Review of the Department of Finance Post author By Philip Lane Post date March 1, 2011 Report is here. Categories In Uncategorized Tags review of Department of Finance 78 Comments on Review of the Department of Finance ← German Economists Against EFSF → After the Election: Reality Bites 78 replies on “Review of the Department of Finance” What a total and utter whitewash. The only problem identified (apart fom having too many siloised generalists) is that they didn’t bark loudly enough. All this inquiry stuff is getting well beyond a joke now. I briefly scanned this and the following jumped out at me; 1. the claim that the department warned against pro-cyclical policies but that these warnings were ignored by cabinet. the report claims such warnings were more detailed and comprehensive than any other commentators nationally or internationally 2. the first two reasons give on why such advice was ignored- party political concerns and committments under social partnership and the programme for government 3. that this report is dated December 2010 So from this I draw the following early reactions; 1. Cowen and Bertie lied consistantly when they say nobody warned them of crisises being stored up and that they always acted on the best advice available. 2. The new government needs to be careful of further Social Partnership give-aways 3. Brian Lenihan sat on this report for months in order to protect FF in the face of the general election This is a blatantly self serving report which the Department has now offerred in supplication to Enda Kenny. They are effectively suing for pardon, blaming all their many sins since 2002 on the the outgoing government. The report is a belated and desperate attempt to prevent a total clearout of existing management. It was made—and now conveniently re-released—by the incumbent and provably incompetent senior officers currently in charge; the same officers who stood over the ruination of the countries economy and finances for the last eight years. The new government should have none of it. Off with their heads! Thank goodness that this (…watered down, politically compromised and entirely specious…) report didn’t come out months ago when it was published. FF would have gotten a right kicking. All in all though, an excellent exercise in news cycle management, Brian kept his seat. and the lash goes on. The report is actually turgid with calls for more hirings (particularly of economists) and more sub-departments and so called “quangos” within the DoF itself. This is yet more wholesale plundering of the public purse for private gain on the part of civil servants. All these calls for upscaling also are also designed to put the incoming Minister on the back foot when he comes looking to downsize his own department. I wouldn’t be surprised if every incoming Ministers sees more of the same. The simple facts are: 1) No decibel level from the DoF or any number of warnings from PhD economists would have made a difference to the hospital bookkeeper, teacher and accountant who were in charge of economic policy – – and latter, the small-town solicitor. 2) All the staff of the Department took the benchmarking payments even though the first benchmarking body and the Minister for Finance up to late 2003, warned that specific reform measures had to be enacted. 3) Even though it would have been considered bizarre in Ireland, nobody resigned on principle in response to what was going on: they went with the flow and as we know, in most institutions, most of the time, it pays dividends. 4) People who dream of black swans are regarded as nutters and fodder for airport book cures for insomniacs. I believe this report and take it at face value. The fact is that The DoF is a very conservative organisation, and the idea that they would have been unconcerned by the procyclical policies of the last Government simply does not add-up. Indeed, I am sure that the Banking Guarantee did not originate from the Dept. either as such a radical and risky solution would be entirely out of Character for this Department. John Gormley pretty much confirmed that the Guarantee came from outside of the Department last week. @Michael – “Cowen and Bertie lied consistantly …… Brian Lenihan sat on this report for months in order to protect FF in the face of the general election” I cannot believe that Lenihan is being allowed to be within a mile of the Dail even without this knowledge. Bertie and Cowdung are of course gone, enjoying their gross pensions. If we (or the UK/Swiss/US/etc.) can seize the assets of tinpot despots, why will nobody with the power take steps against these people? You don’t need to answer that – I already know why. And will any journalist in RTE actually ask Lenihan if he deliberately sat on it? One point I’d make for all posters: It’s important that ideology is not allowed to cloud judgment -that is what brought us to our current disaster. Even if you don’t like or understand the Department or know anything about its workings, that does not in itself mean that it is incompetent. Never mind what happened. What have they learnt? What are they going to do about it? How do they make sure it never happens again? Western capitalism doesn’t do accountability which is why it goes from one crisis to the next. @Ger totally right, I’m going through the remainder of the summarised Dept. recommendations to Govt. over the past 10 years, Dept. far more sinned against than sinning I’d feel…. shock news at 11! btw I’m missing quotation marks (“watered down”, “politically compromised” and “entirely specious”) mocking inevitable inane political responses / attacks from whatever side your on. Panel themselves seem very well qualified. Timing of the whole thing stinks to high heaven, political offal more than political fudge, which si a disservice to every side. The Dept. is represented here to have an “extraordinarily low [level] by international standards” of trained economists at “Masters level or higher” that is “less than 10 percent of the total staff.” See: “4.11.1 In its cadre of 542 staff, the Department has only 39 economists trained to Masters level or higher…However, 39 economists in the Department of Finance is extraordinarily low by international standards. Even excluding the public service cadre of 135 people, this represents less than 10 percent of the total staff complement in the core of Finance. In contrast, 60 percent of the Canadian Department of Finance are economists trained to Masters level or higher; and about 40% of staff in the core areas of the Dutch Finance Ministry are trained to Masters level or higher.” (p.44.) Nothing could be a more damning of the Dept’s own view of its strategic needs in its service to the state than this “extraordinarily low” number of people with a postgraduate competency of economics. How could a Finance Ministry NOT value the competencies associated with a high level of academic attainment in economics? As for remediating this, they should now be ambitious enough to define their preferred standard for graduate entry not merely as a postgraduate education in economics (or cognate disciplines), but as a postgraduate degree from a top international university. @ger, I’m not making accusations of incompetence. With this ‘corporate sole’ nonsense with ministers, DoF officials did what whey were expected and, more importantly, legally allowed to do. And yes, all other economic/finance ministries in developed economies – and the international agencies monitoring these matters – were overwhelmed by this neocon-directed rush of the gaderene swine. So the question is bigger than: is the DoF fit for purpose? It is: how should economic/finance policy formulation and scrutiny be organised? The graph on page 22 is genuinely funny – DoF “framework proposal” vs actual budgetary stimulus. Basically in 8 of the last 10 years, the government pretty much went nuts with the actual budget when compared to the original suggestion. The fact is that The DoF is a very conservative organisation, and the idea that they would have been unconcerned by the procyclical policies of the last Government simply does not add-up. The DoF is conservative only when it wants to be. It’s conservative about the USC and social welfare cuts to be sure. And of course it’s conservative about paying out bonds—banking or state. And it’s really conservative about civil service cuts, naturally. But when it comes to benchmarking? Public sector pensions? Golden parachutes and public chairmen’s salaries? Well then YIPPIE-KAI-YAY!!, the DoF is about as conservative as a UCD student house party. Senior department officials have benefited personally, by millions in some cases, from their “compliance” with government policy. Michael Somers alone received €1 million in 2008 for deciding which bank accounts to keep the government kitty in. No wonder they were understaffed; they’re among the most expensive employees in the country! And now we are supposed to believe that they were reluctant accomplices all along? Bullied underlings haplessly complaining under the hail of lashes and €50 notes that their masters heaped on them? No. Not true. Not good enough. The Department of Finance officials are as close as any civil servant can possibly come to the mentality, fecklessness, and destructiveness of private sector bankers. Like their banking counterparts, DoF officials paid themselves bonuses from the funds they managed, even as they mis-managed them into utter ruin. Lip service, CYA reports, and deference to the government should not protect them from being held accountable; and accountable they must be held. Clearout the Department of Finance. Replace its senior officials with outsiders, preferably from Europe or the UK. That’s my advice to the incoming Minister. That graph on page 22 would map nicely over when elections were held. @ obsessivemathsfreak +1 @Brian Your attacks on the suitability of qualifications in the department are misdirected. It is clear that what is really required is a higher mandatory standard of both written and spoken Irish. @ Brian Nothing could be a more damning of the Dept’s own view of its strategic needs in its service to the state than this “extraordinarily low” number of people with a postgraduate competency of economics. You are delusional if you believe that it would have mattered a damn in this particular context. The top officials would not have made waves and would hardly have allowed papers to be published by economists. The attitude was summed up in July 2007 when Bertie Ahern wondered why cribbers did not commit suicide; it’s also worthy of note that he was applauded by trade unionists. What had the economists at the Central Bank to say? What do we make of former DoF employee Pat McArdle’s involvement in the preparation of the report ? @FERGUS O’ROURKE Bank economists have no objectivity and therefore no credibility. BoI’s chief economist rode the media wave when it was profitable to do so, but was absent from public debate as soon as the questions got tricky… @Ger Not Incompetent you are jesting !!!!! The Joke with this outfit is that there is not one single Qualified Accountant on the staff. Imagine any Private Sector firm with a Turnover of €50 Billion and no Finance Director controlling the show resulting in Deficits of €20 Billion a year . They perceive themselves as the Elite when the opposite is the case. The present Secretary General was previously in charge of Taxation and Financial Services. This report is not worth the paper it is written on when the Chairman states at the start that they are all great fellas but forgets that they allowed this State to go Bankrupt and have helped ruin the lives of many but not themselves. The best thing Enda can do is certainly ignore Lenihan and this report and wield the hatchet to the top brass as soon as possible and he will have done a great service to the country. @TRP “there is not one single Qualified Accountant on the staff” Would these be the same sort of accountatnts who signed off on bank balance sheets and accounts? Or who rated structured finance products? Or is this yet more irony for my simple mind to deal with? To me it is a good thing to have neither a preponderance of formal economists nor any accountants at all. Neither have covered themselves in glory recently (indeed our 189 German freunds are continuing the one-eyed nature of the economics profession), so having them probably wouldn’t have helped much. On the other hand, more historians with an economic background might… I am relieved that an independent third party (Cdn/Dutch) have exonerated the Dep’t of Finance. This is good for all of us both within and outside the country. I will be in Germany May/June and it does a lot for my self esteem to be able to confine the bad behaviour to our politicians. The Germans who are generally well disposed toward and supportive of the Irish will also welcome the fact that our civil servants are professional. @Hoganmahew It is clearly more than your “simple” mind can deal with but then you may be another Public Sector worker. @TRP I suspect you are an accountant. Blinded by figures, unable to see the big picture. It is always too expensive, with too small a RoI, until it is wrong and it isn’t. A totally pointless occupation for predictive purposes, its sole use to map the past in numbers. Economics with all the fun, but not the useless, bits taken out. Blind to risk, blinder to opportunity. A mechanical series of transformations of hope into dejection. PS, no I’m not PS. I, sir, am an awntrupinner in the IT services export arena. So verging on the unemployed most of the the time, certainly unemployable. @Brian Interesting that the recommendation to hire Moreland better trained economists comes hot on the heels of the decision by HEA/Government to ‘park’ funding a joint TCD/UCD PhD programme in Economics under the prtli initiative. Clearly it was not as important to Ireland as a PhD programme in innovation something or other. @Kutz McCarthy Having previously advocated abolishing the Dept of Justice, as justice apparently does not exist in Ireland; might it now be time to consider abolishing Dept of Finance as well, as I can’t seem to find finance anywhere – and I’ve looked high-up and low-down, up trees and up lamp-posts and even in banks – and I can’t find any, nor can I find anyone who claims to have any ….. And anyone is surprised. FF economic theory 101 = buy the people with their own money. @Colm Harmon Blind Biddy has yet another spare bazooka …. U interested? @hoganmahew Blind Biddy has a ‘role’ for you: d’un’employables are in dire need of a savvy director of operations at the mo … tuff times an all dat! @Ger “It’s important that ideology is not allowed to cloud judgment -that is what brought us to our current disaster. Even if you don’t like or understand the Department or know anything about its workings, that does not in itself mean that it is incompetent.” If not incompetent, please parse this “In the past decade, Ireland’s approach to fiscal policy, prices, costs and financial regulation were not sufficiently adapted to the disciplines of a single currency. ” From a Press Release issued by the National Economic and Social Council (NESC) on a report “The Euro: an Irish Perspective” 17th August 2010. The Secretary General of the Government chairs NESC. Among the seven Government nominees are the Secretaries-General of five Government Departments , including the Dept of Finance. http://www.nesc.ie/dynamic/docs/The%20euro%20MEDIA%20RELEASE%20from%20NESC.pdf or this from the IMF in 1999, the year we joined the €uro “If the risks of overheating and a subsequent hard landing to a more sustainable rate of growth is a concern, what policy actions can be taken in the context of monetary union?” http://www.imf.org/external/pubs/ft/scr/1999/cr9987.pdf Accountants have a role, and some are very nice people. The thing about the Irish national accounts was that they showed the state in reasonable shape circa 2007. They failed to properly capture the cyclical nature of the revenues and even more importantly failed to identify that while there was no government borrowing there was a dangerous amount of private sector borrowing. Some form of adjusted accounts are needed, akin to the seasonal adjustment of unemployment stats, to give a real signal as to how the economy is performing. @dearg doom The DoF, though, identified this in their memos to ministers… While a shortage of finance experts would be a constraint and a total lack of accountancy experts also a problem, I don’t see that beefing up the DoF with a load of graduates (no matter how far they’ve graduated to) is really going to help much. Various writers on the subject have reckoned themselves totally useless in their first years (Michael Lewis is particularly amusing on his and other newbie’s lack of competence). Far better to reserve a portion of intake for real world technical experience. Perhaps the CS needs to revisit (as many companies in technical areas in the private sector have had to) pay and promotion scales and have purely technical career paths. An ability to specialise and not be penalised for it would surely be a greater incentive than the usual technical glass ceiling. This seems a balanced report and makes interesting reading. I would, however, like to see an independent assessment without former officials from DoFand DoA on the panel. This is not to question the bona fides of the individuals involved – I would not like to pass judgment on former colleagues, and would certainly be unable to guarantee my full objectivity under these circumstances. All the PHDs’ in world could not have derailed the Irish political gravy train. Selfishness and greed ran rampant as did its siblings fraud, corruption, cronyism and nepotism. Canada had an explosion of graduates from post secondary educational institutions beginning in the mid sixties. The civil service made graduation a prerequisite for most jobs. In Canada History, English, French, Politics, Economics, Psychology, Sociology were popular subjects. The job market changed to absorb what was available. The Finance Dep’t hired ‘Economists’ by the thousands. Many of these would have Economics majors with minors in the other popular subjects. The heavy lifting would be done by physicists, mathematicians, computer scientists. The end result was excellent and still is. Canadian civil servants are protected from political interference by law, policy, regulation and most important by long established practice. The Canadian civil service is actually a ‘meritocracy’ at all phases from hiring to retiring. Whistle blower legislation and an Integrity Commissioner as icing on the cake. You all know what we have in Ireland and it is not what they have in Canada. It is possible to have all the protections that exist in Canada but if the culture does not support it all is for nought. Our culture is stranger than fiction even Kafka could not match the fantasies we weave for ourselves. […] who trolls the Irish Economy blog from time to time. Superb […] @All, I am listening to the RTE news at one piece on the report with Sean Whelan, Economics Correspondance. One comment he made surprised me. The report says, the DoF claimed in 1999, that construction activity was over-heating the economy in Ireland. Here is the problem though. Between 1999 and 2009 is an entire generation. The people who were in positions of influence in 1999, were probably different from those with influence in 2009. It is hard to trace a line of responsibility through individuals. It makes more sense to trace a line of culpability, through institutional identities. Coming from the construction industry myself, I know that anything the DoF would have warned of in 1999, would have been fought off, by the industry. To the extent the Construction industry would have actively sought to squash the institution that threatened it. By 2007/08, the Construction industry, as an institution, had become positively balsy. But it stands as a fact, that in 1999, the DoF were sending out warnings. But we cannot rely on individuals to be around over extended periods of time – like ten years – to carefully monitor activity and send out the correct signals, to the correct people. It would be much better to rely on ‘institutions’ rather than individuals. Because at least ‘institutions’ might have an institutional memory, that doesn’t clear away, with regular staff turn over, promotions, retirements and so on. This is all I can think of. But we need to recall, that the period 1999-2009, was a period when so much suddenly changed in Irish institutions. So much institutional memory was erased, and altered and generally messed up. Sometimes for good technological, process reasons, but also for political reasons – or reasons like, we are flush with cash, and lets spend. Like the way we re-brand departments for the sake of it, give them fancy new brochures, headed paper, brass plates and policy slogans every few years. In this constant effort to polish things up, does all of the institutional memory get swept away, I ask? Like restoring a good antique, in the wrong way. BOH. The central conclusion of this report, as conveyed by the media, is factually incorrect. Consider the key, opening paragraph of RTE.ie’s report. It asserts that “An independent review of the performance of the Department of Finance over the past decade has found that the Department did warn the Government about the dangers of the economic policy it was following, but that its advice was overruled by the Cabinet.” But at no time was the Cabinet warned by DoF about the policy it was following. At no time did the Cabinet overrule DoF following such a warning. I spoke to a member of that government about this purported warning to cabinet. His response was “What warning? Given by whom, when?” The key matter for neutral readers of this report to consider is the total absence, in the entireity of the document, of a direct quote of such a warning. Instead the report offers the lame excuse (para 3.6.3) that “There are examples of where such advice was tendered in writing. We have also been advised of some important oral briefs that reinforced the Department’s concern about pro-cyclicality. But these are not part of the official record.” And yet the total absence of evidence on the official record didn’t stop Wright & Co from bringing in a guilty verdict? Give me a break. And what are we to make of the report’s assertion that that the department’s assessments of the risks from the bubble “were at least as strong as any public analysis over the period”. That is simply untruthful as even a scanty comparison of the public comments of the Department (via its Annual Economic Review and Outlook) with the public commentary on Ireland by “The Economist” would show. (One could substitute for commentary by “The Economist” the public comments of David McWilliams, Damien Kiberd, Morgan Kelly and several others, including myself.) The astute comments of ObsessiveMathsFreak reveal what is really going on “This is a blatantly self-serving report which the Department has now offered in supplication to Enda Kenny. They are effectively suing for pardon, blaming all their many sins since 2002 on the outgoing government. The report is a belated and desperate attempt to prevent a total clear-out of existing management.” Let us hope that this untruthful report does not succeed. Cormac Lucey says, The key matter for neutral readers of this report to consider is the total absence, in the entireity of the document, of a direct quote of such a warning. Interesting. BOH. @ Cormac Lucey, Question: Is it not the case, do you believe, that the permanent government in Ireland considers itself somewhat separate from the house of the Oireachtas. Indeed, if one were to be honest about it, the fact is, the permanent government do not appreciate a rag-tag band of loud country people, making their way to the capital each week of the Dail term. And the major focus of the permanent government, is not to work with the elected government – but rather to assign some lower ranking human resources staff, to lay on ‘activities’ for the group of loud country people, to have fun with, during their stop in the big smoke. Honestly, this is the nature of the attitude as I understand it, of the permanent government in Ireland. I have a large degree of experience in project management and group working theory – and I would be happy to offer my services, in the execution of any further studies into the group dynamic that has been at work between permanent/elected branches of government, for the last couple of decades in Ireland. Certainly, at this stage, given the collosal figures of the losses, is there anything to be lost by throwing a few quid at a group of lateral thinking individuals, including myself, to investigate the nature of the work process as it stands. I would like to cite, deputy Enda Kenny’s recent comments about ministers and ‘plaques on pumpstations’, as some indication, that there may be an activity or adventure camp, use of the offices of the various departments. To be honest about it, when I listen to a civil servant speak about the house of the Oireachtas, it feels like I am be told about a care centre for kids, with a big rambunctious play pen in the middle. Why do I detect this opinion on the part of civil servants? Should education in political science be mandatory for all branches of the civil service? What are the new approaches we can take to the problem? I would be interested in being involved in looking more into this. BOH. @ Brian O’Hanlon The problem Brian is that the public has little interest in holding unelected public officials to account. The entire focus is on holding elected public officials to account. This lets public servants off the hook. Consider the public reaction to the news that Tallaght Hospital had not passed on GP referrals to consultants for consideration. The focus of public attention was on Mary Harney, as minister, and not on the staff at Tallaght Hospital who had actually caused the problem. We still do not know their identities. Consider the lack of media interest in the identities of Ireland’s negotiating team with the EU/IMF/ECB last November. This was the most important agreement negotiated by the State since EEC accession. We still do not know thier identities. Or consider the media’s indifference (with one exception – me) to the fact that the only Irish bank CEO still in place since 2007 is the DG of the Central Bank (Mr Tony Grimes), the very body responsible for maintaining the financial stability of the entire system. We know his identity and we know what he presided over but nobody seems to care. The media is barely interested in institutional accountability or in holding unelected public servants to account because that serves no entertainment function. The failure of any media commentator to pick up on the fact that the Wright Report provided not a single direct quote of the DoF’s purported warnings to government speaks volumes for the shallow commentary which passes for analysis of institutional interests in this country. I think we shold be shown the memos to cabinet at this stage. It is not surprising that the department is somewhat vindicated in a report which it had the main input to. It is also clear that the reporter is conscious that he must be sensitive to their feelings, being a civil servant himself. However, it is clear that the Department did not spell out the dangers in ordinary language and that they did not press their point: Third, the Department of Finance should have done more to avoid this outcome. It did provide warnings on pro-cyclical fiscal policy and expressed concern about the risks of an overheated construction sector. However, it should have adapted its advice in tone and urgency after a number of years of fiscal complacency. It should have been more sensitive to and provided specific advice on broader macroeconomic risks. And it should have shown more initiative in making these points and in its advice on the construction sector, and tax policy generally. It would appear that a few lines in an annual memo in June is not sufficient when one is facing an economic catastrophe. It is also clear the department is totally dysfunctional: “…the Department: • does not have critical mass in areas where technical economic skills are required; • has too many generalists in positions requiring technical economic and other skills; • is more numbers driven, than strategic; • does not have sufficient engagement with the broader economic community in Ireland; • often operates in silos, with limited information sharing; • is poorly structured in a number of areas, including at the senior management level; and • is poor on Human Resources Management.“ @Cormac Lucey +1 How to solve it? Some ideas off the top of my head. • Give senior civil servant more powers and obligations to exercise functions currently reserved to Ministers by statute. • Make their identity known. • Allow outsiders to be hired in on sabbatical from private sector jobs. • Make senior posts power wielding posts into temporary posts which people can be demoted from without notice. This would also give Ministers more time to concentrate on policy and stop them being swamped with administrative tasks. Obviously there are risks from having employees who are behoven to private interests but there might be huge benefits to in that they could really crack the whip and speak the truth while they were in place. Interesting read & I’m impressed with the speed of producing it. This quote is interesting: ‘3.2.3 The Panel reviewed in detail the annual June Memoranda to Cabinet on Budget Strategy. Generally speaking, we found that advice prepared by the Department for Cabinet did provide clear warnings on the risks of pro-cyclical fiscal action. These views were signed-off by the Finance Ministers of the day who would submit the Memoranda to Cabinet. Department officials do not, of course, participate in Cabinet discussion. This advice was more direct and comprehensive than concerns expressed by others in Ireland, or by international agencies.’ What I’m curious is about how the ‘clear warnings’ were worded. There seems to be a different understanding from the people who were on the receiving end of the advice. Another interesting part was about what information should be made public. In general all information should be made public, especially as the result of most actions will take years to affect the economy. When there is a crisis, and a crisis is an exceptional time, then there is justification for keeping some information secret for a period of time. The way I read it there seems to be something that could be improved in the people management area. Strong recommendation to hire external HR, not sure if that will help as I’m sceptical about HR-professionals in general and their value add. I suppose that is just my own personal preference. This quote of a weakness: ‘does not have sufficient engagement with the broader economic community in Ireland;’ Cannot (in my opinion) be addressed by hiring new inexperienced people (graduates). Experienced people will bring in their experience and connections. Inexperienced people will bring enthusiasm. @ Zhou As a special adviser, I saw the memos to cabinet. They did not significantly differ from the subsequently published annual Economic Review and Outlook documents. They are all still up on the department’s website. They are a catalogue of official complacency. I wouldn’t hire outsiders on sabbatical. In order to avoid any conflict of interest, I would bring them in as full-time hires (as the NTMA has done with the capable Rossa White). Following on from zhou’s point’s, the review is actually quite critical in my view. Note that it states that the department of finance paid insufficient attention to broader macroeconomic risks (section 3.7). Specifically on construction section 3.8 — it notes that the department did not organise a strategic response to the problems ion the construction sector (though on this the Financial Regulator also gets a dig. Also on tax policy it states that “there was no analysis or advice on the broader risk to the tax system from a more general downturn in economic activity from levels creater in part by pro-cyclical fiscal policy”. On this the panel expresses the view that “there is need for review of the enite system” Given that these are actualy the areas where our problems came from, my conclusion is that the review is actually damming. What I get reading it is a picture of a Department who sees its role as being to say no to new expenditure every june, but without the technical skills or knowledge to actually make the case for less expenditure/higher taxes. Thus it was inevitably overwhelmed by the political process. Looking at the reccomendations, the effectively call for a complete culture change in the department, both in its internal process and its engagement with the outside world. @Cormac Lucey I have done a quick scan through the 2005 Economic Review and Outlook. http://www.finance.gov.ie/documents/publications/other/EROaug05.pdf If this was supposed to sound the alarm bells then tey must be ver small and muffled bells. There was a stern warning on competitiveness but nothing about overheating (other than in China), pro-cyclical policies, banks, or risks in the banking sector. If the annual June memo was not much stronger than this then it is no wonder we ended up in the manure. The Minister was asked, in the course of the last Dáil, what economic expertise the Department had and he spouted out the Department’s reply with confidence. In effect, he allowed his rhetorical ability to be used to spin the Department’s line. It is clear that the Minister was not really happy with the Department’s ability and he instituted an investigation by an outsider despite the Depatment having conducted its own report and having given itself a glowing reference. This tells us a few things: 1. Politicians cannot fix problems in Departments even when they clearly perceive the problems. 2. Politicians are slaves to reports and experts. He who goes against a report and fails is accused of themost egregious incompetence. 3. Even in a time of crisis, the Minister did not feel he could act decisively. 4. Departments sometimes produce reports which praise the department and conceal the truth. It will be interesting to see how the new Govt gets on armed with this new report. It will also be interesting to see how they deal with other departments. Personally, I think it is crucial that Labour engage fully in the effort to reform for it to stand a chance of success. @ Zhou This is what I wrote about that 2005 report (in an annonymous contribution to Magill magazine): “The Department of Finance recently published it annual economic outlook and, in 25 pages, there are no fewer than five references to our national debt as a percentage of national income. There are no references at all to our rapidly growing private sector debt. In fact, our national (i.e. public sector) debt is now among the lowest in the EU. So the Department of Finance ignores a potential major problem while fixating on a historical problem, now solved. What is it about the Department of Finance that it continues to think as if they are fighting the fiscal struggles of 1987/88? Given the complete transformation of our economy since the 1980s’, this is like the British gun emplacements in Singapore in 1941 with their guns trained in the wrong direction. It is either the result of institutional laziness, or of cognitive limitation. Either way, it is surely time for a mental overhaul.” That contribution provoked no reaction whatsoever from the DoF. Sleepy Hollow then. Sleepy Hollow now. @Cormac Lucey If they saw it they probably did not understand what a huge private debt could mean. It’s terrifying that we still cannot have confidence that this problem will be resolved. These are the people delegated to go and fight for this country’s sovereignty and its citizen’s economic freedoms and futures. Cormac Lucey replied, Consider the public reaction to the news that Tallaght Hospital had not passed on GP referrals to consultants for consideration. The focus of public attention was on Mary Harney, as minister, and not on the staff at Tallaght Hospital who had actually caused the problem. We still do not know their identities. Very useful point Cormac, thanks. Would it not be useful as I suggested above, to organise some kind of formal taskforce to capture these observations and present them properly? I can appreciate the problem, as you mention – of the public having no appetite to hold permanent servants to account. But perhaps, that is all the reason to present the findings, in such a way, underneath the noses of the same public – and foster a real debate. A real debate. There was a very good episode of The West Wing, where Arnie Vinnick and Senator Santos, found themselves on a television set, and spontaneously decided, to have a real debate. That can happen sometimes, just through, on the spot, mutual agreement. BOH. Zhou Enlai, quoting from the Wright report, the department . . . is poor on Human Resources Management. I believe the point of the department is not to manage to resources in its own organisation – but rather to try and manage those in the elected play pen. All of the Irish government departments have excellent human resources capabilities – but those capabilities have been mis-deployed. Take for example, how the department for Agriculture, in the last government was finessed by his department, to the extent where he thought it was a good idea, to go on national morning radio and announce the availability of blocks of cheese. It takes some impressive human resources management, by the department of agriculture, to make such a stunt even possible. But as I said, the capability is mis-deployed. BOH. The reality is that career civil servants in all depts watch their p’s and q’s from a self-interested point of view – disinterested advice is a myth. Bin this report immediately and update the Secretaries and Ministers Act with a clause or clauses that eliminate the current situation – ‘A Minister is responsible for all that issues from her/his department but is not in charge….’ ‘A Deptl.Secretary is in charge of the dept – but is not responsible….(!!)’ So no accountability for the heads – just ‘disinterested advices’ and of course big fat salaries,payoffs and pensions! Great little country! @Cormac Lucey “I wouldn’t hire outsiders on sabbatical. In order to avoid any conflict of interest, I would bring them in as full-time hires (as the NTMA has done with the capable Rossa White).” How do you get rid of them when their technical knowledge becomes outdated through lack of practice? There’s not much point, IMO, in hiring technical advisors unless they are current in their skills. @zhou “If they saw it they probably did not understand what a huge private debt could mean.” Many still don’t. Private (and public) debt doesn’t appear at all in most DSGE models. Having more economists and accountants in the department would hardly change this situation? Perhaps more presbyterians are required… @hogan, Zhou & Cormac L, You’re getting closer to the nature of the problem – and getting closer to what needs to be done – much closer I would assert than the distinguished gents who compiled this report, but we don’t seem to be getting closer to a solution. My solution would be to split the policy fomulation resource in the DoF and assign half to support a properly constituted Dail Economics and Finance Cttee. Drop this ‘corporate sole’ nonsense for ministers and let them go at it hammer and tongs before the Cttee with the Cttee being empowered and resourced to call on some of our distinguished contributors here – and others both here and abroad) to get stuck in in a robustly adversarial manner. Any policies that survived the heat of that crucible would almost certainly be fit-fo-purpose. @BOH The Force, Voldermort’s dark magic, human resources – call it what you will. @hoganmahew Looking to our Presbyterian bretheren to secure our freedom once again may not be the worst idea put forward. I’ll run it by Pearse “The Panelist” Doherty to see what he thinks. The scene: Department of Finance, mid-September 2010. Assessment panel head Rob Wright and a Dept of Finance official are assembling files for the assessment. Wright: Excuse me, what’s that filing cabinet over there labelled “Benchmarking”? Official: Err… oh that’s just an auld consulting report on job descriptions in the public sector, usual Powerpoint stuff, didn’t amount to much. Wright: “job descriptions” .. sounds interesting, you’re sure it’s not important? Official: Yes, absolutely … God is it that late, Man Utd-Rangers is on in a couple of hours … do you want to come to the Baggot Inn and watch it, it’ll be a way to see the real Dublin. Wright: Sounds good, let’s go. [Exeunt Wright and official] The next day … the tell-tale sign of torn Disprin foil is scattered on various desks Wright: Say, wasn’t there a filing cabinet over in that corner yesterday? Official: As sure you never know what those OPW lads do during the evening clean-up, we’re all doing e-services now anyway so files don’t matter a whole lot anymore Wright: Errr, OK, but … Enter 2nd official carrying large box Official: Ah, here’s the box of all our June memos to the Cabinet for the budget with the cover letters … did I tell you that “A chara” is like “Dear Sir”? Wright: OK then let’s take a look 2nd Official: Ah, we’re due at Bentley’s in 10 minutes, let’s get back to this after lunch Wright: Bentley’s? 1st Official: Yes, restaurant near here. It’s been “benchmarked” as one of the best places in the city. [Wright looks bemused as officials laugh uproariously] … Had more time to trawl through this so called “Report”. I would say that it was written up in a few hours after long salubrious chats with the Officials in some expensive Dublin restaurants. The first page as I said above says it all when the Chair portrays the Officials as great fellas some of which he would like to have in Canada. Well he can have them all and pay their ridiculous pensions. If somebody really believes in something they do not hide under a bush but shout from the rooftops the word “Stop” . They did not do this and allowed the Politicians to go mad in the candy store and the result is the mess the country is now in. The “Report” does not deal with control of the CB and the Regulator but then more of the old pals were installed down in Dame Street so they cannot be criticised. What this “Report” shows us is that the CS in this country is incestous and needs to be infiltrated by total outsiders at every level but especially at the Top to get normal commercial thinking ingrained into their heads. Capital Tax Receipts should not be used to pay Current Expenditure is a simple dictum which this bunch had clearly no clue about. Frankly this is a whitewash and adds very little to what we already know and is in the Public domain. @Hoganmahew Sorry for thinking you were a PS worker !! So Microsoft and Apple with Turnovers of $65Billion and $62Billion can be run without Finance Directors and Accountants is your view when taken in the context of our D of F with Expenditures of €50Billion plus and not one Qualified Accountant is maybe one of the reasons why D of F got us into this mess. BTW they make $18 Billion and $14 Billion in profit respectively and pay zero in interest something our Mandarins could learn about. PS. I have an MSc in Economics and a fourth level degree in Finance. If only……….. Zhou Enlai says, The Force, Voldermort’s dark magic, human resources – call it what you will. Very good. This cheese subject has me thinking a bit through, about our democracy, and those of nations far away. We could use cheese better I believe. In the methaphorical sense, if not in the actual sense. The Irish government throws cheese at the people, and expect to be thanked for it. Viewers of The West Wing TV series might recall, that one of chief of staff, Leo McGarry’s favourite monthly pastimes, was to tell the story of the block of cheese. The block of cheese, was something a past president positioned in the White House, with the intention of inviting ordinary people into that institution. In the hands of Mr. McGarry, the block of cheese, became a metaphor to convey to his staff members – that every month, each senior person had to invite one group into the White House, to discuss an issue they believed in. Of course, some of the groups invited were unconventional. The intention was to throw a curved ball at the senior staff, and get them to exchange conversation with a wider diversity of opinions. BOH. Anyone who has ever worked in a Finance dept (as I have, but not in this jurisdiction) will know how it works. Civil servants from other countriescoming in to audit the DoF carry an air of independence or neutrality but, almost subconsciously, they know they belong to a brotherhood. Which looks after its own. In addition, policy advice is always relative, not absolute. Civil servants know, with precision, what their political masters want to do. They just divide by 2 and advise accordingly. They never, ever ask, ‘what is the right thing to do?’ Merely, they just try to rein in the wilder instincts of the politicians, in a pure realpolitik exercise. The DoF should have told the pols to tighten, not to expand by just a little bit. That’s what a 2011 Sir Humphrey would do, knowing that the way that frames the debate ensures that the pol won’t do too much harm. Pols have learened, pavlovian style, to just double whatever the Mandarins say they are allowed to do. DoF stiffs, stuff in 1922 ways of doing things, just didn’t, and don’t, get it. But these external civil servants reveal themselves to be captives of the machine. Blaming HR: that’s just too obvious. I bet they had that one determined before touch down. Recruit more staff (experts or otherwise): who would possibly have imagined that conclusion? Riddle me this: if the DoF didn’t exist, would we miss it? @TRP “So Microsoft and Apple with Turnovers of $65Billion and $62Billion can be run without Finance Directors and Accountants is your view when taken in the context of our D of F with Expenditures of €50Billion plus and not one Qualified Accountant is maybe one of the reasons why D of F got us into this mess. ” Well, the DoF doesn’t actually spend anything. It provides money to the other departments who do the spending and gets income. I’ve always been bemused as to what sums a finance director needs to personally be able to do. Finding out that a Finance Director knows about finance is a bit like finding out that a Chief Executive knows about feathers, peace pipes and scalping. I agree with you that some accountants are a necessary evil, but I don’t see that the technical know-how of either accountancy or economics is a technical requirement for a Finance department. To look at microsoft, what does it do? It writes software, that’s why only half the staff are involved in programming… sales are marketing are probably the single biggest organisation. The DoF doesn’t do any sales, it doesn’t market. It has a smallish internal budget. It doesn’t need financial directors. It may need some quants to model future income and expenditure flows, but maths or physics would be as useful as economics and more useful than accountancy. PS Microsoft does pay interest. It has debt securities in issue and is active in commercial paper markets. http://www.microsoft.com/Presspass/press/2011/feb11/02-03FEBIRPR.mspx?rss_fdn=Press%20Releases Apple likewise, I’m sure. PPS No shame in being in the PS, I don’t see it as an accusation, even though you may have meant it. Accountancy, on the other hand… Simpleton says: The DoF should have told the pols to tighten, not to expand by just a little bit. That’s what a 2011 Sir Humphrey would do, knowing that the way that frames the debate ensures that the pol won’t do too much harm. Pols have learened, pavlovian style, to just double whatever the Mandarins say they are allowed to do. DoF stiffs, stuff in 1922 ways of doing things, just didn’t, and don’t, get it. Anyone familiar with the in’s and out’s of project management, will find a familiar ring to that paragraph. Indeed, the common link across many projects and endeavours in the behavioural patterns of human beings, when working together as groups. Which leads me to theorize, there is nothing outstanding or exceptional about the elected/permanent government interface – except that it needs to be assessed, optimized and even improvised – as these important interfaces always need to be, in most other walks of life. The patterns we find in group behaviour of humans in fairly consistent, across cultures and across time. With some wrinkles here and there. But if you know what to look for, and have awareness sufficiently honed, you can usually find your bearings in most environments. Situations which require the analysis of group behaviour, are situations which can really benefit from the involvement of a good generalist, who understands that area. Take health and safety regulations for instance. It is really a study of group behaviour and what people are likely to do, in a given situation. In fact, the main 10 or 12 principles were well laid out in a European directive back in 1989, and all of the legal stuff ever since, has tried to work with the same principles. Council_Directive_89_391_EEC What we should be working on in 2011, is a similar set of general principles for departments of finance, which may guide future elected and permanent officials, well into the future. We cannot continue to devote our entire attention to these matters for ever, as fascinating as it all may be. There are other things to deal with too. BOH. I feel I must respond to the comments by Cormac Lucey on this blog. Cormac Lucey was a special advisor (as he admits himself) to Michael McDowell and as such is heavily implicated in the outrageous pro cyclical budgetary policy followed by the FF PD Government which has brought this country to its needs. The Wright Report has been written by highly respected independent figures from Canada and the Netherlands without any vested interest. I know which version of events I believe. The reality is that career civil servants in all depts watch their p’s and q’s from a self-interested point of view – disinterested advice is a myth. Very. The last person I heard of who told the full, unvarnished truth on something important had a rather… imaginative exile imposed on her, poor woman. @ all This is the same DoF that opposed any spending on defence during WWII, and advocated an immediate surrender on financial prudence grounds in the event of invasion (Robert Fisk, “In Time Of War”). @Joseph O’Toole There is only one way to settle this. Let’s see the written warnings referred to. The comment of Cormac Lucey (former special advisor to Satan – as he admits himself) throws down the gauntlet. “The key matter for neutral readers of this report to consider is the total absence, in the entireity of the document, of a direct quote of such a warning. Instead the report offers the lame excuse (para 3.6.3) that “There are examples of where such advice was tendered in writing. We have also been advised of some important oral briefs that reinforced the Department’s concern about pro-cyclicality.” “advised of some important oral briefs..” They should be ashamed to be advancing that as a defence. If it’s not put in writing to a reckless accountant/boorish solicitor politician and their colleagues then it doesn’t count. A prediction – expect lots of people in the political class (FF and PD) who are implicated in the destruction of the Irish economy to pour scorn on the Wright Report in the coming days. Its easy to attack public servants – to say that the politicians only acted on the advice given – because the public servants are not allowed to defend themselves publicly. As a damage limitation strategy it worked well for FF and the PDs – until now. Via Politics.ie “Talks are taking place for a second day on the possible formation of a coalition government between Fine Gael and Labour. Both sides were briefed today by officials from the Department of Finance and the National Treasury Management Agency. Fine Gael’s Michael Noonan said there were certain issues in the economy that the Opposition parties had not been briefed on before the General Election. Labour’s Joan Burton talked of a very challenging situation in the banking sector….” http://www.rte.ie/news/2011/0302/politics.html Hmmm, we’ll await further details. “Fine Gael’s Michael Noonan said there were certain issues in the economy that the Opposition parties had not been briefed on before the General Election.” Now there’s a surprise. They have just been told that the country is broke and that if we default on anything, we won’t be able to borrow anything, not for the state or the banks. Teachers won’t get paid, welfare cheues will bounce and no ECB cash for the ATMs. Of course, nobody knew any of this before the election. Cormac takes it up a notch http://www.irishtimes.com/newspaper/opinion/2011/0303/1224291212251.html There are none so blind as those who will not see… From the Wright Report: “The Panel reviewed in detail the annual June Memoranda to Cabinet on Budget Strategy. Generally speaking, we found that advice prepared by the Department for Cabinet did provide clear warnings on the risks of pro-cyclical fiscal action”. Section 3.2.4 of the Wright Report also includes a clear Table showing the Dept. of Finance recommendations on the budgetary stance against the actual outturn agreed by the Government. This table is clear evidence of the official advice given and the fact that the Government did not adhere to it. A recent interview with T.K Whittaker – available on TG4 iplayer – indicates that the staffing level in the DOF was something like 36 when he was involved!(600+ now!!) Even Sean Lemas had probs with mandarins in all depts – ‘forces of resistance’ was his term for them – maybe that’s what’s missing!!! I suspect ‘resistance’ is endemic but in the wrong places and for the wrong reasons…………. @vinny This is a quote from TK Whitaker which goes some way to explain the problems at Finance: “The economic situation is more serious that we have been admitting officially. We have deliberately not been too pessimistic in public for fear of undermining confidence and also in the hope that as the months went by things would show a sufficient turn for the better. This hope is not being realised – indeed, it was not soundly based – and we now have to increase the corrective measures. We should also, without being alarmist, be more forthright about the nature and extent of our problems. We would be deluding ourselves if we continued to make reassuring comments on their temporary nature … There is a basic difficulty of a more lasting character and it is time we did something more effective about it.” It dates from October 1965. It is quoted in Dermot Keogh’s biography of Jack Lynch. @vinny and Cormac There is an earlier quote from 1953, which goes some way to explaining why we, citizens, report the least confidence in government (see below) “The success of any public policy depends no less on its intrinsic merits than on the quality of the public service that executes it… The civil servant’s task is at any time a difficult one; it will not be lightened if he fails to bring the public closer into his confidence…In shaping the Civil Service to the satisfactory discharge of its present-day responsibilities, the public may reasonably expect to know how the official mind works and to understand the thought that animates it. Patrick Lynch. Studies. 1953 p. 259-260 re. trust kin government etc. “In a year of political and economic turmoil, trust in government fell by 11 percentage points since 2009 in, to an all time low of 20% in 2011. This compares to a global average of 52%, according to the latest findings of the annual Edelman Trust Barometer which is conducted in 23 countries. Ireland is now the least trusting of government out of all the EU member states surveyed. The deep and continuously low levels of trust in business and our system of government reflect the economic challenges and negative sentiment which has been experienced over the past year. It is noteworthy that across the western world trust in governments and banks are closely related. This is particularly so in Ireland where only one in five now trust our system of government. A recovery in trust will require increased levels of transparency, a constant articulation of the actions being taken to rebuild confidence, as well as acceptance by those in positions of authority that full responsibility must be taken for the current crisis.” http://www.edelman.ie/index.php/insights/trust-barometer/ Prompt and continuous action on implementing the recommendations of the Wright report would be a start, coupled with other action as suggested here eg Fiscal Council @ All, I did read Cormac’s Irish Times article. Thanks to Frank Galton for linking it here. The article strikes me on a couple of levels. Look at the individual. Is the individual person defined by one’s occupation, by one’s place in society, or by how one’s mind operates. I believe that Cormac’s article triggers questions with me, on all levels. I do understand the point that Cormac is making. It is a very good point. We have a long ways to go in Ireland, in being more pro-active about solving problems for ourselves, as and when they arrive. Rather than waiting for an elected official to come and do a ‘walk around’ with an RTE television crew bringing up the rear. Out of interest Cormac, have you ever read anything written by Norman Bodek on the Lean manufacturing ideas, he surveyed and learned of in Japan? Bodek tells a very good story in one of the Leanblog dot org podcasts (available to download), about the worker in the Japanese factory who has to wheel his trolley over a bump in the floor each day. The Japanese attitude was, to build organisations in such a way, as the worker is encouraged to find a way to fix the bump in the floor. But Norman Bodek tells it in a much better way than I can. The other issue, I would tie in with this is, local and centralised governance on the island of Ireland. What we seem to do in Ireland is collect taxes at a local level, transfer them to central government, and then execute spending programs, whereby the tax that originated at a local level is funnelled back down again. The money has no sense of direction by that stage. It has moved too far away from source. All it has to guide it, is a vague, abstract document which tries to apply to the whole island. It is not even broken down into region. I will not bore people, by going on any further. But there are many opinions on this, and many worth listening to. The last issue, that Cormac’s Irish Times article reminds me of – is a blog entry I penned late last year – on foot of a Kevin O’Rourke blog entry here at the Irish Economy website. In the blog entry, I sort of got into the territory of Tony Judt. I experimented with the idea, of the Irish leaving others to do their thinking for them. It was a global consensus view that existed in 2007 and 2008, and the Irish were so willing to buy into that view. I have to hold my hand up. I was told by two close friends of mine in 2007 and 2008 – one an astute economic observer, the other an astute political observer – that Ireland was headed for an economic and political meltdown. How either of those people had developed much better powers of observation than I had, I do not know. But I do know, I was unwilling to listen to either of them. BOH. http://designcomment.blogspot.com/2010/11/foreman-on-canvas.html Comments are closed.