Tag Archive for 'Fine Gael'

A Bit of Perspective on the Minimum Wage

In a couple of days time, we’re going to find out the composition of our new government for the next few years, most likely in the form of a Fine Gael-Labour coalition. While a lot of media attention has been placed on the two parties’ policy disagreements over the past week, one of the few economic issues on which they agree is the reversal of the recent cut in the minimum wage to €7.65 an hour. The cut in the minimum wage was certainly an unpopular move, but with the cost of living having decreased so much in the past few years, has it really made minimum wage earners that much worse off, and is reversing it really necessary?

To investigate this, I’ve put together a simple cost of living index* for those living on minimum wage, based on my own experiences living on a similar income over the past few years. The following graph shows the real value of the minimum wage since it was brought in in April 2000, according to my cost of living index (click to see full size):

realminwage_500px

You can see that, prior to 2008, the trend in the minimum wage was quite regular; the real value of the minimum wage would gradually drop due to inflation, coupled with an increase in the nominal rate by the government every year or so, causing the overall value to slowly increase over the first 8 years of the minimum wage’s existence. Since late 2008, though, we’ve had a very different dynamic, as dropping prices (in particular the big drop in rents) have caused a big increase in the real value of the minimum wage, to the point where the €8.65 minimum wage was worth 11.3% more in January 2011 than when it was introduced in July 2007.

So, has the drop in the minimum wage (shown to the far right of the graph) made a big difference to minimum wage earners? Compared to the recent past, yes, as they’ve benefitted significantly from a large drop in the cost of living. Looking back over the past few years, though, a minimum wage of €7.65 is still very high in real terms. It’s actually worth more than €8.65 was as recently as November 2008, although it’s a little lower (by 1.5%) in real terms than when the €8.65 rate was introduced in July 2007.

The big question, though, is not so much the effect of the decrease in the minimum wage, but whether it was necessary. That is, was €8.65 an hour too high? I think we can all agree that there’s such a thing as a minimum wage that’s too high; if the minimum wage was set at a million euros an hour, no employer could afford to pay it and there’d be 100% unemployment. The question then, is how high a minimum wage can get before it starts to have negative effects. There’s no easy way to determine this, but the closest guide we can go by is by looking at the unemployment rate of the social groups most likely to work at or around minimum wage; if unemployment is high amongst these groups, it’s likely that the minimum wage is having a negative effect on employment. One group which is very likely to work at minimum wage is those under 25 years of age, so I put together the following graph of unemployment rates both of those under 25, and those over 25 for comparison (click for full size):

unemploymentbyage_500px

As you can see, there’s been a huge increase in unemployment for those under 25 over the past few years, and the unemployment rate for the group is now approaching 30%. Of course, there’s also been an increase in unemployment for those over 25, and a chunk of the male under 25s unemployment since 2008 will have been from the construction sector, which would have paid over minimum wage. Nonetheless, an unemployment rate of almost 30% for any group is still astonishingly high, and it’s very likely that the €8.65 minimum wage was having an impact on this, which would lend credence to the argument that the decrease will have a positive effect on employment, and should be left as is by the new government.

Another factor that has to be taken into account when talking about the impact of the minimum wage on employment is the similar effect of social welfare rates. Put simply, people aren’t likely to go out looking for work if they’re better off on unemployment benefits. In Ireland, this is particularly a problem when it comes to part-time work; as jobseeker’s allowance is reduced according to the number of days you work, someone working three 8-hour days at minimum wage is actually worse off than they would be if they weren’t working at all. Those working shorter shifts are in an even worse position. A smart, and relatively easy move, for the incoming government would be to link reductions in jobseekers allowance to the amount earned, rather than days worked, which would significantly increase the incentive for the unemployed to take up part-time work, and mitigate against any need for further cuts in welfare rates.

* The composition of the cost of living index is 30% rent, 20% food, 8% each for clothes, electricity and gas, and the remaining 26% being represented by the HICP (which, unlike the CPI, excludes mortgage interest). The data is from the CSO and Daft.ie, with early rental data compiled by the ever-helpful Ronan Lyons.

Ireland’s Economic Collapse And The Need For Ideological Politics

“The dangers arising from the potential bubble in the housing market are significant. […] it could turn an external shock in the Irish economy into a cause of major trauma.”

Sensible economic commentary hasn’t been as rare as most people think over the past decade or so. The above quote, to give an example, is from the Economic and Social Research Institute’s Medium Term Review published in October 1999. The ESRI, who were set up by the government as a semi-independent body to provide research and advice, were quite clear in their recommendations at the time; abolish mortgage-interest relief, slow the increase in public-sector wages, and run a large budget surplus. Most independent economists, mindful of the fact that our membership of the Euro required a change in fiscal policies, would have given pretty much the same prescription for long-term economic stability.

Of course, I don’t have to tell you that the government ignored this advice. Since the bubble burst, many well-informed commentators have shown in great detail how successive Fianna Fail led coalitions have led the country down such a disastrous economic path. What these commentators often fail to point out, though, is just how important a role the opposition parties have played in facilitating our national downfall.

Fine Gael and Labour are currently enjoying a surge in popularity, where the main cause of this surge has been, understandably enough, their not being Fianna Fail. Indeed, opposition TDs spend most of their time these days campaigning against Fianna Fail, rather than for their own party, with the clear underlying implication that they wouldn’t have made such a complete mess of things had they been in office themselves. Unfortunately for the opposition parties, who are happy to rely on unsubstantiated counterfactuals, the evidence for this implication doesn’t really hold up. Over the past decade both parties have repeatedly promoted economic policies almost indistinguishable from those pursued by the government.

Take mortgage-interest relief as a prime example. Since formally joining the Euro in 1999, Irish interest rates have been decided by the ECB, and any sensible economic commentator would have pointed out that these rates were too low for the rapidly growing Irish economy, and needed to be offset by appropriate fiscal policy to prevent, among other things, a long-term property bubble. The ESRI and others correctly pointed out that mortgage-interest relief, the practice of subsidizing mortgage repayments, was having exactly the opposite effect; by lowering the effective interest rate, it was inflating the bubble even further. The scheme, which at its peak cost the state €500 million a year, was possibly the most damaging of any of the government’s economic policies, and experts made repeated calls for its abolition.

One would think, with Fine Gael and Labour’s claims to economic responsibility, that they have spent the past 13 years opposing such reckless policies. In fact, far from calling for the abolition of mortgage-interest relief, the two parties actually made repeated calls for its expansion, as well as promoting a wide variety of other schemes that would have inflated the housing bubble even further. Of course, these policies were always easy to sell to the electorate; with property prices rising, they all claimed to make it easier for people to afford homes, even though their real effect was far less benign.

The same pattern manifested itself in other areas of economic policy; where experts advised moderation in tax cuts and spending increases, and the running of a large budget surplus, the election manifestos of the main parties in both 2002 and 2007 consisted largely of competing claims as to which party would at the same time both tax the least and spend the most. Instead of voicing the flaws in government policy and acting as a counter to economic short-termism, the opposition parties were in fact bolstering it, by not giving the public any other option.

This almost complete homogeneity of opinion isn’t a modern phenomenon in Irish politics, either. Time and time again, studies have shown that Irish voters don’t distinguish between parties on the basis of policy. Not only is this true for Fianna Fail and Fine Gael, who have their roots on either side of an issue no longer relevant to Irish life, but it’s been shown that even the supposedly centre-left Labour Party and now-defunct centre-right Progressive Democrats attracted voters that were effectively indistinguishable from each other in terms of their stated ideological preferences.

There are likely many causes for this lack of ideological cleavage in Irish politics, ranging from the then ideological Labour Party’s decision not to contest the 1918 and 1921 elections, to our electoral system which favours local, rather than national politicians. Regardless of these, though, there can be only one solution that would provide us with a political system where parties offer genuine choice, and opposition parties effectively counter the complacency of governments, and in the end this solution relies on us, the voters.

As citizens we have failed ourselves, and our nation, for too long, voting for local fixers instead of national statesmen, supporting parties that peddle comfortable lies instead of uncomfortable truths. We must take it on ourselves to seek more from our elected representatives than simply not being the people who got us into this mess; they should be men and women of expertise and genuine conviction, and it is our duty as voters to demand this of them. If we fail to do so, we may still eject Fianna Fail from government and punish them for their failings, but we will have done nothing to tackle the political culture that allowed them to make such mistakes, and will inevitable allow future governments to do just the same.

The Speech Kenny Should Have Given

The Speech Kenny Should Have GivenThese past few days have seen the downfall of Enda Kenny as leader of Fine Gael. Following the sacking of Richard Bruton, his leadership became untenable, following the resignations of nine further members of his front bench, his leadership became impossible. What is most unfortunate about the whole affair is that, after four decades of political life, Kenny’s career should come to an end with him trying so desperately to cling to power, damaging both himself and the party in the process.
Yesterday afternoon he had an opportunity to change that. After witnessing the resignations of most of his front bench, he was due to speak for a vote of no confidence in the Taoiseach, a situation where he, not Brian Cowen, would paradoxically be at the center of the Dáil’s attention. I had hoped that he may have taken that opportunity to make a speech that would be worth capping a political career with, but unfortunately he gave the same speech in the same way he always does, a speech that reminded many why they no longer wished for him to be their leader.
The following is, in a brief form, my humble opinion of what he should have said, of the kind of speech he should have given.
“This is not a time for business as usual, and it is not a time for politics as usual. If we are to recover as a nation, if we are to leave our children the Ireland they deserve, then we cannot keep along the same political path that is so well trodden in this country. We need a class of politicians for whom the notion of putting the interests of the country above their own is not simply rhetoric. We need a class of politicians who can pass that most difficult test of leadership, stepping aside.
This morning you and I were in very similar situations, Taoiseach. We are both leaders, and we both serve those who elect us. Over these past 24 hours I have come to accept that those who elect me, the Fine Gael parliamentary party, no longer have confidence in me, and that the only honorable thing to do is to step down as leader of the party. It has been the most difficult decision of my life as a public servant, but one which has become inescapable to me if I wish to truly place the interests of my political party and the Irish public ahead of my own.
Over the course of weeks, months, and indeed years, you too must have come to the realization that the people of this nation, the people you serve, no longer have confidence in you as their leader. Beneath all the bravado, beneath all the rhetoric, deep within you you have come to the same inescapable conclusion that I have over these past few days. It is not an easy realization to come to, Taoiseach, it is that one fear that shakes a politician to his very core, and it is that one truth that is hardest for us to accept.
Tomorrow I will be stepping aside, accepting my fate and doing what is best for the country. I ask you to do the same, to resign as Taoiseach, call a general election and allow the Irish people their right to choose a new government that truly represents them. It would not be an easy decision, it would require a courage, an honesty and a decency that have been lacking in politics for far too long. It would be a selfless decision that is worthy of a true statesman, a true democrat, and a true public servant. It would be a decision that could help signal a return to those highest of standards in political life that we so often talk about but so rarely act upon. Most importantly, it is a decision which you know in your heart to be right.
Put simply, Brian, it’s time for us to go.”

These past few days have seen the downfall of Enda Kenny as leader of Fine Gael. Following the sacking of Richard Bruton, his leadership became untenable, following the resignations of nine further members of his front bench, his leadership became impossible. What is most unfortunate about the whole affair is that, after four decades of political life, Kenny’s career should come to an end with him trying so desperately to cling to power, damaging both himself and the party in the process.

Yesterday afternoon he had an opportunity to change that. After witnessing the resignations of most of his front bench, he was due to speak for a vote of no confidence in the Taoiseach, a situation where he, not Brian Cowen, would paradoxically be at the center of the Dáil’s attention. I had hoped that he may have taken that opportunity to make a speech that would be worth capping a political career with, but unfortunately he gave the same speech in the same way he always does, a speech that reminded many why they no longer wished for him to be their leader.

The following is, in a brief form, my humble opinion of what he should have said, of the kind of speech he should have given.

“This is not a time for business as usual, and it is not a time for politics as usual. If we are to recover as a nation, if we are to leave our children the Ireland they deserve, then we cannot keep along the same political path that is so well trodden in this country. We need a class of politicians for whom the notion of putting the interests of the country above their own is not simply rhetoric. We need a class of politicians who can pass that most difficult test of leadership, stepping aside.

This morning you and I were in very similar situations, Taoiseach. We are both leaders, and we both serve those who elect us. Over these past 24 hours I have come to accept that those who elect me, the Fine Gael parliamentary party, no longer have confidence in me, and that the only honorable thing to do is to step down as leader of the party. It has been the most difficult decision of my life as a public servant, but one which has become inescapable to me if I wish to truly place the interests of my political party and the Irish public ahead of my own.

Over the course of weeks, months, and indeed years, you too must have come to the realization that the people of this nation, the people you serve, no longer have confidence in you as their leader. Beneath all the bravado, beneath all the rhetoric, deep within you you have come to the same inescapable conclusion that I have over these past few days. It is not an easy realization to come to, Taoiseach, it is that one fear that shakes a politician to his very core, and it is that one truth that is hardest for us to accept.

Tomorrow I will be stepping aside, accepting my fate and doing what is best for the country. I ask you to do the same, to resign as Taoiseach, call a general election and allow the Irish people their right to choose a new government that truly represents them. It would not be an easy decision, it would require a courage, an honesty and a decency that have been lacking in politics for far too long. It would be a selfless decision that is worthy of a true statesman, a true democrat, and a true public servant. It would be a decision that could help signal a return to those highest of standards in political life that we so often talk about but so rarely act upon. Most importantly, it is a decision which you know in your heart to be right.

Put simply, Brian, it’s time for us to go.”

Want to show the public and the markets that you're taking the economic crisis seriously, Mr Cowen? Then appoint Jim O'Hara to the cabinet.

While bouncing from economic crises to political crises and back again at an astounding rate, Brian Cowen has stumbled upon a brief opportunity to make a move that would reflect well both upon himself politically, and give a piece of potentially good economic news for the markets to ponder over for once. In a few weeks time, elections will be held to fill two vacant seats in the Seanad. The electorate for both of these seats are current TDs and Senators, and as the government has majorities in each chamber, government nominees are effectively guaranteed to win both seats. This gives Cowen the ability to bring pretty much whoever he likes into the Seanad in time for the new year. What’s more important, though, is that Cowen can, by article 28.7.2 of the constitution, appoint up to two members of the Seanad to the cabinet, which means that he can use these open Seanad positions as a platform to bring expertise into the cabinet that simply can’t be found amongst the ranks of the Dáil.

While such a step would be almost completely unprecedented (the provision to appoint Senators to cabinet has only been used, to my knowledge, once in the history of the state), the situation we’re in is similarly unprecedented. We’re currently in the midst of the greatest fiscal, economic and employment crises to afflict any developed country since the great depression, and there are only three qualified economists sitting in the 166-seat Dáil, two of whom are on the opposition benches. The degree of experience within the business sector in the Oireachtas is similarly underwhelming, which means there is very little the government can do to increase its authority on matters of the economy without bringing in outside help.

Bringing in fresh blood to take over as Finance Minister is not possible, as the position constitutionally has to be held by a TD. However, the second biggest economic portfolio, the Minister for Enterprise, Trade and Employment, is a perfect position to bring outside expertise into. The current Minister, Mary Coughlan, is widely considered to be way out of her depth in the portfolio, and her repeated gaffes are doing the government little help in the popularity stakes. As such, bringing in a suitably qualified person in her place would help show both the electorate and the markets just how seriously the government are taking the current economic crises.

There certainly isn’t a shortage of candidates more qualified than Mary Coughlan for the position, but one that immediately springs to mind is Jim O’Hara. Jim O’Hara is currently Vice President of the Technology Manufacturing Group in Intel, and General Manager of Intel’s Irish operations, where he’s in charge of over 4000 employees. He’s very well respected in the business community, and he represents exactly the kind of high-tech, export-led industry that the government so desperately wants Ireland to become focussed on as we rebuild our economy. Furthermore, he showed during his involvement in the Lisbon Treaty campaign that he’s not only knowledgeable on political affairs, but also that he’s more than capable of presenting himself well in front of the political media.

Bringing him into the cabinet could be done quickly and easily. As it would be best for O’Hara to be seen as apolitical in his appointment, running him as a Fianna Fail candidate for one of the two vacancies directly would not be advisable. However, Cowen could simply call on one of Fianna Fail’s 6 Taoiseach’s appointees in the Seanad to resign from their current seat and run for one of the vacant seats (which they’d be guaranteed to win). O’Hara could then be appointed by Cowen as an independent appointee of the Taoiseach into then-vacant slot. Cowen could perform a mini-reshuffle of the cabinet (most likely giving Coughlan back the Agriculture portfolio she previously held, and pushing Brendan Smith back into a Junior Ministry), and appoint O’Hara as Minister for Enterprise, Trade and Employment before the start of the new year.

Brian Cowen needs to start taking radical steps towards both fixing the economy as well as improving the government’s tattered reputation if he wants to stay in office much longer. Most of the choices available to him would involve substantial opposition from vested interests across the country. He now, however, has the opportunity to make an unprecedented move that would be opposed by virtually no-one but Mary Coughlan. By appointing Jim O’Hara as Minister for Trade, Enterprise and Employment, Cowen could show just how seriously he’s taking the crisis, and that he’s willing to think outside the box in his efforts to do so.

And, as an added bonus for Cowen, the appointment would also be a political jab against Enda Kenny. Kenny decided last month that the Seanad is useless and he’d scrap it if elected Taoiseach, an announcement that was considered rash even by many members of his own party. By using the Seanad as a means to bring extra experience into the cabinet, Cowen could prove to Kenny that it isn’t so useless an institution after all.

Abolishing the Seanad

Fine Gael last night announced that, if elected, they’ll hold a referendum to abolish the Seanad. Right now is probably the perfect time to talk about reform of the way our system of government operates, as our Government and Oireachtas are almost completely incapable of dealing with the country’s fiscal and economic collapse, and public confidence in our elected representatives must be reaching an all-time low. Talking about the role the Seanad plays in the running of our country is a vital part of that, and discussions will inevitably come to either reforming the manner in which the Seanad is elected and operates, or getting rid of the Seanad and adopting a reformed unicameral parliamentary system if it’s deemed to make law-making more effective. These sorts of decisions are not to be taken lightly, as the choice of governmental system can have a profound impact on the country for generations to come.

Unfortunately, when Enda Kenny announced the party’s plan to abolish the Seanad, it wasn’t as part of an overarching review of our system of government, with a refashioning of the legislative branch carefully designed to be more effective at devising, amending and passing laws. It wasn’t advertised as a way to allow the country to cope better with the changed circumstances that we’ll have to deal with in the coming decades. Nope, the big headline reason given for abolishing the Seanad was that (along with reducing the Dáil by 20 members) it would save €150 million over the course of a Dáil term. That’s €30 million a year. To put that in perspective, the country’s current annual budget deficit is now approaching €30,000 million. So, Enda wants to make the biggest changes to the constitution in the history of the state, all for the sake of reducing our deficit by 0.1%.

Of course, Enda did hint to more political reforms as part of a “New Politics”, but it doesn’t inspire confidence that the headline reform is so blatantly populist. It also doesn’t inspire confidence that the whole process of devising a new legislative system for the nation has been fobbed off to the party’s environment spokesman, Phil Hogan, who doesn’t even sit on the Joint Oireachtas Committee on the Constitution, the body who’s job it is to discuss electoral reform.

By all means we should start talking about reforming the Oireachtas, in what it consists of, how it operates and how it’s elected. But that debate should be given the importance it deserves, and not simply used as a populist headline-grabbing stunt as Enda Kenny did last night.