Monday, March 15, 2010

Economics 15/03/2010: The failure of the state is a failure of society

Here is an unedited version of my article in the current issue (March-April 2010) of Village magazine.

Pull Quote: “Replacement of foreign élites with domestic elites was the main objective of Ireland’s change.”

“It only stands to reason that where there's sacrifice, there's someone collecting the sacrificial offerings…The man who speaks to you of sacrifice is speaking of slaves and masters, and intends to be the master”. Ayn Rand.

“”Sacrifices needed for recovery”, says Cowen.” Irish Times headline 5th Feb 2010

The fundamental problem with Irish politics is not our much-decried proportional representation electoral system or the absurd subatomic fragmentation of politics into parish-pump power brokerages. The most rotten aspect of our political environment is the culture of clientelism that underlies the foundation of society. To understand this, take a quick detour back in time. The American Revolution and the Irish struggle for self-determination had a common adversary – the British Empire. But this is where the similarities end.

American Model

The US was founded on the core idea that without British rule, the ordinary people could improve their own governance. The Declaration of Independence is rooted in the Enlightenment, which informs its outline of where the Brits have gone wrong: not so much in underwriting the entitlements of the people, but in directing the policies of the land. Although most scholars tend to focus on the opening lines of the Declaration, denigrating the remainder as a laundry list of British offences, in reality both parts of the Declaration are pivotal to the balance of power between the individual and the state. The Declaration clearly posits the state as the tool for implementation of the new order. Not as the order itself. In Ayn Rand’s terms, American statehood is not about sacrifice of an individual for the sake of the collective, but about removing the state from the position of delineating slaves from masters. The US was formed not as a sacrifice of the few for the sake of the many, but as a project for improvement of opportunities for all.

Irish Model

The Irish state was born out of a more limiting premise - that, without British rule, native elites can be just as effective (or ineffective). Replacement of foreign élites with domestic ones was the main objective of Ireland’s change. In religion, administration, property rights, culture, society and economics, the Irish Revolutionary movement, justifiable as it may have been, accomplished only the equivalent of a coup d’état, leaving ordinary people in semi-servitude to the new, this time around native, political and administrative master-class.

Out of the necessity to bow to modernity, we added a second tier to our traditional economic structure. Ireland Inc
- multinationals and exporters responding to global markets and incentives – is now juxtaposed against the clientelist domestic sector run on the back of parochial interests. Ireland’s gross public expenditure in 2009 reached €76.2 billion or 57.3% of our national output. Including our semi-states and state-licensed activities, over 70 cents of each Euro circulating within Ireland is now state-controlled. Irish domestic economy in thus equivalent to a teenager with a job at a fast-food joint who lives with his parents. Over 65% of the population is in some sort of direct dependency on the state – either as its employees or as the recipients of its subsidies. This in itself accounts for the weddedness of so much of the population to the strong state.

Constraining the State

Last month, MIT Professor Daron Acemoglu, published a paper entitled, Institutions, Factor Prices and Taxation: Virtues of Strong States?
As Acemoglu shows, strong states conduce to redistribution of resources and thus, to an even greater capture of the state powers. The fraught UK experience implies that efficient, functional states require more external checks and balances, not the vesting of more autonomy and power in the state institutions. This flies in the face of the Irish political ethos, which sees the state as a combination of a powerful autonomous bureaucracy and the clientelist political establishment. But it also puts into a historic perspective the serial failures of Irish society to revolutionise our state structures.

Ireland never had England’s Cromwellian experience of the renewal of élites. Nor did we have a full-blown industrial revolution to deny the idea of clan-based power. We missed out on the Thatcherite revolt against the ideological elevation of society over individual rights. Once again, Ayn Rand captures the point: “Individual rights are not subject to a public vote; a majority has no right to vote away the rights of a minority; the political function of rights is precisely to protect minorities from oppression by majorities (and the smallest minority on earth is the individual)”. Whatever position one might occupy in terms of party politics in Ireland, we must surely agree that any society based on the insistence of SIPTU-ICTU-CPSU that the Social Partnership overrides the individual, is simply incompatible with liberal democracy protective of individual rights.

Liberalism Vs. Statism

Rand’s scepticism about the compatibility of state interests and universal personal liberty separates the liberalism (that Ireland’s national institutions never managed to learn) from neoliberalism (to which we have developed a cross-party devotion). Stephanie Lee Mudge of the European University Institute defines neo-liberalist politics as “struggles over political authority that are bounded by a particularly market-centric set of ideas about the state’s responsibilities… and the state’s central constituencies (business, finance and middle class professionals)”. Of course neoliberalism is nothing more than a conservative, status quo preserving ideology - it's struggles against authority are a form of resistance against a change of elite, not in favor of change. Unlike neoliberalism, liberal principles do not identify specific interest groups as the pillars of society. Liberty and reliance on central constituencies – whatever the latter might be – can coexist in a democratic society if and only if society has an advanced system of political, administrative, judicial and social checks and balances.

In Ireland, no such checks and balances exist. NAMA and the rescue of bank shareholders and bondholders at the expense of taxpayers could never have happened in societies with modern state infrastructures. It did not happen in the US, where TARP was instantaneously altered to a much more robustly enforceable direct lending and equity takeover. It did not happen in the UK, which adopted a similar approach. It did happen in Ireland and other parts of Europe. Why? In Europe, the judiciary is a function of the political establishment that appoints it, the state is subjugated to the interests of the permanent civil service, and the political realm is dominated by the cartel of vested interest groups i.e. the Social Partners. In Europe, neoliberalism today is an a-ideological deus ex machina
for continued propagation of the élitist State in exactly the same way as fascism and socialism were engines of elitism in their turn.

Ironically for their promoters, minorities, the poor and the downtrodden would do much better in a society based on liberal (or in American terminology libertarian) ideals than in their gold-gilded cage of Social Partnership. As Rand noted, libertarians believe that all minorities - rich and poor alike - are the same. To our political élites on the other hand, minorities are divided into Leninesque ‘useful idiots’ (the Social and Environmental Pillars) whose consent to the status quo can be bought for tuppence worth of State subsidies; and ‘powerful conservators’ (Big Business and the Unions) who can provide the power and money necessary for perpetuation of this status quo.

To An Ever Braver World

The maze of interchanges in a small country between sectoral vested interests – political and executive, social, environmental and economic – is informing our ideological and electoral positions. The state is seen as an (at least occasionally) benevolent defender of the interest to which one is aligned. The stronger state, therefore, is just that, a stronger defender. From the intellectual laziness of our academics, to the nearly unadulterated parochialism of our regulatory and legislative interests, to our clan-based politics, the ills of our society are traceable to the historically conditioned inability of Irish society to accept the basic tenet of liberty. We have never learnt that any vested interest, no matter how small, must be treated at a political level as a monopoly-seeking cartel. This, of course, coupled with the recognition that the state itself is a collection of those vested interests, means that the pursuit of liberty for all, requires a coherent limit on the State. The power and financial privileges that have accrued to nearly all of us, as vested interests, have prevented us seeing that.
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