Analysis:The Government's economic recovery plan is a poor piece of work full of hollow rhetoric, writes Michael Casey
TÁNAISTE MARY Coughlan's article in Tuesday's Irish Times, in which she linked the future of the economy to the recently announced Government framework for sustainable recovery, referred to the plan as a comprehensive one, which is not exactly how the Taoiseach viewed it.
Introducing the plan before Christmas, the Taoiseach said he didn't want to mislead people into believing that this framework document was an instant solution to all our problems.
He didn't have to worry on that score. This document is not a solution to any of our problems. It is worrying that the Government has so little to contribute to alleviating the severe hardship that will befall thousands of people in this economy over the next several years.
The irony is that a document which purports to transform Ireland into the "innovation island" and a "smart economy" (in a relaxed timeframe of about 10 years) does not contain any original ideas. In case readers are confused about what a smart economy actually is, it is defined in the document as "an exemplary research, innovative and commercialisation ecosystem".
Does that help? Incidentally, did we not have a smart economy during the Celtic Tiger period when the growth rate was a spectacular 9 per cent per annum? So what exactly is this new vision? It is not clear.
The document is full of rhetoric. For example: "Ireland will become the world's leading location for business innovation"; "We will all have to reinvent what we do and how we do it"; We will all "have to think differently and think smarter".
The Government is going to refocus and reprioritise so as to "drive the restructuring of the economy". What does all this mean? Ploughing through more than 100 pages of turgid and repetitive prose does not provide any enlightenment.
We are to be "in pole position" for the "new economic order" where we will be producing the "products and services of tomorrow". Nowhere are we told what the new economic order will be or what the products and services of tomorrow will be. Most people would naturally assume that a plan would, at the very least, give some indication of where we are going and how we are going to get there.
There is no analytical or conceptual framework. Demand-side measures are mixed up with supply-side ones. There is no mention of the different roles of the public and private sectors. There is no mention of the need to improve the functioning of markets - a strange omission, since it was the malfunctioning of financial and property markets which triggered the recession. And there are no timelines, targets, estimated effects of policies or required institutional reforms.
The wish list is as follows. One, secure the economy by improving competitiveness and enterprise. Two, become a smart economy (where we can "get more for less"). Three, invest in first-class infrastructure. Four, bring in a "new green deal". Five, improve the performance of the public sector and have smarter regulation (both undefined.) That's it. That is the strategic vision and plan.
It is assumed that there are no trade-offs between the five elements of this wish list whereas there obviously are. For example, road-building and other parts of infrastructural investment will clearly have adverse environmental effects. Proper planning takes all such trade-offs into account.
In many areas there are only promises because the relevant reports are not yet available - taxation, public sector reform, An Bord Snip Nua. Negotiations with the social partners have yet to take place. Clearly, large elements of the plan are still missing.
The most important instrument is to try to attract more high-tech foreign direct investment. We've been doing that for 40 years. The only new aspect to this is that the IDA has opened offices in Mumbai and Beijing. Since we are now trying to attract information industries from India and China, it suggests that these countries are further up the innovative value chain than we are.
This may well be the case. A recent German study on innovation placed Ireland towards the bottom of a list of European countries. Incentives of €25 million a year are hardly going to change this ranking.
The plan contains no indicative targets for GNP growth, living standards, the distribution of income, employment, immigration, unemployment, inflation, the public finances, government and household indebtedness, or for the performance of any of the productive sectors of the economy.
It is asserted that between 2010 and 2015 we will return to positive and stable growth but we're not told what that will be. It is stated that this return to growth will only happen if there is stability and order in the public finances.
But what of the other measures announced to aid innovation and enterprise? We simply do not know whether the effects of these are included in the prediction of "stable and positive growth" or whether they will add to it. It is clear that no attempt has been made to estimate the effects of the various "key actions". Indeed it seems as if they will have no beneficial effects at all. This is a strange kind of plan.
The method adopted by the authors of this plan was to find out what different public sector agencies were doing. Then all of these things, however trivial, were labelled key actions and put in the right boxes without any attempt to evaluate the effects or costs of such actions. Nor was any attempt made to see how these actions might be sequenced so as to achieve the best possible synergy between them.
While the Taoiseach admitted that it wasn't a silver bullet for all our ills, he also said "the path to economic renewal begins here", ie with this document.
What does he really feel about it? He must know a bottle of smoke when he sees one. Does the Tánaiste really believe it is comprehensive? More to the point, does she believe that an advisory council of business leaders reporting to her and to a Cabinet committee on economic renewal will move matters forward? What a council of business leaders will ask for is predictable - and it will all involve taxpayers' money. How will the other social partners react to a special advisory group of business leaders?
This is a poor piece of work, especially as it is supposed to be the key to our economic future. The people of this country deserve better. The tragedy is that there are several experienced and dedicated economists in this country (eg in the ESRI, Central Bank and third-level institutions) who could have put together a proper recovery plan.
Michael Casey is a former chief economist at the Central Bank and a former member of the board of the International Monetary Fund