Big Government Ignorance

UnemployedPatricia Callan, Director of the Small Firms’ Association, recently spoke before an assembled crowd during an event at which I was in attendance. She made an extremely valid point, that the unemployed in Ireland at the moment for the most part are not lacking skills.

Rather, unemployment during difficult economic times (especially due to faltering competitiveness) can often be characterised by people signing onto the Live Register with impressive skill-sets. This is the phenomenon in Ireland currently. The problem is that these people are unable to find jobs that suit them, because companies are cutting costs and reducing expansion.

Thus, government programs that spend so much money retraining and reskilling workers are, at the moment, not what is needed. In fact, they represent a dangerous misallocation of resources given the budgetary crisis. Under different circumstances (for example, unemployment caused by economic reorientation), these programs could be valuable. They could even be efficient where the taxpayer would otherwise be making substantial payments into welfare programs.

It might not be popular. FÁS has for long been a popular tool that demonstrates the government’s commitment to helping everyone in the state get a qualification and a job. However, it does not solve any of the problems that the country is currently experiencing.

It was also not hit nearly hard enough in the supplementary budget. The government needs to realise that most people in the country wouldn’t notice if FÁS suffered a substantial drop in funding. Their refusal to do so, coupled with their extension and continuation of programs such as the “Back to Education” Allowance, represent a misunderstanding of the root of unemployment in Ireland at the moment – and the route towards returned competitiveness.

As noted elsewhere, active labour market policies can be extremely effective in getting people back to work. However, needlessly spending money on qualifications that will not add to Ireland’s productive capacity in the short-term, when considering the exigencies of budgetary policy, is downright irresponsible. In times of high unemployment, that is precisely what most of this spending represents.

It would appear that the government’s recent decisions were made to balance political considerations, and accounting requirements. Such decisions will be regretted, as unemployment languishes in double digits in the future and wage levels are creeping only slowly downwards. This capital, financial and political, should be employed in the encouragement and facilitation of enterprise.

© The Free Marketeer 2009


5 Responses to Big Government Ignorance

  1. platondas says:

    I think your last sentence deserves further exposition. How do you recommend that the government of Ireland encourages “enterprise” are you suggesting that the government should adopt a role as a Venture Capital firm funding new ideas? Venture Capital is generally a very difficult field to be effective in, this is why it is generally done separately from other investment. Perhaps it is just my distrust of the effectiveness of government but I fear a VC movement by the government in order to restart the economy would result only in failing and politically motivated corporations.

  2. thefreemarketeers says:

    You’re right.. The topic probably deserves significant discussion. There are a couple of examples from past policy. During the economic boom, Ireland had the lowest restrictions on inflows of foreign direct investment of any OECD country, and actually gave grants to multi-national corporations that located here.

    Unfortunately, the burden of tax imposition is starting to show. Even though recent tax increases seem inadvisable in the current economic climate, the government has instituted them as a means of convincing lenders that their money is safe.

    Many of the policies that have arisen in the latest budget will only serve to hasten the exit of many companies from Ireland and damage our position in the long-term. This will make it significantly more difficult for Ireland to get back on its feet, if and when wage levels return to acceptable heights in that industry.

    I wasn’t so much suggesting that the government engage in venture capitalism, as suggesting that the finance associated with the dead-end projects discussed be redeployed as tax expenditure and any capital investment that increases the future wealth-generating potential of the economy.

  3. informationsecretary says:

    A quick glance at today’s RTÉ website shows the majority of unemployment is coming from low skilled labour, exactly the people who will need FÁS. I think the distinction between now and before is that all skilled workers had jobs, but I don’t think a cut in FÁS funding is beneficial to anyone. The manufacturing jobs we’re losing are never coming back; at the very least, the affected workers need retraining, if not upskilling.

    I was disappointed with the lack of focus on small enterprise in the budget. It seemed a no-brainer to me.

  4. thefreemarketeers says:

    Interesting. Since the skilled workers that have lost their jobs represent the most productive group potentially, the arguments in favour of diverting finance towards creation of their jobs still stands. Furthermore, any boost for employment of skilled labourers will have an effect on the rest of the economy and generate jobs for the low-skilled labour.

    I don’t think it’s necessarily a given that the type of skills possessed by people that are losing their jobs in the current climate are definitely not coming back. Considering that these jobs were attracted here during the economic boom, it could be the case that this type of industry could return. Although there’s more competition from low-cost economies with good education systems in Eastern Europe, etc. Ireland’s superior productivity and business-friendly environment could edge out the added cost of labour (which will hopefully fall after sustained period of unemployment).

  5. thefreemarketeers says:

    Constantin Gurdgiev agrees that state training schemes are largely wasteful of taxpayers’ money, but refuses to reduce welfare. Instead, he advocates “work-for-welfare”, in more words, as a better option.

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