May 27, 2013
Ireland is a country trying to compete with the rest of the world from a position of weakness and that weakness is, in the main, due to choices made by the state.
We find ourselves in the most turbulent period of global economic disruption, without the macroeconomic means to deal with one local impediment that makes economic recovery almost impossible. That impediment is the crippling level of personal debt in the country. As the growth rate stumbles, the debts, which are crushing the economy are getting heavier and it is the young who are paying the price much more than the middle aged or the old.
Our society is facing a massive crisis.
Young Irish workers face the very real prospect of being the first generation since the famine that will be poorer than their parents. The young are bearing a much greater proportion of the pain than the middle aged or the old. There is only so long this can go on without young parents and young people losing hope. When a generation loses hope, there can be no basis for national renewal.
There are four reasons why young people are bearing a disproportionate share of the pain.
The first factor is wealth. The young have been hammered by the property slump because they bought houses most recently. Therefore, their wealth has been totally wiped out by the property collapse. Over 50 per cent of the total mortgages in this country were issued between 2001 and 2007. This housing wealth is gone. So young parents and those between the age of 30 and 45 have no wealth.
The second factor is debt. Hundreds of thousands of young Irish people – the Pope’s Children generation – took on massive debts to buy these houses. While their wealth has evaporated, their debts have actually increased. They are not just poor, they are worse than poor because their debts far outweigh their assets and this will be the case for many, many years.
The third factor is income and opportunity. The reality for many hundreds of thousands of younger workers is a freelance career characterised by job insecurity, temporary contracts, low wages and few opportunities. Unemployment in the young far outweighs unemployment in the middle-aged; wages are much lower and contracts are temporary. Even in traditionally secure professions, like those of nurses and teachers, younger workers are on temporary contracts, while their older colleagues are permanent and pensionable.
The fourth factor is politics. Much of the political system is designed to uphold the status quo. In reality, the status quo means the wages and conditions of large voting blocs who are in employment and are naturally trying to hold onto what they have. This is not an orchestrated conflict between the generations, as much as the unanticipated upshot of 20 years of policy.
Many of the trade unions are similarly, and, again naturally, trying to protect the interests of their members – the majority of whom are in work and are older.
When the economy is stuck, a euro extra for one sector is a euro less for another, so there is a significant trade-off between young and old in preserving the status quo.
These problems are not unique to Ireland.
In fact they are evident in many developed countries. At the moment, the global economy is in a state of complete transformation. Economic change is moving at a much faster pace and with greater levels of disruption than in the past. Nothing is standing still and countries that try to stand still are breaking apart.
Two main forces are driving this. The first is that disruptive technological change is everywhere. Think about the music industry: it has been totally transformed by technologies, so much so that record shops, the staple of two generations, have all but disappeared.
In addition, globalisation means that the international labour market is much more competitive. The last generation didn’t have to contend with the impact of China, for example, on manufacturing job opportunities.
Taken together, technological change and globalisation means that the world is racing ahead and economic activity is now taking place in parts of the world which were not even in the game ten years ago, let alone 20 years ago.
Ireland is in a race with the rest of the world. All we need is a little bit of the global action to thrive, but the problem is that we are carrying on our backs a rucksack of deadweight debt while our competitors are running unencumbered. We don’t have a hope with such a domestic handicap holding us back.
The only way you can deal with debt is if you have in your economic toolbox probably the most valuable instruments any independent country has. That policy is monetary policy. With this tool you could adjust your currency, you could increase or decrease interest rates, you could inject liquidity into your broken banks and, crucially, with your own central bank, you could act as a financial convalescent ward for your battered economy. You could remove from the balance sheet of the people some of the mistakes that were made in the housing boom.
You could “park” huge amounts of debts on the balance sheet of the central bank and you could indefinitely roll over these debts so that the crippling debt burden of your people need not destroy companies and hundreds of thousands of careers. You could do all this if you had your own currency, your own central bank and a sagacious overseer who understands the power of debt forgiveness, the natural dynamism of an economy liberated from the anvil of debt and appreciates the fact that the rest of the world is not waiting for Ireland to sort itself out.
Unfortunately, we are in the euro and can do none of the above. We have given away a crucial economic tool. But for what exactly? The promise of something called a banking union? Or for the ritual humiliation of being patted on the back by foreigners every so often? Worse still, we have given away a legitimate policy tool so that our administration – our own government – can claim that it can’t do anything as the economy grinds to a halt and our young people are crushed.
Is this economic paralysis viable politically? Is the idea of Irish children growing up to be poorer than their parents for the first time since the famine something we want? Is there a political leader out there who is brave enough to tear up the script and recover Irish economic sovereignty? If not now, will one emerge championing the cause of a generation shafted by the choices being made on its behalf?
The really odd thing would be, not if Irish politics lurched in a totally new direction – but if it didn’t.