In March 2010, writing in this newspaper, 28 economists, social scientists and economic analysts – including many of the present writers – warned that an economic approach based on spending cuts combined with tax increases on low and average earners would bring about a low-growth, high-debt and high-unemployment future. Instead, they argued for an investment strategy designed to generate employment in the short term, while addressing Ireland’s serious economic and social deficits in the medium term. This, they argued, would help bring about a job-rich recovery and fiscal stability.
Two years and two austerity budgets later, the economy is still stagnating, employment is still falling while debt is still rising. Ill-considered cuts are further degrading our social and economic infrastructure. The policy response to the unemployment crisis has been inadequate. The government itself forecasts that more than one-in-ten of the workforce will be unemployed in 2015. The trend in long-term unemployment is particularly worrying as is the increase in income inequality. Nearly one-in-four now suffer various forms of deprivation. Yet, Ireland still remains unlikely to achieve its 2015 deficit target.
At a European level, instead of addressing the roots of the crisis – continuing instability in the financial sectors, unsustainable debt burdens and the flawed design of the Eurozone itself – policy is focused on enshrining austerity through the proposed Fiscal Compact. The oppressive structural deficit target, in particular, will further depress growth in the Eurozone and, in Ireland’s case, trigger continuous austerity until at least 2018.
The evidence is clear – contractionary fiscal policy does indeed contract economic activity and employment. The austerity-focused policies being pursued in Europe and in Ireland will continue to drive down employment and living standards, while embedding high levels of long-term unemployment in the economy.
Instead, we need to embed growth and jobs into the economy. This will require a fundamental change of policy at the European and Irish levels. Recent job creation initiatives, while welcome, only deal with the supply side of the problem, with virtually no additional measures aimed at the other side of the problem – increasing the demand for labour through investment, which will in turn give a much needed boost to the domestic economy.
Sustainable jobs-rich growth requires investment to increase the productive and innovative capacity of the economy. Education, labour skills and infrastructure must form the focus of such a recovery-centred investment programme. Pre-primary education, up-skilling, next generation broadband, research and development and renewable energies – these types of productive investment can result in new economic opportunities, enhanced social equity, and environmental sustainability.
These are also the areas where we continue to lag behind many of our EU neighbours. They offer opportunities to genuinely enhance the economy’s competitiveness, which is about much more than labour costs. Such investment must be accompanied by policies that support the incomes of low earners and reduce poverty – thus helping boost the domestic demand on which businesses rely.
The remaining money in the National Pension Reserve Fund (€5.4 billion) should be used to fund such investments, and we should proactively lobby at European level for a dramatic expansion in the lending capacity of the European Investment Bank. Private pension funds are also a potential source of financing commercial-return investment. Consideration should also be given to utilising a portion of the €15 billion currently held by the Government in cash and other assets.
We can also employ the strength of our combined public enterprises – their off-balance sheet borrowing and investment capacity – to invest in our infrastructure and create new indigenous enterprises, both public and private. This will require a new approach to our state assets – utilising them as strategic components of a 21st century industrial policy rather than as assets to be sold off for short-sighted once-off benefit.
Such an investment progamme must be accompanied by ’smart’ fiscal consolidation, focusing on the least contractionary forms of fiscal adjustment. This requires progressive and equality-proofed taxation targeting high-income groups, property assets, unproductive activity and passive income, as well as environmental measures.
In the medium term, we should explore the potential of social insurance and local taxation to broaden the tax base while providing real benefits in return. PRSI can be expanded and combined with general taxation to provide free universal healthcare and earnings-related pensions. Stronger local taxation has the potential to be more accountable while providing investment in services responsive to local needs.
On the expenditure side, there needs to be a continued focus on increasing productivity and efficiencies in the public sector. Other countries have shown the contribution that employee-driven innovation (in both public and private sectors) and flexibility can make to reducing costs and increasing output – and how much more effective this is than crude top-down measures.
Current policy and actions are compounding the problems engendered by the fiscal crisis. Neither the Irish nor the European economies can afford to continue along the current failed path. We need sophisticated strategies which will embed growth rather than stagnation and decline into the economy. We must pursue evidence-based fiscal consolidation while ensuring that all share in the fruits of recovery.
Professor Bernadette Andreosso, Department of Economics, University of Limerick
Dr John Barry, Associate Director, Institute for a Sustainable World, Queen’s University Belfast
Brendan Bartley, Research Associate, National Institute for Regional and Spatial Analysis, NUI Maynooth
Dr Proinnsias Breathnach, Department of Geography, NUI Maynooth
Michael Burke, Economic Consultant, London
Dr Michéal Collins, Senior Research Officer, Nevin Economic Research Institute
Peter Connell, Pension Policy Research Group, TCD
Dr Sheelah Connolly, Research Fellow, Irish Centre for Social Gerontology, NUI Galway
John Corcoran, Lecturer in Economics, Limerick Institute of Technology
Dr Daryl D’Art, DCU Business School and Kemmy School of Business, University of Limerick
Dr Roland Erne, Quinn School of Business, UCD
Dr Mary Gilmartin, Department of Geography, NUI Maynooth
Dr Tom Healy, Director, Nevin Economic Research Institute
Professor Gerard Hughes, Adjunct Professor, School of Business, TCD
Professor David Jacobson, DCU Business School
Dr Sheila Killian, Head of Department, Kemmy Business School, University of Limerick
Patrick Kinsella, School of Communications, Dublin City University
Professor Peadar Kirby, Professor Emeritus of International Politics and Public Policy, University of Limerick
Professor Rob Kitchin, Director, National Institute for Regional and Spatial Analysis, NUI Maynooth
Professor Terrence McDonough, Department of Economics, NUI Galway
Tom McDonnell, Economist, TASC
Tony Moriarty, Research Officer, Unite
Dr Mary P. Murphy, Department of Sociology, NUI Maynooth
Dr Nat O’Connor, Director, TASC
Dr Tom O’Connor, Lecturer in Economics and Public Policy, Cork Institute of Technology
Dr Colm O’Doherty, Department of Applied Social Studies, Tralee Institute of Technology
Dr Rory O’Farrell, Researcher, Nevin Economic Research Institute
Professor Seán Ó Riain, Department of Sociology, NUI Maynooth
Dr Michael O’Sullivan, author of ‘Ireland and the Global Question’
Dr Michelle O’Sullivan, Kemmy School of Business, University of Limerick
Sinéad Pentony, Head of Policy, TASC
Odran Reid, Economist and Town Planner
Dr Jim Stewart, Associate Professor of Finance, School of Business, Trinity College Dublin
Paul Sweeney, Chief Economist, Irish Congress of Trade Unions
Michael Taft, Research Officer, Unite
Professor A. Dale Tussing, Emeritus Professor of Economics, Department of Economics, Syracuse University (USA)
Joseph Wallace, Adjunct Senior Lecturer in Industrial Relations, Department of Personnel and Employment Relations, University of Limerick,
Professor James Wickham, Jean Monnet Professor of European Labour market Studies, TCD
Colin Whitston, School of Business, National College of Ireland
This letter was published by the Irish Times on 6th April 2012