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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

Wavering over support for Ukraine’s defence against Russia is not an option. The stakes are too high for Europe’s stability and unity, writes Judy Dempsey Russia’s war against Ukraine is approaching its tenth month. Despite Russian President Vladimir Putin’s original aim of conquering Ukraine within days after his 24 February invasion, Russian troops have been forced to withdraw from strategic areas in eastern Ukraine.  It’s too difficult to speculate how and when this war will end, but there is already a sense of war fatigue among some governments and political parties in Europe and the United States—ignoring the fact that Russia has been escalating this war over the past few months and Ukraine must continue to fight for its independence. There is even some suggestion that Ukrainian president Volodymyr Zelensky should be persuaded to negotiate with Putin.  This would be a mistake.  Understandably, several EU countries—especially the Baltic States, Poland, the Czech Republic and Slovakia—do not trust Putin’s intentions. They want Ukraine to continue regaining occupied territory and then negotiate from a position of strength. This kind of victory for Ukraine would have several outcomes for the region and the EU. A Ukrainian victory could deter Russia from spreading its military and political influence in Moldova, Georgia and Armenia. Such a victory would be a fillip to pro-European political movements in these countries.  As for Belarus, there is little chance that the political future of Alexander Lukashenka, who has imprisoned many Belarussians since their failed uprising over two years ago and repressed any kind of opposition, would survive.   A Ukrainian defeat, on the other hand, could encourage the Kremlin to extend its influence over Eastern Europe and consolidate Lukashenka’s regime which would, in the short-term, increase his grip on power. In the long term, this ‘stability’ based on repression would lead to instability.  In short, a victory by Ukraine could increase the stability of Eastern Europe. A Russian victory would lead to instability in the region. As for the EU, a return to Russia exerting its political and economic influence over Eastern Europe would have several consequences.  First, it would lead to new divisions on the European continent.  Second, as many EU countries have taken in Ukrainians, an unstable Eastern Europe would lead to new flows of refugees. Populist movements could exploit such a development.  Third, it would lead to deeper divisions inside the EU. The Central European countries would oppose any negotiations that would allow Putin to save face. Germany and France might be tempted to restore relations with the Kremlin—indeed, neither Berlin nor Paris have called unambiguously for Ukraine to win this war.  Fourth, given these differences, it is hard to see how the EU could ever agree to a strong and united foreign, security and defence policy. Russia’s war against Ukraine has exposed the level of distrust between the Central European and big EU member states. Small EU countries matter. Perhaps, for example, Ireland, Finland and Denmark, could form coalitions of the willing with the Central Europeans to maintain political, military and economic support for Ukraine.  Wavering over support for Ukraine is not an option. The stakes are too high for Europe’s stability and unity. Judy Dempsey is a Non-Resident Senior Fellow at Carnegie Europe and Editor-in-Chief of Strategic Europe

The worse the market sentiment, the better the profit opportunities and, right now, UK equities may represent “the trade of the decade”. Cormac Lucey explains why Diversity is regarded as an unambiguously good thing nowadays. Imagine the reaction you might get if you were to try to assert the contrary among your family or in your social group. But, for all that diversity is pushed and advocated, it can also sometimes be woefully lacking in our public discourse.  More than eyebrows may be raised if somebody states their support for Donald Trump or the UK’s decision to exit the European Union. But, in 2016, millions of sensible people voted for Trump and for Brexit.  Is it not odd that today their viewpoint is so universally dismissed? While being contrary is generally regarded as a negative social habit, it can pay rich dividends from an investment perspective: the worse the market sentiment is, the better the profit opportunities.  This is the credo of contrarian investing. Nathan Rothschild, a 19th-century British financier and member of the Rothschild banking family, is credited with saying that “the time to buy is when there’s blood in the streets”.  Brexit is widely regarded by “right-thinking people” as a self-inflicted wound. A June 2022 analysis by John Springford for the European Centre for Reform concluded that the UK economy had substantially underperformed post-Brexit compared to how it might have fared if the British public had not voted to leave the EU.  UK gross domestic product was 5.2 percent lower than it would have been if the UK had remained in the EU; investment was 13.7 percent lower; and goods trade was down 13.6 percent.  Since then, Boris Johnson has given way as Prime Minister to Liz Truss, and she has been replaced by Rishi Sunak. And there was that snap financial crisis triggered by Kwasi Kwarteng’s mini-budget.  The UK has seldom looked so bad.  There isn’t exactly blood running on the streets, but it is pretty bombed out as a popular investment destination. That’s one reason why Rob Arnott, Chair of Research Affiliates, has argued that UK equities represent “the trade of the decade”. He states that “UK equities offer one of the most attractive risk-return trade-offs, priced to earn a return a notch higher than emerging market equities with significantly lower volatility”.  In essence, Arnott follows the Warren Buffett dictum about the equities market: “in the short-term, the market is a popularity contest; in the long-term, it is a weighing machine”.  As investor holding periods stretch out beyond five years, realised investor returns increasingly become a function of the price paid. So, while very expensive stocks can become even more expensive over a few years, as more time passes, they will increasingly struggle to generate strong returns.  Conversely, if you buy a deeply discounted asset (such as UK value stocks today), they may not initially show a great return but, over time, they should. In fact, with an asset this deeply discounted, there’s every chance it will outperform even in the short-term.  Arnott wrote his piece in early 2021 when he argued that, among the major equity markets, UK stocks were trading in the cheapest quintile of their historical norms based on both price-to-book and price-to-five-year average cash-flow ratios and in the bottom third, based on price-to-five-year average sales ratio. His previous big call—to invest in emerging market value stocks in 2016—generated returns of 80 percent in its first two years. Since announcing this trade of the decade, UK value stocks have risen by over 20 percent while the S&P index is marginally lower than it was, and the Nasdaq has dropped by over 20 percent.  Sometimes diversity of thought isn’t so bad after all. Cormac Lucey is an economic commentator and lecturer at Chartered Accountants Ireland