Friday, 26 August 2011

Investment in Education Should Not Be Held Hostage by ‘Bailout’

                                                                        (First published in 'The Irish Examiner' 23-08-2011)

The importance of Education to a country that aspires to be inclusive, democratic, and innovative could hardly be over-emphasised. Ireland has good reason to know this from our history: once we depended on ‘Hedge Schools’ to transmit a commitment to learning. In the face of massive economic uncertainty within the Eurozone, and across the global economy, investment in education is a key policy priority for promoting an economic recovery in Ireland
Ireland’s economic recovery rests primarily on its people and our natural resources. The two are interrelated; to develop the technologies that can harvest our natural resources we need a creative and innovative workforce. In turn, developing these resources in the interest of Irish people will provide the funding for investing in education. We are a million miles from igniting this virtuous circle.
This makes little sense for a country which has almost 36% of its population aged 25 or under. It makes even less sense when account is taken of the contraction in the employment, the rise in unemployment and involuntary emigration that has occurred over the last four years.
The reality is that the future of primary school children is being shaped, even now, by the decisions that are being made on education.
The starting point for such decisions should be that we are currently under-investing in education, comparing with the OECD average. Ireland is a small, open and vulnerable economy, but one with a ‘golden demographic’, and with economic pressures bearing down on it, the like of which have not been experienced in our modern history.
In these circumstances ‘OECD average’ doesn’t begin to cut it – we need to be investing way above the OECD average, because it is these same OECD countries – and the ‘emerging economies’- with whom this generation, and the next, will have to compete if we are to make our way in the world.

In fact, investment in education is being reduced in absolute terms. Under current policies, dictated by the EU/ECB/IMF Bailout, it is going to be reduced even further. The government and, in fairness, the Minister for Education and Skills, know this to be the case. It has been made clear by the Troika, that even the cost of the ‘Jobs Package’ would have to be found from within the existing ‘Bailout’ limits.
Nonetheless, we are allowing our education policies, at this most critical time, to be held hostage to a mind-set that is contrary to educational research and common sense. Think about it: Ireland ‘borrowed’ some €33 billion from Eurozone institutions; Facebook, to take just one example of a knowledge company, has a current market valuation around €90 billion. We sold ourselves, and the freedom to decide what is in our vital national interests, short.

This enforced short-termism in cutting back on investment in Third level is wrong for three reasons.
Firstly, Ireland is first and foremost a ‘knowledge-based’ economy. In a book ‘Ireland and the knowledge Economy’ which I co-authored with the distinguished TCD physicist Prof. Vincent McBrierty  almost 15 years ago, we demonstrated the importance of investing in knowledge and creativity to a, then, sceptical policy audience.

Time has vindicated the proposition we advanced in relation to investing in a new ‘Techno-academic Paradigm’ and, more generally, the importance of investing in R&D and innovation within our Third Level. Ireland doesn’t have too many large companies investing in R&D: our Third level sector and our University Teaching Hospitals are of critical importance to the sustainability of our economy, and to the development, to the full, of our people and of our natural resources. The new paradigm which we wrote of is the ‘bridge’ from where we are, to where we are capable of being.
We have a robust and imaginative policy infrastructure in the HEA and in Science Foundation Ireland (SFI ). We have benefited enormously from pioneering policy makers like John Travers and from generations of researchers and entrepreneurs in our University’s and Institutes of Technology. A brief glance at SFI’s website will confirm just what our researchers are capable of achieving across whole swath of technologies and sciences. This is our real National Pension Reserve Fund.

What it boils down to is this; in order to attract, and retain, Foreign Direct Investment and, also, to continue to keep the ‘lights on’ in our increasingly IT-driven domestic economy, we need to invest in education, especially Third Level, since the outcomes feed directly into the productivity and innovation and competitiveness of the economy.
It is hardly tenable to argue that the EU/ECB/IMF ‘Bailout’ programme ‘does not allow’ us to invest in education. Indeed, the very fact that the Bailout is focused on short-term fiscal bookkeeping instead of medium-term strategic thinking, shows just how impoverished and counter-productive is the thinking on which the Bailout is based.
 It is precisely by investing in education that the growth necessary for recovery and for closer convergence across the Eurozone can best be assured. The irony, of course, is that EU Programmes in education and student/staff mobility – programmes like Erasmus – have been an unqualified success, providing a unique opportunity to generations of students to understand the richness of European culture, learning and research. The same can be said for the EU’s Seventh Framework Programme on Science and Technology. The EU Commission, as part of the ‘Troika’ should be aware of the wholly contradictory nature of its policy imposition on Ireland. Investment in education can rebuild the credibility that the Euro zone policies now so signally lack.
An overseas broadcaster covering Ireland’s economic plight recently put to me the question “why on earth’ is Ireland cutting back on investment in education at this time? How can one possibly explain to someone outside this country why, in three short years, we have managed to find ­€70 billion (including €25 billion allocated by the ‘Troika’ earlier this year) to recapitalize banks, which were close to the epicentre of Ireland’s debacle, and somehow, cannot find the €5 billion necessary to invest in higher education between now and 2020.
The second reason it is wrong has to do with social solidarity and, also, political stability. Investment in education is absolutely central to building an inclusive society. Many thousands are marginalised through lack of access to education, including Third Level. This has been a greatly exacerbated by the rise of Long-term and Youth unemployment.
A generation which we have deprived of employment opportunities are now facing even higher financial barriers to participation in higher education. This is destructive of the human Person and also of what is quaintly called ‘human capital’. The failure to invest in education is also sowing the seeds for a divided and fragmented society, one which is vulnerable to political instability.
The third reason has to do with what is actually being achieved within the Third level sector. No doubt, much more could be done, under the usual mantras of Value for Money and efficiency.
But the reality is that the third level sector has measurably delivered on both quality and commitment and outcomes. It needs investment. We cannot continue to ‘cannibalise’ the legacy that has been built up over the years by our teaching professionals, and by our researchers.
There is also a real danger that we are beginning to believe our own PR. Twelve months ago, an authoritative leader in a major multi-national, one who is seriously supportive of Irelands graduates, quietly pointed out after a seminar that he could see that for the first time standards ‘were slipping’ and that we were in real danger of being bypassed by countries who are more passionate about, and investing more in, education.
Ireland’s third level sector is now under severe stress. It’s not simply a matter of accommodating more numbers with fewer resources, it’s about building on – rather than reversing – participation rates in education; it’s about encouraging lifelong learning and, also, re-skilling in a traumatised economic environment. It is about sustaining – rather than eroding – critical mass in Post Graduate training, and research. We are long on vision and aspiration – and maybe that’s no harm. The vision set out in the Hunt Report does provide something at which to aim. But we are seriously short in delivering the kind of financial support and empowerment that our Third level needs.
The world of education, defined by successive Reports and Strategies and Task Forces, is becoming semi-detached from the real world of kids, and young adults facing increasing Third level costs when they cannot even get a part-time job; and from the hopes of parents for their children when confronted by everything from increased Third level fees to the pressures of getting kids back to school.
There is a real danger of becoming bogged-down in refined argument about student contributions and funding models. These are, of course, reasonable points, but they miss the ‘big picture’. That is, in terms of our natural resource endowments, we are a rich country that should be thinking primarily in terms of the right of all of our children, to the best education that we can offer so that they, in turn, can contribute to their community and their country, and to the raising of their families.
Ireland faces a budget, which is set to extract a minimum of €3.5 billion, from an emaciated economy. A country that can point to Newgrange, the Book of Kells, to Scholars who reanimated European learning in the early middle ages-- and to a level of scholarship in modern Ireland  out of all proportion to Ireland’s size,  is not in need of instruction about investment in Education from a ‘Troika’ driven by a  short-term Technocratic mindset.
 No Government or Minister for Education can take on this challenge by themselves. A consensus is necessary that, when it comes to our core social capital in Education and Health, a malign ‘Bailout’ must not be allowed to subvert our future –and common sense.

Monday, 15 August 2011

-Coming To The End.....On The Brink Of Political Union........

  published in ' The Irish Examiner' Tuesday 16-08-2011

Today’s meeting of German Chancellor Merkel and French President Sarkozy may prove a defining moment in the evolution of the Eurozone, and the wider EU.  One way or another, this meeting has the capacity to change the trajectory not alone of the economy but of modern Irish history.

The leaders may talk of many things but the real agenda for the meeting is simple.  It has to do with two questions.  Firstly, is there anything left – anything at all – that can halt the implosion of the Euro zone. Secondly, is Political Union the only ‘solution’ left on the table.

‘Bailouts’ have not succeeded; their punitive terms, as the ‘Eurozone Authorities’ are now finding out alas too late, have made the underlying problems even more acute. The provision of unprecedented liquidity by the ECB has not worked.  Instead, it has undermined the whole architecture of monetary union; it has undermined the Treaty of the Functioning of the European Union.  It is directly contrary to Article 125 of the Treaty. It has subverted the independence of the ECB and left it hostage to developments in those same markets that can see that the ECB is no longer a ‘Bundesbank’ type institution.  New institutional structures and Stabilisation Mechanisations have not worked; they have not been thought- through and their resources are already inadequate in the face of what is threatening Italy – and perhaps even France.  The participation of the IMF in ‘adjustment’ and ‘financing’ within the Eurozone has not worked.  Neither, it need hardly be added, have the ringing declarations of supports by European political leaders.
The economic forecasts that drove these now redundant ‘policies’ are obsolete, as economic growth has faltered not alone in the peripheral economies but also in the ‘core countries’.  Markets are operating in spasms, driven by the usual daily flow of information but, also, by highly sophisticated strategies to make a buck out of the collapse of the system.  Don’t blame the markets – that’s what they do. It’s what lie beneath that are the issue.  Equities, including financial stocks, are subject to highly volatile collapses – and by ‘recoveries’ based more on brute arithmetic than on market fundamentals.  Bond markets are all over the place – and the data suggests defacto default. 
Gold, the lightening rod of investor uncertainty, has risen to extraordinary heights and authoratative analysis suggests it may rise much further.
These developments have been ongoing, more or less, for some time now and have been analysed in these pages. Markets are defined by volatility. What’s new are:
  • The ‘anomalies’ that are now showing up in the system: there are chronic shortages of liquidity in parts of the system and equally chronic shortages in other parts of the same system. 
  • Reactive bans on ‘short selling’ of stock by some central banks, that can simply cannot work but which reinforce the markets lack of confidence in the ‘authorities’ 
  • Currency interventions on the part of the Eurozone. 
  • The erosion of the reserve currency status of the dollar, following the recent downgrading of its credit rating

But the single most significant change in recent weeks is the fact that the ‘leadership’ is now being seriously questioned.  It has been questioned in these columns many times in recent years.  Once upon a time, a few short years ago, Greece did not need (and was not going to get) a bailout: nor Ireland, nor Portugal, nor Spain, nor Italy...  Once upon a time, the credit rating of the US was seemingly impregnable.  The simple fact is that the US – for a whole series of reasons – is at present insolvent but not, so long as the printing presses still function, yet illiquid. But the crisis in the Eurozone is exacerbating the underlying problems of the US fiscal policy and the Eurozone contagion which has now infected Italy, and has metastasized into a transatlantic contagion.

Last weekend, the President of the World Bank, chose to highlight the extent of the global economic crisis and, picking his words carefully, raised the issue of ‘leadership’. 
Today’s meeting of Chancellor Merkel and President Sarkozy is a meeting where ‘leadership’ and,, by extension of the policies of these leaders, are now been openly questioned.
In these circumstances, Political Union is now an issue.  There is very little left that they have not already attempted and which has not already failed.  In the short term perspective, it would mean that the Eurozone could borrow as a single entity, underwritten by the economy and people of Germany.  It would mean a single European Department of Finance.  It would mean that for all countries – even for Italy and France – fiscal policies and ‘national budgets’ would be determined by Germany.  Stripped of all the nonsense, that is what ‘Economic Governance’ is all about: Political Union.
The markets would probably respond positively – at least for the short term. The next few weeks will be significant.  Then the enormity of what was the last throw of the dice (and the original, unspoken, objective of monetary union) would be challenged.  Indeed, the process is already being challenged in the German Constitutional Court.

 It would raise the question of the implications for Germany’s hard-won global credit status; it would raise the issue of the sustainability of an enforced fiscal policy across highly divergent economies.  Smaller countries, including Ireland, who have been wholly by-passed in the sequence of events, would be in a most difficult constitutional position.  Even the most pro-EU advocates would point out that they did not elect Chancellor Merkel or President Sarkozy to take responsibility for the future, not alone of their economy but of their country; they elected a national legislature that convenes in Dail Eireann, one that is ‘in office but not in power’.
In terms of economic policy, it is already apparent  that is it is nonsense to insist that every single twist and turn of Eurozone policies; every policy denial and subsequent reversal, can all simultaneously be sold to the people as being in the ‘national interest’.  Even the ‘legislators’ heading home in the evening, understand that there is , as yet, no democratic mandate for Political Union and that the legitimacy of such a historic step would have to be put to the peoples of the Eurozone, battered and disillusioned from the consequences of the failures of policies from this same orthodoxy.  

What it boils down to is this.  The leadership of Germany and France – a leadership that will pass in a few short years to others – are being impelled down the road for which they have no mandate from the peoples of Europe.
  In the face of the collapse of the ideology of corporate capitalism in the Eurozone and in the US, the question arises as to why we are recreating at such an enormous cost a paradigm that has failed.

 In the face of the disorderly breakup of the Eurozone, the most important priority may well be the preservation of European solidarity, which is the defining political legacy of two world wars.  A disorderly collapse of the Eurozone will bring with it the threat of protectionism and capital controls – and most important of all – the undermining of European solidarity.  History may judge that the greatest contribution of an Irish government at this point – not alone to its own people but to all that has been developed in Europe – may be to leave the Eurozone.

Saturday, 6 August 2011

Failure of leadership in the eurozone means Ireland must exit now

This appeared in the printed version of the Irish Examiner Saturday, August 06, 2011

UNCERTAINTY, and even fear, again stalks global financial markets. All of the key market indices — interest rates, exchange rates, and bond yields — signal a profound level of uncertainty, not alone about where the global economy is headed.
But more importantly, they indicate a lack of confidence in policymakers. Nowhere is this more evident than in the eurozone. Market data signal that we are close to the end of the road.

What we have seen this week has been a massive shift by the markets into cash holdings, which reinforces recessionary pressures and signifies a vote of ‘no confidence’ in current policies and economic leadership. We have seen equities fall sharply, creating a real dilemma for institutional investors, including pension funds. We have seen perversely massive flows into US treasury bills, which does not reflect any intrinsic strength of the US economy but, quite simply, a lack of alternatives for very spooked investors. The VIX index, which measures market volatility, spiked this week at levels which indicate just how spooked the markets are.

The most striking feature of all this is that the global financial crisis has not gone away. In the eurozone, ‘leaders’ have attempted on two occasions to ‘fix’ the instability that is in fact built into the system.

Moreover, the two Financial Stability mechanisms — the more recent one to take effect in 2013 — raise serious issues regarding their constitutionally and compatibility with all of the provisions of the treaties.

There is little left that European ‘leaders’ can now throw at these problems. We need, even at this 11th hour, to be very clear and dispassionate about the events that are unfolding in the markets and their significance, not least for macro-economic management in Ireland.

The eurozone Troika — Germany, France and the ECB — have used up pretty well all of the policy instruments available to them to mitigate the crisis and to prevent it spreading — particularly to the US. They have failed.

These policies have been characterised by deep and very public differences, back-biting and by policy reversals. Hopelessly confused, they have exacerbated the underlying institutional deficiencies. They dissipated market confidence like some kind of spend-thrift.

The ECB, for its part, has effectively revoked its own Constitution which prohibits ‘bailouts’. Its balance sheet is stuffed with the sovereign debt collateral of countries on the brink of default. Its ability to conduct monitory policy has been subverted.

The punitive nature of the adjustments forced on countries as the price for assistance from ‘partner countries’ has been thrown into sharp relief by the recent deal on Greece. Interest rates were reduced from levels at which they should never have been set.

These concessions were extended to Ireland — not as a matter of policy, still less as a matter of principle, but as a necessity expediency revealing the paucity of any strategic vision regarding how to deal with this spiralling crisis. For the first time there was mention of growth and jobs. The case for such a rebalancing has been argued in these pages on many occasions. It found no resonance in either Irish economic policy or in the eurozone — until its ‘leaders’, thoroughly spooked by events spiralling outside of their control and by the collateral damage to the balance sheets of core European and also US banks, suddenly backed-off. The European Commission — which had censored the Credit Rating Agencies for the temerity of adding two and two, has found itself making the case for a fundamental revision of policy, and has been censored by Germany.

The eurozone now represents less a single currency areas than some kind of nightmarish ‘Hotel California’. Is it any wonder the markets have so little confidence and that this lack of confidence should now have morphed into a crisis encompassing the US, and, therefore the global financial system.

In the US, the 11th-hour agreements last week on raising the debt ceiling should not be dismissed as political theatre. The time period for adjustment is 10 years. The eurozone ‘authorities’ sought to impose on Ireland an adjustment in half of that time. But even more fundamentally, the stark reality is that, when account is taken of actual and contingent liabilities and the prospective growth rate, the US economy is in worse shape than Greece.

The economic forecasts on which Ireland’s budgetary policies — and the bailout — have been constructed, have now shown to be wholly wrong. So, too, have the policies. They simply aren’t working. All there is to show for all the sacrifices are a sovereign debt rating of junk status, a shrinkage of employment of 15% and ‘Closed’ and ‘For Sale’ notices right across the economy.

This is not leadership — it borders on the willful to adhere to policies that are demonstrably not working and that have mired the eurozone in a crisis, from which it is seemingly incapable of escaping. Ireland needs to leave.

It would, of course, have been far better had we left earlier — not through a lack of solidarity with fellow members of the EU; but simply because structural deficiencies in the eurozone itself are generating profound anti-European sentiment, paving the way for political extremism.

The argument has been made repeatedly in these pages that Ireland needs to pull out of a eurozone that is imploding. Ireland needs certainty and stability — and courage. We can rebuild our economy, and regain access to capital markets, on the basis of credible growth-based policies. 

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