Economists contemplate responses to downturn

TAKING CONTROL of the electricity grid from the ESB and transferring water management from local authorities to a central agency were two ideas for reducing non-pay costs mentioned at an economic conference in Dublin yesterday.

Prof John FitzGerald of the Economic and Social Research Institute (Esri) also suggested five sites around the State could be offered for a new entrant retail multiple, to introduce more competition into the sector.

He was responding to a query from the audience as to how he thought non-pay costs in the economy could be brought down as part of the reaction to the economic downturn.

Prof FitzGerald was one of a number of speakers at the TCD conference called Irish Economic Policy for the Crisis: What’s Next?

Addressing the issue of competition, he said pay and non-pay costs in the economy had to come down so as to restore Irish competitiveness and help reduce unemployment levels. However, he also said it would be important that programmes were put in place to try to prevent unskilled people falling into long-term unemployment.

He said a change in the relation between public and private sector incomes would also assist the return to competitiveness. Asked if he believed further public sector wage cuts were required, he said: “It would be nice.”

Prof Karl Whelan of UCD, addressing the issue of the potential output of the Irish economy, said an increase in individual productivity and in the per capita involvement in the economy in the period 1986-2007 had created a increase in output of 105 per cent. Ireland had been involved in a catch-up process with other economies and that process was ending in 2007.

Reduced growth from 2007 was likely even without the property bubble or the global downturn. He said he was sceptical about estimates of how much of the Government deficit was structural and how much wasn’t. “If we go bust, it will be of little comfort to say that on a structural basis, we’re fine.”

Prof Brian Nolan of UCD, speaking on the issue of equality, said income inequality did not appear to have changed much in the period since the late 1990s. However, wealth inequality had probably narrowed as a result of the downturn.

The priority now was to address unemployment, he said. He said high employment and economic growth could be consistent with effective social protection. There was no simple relationship between economic growth and levels of social protection.

Colm McCarthy, also of UCD, spoke about the pensions issue and said 70 per cent of defined-benefit pension schemes in the UK were now closed to new members. He said change was arriving more slowly in Ireland but “it looks like a dead duck here too”.

He suggested that the Irish authorities should consider issuing index-linked bonds. He believed there would be a demand for them from pension funds and that they could help defined-benefit contribution schemes to reduce risk.

Prof Philip Lane of TCD, speaking about challenges for fiscal policy, said the level of Government spending needed to be “recalibrated” for the new economic circumstances.

He said his “number one tough suggestion is that we are not done yet with public sector pay cuts . . . The proper time to do it is the 2010 budget.”