Monday, December 14, 2009

The Budget

Well! The Irish Budget which promised draconian cuts in expenditure certainly lived up to expectations with most of the burden falling on public servants and welfare recipients. Naturally both Trade Unions and members are extremely angry as a result. However the important question that really arises relates to the existence - if any - of more palatable alternatives.

From one perspective I actually applaud Brian Lenihan for at least having the guts and leadership qualities to follow through on what he considered necessary and yet which was bound to be highly unpopular among large sections of the population.

And indeed there is a valid case for the measures he took. Overall expenditure is way out of line with revenue receipts. Also surveys show that public sector pay in general is much higher than the private sector in an economy that is seriously lacking in competitiveness. Quite simply the price of most products and services is excessive at present in Ireland. Likewise due to an actual fall in inflation during the past year, the real value of welfare receipts has increased. Thus there was a good case to tackle such expenditure.

Unfortunately Ireland is now heavily dependent on satisfying international opinion on how to address our problems. The Minister can justifiably argue that bond charges would be much higher if harsh measures were not now taken. Likewise investment from multinational investment e.g. manufacturing and finance) which comprises 90% of Irish exports could be badly hit in the absence of such tough measures.

However there is a deeper issue that has not yet been directly addressed in the ongoing debate in Ireland.

Due to our attempt to achieve rapid growth the economy is now greatly mortgaged to the sentiment of outside investors and domestic wealth creators representing together a somewhat extreme version of the liberal capitalist ethos. Therefore over the past 15 years or so Ireland has cultivated a wealth friendly ethos (as the cost of maintaining growth).

However this has been greatly at the expense of social justice. Though inequality was indeed worsening during the Celtic Tiger years, this could somehow be ignored as long as the greater mass of the population could aspire to an improved standard of living.

However now in the recession the patent injustice of what has been happening in our midst has become all too apparent.

Higher paid groups are intent on maintaining their great privileges (e.g. hospital consultants) while so many others desperately struggle to make ends meet. Meanwhile the Government in its attempt to reassure the "wealth creators" has immediately returned to its customary policy of appeasing them at every turn.

The clear implication of all this is that the very model of capitalism that we are now seeking to promote is proving itself quite incompatible with acceptable notions of social justice. One indication of how serious things have become is the threat of the police to go on strike action (even though this is illegal within their rules).

We are now facing a period of growing unrest and disruption that - if we are not careful - could spiral out of control into lower forms of social anarchy.

What we are actually seeing now is as Marx spoke about all those years ago "the inherent contradictions of capitalism". We are now facing growing global threats on many fronts e.g. financial system and the environment. Meanwhile social unrest is likely to grow in many countries.

In short we need a more integrated approach to economic life (where moral values are seen as inseparable from actual decisions taken). Unfortunately powerful vested interests are likely to resist this need for some time to come thus increasing the chances of truly enormous problems developing within the system.

Tuesday, December 8, 2009

Welfare Fraud

"Prime Time" last night on RTE dealt with the issue of social welfare fraud.

The total Social Welfare bill in Ireland is currently running at over €20 bl. per annum with at least 10% of this relating to fraudulent claims. Thus at a time when stringent cuts in expenditure are required we have a massive case of over-spending that simply is not being properly addressed.

Unfortunately to a certain extent we have long had a mentality - no doubt relating to our colonial past - that leads to a lot of petty fraud. Many people while paying lip service to the system do not really respect it. So if telling a little white lie, or indeed a big major lie (and perhaps many such lies) helps people beat the system in some way they feel justified in doing so taking comfort from the assertion "Well! isn't everyone doing it?

In a recent survey for example it was found that up to 70% of people taking out car insurance in one county had lied in providing information. Many who are self employed or working unofficially in the "black economy" feel perfectly relaxed regarding undisclosed income. And as this programme demonstrated there is widespread abuse of the welfare system taking place.

Personally I believe that the the phenomenon of the Celtic Tiger has greatly contributed to a lessening generally of moral standards and to creating a culture of waste (which rapid economic growth only encouraged).

Thus there is a high tolerance of "ripping off" and in turn being "ripped-off" by the system in Ireland.

One of the reasons why there is now so much resistance to pay cuts despite the very high level of income per capita here (in official estimates) is that prices are unusually high for a wide range of goods and services. Though much of this does indeed reflect the higher level of costs generally prevailing, a considerable amount is due to a culture that dramatically escalated during the Celtic Tiger where over pricing e.g. in housing market, retail stores and restaurants was readily accepted (without much question).

Also it has become apparent that where the same company is selling goods - say in the UK and Ireland - that a premium is generally applied to the Irish price (unrelated to cost, tax or exchange rate considerations).

It is true for example that Ireland is still a very high wage economy. However the cost of living is also unduly high (which negates somewhat this advantage). It would be much better to have a lower wage economy with a corresponding lower cost of living.

As Ireland depends crucially on trade, success here (especially for indigenous firms) will require a much higher degree of cost competitiveness.

If for example wages fell over a period by 20% and the cost of living also fell by 20%, our livings standards would remain unchanged. However crucially, we would then be in much better position to successfully compete both in home and export markets.

Trade Unions especially would need to grasp this reality. Of course social justice requires that income be distributed more equally. However a fundamental fact remains that costs are too high in Ireland both in the private sector and in Government (as for example with social welfare).
There is no point in continuing to deny this reality. Common sense dictates that we now decisively deal with the issue.