A blast from the past: Lessons from the 1950s
Opinion: A bailout from the past – how a leaf from Lemass’s book could turn the economy around
Taoiseach Sean Lemass with industry and commerce minister Jack Lynch and TK Whitaker, secretary of the Department of Finance
Ireland is struggling to find a segue to political stability and economic recovery. The transition from the 1950s – characterised by austerity, massive emigration, near bankruptcy and political instability to the “golden age” of the 1960s has many lessons for contemporary Ireland.
The “exit” from the bailout has left Ireland in thrall to continued external surveillance, high conditionality and a massive debt overhang with a debt/GDP ratio of 115 per cent.
The troika has effectively prohibited autonomous policy-driven growth, eg an IFSC-type initiative. There is little evidence of sustained growth based on the troika’s prescriptions. “Cuts” in education and health, as well as skilled emigration, have negatively affected both domestic demand and future growth potential.
Forecast growth has consistently undershot outturns and self-serving “explanations” for this are now wearing thin. Meanwhile, Ireland’s corporate tax rate, which has helped attract and anchor foreign direct investment, will be “harmonised” away, probably within three years.
John Bruton was recently reported as arguing that Ireland must accommodate itself to continued austerity for the next decade and the present policy mindset points in this direction. Why? Ostensibly to generate the kind of primary budget surplus that would make our debt position sustainable. In reality, it is to service a debt burden that is now widely recognised – except in the vicinity of Kildare Street and Merrion Square – to be unjustified. The Coalition now lacks the energy and will to pursue a debt write-off of at least €50 billion.
In fact, given the impact of the budgetary “corrections” of the last four years it is unrealistic to even consider aiming at a budget surplus of a magnitude that would pay down Ireland’s debt. It would require self-defeating economic policies and regressive social policies, the political effects of which would make the medical card debacle look like a minor administrative error. There is no prospect of the projected growth rates that underpin the Coalitions post- bailout strategy. We have been manoeuvred into a bind.
That’s not all.
The recent adventurous package of measures by the ECB is an acknowledgement that “troikanomics” has failed. Negative interest rates are divergent from the trend in UK rates, while the ECB’s form of monetary easing is divergent from US monetary policy.
Renewed tensionsThis is a recipe for renewed tensions in global monetary policy – and is highly unpopular with German savers. But the euro zone and the wider EU is running out of time, as the recent EU parliamentary elections demonstrated. In Ireland and across the EU, the political – not populist but well-reasoned – opposition to austerity has reached a critical mass.
The political legitimacy of troikanomics rests on growth and the data indicate that growth is not happening. Anaemic growth and continued austerity is a recipe for chronic national indebtedness and seeming perpetual dependency.
Ireland has been here before. In the 1950s it was mired in policy-induced austerity and political instability, including “revolving door” governments. It wasn’t just negative policies alone – it was a mind set of dependency. De Valera finally ceded the leadership of Fianna Fáil, and the post of taoiseach, to Seán Lemass in 1959. The outlook confronting Lemass was eerily similar to contemporary Ireland –the country was near bankrupt and its independence compromised. When the First Programme of Economic Expansion (1958) was introduced, its author, secretary of finance Dr Ken Whitaker, noted: “The common talk amongst parents in the towns, as in rural Ireland, is of their children having to emigrate as soon as their education is complete in order to be sure of a reasonable livelihood.” Lemass embraced Whitaker’s innovative approach to remaking Ireland’s future. He supported a measured wave of new, evidence-based and innovative thinking that modernised Ireland. The newly established IDA and Córas Tráchtála were twin pillars for this “new economy”. Tax incentives were introduced to encourage capital investment and exporting by domestic businesses. It worked.