Drawing a blank

THE Government’s Medium-Term Economic Strategy to 2020 is elegantly written.

It sets out the administrations achievements under the troika’s austerity programme. There are a large number of actions, actual and scheduled. The strategy is the Coalition setting out its stall in the run up to this year’s local and European elections. It details the Coalition’s aspirations, including an end to austerity by 2016, which just happens to coincide with the next general election and with the centenary of the 1916 Easter Rising.

It would be unfair to criticise the authors of the strategy for the lack of radical thinking behind it or the largely unquestioning approach to the legacy of austerity. These things are determined by the Government.

But the reality is that the strategy is ‘troikanomics’ in new clothing.

There are issues around the strategy as a ‘roadmap’ and the biggest of these is the negative impact on the economy of a repressive political culture. That may be about to change, with the launch of the Reform Alliance.

Under the strategy’s baseline projections, real GDP is forecast to grow by 2% this year, following a scaled-back increase of 0.2% for 2013. Real GDP actually fell in the first and second quarters of last year. The forecast for 2014 is seriously optimistic.

From 2016, real annual average GDP is projected to grow in excess of 3% — or over 5.5% in nominal terms. Not going to happen. Fundamental imbalances persist across the eurozone.

Fiscal burden-sharing is less likely, with the outcome of the German elections. Instability is in remission as a result of the ECB’s ‘we will do what it takes’ bond-buying commitment of 2012; it hasn’t gone away.

A strategy is only as effective as the forecasts on which it’s based. The growth forecasts do not look robust.

There is some evidence of stabilisation. Employment has risen, but there has been little change in living standards.

Growth remains the fundamental challenge both domestically and in Europe where, outside of Germany, it is not yet happening. And it is on this that the strategy’s job and debt projections rest.

The context of the strategy is stark. The 2014 budget provides for another €2.5bn or so to be extracted from the economy this year. This will further depress domestic demand and growth.

The debt/GDP ratio is now 125% (€205bn). The risks of it being impelled northwards are real especially if projected growth does not materialise. Moreover, the cost of servicing this debt remains a huge ‘mortgage’ on future growth and State revenue.

Then there is the exceptional level of mortgage arrears that burden households and bank’s balance sheets. This points to a need for banks to write down arrears to realistic levels, in advance of the ECB’s stress tests.

It is also a more prudent way forward than a wave of repossessions — or chaining households to levels of conditionality that are punitive and which never would have arisen had banks themselves got their credit risk assessment right.

AIB’s initiative in bringing in the pro–consumer advocacy group New Beginning on board to advise is as commendable as it is innovative. It is not clear why other mortgage holders are excluded from this approach.

AIB’s mortgage resolution model reflects an insight into banks as institutions whose legitimacy, and profitability, is rooted in serving the community rather than, for example, shorter-term investor interests.

Teachers, especially those in deprived areas and those dealing with remedial classes, say the pressures are greater than ever. The strategy speaks of having ‘the best quality teachers in classrooms’. Try saying that to these teachers impacted by cuts.

Cuts have pulled the rug from under what economic growth itself should be all about — not maximising GDP as an end in itself, but maximising the capabilities of individuals as the primary goal, because it is this that generates sustained, inclusive, growth.

The strategy is long on aspirational rhetoric, targets, and monitoring — the usual stuff. There is little fresh thinking — the approach is prescriptive and statist.

The irony is that it is this same troikanomics that has impelled thousands of our graduates to emigrate.

The strategy states ‘notwithstanding the reductions in expenditures and a lowering of public service employment by almost 10% in the last five years, increased service demands has been met, most notably in health, education and social protection.’

This ignores the destructive reduction in nursing and medical staffing levels on healthcare. It ignores the wholly negative effects this has had on service provision.

Ireland is now producing highly trained medical nursing professional ‘for export only’. It glosses over such debacles as the medical card shambles. It overlooks the impact of the removal of vital supports for families in recent budgets and the longer term effects of poverty on health and education.

These are economic issues. As the 2001 Health Strategy highlighted, spending on health is an investment in people, as well as in the economy.

The strategy implicitly vindicates the ceding of the proper responsibilities of national governments for their economies via crisis-driven eurozone treaties that are weighted towards the interests of the largest countries.

AUSTERITY was never symmetrical — the pain continues to be borne by the periphery while Germany has strong growth and low unemployment.

The eurozone has become divided from the wider vision of a Europe based on community and solidarity.

Austerity was never agreed — it was imposed. This takes us to the biggest omission of all in the thinking behind the strategy.

The evidence set out by Acemoglu and Robinson in their book, Why Nations Fail, emphasises the central role of institutions, including political institutions, in determining the economic status of a country.

They distinguish between inclusive and extractive political, and by extension, economic institutions. This is vital to an understanding of why the Irish economy imploded.

The fall was essentially caused by a failure in Ireland’s political institutions. It was compounded by a collapse in trust in mainstream political parties.

The only institutions still essentially unchanged — the one most in need of change — is the political party.

Our mainstream political parties are not by nature inclusive. They are fixated on concentrating power within elites, on stifling dissonant ideas.

Legislation has been imposed without informed debate, even within the Dáil itself. Rent-seeking service providers to the State probably have more influence on policy than does a TD. The mainstream political parties have operated to deter new entrants and fresh ideas. The sole ‘Big Idea’ pushed by Government was, in fact, the failed attempt to abolish the one ‘inclusive’ institution, the Seanad.

It is difficult for any economic strategy to overcome repressive political institutions.

The great irony is this: 2016 is the centenary of the Easter Rising, which culminated in national independence. It was an emphatic rejection of the political status quo and an aspiration to national responsibility.

It will be celebrated by a political mindset that has ceded that aspiration to dominant eurozone ‘partners’: A mindset that has sacrificed the fundamental social justice espoused by the 1916 leaders.

The most important precondition for recovery is a wholly new politics — one which is inclusive, which listens, reflects and engages with the people and which is the custodian of their values — and their capabilities.

The thinking behind the strategy is coming from a different place.