Wednesday, 17 November 2010

Crisis shedding light on the Irish state

Peadar Kirby: We may live in very exceptional times, in which the speed of how the Irish crisis is developing is literally breathtaking. Yet, for all that, what is most disturbing is how it manifests just how little has actually changed, illustrating yet again in stark terms some long-standing features of how the Irish state operates. Despite the intense focus on the immediate pressure of events, it is most important that we recognise the very familiar posture adopted by Irish policy makers and by the Irish state, since it highlights what will have to change if we are to have any hope of building a more sustainable and equitable future. Another way of putting this is to state that the largely economic and financial discourse that dominates debate needs to be balanced by a discourse that focuses on the administrative and the political features of the current crisis.

While it is true that a crisis requires crisis management, what we need to examine is how this crisis is being managed, as it is this which is very revealing. What is most striking is that politicians and policy makers give the impression of being dragged along by events to which they are reacting, with little sense of forward planning. While this might be understandable amid a crisis that is far more severe than could have been reasonably anticipated, it also needs to be recognised that the intensity of the crisis right at this moment derives from the fact that the state has a very poor capacity for longer-term forward planning and has failed to even begin to address the challenge of designing a more adequate system of taxation. These failures cannot be blamed on the present crisis as they are very familiar features of the Irish state. Why did it take so long to realise that the present crisis required multi-annual budgetary planning (indeed long before the present crisis, this capacity should have been developed) and, even more glaringly, why have the recommendations of the Commission on Taxation not been used as the basis for a re-design of the taxation system? If this had been done, not only would it help inform the budgetary strategy but it would also have helped give a sense of confidence that the state would be able to deal with the crisis.

Take the issue of corporation tax. What is remarkable about the present debate on these issues is just how successfully powerful vested interests have created a firm consensus throughout Irish society that the present level of corporation tax is untouchable. It is simply ruled out as a possible subject of debate any time it is raised, and the Irish media and Irish society as a whole (judging by the complete lack of debate on the issue) seem to acquiesce in this. Is this not extremely revealing? At a time when we are agonising over cutting back welfare payments, pensions, various supports for the most vulnerable in our society, and core funding for our health and education services, and are being told that the pain must be widely shared, we all seem to accept that powerful global corporations who declare a very high level of profits in Ireland should share absolutely no part of the adjustment. This remarkably benign and subservient treatment is based on the claim that raising corporation tax by a percentage point or two might undermine a core part of the state’s development strategy. But instead of debating whether this might be so, and seeking evidence as to what impact it might have, we simply succumb to a response based on fear.

Long before the present crisis, it was evident that the normal posture of the Irish state, particularly in the social sphere, was reactive crisis-management. There are very few examples where the state proactively instituted an ongoing process of reforming itself so as to avoid the emergence of crises. Indeed, the very term ‘reform’ appears to be equated to a process of cost-cutting rather than to a complex process of institutional design so as to more effectively achieve public goals. One could adduce numerous other examples which illustrate both the lack of policy-making based on hard evidence and also the lack of a process of robust and wide deliberation in the formulation of policy. The first weakness derives in part from the gap that has for too long separated those who make policy from those who could provide evidence that might inform the process; instead, civil servants all too often rely on consultants who are not intimately familiar with the latest research nationally or internationally. The second gap derives from the weakness of a culture of robust deliberation, not only in the political realm but also in the media. One can only hope that the present crisis will make policy makers more aware of the need to draw on social scientific evidence and generate a broader debate on the options facing us as a society. There is some evidence that the latter is happening; I’m not aware of much evidence that the former has begun.


Anonymous said...

at the current corp rate can you state what the return to the government finances on an annual basis are. it might therefore be illustrative to show what a 1% increase in the corporation tax rate might yield to the exchequer. we may then have a starting point for the discussion.

Anonymous said...

The problem is that this impact is almost impossible to predict accurately in advance, as we've no idea what effect any increase would have on future investment decisions (divestment could be easily observed after the fact, but it would be very hard to detect potential future investment that went to Israel or Poland instead).

But let's not for a second kid ourselves that these "powerful global corporations" are here for any reason other than the 12.5%. Not for our famous Irish charm and certainly not for the mar dhea "world class" education system. Over-paid educators masking their laziness and under-performance with grade inflation does not a smart economy make.

I recently interviewed for a position with a big-name MNC and if I end getting the job, I'll be the only Irish person on the project team. My would-be boss is French and the rest of the team a mish-mash of Romanians, a Russian and a couple Indians. Of course I'd have no problem working with those guys, but it just goes to show that the company is certainly not in Ireland for the local talent.

We predicated our entire industrial policy on a lazy man's shortcut, preferring not to bother getting tough on sub-standard maths & science teaching and instead thinking we could blag our way as parasites on the innovation of others.

The problem is there is no plan B if the MNCs go in the morning. Our education system is not fit for purpose and would take an earthquake to shake our current crop of educators out their smug world of self-delusion.

dmfod said...

there's not much point raising the corporation tax rate without closing tax loopholes which mean that corporations like Google pay virtually no tax here by virtue of the 'double irish'. We could probably get more in by closing these and other deliberate loopholes in the tax system, such as the ability of companies including arms manufacturers to set up fake charities here as a means of tax avoidance.