The Economic Legacy of Bertie Ahern

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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 article also appears on Notes on the Front.


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3 Responses

  1. FPL

    April 11, 2008 2:43 pm

    Has nobody explored the thesis that the Celtic Tiger was manufactured not by FF but by the IMF when they came to bail us out in the 1980s?

    Many of the neo-liberal policies adopted by the government are classic IMF conditions for getting world bank loans. i.e. tax cuts, privatisation and liberalisation of capital markets and removals of trade barriers.

    The “economy” of Ireland is a perfect for large multinationals to operate in. We have the lowest tax and the poorest environmental track record in Europe as well as the least regulated.

    I think the FF are merely front men in the classic traditions of South America and Asia for the enforced neo-liberalisation of our economy at the hands of the IMF/World Bank

  2. JL Pagano

    April 11, 2008 3:51 pm

    Couldn’t agree more with FPL, though I would add that the EU probably had a big part to play in the creation of the Celtic Tiger as well with their influence on our infrastructure. I personally believe the phrase “Celtic Tiger” is one of the biggest misnomers in economic history. Sure, we did a lot of hard work to get out of the depressing 80s slump, but we had a hell of a lot of help as well.

  3. Michael Taft

    April 13, 2008 10:51 am

    Yes, there was a lot at play (which I hope to explore more in a further post on the origins of the Celtic Tiger economy). The problem we now have is that we are so multi-national dependent, that we can’t seem to find a way out to build up a strong indigenous base. And this dependency is badly screwing up our ability to create socially equitable policies – on taxing and spending, on trade union recognition, on protection of agency workers, on a range of issues. The problem is that building up an indigenous base to counter the addiction to foreign capital is a long-term project. What do we do in the meantime? We daren’t jeapordise foreign investment because, for now, it’s the only game in town. This is a truly difficult dilemna for the Left. And there are no easy options.