# Can we afford pay increases to match inflation?



## RainyDay (2 Feb 2008)

rabbit said:


> Our economy cannot sustain if everyone gets 6.5%  wage increases every year.



It absolutely can, with a combination of price increases and productivity improvements.


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## Purple (3 Feb 2008)

*Re: Inflation wage increase*



RainyDay said:


> It absolutely can, with a combination of price increases and productivity improvements.



That's frightening.

Do you really think that we can improve our productivity, as a whole, by more than 6.5% per year? 
I know companies can increase their productivity by more than 6.5% per year but they can do it by sacking the inefficient part of their work force. Unless you are advocating Thatcherite measures, and my guess is that you are not, what's your plan?


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## RainyDay (3 Feb 2008)

*Re: Inflation wage increase*



Purple said:


> That's frightening.
> 
> Do you really think that we can improve our productivity, as a whole, by more than 6.5% per year?
> I know companies can increase their productivity by more than 6.5% per year but they can do it by sacking the inefficient part of their work force. Unless you are advocating Thatcherite measures, and my guess is that you are not, what's your plan?


What's really frightening is 
a) your picking of an arguement through selective reading of my post.
b) your assumption that one single solution applies to all companies and all industries


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## Purple (3 Feb 2008)

*Re: Inflation wage increase*



RainyDay said:


> What's really frightening is
> a) your picking of an arguement through selective reading of my post.
> b) your assumption that one single solution applies to all companies and all industries



I quoted your full post.
I made no such an assumption. 
So how can we improve the efficiency of out entire economy by 6.5% (or more) per year?


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## RainyDay (3 Feb 2008)

*Re: Inflation wage increase*



Purple said:


> I quoted your full post.


Indeed you did, but your response referred exclusively to one of the two parts of my response. Go back and read it a third time and see what you get.


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## Purple (3 Feb 2008)

*Re: Inflation wage increase*



RainyDay said:


> Indeed you did, but your response referred exclusively to one of the two parts of my response. Go back and read it a third time and see what you get.


I just did and I'm still not getting it. Price increases which make us uncompetitive are a result of the pay increases. You are saying that this can be offset by increases in our efficiency which will keep our economy competitive. I am asking how we can achieve 6.5% increases in the efficiency of our economy. I’m not trying to be argumentative  and I don’t think my question is unreasonable.


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## RainyDay (3 Feb 2008)

*Re: Inflation wage increase*

Now you're putting words in my mouth!

I referred to 'price increases', and you have now developed this into 'price increases which make us uncompetitive are as a result of the pay increases'. I didn't refer to price increases which make us uncompetitive. I also never stated that we can achieve 6.5% increases in the efficiency of our economy, so there is no such question to answer. I'm sure there are companies and industries where such gains (and more) are achievable, and I'm sure there are companies and industries where such gains are not achievable.

My original comment on this thread was simply to point out the one-sided-view of rabbit's comment. Now on double-checking it, I find that perhaps I might agree with one aspect of rabbit's post - I wouldn't suggest that the economy could sustain 6.5% for every employee. There are cases where this is sustainble, and cases where it is not.


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## Gautama (3 Feb 2008)

rabbit said:


> Leave + work for someone else so.


This was my plan. However, the IT job market is quite poor at present. To cut a long story short, moving would incur a 20% pay cut!
Given that I'm in the early years of a mortgage, that would be financial suicide.



rabbit said:


> Preferably abroad....and see if you get the same as here. Our economy cannot sustain if everyone gets 6.5% wage increases every year.


I'm the citizen of three states, and I have worked abroad in the past. But I gotta stay, at present, Ireland is the best place in the world to live, so I'm staying put!



rabbit said:


> Our economy cannot sustain if everyone gets 6.5% wage increases every year.


Our economy cannot sustain if the Government gets 15% wage increases every year.



ClubMan said:


> Why? You got more than you expected.


More than I expected but not what I asked for. Given last year's performance, I'm worth more that 6.5%. Those that did absolutely nothing got 4%!


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## Protocol (3 Feb 2008)

Generally, real wages can grow at the rate of growth of labour productivity.

Taking Germany over the past few years as an example:

Nominal wage growth was low, say 1-2% pa
Real wage growth was approx 0% pa
Labour productivity improved

So the real labour cost per unit of output fell, making the economy more competitive.

Of course, trade unions are now attempting to capture back some of the gains in the economy,in the form of higher nominal wage growth.

In the long run, we can only afford real wage growth as much as labour productivity improves.


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## Purple (4 Feb 2008)

*Re: Inflation wage increase*



RainyDay said:


> I referred to 'price increases', and you have now developed this into 'price increases which make us uncompetitive are as a result of the pay increases'. I didn't refer to price increases which make us uncompetitive.


 I’ve never come across price increases that make us more competitive.


RainyDay said:


> I also never stated that we can achieve 6.5% increases in the efficiency of our economy, so there is no such question to answer. I'm sure there are companies and industries where such gains (and more) are achievable, and I'm sure there are companies and industries where such gains are not achievable.


 I accept that you never said that but do you agree that for pay increases of 6.5% to be sustainable then efficiency will have to increase by the same amount. I agree that there are some companies that can achieve this and some companies that can’t but much like the miners’ strike in the UK in the 80’s there’s a strong argument that the social cost would outweigh the economic benefit.  



RainyDay said:


> My original comment on this thread was simply to point out the one-sided-view of rabbit's comment. Now on double-checking it, I find that perhaps I might agree with one aspect of rabbit's post - I wouldn't suggest that the economy could sustain 6.5% for every employee. There are cases where this is sustainble, and cases where it is not.


 Fair enough.


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## rmelly (5 Feb 2008)

Gautama said:


> Our economy cannot sustain if the Government gets 15% wage increases every year.


 
Of course if could.


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## Purple (5 Feb 2008)

rmelly said:


> Of course if could.


True, we shouldn't confuse political and economic issues


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## Gautama (5 Feb 2008)

Gautama said:


> Our economy cannot sustain if the Government gets 15% wage increases every year.


 


rmelly said:


> Of course if [sic] could.


 
Note the smilie!

However, if you want to ignore the smilie and take the comment in a serious frame of mind, think of value for money.
Mary Harney told us to "shop around".
Are we getting value for money by giving our Minister for Wealth a 15% pay increase? Just today she missed the Cystic Fibrosis debate in the Dail because she was at the SuperBowl!


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## Purple (6 Feb 2008)

Gautama said:


> Just today she missed the Cystic Fibrosis debate in the Dail because she was at the SuperBowl!


Not true


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## asdfg (6 Feb 2008)

Seems she was at least at the superbowl. See here. Also heard she was on a week long trip that just happened to be where the superbowl was on . She could have flown home monday. Also heard she used the government jet.


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## Sherman (6 Feb 2008)

Gautama said:


> Note the smilie!
> 
> However, if you want to ignore the smilie and take the comment in a serious frame of mind, think of value for money.
> Mary Harney told us to "shop around".
> Are we getting value for money by giving our Minister for Wealth a 15% pay increase? Just today she missed the Cystic Fibrosis debate in the Dail because she was at the SuperBowl!


 
Our opportunity to 'shop around' came and went at the last election.  It seems a majority of the population felt that the competing 'products' on offer were not worth buying instead.


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## Purple (6 Feb 2008)

asdfg said:


> Seems she was at least at the superbowl. See here. Also heard she was on a week long trip that just happened to be where the superbowl was on . She could have flown home monday. Also heard she used the government jet.


 She was in the USA on a visit that had been arranged for a long time. She went to the Super Bowl as a guest of some of the people she met there. It may be the case that she should have cut her trip short to be at the debate here but I don't know who she met there or how important those meetings were so I am not in a position to comment. That is clear is that saying that she was not in the Dail because she was at the Super Bowl without putting it in context is misleading to say the least.

Anyway, none of this is on topic.


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## rmelly (6 Feb 2008)

Gautama said:


> Note the smilie!
> 
> However, if you want to ignore the smilie and take the comment in a serious frame of mind, think of value for money.
> Mary Harney told us to "shop around".
> Are we getting value for money by giving our Minister for Wealth a 15% pay increase? Just today she missed the Cystic Fibrosis debate in the Dail because she was at the SuperBowl!


 
The economy could sustain a 15% increase in Government salaries indefinitely. The total across Dail and Senate is maybe EUR 200 million (including salaries, pensions, expenses, drivers etc), versus a total yearly tax take in excess of 40 billion.

I'd rather we focussed on getting value for money from the other 300,000 public sector employees that cost the exchequer tens of billions a year.


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## coola (6 Feb 2008)

oh stop please. 15% rise in govt salaries, are you mad!!! let them join the private sector and watch them whinge then when they have a crap pension and get 4 weeks notice if they are to lose their job


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## coppers (6 Feb 2008)

rmelly said:


> I'd rather we focussed on getting value for money from the other 300,000 public sector employees that cost the exchequer tens of billions a year.


Not going to happen in a hurry, Harney for example will devote enormous amounts of time, effort and cost squeezing moderate savings from indirect employees, E.g. GPs/pharmacists/consultants (not that they’re not worthwhile; and no I'm none of the above) instead of tackling her own backyard where billions are at stake.  Why…? Maybe, because she's public sector herself? Maybe, not up to tackling unions? Maybe, because across the public sector 300,000 = a lot of votes? Who knows?


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## Purple (6 Feb 2008)

coppers said:


> Not going to happen in a hurry, Harney for example will devote enormous amounts of time, effort and cost squeezing moderate savings from indirect employees, E.g. GPs/pharmacists/consultants (not that they’re not worthwhile; and no I'm none of the above) instead of tackling her own backyard where billions are at stake.  Why…? Maybe, because she's public sector herself? Maybe, not up to tackling unions? Maybe, because across the public sector 300,000 = a lot of votes? Who knows?


 
Maybe because she (along with every other politician in the country) knows that the public sector is bigger and stronger than the government. The government cannot take then on because they will lose. It’s as simple as that.


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## Gautama (9 Feb 2008)

Sherman said:


> It seems a majority of the population felt that the competing 'products' on offer were not worth buying instead.


 
Mary Harney's party is the Progressive Democrats. Nationwide they got 2.7% of the vote. That's hardly a majority.


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## Purple (9 Feb 2008)

Gautama said:


> Mary Harney's party is the Progressive Democrats. Nationwide they got 2.7% of the vote. That's hardly a majority.



You do know that they are the smallest party in a three party coalition, right?


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## Gautama (10 Feb 2008)

Purple said:


> You do know that they are the smallest party in a three party coalition, right?


 
Yep, I know that.
But if you want to look at Mary Harney as...
a member of the Progressive Democrats: 2.7%, not a majority.
part of the government of the 29th Dail: 44.3%, not a majority.
part of the a three party coalition: 49%, not a majority.

Case closed and back to the original topic...

I remember hearing that back in Ireland of the 80ies people in good jobs used to get pay increases three or four times a year, to match inflation which was running at 17%, is this true?
The economy was a basket case back then, yet efforts were made to match inflation.
Surely it's vital that if a company is making profits, its pay increases should at least match inflation? Otherwise they are really insulting their employees.
Taking my own case, this was the first pay review where I actually spoke money in exact figures. The company had it's best year ever, but I didn't get the 11% I was looking for, and had to settle with 6.5%.
One sweetener though, when I "do the math" on the figures, they are actually giving me 7.5%, not the 6.% stated in the letter


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## Purple (10 Feb 2008)

Gautama said:


> Yep, I know that.
> But if you want to look at Mary Harney as...
> a member of the Progressive Democrats: 2.7%, not a majority.
> part of the government of the 29th Dail: 44.3%, not a majority.
> part of the a three party coalition: 49%, not a majority.


 That’s why it’s called representative democracy. Our single transferrable vote is about as representative as any system can get.


Gautama said:


> Case closed and back to the original topic...


yea...



Gautama said:


> I remember hearing that back in Ireland of the 80ies people in good jobs used to get pay increases three or four times a year, to match inflation which was running at 17%, is this true?
> The economy was a basket case back then, yet efforts were made to match inflation.


Yes, that’s a large part of the reason that the country was in that state in the first place.


Gautama said:


> Surely it's vital that if a company is making profits, its pay increases should at least match inflation? Otherwise they are really insulting their employees.


 If those pay increases wipe out the profit and endanger the jobs of its employees is it still a god idea? 


Gautama said:


> Taking my own case, this was the first pay review where I actually spoke money in exact figures. The company had it's best year ever, but I didn't get the 11% I was looking for, and had to settle with 6.5%.
> One sweetener though, when I "do the math" on the figures, they are actually giving me 7.5%, not the 6.% stated in the letter


 Well done. If you are worth (at least) 7.5% more than you were when you got your last raise then it is money well spent.  If not it’s irresponsible and shows weak management.


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## Gautama (11 Feb 2008)

Purple said:


> If those pay increases wipe out the profit and endanger the jobs of its employees is it still a god idea?


 
Nope, but if those pay increases do not wipe out the profit its pay increases should at least match inflation.



Purple said:


> Well done. If you are worth (at least) 7.5% more than you were when you got your last raise then it is money well spent. If not it’s irresponsible and shows weak management.


 
Thanks. Pension was upped by 1% as well so in the unlikely event that pay increases wipe out the profit and endanger our jobs it's reassuring that that aspect is closed off.

But going back to the topic, if for arguments sake that inflation is running at 5% per annum, an nobody in Ireland is getting any pay increase, and this goes on for, say five years, what's the advantage of this?
To pack off the foreign nationals to their home countries and elsewhere, and us with them? There's less merit in this. We can't afford this either.

That would be going from "talking ourselves into a recession" to looking forward to a depression.


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## Purple (12 Feb 2008)

Gautama said:


> But going back to the topic, if for arguments sake that inflation is running at 5% per annum, an nobody in Ireland is getting any pay increase, and this goes on for, say five years, what's the advantage of this?


If that happened then we would be 25% (plus compounding) more competitive than we would have been if we had taken pay increases in line with inflation. I don't know if it would be worth it as a society but if international inflation over the same period was say 2% then we could not afford the loss of competitiveness that 5% pay increases would cost us.
GM are trying to get rid of 74'000 employees in the USA because of high wages. In the end it is just not sustainable.


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## Gautama (12 Feb 2008)

Makes sense I guess.

This whole pay/job market thing is doing me head in.
Spoke to a recruiter today (one of that few I've spoken to that really seemed to know her stuff), seems that I'm being over paid for what I do.  Obviously, this sounds good, but leaves me a  quandry.   I want to leave, but a 15-20% pay cut would be financial suicide, given that I have a mortgage.


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## Purple (13 Feb 2008)

Gautama said:


> Makes sense I guess.
> 
> This whole pay/job market thing is doing me head in.
> Spoke to a recruiter today (one of that few I've spoken to that really seemed to know her stuff), seems that I'm being over paid for what I do.  Obviously, this sounds good, but leaves me a  quandry.   I want to leave, but a 15-20% pay cut would be financial suicide, given that I have a mortgage.



Get a hobby and try to keep the smile off your face


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## LDFerguson (19 Feb 2008)

I read [broken link removed] this morning that Hibernian are considering moving 250 jobs to India in a cost-cutting drive.  I consider this a major threat to our economy, if other employers follow suit.  

Any ideas as to what we can do to nip this in the bud before it starts happening to ever-increasing employee numbers?


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## Purple (19 Feb 2008)

LDFerguson said:


> I read [broken link removed] this morning that Hibernian are considering moving 250 jobs to India in a cost-cutting drive.  I consider this a major threat to our economy, if other employers follow suit.
> 
> Any ideas as to what we can do to nip this in the bud before it starts happening to ever-increasing employee numbers?


It's way too late. All we can do now is sit back and watch them go. The unions may dictate to the government that they want to speed things up a bit by giving those who have almost total job security even more pay increases but stopping the trend would require the government to actually run the country and the vested interest groups would never let that happen.


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## LDFerguson (19 Feb 2008)

Fan of our current Government then?


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## Caveat (19 Feb 2008)

A large company close to me "moved operations" in recent times.

An employee (active in the union) of this same company was complaining about paying people a pittance to do jobs in 3rd world countries and showing no loyalty to Irish workers etc etc.

I might have some sympathy if the same employee hadn't previously gleefully informed me that they all "didn't do a tap" in his former company.

If the company isn't productive, but can be, what do people think is going to happen?  I'm not saying this is always the case but certainly seems to have been here.


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## Martinslan (19 Feb 2008)

Liam,   my company followed all the "wisdom" , move from being a black box factory to more added value, R&D, European Distribution and European Finance, higher value products, move up the value chain etc; We worked and achieved all these things. We only lasted 5 years longer. 2002 -2207. We have the markets, the customers and the profits. Alas, due to the fact that MORE profit can be made in Hungary and Mexico we are just completing a year long shut down. So it was a pure cost driven decision for more profits in the future. I am not sure how to "nip it in the bud". I just took a couple of minutes over my 11's break to consider if I had any ideas and no I don't I feel I have being trying for 25 years to "nip it in the bud". Maybe it is a question of trying, as we did, and get another 5 years out of every place. I do think that every worker (at all levels) up to and including the MD needs to do way more in protecting the jobs we have by doing a great days work every day, not just "clockwatching" every day. How many people go home saying I earned my crust today, If everyone was 100% honest I believe we could improve productivity by 30% p.a. by everyone working togerther. Do I believe it will happen NO, people are not interested in working that smart and hard. I know there are 20% of people who are worked to the bone however I really do challange the 80% to have a hard look at the daily work output. ... When I visit Eastern Europe, Mexico, and China I see work rate that is scary for the money they get paid. The world or the government does not owe us a living..
We have to add value ourselves, every day.


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## Purple (19 Feb 2008)

LDFerguson said:


> Fan of our current Government then?


Nope, but what's the alternative?

Martinslan, good post, all very true.
What we tend to forget is that before those jobs came here they were (mostly) in the USA. The people who worked there did all the things you did and their parent company still closed them down to relocate to a lower cost economy; Ireland. 
At some stage in the early 90's we forgot this and started to believe the line of bull that the IDA sell about our highly educated workforce etc. We forgot that businesses are in business to maximise profits in the medium term and that's all they are in business for. The day our high wages, high cost of doing business and infrastructural deficit outweigh our low corporation tax is the day that these companies up sticks. We have to remember that's now we got them here so we can't moan about it when they leave by the same door.
We had a golden opportunity to create a sustainable economy and build the quality of life that depth of wealth gives a country and we blew it.


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## LDFerguson (19 Feb 2008)

Interesting.  

I agree with Martinslan's comments re productivity, but I fear that trying to get the percentage of under-performing workers to raise their game would be akin to trying to convince the thousands of road-fools that driving dangerously kills innocent people.

Part of me thinks "wage freeze" for a few years.  I know it would be unpopular but I suspect that being out of work with poor prospects would be less popular again.  But then a wage freeze would give an unfair advantage to self-employed folk (like myself) who don't have set "wages" per se.  Is there precedent from other countries as to how a wage freeze might work in practice?


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## Purple (19 Feb 2008)

The unions would slap the government back into its box if it tried to freeze wages.


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## Sunny (19 Feb 2008)

LDFerguson said:


> Part of me thinks "wage freeze" for a few years. I know it would be unpopular but I suspect that being out of work with poor prospects would be less popular again. But then a wage freeze would give an unfair advantage to self-employed folk (like myself) who don't have set "wages" per se. Is there precedent from other countries as to how a wage freeze might work in practice?


 
Thats the problem with discussions like this. Talk about wage freezes and  wage increases less than inflation usually impact on certain parts of the economy more than others. I earn a good six figure salary. If my company turned around and said I wouldn't be getting a pay rise or one of 1-2%, I wouldn't be happy but I would survive. Would people on lower salaries be able to say the same thing?

One other problem I have is that if you are looking at the people doing the bleating on about productivity and the need of wage restraint, they don't exactly practice what they preach. Look at politicians and how much their wages have risen despite the publicity move of deferring their latest one for a year. Look at senior management and executive pay levels to see how the gulf between the higher paid and the rest is just getting larger and larger (I include myself in that). I have no problem with people earning vast amounts of money but I do feel uncomfortable that parts of our society didn't get their fair share of the economic success and now that it is turning, they are being asked to take the majority of the pain. By all means discuss wage freezes and lower increases but the example needs to be set at the top by the Government and IBEC.


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## Purple (19 Feb 2008)

Sunny said:


> By all means discuss wage freezes and lower increases but the example needs to be set at the top by the Government and IBEC.


I agree. I took a 30% pay cut last year rather than sack anybody or ask them to cut their wages.
But having said that if a person builds up a business they deserve to reap the rewards. Those who take the less risky option of working for someone else cannot expect to get paid the same. In order to have a successful economy we have to reward risk takers.


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## Sunny (19 Feb 2008)

Purple said:


> But having said that if a person builds up a business they deserve to reap the rewards. Those who take the less risky option of working for someone else cannot expect to get paid the same. In order to have a successful economy we have to reward risk takers.


 
No argument there.


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## Martinslan (19 Feb 2008)

I think every service, factory, business or enterprise could improve itself by at least 30% p.a. by implementing "Lean" concepts and principles. There is so much waste each workplace that we need to look at our processes on an ongoing bases.The objectives of "Lean" need to be communicated to everyone and it must be make clear that nobody will loose their job by improvements achieved. I agree with other posters that a country wide programme would need to come from the Top...If it did we could be world class.


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## Duke of Marmalade (19 Feb 2008)

The dollar has weakened by 20% against the Euro and sterling has weakened by 10% in a very short time.

We are now paying for the mad patriotism which made us join the Euro. 

There is no way that over a few months we deserve to pay ourselves 10% to 20% more than our closest economic and cultural allies. 

We're in the wrong currency pure and simple.


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## Purple (20 Feb 2008)

Martinslan said:


> I think every service, factory, business or enterprise could improve itself by at least 30% p.a. by implementing "Lean" concepts and principles. There is so much waste each workplace that we need to look at our processes on an ongoing bases.The objectives of "Lean" need to be communicated to everyone and it must be make clear that nobody will loose their job by improvements achieved. I agree with other posters that a country wide programme would need to come from the Top...If it did we could be world class.


I've done quite a bit of work with Lean practices. It is a good idea but it would require major restructuring to remove waste in the public and semi-state sectors. The unions would use their veto to stop anything like this from happening.


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