Worrying signs that economic recovery will be lost in rush for votes

As the election looms, the pressure will be on the mainstream parties to dangle carrots at the voters, writes Kyran Fitzgerald.

The signs are all there that the economy is turning up: The roads are busier, the cranes have begun to reappear, and waiters in trendy spots are looking rushed. Estate agents are excited, while landlords have a gleam in their eye as they dictate terms on a take it or leave it basis.

What we are enjoying is a strange, but very real, curate’s egg — a trickle-down recovery where ‘animal spirits’ have been boosted by a drop in energy prices and by the fact that many people have simply got tired of being afraid.

These people have decided to go out and spend to carry out long overdue repainting and refurbishment of the home, and replaced the car and other consumer durables that have started to get a bit long in the tooth.

Such faith in the future, going against the grain of recent years, tends to be self-reinforcing.

It can be hard to pin down what sparks and then drives forward consumer confidence. What is curious about the current rebound is that it comes at a time when people retain a pretty low opinion of the Government. There is a strange disconnect there, driven, in part at least, by the new world of instant mass communications.

Using the tools of social media, practitioners are able to highlight instances of injustice as never before. The citizens are fed a diet of often absorbing ‘Talk to Joe’ personal stories which highlight the drawbacks of those in authority. In this world, where much more is now revealed to the world, it surely must become harder for the incompetent and unscrupulous providers of services to survive in place.

But it has also become nigh-on impossible for people in Government coping with shrunken post-austerity budgets to plan ahead and prioritise in an environment where interest groups and their advocates jostle to secure their rightful share — as they see it — of the public purse.

This then is the first great cloud on the economic horizon: A possible toppling of the budgetary apple cart by groups pressing for their share.

Public servants seek immediate restoration of 2007 pay levels, though, interestingly, some of their leaders sound a more cautious note. Lobbyists push popular projects such as football stadia and conference centres, extracting valuable offers of support from leaders with regional powerbases to think about.

The danger is that we get ‘spend, spend spend’ rather than the carefully thought through prioritisation — with the pay-down of part of a huge debt mountain — favoured by economists and by groups such as the Fiscal Council, who end up looking like grumpy aunt Ethel at the family wedding.

The two major external drivers of the recovery are the fall in the price of oil — offset in part by a sharp rise in the US dollar — and the ECB’s programme of quantitative easing (QE) which has begun to take effect.

The falling price of oil, after a delay, has led to lower prices at the pump. This has helped to boost the feel-good factor among the ‘coping’ motoring classes who tend to form the bedrock of support for centrist and centre-right parties.

QE has helped Ireland, one of the world’s most open economies, in particular. A drop in the euro has seen exports propelled forward in the past 12 months.

However, the wind threatens to change direction.

The vendors of the thick black stuff, oil, have clawed back some of the lost ground, as a result of cutbacks in production, while a drop in the euro raises the prospect of imported inflation to add to that generated at home in the form of rising rents.

Rents have reached an average of €1,500 a month in the more salubrious areas of Dublin and there is a concern that Ireland could be pricing itself out of key skills markets should this trend continue.

Such developments strike at the heart of Irish competitiveness, a fragile flower when you strip out the flattering figures issued from multinationals using Ireland as a tax base.

Ireland has recovered its reputation as a value destination among tourists, but already hotel rates in Dublin and some other hotspots are on the way back up. Is there just a slightest whiff of ‘rip-off Ireland’ in the works ?

It is strange that we have been facing a growing housing deficit in Dublin since the start of 2013, with the rise in rents/tightness in supply fanning out to the suburbs.

This will eventually feed into the labour market, though with perhaps 450,000 either on the live register or on various government work schemes, a large ‘reserve army’ of labour means that many employers in the private sector need not worry too much yet about upward pay pressure.

However, housing is definitely a nettle that must be grasped.

An upsurge in the supply of accommodation is promised, not least by Nama and by a new group of overseas investors. Further action is yet to be seen on the ground, with house completions still running at less than half the level (25,000 to 30,000 a year) which experts say is required.

In the run-up to the election, housing, or the lack of it, may take over from water as the number one headache for the governing parties, with the looming upsurge in repossessions set to create a host of new human interest stories for the army of social media and mass communications operatives.

The Government has shown signs of waking up to the threat, but it needs to put real pressure on the bankers. The task is a delicate one, given that it is simultaneously trying to fatten up the little AIB and Irish Permanent piggies for the market.

Billions of euro for the taxpayers could be at risk if the government — whether this one or its successor — fails to get this right.

Acting like Robin Hood may not be the way to generate the sort of return for the taxpayer/shareholder from a huge investment that is required.

As the election looms, the pressure will be on the mainstream parties to dangle carrots at the voters, but the hype merchants need to take care.

In England, the latest Tory buyout offer/‘bribe’ to tenants of housing associations has not gone down well with the public. And here at home, the Government’s offer of free GP care for under-sixes has been met with an underwhelming response.

Perhaps the voters have woken up to this sort of policymaking by focus groups, or maybe I am just being naive.

There is a real concern that in the trample to get votes, longer term considerations and less vocal or powerful interest groups will be trampled in the rush. This means groups such as home carers, and key infrastructure goals such as the upgrading of water and sewerage facilities, not to mention the upkeep of valuable heritage sites, will yet again get left behind in the rush.

Our public discourse does not lend itself to the sort of long-term planning and commitment to key infrastructure that was a feature of successful western economies in the post-war years. We are in danger of eating the seed corn and, as a result, losing much of the fruit that could be extracted from this recent, long overdue economic recovery.