With the announcement of an election, an opportunity exists for the incoming Government to bring in a fresh slate. The people have spoken, and Ireland's democracy has responded.
That Ireland has effected the transition to a new Government so peacefully, and without the rancour of other states, such as Greece, Egypt, and even the UK, says something positive about the stability and social cohesiveness of the country.
There are many other positives, such as the numerous recent studies that show Ireland at the top of FDI rankings, for example, in the past month, the Ernst & Young study on globalisation, and Ireland's 7th ranking in the Heritage Foundation's 2011 Economic Freedom Index, are all recent signs of a good start to 2011 for FDI, the IFSC, and the prospects for Ireland at large.
As a general election looms, there has been a questioning amongst many of these principles. The danger is they we will turn away from these values, and that we will, in seeking to solve the problems of the credit crisis destroy the very foundations of our prosperity, and, worst of all, the very solutions that offer us a way out of this crisis.
As a reading of the recommendations for a fix which have been contributed by Finance Dublin readers in this issue (Page 8) and our previous issue makes clear, fixes must happen in a successful wider economy context. That wider context involves the fixing of the economy as a whole, and, above all, the stabilisation of the Irish property market, at fair market values (largely benchmarked to international values).
However, the incoming Government, with its clean slate, will face the fraught task of fixing the many mistakes of the outgoing administration in its banking and financial policy. It is essential that the errors are corrected, and not compounded. It in particular may allow us to avoid the mistakes of trying to fix the banking system through limited tools such as regulatory standards (for example aggressive overcapitalisation, or aggressive haircutting of assets through Nama or 'Nama2”). It also will be essential to avoid the dangers of undermining respect for the stability of business principles in the Republic of Ireland, through such dangerous concepts as 'burning the bondholders' and a creeping acceptance that it is alright for Government to renege on fiscal commitments given, say, to private sector pension savers, or for example, to Section 23 investors, who, no matter what the advisability of the economic wisdom of the incentives in the first place did make their investments in good faith that Government would honour its promises.
But there are remaining serious concerns, many of them arising out of the unfinished work and actions of the outgoing administration in regard to their attempts to fix the banking system.
The right way to go about this, we believe, is to get the fundamentals right. On the assumption that all parties subscribe to liberal democratic principles (presumably this also includes Sinn Fein and the People before Profit Alliance) we offer the below key yardsticks for assessing the offerings from parties and candidates in the coming election, based on what we would recommend as 'a principles led approach to policy'. The examples given refer to just some of the current financial sector-critical issues.
It is worthwhile to examine how under the six below headings how Irish economic and financial policy has been gravely compromised, and continues to be, basically by an abandonment of adherence to the below six principles of liberal democracy, or, what some might call 'republicanism' (or what its enemies might call 'capitalism'). The compromise comes from a form of moral relativism - often resulting from a pragmatic economistic approach to policy that defines issues and parameters in purely accounting terms.
The MinimumWage Debate. A minimum wage (introduced into Ireland for the first time in 2000) involves acceptance that the State has the obligation to interfere in the freedom of two individuals to agree to an economic bargain (exchanging labour for money). Fianna Fail has proposed to cut the minimum wage, Fine Gael to raise it back again. Whatever about the efficacies of the actual rate, both have accepted the principle of the minimum wage, and the obligation of the State to legislate for the wage bargain at the lower end of the market. The principle itself needs to be questioned.
(a) 'Burn the bondholder' is a refrain that is constantly heard from economists, of both left and right wing persuasions over the past two months. What both right and left have in common has been a blithe acceptance that it is somewhat alright to just do this. It remains a fact that to 'burn a bondholder' while continuing to trade as a going concern after that event is a breach of trust, and, indeed, a breach of contract. The 'Phoenix' company was rightly pilloried for many years in Ireland, and it remains disturbing that the Irish Government should have instituted this with such chilling and premeditated calculation in the Credit Institutions Bill (and Act) of 2010.
The ECB has questioned it, so has the President, who referred the legislation to the Council of State, and, who in their collective wisdom, did not refer it to the Supreme Court (leaving it open to future Constitutional challenge).
Aside from the principle of the thing, there remains the worry that such breaches of trust will prove fundamentally undermining. To quote an economist who works at the coalface of the sovereign debt bond market (Donal O'Mahony of Davy): “Confidence foregone is not readily regained, all the more so if the nation’s ability (or indeed willingness) to honour its debts is perpetually called into question by domestic and external commentary”. He goes on: “In this, market sentiment has perhaps been dulled by the relentless domestic political posturing regarding a deal renegotiation, following the inevitable change of government in 4 to 6 weeks time. Much debate has focussed, disingenuously, on the “unsustainable” 5.8 p.c. interest burden afforded by EU/IMF, ignoring the reality that any such incremental borrowing rates in 2011/13 will still leave the average cost of Irish debt outstanding well below 5 p.c., a comfortable metric in the highly sensitized context of Irish debt sustainability”.
(b) Another variant is the naive belief that even a small rise in the corporation tax rate will not be copped by multinational investors as a breach of principle, which has been suggested by some.
Equality is something that the 'half republicans' of Sinn Fein talk about a lot (the half they usually leave out is the 'liberty' bit). But it is not the equality of opportunity that liberal democratic republicans talk about, or the equality of treatment before the law (as pensioners and trade union members who are not beneficiaries of the Croke Park Agreement are daily discovering).
Rights are another thing we hear about constantly in the mantra about 'patients' rights, teachers 'rights', cabin crews 'rights', - the rights of all sorts of groups and vested interests. But how often do we hear of the parallel and linked responsibilities attaching to those 'rights'?
'Benchmarking' was the code word for the crossing of a Rubicon involving the abandonment of the tradition of public service amongst Irish citizens, and those whose privilege was to work (and be paid for it) as employees of the state. The acceptance by society that public servants should be paid no less than those who take responsibility for their own employment and pensions (let alone 30 per cent more - (60 p.c. including pension rights)), and the persistent validation by the outgoing Government of this morality.
Tolerance and the acceptance of human frailty
We are all too familiar with the 'anger' and venom of the debate over the past couple of years. This is understandable, but can be no justification for the abandonment of the respect for other views and open debate that liberal democracy cherishes. Some of this venom, stems, of course, from the radical and Marxist view of the perfectibility of humans and consequently human institutions. This lies behind the belief that the problems of 'capitalism', and of 'capitalist banking' can be overcome by comprehensive regulation, in opposition to the supposed 'light touch' regulation of the past.
This belief is a chimera. Bubbles will happen in the future, as will criminality, dishonesty, and disingenuity in financial services, as in every other area of human endeavour.
It will be essential to good regulation to recognise this fact, and proceed from there to provide a robust regime that will involve the best in enforcement, and the best in wise, and leading edge innovative governance, as we may see later this year, when Irish financial institutions come to publish their 'risk appetite' statements.
(The above is an extended version of this month's Editorial Opinion column: the abridged version of which appears in this month's print and 'flash' (page flipping) editions).