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Taskforce plan is a flight of pure fantasy
14 March 2010 By Colm McCarthy
A target is not a policy. Ireland’s worst macroeconomic collapse since the early years of World War II is beginning to spawn a confusion of targets with policies.
The last week has seen a series of forecasts, reports, plans and ‘strategies’ offering job creation targets ranging into the hundreds of thousands, from agencies including Fás, the IDA, Sustainable Energy Ireland and the Innovation Task Force.
The latter body has recommended a sharp increase in public expenditure on research and development, from which jobs (high-paid ones, naturally) will inexorably flow.
The 132-page report is profoundly depressing, a cornucopia of buzzwords, singularly lacking in economic context, aspirational, divorced from reality - indeed, contemptuous of reality.
The government does, believe it or not, have a macroeconomic strategy. The strategy is to stabilise the public finances, deal with the collapsed banks, regain competitiveness, deleverage.
It is grim, and will take several years to execute, but it is grounded in reality. No coherent and feasible alternative to this course of action has been argued from any quarter.
It is a tough, unexciting but unavoidable path to economic sustainability, for which office-holders can expect little thanks.
The Innovation Task Force report is an invitation to duck reality, to wallow in an escapist fantasy about an Ireland that does not exist, and cannot be summoned into existence by a task force, working group, interdepartmental committee, or Royal Commission.
With an unsustainable budget deficit, insolvent banks, shattered business confidence, a double-digit unemployment rate and no early prospect of paid work for so many, the authors of this report, and of several others recently, are substituting fancy job creation targets for the hard grind of re-creating a competitive economy.
The buzzword count is extraordinary. Ireland is to be ‘cutting edge’, an ‘innovation hub’, a ‘centre of excellence’, we must ‘re-invent’ ourselves. The recommendations include committing 3 per cent of GDP to (largely unspecified) research and development expenditures over the next decade.
In round numbers, this would add up to about €50 billion. Not even a tentative quantification of benefits from this prodigious spending programme is offered. The task force membership includes prominent business people none of whom, I trust, would submit such a speculative investment plan to real-world shareholders.
The document recommends a stronger emphasis on mathematical skills in our education system. It also drones on about creating an ‘inflection point’, a mathematical concept, as well as an impressive sounding buzzword. People who use terms like ‘‘inflection point’’ in task force reports are to be taken seriously, you understand. This is cutting-edge.
An inflection point in a curve is the point where the second derivative changes sign. In the most popular mathematical growth curves, after the point of inflection, the growth rate falls away, eventually to zero.
If you like economic growth, the inflection point in the economy’s trajectory is unwelcome evidence of middle age. Senility and stagnation beckon.
Students of Irish economic history will be surprised to learn from the report that ‘‘Irish economic policymakers have taken brave steps at key points in our economic history to intervene and cause inflection points in our economic development’’.
If economic policymakers have been doing anything of the kind, they should be stopped as quickly as possible.
It goes on: ‘‘In order to secure Ireland’s economic future, we need to create an inflection point, a game changer. Achieving this inflection point is the focus of this report." This is a fatally confused point of departure.
The report, in fairness, goes on to recommend an increased concentration on mathematics in the school system.
The entire document is a professio fidei, a profession of faith. Not in the magisterium of the One, Holy, Catholic and Apostolic Church, but in government spending on research and development, a current religion-substitute.
The government is committed to substantial expenditures in this area, out of borrowed money, in the years ahead, and heavy expenditures have already been incurred.
To propose a huge additional commitment, by implication funded by more borrowing, without a concrete justification, based only on truths supposed to be self-evident, betrays a lack of seriousness which should scare people.
There is simply no solid basis in the task force report for believing that the proposed increase in public spending will deliver benefits which justify the costs. Nor is there any reckoning of the outcome from the substantial expenditures already incurred.
If anything has been achieved since the fiscal correction effort commenced in July 2008, it ought by this stage to be understood that the onus of proof has shifted to the proponents of expenditure increases.
The process of macroeconomic adjustment cannot be ducked through the articulation of job creation targets. That process includes tight control on public spending, current and capital, into the medium term.
The government is committed to further reductions in public spending in the period up to 2014, and there will inevitably be further taxation impositions. Both main opposition parties have accepted the broad parameters of the fiscal consolidation programme.
There is simply no guarantee that public spending restraint can somehow be abandoned from 2014 onwards.
The banking system has collapsed, and it is still insufficiently understood that the scale of Ireland’s banking collapse is exceptional by international standards, with matching macroeconomic costs.
The economy has lost competitiveness steadily over the last decade, and a relentless cost-reduction focus is already evident in the private economy. This needs to embrace utility charges, property costs, local authority taxes and charges and professional service fees, as well as payroll. Every item of public expenditure, including government spending on ‘innovation’, is ultimately manifested as a cost to the traded sector of the economy.
The substitution of targetry for policymaking is a popular, and populist, form of escapism.
The recent crop of job creation targets conjures up the quite implausible prospect of additional jobs exceeding the total currently engaged in export manufacturing.
The alternative to targetry is a consistent focus on the unpalatable, but inescapable, agenda of cost-reduction, across both public and private sectors.
Colm McCarthy lectures in economics at University College Dublin
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