Analysis/Comment
Ireland and Japan; the Human Cost of broken political systems
By Michael Hennigan, Founder and Editor of Finfacts
Feb 8, 2009 - 8:50 AM

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Family Business Jan 2009 in Tokyo: Japan's Prime Minister Taro Aso, the great-great grandson of a founding father of modern Japan and grandson of a founding father of the postwar system, meets Irish Taoiseach Brian Cowen, who inherited his Dáil seat from his father.

Ireland and Japan are in deep recessions and the political crony capitalism traditions in both countries, leaves tens of thousands of victims in their wakes. It is the huge human collateral cost of broken political systems.

In Jeddah, Saudi Arabia, in the early1990's, when I queried one of the guests at a party as to what he thought of his former classmate, Ingvar Carlsson, Swedish prime minister, he replied in the deadpan manner that appears to be part of Swedish DNA: "He went into politics because he was stupid."

The Social Democrats had ruled Sweden for most of the period since the 1920's and in 1991, Carl Bildt of the Moderate Party became Prime Minister and later in Jeddah, preparing for a trip to the coral reef off the coast, in the Red Sea, the Prime Minister and his entourage shocked the Saudi diplomatic security protection service, by unabashedly stripping off. Politicians in Sweden, a country, that is viewed as one of the least corrupt on the planet, have a less exalted impression of themselves than in places such as Ireland and Japan, where electorates tolerant of corruption, view politicians as dispensers of patronage.

The Swedish Social Democrats had promoted progressive policies, while allowing the private business sector to develop. My first time in Stockholm was in 1982, which coincided with the death of Swedish investor/industrialist Marcus Wallenberg (1899-1982), who had for decades maintained a close association with politicians, while building a significant Swedish industrial base. Two of his grandsons now run his investment group rather than massaging their egos, such as buying English premiership clubs. While there is a high intolerance of corruption in the Swedish system, there is no utopia, and Swedish companies have been involved in bribery in respect of the multi billion dollar Saudi Strategic Oil Storage Project , which involved building underground caverns for the storage of oil in several locations across the kingdom and also in the United Nations' run Food-for-Oil Programme in Iraq.

There are few absolutes in life but even a small departure from the crony capitalism systems in Ireland and Japan, would have a big impact on the lives of people in both countries.

In Jeddah, I had a colleague who had been a teacher and a guerilla fighter against the Marxist Mengistu government of Ethiopia. He was an admirer of the deposed Emperor Haile Selassie (1892-1975). I had asked him why he had supported a thief, who was reputed to have had $6 billion in Swiss bank accounts.

"But sir, they all steal," Mohommed protested."Where did the Queen of England get her money?"

"They accumulated over time," I said while feeling a little uncomfortable, defending the British monarch.

"But, where did they get it at the start," Mohommed insisted.

Checkmated on that, let's move on to the Irish and Japanese political systems, which have much in common.

The custom in Sweden is that keynote speeches  at formal dinners, are given before the meal. In Ireland it's afterwards and a dose of alcohol helps the atmosphere.

Last Thursday's speech by Brian Cowen at the Dublin Chamber of Commerce dinner won a standing ovation and the Irish Times reported that Hewlett Packard managing director Martin Murphy described it as “the best speech I have ever heard from a political leader in my lifetime. People walked out feeling that here’s a man who is on top of the job, who has his finger on the pulse, he is bringing people with him,” he said.

Murphy, who may well have been on Coke (a product of Atlanta not Colombia), rather than alcohol, will be truly bowled over if he gets the chance to hear a speech of substance on reform and fundamental change. As for the temporary cooing of the journalists, I'm old enough to recall their antecedents who opined that a Meath "rancher" John Bruton, had a charisma deficit while plutocrat Charlie Haughey, had the common touch. Those were the days when more than the mice on Mushra Mountain, were dancing to the tunes of the Pied Piper of Kinsealy.  

The dominant Irish political party Fianna Fáil has been in power for most of the period since 1932: 1932-1948; 1951-1954; 1957-1973; 1977-1981; 1982; 1987-1994; 1997 to date. In Japan, the Liberal Democratic Party has been in power continuously since 1955, apart from an 11-month period in 1993-1994. In Ireland in recent times, Fianna Fáil, has relied on so-called "independents" who sell their support for five years of security coupled with a filling of the begging bowl for their constituents, and small niche parties such as the defunct Progressive Democrats and latterly the Green Party.

The niche parties, generally have zero impact on economic policy.

The primary motivation of all politicians as with for example medical doctors, is their own self-interest. They do of course have other motivations, which differ from individual to individual. Dominant political parties, which are more likely to be in power, than not, inevitably attract members whose secondary motivation is also their own interest. In addition, such parties also develop a strong nexus with money people  - - in particular from the construction sectors, where political decisions can provide huge windfalls.

Nepotism is a common characteristic in both Japan and Ireland. In Japan, most of the Prime Ministers have had prominent politicians in their family trees. In Ireland, the top three politicians - Taoiseach (Prime Minister), Tánaiste (Deputy Prime Minster) and Finance Minister, took their fathers' seat in parliament, as did the Leader of the Opposition. The Finance Minister has also a brother and an aunt in the Dáil (Lower House). Fianna Fáil has a family of three in the Dáil - the Kitts - and one of them succeeded to their late father's seat. Former Taoiseach Bertie Ahern and his brother Noel are TDs and the father of the Andrews brothers, was a member of the Dáil. On the Fine Gael side, Richard Bruton and his brother former Taoiseach John and several others who succeeded relatives, are beneficiaries of the nepotism system. In 2004, when TDs were precluded from membership of local authorities, relatives took their place. In Japan's Diet, up to a quarter of the 500 seats are hereditary.

New York University Professor Edward Lincoln commented in respect of Prime Minister Aso's Cabinet that “of 18 Cabinet posts, four have gone to politicians with fathers or grandfathers who were prime ministers, and ten cabinet ministers are the children of former LDP parliamentarians."

The reforming former Prime Minister Junichiro Koizumi has signalled that his son will take his seat at the next election. Koizumi inherited his own father's seat in the Diet.

Nepotism promotes cronyism; reinforces money politics and restricts entry to agents of change. It also results in incompetents rising to high political office.

In Japan, the LDP is dominated by factions and in Ireland, apart from the barriers put up by the Insiders, it takes much effort for the Outsider with political ambitions to build local party contacts. Teachers, who have extensive holidays, are the dominant professional group in the Dáil. Auctioneers and small town solicitors - -  such as the Taoiseach and Minister for Justice -- are also strongly represented. In the 1992 election, teachers, headed the occupational ranks for the 27th Dáil, with 37 winning election, followed by farmers at 20 and solicitors or barristers at 10.

RTÉ’s Prime Time programme highlighted in November 2007, the involvement of elected representatives in the land, development and property business.

A total of 22% of councillors deal in or develop land through their day jobs as estate agents, landowners and builders. In Mayo, that figure rose as high as 45%; in Offaly it was 44% and in eight other counties it was 33% or more.

Prime Time found that in Clare, declarations of interest show that 97% of elected members have no beneficial interest even in their family home. In ten counties, two-thirds or more of the councillors have not declared an interest in the family home.

The programme was broadcast 10 years after the establishment of a public tribunal to investigate planning corruption.

Ireland's crack cocaine - land rezoning by local councillors, which results in huge windfalls, in a country that is 4% urbanised - - has remained unreformed - - ZERO has been done to reform the corrupt land rezoning system

Finfacts Report: Irish Farmers and Sacred Cows - - Land for roadbuilding accounts for 23% of the cost of roads projects in Ireland, but just 12% in England, 10% in Denmark, 9.4% in Greece and 1% in Iceland. A further 2% of the €18.5bn provided in the Government's Transport 21 for road building over the next decade will go to archaeologists.

A year before the birth of the corruption planning tribunal, the Constitution Review Group, which was chaired by Dr T.K. Whitaker, eminent former civil servant and architect of the modern Irish economy, proposed a departure from the bogman system of Irish local politics, . The Whitaker Group proposed an additional list system while retaining the multi-seat transferable vote system that had been supported in two referenda in 1959 and 1968.

Councillors elect most of the members of the Irish Upper House --  a talking shop of 60 members. It and the Dáil hold about 90 plenary meetings annually and the part-time parliament is shuttered for the rest of the year as was the case in the era of the donkey and cart.

In advance of the 2007 general election, councillors put pressure on Senators to successfully lobby the Irish Government, for a publicly funded severance and pension scheme.

The majority of Irish private sector workers do not even have a basic occupational pension scheme - -  that is likely to be news to most national politicians, who can get a 50% pension -- just after 20 years of service. It may also be news to the millionaire "stars" at the State-owned broadcaster RTÉ.

An example of the impact of cronyism is in the multi-billion Irish public procurement programme.

There is no transparency and Insider connections undoubtedly produce rich dividends.

For example, in the IT area, what chance has a start-up against this?

The Obama administration plans to create a "contracts and influence" online database that will disclose how much federal contractors spend on lobbying, and what contracts they are getting and how well they complete them.

In Ireland, the Department of Finance has confirmed, it doesn't even have a cross- departmental database, even for its own control purposes.

Finfacts Report:Irish Public Spending: Pre- IT/Web official policy prevails - hide as much information as possible from taxpayers

Japan

Japan has the largest public debt in the developed world, amounting to 180% of its $5.5 trillion economy.

The second-biggest economy in the world, is about half the size of the US economy.

The New York Times reports that Japan spent $6.3 trillion on construction-related public investment between 1991 and September of last year, according to the Cabinet Office.

LDP politicians divided up projects to buy-off voters and according to Professor Norbert Walter, chief economist of Deutsche Bank Group, Japan now has a very impressive public infrastructure, but it came at a huge cost and the neglect of key non-construction sectors of the economy.

It is notable, that in Ireland, the biggest planned public "reform," of recent decades, was the gombeen decentralisation programme to move half the public service out of Dublin. In Banana Republic fashion, ministers took the pick of government departments and agencies for their constituencies, while ignoring an official spatial development strategy.

The Financial Times reported on Friday on a plan to print some ¥50,000bn ($546bn) worth of a new currency to fund pump-priming projects has been drawn up by influential politicians in Japan in a sign of desperation in the ruling Liberal Democratic party over Japan's failing economy.

The FT says the proposals to issue government notes come amid rising frustration among politicians with the independent Bank of Japan. It has been reluctant to bow to pressure to run the yen printing presses faster to stimulate the economy.

The politicians include Yoshihide Suga, deputy chairman of the LDP's election strategy council and a close aide to prime minister Taro Aso, and want the government to issue its own notes to fund projects.

The group wants ¥30,000bn of the new money to fund programmes supporting new industries and infrastructure projects, including doubling the size of Tokyo's Haneda airport. The remaining ¥20,000bn would be earmarked for government purchases of stocks and real estate.

Apart from the dominance of the LDP, the permanent bureaucracy has retained a powerful role in modern Japan. During the Meiji modernisation period from 1868, the bureaucracy had a central role. A backward island country became the sole Asian power and after the Second World War, the interventionist policies of government ministries, was crucial in building Japan into an exporting power. 

Kazuaki Nagata of the Japan Times, says amakudari is the practice of giving top bureaucrats lucrative jobs in government-affiliated organizations and private companies when they retire.

As of April 2006, about 28,000 former bureaucrats were working at about 4,500 organizations through amakudari, according to a survey compiled by the Lower House research bureau. Between August 2007 to August 2008, about 590 bureaucrats received such jobs.

"Amakudari is the cause of all the waste of the taxpayers' money. The structure in which bureaucrats establish wasteful organizations and keep wasteful subsidies should be broken up," said Kenji Eda, an independent Lower House member and a former bureaucrat.

The practice of "watari" is when ministries arrange successive jobs for retired bureaucrats at government-affiliated corporations, with the former civil servants getting retirement money each time.

Ireland has a similar system and when Tom Parlon, the minister responsible for public property projects, lost his seat in the Dáil in 2007, within months took charge of the principal Irish construction representative body.

In Ireland also, office holders such as the Chief Justice, get pension payments in respect of former positions, even though they are currently on the public payroll.

Besides its governance problems, Japan also is in dire need of updating company law and reducing barriers to competition in the business sector.

Nicholas Benes, president of JTP Corporation, an investment bank in Tokyo, wrote in the Far Eastern Economic Review last October, that 97.6% of all Tokyo Stock Exchange-traded companies’ AGMs took place during a brief nine-day period in 2008, and half took place on the very same date.

The amount of company cross-shareholdings is high and Benes said:"A mere 2.1% of all shareholders now control these 49% of all votes, and many of them are lenders, insurance providers, suppliers, distributors and often cross-shareholders as well. Neither we nor their stakeholders know how they are voting, and most of them want to keep things that way so they will not be embarrassed on the off-chance that transparency would cause them to have to vote against management. Is it credible that the system can ensure true accountability of management and a functioning market for corporate control? Is the market really headed in the right direction?"

The Economist says this week that once the epitome of Japan’s post-war success, its electronics firms are in crisis.

"Privately, senior executives have long known that their companies were in crisis. But like Sir Howard (Stringer - the British head of Sony), they faced strong internal resistance to change. Bosses were reluctant to cut projects initiated by their predecessors to whom they owed their jobs, to axe superfluous divisions, or to abandon cosy relationships with trusted suppliers. With docile domestic investors and a network of friendly cross-shareholdings, there was little outside pressure to restructure. Besides, samurai believe it is better to fight to a tragic and noble end than to surrender (which, in the corporate world, is equated with being acquired)," the Economist says.

Ireland

One of the key characteristics of the Irish governance system, is that the buck stops nowhere.

Hundreds of millions of euros in public funds can be flushed down a sink hole and both ministers and senior public servants run for cover.

In November 2006,  five ministers were on hand to reveal plans for a fabulous new Dublin Metro line. On the same day, commuters witnessed the biggest traffic jam in Irish history  - - due to a burst waterpipe on the M50 Motorway in Dublin.

Stephen Collins, Political Editor of the Irish Times commented on the updating of the Register of Electors: "The worrying aspect of the problem is that politicians and civil servants knew about it and did absolutely nothing to sort it out.

It represents another example of the inertia that appears to grip the decision-making process in this country on all sorts of issues, from the country's energy requirements to pensions. It is only when a crisis point is reached that action is taken.
"

Ireland 2006 - A Banjaxed System of Public Governance where the Buck Stops Nowhere

In October 2005, a year after becoming Minister for Finance, Brian Cowen updated the public tendering procedures for large value projects. It was only done following a public outcry on  the cost of computer systems at the Department of Health.

The budget for the Houses of Oireachtas for 2009 is to rise 12.3% - up 61% in 5 years.

A gravy train of additional staff  - - 20% of the members employ their own family; daily pocket money and huge untaxed expenses; basic pay of a TD, equivalent to that of a United States Senator -- has not resulted in any fundamental change. A handful of the 216 members of the Oireachtas (Lower and Upper Houses), have anything of substance to say on the economic crisis.

Even members of the Cabinet, remain as teachers and are building up 3 public sector pension entitlements!

The Irish TD's principal work was highlighted in early 2007 when Minister of State Tony Killeen disclosed that his constituency office mails more than 14,000 letters annually.

Until recent times, when TDs were given staff and computers, to do the donkey work, there was at least some constraint on the letter sending as they had to do the work themselves.

Parties produce headline aspirations and soundbites rather than detailed policies and there are no think-tanks to test ideas.

In office, ministers are often clueless and the consultancy industry has become an arm of government. Ministers are more often than not, one or more reports away from making a decision.

In an ideal world, the pointless letter writing would be reduced to a minimum; citizens bureaux would provide answers to issues such as pensions, tax etc that the staffs of ministers and TDs direct to other public servants; the total membership of the Oireachtas (both Houses of Parliament) would be reduced from 216 members; attention would be given to the legislative role and the glacial pace of reform/response to a fast changing world, would be accelerated.

Taoiseach Brian Cowen and each Cabinet member (total of 15), have a total of 140 private office staff and 76 constituency office employees.Minister for the Environment and Green Party leader, John Gormley, employs 15.5 including part-time staff - - nine in his private office at a salary cost of upwards of €590,335. Non-salary staff expenses in Gormley's department last year amounted to €128,635. The average industrial wage is €32,000.

Minister for Finance Brian Lenihan signalled the end of self-assessed performance-related bonuses for senior civil servants this week.

Also this week, it was disclosed that a €25,000 bonus was paid to National Consumer Agency (NCA) chief executive, Ann Fitzgerald, on top of her salary of €186,891 and pension.

Fitzgerald was recruited from  a private insurance industry body in 2005 and likely got a 100% hike in salary.

The Irish Independent reports on Monday that the ex-partner of former Taoiseach Bertie Ahern proposed a public relations firm with strong links to Fianna Fáil for a €200,000 contract with the NCA.

Celia Larkin proposed Q4 Public Relations, the company founded by former Fianna Fáil general secretary Martin Mackin, for the lucrative contract to handle publicity for the agency.

Documents obtained by the Irish Independent reveal that Larkin has received over €52,000 in fees and expenses from her role on the NCA board since 2006.

The now Environment Minister and Green Party leader John Gormley said when Larkin was appointed, that it"smacked of cronyism".

It was cronyism!

The NCA has a board of 13  and a staff of about 20. It cannot afford to provide an online price comparison service but the body charged with encouraging consumers to get value for money, is part of the Rip-off Ireland and cronyism culture, that board member Eddie Hobbs had railed against.

It's enough to make a dog strike his father, as my mother used to say!

On the Irish corporate side, the ease of doing business in Ireland with a low corporate tax rate of 12.5%, has been a positive.

Between 2000 and 2007, employment in Ireland expanded by 40%- in construction, public services, retail and distribution - while employment in the international tradable goods and services sector fell.

Foreign owned firms mainly American, are responsible for 90% of Ireland's exports and Ireland is more dependent on US direct investment, than any other developed economy.

Windfalls from the construction went into overseas commercial property and in 2007, the Irish were the second biggest investors in commercial property across Europe.

Low fares airline Ryanair and Denis O'Brien's Digicel, were the only significant non-property creations, during the boom.  

Irish construction output in 2007 was 23.5% of GNP- rate of housebuilding in the Irish construction sector was 21 units per 1,000 of the population in 2006 compared with average of 5 units across Western Europe; at least 19% of the total workforce was directly or indirectly dependent on construction 

Bank of Ireland research published in 2005, showed that only 3% of Irish SMEs are medium size with more than 50 employees. Overseas expansion and exporting are dependant on businesses growing to a medium sized enterprise, yet the research indicated that only 7% of Irish SMEs intended to expand abroad in the following 12 months. This contrasts sharply with the UK where medium enterprises, which employ 30% of the workforce, are the powerhouse of the economy.

During the boom, property was simply the play, with ministers as cheerleaders and a fraction of the investment, which went into commercial property,  was targeted at the Irish tradable goods and services sector.  

The Human Cost

The human cost of crony capitalism in the effectively one party States of Japan and Ireland, is very high.

In Japan, more than one third of the workforce are now temps with few rights. In an expensive country, they earn less than the Irish minimum hourly wage is €8.65 - $11, even in a world class company such as Toyota.

The pay is about 40% below that of permanent staff doing the same work and there are no pensions or unemployment insurance.

In Ireland, it was reported this week, that the seasonally adjusted Live Register total increased from 293,100 in December to 326,100 in January. Ulster Bank said the number of unemployment claimants will reach over 545,000 by the end of 2009.

The cupboard is bare and Brian Cowen is left to appeals on social cohesion after the greatest opportunity in Ireland's history, to put the economy on a sustainable basis, was blown by the leaders of a broken political system.

Many Irish people are of course culpable like the Japanese in ignoring the issue of reform of the banjaxed political system, which led to the terrible dénouement.

The Insiders will feel some pain but win or lose, the politicians will remain in clover while the lives of tens of thousands will be destroyed.

When Brian Cowen brings forward a credible programme of political and institutional reform to end the crony system and prevent another period of monumental economic mismanagement, then I will give him a standing ovation.

It would be a miracle indeed!

Oct 2008: Irish Economy: State bank guarantee tolls the death knell of the Celtic Tiger; Fairytale ends debunking the myths and exposing the reality of foundations built on quicksand


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