Hiring economic advisers would have been governments' smartest investment


Post-1997 governments’ mismanagement of the economy was compounded by their failure to seek out expert advice, writes GARRET FITZGERALD

I FEEL that some thought needs to be given to whether our system of collective decision-making by Cabinet government, as it has operated in recent times, has measured up to the needs of a modern state.

When I became minister for foreign affairs in 1973, I felt it necessary, because of the collective responsibility of ministers for cabinet decisions, to study the whole range of cabinet memorandums in advance of each meeting, with a view to being able to contribute in a reasonably informed way.

Civil servants in a minister’s department cannot be expected to provide an input on matters that lie outside the scope of their department’s responsibilities. So when, after a while, I found that, due to my frequent absences, I was falling behind in this part of my ministerial duties, I appointed an economist, Brendan Dowling, to study cabinet documentation to ensure I would be fully briefed.

A number of other ministers in that government had also arranged to have advice of this kind available to them, which improved the quality of debate on cabinet decisions.

(Prof Jim Dooge and I had visited the treasury in London six years earlier to discuss with its permanent secretary the possible role of such expert advisers in a cabinet system).

When I was elected taoiseach in 1981, my economic adviser, Jim O’Leary, who has since had a distinguished career as an economist, withdrew from this role, saying that he was at that time too junior to fulfil the function of economic adviser to the taoiseach. Accordingly, I appointed the present governor of the Central Bank, Dr Patrick Honohan, as my economic adviser in both governments.

It was on his advice, for example, that I sought and secured the agreement of the minister and Department of Finance and the Central Bank to the very successful devaluation of 1986, which gave us currency stability for over five years thereafter.

In the Fianna Fáil/Labour government of 1992-1994, and in its successor, the rainbow coalition of 1994-1997, at the instance of Labour, this system of expert advisers – who were at the time known as programme managers – was extended so to ensure such back-up for all Ministers.

Due to its comprehensive character, this system also provided a successful supplementary system of co-ordination of the legislative programmes of those two governments.

However, during the 1992-1994 period of the Fianna Fáil/Labour government, the former party was not prepared to seek outside help, preferring to rely on civil servants to represent their interests within this system.

Although I had left politics at that stage, with the result that my knowledge of how those governments worked is second hand, I have the impression that this system worked especially well during the rainbow coalition period of 1994-1997.

Certainly that government, in which Ruairí Quinn was minister for finance, was one of our most successful in terms of effective economic management.

I do not have adequate information on the expert assistance that has been available to the post-1997 governments, but whilst some ministers do have such expert advisers, this does not seem to be the case with others.

There is certainly no evidence that such advice ever led taoiseach Bertie Ahern or any other minister to challenge our post-1999 disastrous loss of Irish competitiveness within the euro zone.

This was brought about by Charlie McCreevy’s inflationary expansion of current spending in the early years of this decade.

It led to price rates and pay increases that were well over twice those of the euro zone – which we had joined a year or so earlier.

It is in fact difficult to avoid the conclusion that after we joined the euro zone in 1998 that both the 1997-2002 and 2002-2007 Fianna Fáil/PD governments simply forgot that they had surrendered the right to devalue our currency, and that consequently our economic survival now depended entirely on keeping our prices and pay from rising faster than in the rest of the euro zone.

In particular, there is no evidence that any minister challenged the increasingly dangerous financial policies being pursued by minister for finance Charlie McCreevy in his budgets of 1999, 2000, and 2001.

Those three budgets increased current public spending by more than one-half within that very short period of three years, at an annual rate of almost 15 per cent a year.

Thus, long before the housing bubble and the related lunatic competition between banks, those three budgets had already undermined our competitiveness, leading to a one-fifth decline in our share of developed countries’ exports of goods. In the previous eight years, this share had doubled.

Only a dangerously large inflow of credit in the five years after 2002, related to the subsequently developing housing bubble, temporarily staved off our day of reckoning.

How was it that for the second time within 20 years that our affairs came to be so grossly mismanaged by a group of ministers who appear to have lacked any sense of cabinet responsibility, or even a minimal level of economic competence?

These defects were aggravated by their apparent failure to follow the example of their immediate predecessors in providing themselves with comprehensive expert support that might have alerted them to the fatal damage being done to our economy within the euro zone.

Much of the responsibility for this may lie with the impact on the quality of some cabinets brought about by the particular form of proportional representation that was fairy godmother Britain’s 1921 unhappy parting gift to our new State.

A multiseat electoral system was completely inappropriate for a country whose people in the decades before independence had already shown a marked predilection for clientelism and localism.

In the early decades of the new State, we were spared the worst consequences of our unhappy electoral inheritance because of the patriotism and public-spiritedness of the able leaderships of the two parties that we inherited from the Civil War.

Of course, governments led by both of these parties made mistakes – but they always understood their collective responsibility as cabinet members and sought to govern in the public interest.

And in very difficult times – remember the Crash of 1929 and subsequent prolonged Depression, followed by the second World War – they successfully avoided collapsing our economy, unlike their successors in the late 1970s and again early 2000s.

When in the mid-1960s, four of the five surviving members of the original Fianna Fáil leadership team finally left the political scene, the quality of that party’s leadership team visibly declined, leaving us vulnerable to the pressures created by an electoral system that magnifies clientelism, cronyism and localism.

It has also not facilitated since then the entry into politics and into government of sufficient people of a high calibre to ensure competent governance.

The Irish people are now suffering severely from the consequences of this deterioration.