Manifest disagreement

One of the central issues in the forthcoming general election campaign will be the management of the economy by Fianna Fail. This debate has already begun in Magill with a review by UCD, economist Paddy Geary, which concluded that the strategy was reckless and certain to lead to balance of payments difficulties and huge foreign borrowing. The author of this strategy, Martin O'Donoghue, defended the policy in the last issue of Magill, pointing out that nobody else came up with an alternative proposal on how to deal with the mammoth employment creation problem. Paddy Geary now replies to O'Donoghue.

In Dr. Martin O'Donoghue's occasionally desperate defence of Fianna Fail's 1977 Election Manifesto, he accuses me of rewriting history.

 In the first six months of 1977, the output of Transportable Goods Industries, which had been increasing since the third quarter of 1975, rose by more than 4 1/2 per cent (seasonally adjusted). This represents an annual growth rate of more than 9 per cent. The average growth rate in the relatively good years of 1967 - 1973 was 6.7 per cent. The Annual Report of the Central Bank, dated April 26, 1977 forecast a growth rate of GNP of around 4 per cent for the year. The economy was not in recession in mid 1977.

 Even if O'Donoghue was unaware of this at the time, he can scarcely plead ignorance of the state of the economy in January 1978, when, as he knows and as I mentioned in my article, the first stage of the Manifesto strategy was implemented. By then it was estimated that the growth rate of GNP in 1977 had exceeded 5 per cent; industrial output had risen in the last quarter by 4 per cent (implying an annual growth rate of over 16 per cent). To introduce a highly expansionary budget when the economy was performing in this way was reckless.

 The fact that unemployment was falling slowly was the usual defence of the aggressively procyclical stance of the 1978 budget. This brings up another of O'Donoghue's points. He now claims that because the revised employment data show an increase in the number at work of 82,000 between April 1977 and April 1980, the Manifesto employment targets were exceeded. The targets, it will be recalled, were for unemployment reductions, not employment increases, of 20,000 in 1978,25,000 in 1979 and 30,000 in 1980. With a growing labour force, this implied much bigger employment targets.

In the second half of 1977, the' newly elected Fianna Fail Government made only minor revisions to the Coalition's last budget. Thus, O'Donoghue can hardly expect to be taken seriously if he claims that the employment increase in the last nine months of 1977 was due to a strategy which was implemented at the end of January 1978. While anticipations of growth can affect employment it would seem to be extremely far fetched to claim credit for all of the increase from mid-April 1977, yet this is what O'Donoghue has now done.

 The revised employment figures indicate that there was a large increase in employment in 1978, probably more than 35,000. But they also indicate that the increase in 1979 was smaller and the rise in unemployment last year promises a fall in 1980. Further the revised data do not suggest that in the calendar years 1978-1980 employment will be found to have risen by 75,000. Thus even if the later reinterpretation of the Manifesto targets as referring to employment were accepted, what actually happened in 1978-80 was a far cry from what was envisaged in the Manifesto.

It should be noted that the revised data provides no support at all for the notorious figure of 160,000 out of work in 1977 which appeared in the Manifesto. Neither do they support the claim that the Manifesto's unemployment targets were even approached.

 The employment increases which occurred prompted Martin O'Donoghue to say that "if there has been any movement away from the targets for reduced borrowing, it is not because of the job creation commitments of the Manifesto." The alert reader will note the use of the word "if". But in that case, why were the borrowing targets abandoned in 1979 and 1980?

O'Donoghue's defence of the boost to personal consumption which the Manifesto policy involved ignores the fact that it was implemented in 1978; in that year the volume of personal consumption rose by more than eight

per cent. Would that our living standards could always be "protected" in this manner.

 On the balance of payments issue, it is true that in 1978 the current deficit at about £130 million was less than expected. But the process of deterioration had started, as an examination of the trade figures shows, and a sharp deterioration was forecast for 1979 before the extent of the oil price increases in 1979 was known. It is simply misleading to say that the balance of payments position in 1979 and 1980 was "largely due to the Iranian oil crisis".

As for the claim that the "buy Irish" campaign was evidence of a recognition of the risks for the balance of payments in the Manifesto strategy, one would have hoped for a more acute awareness of the distinction between justifiable optimism and wishful thinking.

When a strategy runs into difficulties there are a number of ways of reacting. One, which Martin O'Donoghue adopts, is to argue that it is not the strategy which is at fault and that what is needed is more effort in the same direction. Another is to argue that there are major problems inherent in the strategy and that it should be discarded.

The Manifesto strategy involved an intended once-for-all increase in Government borrowing which would generate sustained growth and allow borrowing to be reduced. The success of a strategy like that would require, at the very least, the best outcomes in the best of an possible worlds. No politician is entitled to expect that; it is a dangerous basis for policy making.

The ultimate challenge to politicians in the current state of the economy and the public finances is to avoid presenting the electorate with such policies and instead to take on the more demanding, less exciting task of informing them of the economic barriers to the achievement of their under

standable aspirations.