Easy victims blamed in cost of living debate
The abolition of that order has not delivered what its opponents promised. The debate on the cost of living in Ireland has raised its head again in recent months and as was the case last time around, a lot of noise is being generated and little else.
A spokesperson for the National Consumer Agency has claimed prices are high in Ireland, because for years we have been prepared to pay them. I fail to understand the logic. At the extreme, if we as consumers stopped buying goods and services, the vendors would either go out of business or cut prices. However, we need to consume to live.
As was the case during the debate on the groceries order, there would still appear to be a basic unwillingness to face up to the real reasons why Ireland is so expensive. It is not because consumers are unwilling to shop around or stop buying altogether, it is primarily because the cost of doing business here is much higher than in comparable countries.
Over the past decade we have seen dramatic increases in the cost of a range of business inputs from wages, to local authority charges, to commercial rates, to rents, to natural gas. The high cost of doing business in Ireland has been consistently highlighted in the Annual Competitiveness Report from the National Competitiveness Council.
It has pointed out how expensive Ireland is for electricity, office and& industrial rents, labour costs, waste disposal and professional fees. These are all costs faced by the vendors of goods and services so they will obviously try to pass them on to consumers.
Also, since we joined the single EU currency; the economy has been pushed into an overheated situation that has resulted in excessive demand across the economy, particularly in house prices.
Economic theory suggests if demand exceeds supply, prices will rise. After we joined the single EU currency, an overheated economic situation was created due to inappropriately low interest rates and a weak currency and lo and behold, the cost of living increased dramatically.
From the perspective of consumer welfare, the key objective of policy should be to provide consumers with choice, in terms of product types, outlets, price and convenience. Looking at the retail landscape in Ireland, it does not strike me that a lack of competition is a big issue. New retail space has been coming on stream at a rapid pace in recent years.
We now have a large number of independent retailers operating alongside the multiples, and we have seen strong growth in the presence of discounters from Germany. Unfortunately, many corner shops are being forced out of business, but that is the nature of a competitive marketplace.
Rather than telling consumers to change their buying behaviour, it would be more appropriate to address the exorbitant cost of doing business here. Perhaps if business costs were controlled and/or reduced, retailers would be in a position to charge lower prices.
In this whole debate on prices, just as was the case with the groceries order, the easy victims are being identified and blamed, while the reality is there are more fundamental forces influencing prices in this country.
Incidentally, it was interesting to hear the National Consumer Agency warning it would lose 90% of its staff because of the decentralisation move to Cork. Decentralisation appears to be yet another government policy plucked out of the air and written on the back of an envelope. It should be stopped before it damages the structures of the economy.
Jim Power
chief economist
Friends First
