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Brendan Keenan: 'Past failures a guide to meet challenge of the new decade'


Minister for finance Ray McSharry holds aloft the 1987 Budget Bag. “Mac the Knife” delivered a tough budget targeting the public service, imposing pay and hiring freezes

Minister for finance Ray McSharry holds aloft the 1987 Budget Bag. “Mac the Knife” delivered a tough budget targeting the public service, imposing pay and hiring freezes

Minister for finance Ray McSharry holds aloft the 1987 Budget Bag. “Mac the Knife” delivered a tough budget targeting the public service, imposing pay and hiring freezes

SOMETIME around 2000 I wrote that, 150 years after the Great Famine, Ireland was going to become a normal economy. There followed what may have been the most economically turbulent decade since the Famine itself.

Not for the first time, or the last, the dangers of predicting the future became clear. The Irish economy does not do normal. After the crisis of the 1980s and the wonders of the 1990s, it looked like the excitement was coming to an end. Wrong.

Worryingly, nobody would think such a thing as the 2020s dawn. It already seems clear that, for Ireland, the relationship with the UK will change and it will not just be in economics. The same is true of the EU, where corporate taxation, defence and eurozone financial integration will all challenge Irish interests and attitudes.

This may well be against a background of international disruption, with the 1950s world order continuing to crumble and not much sign of an alternative construction.

The first column in this rather extended series was written in 1985, a time when the crisis of the early 1980s had turned into something even worse, gloom and pessimism that the problems would ever be solved.

It had been a rough five years. Bad odours still cling around the coalitions of Garret FitzGerald and Michael O'Leary/Dick Spring, but that is unfair. A deadly combination of high interest rates and slow growth made it impossible to fix the public finances, despite a rise in the tax burden from 30pc of national income in 1979 to more than 40pc in 1984.

Irish governments then were quite explicit about raising taxes to reduce deficits. They also found they were owed a lot of unpaid tax. The tax amnesty of 1988 raised more than €500m - €4bn as an equivalent share of today's economy - giving a much needed addition to finance minister Ray McSharry's infamous spending cuts.

The scale to which the Exchequer was being defrauded came as quite a shock. Fortunately, Revenue made use of the data to curtail the tax dodging, something which stood us in good stead in later crises unlike, say, the Greeks.

That ability to collect taxes, along with Charlie McCreevy's accumulated savings, proved vital after the Crash. But who would have thought it would be needed so soon? National bankruptcies are supposed to be once in a generation, at most. Two in 30 years smack of carelessness.

The fault is mainly with ourselves, but not entirely. The Irish economy is very small. But not as small as it used to be. The population has risen from less than four million in 1985 to almost five million today. That is an extraordinary rate of increase in a well-to-do European country.

The economy bears no relation to the one back then. Routine industrial manufacturing has all but gone, with the loss of tens of thousands of jobs, it must be said. Only those still around who had those jobs remember that.

Agriculture is still important, but more as a glue holding Irish society together than a generator of incomes. Output per person, adjusted for cost of living, rose from less than €3,000 per person to almost €40,000.

That is after deducting a large chunk to represent the amount belonging to multi- national corporations. Their presence here has changed beyond recognition too. The manufacture of small but valuable goods has been replaced by offshoots of gigantic companies providing services few of us understand and none of us control.

Yet one cannot look back on those four decades and feel happy about how they went. There is always lots of looking back in this country, but much less learning of lessons. Not even to find out exactly what happened.

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The Celtic Tiger is a much-maligned creature, often blamed for the recent disaster. More to blame is the ingrained Irish pessimism which it revealed. History gives us good reasons for pessimism and in the 1990s it took the form of thinking that such success could not be real and would not last.

The pernicious result was that everyone tried to grab what they could before it was too late. There was no perception that the boom could be made sustainable by having moderate increases in incomes and investing the difference in creating the kind of country that would be needed for a population of five million and national output of €40,000 per person.

Admittedly, we can blame some of that on Alan Greenspan, chairman of the US Federal Reserve during all this period. A soft, well softish, landing might have been possible after the dot.com crash of 2001 but Mr Greenspan's multi-trillion dollar "rescue" allowed the Tiger to morph into the Bubble.

Unfortunately, that did not feel much different from the Tiger years which made the bubble harder to identify, or to argue that it needed deflating.

The damaging result is that most people have been confirmed in their belief that good times are no more than passing phases of good luck, so better to make the most of them. Like many things in finance, it is a self-fulfilling belief.

In fact, the evidence is that, while the catching-up of the 1990s cannot be repeated, Ireland still has extraordinary economic potential, but there is a troubling sense that it has less faith in its future than it did after the 1980s recovery.

Underneath it all is a weak and irresponsible political system, prey to every interest group or vote-grabbing stunt, and buffeted by public sector unions, large corporations and an overweening judiciary which often seems more powerful in setting policy than government itself.

All of them are at play, for instance, in the failure to deal with the looming bankruptcy of the hospital system - which is much clearer from the figures than was that of the banks in the 2000s. Unlike the bank collapse, this is a slow-burning crisis, which makes it less amenable to the dramatic fixes we have become so good at.

Instead, there is endless debate on how to provide a better service, preferably free to the user, without as much as a nod to the fact that the present structure is incapable of delivering any such thing at any remotely affordable cost.

It is the most serious example, along with the inability to construct a sustainable system for setting public sector pay, of issues which have been festering since the 1980s, and often longer. In 1988, an estimated 20,000 people marched in protest at the closure of the small Barringtons hospital in Limerick, and the Department of Health advised privately that up to 15 hospitals should close, with a further seven receiving substantial cuts in their budgets.

CJ Haughey, of all people, held his nerve where Barringtons was concerned - although, as always, his motives are suspect to some - but no-one else has dared go there since. It is hard to know how bad the problems will have to get before they force action of the 1987 or 2010 variety.

Politics and governance have become more difficult everywhere and all the signs are that worse is to come. Social media is coarsening the electorate. Mainstream media is demoralised and, sadly, too often part of the problem more than the answer. The growing tendency for direct, aggressive action over any grievance is a threat to both justice and democracy.

Years of accumulated laws and regulation make dramatic government interventions of the kind which dealt with past housing crises impossible. It is easy to forget that efforts to save the entire banking system from collapse in 2009 ran foul of the EU Commission over, would you believe, state aid.

All of this creates the danger - already apparent in some EU countries - that the public loses faith in the politicians and, just as bad, that politicians lose faith in the public. We must start to reverse that trend to deal with the challenges of the 2020s.

One thing I still stand over writing is that the prevailing attitude in Ireland should be neither optimism or pessimism, but fear. There are always threats to a small country. At present they loom large.

Ireland's youth, tolerance and abilities put it in a better place than most to cope with the next decade.

The downside is Irish localism and the inability to reach beyond individual and sectoral advantage. We are all in this together, sink or swim.

The question is, as never before perhaps, which is it to be?

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