May 18, 2015

The bizarre entitlement culture of our public sector

Posted in Sunday Business Post · 151 comments ·

Did you know that this week the pampered, well-paid mandarins in the Department of Finance agitated for higher wages for themselves, while at the same time advising that the minimum wage for the poorest workers shouldn’t rise?

Isn’t this extraordinary?

This is the Irish Department of Finance whose main job is to prevent booms and busts destabilising the economy. On this basis, it must be, over the past ten years, the least effective Department of Finance in the western world. Did anyone get fired for overseeing the economic calamity of the past 15 years of helter-skelter?

Yet these mandarins feel entitled to wage increases now just because the economy is growing faster than they, who are paid to forecast, could forecast. On top of this, they argue that wage increases for the lowest paid would threaten national “competitiveness”!

The truth is that increasing pay for some of the best paid civil servants in Europe threatens Irish competitiveness, far more than raising the meagre wages of the low paid.

In mature western democracies, where there is a split between public and private sectors, where the citizens expect value for their public services and are content to pay for them, probably the most important competitive variable in the economy is the productivity of the public service.

The standout successes in this regard are New Zealand, Australia and Canada where the public sector performs exceptionally well both in terms of its cost, the service it provides and where there is a direct link between individual productivity and pay.

Citizens in these English-speaking countries, with broadly similar legal and corporate structure to ours, are happy to pay for public service as long as they are good. In all these countries there are sophisticated metrics to gauge public service efficiency. These indicators make sure that the public are getting a service and also prevent the countries being ransomed by public service unions.

In these countries, it is simply not the case that when there is more money in the national kitty, an implicit trigger is pulled inside the heads of the public sector unions which gives them the “right” to look for more wages.

This ‘more money in the kitty, higher public sector wages’ is a bizarre way of looking at the world. If the public sector behaves this way what actually happens is the public sector squeezes the private sector and smothers the economy.

New wage increases in the public sector can only come if there is a significant increase in productivity of the public sector. So ask yourself, is Ireland run any better this year than last year? Are the 350,000 public servants working harder, smarter and is the delivery of public services better this year than last year?

If the answer is yes, then sure let’s talk, but if not, why should economic growth, generated by larger general tax revenue trigger an increase in public sector wages?

Why should one follow from the other? I don’t get this bit. I can’t see the economic logic of this axiomatic identity. Can you?

In Ireland, unfortunately, we seem to operate in a bubble where an improvement in fiscal revenues generated in the main by more employment in the private sector, more tax revenue from the private sector, more Vat and corporation tax and more export revenue generated by the private sector, should automatically trigger an increase in public sector pay. Where does this notion come from?

If we need more teachers and nurses, let’s employ more and build new schools and new hospitals, but why should economic growth necessarily “entitle” public servants (who are after all only 17 per cent of the workforce) to an automatic pay rise? This is particularly galling to the other 83 per cent of the workforce who generated the growth in the first place.

This is simply looting one sector by another. It is classic insider/outsider behaviour.

The insiders in this case are the union leadership who have access to the negotiating table via the legacy of social partnership and have the ear of government ministers. The outsiders are the private sector workers who are, in the main, unrepresented and get their pay rises from their own productivity. The insiders get first dibs (wage rises) on the fruits of the efforts of the outsiders (higher tax revenues).

Let’s look how other countries do things to see how bizarre and unfair our system is.

New Zealand takes a totally different approach to public sector pay. Individuals are paid if they are good and are not paid, if they are not good.

In the 1980s and 1990s, the Kiwis completely changed the health and education services and public pay negotiations realising that the country needed to eradicate this insider/outsider process.

All public servants were put on individual contracts. There is now no collective bargaining and the country has removed the ban on firing public servants who don’t perform. This means that in the public service, if you are good, you do well and if you are a slacker, you go.

This is the way it works in the rest of the economy and the explicit link between performance and pay and career path is the most fair and liberating way to do things. It means we all have a choice and we are in control.

Today, after all these changes, New Zealand is a rich country.

The health service is cited by many as an exemplar, both in terms of the system itself and the way in which it is funded. Its education service is in the top 2 per cent in the world, while ours is falling back.

Did you know that the average child in secondary school in New Zealand has a mathematical achievement standard that is twice as high as the average child in school in Ireland?

Yes twice as high. In New Zealand, according to a study from Stanford University, 16 per cent of 16-year-olds are performing at an ‘‘advanced level of maths proficiency’’. In Ireland, the corresponding figure is 7.9 per cent.

The message is personal responsibility is good for all and the fact that there is more money around is no reason to increase the pay of all without any link to individual performance.

In contrast, we in Ireland are encumbered with the vested interests, the insiders, who, this week, are trying extract wage increases as if they are an “entitlement” where no such entitlement or right exists.

How bizarre is this? Is this any way to run a competitive economy?

  1. From Lemetropolecafe. Another comment on entitlement. The PS’s demands are chaff in the wind compared to this stuff.
    Hey Bill:
    I’ve noticed that a few folks have recently been writing about why the Gold Cartel continues its actions.

    I suggest a review the book “Gold Wars” by Ferdinand Lips (Page 142):

    “What central bankers are really interested in is the continuing efficacy of their respective banking systems. These arrangements allow banks to garner enormous revenues — about $350 billion net of interest expense in 1999 in the U.S. alone — provided the fiat funny money systems are sustained.
    To continue this unearned and undeserved bonanza, gold money, which would be the people’s choice in a free market, must be disparaged, destroyed and eliminated.”

    I can’t even comprehend just how much that would be in 2015 money.
    Seems to me to be the root of the lyin’, cheatin’ and stealin’ that goes on.
    That’s why JPMorgan Chase, Goldman-Sachs, and many others, do what they do.
    What I just can’t figure out is why anyone continues to do business with them.
    Sheer ignorance, I guess. Lord knows you’ve tried to wake them up.
    Edward Ulysses Cate

  2. mcsean2163

    Nail head hit. We are the second most indebted country in the world…

  3. U.S. economic news: Fed doubts recovery

    14:00 FOMC Minutes indicate many’ said economic data was unlikely to support a June rate hike
    The text of the minutes from the 28-29 Apr FOMC meeting can be viewed at the attached link

  4. ECB Nowotny says low interest rates to stick around for now: The WSJ cited remarks by ECB member Nowotny who said the ECB’s low rates policy will stick around. According to the report, Nowotny said the policy of providing liquidity is showing its first signs of success, but they aren’t enough for the ECB to start reversing its current monetary policy any time soon.

    Central bank rates will stay low to fund existing and future government debt. Bonds may be a different entity as confidence in currency evaporates, rates will soar. It will not be long before all governments deficits are monetized by central banks. All countries will essentially be bankrupted. What then will be the entitlements?

  5. Economic data:

    Data undershooting most growth forecasts: Bloomberg discussed how some data reports have undershot even the most bearish of private sector forecasts. The article noted that this was the case for industrial output and FAI in March and April respectively, as the data came in below the lowest private sector forecast.

  6. Follow the example of the PS Unions and protect yourself. You’r entitled.

    “The stack of negative economic data now in the Fed’s in-tray surely means that any notion of raising interest rates is utterly ridiculous. But by gently parlaying this possibility the Fed has kept the US bond market afloat, that is until its recent bout of weakness.”

    “But how long will the US dollar remain strong this time round? It’s still clinging to the fantasy of a US economic recovery and a serious view that the Fed will be able to raise interest rates, even by a tenth of a percentile point.”


    Switzerland may be the last bastion of true democracy. The cantons and diversification of power and authority may be the key.

    a party such as Direct Democracy Ireland may yet provide a way for Ireland to regain its sovereignty and democracy and become a true republic. It is worth looking at.

    Grassroots democracy may alleviate to a large degree the entitlement mindset.

  8. Mike Lucey

    Direct Democracy is something that could easily be brought into play for Irish citizens with todays technology and its one of my hobby horses.

    It simply should just be brought BACK into the constitution again. I see no reason to back any particular political party to regain this safeguard.

    My other gripe is that way the EU Commission is elected. Its bad enough not having a say in who our Irish Government Ministers are to be let alone our overlords in Brussels.

  9. tomN

    Hi David – bit of a tangent from this article but I’d be interested to hear your view on the following question; why do we collect income tax from public servants? Isn’t it slightly illogical and expensive to collect money in tax, pay public service salaries from it and then collect a portion of it to put back in the same pot you’ve just paid it out of?

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