Ireland's Economic Crisis - Time to Act.

It was and remains obvious, as will be evident from these pages, that Ireland is in deep trouble. Our disastrous downturn has happened at the same time as the world recession but, to make matters worse, we will find it difficult to take advantage of the upturn which appears to be in its infancy in some of the big economies and notably in the US. Burdened with a chaotic situation in the banks which, as was pointed out by several speakers at MacGill, we have managed to survive only because of the injection of funds of the order so far of €130 billion by the European Central Bank as well as the nationalization of Anglo-Irish Bank, the Government is in a political strait-jacket when it comes to taking steps to re-invigorate the economy. Add to this difficult situation a steadily increasing budget deficit, growing unemployment, falling domestic activity due to the collapse of the construction sector and the subsequent diminution of domestic consumer spending as well as the serious erosion of the competitiveness of the country’s exports and you get a clear picture of just how serious our economic crisis is. How we allowed ourselves to get into it is, at this point, somewhat academic, apart from the lessons to be learned about regulation and about the ability of our political system as well as the institutions of the state to run the economy so that a crisis of this dimension is avoided in the future or at least minimised.

Audiences were aghast as speaker after speaker, with extensive experience in Irish public life, described how and why the economy went so awry. Eamon Gilmore, for example, said the economy had been hijacked ‘by speculators and developers’. It is true that many of our problems are due to overdependence on house building. By 2007, construction accounted for 13.3 per cent of employment, the highest in the OECD. Very strong growth in public spending was financed by revenue generated largely from taxes on property which could not possibly be sustained. As Karl Whelan illustrated, a substantial slowdown was looming for Ireland by 2007 but evidence was ignored even though this was obvious as far back as 2002. Of course there was plenty of blame to go around but, characteristic of the School, we did not over indulge in looking back. The thrust was what road now needs to be followed, what choices need to be made in terms of economic policy, public services, and of course, the regulation of financial institutions, in order to reinvigorate our economy and society. We must equip ourselves for setting out on the path to recovery and this was very much on the agenda in Glenties. Competitiveness is key and as Peter Bacon and others stated, wages and salary cuts of 10-15 per cent are essential in this process.

The Official Opening speech by Michael McLoone raised the question of whether Ireland’s political and social institutions have the capacity not alone to decide what has to be done but the will and competencies to do so within a timescale that gets us out of the hole quickly but without doing serious damage in the process. During the boom, critics claim the well off got richer while the poor were left behind and the numbers living at the margins of society continued to grow. However, according to Minister for Finance, Brian Lenihan, everyone benefitted from the Celtic Tiger, including those on social welfare payments. Economic success was not achieved without cost. In the headlong pursuit of prosperity, there were negative impacts on the natural environment and a sense of community which, in many people’s opinion, dented and weakened the social and cultural fabric of the nation. In the Ninth Annual John Hume Lecture, Dr Diarmuid Martin argued the need for a strong civil society. Self-interest alone, he said, no matter how enlightened, cannot be the sole measure for evaluating relations within society. Ireland needs not just a revival of social partnership, but an even wider model of social participation.

While there was a sense of resignation at the sorry state of our finances, the consensus was that the time for action is now and to gear ourselves for recovery − whenever it comes. There was deep concern about the slow pace of change and inadequate governance in the public sector. Reform is essential although if one is to judge from the remarks of one of our most distinguished former civil servants, Brendan Tuohy, it is far from being a given. Perhaps it was the need to maintain social partnership and consensus that slowed down the reform process and prevented the necessary radical measures being taken. He painted a bleak picture with report after report over the years analysing the effectiveness, efficiency and value for money in the public sector. Yet, either they were never implemented at all or only partly implemented. Results, not more reports, are needed now. Here is the challenge: deliver public services that are lean and efficient, not self-serving, expensive and ultimately unaffordable.

As to the state of the economy now, our choice, as Colm McCarthy bluntly puts it, boils down to either raising taxes or cutting spending. Brian Lenihan maintains that the only path to recovery is to have sustainable public finances, regain competitiveness and repair our banking system. But George Lee says it is a mistake to correct the catastrophic imbalance in public finances at the pace now proposed. Unless the global economy, as he puts it, ‘experiences the fastest revival since Lazarus got up out of his bed and walked’, then the burden of fiscal adjustment placed on the public may be too great. It is a perspective with which David Begg concurs. Wage and public spending cuts, he argues, will impart a further dangerous deflationary shock to the demand side of the economy. Conventional perspectives on competitiveness are a questionable concept, he added.

As a society we are going to have to do more with less in order to limit the damage to our living standards and return to a path of sustainable economic growth. Despite a painful adjustment, Danny McCoy is in no doubt that reduction in unit labour costs, delivered through public pay reform, will strengthen our long-term competitive position. But will Mary Coughlan’s call at Glenties to protected professions, who have yet to reduce high fees, continue to fall on deaf ears? References from the floor pointed to the exorbitant fees of doctors with medicines costing far more than in other member states of the EU.

We have to move forward, and quickly. The question is: can we rebuild a damaged economy as well as a damaged society? Yes we can, provided the right measures are now taken. Examples were given by those in positions to know what this might imply in practice. Jim O’Hara, CEO, Intel Ireland, supported the current strategy of strong investment in 4th level education but urged that the focus be on how to get more research from the same budget and achieve greater commercialization of that research. He stressed that young people must be imbued with the vision, ambition and confidence to create start-ups and believe that they can grow our own Irish Nokia or Google. Martin Murphy, who heads up HP Ireland argued that as an open economy on the periphery of Europe, excellence has to be our trade mark – both to attract further investment to this country and crucially to build an indigenous global enterprise culture of our own. The objective is to deliver a better service at a lower cost through innovation. The aim is to think smart, work smart and buy smart.

Of course, many other issues were discussed at Glenties such as education, energy, Lisbon, the all-island economy and how Ireland’s distinctive cultural resources contribute to competitiveness. In summary, there is, as is vividly illustrated in these pages, an urgent need for an invigorated national strategy and sense of purpose. Some politicians and business leaders make powerful contributions on this theme. Fine Gael Leader, Enda Kenny, says ‘Our political culture is discredited. We cannot fix our economy or create a just society unless and until we also fix our politics’. He calls for fundamental reform arguing that the findings of An Bord Snip Nua are an absolutely damning indictment of the way that Government has been run for the past decade.

Ireland’s fundamentally changed circumstances require a radical transformation in its policymaking. The development model must be founded on harnessing national innovative capability, focusing on social cohesion and proper regulatory oversight. Contributions from the podium and floor in Glenties ranged from policy, vision and context to practical suggestions on how the country can emerge from its present crisis. Bleak though the prognosis was, spirits were neither dampened nor was good humour absent. Debate, reflection and, as ever at MacGill, courteous disagreement, was stimulating and lively. The papers in this volume, we feel, make a valuable contribution to the debate about Ireland’s future economic welfare. Policy-makers, business leaders, academics, opinion formers, students and all those interested in the future of this nation will gain invaluable insights by reading and studying their contents.

Tá súil againn go mbainfidh tú taitneamh as iad a léamh!