That squelching we hear is the sound of political heels digging in. It is hard to know whether the effort to shift the burden of the fiscal adjustment to others is better symbolised by Mary O’Rourke’s staking out a no-go area on behalf of pensioners, or Jackie Healy–Rae’s latest demands for Kerry pork. Pat Leahy captures this depressing scene well today in the SBP (article here):
There are many other aspects of the way we run our affairs that outsiders such as Commissioner Rehn might wonder about.
What, for instance, will Rehn and his friends in the square glasses from Frankfurt make of the fact that the government can pass this budget—which they consider necessary for the continued economic independence of the country—only if they agree to build the Tralee by-pass and open a new ward (or whatever) at Kenmare Hospital, in order to keep Jackie Healy-Rae happy?
The capacity of Irish politicians to always put their own local interest over the national interest is astonishing. It is true that this is precisely what they have been instructed to do by their voters, but at this time of extreme national crisis, it is still remarkable.
Not surprisinly, the delay of stabilisations has been a central focus in the literature on the political economy of economic reform. A classic paper in this literature is Alberto Alesina and Allan Drazen’s, “Why are Stabilizations Delayed?” (1991). [The paper is available from JSTOR here; a non-technical summary along with empirical evidence is given is Alesina et al. (2006), “Who Adjusts and When? The Political Economy of Reforms” (available here).]
The essential idea is that the burden of the stabilisation will not be equally shared in a polarised political system. How unequally depends on a parameter, alpha. The higher is alpha the larger is the share of the burden borne by the “loser”. Each group has the Healy-Rae like power to veto stabilisations that are not in their interests. With uncertainty about the costs of delay for other vested interests, stabilisations tend to be delayed in a “war of attrition”—notwithstanding the collective costs of such delays. (See pages 3-4 of Alesina et al. for an accessible non-technical description of the model.)
I have written in earlier posts about the importance of the overall adjustment being viewed as fair. One element of this boils down to alpha being viewed as small, so that the various vested interests don’t have to dig their heels in quite so firmly to avoid being the ones ending up bearing a disproportionate share of the burden. Broad political leadership is required to create the necessary trust.
Pat Leahy concludes grimly on where our broader policital system seems to be:
The problem is that there is no certainty that the government is capable if of implementing a fiscal programme that would achieve such an outcome [i.e. avoid an EU bailout/IMF intervention]. The opposition remains generally resigned to the targets, but against the measures that would achieve them. Civil society appears to be mobilising against the cuts.
One wonders what Rehn will make of it all.