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In Whose Interest?

Paul Hunt

Ireland’s current economic situation did not arise in a vacuum. Historical and international factors are widely recognised as having played a large role. Of course, these are not the only forces involved and domestic weaknesses are also accepted as bearing a heavy responsibility. Discussion of domestic causes, whether focusing on weak regulation or banking excesses, invariably ends in highlighting inadequate and flawed governance through the boom period. There is, however, an important overarching area of domestic weakness which has been generally passed over in discussion, and this is to do with the flawed structures of democratic governance in Ireland. These flaws, I will argue, more or less guarantee bad policy and inadequate strategy. As long as they persist, it is unlikely that Ireland will achieve its economic potential.

Ireland has a long-established and stable democratic system of governance, one of which its people are entitled to be proud. However, while it has a proper and fully respected division of powers between government and the judiciary, the underlying system of parliamentary democracy has never functioned well – and it has functioned less well over time. Governments have become more powerful and there has been a huge increase in the apparatus of government. Correspondingly, the ability of the Oireachtas to scrutinise government, to restrain government and to hold it to account has diminished. The extent to which public policy is decided behind closed doors, subject to the influence of special interests, presented as a fait accompli in draft legislation, spun furiously and whipped through the Oireachtas is a hindrance to good governance in the public interest. Open, transparent, adversarial disputation of public policy proposals based on facts, evidence and analysis is the most effective means of ensuring good governance and need not affect the legitimate prerogatives of elected government, but this is not what happens.

The Oireachtas is no longer the primary forum where matters of public and national interest are debated and resolved. It could be argued that it never really was. But, most certainly, it isn’t now. It neither proposes nor disposes. And, to the extent that it does, it disposes at the direction of government. It is routinely by-passed. And it is not just government that prefers this; it also appears to be the preference of a majority of Irish citizens. Having chosen deputies to represent them in the Dáil, people, curiously, do not require them to debate - and, crucially, to make informed judgements on - serious matters affecting their lives. Thus, faced with the question of the “fiscal compact” the clear preference is to by-pass the Oireachtas. Many citizens seem to consider a popular vote on an amendment to the Constitution as an appropriate alternative to comprehensive debate and resolution in the Oireachtas.

A brief assessment of the postwar economic settlement in Western Europe, including the corresponding arrangements in the US initiated by successive Roosevelt administrations in the 1930s, provides the broad context for considering both Ireland’s current economic situation and the pronounced weakness of the Irish parliament.

The postwar settlement was driven by a requirement to save capitalism from one of its periodic, self-harming and widely damaging implosions in the 1930s and to secure postwar reconstruction. It supported a long period of stable economic growth, close to full employment and rising prosperity. It was based on Keynesian-inspired demand management and on an equally Keynesian-inspired international system of payments, capital controls and fixed exchange rates. In Europe, there were, however, some variations on this Keynesian-inspired theme.

Variations chosen reflected the political complexion of those in power when the settlement was initiated and developed. For those of a socialist or social democratic disposition the focus was on economic planning and the establishment of the welfare state. This was true of the Scandinavian countries and Britain, which also embarked on the nationalisation of key industries such as railways, coal, gas and electricity. Liberals and those on the centre-right, particularly in Germany, but also in the Netherlands and Italy, developed a social market economy bounded by a constitutionally based monetarist policy and built on the protection of property rights and the promotion of rules-based competition. The best example of this constitutionally based monetarist policy was the constitutionally guaranteed independence of Germany’s Bundesbank to control monetary policy and to bear down on inflation in order to ensure there was no return to the inflation of the Weimar era and the horrors that ensued. France, and, to varying extents, Belgium and Luxembourg, with their dirigisme and use of indicative planning and reliance on the Napoleonic Code, drew on aspects of both approaches.

For a long time this settlement delivered the goods. And, as governments changed from centre-right to centre-left or vice versa and back, aspects of the settlement, or of its implementation, were changed, but the broad thrust remained intact. The chart below, compiled from Angus Maddison’s Historical Statistics of the World’s Economy, shows the continuation of a trend established from the early 1950s.

GDP per capita for Selected Economies and Groups of Economies

Note: The twelve Western Europe economies comprise Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Sweden, Switzerland and the United Kingdom. The peripherals are Portugal, Ireland, Greece and Spain.

The significant blips in this apparently stately progress until the credit crunch of 2007/08 may not appear immediately obvious and a further figure, focusing on consumer price inflation, is required. (US data, from the US Census Bureau, are employed because the pattern in the US was reflected in all developed economies.)

US Consumer Price (All Items) Inflation

Despite the generally steady growth in GDP per capita from the early 1950s – in particular for the twelve Western Europe economies ‑ strains began to emerge. Not only did this settlement contain within itself the seeds of its own destruction, but these were nurtured by external impacts in the form of changes in technology, communications and transport and increased international trade and opportunities for investment. The naïve Keynesian prescription of a long-term balanced budget, with short-term deficits and surpluses to modify the impact of the business cycle, gave way to structural deficits as the cycle moved towards its peak accompanied, and exacerbated, by pro-cyclical deficits as the cycle moved towards its trough. The continuous, and, seemingly, inexorable growth of the state’s share of national income was an inevitable consequence of putting the beguiling ideas of Keynes (and their less sophisticated elaboration by his disciples and followers) into the hands of practical politicians seeking to curry favour with their voters as a means of securing re-election.

This settlement was always going to provoke a reaction because, even though it had secured, and maintained, sufficient democratic support, a significant minority of voters in all countries was opposed to essential features. This oppositional segment in society would, in time, provide the political thrust for the critique of Keynesianism.

The cracks began to emerge from the mid-1960s as the requirement of the US to finance its Vietnam adventure imposed strains on the global financial system, but every effort was made to paper them over and to sustain the illusion that all was well. The steady rise in US inflation from the early 1960s (see Figure 2) reflected, and contributed to, these strains. The decision of the US in 1971 to suspend the fixed price dollar convertibility to gold relieved some of the pressure, but it removed a key peg that had secured the global economic and financial system. There was no going back, yet the international system required some effective governance. This reality was avoided until the first OPEC oil price increase imparted such an external inflationary shock that the entire system slumped into stagflation.

The eventual result, following the second OPEC price shock that accompanied the Iranian revolution, was to revive a monetary constitutionalism that yielded monetarism and, eventually, a rules-based monetary policy framework. Under this dispensation monetary policy and increasingly independent central banks would squeeze inflation out of the system. The effect may be seen in Figure 2 during the 1980s when the US Federal Reserve (under the governorship of Paul Volcker) pursued this approach – and it was matched, to varying extents, in the UK and throughout Europe.

But all of this was accompanied by a more significant development – the re-emergence to positions of power and influence of those who saw themselves as being repressed or marginalised by the postwar settlement. This, in essence, was a revival of the capitalism that had been humbled in the 1930s and subsequently shackled by the postwar settlement. The objective was to push back the Keynesian-inspired advance of the state and to remove the shackles that had been imposed, but there also was an intention to suborn governments and to subvert markets. This revival of capitalism – and the corresponding reaction to the postwar settlement – drew intellectual succour from what eventually was described as neo-conservatism, but it was found to be convenient to seek to advance it under a neo-liberal banner. There was no shortage of economists – and other useful idiots – who could be retained and employed to help disguise the real intent.

Neo-liberalism was a theoretically sound reaction to the growing role of the state in economies and societies ‑ originally encouraged by liberals in the 1930s such as Keynes and Beveridge – and now seen to be expanding without bounds and curtailing freedom and liberty. Neo-conservatism, however, had little problem with “big government” once it was employed to project national power and influence and to reward those in the upper reaches of the capitalist system. But it would not be possible to have government so big that it would be able to provide “welfare” both to those in the upper reaches of the capitalist system and to those who were receiving it under the postwar settlement. Neo-conservatives decided to reduce and shrink the latter so as to expand the former.

Monetarism and deregulation (in the US) and privatisation and market liberalisation (in Britain) were the rallying cries of this advance under the neo-liberal flag of convenience. Just as Keynesianism, in its day, was influential across the political spectrum, a similar pattern would characterise the advance of neo-liberalism. Indeed, it was the 1977-81 administration of a Democratic president, Jimmy Carter, which initiated the programme of deregulation in the airline, gas and telecommunication industries. This administration’s period in office coincided with the election of the first Thatcher-led Conservative government in Britain, which delighted capitalists everywhere by declaring that “the business of government is not the government of business” and set about proving it during the 1980s. Reagan followed Carter and the decade ended with the fall of the Berlin Wall and the implosion of the Soviet Union.

And, so, the Washington Consensus emerged and, spreading out from the US and Britain dominated the thinking of politicians and policy-makers in most of the advanced economies – and even further afield. Francis Fukuyama declared it was the “end of history”. Liberal democracy, free markets and the rule of law had won out and would expand and reign supreme, globally.

Unfortunately, the developed world had simply replaced one illusion with another. However, it took a long time for the underlying reality to be perceived. It was concealed by a number of major political and economic developments. Huge changes in technology, particularly in IT and communications, altered the patterns of production and the sets of skills demanded from labour. The Black-Scholes model provided a means of pricing options to buy or sell traded assets or commodities in a way that was intended to minimise or eliminate risk. This, when combined with increasing financial deregulation, permitted an explosion in what was sold as “financial innovation” and the multiplication of financial products that many practitioners genuinely believed were spreading risk and ensuring the efficient allocation of capital.

As politicians and policy-makers in the advanced economies began to enjoy the fruits of the “Great Moderation” or the NICE (Non-Inflationary Constantly Expanding) era, they thought that their steady hands on the monetarist tiller had squashed inflation. But the reality was that expanding global trade, outsourcing and, most importantly, the rise of China as the “workshop of the world” had exerted downward pressure on the prices of many manufactured goods and associated services. The effect may be seen in Figure 2. During the 1980s, with the pressure being exerted by the US Federal Reserve, inflation was brought down from its previous highs to average 4.7 per cent a year. However, in the period from the early 1990s through to the 2007/08 credit crunch, when Chinese low cost production and exports expanded almost exponentially, inflation averaged 2.7 per cent.

Other emerging economies are following with various forms of “state capitalism” being deployed under authoritarian, quasi-democratic and democratic arrangements. Some are following the path previously trodden by South Korea and Taiwan, where the development of democratic institutions followed a focus on economic development subject to authoritarian centralised control; some seem determined to retain centralised authoritarian control; while others are seeking to manage the transition of existing democratic arrangements to support economic development. But the overall effect is to accelerate the shift of traditional manufacturing activity from the advanced economies and to exert downward pressure on the international prices of the goods and services produced.

However, even this aspect of the underlying reality was channelled to sustain the new delusionary thinking in many developed economies as huge current account surpluses generated in East Asia were transformed into a mountain of credit that allowed many advanced economies to compensate voters for the declining share of national income going to labour, a share which has been declining steadily in many advanced economies since the mid-1970s. This continued decline, and the corresponding increase in share secured by capitalists and the managers of capital and labour was caused, and continues to be caused, by a mix of wage repression and a hollowing out of the industrial base in many advanced economies as basic manufacturing is dominated by the big emerging economies. Intense debate continues as to which factor is the more dominant in the mix. Apologists for capitalism focus on the latter, while those on the left highlight the former.

But regardless of the cause, governments in the advanced economies everywhere found they had to compensate their voters if they were to have any hope of securing re-election. As the Chicago economist Raghuram Rajan memorably put it: “let them eat credit”. Governments of all complexions in the US and in much of Europe entered into a Faustian pact with the banking and financial sector that, via unrestrained leverage, unregulated trading in financial instruments, an absence of prudential risk assessment and “financial innovation” that was designed to conceal the underlying risk in many financial instruments, allowed financial market participants to make out like bandits once they maintained and increased this mountain of credit. The “Great Moderation” encouraged many governments to believe that the business cycle had been tamed and the mountain of credit facilitated increased government spending and allowed fiscal policy, ostensibly “rule-driven” to balance budgets over the cycle, to exhibit a structural deficit bias. And this continued expansion of the state’s share of GDP also helped to compensate for continued wage repression.

Europe had its own version of this Faustian pact and associated illusions courtesy of the ill-designed euro project. This project highlights the overreach exhibited by leading EU politicians and senior officials in the 1990s in their enthusiasm to build on the success of their predecessors in making considerable progress towards the achievement of a genuine single European market and increased integration in other areas. In their enthusiasm and ambition, they failed to establish the institutional and procedural basis to ensure the success of such a project; and they failed to secure the necessary democratic legitimacy for the institutions and procedures they established.

In fact, in the context of the euro project, two parallel illusions were sustained in the EU. The peripherals, each in their own way, exploited the low cost and ready availability of capital, the absence of effective bank supervision and financial regulation and the inadequate fiscal governance in the euro area to enjoy a bogus prosperity. Those who have now emerged as the “creditor nations” – mainly Germany and neighbouring countries (with Denmark and Sweden outside, but closely aligned with, the euro area) – developed and sustained another illusion. Its basis had, and retains, substantive elements – a mix of wage repression, the production and delivery of high value, high knowledge content goods and services and a focus on exports. But the recycling of the resulting current account surpluses within the euro area, via this Faustian pact between many governments and the financial sector, fuelled the desires and the appetites of the peripherals – and of some of the newer member states. The shared illusion was that this could be sustained indefinitely.

The credit crunch in September 2008 shattered all these illusions. But, before considering developments since then and what the future may hold, it is necessary to give some thought to how Ireland fared during this long sequence of events, initiated by the implosion of capitalism in the 1930s.

Historically, geographically and culturally Ireland was embedded in the trans-Atlantic economic space defined by the US and the UK. The principal trade links were resource-based, featuring imports and the export of mainly unprocessed agricultural output (primarily from and to the UK) and the export of surplus labour to the UK, the US and the broader Anglosphere. However, in the postwar period Ireland’s protectionist policies, which were adopted in the 1930s, emerged as increasingly archaic, inimical to trade and damaging to national economic prospects.

Policy finally changed in the late 1950s when the TK Whitaker-inspired “Economic Development” departure produced a radical shift in economic policy and Ireland was firmly set on the path of facing towards, and catching up with, other developed economies. This process was reinforced and accelerated following accession in 1973 to what was then the European Economic Community. However, it took Ireland almost twenty years to begin to exploit the particular advantage it had secured in 1973 at the intersection of the trans-Atlantic Anglo-Saxon economic space and the European economic space and to finally remedy the irrational fiscal exuberance that begin in 1977 as the economy was recovering from the impact of the first OPEC oil price shock. Figure 1 illustrates Ireland’s path.

What followed was spectacular in terms of economic growth and development. And this made the subsequent bust even more spectacular. Of course, not all investments made during the bubble period were mistakes; there was a significant increase in the provision of very necessary social and economic infrastructure. But the allocation of capital, the financing of investment and the selection and management of projects became more and more dysfunctional over time. Economic policy, regulatory and governance factors combined to shift the economy from one based on reasonably solid fundamentals to a bubble economy vulnerable to a dramatic contraction.

While Ireland’s economy ‑ even during its more inward-looking decades ‑ has always existed in and been affected by the international context, it has also always had, if to varying degrees, considerable power of its own to affect its condition. During the boom era very considerable powers were available to Irish governments which could have been used in defence of the country’s economic interests. These powers were not deployed. What happened in Ireland was an economic, financial and property market implosion, but, fundamentally, it was the outcome of a comprehensive failure of democratic governance.

Niamh Hardiman, in her paper “Institutional Design and Irish Political Reform”, sets out more precisely, succinctly and comprehensively than I could the flaws in the systems of democratic governance, public administration and fiscal policy formulation and implementation that have led to the current crisis. The extent to which government dominates the Oireachtas (executive dominance), public administration functions in a largely unaccountable manner and fiscal policy was applied in a pro-cyclical, rather than a counter-cyclical, manner are all spelled out in considerable detail. But such a gimlet-eyed focus on what is wrong – and on what needs to be done to remedy these flaws ‑ can be usefully augmented with some consideration of how these deficiencies arose in the first place

At independence, the Irish people, like many other peoples before and since who freed themselves from colonisation or an internal tyranny, saw little need to subject the elites that led the drive to independence and freedom to effective democratic scrutiny once they seized control of the levers of governance. The bitter conflict that attended the birth of the state also placed a premium on governance without effective scrutiny, restraint or accountability.

Over time, as the role of the state gradually expanded, governments increased their power and dominance over the Oireachtas. The 1937 Constitution established, in effect, a “cabinet tyranny” that has been extended ever since. TDs, once they elect a government, are expected to continue to support that government for the lifetime of a Dáil; and those who vote against are expected to continue to oppose it. For the rest of the time they advance and protect the interests of their constituents either as groups or individuals. They act, in effect, as constituency advocates and mini-ombudspersons.

These largely local preoccupations take the place of what could be the core activity of elected representatives. This would include evaluating the general merit of contending arguments from interest groups in society and advancing, through legislation, those measures deemed to serve the public interest, measures which would have been assessed on the basis of evidence examined and debated publicly. This, unfortunately, is not the situation in Ireland, where elected representatives to the national parliament undertake work more appropriate to local councillors and decisions on national policy are taken through private processes hidden from parliament and public.

Whether voters are content with this arrangement or tolerate it because they have simply not been offered an alternative is difficult to ascertain. But there is currently no vocal, popular movement seeking to empower TDs (and senators) to assert the primacy of the Oireachtas over government. Instead, there appears to be a desire to exercise restraint directly over government by using almost every popular voting opportunity that takes place between general elections to send some message or other to government.

The extent to which parliaments assert their primacy over governments varies considerably throughout Europe. Some countries, such as the Netherlands, have a long tradition of parliamentary power, and this is also the case for the Scandinavian countries. Westminster parliaments played a major role historically in establishing the primacy of parliament over government, but since the first Thatcher government governments in the UK appear to ride roughshod over parliament. The German constitutional settlement, developed after the war, provides for the primacy of parliament and this is shared to varying extents with the other founding members of the EEC – with the notable exception of France, whose Fifth Republic adopts a division of executive and legislative powers that predates conceptually and to some extent resembles, but is considerably less effective than, that in the US. Parliaments in those countries which, relatively recently, emerged from some form of dictatorship, such as Spain, Portugal and Greece, tend to be less assertive. And many of those in the new members from the former Warsaw bloc continue to develop their relationship with governments.

Governments, quite understandably, are more than content with a parliamentary system that applies little effective scrutiny of its policy proposals or proposed executive actions, exercises hardly any restraint and imposes negligible accountability. All governments prefer such a system and, throughout Europe, as the role of the state expanded, largely in response to the desire of voters, the apparatus of government expanded correspondingly. Governments tended to increase their executive dominance over parliaments and parliaments became less capable of holding governments ‑ and this expanded government-machine – to account. But, in the last twenty years there has been some kick-back from national parliaments often prompted by voters.

For example many Danish voters, having seen a majority reject the Maastricht Treaty in a referendum in 1992 and who were then persuaded to ratify it the following year, were deeply embarrassed and annoyed and resolved that parliaments, in future, would give sufficient direction to, and exercise sufficient restraint on, governments to prevent a repeat performance. In Westminster the 2005-2010 parliament established a special committee to reform some procedures in the Houses of Commons that would allow parliament to exercise more restraint over government. The reforms were limited, as the government of the day made every effort to water them down and to frustrate their enactment, but one allowed for the election of the chairs of committees by secret ballot of MPs and this has significantly enhanced the scrutiny of government and the government machine.

Ireland is very much at the extreme end of the spectrum in terms of executive dominance of government and the corresponding weakness of the Oireachtas. However, as noted above, it appears that most voters are broadly content with this. And, despite considerable noise about the need for political reform prior to the 2011 general election – and the expansive promises in the various party manifestos (some well prepared and some hasty “me too” efforts), there is little of any substance in the coalition’s programme for government that would address this issue in any meaningful way. There is a considerable amount of “flannel” – otherwise known as the declaration of good intentions in principle but without any intent to implement them in practice. The few reforms that either have been enacted or are in the process of enactment, such as reform of parliamentary scrutiny of the budgetary process or the establishment of the Irish Fiscal Advisory Council, contain a lot less than meets the eye. And further proposed reforms, such as a constitutional convention, require an enormous suspension of disbelief to be taken seriously.

Ironically, in a referendum the people rejected a recently proposed reform – the so-called “Abbeylara” amendment ‑ which would have enhanced the power of the Oireachtas relative to government. A recent study of the reasons why people voted as they did, carried out for the Department for Public Expenditure and Reform (Marsh et al 2012), finds that a plurality of voters couldn’t recall why they voted Yes or No. It appears that many who voted No felt it was likely that the government would find ways to abuse the proposed powers for narrow political purposes.

This defeat was unfortunate. Parliaments are the best means of securing democratic legitimacy and they are an effective means of subjecting native power elites, which have an uncanny ability to capture governments. In Ireland we have witnessed the undemocratic power of elites and the disproportionate influence of sectoral interests. An empowered parliament could have challenged these phenomena as they emerged.

Ireland is not unique in having contending interest groups. Most modern societies have fragmented into often narrow, mainly economic, sectional groups advancing or protecting interests which are frequently incompatible with each other. Parliamentary democracy has proved itself to be the best means of resolving these conflicts in the interests of society as a whole. The most recognisable – and frequently the most well-resourced and well-organised – are trades unions (which are often defined by occupation or activity), business, industry or producer associations and professional bodies, but individual firms and the commercial semi-states are adept at making their pitches, both in public and behind the closed doors of government or its agencies.

The interests these groups or bodies seek to advance and protect will often conflict and some trade-offs and compromises will be required in the public interest. And, often, again in the public interest, it will be necessary to advance the interests of one group to the detriment of the interests of others. In pursuing their interests all of these groups are behaving perfectly rationally in terms of the incentives they have, the constraints they encounter and the power and influence they can exercise. The conflicts between these interests ‑ and the conflict between them collectively and the public interest ‑ is addressed currently by government at two levels.

First, there is the public, propaganda, level where every effort is made to project the image of calm, firm, competent governance and management of these conflicts, in so far as these are recognised. And this is accompanied by efforts to suppress or smother any evidence of conflict by focusing on fuzzy, nebulous concepts such as “social partnership” and the pursuit of “consensus” among “stakeholders”.

And then there is the second, hidden level, behind the closed doors of government, where these conflicts are thrashed out away from the public gaze and where those narrow sectional interests that enjoy power and influence are able to exercise these unseen. Every effort is made to reach convenient trade-offs and compromises that may be presented at the public level as a fait accompli and as a “consensus” receiving “buy-in” from all the interests involved. This is then spun furiously at the public level. Government TDs will be fed their bite-sized chunks to regurgitate every chance they get. Those in the media, who have to be uncritical of any line being spun to maintain access, will collaborate in this exercise and any sound and fury in the public sphere or on the blogosphere will be focused on the line being spun without any real understanding or critical assessment of the nature of the deal that was struck behind closed doors. And if enabling legislation is required it will appear almost miraculously in draft final form. It will then be “debated” in the Oireachtas and whipped through any divisions to enactment.

On some occasions government will have to secure some research and analysis that may be retro-fitted to justify the decision already made behind closed doors. On other occasions government will have to go through the motions of manufacturing some popular consent or democratic legitimacy for a policy proposal or set of policy proposals. These may involve the more formal traditional route of green papers and white papers, but, increasingly, they take the form of “public consultations”. These farcical exercises involve the government setting out some options but without leaving any doubt about its preferred option or approach. Submissions are invited from “stakeholders”, “interested parties” and “the public”. Those submissions that concur with the government approach are duly noted. Those that dissent or present a critique are also noted, but are subsequently ignored or rejected without any consideration of the facts, evidence or analysis presented. The various economic regulators that have been established use this approach much more frequently than government and some have turned it in to an art form that is almost beyond parody.

Invariably government and its agencies are in the market for “policy-based” evidence to justify the decisions already made behind closed doors and for material that may be used to demolish any “evidence-based” policy critiques that might threaten to refute the basis of the policy being advanced by government.

There is a huge “industry” comprised of officials, researchers and analysts within the government machine, supplemented by consultants and academics, continuously manufacturing this “policy-based evidence” for government and its agencies. And there is a parallel, but overlapping, “industry” ‑ some of the consultants and academics operate in both once they can manage any potential conflicts of interest – manufacturing special pleading and self-serving analysis for the various narrow sectional economic interests. Over and above these industries are the bodies established by statute to examine research and pronounce on public policy issues, such as the National Economic and Social Council, The National Competitiveness Council and the Economic and Social Research Institute, but these bodies are constrained in various ways from tackling these issues in the public interest. The whole process operated within the broad ambit of “social partnership” which, initially, underpinned the fiscal reform and economic progress made in the late 1980s and early 1990s but which, subsequently, contributed to the inflation of the Irish bubble.

Those involved, even if they have concerns about the damage that is often done to the public interest, have no incentive to raise their heads above the parapet – and every incentive not to. Publicly voicing concerns about aspects of a public policy or regulatory decision that has been through this “sausage-machine” could be “career- or livelihood-threatening”. And so, silence reigns. Those outside these charmed circles who express dissent are easily dismissed and brushed aside.

Much of this huge effort is, as one might say, for the “optics”. The deals struck behind closed doors rarely relate to the often elaborate arguments and analysis presented in this huge volume of material for public consumption; actual deals tend to focus on quite clinical and cynical trade-offs between various interests with little consideration of the public interest, but with huge focus on what is “politically spinnable”.

From this activity a huge edifice of legislation, regulations and procedures has been constructed in many sectors. Navigating this often requires knowledge of a specific discipline or some technical knowledge. The averagely intelligent and interested layperson is easily deterred from scrutinising what is going on – and that, of course, is the intention.

The interests of the vast majority of citizens who ultimately pay for the outcomes of these policy decisions and of the vast majority of consumers who pay for the outcomes of regulatory decisions rarely enter into these deliberations. Once the various conflicting sectional economic interests are squared – preferably behind the scenes and without involving any public conflict – the impact on citizens as taxpayers or consumers is of little import. A body such as the National Consumers Agency might as well not exist given its lack of resources and inability to advocate the collective interests of consumers in the context of policy and regulatory decisions being made behind the closed doors, respectively, of government and the regulatory agencies. The media seems incapable of conducting, and is probably insufficiently resourced and lacks the incentive to conduct, the kind of detailed and sustained investigative journalism in the public interest that would shed some light on this largely hidden process.

The murky operations of this giant “sausage-making machine” explain how policy and regulatory decisions were made that have led to Ireland being in its current situation – and on how Ireland’s specific optical illusion was projected and sustained. The mantra, continuously uttered, was “more competition and better regulation”. The reality was “no effective competition and abysmal regulation”. And, despite some reality intruding – and being forced in by the Troika – in the fiscal policy area and in the banking and property sectors, the illusion has been merely modified and it is being sustained in all of the other sheltered sectors, both public and private, to the greatest extent possible.

In a properly functioning democracy it is for government to advance proposals that address conflicts between various sectional economic interests or that advance the interests of one group or section to the detriment of others in the public interest. And it is for parliament to ensure that there is open, robust adversarial disputation of these policy proposals or proposed executive actions based on facts, evidence and analysis. Parliament is, and should be, the primary forum for addressing and resolving these issues. At present it is not. Committees may summon expert evidence, but it is rarely, if ever, directly and effectively employed in the policy decision-making process.

The economic regulatory bodies should also be required to ensure open, robust adversarial disputation of proposed regulatory decisions based on facts, evidence and analysis – and with the collective interests of the consumers affected properly represented by an independent and adequately resourced statutory body.

Oireachtas committees should be empowered to investigate policy issues and propose policies long before they emerge as faits accomplis from behind the closed doors of government. There is a strong case that the research and analytic capability of the bodies established by statute such as the National Economic and Social Council, the National Competitiveness Council and the Economic and Social Research Institute should be assigned to the Oireachtas on a permanent basis and that this work should be fully independent and carried out without fear or favour.

Moreover, we should not expect members of the Oireachtas to have specialist expertise in the policy areas they consider. Members of the Oireachtas are elected as representatives of the people to make informed judgements in their interests. There should be no requirement that they enter the Oireachtas with specialist knowledge; but there is a pressing requirement that while there that they are empowered to seek out the best available and most relevant expertise and that they are enabled to contribute to the processes of policy formation.

Until the process for the formulation, scrutiny, amendment and making of decisions on public policy, and the process for reviewing the implementation of policy, are radically reformed, broadly along the lines indicated here, Ireland’s path to economic recovery will be much longer and harder than it need be.

References:

Hardiman, Niamh. 2009. Institutional Design and Irish Political Reform, Journal of the Statistical and Social Inquiry Society of Ireland, Vol. XXXIX

Marsh, M, Suiter J and Reidy T, Report on Reasons Behind Voter Behaviour in the Oireachtas Inquiry Referendum 2011, for the Department of Public Expenditure and Reform, January 2012.

Paul Hunt is an economics graduate of UCC. He began his career in energy economics in Ireland before moving to England in 1989. In1997 he became a free-lance energy economics consultant and has worked in this capacity in almost 50 countries.

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