Common good should be driver of economic policy
If we learn from our many mistakes, we can create an Ireland of vision that excels on new global markets
After the excitement of a property boom, the crisis in banking and the departure of the troika, what next? The general population may now be faced with the prospect of relative boredom as pundits and analysts return to the mundane world of business, debt, living standards and jobs.
While there is much to be positive about in recent economic news, there is also much to be concerned about. High public debt levels are likely to stay for the rest of this decade, along with unresolved personal debt issues, enduring high unemployment and underemployment as well as a growth in precarious employment and low-wage sectors.
With most households experiencing a fall in living standards over the last six years, prospects for recovery before 2016 look remote. Real wages are stagnant, while taxes and charges are higher and more are in the pipeline until 2015 at least
Now is the time to ask fundamental questions about what type of society we envisage not just in 2016 or 2021 but in 2050 when many of us will still be alive to see, hopefully, a different type of Europe and Ireland. Economic policy should be driven by a vision of what is good for society: not the other way round. However, without a successful economic policy aimed at full employment, greater social equality and sustainable development, it is not possible to provide the level of social services and protection people need.
After the debacle of the 1980s economic crisis, a combination of continuing inward investment, fortuitous international conditions and a credit-fuelled, regulation-light boom in land and property prices drove the Celtic Tiger, especially in its latter phase from 2001 onwards. There was something for most people as it was imagined that we could have Berlin public services for Boston level taxes. As late as 2007, there was near-universal consensus across the political spectrum on the desirability of further cuts in income tax: this after almost half the workforce had been removed from the income tax net and high-income taxpayers were able to pay low tax through tax reliefs and write-offs.
There was something clearly rotten in the state of Denmark, as Marcellus might have said to Horatio in Hamlet. Except, it was not Denmark that was the problem. It was the totality of economic, political and social relationships here in Ireland that allowed what happened to happen. Commercial property construction and associated tax reliefs and lending lies were behind the bankruptcy of Anglo Irish Bank. Might we yet see a return to a commercial property boom, again, in major centres with the risk of overheating in some sectors of construction while there is a shortage of affordable homes?
A popular theme in post-bailout Ireland is that lessons have been learned and the future is to be secured by means of strict devotion to fiscal rules, tighter controls on banking and reform of public institutions. It is as if the crisis was the product of the wrong people in the wrong positions with the wrong incentives and bad institutional rules.
There was indeed a failure of corporate governance in the private banking sector and other areas of high finance. There was also failure at political and public regulatory level, while distortions in economic behaviour were encouraged and rewarded by a regime of low interest rates and speculative-friendly reductions in capital gains and other forms of tax.