Belfast Telegraph

Saturday 20 December 2014

Economy watch: Let's get radical

Richard Ramsey
Richard Ramsey
Simon Hamilton

Both our Economy Watch writers agree that change is needed within the DFP...

Richard Ramsey, chief economist Ulster Bank

In many ways, it is the Department of Finance and Personnel (DFP) of all the government departments that has the most potential to influence the |economy given its key role in deciding how much public |expenditure is spent and where these resources are allocated. Furthermore, the terms and conditions of public sector |employment can significantly influence the performance of the public sector and its attractiveness as a place to work relative to the private sector.

It is encouraging that the new minister has already placed significant emphasis on the positive role that the public sector can play in driving the economy forward, but it is important that he utilises all aspects of |his brief to achieve this, as the ‘personnel minister’ as well as the ‘finance minister’.

The minister has set the challenge for Northern Ireland’s public sector to be the most |innovative in the world. To meet this challenge he is right to stress ‘the relentless pursuit of one aim — reform’. This includes reforming our attitudes and |ambitions. If Northern Ireland is to be successful in this regard, it has to be more proactive in |reform than its counterparts in Great Britain, Ireland and |Europe. This requires a focus on structures, processes and people that are best in class too.

At a CBI breakfast, the minister asked: “Why shouldn’t we aim for public service excellence delivered by excellent public servants?” The skills and experience within our public bodies need to reflect this key role. |Excellence requires the investment in and development of specialists. We would not expect GP’s to perform cardio-thoracic surgery. Similarly, specialists, as opposed to generalists, within the public service are needed to achieve best in class.

We need to devise and implement world-leading economic strategies. We require international-class experts in planning, procurement, public-sector delivery, economic strategy, policy development who could hold their own in the best equivalent organisations in Europe. This is something that lies within our control. Being porous to external influences and attracting international experience to key positions is something our public sector and our economy at large need to do.

Over the years we have successfully levered in financial |resources from the US, Brussels and Westminster. Perhaps we should fix our attention on levering in human as well as or rather than financial resources. Experts in public sector and economic reform from Washington, London or Brussels could add a lot of value. Radical reform requires an infusion of radical reformers.

Delivering reform requires the electorate to have an understanding of the public finances. To achieve this, the new Minister should continue his predecessor’s frank ‘telling it as it is’ style and indeed formalise this. A lack of appreciation of public

finances in any economy fuels unrealistic expectations of what can be afforded and how far revenues can be stretched.

This strategy would require greater transparency over revenues, subsidies, public expenditure and benefits take-up.

Throwing sunlight on what and where money is spent is the most effective way to highlight waste and inefficiency and change behaviours. Effective communication with the electorate will enhance understanding and pave the way for unpopular but necessary policy decisions. Northern Ireland cannot afford to ring-fence inefficiency. That’s why a renewed focus on public-sector productivity and a redefining of ‘value for money’ are required in a more hostile era of fiscal restraint.

A State of the Nation public information address by the DFP Minister highlighting our annual fiscal deficit would be worthwhile. Headline per capita expenditure and revenue comparisons with other UK regions would also be included in the annual rates bills. How much public expenditure is spent on frontline services as opposed

to back office functions? Does there need to be a rebalancing of resources between the two?

In recent years, Northern Ireland has been bombarded with the narrative of austerity without anywhere near as much of the reality as elsewhere. There has been some relief that these prophecies of fiscal doom and gloom have not materialised. For example, Northern Ireland has been spared the swingeing cuts that departments in Great Britain have experienced.

Perhaps, however, in some |respects, this was not an ideal outcome, as the urgency and need for reform has been deferred by not eliminated.

Traditionally, the view has been that maximising the size of the block grant is in the best economic interests of Northern Ireland. However, while Northern Ireland enjoyed an expenditure boom throughout most of the last decade, it didn't narrow the prosperity gap with the UK.

Northern Ireland does not suffer from a lack of public |expenditure to deliver world-class public services. The challenge is the delivery. To this aim, benchmarking public sector processes and performance against the world’s best is required.

If Northern Ireland’s public sector is to meet the minister’s vision of becoming the most innovative in the world, this |attitude must percolate through its institutions, people and processes. Innovation thrives from competition.

The public sector must be opened up to greater competition not only between the public and private sector but within the public sector.

The new minister has made an impressive start and although he has a hard act to follow, he has in many respects been a breath of fresh air. He has set out a clear vision. Delivering it may at times be Mission Unpopular, but it is not Mission Impossible.

Simon Hamilton MLA, Finance Minister

Since my appointment as the new Minister of Finance and Personnel, much of the focus of media interviewing has understandably been on what I and my department can do to assist our ailing economy.

We’ve been through tough times. Six years of growing |unemployment, contraction in key sectors such as construction and retail, and the bursting of the property bubble have made their mark on our economy.

There are encouraging signs that we are at least entering the foothills of economic recovery. The recovery will be slow and stuttering. We might well take two steps forward and one back but I sense we are definitely moving in the right direction. I agree with a leading businessman who recently suggested to me that a year from now we’d look back at 2013 as the beginning of better days.

Indicators such as Ulster Bank’s Purchasing Managers’ Index, which showed marked growth in business activity to the highest levels since August 2007, and the UK Trade and Investment report which showed how Northern Ireland is one of the UK’s most successful regions for attracting inward investment, are very encouraging.

They don’t, however, reflect the lack of consumer confidence caused by wage freezes or cuts and the rising cost of living. Hearteningly, however, a Danske Bank survey found consumer confidence has risen recently following the biggest monthly fall in unemployment in 11 years.

The Department of Finance and Personnel (DFP) doesn’t have the same sort of economic development role that DETI does but our responsibilities |as part of a strategic centre |allocating scarce resources, means we are an economic |department.

The procurement of billions of pounds worth of goods, services and capital projects annually

and administering the most attractive business rates regime in the UK are two examples of how what DFP does can be an economic driver.

But where I see the DFP contributing to a bigger economic dividend in the years ahead is |in our role in making reform a reality. The state has long played a key role in encouraging economic activity. Some would argue too key a role in Northern Ireland. 

They are right in some |respects. Our economy has been too dependent on the public sector for jobs and growth and our private sector has been far too small.

Conventional wisdom is that Northern Ireland’s big public sector not only imbalances our economy but is an active impediment to developing a dynamic, competitive, export-orientated economy.

Government’s economic role is in fact crucial. In ensuring that the fundamental foundations of our economy are right, it is often the investment of public money that puts those basic building blocks in place. The skills we need to compete

in the global fight for jobs and investment are provided for in our universities and colleges or government-backed training programmes. The telecommunications system that we need to stay in touch in an interconnected world is there because |of public investment in 100% broadband coverage and a |direct link to the US east cost in the form of Project Kelvin. And the road infrastructure we need to get the goods our companies produce to market are the result of spending taxpayers’ money.

For many, creating the conditions for the private sector to thrive should be the sum total of government’s economic role and responsibilities.

But government can go |beyond that. Professor Mariana Mazzucato, of the University of Sussex, recently published a book entitled The Entrepreneurial State. In it she argues that governments have historically invested, taken risks and innovated every bit as much of not more so than the private sector.

She uses Apple to illustrate her argument pointing out |how it received early funding from the US government’s

Small Business Investment Company and how many of the key features of the iPhone and |iPad, including GPS and touchscreen technology, were state-funded in their development.

Apple’s Steve Jobs brought these technologies together, packaged them beautifully and |marketed them brilliantly but he benefited from initial public investment.

We shouldn’t be afraid of our public sector. Instead we should embrace its potential |as a driver of the economy. As an entity that can inspire innovation and entrepreneurship.

We must re-evaluate and reinvent the role of the government when it comes to the economy. Envisage an economy where the public sector drives the economy forward and |doesn’t drag it down.

Imagine a public sector that’s every bit as innovative and |creative as the economy we want for Northern Ireland.

I fundamentally believe that a reformed public sector is |one of the cornerstones of a |vibrant and dynamic economy. Clearly assets like skills, infrastructure and telecommunications are critical but surely a strong, smart government is also a stimulus for economic |development.

Entrepreneurial governments attract investment. That’s one of the reasons I will establish a Public Sector Reform Division within DFP. Making our public sector more efficient and |effective and innovative |mirrors places like Singapore and the Nordic countries whose economies are the sort of |competitive and export-orientated economies we’re trying to build in Northern Ireland.

Enterprising governments produce enterprising economies. Let’s start to see |our public sector as something that can be an advantage, working with business to build the better economy Northern Ireland so badly needs.

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