I know Philip linked yesterday to the first of his articles but I think it is worth having a thread on Eddie Molloy’s two articles on the Department of Finance and the public sector (here and here.) To my mind, most of his opinions are spot on. I can certainly relate to his opinions in relation to the misplaced belief in generalists and in the absence of management skills. But, of course, most of this material has been aired before. The question is whether the current crisis is likely to generate sufficient momentum to finally generate the kind of reforms that people have been talking about for many years.
15 replies on “Eddie Molloy on Finance and the Public Service”
Michael Hennigan and others here draw parallels between Ireland during the Celtic Tiger and the United States in 1920s prior to the great crash on Wall street. The comparison is valid I believe in one important way. During world war I, the United States sold items called Liberty bonds, to fund the war effort. After the United States was victorious on the side of the allies, many ordinary citizens were delighted with the return on their Liberty bonds. So delighted in fact, that the house of Morgan and other US banks saw an opportunity to market ‘common stocks’ to ordinary citizens. Many of the shoe shine boys and cab drivers in New York of the 1920s participated with gusto. The rest as they say, is history. In Ireland of the 1980s, Charles J. Haughey gave the ordinary citizens no choice at all. With the foundation of the National Treasury Management Agency, the pensions of Irish public servants were invested in other kinds of Liberty bonds in Anglo Irish bank. What the Fianna Fail government is trying to do is to convert as much as possible of its own gamble (not Sean Quinn’s gamble) using the pension fund of Ireland’s public servants into a bill which will be paid annually by the Irish taxpayers. BOH.
Eddie Molloy’s prescription betrays an arrogance “we know better” attitude of higher civil and public servants. Public servants must be given the rights of self opinion in public affairs. They are not holders of a “holy grail”. The public and interested bye-standers like myself cannot determine what quality of evidence was given to ministers by departments – in particular by the Dept of Finance and the Central Bank/Financial Regulator in the past.
A partial solution is better education of the public through the media, accountability in public in all fora and accessibility to the media and Oireachtas Committees.
My experience is that the administrators in the HSE and in the hospitals dislike public accountability and love hidden bullyimng power. I feel Molloy has some of that tendency.
Molloy’s article rings very true – one thing that I would quibble with, though, is his remark on pay and pensions. House prices have not declined to affordability, and the self-evident solution to the pensions problems of both the private and public sectors – a livable universal pension – has about as much chance of coming about as the IMO’s very worthy universal healthcare proposal.
And, incidentally, this:
When the madness of decentralisation was unfolding about six years ago, Mary Harney rebuked those who spoke out against it, saying: “The Government runs the country, not public servants.”
I find highly amusing, given Harney’s noted reluctance to take responsibility for anything that goes wrong in Health, or the economy, or mysterious Government jet trips to Vegas.
The more pressure on the public servants, the more likelihood that the truth will out, presumably one of the motives behind the articles?
How about a truth and reconciliation commission?
I have bored readers before about the DIRT enquiry. I could have exposed more civil servants, of lesser rank, than the several Chairmen who had failed to read the incriminating memo, according to their sworn testimony.
That would have led to I do not know what. But I chickened out.
The point was, that the government was so committed, for decades, to support for banks, AIB in particular, that it had lost objectivity and might very well have decided to prefer bank sourced advice, over that of the DoF.
Not a good idea. As we now know.
1. It says a lot that the biggest planned reform in 30 years was decentralisation, a Tammany Hall type scheme hatched in advance of the 2004 local elections.
2. Harney’s record is lots of talk but little achievement.
3. One of the biggest impacts on public sector financial control and reform, would be full transparency on public contracts. The current system gives insiders the advantage and is a conspiracy against the public interest.
http://www.finfacts.ie/irishfinancenews/article_1017081.shtml
4. In Jan 2007, Bertie Ahern asked the OECD to review the public sector; the thinks tank reported in April 2008; Ahern said 800 quangos was “too many by half.”
Two years later.. .how many quangos? Maybe 797!
May 2008: new Taoiseach appoints a taskforce to review the OECD proposals.
April 2010: on a respirator in the Department of Limbo.
One of the newest quangos is the National Consumer Agency; with a 14-person board and over 20 staff, it has spent more than €500k on public relations in 3 years but could not afford a value for money online price comparison service.
@ BOH
Historian David Kennedy says in “Freedom from Fear” that the stories of shoe-shine boys buying stocks is a myth.
Less than 2.5% of the US population owned securities in 1928. Brokerage firms reported just over 1.5m customers in 1929.
Stock prices did double in the year to Sept 3, 1929 when the Dow peaked at 381.17. The measure did not cross the 381 threshold again until Nov 23, 1954 – – over 25 years after its 1929 peak.
@EWI – “or mysterious Government jet trips to Vegas.”
Probably a valid trip – to learn how to gamble away our future 🙂
“Energy in government is essential to that security against external and internal danger and to that prompt and salutary execution of the laws which enter into the very definition of good government.
Stability in government is essential to national character and to the advantages annexed to it, as well as to that repose and confidence in the minds of the people, which are among the chief blessings of civil society.”
James Madison, Federalist No. 37, January 11, 1788
http://www.businessweek.com/news/2010-04-08/australia-faces-inflationary-jobless-rate-five-years-early.html
Just to let you know what Ireland would be facing, were the banks kept in order. Interest rates would be 6% for mortgages, but would have never dropped below 4.5%. I presume the government would have ensured a countervailing cost as EU rates boosted stupidity.
If China cannot sell 90 day bills, then all of the plans by Australia may amount to nought ……… Migration to Australia is to be reduced, soon.
The public service in Australia is well regarded. If the economy fails, it will not be blamed.
I forget, why are “we” blaming the public service in Ireland for the stupid desire to resell houses at a profit?
EWI says: I find highly amusing, given Harney’s noted reluctance to take responsibility for anything that goes wrong in Health, or the economy, or mysterious Government jet trips to Vegas.
The only economy the incumbent government knows about is the 300k public servants. That is the economy. You can draw a line around that clan of 300k (university academics and pundits in the national media included) and nothing outside that circle matters. Except in one way. The ‘private’ economy’s job is to fund the public side, whether it be through transactional property taxes or whatever else. We supposedly have a low rate of corporate tax in Ireland. But what the government gives away in one hand with low corporate taxes, it takes back with the other by being landlord, once removed (via bonds in Anglo Irish bank through the NPRF) to the same multinational corporations in Ireland. A deal is struck with a multinational to offer them a low rate of tax on a factory built in say, Raheen in Limerick for a period of 10 years. Much of the interest on the loan to build the said factory will have been repaid in 10 years. The multinational will not be of much use to the government by then. The 3,000 people who happened to work in the factory were incidental. One could alway said FAS employment agency over to eastern Europe to gather together a couple of thousand more. Ireland became the call centre capital of the world. Why do you think the government keeps building so many factories via the IDA and Anglo Irish bank, to accept tenants for such short amounts of time? Often a lot less than 10 years. Read Simon Kelly’s article in the Sunday Tribune on March 4th 2010. The whole policy framework is a weird shrine now to Mr. Charlies J. Haughey and the so called Tallaght Strategy. Which Alan Dukes, Garrett Fitzgerald and none of the financial elite in the public service have ever revealed the full details of. Garrett Fitzgerald is no stranger to resolution of government debt, (he could give any economist lessons) or to bailing out of insurance companies either. Trade union leaders as trustees to pension funds had to be well reimbursed of course, and indeed they were. The plan was to pay down Ireland’s crippling national debt, which the government owed. As much as I can see the point of view of government, my biggest criticism of the whole scheme is, it resulted in a situation where Irish banks never developed skills in risk management of lending to the real economy. That was the same problem they experienced in eastern block countries. Poland for instance was the only country who still produced vacuum tubes in the 1980s, which the United States bought to keep the air traffic control system maintained. Ireland is in this position today of having no clue how to manage a real economy. The Tallaght strategy was successful, but Irish banks are now too inexperienced to know how to lend to ‘viable businesses’. The problems in Irish banking have less to do with liquidity, or anything an economist my determine as a problem – and a lot more to do with a basic know-how shortage. That know-how has become the scarce commodity in the (rigourously centrally planned) Irish economy. The government have succeeded over decades in breeding an animal incapable of barking or bite-ing anymore. We have poodles when we need rottweilers. Re-instating Richard Bruton or Ruairi Quinn as social democratic ministers for Finance will not save us this time around. We need a radical new plan. BOH.
@All
I hope we do see a Council of Economic Advisors. Left-wing economists who warned of the bubble were not widely listened to because the solution they advocated was higher taxes. Likewise right-wing economists who warned of the bubble were not widely listened to because they advocated reduced spending as the solution. We need to bring economists together, so that at least as future bubbles develop they can demand a fiscal contraction, by whatever means, before things go too far.
@ Oliver,
I think Sunday Business Post editor Richard Curran was on to something when he reflected upon his memories of the last 20 years in Ireland. How in the beginning when the Sunday Business Post began, the rank and file business people in Ireland were not considered as equal to people in professions or with public service jobs. That had begun to change as the Celtic Tiger roared and business in Ireland was gaining respectability for the first time. Recently, we have seen professor Niamh Brennan write for the Sunday Tribune on the need to recover some of that lost reputation in business in Ireland. David McWilliams, suggested that Irish moms encourage their sons to have a profession or work for the public service, rather than engage in anything grubby or messy such as business. I am inserting some of my own words here of course. In Friday April 9th 2010, Colin Keena wrote a piece in the Irish Times Do question marks hang over the heads of auditors? I mean seriously, should those auditors who signed off on business plans for Zoe developments and Anglo Irish bank be allowed to retain their audit license from the Chartered Accountants Regulatory Board? Of course, in Ireland why should some grubby, dis-reputatable businesses like that of Liam Carroll or Sean Quinn deserve proper auditing? Just take as much fees from them as possible while you can, and to hell with what happens to those businesses. I hope these are some of the questions that professor Patrick Honohan will try to unearth. When I got involved on the fringes of the Green party and An Taisce a few years ago, because of my background in studying architecture, I found something very strange. I found that a large number of people in voluntary oversight groups were populated by lawyers, or student lawyers. It was like, they had nothing better to do except to inject themselves into organisations that were political or motivated by some cause. I began to realise that people in Ireland who actually did jobs and made enterprise run, were not part of that same production line for making public representatives. No one else has as much time to devote to voluntary organisation work and networking as lawyers seem to do in Ireland, from a young age. I just don’t know how we expected any other kind of political class in Ireland, other than something cobbeled together from lawyers and teachers. Enda Kenny said something intelligent in his Irish Times article today, Saturday 10th April 2010. Fine Gael recognises that we have a jobs crisis which can only be cured by employment. Fianna Fáil sees a budgetary crisis to be cured by balancing the books. Fianna Fail as a bunch of lawyers and teachers are excessively focussed on balancing the books, to the detriment of something else – Fianna Fail in trying to do their best, did not understand (without economic sense) the impact of too centrally planned an economy. I listened to senator David Norris on last weeks Sunday Forum radio show with Myles Dungan. He noted how Noel Browne had cured TB or something, I am too young to understand/remember, by breaking open the piggy bank of the sweeps stake. So there is precedent in Ireland for breaking open the piggy bank. When they broke into the national pension reserve fund, the government un-balanced the whole economy in ways we are now beginning to appreciate. This is the line of investigation Honohan and Regling need to take. BOH.
http://www.irishexaminer.com/ireland/regulator-and-anglo-lock-horns-over-quinn-116915.html
Why is a public servant having private, secret, confidential talks with the dodgiest institution in Ireland?
Oliver
Most prof economists are right wing. The Fabians are the main exception, and they are implicated in the crisis.
http://globaleconomicanalysis.blogspot.com/2010/04/rice-lake-wisconsin-elects-19-ron-paul.html
While I support the likes of Ron Paul and his son, achingly named Rand, (I kid you not!) others are entitled to support change of any sort. Will it happen in Ireland? Unlikely. With the EU looking after the big and small things, the Dail is really just about the Budget. Someone organize the piss up, while the brewery is still standing?
@All
The Dept of Finance is one of the central institutions – with political class, financial system, developers, professional class – that collectively failed citizens. The political class, financial system, developers, professional class, and department of finance reassembled post crisis and simply socialized the losses 100% on the ex-citizens/serfs and their future offspring serfs. Those who facilitated and responsible for the crisis now those in charge of the solution … looks like no real change in upper-echelon boards of directors or boards of anything that matters.
With zero accountability one would be foolish to expect radical internal change to emerge spontaneously or organically, in department of finance or elsewhere. Ain’t goin to happen.
The Governance System is bust, inept, crony mediocre, philistine, little irelander, me-feinish, irresponsible – it can only be reconstituted through a Dictatorial Transformation ………. and I don’t see one anywhere on the horizon, including the entire opposition benches.
The only real change has been Regulator and Governor …. but the horseplay is continuing with all the strays that escaped while the stables were unattended.
http://www.irishexaminer.com/ireland/ex-crystal-staff-sue-state-over-pensions-117096.html
The state has knowingly under legislated despite EU obligations. This means that there are many businesses which are out competing those which are living up to their committment to provide pensions to their staff. The state continues to distort competition by refusing to address deficiencies. This is Ireland. Eventually, some will recover most or all of their entitlements, at a cost to the taxpayer and consumer of distorted competition and compensation, all due to dereliction by the state. Laissez-faire? Or cronyism, aka mercantilism. Set up business in Ireland and underpay the pensions when the going gets tough. The taxpayer will pick up the tab, if the workers can afford to sue.
We like it so.