Economic calamities come from our political system

Fri, Jul 20, 2012, 01:00

THE EURO zone crisis shows how economic performance can be negatively affected by political factors. Two factors stand out.

1) Countries in most trouble are those where successive administrations did too many of the easy things (most notably spending ever larger amounts) and too few of the difficult things (such as implementing reforms that are good for everyone collectively but bad for interest groups).

2) Countries with higher levels of corruption are more likely to be in trouble. Ireland differs from the other troubled countries in that corruption is not a significant factor in economic failure. According to Transparency International, Ireland is the sixth least corrupt country among the 17 members of the euro zone.

Despite an absence of Mediterranean levels of corruption, Ireland is in dire straits. By output and employment measures its economic contraction has been the worst (though Greece and Spain are catching up fast).

The bank crash has been one of the most costly in world financial history. And the rise in public indebtedness, even when all banking costs are excluded, has been one of the largest in the developed world.

Some argue that bubbles happen even in well governed countries and that Ireland has simply been unlucky. If that is the case, its luck has been extraordinarily bad.

In the 1980s, Ireland was the only state in western Europe to take a decade to recover from the oil shock of the late 1970s, and one of only three to flirt with national bankruptcy.

In the 1950s, a decade of boom and recovery in Europe, policies of self-sufficiency so seriously damaged the economy Ireland has the astonishing distinction of being the only sovereign state in the world to experience population decline*.

Ireland’s repeated calamities are not down to misfortune or politicians’ venality but to a political system that is designed for inaction, and hence failure.

During the recent good times, governments did not act to manage the public finances prudently, to regulate banks effectively and to focus relentlessly on competitiveness.

Nothing was done to modernise bankruptcy laws, to stop the rot in Fás, to reform the unemployment benefits system and to introduce labour market activation measures. Inaction ended up making the bad times very much worse than they would otherwise have been.

Ireland’s very unusual constitutional design means politicians have almost no incentive to be proactive. With a constitutional convention in the offing, there is a real opportunity to address this. Article 28.7 of Bunreacht na hÉireann says all ministers must be members of the Oireachtas. This is very unusual in the democratic world and is a flagrant breach of the principle that State powers be separated. If it were reversed, and ministers were prohibited from holding seats in parliament, effectiveness and accountability would be enhanced in manifold ways.

Elected representatives would face a choice: remain full-time parliamentarians or relinquish their seats to be full-time ministers. That would make the Oireachtas more independent, and hence more effective. There are 30 ministers and junior ministers. That means more than one in four TDs in Fine Gael and Labour is double-jobbing. Most of the rest have ambitions to do so. Fulfilling those ambitions requires they toe the Government line and forgo independence. This, far more than anything else, such as the whip system, ensures the government dominates the Oireachtas.

Further accountability gains would come from making it easier to sack underperforming ministers. Taoisigh fire ministers at their peril. They fear the ejected cabinet member will return to the backbenches and foment trouble. Without a Dáil seat, ministers would have a greater incentive to do a better job and risk paying a price for going on solo runs.

Those who chose ministerial office would have more time to devote to their ministerial work because they would no longer be parliamentarians and constituency workers.

It would raise the calibre of those holding office because there would be a greater incentive for governments to appoint non-politicians beyond a tiny pool of Oireachtas members.

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