The Bold Martin O Donoghue

In the last issue of Magill, UCD economist, Paddy Geary, critically annalysed the Government's economic strategy. Here Martin 0 'Donoghue, the Minister for Economic Planning and Development, replies in the course of an interview with Magill.


I ACCEPT THAT THE economy has improved since 1975 but the rate of immprovement is quite inadequate to deal with the extent of the Irish unemployyment problem.

The fact is that over the years 1976 to 1986 the population is expected to rise by about 35,000 people and that all of this increase will occur in urban areas. These figures mean that 100 ,000 extra jobs will be needed in our cities and towns to cater for this growing population,. This is the measure of the job-creation problem for which we must plan and, in addition, we must find work for the 110,000 who are now unnemployed.

We have never faced a challenge of this magnitude in tJ:1e economic sphere before and therefore more adventurous policies are required than were preeviously contemplated. It means that we cannot sit back and congratulate ourrselves on a 4.5% growth rate - this just won't do. In order to make any appreciable impact on our unemployyment problem we must achieve a growth rate of around 7% per year. Of course this is unprecedented, but so too is the dimension of the challenge we face. Hence it is quite proper for us to engage on a once-off budgetary stimulus - and we always said it would be once-off.

I quite accept that it is not possible to engage again and again in major job creation through public sector employyment. We are committed to reducing the borrowing rate and therefore it is not possible for us to inject more funds into the public sector. However there is no question of reducing public sector emmployment in order to meet our borrowwing rate targets. I agree this means either more taxation or public expenditure cuts or at least restraint in the non-job creating areas, which are social welfare, health, housing and education. This was already hinted at in the Government's White Paper where it was stated: "It is the Government's intention to adopt the policy changes necessary to moderrate the overall growth of public expennditure in 1979 and onwards."

Again I agree that the challenge to the private sector is unprecedented, that it will require a trebling of the growth rate here over the next few years. But we are confident that this will occur. In the first place there is an unprecedented influx of foreign investment here. Secondly we have got to maintain our competitiveness abroad by holding down costs here and I believe that a Government with a clear sense of purrpose can achieve this. Thirdly, I believe that our "Buy Irish" campaign can have significant impact on industrial output. We haven't got this campaign going full steam as yet, there are still more developments to be announced and we anticipate that over the next few years this will have significant effect.

Fourthly, our improved marketing drive abroad can win us a larger share of foreign markets than we have enjoyed hitherto. True, recent studies have shown that our export growth is closely related to the buoyancy of foreign markets, but I believe that in spite of a slow rate of economic recovery in these external markets, we can improve our performance. After all our share of their markets is so tiny as to be almost unnnoticeable and an effort on our part could achieve considerable results for us without noticeably affecting these markets at all.

Through the IDA small business programme we hope to nurture the new generation of Irish entrepreneurs. Already there have been 5,000 applicaations for grants under this programme and even if only a minority of these come to fruition it will be a start of a new irtdustrial drive here. Incidentally the IDA reckons that 1,000 jobs will result in this year alone from this programme, so when it really gets going it should add measurably to our jobbcreation activity.

But don't forget the psychological impact our policies are having in the private sector. Here they have a Governnment willing to help them and to stimulate them. This creates confidence, which is the sine-qua-non for expansion.

Other countries have achieved the growth rates we have got to achieve over the next few years, for instance West Germany, Japan, even Cuba and the Soviet Union.

We can do likewise but we have to realise that we have either to go the road we are going on or go the Soviet or Cuban way. These are the only two options available to us and there can be little doubt which one the Irish people opts for.

While it is time that the present rate of reduction in unemployment would suggest that our target of an overall increase in the numbers of jobs of 23,000 would not materialise I remain confident that our projections will be realised. We targeted for an 11,000 inncrease in public sector employment, 5,000 in youth employment and 7,000 in building and construction. Only a fraction of the 11,000 public sector jobs have yet been filled, simply because of time lags. I have very little doubt but that this will be achieved by July or August. The youth employment proggramme is only now getting underway and we are examining how the increase in building activity has not resulted in decreases in the live register figures.

As for being able to influence our rate of inflation. We were foremost in pointing out that there was only a marginal influence we could have on this, but it is vital for us to appreciate that we exercise that influence and gain competitiveness on foreign markets. We have got to realise that by holding down living standards here for those at work we help to create more jobs and more pay packets. We will have to do this not just through pay restraint but we will also have to consider forms of work sharing, such as reducing overtime and thereby creating more employment.

The Green Paper which will be pubblished in June will provide a shopping list of job creation policies which we will have to debate and consider with the social partners and the people at large. It will not go into detailed sector sectoral targets as did the Second Proogramme, it will deal with basic policies on which agreement is essential if we are to achieve out targets.

Finally, Paddy Geary's criticism of our programme on the grounds that it is simply an exercise in demand managee·ment simply misses the point. We have been critical of this kind of approach in the past and the important thing to realise about our present policies is that this initial stimulus is merely the first leg of a rocket to launch us into the kind of growth plateau which is essenntial for the achievement of our employyment targets.

Gerry's analysis

AS THE ECONOMY was already growwing at a relatively rapid growth rate since 1975 and would have achieved a 5% growth rate in 1978 without budgeetary stimulus, it was contrary to the reequirements of economic stabilisation to engage in budgetary stimulation, especially through an increase in the borrowing rate.

The case for an expansionary budget in 1978 rests on two falacious grounds. The first is that the level of unemployyment justifies it and the second is that it is necessary to increase the rate of economic growth. However there is no reason to believe that these policies can significantly reduce the level of unemmployment: while the direct job creation policies will reduce unemployment in

1978, such policies can hardly be used repeatedly. As the Government is committed to a reduction in its borrowwing requirement from 13% to 10.5% of GNP in 1979 and to 8% in 1980 conntinued resort to a policy of expanding public sector employment under such circumstances would necessitate massive increases in taxation.

The Government therefore expects employment in the private sector to grow sufficiently rapidly to meet its unemployment-reduction targets - a reduction of 25,000 in the years 1978 to 1980. But the private sector would have to grow at approximately three times the rate it has done at times of most favourable external circumstances to achieve this, and now, in less

favourable circumstances, it is unnrealistic to expect anything like the targeted reduction in unemployment. The same kind of argument applies in the case of the Government's targeted 7% growth rate in GNP.

There are other reasons for being critical of the Government's policies. The bias towards personal consumption through tax concessions is more likely to result in higher imports than in greater demand in home-produced goods. The Government's suggestion that we can significantly affect the rate of inflation here is false, the inflation rate is determined almost entirely by external factors and, unless we break the link with sterling, especially by what happens on the British economy.