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Despite housing and health and climate crises, our experience living and working in Ireland has never been so good, writes Cormac Lucey Come election time, the positions political parties advocate for can generally be classified into either continuity or change.  With a general election looming in the Republic no later than March 2025, the battlelines are already emerging. The parties of the outgoing Government will campaign for continuity. The parties of the opposition will seek change.  Ironically, despite the Government’s many policy failures (housing, health, etc.), it has a strong story to tell.  If a person were to choose when they would live in Ireland over the last thousand years, the rational choice would be today.  Life expectancy Take the very simplest index of national well-being. The average life expectancy in 1950 in the Republic of Ireland was 60. Today, it is just under 83 years old. This staggering progress reflects healthier lifestyles, better diets, safer workplaces and improved healthcare.  Income Income levels today are far ahead of those our parents and grandparents could aspire to. Last year, Ireland’s modified gross national income (the measure of national income designed to exclude globalisation effects) was €273.1 billion. This equates to income per head of €54,600.  The key to this is productivity growth. If productivity output per person grows at a rate of two percent per annum – the general experience over the 20th century – people should be 7.2 times as well off after a century.  If annual productivity growth is just one percent – roughly what we’ve experienced since the millennium – people will be just 2.7 times as well off after a hundred years. It is the slowdown in underlying productivity growth which is the most serious economic issue facing the global economy today. Employment We must also consider the range and depth of job opportunities available today. When I graduated from university in 1981, many of my classmates had to emigrate as the economic conditions were so poor in Ireland. Today, Ireland has record low unemployment. Young people travel the world for fun and to expand their horizons rather than out of financial necessity.  Ireland’s successful policy of attracting foreign direct investment to these shores means that people can work for the world’s largest and most financially successful companies without leaving the country.  Climate Young people may argue that, by presiding over damaging climate change, older generations have eaten the seed corn they will need.  A 2021 global survey led by the University of Bath in the UK illustrated the depth of anxiety many young people feel about climate change. Close to 60 percent of the young people approached said they felt very worried or extremely worried. Three-quarters said they thought the future was frightening. Fifty-six percent said they believe humanity is doomed. These widely held viewpoints illustrate the degree of public hysteria surrounding the debate over climate change.  Bjorn Lomborg (The Copenhagen Consensus Center, Copenhagen Business School and the Hoover Institution, Stanford University) recently made the point in Science Direct that scenarios set out under the UN Climate Panel (IPCC) show human welfare “will likely increase to 450 percent of today’s welfare over the 21st century. Climate damages will reduce this welfare increase to 434 percent”.  Lomborg expects that, in the context of general human progress, climate change will represent a speed bump rather than the end of the road.  To quote the former British Prime Minister Harold Macmillan, we’ve “never had it so good”.  Cormac Lucey is an economic commentator and lecturer at Chartered Accountants Ireland *Disclaimer: The views expressed in this column published in the October/November issue of Accountancy Ireland are the author’s own. The views of contributors to Accountancy Ireland may differ from official Institute policies and do not reflect the views of Chartered Accountants Ireland, its Council, its committees, or the editor.

The NATO summit was not only about Ukraine. It was about the role of the past and how it affects NATO and the EU, writes Judy Dempsey By the time you read this, we’ll have all moved on from the NATO summit that took place in the Lithuanian capital of Vilnius in July towards other persistent topics.  There’s Ireland’s housing crisis; the worry that Donald Trump might beat President Joe Biden in the 2024 election for the White House; and Russia’s continuing war against Ukraine, to name a few. The list is long. But a common threat runs through these issues: the enduring role of the past and how societies in the 21st century have to deal with it. The past is a compass. It offers the way to the future if there is a political willingness to deal with history. The past can also be distorted.  That sense of the past was clear when attending the NATO summit.  The summit’s conclusions fell short – for some, way too short – by failing to offer Ukraine membership of the US-led military alliance once the war was over.  Lithuania and the other two Baltic States, Estonia and Latvia, but also Poland and the Czech Republic, were disappointed. They believed that Biden and German Chancellor Olaf Scholz, who led the opposition against a membership date, did not have the political courage or historical compass to offer Ukraine at least a timetable.  The bottom line is that, for different reasons, this decision was about Russia.  Biden, who is facing re-election and simmering unpopularity with American support for Ukraine, does not want to drag NATO into a direct confrontation with Russia. Germany thinks the same but is not committed to admitting Ukraine to NATO. Yet, this war has given Germany a big chance to lead Europe and create a strong NATO caucus inside the alliance. Germany demurred.  This brings us to Lithuania.  It has been a staunch ally of the Belarussian opposition and an unremitting supporter of Ukraine. For Lithuania, it is about Kyiv defeating Russia. But it is more than that. Lithuania and the other Baltic States see the war in Ukraine through the prism of Russia but in a special way, distinct from Western Europe.  For Lithuania, this is about Russia trying to regain control over the countries of Eastern Europe, which include not only Ukraine but also Belarus, Moldova, Georgia and Armenia.  Lithuania also sees Russia aiming to create a new cordon sanitaire between the EU/NATO countries and Eastern Europe – a kind of updated version of the Cold War divisions of Europe.  In the view of the Central Europeans, Russia’s imperial ambitions must be stopped. Eastern Europe must not be turned into a grey Russian-controlled zone. The prospects for instability would be too high and dangerous. Germany and the United States, for their part, see the war in Ukraine through the prism of Russia as a nuclear power and threat – as if Russia is not already threatening the security of Europe. They do not see it in terms of the past but in terms of realpolitik. For Central Europe, the past is the legacy of the violent Soviet occupation of the region that must not be repeated in Ukraine.  The past for Western Europe is how, with huge American support, today’s EU was built. It was a peace project constructed upon the ruins of World War Two. This peace project is now being challenged by Russia. The war in Ukraine is about two different European narratives. It is time to reconcile them.  Judy Dempsey is a Non-Resident Senior Fellow at Carnegie Europe and Editor-in-Chief of Strategic Europe  

In today’s rapidly changing world, organisations are embracing inclusive leadership. Karin Lanigan explores what it means, why it matters, and the essential traits of effective inclusive leaders As a result of recent seismic and lasting changes in the workplace, many organisations are now adopting an inclusive approach to leadership. What is inclusive leadership, and why does it matter? A complex and diverse world We are operating in an increasingly complex world that is constantly evolving. The pace and enormity of the changes taking place require a different approach to leadership: inclusive leadership. A new leadership style is required To be an effective leader now requires a move away from a traditional style of leadership to an inclusive leadership approach. This doesn’t mean that the conventional aspects of leadership are defunct. In fact, the core fundamentals of leadership still apply. However, moving to inclusive leadership involves a change from an autocratic, top-down, centralised leadership approach to a more decentralised, democratic, shared and participative process involving employees across all levels of the organisation. Traits of an inclusive leader An inclusive leader is aware of their own biases and proactively seeks out, encourages and considers different perspectives to facilitate better decision making and more effective collaboration. They strive to ensure that colleagues are treated equally, feel a sense of belonging and value, and work in a psychologically safe space where they can contribute and are supported to achieve their full potential. There is no doubt that inclusive leadership is now a critical capability. The core skills and competencies that are typically exhibited by inclusive leaders include: Self-awareness. Inclusive leaders have a strong awareness of their own biases and blind spots. Similarly, a high level of emotional intelligence enabling the effective management of emotions, their own and those of others, is fundamental.  Empathy. Being an inclusive leader requires having both the willingness and capacity to comprehend and acknowledge the emotions and viewpoints of others. Cultural intelligence. Inclusive leaders aim to establish a workplace that welcomes and values all cultures, allowing everyone to make meaningful contributions. This requires a sense of curiosity and a willingness to learn about different cultures and their traditions. Communication. Clear and effective communication supports an inclusive leadership style. Inclusive leaders look to understand and adapt their communication style to be understood by a diverse audience.  Collaboration. Inclusive leaders foster an environment that is psychologically safe, enabling every member to contribute their ideas and innovations to achieve better outcomes. Commitment and courage. Inclusive leaders are role models, challenge the status quo, and advocate for others.   Why does inclusive leadership matter? Much research has been conducted to assess the benefits of inclusive leadership. The results point to increased staff engagement, attraction and retention; improved workplace relations, communication and collaboration; enhanced transparency resulting in higher levels of trust; better decision-making and problem-solving arising from more varied insights and contributions; and increased innovation and creativity by bringing diverse skills and perspectives together. Ultimately, inclusive leaders significantly enhance employee engagement, performance and overall business results. There is no doubt that inclusive leadership is now a critical and unique capability and one that can support career progression and the achievement of personal and corporate potential.  Karin Lanigan is Head of Member Experience at Chartered Accountants Ireland

Governments may opt for more quantitative easing to prevent global inflation from turning into a recession, writes Cormac Lucey Speaking about the Republic’s budgetary position in 1979, Charles Haughey famously declared that “as a community, we are living beyond our means”. But his remarks might just as well be applied today to Western world democracies.  An article in a June issue of The Economist proclaimed that “Fiscal policy in the rich world is mind-bogglingly reckless”. Global fiscal policy is unsuited to today’s economic circumstances. “High inflation and low unemployment mean the world needs tight policy, not loose,” it said.  Last month, the Department of Finance’s chief economist indicated that between 2019–2070, annual age-related expenditure is projected to increase from 21.4 to 31.5 percent of Irish national output. With a projected 2023 modified gross national income of €284 billion this year, that rise would cost €28.4 billion today. That’s over €10,000 annually for every person working, more than the budgetary damage done by the financial crash 15 years ago and roughly equal to one-third of total budgeted tax revenues this year.  The situation in the UK isn’t much better.  A report on “Fiscal Risks and Sustainability” from the Office for Budget Responsibility in July, projected an increase in primary spending between 2022–23 and 2072–73 of 8.6 percent of UK GDP. That’s equivalent to roughly £2.2 trillion in terms of today’s GDP, or around £6,000 annually per person working. Faced with inexorable spending pressures on one hand and political resistance to tax rises on the other, there is a structural risk that our political leaders will opt for greater borrowing as the way out.  The USA may be the forerunner in this regard.  It began running enormous budget deficits under President Trump even though the US economy was operating at near full capacity. It has continued this practice under President Biden. There has been no discernible political cost to be paid by either administration. And, as the issuer of the world’s largest reserve currency, it has seen precious little economic cost so far.  Fiscal dominance is shorthand for the fiscal needs of the central government dominating monetary policy set by central banks and occurs when central banks create fresh money (via quantitative easing) to prop up the prices of government debt securities and , thereby, contain the consequent interest rates.  Between 2009–2021, the share of their government’s issued debt held by central banks grew by about 15 percent in the USA and around 30 percent in the UK and the Eurozone. In essence, central banks were able to do something inflationary (create a lot of fresh money) because external circumstances were already very deflationary.  A justification can always be found: economies must be sustained through the financial crisis; we must not let a pandemic morph into a depression. The political cost was negligible. We can, therefore, expect more of the same in the future when fiscal push comes to monetary shove.  The constraint on fiscal dominance will not be rules or laws governing what is right or wrong but expedience: what can policymakers get away with?  The practical constraints will be financial market reactions and any inflationary effects of monetary loosening. But there may not be any noticeable market reaction: the Bank of Japan owns an estimated 45 percent of all Japanese government debt without any allergic market reaction.  The key question is whether inflationary pressures are stoked by aggressive fiscal dominance. The return of inflation explains why monetary restriction has replaced monetary exuberance.  But once inflation is out of the way, expect fiscal dominance (and more money-printing) to resume. That would be bullish for real assets (such as property and commodities) and bearish for paper assets.   Cormac Lucey is an economic commentator and lecturer at Chartered Accountants Ireland

As a hub for US tech firms, Ireland’s security is vulnerable but the Government is not yet prepared to think about ending Ireland’s neutrality despite the war in Ukraine, writes Judy Dempsey I was recently invited to meet a group of Irish TDs from across the political spectrum. There was a lot on the agenda, but Irish neutrality did not make the cut.  Some TDs said Russia’s war in Ukraine was not the right time to discuss the future of Ireland’s neutral stance. Others said the issue was taboo. For a democratic country anchored in the EU, which itself is becoming a defensive player because of the war in Ukraine, Irish neutrality is still a highly emotional and ideological issue.  Even though successive Irish governments have cherished this status over the years, they have not been prepared to pay for it. Only now is the defence budget being increased, having already been decimated.  Only now is the Government looking at the role of the Russian embassy in Dublin, whose diplomats know full well the strategic importance of Ireland.  Ireland is a hub for American IT, software and cyber security companies. It is an underwater gateway for cables packed with data that pass back and forth in the depths of the Atlantic Ocean.  What a treasure trove for intelligence officers. In short, Ireland’s security is vulnerable.  This is where security and neutrality come into play. The Irish Government and the public are not yet prepared to think about ending our neutrality despite the war that is being waged in Europe.  But look at Finland and Sweden – staunch defenders of their own neutrality. The Russian invasion of Ukraine persuaded them to join NATO because their neutrality, despite spending much on defence, was not enough to make them feel secure. Ireland may not have a sense of insecurity regardless of cyber-attacks on its health service and its geostrategic position as an IT hub, but here is a hypothetical question:  If Ireland were a member of NATO, would it support Ukraine being offered NATO membership when the US-led alliance meets on 11 and 12 July in the Lithuanian capital of Vilnius?  Ukraine’s President Volodymyr Zelensky has been pleading with NATO countries to give Ukraine the green light to join.  The United States is, for now, opposed to the idea. The Biden administration does not want a confrontation with Russia.  The US Government, along with several European countries, believes that offering Ukraine membership now would lead to more escalation because Russian President Vladimir Putin could simply claim that NATO wants to attack Russia. But it has been Russia that has been escalating: the indiscriminate bombing of infrastructure and civilian targets, rape, torture, preventing Ukrainian grain exports and abducting children. Several big cities and towns in Ukraine now lie in ruins. The contrary view is that, if Ukraine is not offered NATO membership at Vilnius now, Russia will prolong the war.  One need only look at what happened after the NATO Bucharest summit in 2008 when France and Germany vetoed NATO from offering Ukraine (and Georgia) the Membership Action Plan – a roadmap to join the alliance. Russia invaded Georgia in 2008, Ukraine in 2014 and again in 2022.  The consequences of a ‘no’ in Vilnius, or the refusal by a group of countries to offer concrete security guarantees will not only prolong the war, it will also give Putin the signal to interfere in more countries in the region, leading to more instability, more destruction and more refugees.    That is the choice facing NATO and neutral countries. Judy Dempsey is a Non-Resident Senior Fellow at Carnegie Europe and Editor-in-Chief of Strategic Europe

Employment may be holding up for now but rising recessionary signals point to troubled times ahead, writes Cormac Lucey For some time now, recessionary signals have   been building up. Looking back over half a century, recessions tend to follow a distinct path.  First, central banks raise interest rates and tighten financial conditions. Second, the sectors most exposed to interest rates – construction and property – begin to suffer.  Third, the next most exposed sectors – banking and finance – undergo financial stress. And finally, deflationary pressures hit the general economy and the employment market suffers.  Midway through 2023, we have already hit stages one, two and three.  After a slow start, the European Central Bank has raised rates at a faster pace than ever before. The property sector is already suffering. Shares in the Irish Residential Properties REIT have dropped by about 40 percent over the last nine months.  And while the share prices of Irish banks have been holding up well, there is an air of subdued panic across the entire banking sector following the collapse of Silicon Valley Bank, Credit Suisse and First Republic.  Like characters in an Agatha Christie thriller, banks are anxiously wondering who will be next to be written out of the script.  So far, though, labour markets remain firm. In March, Ireland’s unemployment rate was 4.3 percent, a smidgen above the 3.9 percent minimum achieved in 2000/2001.  There are two features of this economic cycle that may be delaying the labour market’s rendezvous with recession. These features apply to Ireland and across the Western world.  First, following the massive fiscal splurge to cushion the economic effects of COVID-19, people on both sides of the Atlantic have hefty cash positions, making them less sensitive to interest rate hikes.  The latest Central Bank of Ireland quarterly financial accounts show that, comparing September 2022 with March 2020, Irish households’ financial assets have grown by €79.6 billion (19%) while their net worth has grown by €253.5 billion (32%). Second, lockdown mandates to stay at home, greater vulnerability to COVID-19 as one gets older, and the State’s pandemic splurge appear to have led a significant cohort of people to accelerate the move to retire.  With fewer people at work, full employment can be achieved with fewer total jobs.   But the main reason the unemployment dog has yet to bark is that employment is a lagging economic indicator.  Changes in employment trends happen after changes in the direction of economic output. When the economy moves from growth to contraction, employers do not immediately cut their workforce. They wait until they are sure that they must.  Many employers rushed to downsize during the pandemic and then found it difficult to recruit again once recovery arrived. Similarly, employers won’t immediately rehire once economic recovery kicks in. They will put staff on overtime while assessing the situation. On his True Insights website, investor Jeroen Blokland has observed that, on average, the US unemployment rate rises by four percentage points in the aftermath of a significant Federal Reserve tightening cycle. “Unemployment tends to start rising after the Fed is done hiking,” he noted.  Blokland reckons there is an average gap of about 20 months between the final Fed interest rate hike and the ensuing peak in unemployment.  Even if the Fed announced in June that it had completed raising rates, we might have to wait until March 2025 to reach peak unemployment. With Ireland having undergone significant private sector deleveraging since the financial crash, there is little likelihood of a self-feeding credit crunch, but our economy is highly dependent on a small number of US multinationals.  It has been reported that, last year, Apple paid €8 billion in corporation tax to the State. This represents about €1.3 million per employee. It contrasts with the roughly €60,000 Apple paid on corporation tax for each employee outside Ireland.  It’s a fragile foundation on which to build the public finances.  Cormac Lucey is an economic commentator and lecturer at Chartered Accountants Ireland