Tom O’ConnorCollege Lecturer in Economics & Public Policy

Cork Institute of Technology.Member of Economists’ Network TASC

1 trillion inc €750 in loans to EU states to defend the euro by EU and IMF

“In October, the European Commission, the EU's executive body, will draft new rules for buying and selling credit default swaps, part of the largely unchartered $600 trillion derivatives market that ballooned ahead of the global financial crisis” (Reuters May 17 2010)

The market has failed

Date Unemployment

Tax Take Exchequer Deficit

31st Dec 2007 198,000 47.8 billion 1.6 billion

May- June 2008 201,800 Down 1.45 billion

5.65 billion

31st Dec 2008 352,000 41.6 billion 12.7 billion

31st Dec 2009 436,956 33 billion 24.6 billion (Inc paid Anglo 4 billion)

Two Years 08+ 09

238,956 14.8 billion 20.6 (minus Anglo)

Unemployment

Tax Take Time

Aug 09 436,275 20.79 billion Jan-Aug 09

31 Aug 2010 466,923 18.92 billion Jan-Aug 10

+30,658 -1.87 billion

Excheq Bal -18.2 (end 09)Minus Anglo+NPRF11.7 (Aug 09) minus Ang/NPRF

-22 billion (end 10) No Anglo or NPRF12.0 (Aug 10)No Anglo or NPRF

Govt ‘control’ of finances (aug) is spin.Worse off by 4 billion end 10

Aug 2009 Aug 2010

Income Tax

7,227,341 6,635,016 -8.19%

Corporation

2,418,031 1,836,837 -24%

Vat 7,203,273 6,738,901 -6.4%

Income/Training Levy

896 391 -56.3%

The govt budgetary estimates: Current spending up by 4.7 billion (2010).

Dept of Social and Family Affairs spend (voted) up from 10.6 to 13.6 billion

Taxes down 0.6 (after falling hugely) Non-voted Capital Spend down 7 bill (Anglo

+ NPRF Non tax revenue (central bank, national

lottery)=+1.5 billion EB down by 3.3 billion, 25.3 bill to 22 bill If Anglo and NPRF were left out, govt worse

off in 2010. Current spending is all that’s left for 2011for cuts

Taxes will fall more than 0.6 bill this year + Unemployment payments will be higher than forecast. See income tax fall of 8% earlier.

Current spending cuts all that’s left and spiral downwards will result.

If economy was stimulated: govt tax receipts would rise and social welfare payments would fall.

This would allow a modest increase in key public service spending which is always necessary.

Instead cuts in key services in communities are being cut to compensate for increased spending due to the recession.

It would also mean that much of the capital spending could be retained to help economic

recovery.

The Competition state (Cerny) is obsessed with supply side costs in particular labour

Focus on cutting wages This will not work: Asian, African, Chinese and

Eastern European Economies will always be cheaper.

This doesn’t justify un-sustainable wages Low pay proposals are a race to the bottom These proposals increase the power of TNCs

and Increase vulnerability to economic shocks

Tax Payers Labour Force

0-20,000 700,000

20-30,000 1,000,000

70-100,000 160,000

Over 100,000 140,000

150- 1 mill 50,000

Year Unemployment

Real GDP Growth

1987 16.6 4.71988 16.2 5.21989 14.7 5.71990 13.4 8.51991 14.7 1.91992 15.4 3.31993 15.6 2.71994 14.3 5.81995 12.3 9.61996 11.7 8.31997 9.9 11.71998 7.5 8.51999 5.7 10.72000 4.3 9.22001 3.8 6.22002 4.3 6.12003 4.6 4.42004 4.5 4.5

Wall Street Journal Jan 8th 2009 ‘The New Old Big Thing in Economics: J.M. Keynes

‘So, nations are turning again to government stimulus spending to try knocking the economy back on track. Economists say that if governments can get money into the economy quickly, targeting projects that will have the biggest effect, and make sure the spending is temporary, they can avoid inflation and wasteful spending. "We do need a jolt to really cushion the blow of this shock," says Morgan Stanley economist Richard Berner. "We need a stimulus that is temporary but substantial."

Robert Skidelsky (2009) Keynes: the Return of the Master:

“ Economies wounded by these ‘shocks’ can, if left to themselves stay in a depressed condition for a long time. That is why the government need to have and use fiscal ammunition to prevent a slide from financial crisis to economic depression. [another key part of keynes] is ‘a moral critique of societies which worship the persuit of money and efficiency above all other objects of human striving.

Stimulus packages have also been suggested by Krugman and by the Stiglitz (Stiglitz Report).

Double dip recession is a real possibility Japan has just announced a new stimulus

package. China is stimulating its economy. Ireland has had a cultural aversion to

enterprise creation. New enterprises not been funded except by

VC. Government losing enterprise opps.

Pay can be ‘decent’ if increased value goods and services are produced.

This does mean using education, training and technology to develop ‘high knowledge industries’ to give a country a competitive advantage in internationally traded areas.

Ahead of The Curve (2006): telematics; sustainable energy; food ingredients; ethical pharma; biomedical devices; export of education and health services.

Need for sustained govt investment in economy: next slide

Currently: 60 Strategic Research Clusters Nationwide: Biopharma, ICT, Export Services

28 Incubation centres with 240 companies Only 1,000 currently employed (Enterprise

Ireland 2009) Despite 2.65 billion spent in 2008 on Science

and Technology and about 1.5 billion this year, only 30 spin outs projected from 2009-2013

Minister O’Keefe announced extra 5.5 million for HPSUs but budget of only 187 million 2011-2016

DETI Budget covers Enterprise Ireland, IDA Ireland, County Enterprise Boards, Shannon Development ++

Budget cut from 2.07 (2009) to 1.38 billion in 2010 a cut of 33%

DETE ‘Developing Skills of Labour Force’ Function cut from 1.08 billion in 2009 to 212 million in 2010 a cut of 80%

Policy to create employment working in reverse

In Sweden wages are about 32k pa Universal services: childcare; geriatric care;

health care; re-training; strong welfare payments are guaranteed as quid pro quo for retraining: increases flexibility

This lowers cost of living and enhances quality of life

Flexicurity promotes higher employment, continuous job creation and workers moving in to new areas.

Sweden has the highest employment rate in world

New policy on workfare is useless Irish Jobseekers= €196 Nordic model= minimum of 75% of previous

net earnings This works: Sweden highest employment

rate Workers are more flexible and can change

careers flexibly for different jobs. This benefits the worker and the economy

System known as ‘flexicurity’.

Education attainment

0001991

% 0002001

% 0002010

%

Less than Secondary

498 43 524 32 528 27

Upper Secondary

417 36 640 39 756 39

Third Level 235 20 483 29 679 35

Total 1,149 100 1,648 100 1,963 100

Insufficient Training Reponse: April Budget

Department of Enterprise, Trade & Employment •Community Employment Scheme 400 •Training Initiatives Strategy (10-week courses) 12,015 •Training Initiatives Strategy (20-week courses) 1,833 •Work Experience Scheme 2,000 •Pilot Scheme for Short Time Workers 277 Sub-total 16,525

Department of Education & Science •Transition courses 930 •Accelerated Certificate Programmes 280 •Full-time 3rd level places 2,000 •Post Leaving Cert Courses 1,500 •Redundant Apprentice IoT Scheme (with D/ETE) 700 •Part-time 3rd level places (with D/ETE) 1,500 Sub-total 6,910 Total estimated number 23,435

Higher re-training allowances: €330 per week: min of £180 in the UK

Training for ‘real jobs’ not workfare State development bank and agencies: vetting

business proposals in ‘ahead of the curve areas’ and financing.

Intensive training of unemployed in parallel to fill skills needs.

Training infrastructure deficient (NESC 2005) State loans/grants of 50% shared ownership.

This prevents company flight of even indigenous.

Part state ownership or full state ownership in ‘leaner’ new state SOEs (Mustachio).

Thomas Cook workers would be still in work. Opposition to SOEs is totally ideological These are considered a strongly viable option

in the post financial collapse era according to conversations I’ve had with Prof. Aldo Mustacchio of Harvard Business School

The commitment by economists to bank lending is incredible: money supply has fallen by about 7% and domestic credit expansion has dried up.

The state as a company owner The Swedish state is an important company

owner in Sweden. The Swedish Government Offices administer 55 companies, of which 42 are wholly owned and 13 partly owned. These companies represent substantial values and are large employers. Furthermore, they are ultimately the common property of all Swedish taxpayers. The state therefore has a considerable responsibility to be an active and professional owner. (Govt Offices Sweden

In 2006 the aggregated turnover for the state-owned companies amounted to SEK 339 billion (€40 billion) and the net profit amounted to SEK 55.3 (€5.5) billion. The dividend of the companies for the financial year 2006 amounted to just over SEK 37 million. The value of the state-owned companies administered totalled around SEK 770 billion in June 2007. (Govt Offices of Sweden)

The "Good" SOEs of the Twenty-First Century

We describe briefly three instances of SOEs that have reached high levels of performance: Indian Railways, Petrobras, and Statoil. They hail from countries as culturally varied as India, Brazil, and Norway, respectively. The first one provides a service (transportation), while the other two perform heavy industrial activities. They all share, however, a commitment from the state to adopt a proper institutional framework that allows them to succeed in a globalized world. We believe that these firms can set an example for other SOEs to adopt in the years to come.(Mustachio 09)

Thank you! Question time.