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Fallen Skies

Maurice Earls

This essay draws on and reviews numerous articles on the state of the economy which have appeared in the press since January 2009.

Over the last few months we have seen and heard from economists in unprecedented numbers, the volume of exposure in this short period being surely equivalent to that of the preceding two decades. Some, like myself, who often wished to hear more from economists regarding the Celtic Tiger and where it was heading, may now be left contemplating the wisdom of the Chinese proverb: be careful what you wish for. Economists are ubiquitous because we are in trouble.

Nevertheless, immersion in the language and concerns of economics has its benefits. The obvious one is in evaluating the various specialist responses to the country’s barely credible financial situation. Another is that it allows the non-specialist to form a view of the general value of economics, and also of the discipline’s limitations as a means of explaining the world, including perhaps, even the state of our economy.

In an Irish Times series, "What is to be Done?", which was published in January, just as people were becoming aware of the seriousness of the situation, six qualified and intelligent economists offered their views as to what was required in order to get us "back on track". Most gave a brief account of how the current problems arose; global weather and bad political decisions were the agreed culprits. They were asked what to do now, and this is what really exercised them as economists. They each got down to the business of measuring and weighing the various elements of public spending that could be cut in order to save two billion this year and to prepare for larger savings over the next five years. (This, of course, was before the Government’s account of our public finances proved wildly optimistic.)

Happily, all contributors came up with solutions. Most urged that radical cuts be introduced now in order to avoid making things worse. Some, such as Alan Ahearne, emphasised that increased taxation would also be necessary. Since then, this view, supported by former taoiseach Garret FitzGerald and underpinned by the release of very poor, but surely predictable, Exchequer returns for February 2009, has been belatedly accepted by Brian Lenihan. Unfortunately, given that the government has already squandered a priceless Dunkirk moment, which saw the country willing to unite to face adversity, there is no guarantee that future measures taken by government will establish a plan for recovery around which the country can unite.

While the economists featured in The Irish Times were positive, even, at times, cheery in outlook, the science also has its Jeremiahs. UCD’s Morgan Kelly is one of the most prominent in this category. He is angry and accuses the government of making a bad situation worse. The most serious error, he says, was offering an open-ended guarantee of bank debts. If the cost exceeds twenty billion, and he expects it to, we are in a very bad situation. If it climbs to fifty billion, and he says that is a distinct possibility, apparently the Republic will simply implode. It would be nice to write him off as an hysteric; however the problem is that Kelly was more right than many on the collapse of the property bubble and on the rotten state of Anglo Irish Bank. A recent report from JP Morgan says Ireland will not default on its debt and that our bank losses will amount to only twenty-six billion euro. Irish economists say this sum is "manageable". Economist Jim O’Leary argues that the risk of a financing crisis is "... a good deal smaller than much commentary on the subject suggests". Others are less certain. David Mc Williams, for example, confidently predicts bank losses of forty billion.

Whether or not the guarantee sinks us, one can’t help wondering if it was absolutely necessary to guarantee €440 billion worth of liabilities in our banking system and whether we have to stick with this guarantee. After all this measure, decided late on a Sunday night after panicking bankers contacted the government, potentially threatens the state with insolvency. At this point much commentary begins to sound very fuzzy. We are told that allowing a major bank or banks to fall could cause a "systemic crisis". This is not entirely convincing as a reason why the bond-holders who lent money to Irish banks in order that they could make unwise loans to property developers should now walk away from the mess scot-free. However, it seems that, in practical terms, we cannot unilaterally renounce these guarantees. If this is the case we may end up having to throw ourselves on the mercy of the Germans, who in turn may require us in due course to abandon our low corporate tax rate, which of course is the cornerstone of our foreign direct investment programme on which tens of thousands of jobs depend.

One relatively benign, but perhaps remote, possibility is implicit in some commentaries on the international situation. We may yet get lucky. If there is to be a global depression bank assets will probably turn out to be worth very little. In that case creditors will call in the state guarantees. The IMF speculates that Britain’s guarantee to its banks could cost 220 billion sterling. Others say the figure could be much larger. It seems possible that if the crisis deepens other states may find themselves similarly exposed. From our point of view, the more the better. There is strength in numbers and when numerous countries demand that creditors bear a significant element of pain they are more likely to succeed than a lonely island republic acting alone. Unilateral repudiation of the national debt worked well for Lenin; we would hardly get away with it. However, we may be just one of a number of nations which decides to allow large financial institutions become bankrupt as part of a programme for reordering the rules of international capitalism. Such new rules would probably see creditors taking some of the pain. This would certainly help us. However, the most likely scenario is that it will be just us and the British, within the old EU, who find themselves dangerously exposed. Other western European countries are likely to reap the benefits of having higher regulatory cultures, denounced in Britain over many years as a symptom of Eurosclerosis.

A somewhat different solution to the various cuts proposed by contributors to the Irish Times series is offered by economist and journalist David McWilliams. He argues that no theory of economics advocates raising income tax and cutting expenditure in the face of a recession and, apparently referring to some of his fellow economists, claims: "The lunatics have taken over the asylum." McWilliams goes on to argue that we are following a nihilistic policy which will turn the recession into a depression and that there is no need to control our budget deficit because, as we are in the euro, there can be no run on our currency. His recommendations are to cut income tax, raise property tax, cut all tax-related incentives to property, introduce mortgage payment deferral, give grants to employers and borrow heavily at home and abroad. He argues that, given the three hundred billion we have in deposits we should be able to raise a highly successful national recovery bond. Debt repayment, he suggests, will take care of itself in due course.

This is a very interesting argument. The counter-argument might run something along these lines. The desire to stabilise public finances is very sensible; the public finances of a small economy must look good if it is to appear attractive to international investors and lenders. For better or worse foreign direct investment will be crucial to the Irish economy in the foreseeable future. Moreover, we must borrow, and small countries must tick all boxes if they want to be sure they can borrow at the best rates. We will have to borrow up to the hilt over the next five years, and perhaps well beyond. A national recovery bond, while a good idea, will hardly fulfil our borrowing requirements. Furthermore, this line of action would certainly irritate the main Eurozone powers, which might not be such a good idea at the moment.

The indications are that we will be forced to pay through the nose for our loans, if we can get them. Already the cost of insuring Irish government debt has risen dramatically. Last September ten million of Irish debt could be insured for €60,000. By late February the cost had risen to €400,000. By way of comparison the comparable cost for US government debt has risen sevenfold in the last year, to €97,000. Interest rates on Irish debt are also rising dramatically currently quoting twice that paid by the Danes- and there is even speculation that we may be unable to find anyone willing to lend to us. Apparently, the cry of "No Irish" has already been heard in one London dealing room.

The British themselves are in a very bad situation. Over the next two years they need to borrow £350 billion – more than cumulative government borrowings between 1691 and 1997. Their deficit next year is expected to exceed twelve per cent of GDP. Gordon Brown is no longer able to follow the traditional British policy of doing as the US demands. A little earlier he explained that Britain and the US would lead the world out of recession and that others would have "their part to play". The G20 conference was to be the moment when matters would be explained to the rest of the world’s wealthy countries. Despite the spin claiming success, his G20 plan is in tatters. There will be no global stimulus as sought by Obama. Brown’s hands are tied; he needs to borrow £148 billion next year. Yet a recent auction of government bonds had to be abandoned, which suggests they may not be able to raise debt. It seems the era of Britain boxing above its weight may be coming to an end.

When looking for solutions it is worth remembering that small economies cannot act as if they are the United States. The US ran an enormous trade deficit abroad and had unsustainable credit and property booms at home. They have sold treasury bonds of $6.6 trillion and are exposed to about the same in other liabilities and guarantees. The Chinese, who hold considerable US debt, are now expressing worries about the safety of their assets, and well they might be. But the US will survive. After all, it has a machine for printing dollars and intends to run it day and night. If it comes to it, it can inflate itself out of debt and, of course, it does have a rather large army.

There is no currency printing machine in Ireland, or at least none available for government use. Ordinary citizens, who will bear the considerable pain certain to issue from the disastrous state of our public finances, may well wonder which approach is least likely to see Ireland return to a high unemployment, high emigration and low income society. It would be useful if economists could get together in the national interest, look at all options and make some hard-headed and agreed proposals to government. We cannot afford any more "errors". There have already been too many.

There is now a broad consensus that gross errors were made by politicians and bankers that might easily have been avoided. The banks were allowed transform themselves into reckless and foolish speculators, so enthusiastic for the new alchemy that they didn’t even bother to hedge or insure the high-risk loans they made to property gamblers. The clean-up may well blight the lives of an entire generation. Bankers were permitted to allow our banking system, on which the functioning of our economy, and thus the livelihoods of millions, depends to become a pyramid scheme under which a fuse was burning.

Justin O’Brien, a professor of corporate governance in Canberrra, is scathing on Irish political responsibility. The "International Financial Services Centre," he says, "became the symbol for the worst excesses of financialisation, a process that refers to the transformation of industrial managerial capitalism to speculative gambling". The cause, in his view, was "staggering regulatory, corporate and political incompetence". O’Brien has no faith in the Taoiseach and reminds us that as Minister for Finance "Brian Cowen amended the Finance Act to provide tax-free status to CFDs". CFDs are a cousin to spread-betting and are the mechanism by which Sean Quinn purchased his large stake in Anglo Irish Bank. It tells much about the values of our government that these forms of short-term speculation, which, unlike long-term share purchase, entail no social value, are entirely tax-free. The crucial fact is that bankers were permitted by our political class to engage in financial mania. Presumably, if the dark forces within Anglo Irish Bank had managed to engineer a continuing rise in the bank’s share price, Mr Quinn might have made a very substantial tax-free profit

While it is infuriating to learn of the salaries paid to our banking incompetents, ultimately the telling factor is not the greed of the banks – after all it has been a commonplace for two millennia that usurers are morally deficient. The decisive intellectual and moral failure in Ireland was at the political level rather than in economics, business or banking.

To recap: we have a major banking crisis, a rapid collapse of our credit-driven property bubble, a serious decline in our competitiveness, a collapse of public finances, declining credit ratings, increasing unemployment and a decline in our exports. All but the last two are substantially our own fault and we also bear significant blame for the decline in our exports and for what is rapidly becoming mass unemployment. Greedy US realtors conning the American poor into buying houses they couldn’t afford and greedy US bankers doling out loans on the back of a huge Chinese dollar surplus to those who could not hope to repay them, then packaging up these rubbish mortgages and selling them around the world, are not the explanation for our problems. The source of our problems lies closer to home. The more we deny this and hide behind the very real international downturn as government ministers do every day on the airwaves, when they are not trying to scapegoat bankers the less we will learn and the more we will suffer.

The holy grail of full employment and prosperity was allowed to slip away. Some commentators, like Garret FitzGerald, have named the guilty. High on his list is Charlie McCreevy and certainly the latter’s prime-pumping of the economy when it was already expanding was deeply unwise. So also was his making state finance dependent on what was certainly a short-term tax source: stamp duty and other taxes related to property bubble transactions. As one famous US economist remarked: "Things that can’t go on forever don’t."

In the late twentieth century the Irish had their first boom, possibly, since the early hunter-gatherers found a land of plenty along the Shannon. Only the mean-spirited would begrudge them their party, but finance ministers like McCreevy who had a serious responsibility – and one for which they were very well paid should surely have woken up every morning and asked themselves the question: how can I ensure that future generations will reap the benefits of this prosperity? Instead, in the case of McCreevy, it was as if he was at the party whooping and roaring, out front with sleeves rolled up, pulling pints for all and sundry. This performance was widely, but far from universally applauded. Writing in The Irish Times, Kevin Myers asserted with his customary lack of nuance that " … we have in Charlie McCreevy the most successful minister for finance in the history of the state; indeed, the most successful in all of Europe".

Economists frequently give the impression that an understanding of their science is all that is required for a successful ordering of society. In this, it appears they are not lusting after state power or arguing for government by technocrats. Convincing politicians to take sensible decisions in the national interest seems to be their commendable motivation. This outlook also lies behind Garret FitzGerald’s repeated complaint that there are insufficient economists in the Department of Finance. The former taoiseach is himself a trained economist and an impressive thinker. However, as regular readers of his weekly column in The Irish Times will be aware, he is most comfortable intellectually with things that can be measured. The implication of his complaint regarding the shortage of economists in Finance seems to be that, if there had been sensible economists on hand, the hubristic Kildare man would have been helped to see reason. While I’m sure the Irish administration could do with a few more economists, this line of thinking is less than fully convincing.

There is, as we are now very much aware, no shortage of capable economists in Ireland, including many, such as those in the ESRI, who are close to the government. Many economists, and indeed non-economists, in universities, other institutions and the media sounded warnings of varying intensity over the years. The unavoidable conclusion is that there was no willing ear. Indeed the rumour circulating in Dublin, and it is one which I find credible, is that Department of Finance officials tried to rein in their minister but that he was found to be "uninstructable".

Mr McCreevy, it is clear, had his own agenda and was not at all interested in what the various professors and civil servants were on about. (No doubt he did listen approvingly to the short-sighted and sometimes venal element that cheered him on.) Was McCreevy a dangerous maverick? Were we simply unlucky that he was at the wheel and allowed the property madness take root, affecting our competitiveness, debasing our civic culture and leaving hundreds of thousands in huge debt and their children contemplating a mail boat that no longer exists? If McCreevy had not been the crucial minister for finance for the boom years would things have been different? No, of course not. Things might even have been worse. Societies rarely make continuing errors because one individual is out to lunch. They are more likely to be caused by forces issuing from their history. And, I believe, it is in this area we must look if we are to avoid repeating the mistakes we have made.

The science of economics can explain how we blew the boom and perhaps how we can limit the damage, but if we want to learn from the experience, we must work out why we blew it. We have to look for answers to this question in an area where conclusions are not determined by exact measurements and where charts, tables and graphs are of limited use; we have to look at our history and at the understanding of ourselves in the world that our history has bequeathed to us.

First, a few broad-brush highlights from our recent cultural and economic history. The purpose of these is to describe the landscape against which key decisions were made in 1958 and to give some sense of the inheritance of those who made those decisions. Such an outline is necessary, I believe, in order to understand the great transformation that began in that year. In its key political aspect, this transformative process, I will suggest, atrophied and its real potential was wasted as post-Lemass politicians lost the ideological coherence of earlier leaders. It is from this atrophy, I will argue, that many of our present problems derive.

One of the most significant developments in our modern economic history was the emergence of an energised and dynamic middle class in the century before the Famine. In the second quarter of the nineteenth century it seemed that this class might form the basis of a successful modern Irish nation. However, the defeat of O’Connell in the 1840s led to the economic neutering of this rising bourgeoisie, which thereafter declined and declined and declined. Ulysses is the great monument to the cadaver that remained at the beginning of the twentieth century. The economic objective of the Free State and later the Republic was, in essence, to get that class back in the saddle and moving forward in the national interest.

The 1840s, of course, did not only affect the economic prospects of the middle classes. The Famine destroyed the numerous and culturally vibrant peasant stratum. Thereafter, there was massive and continuous population decline. By the late 1950s the population of the republic was less than three million. The new departure of 1958 was intended to address both these calamities.

As a result of a combination of persistence and luck a degree of independence was achieved in 1921. Notwithstanding the ruthless brilliance of Michael Collins and his soldiers, there remains a question as to why the British superpower yielded. One possible part-explanation is that, at some level, the British calculated that broken and impoverished Ireland would continue to function as a region of Britain, one whose main function was to provide the mainland with cheap food. In the early twentieth century, it may have seemed that the transformation of Ireland into a source of cheap food and labour was irreversible. Certainly, there would have been good grounds for such a conclusion. Westminster may have said, if only subconsciously: "Let the Irish paint the post boxes green; the whole thing is a joke, they have nowhere to go."

While the leaders of the new state, charged with the expectations of history, thought otherwise, they started off with very few resources and faced the enormous problem of trying to build a successful economy in very constrained circumstances. They maintained free trade with Britain and tried to develop agriculture but learned that if your customer controls your prices you don’t get very far. The government took a shilling off the old age pension and took refuge in the belief that if they balanced the books economic development would occur naturally. It didn’t.

The energy of the pre-independence era now reappeared in a new form. The sluggishness of the first decade was replaced by a "Yes We Can" mood in the thirties. Independent Ireland would be Gaelic and prosperous; it would play a role in the world, conscious of the rights and interests of small nations. After all, what had been sought for a very long time was won; we had to make the new state work; failure would mean that everything we said about ourselves since the Williamite settlement was wrong-headed, if not bogus.

It was decided to stand up to British economic overlordship. And so the Economic War was begun and the era of protectionism began. The outcome was unclear for some time, partly because of the war and the mini-boom in Irish agriculture which followed it as European agriculture was rebuilt. By the early 1950s, however, it was clear that protectionism was not working. The internal market was simply too small. If the population trajectory had not been interrupted by the Famine and other consequences of British rule, the Irish market could have supported a considerable level of industrialisation. But the stagnant culture and falling population of mid-twentieth century Ireland was not up to it.

The first four decades of independence were a failure, in that it was found impossible to reverse the negative dynamic that had begun in the Famine era. A combination of the enfeebled economy inherited from the British in 1921 and a very difficult international situation – glorification of free trade in the twenties, widespread protectionism in the thirties and world war in the forties muddied the water considerably. It was not until the early fifties that the administrative and political elite read the writing which by that stage was unmistakably on the wall.

The early Irish efforts at state-building had an accompanying national rhetoric; the Free State and later the Republic, like other European states during the same period, wrapped themselves in elaborate language and aspirations, which, as is usual in the case of public ideology, functioned less as a repository of nuanced history than as an agent of social cohesion. Such ideologies prosper only if accompanied by national success and in Ireland, in the light of poor progress on bread and butter issues, official ideology began to strike people as hollow and useless.

Politicians were of a reasonable calibre, but they were unable to reverse the unyielding economic gulf stream that washed our shores. Essentially, we had nowhere to send our exports except the old imperial power. A popular but neurotic and largely unspiritual Catholicism had taken root. We delighted in our "spiritual empire" as the emigration and missionary impulses merged; religious apartheid remained the order of the day. The largest political party had two great aims – shared by society at large the revival of the Irish language and the reintegration of the national territory. The more intensely people wanted to achieve these ends, it seems, the more remote they became. By the 1950s things were desperate. People were closing the front doors of their unsold houses and leaving the country. Brendan Behan, a veteran of the IRA wartime bombing campaign in British cities, joked that we should apologise to the Queen and give her back the keys.

Slowly the political and administrative elite began to believe that the old pieties, aspirations and exalted talk about Ireland, its history and its destiny would have little part to play in whatever functioning country might be built. A process of emotional and psychological disengagement from the culture constructed over the previous century began. This process constituted the greatest cultural change to occur in Ireland since the Famine. While in some areas the transformation was rapid, in others it was painful and long drawn out; it has been the defining characteristic of the Republic’s last half-century. It is the ground on which we now stand.

Despite accumulated failure, the "disappearing Irish" were unconvinced by Behan’s advice. Instead they invested massive energy into pursuing an economic and cultural transformation of the state. This energy undoubtedly issued from the past. Having a history "even sadder than Poland’s" can have its uses. The political class, administrators, business and the public at large were united in pursuing the goal of making Ireland prosperous. Despite setbacks and deviations, the achievements were enormous. Our business community, state agencies, civil servants, politicians, teachers and planners all performed impressively. In the 1960s alone economic growth averaged four per cent, emigration fell rapidly and living standards rose by fifty per cent.

The new order was conceived of as a pragmatic and hard-headed affair. There were to be no more paeans in praise of frugal rural living. Sean Lemass, the most admired taoiseach in modern times, was the ideal moderniser. When an enterprising researcher offered him a genealogical history of his family, he declined it, saying the subject was of no interest to him. The new Ireland was to be nothing if not forward-looking.

As a young man Lemass had been involved in the War of Independence. He is widely believed to have been one of the Collins squad, which effectively liquidated the notorious Cairo gang, sent by British intelligence to wreak havoc among the Irish in 1920. He understood where the state had come from and had an unwavering commitment to his country and, perhaps more importantly, since patriots are two a penny, a clear understanding of our interests and vulnerabilities in the wider world. His biographer, John Horgan, characterised him as "The Enigmatic Patriot". He could also be described as an enlightenment nationalist deeply in tune with the long struggle for independence but less responsive to the pain of the past than to the possibilities of the future.

The new way of looking at the world was, within a few short years, confronted with an interesting challenge in the form of the anniversary of the 1916 rising. Lemass rose to the occasion. A recent study of the 1966 commemoration observes: "Southern commemoration paid lip service to the patriot dead, gestured to the nationalist past but sought to shape the future in the allegedly ‘normal’ modernity of the state. The Irish state sought to commemorate, while rendering residual and under control, the historical and cultural capital of Irish nationalist historical memory in 1966; that memory was to be deployed to advance the modern agenda of the state."

Protection of the state’s interests was paramount in Lemass’s thinking and he was quite willing to reject older pieties if they were identified as wasteful. One such was militant anti- partitionism; he recognised that no army raised in the South would overwhelm the British-held area. In the fifties he had no difficulty with the internment of the dangerous dreamers who had embarked on a ludicrous border campaign. As taoiseach he understood that the interests of the minority in the North and the interests of the southern state would be best served through dialogue. As self-confident leader of the Republic he assumed leadership on this vital issue and responded positively to overtures from Terence O’Neill.

If, however, he believed he could inculcate this approach to the North and political clear-headedness within Fianna Fáil and the political class in general, he was mistaken: he had not sufficient time. His health declined; he resigned in 1966 and died in 1971. The next Fianna Fáil generation found they had to operate without either Lemass’s post-romantic national ideology or the more ornate version of earlier times. None of them was up to the task of taking on his mantle, neither the comforting but ineffectual Jack Lynch nor the dangerous egotist Charles Haughey. The country was to pay dearly for these inadequate Fianna Fáil leaders.

When the North "blew up", the representatives of the beleaguered minority naturally came south looking for guidance and assistance. What was required was clear-headed and purposeful thinking. They were met with the opposite. Lemass would have dealt with the IRA – when it reemerged – through internment; he would have assuaged unionist fears and ring-fenced the civil rights issue. In short he would have been clear and tough, avoiding the long and destructive years when Northern policy was characterised by the tail wagging the dog. In such a case we might well have been spared the thirty-year delay in arriving at a solution consistent with political possibilities. Garret FitzGerald has recently commented on how the Provo war prevented economic development in the North. It might also be worth considering its effect on economic development in the South. Certainly it had a profoundly negative effect on political development and is one reason why we still await the emergence of a serious modern national politics.

In the post-Lemass period, vacuous phrase-making came to occupy the space where one might have looked for a national ideology. It may have been John Healy – a man widely believed to have had his finger on the pulse of the nation – who coined the phrase "Ireland Inc"; he certainly used it often enough. He described Lemass running his cabinet "as if the members were directors from the various regional departments of Ireland Inc" This was an idea that proved deeply attractive to our political class.

Despite setbacks such as the unwelcome Provo war and the oil crisis, the political elite stuck with the idea of Ireland as a business. In 1982 The Irish Times reported: "Fine Gael have a vision of Ireland in the future. That vision sees Ireland as an efficient, no nonsense, business enterprise run like a major corporation. This view of Ireland incorporated lies at the heart of the party’s policy for economic recovery."

Even during the economic crisis of the late eighties the concept retained its power: the idea was to get Ireland Inc off the debt treadmill and back on track. The phrase was casually employed by politicians from Gemma Hussey to Albert Reynolds. It became a pervasive media and political trope. The business pages of the press were full of it, as were the state agencies; it even percolated through to figures more on the left, such as Frank McDonald, Dick Walsh and Pat Rabbitte who, in order to be heard, attempted to incorporate the concept into the promotion of their socially oriented vision of society. In effect "Ireland Inc" became a substitute for thinking and for a programme of national development, a fig leaf covering intellectual weakness and laziness. After all, most people over the age of eleven know you can’t run a country as if it were a business.

When the shape of the new order emerged it transpired that Ireland Inc was code for small government, for liberal economics, for postnationalism, for postCatholicism and for culture and history as commodities in the market, no different from any other commodities. Ireland Inc was to play by the emerging ideals of globalisation, which it would take entirely at face value.

Despite the shallow politics, the setbacks and the deviations, the achievements were considerable. Energy was concentrated on attracting foreign direct investment with a modest indigenous industrial sector helped to develop as an ancillary offshoot to the multinational sector. Considerable native successes were chalked up as a result of this policy; the Irish-owned software sector being the best known. Notwithstanding such successes, the development of indigenous industry was not at the heart of Irish economic policy. This failure was, it might be argued, another symptom of the new politics of non-government. Enterprise Ireland, the IDA-type agency charged with promoting native business did and, as far as one can see, is doing its job well. It is, however, concentrated on enterprises brought to it by entrepreneurs rather than the instrument of an overarching government development plan. The small size of the indigenous Irish exporting sector reflects this weakness.

The low priority accorded to homegrown industry would have been questioned in a government culture which was more long-term in orientation. A "big government" outlook would perhaps have focused not only on foreign investment but also, strongly, on the food sector as a potential source of major industrial development. Indeed before the collapse in the late 1960s of a thought-out concept of national interest in our political class it was expected by many that the new wave of industrial development would be based on agricultural production. Notwithstanding the emergence of some very strong indigenous companies in the food area, the impulses of the post-Lemass state were to shy away from big government planning. This is unfortunate, since to judge from the coordinated efforts of many agencies which went into making the inward investment strategy work, the state would have been well capable of a successful prioritisation of indigenous food production for the European market.

The value for any state of a native wealth-generating base is that it gives security. The problem with inward investment from the point of view of the long-term interests of the country is that it does not have real roots here. Everybody knows that there is a danger these companies might leave. Professional economists and analysts who have looked at Irish industrial strategy have, over many decades, tended to advocate the development of an indigenous sector as a crucial policy.

The Telesis Report (1982) and the Culliton Report (1992) both drew attention to the dangers of overdependence on foreign investment and recommended strategies for placing the development of indigenous industry at the heart of policy. While both reports were widely approved and debated for a period, their policy recommendations were not adopted other than in a piecemeal and partial fashion. It is hard to avoid the conclusion that this was because of weaknesses within our political culture, an unwillingness to take responsibility for the major decisions which could have put flesh on the Telesis bones. Commenting on Telesis at the time, economist Frances Ruane suggested a shirking of responsibility on the part of politicians, leading them to abdicate their responsibilities in policy formation, which they left almost entirely to the industrial promotion agencies. "For their own sakes," she wrote, "as well as the sakes of the tax-paying public, these agencies must be brought more firmly under government control."

Industrial policy in effect became IDA policy. The remarkable success of the agency depended on marketing rather than industrial skills: the companies which came to Ireland had already done the research, developed their products and worked out the logistics of competitive manufacturing. In 2004 another report, Ahead of the Curve, was published. This recognised the importance of inward investment as a permanent part of the economic landscape. But, like its predecessors, it did speak of the indigenous sector in concerned tones: "Despite many excellent individual company performances, few of our indigenous industry sectors have achieved strong growth in exports over the past 10 years." Like the earlier reports it also seemed to feel there were possibilities in this area: "If appropriate policy initiatives are taken, by 2015 Ireland will be internationally recognised as an important location for the production of high value-added foods products."

The considerable success of the IDA disguised the inherent weaknesses in our "government light" style and continues to do so. The inward investment figures for 2008 were good; those for 2009 may come as a shock. If this is so we may begin to appreciate the potential pain of a world with reduced IDA padding and also the consequences of our failure to develop a solid and robust indigenous sector. We may also wonder why we squandered over three decades of EU membership, sometimes on trivial and short-term matters, when we could have been securing long-term European markets.

Our marketing style and freedom from political substance has worked – up to now at any rate – to our superficial advantage in Europe. We surprised our EU colleagues with our efficiency and relaxed "can do" attitude. When Bertie Ahern walked into a meeting of EU heads of government his presence was felt and appreciated. The Irish were a welcome lubricant. There was nothing complex about Ireland Inc. We were like the good salesman who remembers the names of his customer’s children. Most countries had cultural and ideological baggage of some sort, which tended to slow them down. We had jettisoned ours in ‘58 and that made it much easier for us "to work the room". There is, however a difference between social fluency and political security.

In reacting against the protectionist era, and its concept of Irish nationality, which had come to be seen as both ridiculous and false, there was an abrupt change of gear as we moved to embrace what can only be described as an implicitly universal concept of humanity. While still understanding ourselves as Irish, we had no agreed definition of what that meant and no one really bothered to articulate either a new post-protectionist Irish identity or a national development policy adequate to our needs and condition. Nationality was a brand in the international marketplace, and we had a good one. That would do.

If the task of building a historically rooted and functional understanding of ourselves in the modern world was to be addressed, an obvious candidate for involvement was the humanities departments of our universities. Notwithstanding some individual exceptions, the old universities failed to engage; to the extent they did respond, they merely echoed the emerging consensus that we were modern now and that it was great we were no longer backward. (It fell to the poets – ignored of course– and other marginal types who did not understand that you "can’t stop progress" to wonder whether we were engaged in a form of madness.) It is hardly surprising that the new money went to the new universities, where students studied such industry-related (and of course highly important) matters as fibre optics. When the state got around to looking at the old universities again it decided to turn them into new universities with the inevitable sidelining of "irrelevant" humanities courses. It might perhaps have been otherwise if those in the humanities had risen to the challenge of understanding their activities in the light of the country’s post-1958 condition.

For the new Irish, 1958 marked the end of history. History was the nightmare from which we had awoken. All that was necessary was trade, and the state’s role was to organise things so that trade could be maximised. Ireland, it has been said, is the most globalised country in the world. This is hardly surprising; globalisation, it was to transpire, was built into to our foundation documents before the term was known.

By the time the crisis struck we had a taoiseach who wanted to have an expensive sports stadium built in his honour, lived a modern liberal lifestyle, had many friends in business, supported Man United and advised those who suggested that the good times might not go on forever to consider suicide. He also approved a motorway alongside the hill of Tara. The Irish voted him in three times, making him the longest-serving taoiseach since deValera.

In December 2008 the government published Building Ireland’s Smart Economy: a Framework For Sustainable Economic Renewal 2009-2014. It was launched by Brian Cowen with considerable fanfare. The smart economy approach has much in its favour. Basically it is about building on the software success that spun out of the multinationals and in particular the IDA’s early decision to favour the electronics sector. There are some token gestures towards the agri sector but the emphasis is on high value information technology ventures and financial services. Financial services, of course, may not be quite what they were in the coming period. The smart economy approach reflects the chief characteristics of Irish governance and policy since Lemass’s death. It assumes the reality, continuance and security of a globalised world.

But globalisation is a tendency not a fact. The post-Cold War US aspired to "full spectrum dominance", which is another way of saying a globalised world under US hegemony. This now looks a highly unlikely outcome. A morally and politically acceptable globalisation – one which would feature enforceable and fair world regulation and actually serve the interests of all humanity – is unfortunately no more than a dream. It cannot exist in our world; such is history and the crooked timber of humanity. What we have, and are likely to have more of in the future, is a radically interconnected world, an interesting and dangerous place where there will be winners and losers. If we are not to be in the latter category we must transcend the idea that the era of contending national interests – the era of power politics – has passed, that history is bunk and that the world will always be a friendly place for those who do their business professionally. We must accept that this line of thinking was, like the tooth fairy, no more than a pleasant fantasy.

In the strategy-weak Ireland Inc environment we became unable to measure the relative importance of certain things to the national interest. Thus politically easier inward investment was preferred to the more important development of indigenous industry; we also became unable to distinguish the relative importance of the multinational export sector and non-exporting areas such as construction. We foolishly reduced income tax below a safe level and encouraged credit-fuelled bubble enterprises, which were massively profitable in the short term but detrimental to our long-term interests. In this manner we undermined the Celtic Tiger and prepared the ground for the present threat to the future of our state.

Our political class, in general, became so intellectually feeble that they had no idea what they stood for, apart from being re-elected in our lowest common denominator proportional representation system. John Healy told with delight of the constituent who got his TD, when driving back to Kerry at the weekend, to collect and transport a headstone required for a family grave. This, in Healy’s view, was what politicians were good for. It is a view which to our cost is still widespread and one apparently shared by many politicians, who in power have characteristically delegated decisions to courts, state agencies, commissions and the EU. One of the chief perks of being a minister is having a raft of civil servants available to work on constituents’ problems. Social partnership has been the only real government achievement of recent times and even this can be read – particularly under Ahern – as an expression of the pervasive electorally-oriented politics of emollience. In general, Irish politicians have declined the exercise of power in order to concentrate on re-election. If it were not for a skilled and professional public service willing to catch the ball Ireland Inc would have ended in tears earlier.

Interestingly, weak government is now accepted by some commentators as the natural state of affairs. David McWilliams, who is deeply concerned with our economic problems, recently called for imagination and courage in dealing with the present crisis: "For this intellectual courage and leadership we must turn to the civil service mandarins who run our country. Where is the TK Whitaker of our generation?" If only it were that easy. Whitaker had the political support of Lemass. Civil servants, no matter how brilliant, cannot function effectively without political support. Administration cannot replace politics.

The Progessive Democrats – founded in a genuine attempt to benefit the country – were the intellectual embodiment of the follies which characterised Ireland Inc. The ease with which they adopted Hiberno-Thatcherism as an appropriate politics of Irish development reflected both the widespread intellectual failure to understand and define Irish interests internationally and our innocent digestion of Anglo-American globalist nostrums. The result was the scarcely believable PD article of faith that all that was required to secure Ireland’s economic future was to lower taxes. These high-IQ Spartacists of the right were engaged in a reductive science of society which made the crudest of Marxists look sophisticated and nuanced. Did they not find it odd that throughout humanity’s long history no country had previously stumbled on this great elixir?

The pursuit and maintenance of power is the key to understanding the behaviour of modern countries – just as it was in the bad old days of boring history. I have no doubt that there are people within our state –"bloody civil servants" – who have a clear idea of how these entities function. If so their knowledge is not valued. It certainly doesn’t trickle out or down into the general culture. Our faith remains with the sales and marketing men. Micheál Martin, our Minister for Foreign affairs, has, in response to the current crisis, declared that all embassies and consulates must prioritise talking up the Irish economy.

This belief of Irish politicians in the power of talk is truly remarkable. Would it not be a better idea to have our diplomats inform the outside world that we had fired our bankers, tightened regulation, put our public finances on a credible basis and were going to have an election or a national government in which all the best talent available to the country would be employed. Other countries are probably already briefing against us to distract attention from their own weaknesses. Something more than talk is required. The emergency budget will, it must be hoped, mark the beginning of a belated government realisation that continuing and focused government intervention is required to avoid catastrophe.

In the period since 1958 there have been three main political territories of crucial importance to us: the UK the US and the countries comprising the EU. This is still the case. Because of our unfortunate end-of-history syndrome, we do not understand the deep political grammar of these entities, how they purposefully pursue their own interests, how they can affect us and how we must carefully plot our relations with them in order to advance our deepest interests.

British society has been remarkably successful in internalising its national interest, which is seamlessly reproduced along a cultural spectrum extending from the tabloid press to the colleges of Oxbridge. This is not the place to describe the brilliance with which a disbanded empire has kept itself to the forefront of international power politics. Suffice it to say that virtually any contact with British culture involves contact with its political purposes. In this respect, Ireland suffers doubly. As speakers of English we have no automatic filter against the pervasive political messages embedded in British culture and secondly, having eschewed any substantial international political understanding of our own, we easily adopt, by cultural osmosis, attitudes which are contrary to our interests. This harmful process was evident during the recent Lisbon debate, when Irish editions of British newspapers brazenly pursued a British political agenda on a domestic Irish matter. In earlier times Irish people had, as part of their cultural inheritance, an awareness that if a course of action was recommended to us by the Daily Mail or Daily Express it should not be accepted. It appears this knowledge has been lost. Of course, all this is not to say that the British haven’t, for reasons internal to their own culture, made foolish mistakes. They have, and continue to do so.

While the Irish do not care for recent US military excesses, we subscribe to the notion that these activities are contrary to the essential meaning of America. Again this is not the place to describe the sharp focus on power that shapes US actions. Perhaps the Irish take too much at face value the small government rhetoric so frequently invoked by American commentators and politicians; American power, however, is the reality of the last century and it comes through the barrel of a gun. Washington may be "dissed" in American discourse but never the Pentagon.

It is odd for us to imagine that it is open to us to choose the American way, to choose Boston. This option was never there for us. As for "choosing Berlin", that could be equally illusory. Some Europhiles speak as if the EU is a postnational paradise. All we have to do is plug in and obey the rules to sink into the Enlightenment embrace. Many of the French ruling class, however, believe the defeat of Napoleon to have been a misfortune for humanity (and that France –not the vulgar Anglo-Americans – should be running the world). That dream may be a bit far off, but in the meantime, they are happy to jockey for pole position in the EU. As for the Germans, due to events in the mid-twentieth century they were unable to resist having their amazing economy tied down to serve a numerous tribe of European Lilliputians, including ourselves. Nevertheless, they have a keen sense of German interests and believe the current crisis can be used to turn things round and tie down the Lilliputians. The German foreign minister has said that financial aid in the current situation can be used as a means of consolidating German interests "for years to come".

While the Germans have an almost unique sense of the merits of international co-operation, deep down they suspect could easily stand alone. People like that require serious handling. Alas, they have fallen out of love with the Irish: ask an Irish exporter not an importer. A leading German social democrat has said that the Irish ,an ungrateful nation, must in future show "greater humility" if they are to receive aid. If, as Morgan Kelly fears, we have to go cap-in- hand to the EU for a bailout – and that means cap-in- hand to the French and especially the Germans, these historic European nations will exact a high price for their "generosity". That price will be economic control. And so after all we’ve been through over the past two centuries, our future, as our past, may be as an enfeebled periphery.

The Ireland Inc delusion was possible because we came to believe in a world where national interests no longer applied and that all that was required was business competence. When we emptied the bath in 1958, we lost the baby along with the stagnant bathwater. We ran out into the world in our short pants with our Ireland Inc business cards. It was only a matter of time before we got a good kicking. If there is to be another burst of energy to get us out of the current deep hole, let us hope that it is not based on delusions about ourselves and the outside world.

02/03/2009


Maurice Earls is a bookseller and joint editor of the Dublin Review of Books.


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