Crash may offer chance of a 'Second Republic'

 

OPINION:A silver lining to the cack-handed efforts of our policymakers to sort out the economy may be a new and improved State, writes MICHAEL O'SULLIVAN

THE WORLD economy is now in recovery – emerging markets growth is picking up to the extent that countries like China are trying carefully to adjust downwards their economic stimulus, while more mature economies like France and Germany are now just moving out of recession.

Ireland, unfortunately, is the exception. Having been in the vanguard of global growth for so long, Ireland remains mired in one of the deepest contractions that a developed economy has ever witnessed. In the absence of a coherent and credible national recovery strategy and the complete – though unlikely – reversal of many of the policy moves put into place in the past year, we will remain the exception to the brightening global outlook.

This “decoupling” of Irish economic activity from much of the rest of the world is not unusual in cases where there has been a substantial asset bubble, but it can only serve to deepen the shock, confusion and anger that most Irish people feel at the rapid disintegration of our economy – and quite possibly our society.

This anger should be directed at the political and policymaking classes, together with some bankers and business people, because programmes like the National Asset Management Agency (Nama) and the “An Bord Snip Nua” initiative are the direct result of the many errors committed in growing, overseeing and, more recently, rescuing our banking system and economy. “Snip” and Nama only institutionalise the mindset of the property bubble and load the costs of this on to the public balance sheet.

They mean that we are still in “rescue” mode, at a time when many other nations are moving towards recovery or busying themselves with reform. As a result, Irish people are entitled to wonder how much more pain is to come.

In this respect, we have no national strategy or vision to guide us through the economic crisis, nor any sense that pain suffered now will produce gains later on. Instead, both the behavioural responses of our policymakers to the crisis and the logic behind economic policymaking suggest that things will get worse, though there may well be a silver lining to this bleak scenario.

First, the behavioural response of those in positions of power and authority to crisis still follows the well-established pattern of dismissal, denial and debacle. There is little evidence so far that the dislocations and challenges produced by Ireland’s economic crisis have brought about a change in mindset on the part of policymakers.

Seán O’Faolain’s statement that “The new Ireland is still learning the old lessons the hard way, like a brilliant but arrogant boy whose very brilliance acts as a dam against experience, so that he learns everything quickly – except experience” sums this up extremely well, though the fact that it was written 60 years ago suggests behaviour has changed little in the intervening period.

The second related issue is the topsy-turvy nature of Irish economic policymaking. In an economy that is expanding too quickly, the normal approach is to try to slow it down; and when it is contracting, the typical response is to support or even stimulate it. In the early years of this decade, our politicians and policymaking “elite” responded to a very “hot” economy by lashing on more fuel. Now they respond to one of the sharpest contractions ever in a developed economy by squeezing harder on the brakes.

In essence, they are trying to do something that very few countries have tried before and that is to implode an asset bubble. The trouble is that, like most policy moves and debates of recent history (the opposition has most often been an accomplice here), they do so by accident rather than by design.

This stark line of argument is not going to please the “ignore the doomsayers and stop talking Ireland down” brigade, but again, until their wishful thinking is replaced by clear, strategic thinking, more pain is inevitable. Economic history shows that only when the last bastions of denial have been broken can economic crashes come to an end and recoveries begin. Political history too shows that patriotism, as opposed to nationalism, is associated with an honest examination of a country’s problems.

At this stage, most commentators must be tired of writing about how bad Irish policymaking is, the public must be tired of agreeing with them and policymakers themselves tired of hearing it. The debate needs to increasingly focus on reform and on what Ireland should look like in the next 10 years rather than 10 months.

The silver lining here is that our political class are going to crash land our economy, society and political system so badly that they will break it, and create the opportunity and impetus to renew the institutions of State and build a “Second Republic”.

There is a growing consensus among commentators outside the political system as to what a “Second Republic” should look like – a smaller Dáil that focuses on “big picture” national and international issues; a presidency with more power and resources; the elevation of local politics to the provincial from county level; better-qualified and more accountable local politicians; and an unambiguous legal framework to oversee political corruption and to govern the interaction between commerce and the State. Upgrading the technical skills of politicians and policymakers is vital.

What is less clear is how, when and by whom a “Second Republic” could be established. As a nation, we are not given to broadbased revolt, a characteristic that has contributed to political stability but one that could also mean we follow the example of Japan. Japan’s stagnant political system is only now beginning to show signs of real change over 10 years after its economy deflated and government debt expanded sharply as its property bubble burst.

On a more optimistic note, there are already signs the economic and psychological adjustment in parts of our economy are taking place much faster than in other European ones – notably Spain. Irish entrepreneurship and the confidence and good will built up toward Ireland in the past 20 years have not entirely evaporated. Also, academics and some practitioners in fields like economics and the sciences are pushing ahead with debates on what the Irish economy should look like post the credit crisis.

In the absence of a national strategy or vision from those in power, it looks likely that the new institutions of State may be built slowly, though more surely, from below.

Michael O'Sullivan is author of Ireland and the Global Question(Cork University Press, 2006)

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