State failures, not business sector to blame for crisis

One thought that makes my mind boggle is the following: It has taken a banking scandal, a bad global recession and a worse domestic one -- not to mention the worst fiscal crisis since the early Eighties -- before some people finally decided to clamp down on cronyism. Some of us -- those who have been saying this for years -- are driven in our views by long analysis and study of how Ireland works and not by the political knee-jerk urgency of politicians.

We understand that the causes of cronyism run very deep. They are cultural and widespread. This is one weed that needs to be pulled up by the roots, not the leaves. A McCarthyite hunt that picks off some outer foliage without pulling the whole thing out of the ground just makes things worse in the long run. As some of their most innocent decisions show, our politicians fail to grasp how cronyism is fed by the deep-rooted contempt and cynicism about the unfairness of how we continue to do things in Ireland.

Days before he announced measures to tackle cronyism -- capping top banker pay at €500,000 a year and restricting cross holdings of directorships -- Brian Lenihan appointed Alan Ahearne as his economics adviser. Now this is the most innocent of appointments and there is nothing cronyish about Alan, who was a colleague of Alan Greenspan, former chairman of the US Federal Reserve, and is internationally respected. Although why a monetary expert of such stature was put in the Department of Finance -- which is in dire need of fiscal expertise -- rather than the board of our Central Bank -- which is in dire need of someone like Alan -- beggars belief. It's the kind of 'square-peg-in-round-hole' error that has caused people to lose faith in economic management.

But the significance of Alan's appointment lies together with the appointment of Peter Clinch as advisor to the Taoiseach. Peter is another highly capable individual and is on secondment from UCD where he is a professor. Now imagine what would happen if one of the banks announced that one of its staff was being appointed on secondment to advise a government minister. A witch hunt of McCarthyite proportions would ensue. The situations are, of course, not entirely the same. But wouldn't the highest standards be served by making sure that no one who serves as adviser on economic affairs and budgetary matters is returning to a sector whose fate will be decided by budgetary decisions? At the very least, it puts the person who eventually returns to that sector in a highly compromised position.

And what, pray tell, is the difference between top executives -- who don't rely on taxpayers for their incomes and who generate the taxes that support those who do -- sitting on the boards of various companies and former and future professors advising government ministers on third- level education spending?

And why is it OK for senior trade union officials to sit cosily on the boards of many State and semi-State bodies? Can we presume that a massive clean-up of the membership of the boards of State and semi-State companies will accompany any measures to curb cross-directorship and bankers' pay? Will universities be forced to publish accounts? Will incompetent lecturers be sacked, as incompetent bankers have been? Will recalcitrant ones be forced to do what they're paid for, ie, lecture their students? Will the Government stop wasting money on useless third-level research and divert the saved funds to creating more primary-school teaching posts? The budget will be closely watched for answers to these questions.

As for capping bankers' pay at €500,000 , the suggestion is popular, but stupid. Think of it this way: The person who

runs AIB holds the future of the economy in their hands. Are we really saying that they should earn less than Gerry Ryan, even after Gerry's acceptance of a 10 per cent pay cut? Gerry Ryan is a good, if controversial, broadcaster. But should he really earn more than the head of AIB?

Come on, let's get real here.

As for cross-holdings of director positions, it's tempting to see this as a nest of cosy corruption. But it is a common feature of small economies the world over. More to the point, it is not, in fact, the root cause of our economic crisis. That honour goes instead to the failure of those responsible for economic planning to diversify our economy.

The South Korean economy has a strong tradition of networks of business people sitting on the boards of banks and industrial concerns. But because Korea's economy is more diversified-- when property is busting, car exports are probably booming -- these networks are more able to survive a recession. In Ireland, construction, banking and alcohol -- all sectors that rise and fall together -- make up the vast majority of our public companies. Had they been more sectorally spread -- and had our banks had the wit to diversify their balance sheets accordingly -- this crisis would be far less serious than it is now. So if the Government presses ahead with infantile restrictions on how business is conducted, it could greatly retard the ability of our business community to pull us out of this mess.

Good, I hear you say. Why should we make it easy for them to solve a problem they created, I hear you ask. Two reasons. Firstly it was the failures of State regulation and policy that really let down the economy, not the business community. It was the financial regulator -- a State agency -- that failed to blow the whistle when financial fouls were being committed. It was the benchmarking process -- an invention of politicians -- that saddled us with a huge and unaffordable public sector pay bill. It was fiscal policy aided by social partnership -- both instruments of the State -- that exacerbated the resultant credit splurge by raising State spending by one third in just three years. And it was local authorities and planning agencies, not to mention a failure of our spatial strategy -- all failures of the State -- that created the shortage of zoned land that pushed up house prices to unsustainable levels. And now we want to blame the private sector? Don't make me sick.

If the Government -- advised by its cosy cadre of public servants -- seriously thinks it can make us fall for this one, it needs to take a good look at itself. The three most important Cabinet members are sons or daughters of TDs. Half the Cabinet who are not teachers or lecturers are members of the legal profession, both sectors heretofore afforded strong protection from the realities of modern competition. And the sector which is one of those most guilty of wasting public money -- the third level education sector -- is the only sector from which the Government appears willing to take advice. Those who are pushing the witch hunt against the private sector should think very carefully before they proceed any further.

Marc Coleman is economics editor of Newstalk 106--108fm. www.marccoleman.ie

This article was originally published by the Sunday Independent on 22 March 2009.