Economy

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From Youth Guarantee to Mandatory Labour

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The Youth Guarantee programme is potentially a positive development.  To prevent long-term youth unemployment, the Government launched a programme that would guarantee young people either a place in education, training or a job.

However, a couple of developments put in question the operation and effect of this guarantee – and both revolve around our old friend, JobBridge.  First, as part of the Youth Guarantee Implementation Plan, JobBridge will now become mandatory:

In the case of young people, failures to engage that will give rise to sanctions will include:

  • Failure to apply for or accept an opportunity on the national internship scheme (JobBridge)

This suggests two things:  first, young unemployment must now pro-actively apply for JobBridge – something that wasn’t required before.  Second, it seems the Department will pro-actively create new JobBridge opportunities (that is, contacting employers to participate in the scheme) and then offering them to young unemployed; previously, JobBridge opportunities were generated by businesses alone.  This indicates a substantial increase in the scheme.

And the sanctions will be pretty harsh.  Young people could see their Jobseeker payment cut by up to 25 percent.

The second development is the news that one company – Advance Pitstop – has taken on 28 interns.  This company employs 200 people nationwide so the interns, whose labour is essentially free, make up 14 percent of their payroll.  Unsurprisingly, this made national news and not a little bit of criticism (this company is not the only one that has been featured in the media).

Should a scheme that provides labour to employers for free be mandatory?  Clearly, there are areas of social protection which are already mandatory.  For instance, a Jobseekers’ recipient must show they are available for, and actively seeking, work.  Past practice also requires recipients to meet with Department officials as part of the evaluation process, take up a ‘legitimate’ offer of training / job or attend an accepted training / education course (of course, there’s a number of issues with ‘legitimate’).

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Bishop Accuses Spanish Women of Holocaust

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I joined the International Women’s Day march in Valencia on Saturday night. Sources estimate between 10,000 and 20,000 people turned out for the event, from my perspective about 40 percent of those marching were men. Valencia is Spain’s third largest city, after Marid and Barcelona, where marches also took place. This day is usually a day of celebration of women in history and society as well as a chance to draw some attention back to the gender inequalities still present in work and pay. However, yesterday’s event also provided an opportunity to demonstrate the anger and exasperation building up around the new anti-abortion law being carried through the Spanish parliament by the conservative Partido Popular.

The proposal would overturn a very recent law (2010) that legalises abortion on demand in the first trimester, meaning that rape or a serious threat to the woman’s health – currently the conditions for abortion in the second trimester – would have to be proven by anyone seeking an abortion. I have read that somewhere between 60 and 80 percent of the Spanish people oppose this bill. I’m not sure how accurate that is but the big turnout across Spanish cities for what is normally a fun family event was telling. The day before the protests I attended an assembly of women from the trade union Comisiones Obreras. The hall was filled with about 200 women and was brimming with anger. In one of the opening speeches tribute was paid to a lady called Concha Carretero who died on January 1st this year at the age of 95. Carretero’s story, as I grasped it in my broken Spanish, reminds me of the potency behind the word often used at Spanish protests – indignada.

Carretero, born in 1918, was first imprisoned when Franco’s army entered Madrid in 1939. Arrested after attending a meeting of the Juventudes Socialistas Unificadas (United Socialist Youth) on her first night in prison, she was beaten and electrocuted and made to clean up the blood of her fellow captives. Lying unconscious after a beating on the night of August 4th, 1939 her cellmates, thirteen women, were taken and executed by firing squad. Almost a year later, Carretero was released only to be quickly re-arrested. This time she avoided freezing to death when stripped naked and doused in buckets of cold water by exercising all night in her cell. By then Carretero’s father, an anarchist, had been found dead on the street, and her mother, who had suffered a serious injury when a lift fell on top of her while cleaning in the dark shaft, slept unbeknownst to her daughter under the archways of the prison where she was held. Not long after her release Carretero’s husband and father of her first child was arrested and shot by firing squad. Carretero’s crime had been her involvement and work with the Republican army, making clothes and minding the children of men and women on the front during the Civil War. But more than that it had been to dare challenge the might and divine authority of fascist Spain. Going on to re-marry and have five more children, Carretero attended the Almudena cemetery in Madrid every year to mark the anniversary of the execution of her thirteen cell mates, the Thirteen Roses, and every year she called for the “Third Republic”. (Further info here: Fallece Concha Carretero, compañera de las trece rosas rojas, by Gustavo Vidal Manzanares, nuevatribuna.es).

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Irelands’ Bank Guarantee: A Lesson In Class Power

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The following article by Conor McCabe, is taken from the first issue of the relaunched The Bottom Dog, published by the Limerick Council of Trade Unions. Copies of the full print issue are now available in Connolly Books. You can also follow The Bottom Dog on Facebook.  

At the start of 2013 the indepen­dent TD for Wicklow, Stephen Don­nelly, stood up in the Dáil and ta­lked about the bank guarantee. He said it was passed because ‘of a di­ktat from Europe that said no Euro­pean bank could fail, no Eurozone bank could fail and no senior bond­holders could incur any debt.’ It is a curious opinion to hold, as the on­ly foreign accents heard on the re­cently-released Anglo tapes are imitations done by Irish bankers of considerable wealth and influence.

The tapes shone a light on the short-term focus, the scramble for capital that was to the front of the bank’s management team. John Bowe, the head of Capital Markets at Anglo Irish Bank, told his collea­gue Peter Fitzgerald that the strate­gy was to get the Irish central bank to commit itself to funding Anglo, to ‘get them to write a big cheque.’ By doing so, the Central Bank wo­uld find itself locked in to Anglo as it would have to shore up the bank to ensure it got repaid.

The Irish financial regulator, Pat Ne­ary, in a conversation with Bowe, said that Anglo was asking his offi­ce ‘to play ducks and drakes wi­th the regulations.’ Once the gua­rantee was passed the bank’s CEO, David Drumm, told his executives to take full advantage but advised them to be careful and not to get caught.

This was reinforced by an article in the Sunday Independent on 17 No­vember 2013 which looked to the British Treasury’s archives for in­formation on Anglo and the bank guarantee. ‘The documents reve­al’ said the newspaper, ‘that the Fi­nancial Regulator tipped off Britain that Anglo might be “unable to roll €3bn [in funding] overnight,” but not to worry as if that happened the Central Bank or Government would step in to bail it out.’

The idea for a blanket guarantee, however, did not originate entirely with the Anglo management team, regardless of how much they em­braced it. In the weeks leading up to the decision, the idea of a gu­arantee was flagged in the natio­nal media by people such as David McWilliams and the property deve­loper Noel Smyth.

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Normal Euro zone Countries Don’t Export Their People

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The Live Register has fallen below 400,000 – the first time since May 2009.  While the Live Register is not an official measurement, the Seasonally Adjusted Standardised Unemployment Rate shows unemployment at 11.9 percent.  Our unemployment rate is now down to the Euro zone average.  This led the Minister for Social Protection to state:

‘Minister for Social Protection Joan Burton said the figures were encouraging and signalled Ireland’s return to being a “normal euro zone country”’.

Yes, when it comes to a straight unemployment rate we may well be a ‘normal euro zone country’.  But there’s something that has been not so normal and which has impacted directly on the Irish unemployment rate.  Yes, I’m talking about emigration.

Let’s compare the increase in Irish emigration since 2008 with that of other EU-15 countries.   We’ll do this by taking the annual average number of emigrants between 2008 and 2011 (the last year Eurostat has data for) and comparing it with the annual average number of emigrants between 1998 and 2007.

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Spain has been particularly hard hit – with over 400,000 emigrating in 2011.  Ireland comes second followed by Portugal.  After these three countries, the next hardest hit by emigration was Italy.

Irish emigration has been more than five times the average of other EU-15 countries.  In terms of emigration, Ireland is hardly normal.

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Marx was right all along, says investment bank

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This article appeared as a post on Socialist Economic Bulletin on Tuesday the 4th of March.

Well, not quite. But a recent study by leading investment bank Credit Suisse shows that long-term growth rates of GDP in selected industrialised economies are negatively correlated with financial returns to shareholders. That is, the best returns for shareholders are from countries where GDP growth has been slowest, and vice versa. Where growth has been strongest, shareholder returns are weakest.

This is shown in the chart from Credit Suisse below.

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Business Insider magazine carries a report of the research. It makes a series of bizarre arguments in an attempt to explain the correlation. The first is that stock markets anticipate future economic growth. But given that these data are based on the last 113 years, the stock markets must be very far-sighted indeed. The subsequent arguments do not get any stronger.

The negative correlation does not prove negative causality. But it does support the theory which suggests that the interests of shareholders are contrary to the interests of economic growth and the well-being of the population.

The clearest theory which this data supports, that the interests of shareholders are counterposed to that of economic growth, was formulated by Marx. In Capital he argues that the ‘development of the productive forces’ (the investment in the means of production and in education that are required to increase the productivity of labour and hence economic growth) runs up against the barrier of the private ownership of the means of production*.

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Who’s Fooling Who at the BBC?

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This post originally appeared on the Socialist Economic Bulletin blog today.

Robert Peston is the BBC’s new economics editor. He has opened his new role with a programme called ‘How China Fooled the World’. For a time it is available on BBC iPlayer and Peston’s own summary is here.

In the blog and the programme Peston argues that China dodged the global economic crisis by increasing investment, specifically state-led investment. But the prevailing level of investment was already excessively high, the argument runs, and merely postponing the crisis by increasing it further will only exaggerate the inevitable crash.

The strangest thing about this argument is not the misapprehensions about the Chinese economy or even the evident lack of understanding about the forces that created what is described as the Chinese ‘economic miracle’. The main fault is that Peston does not seem to grasp the mutual relations between economies, or what is the motor force of economic growth. The BBC’s economics editor is making economic howlers.

This is the most important feature of the programme. Neither what Peston nor what SEB says is likely to affect the outcome for Chinese growth. But understanding its dynamics is crucial to a wider understanding of the economy and how to address crises where they actually exist. One of the countries where there is currently an economic crisis is Britain, not China.

Growth Forecasts

The argument rests on Peston’s own forecast of an imminent economic and financial crash in China. This puts him at odds with all the main leading global economic institutions, the IMF, World Bank, OECD and so on.

To take one example the IMF estimates that China’s real GDP growth will be 7.3% in 2014 after increasing by 7.6% in 2013. It also forecasts an increase of 7% in each of the three years from 2015 to 2018. By contrast, the IMF forecasts that British growth is stuck around the 2% rate every year until 2018, when it accelerates to 2.3%. The IMF data and projections for GDP real growth for Britain and China are shown in the chart below (Fig.1).

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Fig.1 IMF data & forecasts for China and Britain real GDP Growth

It is entirely possible that the official bodies are all wrong on Chinese growth. But without making the argument on why growth is destined to collapse, Peston is simply joining the very long list of those who have wrongly forecast China’s imminent demise, some of whom have continued to do so over a very prolonged period.

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A New Government Study on the Effective Corporate Tax Rate? Hint: It’s 5%

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According to Finfacts:

‘Michael Noonan, finance minister, signalled in a statement last Thursday that his Department is preparing a report on the corporation tax rate that is expected to be ready by the end of March as part of a publicity offensive to counter claims that Ireland’s effective rate (actual tax paid or provided for in an accounting period as a ratio of reported net income) is in low single digits.’

Apparently, the Government has ditched its previous claim that the effective corporate tax rate is 11.9 percent – when the study this was based on was shown by Dr. Jim Stewart to be defective as a comparator.  Now it needs a new study to substantiate an old claim (it helps that the Government has already predetermined the conclusion, now they just have to fill in the numbers).

This blog has always endeavoured to assist the Government.   So I’d like to point the Government to some reasonably robust numbers.  It can use either Eurostat or its own Central Statistics Office.  Either way, they show Ireland has a low-low effective corporate tax rate.

One part of the equation – how much corporate tax rate is paid – is easy to determine.  What is more difficult to estimate is the level of profits.  Both Eurostat and the CSO use the category ‘entrepreneurial income’.  Eurostat defines it this way:

‘. . . net entrepreneurial income . . .  approximates the concept of pre-tax corporate profits in business accounting. ‘

The CSO defines entrepreneurial income as

‘ . .  a more comprehensive measure of corporate profitability.’

So, armed with this ‘more comprehensive measure of corporate profitability’, what are the effective corporate tax rates for EU-15 countries – combining both financial and non-financial companies?

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Tales From Tax Haven Ireland: Running the Numbers Game

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“The extremely low effective rate figures that have been quoted over the past week and attributed to Ireland are based on a flawed premise. The figures are estimated by dividing the amount of Irish tax paid by a total profit figure that includes substantial profits made by companies that are not tax resident in Ireland. They are running together the profits earned by group companies in Ireland and in other jurisdictions and incorrectly suggesting that Irish tax does or should apply to both.”

So, Michael Noonan rejects the recent findings of Jim Stewart of Trinity College, Dublin that US companies in Ireland have an effective corporate tax rate of 2.2%. In this he is following the insistence of Feargal O’Rourke of PriceWaterHouse Coopers who claims that Stewart erroneously includes companies that are incorporated in Ireland but do not operate here.

These are companies, like, for example, Google Ireland Holdings, Bermuda, which is ‘tax resident’ in zero tax jurisdiction Bermuda but is in effect a letter box company with a registered address in Sir John Rogerson’s Quay, that is, the office of solicitors Matheson Ormsby Prentice.

The basis of O’Rourke and Noonan’s (and the government’s) objection to Stewart’s finding is that the TCD economist uses US Bureau of Economic Analysis (BEA) data.

As Seamus Coffee puts it in a response to the 2.2% rate claim, BEA methodology highlights

“…that for companies, US residency rules are based on paperwork rather than activity.  Under US law, the tax-residence of a company is the country where it is incorporated.  All companies registered in Ireland are thus considered “Irish-based” under US law.”

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Danger, Danger: The Government’s Health Insurance Model

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There are many issues to be sorted with the introduction of the Universal Health Insurance:  will it be a competitive private insurance market (a la Netherlands with its rapidly rising health costs) or will it adopt a single-payer model; what services will it include; will it contain truly free GP care and will it include considerable subsidies for  prescription medicine?  And then there is the issue of whether an NHS-style system (most EU-15 countries finance their health systems out of general taxation) would be more cost-effective – that is hardly featuring in the debate.

Here I want to look at how it will be financed based on the Government’s current proposals.  It seems clear that people will be required to purchase a basic health insurance package (contents unknown) from one of a number of competing health insurance companies.

But there is a real danger that the Government is intending to introduce a finance model that will be regressive (i.e. impact on low-average incomes more than higher incomes) and contain no obligations from employers to make any contributions.  Both these elements fly in the face of social health insurance models that exist in Europe.

Regressive

First, the method of financing will be regressive.  We don’t yet know the cost though the Department of Public Expenditure and Reform is reportedly claiming that it could be €1,700.  In the Netherlands, which is supposed to be the Government’s template, the cost is €1,478 for each insured adult with reliefs for low-income earners.

Let’s assume, for this argument, that the package is €1,500.  The Government is committed to exempting low-income groups (unemployed, etc.) and subsidies for the low-paid, though we don’t yet know the threshold.  This helps, of course.  The problem lies with income groups above the threshold – in other words, those that don’t receive a subsidy.

We can see immediately that a flat-rate payment will be more expensive – as a proportion of gross income – for those at the lower end.   For instance, if you are on an average income of €36,000, the health insurance will be approximately 4 percent.  If you are on €100,000, the health insurance will be 1.5 percent.  That doesn’t seem very equitable – because it isn’t.

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From Alpha To Omega: #046 Engines, Entropy, and Value

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This weeks our guest is Dr. William Paul Cockshott, a reader in the Computer Science Department of Glasgow University. Paul was trained as an economist, then as a computer scientist, and he has made contributions to the fields of image compression, 3D television, and parallel compilers. He is also known for his work in applying econophysics to classical economics, the field of economic computability, and as the co-author of the book ‘Towards a new Socialism’, advocating for the more efficient and democratic planning of a complex economy.

In this show we discuss the origins of classical political economy, and how it was influenced by the rapid advances in the world of physics. We talk of the importance of Watt and his steam engine, the development of the theories of thermodynamics and entropy, and their importance in economy. The work of Babbage and Alan Turing also get a mention, as well as the human as universal robot. We also discuss the overwhelming empirical evidence for Marx’s Labor Theory of Value, why it is that it works, and the importance of the work of previous guest Prof. Gregory Chaitin in the modern factory. Oh yes, and some roman pottery, Chinese crossbows from the Qin Dynasty, and how difficult it is to fold your clothes.

Enjoy!

You can find his books, talks, and research on his website here:

http://www.dcs.gla.ac.uk/~wpc/reports/index.html

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Friday Stat Attack: A Simple Graph That Can be Used in the Tax Debate

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OK, this follows on from yesterday’s post but whenever I hear someone on the media claiming that Ireland is a high-tax economy, I’m going to @ the programme with this graph.

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The question is simple:  if Ireland is a high-taxed economy how come we have the lowest tax on labour in the EU except for Bulgaria and Malta?

Don’t underestimate the import of this battle.  Keeping taxes low (while at the same time fighting off wage increases) is just a continuation of the austerity battle.  People paid for the crisis; now  there will be an attempt to make people pay for the recovery. What little is given in tax cuts will be taken away from free health, free education, affordable childcare, public services and income supports; in other words, all the programmes and infrastructure that can raise living standards.  People will be required to subsidise their own tax cuts – and this after we’ve been forced to subsidise financial institutions and the economic collapse caused by speculative activity.

So please feel free to use this graph to get the word around.  We’re not a high-taxed economy – but we are a low waged economy with even lower levels of public services and income supports.  The only high this economy experiences is rising profits.

Oh, and deprivation and emigration, too.

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Low Tax Economy for Slow Learners

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No matter what the evidence, regardless of what the data tells us, there are some who are determined to assert the opposite.  Take taxation – the evidence is absolutely clear:  we are a low-tax economy.   Don’t forget what this debate is about:  we are a low-waged and low-taxed economy and there are vested interests, politicians and commentators who are determined to keep it that way.

So let’s go through this again (it’s been discussed here and here) but this time from a different angle, avoiding the difficult comparisons using GDP, GNP, hybrid GDP, etc.  Let’s look at taxation on labour (i.e. wages and salaries, excluding the self-employed).

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This represents the total amount of taxation on wages and salaries – income tax, employees’ social insurance and employers’ social insurance.  This is the total taxation on labour.

Look at where Ireland lies – 25th out of 27.  We’re above Bulgaria and Malta and that’s about it.  In Ireland, total taxation on labour is equal to 30.1 percent of total wages and salaries.  We are well below the average for the entire EU, 34.7 percent below average.

How can anyone claim that we are a high-taxed economy?

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A Low-Wage Economy with Strong Productivity and Rising Profits – Why Not a Pay Rise?

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Unite has produced ‘Ireland Needs a Wage Increase’ – a comparative study of Irish and European employee compensation.  The bottom-line is that

  • Ireland is a low-waged economy when compared with other EU-15 countries
  • Productivity in Ireland is above the EU-15 average
  • Irish profits are higher and rising faster than in the EU-15

In addition, the document highlights the plight of workers in low-paid sectors (their compensation levels are even further behind EU-15 averages), labour costs as a proportion of total operating costs (lower in Ireland) and future wage growth projections which show us even further behind.

The document also provides comparisons on a sector basis (e.g. manufacturing, transportation, financial services, hospitality, etc.).

This should put paid to the argument that Irish wages are somehow out of kilter with the rest of our European peer group – but it probably won’t as the wage-deflationists will just ignore these facts.  That’s why it is even more important to get this information around.

The full document can be accessed here:  Ireland Needs a Wage Increase

The summary can be accessed here:  Ireland Needs a Wage Increase (Summary)

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Friday Stat Attack: Severe Deprivation among Public Housing Tenants

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Eurostat has a particularly grim measurement – severe material deprivation.  They take nine deprivation indicators in which people cannot afford the following items:

  • to pay their rent, mortgage or utility bills
  • to keep their home adequately warm
  • to face unexpected expenses
  • to eat meat or proteins regularly
  • to go on holiday
  • a television set
  • a washing machine
  • a car
  • a telephone

If people cannot afford four of these nine deprivation experiences, they are categorised as suffering from severe material deprivation.  This is a harsher measurement employed by the CSO – which has a deprivation rate based on suffering from two of eleven deprivation experiences.

So what is the deprivation rate for tenants with a rent at reduced price or free – which is basically public housing tenants.  In Ireland this would largely mean local authority, or social, housing tenants.

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Ireland leads the EU-15 table – higher than even Greece and Portugal.  More than one-in-four public housing tenants suffer from severe material deprivation.  This shouldn’t be surprising – the CSO estimates that 52 percent of public housing tenants suffer deprivation using their measurement.

We are getting lots and lots of talk about tax cuts.  Where do people  who suffer from material deprivation fit into this agenda?  Nowhere, it seems.  They are being air-brushed out of the debate.

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