Two of the keenest observers of the economy are about to retire, writes Una McCaffrey

Bluster has been in no short supply when it comes to analysis of the economy over the past few years. There has been much talk of "how far we have come" (much of it from politicians seeking to accept credit), but precious little reasoned and disinterested commentary.

Two men who are better-placed than most on the provision of such analysis are Trinity College's Prof Dermot McAleese and UCD's Prof Brendan Walsh.

Both have been closely watching the development of the economy for more than 30 years, and, as both reach retirement, neither is short of perspective on how we managed to get to where we are today.

Crucially, this perspective has not been coloured by the lure of the private sector in either case.

Prof Walsh, who leaves his position as head of the economics department at UCD at the end of this academic year, says it is important to look back to the 1960s to fully appreciate subsequent developments.

Both he and Prof McAleese returned to the Republic in 1969 having gained third-level qualifications in the US. This was an optimistic time for the Republic, with EEC membership just around the corner and the economy moving away from the dark isolationist days of the 1950s.

"It was the place to be," says Prof McAleese. "There were all sorts of plans and projections for the 1970s, and we were regarded internationally as an exciting economy."

Alas it was not to be, with the arrival of the oil shocks of the early 1970s putting paid to any hopes Irish people had of dragging themselves up by their economic boot-straps. Blaming it all on oil would be to take an over-simplistic view, however - at least in Prof Walsh's view.

"We added to our own misfortunes with policy mistakes. We had enormous fiscal expansion," he says.

The legacy of this, of course, was a protracted recession, when Irish people became used to never matching the living standards of "wealthy" countries such as Germany, and emigration was seen as the only route to career development.

"It was almost as bad as the 1950s. We should have caught up more quickly," says Prof Walsh.

Prof McAleese says the Republic's saving grace at this time was its continued commitment to free trade. The work of the IDA was of key importance, he adds, suggesting that the real problem at the time was a lack of domestic entrepreneurship.

The political problem with this, of course, was that the State's debts were ever-mounting,requiring the collection of ever-higher taxes that made it hard to employ staff. Before long a vicious circle had developed and an exit was hard to envisage.

Prof Walsh was at the forefront of policy at this stage, sitting on the National Planning Board that was established in 1983 by then Taoiseach Dr Garrett FitzGerald to help identify a solution.

Looking back, Prof Walsh accepts that the board's existence or work may not have been welcomed by all, but he defends its objectives as being "sensible".

Prof McAleese agrees with this analysis, pointing out that what the Irish economy really needed at the time was a coherent and consistent policy on which people could rely. "It was a much longer intellectual process than we imagined," he says, noting that while the FitzGerald coalition had many of the right ideas, it took time before these translated into action. "We're still benefiting from that critical transition," says Prof McAleese.

The main economic voice on the National Planning Board, Prof Walsh came from the perspective of wanting to "correct" the deficit and open the economy up to market forces by moving away from a statist approach to business.

The infrastructure element of the process was the most fascinating, in Prof Walsh's view, particularly when it came to discussions with the then Department of the Environment. It seems the Department had practically no plans at the time, for road networks, airports or any other kind of infrastructure.

"Then they came up with trivial examples," he says, suggesting that it was only with the arrival of EU aid that this changed.

Prof Walsh sees the force of the EU as positive in this regard, but is a touch more cynical on other matters. He is not convinced, for example, that the euro has helped the economy to prosper, pointing out that the countries that did not adopt it, such as Britain, do not appear to have suffered any economic loss.

Prof McAleese is more generous on the wider benefits of playing a bigger role in "Europe". He recalls the debate on Economic and Monetary Union as one of strong disagreements in academia, suggesting that some sceptics are "still dying to be proved right".

Without EMU, the Republic would be struggling with higher interest rates that would have led to slower growth, he argues. He says the euro has helped investment and led to a more efficient utilisation of resources.

Prof Walsh worries, on the other hand, that the European Central Bank (which sets interest rates) could become too much of a political institution if the euro-zone economy were to remain under pressure.

The dollar/euro exchange rate is a "destabilising factor", he says.

Prof McAleese, a former central banker himself, is more comfortable with the Frankfurt boffins.

He says the emergence of the Progressive Democrats (PDs) in 1985 may have had a more positive influence on the economy than some recognise.

The low-tax, pro-business economy we know today is based in large part on PD policies, he says. "They proved that there was a constituency for this, and they gave the intellectual power to it."

Even with this element of consensus that policies needed to shift, Prof McAleese says many commentators underestimated the power of the internal Irish economic dynamic.

Both he and Prof Walsh argue that when Ray MacSharry stood up in 1987 with the budget that earned him his "knife" epithet, he was putting forward ideas that had partial roots in the views of the previous government and elsewhere.

"He was the right man at the right time," says Prof Walsh of Mr MacSharry's policy of eliminating fiscal imbalances by cutting spending.

Part of the subsequent economic recovery was inevitable, in Prof Walsh's view. He acknowledges, however, that such progress would have been impossible to conceptualise at the start of his career. "We never aspired to getting up to that level. We would have been content if we avoided the setback of the 1950s."

Neither man claims to have had any special insight into the development of the Tiger economy, but both acknowledge the importance of luck.

Falling interest rates, for example, stepped in at just the right time to allow private investment meet the shortfall created by government cutbacks. There was also the fortuitous soft landing that followed the 1993 currency crisis.

Prof Walsh argues that the strength of social partnership also played a role in getting the economy started for real, describing the acceptance of moderation in wage claims in return for tax cuts as "crucial".

The knock-on effect was to persuade young and qualified citizens to stay at home rather than emigrate.

Prof Walsh is no longer convinced that social partnership is relevant to the Republic's needs. "It has outlived its usefulness," he says, describing the process as "pretentious, inflated and all things to all men".

Prof Walsh also refers to the "disease" of measuring deficits according to GDP as part of the Stability and Growth Pact that governs EMU.

A more pragmatic measure of sound financial management would be, he suggests, to ask if we have the public structures that will use "X per cent" of GDP effectively. In the health and education sectors, the only way to improve service is to invite greater competition, he argues.

Neither Prof Walsh nor Prof McAleese is prepared to offer a definitive verdict on the achievements of the current Minister for Finance, Mr Cowen, but both have reasonably warm words for his predecessor, Mr Charlie McCreevy. Prof McAleese describes him as "outstanding" and "very strong strategically". "He hada sense of what the economy needed, and had great gumption and independence of mind when that was required."

Prof Walsh is slightly more tempered. He notes that finance ministers need to be "lucky as well as clever", and that Mr McCreevy has both qualities. He says he had "extraordinary good fortune", but wonders if he could have paid more attention to indirect taxes.

As he prepares for his retirement in May, Prof Walsh is concerned that some things in the economy - such as deregulation and private-sector involvement in services such as health - are moving too slowly.

He is also worried that the EU could become a more malign influence, perhaps through a push for tax harmonisation.

Prof McAleese, who has already finished his day job, is a touch uneasy about the Republic's cost structure and its potential to outpace reality.

In general, though, he is delighted to see how the economy has progressed throughout his tenure.

Prof Walsh is similarly positive, remarking that one of his most pleasant surprises came when he suddenly had to stop telling UCD students that about one million people were at work in the economy, because this had risen to two million. "It's very gratifying to think the economy is doing so well. It's also a bit puzzling to see that people don't agree with that," says Prof Walsh.