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From: Irish Political Review: Articles
Date: January, 2001
By: Editorial

Problematic Economics and the Civil Service

Problematic Economics and the Civil Service

Sinn Fein’s attitude to the civil service was the subject of media reports a couple of times during 2022. Early last year Mary Lou MacDonald identified the issue as a key challenge for the party if it was to participate in Government, the implication being that she feared high ranking State officials would act to obstruct the implementation of Sinn Fein policies.
Then in November the SF spokesman on Housing, Eoin O’Broin, apologised to John MacCarthy, chief economist at the Department of Finance, after calling for him to be sacked because of his views on housing. O’Broin affirmed that Sinn Fein believed in the independence of the civil service, adding, “you have to listen to all advices, all opinions, even if you don’t agree with them” (Irish Independent, Gavija Gataneckaite, 3 November 2022).
The role played by economists at the Departments of Finance and Housing, in the Central Bank and throughout the public service, should indeed be a subject of interest in Irish politics and not just because of the possibility that Sinn Fein TDs will hold Ministerial Office in the not-too-distant future. The nub of the matter is that while these officials are required to execute Government interventions in the economy—in other words, to practice political economy—their training in economics predisposes them to a dislike of Government intervention and an antipathy to politics itself.

O’Broin, with whose approach to politics we would have little in common, not least because of his admiration for the British Leftist, Paul Mason (see the December 2022 Irish Political Review), is right when he says that the advice of economists deserves consideration. To dismiss the entire canon of economic thought on the grounds that economists are quintessentially defenders of Capitalism (which they are) would be akin to philistinism. The welfare of people across large swathes of the globe depends on a mixture of capitalism and Government intervention, so the contributions of economists, regardless of the shortcomings of that still young profession, need to be heard and studied.

Back in the 1980s when the effects of a heroin epidemic were being felt in inner city Dublin, the late Pat Murphy, a member of the management team at the Larkin Centre for the Unemployed in North Dublin, and a founding member of the group that produces Irish Political Review, often used a pithy phrase regarding economic matters. It was: working class communities need jobs and it carried the implication that, if wage restraint caused the workings of Capitalism to run smoother, as economists advised, such that the level of employment could increase, then that advice should be taken.

The point about economic advice sometimes having merit is being laboured here because the role of economists in Government currently requires critical evaluation and it is important to place that criticism in the right perspective.

The Story of a Textbook
Not so long ago, when a focus of debate in political circles was the causes and implications of the 2008 Crash, the economic researcher and commentator, Feargus O’Raghallaigh, suggested that someone should make a study of the changes of position and shifts of emphasis expressed through the many different editions of a textbook entitled, The Economy of Ireland. The book was then in its eleventh edition, three further editions have since come out, so a comprehensive study of the contributions made over nearly fifty years by some of the most influential Irish economists to this most influential of textbooks would be even more fruitful now.
The book’s publishing history is interesting. The first six editions dating from 1975 to 1991 were issued by the Irish Management Institute during mostly economically difficult times. Arguably, the spirit of the early editions was captured by T K Whitaker in the Preface to the first edition. He wrote:

“There is, of course, no assurance that even such a searching examination of the Irish economy as is contained in these pages, will point the right way forward. Without such appraisals, however, there can be little hope of our finding the way” (First edition, p. ix).

A seventh edition was published by Macmillan in 1995 when the fortunes of the Irish economy had been turned around. Gill and Macmillan brought out the next five editions, culminating in 2014, and the thirteenth and fourteenth editions were published respectively by Palgrave, and by Bloomsbury Publishing. That the book found commercial publishers from 1995 onwards may reflect an increase in international interest in the Irish economy. As stated in the Preface to the latest edition:

“Ireland has been an interesting political economy case study in recent decades”.

All the editions up to the thirteenth (2017) are available in the National Library of Ireland, thankfully.

The contributors come from a wide range of domestic and foreign universities (most seem to be Irish), but the home base of The Economy of Ireland is the Economics Department of Trinity College Dublin. The lead Editor, Professor John O’Hagan of that Department, was an editorial contributor over the forty-six years of the book’s existence to date, an impressive achievement whether or not you like the work. The list of contributors includes: T.K. Whitaker, Garret FitzGerald, John O’Hagan, Kieran Kennedy, Moore MacDowell, P. T. Geary, Jonathon Haughton, Dermot McAleese, Philip Lane, Frances Ruane, Francis O’Toole, Carol Newman, Kevin O’Rourke, Alan Matthews, Jim O’Leary, Tara McIndoe-Calder, Micheál Collins, Michael Wycherly, Anthony Leddin, Eleanor Denny, John Fitzgerald, Michael King, Sarah Cantillon, Nina Teasdale, Ronan Lyons, Anne Nolan, Paul Donovan, Ciara Whelan, and Patrick Paul Walsh.
No doubt the textbook has been used on many university courses but there is at least one course where it constitutes the core text: a Masters in Economic Policy Studies provided by the Economics Department at Trinity, running every two years and catering specifically for mid-career civil servants. That course is not the only place where civil servants receive economics training but, in the context of the debate about the appropriateness of economists holding influential governmental positions, the existence of that course and its textbook is worth noting.

Three Phases
Three distinct phases can be identified in the evolution of The Economy of Ireland over the forty-six years. The first is the 1970s phase, when the contributions held to basic tenets of economics: like the precept that Government intervention is only justified in the event of market failure, and the commitment to the concept of a mixed capitalist economy, while reflecting a shared conviction that the independent Irish State needed to overcome its economic disadvantages through making the best possible use of the latest thinking.
The tenor of the contributions in the 1970s can be characterised as social democratic. Promoting economic growth and reducing unemployment are established as primary objectives. Means by which ‘indicative planning’—Government plans to coordinate the development of different sectors of the economy—could be made more flexible and effective are discussed. Essays on fiscal, monetary, industrial, regional, and agricultural policy are all based on the assumption that Government intervention is critical to economic development. The underlying intellectual influence is Keynesian.

The second phase, the Liberal phase, emerges during the Irish Management Institute years and runs up to the tenth edition in 2008. In these editions a complete thought revolution can be seen. An essay by Andrew John, headed Primary Policy Objectives, subsequently dropped in the 2011 edition, makes the case for the market mechanism and the free market economy, citing the neo-classical economist, Milton Friedman. It simply ignores the primary objectives identified in the editions published in the 1970s.

A new chapter by Jonathon Haughton covering the historical background appears in the seventh edition in 1995. A passage on what the author calls the nationalist interpretation of economic history deserves to be quoted in full:

“Stripped of its Irish context, this view [the nationalist view] is comparable to the approach of dependency theorists, who emphasise the harmful results of links between peripheral areas and the major industrial powers. The main weaknesses of this approach are that it has tended to neglect the potentially beneficial effects of links with the metropolitan area, and has overestimated the ability of independent states to make wise decisions, as exemplified for instance by Ireland’s disastrous fiscal experiment in the late 1970s.

Membership of the European Union has not made the nationalist view completely obsolete, but it has been stripped of its Anglophobic character. There remains space for a nationalism, or perhaps localism would be a better term, to counteract the tendencies of the EU to regulate from the centre what would be better done at a much lower level of government” (Seventh edition, p. 45).

Needless to say, this account is very different from the historical background provided in the seventies’ editions.

A telling feature of Haughton’s account of recent economic history is that he downplays the transformative effects of the Government that came into office in 1987, while conceding that, “the 1987 reform worked” (Eleventh edition, p. 23). In a later edition he expands that point as follows:

“The 1987 reform worked, not only because it addressed unsustainable macroeconomic imbalances [presumably Haughton means the Budget Deficit, the import/export—current account—deficit and the debt to GDP ratio], but also because of deeper changes in economic policy that began to tackle structural problems” (Fourteenth edition, p. 27).

Later on the same page he defines what he means by structural problems: the privatisation of State enterprises. Actually, Jonathon Haughton is here showing an ignorance of political history: the 1987 Fianna Fail Government resisted the privatisation agenda throughout its term.
Other reforms introduced by that Government—which had lasting effects and which are not mentioned by Haughton—are the creation of both the International Financial Services Centre and the National Treasury Management Agency. Nor does the author mention the success of Social Partnership in those years or—indicative of a pettiness in Irish liberalism—the fact that the Government was headed by Charles Haughey.

The final phase, the Orderly Retreat phase, covers the years 2011 to 2021 and four editions of the textbook, the eleventh to the fourteenth (the latest). Admittedly, the continued production of a textbook explaining Irish economic life through the prism of liberal economics in the wake of the Great Crash is a daunting task. Staging the equivalent of an orderly retreat in such circumstances requires ingenuity and resilience, qualities much in evidence in these editions!

Firstly, essays showing ideological bias on the side of neo-classical authors—like Andrew John’s piece on primary economic objectives in which he defers to Milton Friedman—are removed. Then an essay by Michael King on equality, poverty and social justice, subjects ignored during the Liberal phase, becomes a regular feature. Elsewhere in the text we see terms like ‘political economy’ cropping up, although usually having a disappointingly vague meaning. And the subject of the Crash itself is addressed in an addition to Jonathon Haughton’s historical background piece.

Haughton handles the Crash by summarising the objective facts; the issue of what caused it, especially the role of liberal ideology, is studiously ignored. It is notable that, in the reading list at the end of the historical background chapter, the authoritative account of the Crash from an Irish perspective—The Fall of the Celtic Tiger by Donal Donovan and Antoine Murphy (2013)—is not listed. The authors of that work did not hold back from investigating concepts like Efficient Markets Hypothesis which became dominant in Finance courses in US universities, later causing havoc in international financial markets (see Lessons of the Irish Crash by Dave Alvey, Irish Political Review, March 2018

It is unfortunate that—rather than acknowledging that the application of market fundamentalism was the primary cause of the Irish financial Crash, as O’Donovan and Murphy come close to doing—the mainstream of the Irish economists’ profession have taken a damage limitation approach. The recent editions of The Economy of Ireland, having followed that path, are fatally flawed as a result.

Arms Trial Syndrome
The 1970 Arms Trial, in which two Cabinet Ministers (Neil Blaney and Charles Haughey), a senior intelligence officer (Captain James Kelly), and other prominent figures (Northern nationalist John Kelly and Belgian businessman Albert Luykx) were tried for importing arms illegally for use in Northern Ireland, was a seminal event in Irish politics which has cast a shadow over wide aspects of Irish public life, including history-writing and economic policy-making.

In a nutshell, what happened was that the British Government, learning of the arms importation, applied pressure on the Irish Government, headed at that time by Jack Lynch, to abort the exercise. Responding to the pressure, the Lynch Government chose to deny official knowledge of the importation and place the blame for it on an illegal conspiracy. As has since been shown in a number of books on the subject, the importation of arms had in fact been officially sanctioned. The lasting significance of the controversy is that, in a moment of crisis, an influential element inside the Irish Establishment decided that the nationalist legacy of the State was not to be taken seriously, that, behind a façade of nationalist rhetoric, Ireland, or at least its elite, should see itself as a satellite of the UK.

The first effect of what should be termed, Arms Trial Syndrome, was that the writing of Irish history was taken in hand by Oxford and Cambridge; the story of Irish historical revisionism is well known. While the Arms Trial took place in 1970 it took many years for its implications to be worked into the fabric of public life. It really only gathered a publicly obvious momentum after the signing of the Good Friday Agreement in 1998.

Reviewing the phases undergone through the writing of The Economy of Ireland, it is possible to see how Arms Trial Syndrome has influenced economic thought in Ireland. Contributions published in the 1970s reflect a belief in Irish independence, whereas later contributions depict such views as delusions from a bygone era.
Surprisingly, an honest account of the historical background published in the first edition was by Garret FitzGerald. Here is an excerpt:

“Ireland’s deficiency in key minerals does not, however, fully explain the failure of industry to develop on a substantial scale. Historical circumstances also operated to inhibit industrial development. The colonisation of Ireland by England, which was attempted on a systematic basis from the middle of the sixteenth century onwards operated to prevent the growth of industry in Ireland even before the Industrial Revolution” (First edition, p. 1).

FitzGerald is adamant that national self government allowed the nations of Northern Europe to pursue prosperity for their peoples, while its absence in Ireland caused the country to lag far behind. By way of contrast, Jonathon Haughton’s historical background has been de-politicised and is consequently far less coherent than FitzGerald’s.

An essay that stands out in the second edition of the textbook is by Kieran Kennedy. Simply headed, A Reply, it had first been published at an economics symposium and was a reply to an essay on inflation by P. T. Geary (not the famous statistician, R. C. Geary), also published in the second edition. It is worth quoting at some length.

“In regard to inflation, the two central questions to which economists and policy-makers in Ireland should address themselves are, in my view, as follows: what degree of autonomy do we have in controlling inflation? And what are the costs and benefits to other major economic and social objectives of using that degree of autonomy? I, therefore, do not see the issue as one of no inflation in Ireland while rapid inflation proceeds abroad. Rather, it is a matter of how far, and for how long, we could hold our inflation rate below that of other countries. Moreover, I do not see it as a question of less inflation at any cost. Rather, it is a matter of the degree to which less inflation, and the manner in which we achieve it, will help or hinder our other economic concerns. The discussion should, therefore, be set in the context of Ireland’s central economic and social problem, namely, that since independence there have been insufficient job opportunities for the natural increase in the labour force.

Potentially, the most dangerous fallacy in Irish economic thinking is that because we have only limited autonomy, we can do nothing at all, or that the little we can is of no consequence…” (Second edition, p. 218)

Kennedy’s belief was that domestic wage increases were adding to Irish inflation and that this could be controlled. Like Garret Fitzgerald’s essay, Kennedy’s provides a sharp contrast to the approach taken in Haughton’s historical background. The following paragraph by Haughton, first published in the seventh edition and repeated with only minor amendments in all subsequent editions, encapsulates a core message of The Economy of Ireland in its Liberal and later phases.

“As a practical matter Ireland has less and less room for pursuing independent economic policies. Fiscal restraint is needed because persistent expansionary fiscal policy does not work well in a small open economy, as the experiment of 1978-87 shows. Monetary policy can only play a passive role once the exchange rate is fixed, whether to sterling or within the EMS [European Monetary System] [monetary policy is now governed by the European Central Bank]. Industrial policy is increasingly circumscribed by the rules which have applied since 1993 to the Single European Market. Recognising the need for greater efficiency, the country has privatised or closed down several state-owned enterprises. As the twentieth century closes, Ireland has become a district of Western Europe, perhaps with little more autonomy than a typical state of the United States, but with an economic future which is increasingly congruent with that of Western Europe” (Seventh edition, p. 47).

There can be no doubt but that the above paragraph by Haughton, like many of the arguments emanating from the liberal, anti-State camp within the economics world, has a plausible and persuasive ring to it. Its credibility, however, wears thin when set against the actual course of Irish economic history.

Within the covers of the many editions of The Economy of Ireland, writings by 'old school' economists like Kieran Kennedy live alongside the contributions of anti-nationalist liberals like Jonathon Haughton. But which approach is more valuable from a Political Economy perspective?

The following few lines from Kennedy’s obituary (he died in 2013) tell us much about his contribution to public life.

“Mr Kennedy (77) was director of the Economic and Social Research Institute (ESRI) from 1971 to 1996, and in 1982 was recruited by Taoiseach Charles Haughey to help formulate the economic plan “The Way Forward”. Although Haughey was not returned to Government in the subsequent general election, The Way Forward was credited as being the blueprint for remedial measures taken when Haughey did return to power in 1987. Of his experience working with the politician, Kennedy is reported to have said he never encountered a person with such an incisive mind and intellect as Haughey” (Irish Times, 6 Feb 2013).

Regarding Haughton—and the many Irish economists who would concur with the opinion that, economically, Ireland should be viewed as a mere district of Western Europe with little more autonomy than a typical state of the United States—it can be said that their approach has not served Ireland well. Whereas Kennedy lent his expertise ito helping to formulate a strategy that was a factor in turning around the Irish economy, the liberals followed an international consensus uncritically which eventually ended badly; the latest estimate of the net cost of the Irish Crash, as of the end of 2021 is €45.7 billion and that estimates only the monetary cost.

It is impossible to know what ideas hold sway with economists in the employ of the State, or how much of the advice of economists is followed by the political leadership. Perhaps the requirements of the job pull them away from theoretical abstractions towards the practicalities of political economy. Yet the orientation of Housing policy since the aftermath of the Crash suggests that reliance on market forces continues to guide the policy debate.

The evidence of recent editions of The Economy of Ireland indicates that the detrimental effects of liberal ideology have not been faced up to. Neo-liberalism is still dominant in economics circles. That problem is aggravated by the Arms Trial mentality of many in the upper echelons of society. State intervention must be minimised and the spirit of independent Ireland must be subjected to caricature.

The distrust voiced by Sinn Fein representatives regarding the civil service is to be welcomed, but can even that party be trusted to re-establish continuity with the tradition ably represented by figures like Kieran Kennedy and Charles Haughey? Sinn Fein has dropped its ‘failed State’ rhetoric recently, but the old attitude of wishing a plague on both your houses, referring to Fianna Fail and Fine Gael, must surely still linger.

Independent Ireland has always been governed as a mixed economy. For the future the challenge is to shake off malign influences like neo-liberalism and its twin brother, anti-nationalism. Making progress along those fronts affords the best opportunity for getting right the balance between public and private sectors.