There is a lazy and simplistic way of looking at what Irish voters did in the general election. They want more stuff from the State and they rewarded those who promised to deliver it. This is depicted as “populism” and therefore it is bad, according to this analysis. It would lead to a rapid expansion of the public sector of the economy, which is the handbasket in which we will all go hell.
The simplistic view is that a responsible government must now be formed and it must take a firm stand against this “populism”. Otherwise, we will kill the goose of foreign investment that lays all the golden eggs.
But what if this is completely wrong? What if the voters are actually behaving quite responsibly in demanding an expansion of public services? What if they grasp something that knee-jerk conservatism misses: that the public sector in Ireland is now much too small and that this is the biggest threat to the retention of inward investment?
A few weeks ago, Danny McCoy, chief executive of Ibec, Ireland’s largest umbrella organisation for business and employers, gave a speech at the Irish Institute for European Affairs. Here is the nub of it:
“The bit that I worry about most – and this causes consternation to some of my more right-wing fellow-travellers, as they might have seen me – is that the State is potentially getting too small for the scale of the resources that are now in our society . . .
“The real issue is that given that we are now rich and in charge of so many [private] assets, are we certain that we now have the critical mass of public infrastructure and public service capacity to ensure that we can keep this golden goose that we have?”
This is, as McCoy acknowledged, heresy. The orthodoxy in Ireland – imported from the rest of the Anglo-American world – has long been that the public sector is a parasite on the real economy and that the shrinking of the State is a blessing.
McCoy has turned this around. His argument is that the private sector in Ireland has, over the last five years, grown too rapidly for the State to cope with. There are thus two options – cut the size of the private economy (which nobody, of course, thinks is a good idea) or increase the size of the public sector.
On one side of this equation, there is a massive surge in private investment since the end of austerity – the ESRI reckons on €122 billion being pumped into the economy in 2020. McCoy puts this inflow into context by evoking one of the greatest physical projects in the history of the Irish economy – Intel's massive plants in Co Kildare: "In just eight weeks, we'll have done the equivalent of an Intel lifetime-in-Ireland type of investment."
And while there are all sorts of questions about the sustainability of this torrent of private investment, its reality is evident in the growing scale of the private workforce.
Affordable housing
The problem is that the public sector has completely failed to keep pace with this private expansion. There are now 2.3 million people at work in Ireland – more than at the height of the Celtic Tiger boom. Of those, just 335,000 work in public sector jobs.
As McCoy points out: “Roughly, of the 2.3 million at work, the 0.3 million is the public sector. When we were at 1.5 million people at work, we had 0.3 million public sector workers as well. In other words, we’ve got 800,000 private sector workers and no extra public sector workers.”
Why should the private firms McCoy represents worry about this?
Because there’s no point in pouring more and more investment into a country if your workers can’t get decent schools for their kids or proper childcare or stable and affordable housing near their place of work or public transport or healthcare when they need it for themselves and their families, or if the higher education institutions that produce those workers are creaking.
Voters are not frightening the horses when they demand these things – they are being entirely sensible. Even leaving aside the primary reasons for wanting good education, healthcare, housing and childcare – that they are necessary for human dignity – the economic case for a rapid expansion of both public employment (more teachers, gardaí, nurses and so on) and public infrastructure (social housing, primary care centres and so on) is overwhelming.
But – and here’s what any new government has to confront – this can’t be done on anything like the necessary scale unless we face up to two big blockages: the fiscal rules that determine how we spend money and the taxation policies through which we raise it.
In trying to be good little Europeans, we put the euro zone fiscal rules into the Constitution in 2012. This was insane – a temporary panic-measure frozen into a permanent shibboleth.
There is a need for a new social contract between the public and private realms and taxation is at the core of it
Nobody really thinks these rules are appropriate to an economy in Ireland’s current condition, where public provision is lagging so far behind private investment. To take one egregious example, there is now almost €1 billion, raised from levies on employers, in the National Training Fund.
We have this money and the education system needs it. But we can’t spend it unless we cut €1 billion from public spending elsewhere. Why? Because them’s the rules – and even if they are transparently absurd, we obey them.
A new government has to confront this absurdity and devise a system of multi-annual budgets that throws off this straitjacket and removes proper long-term public investment from calculations of current spending.
Honest conversation
But to do so responsibly, it has to be honest about taxation. We need a commission on taxation that genuinely engages with both citizens and businesses. The public has shown that it is open to an honest conversation about how we pay for better public services and infrastructure.
Businesses should be too – they already know that their investments won’t be truly secure if they are massive edifices built on very shallow social foundations. They also know the political stability they prize so much cannot survive in a State that is, relative to the private economy, shrinking fast. There is a need for a new social contract between the public and private realms and taxation is at the core of it.
“Tax and spend” was turned by the political Right into the definition of all that is wrong with government. But taxing and spending is exactly what the Irish State needs to do – justly, efficiently, responsibly but urgently. Any government that doesn’t place at the heart of its programme the need to do both in radically new ways will have failed before it begins.