Posted by Eoin O’Malley (7th January, 2013)
One of the most common complaints about democracy is that it shortens our rulers’ time horizons to an extent that damages our interests. If you are a hereditary absolute monarch, presumably you take a very long view, as you care about the inheritance you leave your children and grandchildren. But if you’re an elected politician you tend to think in terms of the next election.
Political scientists tend to assume that all politicians care about is re-election, and while this might be an oversimplification, it is hardly a controversial assumption. Then politicians think in four or five year cycles. Internationally there is some evidence, though it’s hardly overwhelming, to link the economic cycle to the electoral cycle. There were also suggestions that governments used powers to set interests rates for short-term electoral gain to the detriment of the long-term national interests. We can point to examples of political decisions which seem to have been influenced by electoral politics that were not in Ireland’s interests. The SSIA – a savings scheme – poured money into an already booming economy around the time of the 2007 election.
While no one would seriously think that this is a reason to advocate absolute monarchy we do need to think about how to incentivise politicians to consider the long term interests of the country. This is a problem that is mirrored in business, where arguably the incentive structure tends to be even more short-termist – if shareholders are concerned about the share price and the dividend and not the company’s long term sustainability. There are suggestions that in banking and other financial services bonuses should only be paid in company shares, and that these should not be convertible to cash for five to ten years.
How can elected politicians be incentivised to think beyond the electoral cycle? Given that Irish politicians tend not to be very wealthy on entering politics and don’t usually have an opportunity to amass a fortune on retirement in the same ways that retired politicians can in some other countries, politicians actually do rely on their pensions.
There was a suggestion in the Irish Times this week that public sector pensions should be variable and linked to Ireland’s economic performance rather than fixed, or reviewable only upwards. TDs and ministers’ pensions could be similarly linked. But in order to concentrate their minds, TDs and ministers pensions could be subject to more strenuous requirements. Perhaps a proportion of their pensions could be payable only when the country runs a surplus, that is the government cannot borrow to pay TD and ministerial pensions. Presumably the impact of this would be that politicians will want to leave the country’s finances in rude health.