houses will somehow solve our underlying problems of affordability and climate protection.  Otherwise, we’ll face into what one estate agent said to Cliff Taylor:

‘They are going to let it happen all over again.’

A Sporting Economy

After the achievements at the Tokyo Olympics and the ensuing celebration at home, we now return to the hard work of putting sports at the heart of a recovery strategy.  We have a long ways to go.  Ireland is a chronic under-funder of sports and recreation activities compared to our peer EU group.

As a proportion of national income, Ireland spends less than any other EU country.  The average EU spend on sports and recreation is 0.5 percent of net national income; in Ireland it is less than 0.2 percent.  This may appear to be a marginal difference but it would mean that Ireland would have to spend an additional €500 million plus a year to reach the average.  To reach the top spender – Hungary – we’d have to spend an additional €2 billion per year.

Another perspective is the average expenditure per capita within our peer group.

Our peer group spend nearly three times more on sport and recreation than Ireland with the table topper – Sweden – spending nearly four times what we do.

According to the Eurostat classification pending on sports and recreation covers a range of activities: sporting pursuits or events, recreational facilities, passive sporting pursuits (e.g. chess), grants and loans to teams or individuals and spectator facilities. 

The Government’s National Sports Policy presents evidence that sport has a number of individual, social and economic benefits:

‘We now have a much better understanding of sport’s positive contribution to so many aspects of Irish life including health and wellbeing, social and community development, economic activity, educational performance and life-long learning.’

Such evidence includes:

• For every €100 invested by Government in sport, it received €149 in return in taxes

• Sport-related volunteering activity is estimated to have an economic value of between €322 million and €582 million annually

• ESRI research found a positive association between playing sport and Leaving Certificate performance among a sample of 1,200 students

• Research found that engagement in sport was associated with higher incomes among a sample of nearly 6,000 graduates. It also found that enterprises benefited from increased team working, communication skills, motivation, competitiveness and resilience by those engaged with sporting activity

• Research published in The Lancet in 2012 estimated that physical inactivity was responsible for 14.2 percent of all-cause mortality in Ireland. In 2014 this would translate into approximately 4,000 deaths in that year being attributable to Irish people not engaging in enough physical activity

• Physical inactivity has been estimated to cost the health budget approximately €1.5 billion per year.

The policy document found that sport also plays a role in tackling societal challenges around anti-social behaviour, particularly when offered as part of broader personal development programmes or in conjunction with community and youth services.

With all these benefits why doesn’t the government invest more in sports and recreation?  The National Sports policy promises more resources but it is extremely modest.  It proposes to increase spending on sports by a mere €100 million over the period 2018 to 2027 – a little more than an additional €10 million per year.  This will keep Ireland at the bottom of the table.

However, were we to increase sport investment we should note the flaw in the Irish model of public spending.  Like almost all other categories, Irish sports and recreation spending is highly centralised. 

• In the EU, local government accounts for 81 percent of sports and recreation spending; in Ireland, it is 26 percent.

Spending through local governments can create greater accountability and more responsiveness to local need.  This, however, is part of a larger issue with our anaemic local government structures.

Even the Government has shown the considerable benefits from increased investment and participation in sporting and recreational activities:  better health and reduced health costs, increased tax revenue, better educational outcomes, increased social interaction and reduced anti-social activities.  The good news is that investment in sport and recreation generates returns greater than the initial outlay.

Now what we need is a society-wide dialogue on where such investments should be directed:  high-performance and amateur sports, age-inclusive activities, traditional and minority sports, public facilities and affordable access to participation.

That would be a fun conversation.

Code Red for Business

It is a given that all sectors of society will have to make substantial contributions to limiting the damage of climate change – something that was driven home, yet again, by the recent International Panel  on Climate Change report.

Unfortunately, the recent report by the European Investment Bank (EIB) shows that not only is the Irish business sector not pulling its weight, it is actually dragging all of us down.

The EIB’s European Firms and Climate Change Survey 2020/2021 assesses the level of investment EU businesses have undertaken to make themselves ‘climate-ready’.  How many have assessed climate risks to their business and invested to address those risks; conducted energy audits and intend to invest in energy efficiency; have staff dedicated to increasing the company’s climate-resilience:  these are some of the questions the EIB’s survey put to over 13,000 EU businesses. 

Let’s look at some of the headline survey results before going to some practical proposals. First up, what is the percentage of companies that have ‘invested to address climate risks’?

45 percent of businesses throughout the EU have invested to address climate change.  The league leader is Finland with 62 percent.  Where’s Irish business?  At the bottom of the table, marginally above Greece: only 19 percent of Irish businesses have invested to address climate change. Whatever the reasons or excuses, this is a pretty dismal performance.

Irish business regularly features well behind the EU average in the EIB’s action-based categories. They are consistently at or near the bottom of the table. 

It is noteworthy that two-thirds of Irish firms have energy cost concerns, more than the EU average.  Yet, only a little over a third have conducted an energy audit, never mind invested in energy efficiency.  Irish business concerns don’t seem to lead to action across the board.

The EIB survey explores the reasons why businesses don’t invest – but only produce results at the EU-wide level.  So we don’t have specific data for Ireland.  Nonetheless, it can help explain the Irish deficits. 

43 percent of EU businesses stated that uncertainty about regulation and taxation was the biggest barrier to climate investment following closely by cost of investments.  While the Irish government should identify the reasons for business reluctance to invest, and do everything to help businesses overcome those barriers, we can’t rely on voluntary action or a series of carrots (usually tax subsidies).

Like so much in business life, we need a greater role for the stakeholders in putting companies on a sustainable course – whether that be environmental, social or financial.  This requires intervention tools for employees, the state and consumers.

1)  Employees:  currently, all workers are allowed to select a ‘safety representative’ to liaise with employers over health and safety issues.  Safety Representatives are entitled to carry out inspections, receive key information from the employer and receive training necessary for them to carry out their role.  This could be the basis for a new workplace innovation.

All workplaces over a certain size should be required to establish a ‘Climate Action Committee’ within the workplace with Climate Action Representatives elect on to the committee by the workforce.  This would be given a statutory basis.  It would provide for consultation on all climate-related issues.  The Government should keep a database of all representatives in order to provide information, training and allow for sharing idea on the best ways to reduce greenhouse gases.

2)  State:  the State should require all businesses over a certain size to (a) conduct regular energy audits (which could be, with additional resources, overseen by the SEI (Sustainable Energy Ireland); and (b) annually publish a Climate Audit which would, based on the energy audits, explain both what they had done over the previous year and what they intend to do in the future.

3)  Consumers:  we can use the marketplace to our advantage.  But consumer action can only be taken on the basis of information.  Therefore, the state should publish the companies’ energy audits, and the annual Climate Audits.  This would allow organisations and individuals to assess which companies are activing responsibly and sustainably and, so, base their purchase decisions on these results.

These are only some of the steps that will need to be taken to ensure a resilient business sector.  Others will no doubt have better ideas.  There will be some good ideas thrown up by this trade union initiative next month (September).

But we need to start these actions now.  As the IPCC report stated:  this is Code Red for humanity.

Democratising Entrepreneurship

Writing in the Business Post, Tom Maguire quotes a Nobel  prize-winning economist:

‘Success is achieved when the tax rules subsidise activities that benefit society as a whole more than they benefit the individuals engaging in the activities.’

Fair enough.  He also writes that we need to encourage and incentivise a thriving domestic entrepreneurial economy.  Again, fair enough.  We need new and better enterprises driving innovation, incomes, environmental sustainability and progressive working conditions.  Poorly performing, low-road businesses drag all of us down.

However, there are two issues here.  First, would expanding tax reliefs (which Maguire calls for) actually promote entrepreneurship? 

The ESRI’s recent report - ‘Options for Raising Tax Revenue in Ireland’ – touches on some of these issues.  The authors - Theano Kakoulidou and Barra Roantree – specifically look at the Entrepreneur Relief which cuts the Capital Gains Tax from 33 percent to 10 percent under certain conditions.  This is a substantial relief.   It cost the Exchequer €92 million with 875 beneficiaries - an average of a €106,000 tax break per recipient. 

The ESRI study states:

‘The justification for applying lower tax rates to people who own their own business n is far from clear. Preferential capital gains rates are often defended as essential to reward difficult and risky entrepreneurial activity . . . Evidence from the UK shows that few entrepreneurs who availed of a similar relief there knew of its existence when starting their business, and even fewer reported it having influenced the timing or nature of their disposal. This suggests that the relief is more likely to generate efforts to avoid tax on retirement than its intended purpose of spurring entrepreneurship or investment.’

That’s pretty provocative – entrepreneurial reliefs can lead to tax avoidance rather than generating new business activity.  Demands for more reliefs (i.e. cash subsides) need to provide concrete evidence that they are working.  If the ESRI analysis holds, the evidence is thin.

But Maguire cuts to an even more fundamental issue than tax efficiency.  What the heck is entrepreneurship?  There is a tendency in the public debate to mythologise or reify the ‘entrepreneur’ and, so, individualise what is actually a complex social activity.  Maguire states:

‘In essence, entrepreneurial activity is about founders getting in, staying in, and then passing the business on at the appropriate time.’

This individualised entrepreneur makes for interesting rags to riches stories, people who navigate the banks, investors and bureaucracies to bring their idea to commercial fruition.  But it is largely a myth.  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, driving progressive business activity and innovation, is a social and collective process.  It is achieved through the cooperation between a range of people in supportive activities, both within and outside the company.  The development of new goods and services, new processes of production, emerges out of a social dynamic. 

The literature is full of studies to show that enterprise activity improves as more democracy is introduced into the workplace (here is one example from Finnish local authorities).  From consultation and information, to collective bargaining, employee participation, worker autonomy, co-determination and works councils, co-management  - all the way to labour-managed enterprises:  greater democracy and participation - leads to improved enterprise performance and innovation.  Centralised or individualised models of enterprise risk the opposite as this study shows within SMEs:

‘. . . centralized decision-making, which was found to have direct negative impact on innovation, was found to have negative impact on collaboration and communication.’

In this study, similar results showed for larger enterprises:

‘  . . . decentralization [is] positively connected to employee involvement, absorptive capacity, and firm's innovation performance. Moreover, the results show that employee involvement positively influences innovation performance . . .  The results also suggest that firm's innovation performance positively influence firm's business performance’.

If we want a ‘thriving domestic entrepreneurial economy’ we need a structural transformation that increases democratic participation within enterprises.  This transformation will vary with businesses and sectors.  But a starting point is employees’ right to collective bargaining which the OECD shows improves firm performance.  The more workers are involved, the better it is for innovation and productivity.

But it’s not just about the re-organisation of enterprises along a stakeholder model.  There are two other key elements which are briefly mentioned here:

Education:  when economists refer to the entrepreneurial skills of the labour force, they are referring to the entire population which grows business activity and value.  Education is the foundation.  Investment in education at all levels, including return to education and re-training in adult years, boosts entrepreneurship.   However, Ireland is a major education underfunder. 

We’d have to spend an additional €1.8 billion per year to reach the average of our EU peer group – other high-income EU countries.  How much entrepreneurial activity are we suppressing by under-funding education?

Second, we need new enterprise models.  Private sector business activity is only one type of activity.  We need to expand the range of models to fit the needs and preferences of entrepreneurial engagement.  Public sector models – especially local public enterprise, civil society models, certified B companies (which are legally required to consider all stakeholders, not just shareholders), labour-managed enterprises, networks of own-account workers (self-employed), etc.  This calls for a pluralist approach to business models.

This provides a different perspective and set of demands running into Budget 2022 and beyond.  What support can we provide ‘entrepreneurs’?

• Increase democracy in the workplace, starting with collective bargaining and incentivising democratic activities and structures (e.g. employee participation, works councils, co-determination, etc.)

• Increase education expenditure through a social and industrial consensus on how to best allocate that increase

• Develop new enterprise models and provide specific supports (e.g. Local Enterprise Offices to target local public enterprises, labour-managed enterprises, etc.)

This could be the start of a renewed entrepreneurial drive based on democracy, education and pluralism. 

Business in Ireland is everyone’s business.  Literally.

Reheating JobBridge

It is hard to discern the logic behind the Government’s new Work Placement Experience Programme (the WPEP). 

The WPEP is intended to provide training, education and skill development for the unemployed.   Those who have been unemployed for longer than 6 months can take up a ‘job placement’ with an employer (‘host organisation’).  The placement will last six months and participants will be paid €306 per week for 30 hours work.  Employers who participate in the scheme have to offer training but do not contribute to the pay (i.e. they get free labour).  The scheme’s aim is to give people the ‘opportunity to re-train and get experience in a new role’.

Here’s the first problem:  a business expands its payroll when they increase production of their goods or services to meet rising demand.  The Government is projecting a significant increase in a consumer-led recovery, and is projecting net new employment increases to be: 

• 2021: 79,000
• 2022: 225,000
• 2023: 75,000

Service sector companies reported the strongest month-on-month growth in business activity in July since 2000.  Given that so many businesses are ramping up production and employment to meet increasing demand, why would some employers participate in this scheme?  This is where a poorly-designed scheme can be open to abuse.

The WPEP tries to guard against abuse by laying down some conditions.  The employer:

• Must not have job vacancies in the area of activity and at the skills level the placement is offered.
• Must not have made employees redundant from similar roles in the previous 6 months.
• Cannot reduce the hours of work of existing employees to accommodate the placement.

This attempts to stop displacement of current labour.  However, it could be difficult to guard against the displacement of labour that would have been employed if the scheme had not existed.  This is called the ‘deadweight’ effect.   If an employer could not get the WPEP worker, would they have directly employed someone? 

Deadweight is not the only problem.  The scheme could incentivise poor company practices.  First, a company may try to use the scheme to undermine competitors by accessingfree labour.  After the abuse of the JobBridge scheme, companies are limited to the number of participants they can take on.  However, there is still scope to suppress payroll.  In competitive markets with tight margins, some companies may think this could give them an edge.

Secondly, it diverts managerial resources away from productive activity.  Rather than incentivising management to up their game in terms of quality, structured training, customer relations, and marketing, poor schemes merely incentivise management to expend resources on seeking state subsidies.  This will hardly create a competitive enterprise base.

The Government is hoping the scheme will increase in-work training and, so, benefit employees.  This is certainly a worthy goal.  But what is the quality of the training and jobs on offer?  It is hard to imagine six months will produce much in the way of new, enhanced skills.  Apprenticeships offer a far better route for skill development – but this takes time.  Programmes combining both classroom-based and work-based training include:

Bio-pharma * Arboriculture * Construction & Electrical * Engineering * Hairdressers * Hospitality (chefs) * Retail & Sales * Motor * Property Services * Finance & Insurance * ICT * Health * Craft butchers

These apprenticeship modules take 2 – 4 years.  This does not include other training programmes operated by SOLAS. 

The in-work training provision under the WPEP, on the other hand, looks limited.  For instance, a car washing placement offers this training:

 ‘ . . .  the participant will be trained in how to use the car washer and the different settings, i.e. wash, shampoo, rinse, wax and which solutions to be used for each cycle . . . will receive training in how to use the wet/dry vac in order to vacuum and shampoo the upholstery and interior of the vehicles . . what products to use for polishing, cleaning and buffing of the vehicle interior and exterior . . .

No doubt this is necessary to carry out car washing services.  But is this an example of what Minister Heather Humphreys called

‘ . . . innovative learning and development opportunities for participants’?

Such jobs on offer include clothes cleaning, sales assistant, kitchen cleaner (‘cleaning of dishes/utensils’), etc.  Some come with grand titles (e.g. ‘International Business Executive’). 

Particularly concerning is the use of this scheme by childcare crèches and early years services.  This is a sector plagued by low pay, precarious work conditions and high staff turnover (up to 40 percent annually).  It’s not that there is a shortage of trained staff.  Since 2010, 62,000 people have been accredited for the childcare sector but there are only approximately 25,000 actually working in the sector.  Many have left due to low-pay and precariousness.   Providing free labour for childcare and early years’ services can only increase cynicism throughout the sector (this comes from Jennifer Whitmore, TD on foot of a PQ) . 

You can review the job and training descriptions here.

There is an important role for state support for, and incentivising, in-work training.  The Department of Enterprise shows that 79 percent of Irish-owned companies that are agency-supported (essentially, export facing) spend money on ‘formal, structured’ training.  But the average spend per employee was €537 in 2019.  We shouldn’t be surprised if these figures are much lower in non-agency supported businesses – the vast majority of businesses in the state.

Such supports, just like apprenticeship and related-programmes, should require a quality rather than quantity approach.  The WPEP does not look like it fits this description.

This scheme is estimated to cost €150 million for 10,000 placements.  This looks to be of poor value – especially considering the state could employ approximately the same number for a whole year. These ‘real’ jobs could integrate training and education into socially valuable and meaningful work, especially for the long-term unemployed with stable, long-term contracts.

The Minister should stand down the Work Placement Experience Programme before too much money is misspent and focus on real training and employment quality initiatives.

We don’t need a re-heated JobBridge. 

More Bank Holidays, Please

Here’s a depressing thought:  it will be nearly three months to the next bank holiday.  This is because Ireland has few public holidays compared to other European countries. 

Calculating public holidays is not always straight-forward.  In some countries, when a public holiday falls on a Sunday, the day isn’t made up.  Some countries have religious holidays (e.g. Good Friday in Ireland) and regional holidays.  Nonetheless, Ireland fares poorly.

People Before Profit has put forward a private members bill that would introduce three new public holidays:  February 1^st, last Monday in September and last Monday in November.  This is a practical proposal to address our lack of public holidays.  But the opposition is already kicking in. Back in June Minister of State for Enterprise, Trade and Employment Damien English said an extra bank holiday could be too costly for employers who are already struggling to stay afloat.

‘Not least we would need to consider the implications and impact of any new public holiday on employment and for the economy at large, in particular the extra costs it would impose on employers already dealing with the COVID-19 crisis and Brexit.’

Would it be ‘too costly’ or even ‘costly’ at all?  There is considerable evidence that more public holidays could be economically beneficial.

• Franceso Maria Esposito finds that: ‘national holidays have a small but positive impact on economic activities or at least no effect on it . . . firms adjust their production during the year to satisfy the whole demand. Positive emotions and tourism can be other reasons which can justify the effect.’

• Joachim Merz and Lars Osberg find that: ‘Public holidays therefore have benefits both in the utility of leisure on holidays and (by enabling people to maintain social contacts more easily) in increasing the utility of leisure on normal weekdays and weekends . . . public holidays have beneficial impacts on social life on normal weekdays and weekends. Since these benefits are additional to the other benefits of holidays, it suggests that there is a case to be made for more public holidays.’

• Voxi Heinrich Amavilah finds there are small, positive economic impacts by public holidays but this is heavily caveated and tentative.

Other studies refer to the loss of production in some firms that is made up by increase in business activity in other sectors; namely, hospitality, retail, recreation, arts and leisure.  There have been some pessimistic studies.  The Centre for Economics and Business Research highlighted the negative impact of additional public holidays back in 2012 (a loss of 0.1 percent of national income per holiday).  However, they changed their mind recently, and estimated a positive impact in the UK from an additional holiday in October.

Why would there be little impact on economic output from additional public holidays?  Firms adapt and adjust their production over the year.  Further, there is the positive impact on employees’ productivity with the additional rest and relaxation – a point that proponents of the four-day working week highlight.  In any evert, even if you treat workers as just so many cogs in the production machine – well, even machines need downtime for maintenance.

However, there is another aspect which was highlighted by Brian Hayes when he was a MEP: 

‘Additional structured bank holidays can generate economic activity and jobs. The October bank holiday is the perfect example. Following its introduction we saw the growth and development of the Jazz festival in Cork and the Dublin City Marathon.’

This is a crucial observation.  Measurements to assess costs are, by their very nature, reduced to static data.  You tot up lost production on one side, gains on the othe, and then add them together to find the balance. 

What they find difficult to measure is the impact on social capital and civil society – whether that be the productivity benefit of reduced stress, management innovation, or activities that might emerge within and outside the formal market.  Activities that improve life quality have a real, if at times unmeasurable, impact on activity, especially as economies are dynamic.  White and Wynne find that:

‘One of the areas most overlooked when comparing competing metro areas is a livability factor, or quality of life, that makes certain areas more attractive to individuals and thus businesses.  One of the most often cited reasons for the location of a new business, especially a small business, is quality of life, yet it is one of the areas policymakers most often overlook in attracting entrepreneurs and the highly skilled people who most often work for them . . . Quality of life . . . can be the X factor that differentiates two competitive metro areas.’

Public holidays can add to that quality of life – not just in allowing people to have a day of doing what they want, but incentivising activities that add to increased social, cultural and ‘fun’ capital.

These are persuasive arguments for additional public holidays.  To ensure that there is no negative impact there could be a phasing-in of the holidays to allow firms to adjust – an additional holiday annually over three years.

But if we’re going down that route, can we at least call the Oireachtas back from recess for a day and introduce a public holiday in time for the end of September this year?  If we need an historical rationale we could celebrate Joe Hill’s birthday.  Ok, it’s a few days into October but who’s counting the days?

Cheats and Layabouts

Employer representatives in the restaurant sector are claiming difficulties in finding people to work.  The Restaurants Association of Ireland stated:

‘What we’re hearing on the ground is that people who were working in the sector moved on to the PUP payment – and rightly so during Covid – and now won’t return to hospitality because they’re on the PUP payment and claiming cash in hand in other jobs.’

When employers’ representatives refer to people as cheats and layabouts, it’s not exactly an advertisement for working in that sector.  But to what extent are the sector’s problems due to people refusing to move on from PUP (Pandemic Unemployment Payment)?  Or are there other, more long-standing problems in the sector which the pandemic has exacerbated.

The ESRI recently published ‘COVID-19 and the Irish Welfare System’  which examined the extent to which employees were financially better off not working during the pandemic due to unemployment benefit and the PUP.  They found very few were.  Only five percent of employees would have had income from social protection that exceeded their previous earnings.  85 percent of employees would have had unemployment payments that were less than 75 percent of their previous earnings.

While the study did not detail the impact on particular economic sectors, with the small numbers having a ‘financial incentive’ to remain on social protection payments it is not likely to be a major factor in hospitality recruitment.

But there’s an even more provocative finding.  The paper quotes previous ESRI research that shows that, even where income from unemployment payments exceeded previous earnings, people still return to work.

‘It is important to bear in mind that not all those with weak financial incentives to  work will opt for unemployment or inactivity . . . of those that would have had a higher disposable income out of work than in work . . . 90 per cent were actually in employment.’ 

So even when they could get more from social protection, people still opt to work. 

This narrative of layabouts, especially among young workers, is not new.  Back in 2009, when young people’s Jobseekers Benefit was slashed, it was justified on the basis that they had to be ‘incentivised’ to work.  Otherwise, they’d just lie around all day in their underwear, drinking Red Bull and watching repeats of Friends on obscure digital channels.

Yet, in 2007 - the year before the crash - the employment rate among 20-24 years was the highest in the EU.  The highest:  at 81 percent while the EU average was 52 percent.  But within two years these same people had to be penalised for fear they would turn into a den of sloths. The narrative was as nonsense back then as it is today.

So what might account for alleged staff shortages in the hospitality sectors?  Many migrant workers, who accounted for a large proportion of employees in these sectors, may have gone home and not returned.  Other former employees might have transitioned to other sectors or taken up full-time education or re-training.

But there could be other reasons.  SIPTU conducted a survey of workers in the hospitality sector prior to the pandemic.  The results are extremely concerning:

• 64 percent suffered psychological abuse
• 76 percent reported verbal abuse by managers or owners in their workplaces
• 63 percent witnessed or experienced bullying.
• 52 percent did not get break entitlements
• 70 percent didn’t get a Sunday premium

Many of these findings were replicated in a recent survey by Unite.  These working conditions would actively disincentivise people from entering the sector.

And wages:  hospitality wage levels in Ireland are the lowest in our EU peer group (i.e. other high-income countries). 

At those wage levels, combined with poor working conditions (never mind the continued health risks for younger unvaccinated workers) – no wonder some employers are finding it hard to recruit staff. 

Martin O’Rourke, SIPTU Organiser for the hospitality sector stated:

‘Before the pandemic arose at all, the situation was that the Irish hospitality industry had to go abroad looking for chefs and had to seek special provision from the Government to secure work permits for them.  The truth is this: many, many hospitality workers are sick of the precarious nature of the industry and poor treatment. Some were laid off with scant regard, weren’t availing of the wage subsidy scheme and instead were dumped on the PUP. Many have voted with their feet and left the industry.’

So what can be done to address the issues in the hospitality sector to ensure that it is a contributor to economic and social recovery?  A start would be for employer representatives to sit down with employee representatives at a Joint Labour Committee or similar sectoral body to negotiate issues such as pay, working conditions, guaranteed hours, holiday and sick pay, overtime rates and career progression within the sector.  Together employers and employees could start to make the hospitality sector fit for purpose.

Or even something much simpler.  As one pub owner put it:

‘ . . . treat workers well and make sure they are paid “what they’re worth”.’

What a novel idea.

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.