Monthly Archives: September 2011

The Central Bank and printing the Punt Nua

And once again the rumor goes around that “ they are printing punts in the mint”.   this rumor is usually sourced by somebody who met somebody in a pub whose sister knows somebody that they met in the hairdresser  who has a   friend going out with a guy whose uncle works for the mint.

It is almost certainly complete Tosh. There are several reasons why I don’t believe this is happening.

Firstly, the idea that any branch of the Irish government could carry out a massive, clandestinely, secret commercially sensitive operation would seem to fly in the face of all that we have learned over the last three years.  That’s not to say they couldn’t do it, it’s just that in this country I suspect that something more than “duirt bean liom gur duirt bean lei” would emerge.

Secondly, it would be pointless.  There is ample evidence about how currency unions break up. In fact we’ve some experience of it what is now the European Union, when the Czech and Slovak republics parted terms in the early 90s. We’ve also seen how the breakup of the ruble zone happened, and there are break-ups of currency zones such as the breakup of the Austro-Hungarian currency union after World War I and go back further in time.  While none of these took place in quite the same globalized capital system that we have now to parameters are constant. Firstly you don’t need to print new currency. All you need to do is actually provide a mechanism whereby the banking, or post office, system rubberstamps the existing currency. This gives time for the currency producers to get the printing presses up and running. Anyhow, the main bottleneck in modern note production isn’t the presses or plates – it’s the paper stock.

Secondly you have to institute massive capital controls. You need physical controls to stop people taking money offshore (or to newry…good luck with sealing the border, that worked so well before)… You need to stop money flowing electronically offshore.  This is where it gets tricky in the Irish context.  The objective, I presume,  in leaving the euro would be to try and gain some degree of competitive (beggar thy neighbor?) devaluation. A quick glance at the Central bank of Ireland statistics size tells us that the problem is not about the currency printed on paper, it’s about the currency printed on electrons. As of July 2011 there were, very approximately,  €12 billion outstanding in euro notes and coins issued from the central bank of Ireland. Now, that is not by any means the whole of the currency outstanding in Ireland.  A quick look in ones pockets will show currency from various parts of the Eurozone. One can tell the origin of currencies from this table. However, it pales into insignificance against the amount on deposit, overnight (81b) or otherwise (78b). It is this electronic money that is the issue. Stopping that flowing offshore at the first hint of a real threat will require unplugging the country from the net while they are redenominated. And again, if we can get streaming video from inside Iran or Syria, how easy is that going to be?

Third, there is a minor problem of a law, the European Monetary Union Act 1998, section 6 of which says the Euro is our currency. So, that would have to be amended.

Printing punts is fine, if one wants to do that, but that will not redenominate the electronic money. And, the reality is that at the first whiff of a move from the euro to the NoonyMoney this money would flee. What company or person in their right mind would take the chance of a 20-40% fall in value? A bank run ofgargantuan proportions would ensure. And then there would, truly, be no money in the ATM’s beyond the few tens of billions that have been restamped.So, no,they aren’t printing punts.  It may be that we are driven out of the euro by a combination of events, but we cantreally leave ourselves. For more on the technical issues, see this paper by Barry Eichengreen.

Exports and the smart economy will not cure unemployment

This is an extended version of an opinion piece published on Saturday 24 September in the Irish Examiner

Ireland is, as Captain Daly said, in a “state of chassis”.  In fact, its possible to argue that we are in several states of chassis. We face a massive hole in the public finances. Even at the conclusion of the governments plan to set these right we will still be borrowing several billion per annum, adding to the already large national debt. To ensure that we are never again “at the kindness of strangers” many commentators have suggested that we accelerate the setting to rights of the state finances. I concur with these, and indeed would go further and suggest that the plan should be to run a structural surplus, pay down the debt and create a war chest.

We face a banking crisis, part of it the requirement to nourish the Anglo succubus with billions of scarce taxpayer euros into the future, part of it the effective collapse of the banks as agents of credit creation and risk transformation. We face not one but two pension crises. We have an unfunded public sector pension liability estimated recently to be a €116b, and we have spent (on the banks) the NPRF which was one of the few good and sound economic policies to emerge from the Aherne-McCreevy years. We also face a looming disaster on private sector pensions, with their values cut to ribbons by the global financial crash, subject to government levy and mostly in actuarial deficit. And we have a crisis of unemployment

The extent of the unemployment crisis, now and in the future, is stark. Over 300,000 persons were classified as unemployed (as opposed to being on the live register, which can be for technical reasons) in June 2011.  After a brief period of stabilization and slight falls there has been a recent rise again in unemployment.

Set against a backdrop of tens of thousands of emigrants, we see unemployment rates among those in their early 20’s nearing 30%, amongst males 17%,  in the south east  overall at 18% and long-term unemployment  nearing 8%. There is an excellent discussion of these trends on

It would be unfair to say that the government has no plan. It has at least three, each in their own way decent enough but I suggest limited and in danger of being ineffective.

We have the much vaunted jobs initiative, welcome but in essence revolving around a (temporary) cut in VAT in labour intensive industries, many of them highly dependent on discretionary consumer expenditure which is and will decline. I have previously expressed my concerns about this.

We have the jobsbridge, a welcome idea to allow persons to gain internships, grounded in the strong economic finding that spells of unemployment are more damaging the earlier on in ones career they occur. However, there are many concerns about the quality and nature of the jobs being advertised, many being perceived as low skill and displacing full time positions. This criticism has even made its way out of the Labour party (in office, lest we forget) meetings to the public.

Finally we have a broad background music of export led growth, that the creation of a knowledge economy exporting goods and services will be a rising tide that will lift all boats. It is this that appears to be the main plan of government policy and it is this that is in my view flawed. To see this we need to examine where the 1.8m jobs are at present. Shown below is the structure of irish employment over the last number of years.

Eurostat define industries as being high-medium-low tech and also taxonomise them on the basis of knowledge intensity. In Ireland, as of Q1 2011 the high tech sector employed a mere 3% of all persons, with medium tech firms employing just under 4%. These firms, computer manufacturing, chemicals, high-end fabrication depend almost totally on exports and are ever more loudly and vociferously critical of the mathematical and scientific skills of irish employees. If we look to services we find that knowledge intensive services that are market orientated employ a mere 7%, and financial services another 5 %. The other large knowledge intensive employer is the state, which is going to shrink and shrink fast. It is impossible for these areas to grow in sufficient size and scope to employ 300,000 extra persons.

We cannot rely on exports to save us. Nearly 60% of 2010 exports by value were in the chemical and related industries, with less than 5%. Although merchandise exports have been stalling this area, by value, has been rising.  Exports of services have held up better, but again we run a deficit overall on services and as we have seen the market facing services sector is relatively small in employment. There is also the question of to whom we shall export. In 2010 22% of exports went to the USA and 16% to the UK, with the largest remaining countries being Belgium at 16% (for reexport mainly), and France and Germany at 12% combined. The recent IMF world economic outlook have again downplayed the growth prospects of our major export partners, with growth rates of <2% forecast, and in some cases closer to 1%. By contrast our exports to the fast-growing BRIC nations are, relatively speaking, tiny.

The outlook for jobs therefore cannot be anything but muted. While domestic consumer and SME demand, the engine of the largest fraction of the employed economy outside the state, remains not just weak but facing into ever more reduced and uncertain times, unemployment will fall but slowly. And that is a human tragedy in the hundreds of thousands.

What Enda Kenny should have said

this is a much extended version of an opinion piece published in the Irish Examiner on 15 September 2011

For a very long time now I and others (notably but not exclusively Constantin Gurdgiv and Peter Mathews) have been urging that while there may be some reason why Ireland gave its taxpayers over to bond-age in 2008 the time has passed for at least Anglo/INBS to be cast to the wolves. In June 2009 I suggested that we were spending cash we did not have to save a bank we didn’t need.  In September 2010 wrote an opinion piece in the Irish times, which attracted much attention. See for some of the comment. In that I argued, strongly, that the government should cut its (our) losses on Anglo and impose losses on even the senior bondholders. That was greeted with howls of outrage (albeit mostly from anonymous commentators)  much of which reiterates the same old same old.  : the ATM’s would fail, . this sort of thing was only advocated by “media whores” who were “irresponsible” , Anglo was in fact Ireland ! etc etc. Fast forward to now and we see a very different complexion. Even the IMF seem to be concerned with Anglo and urges that we use the powers and strength we have to resolve the issue. The IMF of course are always and ever concerned about sovereign (not banking) stability, and when did they become the (least worset) good guys? It’s very heartening to see that as time goes on this approach, nuanced and improved on, gets more ans more traction. The latest semi-hemi- demi convert to the notion, at least at a public level, appears to be An Fear Snip Colm McCarthy. Colm is the doyen of Irish economics. He has been there and done that. He is a living, active, influential and cognitive link between the policy making of the 1980s and that of the 2010’s. He has straddled academia and industry in a manner very common in places such as the US and the continent but all too lacking in Ireland. He stated recently that perhaps it was time to reconsider the Anglo situation. That is, if I may interpret and with every expectation of being proven wrong, to me a coded cri de couer to call a halt to the madness.  Colm has been some time now moving towards a more overt concern on Anglo and its toxins, and as a low key, pragmatic, and publicity eschewing commentator his words should be take with great interest when he speaks.

The dail, finally,returned this week. At the conclusion of the last session Enda Kenny made a speech that has resonated, whether one agrees with his views or not.. He has an opportunity to do so again. Below is a speech that he could give, but would never be allowed to by the Dept of Finance, Dept Taoiseach, Dept Foreign affairs or NTMA. Europe is facing a massive crisis on the greek front and now is the time for the Irish government to remind the EU and the ECB of the strength we have. And that strength is one of being a bulwark against an even worse crisis than a managed greek default. Back in 2010 I noted that we were hopelessly outclassed , describing the debate on the bailout as  “geo-political hardball, Brian Lenihan from Castleknock versus the heirs of Bismarck and Cardinal Richelieu.” Well, what a surprise, the nice man from castleknock didn’t win. However, we now have a new opportunity. Enda is a survivor, a man who was in his time written off as a lightweight, consummate backbencher material,  even surviving a coup attempt from his own party just before the triumphant election. However, that apparentl failure may in fact have been a blessing, as it did, according to one seasoned commentator, in effect keep Brian Lenihan, a vote repellent in the General Election, in power. Enda can learn from that. Now, when his opponents are weakeend , is the time to show strength. It would be fitting that in a coalition with Labour he recall to our minds the words of Jim Larkin “The great only appear great because we are on our knees. Let us rise.”

If calling to mind a labour hero is too problematic, perhaps he should take heart from the clerkish but steely W T Cosgrove in relation to the issue of the share of imperial debt which the new irish state should take on “ I had only one figure in my mind and that was a huge nought. That was the figure I strove to get, and I got it.” 

So. What should Enda have said?

“Colleagues, we stand in Europe on the edge of disaster. Greece faces a level of debt that is unsustainable. While it can, must and will reorganize its economy and become more competitive, this cannot be done through austerity alone.  No analyst now thinks that Greece can repay its debts. When a person, a company, a country has debts too large to be repaid they must be presented with one or more of the following options. The debts must be reduced in quantum, either directly through writeoffs or via depreciation over time through inflation or directly via a revaluation; or they must be given more time  to repay the same amount, or they must be given a lower interest rate on the outstanding quantum. In reality, all three are applied.

The failings of the EU in relation to the sovereign debt crisis are well known and I do not propose to reiterate them here. Suffice it to say that our colleagues seem to consider that having allowd their banks to lend foolishly to Greece, having allowed Greece to borrow foolishly from them, the entire burden must fall on the greek people. That is nonsense, and they know it.  Greece must, even were to owe nothing, restructure how it collects and distributes taxes, how it regulates industry, how it promotes and demotes enterprises. But it ultimately must do that for the benefit of the greek people, not for any foreign power.

Ireland remains locked out of the bond markets, as much when the yield on ten year bonds is 8% as we were when it was 16% or when it will be 8% again. We have indeed been cast on the (un)kindness of strangers.

 Much of the debt, and in particular much of the preemption of irish government tax take, arises from the guarantee on bank debt issued by this house in 2008.  The decision to guarantee the debts was one that was generally supported, as being the least worst option presented to us at the time. It is now clear that at best the then government was misled by the banks, at worst it ignored the advice of its officials, or worse again was subject to subtle and backroom pressure from the ECB to not let any banks fail. However this arise, it was clearly presented as and perhaps was sold to the government and to parliament as being a temporary and exceptional issue.

However, we now find ourselves being pressured by the ECB to repay not just guaranteed debt but also to repay unguaranteed debt and debt which is secured on assets. We are in addition pouring billions into the corpse of Anglo Irish Bank and INBS, to ensure that the continue in an existence which suggests to me that we should rename them Schrodingers Banks, neither alive nor dead and whose nature confuses and perplexes. This has to stop. I now give notice that we will cease these payments and instead divert the funds to repaying our true national debt. The Irish taxpayers have paid a heavy price for the regulatory failures that led to the bank collapse. But we are neither capable nor are we any longer willing to shoulder the burden of preventing contagion across European banks. As ur regulator failed so has the ECB and the EU in allowing banks to become overly reliant on one form of debt, senior debt. We acknowledge that in stating that the irish taxpayer will no longer meet these burdens there is a real risk of contagion. Investors will ask, what is to stop German or Dutch or Italian banks from not honoring their unguaranteed senior debt?

The answer is nothing. But nothing does not mean that there is no solution. This problem is either the problem of individual countries, not possible in an integrated financial system and not appropriate in a true European community, or it is the problem of the center. It cannot be the case that when states take the burden of preventing problems in other states, as we have done to date, that they are left to shoulder this alonw. Still less is it appropriate that they be punished, as we have been via an onerous and begrudgingly changed bailout.  We in this government judge that the time has come for the ECB to take up its responsibilities for European financial stability. It has the power, financial and otherwise, to do that which we can no longer do. That it has treated Ireland shabbily in issuing veiled threats and refusing to deal meaningfully with the funding problems of the banks is both well known and regrettable.

Some will argue that this decision is illtimed, coming as it does when there are delicate market conditions. While some will argue this from genuine idologicalviewpoints, others will do so from a perspective colored by their professional advice .  I counter that there is no good time and no easy way to tell a friend they are engaged in a wrongheaded policy. It is precisely because the ECB and our EU colleagues so fear the consequences of a Greek default that we now find ourselves as a government able to exert this pressure. I am reminded of the words of a venerable and much missed member of this house, Seamus Brennan, to the Green party that they were now playing senior hurling. So too are we. I am further reminded of the words of W  B Yeats  “ Do not wait to strike till the iron is hot; but make it hot by striking” and hope that the ECB will be reminded also of the words of Yeats “say my glory was I had such friends”.

Juergen Stark, the soon to be ex chief economist of the ECB expresses perplexity  regarding the issue of bondholders having gained precedence over taxpayers remains on the Irish political agenda. I say to Mr Stark that by his own words “Concentrate on the items that have to be on the top of the political agenda, to reform the Irish economy to bring the deficit down and not .. bring up issues that in our view are non-issues” he in fact engages in the economic equivalent of doublespeak crossed with doublethink. It is the first, and foremost, aim of this government and I suspect this house that we bring our government fiancens into line. We may be divided on how we achieve that but that is democracy. Politics, I would remind Mr Stark, is the art of the possible, and I would further remind him that his own profession is properly called political economy, the ordering of the words indicating the nature of the beast. It is in the opinion of my government that at the top of the domestic and international political agenda is the putting on a sound footing the finances of states. In the case of Ireland that means that this government no longer feels bound to bail out private bondholders, the more so when doing so endangers the fiscal foundation of the state.

Some have argued that in “burning the bondholders” we run the risk that the ECB will cast Irish banks adrift. This is, to use an phrase, a “bottle of smoke”. First, Mr Trichet has intimated that even were there to be a Greek default the ECB would continue to provide liquidity. If they are willing to do so in the event of sovereign default then it is logical that they will do so where there is none, and where the normal rules of capitalism apply. Second, even were the ECB willing to see a Eurozone country run out of cash, and in doing so force it out of the zone and to therefore bring the currency to the edge of an existential crisis, the Central Bank of Irelands can, via its own liquidity operations, provide sufficient funds. I am sure that the Bank will see its national and European duties in this case as doing so. If the ECB does not wish to see this it must take action in providing long term secured funding to the Irish banks, which it has both agreed is required and has refused to do so. In ceasing payments under the promissory note and in refusing to allow any more taxpayers money to be spent on redeeming unguaranteed or secured bonds (whether guaranteed or not) by Irish covered banks, we are not engaging in a sovereign default. We will use the monies saved on an ongoing basis to more rapidly pay down our true sovereign debt, reducing any hint of a need for default on that.  We face even without the banking debts a monumental challenge to right our own fiscal house and this we will do. The result will be a stronger Ireland and a stronger Europe. We do not wish to kick the world but do recall the Dean “Once kick the world, and the world and you will live together at a reasonably good understanding” . It is time for this house to kick, and kick hard, not in a reflexive sense but to kick against the concept that we must place taxpayers in the firing line first last and always.

I close with the words of that distingusihed public servant , servant for both ireland and europe, Dr Patrick Honohan “mature reflection by the financial markets would recognize that a country honouring its debts and guarantees to the letter–and not beyond–was more creditworthy than one which handed over money lightly to unguaranteed risk investors.” . That time has come. “

NAMA needs a purgative

Over the bubble the irish economic system came to resemble a snake, swallowing ever larger , more indigestible loan financed assets. NAMA was set up to clearthe property loans from the irish banking system. The originator of the scheme, Peter bacon, had felt that the best solution to the colossal property and related loans of the banks was to deal with them swiftly and remover over 150b of same , cleaning their balance sheets at a stroke. The Fianna Fail government balked at this, and cut NAMA in half, removing “only” 72b of loans. Thus, from the outset the Irish banking system was crippled. Like an anaconda that has swallowed a pig it found itself unable to move backwards or forwards, and with only half the pig removed it is now clear that the banks are unable to process these, or to restore credit. Oh how we recall the heady days when NAMA advocates stated, as a matter of faith and fact, that “NAMA will get credit flowing”

One of the key problems that NAMA has created is that it has effective control over a vast overhang of property. It’s a vast empire, opaque and closed to the people who fund it, structured in a way to ensure that although the taxpayer is on the hook for its inevitable losses they cannot easily discern what is going on, closed to scrutiny bar the occasional stage show where the very highly paid management ruck up to be quizzed for a few hours by an oireachtas committee.

The NAMA design is flawed. While NAMA aims to try to make a profit it has an incentive to sit on its assets until, micawber like, something, in this case property prices, turns up. And that is unlikely to happen in the short or even medium term. NAMA has two main tranches of property – commercial and residential. And, lets recall that the banks, via the smaller developers (those with sub 20m in loans) and residential mortgages, are also looking at the residential property market in Ireland with hopes if not expectation of it emerging lazarus like from its tomb.

NAMA priced the loans that it bought from the banks with reference to November 2009 prices. Its now clear that these were a major overpayment. Since then commercial property prices have fallen by a further 18%, residential prices by 20%, although there has been a rise in the London property market which accounts for a small portion of NAMA assets. Theres no sense yet that we are at or near the bottom. The irish commercial property market can best be described as sickly or moribund, with most activity being apparently driven by movement to higher spec/lower cost offices and premises by persons taking advantage of this weakness. The residential market is deader then the dinosaur, with the result that the property crash is actually slower than it should probably be. Prices in Northern Ireland have fallen from a (relatively smaller) peak by over 50% while here they are down by just over 40%. Planning permissions have collapsed to 1/3 of the peak, while sales remain stagnant. While a large part of this retardation can be down to greater “Stickiness” here in terms of more onerous bankruptcy and a much lower propensity to repossess, a large part must be down to the gigantic overhang of residential property. We do not know how large this overhang is – estimates have ranged from 40 to 140 thousand, or from one to several years “normal demand”. Until this is cleared normal activity in this market cannot resume and we cannot know the true bottom line cost of the crash.

NAMA and the state and the banks are locked in a financial standoff, as ugly as the ending of Reservoir dogs. If and when NAMA loses money it is state money, borrowed money. If the banks lose money, then yes, its again state money as they have no space capacity. But the rotten meat of the oversupply of residential properties in NAMA and in the banks is clogging their ability to generate credit. Nobody wants to see a reigniting of the property bubble but without some economic laxative being applied to the banks and NAMA they will continue to sit, dyspeptic and immobile. Yet, all assets have a price, it’s a matter of finding that price.

I have suggested for over a year that we have the ideal mechanism – ebay. NAMA is going through a complex, costly and opaque system of auctions for various of the goodies it has taken from the developers. The banks are auctioning off in bits and pieces the swampy fields, decaying ghost estates, crumbing half built factories and weed infested sites that are the legcy of the bubble. But they are not selling. Lets take a deep breath and lets have some vision. Instead of paying massive auction fees, and instead of waiting for something to happen, like godot meets micawber, lets see Michael Noonan instruct NAMA to put it all for sale. Put it on ebay and clear out the system. Lets get the banks to do the same. The economic house having burned down its time to embrace the firesale.

Ebay is a wonderful, worldwide, cheap auction platform. There is an ocean of international money that would conceivably purchase some irish property. All that’s needed is that it be brought to its attention. Of course, this process would crystallize the losses in both the NAMAsaurus and the Banks., but then we would be clear where we were, instead of sailing up denial with an undigested lump in our economic gut…. What price clarity?


A shorter version of this was published as a column in the Irish Examiner

(why) have irish universities slipped in the rankings?

So, as Ferdinand Von Prondzinski so well states, the new academic season is one that in increasingly revolving around the beat of the various rankings. And, a new batch is now out, this time from QS. Its a well regarded ranking system, and in so far as any rankings systems go, its useful as a snapshot at least.  The snapshot, as reflected in the newspapers anyhow, is one of decline (see the Irish Independent, and the Irish Times, with the Cork Examiner delivering a slightly different message) . The “raw” rankings are much as one might expect :

“TCD drops down 13 places to 65; UCD is down 20 places from 114 to 134. NUI Galway suffers the most dramatic fall, down 66 places to 298. UCC bucked the trend, up marginally from 184 to 181.” (irish times)

So why have the rankings changed so much? Lets look at them in more detail. The universities are ranked on a number of criteria, some collected by survey, some from objective metrics. Shown below are these detailed metrics. Note that a blank indicates that the university was not ranked in the top 300 on that metric in that year ( or if they were i didnt see them …) Academic reputation is measured by a survey (in which I participated) , and accounts for 40% of the weighting. Employer reputation accounts for 20%, again via  survey ; Citations per faulty member are collected from Scopus, and it accounts for 20% as does faculty-student ratio, with the residual being split between international students and international faculty.

2009 2010 2011
TCD Academic Rep 59 63 81
Employer Rep 39 63 51
Citations 244 214 220
Staff/Student 116 145 193
International Faculty 29 29 29
International Students 93 83 94
 UCD Academic
114 120 159
Employer Rep 48 69 51
Staff/Student 138 167 232
International Faculty 54 44 54
International Students 65 61 57
 UCC Academic
219 217
Employer Rep 99 112 100
Staff/Student 232 183 XXX
International Faculty 60 80 60
International Students 204 200 228
NUIG Academic
Employer Rep 144 159 228
Staff/Student 182 158 219
International Faculty 55 50 55
International Students 145 141 178
DCU Academic
Employer Rep 141 154 100
Staff/Student 208
International Faculty 74 88
International Students 131 152 171
UL Academic
Employer Rep 176 162
International Faculty 99 117
International Students 300
DIT Academic
Employer Rep 202 222
Staff/Student 53 152 161
International Faculty 281 281
International Students 186
NUIM Academic
Employer Rep 198
International Faculty 111 133 111
International Students 220

From these we can see the causes of the generalised slipping down the rankings.  Its important to note however that these are ordinal data. They are therefore not amenable to simplistic statements (indeed, nor are most data) about “X has done worse” without careful analysis. In particular,  without knowing the distribution of the data, we cannot state that going from 152 to 161 in the world is actually significant. What we can do is look at trend.

First, its nuanced. There is actually good news here, if one interprets the figures. In general irish universities are internationally staffed and have a decent reputation amongst employers.

Second, there is a spottiness in the rankings. As might be expected the leading universities, TCD, UCC and UCD, get ranked in pretty much every area. However, looking at the top 300 rankings we see that outside these we only see occasional appearances.

Third, to me this, plus the data from subject specific rankings , suggests that there is a strong case for DIT to be a university. Its performing at least as well as the “real” universities and should, IMHO, be rewarded.

Fourth, while international faculty rankings are strong, and perhaps inflate the overall rankings, one has to wonder how  this will pan out. How easily can irish universities attract and retain staff in a tanking economy and to a sector which is apparently run by oxymoronics?

Fourth, there is some commentary that the declines are down to staff student ratios. While there clearly has been a fall in these rankings, a fall sufficiently large that it is for certain a significant fall, there are also falls in the overall academic reputation.

Fifth, the raw material of academics is knowledge – the discovery and dissemination of same. One avenue of dissemination is via students, but another is via publications. In that regard the poor showing on citations is of concern. Citations act as a (poor enough) proxy of the coproduction of knowledge and its dissemination. Increasing these might be a good way to ensure a better and more rounded university sector.

Sixth, there is much laudatory comment on UCC being “irelands first five star university”. UCC is a great university. But , these stars are something to be wary of. Unlike the other metrics these stars are opt-in. In other words, they are requested from the university side.

Education, reform and an alexandrian solution

This is an expanded and updated version of an opinion piece published in the Irish Times, coauthored with Dr Charles Larkin

Recent commentary in the newspapers suggests that the Higher Education Authority are not happy with the concept of competition, suggesting that they will use their power of the purse to force universities to cease duplication of courses. In an Orwellian phrase they use the term “directed diversity”. This is entirely wrongheaded but coming from the micromanagers of the HEA its no surprise. These are after all the people that brought us the ECF Fiasco….And it will hobble the state and the sector.

The iron rule of comparative advantage states that countries should engage in activities wherein they have a relative advantage vis-à-vis others. Ireland is a small open economy with people as its primary resource. Understanding this, the development of an export-orientated service economy has been suggested by some as the most appropriate approach to medium-term economic growth. The key to this is a workforce highly skilled in what Robert Reich, former US secretary of Labour, has described as “symbolic-analysis” tools. The creation of this human capital requires a holistic, broad skill set. This is the product of a truly liberal thinking set that is the hallmark of a true knowledge worker. As services grow to become more and more important people will need a combination of soft and hard skills to gain and maintain employment

Hardly a week goes by without a government spokesperson discussing an aspect of the “Smart Economy”. In the public and perhaps government mind this is equated with technology, the “smart green nanobots” approach that thus far has produced lots by cost but little by way of jobs.

We suggest that a truly “Smart Economy” is not based on technology: the really smart economy is about flexibility, especially mental flexibility. Option theory tell us that, ll things being equal, the more uncertainty the more valuable the option. HArnessing the value of the option value of uncertainty, and the world is inherently and increasingly complex and uncertain, depends on ones ability to recognize the right time to act. Developing this mental flexibility should be the primary focus of the education sector, in particular the third level. Within this there is, we contend, no role for directed diversity or other such oxymoronic statements.

We suggest that there exists a set of interlinked issues that make the sector as it stands unable to do this.

Irish higher education suffers from a severe conflict of mission. It is expected to deliver on innovation, education, social enrichment, economic growth, public health, improved lifestyles and put a chicken in every pot. Though research suggests that all of these and more arise from higher education, the effect varies across individuals and disciplines. The context is further complicated by the regional imperative. Given the need to spread scarce funds widely there is little chance of obtaining internationally competitive scale in any one area or institution. Higher education and innovation is also drowning in an alphabet soup: HEA, HETAC, FETAC, SFI, IRCSET, IRCHSS, HRB, EI, FÁS, FORFAS, NCC, IDA… Although some consolidation in terms of qualification accreditation is now being proposed, this is only a start and will not address the civil service culture of bureaucratic empire building. Consideration should be given, we suggest, to the creation of a single ministry with three divisions – Education, Training & Employment and Innovation and Research, with a minister for state with responsibility for intellectual property. Ideally the ministers of state would, in future and assuming it exists, be appointed from the Seanad, allowing for external non-political experts to be chosen on the basis of observed international competency in these areas. In this way we can begin designing a holistic structure of education and innovation and make real progress on eliminating many of governance failures that currently exist as a result of higher education and research being spread across too many government departments and agencies. Higher education has many interlinked issues that need to be considered collectively not singularly. It would also enable the education sector as a whole to work together in solving known and complicated problems – such as the present crisis in mathematics education in Ireland (see Kevin Denny for a nuanced view of this issue, Carol Newman for a discussion of this in relation to services, and Brian McGrath for a discussion of this and the attendant problems in STEM (Science, Tech, Engineering, Math) areas in general along with a well thought out reform agenda)

The legend of Alexander the Great tells of his solution to thefamed Gordian  knot, a knot so constructed that it was impossible to unravel as when one part loosened the remainder tightened. Alexander took a direct approach and cut through the knot. We have in Ireland created a Gordian knot in the university space, wherein it seems impossible to solve the issues piecemeal. An Alexandrian solution therefore seems in order. In the Irish educational context we have precedent in Donagh O’Malley’s Alexandrian solution to the issue of secondary school access, which, springing full-blown from his mind like a modern Athena, met with a frosty reception from the keepers of the exchequer gates, but which bold stroke was a key foundation block for a modern economy and society. A similar solution is now needed we suggest for the university space. The financial crisis gives Minister Quinn scope, cover and a rationale.

What would such a solution entail? We suggest three main elements: freedom of academic institutions to set and deliver their own courses, ensuring quality in all aspects, and ensuring that the system is adequately funded for purpose. We argue that all three are required to be implemented simultaneously, cutting the knot.

Academic freedom is perhaps the simplest and yet most profound step. In essence this would involve the granting of “university” (i.e. degree granting) status to all third and fourth level institutions (inclusive of exceptional legal entities, for example, the research-orientated facilities, such as the Royal Irish Academy and the Dublin Institute for Advanced Studies). Each IOT, each NUI constituent college, each body such as the Tipperary Institute or any other body now offering courses at Diploma level or above would be freed. Care needs to be taken that we do not replicate the failures of the UK and Australia in similar reforms. Within the IOT sector new programmes go through a very rigorous evaluation. The issue is that existing programmes need root and branch reform to ensure that they are at the same quality and intellectual standard. With freedom comes responsibility, and the most important responsibility will be to offer educational programmes aligned with the fostering of flexible minds. Freedom of this sort would allow the universities to determine their own course, to play to their own research and teaching strength, to plan their own futures and to compete in the market for education based on these strengths.

Freedom should be extended to faculty wages. At present, within narrow bands, the best are paid the same as the worst, the most active the same as the least. Universities must, we argue, be able to set wages based both on the demand for faculty and on the excellence or otherwise of their job performance. Evidence from the USA indicates that salary freedom can assist in incentivizing staff, but this can arise at the cost of over-reliance on casual and adjunct lecturers at the undergraduate level. The cost of “superstar” researchers must not be borne by the undergraduate programme. The US Marines have as one motto “every man a rifle man”, and we need to ensure that in the newly freed institutions a motto of “every scholar a teacher, every teacher a scholar” is taken just as seriously. Morgan Kelly has, rightly, noted that Irish academic salaries (much like much of the public sector) are significantly in excess of European norms. However, the problem is that we suffer from a high mean – low variance issue (see Chapter 13 of the new edition of The Economy of Ireland) . The best professor gets paid the same as the worst, the most engaging teacher the same as the least, the professor in an area of enormous and external demand the same as the less. Freedom to set faculty wages within the labour laws is a sine qua non of competing in an international market such as the market for academic and knowledge workers.

The recent example of the Employment Control Framework (ECF), which has been largely changed but still exists, was an example of reducing the capabilities of the university sector. The original ECF was defined by its command-and-control approach to hiring, promoting and assigning existing and new faculty and staff members within HEA funded institutions. The higher education sector has the ability to obtain funds from outside the exchequer. The HEA, in its initial ECF proposal, by precluding institutions from expanding or maintaining staff numbers with these external funds, is a clear example of the lack of the necessary flexibility to ensure a sector capable of developing the human capital for the “smart economy”.

Freedom must also of course mean freedom to fail. If a university were unable to deliver on the required educational outcomes then it ultimately would be required to fold or to be subsumed by another more successful university. In this regard transition arrangements, in particular for the IOT sector in regards to upskilling research, would be essential. In addition IOTs and universities should design a general third level education contract to eliminate some of the institutional barriers between the IOT and university sectors with respect to labour mobility. Again, if there is a minimum agreed quality standard of research and teaching this frees up a vast pool of movement.

We suggested earlier that a truly smart economy involves the production of flexible thinkers. Such an education, we submit, must be more than purely discipline-focused at the third level. There is little point in producing graduates that are scientifically illiterate or unaware of human or social sciences. One can broadly consider three domains of intellectual activity in universities- humanities, letters and the social sciences (arts), life sciences and natural sciences. Mapping degrees to one of these we suggest that a true university education might involve an annual minimum of 15% engagement with each domain. The areas of employment that require specialist or technical knowledge might be better achieved by well rounded, more mature, graduates choosing postgraduate programmes in these areas. This approach would of absolute necessity have courses offered in multiple places that were similar. But that is no more than is required to train people to think rather than to try to anticipate in a dirigisme manner what the market will want on the graduation of these persons.

To adequately provide these postgraduate courses all academic staff in the university would be required to be active researchers, which would be achieved by a rolling tenure system. As Eoin O’Dell has written on many occasions, there are many complex issues attached to tenure. Ultimately, there is “tenure” as an academic concept and “tenure” as understood under employment law. The confusion of the two has resulted in much misinformation and angst. Employment law carries with it most of the protections that many academics see at “tenure”.

In order to make the system more transparent and better understood that people are required to work on research, we suggest a rolling tenure system. This would involve the granting of tenure for a prospective 5-7 year period, with biannual reviews. Tenure in and of itself is not a solution to ensuring either research adequacy or existence but can provide a framework within which some tweaking for discipline specific factors can take place. A recent court decision (Cahill V DCU) has highlighted the need for a legally binding definition of tenure, which should be taken as creating for the period granted immunity from dismissal by reason of pursuit of unpopular, unfashionable or dissenting research, and which is automatically renewed subject to measurable and externally verifiable outputs.

In Ireland the education system must be seen as a whole, not just at the Third Level sector. The recent PISA and TMISS data illustrates that there are fewer high achieving students in math and science. The number of students that fail the foundation level course in math, at 4,300, is far too high. This was in conjunction with exceptionally low numbers taking higher-level mathematics. (See here for more Irish results of PISA/TIMSS ) The Irish second level is suffering from a crisis that is not being addressed. The possibility of an effective Third Level cannot be realized without an effective second level. And of course, this depends on an effective, well resourced, primary level. While mathematics is clearly the sickest patient at the Second Level, Irish scores in reading and science have also deteriorated since the 2006 PISA exercise. This needs to be halted.

One possible method of fixing this problem is to improve the skill level of the people teaching courses in relation to learning outcomes. There are many many more dedicated teachers working their guts out than rumor would have us believe, but it is extraordinary that there is no premium placed on mathematical training for example. And there is increasing concern that “grade inflation” may arise from “teaching the test” rather than teaching critical skills

We suggest that those that are not renewed with tenure but are found to be competent and enthusiastic at teaching are brought into the upper second level teaching pool. This way the system as a whole does not waste human capital. At the same time it may possibly result in the higher education system’s demographics improving. And we could consider wider changes, such as replacing the Leaving Cert with something more akin to the International Baccalaureate Diploma.

Research activity and research quality are only loosely related but quality requires activity as a prerequisite. To ensurequality of teaching we suggest that again there be biannual reviews of teaching based on best modern practice. This would involve some element of student feedback but would also involve reflective portfolios and classroom observation. To oversee this quality issue we suggest a single evaluation unit within the above suggested ministry, which should be given a status in education akin to that of the Food Safety Authority or HIQUA and would be responsible for the practical evaluation of quality in teaching, not just that the quality assurance processes are put in place. Teaching is both an art and a science. The art element may be unique in its levels to each person but the science can be learned.

A third element relates to funding. In aggregate Irish universities are not markedly poorly funded. The issue is that they are poorly funded for the multiplicity of tasks required of them. The economic argument for public funding of universities is that they are providers of public goods –well educated citizens. The Irish rationale for full public funding was principally for narrow party political gains. There is no clear evidence that this free fee initiative has resulted in the ostensible aim – increasing participation by persons from lower socioeconomic groups – being met.

Separating undergraduate from postgraduate education we suggest allows greater clarity to emerge. Persons seeking to take masters or doctoral qualifications in an area do so for one of two reasons – a desire to seek entry to an area or profession (investment) or from a personal interest (consumption). There is no obvious reason why the government should fund the latter over other consumptions. In any case the operation of the tax/PRSI system should, in most circumstances, offer a return to society partly via the increased taxable earnings that the better qualified persons achieve, thus capturing the public good element of an increase in, for example, dentists, or telecommunication engineers, or doctors of literature. While there are problems with emigration, a simple (and in any case useful) change to the tax laws to make holding of an irish passport be accompanied by a requirement to file irish tax returns, similar to the USA situation, can mitigate this. Research can continue to be funded through internal allocation of surplus funds from running such courses, from philanthropic and competitive sources.

What then remains is the extent to which society wishes to fund the undergraduate space. We argue that with a restructuring such as we note above then some element of public funding is appropriate, given that it would result in a greater alignment with the needs of a modern economy and society. Universities do not just exist to serve the market but to serve a wider society. We also suggest however that some payment at the point of use, fees, be required. It is disingenuous to sneak these in under the guise of ‘registration fees’, hearking back to the way the state overcame the fiscal problem from the removal of import duty on cars by a registration fee. There are many models, but we appear to be moving in this aspect of the university sector to a Hobbesian world. Without an efficient credit system banks will not lend to people to invest in education. Without some form of government sanction or action people will neglect to prioritize payment of fees advanced. We seem in Ireland now to be moving towards a situation where universities will set fees but there will be neither a credit system to advance nor a state system to support this structure.

In principle fees can either be paid up-front at a discount, deferred and repaid via the tax system or paid via social transfer for students who qualify for a grant (or for all as we have it at present). As a starting point consider 50-50 burden sharing; universities should produce a full economic cost of their undergraduate provision, and then retrospectively be funded 50% of this en bloc by the state. This also recognizes that a well-educated population is a social and economic boon well worth investing in. It preserves their independence to maneuver and to set such fees as are deemed appropriate to make up the remaining economic cost. To ensure that cheaper courses do not overly subsidize expensive courses, no course could set fees that exceeded for example 175% of true economic costs. The consequence would be differential fees for courses within the same university and across the university sector. When combined with the freedom to offer such courses and directions as desired, and a CAO-like entry system, driven by prerequisites for specific courses as well as points and based on the courses and examinations of the IB, a system of student place allocation can take place which combines financial incentives and academic integrity.

The present debate is focused on fees being a replacement from exchequer funds. It is said the hard cases make bad laws but it holds true to economic policy as well. The present fiscal distress of Ireland necessitates a rethink of higher education funding but it must be sensitive to households and the higher education sector as a whole or else it will undermine both organizations. If the objective is to reduce the burden on the exchequer of the higher education sector it will also have to be done in conjunction with a reduction in the managerial burden imposed on the sector by the HEA and other quangos

Such a set of solutions is radical. It requires bravery in facing up to entrenched vested interests in politics and in the universities. It requires a willingness to be bluntly truthful with the public. Whether such can be achieved in the Irish political system is dubious but the role of leaders is to lead.