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The Economic Legacy of Bertie Ahern
Read more about: Bertie Ahern Resigns, Economy, Fianna Fail 
Paul Tansey wrote an impressive list of economic achievements during Bertie Ahern’s tenure as Taoiseach:
On Ahern’s watch, the Irish economy almost doubled in size, while the numbers at work increased by one-half . . The unemployment rate declined from 10.4 per cent in 1997 to 4.6. In the 10 years from 1987 to 1997, net emigration amounted to 83,000 people. This migratory experience was wholly transformed in the succeeding decade. . . In the 10 years to 2007, the net immigration inflow reached 392,000. The annual volume of Irish consumer spending on goods and services has risen by four-fifths since 1997 . . average per capita living standards have risen by some 50 per cent over the past decade. Thus, Ahern can look back on an extraordinary record of economic achievement.
No doubt. So why is there still a nagging sense of something fundamentally amiss? Could it be that historians, looking back on that decade, might reach a different conclusion? Mr. Ahern’s lasting legacy may well be that, with more resources at his disposal than any other Government had, he proved not to be the most devious, the most cunning; but rather the most wasteful, the most short-sighted.
The Irish economy had finally left the station by the time Fianna Fail returned to power in 1997. Fuelled by the arrival of foreign multi-nationals, the economy was driven by a massive increase in export sales. This transformative event resulted in growth rates nothing short of phenomenal. Unemployment fell, emigration ended and more money fell into people’s pockets (no matter how skewered that distribution was).
Mr. Ahern didn’t cause this – though Fianna Fail, with justification, can take credit as they had been the primary Government party since 1987. For the ingredients of success were rooted in policy – the IDA’s proactive strategy of targeting ‘industrial winners’, combined with a considerable increase in capital investment courtesy of the EU taxpayer in the form of Structural and Cohesion funding; the creation of industrial stability through social partnership and macro-economic stability at the expense of public services. It paid off when Ahern became Taoiseach: employment was growing, the budget was in surplus, real growth was taking off and wages were rising.
1997 will prove to be a pivotal point. There were a number options open to the incoming Government but under the stewardship of Mr. Ahern, a former Finance Minister, they took the worst option – one which we are paying for now. The sensible option would have been to reinvest the wealth created into the economy’s major deficits:
* A decrepit infrastructure
* Chronic educational underfunding
* The lack of a competitive social infrastructure
* A poorly functioning health service
* An anaemic welfare state
This could have been accompanied by a major redirection of social partnership – away from the ‘wage moderation compensated by tax cuts’ strategy – to one where moderation would have been compensated by an increase in the social wage.
That would have been the sensible option. It would not have entailed donning Che Guevara headgear and retreating to the jungles. It would have been on a par with a company which, having received a windfall, takes the profits and reinvests them back into the company – to develop new markets, new products, upskill the workforce, introduce new employee participation measures, etc. Sensible, pragmatic and utterly forward-looking.
But Mr. Ahern was no visionary. He ruthlessly exploited the economy for political gain and, with his partner in economic crime – Charlie McCreevy – proceeded to blow the money and the economy (much as a company might have rewarded itself with unsustainable share dividends or a mega party for executives on a Caribbean island).
The rot set in with Fianna Fail’s first budget upon returning to Government, slashing the top and bottom rates of tax. They never looked back. In an orgy of wasteful spending they proceeded to continue to slash tax rates – income, capital gains, inheritance tax. They did this above board and below (a particularly nasty bit of tax cutting occurred when, buried deep in the 2000 Finance Bill, they changed the inheritance tax regime on pensions, providing a massive windfall for the wealthiest sectors).
This tax-cut orgy had two very serious consequences: first, it teed up the property market. Without any controls on land prices or any policy on land use, ‘rezone and build’ became the order of the day. Never mind that this activity was not integrated into a coherent planning framework (would new-build communities have access to health services, schools, public transport?); developers became multi-millionaires overnight and house prices rose to unsustainable levels.
Second, it freed up literally billions of Euros to be sent abroad in that other most productive activity – buying up foreign property. Rather than using taxation and a more sophisticated regime of allowances to provide for investment in our economic base, the heavy money went off to Bulgaria to buy apartments, or London to develop offices.
That this orgy of property and consumer spending was never going to last was clear, but that didn’t stop Mr. Ahern. Many have commented on the disproportionate influence of the PDs – as if Fianna Fail handed over economic policy to the 3% party. This is a myth, propagated by the inflated self-importance of the PDs themselves. Fianna Fail was only following the well-worn path of many European governments. In Germany, Chancellor Schroeder was ripping apart the German welfare state with the Hartz IV reforms while the UK’s New Labour was making a fetish out of PFI.
Indeed, it was Fianna Fail Ministers who introduced the disastrous privatisation of Eircom and Aer Lingus – handing over our telecommunications infrastructure to a private equity firm while leaving our air transport prey to monopolistic predators. These were authentic Fianna Fail policies: the PDs merely proved to be effective and opportunistic cheer-leaders.
To demonstrate this point one need only read Mr. Ahern’s 2007 Ard Fheis speech. With the economic dogs starting to gather outside the door, Mr. Ahern dismissed the ‘know-nothing’ doomsayers and launched an outrageous set of tax-cutting promises that put Fine Gael and Labour in the shade. That he did this, despite what he must have known (or, at least, strongly suspected) about the economic trends, shows a clear ideological commitment – to the small state, the non-intervening state, the limited public realm and the primacy of private preference to social determination.
This might seem to run counter to his long-standing relationship with the trade unions but that assumes that, for Mr. Ahern, social partnership was an economic instrument. It wasn’t. Social partnership was first and foremost a political construct. Mr. Ahern was more class-conscious than any other Irish politician. Fianna Fail’s hegemony was and remains rooted in the working class, within the trade unions – public and private sector. Without that, there is no Fianna Fail project. If he proved amenable to compromise than it merely proved that he was as effective a Fianna Fail leader as any of his predecessors. Indeed, we can only praise the political skills of a politician who can seat the PDs and the Greens around the same cabinet table and make it work.
Ultimately, Mr. Ahern never took up the challenge of driving an indigenous entrepreneurial base. In this, he proved to be an effective student of economic history. Not for him the continual banging-the-head-against-the-wall of a Sean Lemass, or Jack Lynch’s ‘throw of the dice’ vulgar Kenynesiasm. There was little to be gained from that. Build an alliance based on foreign capital, property and cheap credit, and ride the waves: that was Mr. Ahern’s project. And he proved terribly successful.
But that success only postponed the painful day – the day that is now dawning. And Mr. Ahern, ever the brilliant reader of political events, will not be around to see us through that. Just as well. Declining growth, out-of-control Exchequer deficit, rising unemployment, falling construction activity and consumer spending, cuts in an already debilitated public services, a highly uncompetitive infrastructure – he wouldn’t have had the vision or foresight to deal with them for the simple reason that they were logical and wholly foreseeable outcome of his policies, his strategies.
And we still have the decrepit infrastructure, the chronic educational underfunding, the lack of a competitive social infrastructure, a poorly functioning health service and an anaemic welfare state. Ten years is a long term to engage in orgiastic pursuits – but there you are.
And that, ultimately, is the economic legacy of one Patrick Bartholomew ‘Bertie’ Ahern.
This would have been an excellent overview of Ahern’s totally incompetent management if the piece had not been overloaded with sackcloth and ashes socialist piety – of the variety propounded by CORI – totally irrelevant to the demands of a vibrant, forward looking economy.
Ahern had the good fortune to have had the title of Taoiseach during the period of relative prosperity – a significant amount of which was due to inward investment, rather than indigenous, organic growth.
But the title – and the trappings attached – was IT.
No more.
He added no value to the wealth of Ireland. On the contrary, he wasted it – and his €400 a week cosmetic make-over is a typical example of the values of this pathetic, vain person.
He will be missed — for all the Right Reasons – his overdue departure.
Now it is up to Brian Cowen, an obviously able chap, to prune out the dead wood.
By creating a small, manageable Cabinet of top class professionals, skilled in Management – say about Six in number:-
Justice (incl. Defence): Finance: Communications: Natural Resources: Human Resources: and a First Minister who would have no Portfolio, but who would take charge of Foreign Affairs and have a Casting Vote.
Education: Health: Children: Tourism etc… could be managed by Senior Civil Servants – under direction from the appropriate Cabinet Minister.
Over to you Brian – it makes sense & will be much easier to control.
This is an excellent post. I would only add the boost that came from the European Monetary Union, resulting in extremely low interest rates for an extended period since rates were being determined by conditions in the big core economies and not the small peripheral ones. It was nothing to do with Bertie but the economy rode the wave and he got the credit.
I also think SOS identifies something important in the size of government — specifically the number of people that it seems to take to run the country from the top. Consider the counterexample of Michael Cullen, a politician in a country about the same size as Ireland and with a similar system og government i.e New Zealand. He serves as Deputy Prime Minister, Minister of Finance, Minister of Tertiary Education, Attorney-General and Leader of the House — all (besides the latter, which has no direct counterpart in Ireland) which are done as separate positions here. The Baltic states are also of the same general size as Ireland and get by with a much smaller top layer. When Cowen is asking for cuts, as he surely will be, he might want to look around the table at the next Cabinet meeting.
Thank you, P. O’Neill.
I have been asking this question for so long, it is gratifying to see that someone else is aware of the waste.
Perhaps it is necessary to reward TD’s with portfolios, but they could function much more effectively if they were to remain in their local constituencies and act in conjunction with Local Government – in identifying & solving local problems.
Such problems tend to duplicate around the country and it should be possible to co-ordinate feed-back to the relevant Minister, in order to assess priorities for the allocation of resources.
For instance, a local TD might identify health problems in the local community. If the same problem came up on the screen in several local areas, the Minister for Human Resources (embracing Health; Education: Welfare etc.) could formulate a budget, required to deal with the alleviation of the problem.
In order to remain impartial to local pressure, it would be necessary for all Cabinet Ministers to vacate their local constituency responsibilities.
And, in order to eliminate pressures from focus groups, all Political Donations – of whatsoever hue – cash bungs; loans; goods; swaps; discounts; favours; write-off of debts etc… – would need to be abolished, if the legacy of Bertie & Charlie is to be buried, permanently.
I’m confused, SOS. Where exactly is the ‘sackcloth and ashes socialist piety – of the variety propounded by CORI’ sections of the post you refer to? I would have thought that infrastractural investment – physical, social and educational – was extremely relevant to a ‘vibrant, forward-looking economy’. And that property speculation was ‘irrelevant’.
Clearly, P O’Neill, this man Michael Cullen must be a dynamo. I also see that New Zealand, with a population similar to the Republic (4.2 million) has 120 members of parliament, contrasted to our own 166. When you put that together with Davy Stockbrokers’ findings that we have fewer public sector employees than most other EU countries, there might be an argument for a redistribution of the top and bottom layers.
A Distributed Profits Tax (DPT) and a Consumption Tax (CT) to replace Income Tax (PAYE & PRSI) and Corporation Profits Tax (CPT) would deal with all social imbalances.
Property Speculation has arisen because house owners saw an opportunity to trade. If the Site (upon which all houses are built) was registered and valued, then the increase in value could be indexed and the house valued at the Insured Compensation for Reinstatment cost.
The increase in the value of the Site would be subject to Capital Gains Tax.
This would effectively stop the House Price Inflation spiral that we have witnessed under Fianna Fail.
In addition, all fallow land and empty housing should be taxed and the yield transferred to those who work the land and occupy the houses, by way of “soft loans”.
The house price spiral was the result of cheap money – the capital gains tax would have been passed on to the consumer. The extent of the fall in house prices will be the result of an underlying failure to control supply of both houses and mortgages in the period since 1999.
The consumption tax is of course a right-wing shibboleth. It’s effect would be to reinforce current social imbalances because as anyone with a smattering of economic knowledge knows, the poorer you are the greater proportion of your income you are forced to devote to consumption. Thus a very poor person subjected to a consumption tax would be taxed on all their income, whereas a Tribunal Lawyer would be taxed only on a very small percentage of his.
It’s much easier for someone with a large disposable income to avoid consumption and thus build up a fund which can be leveraged to provide even more income. Especially by investing in sheltered schemes or abroad.
Would Copernicus have preferred a high rate of Interest to counter so-called cheap money?
In 1983, I was paying 23% on borrowings, from a high street bank, not a bucket shop moneylender. As a consequence, almost my entire after tax income was being used to service my mortgage.
If the writer had read my post, he would have seen that only the uplift of the site value would attract CGT.
Any increase in the sale price of one’s principal private residence, constructed on the site, would be free of all taxation.
This is completely equitable, as the windfall gain was unearned.
In a system of Consumption Taxation one would pay as one spent. The Black Economy would deal in the market place as an equal.
It was common during the first 50 years of the last century for people to save up for goods for which they had no ready funds available. Compound inflation between 1930 & 1957 was about 3%, so one could wait & not suffer the effects of inflation on the price.
But the UK socialist government saw fit to allow Budget deficits to fund their ambitious social programmes, which they could not fund out of current taxation, and the can of inflationary worms was opened.
Ireland could not resist the opportunity to follow suit, as usual,and I well remember George Colley when he made his apology for going down the same slippery slope.
The motivation was honourable, had it been kept in check, but, once that can was opened, every scrounger in the 2 countries was queuing up for the hand-outs.
They were quickly followed by the British passport holders in the Caribbean and Nigeria etc…
This can hardly be described as surprising.
“Something for Nothing” must be irresistible to people with no conscience.
Fianna Fail have regularly pandered to such people. Remember the abolition of Rates in 1977?
Copernicus is of the opinion that the poor will always suffer under a system of Consumption Tax.
Why?
They have a choice, which they don’t have now. They are prevented from retaining what they earn. Under a system of CT, the harder they work and the more they earn, the more they keep to buy the goods and services that they can afford.
Look at the price today of a pint of milk and a sliced white pan .
The cost of the former is a result of guaranteed prices for Milk Production. All production is purchased from dairy farmers. This, in turn, is pasteurised, packeted and distributed.
Charities have asked for the surplus production, but are told they must collect it from the dairies – an impossible task, with their limited resources.
So, the surplus milk is dumped in the sea.
It is so easy to blame the leaders of industry for the cost of living, but, as Copernicus said about the CGT being passed on to the consumer, every satisfied wage demand, by Messrs. O’Connor; Begg; Halpenny & Doran, is also passed on to their members in the High Street.
And to the poor.
Bertie Ahern “outed” himself after his Pauline conversion, by Sean Healy at Inshidorney, as some sort of “born-again” Socialist, then promptly pays himself €300,000 every year & still cannot afford to live on that and has to scrounge from developers & other interested “friends” – to pay alimony to his dishonoured ex-wife – or so he said to Brian Dobson.
The same beards & sandals – Begg; O’Connor etc. pay themselves hefty six figure sums from the dues they filch from their overtaxed members.
And what do they do for all that loot?
Appear on RTE for photo opportunities to spout a pile of guff.
Since when did diagnosis become advocacy? I didn’t say I wanted expensive money, I said that house prices spiralled because of cheap debt which is the result of emu.
Your explanation of the effects of a consumption tax is laughable. If only poor people worked harder, they’d have more income. There are only so many hours in the day and at a low hourly rate, you can never make more than marginal increases in your income. Of course, the poorest aren’t in employment at all, especially in periods of recession such as the one we are about to enter.
Why don’t you have the guts to admit you just don’t want to pay any income tax and leave it at that? Why the need to insult people’s intelligence with these ludicrous and economically illiterate models of taxation?
I’m sure paying 23% interest was traumatic, but plenty of other people lived through it without becoming unhinged.
Exactly – “plenty of other people lived through it without becoming unhinged”
All boats rise with the tide, all go down with the ebb.
Social tinkering will never alter the tide.
Positive taxation can correct imbalances – not by re-distribution, as you seem to advocate – but by re-investment of retained profits; by savings; by prudent spending of what one can afford.
Not everyone is in the position of Bertie Ahern & Charlie Haughey – able to dispense favours in return for Bungs.
Hopefully Brian Cowen has seen the errors of the Old Fianna Fail corrupt ways & can make amends by progressive (non-confiscatory) taxes – and spend wisely – on growth – not plugging gaps of imbalance.
When I derided “Social Tinkering” a further thought occurred to me and I wonder if Copernicus thinks it is laughable (I instance his concern for the poor) that so many vistors to Ireland procreate, in vast swathes, to obtain hand-outs – or, in other instances, to obtain an Irish passport.
Laughable?
Copernicus, placed the Sun at the centre of the Universe – and, reading his post, I feel that eponymous writer places Bertie at the centre of His Universe?
He might then ponder on some of Master Ahern’s better ideas to further his Pauline conversion – such as the so-called mega million euro “Bertie Bowl” – a howler if ever…
To benefit the needy & the poor?
Bollocks.
One can visualise the fat cats – the ones Jack O’Connor so despises – squatting in the Royal Box – with King Bert.
Perhaps even the Lenin lookalike might find time away from the RTE cameras to join the Elite Developers and Bung Donors.
After all, de Bert is best buddies wit de brudders & might proffer an invite.
Instead of building marginal football facilities for the elite, miles from anywhere into the bargain, Why not build two water desalination plants?
Something that benefits everyone.
Too obvious.
Why not build two water desalination plants?
Considering something like a third of water in Dublin is lost to leaks that probably would be a better start. Also desalination takes copious amounts of energy. Probably requiring Nuclear Power which is copiously expensive. Even compared to the Bertie Bowl.
Copernicus, placed the Sun at the centre of the Universe – and, reading his post, I feel that eponymous writer places Bertie at the centre of His Universe?
put a smile on my face cheers
many visitors to Ireland procreate, in vast swathes, to obtain hand-outs – or, in other instances, to obtain an Irish passport.
That was stopped by a high court judgment and the citizenship referendum i believe
Thank you, Simon, I was trying to clarify how “poor” – as an omnibus description – requires rather more analysis than the generalisations propounded by Copernicus on the poorest sectors of the community.
It is a truism that, no matter what system of taxation is in force, the rich get richer.
If tax becomes confiscatory, as planned by “Red” Richie Ryan, when the top rate was 83%, the rich will leave the country.
This fact does not negate any argument.
And, of course water desalination costs. So does drilling for oil & gas. Yet the drilling continues and the search for alternative sources continue as OPEC screws Europe.
I merely pointed out that Bertie Ahern, our long-serving PM, has left a legacy of unanswered questions; a nice smile and little else.
He has decided to do a bunk, passing Brian Cowen the hot potato of his chronic mismanagement.
There are interesting days ahead as the SS Ireland sinks into the mess that Bertie made.