The Economic Legacy of Bertie Ahern

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.

Comments

[Fergus O'Rourke]

I trust that you are not suggesting that "the IDA’s proactive strategy of targeting ‘industrial winners’" was a Fianna Fail idea ?

[Conor McCabe]

Great stuff Michael, as always.

[jim]

All that you say here is worth saying and should be noted by those that are played a different tune. There is a relevant counterarguement to be made in general with Greenspanian economic successes in the 90.'s, but in essence your services arguement certainly holds up to scrutiny. However it will remain counterintuitive for the majority of citizens as ultimately they have gotten a lot richer in the last two decades.

Health seems the one area where punters are really willing to listen to dissention from the opposition, and it should be here that a huge effort then should be made.
One of the key elements of Fianna Fail is their lack of any ideological stance and pursuing ability to stand for anything at all when they feel needs must. I feel that this is the key reason that they wish Mary Harney to remain (poison chalice arguement accepted) they don't want a F.F. supported co-location/privatisation health minister - and they know they would need to continue supporting co-location, though it might end up the lesser of two evils to do an embarrassing volte-face. So I suggest in conjunction with continually highlighting the truths of your fiscal arguements, we push Mary Harney for more than just her failure to manage the public system that cares for us at our neediest times.

[Tomaltach]

You provide a fine summary of the economic choices made by the Ahern governments. Your analogy with the private company re-investing is apt - essentially under Ahern the overwhelming priority was always given to the accummulation of private wealth over the accumulation of productive social capital.

As well as faulting Aherns policy choices, your piece touches on how his legacy leaves our economy in poorer shape. You mentioned a highly uncompetative infrastructure for example. However, I think the issue of what kind of economy Ahern is leaving behing requires further scrutiny. For example, clearly as you say there is rising unemployment and rapidly dropping construction. But given international conditions, especially in the US, the drop in our GDP growth and the consequent unemployment was always likely. And the effects of the bloated construction sector will, we hope, wash through our economy over the next few years. But there are positives as well. Despite issues with cost we have continued to maintain and attract large FDI. Despite not enough being done on infrastructure, the country Ahern leaves is vastly better in terms of its road network than before. There has also been dramatic investment in third level eduction over the term. (You only need to visit some IT or University campuses to see the visible changes over the last 10 years). Belately, R&D was given a priority and Enterprise Ireland became more focused. Even at the end of all the cost increases, somehow, exports in goods and services at the end of 2007 were still growing by around 7%.

My point is, and I'm being devil's advocate here, that while there are serious flaws in the economic management (leave aside the policy and ideological objectives) there are arguments to say that there has been modernisation and an added robustness over what Ahern inherited in 1997. The question is, and this is what I think deserves more analysis, overall where does the balance lie for the economy Ahern leaves behind in terms of its fitness to sustain itself over the next decade or so.

[Michael]

Fergus - no, I didn't mean to give that impression. Though a comprehensive history on the IDA's travails has yet to be written, it is worth noting the savaging it got at its birth, the transition from an 'indigenous support' agency to one looking for FDI, the shortcomings of the policies in the 1960s and 1970s, and its more forensic and successful strategies in the 1980s-1990s. The IDA has been called an 'independent republic' and though I wouldn't go that far, I suspect that over a number administrations and Ministers, the politicians just wanted to see results and let the IDA on with it.

Tomaltach, yes, I took a pessimistic view of Bertie's economic legacy. And much of what you say is correct - there was investment, there was improvement. However, comparing our current infrastructural state with past states is only one part of the equation. The world moves rapidly and we have to compare ourselves to other industrialised nations. In this regard, we still do poorly. We are running to standstill and Mr. Ahern's policies meant we have to run with bricks tied to us.

As regards education, I take what you say. But reading the Dail Education Committee's investigation into the primary sector recently was truly unnerving. It is really under the gun and the current Minister is admanant - no more resources.

I do believe that historians, looking back, will see that Bertie was profoundly successful in the political sphere (we can see that already). In that, he was head and shoulders above the rest. In economic terms, however, they will see his tenure, at best, as a lost opportunity. And may see it in worst terms.

Jim, I'm all for pushing Mary Harney. In fact, I can't understand why the Left has not set out an alternative agenda and gone hell for leather on the health issue. Labour has a good policy on universal health insurance but they seem to keep it rather quiet. It has been left to trade councils to rally people together.

There is one slight caveat to your comment, though. I'm not sure that we can call Fianna Fail an ideological free zone. In fact, I think it is very ideological. This might sound a bit odd but we tend, quite understandably, to look at Fianna Fail through a traditional European Left-Right prism. However, in Ireland (where the main divide was forged in the Civil War) this breaks down. I would submit that Fianna Fail's ideology is stronly rooted in a nationalist framwork - that is, the party of the nation ideology. We can see that in their hisotry - from the party of native industrialisation in the 30's, to the party international expansion in the 60s, to the party of (vulgar) Keynesiansm in the 1970s, the party of social partnership in the 80s and 90s and even today. All these play to the constant theme of Fianna Fail 'building a nation'. It may go Left and Right from time to time (and in certain periods - at the same time). But it is rooted in the concept of politics as a nation. No wonder they can satisfy middle class, working class and farmers. Truly, a magnificent achievement. To undo their broad class project, the Left must first see how they can detach the large working class / trade unionist support base that is so crucial to Fianna Fail. And, in that respect, the Left has to go into some nation-building politics of its own. But with a distinctly Left stamp.

[jim]

Yes Michael, as I said earlier I feel many Irish people seem to look at Fianna Fail in a similar manner as they would the Irish football team or the catholic church. It would seem that despite all different levels of disappointment with performance they still only see one option. In this way we can be seen as an attempt to have protestantism or the English football team become, respectively, the most popular religion and team in Ireland. There has always been an undertone of that very nationality delivered about 'others' from Fianna Fail as well. This is a very difficult position to be in and if one takes as objective a view as one can of the history of electoral results from 1932 it is incredibly difficult to see anything changing by degree. I feel that the status quo, can be largely maintained and there are many positives to that also, but if there is to be a 'real' effort to lead this country from the left/left of centre, or even just not from the right, a significant event will need to be involved. Perhaps this is the allignment of the left you speak of, though, again, I don't believe that incremently will do. This will have to be new, big, fascinating and defensible, and it will need to take Fianna Fail out of the public consciousness for a while. They need to loose two elections in a row just once, or little changes.

[SeanR]

The key question that should be asked of Ahern and his ilk is simply: where has all the money gone?

The health service is a shambles, education is in crisis and you can't get on the housing market ladder... leading politicians on these issues, such as Harney, Martin, etc have displayed simply delusional answers to the media about economic issues which mirror Jim Callaghan's alleged quip of 'crisis what crisis?' What we need is regime change and a national plan for the next five years to get out of the doo-doo!

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