Post-Austerity Government: International Perspectives

Jaime Pérez-Renovales opened the event by explaining the work of the CORA inter-ministerial commission he chaired, reporting to the Deputy Prime Minister, to consider ways to improve the efficiency of Spanish public institutions.

The team working on the report were public servants, but the Spanish government deliberately involved representatives from civil society including:

• the ombudsmen
• chambers of commerce
• consumer and user groups
• citizens invited to submit ideas for reforms.

A number of core principles guided the work of the CORA team.

1. Provide accurate analysis and diagnosis of the problems in the Spanish public sector – it was the most meticulous examination of the sector for years.
2. Place the research in the context of other Spanish reforms since the start of the current mandate. It was intended to highlight the reforms preceding it.
3. Take a pragmatic approach to produce “down to earth” and achievable recommendations.
4. Focus on delivery. After submitting to ministers the commission set up an office to monitor delivery, reporting to the Deputy Prime Minister.

There was a significant expansion of the public sector during the crisis, and there has been a correction since then. Two-thirds of this correction has been through spending cuts; one third through increased taxes. Public sector employment increased during 2008-11 by 280,000 new jobs; since then the level has decreased by 420,000.

Measures proposed in CORA focused on:

1. Increasing financial discipline and transparency – for example, tackling the problem of late payment of invoices to suppliers by counting outstanding payments as debt.
2. Simplifying the public sector – for example, examining and seeking to reduce what overlaps existed between central and regional government, and different public institutions.
3. Improving the efficiency of administration – for example, appointing a Chief Information Office to consolidate IT services.
4. Placing the administration more clearly at the service of citizens and businesses – for example, increasing the use of single licences.

Reflecting on Ireland, Robert Watt described the context in which the new Public Expenditure and Reform department is using reform to drive further savings. During the crisis in Ireland, government revenues dropped 30% and department spending reduced by 9% of GDP. Robert identified four examples of how they have reduced this spending:

1. Reducing the civil service pay bill by 25%. This was done partly by reducing numbers – though without any compulsory redundancies – by 10%. Frontline services were mostly protected so this meant heavy cuts in back office areas. Pay has been cut three times for a typical public servant, by a total 15% from the start of the crisis, and hours increased.
2. Benefits have been cut to reduce the amount spent on social transfers.
3. The government discovered that the same product was sometimes being purchased by different parts of government at different prices. It is much more effectively leveraging its consumer power to reduce procurement costs.
4. Capital was cut, as it is relatively easy, politically, to cancel road and rail building.

Looking towards the future, Ireland seems close to the end of austerity with a deficit now around 4%. However, demographic pressures mean that reform is needed to cut cost against a background of growing demand for public services. There is a lot of scope for exploring digital more, for example by sharing data across government more effectively.

However, the biggest challenge for Ireland is how to keep up the pace of reform when the population seems to be suffering from “austerity fatigue”.

Faisal Islam then offered five themes from his perspective observing economic change across the Eurozone:

1. Austerity will last another four to five years – there are still many cuts to come in the UK laid over demographic change.
2. Civil servants have never been more powerful – the faith shown by politicians in central bankers, for example, has been remarkable, with increasing power over both macro- and micro-economic issues. The Bank of England, and the ECB, has emerged more powerful from the crisis than it entered it.
3. What sort of reforms would we create if we didn’t think through the frame of austerity?
4. Transnational technocracy – it is extraordinary how much donor countries think they can summarise groups of economies with a handful of charts. The ECB’s “poster child” is Latvia, where 30% of the civil service was cut, and those left had a 40% pay cut (though it was noted later than the Latvian economy has decreased by 20%)
5. Change in the role of the state – the relationship of the state to the market, and between central and regional government, has been altered by the crisis.

Mr Islam reflected that we often focus on longitudinal examples, by seeking to learn from history or prepare for the future, but that in crises we are affected more by what is happening concurrently around the world.

During the questions and discussion, Jaime Pérez-Renovales rejected the “common assumption” that austerity and centralisation were connected. Measures by CORA did involve some centralisation where regional governments had overlapping services, but regional governments were given a large amount of discretion over whether to agree or not with implementing its recommendations.

In answer to a question about the departure of the ‘troika’ allowing Ireland to slow reform, Robert Watt argued that reform had begun before the troika had arrived but that reform slows because it gets more difficult. This becomes particularly hard when the economy improves, and the appetite for sustained austerity declines. Faisal Islam argued that the troika enabled Ireland to push through what it had already planned, helping overcome the political obstacles.

Jaime Pérez-Renovales highlighted the difficult of getting savings without cutting the services which people expect, and politicians want to protect. The CORA process was a way of maximising savings without affecting services, and returning the size of the public service to pre-crisis levels.

A later set of questions revolved around the role of the citizen, and democracy, in reform processes – especially with a powerful technocracy. Robert Watt pointed out that if a country was concerned about the power of bond markets, it shouldn’t borrow money from them. But he and Jaime Pérez-Renovales agreed on the desire, but difficultly, in involving citizens in decisions about reforming public services. Jaime Pérez-Renovales gave several examples of where this informed CORA – for example, without citizen engagement they wouldn’t have realised that so many Spaniards wanted to be able to register a birth in the hospital, a process since streamlined.

Faisal Islam reflected on the relative lack of public protest against austerity compared to what might have been expected. Public acceptance of austerity is striking – though Robert Watt pointed out that only Angela Merkel in Germany has won re-election since 2008.

In discussing the danger of silo-ed government, Robert Watt talked about the split Irish finance department, which was partly prompted by a coalition of two main parties with a minister heading either half from each party. It is still early days, but so far this new structure is working well. But close connection to the Prime Minister is important, with quarterly meetings to report on progress delivering the reforms. Jaime Pérez-Renovales also thought this was important, and CORA was closely linked to the Prime Minister in Spain.

Finally, Faisal Islam expressed concern that too many policies were being justified in terms of how much money they saved. He asked whether austerity rhetoric was becoming a “jail”, and that reforms should and could be directed at more than saving money. Robert Watt gave the example of digital, which does not necessarily save government much money but potentially provides huge benefits to the citizen’s interaction with the state.