June 13, 2006
For the thousands of students sitting the Leaving Cert history exam today, Charles Haughey, even when he was alive, was just that – history.
Yet for the parents of these students, he was a divisive, towering colossus who dominated Irish political and financial life during the least successful economic period this State experienced.
For the middle generation sandwiched between today’s Leaving Cert students and their parents, Haughey’s real power had gone by the time they joined the workforce – so while he was not quite history, he was not quite present either.
My teenage memory of him is of someone who ran the place for himself and his mates.
The image of a man on the make was obvious even then. The pervasive culture – the strokes, the corruption, the pocket lining – seemed to be sanctioned directly from the top. Had they got an overall majority who knows what else they would have tinkered with?
At home his approach was pure populism – no matter how down and dirty it had to be. Abroad, however, it was all pomp and propriety. His thinking was informed by nationalism at home and infused with European solidarity abroad. This inconsistency made his economic mistakes more damaging to ordinary Irish people.
In economic terms there were two distinct phases of Haugheynomics. Haugheynomics Mark 1 lasted throughout his time in power and opposition from the early 1970s to the late 1980s. The Mark 2 version lasted from 1987 to the end.
Haugheynomics Mark 1 was based on corruption at home and respectability abroad. Corruption always has an enormous cost and Haughey’s Ireland was no exception. Corruption is insidious. When one guy takes a bribe, he doesn’t realise that very soon he is contributing to destruction of the whole system. The reason is simple: every time you take or give a bribe it throws down the gauntlet to the next guy to do the same. Very soon, only the ejit is clean and if the guy at the top sets this tone, everyone else will turn a blind eye.
Eventually white elephants get financed, not because of their economic value but because they are the result of a bribe. A culture of tax evasion, off-shore accounts and capital flight takes hold. But for Haugheynomics Mark 1 to work, the State had to be big. There is no point cutting taxes and reducing spending when your power is based on State largesse. Here he was, the strong leader looking after his people. Therefore, under Haughey, the State embarked on a spending spree.
This might not have been so detrimental had we not, in 1979, also joined the EMS – which meant that we tied our currency to the Deutschmark. This was driven by the obsession of Haughey (and subsequent leaders of every hue) that we Irish be seen as good Europeans, unlike (or maybe because of) those uppity Brits.
So there we were, a country borrowing like Latin Americans, ruled by a populist, hitching our currency to the fastidious Germans. It was a marriage made in economic hell. The union was not credible, but like so many weddings it bestowed respectability on one party at an acceptable cost to the other- at least in the short term.
The net economic result of this shotgun wedding was the more we borrowed, the higher our interest rates went because investors thought that Ireland could not continue to pretend the punt was a Deutschmark indefinitely, particularly when we were following Argentinean economic policies. Investors thought that the devaluation of the currency had to happen, so our interest rates rose to reflect this devaluation risk. The more we tried to bend the rules of economics, the more inflation we had at home, the higher our interest rates and the more overvalued our currency became. This was suicidal for a small open economy that can only grow by exporting.
Our exporting sector collapsed under the twin inconsistencies of Haugheynomics Mark1. Companies could not borrow to expand nor could they, with an overvalued exchange rate, export effectively. Ironically, those who suffered most from this were the urban working men – who worked in Irish industry – the very people upon whom Haughey’s power rested.
Manufacturing contracted. Haughey – like a good populist – compensated for this by expanding the public service.
Yet this was not sustainable and he knew it. So too did we in a way. I was in school at this stage and we could feel the place going down the tubes, even if we couldn’t put all the parts of the jigsaw together. Our school class was made for export. There was a feeling even before the Inter/Junior Cert that we’d emigrate, the place was a basket case and getting out would do us a power of good anyway. Remember the 1980s in Ireland were made yet bleaker by the fact that the US and the UK were booming, so we could actually go and see what things could be like without the cronies.
In fairness to Haughey, his successor Garret FitzGerald probably made things even worse. FitzGerald talked a good game but emigration, unemployment, high interest rates, soaring national debt and budget deficits dominated the economic landscape. We hadn’t a bean.
Haugheynomics Mark 2 emerged in 1987 when there was no choice.
Haughey’s so-called Pauline conversion from spending to cutting was forced upon us by the IMF and the economic reality that we had run out of both money and credit lines. Haughey changed because he had to and possibly also because he realised that to keep Haugheynomics alive, he had to be seen to be in control. Here he was, yet again, the strong leader looking after his people.
Haughey was probably as amazed as anyone when the economy began to turn around following his cuts in 1987. People started to spend when everyone expected us to tighten our belts further.
It was as if, seeing the government finally getting its act together after ten Haughey-dominated years of economic lunacy, we breathed a collective sigh of relief.
House prices rose in 1989 for the first time in a decade and the tax amnesties revealed just how much money had been hoarded under the bed waiting for an end to the madness.
Interest rates began to fall grudgingly. The virtuous cycle began to slowly reinforce itself.
By the time he resigned, the embryonic shape of today’s economy was beginning to emerge. However, to say that Charlie Haughey was the midwife at the birth of the current boom is not true. It would be more accurate to say that current prosperity came about despite his best efforts not because of them.
While he was strutting his stuff during the wasted 1980s, thousands of Irish were on the dole or emigrated. Arguably, had our economy been better managed we too could have boomed in the 1980s.