Reform proposals don’t target corruption

By Iain McMenamin (30 March, 2011)

The Moriarty Tribunal’s report details an exchange between a politician and businessman, the like of which cannot easily be targeted by political reforms. Politicians have a demand for cash and can supply lucrative private goods to business, such as a mobile phone licence. The political demand for cash in Ireland is already limited compared to other countries such as the USA and Australia because paid broadcast advertising is not allowed. The Criminal Assets Bureau has great potential to recoup illicit cash from politicians.

The ability of politicians to supply private goods can be reduced by ceasing production of private goods or by eliminating political control over the distribution of private goods. Recent reports suggest our corporate tax rate creates a public good for business, in contrast to the private goods created by the multiple exceptions and schemes in France. Even when the state provides private goods, decision-making is well insulated from politics.  For example, Enterprise Ireland provides a wide range of private goods, but is outside political control.  The granting of the second mobile phone licence was designed to be insulated from politics, but Moriarty argues that Michael Lowry managed to interfere in the decision.  Official thinking could clearly go further in moving away from the production of private goods. The recent discussion of a casino licence is a spectacular example. Why just Dr Quirkey or Treasury Holdings? Why not all applicants fulfilling some basic criteria? (Or why couldn’t the state operate a monopoly?) The grant of a small number of casino licences is an invitation to corruption. The grant of a general right to open a casino eliminates the incentive for bribery (even if it might create a host of different problems).  Current political reform proposals do not seem to address political demand for money or supply of private goods.

Business has a demand for profitable private goods and can potentially supply money to politicians. The empowerment of whistle-blowers might slightly reduce this demand for private goods, but the basic incentive seems inherent to a competitive economy.  The introduction of a lobbying register and code of practice might somewhat increase transparency around the Houses of the Oireachtas, but will not reduce business demand for private goods from the political system. Irish law already severely restricts the amounts of money business can supply to politicians, but there is little to be lost from completely banning corporate donations.   Clearly, none of these proposals would have prevented the exchange between Moriarty and O’Brien.  In particular, O’Brien’s payments were secret. Indeed, they were only uncovered by good journalism, good luck and (I confidently predict) a grotesquely expensive tribunal. Various intermediaries and companies seem to have been involved, but the inference seems to have been that the most important payments were ultimately personally funded by O’Brien, not by a corporation.

Exchanges between politics and business can be reciprocal or discrete. A discrete exchange is explicit and simultaneous.  By contrast, in a reciprocal exchange, each actor’s part of the exchange is separately performed and the terms are unstated and uncertain.  Reciprocal exchanges between business and politics seem to have been common in Ireland in the recent past.  This was probably the basis of the tent at the Galway Races. Regular payments to Fianna Fáil served to maintain a relationship, which could come in useful at a later date, or would provide a vague, general insurance against unfavourable political decisions. Many subsidies provided to Charles Haughey seemed to have had a similar rationale. Maintaining reciprocity will become much more difficult under a total ban on donations and greater transparency about party finances.  The Lowry-O’Brien exchange related to one political decision and in that sense was discrete.  The sequence is quite unusual compared to anecdotes about other discrete exchanges in Ireland and elsewhere.  The uncovered payments relate to the period after Mr Lowry made Mr O’Brien’s fortune. O’Brien the tycoon was hardly threatened by the independent TD from Tipperary North.  I wonder why O’Brien didn’t take his licence and laugh all the way to Woodchester Bank.  At any rate, current reform proposals do not seem well aimed at such unusual, but massively damaging, discrete exchanges.  They should have some effect in hastening the demise of an even more damaging systematic financial relationship between business and politics in Ireland.

Advertisements

5 thoughts on “Reform proposals don’t target corruption

  1. Good to see that you have raised the issue of private and public goods as the key issue in the way in which politics and business interacts.

    This is an excellent starting point for a thorough consideration on how to design our way of governing ourselves so that we have checks and balances to limit the scope for excess by the powerful – be they public or private, elected or appointed.

    TCD’s William Kingston has long argued that legislation is the way to deal with the intersection of public and private sector. See his proposal for how banking should operate
    http://www.tara.tcd.ie/jspui/bitstream/2262/29186/1/regulation%20article.pdf

    This article harks back to an earlier time in which there was far more scepticism about the capacity and ability of government to manage the details of economic activity.

    The Wright report on the Dept of Finance is the latest is a series of reports that clearly indicate that this is a serious issue for us (http://www.finance.gov.ie/documents/publications/reports/2011/deptreview.pdf.) The title of this report says it all “Strengthening the capacity of the Department of Finance”

    Another example is the planning system which has been a huge source of the creation of private goods/wealth by the political/administrative system.
    Yet, nothing was done to implement the 1974 Kenny Report on the price of building land (see here http://www.irishlabour.com/dublinopinion/Kenny_Report_1974.pdf )

    As I have indicated in the past, I prefer to start the fight against corruption by embedding Swedish style Freedom of Information (FoI) in our constitution.
    (https://politicalreform.ie/2010/06/21/freedom-of-information-and-corruption/)

    I am convinced that it would radically change our civic, political and governmental culture, thus going some considerable way to what you call for – “current reform proposals do not seem well aimed at such unusual, but massively damaging, discrete exchanges.”

    This is because all kinds of documents/records/papers would be available to the public as a matter of routine. This would also enable us to have more confidence in the integrity and/or competence and/or professionalism of appointed public servants.

    As far as I can tell, none of our political parties have been persuaded of this yet.
    In fact the recent Fianna Fail manifesto did not see any need to roll back the 2003 FoI Act, in contrast to the FG and Labour manifestos.

    Just as the 1997 FoI Act was prompted by earlier “massively damaging discrete exchanges” during the 1980s(eg. Beef Tribunal, the Carysfort sale, the Telecom Ballsbridge site), the report of the Moriarty Tribunal (let us see what the Mahon Tribunal has to say) is yet another marker showing that if we want to change the results, we have to change the report.

    “Corruption, abuse of position and inefficiency need secrecy, as we have learned from tribunals and Dáil inquiries. Freedom of information (FoI) is one means
    of ensuring that we, citizens of a Republic, can keep an eye on our governing classes, both elected and official. In a democracy, we need every possible means of limiting the scope for excess by those governing us. ” (http://www.thepost.ie/archives/2003/0316/a-basic-right-for-citizens-182315047.html)

  2. There is only one thing that frightens politicians (and our versions are no different) – you do not vote for them. Since we will not have another shot at this for some time, the alternative is ‘Icelandicum’. Lots of folk on the streets, lots of times, with lots of pots and pans (now you know why ‘they’ withdrew metal dustbins!!!) making lots and lots of noise. Electronic ‘noisemaking’, whilst charming, is well, noiseless.

    Our current pols, both national and local (with a few cranky exceptions) have absolutely no interest whatsoever in change – except they are nett beneficiaries of course. Yes, we will get the usual guff about the “absolute necessity of …..”, followed by some populist nonsense. But real action – forget about it. That’s why the citizens are quiescent – for now anyway. They KNOW. Just wait until the austerity measures, energy and food price increases start to really bite.

    BpW

  3. Moriarty is deeply significant in that it does indeed suggest “they were all at it”. The Lowry-O’Brien specific material is interesting, but of more concern is the systematic engagement between FG and licence bidders during 1995.

    Moriarty shows that Esat targeted FG with donations and lobbying at a time when they were financially in dire straits. There was no Galway tent, but there were golf outings, dinners and breakfasts. One Ms Carey was specifically engaged in distributing money to the party as part of its strategy to increase its profile with FG before the licence decision.

    This has effectively been brushed to one side by the focus on Lowry himself.

    In addition, as pointed out by Tommy Broughan, the competition design practically encouraged this type of behaviour by making it more subjective and less lucrative for the state.

    Not an encouraging week for reform if people promise reform without accepting their role in the culture which requires reform

  4. Transparency is the key to all reform.

    Transparency on who funds whom and who meets whom and holding the civil service to account would do more in one go to reform Irish governance than any number of reports.

    It really isn’t rocket science.

    For example who has had face to face meetings with Enda Kenny since the election, who had a phone call, who had an email.

    Why is it TDs are able to claim accomodation expenses but we have no proof they incur those costs and who owns the places they claim for etc etc.

    We know all parties hide underneath the donation limit and that should be lowered to zero – no one who donates money to a party does it for nothing and whether its the FG €80 draw or a pensioner paying €5 or a business paying €5,000 or more, every single cent must be declared and account for.

    We see again the infusion of billions into BOI and AIB and not a word about firing all the senior levels of management – none of them can be considered fit for purpose and totally new blood should be injected in corporate Ireland and in politics – it will be interesting to see who the 11 nominees to the Seanad will be.

  5. A point relating to the original posting – it is not the case that all of the relevant payments are supposed to have happened at a substantial remove from the awarding of the licence. There is the matter of the £140,000 in the Isle of Man account which was returned on the Day McCracken was established.

    It is also only possible to take a licence and go running to the bank if you are content that there is no downside. Moriarty clearly implies that the 1995 behaviour involved BOTH reciprocal and discrete exchanges. That’s what’s so interesting about it and why the report may be more significant than McCracken or Moriarty 1.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s