Wright report is wrong - Department of Finance failed to warn cabinet of bubble

 

OPINION:It’s easier to scapegoat politicians than to face the truth of generalised and systemic failure afflicting unelected officials as well as elected officials

That’s how much of the media reported Tuesday’s report into the Department of Finance.

But is that conclusion justified? The central matter, for neutral readers of this report to consider, is the absence in the entirety of the document of a direct quote of any official warning to cabinet. Instead the report offers the lame excuse (paragraph 3.6.3) that: “There are examples of where such advice was tendered in writing. We have also been advised of some important oral briefs that reinforced the department’s concern about pro-cyclicality. But these are not part of the official record.”

So we are to believe that departmental officials issued several clear warnings to cabinet but that not one of these warnings managed to survive as “part of the official record”? Not an e-mail, not an aide memoire, not a formal cabinet memorandum? And this just a few years after the Travers report which centred on problems of accountability at the decision-making nexus of ministers and senior civil servants?

Lead author of the report Rob Wright may have a distinguished civil service record in Canada. But he asks us to believe in the unbelievable when he concludes that warnings were given but that “these are not part of the official record”. I spoke to a member of that government about this purported warning to cabinet. His response was: “What warning? Given by whom, when?”

Wright’s inability to provide a shred of evidence of such a warning fatally undermines his central conclusion.

There is in fact a record of the views of the department which has survived. The department publishes an annual economic review. These documents, preserved on the department’s website, provide a rich record of exactly what it believed at each stage of the last decade. If we take, as an example close to the peak of the bubble, the “2005 Economic Review and Outlook” we find these remarks about the budgetary balance: Ireland’s public finances remained sound in 2004. The year ended with a General Government surplus of 1.4 per cent of GDP and a debt to GDP ratio of 29.4 per cent.

There is no mention of a cyclically adjusted budgetary balance anywhere in the document. The department was not alone in this approach. In September 2007 (at which stage Irish bank shares had lost one-third of their peak value) the IMF had commended Ireland’s “prudent fiscal policy”, as it commended “Ireland’s continued impressive economic performance”.

As late as March 2008 (at which stage Irish bank shares had already lost 50 per cent of their peak market value and alarm bells really should have been ringing), the Economics Directorate of the EU Commission (then headed by Klaus Regling) concluded: Despite the weakening in the budgetary position in 2007, the medium-term objective, which is a balanced position in structural terms, was reached by a large margin.

The hard fact is that there is little evidence that, in the middle of the last decade, either the department or other important economic watchdogs were issuing hard warnings to the Ahern government that it was running a pro-cyclical budgetary policy. Instead we have evidence that the parties who now wish to seize control of public policymaking in Ireland – the Department of Finance, the EU Commission and the IMF – were then publishing reassuring conclusions about our fiscal policy.

Moreover, what are we to make of the report’s assertion that the department’s assessments of the risks from the bubble “were at least as strong as any public analysis over the period”. That is highly dubious as even a scant comparison of the public comments of the department with the public commentary on Ireland by the Economist would show.

One could substitute for commentary by the Economist the public comments of David McWilliams, Damien Kiberd, Morgan Kelly and several others. Thus for Wright to assert that the “assessments” (not warnings) of the department “were at least as strong as any public analysis over the period” is laughable.

It may be the popularly held view that the 2002-2007 Ahern government knew or should have known of the bubble. Whether it did or did not know, it cannot escape responsibility for what happened: the buck stops there.

But it is factually incorrect to report, as RTÉ did earlier this week, that “an independent review of the performance of the Department of Finance over the past decade has found that the department did warn the government about the dangers of the economic policy it was following, but that its advice was overruled by the cabinet”.

The contemporaneous evidence is overwhelming that mainstream economic opinion did not warn the government of the bubble. But today it suits important forces in our society to believe the contrary.

It’s easier to scapegoat politicians than to face the truth of generalised and systemic failure afflicting unelected officials as well as elected officials, especially when unelected officials crave unfettered control over public policy.


Cormac Lucey is a chartered accountant. He was a special adviser to Michael McDowell from 2003 to 2007 when McDowell was minister for justice, equality and law reform, and, for a time, tánaiste and leader of the Progressive Democrats

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