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What’s The Plan?

Michael O’Sullivan

Over the next four years in Ireland, a cottage industry will grow up around the centenary of the 1916 revolution. A manifest achievement of recent years has been the normalisation of our relationship with the United Kingdom. We are also more cognisant of the influence the Church has had on our state. Economically, the ratio of Irish to British GDP is now higher, but the chaotic way in which we have developed mocks the notion of a state in control of its own destiny. Above all else, the most stark contrast between the Ireland of today and that of 1916 can be found in how far we have strayed from the values that we prized then, and how we have serially failed to think strategically about our “august destiny”.



One particular flaw has been a disinclination to think of our fate in the context of global trends. In 1916, the first wave of globalisation was petering out. Today, the future of the second wave of globalisation is also uncertain. Financial markets have recently suffered their speediest correction in modern history, with the exception of the Lehman period and the 1987 crash. The brutality of market volatility signals a potential rejoining of the Great Recession, assures a remaking of the political and economic framework governing the euro-zone and destabilises America’s dominant place in the world order.



In Ireland, the next three to four years will be more difficult than our politicians and forecasters suggest, though Ireland is likely to make it through its bailout phase (the impressive rally in government bonds in the past two months is one portent here). Digesting the austerity programme will leave terrible scars socially and will curb our economic potential. What is at stake now is our ability to mature as a society and develop as a well-functioning nation-state. There are clear signs of a recognition of our situation and a willingness to make the next twenty years count in many parts of the state, though we still lack a broad debate on the strategies, institutions and skills that might mobilise this willingness.



In this respect the two urgent questions arise. First, how do we deal with the acute social problems that arise from our economic depression? Second, how do we change our behaviour so that the next ten to twenty years are more stable and hopefully more prosperous. Mindful of the consequences for the former question, this essay aims to contribute to the latter one by showing how and where we can become more strategic and more alert to events in the world around us. More specifically, it highlights the growing importance for small states of strategic thinking in the context of new global megatrends. One way in which to conceive of this is through the “Global Question”. Ideally, this would lead to the imaginative renewal of the institutions of state – a Second Republic, with a more pragmatic tilt. We should aim to focus initially on the followings fronts – Europe, the domestic economy and rebuilding institutions that allow us to interact better with the rest of the world. In particular the essay highlights some necessary radical changes to institutions, measures to tackle high unemployment and a new departure in the way in which we interact with “Europe”.



In terms of its relation to globalisation, Ireland stands out. In its role as a still young (compared, let us say, to Sweden) and perhaps naive state with a very open economy it has become the crucible for the prevailing trends in the world economy. In the 1990s it was nearly spat out of the Exchange Rate Mechanism. This was followed by a great transformation that saw it become a model of how to perform a foreign direct investment-led economic “catch-up”. Then, drunk with cheap money, it became the poster-child for the nouveau globalisation of the turn of the century, setting itself up to enter the pantheon of asset prices bubbles. It is now being prodded and pored over as an example of one of the most costly banking collapses in modern history only the Argentine (1980) and Indonesian (1997) financial crises have proven more expensive in the past forty years.



The easy success of the “good times” meant that policy-making lacked real stimulus and rigour, at least from the political level. Economic policy went no deeper than “if I have it I will spend it” while our foreign policy has not extended itself beyond a reverence for institutions like the EU and an adherence to the limp analytical framework of “Boston or Berlin”. Strategy has consistently been our weak point and as a result our independence has been damaged. This shortcoming is systemic, and can be seen in sectors other than banking, such as hospital management or the relationship between Church and state.



There are two strands to our lack of preparedness. One is a simple lack of quality in institutions and a near total absence of strategic thinking among politicians. The other is a blind willingness to accept the gifts of outsiders as a means of supporting our economy, with little thought as to the consequences of this policy. Two examples stand out. One is the very successful attraction of mainly US multinationals to Ireland, a side effect of which has been to leave policymakers and capital providers with a blind spot as to the importance of a strong domestic services/industry base. The other has been the ready adoption of the constraints required by the euro-zone, with very little accompanying organisation to deal with the imbalances likely to be produced. In other spheres similar cognitive errors appear. Successive foreign ministers, for example, have declared that the UN is the cornerstone of Irish foreign policy, an intellectual cut and paste that has saved them the trouble of crafting a distinctive independent policy themselves.



Accepting the wisdom and apparent benevolence of others may help us in the short term but it limits our independence and sustains intellectual laziness. This passivity may stem from our long colonial past, and perhaps also from the fact that the state grew up during a period (the 1930s to the 1970s) when the world economy was more closed than open. The authoritative account of Ireland up to and beyond this period remains Joe Lee’s Ireland 1912-1985: Politics and Society. In its 630 pages, one quote that stands out is “ ... small states must rely heavily on the quality of their strategic thinking to counter their vulnerability to international influence”. Written at the end of the 1980s, this would seem more likely to have been intended as an admonishment than praise of Ireland. Against this backdrop, the growth of the economy from the 1990s onwards might offer some rebuttal of Lee’s view. Even today, in spite of the fog of our debt war, it is possible to find things that “we did right”.



Still, on more careful examination, it seem that we may have made policy more by accident than genius. For instance, factors that with hindsight are seen to have spurred growth in Ireland’s economy, such as its decent education system and the rule of law, had been in place for some time beforehand. These positive achievements were established for civic rather than economic reasons and were later denigrated. Public goods like education and healthcare have been infected by a pseudo-commercial ethos that has ultimately left them badly run, less effective and structurally slovenly.



If we need further convincing of how poor we are at strategy, the weak and damaging policy response to the banking crisis is proof. A comparison with Iceland and Switzerland is worth making: by 2007 Ireland and these two small countries stood out as having similarly extended banking assets to GDP ratios. The comparison with Iceland has drawn much media and pop-economist attention, partly because the path it took was initially more perilous though politically more courageous than Ireland’s, and because the recovery profile of Iceland now seems relatively much less complicated. Fewer comparisons have been drawn between Ireland and Switzerland. The Swiss, who have ages of banking experience, did pretty much everything Ireland did not do, though it should be said that in their case foresight was not perfect either. In the case of UBS, Swiss policy-makers were early to the scene of the accident, quick to act and leant into the banks. Ireland was slow and let the banks make the running. More compelling is the fact that the Swiss had far greater depth and breadth of expertise in understanding, overseeing and mending banks. By comparison, in terms of absolute numbers of experts and years of international experience, Ireland’s ability to comprehend and act upon malfeasance across its banking sector was feeble. The difference in institutional quality between Ireland and Switzerland is not restricted to banking – Switzerland’s foreign policy of neutrality is regarded as the benchmark, whereas Ireland’s seen as far less rigorous. In terms of branding, research and development and marketing, the Swiss food and healthcare industries are far ahead of our own.



 

We are now well acquainted with the downside of not being “strategic”, though perhaps none the wiser as to what this entails in practice. Definitions of strategy normally touch upon the thoughts of great thinkers, leaders and ,better still, great military men. In the context of a small country strategic thinking can be encapsulated in a few actions – thinking about the future and the risks posed by trends internal and external to a state, assessing how the sum of these elements can impact upon it and then building institutions and skills that can protect us and advance our interests.

 



To the notional Irish household, under stress from falling real incomes and threatened by negative equity, the meaning and utility of strategy may seem obscure. Our media and political system tends to focus on the local, the detail and the practical. This is often a virtue. For example, “bottom-up” issues like water charges, pension cuts and unemployment are real and tangible economic and social events with direct effects on people. In contrast, we might ask “can you eat strategy”? Yet in the context of our financial crisis thinking only about “bottom-up” issues leaves us vulnerable to significant changes in economic and social trends. More specifically, a strategic approach to policy could reduce volatility in growth and curb socially damaging tendencies such as extreme wealth and income inequality.



More importantly, the new trends that are beginning to crystallise in the aftermath of the credit crisis give us a sense of how the world will change through the twenty-first century. The emergence of a cleavage between developed, indebted nations and emerging, low-debt ones will greatly affect the distribution of economic growth. At the same time some corporations have cash reserves that are nearly as great as government debt balances. The internet has entered a new phase with e-commerce. Social mobility, technology and cyber warfare are proving highly disruptive to established business models. Agriculture is profitable again if strong demand from emerging consumers for wine, water and wheat is anything to go by. These and other megatrends deserve a strategic response.



Strategic thinking and the commensurate policy responses are increasingly prominent in the emerging world (notably in countries with only partially developed democracies and semi-open societies). China, for instance, is now on its twelfth five-year plan while the government of Singapore has a specific ministry “for the future”. Other newer though highly dynamic nations or “micro-powers” like Qatar seem to increasingly specialise in buying strategic assets and in making geopolitically significant strategic actions (such as playing a prominent role in the “liberation” of Libya).

That a number of small countries – the Nordic nations are the usual suspects though Chile, Israel, New Zealand, Singapore and Switzerland are well known for strategic thinking and the quality of their institutions reinforces the view that there is a premium on strategic thinking for small countries. As a more general acid test, we should consider how our response to potential security, environmental, and social crises might differ from those of other small countries.



Globalisation is one reason for this. Small and emerging countries tend to be the most globalised (see the A.T. Kearney Globalization Index) though they are also more vulnerable to the gargantuan side effects of the phenomenon. As the effects of American monetary policy on the Hong Kong property market or the impact of Chinese economic growth on Australia indicate, small and smallish countries can be swamped by the tides of globalisation. In this international context, one way to frame or conceive of strategic thinking is through what we might call the Global Question. In Ireland’s case the Global Question asks how a small open nation can independently manage the effects that globalisation has on its economy, society and public life.



Imagine what a strange, though possibly well-adjusted country Ireland would be if the default or knee-jerk reaction of our politicians and policy-makers was to think in terms of the Global Question. Instead of turning out prominently at funerals, sports events and the openings of buildings they might attend seminars and build spreadsheets to monitor social inclusiveness, environmental stresses and the prevalence of organised crime. Virtue, in its oldest sense, and the public good would trump considerations of securing the local vote as the guiding light of political decision-making.



Despite the lessons we have been able to derive from our recent bubble and financial crisis, and the further consequences of lessons yet unlearnt, the fanciful scenario sketched above will be slow to materialise. Some developments senior appointments in the Central Bank and Financial Regulator, a Department for Expenditure and Public Service Reform and a Minister for Children are very welcome, more so if they prefigure bigger changes. Changes in mindsets must be facilitated by upgrades in skill levels and importantly by very broad institutional change. More pointedly, the development of strategic thinking and strategically capable institutions in Ireland needs a vehicle and set of institutions to make it operational.



If anything underlines the need for such a change in “the way we do things” it is timing, and there are several reasons for this. For one, in terms of the potential economic and social outcomes that face Ireland this is the most important period in our history since the 1920s. Either we can readjust and institutionally re-equip so that we can realistically aspire to emulate the levels of development of Sweden and Switzerland, or we can remain docile and allow the consequences of indebtedness and the implications of a multi-polar world to smother our economy.



Outside Ireland, two tectonic shifts in power will hasten the need for a more adaptive and far-sighted approach. One is the evolution of the architecture that governs the euro-zone and by extension the emerging political shifts across the EU; the other is the crystallising of a multi-polar world around the fault-lines of government indebtedness. To express things very simply, higher-growth, low-debt emerging countries like Indonesia will become relatively more powerful while correspondingly, the relative power of high-debt, low-growth countries like the US and UK (Ireland’s key allies) will wane. These trends have been brutally signalled and accelerated by the levels of extreme volatility in financial markets during August and are now entering into the “consensus” view of international affairs.



These megatrends are fascinating to observe, but when posed with the question of how a country should adapt to them and become more “strategic” the answer is less clear. Should we set up a multitude of think tanks in Ireland to advise us on what is going on in the world outside, or should we aim for self-sufficiency in all goods and services as an insurance policy against globalisation? In the eyes of this author, the appropriate and necessary response would begin with a total and organic re-evaluation of the values that guide, or rather should guide, our state. A legal and conceptual vehicle for this could be termed a “Second Republic”1. This type of re-assessment of the intrinsic nature of the state has in general been lacking from political debate in recent months.



 

The February election produced a landslide shift in political power, but apparently very little change in the overall nature of the body politic and the “way things are done”. In the same way, well-regarded political interventions signalling that we are a “republic and not the Vatican” have lacked follow-through in terms of defining and making operational classical republican values. The more ambitious “Second Republic” approach is consistent with the values that have inspired Irish revolutions and constitutions, and it also brings a sharp focus on institutions and values. In this respect, there is an important distinction to be made between a classical republican versus a democratic approach. Republics do not have to be democratic, though the best ones are. Similarly, many of the world’s democracies are not republics. The recent election has shown that Ireland is a very healthy democracy, but the issues debated during the election campaign inequality and institutional dysfunction to highlight two suggest that it is a failing republic.

 



If we think very simply of a republic as referring to a system of government that fosters the common rather than individual good and promotes freedom and equality, or, even more colourfully, think of the words of the 1916 Proclamation that proclaim a “resolve to pursue the happiness and prosperity of the whole nation and of all its parts, cherishing all the children of the nation equally” and place them side by side with evidence from the banking and child abuse scandals, we might conclude that Ireland is a very tarnished republic.



If the classical republican values that thread through our history are valued, then the first step in reinvigorating them must be to return an element of accountability to public life. Accountability is greatly underestimated as a contributory factor in the rule of law, business confidence, fraternity in society and the way in which outsiders regard us. Accountability does not and should not merely comprise of political speeches or haranguing but concrete action by the state to prosecute wrongdoing and malfeasance and to ensure that negligence and incompetence do not go unchecked. Accountability, especially at the white and clerical collar levels, does not require the establishment of new, complex legal structures but rather a broad-based desire to prosecute criminal and negligent actions.



The starting point must be to re-establish the credibility of existing institutions by ruthlessly prosecuting the negligence and incompetence that has corrupted the financial sector and its governance. That this has not already happened indicates that politicians do not fully grasp the extent of system failure in Ireland and suggests that institutions in other areas (for example the food sector, health and transport) are similarly flawed. Without an awareness of the seriousness of the accountability problem Ireland will not redevelop as a nation.



In time this issue may grow in political importance and perhaps, as the demarcations of civil war politics fade, Irish public life may be divided between the “Second Republicans” and the “Banana Republicans” along the lines echoed by the words of Wolfe Tone about the “test of every man’s political creed, and the nation was fairly divided into two great parties, the Aristocrats and the Democrats”. In this sense, the “Aristocrats” are for the status quo, mindful of the attractions of populism in an age of enforced austerity but oblivious to the many social problems that are festering under that blanket of austerity.



A “democratic” way forward, to use Wolfe Tone’s term, would seek to rebuild around three focal points – the umbilical cord that binds us to the euro-zone, the economic megatrends swelling around the global and, most importantly, the institutional arrangements needed to capably run the state in a strategic way and facilitate the emergence of a domestic industrial sector.



To take the euro-zone first. This adolescent monetary structure has endured a brutal hazing at the hands of markets this summer, to the extent that Jean Monnet’s observation that Europe needs a crisis to move forward is taken as a modus operandi by financial market participants and, it seems, by the ECB. One outcome of the piecemeal and often haphazard way in which the EC has administered economic sticking plaster through the past twelve months is a broad loss of confidence in the politicians leading the union and in the policymakers at the heart of the commission2. In most cases, an embarrassing lack of coordination3 and the triumph of a punitive over a recovery-focused outlook have led to the violation of Hippocrates’s principle of “do no harm”. Ham-fisted austerity, bad communication to markets (such as at the Deauville summit last October) and time-consuming deliberation have arguably weakened the Irish, Greek and Portuguese economies more than a standard IMF package might have and have also imperilled Spain.



At the centre of the crisis, the ECB is perhaps the only truly centralised euro-zone decision-making body, and, like the Federal Reserve in the US, is left to do most of the heavy lifting of this business cycle. The power and isolation of the ECB shows how other EU-wide institutions need to evolve, and this is the key point in this argument – however chaotic market prices have been through the summer, behind the scenes a new phase has begun in the evolution of the EU and Ireland must play its role in this.



In the not too distant future, Europe is likely to have a “super” finance ministry to monitor and possibly coordinate fiscal policy across the euro-zone, a feasible exit process for recalcitrant states (this may need to happen very soon), a euro-zone debt agency, the issuance in some form of euro-zone bonds4, and tighter policy coordination between the very big countries (France, Germany and in the future the likes of Poland). In time, these institutional changes may be copied in other spheres, the military/security one being the obvious example, though as with the ongoing economic crisis a conflict involving the EU may be the unfortunate and necessary catalyst.



There is however, a very live risk that without adequate leadership we will go the other way (we don’t even have a European leader to issue a George W Bush-style warning that “this sucker could go down”). A chaotic Greek economic crisis followed by default is now quite possible and Ireland should be prepared for the consequences of this, and for the opportunity to re-order our own government debt. Specifically, a Greek restructuring, which could occur towards the start of 2012, will take place when the ECB, German and French governments and their banks are ready for it. Ireland should be prepared for every scenario that may come to pass from the implications of a Greek restructuring, not least for how to benefit from such an event. If it has not already been set up, a working group should be established between the EU, IMF, ECB technical staff (this group may even include contributions from the BIS and OECD) and Irish officials to plan for the implications of a Greek debt restructuring on Ireland. Moreover, the group should also work to manoeuvre Ireland away from the financial periphery by proposing ways by which to elongate the maturity and lower the yield on the promissory note debt tied to Anglo-Irish bank (a leveraged EFSF may be one avenue toward funding this). Ultimately this may involve a “hit” to the balance sheet of the ECB, though the long term cost to Europe of the Irish economy should be reduced as our debt burden becomes more sustainable. More broadly across the continent, Euroscepticism is now a politically profitable strategy5, though a lazy one. As the states of Europe become fitfully more united, Europe may even have its own Tea Party – a clustering of disparate groups loudly committed to a unified but simplified and fiscally less ambitious and miserly Europe.



It is not hard to see how Irish people’s previously positive view of the EU could change6. But the apparently widespread notion that our vast national debt exists because of a desire by the EU to protect French and German banks is a delusion. Ireland, its banks, property oligarchs and policy-makers are culpable of creating an asset price bubble that rivalled the Japanese property boom of the 1980s and the Mississippi Scheme and South Sea bubbles of 1720. Our remedy in the aftermath of this bubble was to ensnare the state in the debt of Irish banks and then to wander aimlessly into the arms of the EU bailout package. Complacency, greed and bad policy-making are the root causes of our plight and that needs to be faced up to.



Our approach to Europe must change. We should be less inclined to regard it as a source of easy capital and more questioning about how it is run. We should also change the way in which we engage with it. One example is the role of the EU Commissioner, which has traditionally been regarded as the channel through which Ireland can contribute to the EU, but more so one through which Ireland can tease funds and favours from the Union. This channel will become less relevant in the future, while the governmental channel will become more important.



Ireland should first of all fight hard so that the lessons of our bubble are incorporated in the evolving structures of the EU. One practical example is the tension between fiscal unity and fiscal flexibility. Our case shows a small country that failed to use its fiscal policy intelligently to offset a common monetary policy7, an example that should argue for adequately monitored fiscal flexibility in the future. A common fiscal policy will tie both hands behind the backs of the small euro-zone states.



What is also remarkable throughout the recent crisis is how little European leaders have sought to place Europe in the context of the broader global economy and how apparently unaware they are of the competitive threat from Asia and other parts of the emerging world. Growth as an objective is rarely mentioned. This is where smaller and intermittently dynamic countries like Ireland must interject by filling the expansive policy terrain with a more pro-growth discourse.



Aspiring to become an intellectual gadfly at the EU table is a constructive way for Ireland to redeem itself rather than falling prey to unthinking Euroscepticism. If we choose to be even more presumptuous, we might well (with no sense of irony) demand that one of the new institutions that materialises in a tighter euro-zone (such as a debt agency) be located in Ireland. A more provocative tack might be to stir the debate for a change in the mandate of the ECB towards a more growth-focused policy. Assuming the “pro-growth” mantle is likely to tar us with the Anglo-Saxon brush, but this is a burden we can surely bear, and with the prospect that government indebtedness could yet sink the world economy into an economic depression, a cause worth fighting for.



It is also a cause that must be taken up on the home front. The structure of Irelands economy requires a strategy. It suffers from several weaknesses. The first is a simple problem of demand resulting from a broken banking system, shocked household balance sheets and crippled confidence. The second is a puzzle of capital misallocation and the third an adolescent domestic industrial structure. Taking demand first, the export sector is healthy but with the US and UK economies likely to barely grow in the next year, forecasts of Irish GDP growth of 2.5% for the next two years are wildly off the mark. There are some solutions to our demand shock that have not yet been tried. One is to construct a new national bank around the post office network; another is to give a full airing and analysis the innovative scheme to exchange bank bonds for mortgages proposed by Arthur Doohan to alleviate the problem of severe negative equity for some households. Both proposals may weaken the existing banking pillars though it remains to be seen whether these are viable in any case.



The most serious effect of the fall in demand in our economy is unemployment. This has regressed to where it stood in the late 1980s and Ireland now has a rate of male youth unemployment that is higher than that of some of the Arab uprising countries. There is relatively little that can be done to magically reduce the levels of unemployment, but several mistakes can be avoided and importantly, the social contribution of the labour force can be enhanced. In terms of stimulating job creation, there are at least two avenues that can be explored more intensively. One is to scour the full range of EU structural and cohesion funds potentially available to Ireland. The disbursement of allocated funding could also be changed. One aim would be to spend them on projects where there is significant impact in terms of low-paid jobs on projects that (like the old Community Support Framework) also help to address social and infrastructure issues. Even more specifically, Ireland should work with the EU to set up a language skills fund that would tackle the weak European language skills of the Irish labour force by funding tuition and work experience programmes for Irish people in other EU states. The European Investment Bank is another potential source of funding, and if Europe had more of a growth bias, it should be issuing Marshall-type bonds that fund infrastructure projects around the European periphery.



One labour area that requires attention is reskilling, especially in the case of workers who had previously been employed in construction and related industries. There is already a considerable body of evidence that points to the need for the state to engage very early with unemployed workers. One of the more thorough discussions of the labour market is the NESC paper on supports and services for unemployed jobseekers8, which points to the need for better coordination of information on jobseekers, better appraisal of their needs for training and reskilling and improved matching of labour supply with demand. It seems that coordination of the process of engaging with, assessing and preparing the unemployed for work has to date been poorly executed. The creation and recreation of new bodies such as the NEES (National Employment and Entitlements Service) and Solas (the new Education and Training Agency to replace FÁS) is very welcome here though the slow speed at which state institutions have been brought together is worthy of a management studies case study.



A related part of the labour market literature speaks of the very important esteem that arises from employment and correspondingly the lack of confidence that is bred by endless job-searching. In this respect and without the goal of simply reducing unemployment “figures”, there is potential for unemployed workers to participate in roles that are socially very useful (but which don’t crowd out jobseekers). Some examples are in care work, as tourist guides, social work - roles where austerity precludes formal “jobs” but where the social impact of live roles is important. An added incentive of tax credits on future employment could be introduced and specified access to computers, office equipment may also help. An additional innovation would be to encourage the use of social media and web platforms to help match labour supply and demand, either for formal employment or work experience.



The second weakness facing our economy and something of a longstanding puzzle is the troubling mystery of capital misallocation in Ireland. While Irish savers have traditionally been reluctant to provide capital to Irish entrepreneurs they have been willing to risk everything they have (and more) on a speculative asset price bubble. In addition, it is also puzzling that some consumer prices have remained stubbornly high during our recession. Proponents of Ireland’s “economic miracle” point to the relatively high levels of private research and development expenditure in the Irish economy, but the reality is that much of this capital comes from abroad through multinationals. Historically, Irish savers have not been generous providers of seed capital to Irish companies, nor have they been a willing source of secondary capital for research and development. Where they have invested, it has not been well diversified and, though this is a generalisation, has also been speculative. Much of this misdirection of capital has resulted from the poor quality of retail, private and investment banking in Ireland.



Several measures could help to remedy this: for example tax policy to make it relatively more attractive to invest in Irish-based investment projects than Estonian real estate for example. In addition, better oversight of the investment service and asset allocation policies of Irish financial institutions can help to halt the misdirection of investment capital. A more structural solution would be a state investment bank, funded largely by private savings (and potentially though large international private equity and wealth management institutions. One innovation might be to seek capital from the very large holdings of multinationals, many of whom have manufacturing bases in Ireland and who might also be willing to act as partners in investment projects from an operational point of view.). It is important that this should be run as a state body, partly because of the expertise already built up by the state (from the ICC to Enterprise Ireland) and its links to universities and also because of the need to incorporate strategic development goals with purely commercial ones, and the need to draw together state-related bodies such as the universities into specific projects. Another imperative is that a state investment bank can help to support important public good projects that would perhaps be beyond the capability or remit of more straightforward investment funds. It may also be the institution that designs and manages the issuance of government-backed convertible type bonds linked to specific infrastructure projects.



One role of the state investment bank would be to participate in shifting the structure of the Irish economy from property and construction towards industries that respond to and reflect new global megatrends. Some examples here are the emergence of a “consumer” class in emerging nations and the rising importance of food security. In particular this is an area where Irish agriculture can play a role (recent export figures show some promise). It has traditionally struggled to match supply to domestic demand and has a relatively mediocre record in adding value to domestic agri and food products. The new development globally is a frighteningly strong increase in demand for soft commodities, meat, farm equipment and fertilisers in emerging markets9 and a growing awareness in emerging countries of the importance of food security. Changing food tastes in Asia, pressure on agricultural yields, rising wealth and demographic change are conspiring to drive strong demand for branded food products, a trend that the likes of Danone and Nestlé are already taking advantage off and one that also offers an opportunity to Irish agriculture.



This will give a sense of how our adolescent industrial structure can mature. At this stage there is less a need for a French-style grand plan of poles of competitive advantage, and more a pragmatic removal of some of the blockages (legal costs, service charges) affecting domestic industry and services, a well as a re-appreciation and retraining towards a higher quality offering from Irish companies.



Beyond the economy, a more dramatic proposal is to radically change many of the institutions of the state in order to better engage with the forces acting on Ireland from afar. Quite simply, when the social, economic and geopolitical issues that will face Ireland in the twenty-first century are assessed, it will be seen that the traditional structures of the state are neither appropriate nor nimble enough. Tearing them down and rebuilding from scratch would be ideal, but is very unlikely to happen in practice. Merging, reordering and redirecting is more feasible. Foreign Affairs is one starting point.



As small, fast emerging countries across the Arabian Gulf are showing, building new institutions and co-opting those of others (from cultural to military institutions) is the key to economic security and to the establishment of “micro-power” status. Another idea is to fuse the IDA with elements of the new Foreign Affairs/Trade ministry (this has received surprisingly little attention) and possibly Defence, to create a super globalisation ministry. This could have the function of crafting strategic responses to long-term trends arising from globalisation such as the rise of the emerging consumer, global organised crime, behaviour-changing social media, the financial strength of sovereign wealth funds and many multinationals.



In further response to these factors, foreign policy itself needs to be rethought. While our economic liberty is now very much constrained, foreign policy is one area where innovation is possible and it should be remade for the context of an indebted, globalised world. The starting point should be to dispense with our weak form policy of neutrality, and preferably, adopt one that is meaningful and constructive. One opportunity here is the remaking of the entire Mediterranean region. Political deadlock between armies, tribes, student organisations, religious bodies will put a premium on impartial diplomatic intervention. Advice on nation-building, and on simple issues like rebuilding police forces, education systems and writing constitutions will be required, and are arguably best provided by the small, developed neutral countries of the world like Switzerland and Finland.

Elsewhere, some new institutions, such as banking oversight, could be permanently outsourced to the EU. Others, such as a “super” social affairs ministry (more ambitious and distinctive than “social protection”) that deals holistically with the symptoms and causes of our social problems need to be built from scratch. At a broader institutional level, the design of a cross-department, multidisciplinary education programme for senior civil servants may be one way of developing necessary technocratic skills. This would arguably encourage better coordination across departments, a vital process that could also be enhanced by a “one country” office that would work to coordinate departments and state bodies on specific projects.

 



In twenty years’ time we should not look back and say that we failed to see how the structure and aims of the EU changed, nor that we were unaware of how the business logic that drives multinationals altered, nor that we did not prepare and adapt the institutions of the state to cope with an array of new and more difficult social problems nor a multi-polar world economy.



We should be able to point to the lessons we learned from our speedy economic catch-up period, the hubris of our property bubble and the embarrassment of the attempt to rescue our banking system, and the brutal passage through austerity. High unemployment and a broken housing sector should not be permitted to aggravate social problems.



Our aim as a state in the next twenty years must be to control our destiny as best as any small state can, by adopting a more strategic approach to the good and bad effects of globalisation. We must also win back our independence by building and rebuilding the institutions that drive the country forward in a way that recoups the values that originally fired the birth of the state.



 

1. The Irish Times, 14 April 2009 and Financial Times, 22 February 2011.
2. According to the latest Eurobarometer survey, August 2011, fewer Europeans trust the EU and more do not trust it than at any time since 2004.
3. For example, see a speech by Lorenzo Bini Smaghi, member of the executive board of the ECB, to the Hellenic Foundation for European and Foreign Policy, entitled “Adjusting to the Crisis: Policy Choices and Politics in Europe”, Poros, July 8th, 2011.
4. Several proposals on such a structure have been put forward (W Boonstra (2005) Towards a better stability pact, Intereconomics, P. De Grauwe and W. Moesen (2009) Gains for all: a proposal for a common euro bond, Intereconomics, S. Eijffinger (2010) Eurobonds - Concepts and Implications, European parliament March 2011) the more attractive being J. Delpla and J. von Weizsacker (2010) The Blue Bond proposal, Breugel Policy Briefs.
5. Gay Byrne’s attack on “mad people” in the EU running our country is an example.
6. Eurobarometer (75), August 2011, reports that Irish people have the third most positive view of the EU out of thirty countries, behind Romania and Bulgaria.
7. http://files.nesc.ie.s3.amazonaws.com/nesc_reports/en/NESC_123_2011_summary.pdf
8. The introduction of the Fiscal Advisory Council (FAC) should help to prevent this in the future.
9. For example, an OECD report highlights near parabolic rise in demand for soft commodities. OECD – FAO Agricultural Outlook 2011 – 2020.


 Michael O’Sullivan is author of Ireland and the Global Question (Cork University Press 2006), and 'What did we do right?' (Blackhall Publishing 2010) with Rory Miller.

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