Some people argue that many of our most pressing problems today are the fruits of soft- option, short-term past decisions. Michael Caseyexamines the consequences of governments funking hard decisions
Since the beginning of the State there has been a tendency for governments of all complexions to adopt soft-option policies whenever possible. This is usually the line of least resistance, designed to maintain the status quo.
Soft-option governments tend for the most part to be populist ones and their primary motivation is to be re-elected. Of course individual politicians do try to further the national interest but when push comes to shove this worthy motive will be quickly sacrificed to success at the polls. Change is to be avoided because it might alienate some voters. Clientelism is also part of the stock in trade of populist governments, and spin has become a significant tool of the trade.
Soft-option governments don't take hard decisions; in fact after years of this kind of government the decision-making ability atrophies. This is why Ireland lagged behind other more progressive countries in relation to such issues as divorce, a national health service, trade protectionism etc. And at the present time there are matters like abortion and nuclear power and the Shannon stop-over for US troops, which are deemed to be too hot to handle. There is a widespread hope that they will go away and cease to be an embarrassment to government.
The fundamental problem of soft-option, populist government is that there is no innovation and no ability to take tough decisions. After years of inertia the public sector as a whole absorbs the culture of inaction. Without leadership at political level there is no incentive for officials to adopt a pro-active approach. Passivity becomes the norm. Nothing really changes.
The proposal to set up centres of excellence in the health sector is analogous to the Buchanan recommendation of growth poles all those years ago. Successive governments ran away from the growth pole idea because of local clientelism. The same thing happened more recently in relation to the national spatial strategy. A true test of whether we have matured or not will be the adoption or otherwise of the centres of excellence in the health sector. Watch this space.
The greatest example of soft-option governance was arguably the first half of the eighties when public debt went above 100 per cent of GNP. Governments refused to take the necessary decisions in relation to excessive public spending or to broaden the tax base. Borrowing is the classic soft option. And we borrowed hand over fist with no regard to the burden of debt repayment that would be passed on to our children.
Foreign borrowing would no doubt have continued if not for the fact that the country was heading for bankruptcy - the IMF had begun to put Ireland in the same league as the most indebted developing countries - and we simply ran out of options. There were other soft options too which we gladly embraced - agricultural subsidies, cohesion funds from Brussels, an offshore banking centre, and an industrial policy that relies almost exclusively on huge flows of direct investment from the US. The latter also absolves us from the hard work of doing our own research and development.
Most important decisions bearing on Irish life are now taken not by Irish governments but by the EU and the US. At one bound Ireland has gone from one colonial master to two others. We now have no control over a large swathe of social legislation, domestic interest rates, the exchange rate. We have less control over fiscal policy and , because of the US multinationals, little effect on the supply-side of the economy. And deep down this is exactly how we want it because it protects us from the burden of decision-making. If interest rates rise and hurt mortgage-holders the government does not have to take the blame; the decision was made in Frankfurt. If Irish exporters complain about the high value of the euro it's not the government's fault; it's a matter for the ECB.
It is ironic that we have more Ministers than ever at a time when the need for political decision-making has virtually disappeared. The notion that the government "runs the country" is absurd.
Populist governments usually engage in clientelism but this is bad for society as a whole and for the economy because it puts local issues ahead of national ones. The Shannon stop-over was in the interests of Shannon but not of the whole country.
The kind of strokes that politicians pull at local level will ultimately damage the economy. It is like misleading advertising; it may boost sales in the shortrun but over time the business will be found out.
Clientelism and stroke-play run counter to the notion of excellence, hard work and real decision-making. Short-term political strokes also give rise to a culture of petty corruption which is bad for business especially in a global environment. The emergence of real entrepreneurship has been impeded by strokes and wheezes. Entrepreneurs are supposed to take risks, not operate on the risk-free basis of inside information.
Social partnership can be viewed as a soft-option policy. We cannot afford strikes because they would discourage US investment here. So, under the guise of social partnership income taxes are reduced to keep the unions happy. Governments make up the revenue through stealth taxes. The irony is that as a result of all these convolutions wage growth bears no relationship to productivity, is excessive by international norms so that national competitiveness is being eroded all the time and inflation is much higher than it is abroad. We are too clever for our own good.
Now that the economy is weakening and tough decisions may be called for will any government be able for the task? Not a chance. Already the Government is preparing to go down the soft-option road of borrowing yet again. In any case, because of low skill levels, there is no analytical apparatus to facilitate real problem-solving. Spin has replaced that. Irish governments never matured into fully fledged decision-making executive bodies and now it is too late.
Michael Casey is a former chief economist at the Central Bank and member of the board of the International Monetary Fund