The bin charges debacle is spiralling into chaos.  We have areas where two or three or four bin companies operate and other areas where companies are threatening to leave; escalating charges becoming an intolerable burden on many low-income households; considerable price variations between counties; off-shored private companies pursuing wage suppression to increase profits; considerable illegal dumping; charges for recycling which dis-incentivises a social good; and on and on.  This is not a waste management policy; it is a circus.

The Minister is set to introduce a freeze on bin charges which would at least give us some breathing space.   The following sets out an alternative outline to waste management.  This is not a hard proposal; others will come up with better ideas.  However, it is clear that the current situation is not sustainable – from an environmental, economic, and social perspective.

1.    A Public Service

Waste collection should be a public service.  In the late 19^th century great strides in public health came from water, sewerage and waste collection services; all provided as a public good.  We should return to this principle.  This does not necessarily mean that waste collection would be provided directly by the local authority or some other public agency (but it could – see below).  However, rather than relying on market-forces to provide the service or set the charges, local authorities should re-assert active management and control of waste collection.

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We are potentially heading down a dangerous stretch of road ahead –leading us into the Ultra-Low spend zone.  In this zone, investment declines and, so competitiveness and productivity; health and education services suffer; income supports falter adding fuel to the inequality engine.  A low-service, low-waged, low-productivity future awaits.

Of course, spending a lot of money doesn’t guarantee you optimal results.  But spending too little certainly won’t get you optimal results.  So how far behind are we falling?  Let’s compare public spending (excluding interest – this is called ‘primary’ expenditure) in the EU-15 countries.

I’ll use the method devised by Seamus Coffey who hangs out at Economic-Incentives.  He excluded elderly-related expenditure and then compared Ireland with the rest of Europe.  He did this because Ireland has an advantage here – we don’t have to spend as much on pensions and related expenditure because we have a smaller proportion of elderly.  In the EU-15, the over 65 cohort makes up 19 percent of the population; in Ireland, this cohort makes up 13 percent. 

2014 is the latest year we have data for old-age expenditure.  In the following, old-age expenditure is subtracted from total primary spending.  For instance, Ireland spent 37.2 percent of its adjusted GDP (adjusted per the Irish Fiscal Council’s hybrid-GDP estimate that factors in the accounting practices of multi-nationals).  It spent 4 percent on the elderly, leaving an expenditure level of 33.2 percent excluding elderly-related spending.  Figures for European categories are mean averages. 

Ireland ranks below all the European averages.  What difference would it have made in 2014 in actual Euros and cents?

• To reach the average of other EU-15 countries, we would have had to increase public spending by €6.5 billion

• The next comparison is with other Northern and Central European economies (other NCEE). This is the EU-15 excluding the poorer Mediterranean countries like Greece and Portugal.   To reach this average, we would have had to spend an additional €9.6 billion.

• The final comparison is with Other Small Open Economies, a category used by the IMF. These are economies with a small domestic market and a high reliance on exports.  Austria, Belgium, Denmark, Finland and Sweden are in this category.  This is arguably our peer group.  To reach this average we would have had to spend an additional €15.5 billion.

[Note:  some will say that defence spending should also be factored in as other European countries spend more than us.  This is true.  In the EU-15, defence spending makes up approximately 1.3 percent of GDP; it’s 0.4 percent in Ireland.  In any event, defence spending is a policy choice and, in my opinion, shouldn’t be excluded from comparisons.  But if you insist, knock off about €1.5 billion off the numbers above.]

In 2014, it could be argued that we are already a low-spend economy but as I wrote here, the situation could actually be worse.  I have reservations about Seamus’s method.  Excluding old age expenditure not only removes the demographic driven part of overall spending, it removes policy choices.  Most other EU-15 countries spend more on elderly per capita than we do.  Second, if we are to adjust for the elderly population, then we should also adjust for youth demographics.  In Ireland, under-20s make up 28 percent of the population, compared to 21 percent in the EU-15. 

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The Stability Programme Update, the latest economic and fiscal projections, signals the start of the budgetary politics that will inform the next Government.  In particular, it shows the level of money available for the Government for spending increases and tax cuts.  Speaking in the Dail yesterday, the Finance Minister stated:

‘On foot of these changes, my Department currently estimates the net fiscal space to be somewhere in the region of €10 billion to €11 billion over the period 2017 to 2021.’

Remember all that stuff about the fiscal space during the election?  It was stated that there would be €8.6 billion available over the next five budgets.  This has been increased by approximately €2 billion due to changes in the complex calculations.   So, we have €10.5 billion.

 An extra €2 billion:  sound good?  Not really – not when you look at the detail.

Let’s compare two main budgetary projections that were presented in Budget 2016 – only a few months ago – and the current projections published in the Stability Programme Update:  investment and expenditure on public services (Government consumption).

Spending on investment and public services has been revised downwards in the current projections.  The differences may seem small but it puts the increased €2 billion in ‘fiscal space’ the Minister referred to in perspective. 

For instance, in the budget last year the Government projected investment spending over the five years to be €25 billion.  They have revised this downwards to €23.5 billion – a cut of 6.2 percent.  We’d have to increase investment by €1.5 billion just to get back to the projections in the budget – and that was already one of the lowest levels of investment in the EU. 

Regarding expenditure on public services, over the five years the Government has revised this downwards by nearly €4 billion.  Get the picture?  Now let’s factor in inflation (using the GDP deflator – unfortunately, we don’t have an inflation projection for public services). 

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The Sunday Business Post’s investigation into JobBridge was devastating.  The programme has been used to staff the HSE, Hewlett-Packard, public enterprises, supermarkets and universities.  A large number of interns report frustrations, especially as they have almost no workplace rights, while the investigation showed a scheme that grew out of control lacking robust monitoring and compliance mechanisms. 

It’s time JobBridge was closed down.  The youth section of Unite the Union has long campaign for its abolition; Impact has recently called for the programme to go.   It’s already being reduced.  The programme will be cut from €70 million last year to €51 million this year.  Cut the rest of it. 

And let’s use the money to create a real programme of work, targeted at people who are having a hard time in the market.  Long-term unemployment can be a dismal experience.  The longer you are out of work, the more difficult it can be to get back in:  your current skills may be become degraded, previous work routines are undermine, there can be mental health issues, you get stuck so far into a rut that it is difficult to pull yourself out.  Training programmes work best when the person is motivated and there is a belief that a job is possible at the other end.  Long-term unemployment is the ultimate de-motivating experience, leaving people with little hope.

In 2015, long-term unemployment (without a job for more than a year) averaged 114,000.  That amounts to 5.3 percent of the labour force.  By contrast, long-term unemployment in the EU-15 makes up 4.7 percent.  

When we turn to what can be called ‘chronic’ long-term unemployment – two years and longer – we find, on average, 83,000 stuck in this situation and, of this, 50,000 have been unemployed for four years or longer.

So let’s redirect the resources – approximately €85 million – from the JobBridge and Gateway programme) into a guaranteed real job programme.  In other words, the state should become an employer of last resort; when people cannot find work in the labour market, the state will provide that work.  What would such a programme look like?

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The National Competitiveness Council (NCC) has released its latest Cost of Doing Business in Ireland.  It is always an interesting compilation of graphs, charts and statistics that compare Irish competitiveness against other countries.    The current release has been accompanied with a media bustle about ‘high-cost’ Ireland.  This, of course, has long been the case.  The NCC lists a number of culprits:  transport, utilities, credit and childcare.

And what would a ‘competitiveness’ review be without mentioning ‘labour costs’ (I think they mean ‘employee compensation’ which is not a cost but I’ll let that go for now).  Once again, the NCC has produced a misleading picture about labour cost trends. This has resulted in media reports referring to the ‘high cost’ of wages.  The NCC has even produced a graph to give the appearance that labour costs have been rising faster than the Eurozone average. I reproduce the graph below.

You might think, from a first glance, that since 2010 Irish workers have been getting pay rises that exceed the Eurozone average.  The general picture is that, while wages fell between 2007 and 2010, since then they have been rising at a pretty swift pace.  Thus, we have to watch out; otherwise our wage levels will become ‘uncompetitive’.  Thus, we have to be more moderate, or ‘sustainable’.

The only problem with this picture is that it is wrong and misleading.  The NCC graph is based on the data from Eurostat’s Quarterly Labour cost index which can be accessed here (it would be helpful if the NCC actually sourced the data source and not just the agency that produced the data).  In this dataset, you can choose different types of measurement.  I’m assuming the NCC is using the ‘percentage change compared to same period in previous year’ not seasonally adjusted (it works in some respects). 

The measurement that the NCC uses tells you what it tells you but, at the same time, it can distort the picture.  Here is an example.  Let’s say that wages fall by 1 percent in year-on-year quarter.  Then the next quarter it falls by 0.5 percent.  Well, you’d say that wages are still falling though at a slower rate– and you’d be correct.  However, using way the NCC measures it, it would show wages rising since the ½ percent fall is less than a 1 percent.  This is the stuff of statistical battles.

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We will soon have a government.  What kind will it be?  Time and a Programme for Government will tell.  But what we really need is an experimenting government; one that uses resources and creativity to experiment with different proposals.  There are many good ideas out there but it is hard to know how they might impact on the economy and society were they introduced in one go.  Commissions, green papers and studies can only tell you so much.  We should experiment – trialling ideas for a limited period in different contexts and sectors.  We can then assess the results to see if they are runners.  Here are a few examples.

1.    Shorter Working Week

I wrote about this here.  In Sweden a number of trials are being conducted to assess the impact of a shorter working week in terms of cost, productivity, firm or agency performance, customer satisfaction and the health and well-being of the employees.  Why not trial it here?  We could select public and private sector workplaces to run 18-24 month experiments in reducing the working day.  A study of productivity and all other elements would be done before and after the trial period and the results made public for study and debate.

2.    Basic Income

Basic Income – a guaranteed payment to everyone regardless of employment status – is attracting more attention and discussion.  Arguments centre around a new era of reduced formal work opportunities, the growing complexity of welfare states, strengthening workers’ bargaining power (if I have a living income to fall back on, I can walk away from the boss’s grief), etc.

But there are downsides:  the high cost of implementation, inflation, unknown impact on the labour market.  This is complicated by right-wing arguments that with Basic Income we can abolish the welfare state and minimum wages. 

It is unlikely that a Government would introduce Basic Income all at once, or across the board.  If it didn’t work out it would be very expensive to undo the policies and repair the damage.  However, some places are conducting experiments – for instance,Utrecht and other Dutch cities.  It will be limited to a certain cohort but the hope is to discover how it changes people’s behaviour and what the fiscal and bureaucratic impact would be.  So why don’t we do the same thing – we could model it on the Dutch experiments so we don’t have to re-invent the wheel.  It could be run out in urban and rural areas for a time-limited period with the effects to be studied afterwards.

3.    Labour-Managed Enterprises

There has been increased academic interest in the performance of labour-managed enterprises (workers’ cooperatives, employee-ownership and other models).  While extremely limited in Ireland, there are a considerable number operating in other countries – notably France, Spain and Italy – throughout the industrial and service sectors.  Proponents argue that such enterprises increase productivity and firm performance while generating higher investment and reduced wage inequality. 

Here is an opportunity to run a trial programme – through Enterprise Ireland, local enterprise boards or a new agency if that is seen a better fit.  It would provide funding and training, and work with firms that are closing down due to poor performance or owner-retirement as well as greenfield start-ups.  This experiment would take time – a firm may survive the first and even second year but could fold soon afterwards.  However, this could be an on-going process, with periodic reports and analysis.  This shouldn’t be too contentious – after all, it is about generating indigenous enterprises and putting people back to work.  What we might find is that labour-managed firms are a better route to those goals, with positive spill-over effects in the community.

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Following on from my recent blog about the squeezed middle which showed that middle income groups received less than the national share of income than the EU-15 average (due to high income groups taking more) it might be worth having a look at general living standards in comparison with other European countries. This is about living standards, not just income.

Eurostat measures living standards through actual individual consumption. Unlike private consumption (i.e. consumer spending) actual individual consumption

‘ . . . encompasses consumer goods and services purchased directly by households, as well as services provided by non-profit institutions and the government for individual consumption (e.g., health and education services).’

It, therefore, measures consumption not only of goods and services, but public services provided by the government. As Eurostat states:

‘Although GDP per capita is an important and widely used indicator of countries’ level of economic welfare, (actual individual) consumption per capita may be more useful for comparing the relative welfare of consumers across various countries.’

In short, actual individual consumption can be treated a proxy for living standards. So what is the relative welfare of consumers (i.e. everyone) across Europe? The following captures the relationship of real (after inflation) living standards in purchasing power parities between al l EU-15 countries and the EU-15 average.

We can see that Ireland is in the bottom half of the table – 15 percent below the average. Our living standards are closer to Greece and Portugal than it is to the EU-15 average and the majority of countries.

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Seamus Coffey has been digging up some numbers which he self- deprecatingly refers to as one more ‘silly addition’ to what can be done with income distribution statistic. But silly they are not. They give insight into another aspect of Ireland’s income structure.

When we debate income distribution we usually do so through the prism of the relationship between the ‘top’ and ‘bottom’ income groups or the Gini co-efficient. What Seamus looks at are the fortunes of the middle income group and specifically compares Ireland with Sweden in the middle deciles (a decile represents 10 percent of the population). I reproduce Seamus’s table below but if it is difficult to read you can access it here.

The numbers measure the percentage of ‘equivalised income’ each decile receives (equivalised factors in household size). In the table we see that in green Ireland, the lowest 10 percent income group receives 3.2 percent of all income; the top 10 percent receives 24.4 percent – or nearly a quarter of all income. Regardless of the magnitude, there is nothing surprising in this. Top income groups take more than low-income groups.

However, Seamus points us to the middle of the decile group – what has been described in the debate as the ‘squeezed middle’ and compares us to blue Sweden. There is a huge gap between the two countries in these middle deciles – 4^th to 7^th. Indeed, if Irish squeezed middle households took as much of a percentage of total income as Swedish middle decile households, each Irish household would be, on average, €5,000 better off according to Seamus. That’s a tidy sum.

Using the Eurostat data here is my own take. Rather than compare Ireland to Sweden (Sweden is pretty egalitarian but they’ve been at it for decades), I compare Ireland with the average of our peer group – other small open economies: Austria, Belgium, Denmark, Finland and Sweden. And since I’ve used the middle 60 percent in the past I’ll keep to that and calculate the income for households in the 3^rd to 8^th decile. That’s a bigger middle.

Ireland’s low and middle income groups are below the share of those same groups in the other small open economies. However the Irish top 20 percent group take considerably more than their counterparts in the other five countries. What does this mean in Euros? If Ireland had the same share of disposable income:

• Households in the lower income group would receive, on average, an extra €2,200.

• Households in the middle income group would receive, on average, an extra €2,300.

• Households in the high income groups would, however, lose on average €9,100.

In small open economies, low and average income groups make more at the expense of their high income groups.

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