Enda Kenny was on the cover of Time
recently. The Celtic Comeback it read. His interviewer said “[Kenny] didn’t do
anything […] particularly foolish”, a clear improvement on his predecessors.
But the current government has not done much to restore the economy to growth
and prevent a future bust either.
Before the bail-out, some hoped that the
technocrats of the IMF would sort the country out. Instead, we got the Troika,
led by the ECB with its narrow focus on the banks of Europe. Irish politicians
are distracted from genuine reform by hitherto unsuccessful attempts in
renegotiating the terms of the bail-out. There is less pressure to structurally
reform economic policy now that Ireland is tentatively returning to the capital
market, Europe is focussed on its south while praising Ireland, and there is a
possible oil bonanza. But Ireland did not go (almost) bankrupt by accident.
Unless it changes itself, Ireland will run into similar problems again, maybe
before the decade is over.
There are many theories about the causes of
the crisis. To me, the root cause is the electoral system, which favours
generalists and populists. No TD has a national mandate, and few TDs have the
experience and skills to design and implement a successful economic and fiscal policy.
The Cabinet has an economist and an accountant, but the Cabinet’s Economic
Council has three teachers and a lawyer. Political change is not on the agenda.
The focus is on the Seanad. But abolishing a powerless institution (if it ever
comes to that) will not change politics. Instead, the Dail should be reformed
so that it is populated with competent policy makers.
George W. Bush once said “you don’t have to
be smart [to be president], you can hire smart”. Since 2008, economic policy
advice has changed dramatically. Economists who speak well dominate the media,
sometimes at the expense of those who know what they are talking about. There
were a few economic think tanks in 2008. Now there are more, but the new ones
are small and can just as easily be ignored as the older ones. The Central Bank
has greatly expanded its number of economic analysts, but has yet to deploy
them to any notable effect. The debacles with water meters and electric
vehicles were foretold, and alternative solutions offered. Experts are
unanimous that self-assessment is the wrong way to implement a property tax,
and have suggested other options, but the government is ploughing ahead to
another fine mess.
The programme for government and the
bail-out agreement foresee privatization of companies. There is no reason why
the state would own companies in energy, transport, agriculture, media, and
sport. State-owned companies are poorly run in Ireland, as recently again
demonstrated by CEI and EirGrid. They are there for the benefit of employees
and as a slush fund for politicians’ pet projects. Privatization would bring
some relief to exchequer and, eventually, the taxpayer. There is little
competition in the sectors where state-owned companies dominate. The nominally
independent regulators often find it difficult to stand up to the responsible
minister, who doubles as company owner and policy-maker. Privatization would
improve competition. That is also true for the sheltered profession, particular
the legal ones. The programme for government promises to open up these sectors.
More competition would reduce prices and help households and companies. The
government is making haste slowly.
During the Tiger years, incidental tax
revenues (stamp duty, capital gains) were used to reduce structural taxes
(primarily income taxes) and to finance a structural expansion of the public
sector – more civil servants were hired and their wages rose very rapidly. The
Croke Park Agreement is too weak to rectify the structural imbalance between
tax revenue and public spending, but the government has been unwilling to face
up to this reality. The abolition of one out of 1100 public pay allowances is
symptomatic. The programme for government also promised that the number and
role of (quasi-)government organizations would be rationalized, but little has
come of this.
The Irish economy is no longer in freefall,
thanks to exports by private companies, big and small, Irish-owned and foreign.
The government is on target to stop adding to the public debt within the next
few years. But then the debt will need to paid back, plus interest. Interest
only will be twenty cents of every euro tax paid. The national pension reserve
fund is as good as empty. If the government sets one foot wrong, the market
will loose confidence and Ireland will be back, cap in hand, at the Troika.
The Irish economy needs all the growth it can get. The government has no money for a stimulus. The Central Bank has lost its power to the ECB. Structural economic reform is the only option to promote growth. The government, however, is unwilling or unable to deliver.
This op-ed was meant to be published well before the budget.
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