From miracle to mirage

 

CURRENT AFFAIRS: FRANK BARRYreviews Ship of Fools: How Stupidity and Corruption Sank the Celtic TigerBy Fintan O’Toole, Faber and Faber, 229pp. £12.99

FIANNA FÁIL MINISTERS initially blamed the recession solely on the global financial crisis. Then it became necessary to convince people that painful cutbacks were needed. So the severity of the crisis and the fact that mistakes had been made had to be acknowledged. Yet the Taoiseach, Brian Cowen, still claimed on his recent Late Late Showappearance that the policies followed over the boom period were based on the best available advice. Politics, in other words, plays no role in political decisions. Fintan O’Toole’s new book seeks to expose the inner workings of the policymaking system that blew the boom.

Our rapid growth era can be divided into two phases. The export-led phase was inaugurated by the resolution of the fiscal crisis of the 1980s combined with fortuitous external developments. These included the expansion of the EU regional aid budget and the establishment of the Single European Market (not to be confused with the single currency). The latter triggered a huge increase in US foreign direct investment (FDI) flows to Europe.

By banning restrictive public procurement policies, which had worked to the advantage of larger member states, it also enabled us to capture an increased share of these inflows.

The second phase was the bubble. We went from miracle to mirage. Construction grew to twice the share that it represented in the US or European economies. It was egged on by unnecessary tax breaks which have led to the suburbanisation of every rural town and village. Financing was provided by a banking system which lax regulation allowed to become dangerously overexposed.

THE BUBBLE SUCKED resources from the export sector, house prices accelerated wage demands, and competitiveness fell. Politicians, the banks, the developers and the regulatory authorities all share some blame. O’Toole refrains from pointing out the culpability of the electorate, though he does imply that if it is to be expunged, changes to the way the country is run must be demanded.

Ireland, he argues, leapt from the pre-modern to the post-modern in a single bound. But skipping adolescence means missing out on some important lessons.

We have failed to develop a sense of public and civic morality to replace the religious authority that previously held sway. We have yet to internalise “the idea that the State should operate objectively and impersonally rather than as a private network of mutual obligations; the notion of the law as a universal and neutral check on everyones behaviour, whatever their status; the belief in an independent parliament that exists to legislate rather than to service clients and to make government accountable rather than to keep it in place at all costs”.

But this is to jump to the conclusions. And the book is much faster-paced than this. It revisits all the scandals, of which the escapades at Anglo Irish Bank can serve as a microcosm in which all the various Seáns are featured. Its true systemic importance lay in the fact that its six-fold increase in market share over a decade put pressures on all the other banks to relax their lending terms. This should have sent a warning signal, but the regulatory authority came from a culture that had turned a blind eye to the earlier Dirt and Ansbacher scandals.

OTOOLE BLAMES the political establishment too for sharing the Alan Greenspan worldview that the private sector could be relied upon not to make itself go bust. The shenanigans at Anglo are almost comical: money lent to the “golden circle” to buy Anglo shares, with the shares themselves as collateral; Irish Nationwide funds to help hide the Anglo chairmans borrowings; Irish Life and Permanent billions registered as customer rather than inter-bank deposits to help give the appearance of rude health. Who wouldnt be proud to own such a bank?

It is valuable as well as shocking to have all the dispiriting aspects of the way we do things here in Ireland drawn together. Everyone must be struck by the disparity between white-collar criminals in the US being “perp walked” from the courtroom to jail, and the extremely modest amounts of jail time done here even by the modest few who have been hauled before the courts.

I was disappointed to find that O’Toole does not address the role of the Garda in instigating investigations and how the force fits, if it does, into the culture he describes. This is an area surely worthy of examination. How have taxi drivers been allowed to block the streets so frequently over three decades while a small Mayday protest in 2002 came to be dispersed with such violence?

O’Toole is at his best in discussing the cultural context, lowbrow as well as high. Boyzone, Westlife, PS I Love You, and Michael Flatleys Celtic Tigerare all skewered and dissected. This is more relevant, I think, and no less amusing than beginning his book on the beef tribunal ( Meanwhile, Back at the Ranch, 1994) in the time of the Táin.

His grasp of economics, unsurprisingly, is far less certain. His confident identification of feminism and demographics as “key factors . . . that had a lot to do with the creation of the boom” is, let us say, not quite mainstream. Because inward FDI is beneficial, he seems to think that outward FDI by Irish firms must be detrimental. And because he apparently doesn’t like low corporation tax rates, he ignores it in listing Ireland’s attractions as a location for FDI.

But one doesn’t read O’Toole for macroeconomic insight. Some of the other current contributors to the post-boom literature – Matt Cooper, Pat Leahy and Shane Ross – might be expected to be stronger in this regard. What OToole is good at is joining up the dots to give us insights into the kind of society in which we live.

And he can be very witty. “In a mindset where homosexuality was much worse than cooking the books, it was okay to be bent as long as you were straight.” And elsewhere, “did the Corruption Assets Bureau get established? For an answer the reader is referred to Mick Baileys famous response to James Gogarty”.


Frank Barry is professor of international business and economic development at Trinity College Dublin