Colm’s columns

Colm Rapple
Irish Mail on Sunday, November 31, 2008

Even on the basis of the most pessimistic economic forecast we’ll be producing 10% more wealth next year than we did in 2005. And even if the number at work falls by 100,000 in 2009, as some commentators fear, there’ll be more people at work than there were in 2005.

So let’s think of the economic glass as being half full rather than half empty. The outlook is not quiet as bad as some would have us believe. Of course, it’s not good. We will be producing less wealth this year than we did in 2007 and less next year than we will this year. But the expectation is that by the end of 2009 the world economy will be on an upward trend again and there is no reason to believe that we will not be able to trail along on its coat tails.

The OECD, an economic think-tank whose membership comprises thirty of the more advanced economies in the world, was this week forecasting a steady pick-up in economic activity from the second half of next year. That growth is expected to be led by a recovery in the U.S. but closely followed by a quickening growth in the euro area.

Gross domestic product (GDP)  in Ireland is expected to decline by 1.8% this year and by a further 1.7% next year. GDP is a measure of the wealth produced in the country so, if those forecasts prove accurate, we’ll be producing about 3.5% less wealth next year than we did in 2007.  But with the upturn in world trade, a recovery is expected to get under way towards the end of 2009 with output growing by 2.6% in 2010.

Some commentators view those OECD forecasts as over optimistic. Some expect GDP to fall by as much as 2% this year and a further 4% next year.

That’s a sharp downturn but it must be set against the growth of previous years.

Output grew by a little short of 6% in 2005, by a little more than 6% in 2006 and by over 4% in 2007. So output in 2007 was some 16% higher than it had been in 2004 and 10% more than it was in 2005.

If it falls by 6% between this year and next we’ll still be producing some 4% more wealth in the country than we did in 2005 and 10% more than we did in 2004. And the OECD is putting the downturn at only 3.5%, not 6%.

But even if the downturn is greater than the OECD expects, and output does fall by 6%, we’ll still producing more wealth next year than we were in 2004 or 2005 — years when we didn’t consider ourselves particularly poor. Of course, the next eighteen months will be painful for many and there is always the danger that the world economy won’t recover as quickly as the OECD and other commentators expect. But we do need to recognise how far we have come in recent years.

National income has grown 77% in real terms over the past ten years. That’s after adjusting for inflation. We’ll actually be producing 93% more wealth this year than we did in 1997 but a larger proportion of that is attributable to the foreign owners of the multinationals operating in Ireland. But even allowing for that the wealth attributable to Irish residents, GNP, is up 77%.

The population has also increased, of course, but GNP per head is up 51%. We are a lot better off and, if the OECD predictions prove correct, the medium term outlook is reasonably good.

Earlier this year, before the world financial crisis hit home, our own economic think-tank, the ESRI, was predicting a slowdown this year and next followed by a return to steady economic growth up until 2015 of about 3.5% to 4% a year. The slowdown has become a downturn and future economic growth may, at first, be somewhat lower than originally forecast, but there is no reason to believe that, if the world economy recovers, Ireland will not also get back on a steady growth path.

The ESRI expected some reduction in net immigration, down to about 10,000 a year from the 70,000 a year of recent times. But even with that reduction it foresaw the need for some 48,000 new homes each year.

That forecast undoubtedly still holds true unless there is a return fairly large scale net emigration. That’s possible, of course, but not very likely if  the world-wide measures being taken to stimulate economic activities are successful. As the financial markets return to normality, the demand for homes will translate into actual purchases and the current overhang of empty properties should quickly fade away.

Prices may be slow to recover but there will be a need for more new houses and with it a recovery in building activity.

Of course people feel poorer. Their homes have decreased in value as have investments and the value of pension funds. Those who lose their jobs, or who are put on short-time or lose overtime earnings or bonuses are going to suffer a real drop in income over the next year or so. Their pain shouldn’t be underestimated but the bulk of people will keep their jobs and may even get modest pay increases.

It’s worth repeating that, even on the basis of the most pessimistic forecasts, national income next year will be higher than it was in 2006, the economy will be growing again by the end of the year, and after that, the outlook is good.

Colm Rapple
Irish Mail on Sunday November 9, 2008

The Irish consumer is being short-changed again. So what’s new? Nothing you might say. We have grown used to it. But this time the culprit is the Government, although that’s not particularly new either. Consumers have been ill served by successive governments in the past so we shouldn’t be surprised at another anti-consumer development, the proposed merger of the National Consumer Agency and the Competition Authority.

It’s not a new idea. It’s an option that was considered by at least three high-power expert groups in recent years. They all advised against it. Now it is being foisted on the consumer on the pretext of a cost saving exercise. But it’s unlikely to shave more than a couple of million off the Government’s budget and the potential cost to the consumer greatly exceeds the potential savings.

The National Consumer Agency was only formally established eighteen months ago although it existed in an embryo form for a year or so prior to that as it assumed the functions of the old Office of the Director of Consumer Affairs.

It was heralded by the Government as a major advance in consumer protection but the Agency has far fewer powers and less teeth than was originally recommended by the Government appointed Consumer Strategy Group. It’s recommendations were initially watered down by a committee of civil servants each representing the sectional interests of their own Departments and client businesses. Then they were further emasculated in the drafting of the legislation which brought the Agency into being and the strong recommendation that it remain a totally independent body, is now to be set to naught.

The Consumer Strategy Group examined the possibility of combining a consumer protection body with the Competition Authority but came down strongly against it. It recognised the “possible” cost savings that might arise (and it’s use of the word “possible” was no accident) but it foresaw major disadvantages.

Competition policy on its own, it said, is not the solution to all consumer problems. It needs to be complemented by a range of advocacy and promotional activities. It expressed a fear that consumer issues would receive lower priority in a combined organisation.

A similar view was expressed in an internal analysis compiled by the Department of Enterprise, Trade and Employment whose remit covers consumer protection. Merging a consumer agency with the Competition Authority would not be the best way of “achieving a dynamic and forceful consumer policy”, it concluded, stressing that the “new Agency must be independent with a core statutory mandate to raise the profile of consumer issues and to present a strong consumer voice”.

Mind you that didn’t stop the Department rowing back significantly on the original Strategy Group’s recommendations.

The Agency’s ability to impose on the spot fines for breaches of consumer law was limited to failures by pubs and filling stations etc. to comply with price display orders. It wasn’t given the power to seek closure orders against errant companies and rogue traders.

More importantly perhaps, in the light of the current proposals to yet again raise gas and electricity prices, the Agency wasn’t given the right to challenge decisions of other regulatory authorities such as those overseeing energy, transport and telecoms even in matters of major consumer interest.  The Strategy Group strongly recommended that the Agency be given such powers but all the existing regulators were represented on the civil service committee which decided against it.

Particularly interesting in the light of this latest merger proposal was the decision to stymie the Strategy Group’s proposal that the Consumer Agency be given the right to order the Competition Authority to carry out market studies if consumers were believed to be suffering from anti-competitive behaviour.

Who’s going to call the shots when the two organisations are merged? The likelihood is that the consumer agency will be the one to lose out.

The Consumer Strategy Group estimated that consumers are losing over €800 million a year or over €200 per person each year simply as a result of purchasing faulty goods and unsatisfactory services.   The actual cost per head is considerably higher when account is taken of the losses due to excessively high prices.

It’s obvious that an effective consumer protection strategy can yield a very high return.

It’s not as if the National Consumer Agency is costing a lot of money. This year it has a budget of €10 million. The Competition Authority with which it is to be merged is getting by on €6.8 million, presumably because of its narrower and far less public remit.

The Government hasn’t said how much it hopes to save from the merger. But it can hardly be more than a couple of million. Both bodies have separate budget allocations for next year with a combined cut of €1.8 million but it’s not clear if that assumes some merging of functions or simply a trimming of their existing separate operations.

Either way it is clear that the potential savings are minuscule while the proposed change flies in the face of all the expert advice. If anything there is a case for further strengthening the role of the National Consumer Agency, reasserting its independence and giving it some of the extra powers originally recommended by the Consumer Strategy Group.

Stronger laws combined with resources necessary to enforce them would yield returns more than sufficient to cover the additional costs. The Government is being cent wise and euro foolish.