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It’s All Your Fault!
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There is a palpable anger in the Irish air. For many, their standard of living has already gone into decline. Some have suffered wage freezes or wage cuts. Others have been dealt the ultimate economic blow and have lost their jobs. The numbers now are quite stark – there is something like 100,000 more on the dole now than this time last year. That’s a doubling of the actual figure.
Numbers for those who have suffered pay cuts or who fear their jobs will be lost soon are impossible to guess, but multiplied across the country it is easy to see why people are annoyed. Then there is the sense of impending doom – huge public sector cuts are about to be announced. And people know where this leads – for public sector workers it affects their standard of living, perhaps very sharply if you happen to be on contract and face the dole cue. The general public know it means longer queues for services and a likely decline in the quality of service when it does get delivered.
So much to be angry about. Yet who should be the object of this anger. It seems that bankers are getting a very hard time. I’ve heard people curse them. “They should be locked up”. Others blame the government. And of course, the builders get it too.
All of these groups deserve a certain amount of opprobrium. The top bankers in particular did us no favours – though they were keen enough to do themselves plenty of favours. The government though – and this essentially means FF and the PDs – bear a far larger share of responsibility. They are ultimately the group who have wielded power. It was even they who failed to create adequate regulation for banking. And of course it was our government, under Ahern, who fueled the train wreck that was the Irish property fantasy.
But as far as I can see, very few people, however angry they are, have been willing to mention the other group who bear responsibility: the electorate. As an electorate, collectively, we chose the FF- PD arrangement. Not only did we choose it in 97 (at that stage perhaps we could be forgiven for taking a chance with a new regime) , but after 5 years we returned them, reinforcing the direction they were taking. Five years later, at a time when we all knew that our property fueled splurge was a fantasy and doomed for a sad end, what did we do? Their leader was mired in an unsavoury mess of unbelievable tales related to uncountable sums of cash. So what did we do? We returned them to power.
True, the opposition was weak. Perhaps they were even pathetic, but the fact that they too offered us the same brand of fantasy is as much a reflection of us as them. We kept buying in to the fantasy that income taxes could keep on being lowered and expenditure keep on growing, because the coffers were flush. Even Pat Rabbit of Labour felt it necessary to satiate our appetite for lower taxes by offering to cut the lower rate. The Unions — who profress to protect public services — bought in fully and signed up to over a decade of seemingly endless tax cuts.
So FF-PD and Labour and FG alike, each and all, failed us by not offering us the leadership and courage to tell us we were tying ourselves in to an unsustainable strategy. SO yes, our political class failed us. But they did what the political system to a certain extent guarantees – they gave us what we wanted, even if that meant setting us on a path to destruction.
But we bought it. We kept on clinging to the impossible promise of ever lower taxes and ever more public spending. We heard the phrase that we wanted the public service of Sweden with the taxes of Texas, yes we heard it, and we turned the other way. As a nation we fully bought in – literally and figuratively – to the property and low tax nightmare. It seemed so good – we couldn’t make a rationally sound decision to reject it.
In the end we are all to blame. No, not equally, and our elected leaders did us a massive disservice. Bar his extraordinary commitment and achievement in Northern Ireland, Bertie Ahern‘s legacy has now suddenly gone from questionable to disastrous. His successor, who was at the centre of the Ahern regime, is now struggling to save his own legacy.
But we as a nation failed ourselves too. We walked ourselves into this nightmare. We were either terribly easy to fool, or, no one fooled us, and we were heedless and greedy. Neither answer is particularly glorious.
That we to some extent share the blame is one good reason why we are wrong if we indulge in a further fantasy that one small group of people – the cabinet – can take us out of this. Leaving aside their dubious talent, it is simply not possible for government of fix even most of the economic problem facing the country. It will be fixed by working its way through the system and forcing individuals to take tough decisions — managers, business leaders, trade unionists, workers private and public. It will be a deeply unedifying way to celebrate the 90th anniversary of our first Dáil if we collapse into a mire of blame and counter blame or retreat into the fantasy that it was all the government’s fault so they should fix it. Time to start shouldering a little bit of individual responsibility.
Tomaltach,
What we have to do now is to look to the future and find a way out of the mess we’re in. Assigning blame or guilt is comforting, but ultimately gets nobody anywhere.
If there’s a sliver lining on the massing black cloud above us, it is that it is time to stop being delusional and start being pragmatic. And I, for one, have great faith in the resilience of human beings.
When this crisis has bottomed out – as it inevitably will – the businesses that will be left standing are the ones where the entrepreneurs set out to build a business, not just turn a quick buck.
We may have 20% unemployment for a while, but people will find other things to do that give them fulfillment and promise of a better future; perhaps by going back to college to get better qualifications or training for something entirely different to the job they’ve held up to now. Or in certain cases, long overdue, having to realise that ‘easy’ money doesn’t exist and where it does, it’s about how easy it is to waste it, piss it up against a wall, gamble it on ‘get rich quick’ ventures and speculations and lose it all.
Ireland is particularly vulnerable to the global crisis because we are so peripheral – and getting more so every day as the EU has expanded and because of our dependency for industrialisation on FDI. The collapse of the property bubble, and with it a huge proportion of government revenue; the global recession; the credit crunch; and the way in which we squandered our competitiveness; have all come together for us in a most unhappy conjunction of events.
The way out of it will be none too pleasant – we have to expand the tax base that was contracted in a ridiculous way until the base became far too narrow and the Exchequer peculiarly dependent on tax revenue from a property bubble that was always unsustainable.
By the way, ALL the political parties bought into this ‘limitless growth and soft landing’ scenario, and demanded even further contractions in the tax base. Only fifteen months ago Independent newspapers were writing damning op-ed pieces – to the echoes of Opposition spokespersons in the Dail – on ‘Scrooge Cowen’, when he refused to bow to their will on stamp duty and also tried to rein in public expenditure.
Further, we have to save at least 2bn euro on public expenditure this year and probably even more in the following year, in order to be able to borrow enough to keep the state afloat, never mind correct the immediate imbalance in the public finances. The very credibility of this state’s borrowing capacity on international markets is now in focus, and a lot depends on what the government’s package next week says about our ability to get a handle on our problems. Nationalising banks is a secondary issue.
So it’s either a case of cutting public service pay across the board or some other formula to do with pensions and other related pay costs, or it’s severe cuts in existing services affecting the most vulnerable cohorts in our society. Right now, it looks inevitably that it will be a mixture of both. As you have written elsewhere, we’re likely in for a dose of ‘special pleadings’ all round. In any case, the future still looks uncertain. One might rather it was otherwise, but there it is.
Thus I believe that most of all we need to keep our heads and our focus on finding a way through. I wish the government good luck and hope they make more right decisions than wrong ones. I wish the opposition will adopt a constructive approach – though I fear there is little prospect of that. I wish everyone else out there would stop talking about elections and viewing the problems in a short term framework, because I believe our immediate problems and medium term prospects, which rely on their successful resolution, are far too serious for that kind of narrow politics anymore.
As for blame, and holding people to account for their misdeeds, you’re dead right; there’s plenty of it to go around. But there’ll be plenty of time for that later on. We can get to the bastards then. Right now we may have more important things to concentrate our energies on.
A small point to illustrate where we kept our eye off the ball. I heard on the radio recently that the Bank of Ireland and AIB between them employ 30,000 people. I find this an astonishing figure considering that the number of teachers used to be no more than 40,000 and gardai no more than 12,000 (to the best of my knowledge). Consider this in the light of current public service bashing. Who provides the best service and the greatest value for money.
Indeed. But sacking bank workers (750 gone already) or forcing them all to swallow a 10% pay cut is not going to save the exchequer one single penny. Unfortunately, it is the public service workers who will have to bear this burden – it really doesn’t matter that they are not (by and large) to blame. If we are all to suffer, people might feel Seánie Fitz deserves to be tortured to death, but again, that wouldn’t achieve any savings to the exchequer. We have to reduce expenditure to match the reduced reduced tax take and that’s the long and short of it.
Tomaltach is right in saying that the Irish electorate are now reaping what they have sown. Particular opprobrium should be reservered for the 20%-25% of the electorate who will continue to vote FF/PD no matter what.
Fair doesn’t come into it.
I came across a link to a paper by Brad deLong, economist at Berkeley, (via the irisheconomy.ie site) which provides an interesting overview of the global crisis. For instance, deLong fears that the Republicans in the US and the CDs in Germany will seek to stymie stimulus packages in the US and EU respectively, out of desire for short term electoral gain.
When it comes to spreading the blame around for our intellectual approach to the crisis, deLong has various important historical figures, including Marx and Milton Friedman, firmly in his sights. But most entertaining of all is his singling out of the 2nd century scribe, John of Patmos, author of the Book of Revelations:
” That book deeply inscribed in western culture the beliefs that transgression is sin, that sin is judged, that the outcome of judgment is punishment, and that punishment is inescapable—that the order of the universe is such that those who transgress cannot escape the due consequences of their transgression. Those who thought that financial engineering had allowed them to successfully lay off risk or that house prices would rise forever transgressed, and the rest of us transgressed with them and must suffer punishment with them.”
He goes on to suggest that this is the wrong mode in which to approach the current crisis, drawing on the opinion of the FT’s Martin Wolf – “one should not treat the economy as a morality play, but as a technical challenge” – in support of his view.
He may have a point alright.
Veronica: If arrogance is a sin then you need only look at what is going on around the world to see that there is a surfeit of it in the English-speaking world. And it seems to be that it is the English-speaking world which is suffering the most in this crisis. So your friend Brad deLong could have a point and by all accounts things are going to get worse.
coc: It is common to believe that public service pay comes from the private sector but where does the bank employees pay come from? Does it grow on trees? Who would you prefer to remunerate, the teacher or the bank employee?
Private sector wages come from the money earned by their economic activity (providing goods and services) that people want and freely pay for. Public sector pay comes from tax raised whether people want to pay for it or not.
Who would I rather pay? A teacher or a banker? Why a teacher of course, but it is not a question that really arises because the State doesn’t employ any Bankers and so can’t cut expenditure by tinkering with Bankers’ salaries. The State does however employ Teachers (and nurses and Gardaí etc) so that is where the savings have to come from. I know it’s not fair. But this is what the electorate have chosen for us over the last 15 years.
Take it up with them if you’re not happy.
As Veronica has pointed out – this is a technical challenge and nothing to do with morality. By all means let’s ensure that the society we construct from the ruins of this one institutionalise different values to the ones that have led us to disaster. For now we have to balance the books. Of course, it will mean the end of this Government. That is a good thing in my book.
COC: “Who would I rather pay? A teacher or a banker? Why a teacher of course, but it is not a question that really arises because the State doesn’t employ any Bankers and so can’t cut expenditure by tinkering with Bankers’ salaries.”
Do you really believe that bankers’ salaries do not come from the same source as taxes.
I gather also that you only believe in paying for something only if it is voluntary. I find it strange that you would believe that if the public services were privatised you would gladly pay for them along with the profits these companies would take back to Australia, Singapore etc.
It seems that “patriotic duty” means different things to different people.
In the private sector wages are paid on the basis of goods or services traded in the marketplace. If a company doesn’t make profits it goes bust and so do the jobs it supports. Public services (and ultimately public service jobs) rely on taxes from the private sector and income taxes paid by public sector workers or costs levied on the private sector businesses or individual citizens by public authorities for publicly provided services.
COC is making a fair point.
Veronica: I don’t know whether I should reply or not and perhaps my public service credentials are showing but I enjoy debate and I have also worked in the private sector.
Like the debate between the farmers and the city people I see the current distinction between public and private as artificial. The public service also trades in goods and services e.g. teachers, nurses, guards, street-cleaners, bus-drivers etc. I am sure you would be astonished at the number of people making an income from the public purse e.g. letting property to the Health Board etc.
The problem seems to be that nowadays everyone is willing to squander the nations capital on imported goods but they also expects endless public services to be provided but resent paying for them. Perhaps the reason for this is that many of these services were provided in former times almost free by Church organisations and charities. But it seems all good things come to an end and anyone who provided a free service is now looked on as a fool to be to be taken advantage of.
eddie,
How right you are! The State got away for decades with providing necessary public services ‘on the cheap’ by leaving what in other European countries were recognised as primary social welfare, justice and educational responsibilities of the State to the Catholic Church or the Church of Ireland or a variety of other charitable or religious organisations.
Of course now the taxpayer is stuck with a bill of circa 1bn euro to compensate people who were subjected to appalling abuse in certain institutions run by some of those religious organisations in that time.
The issue we are concerned with on this thread is how the State can cut public expenditure by 2bn euro this year; and as COC points out, the only expenditure that the State has direct control of is current and capital public expenditure. The Government can seek to persuade the private sector employers and workers to behave in a certain way through its social partnership process and the institutional arrangements that are there to support that process, but it can’t decide that workers in plant X will be paid Y wages for a period of time; that’s a matter between the workers in plant X and their employers.
The best overviews I have yet read. No left-wing whining; just the bald facts.
It seems to be stating the obvious that Governmant should start with waste.
And this would include overmanning; overtime to cover “sick-leave holidays”; servicing of empty buildings; vanity projects such as Abbotstown; multiple pensions to TD’s; state cars to ex TDs; the Gulf Stream & the Helicopter; Script writers & Haircutters; PR gurus; two of the RTE TV programmes might be closed; FAS might be wound up & Farmleigh might be sold.
Veronica, quite rightly, tells us that we voted in this appalling Government of incompetents.
But where was the choice?
Dynasties rule the roost in FF. Having the largest pool of candidates & endless funding from Developers & their like, they leave the voter very little choice. The PR system rewards failures and, as you said, we get
a bunch of self-serving individuals, many of whom are bone-head incompetents, some barely literate.
And there are far too many of them for a country with a population of 4 million.
Change the Constitution to reduce representation to a sensible
1 TD per 100,000 of adult population.
It would be easily carried, especially viewed against the background of today’s lot.
40 TD’s ( a reduction of 120+) could be housed in a small purpose-built Chamber & Leinster House could be let as the long-debated Dublin Conference Centre. A costly white elephant would become a revenue earner.
The savings would be significant, both in salaries at €100K+ a pop (€12-€15++ million) + the several pensions + cars & drivers + the endless waste on junkets to Davos & sundry pleasure spots in the sun (€10++++million).
Already, we are well on our way towards the €2 billion and the impetus – and sacrifices – would come from Government, who are presently asking its citizens to bail out the sinking ship – the SS Ireland.
Income and earnings derived from activities in Ireland might be subject to a retention tax. This would deal with the farce of non-residence & the bogus departures from & arrivals at Baldonnel.
A Distributed Profits Tax (DPT) would abolish the need for wasteful Government Grants to failed enterprises and a progressive Consumption Tax (CT), coupled with a fixed rate of say 5% on earnings up to €50K; 30% €50K-€100K and, say, 50%+ on all earnings over €100K.
Not perfect, but it might stall the regular impasses that have made Ireland’s labour rates uncompetitive.
Funny now that you mention it: Before the Dail came back there was all that hype in the media about junior Ministers, almost by the dozen, offering themselves up for voluntary euthanasia…sorry, I meant voluntary resignation, and talk of drastic cuts in the pay and perks of Oireachtas members and how we couldn’t justify our leaders and the chief executives of some state-owned organisations paying themselves more than Obama or Brown or Sarkozy, or possibly more than all of them combined. And other good wholesome stuff along those lines that was warming the cockles of our hearts. And since the Dail came back this Tuesday,there hasn’t been another word about it. Or have I missed something?
Ha Ha! Well spotted, Veronica.
Politics in Ireland pays handsomely. No sacrifice for country here.
TD’s are insulated against inflation; many get several pensions on favourable taxation terms; a €50K+++ motor car and an off-duty Garda driver, many of whom claim massive overtime, whilst their passenger dines in the evening, often until the small hours, often with a mistress.
In addition, they are assured that their widow; brother-in-law & Uncle Tom Cobbeley-Ahern-Martin-Flynn etc. – ad nauseum – take their seat or get plum jobs, even casual ones – such as Census Form collectors.
But even €230,000, all expenses paid; car; jet & helicopter seems not to be enough for “Dig-Out Bertie, the squeaky-clean man-o’-de’-people.
Nor for his tutor, the late Don Charleone of Abbeville.
Both had expensive mistresses – difficult on a mere TD’s salary – so one must sympathise.
de Bert was not so obvious, but one must assume that the “bungs” from his “friends” were necessary to fund the shortfall between the €230,000 he paid himself and what he was spending.
Perhaps Mr. Lenihan might ask for the keys of the two Fianna Fail Boxes in the Bank of Ireland vault on College Green. The gold bars and the millions of dollars in the slush fund would help reduce the deficit in revenues. The poisons are interesting, if one knew why they are there, but the custodian is reputed to have pharmaceutical connections, so might supply an answer?
“Follow the Money” has always been the theme of successful prosecutions for misdemeanours. No reason to change.
There are millions salted away – and not all under a mattress in Mayo.
My previous post was tongue-in-cheek, not meant to lower the tone and standard of contributions to this debate. I apologise.
Sorry Eddie for the lateness of my reply. As it happens Veronica has answered more or less as I would have, except to add that it seems you are confusing what I think should happen with what I think would be fair. You also appear to be drawing all sorts of unwarranted conclusions from my comments regarding taxation, privatisation and public services.
coc: Do you ever wonder why the politicians and commentators are so sure that the recession is going to get worse. The answer is simple. We have entered a new era where work for all is a dream. Computerised machines now produce the goods. There are no new great inventions to drive economies. We are in ticking-over and replacement mode.
The time has come therefore to reap the benefits of the last hundred years of blood, sweat and tears and create a fair distribution of the wealth we have produced for the benefit of all.
But unfortunately in recent times we have seen the greedy come to the fore and take advantage of every opportunity to create wealth for themselves and misery for everyone else. There is a simple principle that the rich cannot be rich unless the poor are poor. The “American Dream” is proof of this.
So we have now a unique opportunity. We can get it right or we can go back 400 years to feudal times where most people were nothing more than slaves to their Lord and master. And as I am a pessimist I believe that is where we are headed. The race to the bottom for the public service who were the last bastion of decent pay and conditions offers proof of my point.
The French have a long history which would be worth studying. I believe we could learn a lot from the French.
PLEASE, READ THIS – ALL OF YOU WHO WANT TO SOLVE IRELAND’S PROBLEMS.
From The Sunday TimesFebruary 1, 2009
Matt Cooper: Union support will let Cowen down
The taoiseach seems afraid of causing disappointment but he risks a bad deal unless he overcomes his cowardiceMatt Cooper
As he struggles to convince us that he carries the authority of taoiseach, Brian Cowen’s main strategy appears to be doing what he thinks his predecessor Bertie Ahern would have done if he faced the same challenges that have been presented to this government.
Those drawn-out negotiations with the trade unions bear all Ahern’s hallmarks. The process has been slow, painfully so. There are plenty of interest groups represented at the three-ring circus taking place in Government Buildings but the emphasis, just as it was during Ahern’s time, is on keeping the unions engaged.
So far, so familiar. But if Cowen is determined to replicate the Ahern style of management in its entirety, then we’re in trouble. In his eagerness to compromise, Ahern became the great appeaser, signing up to bad deals with public money that have contributed enormously to our current crisis.
As an insider totally familiar with social partnership, Cowen seems to have fallen into the trap of believing, almost without question, that this process has been vital to the success of the Irish economy over the last two decades. Despite the claims of its self-serving participants, the benefits of partnership are just not that clear-cut. Aspects of some agreements have undoubtedly been a bonus (the improvement in industrial relations, for sure) but, despite claims to the contrary, partnership has not delivered wage moderation. Rather, it has allowed vested interests to secure a plethora of expensive demands, almost all of which were granted with the aim of buying votes for politicians.
It was our low-tax regime — the one decried by many trade unionists — that fuelled the economic boom together with European grant aid and the availability of cheap money. Social partnership, once we got over the hump of the 1980s, was more about dividing up the proceeds of the boom rather than creating it.
Cowen is clinging to partnership like a drowning man hanging onto a lifejacket, oblivious to the fact that the benefits accruing from any deal are limited. Lifejackets might keep you afloat for a while but you’ll eventually die from exposure if forced to spend too long in freezing waters. Cowen is still paddling furiously but seems no nearer to shore than he was when this talks process began.
Cowen’s supporters believe their man will be seen in a new light if he turns up at Tuesday’s cabinet meeting with ¤2 billion in agreed public-spending cuts. That won’t be the end of the affair, however. The composition of those savings, their fairnes and effectiveness, will then come in for intense scrutiny.
Even though he is threatening to impose cuts unilaterally if agreement with the social partners cannot be reached, Cowen remains determined to win the trade unions’ backing for whatever measures are decided upon. This ensures that union leaders will be allowed to mitigate the effect that cutbacks have on their members, and also poses the danger that the right cuts in spending will not be made.
Anyone who has done the numbers on the government’s income and expenditure knows that a €2 billion adjustment in the public finances is only scratching the surface of the problem. Who really believes that the size of the public sector, which has expanded so dramatically over the past decade, is warranted, particularly since we are now borrowing to fund its day-to-day activities? Would public services suffer so badly if swathes of pen-pushers were removed from the payroll?
The savings now being sought by the government are little more than a gesture. They amount to €5m a day, and leave the country still having to borrow €50m a day to keep the show on the road. Any deal is not necessarily better than no deal — but watch out for some extraordinary spinning in the coming days. The union officials will claim they made compromises “reluctantly and in the national interest”, but that they protected ordinary workers from the depredations of evil “neo-liberals”. The government will offer public thanks and promise that the pain, while necessary, is being distributed fairly.
Labour, normally the most outspoken opposition party, will be muted in its criticisms for fear of alienating the trade union movement. Fine Gael will pull its punches on the almost-certain failure properly to reform and restructure the public service, for fear of losing votes in future elections.
There is a lot of nonsense being spouted at present about the country having been ruined by the pursuit of market policies, and plenty of baseless claims that right-wing economic commentators are advocating that the poor pay for failures that had nothing to do with them. This propaganda just doesn’t wash. Yes, there certainly were excesses in the private sector, mainly in banking and property, but this didn’t bother the unions, while the property bubble was providing highly paid construction jobs and generating taxes to pay for an expanded public service.
The reality is that the government took the bulk of the proceeds of the boom and, at the urging of the unions, misspent the money. The size of the public service was increased without any attempt to secure productivity gains in return. Benchmarking wasn’t just a one-off payment to the public sector to compensate for a perceived imbalance with the private sector: it was a fraud on the taxpayers perpetrated for political ends that added permanently to the annual costs of running the public sector.
This year alone that added cost amounts to €2 billion, the same figure that the government is now trying to save by various means. There is no more direct example of how all Irish people will end up paying for the benchmarking scandal. Not surprisingly there’s no question of benchmarking with the private sector now that the latter is shedding jobs and cutting wages.
Cowen and his officials appear terrified by the prospect of industrial unrest in the public sector. All-out strikes might not happen, but there have been thinly veiled threats all the same. Cowen, like Ahern, avoids conflict and this is another disappointing aspect of his tenure to date.
Clearly weighed down by the burdens of the job, his angry roar of defiance in the Dail last week — declaring that he would run the government his way — rang hollow. It wasn’t a performance he would enjoy watching but at least it showed a bit of passion. That said, he has done nothing to date to justify his “my way” claim. He botched the Lisbon referendum, the pay talks and the budget, and has presided over dizzying U-turns on the banking sector. We simply can’t be confident that he will get the right deal from the trade unions.
matt.cooper@sunday-times.ie