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Towards a second republic

We need to throw out much of our political administration and replace it with an independent, more social model focused on indigenous enterprise – like Iceland.

With the local and European elections on June 5th, Ireland’s crisis moves decisively into a second phase, from the economic to the political. Though the focus of discussion since the crisis broke last summer has been on economics, it is the politics of the crisis that is going to be decisive in shap­ing a better future for Irish society.

With Fianna Fáil support collapsing in the opinion polls and Fine Gael with a commanding lead, it is almost certain that these elections will mark the open­ing salvo of a general election. This elec­tion will be the most decisive since the foundation of the state with the potential to reshape the party political system.

The big question, however, is not primarily the makeup of a new gov­ernment but much more the political project that it will propose to the elec­torate. While a cleanout of the politi­cians whose policies and actions played a big part in landing us in this acute crisis is necessary, it is by no means suf­ficient simply to elect a new and more honest set of faces to sit around the Cabinet table.

“The rapid growth did not come from within; it wasn’t or­ganic, as it is in countries like Denmark and Finland. There was always some­thing artificial and unsustainable about our model of growth based as it was on a preferential corporate tax regime”.

This is where the emergence of Fine Gael as the likely successor to Fianna Fáil, even on the latest Irish Times opin­ion poll with an outside chance of be­ing able to form a government on their own, is worrying. For what that party is proposing is in many ways a more efficient version of what the present government is doing – indeed, Fine Gael’s promise not to raise income tax­es showed a disturbing echo of the sort of Fianna Fáil populism that has got us into such a mess.

Furthermore, in proposing that sig­nificant further savings can be made through extensive public-sector reform, Fine Gael in government might well make a very bad situation a lot worse. For at the heart of the present crisis, as the Obama administration clearly un­derstands, is the failure to build and re­source the capacity of our public admin­istration to manage, plan, and develop a better economy and a better society efficiently and ably. If we have messed up badly on this in the past, how can we hope to do better with a severely pared down public sector?

It is for this reason that political de­bate needs urgently to move to consid­eration of what sort of state we need, not just to get us out of the present cri­sis, but to face the larger issue of fash­ioning a new development model for Ireland. As the former chief economist of the Central Bank, Michael Casey, put it recently “our economic history is to some degree a story of soft options” based on a enormous dependence on foreign investment.

As he wrote: “The rapid growth did not come from within; it wasn’t or­ganic, as it is in countries like Denmark and Finland. There was always some­thing artificial and unsustainable about our model of growth based as it was on a preferential corporate tax regime”. As is only too well illustrated by the power and dominance of bankers and proper­ty speculators in our economy, Ireland has largely failed to build a culture of indigenous enterprise and innovation.

This is the huge challenge to be ad­dressed by the next government. It will require a courageous facing of the core weaknesses of the model of develop­ment that got us to where we are now – one that systematically undermined state capacity through cutting taxes across the board. Most emblematic of this is our low tax on corporate profits, a key element of policy that has increas­ingly irritated our European neighbours as they see it as undermining their abil­ity to compete for foreign investment.

It is very revealing that there has been complete silence in Ireland about our level of corporation tax; indeed, the French newspaper Le Monde was the only one I know which has called for a raising of our low corporation tax rate as one way of raising more funds for the Exchequer. Neither is it an accident that those countries in central and east­ern Europe like Hungary and the Baltic states which tried to copy this aspect of the so-called ‘Irish model’ are now in the most severe crisis.

This issue is at the heart of the sort of fundamental change we desperately need if we are to use this crisis as an opportunity to address fundamental weaknesses of our development model and of our state agencies. The first act of a new government should be to abol­ish An Bord Snip Nua and instead estab­lish a high level commission on state reform, drawing on the best minds in our public service and our universities to proactively map out an ambitious agenda of real reform, rather than the further weakening of state capac­ity that masquerades as reform in the present debate.

This reform agenda will have to de­sign a new set of industrial develop­ment policies and agencies, identifying the weaknesses of the present architec­ture that has been singularly ineffective in fostering a real culture of indigenous enterprise and innovation, despite nu­merous calls for it over the years and the spending of huge sums of public money. Small and medium sized enter­prises need much more active support to grow and innovate, rather than the instinctive reliance on foreign invest­ment which so characterises our indus­trial development policies.

Another agency that has grown bloated with public money and that provides very poor service to the taxpayer is FÁS – it too urgently requires a root and branch reform to carry out the necessary task of reskill­ing a workforce so that it can help inno­vate a more sustainable economy. Clearly reform of the Health Service Executive, a disastrous legacy of the former Progressive Democrat party, is also extremely urgent. A fundamental redrawing of social policy so as to build a more capable and responsive welfare state is also clearly needed.

These are just some of the more ur­gent reforms that require careful plan­ning and decisive action. But beyond these, just as the new government in Iceland is showing, what Ireland needs is a new political system allowing for more capable people to be elected to the Dáil and Seanad who are primarily committed legislators and not always having to attend to the most petty lo­cal needs of constituents. The Seanad should be reformed to be a chamber representing a wide range of the views of civil society groups, something that social partnership has failed to do.

Whether this will involve reducing the size of the current Dáil, which some are calling for, is one issue to be decided as part of such a reform, but it needs to be decided on the basis of careful and expert consideration of what sized Dáil and Seanad would best serve our society’s needs; and not on the basis of saving the state money which seems to be what motivates many such calls. Reforming our proportional representa­tion single transferable vote electoral system to involve at least an element of the continental list system would seem to be one important reform that is long overdue.

Such an ambitious agenda of reform means effectively laying the founda­tions of a second Irish republic. For the current crisis is more than the legacy of some short-sighted policies by the Fianna Fáil-PD coalitions since 1997; it reveals fundamental weaknesses in the way our state operates and in the political system that is meant to direct it. Unless we take this crisis as the op­portunity to address these weaknesses, we are more than likely to repeat the boom-bust cycles that have character­ised the country since independence.

While a lot of attention has been paid to the similarities between the Irish recession and that in Iceland, it is the politics of Iceland that perhaps offers the most interesting lesson for Ireland.

At the very heart of these weaknesses is the dominance of a political culture of populist nationalism, brought to a fine art by Fianna Fáil but infecting all other parties to a greater or lesser extent. This is the politics of the soft option as iden­tified by Michael Casey quoted above – making decisions on the basis of short-term criteria, often heavily influenced by well-organised vested interests, with no longer term vision of the public inter­est or objectives to be achieved for the common good.

Fashioning projects as to how the state can aid society to develop a sus­tainable economy and an equitable society is the essence of politics. A healthy politics requires robust debate, recognising the legitimacy of different proposals and winning public support for them. Unfortunately, too rarely has Irish politics shown itself able to do this; far too often it has been the politics of the soft option, hiding re­alities from the electorate and seeking to seduce voters through promises of personal gain rather than to convince them of what is best for Irish society, offering a vision of the good society and how to achieve it.

This is why the cycle of elections that begins on June 5th will be the most de­cisive in the history of the state. Little Iceland has shown an example of how an election can mark a fundamental change in the way a society is governed and how it sees its future. We require nothing less.

Lessons from Iceland

While a lot of attention has been paid to the similarities between the Irish recession and that in Iceland, it is the politics of Iceland that perhaps offers the most interesting lesson for Ireland. Though the Irish and the Icelandic crises struck at the same time, Iceland immediately did a clean sweep of all the key executives of the banks and of all board members.

Following a wave of determined public protests, with angry protestors camped permanently outside the small parliament building in Reykjavik’s main square, the government led by the Independence Party collapsed and elections were held in April. Indeed, the protestors formed a political move­ment, the Citizens’ Movement, that won four seats in the new parliament.

These saw the Independence Party, a conservative party that had dominated Icelandic politics throughout the 20th cen­tury, reduced to its lowest vote ever and the election of Iceland’s first left-wing government, a coalition of the Social Democrats and the Left-Green party; the Social Democrats have 20 seats and the Left-Greens sixteen in the 63-seat Alth­ingi or parliament. For the first time in the history of the Icelandic state, the In­dependence Party is not the largest party.

The left-wing coalition has already implemented a series of major reforms and more are promised. The three gov­ernors of the Central Bank were sacked and a Norwegian banker put in charge on a temporary basis. Negotiations with employers have led to increased wages for the lowest paid and a decision made to open negotiations to join the Euro­pean Union, something the nationalist Independence Party always opposed.

While both parties during the elec­tion campaign did not hide the fact that painful cutbacks lay ahead to re­duce the budget deficit which is now 14% of GDP, they are proposing a far wider agenda of fundamental reform to reshape development policies and the country’s political system. A con­stituent assembly is to be elected to re-write the Constitution and more support is promised for indigenous companies and small and medium enterprises to develop the productive economy in a more sustainable way.

The mood in Iceland today is grim, though the bars and restaurants still fill up in the evenings. One Icelander told me that many people are re-read­ing the classic of contemporary Ice­landic literature, the novel Independent People, for which its author Halldor Laxness won the Nobel Prize for Litera­ture in 1955. They are returning to it, not just for pleasure, but to rediscover a sense of national self-confidence that has been very badly damaged by the collapse of the country’s banking sys­tem and model of development.

Peadar Kirby is Professor of International Politics and Public Policy at the University of Limerick.