October 21, 2009, 3:14 PM
We went to see a Manchester United match at Old Trafford a couple of weeks ago. On the short flight over I was trying to explain to my teenage son why the Irish government is about to make huge cutbacks in state spending.
It wasn't that I had a captive audience and was doing some forced education. He actually asked me, prompted by a headline in the paper he was reading saying that state support for his school is going to be reduced.
Why are things so bad in Ireland? I struggled to explain.
But as we came in over the edge of the city I told him to look down. Manchester has roughly the same population as Ireland, I said. But they don't have to pay for a parliament, a huge civil service, an army, a diplomatic service and all the rest of it.
We're only the size of a city, but we have the expenses of a country. It's okay for us when the economy is doing well. But when the economy is depressed, there's not enough money to pay for everything.
I see, he said. And then switched the conversation to more interesting things like how "we" were going to kill Sunderland (it ended in a draw after a poor Man U performance).
I thought about my explanation as we came in to land and realized that although it was simplistic, it really was the essence of the problem we face. We are a country with delusions of grandeur, a country with a bloated state sector in which people get salaries that match those paid to their counterparts in countries 10 times our size. We can't afford it any longer and it has to stop.
Last week in this column, I was talking about the expenses scandal that brought down John O’Donoghue the speaker of the Dail (Parliament). But overspending by individuals is not the main problem. There are a host of state and semi-state organizations in Ireland with high paid executives that we can no longer afford.
One of the worst is Fas, the national training authority, which is supposed to retrain and up-skill unemployed people but has been wasting huge amounts of taxpayers money.
The latest story to emerge about Fas is another glimpse into the way senior executives in these state bodies feed off the taxpayer. This one revealed that a former director-general of Fas was given a pension equivalent to 40 years of service even though he’d worked only 17 years in the public sector.
He also got a large golden handshake when he moved from Fas to become chairman of CIE, the state transport company, where he is now paid €239,000 a year. CIE lost €310 million last year.
It's not just the inflated salaries, golden handshakes and pensions we have to deal with. It's the sheer number of state organizations and quangos that mushroomed in the boom years, all still soaking up lakes of public funding.
The change needs to start at the top. An example has to be set if the ordinary workers on the state payroll, like teachers, nurses and police, are to accept further pay cuts.
So this weekend, stories were floated from government sources predicting that the December budget would introduce pay cuts of 20% to 30% for ministers. Leading by example is the strategy.
Enda Kenny, the leader of the main opposition party, went a step further last weekend and suggested that the upper chamber of the Irish Parliament, the Seanad, should be abolished. It's hugely expensive and largely irrelevant and it would set the kind of example we need.
Abolishing it would be the sort of wake-up call the country needs to focus everyone's attention on just how serious situation we face is. While they're at it, they should also abolish the system whereby former ministers and taoiseachs (prime ministers, like Bertie Ahern) who are still in the Dail get an immediate ministerial pension as well as their Dail salary.
Adding to the chorus of warnings last week was one from the Minister for Health Mary Harney, who openly predicted that if we did not take drastic action the International Monetary Fund would have to come in here to sort out the mess and stop our economy collapsing altogether. For a senior minister to say this kind of thing is unprecedented and shows that we now really are approaching crunch point.
The crunch will come early in December in the budget for the coming year. Already it's being talked about as the toughest ever, as we struggle to cut down the €500 million a week we are now borrowing to keep day to day services going.
We are committed to reducing the budget deficit in this December's budget by €4 billion, and Taoiseach Brian Cowen and Minister for Finance Brian Lenihan have said several times that most of that will be achieved by cuts in spending rather than new taxes.
And it's not just this December's budget for the coming year. There will have to be cuts on a similar scale in the following three years if we are to live up to the promise to get the deficit back to the level that is acceptable for members of the European Union by 2013/2014.
This level is EU policy agreed by all the member nations, and failure to meet it would put in danger our ongoing funding from the European Central Bank that is now loaning us the money to keep going.
As the fat in state spending is cut away, it will get progressively more difficult in the coming years to find more things to cut each year. So although people here don't realize it yet, the truth is that we are faced not just with one very tough year but with four or five years when services and the standard of living in Ireland are going to fall by extremely painful amounts.
Some commentators here are desperately looking for a way out. But there is no alternative.
The union leaders argue that further pay cuts will drive down demand here and make our recession even deeper. That is true up to a point.
But exports are the life blood of the Irish economy, and our costs are way out of line with our competitors, mainly due to wages that soared here during the boom. Cutting pay here is essential to making us competitive on the international market again.
The unions also argue that pay rates are only part of the reason for the high cost of doing business here, citing other costs like power and transport. But if you look at electricity prices here, for example, they are way out of line with the rest of Europe, largely because the staff in the semi-state organization that supplies most electricity are paid huge salaries (workers in some power plants here are getting over €120,000 euro a year).
The other reason we are in such trouble is our version of the China syndrome. Look around you in Ireland these days and almost everything you see comes from somewhere else, very often China.
Nothing is made here anymore, because we can't compete. Our manufacturing industry has been wiped out by cheaper countries. Our supposed edge in the so-called knowledge economy has been wiped out by equally smart but much cheaper young information technology workers in places like Eastern Europe, India and, again, China.
Even more depressing is a visit to a supermarket here. All the usual household items are made outside Ireland.
But increasingly, a lot of what we eat comes from somewhere else as well. And again, the reason comes back to cost, and that comes back to the high wages which are the main legacy of the boom here, with very little in the way of productivity or ingenuity to back them up.
It's a gloomy picture. Of course, one could say the same about the U.S., China's biggest customer by far and also one of its biggest lenders.
The Chinese hold close to $1,000 billion in U.S. government bonds, so they have to keep lending to the U.S. because if America and the dollar collapses all that paper will be worthless and their biggest market will be gone. It's Catch 22, Chinese style.
The difference for Ireland is that no one would care if we went bust. So we can't go on borrowing like the U.S. is doing.
If we can get through this, at least we will still own Ireland. The way the U.S. economy and U.S. borrowing is going, the Chinese will own America.
Zai jian y'all.
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