What Next?

Posted by Matt Wall

In today’s Irish Times, the editors of this site published a co-authored piece, calling on the next government to get off on the right foot in implementing their reform plans. We suggested several steps that a new government should take from the get go to demonstrate that campaign promises of political reform were more than just empty rhetoric. The parties have to be praised for taking on these issues, and for publishing their reform plans (admittedly in varying levels of detail) before the election took place. The parties put their plans on the table, and the people voted. In as much as the new government can claim a mandate for any action from the election, this government can claim a mandate for rapid and comprehensive reform.  What we need to see now is the will and the courage to make some changes from the victors of the election. They must do so, because our politics is at the root of all of our current collective problems, and it will be at the heart of any eventual solutions.

The recent election saw levels of electoral change unprecedented in Irish history (see Peter Mair’s post on this site for a breakdown of where it puts us in European terms). A large part of this change was driven by a perception that  our entire way of doing politics in Ireland had somehow let us down. Frankly, this perception is justified. From the early 2000s on, our politics was sustained by one patently untenable proposition, which was the central dogma of our political life. We believed that the value of property in Ireland would continue to grow at high rates, forever. 

We are not the first people to suffer from this type of delusion. Irish property in the early 2000s was a classic speculative bubble market, just like the Florida property bubble of the 1920s discussed by John Galbraith in The Great Crash of 1929. The bubble market begins with a rapid expansion in values available for a certain asset, sometimes, in its early days,  this expansion is objectively justified by an increase in demand for the asset. However, the bubble then expands until it reaches a phase where the value of the thing-in-itself that is being traded gets completely lost, and the asset is purchased only temporarily, in order to exploit market trends to sell at even higher prices in the near future. Of course, we know the end of the story: the bubble bursts and there is a costly and gruesome market crash. 

Our politics cheered on the property bubble relentlessly as it expanded, and even when it had begun to collapse. Naysayers were told to go away and kill themselves. They were told to do so by the words of senior politicians but also by the actions of the parties who competed for votes in 2007 with ‘give away’ manifestos. Crucially, naysayers were also ignored by a largely passive electorate, who rewarded irresponsible party behavior with large swathes of number 1 preference votes, and considered the local performance of individuals as constituency workers to be more important than the national-level decisions that they endorsed.

Our banks were catastrophically over-exposed to Irish property.  As we all now know, this situation developed as a result primarily of the greed of banking executives and their system of lavish rewards and perverse incentives. However it was also a result of our politics. Politics gave us the ‘property will always grow’ economic mantra which prevented many from even conceiving that over-exposure of banks to Irish property was dangerous. It is also politics that sets the standards for banking regulation, and ‘light touch’ regulation was our political policy of choice.

On the fiscal side, a policy of lavish pay increases that seemed totally unrelated to levels of productivity was made possible by huge returns in taxation from the building, buying, and selling of property. These returns could only collapse if the value of property went down, which was impossible according to the central political dogma of infinite growth of property values – so government felt free to pile on the spending. When property values collapsed, we were left with a gaping chasm in our public finances. In short, we set up a system of public governance where we pay out much more than we take in – year on year, regular as clockwork. Again, this situation is a direct consequence of our politics – in this case the politics of that define the approach of the government to fiscal management and Social Partnership.

In employment, salaries had to increase  to pay for overvalued property. The only accommodation that many could afford was often many miles outside of major urban areas, with patchy public transport networks, and no evidence of cohesive planning (another domain where Irish politics has all too often let itself down)  to ensure a reasonable quality of life for residents. People paying through the nose for such substandard accommodation were reassured that the Ponzi scheme of the ‘property ladder’ would allow them to move on to better housing soon. Again and again, we were told that these developments were signs of great growth and sustainable progress in the Irish economy – by politicians and commentators alike.

Our response to the banking collapse further illustrated the hollowness of our present system. David McWilliams published an apocryphal tale, detailing a late night visit from then Finance Minister Brian Lenihan – who had called over for some elementary instruction on the principles of economics – in September 2008! The tale goes that Lennihan had taken to chewing raw garlic to give him the energy that he needed to cope with the learning curve faced by a man with no financial or economic credentials who is all of a sudden made finance minister. It sounds like Lenihan was living out a common  bad dream: the one where you are forced to take an important exam that you have not prepared for. Brian Lenihan’s claim back in 2008 that Ireland’s would be ‘the cheapest bailout in the world so far’  is now a commonly used as a joke to animate opinion pieces with a certain gallows humour. However, Lenihan should not shoulder the blame alone – it appears that he was head of a department characterized by a lack of vital expertise and a deep hostility to outside influence. 

And so we find ourselves in our present, horrible position. Our banking crisis policy was an ill-conceived disaster, built, it seems, on a radically optimistic misapprehension of the extent to which the banks were compromised (though, of course, the precise details of the basis of the guarantee decision have been deemed off-limits for the Irish public). These policies leave us on the hook for an awesome amount of money – which we neither borrowed nor loaned out in the first place. Obviously, we want to revise this policy, but we are hemmed in by our need to borrow year-on-year to finance our structurally unbalanced fiscal system. 

Our banking rescue policy was so abysmal that we were shut out of the international bond markets, who no longer believed that we could pay them back. This forced us to ask for a bailout of our own, in the form of a strings-attached loan from the EU and IMF. In return for lending us the money, we have to take on, as public debt, all of the Irish banks’ bad debts. Many of these debts  are owed to other banks and investment agencies in mainland Europe and our partners in the EU are not content to foot the bill. So, unless some sort of dramatic change takes place at the EU-level (an outcome in which we seem to have irrational faith) we can either borrow the money and take on the debt, or repudiate the debt and find ourselves unable to fund our public services.

Personally, I do not know how these crises will be resolved. I fear that it will be some time before I and other young Irish people living abroad will be able to return home. Even if I find work in Ireland, it’s likely that I’ll pay higher taxes for poorer public services than in most other European countries. My tax money will be diverted to paying for bank bondholder bailouts and interest on loans brought about by our fiscal deficit. If I have children who grow up in Ireland, their standards of education and health care may be lower than mine were when I was growing up. If my children choose to work and live in Ireland, it seems likely to me that they will have to pay higher taxes, for poorer services than I did living in Ireland, because of the massive debt burden that we are currently imposing on them.

That’s the scenario faced by my generation: those in their mid-to-late 20s. We are educated to a world-class standard, we are bright and positive and enthusiastic, and many of us are now making our way, successfully, in foreign countries across the world. There are tens of thousands of us. We love Ireland and being Irish, but we fear to return home.  

These circumstance are all, ultimately, consequences of our politics. I mean politics here in the broad sense – we all had a part to play: voters, parties, and commentators alike. But, just as we are all responsible for the crisis, we must all take responsibility for moving forward, and trying to make things better. This is why it is so important that we collectively strive to reform and improve political life in Ireland. Our individual futures, the futures of our children, and the future of our country are at stake. We must all stand and be counted.

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8 thoughts on “What Next?

  1. This is a strong and a moving post. Looking at Ireland from the outside, and recalling bad periods in the 1970s, when I left, and later, I find it utterly despairing to think how a once very positive development has been so badly screwed up and has now left such a deep and potentially enduring legacy of problems. Everybody does need to stand up and be counted, including the new government, whichever that may be. There are some comforts, however. The economic foundation is still relatively strong and better than it was in the previous decades of darkness. Many forces of reaction, including the Catholic church, have been marginalised. The North is still peaceful. And the enormous shock of the past three years has brought home to many people that they finally need to take their politics responsibly. No matter what happens in the future, the scope for the cute hoors and the stroke players has been reduced. This time around, there might be space to do something.

  2. It is good to see the anger – and, possibly, a passing mood of despair – being converted into a strong resolve. We can, and we will, do better.

    While following the election counts over last weekend it was the first time in a long time that I felt proud to be Irish. No violent demonstrations in the face of hammer blow after hammer blow – apart from the odd polite protest. The Irish people bided their time, confident they would get their opportunity to cast judgement. And when they did, it was devastating. They deserve governance of a very high order – and serious political reform – to express appropriate gratitude for their patience and abiding faith in the democratic process.

    Ironically, I think Ireland is in a much better place than the other peripherals (or even Britain) with regard to future prosperity and well-being. Following some typical, and inevitable, EU-level fudge on the EZ bank problems (the EU excels at producing fudge), some serious structural economic reforms and some meaningful reform of democratic governance, Ireland will be set fair to pick up from where it left the rails 9 years ago.

  3. @ Peter, Paul yes – important to keep the positive indicators in mind and believe that we can do better this time.

    Plus, though not too helpful on the economic front, Ireland recently beating England at cricket was an incredibly inspiring reminder of what we can achieve with hard work and courage.

  4. The sign to know that we have turned the corner is how well we do in the Eurovision – if we win it then the future looks good and if we don’t then there is still a way to go. The Eurovision itself is harmless fun but the voting results tell a lot about how other European countries view other countries and the levle of goodwill to them and they will know that Ireland has been having a bad time.

    You may laugh but wait and see and like the cricket, it’s those sort of events that lift people’s spirits, even for a few hours or days and that leads to feeling better about other issues too and form that first step the long walk to recovery begins again and it’s a route we have travelled many times so we know the way.

  5. The Irish times piece today was an excellent beginning. It points to 5 items that provide an agenda that those interested in reform ought to agree to focus on in the immediate period. The first proposal – a secret ballot election of the Dail chair – would be a powerful signal that TDs are to be allowed to play a significant role in shaping the future. It would be difficult to have any confidence in a new government that would not agree to begin there.

  6. It is disappointing that there is no mention in the Programme for Government on the secret election of a Ceann Comhairle, this points to the possibility that the identity of the new incumbent has been decided (perhaps a senior Labour figure?). There is also no mention of the election of Dail committee chairs so the possibility still exists of distributing them on the basis of patronage. As I noted above there is little on open government although the extension to FoI is very welcome. To be fair to the drafters there are some proposals son making the role of TDs more relevant and Ministers and others in the state employ more accountable.

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