Why the Irish Economy Failed

March 31, 2009

As a tour guide in Rome, and in general, I meet many people who ask me where I am from. When they learn I am Irish they relate an experience of a holiday or vacation they had there, how beautiful the country was, how friendly the people were and so on. Eventually the discussion moves on to why the Irish economy is in such trouble. Here are my thoughts on the matter.

Ireland, a previously poor country, boomed from 1997 to 2007. This was due to Ireland reducing its corporate tax rate to low single digits, 10% and later 12.5%, and intentionally attracting the computer industry to the country, which was looking for a European base at the time. Ireland also had other advantages, such as being an English speaking country, its location between Europe, the Uk and the United States and its membership of the single European currency.

This economic boom brought unprecedented revenues to the country and was an excellent opportunity to sort out some of the problems the country had, so when the boom ended, which it always would, the country would be in an improved position. Accordingly, here are my thoughts on what we should have done in the boom to prepare us for the recession. This article is not hindsight; I was saying these things as early as 2004 and I left Ireland in 2005 because I knew what was going to happen.

1. Laziness. Too Many on Welfare. Too few Working.

During the boom 400,000 or more jobs were created in this country and all the while 100,000 Irish people received unemployment benefit. Most of these jobs were taken by foreigners who then sent money home (I have no problem with this) but 90% of the people on welfare were able bodied and could read and write. They refused to work and tax payers bank rolled their laziness. There were four jobs for every person on the dole. The country should have given the unemployed three months notice to get off welfare and then cut them off. Welfare spending should have remained the same and should have been put aside in to a welfare fund and not touched. Thus Ireland would now be able to pay for all those on welfare who have contributed to it through their taxes and REALLY do not want to be on it.
This unfortunately could not have been done due to the influence of the Irish Times & the Labour Party, who are the main agents of social democratic political correctness. They feel sorry for poor people, even if they are poor because they refuse to work. The Irish state would also would have got additional tax revenue from the legal incomes of the new workers. Equally not as much money would have been sent home to Poland or Lithuania by the workers who took the jobs Irish people refused to do.
The laziness was not restricted to the usual suspects on welfare but also a generation of teenagers who now refused to get part time jobs in their local shops, bars and other services as had been the norm for years. These minimum wage part time jobs were now done by foreign nationals who more often than not did the job better than the Irish would have done. This convinced many Irish employers to never hire Irish staff again.

2. High Prices. Over-charging.

During the Celtic Tiger inflation, a rise in the general price level, was regularly at 8% per annum and this was not due to increased production or oil (a 2% increase at most) but due to greed. Irish shopkeepers, bars, retailers and any business selling anything raised prices regularly and in some cases monthly. Irish people don't pay attention to the price of commodities in a shop and they hate complaining about anything. As a result the price of everything went up, a pint of beer hit €6 in Dublin, gas and electricity bills went up as did food and everything else. Price freezes on many commodities should have been enacted and some civil servants should have been redirected to regularly check the price of commodities and ask the retailer for an explanation once they the price rises. Eventually shop keepers would have realised what an inconvenience it is to overcharge people. I have no problem with profit, merely with profiteering. High prices and low wages create a recession and the Irish economy was shrinking prior to the banking collapse as a result of high prices which were not explained by costs.

3. Lack of Competition.

We did see some competition in Ireland due to English and American companies starting branches here.
Only some. Monopolies and cartels were still numerous and a cartel mindset was prevalent with different firms in the same market matching prices. Competition actually works (I saw it in America and I didn't believe in it before then) and it is a good thing. Currency exchange rate differences, which would mean foreign goods should have been cheaper, were also not passed on to Irish consumers as they will put up with any kind of injustice no matter how small or large. A genuinely competitive environment could have driven prices down but this time the Irish people themselves were at fault as they will pay anything for anything. Commodities were very elastic and not responsive to price.

4. Public Sector Pay. Too many civil servants. Not enough police or teachers.

During the boom Ireland like many countries hired extra unneeded civil servants. In 2007 it had 39,500 civil servants and a population of just over 4 million, meaning 1 in every hundred people worked for the government. These civil servants were paid very well, much better than those in the private sector, and the wage bill reached billions. At most Ireland needed 25,000 civil servants. The boom was an excellent opportunity to fire or retire bad or unneeded workers from the service and to streamline it, ensuring everyone had a job with specific tasks, workload was distributed fairly, the service was transparent and customer focused and responsive to the needs to today. I would have paid them a maximum of 100,000 for the top grades (few reach this) and it is a public service not a business. If the wage and benefits bill was kept at 5 billion or below, the country would be ok. It is not the civil servant's fault they were paid that much, and not all of them were, they never should have been hired in the first place.
Ireland also has only 15,000 police. This is not sufficient even though crime is relatively low here, it shouldn't exist at all. I would prefer if we had 25,000 police and as many teachers are are needed.

4. Inefficient Public Services.

Dublin bus, Bus Eireann, Iarnroid Eireann (Irish Rail), ESB, Bord Gais and Eircom all should have been streamlined.
Getting all new equipment, streamlining the company processes, retiring workers who were bad or not needed, releasing them in to the private sector so its not the public sector responsibility to support them. If a recession happened, like now, these workers would not have been a problem, would not have released in to an economy unable to provide them with jobs and the companies would not be a burden on the tax payer. Also the price of gas, electricity, telephone and internet could have come down due to efficient, transparent processes. Ensuring all transport services leave on time. No more changing drivers or buses: 1 bus, 1 driver, 1 journey; passengers cannot be inconvenienced and not move on a method of transport. Only in Ireland.

5. Income Inequality.
Over the last ten years doctors who were experts in their field became 'consultants' and charged three times as much for half as much work. Many of them were getting 250,000 a year to work 30 hours and answer questions, often not successfully. I would have paid them 125,000 per year maximum. The majority of the work in the health service is done by and nurses and junior doctors who are not paid enough. More medical universities are required to ensure people can study medicine and become doctors and nurses. Opening markets lowers prices. Investing in capital (machines), building hospitals, reducing cancer screening times and having separate workers clean hospitals to medical standard are issues which should have been pursued but weren't as the government were afraid of consultant unions. Consultants thought that 250,000 a year was "mickey house money". This is not the United States, it is a small country called Ireland. Many people in many public or semi-state industries were paid too much such as Pat Kenny, a television presenter, who earned €900,000 per annum. Fine in the private sector but not in a state funded body. These people weren't worth that much; they couldn't have all left for England to work as presenters there.
Equally, half the country, half of those employed were paid less than 30,000 per annum, myself included. We were the ones doing the majority of the work in the society and our employers refused to pay us well. When the middle class have a small fixed income and prices rise, demand will go down, consumption will fall, people have to lose jobs as there isn't enough cash to pay them and a recession is not far away.

6. Bad Education System.
Our education system is dreadful. The curriculum is not as good as it could be and even if it was, it is not being delivered as teachers spend the majority of their time controlling disobedient students. Its a creche all the way to and including third level. About 20% of teachers are unsuited to the profession (like many workers in many industries) and should be pensioned off. The rest need to be trained to ensure they are being as good as they can be. Once that is the case, teacher should have the ability to remove bad pupils from class and recommend suspension or expulsion. Students no longer respect teachers as the inmates have run of the asylum. The curriculum or plan of education needs to be made more practical, difficult and dynamic. Students do not spend enough time in school. Bullying is out of control and bullies should be expelled. Again politically correct people do not like this as everyone has a right to an education. No you don't not if you deliberately abuse it. Cameras should be in class rooms and class sizes should be limited to 20 pupils per class with no two levels of the same subject in the same class (this often happens). Irish universities are not as proficient as American or British Universities and academic standards are lower. This affects out ability to compete globally.

7. Bad Communication System.
Ireland's communication infrastructure is terrible. The majority of the country does not have broadband. During the boom, people on welfare could have been drafted in to a state construction company to dig pipe lines, lay exchange boxes and fibre optic cable to supply broadband internet and improved telephone service throughout the country. The private sector could not do this outside cities because it is cost prohibitive, so the government could, it had the money. Private companies could pay a line rental to the government and then compete for customers based on price, quality of service or options they offered.
Having an excellent communications network would have solidified Ireland's reputation as a technology leader, would have attracted new IT businesses here and ensured the ones which are already here do not leave to to lower wages costs in developing economies. Also government deregulation, placing government departments outside Dublin, would have become feasible.

8. Borrowing and reckless spending
With record exchequer revenues coming in, the Irish State continued to borrow money from other countries and banks to fund current expenditure, mainly to pay the wage bill of the civil service (51% of government spending) it didn't need. No spending reviews were enacted to see what the government was spending money on and if those projects were needed. No lists or databases were created to see what the government should be spending money on such as school buildings, many of which are decrepit. Ireland's national debt increased during the last ten years when it was entirely possible to pay it off.

9. No saving.
Once the national debt was paid off, the National Treasury Management Agency should have then managed the National Treasury Reserve Fund. By maintaining the level we were paying off the national debt, we could create a reserve fund. This fund would be used in national emergencies like a recession, flood damage or to instill confidence in foreign countries that the Irish economy was sound. If needed, we could lend this to other countries at interest and make money from it.

10. No oversight. Banking reform.
Like many things in Ireland, the banking system was never inspected. The scale of reckless lending there does not surprise me, but bank loan books should have been inspected regularly and a greater fraction, say 20%, should have been held in reserve by all banks. The banking collapse did not cause the Irish recession, it merely hit the nail in the coffin. I would not have recapitalised Anglo-Irish bank, which caused the majority of the scandal, as it was not a deposit bank. AIB and Bank of Ireland do have people's current and savings accounts so bailing them out would eventually bring about a return. Unless capitalism fails.

Summary
That's some of my points on the recession. I think Ireland's current woes were caused by laziness, high prices, a lack of competition, inefficient public services, a bad education and communication systems and big government with those at the top earning far more than they were worth. This ignores the other problems Ireland has such as a bad transport and criminal justice systems other other issues; these did not cause the recession they existed before, during and after it. If the above reforms had had been enacted during the boom we would not be in dire straits during the recession. Ireland is an interesting place to live and our problems are not insurmountable. Ireland has to abolish its "ah, sure that's just the way it is" mentality and start earnestly solving the country's problems.