Why We’re Not Denmark

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Michael Taft

From top: Cycling in Copenhagen, Denmark, Michaerl Taft

There’s something rotten here.

Only the poorer Mediterranean countries spend less on public services.

Michael Taft writes:

One of the impacts of the CSO’s recent National Accounts data – the one that shows the economy growing by 26 percent – is that all our main economic measurements are practically useless.

It’s not that we didn’t have trouble before last week.

Using GDP was always fraught, given multi-national accounting practices. But at least we could fall back on GNP or GNI or the Irish Fiscal Council’s hybrid-GDP measurements. Now these are shot as well. We are in a fog.

The former Governor of the Central Bank, Patrick Honohan, was spot on:

‘The statistical distortions created by the impact on the Irish National Accounts of the global assets and activities of a handful of large multinational corporations have now become so large as to make a mockery of conventional uses of Irish GDP . . . GNP is now almost as unhelpful an aggregate economic measure for Ireland as GDP . . . Ratios to GDP are now almost meaningless for Ireland in most contexts. They need to be supplemented by alternative purpose-constructed ratios for specific uses . . .’

So now the hunt is on for robust ‘purpose-constructed ratios for specific uses.’ This will entail a new debate, a flurry of number-mongering and endless disagreements.

Take, for example, our expenditure on public services. Using CSO figures spending on public services fell from 13.7 percent of GDP in 2014 to 10.5 percent last year, even though spending on public services rose.

And comparing ourselves to other European countries is equally meaningless. GDP per capita in the EU-15 was €33,000 in 2015. According to the Government projections, Irish GDP per capita was supposed to be €46,000 – already inflated by multi-national activity.

After the CSO release, GDP per capita has shot up to €55,000. That’s 67 percent above the EU-15 average. Unreal.

So how does our spending on public services compare with other European countries? Here’s one suggestion for an ‘alternative purpose-constructed ratios’: spending on public services per capita.

Of course, nothing ever being simple, we have to choose between nominal spending (actual Euros and cents) and real spending (factoring in actual purchasing power).

I’ll go with the latter – this counts what countries actually get for their spending excluding inflation and living costs.
graph

This shows Ireland a low spender. Only the poorer Mediterranean countries spend less on public services. We fall 10 percent below the EU-15 average.

However, it doesn’t tell us much that we spend more per capita than, say, Greece or Portugal – two relatively poor countries in this table.

So when we compare ourselves to our peer group, Northern and Central European economies (NCEE: excludes the Mediterranean countries), we fall 18 percent behind.

And when we compare ourselves to another peer group, other small open economics (SOE: Austria, Belgium, Denmark, Finland and Sweden), we fall 25 percent behind.

But there are a couple of things we should bear in mind:

First, given that we don’t have as high a proportion of elderly, we wouldn’t have to spend as much on health and other elderly-related services. However, we have a much proportion of young people; therefore we have to spend more on education and other services.To what extent these spending ratios cancel each other out would require more research.

Second, Irish spending on public services is subject to very low purchasing power (like consumer spending). We have to spend €113 to match the EU-15’s average €100 just to purchase the same goods and services.

This inflation, though, is not confined to Ireland. Denmark, Sweden and the UK have weaker purchasing power than us.

Another issue is that of reform. The previous government claimed to reform public services but this was mostly made up of cutting employment, increasing hours and cutting wages.

‘Doing more with less’ only means we have less.

A real reform process would include the producers and users – the public sector workers and the users of the public services. It would further distinguish between process issues (are we doing things in the most efficient way) and structural issues.

For instance, does the role of the private sector in our public health system drive up costs? Does it produce perverse incentives that increase costs per patient?

The bottom-line, however, is that we are an under-spender on public services.

To reach the EU-15 average, we’d have to spend an additional €3.6 billion

To reach the average of Northern and Central European economies, we’d have to spend an additional €7.3 billion

To reach the average of other small open economies, we’d have to spend an additional €11.2 billion
These are big sums. Even after tackling inflation and reform issues, we will still be faced with big sums.With the aid of purpose-constructed ratios for specific uses we now see the challenge we are facing.

How will the ‘new politics’ measure up?

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

17 thoughts on “Why We’re Not Denmark

  1. Tish Mahorey

    Irish Governments have rarely ever been about running the country for the benefit of all citizens. It’s usually about benefiting a very small clique of connected individuals and families. That’s why there’s no proper long term planning and strategic thinking. It’s not what they go into office to do. They simply take advantage of short term opportunities to enrich each other at the expense of the nation.

    Banana Republic.

  2. Kolmo

    By far, the highest costs of living I’ve experienced, are in Ireland, but minus the services that would make it a civilised and well-managed state. (I’ve lived elsewhere in Europe, lucky me.). We are not a so-called ‘open’ economy – we are a prostrate economy, fully entrapped by the whims of multinational conglomerates and a very, very weak government, sure they are just an adjunct of Apple Corps et al. accountancy departments. Services in Ireland, despite the humane and often heroic efforts of most front-line staff and volunteers, are managed by incompetent barbarians.

    1. Kieran NYC

      It’s a signal for certain people to read the minimum amount so they can get to starting fights in the comments as soon as possible.

  3. nellyb

    Hey, what about elephant in the room? AKA civic maturity of each individual in our society? Even if we collect twice as much taxes it won’t translate into twice as good services. There is lots of nasty stuff going on non-gov levels, lay citizenry, all classes.
    This behavior emboldens power holders. Like clerical child abuse got “normalized” by lay people doing same. I remember catholic battle axe Ann Widdecombe on BBC debate said stop pointing finger at the clergy, the lay folks were at it and often. She was wrong to juxtapose, obviously, but she was right to point finger to all child abusers, church or not.
    As they say: change starts at home.

    1. Kolmo

      It’s those who get a whiff of authority turn any attempt at social progression into a quagmire of vested interests and fiefdom building – too local, no national thinking, the greater good is a concept foreign to those in power lest they lose their grubby status and victorian house in Ranelagh..

  4. Fact Checker

    Interesting point Michael. But I feel a more granular approach tells a better story. This from Seamus Coffey (old GDP) is useful: http://economic-incentives.blogspot.com/2015/01/ireland-is-not-really-low-tax-or-low.html

    When you allow for the fact that:
    -Ireland spends very little on defence
    -We have a very low share of >65s
    -Flat-rate state pension system
    You realise that public spending is not too different from EU averages.

    Save for welfare, public spending is a measure of input, not really of output or outcome. Everyone agrees that spending money on education is good, but if it’s done badly people won’t learn very much. Same for health.

    It is much harder to do, but some comparative measure of ouptut conditioned on inputs would be very useful.

  5. Rainy Day

    Slightly off point but that child should have some form of head protection…seriously what is she thinking??

    1. Turgenev

      Cycling is safer in countries with protected cycle paths, and helmets are not generally used. The great danger to cyclists is trucks, vans and cars, and when there are protected, separated cycle paths where the drivers can’t get at the cyclists, there’s very little danger. We have hardly any of these in Ireland, though; we value car imports more than children.

  6. 15 cents

    is all we are to the government are a source of money. All they ever come up with is new ways to get more money off us. Sometimes they dont hide it at all, the language they use, eg. Barry Cowen saying they had to figure out how to “get the money off them” in relation to water tax.. so crass .. ‘them’ is quite telling. Showing he has no connection with the public, other than getting money off us, and he seperates us from them by calling us ‘them’, like we arent both people of ireland. The public are often referred to by politicians as a seperate entity. They only say “we” in public address, but caught relaxed in interviews etc. they’ll show their true colours and call us ‘them’. Matti McGrath also referred to being in gov. as being in business. Also very telling. No suggestion at all that the gov. are actually meant to be working for the people, the country, instead, he see’s it as a business. We know what the nature of business, and business people is. And it certainly doesnt have us in its interest.

  7. Jake38

    More spending on public services does not necessarily translate into better public services. Certainly not in a post-colonial peasant state like Ireland. You are right Michael, we are not Denmark.

  8. Mulder

    We are not Denmark, damn right one wonders are we part of the EU.
    In terms of geography we are part of Europe but otherwise.

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