February 15, 2009
It is time to think about solutions. How are we going to get out of this mess and how are we going to keep the maximum number of people in work over the course of the next three years? More importantly, how can we create jobs, not just by keeping people in work who might not be affordable, but by getting the best out of all of us?
Such questions demand home-grown initiatives, in order to fix home-grown problems. There is no point playing the conservative game and waiting for the global economy to pick up. Either it picks up or it doesn’t. Equally, we should stop trying to be respectable members of a monetary union dominated by ‘‘balanced budget fundamentalists’’ when we are faced with an economy which is contracting by the hour due to a lack of demand.
The Great Depression was caused by trying to balance the books in the face of debt deflation. Listening to mainstream economic discourse in Ireland, it looks as if we are going to repeat the mistakes of history. This is social vandalism. If we actively accelerate the slump by slashing and cutting simply to balance the books, we will never be forgiven.
The key to rebalancing this country’s economy is to keep wages flat across the board and confine spending as much as possible on public infrastructure. To use the Americanism, we need to get a ‘‘huge bang for our buck’’. This comes from getting the same thing next year at half the price it would have cost you two years ago – be that a railway, a bus corridor or a motorway. Crucially, we have to avoid the mantra of increased taxes to balance the books. This canard, to which many economists amazingly subscribe, mistakes economics for accountancy. They are not the same.
If Ireland continues to make massive cuts in public spending, the country will simply contract further. No economy has ever deflated its way to growth, and the most important thing to bear in mind is that companies closed due to lack of demand do not reopen when times are better. Therefore, the most crucial objective must be to try to preserve employment.
Jobs are crucial because, long after the bond markets have had a hissy fit and the respectable financial press has forgotten its indignant editorials, the generational impact of long-term unemployment will be felt. The human costs of unemployment and idleness are family breakdown, mental illness, depression and crime. These costs go way beyond the financial costs of less taxes and higher spending.
This weekend, Ireland is home to thousands of wounded people who have been told that they are redundant. Their self worth has been reduced to a severance cheque, a squeeze of the shoulder and an insincere pep talk about the needs of the company. These are real people and they are humiliated and frightened. In many cases, they are in the middle of their careers, they have huge experience, contacts and networks. Yet they are being told that they won’t work again because they are too expensive or they are ‘‘overqualified for the job’’.
Many can’t face – nor do they have the energy to entertain – the enormous effort it takes to start again on their own. Their confidence is shot. Equally, many will hoard their savings and won’t have the courage to throw their precious ‘‘nest-egg’’ into a new venture. They will shrink from risk and become the walking casualties of the depression. We will see these middle aged zombies, the ‘‘might have beens’’ walking around our towns or glued to afternoon TV, wasting away. Yet they have so much to offer.
If only we could find away of using their years of experience constructively.
At the other end of the generational scale, we have thousands of young people ambitious graduates and school leavers who will not find a job. This is the generation of Irish people who have nothing to fear; they have buckets of energy and can set up on their own, creating businesses from ideas. But how will they commercialise this raw enthusiasm? What they have in energy, they lack in experience. What they have in vision, they lack in contacts, and what they have in stamina and technological savvy, they lack in business nous and sales smarts. This is where the older people come in. Would it be possible to fuse together the two generations, the recently redundant middle-aged and the hugely robust twenty somethings?
Argentina suffered a dreadful depression in 2001/2.Unemployment skyrocketed and, with no jobs around, young Argentinians were forced to set up their own small businesses to survive. These small businesses sprang up all over the place and, because the local economy was in tatters, the companies had to export to survive. (Precisely the same will be the case in Ireland.) But they didn’t know where to start. How could they? For most, this was their first venture. They knew nothing about marketing or banking and neither did they have contacts.
At the same time, thousands of middle-aged executives with tens of thousands of years’ experience were being laid off every day. They were destined for the scrap heap.
At the time, an economist friend of mine was brought in to be the chief of cabinet of the Ministry of Finance in Argentina. He told me he spent nights with his head in his hands trying to figure out what to do when everyone was telling him it was over for the country.
Then he came up with the idea of a state-sponsored ‘‘match-making’’ service to match ‘‘young companies with old heads’’. To do this, the Argentinian finance ministry used a website which matched old experience with young companies. The new companies interviewed the old, recently-redundant executives. The state, instead of paying benefit, paid a much reduced salary to the older guys who got some small equity in the new companies.
The scheme worked amazingly well. Thousands of companies were set up and thousands of people went back to work.
Most crucially, the older heads contributed enormously to the success of the new companies with their knowledge and experience. Their contacts with international counterparts and multinational systems of management and production were invaluable.
Yet, had it not been for this initiative, this invaluable resource would have been buried between the ears of thousands of people, never to be used productively again.
Many middle-aged executives even went back to work for nothing and were reinvigorated. They acted as custodians for the new companies that dragged Argentina out of the depression. In addition, thousands of companies were saved from making the elementary mistakes that tend to scupper start-ups. These mistakes can be more easily sussed by someone who has been in business for years.
Crucially, the older heads were not consultants. They worked for the new companies. If the relationship was working, after five months the new companies started to pay their wages in full and the state disappeared, having done its match-making job.
This is a perfect example of how a simple idea can translate into a fantastic outcome and of how using our noggins in the depression can transform a crisis into an opportunity. The key now for all of us is not to despair, but rather to focus on getting out of our mess.
If you want to discover more about this initiative see www.experienciapyme.mp.gba.gov.ar — it’s in Spanish, but you’ll get the drift.