Tag Archives: competitveness

Do you want the Civil Service to run Universities?

This is an significantly extended version of an OpEd published by myself and Charles Larkin (whose name appears missing) in the Irish Times.

The Universities (Amendment) Bill 2012 is a shutting of the stable door after the horse has bolted and the stable sold off to a developer. It is kneejerk reaction by regulators who have failed to keep time with the pace of change in modern tertiary education, with changing educational markets, or with the balance of accountability and flexibility needed to successfully confront national and international challenges. While slapping down bolshy universities may have populist appeal, we should beware of Greeks bearing gifts. In that regard, the present proposals are a transparent attempt by the civil service to take control of the sector by plugging university policy into a centralised and dirigiste Civil Service model, and to neuter both Governing Authorities and the HEA. Irish universities used, prior to the existence of the HEA, be controlled by the Dept of Education, an unhappy time for both sides.

The core issues driving these radical proposals are payments of unauthorised allowances and an alleged breach of the Employment Control Framework in respect of promotions. In reacting to them, we need to decide what we want academia to provide for the State and how universities as institutions can best serve the common good. As in all things proportionality is also worth striving for. In an environment where universities are being placed front and center in the drive for “the smart economy” we might want to consider if command and control from bureaucrats with neither empathy for nor practical experience of these institutions is a good idea. As in so much of the education sphere the government is sending mixed messages – we want a knowledge economy but cut back on science teaching at lower levels, we want a world class university system but spend less than the OECD average on tertiary education (52k over the college span versus OECD average of 57k and EU average of 62k), we want to widen educational access but end up with no effect from “free fees”, we want more international students but make the visa and immigration process distinctly unfriendly … And now we want to have an innovative and responsive sector under the control of the civil service. To be charitable, the evidence to date for the civil service to take on board change and to assimilate rapidly changing environments is poor.

Take the ECF issue. Universities employ thousands of highly qualified internationally mobile staff. When promotion and retention decisions have to be made quickly in a fast moving and often volatile environment, there are always chances of bureaucratic feathers being ruffled. Promotion, retention and appointment must be undertaken at the pace of the needs of the students and research funders and not at the pace of the bureaucrat. At this stage it is clear that employment structures in their broadest sense need to be designed to work for the next decade and not simply in response to legacy issues that have already been disposed of.

The main provisions of the Heads of Bill are to issue directions to a university if there is concern regarding “a policy decision made by the Government or the Minister in so far it relates to the remuneration or numbers of public servants employed in that university, or a collective agreement entered into by the Government or the Minister”. There is also provision for the Minister to send in the troops in the form of an “investigator” to enquire into any of these matters, regardless of whether any cause for concern has been established. This can lead to a transfer of functions away from the universities to the Minister; or even more worryingly (since this is designed to function under the rubric of the Public Service Management Act) to the civil service bureaucracy in Marlborough Street or its agents. What is to stop a functionary deciding to engage in their own “merger mania”? Worse, what is to stop a future minister deciding to swap around bits and pieces of colleges to their own shortterm political benefit? We have a long and inglorious history of pork barrelling and local politics trumping national strategy and should be leery of giving any politician power to engage in such.

Many commentators on university education view it as essentially undergraduate focused and through a dimly recalled lens of their own experiences.Part of what drives this desire for control is the thinly disguised belief that universities are really secondary schools for young adults, that academics are lazy charlatans, that most non industry applied focused research is self-indulgent faffing about, and that the facilities lie idle most of the year. None of these accusations survive the barest scrutiny and the 2010 Comptroller and Auditor General report on Irish universities states that the sector provides good value for money under difficult conditions. That value for money is seen in the education provided to record numbers of students with reducing Exchequer funding and the growing contribution to knowledge and creativity. Perversely, these actual achievements are regularly praised by Government while at the same time, the fabric of the proposed legislation seeks to undermine them.

In this respect, the Government needs to try be more aware of the delicate balance needed to manage intellectual organizations. Universities are about human capital and knowledge creation, similar to Apple and Google. In great part their capital walks out the door every evening. Ideally, the walk (or telecommute) back the following day. Few people would think it a good idea to impose the management structures of 1920s Ford on Apple, but the Government is proposing such a course of action with its universities. The dead hand of Frederick Taylor casts a much longer shadow than one might think feasible. Knowledge organizations are different and blindly applying a civil service approach to running universities will undermine tenure (making academics more vulnerable than civil servants), change the character of academic freedom (i.e. cause academics to think twice about attacking Government policies with awkward evidence) and make Ireland more unattractive to international talent, something we need now more than ever. Machine bureaucracies, which is what universities both internally and as a sector, are but one form of organizational structure – and probably the worst suited to universities.

We only need to look across the Irish Sea to see what a command and control approach to higher education policy looks like. The Minister for Education for Wales Leighton Andrews has used his powers under the Education (Reform) Act 1988 to radically reorganize the higher education landscape with institutions being faced with stark choices of merging and/or being dissolved and face crippling financial cuts if they do not bow to the will of the Minister. That is a system without tenure, without autonomy and at the beck-and-call of parish-pump politics. It is little wonder that Wales’ higher education sector suffers from poor academic output indicators.

A win-win is needed – universities need to be freed to do their job and increase student numbers and experience success and failure – that means we need to have an adult conversation about fees. It is good that the discussion has moved from being galmost “the issue that dare not speak its name” to being front and center. Fees need to be supported either by a graduate tax or a properly functioning loan market that is totally unlike that of the US where debt and costs have been allowed to explode due to a combination of bad regulation and poor cost controls within universities. In the interim, challenge university managers to lead their institutions. Managerialism is not the solution: our ongoing experiment with the HSE should be adequate proof of that. Give them the monies that the state deems an appropriate to subsidize research and education for the common good – then let them get on with their business. If the impunity of the creators of this economic crisis not being brought to book has caused a concern about responsibility then that is perfectly fine: but making people, organizations and institutions responsible is the solution. Creating a thicket of managerial requirements will just encourage lobbying, rent seeking and the creation of a sclerotic state. Worse still, it will result in more crises and more attempts to lock the stable door after the horse has bolted. Ireland will need smart people and nimble institutions to survive the next few years. The University (Amendment) Bill stifles both.

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What have the Romans, sorry Researchers, ever done for us?

Another day another paean to applied science… well, a thinly disguised call for more money to go to engineering. Coz, they make stuff y’know, not like basic researchers or heaven help us AHSS (arts, humanities and social sciences) dabblers. After all, what have the romans, sorry, researchers ever given society…This applied-basic dichotomy (and shouldn’t it be a tricothomy, as whatever happened to translation research?) is not just false its ignorant. And people who peddle it, whether they be retired deans of engineering schools, science funders or politicians who wouldn’t know a quern from a quark are ignorant of their ignorance. It’s a rumsfeldian ignorance in not knowing that they don’t know.

One cannot apply scientific concepts blindly. Well, one can but don’t expect anything much more than a blowup. Take finance (not even a science but hey…) for an example. One could argue that two equations helped blow up the financial system (aided and abetted by a range of human behavior stretching from outright criminality to buck ignorance via political sleevenism). See for discussions on copulas Zimmer, Lee, jones, and for the BS model Hartford, Pollack and Lo (the latter emphasizing the human-ware element)

The two are the BlackScholes (which can be abbreviated correctly to BS) equation for the valuation of options and its lesser-known cousin the Gaussian Copula. Most people have heard of the first and fewer of the latter. The GC describes how series move together, a multivariate version of a correlation function.

BS models and their derivatives underlay many derivative models while the GC model was commonly used to model the likely behavior of the elements of risk in collateralized debt and mortgage obligations.  And we know how well that worked.

Here is the thing: these basic science models are old. And flawed. They are theoretical constructs, incredibly useful as theories, easy to teach to undergraduates, but ones whose n-th grandchildren are being worked on to slowly, gradually, painstakingly improve the fit of the theoretical model to the real world. The application of these towards products was I contend fatally flawed by a lack of understanding by regulators and some practitioners of how the basic science was moving.

Funding into basic science improves how we apply these. Funding into translational science (which steps between applied and basic) helps improve the feedback. Funding into applied science gives the raw material for the feedback. None is more important than the other. And for a country such as Ireland where it is both impossible to outcompete in basic science with the military-industrial complexes of the world and where there is a need for high value added jobs, this gives an unpalatable policy prescription. We need to keep funding basic research to ensure that those teaching applied and translational science are at the forefront (or at least aware of where it is). If we don’t, we end up with the production of tinkerers capable of making minor adjustments to a preset form but with little understanding of the fundamentals. Worse, we end up with state funding displacing commercial R&D via that being outsourced to the third and fourth level.  R&D is high risk and so it makes perfect sense for companies to get it done outside, especially when they can then also complain that the R&D isn’t producing marketable products fast enough.

This policy isn’t sexy – it doesn’t generate lots of quick jobs and doesn’t allow politicians to open factories and ct ribbons at call centers. But then neither did the decision by Donagh O’Malley (made against the advice of the bureaucrats) to open up second level education to all. Slow burns last longer. SFI and the government science apparatchiks need to step back, take a long view and put in place structures that support a decent basic science budget, that encourages

Tumbleweed time in the Irish Stock Exchange

So the Irish Stock Exchange held  a conference  with EI on why companies should consider floating . As Simon Carswell says, its now time for the ISE to think long and hard about what it is it wants to be. One of the problems that bedevils the exchange is that it is no longer fulfilling one of its main roles, that of primary lister. The flow of IPO’s onto the Irish exchange is very poor: In Q2 2012 one exploration companies –Fastnet-  listed.  No companies listed in Q1 2012

A second major function of stock exchanges is to act as a price discovery mechanism. In this too the ISE is not exactly winning. I downloaded from Datastream the list of constituents of the ISEQ, and show below the number of days on which there were recorded zero volume, and the average daily turnover as a % of market capitalization. All data are for the last two years. In reading this bear in mind that the ISE trading mechanism is the Deutsche Bourse Xetra system therefore there are days when that system is open for trade but are holidays in Ireland. Leaving aside then the number of companies that show zero vol on a dozen or so days we see that for a not inconsiderable number of companies there are many many days when nothing happens…. This is hardly an effective way to discover prices for these companies and one wonders what they are doing on a listed exchange. Sure, the IPO proceeds can be put to good use but as an ongoing price discovery mechanism this isn’t working..

Name Zero Vol Percent Av daily To %
AER LINGUS GROUP 14 2.68% 0.10%
ARYZTA (DUB) 14 2.68% 0.04%
C&C GROUP 14 2.68% 0.25%
CRH (DUB) 14 2.68% 0.19%
DCC 14 2.68% 0.19%
DRAGON OIL 14 2.68% 0.02%
ELAN 14 2.68% 0.06%
GRAFTON GROUP 14 2.68% 0.15%
KERRY GROUP ‘A’ 14 2.68% 0.16%
KINGSPAN GROUP 14 2.68% 0.13%
PADDY POWER 14 2.68% 0.25%
RYANAIR HOLDINGS 14 2.68% 0.16%
SMURFIT KAPPA GROUP 14 2.68% 0.29%
UNITED DRUG 14 2.68% 0.16%
ALLIED IRISH BANKS 15 2.87% 0.05%
BANK OF IRELAND 15 2.87% 0.18%
FBD HOLDINGS 15 2.87% 0.18%
GLANBIA 15 2.87% 0.08%
INDEPENDENT NEWS & MEDIA 15 2.87% 0.13%
PERMANENT TSB GHG. 17 3.25% 0.22%
IRISH CONT.GP.UNT. 19 3.63% 0.21%
KENMARE RESOURCES 20 3.82% 0.02%
TOTAL PRODUCE (ESM) 20 3.82% 0.12%
FYFFES (ESM) 24 4.59% 0.15%
PROVIDENCE RES. (ESM) 39 7.46% 0.02%
IFG GROUP 50 9.56% 0.13%
ORIGIN ENTERPRISES (ESM) 69 13.19% 0.05%
PETRONEFT RESOURCES(ESM) 79 15.11% 0.03%
TVC HOLDINGS (ESM) 118 22.56% 0.12%
DATALEX 137 26.20% 0.16%
PETROCELTIC INTL. (ESM) 154 29.45% 0.00%
CPL RESOURCES (ESM) 158 30.21% 0.13%
ORMONDE MINING (ESM) 163 31.17% 0.03%
DONEGAL CREAMERIES (ESM) 183 34.99% 0.06%
ABBEY (ESM) 193 36.90% 0.08%
AMINEX 245 46.85% 0.01%
ICON 245 46.85% 0.01%
MERRION PHARMS. (ESM) 313 59.85% 0.04%
OVOCA GOLD (ESM) 331 63.29% 0.01%
PRIME ACTIVE CAP. (ESM) 382 73.04% 0.04%
ZAMANO (ESM) 406 77.63% 0.05%
UTV MEDIA (DUB) 450 86.04% 0.00%
CONROY GD.& 0TRES.(ESM) 490 93.69% 0.00%
FIRST DERIVATIVES (ESM) 492 94.07% 0.00%
KARELIAN DIA.RES. (ESM) 506 96.75% 0.00%

Stabilizers

Ok..this is going to annoy everyone I suspect…

One of the things that strikes me about the debate in Ireland is the fundamental misunderstanding that exists about the public sector.

There is a large constituency of people who exhibit tendencies in their discourse that suggests that any wage over zero is too high – these are the die-hards whose discourse is a toxic mixture of ideology jealousy and half remembered catchphrases gleaned from too much Fox News. Small government via starving society of essential services or else making the workers therein so impoverished that they are amenable to bribery works so well in so many places…

There is another large, overlapping but discrete, group who suggest that while of course the government should have a role in the economy it should confine itself to capital and not current spending – far be it from me to suggest that many of these are private sector rent seekers who will cheerfully take the government (taxpayer) cash and spend it on whatever madcap idea has come to mind by a an unholy combination of bureaucrats chasing what they think is going to make ireland rich and vested interests seeking warmer vests, regardless of how low the total ROI will be

Then there is a group, again discrete, who urge us to “scrap croke park” (a football stadium cum conference center and also a totemic 2009 agreement between the government and public sector unions to keep nominal wages uncut in exchange for productivity and other gains), regardless of the fact that such cuts a) will, given higher fiscal multipliers in recessions, exacerbate an already bad domestic demand position, b) will in any case be utterly incapable, the downstream effects of a) ignored, of making a massive dent in the deficit and c) will result in a massive industrial relations mess.

Finally, we have the public sector unions, now moderatly cowed but who have over the years taken advantage of the supine and spineless political system to extract massive rent. Most public sector union leaders in Ireland have beards, for some reason.

I spoke recently to a representative of the first/third group, who urged me to brace for a 40% pay cut “like the private sector has had” via the immenent (wished for?) scrapping of the agreement. Hmmmm. Not quite true… Here is a graph of public/private sector average hourly wages and total employment over the last while. One of the things we want, those of us who dont deem all public servants inherent spongers (or is that the people on welfare? cant ever remember) is that government act to stabilize and smooth out the economic cycle. You dont have to be an unreconstructed keynesian (or even Paul Krugman) to think that smoother cycles are perhaps preferable to more jagged ones.

Both Public and Private wages have remained remarkably constant, or it would be remarkable if we didnt recognize that nominal wage rigidity (the empirical fact that people usually dont get/take/accept reductions in nominal wage packets) is the norm even in distressed sectors.   We also see that the government employment total has declined slowly – taken together this is what we would WANT to see, that government act to keep its injection into the economy smooth. Of course this is not, for the more thinking and conscious, a problem (for the reflexive “small government is good and therefore smaller is better so zero must be optimal” merchants this is a heresy) and acts to ensure that the government is doing its job.  The adjustment in ireland has been in the fall in private sector employment. But it has not been in private sector wages.

The problem in Ireland lies in the fact that there is a significant wedge beween public and private wages. Normal economics would suggest that , all other things being equal, having a permanent defined benefit pensionable job would allow people to take lower wages than those in comparable employment who have less security of tenure and less certain pension. But the opposite is the case here, as over decades governments bought industrial peace and election by generous wage increases.

A significant part of the wedge in pay (lets table the pension issue and how much that would cost to fund) can be explained by on average higher qualifications and greater experience in the public sector. While the government have announced new lower pay scales and less generous pensions for new public sector entrants , it is not clear that they can or should or will do anything for those (like me) who are already in the system. Amongst other things while there has been significant forbearance in relation to industrial relations cutting nominal pay would result in this evaporating. There would be legal difficulty and the certainty of challenges in moving existing pensioners or even those with a reasonable expectation of their pension entitlements to a less generous system, and at least in the university and internationally tradable sectors of the public sector we would face an accelerated brain drain.  And yes, there is one of those – right now it is hard to hire lecturers in Ireland, paying at the bottom of the scale which overlaps with the UK pay scales. It might come as a shock to UK academics but their prospects are positively rosy in comparison to here.  And of course removing several billions at one fell swoop from the pay bill will not magic jobs up for the unemployed but will instead add to their numbers (larger negative shock multipliers are so nasty), while also adding to the hole in the (state owned, supported and money absorbing ) banks from foolish mortgage lending.

Its a mess – there are no simple solutions and no lack of simplistic ones.

Asset allocation in Defined Benefit Pension Plans in Europe

Mercers each year publish a DB survey, which I get a copy of.

The 2012 results are quite interesting, not least from an Irish perspective. They survey over 1300 plans, covering 600b plus assets in europe as a whole.

First, Irish plans show the highest bias towards equities of all countries. However, this equity heavy position (which we share with the UK , not surprising given our similar national cultures : see here for some research on culture and pensions) is declining over time.

Second, breaking this down in more detail, we still display a very high degree of home bias in equities, with 15% of total assets in domestic equities.  Also, reflecting the financing structure of Irish corporations, the striking lack of investment in domestic corporate bonds is also very evident. Given that across Europe as a whole 7-10% of asset allocation to these instruments is not uncommon this seems to be a potentially untapped resource for irish corporate and a useful diversifier for irish pension funds

Third, its not all gloom (well, mostly) as there are some hardy souls who plan to INCREASE exposure to euroarea perioheries.

fourth, we are not badly off when we compare Irish pension fund assets per capita to other european countries. Bear in mind however that these assets need to yield a return for possibly 25  years on retirement and you see that this is relative. Without exception europe is grossly under pension provided.

Finally, despite the bull market, despite reams of research (here, here, here ), and despite there being an increase in asset allocation towards alternative investments, pension funds are leaving diversification opportunities on teh table in the form of not going into precious metal. While this may be included in the commodities section, the likelihood is that were it a significant amount then it would be broken out. Pension fund trustees might consider if it is truly safer to invest in forestry or global macro hedge funds than gold?

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.

The Fiscal Compact and Ireland

I was asked to address the Oireachtas Subcommittee on European Affairs on the issue of the Fiscal Compact, and did so this morning (18 May 2012). Below is the briefing note which I forwarded to the members. We were asked to be succinct and to talk for 5 minutes prior to questioning, hence the rather stripped down nature of the material.

I have previously expressed my concerns on the fiscal compact in a number of fora, including my blog and my fortnightly column in the Irish Examiner. We are in effect being asked to incorporate into our constitution an econometric concept in order to become more Germanic. It is as Davy Stockbrokers put it in February “an abstract theoretical economic concept that cannot be observed with certainty.” We are therefore asked to support the immeasurable in pursuit of the unattainable. The only rational argument to support the compact is one of utter expediency : as we will require access to ESM funds from 2013 onward, whether we call it a ludicrous word such as “bailout” or a mere technical extension of the present “bailout”, and as such funds are as of now contingent on the fiscal compact, we need to think long and hard before rejecting it.In the context of the committee today, I have a number of points.

  1. Ireland as a state is broke. This is not an ideological but an arithmetic matter. We are forecast to have a net exchequer balance of -€21b in 2012, which is in the largest part made up of current expenditure running at €51b while current revenue reaches only €38b. Thus any proposal that can hold out a prospect of reducing this towards zero, especially on the current side, is to be carefully examined. That is not to say that I welcome the Fiscal Compact unreservedly- I do not. It has many issues which I would like to see modified, changed, dropped or better phrased. As the focus here is on the effect of the treaty were it to be adopted let me concentrate on that.
  2. Trajectory of debt. The fiscal compact states a maximum permissible deficit of 0.5% of GDP. It is easy to work out that with modest growth of nominal GDP the deficit rule will result in a long-term debt to GDP ratio of extremely low levels. The stable steady state debt/gdp ratio converges to d/g, where d is the average nominal deficit as a % GDP and g is the average nominal GDP growth. Since 1980 the average deficit has been 4.1% with average GDP growth at 8.2%. The figures since 2000 are 2.8% and 4.8%. We will if we wish to achieve the 60% debt to GDP figures have to achieve a nominal growth rate of at least 2% while keeping deficits at 1% or less. We are forecast to have a structural deficit of 5.5% in 2012. To move to a 0.5% deficit therefore is a massive multibillion-euro demand shock. To move from the forecast 2015 115% debt/GDP ratio to the 60% permissible is to remove some 90b in debt from the stock of Irish government debt, or the equivalent of the entire national debt as of 2010. To do this will require that we run structural surpluses (or find somehow that austerity does in fact lead to growth in nominal GDP). Demand effects aside, one has to wonder if this is within the capacity of the state to achieve such a massive transformation?
  3. An area of the treaty that has received scant analysis, surprisingly so, is the effect which it will have on bond markets and Europe.As noted we can amend the ratio of government debt to national income by decreasing debt and/or by increasing wealth. The focus of the compact is on the former. Europe as a whole is significantly over the 60% limit. As of 2011 eurostat figures the majority of individual countries are also over. Thus the adoption of the compact suggests a prolonged massive de leveraging of the European sovereign bond market. The euro 17 countries as a whole need to reduce debt/GDP ratios from 85% to 60%. At present terms that is a reduction of some 2.3 trillion euro. That is a massive fiscal drag to pose on Europe and compact is that if it succeeds it will gravely damage the sovereign bond market. Even well run countries such as Netherlands ( 2012 debt/GDP forecast 65%, 2012 GDP growth 1%, Unemployment 4.5%) and Austria ( 2012 forecasts Debt/GDP 73%, , Unemployment 4%, GDP growth 1%) will be required to retrench. This is not a recipe for growth in Europe, and given that exports are forecast to be the entire contribution to any GDP growth we may see will see the stifling of demand in one of our major markets. This point has been reiterated in the Financial Times which stated on Tuesday 17th in its editorial “A fiscal compact worth its name would have matched belt-tightening in deficit countries with expansion in surplus countries. Universal austerity will instead erode the gains from fiscal discipline by stunting the economic output from which public and private debt can be serviced” It has also been critiqued by a wide variety of other market and academic economists (see this Reuters article for a synopsis of the argument) . Swabia housewives alone cannot reinvigorate Europe. Nouriel Roubin has statedWithout a much easier monetary policy and a less front-loaded mode of fiscal austerity, the euro will not weaken, external competitiveness will not be restored, and the recession will deepen. And, without resumption of growth – not years down the line, but in 2012 – the stock and flow imbalances will become even more unsustainable. More Eurozone countries will be forced to restructure their debts, and eventually some will decide to exit the monetary union.” Such policies are the direct opposite of what we now see, with strict money and frontloading of austerity. He further stated The trouble is that the Eurozone has an austerity strategy but no growth strategy. And, without that, all it has is a recession strategy that makes austerity and reform self-defeating, because, if output continues to contract, deficit and debt ratios will continue to rise to unsustainable levels. Moreover, the social and political backlash eventually will become overwhelming. A large (but not overwhelming) stock and flow of relatively low risk assets are required to support pension and investment funds. A shrunken market will be less able to fulfill that role. The fiscal compact therefore requires that over time trillions of euro of assets are removed from consideration of investors. The consequence of this will be an intensified move to safe haven assets such as the (to be radically shrunken) German bund market, driving down further German interest rates. Investors will have to accept radically lower long-term returns. Alternative investment classes seen as safe havens such as gold, or denominated in currencies such as the Norwegian kroner or Swiss franc will also attract investors, with knock-on consequences. The effect on Europe of a perpetual low cost of capital in the core and higher costs in the periphery cannot but exacerbate the existing core-periphery problems. In addition, low nominal rates lead ro negative real rates, a form of “financial repression” . Faced with a growing pension timebomb the shrinking of the pool of safe assets seems not sensible. Mercers 2011 Asset allocation survey indicates that most pension funds including Irish desired to increase not decrease their absolute and relative investment in domestic government bonds. There are plans to market up to 2b in domestic bonds to pension funds for annuity purposes. How these will be squared with decreases in the asset pool is unclear
  4. The fiscal treaty contains not just a set of macroeconomic thresholds but also under the Alert Mechanism Report looks at a series of more detailed ‘warning signs’. (See below). The first of these came out in mid February and as one might expect these show Ireland (as well as Greece and Spain) as being problematic. The warning indicators are shown below (courtesy of a CitiBank report). In the February report Ireland was shown to be in breach of 6 of these ( also shown below). What is interesting in the recent Citibank report (see http://ftalphaville.ft.com/blog/2012/04/16/962221/return-of-the-stability-and-growth-pact/ ) is that while the Irish economy in the boom years would have shown relatively good adherence to the headline fiscal treaty requirements, there is some evidence that the indicators below would have triggered concern. Ireland began to exhibit significant numbers of breaches in 2004 onwards, mainly due to house prices, private sector debt, labor costs and real effective exchange rates. However, these were all a consequence of the credit boom. While a procedure now is available to fine countries that, having been found to be severely imbalance do not take steps to adjust towards balance, this fine is only up to 0.1% GDP . We are all now painfully aware of the political reaction that was evident (and voted for enthusiastically) when people were ‘cribbing and moaning’ as one Taoiseach so memorably put it. One can easily imagine the same Taoiseach cheerfully explaining how a fine of ‘eh, a few hunnered million’ was a small price to pay for the continuation of our unique way of achieving economic success. In other words, the flaw in the fiscal treaty is that it concentrates on trying to achieve political economy aims by exclusively economic means. Is there now and will there be in future the political will in Ireland to face down domestic calls for the ignoring of warnings?
  5. There are a host of other issues with the compact that bear on domestic competency. First, we will need to ensure that we have domestic capacity to estimate independent credible (from a technical sense) structural budget estimates, in an economic environment where there are no set rules on how this is to be done. To do otherwise will be to force us to rely entirely on the commission. This will be a net additional resource requirement for universities, the fiscal council, ESRI or a new body. Below we see (courtesy of Davys http://www.davy.ie/content/pubarticles/fiscalcompact20120227.pdf and Dr Constantin Gurdgiv http://trueeconomics.blogspot.com/2012/03/2532012-irish-gdp-and-structural.html) how IMF and EU commission estimates of the structural deficit can differ wildly, and in the context of a strict limit this mattera. Is there willingness and resource to spend on this? Second, and following on from this, is there sufficient technical knowledge in both economic and negotiation skills in the government to argue the case where as is inevitable there will be divergence between the commission and the domestic estimates? Third, there is no mechanism that I can see whereby on re-estimation of the models countries that were previously deemed in deficit are now deemed in surplus (or vice versa) are ‘reimbursed’ for the mis-estimation de jure, and again will there be sufficient skill sets for such an argument? The experience of Ireland with regard to the promissory note saga suggests to me that we have demonstrated neither the technical nor the negotiation skills that would be required under either of the last two questions. Fourth, the present fiscal compact is one leg of a stool, and as such while it can work it will be a precarious balancing act. The interaction of government with society in the economic space consists of fiscal and monetary policy. We do not have government control at a European level over monetary policy, and again one can see the way in which this leads to direct countervailing of purposes where increased austerity over and above the domestic requirement is imposed in pursuit of a flawed monetary vision. This treaty will provide a (Germanic ordoliberal) common spending policy. What is missing is a common tax policy and a common policy on transfers. Is there domestic will or competence to open up the latter two as a European aim, with the certain knowledge that for compromise on one (transfers) compromise on the other (tax) will be demanded?

Macroeconomic Imbalance Indicators

Estimates of Structural Deficit

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