James Wickham: Why did the Irish crisis happen in Ireland? Most public discussion still seems to oscillate between personalising the issue (‘greedy bankers’) and over-abstraction ('the global crisis'). Certainly, conventional economic commentary is more sophisticated, but ignores institutional features of the Irish socio-economic model which in retrospect meant the crisis was pre-ordained. Thus a focus on the combination on eurozone membership (cheap credit) and weak banking regulation conveniently ignores the fundamental political commitment to an ‘Anglo-Saxon’ financial system within a liberal market economy. This ensured a disproportionate role for banks within the national economy. And remember, after the crisis of the 1980s, a key element of the national growth strategy became the promotion of the Dublin International Financial Services Centre in which ‘light touch regulation’ was explicit policy. This is the institutional context for the ‘golden circle’ of property developers and politicians at the apex of the system.
Secondly, the key role of banking finance was interwoven with the financialisation of everyday life. To previous high levels of home ownership was added extensive mortgage credit creating a particular form of ‘residential capitalism’. Asset ownership (‘lite wealth’) expanded amongst the middle mass of the population (from cars to private pension and second homes) so that income from employment was only one determinant of life chances. The welfare state had become one of the most extreme ‘liberal’ states of the EU15, with very limited state services and most services (health, childcare…) provided through the market. Paradoxically, the financialisation of everyday life was accelerated by a key feature of the employment system itself: social partnership. Since 1987 tripartite agreements contributed to higher employment but also focused on delivering higher real wages. Accordingly reducing taxation was a priority, improving state services was not. Equally, cash benefits in the welfare system were high by European standards, but labour market activation was almost non-existent.
Thirdly, the central role of FDI in the national growth strategy also opened the way for the crash. Given the political priority for public tax-cutting, state policy towards FDI paid decreasing attention to social and physical infrastructure and focused increasingly on low corporate tax as the incentive for FDI. All of this ensured that a political conflict with other EU member states was pre-programmed. Such a conflict was further promoted by the Americanisation of Irish public discourse and economic thought, the promotion of ‘Boston not Berlin’ as a social model, and the direct and indirect influence of the Dublin American Chamber of Commerce on political decision-making.
Far from stimulating any re-think of the national development strategy, the crisis has turned the reliance on FDI into a national fetish. Bizarrely, not only the Labour Party but even the left nationalist Sinn Féin have made ‘our’ corporate tax rate into a symbol of national independence. While personal taxes have risen, the desirability of low personal tax rates also remains part of the national political consensus. Thus there is no sense that the crisis could stimulate any move towards collective provision in the face of collective adversity (the contrast with the creation of the British welfare state in post-1945 austerity is instructive). Instead, privatisation of pensions, education and (to some extent) health continues, while state assets are to be sold. Rather than strengthening the state, the response is to weaken it. The jettisoning of social partnership has ensured that other features of the Irish model have been consolidated. The Irish experience shows how, confronted by a cliff, lemmings will sometimes rush to fall over its edge.