Monday Newspaper Review - Irish Business News and International Stories

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Monday Newspaper Review - Irish Business News and International Stories
By Finfacts Team
Dec 5, 2005, 08:22

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The Irish Independent reports that some state agencies and government departments could grind to a halt under plans for decentralisation, confidential documents reveal.

Exactly two years after the Government announced its plan to move 10,000 civil servants out of Dublin, further proof has emerged that the €3bn programme is in trouble.

The mounting problems with the plan are shown in the official documents, seen by the Irish Independent.

They show that fewer than one in nine civil servants wants to move with their present job under the programme.

Internal Fas memos show the agency is seriously concerned about losing its top staff if it moves to Birr, Co Offaly.

In the Department of Foreign Affairs, where senior diplomats with Development Co-operation Ireland (DCI) have refused to move to Limerick, documents show grave concern about its ability to operate if it loses experienced development aid specialists.

The problems facing the two bodies are mirrored in almost all other specialist units.

Labour's finance spokesperson Joan Burton, who obtained the documents under the Freedom of Information Act, last night called on the Government to scrap its entire decentralisation plans and go back to the drawing board.

"Decentralisation can work and it does work, but this was a political stroke and it was never costed or thought out," she said. "The eventual cost to the taxpayer will be €2bn to €3bn, money that could be better spent on health, education and front line services that people desperately need," she said.

Ms Burton warned that the loss of senior diplomats from the development aid section due to move to Limerick would have "catastrophic affects" for the development aid programme., The senior staff refusing to go there represent years of specialist knowledge, she said.

Former Finance Minister Charlie McCreevy promised to have 10,000 civil and public servants decentralised by this time next year when he launched the Government's plans on Budget Day in 2003.

However the Government rowed back on these plans, and now says it will have 1,000 civil servants in place by December next year, with the rest by 2010.

The Irish Independent also reports that fresh hope emerged last night that the bitter Irish Ferries row may be resolved this week through intensive talks between management and the unions which are due to get under way today.

Last night, it emerged that fresh Labour Relations Commission talks, brokered by the country's top industrial relations body, the National Implementation Body (NIB), may hold the key towards breaking the dispute that has paralysed all Irish Ferries services for the past 10 days.

It is understood the new talks must be completed by Wednesday and the key issues include pay and conditions for remaining and new staff. Last night Siptu said it wished "to acknowledge receipt of a statement from the NIB proposing a process for resolving the dispute and address the wider issues of protecting employment standards".

Meanwhile, the 39,000-strong Technical and Electrical Union called on 1,000 shop stewards nationwide to mobilise in support of Friday's day of protest.

Efforts are also under way to create a new independent party of working people.

The first public meeting of The Campaign for an Independent Left will be held tomorrow evening.

The Irish Times reports that workers should be encouraged to work longer and mandatory retirement ages should be abolished, a report by the Organisation for Economic Co-operation and Development (OECD) report on the Irish pensions system will recommend today.

The report, to be released at the Fás annual labour market conference in Dublin, will also suggest unemployed workers over the age of 55 should still be required to seek work. They should no longer be allowed leave the live register and claim the pre-retirement allowance, the report suggests - the OECD, a Paris-based think-tank, represents 24 of the world's leading economies, including Ireland.

At present, those unemployed between 55 and 65 can effectively enter retirement early and are no longer required to seek work. If they have been claiming unemployment assistance for 390 days or unemployment benefit for 390 days, they are entitled to pre-retirement allowance and no longer need to seek work. The report suggests this allowance be abolished.

The report predicts that Ireland's relatively low old-age dependency ratio will more than double by 2050. Consequently more older workers will have to remain in employment in order to ease the upward pressures on pension and healthcare costs, says the report. It says productivity levels generally will have to rise and that means retaining more people in the workforce even when they get older. The report strongly supports the idea of scrapping mandatory retirement ages so that people can work "as long as they want".

The report, written by a team of OECD experts, contains suggestions which are likely to prove controversial on social grounds. For example, it recommends a shift in the focus on disability benefits, saying there should be more emphasis on determining somebody's remaining work capacity and less on their degree of incapacity.

While some suggestions are likely to face opposition from the social partners, the report acknowledges older people will need training to help them to remain in the workforce. The report says the national training fund play a greater role in boosting the skills of the workforce. The report will be launched today by Minister of State Tom Kitt.

Mr Kitt is expected to tell the Fás conference that the Government is already setting aside a considerable sum, with the pension reserve fund to meet long-term needs.

The sometimes controversial suggestion that people should work beyond 65 was recently broached in the National Pensions Review. It suggested people should be able to postpone claiming the State pension at 65 in return for receiving larger payments later.

Their estate would be compensated, however, for the pension forgone if they should die during that time.

People would not be forced to stay on at work if they did not want to, but equally they could not be forced to leave by companies either, the pensions review said.

The Irish Times also reports that the Government is expecting the ESB to produce a record dividend in 2006 of €80 million, almost a 10 per cent increase on the figure for 2005, new figures show.

Department of Finance forecasts show that the Government believes the electricity company is capable of posting an €80 million dividend. If the Government goes ahead and accepts the dividend payment it is likely to draw sharp criticism from unions and business interests.

IBEC, the business lobby group, recently said the ESB should retain the dividends so they could be used to keep prices lower. Several key union figures at the company, including deputy chairman Joe La Cumbre, believe the company should not be paying dividends until its €500 million pension deficit is addressed.

The different approaches to the pension issue by Mr La Cumbre and the ESB chairman Tadhg O'Donoghue created tension earlier this year and led to Mr La Cumbre claiming he had effectively been dismissed from the ESB board.

This row was eventually settled following intervention by the Minister for Communications Noel Dempsey. The immediate trigger for the row concerned who should chair meetings of the company's board, but in the background was the issue of dealing with the pension problem.

Based on the Government projections, the ESB is set to remain highly profitable over the next few years despite liberalisation of the electricity market and higher fuel prices.

While the company's profits often attract criticism for being too high, the company claims it needs to generate a lot of cash to meet its considerable debt obligations.

The dividend payment is worked out according to a formula designed by the Department of Finance. The higher the level of ESB's post-tax profits the higher the dividend. In 2003 the ESB was able to propose a dividend of €67.1 million; this increased in 2004 to €77.4 million and in 2005 it is likely to be €73.5 million, rising to €80 million in 2006.

These are based on Department of Finance figures, but are subject to change. The figures are disclosed in the 2006 Estimates of Receipts and Expenditure published by the Department of Finance late last week.

These figures also show that the Department expects Bord Gáis to produce a dividend in 2006 of €9.1 million, slightly down on the 2005 figure of €10 million.

Other State-owned companies, for instance An Post, rarely pay a dividend and RTÉ traditionally retains any surpluses it makes. The Dublin Airport Authority sometimes pays dividends but decided not to last year.

The ESB only resumed paying dividends in 2002 following a new deal with the Department of Finance.

The Irish Examiner reports that Richard Branson yesterday looked set to combine his Virgin mobile phone business with British cable TV giant NTL to create a new powerhouse in the media industry.

It is understood that the billionaire entrepreneur wants to create an entertainment and communications giant worth €6.5 billion (Ł4.5bn) with more than nine million customers.

The proposed deal - which will see NTL rebranded as Virgin - will provide Britain’s first ‘quadruple play’ service, made up of mobile phones, fixed-line phones, internet broadband and television.

The new business is likely to pose a threat to the industry dominance of BSkyB, the global media group owned by Rupert Murdoch’s News International.

It is understood that NTL chief executive Simon Duffy, who sold the company’s Irish business earlier this year, approached Branson nine months ago and talks about the link-up have taken place since then.

A Sunday Telegraph report said the discussions culminated on Friday at a Hampshire hotel where Virgin Mobile’s German network operator T-Mobile was told about the potential deal.

Virgin Mobile is expected to make a statement to the London stock market today, but NTL and Virgin didn’t comment yesterday.

It is thought that NTL will make an offer for Virgin Mobile above the 311p closing share price on Friday.

The proposed deal will need support from Virgin Mobile’s chief executive Tom Alexander and its board. It is also subject to the Ł3.4 billion tie-up of NTL and rival Telewest.

Customers will be able to pick which of the four services they want, with the option of subscribing to all of them. The group will also offer its television content on mobile phones.

Reports said Mr Branson hoped to snatch Premiership football from Sky when the rights are auctioned next year.

The Financial Times reports that Ukraine on Sundayy began combating what appeared to be the biggest outbreak yet in Europe of the deadly strain of bird flu, after more than 2,000 domestic birds died in a remote region of the Crimean peninsula.

President Viktor Yushchenko declared a state of emergency in five villages on Saturday after the agriculture ministry said it had identified the H5 subtype of bird flu virus. Officials enforced a quarantine and began culling and burning the villages’ birds on Sunday.

But the government’s failure to notice the outbreak earlier is likely to heighten concerns across Europe about Ukraine’s ability to deal with the bird flu problem. Ukrainian villagers who keep birds in their gardens are at particular risk, because they regularly handle birds that may have come into contact with the migratory wild birds that spread the virus.

Confirmation that the outbreak was caused by the H5N1 strain that can kill humans was awaiting the results of tests in Britain and Italy. But officials left little doubt that they were dealing with the same deadly strain that has shown up in Romania and other parts of south-east Europe.

Olexander Baranivsky, agriculture minister, told a press conference he was alerted on Friday after the villages saw up to 20 per cent of their birds die overnight. “Birds are dying from [the virus] in no more than two to eight hours,” he said.

Mr Baranivsky’s ministry has insisted it is keeping careful guard against bird flu by regularly testing wild and domestic birds around the country and making sure the issue gets ample coverage in national and local media.

But villagers told television reporters they were mystified by the disease that had been killing their birds for more than a month. Their stories indicated the disease had started spreading around the same time as the first known outbreak of bird flu in Europe, in Romania’s Danube delta region in October.

The villagers said they had been eating healthy birds and throwing diseased ones on the village dump, where the carcasses were scavenged by stray dogs.

The affected villages are near Lake Sivash, a vast, marshy lagoon next to the Azov Sea where migratory birds stop over each spring and autumn on their way between Russia and Africa or the Middle East.

Romania said at the weekend it was dealing with what appeared to be a new H5N1 outbreak in the country’s south-east, its first outside the Danube delta.

So far no people in Europe have contracted the H5N1 virus, but it has killed 69 in Asia, including one in Indonesia confirmed on Sunday. Health officials believe people generally are not at risk unless they handle birds, but experts worry that a mutation could enable the virus to spread from human to human and thus cause a worldwide epidemic.

The FT also reports that the fear that traditional advertising is losing its impact is triggering a boom in market research spending, a leading industry forecaster says in a report set for release on Monday.

ZenithOptimedia says global spending on market research – now $23bn – will grow more than 11 per cent this year and in each of the following two years. It says companies are spending more to measure the impact of advertising as they shift resources to new approaches, particularly on the internet. Companies are experimenting more because they believe they can no longer rely on traditional television advertising alone to reach the mass market. "You can spend a lot of money and reach nobody," said Steve King, chief executive of ZenithOptimedia, a unit of Publicis of France that helps companies buy advertising.

You need a much more dynamic research structure to reflect rapidly changing media consumption patterns, particularly among upscale and younger audiences."

ZenithOptimedia, is one of the companies expected to cash in on the trend but is not the only one excited about market research.

Sir Martin Sorrell, chief executive of WPP of the UK, has predicted that the market research business is due for consolidation and has expressed interest in buying the Synovate market-research arm of Aegis of the UK. WPP last month said it had decided against bidding for Aegis with Hellman & Friedman, the US private equity firm. But industry analysts say that does not signal an end to WPP's interest in Synovate or similar market research businesses.

ZenithOptimedia makes its prediction about market research spending as part of its annual advertising forecast, one of the sector's most closely watched.

It predicts global advertising spending will grow 4.8 per cent in 2005, 5.9 per cent in 2006, 5.7 per cent in 2007 and 6 per cent in 2008 – putting spending at $403.7bn this year, $427.3bn in 2006, $451.9bn in 2007 and $479bn in 2008. The expected rise reflects the internet's growth and the growth of advertising markets in emerging economies such as China, Russia, India and Brazil.

The global internet advertising market, worth $14bn last year, or 4.6 per cent of the total, will hit $18bn this year, $22bn in 2006, $26bn in 2007 and nearly $30bn, or 6.4 per cent of the total, in 2008, ZenithOptimedia says.

The New York Times says that the nation's economic forecasters are all but unanimous in predicting that the coming year will not bring a recession. It isn't so clear, however, whether that forecast has any meaning.

Wall Street economists are notorious for insisting that all is fine even when a downturn is just around the corner. The few pessimists who regularly prophesize doom are only occasionally right.

Even the actual start of a recession does not always help. Alan Greenspan, the chairman of the Federal Reserve, spent much of early 2001 saying that a recession was avoidable. In fact, one had already begun.

Trying to predict recessions - an effort that drives much of forecasting - turns out to have little practical use. The more relevant question might be whether growth is likely to speed up or slow down in the coming year, and most of the signs, like still-high energy costs and a cooling housing market, are pointing to a slowdown.

Slowing economies matter because they often set the stage for recessions, and they usually drag down stock prices in any event. By the time a recession begins and job losses are mounting, stocks are frequently rising again.

"The recession obsession is a terrible mistake," said Joseph H. Ellis, a former partner at Goldman Sachs who was ranked the country's top retail analyst for 18 straight years by Institutional Investor magazine. "We need to find a way to talk about slowing rates of growth. We need new language."

In a new book, "Ahead of the Curve" (Harvard Business School Press, 2005), Mr. Ellis argues that the economy's direction is easier to divine than many people think. Cast aside the recession obsession, look beyond the torrent of confusing data each week, he says, and you can often tell what the economy's next move will be. You still won't know when the next recession is coming, but neither do Mr. Greenspan or Wall Street's prophets.

In 2006, Mr. Ellis says, the economy will probably slow more than most forecasters predict, for the same important reason it has typically slowed at other points in the last 40 years: weak wage growth.

The forecasters polled in a regular survey by the Philadelphia Fed say they think that the economy will expand 3.4 percent next year, down from 3.6 this year. To Mr. Ellis - who is also the founder of Blue Tulip, a chain of gift and paper stores in the Northeast - 2 percent growth might be more likely.

"We're probably past the peak," he said.

The key to his system is paying attention to people's paychecks and comparing them with inflation. These checks receive less attention than the unemployment rate or job growth, but they are far more important to the economy.

Only a fraction of workers lose their job in a given year. But all workers get paid, and the changes in their pay help determine consumer spending. Consumer spending, in turn, makes up about two-thirds of the $12 trillion American economy. Where it goes, industrial production, capital spending and hiring eventually follow.

For most of the last two years, wages of rank-and-file workers - about 80 percent of the work force - have been growing more slowly than inflation. Upper-income households have done better, but surging energy costs this year have dented their buying power as well.

In the 12 months ending in November, the weekly pay of rank-and-file workers fell about 0.5 percent, after taking inflation into account, according to the Bureau of Labor Statistics. (Annual rates of change like this are another of Mr. Ellis's fixations; the month-to-month changes that are often reported by the news media are much too noisy to be useful, he says.)

Just about every other time that inflation-adjusted pay growth has slowed in recent decades, consumer spending eventually took a hit, too. The big exceptions came after tax cuts, such as the ones proposed by President Reagan in the early 1980's and by President Bush during his first term. But the current federal budget deficit makes another tax cut unlikely next year.

Wage growth has not been a perfect economic predictor, of course. Nothing is. Corporate investment and international trade also matter.

And forms of income other than regular wages, like bonuses and stock options, are bigger than they were in past decades. They helped keep the economy growing at a surprisingly healthy pace in 2004 and 2005 despite high energy costs and lagging wages.

The figures that Mr. Ellis tracks "are only part of the story," said James O'Sullivan, an economist at UBS. "You've had a pretty clear pattern where total wage-and-salary income has been consistently stronger."

It is also possible that the recent tax cuts and real-estate boom have carried the economy through its danger zone. Nominal wage growth - that is, before accounting for inflation - picked up this year as the job market improved. Oil prices have recently fallen, which suggests that Mr. Ellis's favorite indicator - inflation-adjusted wages - might be on the verge of turning around.

Still, the economy has rarely escaped pain after years of slowing real wages, even if there is sometimes a lag. Mr. Ellis began to use his system at Goldman Sachs in the early 1970's, and it played a big role in his success as a retail analyst.

It also earned him needling when he strayed from Wall Street's usual sunny forecasts. Slowing wage growth started worrying him in late 1998, for instance, but friends told him that the wealth that had been created by the long bull market would keep the economy booming.

They did, but only temporarily. Rising house values might well have played a similar role in the last couple years. "These things can postpone a decline" in spending growth, he said, "but they can't prevent it."

If Mr. Ellis is wrong, he will have picked a bad time to commit his ideas to paper. If he is right, Wall Street's forecasts next December will revolve around the question of whether the slowdown of 2006 will become the recession of 2007. You can guess what their answer will be.

The NYT reports that Google, like I.B.M., says that it is forging a corporate culture in which success depends on performance.

But while I.B.M. is an old company that has revamped the social contract with its workers, Google is writing a new one from scratch.

Some of Google's benefit and compensation practices resemble I.B.M.'s. The retirement plan is a tax-deferred 401(k) program with employee savings matched by company contributions, as it is for new employees at I.B.M. starting this year. Annual bonuses at Google range up to 25 or 30 percent, as they do at I.B.M.

Yet Google portrays itself as a special place, starting with its company motto, "Don't Be Evil." And its programs and perks for employees are unusual, even by the often-generous standards of young Silicon Valley companies in good times.

Meals of all kinds, painstakingly prepared by company chefs, are free at the company's headquarters in Mountain View, Calif., a modern corporate campus known as the Googleplex. Other amenities there include children's day care, doctors, dry cleaning, laundry, a gym, and basketball and volleyball courts. Maternity or paternity leave is 12 weeks at 75 percent of full pay. There is also up to $500 available for takeout meals for the entire family after a newborn arrives, courtesy of Google. Shuttle buses (with wireless Internet access for working while commuting) ferry employees to the Googleplex from throughout the Bay area.

And the big perk: the company's engineers are given 20 percent of their time to pursue their own ideas instead of company assignments.

The company is currently hiring about 10 people a day, adding to a workforce of more than 5,000. The essence of the Google pitch, said Shona L. Brown, vice president of operations, is: "Hey, come join us doing really exciting things. We're trying to change the world."

That prospect proved appealing to Paul Rademacher, 31, who came to Google in September from DreamWorks, where he worked on the software behind movies like "Shrek 2" and "Madagascar." Mr. Rademacher caught the attention of Google executives with a Web site he built on his own, www.housingmaps.com, which links Google's mapping software with property listings on Craigslist, the online bulletin board, to display houses and neighborhoods.

After talking to Google engineers and executives, Mr. Rademacher came away impressed that the company was a place that gave people "room to do great things." At Google, he is working on new products that remain secret.

In previous jobs, Mr. Rademacher rarely thought beyond a year or two, but he said he could see himself staying at Google for a long time. "If you really feel that you're part of the larger effort, that you have both opportunity and ownership, loyalty does follow," he said.

To encourage a sense of ownership, all Google employees receive stock grants or options. With revenues growing at nearly 100 percent and profit rising faster, Google's stock price has more than doubled so far this year. So there are a lot of happy owners these days. The company also doles out cash payments, including Founders' Awards of millions of dollars, for innovations that add value to the Google franchise.

But what happens to all this corporate largesse when, someday, the laws of economic gravity are felt at Google and growth slows sharply or worse? The thinking seems to be that any slowdown will be a soft landing that can be managed by easing the pace of hiring. Real belt-tightening, apparently, is unimaginable.

"We will not pull back on our commitments to employees," Ms. Brown said. "The last thing we would do is take it out of the hide of our employees. That is a path to a downward spiral."