Restrictive Practices in Higher Education in Ireland

The Chairman of the Higher education Authority is no stranger to controversy. His most recent interesting comment came when he commented against the “restrictive work practices” of the third level, stating “There are very restrictive HR practices imposed on our higher education institutions by the fact that they are regarded as part of the public service, not much different from a government department or a local authority.” He also complained that Irish universities were not attracting enough foreign students, which seemed to be an issue caused by a lack of  “Greater collaboration and alignment between institutions”

I emailed, on Saturday afternoon, the HEA and inquired for specifics on these restrictive work practices. My contract, and I think every other academic, states that I will, in effect, do what I am told to do by the head of school. My duties are not specified beyond engaging in teaching as directed, carrying out research and doing such administrative duties as are assigned. It would be hard to find a more open contract than one that says “do what, where, when, for how long as, and in what manner as your boss shall dictate. End of”.  I imagine Ericcson, from whence Mr Boland hails, would be ad idem with every other company in welcoming such an open-ended specification of duties.

The HEA contacted me on Monday, with a copy of the speech (HECA J Hennessy Key Note Speech 20 April 2012 (2) (1)) and then on Wednesday kindly followed up with details of the “restrictive work practices”. I was interested to read these as I was worried that my work practices were in some way restrictive… I need not have. For the most part these are legislative, HEA driven or organizational, rather than actions carried out or not by academics.

Workload management

The Higher Education Strategy calls for a comprehensive review of existing employment contracts. It looks for contracts that are transparent and deliver accountability for appropriate workload allocation models to ensure that priorities around teaching and learning, research and administration can be managed and delivered. In relation to institutes of technology, it says that contracts should specify a minimum number of hours to be delivered on an annualised basis. Currently, the contracts in institutes of technology provide the delivery of 630 hours by assistant lecturers (560 by lecturers) over 35 weeks with a norm of 18 (16) hours per week. Because of circulars restricting the length of the academic year as well as developments such as semesterisation, the 35 weeks are never delivered. Recent agreements under Croke Park have focussed on increasing the amount of delivery per week, a less optimal approach than adopting a broader concept of the academic year.

Consideration could be given to the adoption of an annualised credit-based contract based around the current 630/560 requirements. An hour of lecturing would remain equivalent to one credit under this system but credit could then be given for other academic activities such as research, supervision of PhDs, engagement with business etc. Such a flexible approach would allow Institute management to determine credits for various activities across the differing demands across teaching Levels 6-10 as well as across the differing demands in terms of research and other academic activity. Any new contract arrangements should also provide for a level of academic and other duties – administration, management, course development, promotion of the Institute, engagement with stakeholders etc. – that form part of the normal duties of a lecturer and do not attract credits. Finally, it will be important that the contracts also state clearly what is expected in terms of attendance and the entitlements of staff in relation to annual leave.

This is strange. Lets leave aside the emphasis on institutes of technology and the equating of these with the entirety of the higher education space. As I have noted, my contract doesn’t say anything about hours or whatever. It says “do your job”. The problem with overspecifing what knowledge workers will and will not do is that they are generally smart people and will easily game the system. There is a substantial body of academic and practical research on how to ensure work gets done. Universities are not machine bureaucracies, which work by the enforcement of control. They, like all adhocracies or matrix organizations, work best when coordination and control is by the adherence to professional norms. It might be best for the HEA to contemplate how they could best set these, rather than ever-incremental micromanagement. We have a first year university course that discusses these issues and I am happy to forward the notes. They are perhaps adhocracies or As we know Irish academics work approx. 50h per week on average. Over say 48 weeks (I know its shocking that public servants will take holidays…you cant get good staff these days) that amounts to 2400h per annum.  CSO data suggest that the average weekly paid hours across the economy is approx. 32h per week. That’s just over 1500h. Restrictive work practices seem to have resulted in this sector providing a premium in terms of output of some 50%. But that’s not the real issue. The real problem is the equation of hours spent in the classroom with hours worked. That such arrant nonsense could come from the head of the government body charged with the management of higher education should be a cause of huge concern. Despite the many real issues in Irish higher education we still manage to have substantial impact on the world stage with several world class universities. By all means let me work 32h instead of 50 plus….

Redundancy

While in the sector, HEIs have considerable freedom to hire staff (subject to ECF), their capacity to make staff redundant, even where there is manifestly no work for them, does not exist.  In the institutes of technology, for instance, if staff cannot be usefully deployed due to the collapse in apprenticeship, they cannot be made redundant.  Any effort to improve efficiency by reducing unnecessary duplication of programmes across the HE sector will be rendered pointless unless a capacity for targeted redundancy is provided.  The same goes for efficiencies that could arise due to mergers of HEIs.  A capacity for targeted redundancy schemes is required.

Hire staff subject to the ECF …apart from that Mrs Lincoln, how was the play…

Again we see the IoT = all fallacy. Lets leave aside the issue of whether the government body charged with overseeing higher education might better serve society by ensuring that it works to see that apprenticeships are strengthened (Germany anyone?) rather than destroying the seed corn of future such. Today apprenticeships, tomorrow…? What market demand is there for Latin, or poetry, or for philosophy or for sociology? The higher education sector is not and cannot be simply a tool for the creation of what the HEA or industry think might be employable in three or five years time.  Since at least Newman we have known this. There is an ongoing and lively debate on how to recast this ideal but that universities play more than just a training role is surely something that the HEA might acknowledge. There is also a strange sense of competition being bad. I always thought competition, for students and ideas no less than for bread rolls, ensured that the customer or person to whom the service was provided got a better outcome. The locgical conclusion of the drive to reduce choice is silod universities, where for example UCD teaches economics and say TCD philosophy while Maynooth does Sociology. The concept of students and researchers crossing what are at best arbitrary intellectual boundaries seems anathema to the HEA. It reflects a desire for monopoly provision of education – economics 101 tells us that monopolies are always inefficient, even if they are natural monopolies, which is not at all obvious for the provision of educational programs.

Contractual matters

Particular problems are created by the way in which Ireland has transposed EU employment Directives.  Under current legislation part-time employees or those on temporary contracts can too easily acquire rights akin to permanent staff, including contracts of indefinite duration (CID).  This is particularly dangerous in a situation where HEIs are forced to rely on part time and short term contract staff. It is accepted that the HEIs have a responsibility here to ensure that contractual terms are appropriate, but in the IoT sector there is a view that they are precluded from issuing the kind of contract that would avoid a CID situation, since the form of contracts has to be agreed with unions who in turn agree these with the Department of Education and Skills.  A review of the inflexibilities generated by employment legislation, followed by legislative amendment,  is urgently needed.

Again the equation of IoT’s with the entirety of higher education…..While this may well be the case the use of the phrase “too easily acquire rights” is unfortunate to say the least. This seems to be a drive towards casualization and a backdoor abolition of not just tenure but permanency. I guess in the brave new world the HEA sees the provision of higher education as a purely market driven force, where they determine the course to be offered and organizations bid to provide same with staff hired only as and when needed. Perhaps we could organize hiring fairs or maybe the old concept of An Spailpín Fánach can be reinvigorated where gangs of underemployed Python coders and French romantic poetry specialists can hang around outside universities waving their credentials? There are of course situations where contracts are a good idea. But to create a university system where this is the norm is self defeating.  Like it or not we are in a globalized market and the market for academic talent is no different. We are now in a situation where even if a post is created it is probably going to be offered at the lowest point of the scale, which is generally now below that of comparable scales in other countries. Combine this with a total lack of job security and we will find it impossible to compete, which is in the end going to result in a poorer society in every way.

Pay

At present pay is set by government and, except in the case of the Departures Framework for universities, all HEIs must comply with pay terms nationally negotiated.  Currently, the Department of Finance, through the Department Education and Skills, plays a direct role in the establishment of salary scales, terms and conditions, appointment points on the scales, numbers of staff etc.   In the past, when time has allowed, it has been usual that negotiations have four players viz DoES, DoF, unions and ‘the employers’.  At the best of times these arrangements have been unsatisfactory in that the negotiations have been centralised and agreements are centralised, consequently much time, particularly in the IoT sector, has been spent fighting cases at local level.  In recent times, as a direct result of the economic crisis agreements have been entered into without understanding the impact that these agreements have on the functioning education (see further below).

While the HEIs do not seek complete freedom in this matter, flexibility is required to enable them to manage their workforce and their performance more effectively. HE needs a much more sophisticated architecture that is linked to both the strategic needs of institutions and their evolving structures. That architecture has to have greater flexibility and with that a series of checks and balances to underpin the flexibility.   An approach which involved freedom to pay staff within bands combined with a requirement of balance between grades (as in the current ECF) would meet many of the difficulties here.

Again the IoT seems to be driving the debate. It might be useful if the HEA clarified that they are even aware that there are two higher education systems and that no more than one size fits all the same issues do not nescessarily arise in both. The issue if there is one with Irish university pay is that it has a high mean but a low variance.  It is good to see that the HEA are beginning to suggest that this be addressed. But it is limited – why not allow managers in universities to manage? Why not let them determine, within the resources available, the pay of people. There is a market for academic labor and this should be used to signal the wages.  I would much rather we paid the most productive more than the least.

General – Management Capacity to Manage New Contractual Arrangements

 It is generally agreed that managing change in the Irish public sector is challenging.  If, as proposed above, new contractual arrangements are entered into then there will be significant challenges to middle managers in Irish HEI’s to manage those changes.  In order to do this successfully will require a much strengthened approach to PMDS, the recruitment and appointment of heads of department, deans, etc who have both academic and managerial competence.  While some institutions have developed or are developing robust systems of appointment and leadership and development to ensure management competence, anecdotally the HE system seems only patchily prepared for these changes.

This is hard to argue with in one way, stating that managers should be competent to manage. But they must also be free to manage. At present there is a widespread perception that the HEA are micro managerial zealots, desirous of interference at the lowest operational levels rather than confining themselves to policy. This may be unfair but it does exist. There is nothing wrong in principle with professional managers in universities but again there is absent from this statement an acknowledgement that knowledge workers in public or private sectors require a different style of management to other workers. Such is neither good nor bad but a fact of organizational life. There is a reason that Facebook, Google etc provide beer, Ping-Pong tables and so on and its not because the flinty eyed billionaires that run them are necessarily inherently nice people, although they may well be. Its because that approach works in that organizational space.

Euro crisis will require some hard choices to be faced.

This is a version of an opinion piece originally published in the Irish Examiner Sat 14 April 2012. See http://www.irishexaminer.com/business/euro-crisis-still-very-much-alive-and-pressing-190499.html.

It hasn’t gone away you know? The Euro crisis? Its back, waxing and waning. Italy struggles to raise money at the short end even with significantly increased rates, and there is event talk now of france being in trouble. To recap: last year the ECB finally began to take action to deal with the acute problems in the sovereign bond market and the banking market, now increasingly and worryingly scrambled together. Through two successive waves of cheap (1% pa) money a massive trillion euro was pumped into the banks. in what was called LTRO – Long-term rollover. Although significantly less in net terms this injection of liquidity (in November and march) was sufficient to significantly cool the sovereign bond markets. It was also a mechanism, as I have noted previously, to allow the banks to begin to fill some holes in their own balance sheets.

Modern economics absolutely needs banks. They are the pumps that drive money and credit around the rest of the system. In Ireland these pumps are broken and we see daily the effects of same. What the ECB has done is quite proper, but in mathematical terms it is necessary but not sufficient. Other factors in the ECB and elsewhere to my mind make this policy less likely to succeed than might be hoped.

First, this approach depends on the banks ultimately passing on their money to productive sectors of the economy. The way in which central bank actions filter into the real economy is one that has been much studied. The bank channel has been the focus of much scrutiny in recent years. The BIS concluded that individual bank capital positions were crucial to their ability to lend on. The also concluded that the key issue was structuring the capital base to allow this to happen. European banks and in particular Spanish banks are not yet fixed. We see in Ireland that the next wave of losses from mortgages is now beginning to consume political and economic capital.

Second, it is in any case treating the symptom not the cause of the problem. European sovereign states display high borrowing costs because of too much debt. The cost of debt is a function of supply and demand; at present there is a lot of cheap liquidity sloshing around which allows banks to purchase this high yielding debt and make a profit. But this exacerbates the issue if states consider that the lowering of bond yields indicates that they can take reform slow. European states are on a tightrope: too much austerity and the economy crashes – this is Greece, where real poverty and want are now rampant, and still the debts are unsustainable. Too little and the markets fear a Greek or worse write-down, this is Portugal or Spain. The circles of austerity-growth-market confidence are unsquarable in my view. We cannot solve too much debt with more debt.

Third there is evidence that the ECB is beginning to adopt a core-periphery approach. In his press conference after the last ECB board meeting Dragi made a number of comments that suggest to me that the ECB board was preparing a Plan B. He restated that where central ECB liquidity operations were not available for banks then domestic central bank liquidity was available. He also reiterated that this was however at the risk (read certainty) of exposure of the domestic sovereign. We have seen this here: despite the best spin that the government has put on it and notwithstanding that there is another game in town with the final settlement of the banks, the brutal reality is that at the end of march this state DID pay 3.1b to the Central Bank of Ireland to pay down ELA which it had advanced to prop up the rotting corpse of Anglo. When the ECB speak of ELA being advanced at local risk this is what they mean. Prop up your banks if you wish but it’s on your own head. Oh, and don’t let them fail. This is a recipe for a Europe populated by Anglo Irish Bank zombie clones. On household (read mortgage) debt overhangs being somehow adjusted (read, written down), The IMF suggests, and the ECB kinda agrees that it should be talked about, but of course the ECB also want us to continue to repay for the ghastly corpse of Anglo (but if he can find some money lads, after that, why not write down a bit of debt)…More recently Jörg Asmussen of the ECB told audiences in Ireland that, in essence, we were on our own with the banking debts.

Fourth, there is a growing theological strain in discourse that debt is not just wrong; it in some ways indicates a moral laxity. Backbench government TDs are increasingly adopting a ‘tullamore housewife’ approach, that government should not spend more than they earn. This of course ignores completely the reality that a state is not a household, and displays a dangerous ignorance of modern macroeconomic reality. At the same time we are being asked to vote on a fiscal compact which will not only in effect ban borrowing but given our debt levels will require us to run cyclical surpluses. That will, inevitably, lead to more austerity.

There are irreconcilable forces beginning to emerge in the European and national debate. At the heart of these lies the ECBs insistence that under no circumstances must banks fail coupled with its abhorrence of any hint of inflation. This is of course counter to the emergent European commission perspective on bank resolution and to the historic reality that debts do get restructured either via inflation or default. Europe will have to choose. There is too much debt. Either it gets written off via inflation, anathema to the Bundesbank , now incarnate as the European Central Bank, or it gets written off in a more or less organised fashion via a Greek style arrangement. The alternative is that the strains on the euro grow, and something breaks. Even now Citibank estimate a 50-50 chance greece will have to exit. Like a seat of flywheels, when one part of the euro breaks off it is highly probable that that a majority of the other parts will fly off also. The German politicians who have then demanded impossible things of the periphery will find the export chickens coming home to roost rather rapidly as their exporters face 30% plus deutche mark appreciation. Then we will see that competitiveness is relative, not absolute.

What if Ireland Defaults?

Well, if you want to know the answer to that question you will have to buy my new book, which contains a bunch of essays.

Contributors include:

• Nobel Laureate Joseph Stiglitz
• Constantin Gurdgiev, Megan Greene, Seamus Coffey and  Stephen Kinsella
• Peter Mathews TD
• Senator Sean Barrett
• businessman and political activist Declan Ganley
• politics lecturer and journalist Elaine Byrne
• Sam Roberts, urban affairs correspondent for the New York Times
• Huginn Thorsteinsson, philosopher and adviser to the Icelandic Minister of Economic Affairs and the Icelandic Minister of Fisheries and Agriculture
• John Walsh, editor of Business & Finance
• Peter Brown, director of the Irish Institute of Financial Trading
• Karl Deeter, director of Irish Mortgage Brokers

Aimed at the general reader and published by Orpen Press it is available from all good bookstores and from Amazon.  An ebook/kindle version should be available by 6/April/12

Some thoughts on academic research and academic teaching

Over the last number of years the publication of the time higher education University rankings has prompted a veritable orgies of introspection amongst Irish higher education analysts and participants. Once again the news is not great, defined here as being Irish universities slumping further in the rankings. Trinity’s ranking has fallen from 76 to 117, while UCD has fallen from 94 to 159. In the listing of top 100 reputable universities Irish do not figure. Perhaps the reason is that as admitted we have adopted a policy here of trying to achieve adequacy across all rather than focus on excellence in some universities.  Spreading the cake thinly gives poor returns in most government investments.

However, it’s not really about that I want to talk. There’s an interesting article today in the Guardian by Simon Jenkins.  His basic point is that universities have become too defensive in relation to research, and too enmeshed in what he calls a “faustian pact”.  His analysis and his points are complex, and to some extent are grounded in the experience of United Kingdom, but have sent to a general discussion around what the role should be of universities in the 21^st-century. We see for example Mix, the online MIT initiative, the much-touted “success” of the Stanford course on programming, which attracted 160,000 students when it went online and which has spawned a new model of education/pedagogy, Udacity. This, along with other disruptive approaches such as that taken by the Khan Academy, or the really exciting new development by the technology provider TED, should concentrate the minds of university academics in Ireland and elsewhere as to what they are and should be doing for the 21^st-century. Should they concentrate on teaching, or on research, and how best should they position themselves to do that?

Universities exist, and have existed for hundreds of years, to do a number of things. Although we typically think of universities as giving degrees, that is by no means the sole role that they do, could, or in my opinion should, play.  Universities exist to certify acquired knowledge, via the granting of degrees; they also however exist to provide people with networks, and to provide a public good in the form of the more educated population, and via the much maligned system of tenure to provide a caste or group which should, by being immune from the threat of dismissal on foot of unpopularity of opinion, be able to hold up a mirror to society and societies actions and invite them to reflect.

Signing up for an online course from MIT may well allow you to gain knowledge. But even the best online providers are still struggling with how to effectively certify that that knowledge has been acquired by a specific person in a specific format over a specific time period. Furthermore, while online networks can be powerful, there is no substitute for face-to-face, human-to-human, interaction and discussion around shared problems and towards seeking shared solutions. People are social animals.  While there is a very superficial attraction to the idea of running only those courses which “are economic”, the reduction ad absurdum of this would be to offer only those courses which are a point in time deemed attractive to a particularly large enough group of people. This would result in an education version of the corn-hog or cobweb cycle well known to generations of introductory economics students: people flock to ‘hot’ courses, they become a glut on the market, the course becomes less valuable, it closes, the skill set wanes, and the cycle starts again.  If we wish to get the most out of our universities, via network and social good elements, then we must not only allow require that universities teach courses which, right now, might not be terribly attractive to individuals, but which lay the foundations through networks or through” education” for further societal advancement. Thus we need to cross subsidies courses and areas.

In other words, universities need to think about going back to their basics. The certification of knowledge needs to be disaggregated. Knowledge consists of a process, as well as an outcome. If I want to find somebody who has really good particular technical skills then I am more likely to find them employed by and certified by a professional organization than I am to find them straight out of an undergraduate or postgraduate degree. It is in the universities that people should learn how to think, how to acquire and internalize knowledge, as well as perhaps acquiring and demonstrating some certain specified skills, those skills should be mostly about the process. Technical, operational type, skills are perhaps best achieved by commercially focused organizations, which may or may not be attached universities, which can rapidly respond to changing industry and social needs, but which build upon a cadre of people with a proven ability to take on board complex tasks quickly.

To my mind this is where research in universities comes to play. If we consider postgraduate courses in finance, an area with which I have some understanding, the reality is that even the best Masters degrees (and this of course in Ireland is the Trinity College MSc in finance, uniquely triple accredited and chock-full of pedagogic innovation) produces graduates with a broad range of knowledge across a variety of finance and banking domains. The students are highly sought-after, but the reality is that the vast majority of them that will continue on working in the finance and banking field will obtain further vocational qualifications. These qualifications might be chartered financial analyst, accounting qualifications, qualifications around back and middle office processing, qualifications around portfolio management, in a fund administration role etc.   Like any good business school postgraduate programme the courses are taught by a combination of academic and clinical faculty. These provide complimentary but distinctly different inputs into the intellectual formation of the students. We are lucky in that we have extremely high quality, professionally qualified, industry embedded clinical faculty, who teach courses that are highly rated by the students.  For the most part however these courses are optional, in that they allow students to choose them, and they are typically focused on narrow industry facing aspects of finance. These take it as read that the students have taken the core “academic” courses taught by the faculty. It is an ideal synergy operating on using the abilities of students to learn, which hopefully they have achieved the academic faculty, and applying them to ever increasingly focused technical/full facial/industry focused courses. Of course there is no clean break, no clear blue water, no magical red line that divides these two areas, as academic faculty teach technical skills and clinical faculty teach process learning skills, but the weight of the pedagogic effort lies more on one side or the other.
In my opinion if faculty are not research active then we cannot effectively show students how knowledge in their field moves forward. One of the big issues that we addressed in my corporate finance course at the masters was what do we do if we have no risk-free rate of return. The concept of a risk-free asset has been pretty much core too much of modern finance. And for a very long time this was taken as being the appropriate local sovereign bond, perhaps adjusted if you’re in an emerging market situation. But there is a considerable body of experience, and of research, which now shows of course that perhaps even in developed markets this is not an appropriate assumption to make. If I’m not involved in research around international finance, then I’m not sure I’m best placed to address these issues. Similarly, and again in a corporate finance situation, there is a body of research, to which I have and am continuing to contribute, on how the theories of corporate finance do or do not map to small and medium enterprises. If I’m teaching investments, it’s useful, I think, that I have some experience in researching on alternative investments such as Gold, wine etc.

Research contains three elements.  Firstly you have to read an enormous and broad range.  For example, if one really in my view wants to be well up with what’s happening in modern behavioral finance you now have to be reading not just economics but also psychology, biology, and neuroscience. Secondly you have to apply the questions and skills to a question that you have posed.  This isn’t easy, as you have to find a question, or an issue, which is not already been researched to death.

Finally you have to submit your findings to some other external organization or body, and this is where many academics fail to complete the task.  Academic rejection is the norm : many top journals reject 90% or more of submissions, many conferences the same. While it is not hard to eventually get published ( but beware of the vast and growing number of ‘academic’ self publishing and vanity journals) it is hard and time consuming and frequently dispiriting to get published in a decent journal. To me being research active is not simply about during the first two, which I think most academics do and do quite well. Being research active involves closing the deal, and having the courage and conviction to submit your findings to external scrutiny. The first level of external scrutiny is to present these findings at a workshop, or ideally at an   international conference. Why international?  The reality is that in small communities there is always a danger of consensus, and to get a true critique of your work requires that you reach out beyond your comfort zone.  The advancement of research can be considered to be like the genetic evolution of a population, with too small a pool of contributors it eventually becomes inbred. Finally therefore the objective should be to publish this somewhere. Research that never sees the light of day cannot be judged. Again many academics in my experience seem content to see their research findings published in the proceedings of conferences. But there is a qualitatively significant difference between the typical rigor of peer and external review as applied to conference presentations, even if subsequently published, than there is to book chapters, and there is another leap from book chapters to even the lower tier of internationally recognized journals.

So research in universities, by the academic faculty, should in my view be seen not as something extraneous, something magical above and beyond teaching, but as an absolutely intertwined piece of what it means to be a scholar teacher. While there are superb teachers who are not research active, this is down more to the fact that they have spent decades honing their skills, as well as being possessed of the mysterious spark that makes a great teacher stand out from a good teacher.  It is in my experience and opinion better to have the majority, the great majority, of academic faculty research active, skilled in modern pedagogic issues, bringing their research to bear upon the teaching and taking from their teaching issues back into their research.

(so far 8) questions on the Fiscal Compact which I would like answered..

Following up on my blogpost today and just in time for the sunday business and talking heads shows, some questions spring to mind on the Fiscal Compact. Feel free to pose these to relevant politicians or better yet to answer them below..

1. How would the existence of the fiscal compact have prevented the Irish economic collapse, given that we would (debt levels apart) have been pretty much within the terms of the criteria? Our problem on the fiscal side was that we were badly balanced in terms of the makeup of the tax base and clientilist in our expenditure.
2. How exactly will a structural deficit be estimated, given that there is no consistent method for so doing and that it is dependent on in essence a backcast of what the economy might have been at were it growing at capacity? What models and approved by whom will be used to estimate the economic dynamics? What if the ESRI say we are in balance, the ECB say we are not, the OECD say maybe, and the IMF say we might be if their model is right…? Who arbitrates..?
3. Given that the implied dynamics of the fiscal compact on sovereign debt are that it will radically shrink, what are the knockon effects and how will they be handled in terms of pension and investment funds which will now have to either move to other low risk assets with the danfer of igniting bubbles therein or take more risk with the consequent dangers to pension funding (private and public).?
4. Would the existence of the FC have prevented the taking on of the bank debts, in 2008, given the effect which that had on the fiscal side? If this is so how can the FC be squared with the evident desire by the ECB to not see banks fail?
5.  Given that if you exceed the terms of the Fiscal Compact you will be fined up to 0.1% GDP, will that not lead to a exceeding-fine-exceeding spiral?
6. Given that in general Fiscal policy is taken as the taxation and expenditure elements of government as they interact with the economy, and that this is in essence a state level spending side only treaty, when can we expect common movement on either state level taxation or community level transfer payments to offset the pro cyclicality of this pact ?
7. If this is ‘a vote on the euro’ what mechanism wil be used to remove us from the euro zone? What treaty, what section?
8. Given that the government have already stated that the talk of a second bailout (aka being in the ESM) is ‘ludicrous’, and that the only sanction mentioned in the FC is not being able to access same ESM if one does not sign up, what is the downside of saying ‘hmm, no, not quite what we need thanks’?

Understanding Central Banks….

The crisis has shown us that the role of the Central Bank has rarely been more central to global economic welfare. Calls for more, or less, or faster or slower money growth, for new rounds of quantitative easing, for enhancement of the role of Central Banks as lenders of last resort (but to whom?), discussions on the desirable or undesirable role of inflation…. In this context it is essential for any business to understand what a central bank does and does not do.

Taught by Professor Karl Whelan, who has over a decade worth of experience as a central banker in the Federal Reserve and in the Central Bank of Ireland, this course delivered by my Campus Company will  examine among other issues

• If and if so how central banks influence interest rates and the money supply.
• Lender of last resort operations and banking regulation
• Quantitative easing
• How major central banks are structured, their legal limits and how they communicate (and how to decipher this)
• Liquidity traps
• Sovereign debt and central banks.
• MMT (Modern monetary theory).
• Credit risk in the Eurosystem of central banks and the correct interpretation of movements in payment systems and TARGET2.
• The euro area crisis and scenarios for a euro break-up.

Coming when the global cental banking debate intersects with the role of the ECB/Central Bank of Ireland on the issue of the Anglo Irish Bank Promissory Notes, this course should enlighten and provide business context to these issues.

UPDATE

Karl presented a discussion on exceptional liquidity provisions by the Central Bank of Ireland on Friday 27 January. His slides are

here

.

What are the future business prospects for the Irish Economy?

The first course to be run by my Campus Company, Ussher Executive Education, takes place on 5 March 2012.  It’s a course on the future  business prospects for the Irish economy, looking back at what happened during the Celtic Tiger era (which properly speaking is the period from about 1997 to 2001/2002), the lasting influence of the bubble, and where business might be going.

The following is indicative of the kind of material that will be covered

• Ireland’s potential for growth: Which elements of the Celtic Tiger will return, which will not?
• what is the outlook for banking, for credit growth and creation, and for the housing  market.
•  what’s going to happen with regard to Ireland’s national debt, and how will this impact on business.
• can the Euro breakup, and if so what are the implications, good and bad, for Irish Business.
• Where will jobs be created and where will they be lost in the next decade

The course will be delivered by Professor Karl Whelan. Full details are available here 

The course should be of great benefit to anyone who wishes to gain a comprehensive overview of the present state of the irish economy from a business perspective.

Where is the housing market going in 2012?

This is an extended version of a column published in the Irish Examiner on 7 January 2012.

http://www.examiner.ie/business/uncertainty-over-end-of-fall-in-house-prices-179355.html

In the last week a number of publications have emerged which indicate that far from the house price crash reaching the bottom it appears, at least if you believe Daft.ie, to be accelerating. Daft.ie suggest that the asking prices for houses are now 52% below the peak, showing 18% fall in 2011 alone. Myhome.ie, owned by the Irish Times, is a little less apocalyptic, suggesting that Asking prices are only 43% down. The CSO, and Alsop properties, basing their data to November on paid prices, suggest that the declines are 46 and 67% respectively. Prior to the difficulty in interpreting exactly where we are is that the indices used are based on different constructions. For example the Allsop data reflect distressed properties at auction, while the CSO data represent purchases based on mortgages. We are, in other words, still unsure as to exactly where we stand. And not knowing where we are it is hard to know where we are going.

There is a proposal that in June 2012 we will, if all goes to plan, finally see a official government house price index based on settlement prices. To say that this is long overdue is akin to saying that the Titanic had a slight damp problem. It is arguable that a large part of the crisis which we are in now is as a result of people not knowing where we were, how we got here, and therefore not being able to make an intelligent prediction about where we would likely go. Note that this did not prevent people, including myself, from making predictions, nor did it hamper some form making more cogent and less erroneous predictions. However, I think it reasonable that the absence of an official house price index contributed in large part to the lack of coherent analyses. Moreover, as I understand it, the initial publication of this will only be back to 2010. While there will be data available back to 2001, covering therefore the end of the house price boom and the start of the house price bubble, as well as the crash, it appears as though this will not be published at least not initially. Why this is so is baffling, as giving a full picture of the noughties house price dynamics would be invaluable. There is a plethora of administrative data on house prices available within Revenue. While it is not their job to disseminate it, they do hold it. The CSO have run seminars on using administrative data, but as far as I can see the issue of house price data has not been a topic.

Coming off the reports noted above the consensus is that far from seeing a leveling out, the market reaching the bottom, in 2012 house prices will continue to decline throughout this year and into next year. Indeed, one commentator has suggested that the average house price fall from peak could be as high as 90%. But this perspective is even gloomier, and founded in decent analysis, than the analysis by Morgan Kelly that we could see price drops of up to 80%.

Part of the difficulty in relation to ascertaining when we will see the bottoming out of the market is that the dynamics, both statistical and psychological, of turning points and not particularly well understood. In there is a reasonably large body of research on the dynamics of house price booms. It is a pity that more cognizance was not taken of these reports by the relevant authorities, and indeed by commentators including myself. However, in Ireland we tend not to engage in that foreign continental vice of evidence-based policy making, and therefore one can’t but wonder as to whether or not any amount of analytical evidence into 2004-2007 period would have made the blindest bit of difference to government policy.

Be that as it may the consensus in academia is now that three major elements exist in the dynamics of house price booms.Firstly, these tend to be self-perpetuating, in that rising house prices in one period leads to expectations being formed of house prices rising in the next period. There is a limit to this however, with the not unrealistic finding that as the boom lasts longer and longer it is more likely to collapse.. A recent excellent paper on this is here . Secondly, and this is particularly case in Ireland, the credit conditions are important, with some evidence suggesting that credit laxity can fuel house price booms. This has been discussed here. Thirdly the general economic conditions are of course important, including in particular the conditions and rental market and the overall health of the economy. Income, rental issues, interest rates, unemployment , inflation have all been seen as important drivers. See here for Central Bank analysis on this, here for an analysis of the importance of unemployment. The most recent IMF analysis suggests that deviations from trend national income and a Bundesbank study suggests similar dynamics with deviations from fundementals taking “several years” to correct.

If we then consider all of these we cannot come up with the conclusion other than that house prices will continue to fall through 2012. Daft.ie have noted on a number of occasions that falling house prices are not necessarily a bad thing, if they get house prices back to where they should be based on fundamental economic conditions. I agree with this, but they have also noted that the very self-fulfilling nature of booms also operates for crashes. Expectations of falling house prices will feed into falling house prices, and in the Irish context this is going to be exacerbated by the aggressive deleveraging of banks in general and in particular in relation to mortgage credit. A naive conclusion would be then that we need simply to pull on a happy face and think positive thoughts, and if we really really believe house prices will rise then they will. The reality is that that is both unlikely to happen in an economy grinding to a halt, nor should we want prices to rise until and unless they have reached at or below fundemental value. Outstanding mortgage credit to Irish households is now only 62% of what was at peak, and has continued to decline steadily by 2 to 3% per month. There is no reason to expect that in the near future this will change. The acknowledgement that credit drives the housing market in ireland is evident from the calls for banks to lend more (see same from Sherry Fitzgerald here) and even the astonishing suggestion that the (bankrupt) state should take on board the negative equity of future borrowers.

The evidence is that the longer the boom not only the more severe but also perhaps the longer the crash. There is relatively little research on the macroeconomic determinants associated with house price crashes, and such research as does exist seems counterintuitive, suggesting for example that increases in national income reduced the likelihood of exiting a crash. This may be partially explained by households faced with an increase in disposable income in using these to pay down existing debts rather than to re-enter the housing market. However, much research remains to be done on house price crash dynamics, as opposed to house price boom dynamics. A valuable investment by a mortgage lender would be a couple of postdoctoral researchers focused on this area.

It is quite astonishing that despite the massive wealth created in Ireland over the boom and bubble, from property, there is I would suspect less academic research capacity in property now than there was in 2001. Perhaps in an effort to ensure that this time really is different, and we dont make the same mistakes again and again, one of the estate agencies might consider endowing a lecturer or three in the third level?

A reasonably comprehensive analysis of property bust determinants is given in a 2009 ECB working paper. The determinants of crashes/busts are analysed in the table reproduced below

What can we take from this? That busts are positively associated with short-term interest rates (thankfully low in prospect), increases in property taxes (coming soon) , exchange rate strengthening (hard to call) and banking crises (oh yeah, we have one of them all right…), and are negatively related to the health of the government balance (poor in this case) , monetary growth and credit growth (both poorly here ) , population growth (slowing if for no other reason than due to emigration) and growth in national income (we wont be seeing that for a while). Thus, there is really little cheer from the research such as we have.

Where then might prices go? the CSO data suggest a house price peak of some €331,000 for new houses in Q2 2007. Ronan Lyons uses some relatively simple extrapolations to look at the possible future dynamics and suggests that the market will bottom out in 2014 at approx €150k, representing a fall of 55-60%. In early 2010 I suggested that we could hit €130k region in 2013, a fall of some 60% plus. Cormac Lucey suggests (see his last paragraphs) a fall in average new house prces to perhaps as low as €75k on the basis of overshooting, with a trough perhaps at 2017. Morgan Kelly in his seminal analysis suggested a fall of between 40-60% with a possibility of up to 85%. Recall also that if houses are to fall by say 75% from peak and have already fallen by 60% that does not mean a 15% fall is in prospect: . You are going from 100 at a peak to 40 now and down to 25…. do the math. While NAMA may have declared november 2009 as its valuation date, implicitly suggesting that the crash had then ended (and the ongoing crash has implications for NAMA to which I will return), it seems that in the words of De Bert, when it comes to house price fall, while there is a lot done there is more to do.

Cigarettes….time for a ban?

In general I’m not in favour of banning things, I’m more inclined to regulate them, and to tax so as to recoup for the society the marginal social harm that anything does. However, in the case of the ciggies perhaps it’s time to consider moving a little more along the path started by the smoking ban, and to ban the cancer sticks entirely. People are NOT addicted to cigarettes or cigars or pipe or chewing tobacco. They ARE addicted to nicotine. But nicotine can be delivered by spray, gum, patch, injection etc. nicotine is more toxic than rattlesnake venom, and acts on the mind in a way that make it super addictive.  
The overall cost of smoking in Ireland is not easy to estimate but some suggestions are that over 7000 excess deaths per annum can beat tributes to smoking. Smoking is associated with economic deprivation, something that will increase, and as such so too will excess deaths in more deprived areas. Employee costs, from fag breaks, increased absenteeism due to smoking related morbidity etc were estimated at c €400m in 2003. More recently the department of health suggests a cost overall for the HSE of €2.3b per annum. But no monetary cost can be placed on the misery of small cell carcinoma, the agony of emphysema, the dragging lethargy of congestive heart failure, the hole in lives left behind because a loved one smoked themselves to death.  
 
As there are plenty ways that do not seem prima facial to be as unhealthy a way to deliver nicotine than by lighting dried plants and drawing the tarry toxin laden smoke into the body, maybe Ireland could take a leap and ban the practice? Take all the nicotine you want, by other means. Iceland is mulling such a move, but of course Ireland is not Iceland…  
 

Seanad : babies and bathwater

As we leave 2011 one of the government promises which they announced as part of their election appears to be still on track. They do appear to be intent on getting rid of the upper house of the Irish Parliament, Seanad Eireann
I’m not at all confident that is this a good idea.  Most people would say that the majority, of senators over the years have been anonymous, insignificant, and ineffective. This is unfair, as there are many good hardworking Senators, but the reality is that the perception lingers and many Senators remain anonymous to the people throughout their career.

The Irish upper house is elected in a curious manner. Of the 60 senators 11 are appointed directly by the Taoiseach, the Prime Minister. This was designed by the architect of the 1937 Constitution to ensure that the upper house would always have an inbuilt government majority. One of the only reasons to have an upper house is of course it can, in principle, hold the lower house to account. Being neutered from the start was hardly a good idea…
Of remaining senators six are elected, but on a very restricted franchise. Despite the fact that for decades and has been an opportunity to widen this franchise has not been done. The remainder is elected in a series of panels, basically ensuring
that the grip of the political parties remains intact. Details on the electoral process contained on its official website, here. The membership of the panels is in effect in the gift of sitting parliamentarians. A good description of how panels are constructed as contained in the citizen’s information advice
site, here

The existence of the Seanad is very deeply entwined In the Irish Constitution. Eliminating it therefore is a complex task. Ex-Atty Gen and also ex-Minister for Justice, Michael McDowell, has suggested that would in fact be easier to draft a whole new constitution than trying to amend the present one to reflect a vote to abolish the Seanad. I think he’s right, but there is no doubt there is widespread public disgust at how the shadows over the years has been, at least perceived, to be a dumping ground for ex-politicians, a training ground for wannabe politicians, and in general has resulted in the population of the upper house being for the most part either discredited, one proved, or anonymous. The reality is that when people think of high-profile solicitors for the most part the people they would name would be the University Sens. These are people who are elected, as I say, on a very restricted franchise. But at least they do have to face a wide constituency. In the last election there were 53,000 voters eligible to vote for the three senators on the University of Dublin panel.

Here follows, purely as an intellectual exercise, a set of reforms that might if implemented might result in a more user focused and effective upper house.

1.  Let’s broaden out the electoral base. Since the seventh amendment in 1979 the provision has existed for the government, by law, to extend out the franchise from university seats beyond the existing universities. We need to go further than this, and make election to the Seanad by universal suffrage. I do not agree with the idea of seats in the parliament for persons not resident in the country. And yes, by this I include persons resident in Northern Ireland. I do believe however that we should have elections to the upper house for which anybody, regardless of citizenship, who is resident in this country for tax purposes may vote. I see no reason why, for example, a Polish or German national resident here for the last decade and tax compliant, cannot vote or indeed stand for election to the upper house.
2.  Let’s have terms. Is jealous of 60 people there is no reason why we shouldn’t have a fixed term for Senate of say five years. The presence of these senators tied to the electoral calendar of the lower house. Let’s liberate it, let it be independent, but let’s have it like United States Senate, where one fifth of the members are up for election every year. Along with universal suffrage this would ensure that the upper house without is a continual “ thermometer” regarding political opinion in the state.
3.  Let’s change the method of election. As I’ve stated we should of course of universal suffrage. One of the objections that people have raised when I have suggested the idea of the rolling electoral process such as in point to be that this would result in the vast expense and continual electioneering. There’s no reason why we have to continue to do things the way we have done. Electronic voting in Ireland has had a bad name since the absolute fiasco of the e-voting machines. There’s no reason why we shouldn’t experiment with, for example, voting online. In effect, and this is where tying the voting register to the tax register would come in useful, would ask the revenue to issue to each voter/taxpayer and alphanumeric multi- character code. They already do this if you want to use revenue online system. Recall that to have 12 senators elected each year then we need to have three or four constituencies, roughly approximating to the provinces perhaps. This is simply so that in retaining the single transferable proportional representation vote system we do not end up with vast and overwhelming election ballots. Each taxpayer now having received their unique code, the block of codes for each constituency should then be given over to an absolutely independent electoral commission. It would be be essential that there be no way in which an individual called would be tied by anybody to an individual taxpayer/vote. Information Commissioner should be tasked with overseeing this. The code which each taxpayer now possesses would be required as a one-time only login on a voting website. I’m sure there are huge technical challenges, but if Amazon and eBay can run sophisticated online electronic commerce there is no reason why we should be able to do this.
4.  Let’s change what the Senate does. One of the problems at the moment as it is not clear what the Senate actually does. Yes, it debates legislation. But the government has an inbuilt majority and therefore the house cannot act as an effective block or oversight. Yes, with certain exceptions, senators can initiate bills. As we have seen in the recent example of Sen Sean Barrett, even when the government are in total agreement with the thrust of the bill, individual Senate proposals from non-government source will never get beyond a polite pat on the head. The government in its election promises made much about cleaning up the win which appointments are made to state bodies. Let’s give the Senate a role in this. All senior appointments to all state boards, all senior appointments in the civil service, all senior appointments to the army and police, the heads of all universities etc., should be required to go before a Senate committee. A majority vote of said committee would be required in order for the person to be appointed. Let’s have the Senate question people as their fitness for office. Let’s let the public see what the views, attitudes, ideas, and proposals are, of the most senior echelons of state apparatus before we find ourselves paying for them.
5.  Lets make senators part of the government. At present, with some exceptions, Cabinet posts are open to senators. And yet, despite the government having the ability to point persons of merit from outside the party political process and then appoint them to senior cabinet positions, the last such senator to be appointed to a senior Cabinet office was that of Sen Jim Dooge over 30 years ago. My proposal above suggests that we abolish the ability of the Taoiseach to appoint people. The universal suffrage, on a rolling basis, should give a Senate, which is representative of the views of the people. Let’s incorporate those views into the Cabinet, by requiring that at least two Cabinet posts be held by Sens.

I’m sure there are other, no doubt better, proposals which people could make which would make the Seanad work more effectively. Let’s try proposals, let’s see if we can make the system work better. If having done our best to improve and reform the Seanad it’s still not working, then we should by all means consider getting rid of it. But getting rid of the Seanad, without having tried to reform at first, strikes me as a classic case of throwing the baby out with the bathwater