Dr. Tom O'Connor- CIT
At least half a dozen books have examined the Irish economic collapse in the past three years. All have done a good job in explaining economic policy failure in regard to Fianna Fail, the construction industry, `light touch' financial regulation, and political cronyism. Mc Cabe's book deals with all these issues.
However, it does far more than that. It traces these developments since the foundation of the state and identifies key historical economic policy decisions which establish continuity between past and present. The breadth and compass of the book is breathtaking. It is head and shoulders above the other books and is a tour de force as a critical economic history of Ireland.
Mc Cabe's book demonstrates that an elite class came to power in Ireland in 1922 which had little interest in fostering a type of economic development which would benefit the mass of society. Essentially, this class, drawn from the landed bourgeoisie and their professional descendants, favoured the economic interests of the `rancher class' and ultimately their descendants in the law, construction, politics and high finance. Few would disagree that the two main parties have continued this process to the present day.
It cared little for the pockets of the wider citizenry, persisting with the export of live cattle to Britain, depriving the economy of any spin-off from the practice of an intensive form of agriculture. Private home ownership was institutionalised in the Housing Acts of 1924 and 1925 which offered grants to those who wished to build their own homes, at a time of widespread tenement destitution in the major cities: `This tended to favour the middle classes, rather than the working classes, for whom the housing problem was so severe'(p20).
The book painstakingly highlights the political decisions which resulted in the prioritisation of owner occupation over the years, alongside the privatisation of public housing, through tenant purchase and the surrender grant schemes, which meant that social housing has represented an increasingly smaller percentage of total housing as the decades wore on.
The retreat by the state from building local authority housing since the 1980s and its selling back of most of the existing social housing stock since the foundation of the state resulted in hundreds of thousands of Irish people having little choice but to purchase houses at hugely inflated prices during the Celtic tiger. They simply had no other choice. The result is obvious at present: Over 53% (over half a million) of mortgaged houses now are in negative equity and 45,000 home owners are in arrears to the tune of 8.6 billion, with the figure having risen by 6% in the last year.
The book makes the striking observation that the prioritisation of owner-occupation, now resulting in 350,000 vacant housing and NAMA, did not result from the cultural attachment to property which is the favoured explanation: `There is no Irish property-owning gene. It is not part of our DNA'(p11) On the contrary, the 80% rate owner-occupation in the 1980s was a deliberate outcome of policies of successive governments.
The book demonstrates that Irish economic development never prioritised indigenous industry. It did not pump money in to the Irish economy up to the 1950s, largely based on its failure to set up an Irish Central Bank which could have issued government bonds to fuel government investment or even increase its own money supply. This was strongly dictated to by its maintenance of a parity link with sterling.
The Irish banking system returned Irish savings to the London money markets and starved the native economy of funding. The failure of the banking system then to lend money to stimulate economic development resonates with its insatiable appetite for taxpayers money currently, while if fails to lend money to Irish businesses, driving dozens to the wall every week.
Having failed in economic development up to the 1950s, the Irish government handed over massive tax breaks to multinationals to short circuit the process. Crucially, McCabe highlights the Irish government policy of making itself a `middleman' to foreign direct investment by depending on the construction, finance and administration jobs that this investment would bring. In doing so, it lined the pockets of the middlemen in these areas: builders; bankers; property developers; lawyers; auctioneers and countless others. We all know what has happened today as a result.
Irish economic policy was essentially relegated in to taking the short term and indirect benefits of foreign direct investment which had few product linkages with the domestic economy, having taken advantage of the low 10% profits tax and grants. The setting up of Indigenous Irish businesses as an alternative was ignored. Worse still, governments were prepared to sacrifice huge amounts of state resources for modest paybacks in employment and tax revenue. Fianna Fail in government, essentially gave away: 16 million pounds of copper mines in Avoca to a Canadian company in 1955 and the biggest lead/zinc mines in Europe at Tynagh to the Canadian Northgate group , which shortly afterwards made over 36 million dollars on it in one year.
Less than 50 jobs resulted from the government decision to by Sean Lemass to sell total gas and oil exploration rights to the American Ambassador Company in 1959 for £500! This was bought subsequently by Marathon which discovered the Kinsale Gas Field. The links to the present day are obvious: Ireland got virtually nothing from the Kinsale gas except increasingly hefty gas bills; the loss of billions of government revenue from the Erris gas field in Co.Mayo. There is an increasingly groundswell of opinion that, given the current economic circumstances, this gas field should be taken back in to national ownership.
The over reliance on construction ultimately grew the monster of political cronyism in Fianna Fail, epitomised in the setting up of the Taca in 1967 as a fundraising organisation for the party. It drew its membership heavily from builders, property developers, businessman and architects. Fianna Fail in government had prioritised their speculative building of premises for foreign industry alongside `office blocks, car parks and hotels-the holy trinity of Irish speculative building' (p99).
Most of the building was rented out to the Irish government, with political patronage of connected builders and corruption in rezoning. The whole scene was summed up well by the then Local Government Minister Kevin Boland: `We [the cabinet] were all organised by Haughey and sent to different tables around the room. The extraordinary thing about my table was that everybody at it was in some way or another connected with the construction industry'.(p101)
Land speculation driven by Fianna Fail ratcheted up property prices for most of the years from the 1960s till 2008. The Kenny Report of 1974, which recommended a capping of land acquired by local authorities at cost plus 25% was ignored. Amazingly, its implementation then could have prevented the the Irish property bubble and the bust that followed.
This was said of a meeting in 1967! The setting up the Irish Financial Services Authority (IFSRA) om 1990, another child of Charles Haughey, had the effect of creating hue tax avoidance mechanism for Irish and European banks which cost Ireland and other EU countries billions. The practices that have now virtually bankrupted Ireland were well underway at that stage.
The book quotes a long letter to the Irish Times by 20 top economists, a week after the finance minister Brian Lenihan set up NAMA on April 8th 2009. It warned that the transfer of 67 billion to NAMA was the wrong option and that this money should be pumped in to a nationalised banking sector, where the government could write down the value of the assets to whatever figure it chose. The money should have been used to recapitalise the banks then, which would probably have averted the need for a bailout at the end of 2010.
However, the NAMA decision was made in the interests of the property industry according to the economists. This, and the decision to guarantee the liabilities of all banks in October 2008, including Anglo Irish, the bank of the property developers, and which ultimately has almost bankrupted the country, was a direct result of the relationships that had built up since Taca in 1967. The remarkable continuity has proved disastrous.
At the end of the day, the 450,000 people on the Live Register of Unemployment; the thousands who are deprived of Special Needs Assistants or Speech and Language Therapists; the 100,000 on housing waiting lists and 10,000 homeless are amongst the most severe casualties of the historical link between Fianna Fail and the property industry and the abject failure to ever set up an inclusive Irish society since independence. The book has demonstrated that their plight has been directly caused by the alliance between Irish governments and `the middleman' in construction, finance, land and the law.....the four-leaf clover...of modern Irish capitalism' (p194). As ever, the Irish taxpayer and the poorest in society are the fall guys.