Last week, the column spoke about the possibility of a 2nd Irish Republic. The idea is that this Republic has run its course and, like the French did in 1958, it’s time to rethink the way we run the country, starting with the Constitution.
The problem with Ireland is management, in particular management of the public realm. The essential nexus where politics meets delivery of services is broken, meaning that we are a rich country which feels poor. Our public services are not anywhere near a level commensurate with our wealth and the ability of the State to direct policy appears compromised by vested interests and institutional inertia.
On top of this, we are still thinking like a poor country, finding reasons not to do things, rather than a rich country, confident that it can achieve remarkable feats. One would have expected that the economic performance of the past three decades – surging from being the worst-performing economy in Europe to being the best – would have had a positive impact on national thinking. But no. We remain insecure, caught in the mentality of squirrelling money away for the rainy day, when all areas of the economy are crying out for public investment.
An example of this type of thinking was evident in the latest advice from the Irish Fiscal Advisory Council, a quasi-State body that counsels the Government on how much money to spend every year. In a fascinating and slightly depressing report, the council outlines how Ireland, despite our riches, is way behind the EU average when it comes to spending and delivery of public infrastructure per head of population. Our housing stock is far below the EU average, so too is our transport spending and our health infrastructure. And our spending on education is only around the middle of the EU range.
We know that we have far fewer houses than we need, not enough public transport to get from those houses to work, and a health system that is straining. Despite buckets of tax revenue, we are not spending enough. The council, having reported this massive deficit in public infrastructure, advised the Government not to spend, because it is concerned there may be some Government financing crisis at some unspecified date in the future.
All the while, Ireland’s budget position is healthier than most other EU countries. Germany, for years Europe’s paymaster, is running a larger and more structurally worrying deficit than Greece. Who would have predicted that 10 years ago? But this is the point. In economics, there is no equilibrium, everything is in a constant state of flux, companies are up and then they are down, countries are surging, then they are not. All we can address with any level of certainty are the issues that need to be managed urgently. In Ireland, those issues are immediate public infrastructure spending, not tax cuts, not saving for a rainy day, not worrying about debt to GDP measures.
A policy of underinvesting in public infrastructure, not spending the money that the country has, at a time when our population is growing and demands better public services, is a recipe for social chaos
Prudence never built anything. Prudence never created a new hospital, new train system or new home. Prudence never created a better quality of life for the citizens of a country. And more lamentably, from an economic analysis point of view, when your interest rates are determined abroad as ours are by the ECB, national prudence and savings are not rewarded with lower interest rates, as might be the case if we had our own currency. Right now in Ireland, fiscal prudence, so often billed as pragmatic and careful, is not pragmatic, it is incendiary and irresponsible.
A policy of underinvesting in public infrastructure, not spending the money that the country has, at a time when our population is growing and demands better public services, is a recipe for social chaos. This is even more important during a period of high immigration. How can the country absorb immigrants without spending on public infrastructure? If you wanted to create a cocktail for a vicious backlash against immigrants, you would not spend now on houses, health and transport. Is this not obvious? And yet this is our macro-economic policy. As I’ve written before, immigrants add enormously to economic growth and, over time, their taxes and ingenuity will pay for Irish people’s retirements.
We have arrived at a strange juncture where the poor man’s 1980s attitude to public spending is married to a Panglossian “come on in it’ll be grand” attitude to public infrastructure. The right hand of Government has no idea what the left hand is doing and, maybe more importantly, the right side of the Government’s brain isn’t talking to the left side. The council is telling the Government not to spend now because it is worried about the risk of overheating the economy, but anyone with a jot of economic understanding will know that not spending now means the risk of overheating becomes a certainty.
Add to this surety the other side of Government policy which is the multi-national strategy, welcoming capital in here, which guarantees that our tax take will be far greater than anything that can be generated by the local economy. As long as we have multinationals, we will always generate budget surpluses from them. The huge corporate tax take is not the unintended consequence of policy – it is the objective of policy. There is no windfall, this is reality. This was what the policy was supposed to deliver!
If we do not comprehend that an open immigration policy, attracting in talent, demands that we build more of everything today, then we are idiots. A country cannot expand its population and refuse to build more public infrastructure in case some future public finance problem arises. The public finances are healthy, public infrastructure is woeful and the public mood is fragile. When the Government doesn’t spend, when we wait for social housing, when we are stuck in traffic, when the bus is late, when the A&E is crowded, the public mood is affected – and it will turn sour if we continue to behave like we are poor, when in fact we have money.
Spend now and worry about overheating later. The stakes are too high for the economics of the 1980s to imperil our 21st century society. The intellectual relics of the past should never be allowed to bully the pragmatic realities of the present. If we have to change the way we run this Republic, Vive the 2nd Republic!