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When you live in a slightly social democratic society… February 18, 2009

Posted by WorldbyStorm in Economics, Economy, Irish Politics.

Morgan Kelly in the Irish Times yesterday argues that “government borrowing is not an immediate problem, but the extent of banks’ bad debts may prove catastrophic”. Which is curious since we’ve been told precisely the opposite. And yet still they continue with a bail-out of a banking sector which has proven itself utterly beyond belief in terms of the rapacity of its attitude towards the state and taxpayers – and a shining example of that today in the refusal of Seán FitzPatrick former head of Anglo Irish who is refusing to appear before the Oireachtas committee on economic regulatory affairs due to ‘legal reasons’. No such reservations from Seán when offered the chance while still in charge to opine at length about how the government had to be ‘brave’ and slash the public sector and social programmes… some piece of work in other words. Still, consider the rest of that article and you’ll see that his problems multiply and multiply, as do those of the cosy little environment within which he was embedded.

But the thing is, and despite the somewhat lower key bids to stir the pot against the public sector – lower key presumably because the all-out attacks only delivered an evisceration of Fianna Fáil’s poll ratings and a majority against the pension levy – that the public recognises all too clearly the severity of the situation, and while sympathy for the public sector is limited it is – frankly – neither here nor there when considered in the totality of the situation (and as a further point, the Irish Times should reflect on the fact that the public sector stretches across this state and that, as I think sonofstan noted previously, our partners, parents, children or friends may well work within it, and more than likely do. So class war from above isn’t necessarily the wisest course of action even if you inhabit those lofty heights).

The severity of the situation revolves around a political class seemingly in thrall to the financial sector, to the extent that they will bet the house, or in this case the state, on that sector, a sector already in part demonstrably malign in their actions, a sector that appears to have played the markets off the back of government financial assistance. And that’s not a boiler-plate attack on capitalism, although I’m more than happy to talk at length about how ill-served this country has been by its indigenous version of capitalism. I loathe terms like crony state and such like. But really, who can argue that what we have seen has been a supine retreat from responsibility by those who appear inextricably linked with those they should by rights be overseeing in a neutral and dispassionate fashion?

So, what are we left with? The political aspects of this are clear. There is no likelihood of a change in government. There is some possibility that the fall-out from severe defeats for the Government at the local elections might presage some change, but I think its slight.

Counter-intuitively the worse things are for the government the less likely that any element of it will cut and run either to opposition or to the country. And the house that Bertie built remains just about strong enough, so far.

That said the ferment of anger out there is such that only the very bravest of Fianna Fáil TDs and representatives won’t be quailing at its force (and for the first signs of that consider this). No harm there. And perhaps the slight prospect that they will actually recognise that you cannot even indirectly attack a people, which is to my mind largely what we are seeing here, in order to prop up an unsustainable system.

Indeed, as an aside, it will be interesting to follow media coverage of the Irish Life and Permanent union which has ‘written to senior executives at the lender saying they have lost confidence in chairman Gillian Bowler and interim group chief executive Denis Casey’. That must set off some cognitive dissonance in the great and good as they try to deal with a union (bad) berating the paragons of the banking sector (double plus bad, at least for the moment). Oh yeah, and ‘interim’ chief exec Casey? You’ll know that name from … er… a certain…

Mr Casey bowed to growing pressure and resigned last Friday after the board had initially declined his offer to step down following the emergence of details of a €7 billion transaction between IL&P and Anglo Irish Bank. He will remain as acting group chief executive for a transition period until a successor is found.

He’s unlikely to starve in the meantime.

I’ve argued before that we’re only a very slightly social democratic society. Our public infrastructure, in its broadest sense, has remained undeveloped and underfunded, a legacy of a political approach positioned in the supposedly apolitical or unideological, which – of course – was in truth anything but those two qualities. It remains to me a breath-taking fact that even in 2009 near enough 70% of our populace is willing to place a tick beside centre right political formations. And that represents precisely no change on the situation for decades (I exclude the most recent poll, and will until we see definitive trends). But here’s an intriguing paradox, perhaps because that public infrastructure I mention is so weak, so paltry, in comparison even with our nearest neighbour and more particularly with our European partners, that what we have we tend to want to hold.

Because take a little from someone who has a little and you’re taking a lot. And that – potentially – is one reason for the near uncontrolled and politically clearly uncontrollable (at this point) rage at the banks and at the government. They, the government, ceded so very little, tax cuts that have been frittered away across a decade and a half, widening of tax bands and so on and so forth. The paraphernalia of a system that is – in effect – paper or computer based, intangible, nebulous. It’s not that these things have no utility, that would clearly be wrong, but their utility is lesser than that of a sustained effort to build up public capital in terms of the physical infrastructure, in terms of services both education and health, and so on.

I always thought the Fine Gael charges about ‘wasting the boom’ were poorly made even if accurate, and the source of them dubious, but there is something to that – even if one suspects that they in power would have done little that was different.

But now that money is gone and what is left is being diverted towards more paper based locations, the financial sector. And all the time the hectoring tone from above…. we must take the medicine. We must suffer the pain. We must do what they say because?

Well, actually, why?

Just because… because they won’t pay. Perish the thought. Fitzpatricks first and last instinct was to see others cough up, and that was when things were less parlous than they are today. The Irish Times is as ever quick to demand solidarity to benefit the strong, but strangely less keen to seek it for the weak. And our Government… ah.. our government.

These are the same people who were cheerleaders for the last decade and half, the same people who applauded every time the tax rate dropped a further percentile, every time the housing market bounced upwards.

So who, precisely, are they to tell people what they should do and how they should feel when the very policies that they championed have seen our resources squandered, our society left on the brink of impoverishment and our people – including, for the record, me – living in genuine fear of what tomorrow will bring?

And they wonder why the public isn’t listening to them?


1. sonofstan - February 18, 2009

It remains to me a breath-taking fact that even in 2009 near enough 70% of our populace is willing to place a tick beside centre right political formations.

in the IT poll, FG got 32% and FF 22% = 54%?
One poll granted, but I was actually taking some hope from what must be a historic low for the combined centre right vote. Are you using some other figures?


2. ejh - February 18, 2009

Seán FitzPatrick former head of Anglo Irish who is refusing to appear before the Oireachtas committee on economic regulatory affairs due to ‘legal reasons’

Those of us with long memories will recall similar conduct from the Maxwell twins towards the House of Commons…


3. D. J. P. O'Kane - February 18, 2009

Hang on a minute, aren’t the yanks also part of the common law sphere? So why can’t the Irish state have the power to subpoena malefactors and drag them before the House Committee on Un-Irish Activities?

That’s a genuine question, btw. As for me, I’m hoping I get the job in Lahore I applied for.


4. ejh - February 18, 2009

How much have you paid for it?


5. universitydiary - February 18, 2009

Interesting analysis – though in some respects what we face is more complex than what you suggest. Of course everyone should feel a sense of outrage at what has been going on in the financial sector; and yet, complaining about recapitalisation is naive. If the banking system is not bailed out the former bosses of that sector won’t suffer anything more – but the people will, as funds dry up and investment ceases and unemployment grows.

It is arguable that the Celtic Tiger was a great success until some people just went insane with greed around property. And nobody else did much about it.


6. WorldbyStorm - February 18, 2009

Universitydiary, I have no problem with the ends, considerable ones though with the means. Something had to be done with the banks, surely, but a rapid move to nationalisation rather than the piecemeal approach we got, and as importantly behind that a proper regulatory framework were essential. The latter issue is crucial. What has been revealed has been a tissue thin approach to such matters. And in a way that’s why I think your last point while accurate to a degree doesn’t really explain it all. The government and preceding ones had a duty of care/responsibility that they did not discharge on this issue. Incidentally, what I’m complaining about isn’t a simple left analysis but also one, I’d have thought, that anyone across the spectrum might broadly agree with.


7. John Palmer - February 18, 2009

Morgan Kelly may be right that – at present – government borrowing is not an immediate problem. But in the not so long term it could well become a very serious problem indeed. It would not surprise if there are not already confidential discussions about a possible euro-zone “bail out” for Ireland if the government’s financing problems get to the point where there is serious speculation about a possible Irish default. There is no explicit provision for such EU bail-outs for euro-zone member states in such a crisis at present. But some experts believe that the European Central Bank might be given the nod to buy government debt if the situation in a euro-zone country (Ireland? Greece?) if the crisis deepens. The Germans and French would not be very keen on this but it would be preferable to a dangerous precedent being created by a crisis in one euro-zone country leading to speculation that others might follow.
If push comes to shove there are bound to be conditions for any euro-zone rescue operation. What amazes me is how little discussion – even on the Irish “left” – there is about the ludicrously low level of corporate taxation and the unduly low rate of income and other taxes on the rich which still exists in Ireland.


8. universitydiary - February 18, 2009

John Palmer wrote: ‘What amazes me is how little discussion – even on the Irish “left” – there is about the ludicrously low level of corporate taxation and the unduly low rate of income and other taxes on the rich which still exists in Ireland.’

I think it depends on what you are trying to achieve – whether to satisfy moral outrage at inequality, or achieve recovery and employment. If we were to impose high taxes for the better off we need much more successful indigenous industry than we currently have, because the multinationals will very speedily disinvest. The result will be a huge rise in unemployment. No high tax economy has ever succeeded to provide full employment without very significant, large and successful domestic industry that is able to sell its products on the world market (e.g. Nokia in Finland). We don’t have that.


9. universitydiary - February 18, 2009

WorldbyStorm, I agree that what was needed (and not really forthcoming) was decisive action. We are paying the price for that.


10. John Palmer - February 18, 2009

universitydiary: I cannot accept your case for the current low taxation strategy. It has not prevented decisions by a growing number of fiscally pampered multi-nationals to relocate from Ireland. More to the point, low taxes make it difficult to sustain the investment in skills and education which has in the past – and will in the future – be essential to Irish economic development. The Nordic countries show that it is possible to combine progressive taxation with a high degree of competitiveness and sustainable development. The most successful of these is Denmark which is notable by its relatively low dependence on investment by foreign multi-nationals.


11. universitydiary - February 18, 2009

John, I absolutely agree that Denmark is an interesting example; and as it happens, it’s one I have been saying we need to look at. However, we are not Denmark, and are nowhere near being Denmark. It has a significant domestic industrial sector (which was my point), as well as a large number of US companies that are bas the – ironically many for tax reasons. Social partnership has kept both pay increases and inflation low. Denmark relies heavily on global trade, which means it has had to keep a strong check on anything that could damage competitiveness. It does also have a very strong welfare system and much lower levels of inequality.

We may agree on this as a model; but Ireland and Denmark are still poles apart, and if we raised taxes now before we have the conditions they have we would sink without trace.


12. WorldbyStorm - February 18, 2009

Of course much depends on which taxes…

Incidentally reading the text of the Financial Emergency Measures Bill wending its way through the Oireachtas and listening to Brian Lenihan I was mighty intrigued by his use of the term ‘graduated approach’ to the pension levy as distinct from say ‘progressive’, a term he didn’t use… the two not being synonymous of course.


13. John Palmer - February 18, 2009

universitydiary – You are too fatalistic. Of course the rich and the corporates have an interest in encouraging fiscal fatalism. Ireland shares many common characteristics with Denmark. Yes, there is a developmental gap. Much of it has to do with the historic and strategic strength of the Danish labour movement. It is not Paradise. Far from it. But it offers the left and the workers’ movement in Ireland a concrete example of how high levels of personal; taxation can reinforce and not undermine sustainable economic development.


14. Irish Left Review · February 19th Morning: The Recession Diaries - February 19, 2009

[…] is gearing up for Saturday.  More and more are speculating not on if, but when.  I know that WBS over at Cedar Lounge Revolution is sceptical about an early election, and I would tend to agree.  But […]


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