`Option for rich' can give others a hard time

Catholic liberation theology memorably summed itself up as "the option for the poor". Likewise, the philosophy of Irish government in the last 20 years could be summed up as "the option for the rich".

As a policy, it is largely unspoken. No one wins elections by pointing out that the guiding principle for the use of State power will be the avoidance of anything which gives grave offence to the wealthy. But then, principles are always most powerful when they operate under the surface, as broad assumptions that underlie specific decisions and actions.

This one is so powerful that only in extraordinary circumstances like the investigation of the AIB tax scandal does it become, for a moment, visible.

The most important aspect of that scandal is that it was made possible by official State policy. Not, of course, in the sense that anyone in government or a State agency decided that it was a good idea for vast sums to be squirrelled away in fraudulent bank accounts, out of reach of the tax authorities at a time when basic public services like health and education were being run down for lack of cash.

But official policy can be negative as well as positive. The State, in its various forms - government, the Revenue, the Central Bank - had a policy of not scaring off people with money. Implicit in that policy was that questions would not be asked about bogus non-resident accounts.

We now know, for example, that when the Revenue finally did begin to ask the banks to get their houses in order, there was a serious political effort, not to tighten the rules about who was or was not a non-resident, but to loosen them. Fergus Finlay, in his book Snakes and Ladders, reveals that in the run-up to the 1994 budget the then Taoiseach, Albert Reynolds, proposed a set of amendments which would have relaxed the tax regime for non-residents "very considerably" by making it "much easier to be Irish and rich and mixing your time at home and abroad".

So strong was the insistence on these changes even in the face of Labour's opposition to them that the coalition seemed at one point to be about to collapse.

The option for the rich which underlies such policies is not just about private greed, corporate power, or the ability of those with money to buy access and influence by making contributions to the main political parties, though all of those factors are clearly significant. It is the outcome of a serious and, in some cases, well-intended analysis of the general public interest.

It comes from a notion first, and best, expressed by Adam Smith in The Wealth of Nations in 1776, the belief that even though they do not set out to do so, the rich automatically promote the general welfare. The rich man "is led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest, he frequently promotes that of society more effectually than when he really intends it". Somehow, by trying to make more and more money, the rich do great things for everybody else.

The most appalling thing about this notion is that it is, in many cases, demonstrably true. Nobody imagines that the shareholders of Intel, for example, have any interest in helping out poor old Ireland. Intel is in Ireland for what it can get out of it.

But a side-effect of its pursuit of self-interest is the creation of thousands of good, well-paid jobs for Irish people who might otherwise be on the dole or, more probably, living in exile. It might even be argued that if Intel was an altruistic enterprise it might actually be a bad thing for the rest of us. If it set out primarily to do good things for Ireland, it might, in the fierce world of global competition, fall behind its rivals and eventually go out of business.

So there are, in some cases, good reasons for the State to take the option for the rich. The problem is that what is true of an innovative, leading-edge corporation like Intel is patently not true of the broad run of the Irish rich. In dealing with multinational corporations, the State makes very specific bargains - so much in aid and tax forgone in return for so many jobs.

In dealing with wealthy Irish people, on the other hand, there is no such bargain. The benefits of their pursuit of self-interest are merely assumed to exist even though, more often than not, Adam Smith's invisible hand is in the taxpayer's pocket.

It is vital to distinguish between two things that tend to get lumped together in the assumptions about wealth in Irish policy-making. One is the value of encouraging productive investment in return for tangible social benefits. The other is the vague notion that the more rich people there are in a society, the better it is for the society. This second idea is demonstrably wrong. You don't have to rely on radical rhetoric or on abstract theory to know this. The idea has been comprehensively tested in a vast laboratory called the United States of America.

For the last 20 years, under Presidents Reagan, Bush and Clinton, the US has pursued a policy of encouraging the creation of a large elite of very wealthy individuals by cutting back on social programmes and giving tax breaks to the rich. For the last eight years, it has done so in almost ideal conditions of unbroken economic expansion. If ever the option for the rich was going to benefit the majority of citizens, it ought to have done so in the US of the 1990s.

So what has actually happened? On the one hand, the attempt to create a wealthy elite has been spectacularly successful. There are now as many millionaires in the US as there are people in the Republic of Ireland.

On the other hand, the economic lot of the majority of people is actually worse than it used to be. Poverty rates are no better than they were a decade ago. But neither are the conditions for the average, hard-working middle American.

For one thing, real median household income (the earnings of a family in the middle range of annual income) has only just returned to the level it was at in 1989. For another, this poor performance is actually considerably worse than it looks.

These households typically had one person working outside the home. Now they have two. And those people are working longer hours than they used to. While the rich have forged ahead, the ordinary citizen is running hard just to stand still. This is what lies ahead of us if we continue to take the option for the rich. It is not just that such a choice has disastrous consequences for the health of democracy and the cohesion of society. It is that even these sacrifices don't actually pay off for the vast majority of citizens.

Unless we can learn to distinguish between a culture of productive enterprise and the kind of crony capitalism that has silently evolved in Ireland, we will merely be abasing ourselves before glorified pickpockets.