38 thoughts on “Domestic Demand Doomed Ireland”

  1. Yup. Well said +1.

    There is depressingly little ‘chat’ about this in political circles or amongst the commentariat. The bling-und-tat bubble has gone largely unremarked, but it is the other half of the property bubble. Big shiny stuff and small bits of tatty rubbish sustained a lot of employment and a lot of the demand for commercial property. These will not return.

  2. “Looking to the future, it is essential for Ireland to develop an institutional framework that will enable it to avoid such damaging boom-bust cycles in domestic demand.”

    A consensus seems to be emerging that major institutional reform is required across the political, institutional and regulatory spectrum. Niamh Hardiman’s SSISI paper presented a majesterial overview of comprehensive dysfunctionality. Colm McCarthy continues to call for an inquiry into the banking/property bubble fiasco.

    But the Coalition Government has no interest in pursuing, or incentive to pursue, even the most limited investigation or reform. It has successfully worked its way through or around four major obstacles – Lisbon II, revised programme of government, NAMA legislation and Budget 2010. This is the current limit of its ambition. FG is making noises about a “new politics” document in the new year, but one can’t help being sceptical about the reform ambitions of those who are confident that theirs is the next turn at the helm.

    In my view there is a pressing requirement for a public forum on political and institutional reform. Since the politicos are so backward in coming forward I believe it is for “public intellectuals” to make the running.

  3. @yogan: another way of saying that is that the economy is going to rebalance away from the non-traded and towards the traded sector, which will be extremely difficult. I feel very sorry for the small retail businesses out there who will suffer a lot of the burden of adjustment.

    @Paul: absolutely.

  4. @Kevin
    Yes, absolutely. How anyone can say the worst is over, I don’t know. The banks are not lending to businesses because they have no idea what businesses are viable (beyond their other constraints). There is no clear future size and shape of the domestic economy. The overhang of public and private debt will ensure that it remains smaller than it could potentially be.

    A further likely consequence will be the completion of the gutting of small-town life. The economic argument of lower prices is already overwhelming enough for people to drive from Cork to the North for shopping. How much more difficult for small retailers to compete against big out-of-town centres?

  5. Agree. +2. But the only ones paying heed are those that knew what was going to happen. I see similarities to a third-world country deeply in debt and completely unable to repay the total. So, Bono and others start to plead … … ‘please Sir may we pay less!!!’ To which Sir gives Baily’s response to Gogarty.

    When will the ‘middle class’ mortgages start to default at levels above the estimated statistical risk level? That should be interesting.

    A word to Peter, David and Jack. When you hold a man’s testicles, his mind and his heart follow. Trouble is lads, your holding the wrong set of testicles. The pols testicles are the votes they need to get re-elected. Your holding your members pay packets. The last time this was tried – very successfully -was Arthur Scargill and the miners. They were crushed, and by example, so were the rest of the TUC.

    The taxpayers of this state cannot pay back what is being demanded of them. Your not stupid lads. Your just not using some lateral thinking. I have little empathy for organized labour – but a least its a legal entity. Its the individual citizen who matters now. Protect the citizens, ’cause our collective legislators cannot, nor will not. But they can be ‘encouraged’ to do so. Grab the correct set of testicles.

    B Peter

  6. @Paul
    “In my view there is a pressing requirement for a public forum on political and institutional reform. Since the politicos are so backward in coming forward I believe it is for “public intellectuals” to make the running.”

    There is a deeper point to made here: the calls for ‘reform’ have been made for as long as most of us have been alive (and longer). Just go and read OECD reports on the Irish economy from twenty years ago. Needed reforms have either not happened or have been adopted at glacial speed. So the real question must be: if has been so obvious for so long that reforms are needed, what are the obstacles to their adoption? A working hypothesis might obviously be framed around an insider/outsider model. The people who have the power to implement reform have no incentive to do so. And vice versa. Possible a problem with a voting system that gives all the power to unrepresentative minorities.

  7. I suspect that those who castigate the present govt on its unwillingness to look deep into the institutions also know, in their hearts, that no extant or putative combination of parties “inside” would do so either

  8. @simpleton,

    We run the risk of being shown a yellow card for drifting onto planet “politics.ie”, but your points are valid. Although the requirement for widespread reform exists, following on from Philip’s important point – and in the context of this blog – it may be sufficient to focus on the design, scrutiny, implementation and review of economic policy. And to address what reforms are required to avoid “spending our way out of a recovery” as in 1977-81 and losing the run of ourselves from, at least, 2003 on.

  9. @Brian Lucey,

    You’ve expressed my scepticism – and, I’m sure, that of others – succinctly and eloquently. But is that a sufficient excuse for those who are in a position to inform, enlighten and educate not to present, in a co-ordinated manner, the case for reform?

  10. @ Philip and Paul

    Points well made on institutional reform. The only one I have noted making noise about this in the public domain is Dan O’Brien.

    When the 60 or so economists wrote their famous NAMA letter to the Irish Times (and other papers?) I thought “fine, well done guys, only about 8 years too late”.

    I remember Eamon Ryan’s reaction also along the lines of “where were they when we truly needed them”. A point well made.

    Now the academic economists, political scientists and political economists have an opportunity to make a constructive contribution with an accurate diagnosis of the problem and a blueprint for reform. Or should we wait until the next crisis?

    You can’t dismiss the political classes until you’ve tried at least.

  11. @Philip,

    I look forward to reading your paper and expect it will be an important contribution to this debate. However, I can’t help feeling that more, much more, is required.

    @jc,

    “..the academic economists, political scientists and political economists have an opportunity to make a constructive contribution with an accurate diagnosis of the problem and a blueprint for reform.”

    Agreed. And I’m not dismissing the politcial classes; I just think they need a concerted external push to shake off the tribal, political party blinkers. It is they, ultimately, on behalf of citizens who will decide on any programme of reform – irrespective of whether it is enacted in parliament or directly by the people.

  12. As per simpleton, if we are talking about reform then we should start with electoral reform. Our electoral system has augmented greatly the inertia which resists reform.

    Unfortunately, the TDs themselves are professionals skilled in the profession of clientelist politicians. We need our public intellectuals to coalesce around the notion of electoral reform to make it irresistible for the political parties. Otherwise, the inertia in Leinster House will not be overcome.

  13. @Zhou,

    I am reluctantly compelled to disagree. It is for public intellectuals, drawing on their knowledge and experience, to present an institutional blueprint (with options) for the design, scrutiny, amendment, implementation and review of policy – particularly, economic policy; it is for the political classes to take this, decide on appropriate institutional and process arrangements and to persuade the people to give their consent and to deliver the bodies to make it work.

  14. @Paul Hunt

    Those are indeed the responsibilities of the academics and politicians within their own silos. Do you see it happening that way though?

  15. @simpleton et al,
    “Possible a problem with a voting system that gives all the power to unrepresentative minorities.”
    Does the author understand our voting system. If anything it is highly proportional and produces a result that largely reflects public opionion.
    I would claim that our politcal culture elects clientalist TDs not the vagaries of the voting system. If the electorate wanted technocrats or university lecturers, they would elect them. However, as the electorate values local power brokers or political messanger boys that is what they elect.

    The voting system did not produce a redirection of power to “unrepresentative minorities”. That was the outcome of social partnership as practised by successive governments over the last 20 years.

  16. @Zhou,

    In answer to your question, I have no great confidence or expectation; I am simply – and cheekily – using this forum to make the case. What I do believe, however – in common, I suspect, with many contributors and posters on this site – is that Ireland simply cannot afford to experience any future repitition of this largely self-inflicted economic pain. And, since most citizens are turned off by any consideration of institutional arrangements (despite the impacts these have on their lives and liberty), I am convinced that it will require a concerted mobilisation of intellectual resources to compel the political classes to up their game in the public interest.

  17. @jl

    I disagree with your view that the STF in multiseat constituencies does not beget clientelist politics. Michael D. Higgins has written extensively on this and he has convinced me.

    I do not agree with simpleton’s point about “small unrepresentaitive minorities” but the case for electoral reform is overwhelming imho.

  18. @Paul Hunt
    The system is not going to reform itself.
    The citizens are not going to demand reform.
    So it is up to an ‘interested’ cadre to institute revolution (however ‘soft’ the revolution might be).

    Would that be a fair summary?

    I agree with it so.

  19. @Zhou
    If MDH was right, god forbid, then all we would elect would be clientalist politicians. However, his very election disproves this point. Also how would it explain the election over the years of scores of politicians who were not noted constitiency minders. Moving to a list system creates a host of other problems most notably the foisting on the electorate of unrepresentative party hacks. IF you want to see what a list system might produce look at the current Senate, particularly the TX1. The sad truth is that if we want a parliament composed of more tecnocrats or intellectuals we shall have to a) abolish democracy or b) abolish the electorate

  20. I would prefer a different electoral system. However, even with the current system could we not think of institutions that would feed the best economic advice into the policy debate? Contrary to what a poster suggested above, there were lots of papers warning about EMU, or warning about following policies that are inconsistent with EMU (i.e. pro-cyclical fiscal policies) 8-10 years ago. But these were published in places like the Irish Banking Review and disappeared without trace. And if you are a rational academic, you will conclude that this is a waste of your time and go back to the day job. A CEA would be great — if it could stay apolitical, which however I am inclined to doubt.

  21. @ Kevin
    perhaps you would prefer a list system like that used in Israel or Italy. That tends to produce stable govts. Or a FTTP system that was rejected by the electorate twice in the 1960s.
    A much simpler change would be to move to a 3 seaters only. It would reduce the proportionality in the system We would probably end up with a 2 party system.

  22. The simple truth is that the economic crash hasn’t been severe enough to force a change from the conservative status quo.

    For the comfortable, the unemployed appear to be an afterthought – – – – contrast the vested interest reaction to a proposal to abolish the Seanad talking shop, when such a measure was compared to Nazi Germany.

    Politicians and the media are bored by the important issue of process and reform.

    Personality argy-bargy is much more exciting.

    So the focus of political journalists in the aftermath of the Budget was not on the absence of any reform but on FF’s chances in the next general election.

    The mainstream Irish media is so short of people who could provide credible commentary that rival organisations, have to share 4 to 5 individuals/insiders to opine on the state of chassis and for example in articles in the Irish Examiner and Sunday Times, last weekend, Matt Cooper focused on the next general election, FF and its possible next leader — good parlour game stuff but of no value.

    Given the political vacuum and the lack of a tradition of political parties in developing detailed policies, the ESRI should give urgent attention to producing a report on reform including fiscal rules.

    It would not be starting with a blank slate – the OECD survey published last October, and the report on the public service, would give it a template.

  23. @yoganmahew,

    Thank you. Succinct – and fair.

    @all,

    Frank Barry has just posted on his “blueprint” relevant to the discussion in this thread.

  24. @ all

    I think what we are talking about here should be reform of economic policy making. PfG 2010 promises the establishment of a Commission next year to report on political reform. Let’s see what comes of that.

    What we need is reform of economic policy making, something which is not on the agenda at all really.

    Would probably include something of a more beefed up/effective stability and growth pact for Ireland. Tie politicians’ hands so that they can not manipulate the economic cycle for electoral reasons. Transparency in economic policy making is also important. DoF needs to be more open.

    Anyway, needs someone to take up the challenge: 300 word letter should signed by 60 economists should be enough to get the ball rolling. Obviously it can’t come from me given that I have no standing whatsoever. I nominate Philip Lane as he is an internationally respected economists of the very highest standing…..and he started the thread.

  25. @Paul Hunt
    I agree with the public forum. I would note that Italy – the only post WW2 continuous democracy in Western Europe that is more corrupt than us – also changed its electoral system. This produced more stable governments but not less corrupt ones.

    Producing world class anti-corruption investigators and transparency laws must be the top priority.

  26. @E65Bn plus interest and NO extra lending!

    Agreed. These must be in the mix, but it is necessary to generate some momentum in favour of wide-ranging reform that will compel the political classes to emerge from their ghettoes and engage constructively.

  27. those calling for electoral reform should be careful what they wish for.

    what would have happened to Irish democracy if Ireland had the list system at the time of Charles Haughey, so that he could have eradicated all internal opposition in his party?

  28. @jl:
    “If MDH was right, god forbid, then all we would elect would be clientalist politicians. However, his very election disproves this point.”

    Is it not possible that Michael D Higgins just has a different set of clients? Folk with degrees, interested in state support for actors and poets and heritagologists, rather than folk with wellies seeking headage payments and grants for turnip-snagging and animal husbandry?

    bjg

  29. @BJB

    then is not every politician a clientalist politician since they all have an electorate to serve. However, to believe this requires accepting that technocrats and intellectuals in politics are not morally superior to the messanger boys. That is an appaling vista is it not!!!!

  30. I particularly appreciate the comments–originating with Paul Hunt who has been on this theme for a while but expanded on by others–on the need for the country to think more clearly about its political priorities and the institutional arrangements that are required to achieve it.

    It is my contention that Ireland needs to follow the example of the most successfully managed small open economy in the world, Singapore, by incorporating the management of uncertainty into our governing and economic policies through greater use of scenario-based planning. The scenario process forces us to abandon the common tactic of denial when faced with an uncertain world and enables us to become more proactive about the choices we make as a polity about our priorities and goals.

    These types of processes is also a concrete way to bring a wide variety of stakeholders into a conversation about what kind of society we want to create – a good example being the recent East African Scenarios project:
    http://www.sidint.org/Content.aspx?IdArea=15&IdCat=60&Type=C
    I would argue that Ireland has had some positive experience in developing such a shift in national vision through the work of the New Ireland Forum in the 1980s which, to Richard Kearney’s telling, helped pave the way for the Northern Ireland peace process of the 1990s by changing the nature of the national conversation on this issue. This example also highlights that these are long-term processes which may take a long time to bear fruit.

    I would be very interested in continuing this conversation with anyone who is interested in these ideas.

  31. @ Mick Costigan,

    Great to get your input here as usual Mick. I came from a series of talks today on renewable energy planning for the island of Ireland. It was an interesting day in general and I won’t speak for too long, because there was a xmas party tagged onto the end of the day and all that goes with that.

    One of the speakers was Henrik Lund of Aalborg University speaking about the Danish energy plan for 2030. The Danish have roughly 30 years of doing these kinds of energy roadmaps for their nation. A small country with roughly 5m inhabitants, the same as the island of Ireland. But the funny thing is, the Danish institute of engineers jammed together for circa 40 meetings recently, to put together the most recent energy roadmap document.

    It was nothing to do with government funding etc. It was merely a bunch of engineers from the different ‘branches’ of the discipline getting together and having quite a lot of arguments amongst themselves. It was very clear from Henrik Lund’s explanation that the joint effort amongst so many creative professionals had generated many different scenarios and weighed them up. More importantly, a key taskforce including Mr. Lund were responsible for putting all the ideas together at the end and forging the eventual proposal document.

    I often feel in Ireland, we will have trouble getting to that stage where we can – not so much agree – but agree to disagree for long enough to generate some scenario based planning as you described. The public sector unions in Ireland talk a lot about increasing productivity. I mean, that is fine for the more manual trade-based sectors perhaps. But what does increased productivity mean for a bunch of highly trained engineers and planners in the public service? The have to sharpen their pencils faster? It is meaningless.

    Lately in Ireland, we set up a body called ‘Sustainable Energy Ireland’. It was the first time there was one specific organisation in the state sector whose sole task was to generate scenarios and reports for the energy planning of Ireland. That is a wonderful step. However, it appears to me the SEI body is populated with some very mathematical people.

    What we need in my opinion, to increase ‘productivity’ (to use so crude a term) in some mean-ing-ful way of our public sector is to augment the mathematical talents of the SEI body with the more spatial and planning capabilities of something like the Office of Public Works. This is how we will achieve productivity enhancement in a meaningful way. Not by doing phony stuff like ‘benchmarking’.

    One of the talks today by a consultant engineer who is very idle in Ireland at the moment, was about energy plans on a county-by-county basis. Looking at the ‘resources’ in a broad sense available at each county level and looking at how best to harness available resources. This is a combination of technical know-how and spatial planning viewpoints.

    The consultant noted that how expensive it was to even license the digital information about topography from the National Survey service. Here is something that should be project managed and spear headed by the Office of Public works, in concert with Sustainable Energy Ireland. I don’t know why we aren’t doing this. We have already paid for the digital mapping, we own it as an information resource. We have all of these state bodies which do this and do that, all with excellent capabilities.

    Lets put it this way. In our public service, Ireland has the capabilities that poorer countries in places like Africa could only dream about. But guaranteed, whatever meagre resources the small, poor African nation can marshall together, I bet you they will get at a developed energy plan for their country a lot quicker than Ireland will, with everything we have at our disposal. It boils do to management of resources, moreso than having them or not.

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