Irish society needs to be more self reliant

IT IS ironic that a book dealing with Ireland's economic failures should be published at a time when the Irish economy is being widely acclaimed as something of a success story. A cheerful book explaining the Irish recovery might be expected instead of the critical and astringent assessment under review.

Yet it would be a mistake to neglect Cathal Guiomard's book just because our conjunctural fortunes have changed so much for the better. There are structural weaknesses in the economy and in Irish society which need continuing attention if progress is to be sustained.

Unemployment though falling is still far too high, and long term unemployment is particularly acute. The debt ratio is excessive and there are question marks over the depth and sustainability of our industrial structure. And, as the PCW runs to a close, Ireland's institutions will be subjected to the acid test of negotiating another moderate pay agreement in the context of an economic boom.

Guiomard's thesis is that Irish economic policy has been "overly sceptical" about the advantages of the market mechanism and "overly optimistic" about the effectiveness of state intervention.

As a result, our economy embodies key shortcomings both of the private market (weak competition and unequal opportunities) and of crude state intervention (waste, unaccountable bureaucracy, political constraints) without managing to capture enough of either system's advantages. History, the political system and misguided critics have, in the author's view, disposed people to seek material advance through lobbying, industrial action, tax dodges and monopolies, rather than by producing and selling what people want to buy according to the laws of demand and supply.

The case is argued eloquently. Among many telling examples, the author casts an unsympathetic eye on the wish list contained in the bishops' 1994 Developing the West report which included a western development board, a state five year development plan, a Forbairt plan for western industry, a Green Paper on the west, a Minister for the west, soft government loans for the west, and preferential grants for firms in the west. This book mercilessly exposes the distortions and ultimately self defeating flaws in this approach to development.

Guiomard wants Irish society to become more self reliant and entrepreneurial. Using simple economic analysis, he shows how such a reorientation can lead to a larger national output with benefits all round, instead of to squabbles over shares of a smaller output.

A strength of this book is its reader friendly and professional guide to the economics of the free market, the problems of "market failure" and the necessity for government intervention. It also explains how government, once it is allowed to intervene, can easily be deflected from the original purpose of the intervention by electoral pressures and bureaucratic imperatives.

He exposes the arguments of critics of the market from church, trade unions, RTE and influential columnists in The Irish Times such as Fintan O'Toole and John Waters to a devastating critique. He shows that most so called "radical" criticisms of the operation of the market in Ireland are not radical at all.

Markets have never been free in Ireland; the visible hand of the state has always been on call. Guiomard shows that the radicalism of Ireland's Old Left amounts to no more than a plea for more state intervention i.e. for retention of the status quo.

The real problem is not free market versus the state but to find the correct balance between them. Most people agree that the balance in Ireland has tended to swing dangerously towards the state.

Arguably, Ireland's economic progress over the recent past owes much to the move towards greater use of the market as evidenced in lower tax rates, greater exposure to competition and more accountability in both the private and public sectors.

The language and context of the economic debate in Ireland has shifted dramatically over this period. Fiscal rectitude has become rather "in". Advocates of labour market flexibility are less likely to be branded as head bangers.

Competition is now accepted as something appropriate in the semi state sector, although twenty years ago economists like Dr Sean Barrett, who pointed this out, were voices in the wilderness. References to other economists' writings can give an academic flavour to a book which is designed for a large audience, but I would like to have seen the story of Ireland's intellectual conversion to the virtues of the market system given some space.

"Conversion" may be too strong a word. Rather I suspect there has been a shift to a new set of low intensity economic priorities, prompted by the writings of Irish economists, the world wide shift in favour of more use of markets and pressure from the European Commission.

Guiomard's four recommended cure for the Irish disease would be most helpful in consolidating the reform process. First, stronger competition in the marketplace, now virtually a mainstream view.

Second, reform of the electoral system, with the multi seat PR system being supplemented wish a national list system which would free some politicians from local pressures and enable them to concentrate on the national interest. Third, the state should focus on promoting economic productivity and equal opportunity, otherwise staying clear of the economy.

This is a sound principle though difficult to apply and the reader will have to consult other books for specific guidance. Fourth, public sector organisations will shave to become more attentive to the consumer.

In this connection, the book refers to the strategic management initiative, proposed by a small group of able and, yes, enterprising civil servants, one of the most promising developments in the public sector for a long time.

The proposed cures for the Irish disease involve a radical change in attitude. We have come a long way, but only part of the way.

The Irish Disease makes no pretension to weighty scholarship, though its author is clearly well informed. It should be welcomed as an accessible and deeply felt exposition of economic thinking about markets and Ireland's economic problems.