Prospects for Job Creation1 1. Jobs Crisis79.170.44.204/catherinemurphy.ie/wp-content/... ·...
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Prospects for Job Creation | July 2012
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Briefing Paper
Prospects for Job Creation1 TASC Briefing, July 2012
Summary There is a complex relationship between economic
growth, the public finances and levels of
employment and unemployment in any economy.
Ireland is facing a crisis on all fronts:
unemployment tripled in less than three years; the
gap between tax revenue and annual expenditure
remains large (underlying deficit of 9.4 per cent in
2011) and requires urgent action; due to this
deficit and additional costs, especially the bank
bailouts, Ireland’s national debt is potentially
unsustainable (peaking at 119 per cent of GDP in
2013; NTMA); and a series of unbalanced
contractionary budgets have dampened growth
and risk plunging Ireland further into a negative
spiral of a shrinking economy, shrinking
government revenue and increasing
unemployment.
There is a weight of evidence backing the claims
that a growth strategy is needed for Ireland’s
recovery. This briefing paper provides a discursive
review of targets for investment and sources of
finance. But, crucially, it also points to the
empirical evidence that State-led productive
investment can lead to sufficient growth to break
the current downward spiral even in a small open
economy like Ireland. This is a not a ‘silver bullet’
solution, but requires a new balance between
taxation, spending cuts and investment, informed
by the urgent social priority of decreasing
unemployment.
1. Jobs Crisis Figure 1 illustrates the tripling of unemployment
since the outset of the crisis. For example, the
unemployment rate has risen from 4.5 per cent in
May 2007 to 14.7 per cent in May 20122.
Figure 1. Unemployment (%) 2001-20113
Increased unemployment has major implications,
with the risk that another generation in Ireland will
be scarred by poverty, involuntary emigration and
potentially a breakdown in social cohesion.
Social Cohesion
One of the risks of higher unemployment,
especially ‘long-term’ unemployment (i.e. more
than 12 months) is that people can become
deskilled or lose their attachment to the idea of
regular employment. It can also result in increased
problems associated with mental health, addiction
and criminal behaviour.
Putting this into the context of social change in
Ireland, there are nearly a million children born
since 1997 (22 per cent of the population)4, for
whom four or five per cent unemployment was the
norm that shaped their social and economic
environment to date. This is likely to have given
them profoundly different expectations compared
to the life experiences of many people in previous
generations. It remains to be seen what effects the
shock of deprivation has on this generation.
Wasted Potential
While it is obvious that unemployment is a waste
of someone’s potential, it should be noted that
from a formal economic perspective, the
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unemployment or underemployment of a large
number of people’s skills and capabilities
represents a significant part of the economy
operating at less than its ‘economic potential’.
Structural Unemployment
Another one of the risks of the growth in
unemployment is that some of that
unemployment will become ‘structural’; that is, an
inevitable result of the way in which the economy
is currently organised. For example, the skills of
those who are unemployed may be badly matched
with areas of growth potential in the economy and
job opportunities.
In modern, dynamic economies there is a need for
constant retraining and up-skilling to adjust to an
ever-evolving economy, where different sectors
(and different skills) will rise and fall in
prominence.
Figure 2. Unemployment (%) 1983-20115
As figure 2 shows, as far as recent decades are
concerned, unemployment at a level significantly
higher than the 4 to 5 per cent during the boom is
the norm in Ireland, with all that that implies in
social and economic terms. The average level of
unemployment in Ireland, from 1983 to 2011, was
10.7 per cent. If the unsustainable component of
employment generated during the property boom
could be filtered out, the average unemployment
rate over this period would be significantly higher.
There is a real risk, once the one-off unsustainable
effects of the property boom are stripped away,
that the configuration of the Irish economy will
once again tend towards a much higher rate of
unemployment than was experienced in the
previous decade.
In other words, whereas part of the currently high
level of unemployment is due to the temporary
low position of the Irish economy in the business
cycle, a significant proportion of unemployment
will not decrease even when the economy picks
up. Based on the current population and size of
the labour force, every percentage point of
unemployment represents over 21,000 people.
The current peak level of unemployment of 14.8
per cent (CSO, June 2012) represents 309,000
people.
Factors affecting Job Growth
Investment is not the only factor that can lead to
decreased unemployment. Labour costs, labour
mobility, distribution of income, work-sharing
schemes (like in Germany), education, training and
a range of other factors including external shocks
can all affect the unemployment rate even in the
context of low growth. A full exploration of these
factors is beyond the scope of this paper but must
be included in any comprehensive strategy to
reduce unemployment. In this briefing, the specific
focus is on exploring the feasibility of State-led
investment to lower unemployment.
It is a legitimate question to ask whether any of
the fundamentals of the Irish economy have
changed during the boom period, to give any
confidence that it may be possible to return to a
lower level of unemployment in Ireland.
Certain key factors such as infrastructure and
education have greatly improved over time.
Women’s participation in the labour force has also
increased. As a result of these and other variables,
overall employment is a relatively higher
percentage of the labour force than was the case
before the property boom. Eurostat data shows
that the unemployment rate of 14.4 per cent in
2011 was matched by a 59.2 per cent employment
rate (a ratio of 1.0 to 4.1), whereas in 1992, a 15.4
per cent unemployment rate was matched by 51.2
per cent employment (a ratio of 1.0 to 3.3). In
other words, a larger proportion of the labour
force (8 percentage points more) was employed in
10.7% average
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2011 compared to twenty years previously, which
is indicative of real changes in the economy.
Historical data on Ireland also needs to be
examined with caution. Another major variable
affecting unemployment levels in Ireland is
migration. Up until recently this was
predominately out-migration of people born in
Ireland, however membership of the EU, Ireland’s
openness to migrant workers from Eastern Europe
during the property boom and the renewal in out-
migration following the crash all have a major
effect on the expansion and contraction of the
labour force, and consequently the proportion of
workers who are unemployed.
2. Crisis in the Public Finances It is well documented elsewhere that Ireland is
facing a massive crisis in its public finances. Tax
revenue fell by a third in the first two years of the
crisis, due to the prior ‘hollowing out’ of the tax
system through tax cuts and tax breaks, and the
over-reliance on property-related tax receipts
during the end years of the property bubble that
finally collapsed in 2008.
Ireland’s underlying deficit in 2011 was 9.4 per
cent of GDP (April 2012). The target for deficit
reduction in 2013 requires the next budget to
implement c.€3.5 billion in a combination of tax
increases and spending cuts.
In this context, the scope for the State to engage in
major investment to boost the economy is
obviously limited. However, this paper argues that
some of the options available to the State have not
been explored in full, in part due to the dominance
of an overly simple analysis of growth dynamics
and automatic stabilisers during a crisis; an
analysis that fails to see the potential benefits of a
State-led growth strategy to complement other
measures to close the deficit.
3. The Need for Economic Growth The mathematical argument in favour of economic
growth is irrefutable. Practically all cuts to public
spending will contract economic output and
likewise, all tax increases will contract the
economy. Moreover, as the economy shrinks, this
in turn decreases tax revenue, decreases
employment and increases welfare payments. A
strategy based largely on tax and cuts risks
perpetuating a negative spiral resulting in further
economic contraction and, ultimately, default on
sovereign debt.
Since the outset of the crisis, some voices have
immediately recognised the need for a growth
strategy6. It is unsurprising that following years of
economic contraction across Europe, especially in
the peripheral economies, there is now a much
stronger EU-wide call for growth, epitomized in
the policy proposals of the new French President,
François Hollande, but with advocates across the
European Union, including major German think-
tanks like the Friedrich Ebert Stiftung and the Hans
Böekler Stiftung.
Economic Output
Economic activity is measured in terms of the sum
total of the value of all goods and services
produced in a country. Measurements include
GDP, GNP and GNI and they are typically similar
values. Ireland is unusual in having a significantly
larger gross domestic product (GDP) than gross
national income (GNI) due to the relatively larger
scale of multinational corporation involvement in
the Irish economy. Due to the combination of this
with Ireland’s low corporation tax rate, it is
arguably more appropriate to examine the
sustainability of Ireland’s public debt as a
percentage of GNI rather than GDP, as is typical for
other countries. This is worrying, because Ireland’s
national debt as a percentage of GNI is well over
the threshold of what would normally be
considered sustainable; i.e. it seems inevitable that
Ireland must eventually default on this level of
debt, unless the banking debt component is
removed from the equation or significantly eased.
Recent announcements from the EU make it
appear that some deal on bank debt is plausible.
As was seen during Ireland’s property boom and
subsequent crash, some forms of growth are more
durable than others.
Durable economic growth (i.e. genuine
development based on productivity) tends to be
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linked to the factors such as: population growth;
improvements in educational attainment across
the population; improvements in infrastructure
(e.g. roads, telecommunications); improvements in
basic public services (e.g. water, waste collection);
better institutions (e.g. appropriate levels of
market regulation); and innovation leading to
increased productivity in the workplace, including
‘low tech’ as well as ‘high tech’ innovation.
Investment
A major component of economic output is capital
investment from both private and public sources.
This involves the building of infrastructure,
investment in machinery, and various other ways
in which the technological and productive capacity
of an economy is increased.
The full benefits of investment may not be realised
until years after the initial investment, but
conversely, a decrease in investment is a clear
indicator that economic output will be lower in
future.
A very worrying trend in Ireland is the
extraordinarily low level of gross fixed capital
formation by the private sector. In 2011, this was
6.5 per cent of GDP in Ireland compared to an
EU27 average of 16.1 per cent. The next lowest
was 10.9 per cent in Greece. This represents a
severe lack of investment which will impair the
growth and employment capacity of the economy
in future years. At the same time, it is clear
evidence of a gap into which State-led investment
would be more potent than if it was in competition
with private sector investment.
Economic Growth and Jobs
While it is fairly obvious that increased economic
output will lead to increased employment, four
factors should be noted. Firstly, different sectors
of the economy can be ‘jobs-rich’ or ‘jobs-poor’
depending on their balance between skill
requirements, the use of technology to replace
labour, etc. The multinational corporations in
Ireland provide a significant boost to economic
output, but they have not typically provided high
levels of employment. The employers of the vast
majority of workers in Ireland are SMEs (Small and
Medium Enterprises). Lawless et al (February
2012) found that 72 per cent of 1.1 million
employees in their dataset worked in SMEs.
A second factor is that growth can in some cases
increase employment without a proportionate
decrease in unemployment. For example, skilled
migrant workers may be better suited to fill new
job vacancies than workers resident in Ireland. This
relates to the issue of structural unemployment
and points to the need for creating job
opportunities that match existing indigenous skills
alongside programmes to retrain and reskill those
who are unemployed.
Thirdly, while an economy of any given level of
output will support the employment of a certain
number of people, this is a dynamic relationship
not a static one. Over time, an economy that is not
growing will have a decline in employment. This is
explained as being due to innovation and
technology making it possible for the same work to
be done by less people. As a result, there is a need
for a certain level of real growth in the economy to
maintain the current level of unemployment. Paul
Krugman estimates this as roughly over 2 per cent
real GDP growth. It is therefore necessary to have
an even higher level of growth to bring about a
reduction in unemployment.
A fourth factor is that not all economic growth is
equally beneficial. Ireland’s debt-fuelled property
bubble generated temporary growth and
significant employment, but the jobs were
unsustainable and the level of debt incurred is now
a major burden on the economy.
Ireland’s Debt Burden
The high level of private debt carried by
households and businesses are major factors in the
economy that are weighing against a general
upturn any time soon. These add to the already
enormous level of public debt.
Cecchetti, Mohanty and Zampolli (2011) find that
sovereign debt levels above 85 per cent of GDP,
corporate debt levels above 90 per cent of GDP,
and household debt levels above 85 of GDP are all
bad for growth. Ireland exceeds the threshold for
all three types of indebtedness. For example, Irish
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sovereign debt will peak at 119 per cent of GDP
(NTMA), and household debt is over 200 per cent
(IMF WEO 2012). Corporate debt (including the
banks) is even higher, although estimates vary
considerably.
4. The Complex Relationship between
Growth, Jobs and the Public Finances There are undoubtedly tensions between seeking
to achieve increased growth, decreased
unemployment, closure of the deficit in the
national finances and reduction of the national
debt. At the same time, a more nuanced analysis
shows that some policies are beneficial to all of
these ends. For example, Cottarelli (2012) writes:
[There is a] “complex relationship
between economic growth and fiscal policy. It is a
complex relationship because it involves various
kinds of feedbacks between the two sides of the
equation, and different effects depending on
whether we look at the short or the long run. But it
is an issue of extreme importance for policy-
makers in advanced countries. Fiscal policy has
critical implications for economic growth both in
the short and the long run. At the same time,
strong growth greatly facilitates fiscal adjustment,
both in the short and in the long run. And fiscal
adjustment is what most advanced countries need
over the coming years, as their public debt to GDP
ratio stands at an historical peak reached only
once in the last 130 years.”
Feedback
The concept of feedback is important to explain
why cuts do not equal equivalent levels of savings
in the public finances. In a simple example, if the
state pays an employee one euro less, than the
State will lose whatever proportion of that euro
would have been paid in income tax, social
insurance and potentially VAT and excise on
purchases. Moreover, if many state employees
have less money to spend, than economic activity
contracts, with losses in the private sector, which
again decrease revenue and potentially increases
demands on welfare spending.
More complex examples are possible, such as the
role of public bodies in purchasing goods and
services from the private sector. It should be clear
enough that there is a complex interaction
between the public and private sectors in the
economy, which makes it necessary to plan
national finances on a much more strategic basis
than simply seeking to ‘balance the books’ as if the
public finances were somehow disconnected from
the rest of the economy.
Austerity
‘Austerity’ is fiscal consolidation through
discretionary tax increases and spending cuts; as
opposed to growth fuelled fiscal consolidation.
On an aggregate level, recent IMF research by
Leigh et al. (2010) has provided useful estimates of
the impact of austerity measures on both output
and employment. They find a fiscal consolidation
package equivalent in scale to 1 per cent of GDP
will typically reduce GDP growth by approximately
0.5 per cent within two years and raise the
unemployment rate by about 0.3 percentage
points. Based on these estimates, if the Irish
Government proceeds with the planned €3.5
billion of further austerity measures in the next
budget, this would imply an additional of 0.7
percentage points to the unemployment rate.
However, budget deficit cuts are found to be more
painful in cases, such as the present one, when
these adjustments occur simultaneously across
many countries. The reason is straightforward in
that not every country can increase their net
exports at the same time. Budget cuts are also
found to be more damaging when monetary policy
is not in a position to offset them. If interest rates
are at, or just above, zero, as is currently the case,
the effect of the fiscal consolidation will ultimately
be more costly in terms of lost output. The pro-
cyclical austerity measures have heightened the
severity of economic collapse.
Clearly, a strategy focused solely on tax and public
spending cuts is highly unlikely to help the
economy to grow.
There has been an over-simplified dichotomy
made between ‘austerity’ and ‘growth’ in both
European and Irish discussion of the economic
crisis and potential solutions to it. For example,
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reducing inefficiency in public spending is sensible,
even though it may decrease economic output at
the time.
Overall, it is vital to recognise that different cuts
and taxes can have significantly different effect on
economic growth and employment. For example,
raising property taxes and cutting tax expenditure
are likely to have a significantly less damaging
effect on growth and employment than increasing
taxes on labour or cutting education spending. This
is explored in more detail in section eight with
respect to taxation.
The Need for a New Balance of Objectives
Economic policy being discussed at EU level now
appears to seek a more balanced approach,
combining elements of growth-promotion with
continued tightening of public finances to reduce
deficits and national debt levels; although the
precise detail about this balance changes from day
to day. For example, in the recently announced
€120 billion of measures at EU level, little of this
represents ‘new money’.
In the context of the re-balancing of economic
priorities there is an urgent need for
unemployment to be given more precedence,
given the long-term social and economic harm
than will result from persistent long-term
unemployment.
A focus on striking a balance between growth and
fiscal adjustment is evident in the latest IMF Fiscal
Monitor’s advice: “as long as financing allows, a
gradual but steady pace of adjustment seems
preferable to heavy frontloading” (April 2012).
Conversely, it is argued that countries like Ireland
are so heavily indebted that there is no alternative
to ‘heavy frontloading’ of austerity measures.
However, if Ireland’s national debt (including
banking debt) is in fact unsustainable at 119 per
cent of GDP, than frontloading of austerity is only
going to cause social and economic harm without
preventing the inevitable default on some of this
debt.
Sustainability
The concept of economic growth is not
uncontroversial. There are cogent arguments that
a finite planet cannot support infinite growth over
time. There are also those who argue that further
growth from our current position is already
unsustainable because so much of existing
economic activity depends on non-renewable
energy or on natural resources which are being
rapidly depleted. In this context, there are a
number of thinkers who regard the term
‘sustainable growth’ as a contradiction in terms.
According to this view, the economy can either
become sustainable or grow.
In the very near future, there is little doubt that
major aspects of the economy need to be radically
changed; for example, although Irish agriculture
and agri-food are growth sectors, they are highly
reliant on fossil fuels. On the positive front, Ireland
has potentially major natural advantages in wind
and wave generation of energy that could be
developed to reinforce Ireland’s energy security
and future sustainability.
In terms of the next few years, two aspects of
growth from our current position are arguably
sustainable; at least in the short term, while
acknowledging that large components of current
economy activity are not sustainable and will need
to be replaced with alternate activity that may not
contribute to GDP in the same way.
One aspect of growth is simply arithmetic GDP
growth due to a managed level of inflation. This
type of growth will not directly generate
sustainable long-term employment, although it
can be beneficial for reducing the scale of the
national debt relative to national income.
McDonnell (2012, forthcoming) argues that the
Euro zone should set an aggregate inflation target
for the next few years of 4 per cent; based on 5
per cent in the core and 2 per cent in the
periphery to rebalance competition between core
and periphery and to allow for nominal GDP
growth to diminish debt in the peripheral
countries.
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A second and more desirable aspect of GDP
growth is real growth based on increased
productivity; such as from more efficient use of
resources, innovation and sustainable advances in
technology. This type of growth is founded on
factors such as improved human capital (e.g.
education) in the labour force as well as
competition based around ability to innovate. This
form of growth in real GDP can generate increased
employment on a sustainable basis.
The sum total of GDP growth (i.e. inflation plus
real growth) is known as ‘nominal’ GDP growth.
However, some potential aspects of GDP growth
are not desirable. For example, a return to debt-
fuelled growth, such as another property bubble,
is neither sustainable nor desirable. It would not
lead to sustainable jobs. Moreover, the human and
social cost of post-bubble economic crashes is an
additional cost that further outweighs the
temporary benefit of this form of economic
growth. Likewise, short-term growth from new
forms of resource extraction (e.g. natural gas
‘fracking’) does not deal with the ultimate
unsustainability of relying on fossil fuels and would
increase environmental harm.
5. Productive Investment and
Stimulus The central question is then whether or not State-
led targeted investment can lead to sufficient
growth and knock-on benefits in the wider
economy to off-set the additional cost of
expenditure (including servicing and repaying any
public debt that might be incurred in making the
investment).
It is important at this point to distinguish between
the concepts of ‘productive investment’ and
‘stimulus’. Any form of spending in the economy
represents a form of stimulus, as there is simply an
increase in aggregate demand. Welfare spending
during a downturn is an example of such counter-
cyclical spending, often termed an ‘automatic
stabiliser’.
However, it is argued that borrowing money to
spend on current spending is counter-productive
as it will ultimately cost more to service and repay
the debt than the benefit from a temporary boost
to economic activity.
Some commentators have made an argument that
economic stimulus simply cannot occur here,
because Ireland is a small open economy.
Specifically, it is argued that investment would
‘leak’ out of the economy due to the level of
imports involved in many sectors of the economy.
According to this view, the benefit to the economy
would be low and in all probability insufficient to
generate enough resources to repay the
investment.
In the ESRI’s latest Quarterly Economic
Commentary (Summer 2012: 31-32), Duffy et al
claim that stimulus would not work in Ireland:
“We would be very cautious about a
domestic fiscal stimulus in Ireland, however
funded, as history and experience shows that such
a stimulus would have little effect on the domestic
economy, but would lead to a worsening of the
balance of payments. The crises of the 1950s and
the 1970s-1980s provide sufficient cautionary
evidence that, given the openness of the Irish
economy, a large portion of any stimulus would go
directly into imports.”
In contrast it can be argued that the ‘leakage’
argument has been over-simplified in the Irish
case. There are certainly areas of the economy
that involve a high concentration of imports.
Notably, the decision to give a ‘scrappage’ tax
break on new car purchases represented a
particularly poor choice of stimulus. While some
jobs were probably maintained in car dealerships,
the main result of the policy was a reduction in tax
revenue, combined with a flow of capital out of
Ireland to foreign car manufacturers at almost
certainly a net loss to the economy from the
policy.
However, the dismissal of stimulus appears to be
based more on conviction than attention to the
argument in favour of productive investment as
well as the empirical evidence that a significant
‘multiplier’ effect can be achieved from
investment in even the most open of economies;
such as US states, as demonstrated by Nakamura
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and Steinsson (2011). Moreover, the Irish
economy was not in fact an open economy in the
1950s and has changed significantly since the
1980s, not least from the growth in services
industries that are largely consumed domestically.
Productive Investment and ‘Intensive’
Growth
Productive investment is not just concerned with
raising public spending in order to increase
economic output; it is concerned with the target of
that investment. Ideally, investment should be
tightly concentrated on key infrastructure that will
enhance the productivity of private economic
activity, including investment in human capital
(e.g. education) alongside investment in physical
assets, such as roads and broadband Internet.
The ESRI Quarterly Economic Commentary also
states that “Growth in the economy will come
from exports and export driven investment.”
While this may be the case in terms of GDP
growth, especially given the concentrated focus on
exports among multinationals based in Ireland, it is
not automatically the case that this growth will
lead to significant decreases in unemployment.
Moreover, not every country can achieve net
exports at the same time, as logically a balance of
countries must be net importers for export-led
growth to work for others. In the context of the
global recession, the opportunity for export-led
growth should not be over-estimated.
Conversely, an alternative target for investment is
Ireland’s domestic economy, where the vast
majority of people are employed in SMEs providing
domestically consumed goods and services.
Moreover, investment should be targeted at
improving the skills and employability of those
who are unemployed. This form of investment is
based on increasing the level of education, skills
and innovative capacity in the economy to achieve
what is called variously long-term ‘Schumpeterian’
growth or ‘intensive’ growth. Investment in
people’s skills is vital to achieve a reduction in
structural unemployment.
Multipliers in Small Open Economies
Calculating the exact benefit of any particular type
of capital investment is challenging, involving an
analysis of a complex array of variables. The skill
and market-specific, area-specific knowledge that
this requires goes to the heart of the whole idea of
entrepreneurship.
Nonetheless, it is possible to measure the broad,
aggregate benefit to the economy of different
forms of investment. The result is what is known
as a ‘multiplier’, which indicates the extent of
beneficial spill-over in the economy from a given
level of investment.
While the key role played by capital accumulation
in the generation of growth is widely accepted, the
actual size of investment multipliers is a source of
deep contention amongst economists. This is
partially because of the multiplicity of confounding
effects in a complex adaptive system which make
constructing plausible fiscal multipliers notoriously
difficult. The official response in Ireland has been
to reject stimulus out of hand because it is argued
that much of the benefits of an investment
stimulus in small open economies like Ireland will
leak out of the country, thereby rendering the
stimulus ineffective.
To examine this claim by reference to the
empirical literature and to estimate the size of an
investment multiplier in a country as open as
Ireland, it is arguably most appropriate to compare
Ireland with sub-national regions in federations
such as the United States or Germany. Doing so
would also help to address the criticism that
Ireland is somehow ‘different’ to other European
countries and that fiscal policy will be ineffective in
Ireland.
A recent study by Nakamura and Steinsson (2011)
is useful in this regard. They identified a relatively
high fiscal multiplier of 1.5 for individual states
within the United States. The individual states
within the union are analogous to small open
economies and this result suggests that
appropriately targeted investment can be an
effective countercyclical mechanism in small open
economies. Nakamura and Steinsson used regional
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variation associated with military spending to
estimate the effect of a relative increase in
spending on relative output. The United States
example is illustrative for Ireland because
individual states within the US are even more open
to the rest of the US economy than Ireland is to
the global economy. In addition, most of the
economies of individual US states are either as
small, or smaller, than Ireland’s economy. The
findings are also of interest because the United
States is a monetary union. This means interest
rates cannot be raised in one state and held
constant in another as a response to the stimulus.
This implies there is no confounding effect on the
results caused by the loosening or tightening of
monetary policy. The Nakamura and Steinsson
findings also suggest that aggregate fiscal stimulus
will have large output multipliers when the
economy is at the zero lower bound, such as in
Ireland at present.
The economic crisis appears to have stimulated an
increase in research on using sub-national
variation in spending to estimate investment
multipliers. For example Shoag (2011) finds that
each dollar of government spending generates
$2.12 of personal income and that $35,000 of
additional spending generates another job in the
state where the spending occurs. The effects are
stronger when employment and labour force
participation are low. Acconcia, Corsetti and
Simonelli (2011) looked public works, and they
estimate fiscal multipliers as high as 1.4 on impact
and 2 when dynamic effects are counted.
Most of the post-crisis empirical work on sub-
national fiscal multipliers has found multipliers of
between 1.5 and 2.5.
Nakamura and Steinsson (2011) argue that their
estimates are: “much more consistent with New
Keynesian models in which ‘aggregate demand’
shocks – such as government spending shocks –
have large effects on output when monetary policy
is sufficiently accommodative than they are with
the plain-vanilla Neoclassical model”.
Given the paucity of business investment in
Ireland, it is highly likely that State-led investment
would have a significantly beneficial impact.
“…recent work which will be published in the
forthcoming IMF Fiscal Monitor will show … that
multipliers are larger when output is below
potential, as in the current cases of many
advanced economies.” (Cottarelli, March 2012).
The weight of empirical evidence makes a strong
case to reject the argument that Ireland’s small
open economy will render fiscal stimulus
ineffective. On the contrary, establishing and
embedding economic growth is a prerequisite to
restoring Ireland’s debt dynamics to a sustainable
equilibrium.
Moreover, there is reason to believe that the
Department of Finance’s forecasts for economic
growth under the parameters set by the National
Recovery Plan are too optimistic. The weakening
global economy, the low levels of lending to the
private sector, the continued deleveraging by the
private sector, and the Government’s fiscal stance,
will all combine to drag on economic growth and
employment levels in the short-to-medium term.
Hence, State-led productive investment is
imperative.
Proposals for Productive Investment
In 2010, TASC proposed an Economic Recovery
Fund to invest €3 billion in a loan guarantee
scheme for SMEs, seed capital for SMEs and start-
ups, retraining/upskilling of construction workers,
broadband Internet infrastructure, and R&D in the
alternative energy sector. These were “prioritised
areas on the basis of their capacity to have an
immediate impact on the economy and to be
absorbed quickly into the system.” The €3 billion
was to be sourced from the National Pension
Reserve Fund (NPRF).
In 2011, TASC proposed a modest €1.2 billion (0.75
per cent of GDP) of investment annually over four
years along similar lines. Schemes suggested
included the construction of a next generation
broadband network over a number of years in
collaboration with the private sector, as well as
investment in human capital through the funding
of re-training and up-skilling schemes targeted at
the long term unemployed. It was argued that this
€1.2 billion could be combined with additional
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funds from the European Investment Bank and
with the European Commission’s new project
bonds.
In their Spring 2012 Quarterly Economic Observer,
the Nevin Economic Research Institute published
proposals for a €15 billion investment programme
over five years “sourced from a mix of public,
private and European/International sources with
no additions to General Government Debt and
with a likely lowering in the public sector deficit as
a result of higher revenues and lower payments as
unemployment falls.”
This programme targets investment in water,
broadband, energy, early childhood and
retrofitting of homes. It is funded by a €5 billion
from the NPRF and commercial semi-states, €5
billion from private sources (including pension
funds), and €5 billion from the European
Investment Bank (EIB). The NERI proposal has been
taken up as part of the Plan B advocated by the
Claiming Our Future alliance of diverse civil society
organisations.
The more recent suggestions by TASC and NERI
amount to €3 billion of investment (c.1.8 per cent
of GDP) per annum, although the exact balance
might vary on a year-to-year basis. For example, it
will take time to gear up projects to absorb this
investment efficiently. Likewise, it makes sense to
taper off the investment in the latter years, rather
than suddenly stop investing.
6. Targets for Productive Investment
in Ireland The areas targeted by TASC and NERI for
productive investment display one or more of
three main characteristics: (1) they represent
areas where there is a strong fit between the
existing skills and other attributes of the people
who are unemployed in the labour force (e.g.
construction workers); (2) they represent an
investment in transforming the skills of the people
who are unemployed, to increase the overall
education/training attainment in the labour force
and to give them new skills that are better aligned
to likely future employment opportunities and to
increase ‘intensive’ growth; (3) they represent
investment in sectors that are more labour
intensive to maximise employment.
Retraining/up-skilling construction workers
In line with TASC’s particular focus on achieving
Schumpeterian/intensive growth to generate
sustainable employment, as well as avoiding the
risks to social cohesion from long-term
unemployment (which tends to be spatially
concentrated), it is absolutely essential for a major
State-led initiative to address the skills imbalance
in the economy, where far more people entered
construction-related activities than the economy
can sustainably support in future. Major initiatives
to support return to education and re-skilling are
vital to ensuring that many people who are
currently unemployed can find jobs in different
sectors of the economy.
Broadband Internet infrastructure
Broadband Internet is an example of a ‘general
purpose technology’ that is highly likely to lead to
a higher level of innovation in the economy. As
such it is an excellent target for productive
investment in Ireland’s context. In the immediate
future investment is in labour intensive work,
which will provide jobs suitable for ex-construction
workers, distributed right across the country,
especially in rural areas.
Moreover, the advantage of broadband
infrastructure is that it gives customers and
businesses access to a massively beneficial
infrastructure that allows for new businesses to be
established and also opens up new markets as
more of the Irish population goes online.
A more developed example of State-led strategic
role in broadband is given in the Annex.
Loan guarantee scheme for SMEs
Small and medium enterprises (SMEs) provide
nearly three quarters per cent of employment in
Ireland yet arguably receive less state support and
focus than multi-national corporations which,
while important to the overall economy, provide a
lot less employment.
The banking crisis, which underlies much of
Ireland’s economic woes, has led to a much
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reported drying up of business lending, with the
result that many viable businesses have folded
with the unnecessary loss of jobs.
Although there have been a number of
Government initiatives to address the lack of
credit available to SMEs (e.g. Credit Review Office),
the Government has yet to implement a loan-
guarantee scheme to help get credit flowing to
viable SMEs.
The logic of a State loan guarantee scheme is that
only a proportion of loans to SMEs would not be
repaid, which means that a relatively low
investment in this area could provide for a
significant level of credit being made available to
viable SMEs.
Given the State’s ownership or part-ownership of
all major banks in Ireland, these provide an
obvious implementation vehicle for such a
scheme.
Seed capital for SMEs and start-ups
The logic of providing seed capital for SMEs and
promising start-ups is due to the levels of
employment generated among SMEs and also the
fact that business capital investment in Ireland has
remained incredibly low for several years, leaving
a gap that needs to be filled.
R&D in the alternative energy sector
Ireland’s natural advantages in certain areas of
renewable energy generation have been well
documented, notably in terms of wind and wave-
generated power.
State-led investment in research and development
in this area is an example of ‘intensive’ growth (i.e.
growth built on increasing knowledge and
innovation). Moreover, Ireland’s considerable
over-reliance on imported fossil fuels is an energy
security issue and a national risk in terms of future
global oil and gas price fluctuations.
Energy
Investment in energy infrastructure, from
improved transmission to renewable
infrastructure, such as wind turbines, provides
some employment opportunities similar to
broadband (although with higher skill
requirements). Moreover, investment that
improves the efficiency of energy transmission or
that increases the proportion of Ireland’s energy
generation from renewable sources is an
important benefit to the wider economy.
Water
The employment benefits to investment in both
clean water production and waste water
treatment are similar to broadband and energy.
Ireland currently has a disproportionately high
level of lost clean water through leakages, which is
an inefficient use of an invaluable resource.
Moreover, alongside domestic consumption water
is an important component in some industries, not
least agriculture/agri-food, and investment in this
infrastructure could open up new business
opportunities.
Retrofitting of Homes
The energy-efficient retrofitting of homes with
insulation, double-glazing and so on, has similar
employment benefits and is immediately capable
of directly providing employment to ex-
construction workers without significant
retraining.
Investment in this area is also a means to tackling
fuel poverty, which is acute among older, rural
dwellers in cottage and bungalow housing. The
overall saving in energy costs is another benefit to
the economy, as most of Ireland’s energy is
essentially imported (in the form of oil, gas or
coal). Saving this money allows more resources for
domestic consumption of goods/services.
Implementation of a programme of retrofitting
could be organised through local authorities. This
would also allow the fine targeting of employment
opportunities at the specific localities with highest
unemployment, especially youth unemployment.
Early Childhood
Various international studies show the strong
benefit of early childhood education. Moreover,
childcare costs are extremely high in Ireland and
are a cause of labour immobility and withdrawal
from the labour force, as some people (especially
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women) cannot afford to work due to the cost of
childcare.
A State-led strategic investment in this area has
both a long term benefit from increasing early
childhood education, but also immediate benefits
for labour mobility.
7. Sources of Finance for State-led
Investment in Ireland Capital expenditure has to be carefully managed
and sustainably financed.
At an EU level, the argument against stimulus is
focused on the undesirability of increasing national
debt levels across EU member states, which would
be necessary in the short term to fund state-led
investment. Certainly, there is scepticism about
the ability of highly-indebted economies like
Ireland to raise funds through borrowing to
finance investment.
Hence, there is need to examine alternatives to
borrowing. The following is a brief overview of the
different potential sources of finance for
productive investment.
National Pensions Reserve Fund (NPRF)
The NPRF is managed by Ireland’s National
Treasury Management Agency, which has the
primary responsibility of managing the national
debt. As of 31st
March 2012, there is €5.8 billion in
this fund, which is essentially a sovereign wealth
fund.
The fund was expanded during Ireland’s boom
years; however €10 billion of the fund was used to
provide the major of Ireland’s €17.5 billion
contribution to the EU/IMF Programme. In
addition, the NPRF has been directed by the
Minister for Finance to invest in AIB and Bank of
Ireland in recent years, as part of the state’s
efforts to stabilise and recapitalise the banks. Since
2009, the Fund has invested €20.7 billion in the
two banks; however, the current value of those
investments is now only €9.4 billion7.
As of 31st
March 2012, the Discretionary Portfolio
of the NPRF was valued at €5.8 billion8. Since April
2001, the Discretionary Portfolio has delivered an
annualised return of 3.5 per cent. In principle, all
of this €5.8 billion could be redirected into
productive investment. The trade-off here is
between the current return on investments (often
outside Ireland) and the redirection on those
resources on domestic job creating industries.
The argument in favour of using this money for
productive investment, rather than simply
managing a portfolio of assets, is to focus the
investment on Ireland and to boost employment.
The NPRF represents the closest thing Ireland has
to a sovereign wealth fund, which (in line with a
Keynesian approach) was built up during a period
of high growth and can now be expended to
greater impact through counter-cyclical
investment during Ireland’s recession.
The downside of using the last of the NPRF is that
although it represents national savings, it did serve
a different original purpose, which was to help off-
set potentially unbearable pension costs that
Ireland faces with its aging workforce, including a
cohort of aging public servants with relatively high
pension benefits.
Commercial semi-state companies
Despite the Irish State’s current difficultly in
borrowing money, a number of Irish commercial
semi-state companies continue to borrow for
investment purposes and have good credit ratings.
It is argued that increased borrowing and
productive investment by Ireland’s commercial
semi-states offers a way of increasing overall
investment without increasing the general
government debt.
Semi-states are ideal vehicles for investment
because they are largely dealing with
infrastructure projects, they have years of
acquired knowledge in their specialist areas, they
have a ready absorption capacity for increased
investment, and they can leverage private
investment in addition to their own direct
investment.
However, there should be no illusions about the
sustainability of borrowing in an ‘off balance sheet’
manner. The overall capacity of the economy to
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absorb debt is limited and, as noted above, Ireland
is over-indebted in all three areas of sovereign
debt, corporate debt and household debt.
Moreover, the capacity of the State to manage and
repay debt has definite limits, regardless of
whether that debt appears in the official statistics
or whether it is elsewhere. Hence, the focus here
must be on the commercial semi-states taking on
corporate debt that remains with them and is
financed from their own income streams.
Private pension funds
The proposal to leverage the involvement of the
private pension industry was developed initially in
SIPTU, which was concerned with both economic
growth and the pension benefits of its members
when a temporary government levy was placed on
pension funds in 2011. SIPTU’s argument is to give
an exemption (tax break) on the pension fund levy
to those private funds which increase the level of
their investment in Ireland by six per cent. Given
that the funds total some €80 billion (owned by
people in Ireland), even a six per cent increase in
investment in Ireland would involve an estimated
increase in investment by them of over €4.5 billion
in the Irish economy9.
The role of the state would be to provide
investment opportunities (such as the targeted
areas above, possibly in the form of project bonds)
which this money could be directed with a
reasonable rate of return in addition to the
exemption on the levy. SIPTU identifies
infrastructural/utilities development as the “best
prospect for immediate returns in terms of job
generation while simultaneously enhancing
medium to longer term sectoral growth and
productivity”.
It can be noted that some other countries have
significantly higher proportion of pension funds
invested domestically, and that this proposal
would appear to be feasible. If investment vehicles
such as project bonds can be created, these could
also be attractive to private investment on a
voluntary basis.
Privatisation of State Assets
A variety of sources, including the authors of the
recent ESRI Economic Commentary, are sceptical
of the benefit of raising funds through the
privatisation or part-privatisation of state assets.
TASC has expressed doubt about the ability of
these sales to generate sufficient resources to
make any significant difference to Ireland’s overall
level of debt. However, part-private part-public
ownership of state assets has become the norm
across the EU and the involvement of some private
sector funds in utilities and other state companies
may leverage additional investment, although
further research would be needed to confirm
whether the public has ultimately benefited or
whether increased employment has resulted.
European Investment Bank (EIB)
Early on during the current crisis, it was
announced that the EIB’s lending capacity would
be increased by some €50 billion. Recent
announcements at EU level may enhance this
further.
The EIB has considerable experience in
implementing strategic productive and
infrastructural investment. There might be a
reasonable expectation that those countries worst
hit by the current recession, such as Euro zone
peripheral economies, might be given a significant
share of these resources.
Euro bonds
Alongside the EIB, there is potential for a further
role for EU-level initiatives. In particular, there are
various suggestions about how EU member states
could pool their ability to borrow money, by doing
so at EU level. This would allow countries like
Ireland to access finance on a cheaper basis than
currently, if the EU or Euro zone countries as a
whole were to borrow on the strength of their
aggregate debt and credit ratings.
Conversely, this involves the stronger economies
accepting higher borrowing costs as an act of
solidarity. While some solidarity is likely to be
necessary to reinforce the EU and Euro project at
this time, it is important to avoid a situation where
perverse incentives become built into any Euro
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bond or similar scheme, as this could reduce the
pressure on weaker economies to make necessary
reforms.
8. Taxation and Growth Increased taxation is, strictly speaking, an austerity
measure (i.e. a measure that will contract rather
than expand the economy). More or less all
increases in taxation will have a negative impact
on economic growth and will supress employment.
However, given Ireland’s low tax base, there is
some scope for tax increases to fund investment.
Moreover, there are a number of changes to fiscal
policy that can play a role in generating growth
and jobs by changing the structure of the tax
system rather than increasing the overall level of
taxation.
Ireland’s Low Tax Base
General government revenue in the EU averages
44.6 per cent of GDP (EU27, 2011, Eurostat).
However there is considerable variation.
It is not only Nordic countries that have with high
tax levels, such as Denmark (the highest) on 56 per
cent. Hungarian government revenue is 52.9 per
cent of GDP and French is 50.7 per cent. The
lowest level of Government revenue in the EU is in
Lithuania (32 per cent), but Ireland is seventh from
the lowest on the table with general government
revenue of 35.7 per cent of GDP, which is nearly
nine percentage points lower than the EU average.
While higher taxation is a means not an end of
public policy, it is striking that many of the worst
performing countries in the current crisis are low
tax economies, compared to higher tax countries
which have proven more resilient.
It is sometimes argued that Ireland’s level of
general taxation should be viewed as a percentage
of GNP. If so, national debt also needs to be
viewed in this way and, at roughly 130-140 per
cent of GNP, this is a bleak picture. There is a
reasonable argument that all the resources of
Ireland’s GDP, including multinational corporations
in Ireland, need to be harnessed to address
Ireland’s crisis. Although lower taxation is part of
Ireland’s attractiveness to foreign direct
investment, the sustainability of this strategy over
time needs to be considered objectively.
At any rate, the impact on economic growth of a
change in tax policy will vary depending on the
country’s starting point. There are diminishing
returns to adjusting taxes upwards and tax
increases tend to have smaller effects on growth
when they are starting from a low base. Thus low
tax countries such as Ireland have a higher
potential net benefit from tax increases than high
tax countries.
The question of raising tax to fund investment
boils down to a straightforward cost–benefit
analysis, and there is reason to think than certain
taxes increases (such as cuts to tax breaks and
increased taxation on property) would be less
damaging to the economy and, moreover, this
damage could be more than off-set by the benefits
of using these resources for productive
investment.
Growth-Friendly Tax Increases
While all taxes impact upon economic efficiency
and income distribution, these impacts differ
sharply depending on the type of tax. For example,
the distortionary effect on the allocation of
resources in the economy is likely to be less severe
for taxes on immovable property than it is for
taxes on income or consumption. Numerous
empirical results, for example Johansson et al.,
(2008), and Heady et al., (2009), have consistently
shown recurrent taxes on immovable property to
have the smallest negative impact on long-run
economic growth. This is followed by other
property taxes and then by consumption taxes
such as VAT, excises and certain environmental
taxes. Labour taxes and corporate taxes tend to
have the most distortionary effect on economic
activity.
Changing the balance of taxation between
different tax sources, such as moving from taxes
on labour to taxes on property, should be
considered a complement to improving the design
of individual taxes.
Recurrent taxes on net wealth are generally less
distortionary than taxes on financial and capital
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transactions. They are also a mechanism for
redistributing income. Wealth taxes also help
assist tax authorities in fighting tax evasion and
criminal activity by revealing inconsistencies
between income flows and wealth. When taxing
net wealth, an important principal is to ensure that
all classes of asset are treated the same way and
that no assets, such as pensions, are made exempt
from the tax. Exempting or giving favourable
treatment, such as reduced rates, to certain asset
categories distorts private investment decisions
and provides a mechanism for tax avoidance. A
common strategy is for an individual to borrow
money to reduce his or her net wealth and then
use these borrowings to purchase tax exempt
assets.
Inheritance taxes are an important complement to
net wealth taxes. These taxes have a minimal
impact on economic growth and play an important
redistributive role in the economy. Gift taxes are a
necessary supplement to inheritance taxes as
otherwise it is straightforward to avoid the
inheritance tax.
Redistribution of Income and Wealth
Another use of the tax system can be to alter
where tax is generated, even if working within the
same overall level of tax. For example, stimulus in
the economy (increased aggregate demand) would
be created by simply redistributing money from
savers to spenders.
People on lower incomes spend proportionately
more (and often all) of their income, most of which
goes into the local economy.
In general consumption taxes tend to be less
progressive than personal income taxes and
consequently shifting the composition of the tax
take from taxing personal income to taxing
consumption is likely to be regressive overall.
Likewise, a heavy reliance on consumption taxes as
opposed to other taxes such as capital taxes, as is
the current case in Ireland, leads to higher wealth
inequality by increasing the value of assets and by
shifting the burden of taxation to low earners.
Targeting wealth and higher earners to achieve
redistribution of income to lower earners will
increase spending in the economy, which itself
represents a form of stimulus.
Tax Expenditure
More generous exemptions and reduced tax rates
for housing assets, relative to those available for
other forms of investment, are likely to be
particularly damaging to long-term growth
because they distort capital flows away from
productive sectors and toward housing. Housing
assets have long been given favourable treatment
in Ireland. This has undoubtedly harmed long-term
growth and negatively impinged on the
accumulation of productive capital by the private
sector. It certainly contributed to the boom-bust
cycle that produced the current economic crisis.
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Conclusion This paper has outlined the important links
between the public finances, economic growth and
employment. In this context, it has been argued
that there is scope for targeted productive
investment by the Irish state, which would be
likely to have a significant effect on job creation,
both in the short term (through direct spending
and spin-offs from that ‘stimulus’) and in the long
term (from the improved infrastructure that in
turn underpins the productive capacity of the Irish
economy).
Further detailed examination is required on
implementation of a growth strategy for Ireland,
including organisational structures, the capacity of
different sectors to efficiently absorb investment,
management capacity, and so on.
Despite Ireland’s massively constrained position, it
appears that the arguments in favour of State-led
productive investment are credible and worthy of
further detailed examination. The alternative is a
high unemployment future, with an unacceptable
human cost and the risk of lost social cohesion.
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Annex: Broadband Internet in Ireland
versus Singapore10 A concrete example of productive investment is
the laying of cable and other infrastructure to
bring broadband Internet access to more homes
and businesses. This illustrates the two elements
of productive investment very clearly. In the short
term, there is a ‘stimulus’ in the economy due to
the direct employment of hundreds of people to
install or upgrade the infrastructure. In the long
term, this very clearly opens up new business
opportunities. People living in less central
locations have access to more goods and services
than before and local businesses have the
opportunity to establish their own web presence.
For example, local craft companies would benefit
from broadband Internet if they have a photogenic
website displaying their wares and providing
online shopping.
Once the infrastructure is in place, the role of the
state will diminish and the money allocated to this
project will withdraw, leading to a diminution of
employment. However, the aim is that the benefit
of the improved infrastructure to the economy will
more than compensate for these lost jobs through
the provision of other, different jobs.
To stick with this particular example, the risks for
Ireland are that broadband Internet infrastructure
lags behind other countries, giving them a
competitive advantage. This may mean that some
opportunities are lost forever; for example, global
consumers may buy wool hats from Estonia that
they might otherwise have bought from websites
of suppliers in Connemara.
Moreover, broadband also points to the role of the
state in organising, if not delivering, infrastructure.
There is a dilemma in the current Internet market
in Ireland, where the two major companies
involved in this sector may objectively benefit
more from co-operation but remain incentivised to
compete, to their own mutual disadvantage over
time. Specifically, the problem arises that Ireland is
currently developing two broadband Internet
networks in parallel in our cities and towns, but
very limited networks in rural areas. Ultimately,
bringing practically all of the population into
broadband would increase the customer base for
both suppliers, but whichever invests resources in
improving the infrastructure risks providing their
competitor with a ‘free ride’ as they could reap the
reward of competing for this expanded customer
base.
The obvious solution is for the State to organise a
broadband Internet investment programme on the
basis of proportionate involvement from each of
the companies who stand to benefit from
universal broadband Internet access creating an
expanded national customer base. This is what
was done in Singapore and it remains a prominent
example of the State playing a strategic role in
ensuring that all citizens benefit from vital
infrastructure, while at the same time providing an
expanded customer base for private companies.
Despite the obvious differences between Ireland’s
low population density and Singapore’s high
density and relatively tiny overall land area, there
are cogent lessons in the strategic role that the
State can play in dealing with a failure of private
actors to deliver essential infrastructure. This does
not have to involve State ownership of the key
infrastructure, but it does require strong co-
ordination by the State to resolve market failure
and address what is a natural monopoly situation.
The provision of fixed-wire broadband is
characterised by high fixed costs to build the
network infrastructure and by low marginal costs
to connect new customers to the network and to
supply those customers with additional ‘bits’ of
data. This cost structure is consistent with a
natural monopoly. According to William Baumol
(1977) natural monopolies are characterised by
network infrastructure, high fixed costs, high
barriers to entry, economies of scope, economies
of scale, and low or zero marginal cost. Where this
particular set of characteristics accurately reflects
an industry or service then multi-firm production
or provision of services will be more costly than
production or provision by a single entity. Richard
Posner (1969) defines natural monopolies: “If the
entire demand within a relevant market can be
satisfied at lowest cost by one firm rather than two
or more, the market is a natural monopoly”.
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Faulhaber and Hogendorn (2001) argue the
structure of the broadband market will depend on
population density. They model that below a
certain population density the broadband market
will be a natural monopoly.
Ireland’s low population density reduces the
commercial case for potential competitors to enter
the fixed-line broadband market. As density per
square kilometre increases, so too will the number
of firms in the market. Competition is found to be
variable, with densely populated areas having
more options than sparsely populated areas. This
has implications for broadband coverage and for
price. Ireland has a much lower density (62
persons per square kilometre) than the OECD
average of 109 persons per square kilometre, and
its broadband market therefore has a much
greater propensity to form a monopoly than would
the broadband market of the average OECD
country. Ireland’s low density reduces the
commercial case for potential competitors to enter
the fixed-line broadband market.
The lack of access to high-speed fibre-based
broadband in Ireland is likely to remain an issue of
concern for the Irish Government over the next
few years. The Telecommunications and Internet
Federation estimates the cost of a fibre network
for Ireland would be in the region of €2.5 billion
(TIF, 2010). Forfás (2011) has estimated that the
cost of fibre deployment to the premises in all
towns with a population greater than 1,500 will be
€2.23 billion.
Given that Ireland has €5.8 billion in the NPRF and
given broadband Internet’s status as a general
purpose technology, investing up to half of the
NPRF funds in this area would be an effective way
of boosting Ireland’s productive and employment
capacity.
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REFERENCES Acconcia, A., Corsetti, G., and S. Simonelli (2011) “Mafia and Public Spending: Evidence on the Fiscal Multiplier from a Quasi-Experiment”, CEPR Discussion Paper DP8305. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1810270 Baumol, W. J. (1977) ‘On the Proper Cost Tests for Natural Monopoly in a Multi-product Industry’. American Economic Review, 67 (5), p. 180 Cecchetti, S. G., Mohanty, M. S., and F. Zampoli (2011) “The Real Effects of Debt” 2011 Jackson Hole Achieving Maximum Long-Run Growth Symposium, August 25-27 2011. Cottarelli, Carlo (March 2012) ‘Fiscal policy in advanced economies: fiscal adjustment, efficiency and growth’. http://www.imf.org/external/np/speeches/2012/031312.htm Department of Finance (2006) Budget 2006, Volume III (on tax expenditure) ESRI (Summer 2012) Quarterly Economic Commentary www.esri.ie FEPS/TASC (June 2010) Stimulating Recovery – Papers presented to FEPS/TASC seminar http://www.tascnet.ie/upload/file/Stimulating%20Recovery%20WEB.pdf Faulhaber, G. R. and Hogendorn, C., 2000. The Market Structure of Broadband Telecommunications. The Journal of Industrial Economics, 48 (3), pp. 305-329. Forfás, 2011. Ireland’s Advanced Broadband Performance and Policy Priorities. [online] Available at: http://www.forfas.ie/publications/2011/title,8528,en.php Goodbody (2006) Review of Property-Based Tax Incentive Schemes, Volume II in Budget 2006. Heady, C., Johansson, A., Arnold, J., Brys, B. and Vartia, L (2009) “Tax Policy for Economic Recovery and Growth” University of Kent School of Economics Discussion Papers, Available at: https://www.kent.ac.uk/economics/documents/research/papers/2009/0925.pdf IMF (April 2012) Fiscal Monitor http://www.imf.org/external/pubs/ft/fm/2012/01/fmindex.htm Indecon (2006) Review of Property Based Tax Incentive Schemes, Volume I in annex to Budget 2006. Johansson, A., Heady, C., Arnold, J., Brys, B. and Vartia, L (2008) “Taxation and Economic Growth” OECD Working Paper Series No. 620, Available at: http://ideas.repec.org/p/oec/ecoaaa/620-en.html#related Lawless, M. F. McCann and T. McIndoe Calder (February 2012) ‘SMEs in Ireland: Stylised facts from the rread economy and credit market’. Central Bank of Ireland conference. http://www.centralbank.ie/stability/Documents/SME%20Conference/Session%201/Paper%202/Paper.pdf Leigh, D., DeVries, P., Freedman, C., Guajardo, J., Laxton, D., and A. Pescatori (2010) “Will it Hurt? Macroeconomic Effects of Fiscal Consolidation”, IMF World Economic Outlook, October 2010. McDonnell, T. (2011) “The Debt and Banking Crisis: Progressive Approaches for Europe and Ireland”, TASC Discussion Paper, May. http://www.tascnet.ie/upload/file/DebtBanking190511.pdf Nakamura, E. and J. Steinsson (2011) “Fiscal Stimulus in a Monetary Union Evidence from US Regions,” NBER Working Paper 17391.
Prospects for Job Creation | July 2012
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Nevin Economic Research Institute (Summer 2012) Quarterly Economic Observer http://www.nerinstitute.net/download/pdf/neri_qeo_summer_2012.pdf Nevin Economic Research Institute (Spring 2012) Quarterly Economic Observer http://www.nerinstitute.net/download/pdf/qeo_spring_2012.pdf Posner, R. (1969) ‘Natural Monopoly and its Regulation’. Stanford Law Review, 21 (3), pp. 548-643. Shoag, D. (2011) “The Impact of Government Spending Shocks: Evidence on the Multiplier from State Pension Plan Returns” Harvard Working Paper, Available at: http://www.people.fas.harvard.edu/~shoag/papers_files/shoag_jmp.pdf TASC (2011) Towards an Equality Budget: TASC’s Proposals for Budget 2012 http://www.tascnet.ie/upload/file/TASC%20PBS%20website.pdf TASC (2010) Investing in Recovery, Jobs, Equality: TASC’s Proposals for Budget 2011 http://www.tascnet.ie/upload/file/Investing%20in%20Recovery,%20Jobs,%20Equality_141010.pdf TASC (2010) Failed Design? Ireland’s Finance Acts and their Role in the Crisis http://www.tascnet.ie/upload/file/Analysis%20of%20the%20Finance%20Act%202010%2004%20May%202010%20FINAL%20print%20format.pdf Telecommunications and Internet Federation (2010). Building a Next Generation Access Network for Ireland: Issues and Options. [online] Available at: http://www.tif.ie/Sectors/TIF/TIF.nsf/vPages/Broadband~Publications~building-a-next-generation-access-network-for-ireland-16-04-2010 1 We are very grateful for the sponsorship of this briefing paper by Catherine Murphy TD. The opinions and
conclusions in the paper are the authors’ alone and do not necessarily represent the views of Catherine Murphy TD. 2 Central Statistics Office <www.cso.ie>
3 Figure generated from CSO StatBank <www.cso.ie>
4 979,590 children were aged 0-13 in Census 2011
5 Figure generated from CSO StatBank <www.cso.ie>
6 See for example www.social-europe.eu
7 http://www.nprf.ie/Publications/2012/NPRFQ12012PerformanceAndPortfolioUpdate.pdf
8 http://www.nprf.ie/Publications/2012/NPRFQ12012PerformanceAndPortfolioUpdate.pdf
9 See, http://www.siptu.ie/media/pressreleases2012/fullstory,15833,en.html and
http://siptucommunicationsdepartment.newsweaver.ie/images/21161/41184/2554835/SIPTUInvestingforJobsandGrowth.pdf 10
See, for example, http://www.etw.org/2003/case_studies/reg_dev_singapore-one.htm on the role of Government co-ordination in delivering universal access to Broadband.