by Colm Keena
For certain areas of the economy the Government has direct and often monopolistic influence. Transport, planning, health services, education and of course the running of the civil and public services themselves are matters on which politicians have direct influence and for which they have responsibility. While the Ahern Governments made great political use of the buoyant economic backdrop in which they operated, their record in managing aspects of society for which they had direct responsibility was generally recognised as being very poor. Yet efforts by opposition politicians such as Richard Bruton to draw attention to the waste of money and the lack of reform created little by way of political return for him or his party.
Bruton believes that the idea of public-sector reform ‘collapsed’ when Ahern came to power because his Governments used the public service as part of its electoral strategies. Ahern’s instinctive response when confronted with any difficulty, according to Bruton, was to pretend it wasn’t there and, if that didn’t work, to throw public money at it.
In the five years to 2006 the public-sector pay bill rose by 59 per cent, and the staff increased by 38,000. The largest increases were in health, education, security and the civil service. Government politicians, when challenged, asked which nurses, gardaí or teachers the critics would want to let go. It was a reasonable riposte from a political point of view, but the plain fact of the matter was that the scale of the increase was not sustainable and was, as we shall see later, funded not only by boom-time taxation receipts but by foreign borrowings as well.
Salaries increased greatly, according to Bruton, ‘but there has been no quid pro quo for the taxpayer because ministers did not build the necessary reforms into the benchmarking structure.’
It is worth noting that the benchmarking process led to salary increases for Ahern himself, his ministers, his senior civil servants and such figures as High Court judges. The master of the art was overseeing the biggest patronage scheme of them all. According to Joan Burton, the trend in top-level remuneration among the social partners reflected a view that they had presided over the creation of one of the richest countries in the world and deserved something for their achievement.
Apart from pay and the increase in its size, the other major initiative on public-sector management during the Ahern years was the unexpected announcement by McCreevy in December 2003 that the Government was going to move a large proportion of the public sector out of the capital. Arguably this was the most cynical use of the public service since the foundation of the state.
There were fifty-three sites involved, and electoral considerations appeared paramount. Tom Parlon of the PDs assumed responsibility for the effort in his position as Minister of State at the Department of Finance in charge of the OPW. FÁS was to move its head office to his constituency as part of the plan—something he sought to use for electoral gain.
The head office of the Central Fisheries Board was in Ahern’s own constituency, in an unusual 1930s’ building on a lane off Mobhí Road. Speaking of his continued commitment to the decentralisation policy after his party’s disappointing results in the 2004 local elections, Ahern told the Dáil: ‘The Central Fisheries Board were on the banks of the Tolka for years, protecting the pinkeens.’
A huge amount of money was wasted on the project before it was eventually called to a halt. The planned move of FÁS to Co. Offaly never went ahead. It bought a landlocked site outside Birr, Co. Offaly, in 2006 for €1½ million. At about the same time it rented office space in a converted mill in Birr that had been developed by some local business people, a tax inspector and two accountants as part of a public-private partnership with the Shannon Development Authority. The office space was to be used as the FÁS head office, pending the construction of a new building in the field outside the town. The premises were upgraded at a cost of €1 million, with the contract for doing so being awarded to a building company belonging to one of the landlords and without the matter being put out to tender. However, the head office was never moved to the well-fitted spanking-new offices. The former director-general, Rody Molloy, who is a native of Birr, retired in November 2008 because of a scandal over spending controls at the authority. His replacement, Paul O’Toole, had only visited the FÁS premises once, as part of a courtesy visit, when he was asked about the matter in September 2010. The lease on the offices costs approximately €100,000 a year. Tom Parlon, who trumpeted the move to Birr during the 2007 election campaign, lost his seat and almost immediately took up a post with the Construction Industry Federation.
Richard Bruton is very harsh on Ahern in relation to reform.
The big decisions his Governments made were disastrous. The damage they did to the ethic of performance in the public service is a big legacy: paying out benchmarking without regard to what was achieved; having decentralisation without any cabinet papers, without any consultancy. They just pushed it through under the secrecy of the budget and then pushed civil servants around like pawns on a board. When amalgamating the health boards into the Health Service Executive, the one advantage was that you could rationalise your administration, and then Bertie goes in and says there will be no rationalisation.
All those things were saying to ambitious people who wanted to work in a high-performance organisation that our political leaders don’t care about a high performance. All they care about is a quiet life. It was about satisfying short-term political needs in the case of decentralisation; avoiding a row in the case of benchmarking. All of that now has to be massively undone, unfortunately at a time when there is no money to pay public servants, and you are going to be cutting the pay bill while saying to them we now have to have a performance culture. There has been a wasted decade.
They spent heaps of money, but the system was undermined. And I think that’s another legacy that he has. He bought out problems instead of confronting them. That is his instinct. I don’t think history will be that kind to him.
The explosion in economic activity that occurred during the Ahern years was facilitated by the availability of labour. The huge numbers of unemployed and the number of women who did not take part in the work force constituted a huge resource for the early years of the Celtic Tiger.
The increased participation of women in the work force was seen by many in the Government as a positive development, even if it entailed an increasing number of mothers leaving young children in care. The explosion in the price of housing also put pressure on young parents. It was difficult for one salary to support an entire household, including mortgage repayments. The rising cost of child care increased the pressure on young families.
The issue of child care had been a subject of discussion for more than two decades, as was evidenced by the number of reports commissioned on the subject. However, subsidising those who wanted to put their children into child care so that they could work was perceived by some as an assault on mothers who wanted to remain in the home—even on traditional family life and Catholic sexual morality. By the late 1990s the matter of how best to raise children had become a subset of the drive towards economic growth. The strains on families caused the matter to become politically charged.
The Partnership 2000 ‘Report of the Expert Working Group on Childcare’ pointed out that quality child care can have both social and economic benefits. Ireland’s childcare policy was characterised by a lack of co-ordination and a lack of state support, despite the wide range of international studies showing the beneficial effects of pre-school education, particularly for children from disadvantaged backgrounds. The returns were huge, the report pointed out.
One widely reported longitudinal study from the United States found that children who attended a carefully designed programme, known as the High/Scope Programme, were more likely to stay on into third-level training and education, were less likely to get in trouble with the law, and were more likely to be supporting themselves when compared to a control group who had not experienced the programme. When reviewed in terms of cost benefit analysis, the researche
rs found that for every $1 invested in this type of early education programme, the State saved $7 per child by age 27 years.
There had been severe pressure on the Government in the period before the 1998 and 1999 budgets to provide tax relief on childcare costs, but the issue had not been grasped because of the political sensitivities involved. This changed in the two expansionary budgets that preceded the 2002 general election. In his budget speech in December 1999 McCreevy announced a range of measures to support the existing system of child care. He also announced an increase in child benefit. In the budget speech of a year later he announced what he called the largest package ever of support for children and their parents. Again, grants and other support for the existing system were a major element of the announcement, but so too were universal transfer payments to all mothers. McCreevy increased child benefit by £25 per month for first and second children, to £67.50 per month. For third and subsequent children the increase was £30 per month, to £86. These were huge increases, but more was to come, he said.
This increase of over 50 per cent in current payment rates marks the first step in a three-year programme. At the end of this process, an additional one billion pounds will have been invested directly in our children’s well-being. Child benefit monthly payments will stand at over £117.50 and £146, well beyond [partnership] commitments. This will mean up to £90 per month extra for each child at the end of three years. By then, a family with four children will be receiving the equivalent of over £120 per week in Child Benefit support. This unprecedented increase will help all parents with the costs of caring for their children and will represent a major move towards achieving the goal of ending child poverty in this country.
The striking increase in payments delighted all types of parents around the country. However, the announcement constituted something of a rejection of the expert working group’s reports and of other reports. A very detailed study of the issue and of all the previous studies and reports that had been carried out was initiated by the National Economic and Social Forum, chaired by the psychologist Maureen Gaffney.
As already noted, Ahern and his party held a meeting in Inchydoney, Co. Cork, in September 2004 which received extensive media coverage. The following year the equivalent meeting was held in Ballyconnell, Co. Cavan. This time they invited an American academic, Robert Putnam, author of Bowling Alone: The Collapse and Revival of American Community (2000). Ahern let it be known that he had read the book twice. ‘He’s a fascinating guy,’ he told the Irish Times. ‘He was a big adviser to Clinton, who has huge, huge regard for him. He continued on that road with Bush and Blair as well. I’m glad to say we were talking to him before either of them, since the early 1990s.’
Another invitee to the Ballyconnell get-together was Maureen Gaffney, who was asked to speak on the childcare issue, which continued to be a political challenge. She put her heart and soul into her address.
The entire issue during the Celtic Tiger years had been about labour supply and the need for more creches. I argued that this was a golden moment. I tried to re-orientate the debate towards the big issue: children and their future. I wanted money spent on early child care and education. There was absolutely no argument about the benefits. There is a boomerang effect, with a return for every euro invested.
It is particularly beneficial to the disadvantaged, but I argued that it should be universal. It can help support communities and [with a universal system] the most resourceful parents in the community become a resource to the service. I spoke with as much passion as I could muster.
The Government did take up some of the recommendations, but I was looking for a ‘big bang’ moment, something like the introduction of free secondary education. It could be a moment like that, a great legacy of the Celtic Tiger era.
I argued against giving money to everyone, which I suppose was a brave thing to do. I said there was no guarantee that it would be spent on children’s welfare. It might be spent on a foreign holiday, or to put in a deck.
Gaffney thought the politicians had a concern that giving money to early child care and education would be seen as discriminating against the stay-at-home mother, especially in the wake of the row over Charlie McCreevy’s introduction of individualisation for income tax assessments in his 2000 budget. She felt that the stay-at-home mother was something of a myth. Rich mothers didn’t work, but they put their children into creches so that they could pursue other activities. Extremely poor mothers didn’t work because they couldn’t afford child care.
Politics overshadowed the longer-term view. There was a very strong idea or ideology at the time that people should be given their money back. How receptive was Bertie? He invited me there. But I didn’t get the impression it was a eureka moment for him. I think he thought in a very political way.
Brian Cowen in his first budget speech in December 2004 announced another increase in child benefit rates and pointed out that they had increased by a whopping 270 per cent since 1997. But throwing vast amounts of money at the problem hadn’t made it go away. Indeed, it might even have fed into the issue. Just as there is a correlation between house prices and the amount of credit available, there is a correlation between the number of households where both parents are working and house prices. The greater the household income, the more a couple can afford to pay for a house, and the more house prices rise. The more expensive housing became, the greater became the pressure on young parents to both have jobs. Encouraging female participation in the work force created a positive-loop system, with one factor influencing the other in an upwards spiral.
In his budget speech of December 2005 Cowen announced the Government’s new childcare strategy. He said the Government wanted to help all parents by widening their options. ‘Having carefully considered all the complex issues involved, the Government has developed a five-year strategy to tackle the problem.’ The Government had decided to support the provision of more childcare places and to assist in the care in the home of children in their first year through extended maternity leave. It was going to address ‘cost pressures’ by providing an entirely new payment: an early childcare supplement for all children of less than six years of age. When announcing the measure, Cowen pointed out that child benefit that year would cost €2 billion. This compared with €500 million only five years earlier. He had decided that the most effective way of dealing with the continuing pressures being felt by the parents of young children was to introduce another payment. Everyone, regardless of whether the parents were both working or not, would receive €1,000 per annum per child until the child reached six years of age. The new scheme would cost €353 million a year. The Government was going to spend more on giving out money than it would have cost to establish a system of pre-school education, even though the world by then knew of its benefits.
In March 2009 the Competitiveness Council published a statement on competitiveness and training, which spoke about the need for a state-run system of pre-primary schooling for children of three years of age and more. Despite the recession that was by then well entrenched, the development of a universal pre-primary system was seen as a ‘key long-term priority’ mirroring the steps taken over past decades in primary, secondary, tertiary and ‘fourth-level’ education, it said.
Pre-primary education is considered the most important level of education in an individual’s cognitive development, as educational progress is cumulative for most individuals. Participation rates in state-funded pre-primary are extremely low in Ireland by international standards. The percentage of Irish three-year-olds in state-funded education in 2005 was 1.7 per cent compared to an EU average of 82.2 per cent.
A month later, when introducing an emergency supplementary budget, the Minister for Finance, Brian Lenihan, announced the decision to scrap the early childcare payment introduced by Cowen in 2006.
It is of course true that what experts suggest should be done and what politicians believe to be politically achievable are two different matters. Nevertheless
, the gulf between what many believed to be important requirements for the future development of Irish society and what the Ahern Governments chose to do was noticeably wide. This in turn, it should be noted, set an unfortunate example for people in all walks of life.
Chapter 16
BOIL AND BUBBLE
The short version of Irish economic history during the Ahern years breaks into halves to such an extent that it bolsters the case that it was the circumstances and management of the first half that led to the catastrophic events of the second. Indeed, in a speech to the Institute of International Finance in Washington in October 2010 the Governor of the Central Bank, Prof. Patrick Honohan, described what had happened to Ireland in exactly such terms. He referred to the American economist Robert Schiller, whose book Irrational Exuberance (2000) predicted the collapse of the dot-com bubble, which ended in March 2002. (The second edition, published in 2005, waved a warning flag about real-estate prices in the United States, which peaked in October 2007.) Schiller examined why markets can run wild and why bubbles occur. Included in his analysis were such non-economic issues as hype in the media, herd behaviour, the nature of optimism, and how people listen to others’ messages despite their better judgement.
Honohan told his audience that it was the half-truths of the late 1990s that had led to the myths of the 2000s. In a speech concerned with how Ireland’s banks could have lost so much money, he linked Schiller’s views and the Irish experience.
A pulse of optimism, built on a faulty analysis of the potential from some new technological or institutional development, starts a wave of optimism, reinforced by processes of collective psychology that build a myth on this half-truth. For Ireland, the combination of rapid but solid and sustainable convergence to full employment and high income in the 1990s—the period known as the Celtic Tiger—with the low interest rates promised by euro membership formed the basis of the myth or half-truth which triggered the bubble.