'Smart economy' plan gambles with taxpayers' money


The Government’s recovery plan is wrong to rely too much on science and technology innovation, writes EOIN O'LEARY

THE GOVERNMENT’S current recovery plan is to build a “smart economy” based on innovation. Is the Government up to the challenge of leading such an economy?

One would imagine that a “smart government” would be one that takes decisions based on objective research into the pros and cons of intervention, that learns quickly from its mistakes and that backs smart people who are prepared to show leadership.

So what kind of Government do we have and what are the chances of it delivering on the smart economy promises?

Ireland seems to follow a model of “big government”. Centralised control reaches into all aspects of our social and economic existence.

White Papers, government strategies and taskforces abound. Politicians claim to know what is right for the people. Decisions are often based on conviction. Experts are often paid to spin or support current opinions rather than to offer alternatives. Decisions made for “Ireland Inc” are delivered top-down by an elaborate bureaucracy.

The electorate seems content to let someone else do the running. A majority believe that the Government runs the economy. If things go wrong the public can express their view at the ballot box. After all this is what democracy is about?

This model of government is now undergoing its most stringent test. Its defenders might suggest that the electorate’s memory is short. Once the powers that be steer the nation through the present international crisis, they can return to the status quo.

This is fanciful thinking when you consider the severity of the financial crisis.

Irish-style “big government” has been error prone. During the mid-1980s and the present crisis, our public finances were in such disarray that the International Monetary Fund was said to be almost at our door. How many other governments of developed economies have faced the ignominy of threatened national bankruptcy? Yet we have the same dilemma once again in this crisis.

In the 1980s, following an international economic downturn sparked by oil-price shocks, it took the best part of a decade and numerous elections for our government to realise that raising taxes was not having the desired effect.

Of course, the fiscal expansions, timed to coincide with the election of 1977, gave our politicians no room for manoeuvre. Eventually, public spending had to be axed in 1987.

Sounds familiar, doesn’t it? The present crisis has international origins helped in no small way by recent governments letting public spending run out of control in advance of the last two elections and facilitating property developers and bankers in their excesses.

Once more, in the recent emergency or “supplementary” Budget, with their backs against the wall, the Government opted for tax increases. Expenditure cuts are again to be the last item on the agenda of our “big government” wedded to the idea that public spending on favoured projects is crucial to our future.

In the present crisis our Government is notably reluctant to admit that their actions have contributed to the crisis. It was the same in the 1980s. In the aftermath of that dismal period we hoped in vain that politicians would never repeat their mistakes.

Their failure to learn suggests a clearly misplaced belief in Government infallibility. The problem would seem to be that Irish governments continually suffer from group-think. They surround themselves with an elite consisting of policy advisers, consultants and spinners whose main function is to tell ministers what they want to hear.

There are too few dissenting voices inside the corridors of power. Those who do offer alternative perspectives are either ridiculed as naive or accused of being resentful at not being part of the elite. In this politically charged environment, decision making is very inefficient.

The result is that what leading countries consider as basic conditions of a smooth functioning society, such as efficient transport and health systems, are almost wholly absent.

Unfortunately our success of the 1990s had the effect of inflating the egos of the elite. Our policymakers queued up to take credit, by lauding our far-seeing investment in human capital, our unique social partnership model and our benefits from full participation in the EU.

According to their rhetoric, mostly due to our own policies, Ireland had become the preferred location for high-technology industry, predominantly of US origin. The fact that these industries also chose Ireland because of a booming US economy and because of its status as a tax haven for corporate profits was conveniently glossed over. The success of the Celtic Tiger was a result of “industrialisation by invitation”. The suggestions that our “big government” engineered it is far from the mark.

The “smart economy” plan is based on the commercialisation of science and technology innovation from our universities.

“Innovation by invitation” is now seemingly the order of the day. The evidence has been growing that this is nothing but a huge gamble with taxpayers’ money.

The recently announced Trinity-UCD research merger has been the last throw of the dice. Its exaggerated claims about the number of jobs that will result seem to have been accepted “on the nod” as it took a Cabinet sub-committee only a week to agree to it. To advocate as the Government does that science-based innovation is the key to Ireland’s future is not only wrong-headed but is patronising.

The Government seems to have little faith in the ingenuity of the Irish population to find their way out of this crisis.

Entrepreneurship has been largely written off. Yet risk-takers are always more likely than bureaucrats to make worthwhile decisions as their livelihood depends on it. Why should we doubt the creativity of the Irish, which has achieved worldwide recognition in business, sporting and artistic fields? This, allied to the resourcefulness of the many foreign nationals now making a living here, is the real key to our survival.

In the next five years as we struggle to recover from this deep crisis, citizens may begin to demand more responsibility, especially when our “big government” model is shown to yield depressingly disappointing results.

What is needed is the emergence of policies that create an environment where entrepreneurship flourishes, where government seriously tackles lobbies and anti-competitive practices and where the public sector is efficient and responsive.

These reforms would almost certainly mean smaller central government with the likely emergence of stronger local government, which supports rather than controls and which only intervenes after careful analysis of costs and benefits. In short, it would mean a smart government for a smart people.

Dr Eoin O’Leary specialises in economic growth, innovation and regional economics in University College Cork