Cristiano Ronaldos of the Economic World

Last week in Ireland the results of a public sector pay and performance review were announced. The consultancy group Mercer had been mandated by the government in 2004 to create a performance measurement system that would lead to pay rises for best performers. Mercer had created 5 point "Performance Management and Development System" scale, with 5 awarded for outstanding performance and 1 for poor performance. In designing the system the estimate was that 20% of staff who were rated would be a 1 or a 2 on the scale, and consequently would not receive a pay rise. (This would be a pay rise on top of 5% increase under social partnership agreements, and on top of 70% pay increases over the past 7years). Perfect, you might think - here is a great opportunity for real reward for performance - a chance for the Cristiano Ronaldos of the Civil Service to get their just rewards and the chance for the Ali Dias (who? Google search him) to be sent back to the Rymans league.

As it turned out, it appears that due to managers within the civil service ignoring the schemes guidelines, virtually every (98.4%) staff member was given a pay rise of 6000 Euros last year. The 18 employees who received the 'one' grade got no pay rise, while the 285 who were ranked '2' received an increase but were denied a promotion. So essentially an extra 111mm worth of tax payers money was 'self allocated' to all but 1.6% of the 19000 workforce...but because that money was allocated in a socialist fashion; i.e. because everybody was included this was OK.

There is no doubt that there are true "5s" working within the civil sector in Ireland. There is also without any shadow of a doubt plenty of "1s". The problem for the "5s" is a big a problem for the rest of us as the existence of the "1s"...if they feel that their organisation cannot distinguish between doing a good job and doing a bad job, then what's the point of trying. And if truth be told the performance of public sector organisations in the UK and Ireland has been questionable at best from a "value for taxpayer investment" over any time period you could choose, so we might feel reading the above that managerially they are a shambles.

The sort of faulty reward culture mentioned above, is at least as big a problem as the private sector "bonus culture", that is being criticised so heavily in the media currently. At the very least within the private sector there are attempts (perhaps veiled) to attribute pay for performance...often-times in the private sector though when performance is at a 1 or 2 standard the business that the employer works for does not survive.

My Dad told me that this week he was listening to a radio program in Ireland, where Joe Higgins, a socialist senator, explained to the listening Irish public that the last 12 months prove that "capitalism doesn't work". The alternative that Joe is advocating is unclear; but the sound-bite culture that he exists in makes this compelling listening, even though what he really advocates is represented by the tale above.

Anyway, back to Dad (and Mum)...who witnessed both the economic boom in Ireland in the past 15 years, but who also lived in Ireland before the tide started rising: "My perception is that in the last 5, 10, 15 years in Ireland, for all its shortcomings - capitalism has raised incomes and wealth in orders of magnitude beyond any alternative system. It has raised many - though not enough - out of poverty...not enough boats were lifted on the tide, but there was a tide and it lifted many people and many public services. But politicians are trapped in the short-term...no one seems to do the 'hang on mate'...House prices are down 30% - but hang on; they went up 300% in the past 15years...I have a wage freeze this year, when inflation is 4% - but hang on, your salary if you're a public servant has gone up over 70% in the last 7years...I won't get to the Maldives for the new year - but hang on, I can remember when the problem was that I couldn't afford the bus fare to Donaghadee*"

*exotic beach 'resort' near Belfast - also known as a 'contradiction in terms'

The world is a competitive place. Denying that this is the case would mean that watching Arsenal play Manchester United with an 'equal opportunities' policy in place might not make compelling viewing...but i might get to play at Old Trafford. In the context of Neill playing centre forward for Arsenal, and others of my ilk filling the rest of the positions, I suspect gate receipts would fall to nil quite rapidly. This makes for a good analogy as to what would happen to tax receipts in Ireland or the UK, or anywhere else for that matter if we don't differentiate properly between the Ali Dias and the Cristiano Ronaldos within both our public and private sector organisations.

So whether we choose to call this socialism or capitalism doesn't really matter to me, but the gist is that the best outcomes come from 1) realising that the world is a competitive place 2) empowering and encouraging people with talent to make a difference to themselves and those around them and hopefully as a happy consequence 3) a desire amongst those empowered to bring along the Ali Dias in society, without necessarily giving them an outing at Old Trafford.

To that end, the Premiership Allstars of Economic society for me are the likes of Mohamed Yunus from the Grameen Bank in Bangladesh and Martin Burt who developed Fundacion Paraguaya. There are plenty more out there, but these 2 are known better to me than others.

Firstly Mohamed Yunus, who won the Nobel Peace Prize in 2006, for essentially creating a viable banking system to the poor that has been annually profitable and has paved the way for 7 million borrowers (mostly women) in Bangladesh to pull themselves out of poverty through their own hard work and enterprise. On a cumulative basis the bank has given out loans totaling about USD $6bn with a repayment rate of 99.3%. Current deposits and own resources of Grameen Bank today amount to 143% of outstanding loans. Accordingly, 58% of all of the Grameen borrowers have crossed the poverty line as a direct result of the opportunity that this "capitalist" endeavour has presented to them.
The Grameen Bank was born as a tiny homegrown project run with the help of several of Yunus' students at Chittagong university where he was an economics professor. Three of these students remain as senior management within the bank over 25 years after they started the project.
Big fan of this. It is sustainable, self sufficient and economically viable without public sector hand-outs.

Secondly, Martin Burt who set up Fundacion Paraguaya; which is essentially a rural business school set up in one of the poorest countries in South America. It aims to transform its students into rural entrepreneurs and increase the relevancy of the education they receive through their participation in a profit-making school business. This microcredit program has supported 35,000 small entrepreneurs and created 18,000 jobs.

The key focus of both Grameen Bank and Fundacion Paraguaya has been on sustainability; neither undertaking requires the 'charity' of socialists and those 'capitalist' enterprises that have been funded by either Grameen Bank of Fundacion Paraguaya have gone on to become important sources of jobs and revenue, and a means by which families have been able to pull themselves above the poverty line in many cases.

This isn't an attempt to deny the ease with which the free market approach can go wrong, but just to clarify that if the likes of Ireland choose not to compete then the alternatives truly are unsustainable. With the big news of Barack Obamas victory this week representing a truly epoch making event for many, one of the small point aspects that struck me most was where some of the votes came from. Obama throughout the campaign pledged to take 10million of the lowest paid out of taxation, paid for by taxing those earning more than $250,000. Whether that is the right thing to do or not remains to be seen, but what is impressive is that 52% of those in the high income bracket chose to vote for Obama thus saying (although not categorically) that their interests are may be better served by choosing to help others more than themselves.