State of our Democracy

For those of you who missed my today's musings on Irish Democracy in The Irish Daily Mail, here is an unedited text of the article:

We live in time of unprecedented crisis of confidence. Last week, carnage in the financial markets saw Irish shares sliding deeper into the red. Yesterday, for a brief period of time, our Government bonds were trading at the levels indicative of the markets pricing in a 22-25% probability of the state default on the loans – a level that would, in any functional democracy, see the Government facing a vote of no confidence. And yet, the circus of the private sector scandals alternating with policy debacles continues to repeat itself with a frightening regularity, undermining further international opinion of Ireland as a robust economy and a transparent democratic state.

The reason for Ireland’s declining status amongst our peers is that by any measure, be it a measure of ethical and legal compliance in our financial sector or the benchmarks of transparency in governance, we are lingering at the lower end of the developed world league. Yesterday’s events surrounding the Joint Oireachtas Committee on Economic Regulatory Affairs illustrate the point.

The Committee, set up by what in theory should be the most powerful legislative and policy entity in the country – the Dail – was exposed as largely toothless grouping of elected representatives. If the fact that the Committee has no powers to punish or prevent any wrongdoing by corporate and regulatory bodies operating in this country was not enough of an affront to public accountability, the fact that it has no capability to compel private individuals and public representatives to appear in front of the nation’s legislators certainly does the trick.

At the core of this is the refusal by former Anglo-Irish Bank chief Sean Fitzpatrick to appear before the Joint Oireachtas Committee. But, before him, the same Committee heard an equally loud ‘No’ in response to an invitation to testify from Ernst&Young, Anglo’s auditors, the former Financial Regulator and the former FAS chairman.

Despite being perfectly legal under the current system, Mr Fitzpatrick’s refusal to answer legislators’ questions concerning the alleged wrong doings at the now state-owned Anglo-Irish Bank is morally, ethically and economically disastrous for Ireland.

Here is why.

From the moral perspective, Anglo-Irish Bank was taken over by the state at the expense to the taxpayers on the back of the managerial and strategic errors and alleged dubious practices. Mr Fitzpatrick was the Chairman in charge of this institution at the time of its failure. Mr Fitzpatrick – as both a Chairman and a private citizen – was also a party to several questionable transactions that allegedly precipitated the collapse of the Bank. Taxpayers are owed full disclosure of the events that led to the Anglo-Irish nationalization and Mr Fitzpatrick, alongside a number of public officials from the Financial Regulator and the Central Bank, must face open and transparent public questioning by the Dail. Of course, legally, the rights of all questioned should be respected, but compelling them to appear in front of the Joint Oireachtas Committee does not imperil such protection.

From the ethical point of view, the democratic process must grant full respect and complete investigative powers to the Parliament. This simply means that the power of compulsion extended to the Courts must be matched by the similar powers available to the Parliament and its Committees. This is more than a theory – it is an act of establishing practical checks and balances to safeguard the interest of the people against the interest of the narrow groups and state institutions. In a functional democracy, Parliament must act as a guardian of the society, while courts must guard the rights of individuals. We are, clearly, getting that simple formula wrong, with our judiciary pontificating about social conditions in individual judgements and our Parliament incapable of even gathering investigative information.

This Parliamentary investigative function has been imperilled many times before, including in recent months by the former Financial Regulator Patrick Neary and former FAS chairman Rody Molloy, who was forced to attend only by the wave of popular outrage over the FAS mis-spending of taxpayers’ funds. Mr Fitzpatrick’s move this week simply adds to this list of public figures who are allowed by law to ignore this country’s main democratic institution. Then again, what is there to be said about individuals, when the Government itself is unwilling to disclose due diligence information on banks rescue to the Oireachtas?

Lastly, robust and effective markets require robust and effective compliance with the letter and the democratic spirit of the law. Thus, existence of Irish economy itself is predicated on our ability to investigate suspected wrongdoings, publicly disclose relevant information and identify and punish those who breach the law. The investigative work of the Joint Oireachtas Committee is at the heart of this process. Moreover, it is central to the issues of how transparent and open our market makers (top corporate brass, regulators, politicians and others at the helm of Ireland Inc) are. Once again, Dail’s inability to compel Mr Fitzpatrick to testify in front of elected legislators on the issues relating to the Anglo-Irish Bank’s nationalization is nothing less than a public admission of the fact that the Irish economy and society are not meeting the high standards of transparency that are required of the mature economies today.

Last week, before Mr Fitzpatrick’s latest decision, one international investor, previously an active buyer of Irish shares, has told me that his fund is no longer willing to hold any shares in what he termed a ‘cosy cartel that is Ireland Inc’. The reason for such drastic re-assessment of the fund position was that his managers found it hard to believe the corporate and regulatory culture of Ireland in the environment where the Government refuses to openly discuss the issues of due diligence in the cases of state investments in the banks, the regulators who fail their basic functions are getting off with a golden handshake payoffs, and corporate leaders cannot be called to public account.

Sadly, the events surrounding the Joint Oireachtas Committee on Economic Regulatory Affairs this week are proving him right.

Yet, the pathetically inadequate power of the Joint Oireachtas Committee uncovers democratic deficit in our legislative and policy-making systems that is hardly new to anyone living in this country. For over two decades now, a group of unelected and unaccountable public and private sector representatives has presided over economic and social policies in this country. The name of this club is the Social Partnership. Its modus operandi was and remains clandestine negotiations carried out behind the closed doors with the Government acting as a go-for boy to this Big Brother. Its remit over the society was and remains huge – with powers to set wages, promotion and hiring policies, taxes and public spending and investment priorities. To all of this, our elected Parliament is an external observer with no power to change the course of the Partnership agreements.

In effect, Ireland has long ago ceased to be a properly functioning democracy, where policies are set by the Parliament of the people for the people. This week events at the Joint Oireachtas Committee remind the entire world that our legislators can not question our public and corporate leaders even when their decisions and actions expose the Irish taxpayers to potential financial ruin. This is, by all means, an apt conclusion to the corporatist state saga of the Social Partnership – a neutered Parliament, a toothless democracy and a dysfunctional market short on international confidence.

Thanks, Sean, for showing us the true state of this State.