After a bit of a break from blogging for a variety of reasons (not least getting married!), an invitation to speak at this year’s Parnell Summer School provided the perfect opportunity to find my voice again. Based in Parnell’s family home, in Avondale House, County Wicklow – one of the most picturesque spots in arguably Ireland’s most picturesque county – the annual Summer School builds on the memory and works of Parnell. This year being the centenary of the Home Rule Bill, the theme was ‘Sovereignty and Society’ particularly in light of all that has happened in Ireland in the last five years.
I took the opportunity, during my lecture, to outline what an economist thinks of the concepts of (economic) sovereignty and society. In particular, I argued that I felt that the concept of economic sovereignty was one that was significantly over-valued, while society was a hugely under-valued concept.
Sovereignty is over-rated
In short, my argument in relation to sovereignty is just specialisation and the division of labour recast. People happily cede sovereignty all the time to give themselves a better future. No-one tries to build their own home or produce all their own food. They pool their sovereignty in a community where these tasks are shared and so are better done. Perhaps a clearer analogy is when an individual borrows to further their education or a household borrows to buy a new home. These are decisions that immediately subject that person or family to scrutiny, in relation to spending and lifestyle patterns and plans for the future. A lender has taken some of the borrower’s “sovereignty” – and yet, the borrower is happy to pay that price, because they want a better future. And if you put yourself in the shoes of the saver, giving your hard-earned savings over to someone else, it’s not hard to see why saver-lenders want this scrutiny.
This works at the level of the country, too. No country has ever provided a high standard of living for its citizens by abstaining from investing in its future, and investment involves large-scale borrowing. So, as soon as we want what’s best for our community, straight away we should be prepared to yield some of our “independence” to deliver it.
Quite why there is such a fuss about lost sovereignty because Ireland is currently borrowing from ‘our mates’ (the other countries that make up the EU and IMF) at preferential rates, rather than borrowing from the international capital markets is beyond me. No matter who we borrow from, mates or markets, we will need to have a fiscally responsible set-up for them to do so. And the Irish Government spending €20bn more than it takes in in revenues is not fiscally responsible by anyone’s measure.
Society is under-rated
In relation to society, it’s my firm belief that the policy-making in Ireland – and indeed in most countries – systematically under-values society, which comprises market and non-market activities. Non-market activities are sometimes free (friends and family, for example), often not (roads, coastguards and primary education cost resources, for example) but inevitably, they are not included when we take stock on an annual basis.
This is not to suggest for a minute that we should scrap GDP and measure happiness instead. This would be to subject public policy to the vagaries of human sentiment, vagaries that only just being understood by behavioural economists and psychologists. Instead of scrapping using dollars and cents to guide our decisions, we should extend the principle to include non-market activities. After all, “priceless” to an accountant means zero. Let’s replace those zeros with numbers.
The related issue with how society divides out its resources is the lack of any connection between how money is raised (in large pools such as VAT, income tax and PRSI) and how money is spent (in large pools such as health, education and social welfare). Thus, when spending cuts have to be made, they are only ever done in reference to the costs of a particular public service, never its benefits.
Changing these resource allocation decisions so that they are based on the return enjoyed by society on money spent – and not just on the amounts spent – is the single biggest challenge for public finances in the OECD over the next generation, in my opinion. There’s no reason Ireland can’t be at the forefront in developing proper accounts for public spending.
The slides I used at the Summer School are available on SlideShare and are embedded below.
What price freedom?
The lecture I gave was the preamble to a panel discussion about economic sovereignty by Richard Boyd Barrett, Paul Murphy (Socialist MEP), IBEC’s Brendan Butler and Pascal Donoghue of Fine Gael. I’ll post my thoughts on that later in the week. To give that post a bit of steer, though, I’ll finish up with a little poll.
Suppose we knew for definite that not giving up some of our economic sovereignty (inter alia, ability to choose tariffs, exchange rates, interest rates or taxes) meant we’d have a lower income than doing so (this is in fact the assumption implicit in any country joining the EU). If average income missing some sovereignty was €40,000, how much of that would you be willing to pay to retrieve that sovereignty back? Zero means you’re not particularly bothered by sovereignty – perhaps things like peace and prosperity are more your bag. At the opposite end, clearly, an answer of 100% means “freedom at all costs”!