Turbulence Ahead

The Invisible Hook

2009-12-07T21:10:00.006Z

Markets abhor a vacuum, which is one reason why piracy is doing so well these days. Did you know that:

Somali pirates have established a stock exchange in Haradheere to raise capital to fund their piracy. It seems to be quite an enterprise. Financiers from near and far are investing. Shares are traded just like on Wall Street, and 10 of the 72 so-called “maritime companies” currently listed have conducted “successful” (presumably meaning profitable) hijackings.

That's according to a fascinating article on the economics of Somali piracy. Piracy has been around for a long time and is probably one of the, er, oldest professions of a collective nature. And there is something admirable about their organisational abilities, even if in the end they are just crooks. As Peter Leeson explains about his book The Invisible Hook in a fascinating interview over at EconTalk, the pirates of old showed remarkable organisational skills in organising their affairs so that piracy was a positive sum game (for pirates that is) rather than deteriorating into pirate-on-pirate violence.

And not all piracy involves speedboats and RPGs these days. There is clear evidence that 'piracy' of digital content is increasingly accepted by young people around the world, regardless of the consequences. And the recession appears to be making it worse.

Here is Ireland we haven't had many pirates since the exploits of Granuaile. But their second cousins - smugglers - are still thriving, as witness the huge shipment of 120 million illegal cigarettes seized in October.

But there is an economic cycle to smuggling as well as to piracy. And a 'piracy bubble' may be at hand judging from developments in Somalia:

One woman interviewed in the Reuters report was waiting at the stock exchange to collect her share of a ransom collected from a Spanish tuna fishing vessel. She had contributed a rocket-propelled grenade that she got in alimony from her divorce. “I have made $75,000 in only 38 days since I joined the ‘company’,” she said.

Of course if they ever want to go legitimate and buy some cheap Irish properties with their ill-gotten gains then I'm sure NAMA could help them. The sooner the better for all concerned.

The Celtic Leopard

2009-12-06T20:04:00.003Z

The Sunday Business Post today reported on my article in the latest issue of the Irish Banking Federation's About Banking entitled: The New Normal - Why Personal Banking Will Never Be The Same Again (pages 9-11).

I suggest that Ireland's banks are like Fabrizio, Prince of Salina, in Giuseppe di Lampedusa's one and only novel The Leopard. They are on the cusp of a new era: driven in the short run by our economic crisis and in the long run by less favourable demographic trends.

Though perhaps an opportunity for a budding Don Calogero, the Prince's bourgeois nemesis in the novel.

Tie Ulysses to the mast

2009-12-05T10:21:00.004Z

The Government's negotiators need to put wax in their ears. The public sector pay debacle is a classic example of conflicting time preferences. On the one hand there is the short term promise of no public sector strikes if the government cuts a deal on unpaid leave. On the other, there's the long term need to secure fundamental, structural changes to public sector pay arrangements that will undoubtedly entail serious industrial conflict. Fragile peace at a price now or secure peace at a cost in the future?

David Eagleman explores this dilemma brilliantly (I've mentioned his delightful book Sum before):

After all, no one likes to wait. And the only thing worse than waiting is waiting with uncertainty. A team at Emory University examined what happened when people waited for an impending electrical shock. Some people dreaded the shock so deeply that they chose to receive a more powerful shock earlier rather than wait for a lesser shock to arrive at a later, random time.

One of the key jobs of the human brain is to simulate the future, and the less information it has to work with, the more anxious it becomes. Pinning things down in time makes waiting less troubling. With a clear idea about the order and timescale of events, people are more patient and less anxious.

Doing a deal on unpaid leave has the attraction of getting the shock over with, or so it might seem. But there's a bigger problem, as Eagleman points out:

It’s simply that the present holds more sway than the future. Recently, researchers used brain imaging to monitor people making money-now-or-more-later decisions, and they discovered that the neural networks involved in short- and long-term decision-making are fundamentally separate. In situations of choice, the two systems are often locked in battle against one another.

... People manage the influence of the short-term systems by proactively binding their future options. We see this when a person in good health signs an advance medical directive to pull the plug in the event of a coma, when an alcoholic rids the house of drink to avoid future temptation, or when a person socks money into a Christmas account to keep himself from spending it before December.
Such deals with oneself are what philosophers call Ulysses contracts, after the hero who decided in advance to lash himself to a mast to resist the sirens’ song. The present, calm Ulysses was negotiating with his future, more emotional self.

I think that is part of the extraordinary anger that we witnessed earlier this week in response to the government's apparent capitulation to the public sector unions on unpaid leave. The people of Ireland have in their own minds made a Ulysses Pact with themselves - we'll take the pain in the form of taxes, pay cuts, NAMA and the like so long as there's a binding commitment to secure the benefits from same for all the people in the future.

That anger seems to have caused the government to rethink its stance. Just in time: we're getting very close to the island of the Sirens. Put wax in your ears and tie Ulysses to the mast. And ignore, if you can, their haunting music ...

Family Failure is the Health of the State

2009-12-04T17:16:00.005Z

We Irish don't invade countries, a fact I'm rather proud of. For some other nations war is the health of the state. But not for Ireland. Nor for most European countries these days. So if it isn't wars and armies and the permanent threat of 'the other' that justifies a stronger state, what does? The answer is obvious: family failure.

The chart is from the recent Demos report on Building Character which argues that 'style of parenting' - and the impact it has on children's characters - trumps everything else in determining the lifetime success of children. More important, apparently, than how many parents you live with, or even if they are your biological parents. The chart would suggest that actually these things do matter, but are dismissed by the authors with the observation that:

Figure 4 shows that children with married parents, both of whom are the child’s biological parent, do best in terms of outcome scores. This group is around twice as likely to be in the top 20 per cent of child outcome scores as are children from lone parent families or step-parented families. Conversely, children with married parents are only half as likely to be in the bottom 20 per cent of child outcomes as are children with lone parents or step-parents. Children with cohabiting parents do worse than those with married parents but better than those with lone
parents or step-parents.

Sort of seems obvious really; two parents potentially means two incomes which is, er, twice as many as one parent. But apparently not:

However, when we control for other characteristics – namely parental style and parental confidence – the relationship between family structure and child outcomes disappears almost entirely. The only remaining correlation is a small difference between married parents and cohabiting parents (probably because marriage is serving as a proxy for more stable and happy partnerships). Crucially, the outcomes for children of lone parents and step-parents are explained by the differences in other family characteristics such as parental confidence and self esteem; being a lone parent or a step-parent does not adversely affect child outcomes in itself.

Which sort of sounds like it's the parents fault don't you think? Indeed, Demos approvingly quotes Professor Stephen Scott as observing that:

Poverty is a factor, but not a central one… I am fond of saying poverty of what? And actually it seems to be poverty of the parent-child experience… that leads to poor child outcomes rather than poverty of a material kind.

Or as the Demos authors explain:

A rich research literature demonstrates that healthy psychological development requires nurture, affection, intellectual stimulation, security and stability. These vital ingredients of a good start in life can of course be provided within any family form. However, there is some evidence that lone parents and cohabiting couples do less well in terms of child outcomes than married couples.

But the causal factors at work here are not straightforward. An analysis undertaken by Kiernan of the MCS found that family status was only very weakly associated with children’s development, once other factors – like poverty, maternal depression and so on – were controlled for.

Which does rather beg the question whether family status and structure might actually have caused the poverty? Jennie Bristow has a few concerns with this. As she notes:

What is striking about this is not only the blithe assertion that all manner of social inequalities and life problems can be obliterated by parents simply setting a few house rules for their toddlers. It is the reduction of a child’s moral development, the building of character that takes place over the course of childhood within a distinct cultural context, to a particular parenting style that results in clearly observable attributes amongst five-year-olds.

Worse, we are told in the technical appendix to the Demos report that the children's behaviour and development they are supposedly measuring is actually based on the opinions of (mainly) their mothers in the survey. Not on any observed behaviour itself. Seems a rather weak basis to dismiss family structure as a significant influence on children's development.

But what has all this to do with the State? Lately I've been sounding like Mr Maguire in The Graduate whose career advice to Dustin Hoffman is just one word: Plastics. Only my advice to young people contemplating their future career options in Ireland is just two words: Family Law.
My advice is inspired by the less than inspirational Civil Partnership Bill. And I'm not referring to the first part of the Bill dealing with gay couples - which seems to be getting most (or make that all) of the airtime during the current debate.

No, my concern is with Part 15 dealing with Cohabitants from clause 169 onwards. As I've noted before, we are sleepwalking into a legal, social and economic disaster without any consideration or awareness. Though some legal professionals are finally beginning to take notice. The legislation purports to extend some of the same 'certainties' to cohabiting couples currently enjoyed by married couples. Only they are the certainties that go with the couple breaking up, not staying together. The bill means that any young man or woman cohabiting as a heterosexual couple for more than three years (two if they have children) are legally liable to have to share their incomes and wealth with the other partner should he or she decide to split up. Do you see the career opportunity here folks?

The gay partnership issue is something of a diversion (though a serious issue in itself). The reality is that the number of gay couples availing of the legislation will be trivially small. Just look at the experience of Northern Ireland whose Registrar General has just reported that in 2008 only 86 same-sex civil partnerships were registered in Northern Ireland, down from 111 in 2007. As I keep saying, gays are a tiny minority of the population and only a minority of gays will want to marry/form a civil partnership if the experience of other countries with gay marriage is anything to go by.

Contrast that with the incidence of cohabitation. According to the 2006 Census, there were 77,781 cohabiting couples without children, and 43,982 cohabiting couples with children. In the UK and USA, cohabiting couples are more likely to break up than married couples, and also more likely to break up if they have children. All of which means that the Civil Partnership Bill will entail more work for the courts, for social services, and even for the Gardai. A healthier State indeed.

But I could be wrong: maybe it's the final phase of the gender war and men have finally won? That's according to one tongue-in-cheek explanation anyway.

Family Law: it's going to be (even) big(ger).

Val Falvey TD for Taoiseach

2009-12-02T08:20:00.006Z

Will Val Falvey, TD do to the Irish political establishment what Father Ted did to the Irish Catholic Church? There are some interesting parallels: in Father Ted, Ardal O'Hanlon plays the part of a bumbling, not-quite-sure-why-he's-there character, partnered by a wiser, more cynical sidekick. In Val Falvey TD, Ardal O'Hanlon plays the part of a bumbling ...

The parallels may not stop there. Father Ted made us laugh at the surreal pomposities of priests, bishops and a hierarchy only interested in serving their own interests. But eventually we stopped laughing and started demanding an end to the cover ups and lies that hid an anything-but-funny cesspool of criminal behaviour. With Val Falvey TD we get to laugh at the surreal pomposities of TDs, Ministers and a hierarchy only interested in serving their own interests ...

Which brings us to last night's extraordinary capitulation by Brian Cowen TD at the negotiations on public sector pay. There is now only one logical outcome: the taxpayers of Ireland will be screwed even more than was planned already. Not that logic has ever played much part in Irish politicians' dealings with the public sector. Val Falvey TD would have done a better job.

You heard it here first: Val Falvey TD for Taoiseach.

(You can catch up with the first two episodes on RTE Player by the way).

Good Debt, Bad Debt

2009-11-30T19:40:00.005Z

The latest statistics from the Central Bank (table B2.2) show a continued contraction in lending to businesses (or should that be borrowing by businesses?) Should we worry? As I've noted before, sometimes the wisest thing in business is not to lend/borrow - even when the money is available.

But it begs the question: are we in danger of over-shooting as we swing from credit bulimia to debt anorexia? It's happening in the UK too, as reported in the latest Bank of England report on individual lending showing that consumer credit is now contracting.

We can learn lessons about business lending from the UK as well. Take the recent (and excellent) CBI report on The Shape of Business - The Next Ten Years. In relation to the banking crisis it has this to say about business banking:

The legacy of the credit crunch is expected to have significant implications for the cost and availability of bank finance for a considerable period. There are a number of reasons for this:

• There will be increased scrutiny and regulation of the financial services industry. Such regulation is likely to constrain banks’ ability to take as much risk in their lending practices as they did prior to the credit crunch, which will impact businesses’ ability to access credit.

• The capacity of the banking sector has reduced considerably as foreign banks have withdrawn from the UK corporate lending market. During 2007, they accounted for around 60% of the growth in lending to UK businesses. These lenders are not expected to return in such significant numbers, so the aggregate supply of credit available to businesses will remain constrained. While foreign banks were more frequently used by large businesses compared to small and medium size enterprises (SMEs) (85% of which use one of the big four banks), the impact of reduced capacity in the banking sector is likely to affect all businesses seeking finance as lending to large businesses by UK banks will displace some lending to SMEs.

• Bank lending will also be constrained during the lengthy process of balance sheet repair, with capital diverted for some time.

• Finally, the mis- and under- pricing of risk which characterised the period leading up to the recession has already been reversed, and is unlikely to be repeated by the next generation of market participants who were witness to these mistakes. Tighter due diligence requirements and higher borrowing costs for businesses will be the result.

Ditto Ireland. This can only mean less business lending/borrowing for the foreseeable future. As the CBI report notes:

Given these trends, the coming decade will see companies operating in a climate in which the availability, cost and degree of freedom to use capital is more constraining than in the recent past. This is expected to have an impact on companies’ finance strategies and may lead them to seek alternative sources and types of capital.

Worse for Ireland, too much of the commercial borrowing that was undertaken during the boom was to acquire assets that are not only worth a great deal less than the monies borrowed, but are failing to generate any revenue whatsoever to fund borrowing repayments. Dirk Bezemer has written brilliantly about this, here he is in FT:

Lending to the real sector is self-amortising: it creates a debt, but also the value-added to repay principal and interest. Such loans enlarge the economy in proportion to the debts created and are financially sustainable. By contrast, loans to create or buy financial assets and instruments are not, by themselves, self-amortizing. In a credit boom, successive owners may sell the asset at a profit, but their buyers will have to shoulder proportionally more debt in order to acquire the asset, balanced (for the time being) by the asset’s value. Asset trading may be individually profitable; but it is a zero sum game, sustainable only if the real economy furnishes enough money to support the rising debt burden. Beyond a point, the lure of capital gains diverts funds from real-sector investment, and households’ rising debt-service cuts demand for real-sector output. In both ways, excessive growth of financial asset markets is self-defeating.

He argues in his paper This Is Not A Credit Crisis that part of the solution to the overhang of malinvestments we now face is to shrink the financial sector. Here he is again:

Not all that long ago, the US economy did well with a financial sector only a third of its present size. Do we really need all of the other two thirds?

We should move away from supporting finance in toto. The new policy should be limit support to banks that serve the real economy. If some of the other financial firms specializing in asset price manipulation go bust, this will not the end of the world. This, after all, is what bankruptcy is for. It is a legally acknowledged and orderly debt workout mechanism and the natural consequence of commercial overexposure. Inevitably, there will be collateral damage to investors among firms, households and pension funds. To the extent that this has real-sector repercussion via falling demand and incomes there should be provisions to compensate. This may be financed out of the liquidity withdrawn from today’s blanket bank support, so it need not come at an extra cost. Most importantly in the longer term, this policy will allow the debt overhead - and the speculative part of the financial sector - to shrink back to more normal levels. This latter objective is important and is not achieved under present policies.

Eventually Irish businesses will identify new opportunities for the profitable production of goods and services that will justify borrowing money to invest in their realisation. Let's hope the banks have recovered sufficiently from their bad lending decisions of the past so as not to stymie good lending opportunities in the future.

Crushing Consensus

2009-11-27T16:56:00.004Z

The Taoiseach is worried that 'overwhelming negativity' is bad for the economy and bad for the nation. And now I'm worried. The last time a Taoiseach fretted about people talking down the economy it was followed by the worst recession in living memory. And we're still in it. As leading indicators go this one is pretty scary.

It's in the nature of politicians everywhere to take credit for success and to blame others for failure. Ireland is no exception in that regard. But what is exceptional in Ireland is the political and cultural energy that goes into maintaining a consensus. Not so much 'cosy' as crushing. I think it's symptomatic of the deathly inertia of the Irish political system. Don't rock the boat and all that. Dan O'Brien has written eloquently about this - I'm enjoying his book Ireland, Europe and the World: Writings on a New Century very much at the moment. Here he is in The Irish Times recently:

What explains Ireland’s slump-slump-soar-slump record is not bad government, but a governance vacuum; it is not what government gets wrong, but what successive governments have neglected to do. This is to be seen in each of the three periods of chronic economic underperformance suffered since the middle of the 20th century.
After the second World War, the Atlantic democracies took the difficult decision to abandon 1930s protectionism. Uniquely, Ireland did not. It took 10 years of misery for government to act.
Again, in the 1980s, what marked Ireland out from most of its peers was its inability to take action, this time in dealing with its budgetary woes.
The current crisis is deeper in Ireland than elsewhere for the same reasons: inaction during the good years on modernising the management of the public finances; inaction on reining in the rogue bank; and inaction on dealing with the steady and sustained erosion of competitiveness. These failures to act have deepened, respectively, the fiscal, banking and jobs crises beyond those of peer countries.
But it is not only on economic issues that inertia rules. It is in evidence across the spectrum: on the teaching of the Irish language; on energy policy; on planning issues; on a range of foreign policy matters; and much else besides.

As undermining the economy and the nation goes that's a fairly consistent track record.

But the Taoiseach needn't worry. As a citizen, a taxpayer and an employer I don't need pep talks from politicians who have mis-managed our country into disaster. I don't need to be told about the consequences of actions - verbal or otherwise - because I deal with them all the time. And I certainly don't need 'leadership' or 'vision' from people who plainly lack either. What I need, along with my fellow citizens, is for the people who created this mess to get out of the way so that we can get on with our lives and get on with making a better future for our country, for ourselves and for our children.

The sooner he concedes that the better.

In Denial About Alarmism

2009-11-25T17:54:00.007Z

One good thing that should come out of the Climategate scandal is a more sober, more open-minded discussion about the causes, consequences and 'cure' for climate change. Though there'll probably be a little more gloating by those traditionally labelled as 'denialists' for a while yet.

But once they've done gloating the task in hand will remain the same: filtering out actual trends in climate from the chaotic and noisy background of weather. Possibly one example of this new rapproachment is The Global Warming Policy Foundation, launched recently. Nigel Lawson is one of the founding figures, and he has been regularly labelled a denialist by those leaning more towards the alarmist wing of the climate debate.

But he is joined by an impressive academic advisory council - including our own Richard Tol. Richard is firmly in the camp of those who worry adverse climate change is happening and will worsen. But he is decidedly against the more alarmist responses proposed by some. As he notes in a recent VoxEU contribution:

At the same time, estimates of the impacts of climate change do not support the often-dramatic language of the media. Estimates suggest that the overall impact of a century of climate change is equivalent to losing up to 2% of income. The impact of a century of climate change is of the same size as a year of economic growth. In the worst case, impacts may be ten times as large. Still, a deep recession wreaks as much havoc in a year as climate change would do in a century. Climate change is therefore not the biggest problem of humankind.

So a proportionate response to a highly uncertain threat is that of a carbon tax - something he has consistently supported. It is important to adopt policies that are themselves adaptive - with some potential for reversal if they prove unnecessary or to have unforeseen and negative consequences. Human society is also adaptable, as Francisco Capella has noted in a more philosophical piece on climate policy:

There is no optimal climate, and conflicts for the climate's determination may arise if humans achieve partial control over it. Even if humans are adapted to the present climate, this does not imply that it would be difficult to adapt to different climates if the changes are not excessive.

... For almost all human problems associated with global warming, the influence of climate on them is usually small if compared with other more important factors that can be more easily and efficiently dealt with. Climate change alarmists seem to ignore relatively simple solutions for the problems they raise. Humans are proactive, they do not passively submit to natural influences, and the avoidance of climate change is not necessarily the best option.

Climate change, like the weather, has always been with us - and always will be. To the extent we better understand our role as a species in influencing change then the better we can respond to it - including mitigating strategies. A more open, more modest approach by those like the East Anglia CRU, who allowed their politics to get in the way of their science, will also help.

No Future for Trade Unions?

2009-11-24T13:56:00.006Z

On a day when most public sector workers have gone on strike, it might seem perverse to wonder about the future of trade unions. Or maybe not. There are 370,000 people working in the public sector - the vast majority of whom are members of trade unions. Public sector workers comprise just one in five of the 1,939,000 in employment overall: so four out of five workers are in the private sector. The vast majority of the latter are not members of trade unions.

This pattern of a unionised public sector and a non-unionised private sector now seems fairly well established in most developed countries, with trade union density overall declining sharply outside of Scandinavia. As it happens, Irish trade unions have not represented a majority of Irish workers since the mid-1990s. Now as few as 3 in 10 workers in Ireland are union members.

You can look at this in two ways: either trade union membership is increasingly ghettoized among public sector workers; or, the trade union movement has been captured by public sector workers. Or maybe both. Ireland's prolonged dalliance with Catholic Corporatism aka Social Partnership has undoubtedly exacerbated these trends. Not least because one party to the partnership - the Government - also happens to have the largest, most unionised workforce in the country.

It is hard to be optimistic about the future of trade unions in their current form. They are failing to connect with younger employees (and not just in Ireland as noted by Michael Skapinker), a situation that can only get worse due to the shocking rise in youth unemployment and the prospect of fewer new labour force entrants (and hence fewer new union members).

The hospital pass by the banks to the Irish government (and Irish taxpayers) can only mean a decade or more of severe constraints on the capacity for the public sector to expand. Therefore the main source of trade union membership looks set to stagnate if not contract.

Where does that leave trade unions in Ireland? An increasingly flexible, more mobile workforce will simply not see the point of trade unions. But workers will still have critical needs in relation to protection, information and securing their future. In that scenario, trade unions might be better advised to return to their roots and become organisations dedicated to the long term welfare of their members - friendly societies if you like.

And with impoverished governments unable to employ people directly to provide the education, health and social services our ageing society will need then we might all be glad to join the union.

Image cred: In Male Fide

Not Ready for Take-Off

2009-11-23T13:31:00.007Z

An old friend of mine once served on the aircraft carrier HMS Ark Royal. Any time I was going to catch a plane he would 'helpfully' remind me that "take-off is far more dangerous than landing". Something to do with heavy airplanes full of fuel, fixed length runways, the laws of physics - that sort of thing. He'd obviously seen more than a few ditch in the sea in his time. For some reason I always think of him when I'm on a plane taxying to take-off ...

But I thought of his observation in a different light recently. You might remember all the talk before the recession about a 'soft landing' versus a 'hard landing'. Instead we got a crash landing. Could recovery be subject to some of the same 'aeronautical challenges'? A 'smooth take-off' versus a 'stalled take-off', for example?

Bear with my analogy a little longer. Take the Central Bank's latest credit data showing that lending to every single sector of the economy (except for the financial sector) was down substantially in September on the year before. Think of credit as kerosene for the jet engines: we're low on fuel.

Then there's the recent pan-EU Enterprise Finance Index, which reported on the availability of finance for Europe's businesses and their commercial performance at present. As you can see from the chart, Ireland scored worse than any other EU country in terms of turnover, profitability or pricing power. Think of this as red warning lights flashing on the pilot control panel.

So as Ireland Inc taxis to the runway a few more things strike us. We're carrying too much excess baggage relative to our engine size in the form of commercial and personal debt. What's more, the aircraft's tyres are nearly flat thanks to weak domestic spending and rising taxes. But we need to take-off anyway and so we keep going, desperately trying to build up velocity as we head down the runway, seat belts on.

But what's that? The European Central Bank is planning to raise interest rates. So the runway is getting shorter, and the excess baggage heavier.

Should've taken the train ...

Losing a Generation

2009-11-22T10:31:00.004Z

Are Irish youth turning their backs on Europe? I've just read the Eurobarometer survey on Irish voting behaviour during the recent, second Lisbon Referendum (an update of a similar survey at the time of the first referendum). Two things struck me: the No vote was highest among 18-25s than any other age groups in both referenda; and opposition to Ireland's membership of the European Union increased in the same age group even as the percentage voting No fell.

Of course we could dismiss this as 'youth sounding off' behaviour, and blithely assume they'll 'grow out of it'. I'm not so sure. Firstly, as the chart shows, opposition to Ireland's membership of the EU increased in all age groups between the two referenda. Of course it's still a minority opinion (and not one that I share). But it isn't too difficult in these turbulent times to imagine one, two or more developments that might lead to a surge in opposition.

Take the announcement by our newly unelected EU President Herman Van Rompuy that he supports the idea of a 'euro tax' to fun the Commission's expanding operations in Brussels. Try selling that to the mass unemployed youth of Europe (now experiencing an average 20% unemployment rate). And try selling it to Ireland's depressed taxpayers (they'd demand their Yes votes back). Still, at least we didn't get Tony Blair as president; I wouldn't be too keen on sending Irish soldiers off with their EU counterparts to invade countries containing imaginary weapons of mass destruction.

Nevertheless, Van Rompuy's appointment sends a powerful signal that Europe has gone as far as it's going to go. The leaders of the main member states want to keep the balance of power between member nations and the European Union more or less as it is. To my mind this suggests that a period of circling stagnation lies ahead for Europe, a situtation hardly likely to assuage the concerns of Irish youth, and more likely to exacerbate them.

Which is a pity. Europe faces a triple economic, demographic and democratic challenge in the years and decades ahead. The Van Rompuys of this world lack the political will to secure real changes that will benefit Europeans (e.g.: scrapping CAP, delivering a real Single Market); and they lack the imagination to inspire us with a vision of Europe's place in the emerging future (beyond the now moribund climate change agenda). Helping Africa join a world of free market democracies would be one such vision in my book.

Ireland's youth will likely carry their less than enthusiastic feelings about Europe into middle-age and beyond. The job of any future referenda organisers is going to get a whole lot harder.

Power to the Statisticians

2009-11-21T09:12:00.005Z

This is another entry in the 'praise where praise is due' category. Admittedly a limited category on this blog ...

I was recently pointed to the HSE's Healthstat facility on their website, which I had completely missed. It provides an excellent, up-to-date guide to the performance of our hospitals - and in some detail too.

Take, for example, the recent furore over sick leave in the public sector. Healthstat shows the monthly incidence of sick leave in each hospital and whether it is certified or not. Intriguing to see that Sligo hospital a) has an above average level of sick leave (though not the highest), and b) the sick leave is overwhelmingly uncertified in contrast to all other hospitals.

It might be an aberration - but if it's not then it's the kind of thing that can focus a health service manager's attention on the priority problems that need fixed. Which can only be done if you have the statistics to support your decision-making.

I never thought I'd say it but - well done HSE.

Impoverished by Poverty Thinking

2009-11-20T11:50:00.005Z

Responding to yesterday's SILC 2008 report from the CSO, Fr Seán Healy was moved to observe that, without social welfare payments, 43 per cent of our population would be in poverty. Indeed. And if everyone stopped eating 100% of the population would die of starvation. I'm sure there's a point there somewhere ...

I think we all get the importance of social welfare payments to the wellbeing of recipients. In fact, we have been so generous with our social welfare payments in Ireland that the incidence of 'poverty' (using the elastic definition of 60% of median incomes) has fallen massively and consistently since 2005. Moreover, the standard measure of inequality - the GINI coefficient - has also fallen: to the point where Ireland is 'equal' with the average EU level. So less poverty and more equality.

Something to celebrate surely? Not if you're Social Justice Ireland (a better name, I admit, than 'Continuity CORI' now that the latter is synonymous with sweetheart deals costing the taxpayer hundreds of millions of euro in abuse compensation). Fr Healy's worried that the much touted cuts in social welfare payments in the forthcoming budget might lead to an increase in poverty. But he needn't worry. Those who insist on the ludicrous definition of 'poverty risk' as equal to 60% of median incomes are about to see poverty levels plunge as median incomes fall: leaving those on even modestly reduced social welfare payments comparatively 'well off'.

This process has already started. Households headed by an employed person saw their disposable incomes rise by 1.1% between 2007 and 2008 (average inflation, by the way, was 4.7% during the survey period). Households headed by an unemployed person saw their disposable incomes rise by 25.2% over the same period (Table 1.3). The ratio of equivalised disposable incomes of unemployed to employed rose from 56% to 65% in just one year (Table 1.4).

We've had deepening deflation since the start of this year, coupled with falling nominal wages and salaries for many. So don't be surprised to see less 'poverty', a lot more equality and an even narrower income differential between the employed and unemployed (and also between the employed and the retired: a ratio of 77% in the case of the latter in 2008).

Nevertheless this is bad news for the Poverty Industry. Their problem is that we have been spectacularly successful at eradicating a great deal of poverty in Ireland thanks to the blessing of economic growth in the past ten years. Those traditionally most vulnerable to poverty - the elderly - have effectively been freed from poverty, as the chart above shows (from the same SILC report). This is something we should be justifiably proud of in Ireland. But the remaining problem isn't one that can simply be fixed with higher social welfare payments (real or nominal). We've taken that as far as it will go (and probably a lot further in the case of some recipients).

There is, though, one group that remains especially vulnerable to poverty - and it's rather obvious from the chart. Now you might think that this would lead to loud and persistent calls from likes of Social Justice Ireland/CORI to do something about the problems arising from the incidence of lone parent families in Ireland. On every measure presented in the SILC report - disposable incomes, relative poverty, deprivation etc - households comprising one adult with children consistently and persistently score highest on all the wrong indicators. So whom does SJI/CORI fret about? That's right, the working poor and people living in the Midlands. Go figure.

The Poverty Industry simply prefers to ignore the blindingly obvious for the politically correct. Hence the likes of NESC fretting more about the impact of pets on children's welfare than lone parenthood. Like I said, this isn't social policy so much as phrenology. Luckily such fashions come and go and eventually (though probably not soon) we'll get serious about eradicating childhood poverty (now much more prevalent than poverty in old age).

The United States is ahead of us in this regard. A recent study from Brookings on Creating An Opportunity Society has examined the drivers of upward social mobility around the world. The authors conclude that the transition to the middle class is all but guaranteed for poor children in the United States if they do three things: finish high school, work full time and marry before having children. Reviewing their book, Clive Crook in the Financial Times observes:

At this many liberals will bridle, as they will at the claim that the “success sequence” of school, employment, and children after marriage requires firmer pro-family suasion and incentives. “To those who argue that this goal is old-fashioned or inconsistent with modern culture, we argue that modern culture is inconsistent with the needs of children.” So there.

Sadly I can't see any of our poverty advocates in Ireland (not even those belonging to the Catholic Church, God help us) going there just yet. Not even challenging the insane plans to extend the same legal protections afford to married couples to cohabiting couples, creating even more instability for children in families.

Perhaps they will after they've sorted out the Midlands. Pity the children.

Man Up

2009-11-19T07:40:00.004Z

Happy International Men's Day everyone (or should that be every other one?) I was alerted to the day that's in by the wonderful Dr Elizabeth Celi (most definitely not a man, but a brilliant commentator on the health and other inequities facing men nowadays).

Treat yourself to The Art of Manliness as a reminder of the things our fathers and grandfathers knew (and we'd do well to remember). And enjoy this, typically Australian take on the, er, task in hand:

Smarter Schools

2009-11-18T18:20:00.006Z

The Government's Smart Schools initiative is a missed opportunity. That's a pity. Yes it's good to see schools finally catching up with late 20th century technologies (laptops and overhead projectors): but what about leapfrogging to the 21st century and giving every child an ebook?

I've blogged about this before, and I'm not the only one thinking this way - so is Arnie. The idea has been around a while. Indeed, some Irish schools are experimenting with this - including several in South County Dublin. So I was staggered to find that the Department of Education's/ICT Ireland's Smart Schools = Smart Economy report doesn't contain a single reference to ebooks. Not even one. Surely the smarter thing to do would be to align ourselves with the next generation of pedagogic technologies and to enable a cluster of supporting Irish businesses to grow up around them? Laptops and projectors won't do it.

Of course there's the cost issue. The Government's €150 million spend over the next three years will equate to just €179 per child in first and second levels combined (498,914 in the former, and 341,312 in the latter according to the Department's statistics). On the other hand, giving every child the latest Amazon Kindle (or equivalent) would currently cost $259 - that's about €173 at today's exchange rate. I'd imagine the Department might even get that price down a bit if they were to order, say, 900,000 (just to have a few spare) ...

Moreover, we then have to factor in the savings: parents spend a fortune on school books every year (an average of €100 per primary child and a great deal more per secondary child according to Barnardos). By my rough reckoning, if we assume €100 per year per first level child and €150 per year per second level child then that's €101 million spent on books EVERY YEAR.

We can be certain that the prices of ebooks will fall rapidly as sales take off. I believe we need to adopt a smarter schools strategy than the one proposed (incorporating key elements of the current strategy). And as a parent a smarter strategy would certainly get my vote (and taxes).

Taxed and Spent

2009-11-17T18:13:00.005Z

We don't have a Taxpayers' Alliance in Ireland - more's the pity. Mind you, if we did, the No vote might have won the Lisbon Referendum if they had produced this sort of stuff:

Sure it panders to the perennial anti-EEC/EC/EU prejudices of the English, but I do like their have-a-go attitude towards our 'betters'.

The Nuclear 'Debate'

2009-11-16T09:14:00.008Z

Tom McGurk called for a debate about nuclear power in yesterday's Sunday Business Post. On the same day the Sunday Tribune lead with a story reporting that the proposed design for new nuclear power stations in the UK is dangerously flawed. All of which is a useful reminder that when someone in Ireland says something needs to be 'debated' it usually means either a) that the matter is so contentious that there's no way it's going to be debated; or b) there is no point in debating the matter as everyone has made their minds up anyway.

As I read it the main danger facing the UK is not the design of their proposed new reactors but the fact that they have left it so late to build them. Which is dangerous for us as we'll be increasingly dependent on UK electricity to make up any shortfalls in our own generating capacity in the decade ahead. Though our economic collapse may have postponed that requirement for some time (there, I knew I'd find a silver lining ...)

But there is a bigger prize for Ireland in Britain's new found nuclear ambitions. In the short run, Irish construction companies should ensure they play their part in what will be the biggest construction programme on these islands for the next thirty years. Certainly a less belligerent, less ideological stance by the Irish government with regard to the UK's nuclear practices might help in that regard. However, the real opportunity lies in the medium to longer term as Irish construction and engineering specialists have the chance to learn a great deal about building and operating nuclear power stations before adopting an appropriate nuclear solution to our own energy needs in the next few decades.

That's if we're still not 'debating' it, of course ...

Indebted to Feminism

2009-11-15T11:19:00.007Z

Is negative equity the ultimate legacy of feminism? A movement that began in Ireland as elsewhere desiring that women should be free to participate fully in society ended up fetishising paid employment over all other choices. And one consequence of this fetish has been the explosion of household debt now gripping hundreds of thousands of Irish families.

I've charted the trend in total mortgage lending outstanding (from Central Bank data) against the participation rate of all married women (from the CSO). One consequence of the unprecedented and rapid increase in married women's participation in the workforce (passing the 50% mark in early 2005) was the ability of households to borrow money. Instead of borrowing against one income they could now borrow against two. And the banks, God bless 'em, were only too eager to lend. Way too eager as we all realise in hindsight.

This rapid increase in women's participation in Ireland's workforce is addressed in yet another Equality Authority report on the plight of Irish women - A Woman's Place: Female Participation in the Irish Labour Market. Oddly enough, nowhere in its 102 pages does debt, borrowing or mortgages get mentioned. Instead we are treated to the usual bromides about pay gaps and unequal household divisions of work. All of which are, if you read the text carefully rather than the press coverage, almost entirely explainable in terms of the choices women - working or otherwise - have made for themselves (and with which the vast majority of women are happy).

You might think then that the authors would propose leaving well enough alone. But of course not: what would the Equality Authority be left doing if that was the case? So instead we get the usual political shopping list of better pre-school provisions, more flexible employers and less selfish husbands (or partners as we say nowadays). They want to increase the participation rate of women in the workforce not because it's what women want (it's simply assumed) but "for Ireland to achieve and maintain the targets set for female employment within the EU" (last line of concluding text). Whose 'target'?

The small matter of the economic depression now gripping the country is acknowledged by the authors. But not the debt binge that preceded it. They wonder if rising female unemployment might lead to a regression in female participation as women give up hope of getting work. But they shouldn't worry: the legacy of family indebtedness left behind by fetishing paid employment over all other choices a woman might make will ensure that hundreds of thousands of women will have no choice but to keep on working. Slaves to debt, and slaves to the consequences of a flawed ideology.

What a legacy.

Levez Les Bleus

2009-11-14T15:52:00.003Z

What's the French for 'surreal' ...?

Our taxes at work: Levez Les Bleus

(apologies for blatant heightism, gallo-phobia, etc etc)

The Economy, Only Smaller

2009-11-14T10:14:00.005Z

I've had Work-Blog Balance issues lately, but I'm sorted for now. One task on the work side involved a fascinating conversation with several public servants about the pricing of a state monopoly service. The discussion turned to how future price increases might be calculated. Someone suggested a tried-and-trusted formula: use an adjusted measure of CPI minus a few percentage points, the latter to encourage efficiency ...

It wasn't too long before we all saw the problem. In an age of deflation a minus plus a minus equals an even bigger minus. Not a lot of incentive there. It also reflected a wider issue: the inflationary mindset of the public sector. Governments don't do deflation as a rule. Inflation is much more attractive simply because it creates the illusion of an expanding economic cake - to be divided among contesting interests - even if the real size of the cake is barely increasing.

Deflation works the other way: it focuses attention on the real size of the cake and who precisely is getting what. Not surprisingly then it is the public sector that is now the main source of price inflation in Ireland (witness health and education prices highlighted in the table) according to yesterday's CSO data. The private sector is the main source of deflation: witness the retail sales data also published yesterday which showed that most retail sectors are now only fractions of their size in 2005 never mind at their peak in 2007.

The European Commission's latest economic forecast projects that Ireland will be the only eurozone country to experience deflation in 2010. This means that real interest rates will remain high for Irish businesses (see The 5 C's of Contraction) and that the nominal and real size of the Irish economy will continue to shrink. Nor is it just business borrowers who will face a higher interest rate hurdle, so also will the Government with it's borrowing capacity severely constrained by the NAMA gamble.

If we are lucky, global recovery will drag us along with it, driven in turn by a more competitive private sector in Ireland due to lower costs of doing business (one benefit of deflation). Still, by the time it's over, all of us - public and private sector alike - will have had to permanently adjust our 'inflation-adjusted' mindset.

If You're Gay, Black, Disabled Come Into the Parlour ...

2009-11-10T07:27:00.005Z

... but not if you're from Moyross or Darndale. We Irish are a tolerant lot it seems: we can tolerate everyone except our neighbours. That's my read of the latest Eurobarometer report on Discrimination in the EU in 2009.

Only one in ten Irish people have experienced discrimination in the past year, or if you prefer, 9 in 10 haven't. That's discrimination based on gender, age, disability, ethnicity, sexual orientation or religion.

But the discrimination that dare not speak its name - at least within the 228 pages of the Eurobarometer report - is class discrimination. Though we do get an inkling in the above chart that I've created from the findings. Asked on what grounds an equally qualified candidate might not get a job compared to another, 31% of Irish respondents chose 'the candidate's address' as a factor: easily the highest in the EU. In fact, having the wrong 'accent' in Ireland is more likely to see you on the wrong side of a job offer than being black (36% vs. 33%). Maybe it's a small country thing (the Danes and Swedish are even more obsessed about a candidate's accent than any other European nation, whatever that's about).

Of course 'address' and 'accent' are simply code words for social class. Strangely though it's a form of discrimination that is never addressed directly by the Discrimination Industry (in Ireland or the EU). Perhaps it's a demarcation thing with the Poverty Industry? But fear not, the introduction of Post Codes in the Republic of Ireland in 2011 will change all that. Mind you, I remember the furore back in the 1980s when An Post had the temerity to propose splitting the Dublin 6 postal district into two more easily managed Dublin 6/Dublin 26 districts. Dublin 26 sounds alarmingly close to all those Dublin 22s and 24s on the wrong side of the M50. The compromise was Dublin 6W, and so the property prices of Terenure were preserved ...

I'm not holding my breath for 'all the children of the nation' to be 'cherished equally' by postal district just yet.

Happy Freedom Day

2009-11-09T08:10:00.005Z

Today should have been a holiday across Europe, one celebrating freedom. What happened twenty years ago in Berlin was truly extraordinary: people power writ large - ordinary people writing history.

But it isn't a holiday, perhaps because we take our freedom too much for granted in Ireland; in Europe too, for that matter. And we take the material comfort and life choices provided by free market democracy too much for granted as well. Writing about the 20th anniversary of the fall of the Berlin Wall, Roger Scruton is less optimistic than he was back then:

I, in my naivety, believed that a whole society could come to see the folly of the socialist idea, and by jettisoning a project that inevitably led to the expansion of the state and the destruction of civil society, would put liberty instead of equality at the top of its political agenda. It was not to be. As my colleagues illustrated, the socialist idea, once in place, is immovable. Of course, it will change its name and moderate its methods according to the spirit of the times. But in the modern world, there will always be a section of society—not necessarily the majority, but the one with which the intellectuals identify, and upon whose inertia they rely—that puts equality first and regards liberty as a dubious asset benefiting only the few. Within a few years, I had picked up my pessimistic shield again; I no longer believed that people would try to rescue civil society from the state, or that they would see law, institutions, and national culture as the foundations of a free and prosperous social order. The same spirit of resentment that had animated the Communist Party, both as a revolutionary movement and as a dictatorial power, had returned in softer forms. People voted for equality, so as to help themselves to assets and powers that they could not obtain through merely honest means.

And it isn't just the economic crisis that has damaged people's support for free market democracy. A recent survey by Pew Research shows a worrying decline in support for the free market economy among central and eastern Europeans:

How could this happen? One word: corruption . Asked what are the top problems facing 'our country' (other than the economy), corruption dominates the list in almost all the countries surveyed. It is a pertinent reminder of what happens when free market capitalism is hijacked by crony capitalism.

John Kay makes a similar point in his recent Wincott Lecture:

I am going to argue that there are three elements to the triumph of the market economy. The first I will describe under the heading of ‘prices as signals’: the price mechanism is generally a better guide to resource allocation than central planning. The second element is ‘markets as a process of discovery’: a chaotic process of experimentation is the means through which a market economy adapts to change. The third heading is ‘diffusion of political and economic power’. The economic point here is that prosperity and growth require that entrepreneurial energy should be focussed on the creation of wealth, rather than the appropriation of the wealth of other people.

In what we teach, in what we say, in our economic research and most importantly in the policies we adopt – we put too much emphasis on the first of these elements – prices as signals to guide resource allocation – at the expense of the, possibly more important, second and third elements – markets as process of discovery, markets as mechanism for the diffusion of political and economic power.

The result is that both supporters and critics of the market economy have often confused policies that are pro-business with policies that are pro-market. That confusion has both undermined the social and political legitimacy of the market economy, and led to serious policy errors that follow from a mistaken, or at least incomplete, understanding of how a market economy works.

Kay is absolutely right: too many governments - in the East as well as in the West - have adopted pro-business policies in response to the crisis that simply propped up market incumbents to the detriment of potential new entrants (and to the detriment of buyers in the affected markets). And we're still doing it: just look at NAMA (which bizarrely entails the State buying €28 billion worth of dodgy assets from Anglo Irish Bank - which is already owned by the State). No wonder the people of Europe are less enamoured with the free market than they were twenty years ago.

What about the next twenty years? History did not stop in 1989, nor does it look likely to any time soon. One key challenge will be to ensure we do not lose all we have gained since the fall of the Berlin Wall. The disgraceful interference of the European Court of Human Rights in Italian cultural practices and preferences - demanding the removal of all crucifixes from Italian schools - is one illustration of how quickly freedom can be eroded. The price of liberty is eternal vigilance, as Henry Porter has noted:

Twenty years later, a European institution is busily enforcing secularism on the grounds that some kid belonging to a busybody Finnish-born atheist in northern Italy might have been momentarily put off his or her lessons, which I seriously doubt. It is enough to make you a Eurosceptic, but there again, Euroscepticism seems to me to be the only responsible stance of an intelligent democrat now that the Lisbon treaty is finally ratified. Scepticism is not reflex hostility, but, rather, alertness that assesses each new office, every new shadowy committee or opaque directive and asks: "Is this right for our society?"

The sceptic does not follow dreams or "lightly surrender a known good for unknown better". That phrase comes from the Conservative philosopher Michael Oakeshott, but I stress that scepticism is not being a little England Tory or any of the other nonsense spouted by French Euro-enthusiasts last week; it is sounding a note of caution, reserving judgement and not being carried away by ideas and political structures which may not be in the interests of the common good.

We must never take our freedom for granted, nor forget the unique powers of free market democracy to meet the needs of human beings; both of this and of future generations. I'll leave the final word to John Kay:

The world is uncertain: not just risky, but uncertain, in the sense used by Keynes and Knight. Not only do we not know which future outcomes will happen: we are unable to specify at all fully what these possible outcomes will be. If we could predict or anticipate the invention of the wheel, we would have already invented it. Market economies do not predict the future, they explore it. That is a fundamental – perhaps the fundamental – difference between a planned and a market economy.

Happy Freedom Day.

Thank God It's ... Sunday?

2009-11-08T14:39:00.004Z

Today is the happiest day of the week: that's according to nearly six thousand Irish people interviewed over the past six months. I presented the findings from my company's research at the recent Economic Psychology Ireland Conference. It was great to see so much interesting (and innovative) behavioural economic research going on in Ireland's universities nowadays. Well done Liam Delaney and the rest of the crew at the Geary Institute and NUI Maynooth for organising it.

Enjoy the presentation below - or better still, leave it until Wednesday when you'll be at your most stressed and in need of something for the weekend!

Thank God It's ... Sunday?

View more documents from Amárach Research.

A Better Future for Men

2009-11-07T14:42:00.011Z

One of the things I keep noticing about the blogosphere is the extent to which it is predominantly male. Now I know this is due to the 'double shift' suffered by women the world over, raising children AND propping up the economy (not true, I know, but I thought I'd say it to avoid a visit from the feminist mutaween). Still, this peculiar male bias has got me thinking ...

We are used to thinking that the modern economy is one better suited to the cognitive skills of women than those of men (as argued recently by Arnold Kling and others). We know that women are doing better in our schools and universities and that the recent economic downturn has been worse for men than for women. But what if all this is merely a phase? What if the next shift in the economy is better suited to men? Seems unlikely I know, but let me tease out why it might happen anyway.

We are undergoing an extraordinary expansion of authorship right now. As note recently in SEED magazine:

Since 1400, book authorship has grown nearly tenfold in each century. Currently, authorship, including books and new media, is growing nearly tenfold each year. ... Today, at 0.1 percent authorship, many people are trading privacy for influence. What will it mean when we hit nearly 1 percent next year and nearly 10 percent the year after as the current growth predicts?

The chart above illustrates the pace of change. The authors suggest that we may fret less about illiteracy in the future and more about dysgraphia if such trends continue. Now arguably this should bode better for women than for men. Higher points in the Leaving and all that. But I don't think so and here's why: we are moving to a post-literate society which will demand a very different set of cognitive skills as argued by Patrick Tucker:

How can the written word — literary culture — survive the advent of the talking, all-knowing, handheld PC? How does one preserve a culture built on a 6,000-year-old technology in the face of super-computation? According to many of the researchers who are designing the twenty-first century’s AI systems, the answer is, you don’t. You submit to the inexorable march of progress and celebrate the demise of the written word as an important step forward in human evolution.

... In the coming decades, lovers of the written word may find themselves ill-equipped to defend the seemingly self-evident merits of text to a technology-oriented generation who prefer instantaneous data to hard-won knowledge. Arguing the artistic merits of Jamesian prose to a generation who, in coming years, will rely on conversational search to find answers to any question will likely prove a frustrating, possibly humiliating endeavor.

If written language is merely a technology for transferring information, then it can and should be replaced by a newer technology that performs the same function more fully and effectively.

The cognitive skills that will be more valuable in future won't be reading and writing (at which women are, on average, better than men), but instead will be visual-spatial skills at which men are, on average, better than women (to one standard deviation). That's one scenario anyway ...

Still, perhaps it is just as well we're moving beyond reading and writing. As The Onion reported recently, America and the English-speaking world are facing a crippling idiom shortage ;-)

And let me leave you with a stunning example of how the image is worth a thousand words (or should that be 1,000th of a word?) ht andreascon.

Innovation Islet

2009-11-05T18:01:00.006Z

Setting targets for creativity is a bit like setting a target for how much you're going to enjoy the weekend. You can come up with a number - but usually you 'know' creativity (and a good weekend) when you see it, whatever the 'score'.

But if you are going to commit taxpayers' money to an innovation policy then I guess some kind of targets are necessary - such as those set out in the recent Forfas report on Skills in Creativity, Design and Innovation. It's actually a good primer on current thinking about innovation, creativity etc, and the suggested targets are fair enough as far as they go.

But we need to go further: the real issue at the heart of creativity and innovation is the issue of risk. Doing nothing is often safer than doing something - in the private sector as well as the public sector. Right now Ireland is reverting to a more traditional 'risk averse' mode of thinking and doing. And who can blame us? Ireland is a country that imprisons people for not paying their TV licence; as well as having an exceptionally high level of personal guarantees demanded by banks from their business borrowers. Is it any wonder that demand for business loans has fallen off a cliff in Ireland even as it picks up elsewhere?

We are not alone our new found risk aversion - but that doesn't mean we are safe. A recent report from Deutsche Bank (Your Country Needs Innovative Minds!) laments how Germany is falling behind many other countries in terms of its investment in innovation and creativity (whence the quote above). Though it would be nice to have their 'problems'. The report also warns against being too specific about targets relating to innovation (including things like the spending on R&D as a percentage of GDP). Fetishising numbers is a highly uncreative thing to do. Moreover, fetishising 'Innovation Island' type targets is no guarantee of economic success - just take a look at Finland.

Still, even if setting measurable targets for creativity is a challenge, measuring it's impact is perhaps more straightforward. Take the work of IDEO, explored in a fascinating article in Wired:

Another example is the work IDEO did for Bank of America. Asked to help attract new customers from a specific target market - middle-aged women with children - the firm, along with a team from the bank, conducted interviews with potential customers across the US. They observed that some of them rounded up their bill payments for speed and ease of mental arithmetic: if an electricity bill came in at $42.23, they found that many would pay, for example, $45, knowing the difference would go towards the next bill. It meant household accounts were simplified, and also that the customer's psychological relationship with the utility company was subtly changed. Other potential customers they met had difficulty saving. These insights led the IDEO team to develop not an advertising campaign nor a set of branding guidelines, but instead a whole new bank account: one in which any money spent on the accompanying debit card is rounded up to the nearest dollar, and the difference automatically placed into a separate savings account.

Since its launch in 2005, the Keep The Change account, based on observation and developed through design thinking, has brought Bank of America up to ten million new customers, and has resulted in $1.8 billion of savings.

It seems the Icelandic government is now using IDEO to help innovate their way out of their present difficulties. I think we can be similarly innovative and creative in Ireland - but we should create a better environment for risk taking (of the non-economy wrecking kind), than setting spurious targets. And it'll be more fun as well.