Brendan Keenan: Old answers will not do in tackling new problems

Construction supplied more than a fifth of the new jobs created in the 12 months – and will have to supply a lot more if aspirations for housing and infrastructure are to be met. Photo: Igor Stevanovic
Construction supplied more than a fifth of the new jobs created in the 12 months – and will have to supply a lot more if aspirations for housing and infrastructure are to be met. Photo: Igor Stevanovic

Don’t leave it all to the minister. That is a bad Irish habit. Why not try a bit of anti-cyclical policymaking in the safety and comfort of your own home?

You will find that it’s not so easy. Not for the minister either, as Minister for Finance Paschal Donohoe was at pains to point out last week. He was speaking at the Collins Institute, the new think tank sponsored, as its name suggests, by Fine Gael.

The concept of such institutes, associated with particular parties but claiming to do independent research, is commonplace in other countries but pretty much unknown here. We can expect the usual snorts of derision from the usual quarters, but knee-jerk reactions to just about everything are one of the difficulties facing Irish governments of every hue.

There was a little glimmer of optimism in the row over the closure of small post offices. It is not a question of who is right or who is wrong so much as that there should be a robust defence of the plan.

Such a defence was supplied by An Post, with a bit of detail instead of the blather that usually accompanies any decision likely to attract voter protest or media hostility. In the end, ministers must also back decisions based on evidence, even when unpopular.

This has rarely been the case in the past but Mr Donohoe says that will change. Perhaps, and perhaps not, but he is correct to say that it needs to change. As befits a keynote address to a policy institute, he ranged widely over the present discontents of democracy. There were references to hot current books like Adam Tooze’s analysis of the Great Crash and Jesse Norman’s biography of Adam Smith.

One curious thing is that Ireland has seemed immune to the travails of other democracies. Institutes will have plenty to keep them busy trying to explain why, but one suspects that different patterns of immigration in this country than in the rest of Europe have a lot to do with it. We have been lucky, in this and in the speed of the recovery, but that may make it harder to do things differently than in the troubled financial past.

The most pressing question is what to do about the recovery itself. As GDP melts into myth, and before the new national income measure is fully fleshed out, the quarterly employment survey from the CSO provides one of the best indications of what is happening.

The headline figures last week told the usual remarkable story. Employment grew by a further 3.4pc compared with the second quarter of 2017. The numbers at work finally passed the pre-crash peak, but the population is bigger than it was then and the July unemployment rate was revised upwards to 6pc. The reason is that the labour force is expanding faster than was thought and the main reason for that is increased immigration. The net inflow of people at 34,000 in the year to April compared with 20,000 in 2017 and was the highest since 2008.

A lot of the detail behind the top line merits attention. Not everything is racing ahead on the jobs front. The 1.5pc decline in industrial jobs is part of a pattern, but there were also falls in wholesale and retailing, and general services.

Construction supplied more than a fifth of the new jobs created in the 12 months – and will have to supply a lot more if aspirations for housing and infrastructure are to be met. The other booming sectors are hospitality and business support services.

Analysts at KBC Bank reckon these figures point to an economy growing at 3.5-4pc. They think, as do many others, that strong growth will continue, barring some large external shock such as a hard Brexit. There is also a consensus that the economy is not yet overheating.

Like hard and soft landings, it is far too crude a phrase to be of any use in assessing policy. Other figures show what a delicate balance exists right now. Dermot O’Leary of Goodbody Stockbrokers noted that, with construction demand and a booming services sector, further inflows of skilled migrants will be needed to avoid excessive wage increases compared with other countries.

Wages are on the rise. The latest figures showed hourly earnings up by 2.8pc and an increase in hours worked, bringing the total to 3.3pc. Believe it or not, that is the biggest annual increase in a decade. We can expect more returning emigrants, both Irish and foreign, seeking the jobs in the booming IT, professional services and building sectors.

Free movement of workers in the EU is a safety valve against labour shortages in a rapidly growing economy but it can fuel the economy beyond its limits, making recessions more extreme. Mr Donohoe laid much stress on the need to keep control, but took that no further than balancing the public finances.

Balance may not be enough. Preventative measures in the form of meaningful surpluses may be needed. As with the Central Bank’s credit limits, prevention is always unpopular. Balance may be as much as the Department of Finance can achieve.

The pressure is for deficits to fund the same old failed policies in housing and health, as well as putting more money in voters’ pockets.

Maybe that is another reason for the apparent stability of Irish politics. We already have our populist politicians, and we have them just where we want them.

But, for all our sakes, we need to ask rather more of them than we have in the past, by accepting that what needs to be done will not always be popular.

The regional breakdown of those figures gives some cause for alarm. Dublin saw a jobs spurt of 7pc, compared with 2pc for the rest of the country, which included a 1.6pc fall in the Border region. Given the size of Dublin, this amounts to 45,000 jobs versus 29,000 elsewhere.

Austin Hughes at KBC thinks some of the Dublin gains may be exaggerated by statistical changes, but it is clear that the accommodation scarcity will need more radical policies than either government or opposition are proposing.

Homes will have to be cheaper to build but more profitable – particularly outside the capital. Policies to achieve that have not been tried in modern times.

But then, nearly all the problems are new, so old answers are unlikely to work. Other data last week showed credit remaining more subdued than should be the case in an economy growing so rapidly.

Household deposits passed the €100bn mark in March and are now more than €102bn – €20,000 for every man, woman and child. So much for another bubble.

Perhaps those households which can afford to have decided not to leave to all to the minister.

Until all these imbalances look to be under control, they are keeping their own rainy day funds. And who could blame them?

Indo Business

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