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Analysis/Comment Last Updated: Jul 24, 2011 - 8:30 AM

Irish Economy: The durability of stroke politics and searching for the villains of economic collapse
By Michael Hennigan, Founder and Editor of Finfacts
Oct 12, 2009 - 5:18 AM

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Green Party leader John Gormley talks to the media on Saturday, October 10, 2009, following a decision by Green Party members to adopt a new Government programme and remain at the Cabinet table.

Irish Economy: The durability of stroke or auction politics for vested interests in Ireland, is illustrated in the deal agreed by the Green Party with Fianna Fáil. Having entered government with the builders' party in 2007 to save the planet, the Faustian Bargain has got an extension with the Green politicians saving themselves. Meanwhile, the search for villains of the economic collapse goes on but it's easier to find scapegoats.

For a small country, much of what goes on is bizarre, to put it mildly.

As tens of thousands of lives have been destroyed by monumental economic mismanagement, Joe Duffy, a presenter of a phone-in radio programme on the State broadcaster's RTÉ Radio 1, can earn €408,889 ($602,000) in a year - - a salary which dwarfs that of the US president or chairman of its central bank, the Federal Reserve. The "Liveline" programme enables members of the public to vent about nefarious politicians' expenses, developers and the poor standard of public services. Duffy ladles out lots of empathy but when bankers are the target of so much public anger, why shouldn't he deserve a place on the pantheon of public villains?

Last Saturday, The Irish Timesfeatured an interview with the former Taoiseach, Bertie Ahern, which coincided with the publication of his memoirs.

Journalist Kathy Sheridan wrote: "So for example, while his economic legacy may well be the perceived ATM facility he presented to the public sector, as well as Fianna Fáil’s enchantment with house-building, he cannot see a downside to either. Yes, he was shocked to read how the public sector had raced ahead of the private in average incomes. The thing is, he doesn’t believe it. The authors are not comparing like with like, he says, 'since private sector people get VHI, car allowances . . .'

Then he’s off – but is suddenly back with a Central Statistics Office study, which shows that national pay agreements between 1997 and 2009 left the private sector ahead by 10%. So the 9% from benchmarking simply bridged the gap. That’s all. 'So I don’t know what they’re talking about,' he says, mystified. Well, um, it’s that like-with-like thing again . . . How do you argue with a man intent on burnishing his legacy?"

VHI and car allowances alongside a majority of private sector workers not having even a basic occupational pension!

In 2004, ESRI (Economic and Social Research Institute) published research, which showed that the basis of the 9% benchmarking payment was a sham: Public-Private Wage Differentials in Ireland, 1994-2001.

The authors estimated that in 2001, the public sector premium comparing similar jobs was 13%. Public sector premiums in the late 1990s were in the range 4-6% in France, Italy and the UK.

Finfacts report Oct 09, 2009: ESRI paper confirms Irish public/private pay premium for comparable jobs jumped from 14% to 26% in 2003/2006

So facts simply don't count.

"Benchmarking remains one of the great misunderstood phenomena of the Celtic Tiger era," Dave Thomas, general secretary of the Association of Higher Civil and Public Servants, writes in The Irish Times today.

"As the economy and private sector salaries grew, there was a clear need for fair rebalancing of wage discrepancies between the private and public sectors, allied with an independent pay determination mechanism.

It was recognised that in the absence of such an independent process, public sector pay would be determined on the streets,"Thomas said.

The terms of reference omitted any allowance for the excellent public sector pension scheme.

The 2004 ESRI paper, which included among its authors, economist Jim O'Leary, who resigned from the Public Service Benchmarking Body (PSBB) midway through its deliberations, noted:"A curious feature of the PSBB’s report is that it furnished no specific justification for any of the pay increases it proposed. Instead, it provided a generalised rationale for its corpus of recommendations that echoed its terms of reference and cited a number of broad considerations."

Thomas hits the nail on the head with the reference to "determined on the streets."

Collective power is what counts in the Irish system be it a tractorcade from farmers or responding to union threats.

When the facts are unpalatable, the argument now focuses on the difficulty of comparing jobs like-for-like.

But it was not a problem when Bertie Ahern gave into union demands because of stories of high earning builders and a few dot-com millionaires.

Clerical staff in the Electricity sector (dominated by public sector) in 2008, were paid €27.90 per hour, compared with €21 for industry and €20 in finance. See Page 4:CSO report: Earnings and Labour Costs

The Green Party used the threat of a collapse of the Government to achieve some headline concessions on more public spending on education and staff hiring, without any offset costing, at a time when the Minister of Finance is seeking annual budget savings of €4 billion.

A number of baby steps were agreed on political reform but nothing of significance.

An unaltered system of Victorian secrecy will remain in place.

The agreement was a more detailed version of what would be arranged with an independent TD like Jackie Healy Rae.

The Sunday Tribune's Michael Clifford wrote yesterday: "Last year, Healy Rae received a salary of €106,000, a special allowance of €41,000 (an allowance agreed by Bertie Ahern in 1997 to win the support of independents), another allowance of €10,000 for committee work and €89,000 in unvouched expenses.

The world he lives in ensures Healy Rae, if he were so minded, could legitimately make €400 a week by claiming on mileage while actually travelling by train.

Hence an irrelevant backbench TD whose life is padded out with an income in excess of €240,000 per annum will most likely vote for a budget which will ensure that some children go malnourished through the winter."

In addition to the €240,000 per annum, there are publicly paid salaries for two assistants.

As for the Green Party, The Sunday Tribune says that in 2006, the last full year for which the Green Party leader was in opposition, John Gormley claimed €14,336 in a daily travel allowance, despite living just a couple of miles from the Dáil and cycling to work almost every day.

For the entire year, Gormley was paid €37,800 in unvouched and untaxed expenses on top of his salary of more than €100,000. To start with, the Green TD was paid €8,227, which came in the form of 12 monthly payments of €685.

In November 2008, as a minister, Gormley claimed back €12,638 for some research he had conducted in his Dublin South East constituency with Red C, as part of his special secretarial allowance.

It is understood that this research related to attitudes to the Green Party and was entitled 'Party Review Qualitative Research October 2008'.

In the same year, the minister also claimed €8,796 for a redesign of his website, with a further €169.40 spent on maintenance and registration.

Taxpayers pay for politicians' websites!

Also in 2008, Gormley took the ferry to Holyhead to burnish his "green" image, but a Mercedes limousine was dispatched on a five-hour journey from London to Holyhead to collect him.

The site of the former Irish Glass Bottle plant, Ringsend, Dublin (within red contours). It was purchased at the peak of the boom in 2006 for €412 million, by a consortium led by developer Bernard McNamara. In the same year, Ireland's biggest bank AIB, sold part of its Dublin headquarters, the Bank Centre, to developer Seán Dunne.

The Sunday Business Post says the site has been valued at around €60 million in a recent valuation conducted by auctioneers working on behalf of the State-owned Dublin Docklands Development Authority (DDDA). The writedown means the taxpayer is sitting on a paper loss of €87.5 million on the investment. The taxpayer is exposed to the huge fall in the value of the site because the DDDA is a 26% shareholder in the consortium that bought it.

Green Party leader John Gormley lives in Ringsend and in 2006 received €14,336 in a daily travel allowance for riding his bike into Leinster House. As a minister in 2008, the Sunday Tribune says he claimed back €12,638 for some research he had conducted in his Dublin South East constituency, on the public attitude to the Green Party.

There should be no shock that developers take big risks and some inevitably get in over their heads, against a backdrop of weak regulation and a broken political system.

The politicians try to deflect public anger by talking about jailing bankers but they were part of the boomtime party themselves as well as other fellow travellers.

The lure of money is even hard for economists to resist!

For example, in the US, Nobel laureate Paul Krugman, was a onetime paid adviser to the energy trader Enron and in April 2008, the leading economist of the Democratic Party, Lawrence Summers, who was earning millions for a one-day per week at a hedge fund, accepted $135,000 from investment bank Goldman Sachs for attending one of their events.

In Ireland, the Green Party have been among the late arrivistas to the game but they have eagerly drank the soup in the interval.

The ancient Chinese proverb again merits repeating: "A fish rots from the head down."

SEE also: Fianna Fáil minister says his department should be abolished; Ireland in the Age of the Spoilsmen

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