Friday 20 September 2019

The man who first persuaded us to accept that the answer was No

Ray MacSharry is credited now with laying the foundations for our boom but at one stage he was the most hated man in Ireland, writes Aengus Fanning

THERE is a story that gives us a clue to Ray MacSharry's character, to the man who, as Minister for Finance, laid the foundations in 1987 for the economic miracle of the following 20 years, the Mac the Knife who seemed to thrive on unpopularity.

When Haughey and MacSharry set about cutting public spending as a remedy for crisis in the Government's finances, they decided to scrap a home improvement grant scheme that had already been announced. There was an outcry from backbench TDs of all parties, who complained that contracts had been signed, deposits paid, and so on.

One backbencher, walking along the corridors of Leinster House, happened to come upon Haughey and MacSharry deep in conversation.

"How much will this save?" he heard Haughey ask MacSharry.

"Twenty-two million."

"People are very angry, I think we must find some other way of saving 22 million," said Haughey

"If that's the case, you will be looking for a new Minister for Finance."

That was, and is, Ray MacSharry's mettle. As Minister for Finance he went to the Taoiseach's office in 1987 with a plan to turn the economy around, a plan that included painful spending cuts.

"You're pushing an open door," Haughey told him.

That might have been so, but it is unlikely that the spending cuts would have ever been seen through in the face of a hostile media and an angry public without MacSharry's steel and determination.

Today, at 71, MacSharry is as fit and vigorous as ever, and would seem to be ideally cast for the role of senior eminence in government if he had stayed in politics.

But he left Irish politics in 1989 to become an EU Commissioner, and after 1993 he went into private life, albeit with a string of blue chip company directorships to his name. One feels, however, that he is never far away from the action, and it is believed that he has been close to Brian Lenihan over the past 18 months.

AENGUS FANNING: "We just got confirmation that the EU economy is moving into tentative growth for the last quarter of '09. The UK is the last of the G20 countries to come out of recession, we're still in recession, why is that?"

RAY MacSHARRY: "We are going to be behind the world for a number of reasons, the fact is the recession has hit us much harder, and we've had the banking crisis caused by the over-investment in construction, and the serious problem in the public finances, all of which are being addressed but none of which has had any impact and, if anything, [it] would depress the economy further once you're taking out €4bn a year and €3bn maybe for the next two or three years as well.

"What's on our side is the exports are holding up, there's not really any great growth, but at least they're holding up. What we do need is that the world economy and the EU economy would grow much faster than is seen at the present and if that happens then we will have a chance to come out of recession. It's forecast that we should come out of the recession by the end of 2010 and we return to growth in 2011; now all of this is tentative and in fact unless we see that the actions that have been taken by the Government are working, then we could be even slower. We're lucky that the unemployment hasn't gone down as far as people thought, they thought 17 and 18 per cent, we're at 12 per cent so that in itself is good, but we have a distance to go."

AF: "Is there anything more our Government or we should be doing?"

RMacS: "The first thing the Government had to do was to try and restore some order in the public finances without impacting too much on the economy. The spending power will go down but if we can continue to produce the goods and services and be competitive in doing so then we will be able to compete. There is a market growing out there again, and even when growth is returned in 2010, 2011, 2012 we're talking about one or two per cent. If you go back over the last 10 to 15 years, we were used to growth rates from four to 10 and 12 per cent so there's a big difference. It's going to be some time before we have any chance of getting back to the employment levels we had two years ago."

AF: "We're in danger of creating two economies, this export-led economy and the locally traded economy, and they're diverging. There's growth in one and the other one continues to contract -- that is very painful for the people whose livelihood is in the local economy."

RMacS: "At the end of the day, it's all about people and they are suffering. While they had a great 10 or 12 years, they all didn't succeed or all didn't benefit. But many did so, therefore we are now in a position we have to take some sort of cutback. The only way that we will see any good for our people is by maintaining the maximum number of jobs and creating new jobs.

"In my view, we are not doing enough on the indigenous assets like agriculture, like tourism, like forestry, like fisheries. All of those are areas that were sort of in the back seat while the tiger economy was raging, we are now going to have to ensure that we look after them as well as looking after the so-called smart economy, the services economy and the SMEs and the inward investment. Let's now get back to basics because there's an awful lot that could be done. The tendency is to go into a shop and buy something that you can put into a microwave. Why can't we be adding the value to the produce that we're sending out raw in carcass form instead of on the plate, ready for use, there's huge potential there?"

AF: "Why hasn't this been developed to the extent that you advocated all those years ago?"

RMacS: "Because all those years ago we were too dependent upon the supports from the EU which are now declining. We're going to have to do more ourselves about adding value and about getting a better price and the supermarkets have a huge role to play on this. We cannot continue to allow basic foods to be sold at below cost. All of these things need to be looked at.

"I'm talking about the indigenous assets. Take tourism, we're an island nation and our excess costs are dearer than almost any other country in the world, therefore we've got to do something.

"I remember when I was chairman of Ryanair, we had a deal with the Government that last year's numbers would be paid for at so much and for any increase for the following year there would be no charges, so it was an incentive to fill [the planes]. The planes are there, we see [the airlines] taking them out of here because of excess charges.

"Look, who owns the airports? The Government, the taxpayer, you and me, and it is an important national asset. Excess costs have to be reduced. We must bring people in. I'm not too concerned about what you charge them to get here, but we should let them land free, and, therefore, when they come in they will spend money. That's the essence of trying to improve tourism. We've got too expensive -- our hotels, our car hire. All of these issues need to be looked at as one package."

AF: "Where does the springboard come from?"

RMacS: "Government departments are there to try and bring the agencies together that are dealing with this. You start with Failte Ireland, you talk with the airlines, you talk with the ship operators and you talk with the hoteliers and you just do a package."

AF: "Suppose charges were to be cut in half or even done away with, who will make that call then?"

RMacS: "The Government will have to make that call."

AF: "What does the airport authority do?"

RMacS: "Say their income is about a couple of €100m over the next couple of years, OK, that's the investment we make to get in hundreds of hundreds of millions more in expenditure by tourists that will come. It's something that could be added on to the costs already incurred by the building of the new terminal if you like, what's a few €100m more,? It can be paid over a longer term as tourism increases. We're not talking about doing something that's going to last forever, that we're going to let people in here for nothing and that airplanes can land here for nothing, we're talking about the immediate future to try and boost our economy until the world order begins to improve again."

AF: "In the UK, the car scrappage scheme seems to be regarded as a factor [in recovery], the reductions in their VAT rate that are bearing on the locally traded economy. Do you think our scrappage scheme and other measures will work in the same way?"

RMacS: "You would see more interest in the car scrappage scheme in England because they employ people making cars, we don't. We're in the euro, they're not. We can't become involved in printing money and having our present scrappage scheme here is of little or no value to employment other than through the sales outlets of the garages."

AF: "There's many people out there who feel that there's a kind of malaise, that things are bogged down and they would crave some kind of a kick-start to get things moving. Is the credit situation still a major stumbling block?"

RMacS: "There's no doubt that it is a problem but . . . there isn't any great demand for credit. It's as simple as that because people haven't the confidence, and it's all about confidence. Lots of people have some money but they're not spending it because they haven't the confidence, they're paying down debt. That in itself is good because there's savings but once confidence is restored, those savings can be spent."

AF: "You mention the magic word -- confidence, is there anything we could be doing to bring back that intangible asset?"

RMacS: "If we continue every day to hear nothing but bad news, you would believe that there's little or no people working. At the moment, 1.8 million people are working, the highest that we went to was 2.1 million. There's 425,000 out of work and I'm sorry for them and we've got to work to try and get them back but let's first of all make sure the 1.8 are going to stay there. The Government at least in what it's doing, even though people mightn't like it, it is giving confidence back that there is somebody in control. While that happens, people say, I know where I stand, even though I've taken a six or seven per cent cut on my income, I know what I have for the next year, and they'll begin to take decisions about maybe spending a bit more rather than what they have been doing up to now, saving it. So that's the seed of confidence that is being planted and hopefully will grow."

AF: "In 1987, as Minister for Finance, you started the process which began to lay the foundations that led to the growth pattern that followed over the next 20 years. The measures the Government [now] has put in place, what could stop them from working?"

RMacS: "I think they must work, and people must accept them, severe and all as they might be on some sections. I am sure that Brian Lenihan will, where he finds that they are impinging too much on one section, that he should take corrective action.

"In 1987 you had interest rates at 15 or 16 per cent, within a few short months they dropped four or five per cent. Interest rates are at their lowest now nearly in the history of the country so therefore there is no scope for interest rates to come down. The problem is that they could go up and that is what we must try and avoid if we can.

"The second thing was the EU transfers at that time, they were just beginning to come in big numbers and we were now into an internal market with free access for our goods and services. World growth was greater than what existed now and the final point is that partnership existed and that brings me to the [public service] go-slow. I believe that partnership, employers, unions, government, social partners of all description, have to go back to the table and should really make every effort to ensure that we get back into partnership because that was one of the major issues to help us through the last 20 years."

AF: "I would argue that because of benchmarking, etc, the public sector's expectations have become unreal."

RMacS: "I don't blame any section of the community looking for the maximum but I do believe that partnership is what it means, we go in as partners, we see there is something there and we are entitled, because there are two of us in it, to take 50-50, or maybe take 45 each out and leave 10 for the boss. That's what partnership is about, it's not me looking for 60 and giving you 40 or vice versa. There are realistic people on both sides, in the trade union movement. I was there at the beginning of partnership in 1987-89. They have got to see something out of it at the end of the day and, as growth improves, there will be a possibility of doing more, maybe on taxation which is just equally as good to the amount in your pocket as it is about wages."

AF: "What has partnership got to do with a man running a small business?"

RMacS: "In the last 20 years the progress that has been made, much of it is secure. People don't see that. It is still secure. The infrastructure in the economy is away much better than it was 20 years ago, the glass is three-quarters full, not half-full. We are now in 2010, we are back to levels in the economy of 2004/2005. Things weren't bad back then. We may have over expended in certain areas. I remember talking with ministers and saying 'we should be putting a bit aside for the rainy day' and the attitude was, we have it, we are getting budget surpluses and therefore we will spend it. The rainy day always comes and we have to be ready for it."

AF: "Are savings at a high level?"

RMacS: "They are up 12 per cent in the last period, while they went down four per cent during the good times."

AF: "You say the glass is three-quarters full."

RMacS: "Lots of people would think listening to all the difficulties about banking and finance that the country is bankrupt. We're not. We have all that we need borrowed, through the National Treasury Management Agency, to run this country for the year, as well as the money that the Government needs to recapitalise the banks. So therefore we are a good credit risk abroad still, even if we are paying a bit more because of the difficult public finance situation. The fact is if there was a different government, it would still have to do more or less identical policies that the present government is doing."

AF: "In 1987 you were at one stage the most unpopular man in Ireland. What lessons has it left with you?"

RMacS: "I remember well those times and they were difficult for everybody and particularly my late wife and my family but we got some great joy out of occasions when I was christened Mac the Knife. In your newspaper at that time it wasn't a knife I was wielding but a chainsaw.

"But once the situation was recognised as being required, it was easier as time went on because everybody knew there was no money there and therefore the answer was No. I think we are in similar circumstances now. "

Not only is there no money there, we are something like €20bn short in 2010 so therefore people have to recognise the size the cake is, what share they are entitled to, hopefully it is distributed by government and then all of us will see that is the way forward, by all of us taking some pain now and hoping for greater gain later on."

AF: "Thank you very much."

Sunday Independent

Today's news headlines, directly to your inbox every morning.

Don't Miss