Dr. Frank Crowley, Carrigaline, is a lecturer in the School of Economics, UCC. He lectures on economics, innovation – specifically regional development, policy intervention and firm performance at undergraduate and postgraduate level in UCC. Frank is a guest economics opinion writer for The Carrigdhoun. Here, Dr Crowley gives analysis on Leo Varadkar’s election as Fine Gael leader.
Varadkar Does Not Offer Any New Vision For Ireland In recent days, the international media has had significant interest in the appointment of Leo Varadkar as Taoiseach of Ireland. In reality, in Ireland, the ethnic background or sexual orientation of Leo Varadkar was never of any real significance in the decision of Fine Gael to appoint him as their leader. However, that fact is symbolic. The choice of Leo Varadkar as the leader of Fine Gael may be identified as a proxy of the open, tolerant and diverse society that Ireland has become. And this is important, not just from a human rights perspective, but also from an economic perspective. The vast majority of the theoretical and empirical literature in economics indicates that a society open and inclusive to ethnicity, sexuality and religious differences in the population is an important driver of innovation, well-being and standards of living.
But, many people in Cork will be disappointed that Simon Coveney was unsuccessful in winning the Fine Gael leadership contest this past weekend. For some, a Taoiseach based in Cork would mean a greater level of investment and emphasis on the region. Perhaps, such thinking is not without foundation. Research conducted by myself and my colleagues in UCC on sports capital grants would suggest that in the past there has been political biases towards the minister of sports home county when it comes to the allocation of funds. In this regard with the choice of Varadkar, Dublin may get more attention in terms of the government purse, and the other provincial cities may lose out.
But, will Leo Varadkar as Taoiseach result in less investment in provincial cities? In his Taking Ireland Forward policy ideas document, he advocates policies towards achieving balanced regional development with a key emphasis on ensuring most population growth occurs outside of the Dublin region in Ireland’s provincial cities. Firstly, this idea seems very much like that of Fianna Fail’s plan of the National Spatial Strategy publicised before the financial crisis. Secondly, balanced regional development is not a new idea and in fact all Irish governments have generally advocated the objective of achieving balanced growth on the Island of Ireland. The problem with economic growth is that it naturally creates a dualism effect where there is uneven development of industry throughout geographical areas. If you look at any country in the EU, inequality with regional growth is apparent. Efforts to redistribute the benefits of growth and to rebalance growth will often undermine the growth prospects of more successful regions. Unbalanced regional growth is a natural and factual outcome of market economies. From a cynical perspective, the idea of balancing regional development is often seen as an invitation to rent seeking activities and the ‘true’ intentions of policymakers may be to allocate resources towards peripheral regions in an effort to win votes or towards politically influential groups. Varadkar is not offering a new vision here. In fact, he is behind developments in the European Union around the ideas of smart specialisation in regions. Smart specialisation identifies that regional growth is unbalanced due to regions being very different in their population and industrial dynamics. Hence, government intervention needs to focus on different regional strategies to take account of the different needs and structures of each region in the objective of maximising the growth potential of each region.
What about his other policy ideas in terms of public spending and taxes? There also does not seem to be much difference here from what we have seen before from Fine Gael or Fianna Fail. Some of his key objectives are to reduce poverty, provide free education, substantially increase public spending (in infrastructure, schools, further education, water, ICT and healthcare), index the state pension to increases in the cost of living, double the budget for arts, culture and sports and reduce the high marginal rate of income tax. All in all, there is a great emphasis on spending more on us and collecting less tax from us. That all sounds great. What we have is a perfect world of having great social safety nets akin to those in Scandinavian countries and we only have to pay the taxes of that more akin to the United States. The reality will probably be (like we have had for decades) further under resourced public services which will lead to infrastructure that does not adequately cater for the population, long waiting lists for hospitals, a lack of hospital beds, under resourced education sectors and so on.
To be fair, in terms of public services, we are not the worst relative to our OECD counterparts. But we are predominantly average in most indicators. We need to move away from this unsustainable political under spend/under collect tax model. If our politicians want to provide world class public services, then they will need to collect more taxes. The problem with collecting more taxes is that the recent institutional failures in the public sector are not providing the public with much confidence that their contributions will be spent wisely. A key emphasis needs to be put on making institutional changes in the public sector to build trust with the public that their taxes are being spent appropriately and efficiently.
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