Sunday, September 7, 2008

Privatising the Recession

Over the past two weeks I've had the same conversation three times with directors of different advertising agencies in Dublin. They all report grim discussions with the financial controllers of various Government Departments that also happen to be clients. The message from their clients: "we have to cut our advertising and marketing spending by 50% so we're changing our contracted expenditure with you for next year". 'Like it or lump it' being the sub-text.

The Government has decided to privatise the pain it must face in terms of its rising budget deficit. The private sector - businesses and their employees providing goods and services to the public sector - will bear the brunt of a retraction in government spending. The same goes for capital spending: it is private sector contractors who deliver the roads, hospital buildings and IT systems purchased by the public sector - so a cut in capital spending means reduced incomes for private sector suppliers. The Government seems intent to outsource its pain, and those of us not in sheltered employment will feel it.

It surprises me how little this is commented on in the acres of coverage about the forthcoming Budget and the Government's options. In the private sector if your revenues fall and costs don't then you usually have no choice but to reduce the numbers and hours of your employees. In the public sector, on the other hand, IT WOULD TAKE AN ACT OF THE OIREACHTAS to make a single, tenured civil servant redundant. That's what I call job security.

So the ONLY option the Government has (by way of cost reductions) is to reduce its spending with the private sector. Sure they can huff and puff about 'pay restraint' and 'low single digit pay rises' but we all understand the fundamental realities: there are no consequences for public sector workers who refuse to play along with calls for restraint. That isn't to say there are no consequences at all - rather the private sector bears most of them through reduced demand and rising redundancies.

Also in contrast to the private sector, the Government can put up its 'prices' when revenues fall - i.e.: raise taxes. So we're in for a double hit for businesses, their employees and consumers. As I see it, nothing short of an unemployment rate closer to 15% than 5% will induce the public sector to do what the private sector are already doing: letting go those staff for whom there's no work. But in the short term the prospect is for even less work for those businesses reliant on public sector clients like my ad agency friends.

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