CAMERONS RENEGOTIATION WILL NOT BE EASY

The British Governments plan to renegotiate the terms of its membership of the EU do not come at a good time. The EU is tackling the possibility of Greece leaving the euro, and Ukraine going bankrupt while simultaneously being dismantled by force by Russia

Now, while doing all that, the EU has also to address itself to a, yet to be revealed, British renegotiation agenda. It is likely that this agenda, to some extent, will be shaped around David Cameron’s assessment of what he has a good chance of being conceded.  He is touring EU capitals to find that out. That is a sensible and pragmatic approach on his part.

What he gets will probably not satisfy the 100 or so Tory MPs who simply want the UK to leave the EU. And with a majority of only 12, David Cameron cannot ignore these MPs.  Other EU leaders will have to judge how close they should go to their bottom line, just to satisfy opinion in a country which may  leave the EU  anyway. 

There is one issue on which David Cameron’s demands are already very explicit and clear...the rights of recent EU immigrants living in the UK. This may, or may not, include Irish immigrants living in Britain, but I expect it could be difficult in EU law for Britain, inside the EU, to discriminate in favour of the Irish against other EU nationals

The Conservative Manifesto could not be clearer on the position of recent immigrants from other EU countries. It says that 

“If (EU) jobseekers have not found a job within 6 months, they will be required to leave “ .

This seems to be in direct conflict with Article 20 of the EU Treaty which gives EU citizens a right to “move and reside freely within the territory of (other) member states”.

Furthermore, the Manifesto recalls that the Government  has  already banned housing benefit for EU immigrants, and goes on to say

“We will insist that EU migrants who want to claim tax credit and child benefit must have lived here for five years”.

This seems in flat contradiction of Article 45 of the EU Treaty which requires

“the abolition of any discrimination based on nationality between workers as regards employment, remuneration, and other conditions of employment.”

Tax credits are a form of negative income tax. If discrimination in respect of tax credits were to be permitted, it would become impossible, within the EU, to resist a proposal to apply different income tax rates, or different tax free allowances, to people of different EU nationalities.

The irony of the UK Governments position is that they want a stronger Single Market, with greater freedom to sell goods and services, and move capital, across boundaries within the EU. But they wish to resist the freedom of movement of workers across EU boundaries ! This will be seen by many in the rest of the EU as ideologically biased, as well as discriminatory.

Angela Merkel, a politician who always looks for hard evidence, will be interested to discover that, between 2005 and 2014, only 33% of immigrants to the UK came from other EU countries, like Ireland. Only 2.5% of all benefit claimants in the UK originate from other EU countries, and EU immigrants to the UK are only half as likely, as native UK subjects, to claim benefit. 

Another knotty question, within the UK itself, will be the position of the devolved governments in Scotland , Northern Ireland and Wales.

For example, given their electoral support level, how can David Cameron exclude the Scottish Nationalists from the UK negotiating team?  Offering to include them could be good politics. Excluding them from the negotiating team, if they requested a place, would make a Scottish exit from the UK more likely

A UK demand  is likely to be the repatriation of more powers, from Brussels to the 28 member parliaments, including Westminster. The difficulty here is that a comprehensive “Competence Review” by the  UK Foreign Office, across the whole range of EU powers, failed to come up with  many concrete suggestions for powers that ought to be repatriated.

The UK may also demand a “red card “ system, whereby EU laws, already approved  in the Council of Ministers and the European Parliament ,where the UK is already well represented in both, could be derailed  by vetoes from a number of national parliaments. This would prolong and delay, the already laborious, process of EU law making. 

It would also run directly counter to another UK demand, for completion of the EU Single market. For example, the outstanding matters of creating a Single market in Digital Services, in Energy, and in Capital for lending, all in the UK’s interests, require more new EU laws,  not less.  

The unintended often happens in politics.

The proposed “red card” would, I believe, be more likely to be used by other EU states  to block things the UK wants, than the other way around.

These difficulties all suggest that David Cameron should seek to reframe the entire negotiation, both in the way he presents it at home, and in the rest of the EU. 

Rather than looking for exceptions for the UK, he should emphasise Britain’s capacity to take the lead in  the EU in clearing away barriers to economic growth across all of Europe, a stance that would play to his country’s strength, and would  put others on the back foot.

BILL O HERLIHY

Bill was truly a man of many talents.

While others can pay more eloquent tributes than I can, to his genius as a broadcaster and entrepreneur, I remember his willingness to take a clear political stand in the early 1980’s, while others, for perfectly understandable commercial reasons, kept their opinions to themselves. 

This was brave, risky, and patriotic and it showed the true character of the man.

I extend sympathy to his wife , Hilary , and his entire family.

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Statement by John Bruton, former Taoiseach

HOW CAN DEMOCRACY BE RECONCILED WITH GLOBALISATION? CAN OUR NEEDS AS INVESTORS, CONSUMERS AND CITIZENS BE RECONCILED?

In his book, “Supercapitalism; the Transformation of Business, Democracy and Everyday Life”, Robert Reich argued that the technologies  were developed to fight the cold war – computers, software, telecommunications and super-light alloys, along with containerization and cheap transport, opened up previously closed markets to global competition.

This has meant that the effective control of economics is no longer exercised by national governments, that could be accountable to national electorates, but is now exercised at global level where competitive forces are much stronger than democratic impulses. The forms of democracy remain, but the substance has moved elsewhere.

Because goods and services can be sourced anywhere in the world, competition between firms is now more intense than at any time in history. As Reich sees it, competition has drowned out other concerns. Human needs, such as the need for a measure of job security, now take second place in many firms to achieving the lowest possible consumer price, and the highest possible returns to investors.

In practice, the situation is not a stark as Reich says.  Even in the US, where the law gives firms great freedom to hire and fire, firms recognize it is in their commercial interest  to make their staff feel secure in their jobs, so as to maximise their productivity and commitment to the firm. As jobs become more specialized, firms want to avoid the cost of retraining new people to replace someone who has left because they felt insecure in their job. “Employee engagement” is a key metric of success for management. 

Reich argued that, all of us have three roles, as a citizen, as a consumer, and as an investor. 

Many people exercise their “investor” role indirectly, through pensions and insurance policies to which they contribute.  Global Competition has put our demands as consumers and investors, far ahead of our needs as citizens.  As Reich sees it, firms compete for markets, and for shareholders, in a much more intense way than before, because better communications, freedom of capital movement, and open markets.  They can no longer afford the high wages and the philantrophic approach, that was possible before the arrival of globalization. Otherwise they would go out of business.

As consumers or investors, it is true that we are not always aware to the fact that the much lower prices we are getting in the shop, or the higher return we used to get in our pension fund,  came to some degree at the expense of our own job security and our own environment.

Reich argued that it is futile to expect corporations to behave differently. Under law, their obligation is maximize the return to their shareholders. It was a waste of time asking corporations to be good citizens. Only people can be citizens, he argues. This is an overstatement. To retain valuable employees, firms have to show that they are doing socially valuable things, whether in their main business or as part of corporate social responsibility programmes.

Reich contrasted all of this with what he called the “Not Quite Golden Age” - between 1945 and 1970 – when competition was less intense, and companies had resources to spare to act as good citizens, and to pay good wages to those who were lucky enough to have a job.

That was then possible because the predominant industrial system was one of mass production, and the costs of setting up for mass production were so large, that firms who were already established , had a  protected market in which they could overcharge consumers. That ability to overcharge allowed them to be philantrophic and/ or to pay higher wages. 

They did not have to pay much attention to shareholders either, because national exchange and capital controls meant that investors had limited choices about where to put their money. This gave their trade unions much greater bargaining power, so wages and job security were better, for those lucky enough to have a job. But the downside of all this was a lower overall level of employment and economic activity. It is also worth saying that in the “Not Quite Golden Age”, while wages may have been relatively higher than they are today, the jobs were held mainly by men, women worked to a greater extent in unpaid work in the home. The new era of globalization has coincided with a big increase in the paid workforce, and far more women in paid employment, and the resultant local competition for jobs may have contributed to downward pressure on wages. There has been a trade off between more jobs, and more pay, and more jobs has won.

Reich said this “Not Quite Golden Age” will never come back. The forces driving globalization are physical and technological, and they cannot be reversed by political action in one country, unless that country seals itself off from rest of the world, like North Korea. Even East Germany had to take down its wall.

Unfortunately Reich put forward few remedies to the problems he analysed so well.

He suggests a transfer tax on shares, a law to briefly postpone redundancies, and greater trade union rights. But, if one country tried to put these measures into force on its own, even a big country like France, it would probably lose investors and market share, and then have to reverse these measures under pressure of market forces. 

This is the weakness of much modern Socialist and Social Democratic thinking. It offers solutions that would have worked in the “Not Quite Golden Age”, but that are impractical now, because they fail to recognize the changes wrought in the global economy by globalization since 1970.

The only way to introduce a democratic balance into global capitalism is to attempt to make rules at global level, or at least at supranational level.

Just as climate change can only be tackled by democratically agreed global agreements, the excesses of global competition can only be managed at global level too. 

The G20, not national capitals, is where the action is. But the G20 is not democratically elected, whereas national governments are.  We need to imagine a new politics of globalization, and create official fora in which voters have a sense that they can impact the work of bodies, like the G20, the OECD, and the World Trade Organisation. The European Parliament, one of the world’s few directly elected supranational parliaments, is model that may be followed more widely. Why not have the next step be a directly elected parliament to oversee the work of the OECD?

POTENTIALLY EXPENSIVE ELECTORAL VICTORIES FOR ENGLISH AND SCOTTISH NATIONALISM

The  self declared Conservative and Unionist Party won the  General Election in England by harnessing English Nationalism, and the Scottish Nationalists did the same in Scotland by harnessing Scottish Nationalism. The two nations, by the rhetoric of their respective election campaigns, by have thus set themselves on a collision course. 

The Conservative Party scared English voters with the prospect of a Labour Government taking office with parliamentary support from the Scottish National Party. English voters were persuaded that a Labour Government, dependant on Scottish Nationalists, would somehow steal English money for the benefit of Scotland.  If there was deep pro Union sentiment in England, this appeal would not have worked, but it did work. 

The implication of the successful Conservative ploy, was  that Scottish Nationalist MPs, although freely elected to and sitting in the United Kingdom Parliament, would not be  fit to have influence on the fiscal policies of the government of the UK as a whole, simply because they are Scottish Nationalists. They are thus cast in the role of “second class” MPs.

The Conservative Party was saying that Scottish Nationalists are not welcome as full participants in the Union, at least as far as having a say in the fiscal policy of the Union is concerned. That was a very anti Unionist stance for a self declared” Unionist” party to take.

Meanwhile the Scottish National Party itself won support in Scotland on the false premise that a Scotland separated from England could avoid austerity, whereas the reality is that an independent Scotland would, on present policies, have a larger proportionate fiscal deficit, than the UK( including Scotland) now has. Arguably an independent Scotland would have to have more, not less, austerity.

That is not, of itself, a reason for Scotland to reject independence, but if it opts for independence, it should understand, and be willing to pay, the extra cost. This was not teased out because, unlike almost any other country in Europe, Scotland has no serious, centre right, fiscally conservative , party.

This is not the first time that the Conservative Party has adopted English Nationalism as an electoral tactic.

It did so in the 1911 to 1914 period, when it sought to de legitimate the minority, Asquith led, Liberal Government of that period, on the ground that the Liberals were dependent for their continuance in office on the Irish Party of John Redmond, and were pursuing a policy of Home Rule for Ireland within the UK.

The Conservatives even went so far, at that time, to advocate extra parliamentary methods to defeat the Home Rule policy of their duly elected UK Government.

At that time, the Irish Nationalists, unlike their Scottish brethren today, understood that an independent Irish Exchequer could not afford to introduce some of the fiscal measures then being introduced for the UK, as transpired when an Irish Government in 1924 had to take a shilling off the old age pensions Lloyd George had introduced in 1909. Scottish Nationalists could learn from that.

The difficulty for the Conservatives, in again adopting an overtly English Nationalist stance to win English electoral support, is its effect on Scottish opinion, over the next five years, while Scotland will being governed, as far UK matters are concerned, by a Conservative Party that  fought an election on the basis that  MPs the Scottish electorate have chosen ought not influence UK fiscal policy. 

Meanwhile the Conservatives are committed to a referendum on EU membership which could result in English votes taking both Scotland and England out of the EU, even though Scottish voters might, by majority in the referendum, vote to stay in the EU.

In a Union, where England’s population is so much greater than that of Scotland, Wales, and Northern Ireland, the use of a simple majority referendum to decide such existential questions as EU membership is unnecessarily crude and divisive.

It reduces subtle and difficult matters to a simple “yes/no” question, and takes no account of the fact that the four components of the UK are not only different in size and population, but also very different in political culture.  Imagine what would happen if there had to have been an EU wide referendum of the bailout packages for Ireland and Portugal!

Nationalistic passions are all too easy to stir up, as a means of winning elections, but once kindled they are not easily or quickly extinguished. 

Now that the election is over, David Cameron needs to break with Westminster’s confrontational traditions, and adopt a consensual approach towards all the opposition parties and enlist their help in finding a way of devolving more powers to Scotland without aggravating the rest of the UK, and of negotiating with the EU on basis that will not further deepen divisions within the UK itself.

AUSTRALIA

I visited Australia this week on behalf of the IFSC. I t was my first ever visit to a country, in which so many Irish people have come to make a new life over the last 200 years.

IRISH CONNECTIONS

In fact, among the first Europeans to settle in the Sydney area, were 160 convicts transported there from Cork. 

I visited the impressive Parliament building of the state of Victoria to learn that in the 19th Century, two of the Parliament’s speakers were

+  Peter Fintan Lalor, brother of James Fintan Lalor, the Young Ireland revolutionary, and

+  Sir Charles Gavan Duffy, who had also taken part in the Young Ireland movement before going to Australia. Gavan Duffy’s son George, became a politician and a judge back in Ireland in the early years of the State.

THE ABORIGINAL PEOPLE

Although Irish people were among the first European settlers, Australia was already inhabited, for thousands of years, by an aboriginal people with their own strong traditions and values. 

Initially, these aboriginal people were badly treated, driven from their traditional hunting lands and marginalised in society. Their educational performance and participation in society has lagged, and their life expectancy is still 10 years below that of the average Australian.

In this sense their position is similar to that of the Travelling Community in Ireland, and for many of the same reasons .

At public events, including at the Mass I attended in St Patricks church in Sydney, the aboriginal peoples, who originally inhabited the site in question, are formally acknowledged by name, which is good and fair thing. It may not undo the damage done, but it causes people to pause and reflect.

AUSTRALIA IS VERY DEPENDANT ON MINERALS

Income per capita in Australia is very high, $10000 per head higher than the United States, and about $15000 per head higher than Germany.

Public debt is low, about 30% of GDP.

Australia has experienced almost 22 years of continuous growth and is expected to grow by 1.6% this year. Unemployment is only 6.25%.

But the prosperity is vulnerable because it is so dependent on non renewable sources.

Minerals have been, and remain, an essential contributor to the Australian economy.

But mineral prices are volatile, and this expose Australia to booms and busts.

Extracting minerals consumes a lot of energy and, as a result, greenhouse emissions per capita are higher in Australia than in any other OECD country.

Iron ore represents 22.6% of all Australian exports, coal, 12%, natural gas 5%, gold 4%, and crude oil 3%. 

So 46% of all Australian exports are of raw materials that are non renewable, and subject to volatile price movements. Iron ore prices are down now, because of reduced demand in China, and this will slow the Australian.

Since European settlement began, Australia has enjoyed three eras of long and sustained economic growth,

    from the start of the Gold Rush in 1851 up to the early 1890’s,

    from the end of World War Two up to the  early 1970s, and 

    from 1992 to the present.

Despite its large land area and low population density, agriculture plays a relatively small part in the Australian economy. Wheat and beef are less than 4% of Australian exports. Water shortage is the key problem.  Finding a way to boost agricultural production, by using solar energy to desalinate sea water, and thereby improve Australia’s food production, is a priority. The centre of Australia is largely uninhabited because of water shortage.

Services are the big components in the Australian economy, Finance (10%), Construction (9%), professional services (7.5%) and Health (7.5%) are the biggest contributors follows by public administration, transport and education. Manufacturing contributes only 7.5% of Australian GNP. 

The service economy is sustained by minerals exports.

Up to the 1980’s, Australia pursued protectionist policies. The minerals boom has enabled it to abandon these without too much pain.

Nowadays, 32% of all Chinese exports go to China, 15% to Japan, and 7% to Korea. Only 5% go to the US, and only 2.4% to Britain (its traditional market). A downturn in Asia would hit Australia very hard. This is unlikely, but private debt in China has reached 200% of GDP, and Chinese residential construction has slowed down. This could dampen demand for Australian exports.

RENEWING OLD ACQUAINTANCES

During my visit, I met two Australian politicians, who were my contemporaries in politics and who I had got to know well over the years.

One was John Dawkins from Freemantle, who was a Labour politician and Treasurer (Finance Minister).

The other was Phillip Ruddock, a Liberal MP, who is still in Parliament, and was Immigration Minister, and until very recently Government Chief Whip.

While in Australia, I read an excellent book by another political contemporary.

Former Australian Prime Minister and Finance Minister, John Howard. Our times in both of those offices in our respective countries overlapped. John’s book  is entitled “The Menzies Years”, and covers Australian political history from 1949 to 1972. It is a remarkably fair minded book, and an excellent background for understanding Australia today.

THE CONSTANT SEARCH FOR NOVELTY IN ANNUAL BUDGETS LED TO THE 2008 CRISIS, AND IS NOT THE WAY FORWARD NOW... EXPENTITURE CEILINGS SHOULD BE REALISTIC AND MEANINGFUL

The Spring Economic statement by the Irish Government  has come in for criticism, mainly that it contains “nothing new”.

This sort of criticism is understandable from the point of view of a media ,for whom novelty is what gets attention. 

But  a search for novelty  is what got Ireland got into difficulty in the first place.

The persistent search for novelty and “new initiatives” in annual budgets, every year from 2000 to 2007,was one of the reasons Ireland overspent, and got itself into a crash. Novelties in annual budgets eviscerated the tax base, and led to unsustainable spending commitments. 

At that time, if the budget had not contained some sort of big new announcement every year , the Minister would have been open to the criticism that he lacked “vision” or “imagination”. 

Now the same chorus is beginning to be heard again. Memories are indeed short.

The Spring Statement does not contain any such novelties,  but from the point of view of the public, if not the media,  that is a very good thing. It restores an important sense of perspective.

The important perspectives  in the Spring Statement are that 

• Growth in Ireland was 4.8% last year and will probably be 4% this year. This is the highest growth rate in Europe
• 95000 new jobs have been added since 2012, and the IDA plans to attract a further 900 new investments by 2019, adding 80000 new jobs
• net emigration is likely to cease next year, on present trends
• The government deficit of spending over revenue was 15 billion euros, and it is now 4.5 billion euros

In his contribution o the Spring Statement, the Minister for Public Expenditure said again that the government is “now planning expenditures on a multiyear basis”, and  that Departments are operating under “multi annual expenditure ceilings”.

He also drew attention to the fact that the ageing of Irish society will add 200 million euros per year to health costs, and that the high birth rate will necessitate the appointment of 3500 extra teachers by 2021.

In fact, next year, the natural growth in demand for existing services public spending will on its own increase spending by 300 million euros, without ANY change in policy

This natural upward pressure on spending will mean that the setting of expenditure ceilings  for each Department will be a difficult task, requiring honesty and courage. 

This natural increase in spending, without policy change, needs to be spelled out for each Department, and separated completely from any increase that is due to a policy change.

In recent years, the expenditure ceilings for one or two major services have been repeatedly breached. A ceiling that can be too easily breached will not keep out the rain!  It certainly imposes no discipline on local management.

This sort of breach in an expenditure ceiling can, of course, be easily explained, if there has, for example,  been an unexpected increase in unemployment. It is less understandable if the demand for, or the cost of, normal health services has been underestimated .

It should be possible to predict the level of demand for, and the cost of, health services a few years ahead, on the basis of known facts about the age structure of the population, and to separate that from increases in spending that arise from unexpected one off factors. 

The budget system should incentivise local managements, who know their services best, to make the necessary savings and reallocations in time.  That job cannot be done as easily by Merrion Street.

If a Department exceeds its agreed annual expenditure ceiling, there ought to be a special procedure whereby both the Minister, and the Secretary General, of a Department, provides an early special statement to the Dail. This could be provided for in Standing Orders .

The Minister would account for, and quantify any policy changes, unexpected events, or recalculations that account for an excess, and the Secretary Genera would account for any lapses in expenditure management.

That procedure would ensure that future expenditure allocations would  be “evidence based”,  which is one of the  goals of the Minister for Public Expenditure and Reform.  It would add to the seriousness of the Estimates process and impose better accountability.