A Pro- Business Budget

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90396609Michael Taft

From top: Minister for Finance Michael Noonan delivering his bidget speech last year; Michael Taft

Business in Ireland is too important to be left exclusively to Irish business

Michael Taft writes:

I mentioned previously that the run-up to the budget is my favourite time. We get all manner of sloganeering and mantras. Take this one: a pro-business budget. This usually refers to more tax reliefs, more grant handouts and income tax-cuts to lessen upward wage demands.

Throw in scrapping the odd regulation (always referred to as ‘red tape’) and voila: a pro-business budget.

This isn’t really a pro-business budget – just a string of fiscal gestures that allows the Government to claim it is doing something

. Yes, these are the demands of business organisations but as Sean Lemass pointed out:

‘Nobody nowadays regards the operation of an important industrial undertaking as being the exclusive private concern of its owners . . . The social consequences of fluctuations in the level of business activity are matters of public debate.’

In short, business in Ireland is too important to be left exclusively to Irish business. It is a social activity involving a range of stakeholders. So what would a real pro-business budget look like, one that takes into account social consequences?

In the first instance, it would recognise three principles:

The fortunes of business are inextricably intertwined with the fortunes of society. A prosperous, confident, creative society is likely to create a business sector in its image. If you don’t think so, imagine the opposite: high-levels of poverty, educational inequality, crumbling infrastructure, impoverished public services, etc. What kind of business sector will that produce?

Second, business is not homogenous. Export-focussed firms are not that interested in domestic demand – but they are keenly interested in the demand in other countries. Businesses focussed on the domestic sector, on the other hand, would have an interest in domestic income levels.

Thirdly, businesses need protection from each other. For instance, the original rationale for Joint Labour Committees was not only to protect workers in low-paid sectors; it was also intended to end the situation whereby: ‘ . . . the good employer is undercut by the bad, and the bad employer is undercut by the worst.’

Thus grounded in these principles, here are some ideas for a pro-business budget.

1. Reduce income Inequality: concentration of income at the top of the income pyramid is bad for business. Higher income groups have a higher propensity to save and their spending is more import-dense. If the goal is to induce higher consumer spending, especially if Brexit unsettles confidence, then redistribute to lower income groups.

This would mean no tax cuts for high-income groups (they’re getting pay rises anyway – the CSO shows managers and professionals have seen incomes rise by 7 percent in the last four years compared to losses in other groups). Instead, redirect resources towards raising social protection rates – which spend almost all their income.

2. Increase Investment: essentially, investment ‘buys assets’ that either generate future income or reduce future costs. Investment into advanced broadband can generate new business opportunities; investment in water and waste reduces costs associated with leaks and maintenance; investment into renewables and green energy reduces import and environmental costs. All these come with not only higher business activity (it takes people and materials to produce these assets), but crowds-in additional private investment.

3. Increase Government funded R&D: Ireland is a bottom-dweller in the EU-15 when it comes to support research and design. We would have to increase R&D – in telecommunications, energy, environment, health, transport, etc. – by over 40 percent to reach the average of our peer group, other Northern and Central European economies.

4. Education, Education, Education: this is a key driver, not only in enterprise ability but in reducing inequality. I charted Ireland’s performance on education expenditure here. We would have to increase spending by €1.2 billion to reach other peer group average in Europe.

5. Reduce Living Costs: what is one of the biggest drains on the productive economy (besides debt)? Requiring people to pay market prices for public goods. For instance, health is a public good – yet so many have to purchase it on the private market.

Reducing the costs of childcare, the costs of rents (through public or voluntary cost-rental models), the cost of public transport by having a proper subvention regime – these would reduce unnecessary upward pressure on wages and free up money to spend . . . in the private market. Businesses get a win-win on this.

6. Expand Public Enterprise: business is business – whether it’s public, private, non-profit, capital-owned or labour-owned. So bring together all the public companies and work out a strategy to expand: new start-ups, joint ventures with private companies, expansion, and procurement strategies to facilitate the SME sector.

7. Face Reality: Apple is only the beginning. The momentum in Europe is towards EU-wide initiatives to tackle multi-national avoidance through transparent country-by-country reporting laws, greater transparency in transfer-price fixing, the common corporate consolidated tax base and an EU-wide withdrawal tax. We can either

(a) Hide our head in the sands and hope the world doesn’t notice us,

(b) Line up with the most right-wing forces in Europe (and the richest, tax-avoiding multinationals) to block these initiatives, or

(c) Face up to reality and begin devising a post-Apple foreign direct investment policy. An evidence-based debate is necessary in order to achieve a new consensus. And to achieve that consensus will require the input of all the stakeholders – employees, employers, civil society groups, etc. The Government should announce that it will start this process the day after the budget.

There’s a lot more things we could start doing in Budget 2017 and most of this could not be achieved in one year. But a pro-business budget is one that looks to the long-term, eschewing short-term gesture measures; one that comes with a realisable road-map.

Being ever the optimist, I can’t wait for October 11.

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

18 thoughts on “A Pro- Business Budget

  1. Jimmee

    Proposals 1-4 are about increasing public spending – no suggestion how to pay for it.

    Proposals 5-6 is just increased nationalisation, what’s the justification for this and again, how will the public purse fund this?

    Proposal 7 – he’s saying we should go for option (c)… a pie in the sky idea that has no solid basis behind it. The old phrase “we need to have a public debate” is simply a way of saying “I don’t like this, but I’ve no idea how to change it”.

    1. Michael Taft

      Jimmee – regarding ‘how to pay for it’ you might be interested in this: https://unitetheunionireland.files.wordpress.com/2016/09/budget-2017-for-publication-september-2016.pdf . In the first instance, it is about redirecting current resources (e.g. the €3 billion the Government plans to provide for tax cuts over the next five years). I’m not sure what you mean by ‘nationalisation’ as public and public/private enterprises and joint initiatives operate in the commercial market economy.

    2. Joe Small

      It has all the fiscal responsibility of former Sanitation Commissioner Homer Simpson. “Can’t someone else do it?”

  2. Fact Checker

    An interesting point on JLCs which are essentially wage agreements covering certain sectors.

    Incumbent enterprises like them because it means their competitors cannot undercut them by taking on cheaper labour. Unions like them because it keep their members’ wages high, and job turnover in the sector low. It is a nice little system for those who are already on the inside but makes it very hard for anyone else to get in.

    However they are not at all good for the public. Firms which don’t fear competition don’t innovate (and probably don’t train their workers much either). Markets where firms and workers find it difficult to enter are usually characterised by high prices which contradicts completely your point 5) Reduce living costs.

    1. Michael Taft

      Fact Checker – I don’t see it that way (I’m sure that doesn’t surprise you). In the decade up to the crash employment rose in the retail and hospitality sector in tandem with market economy and overall employment growth. And these are the two primary sectors covered by JLCs. That doesn’t look like it was ‘very hard’ for anyone else to get in. JLCs, REAs and SEOs are about removing wage/working conditions suppression from the equation (these agreements are concluded through employer-employee negotiations) meaning that competition is based on value-for-money, quality service, innovation and customer satisfaction. That is a better platform for enterprise success, rather than impoverishing the workforce. And given that hundreds of thousands are directly or indirectly affected by such agreements – well, that’s a large part of the ‘public’.

      1. Fact Checker

        Of course they are agreed by incumbent workers and employers and everyone will be happy with this. It is the potential entrants who are excluded from this bargaining process! Preventing unproductive firms from failing and preventing productive firms from growing is not good for productivity growth, which is the ultimate determinant of workers’ living standards.

        The other issue with minimum wages (sectoral or otherwise) is that it forces firms to bargain along other dimensions. So a worker may get a higher hourly wage, but may get less hours, or less fringe benefits, or may face more unpleasant working conditions. This is both economically inefficient and also (in my minority view) an intrusion into the fundamental rights of two people to privately bargain to exchange labour for wages within certain legally-prescribed criteria.

        Finally, I am perennially amused by people who agree that demand curves are downward sloping for everything except low-skilled labour.

        1. Bandy

          how does a sectoral agreement on pay and conditions prevent an unproductive firm from failing?

          Just because your name is ‘fact checker’ doesn’t mean what you say is a fact.

          1. Fact Checker

            My hypothesis is that:
            a) Sectoral agreements keep wages higher than would prevail without them (otherwise why would they exist?)
            b) This leaves a pool of workers happy to work for below the sectoral wage but unable to do so
            c) Some firms want to enter the market and/or grow market share by charging lower prices to consumers
            d) But they cannot do so specifically via the channel of employing workers at a lower wage then the incumbents; see b)
            e) Incumbent firms have an easier time, face less competitive pressures and have less incentives to innovate to retain or grow market share.

            This is just my hypothesis. I am happy to see it challenged.

          2. Bandy

            ah, I see, you believe in a race-to-the-bottom mentality among employees, where we eventually beg to work for free.. I believe people will accept lower wages, but should not be forced to because an owner has no other way to make a profit than exploitation.
            Sectoral agreements are hard fought – you need to prove to a labour court that you represent a minimum of 2/3 of the employees within a sector to get it done.
            The best recent example was with construction site archaeologists – some were being paid as low as the minimum wage, despite being educated to at least level 8 (in some cases 9). The apprentices on the site were making more than them. They were being pushed out of the industry in droves. Eventually they organised and got an agreement done that there was a sector-wide minimum.
            The good employers, who already valued their workers, were unaffected as they already paid more than this. The bad employers, who were looking at squeezing wages as a way of increasing profit, were affected. In the end, the bad employers either had to learn to play by the rules, or go out of business.
            Work needs to be worthwhile for both the employee and the employer, it shouldn’t be profit for one at the expense of the other. There is a social obligation on companies, whether they accept it or not. Entrepreneurs could do with some lessons on that as well as on how to do your accounts and apply for government grants.

          3. Fact Checker

            Sectoral wage agreements would be fine if things never changed in the economy. But they do, and all the time. The replacement of less productive by more productive firms is a central, maybe THE central, process for the improvement of material living standards.

            Cast your mind back 20 years ago to 1996. Pretend that there was a JLC for the cabin crew sector (there wasn’t). Siptu and Aer Lingus would have reached a deal which would then have applied to the whole sector, including the then-tiny Ryanair.

            Ryanair was pursuing a business model which, inter alia, involved paying cabin crew less than Aer Lingus did. A JLC imposing much higher wages on Ryanair MIGHT have fatally undermined its growth which, I might remind you all, has led to Irish passengers paying some of the lowest fares and flying some of the most distances in Europe.

            There were lots of other non-wage reasons why Ryanair has grown massively in the last 20 years and Aer Lingus has not. Wage costs are not everything. But I just wonder whether it is prudent to impose rigidities in markets that stop productive firms from growing.

          4. MoyestWithExcitement

            “But I just wonder whether it is prudent to impose rigidities in markets that stop productive firms from growing.”

            Strange. I thought you supported the “free” market. Are you suggesting a wage cap here?

        2. Michael Taft

          Fact Checker – I’m not sure how people who are not employed in the workplace or the sector can be involved in negotiations on the same level as an employee -but if you have any ideas I’d love to read it.

          Ultimately, it is about what kind of firms you want to incentivise: low-road, low-investment firms or high-road, high investment ones. That latter are the most productive in the long-term but can be undermined by short-termist firms that focus on suppressing wages and working conditions as a means to survive.

          And like you I am bemused – especially by people who continue to believe that the labour market is subject to supply/demand slopes.

          1. Fact Checker

            Obviously potential entrants and potential workers cannot be involved in wage negotiations.

            This is why (in my view) the state should not be involved in imposing pay agreements on firms and workers (existing and potential) who have not signed up to them.

            I fully approve of firm-level collective bargaining by the way. In many types of workplaces it is the most sensible way of reaching agreement on all sorts of pay and non-pay related items.

            It is very hard to find a rationale (economic or other) for imposing pay rates on firms and workers who have not agreed to them though and in my view infringes fundamental rights.

          2. MoyestWithExcitement

            “It is very hard to find a rationale (economic or other) for imposing pay rates on firms and workers who have not agreed to them though and in my view infringes fundamental rights.”

            Fact Checker
            September 27, 2016 at 1:28 pm

            “Wage costs are not everything. But I just wonder whether it is prudent to impose rigidities in markets that stop productive firms from growing.”

            Fact Checker
            September 27, 2016 at 1:10 pm

  3. Jake38

    “Instead, redirect resources towards raising social protection rates….”

    “Education, Education, Education: this is a key driver, not only in enterprise ability but in reducing inequality. I charted Ireland’s performance on education expenditure here. We would have to increase spending by €1.2 billion”….

    “Reducing the costs of childcare, the costs of rents (through public or voluntary cost-rental models), the cost of public transport by having a proper subvention regime….” With what money, Mr Taft?

  4. anne

    I think the greatest challenge of our era is to change the organizing principle of our civilization from an economic to a humanitarian one*..

    *robbed/borrowed from someone else.

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