The President of Ireland, Michael D. Higgins' speech at the 21th of anniversary of TASC in April 2023, caused a lot of reaction from mainstream economists. He was highly critical of the dominance of neoliberalism, one form of mainstream political economics, globally and particularly in Ireland.
He said "Given the dominance of neoliberalism as a paradigm for over four decades, it is hardly surprising that the global influence of the economic right ensured that economic orthodoxies shaped the thinking of those responsible for the making of Irish public policy across all areas."
He continued, "Consequently, there was a dearth of progressive or heterodox policy debates over the decades. TASC has set out to change this, and it is a change for which we should all be grateful." He was calling for more flexibility in economic thought. The reason, which would be accepted by most people internationally, is that the mainstream economics demonstrated deep failures, not just in not forecasting the 2008 Crash, but more importantly, in its direction and in many of its key policies in the past four decades. After the economic crash in November, 2008, the Queen of England famously asked the obvious question - why did no one see it coming?
Neo-Liberal and Neoclassical Economics
Neoclassical economics, the main economic theory taught in Irish universities, a school of thought within the social sciences that insists on the rationality of markets and of consumers; on the efficiency of markets; in uncritically supporting Friedman's shareholder value model for companies; suggesting there is a tendency towards for market equilibrium, and the influence of utility on prices; and some schools support the need for governments to keep out of the market; cutting taxes and privatising to ensure a small state.
From the early 1970s, neoliberalism borrowed from the assumptions of neoclassical economics to argue for unfettered free trade, privatisation, low taxes, low regulation and low government spending. It often deviated from the neoclassical on issues of anti-trust and externality arguments. While neoclassicists are concerned about monopoly power, neoliberals are not. Neo-classicists do believe the market merits government intervention and regulation, but neoliberals do not. It is possible to be a neoclassical without being a neoliberal. In my view, most Irish economists are neo-neoclassical and are not neo-liberal. However, this important difference did not prevent a number of major policy errors which will be outline in the next blog.
The hegemony of this neo-liberal mutation of neoclassical economics facilitated the dominance in the US economy of huge oligopolistic MNCs in Tech and Pharma. Back around 1900, the monopoly of Big Oil was busted by the US governments, supported by economists, because then they did not tolerate the abuse of market power by monopolies. Anti-trust/monopoly action in US ceased around the 1970s. This intellectual change was driven with the election of Reagan (and Thatcher in the UK) and this has seen the abuse of market power by Big Tech, by Pharma and other quasi-monopolies and more. The break-up of domineering companies has largely ceased in the US. Ironically these monopolies are also assisted by governments by providing overly long patent protections.
The President has a point that the neoclassical economists who dominate both academic economics and policy advice to governments, veered closely to neoliberals on some issues in recent decades. These include monopoly, short-termism by corporates, tax competition between states and lack of, or no regulation. It also included the privatisation of tracts of the public assets including monopolies and the cuts in progressive taxes highlighted by Piketty. Neo-classicists had an innate focus on the role of government and public debt and a catastrophic blind-spot about the role of private debt in macroeconomics. The neglected role of private debt played a major role in economies crashing in 2008. Right-wing politicians were not the only ones in thrall to neo liberal economic ideas. It was Bill Clinton's economic advisor, economist Larry Summers who deregulated finance, followed by Blair in Britain.
President Higgins' speech was quite scathing of the dominance of "an empty economics which has lost touch with everything meaningful, a social science which no longer is connected, or even attempts to be connected, with the social issues and objectives for which it was developed over centuries" He argues that the dominant economic philosophy is "is incapable of offering solutions to glaring inadequacies of provision as to public needs, devoid of vision."
Did mainstream economics get it all wrong?
So did mainstream economics get it all wrong? Ireland, a newly independent state did stagnate for its first fifty years until the early 1970s. Most importantly, total employment stagnated from 1922 to 1990 at the same level of 1.1 million people, while vast numbers were forced to emigrate. However, this was not the fault of economists, but of the Fianna Fail political system which favoured autarky, nationalism and deeply, conservative anti-Keynesian or anti-interventionist economics. Ireland stagnated till there was improvement in the early 1970s with opening up of the economy by Sean Lemass. This radical change was instituted by Lemass and helped by Whittaker, both of whom were following the ideas and evidence of economists Louden Ryan of TCD and Paddy Lynch of UCD.
The real-take off of the Ireland's economy, often called the Celtic Tiger occurred over 21 years in three distinct seven year periods. The first began in 1987 with the Social Partnership agreement. This was only one of many other important factors - included in a mix of our place in the global market and major state intervention - which I set out in Ireland's Economic Success. With jobless growth for the first 7 year period to 1994, this was followed by the Celtic Tiger phase with all cylinders running at peak for another 7 year period to 2001.
It was in the third Celtic Tiger period to the Crash of 2008, that neo liberalism took hold of economic policy. There was still growth of national income and jobs but it was a bubble. Policy had shifted from prudent to reckless around 2001, being the conscious adoption of uber-neoliberal policies of no regulation of finance, tax cuts (if I have it, I will spend it), perverse incentives, privatisation of everything public not-nailed-down (including the stock of public housing). The bubble then burst.
While Irish market inequality remains very high - the highest in the EU - the Irish tax and welfare system strongly ameliorates this, bringing inequality here down to the middle of the EU. This is good but not good enough and more could and should be done. But Ireland has near full employment. Forced emigration (I was one) finally ended decades ago and it is now voluntary (now mainly well-educated people) and foreigners want to move here. Immigration is helping to improve Ireland and population is growing. We are one the richest (even if this is adjusted, we are still very rich per head) and on the broader measure, the UN human development index, we come second in the world only after Norway. Thus despite our health and housing problems (which are the unacceptable result of conscious policy), our life satisfaction is very high - second in the world after Finland. This important measure tells us we are now almost living in a fine country.
Ireland's four outstanding problems are climate, inequality, health and housing. They are not caused by lack of public money. Great sums of public money are being poured into each of these areas, but policies are perversely market-driven. Ironically, the public subsidies are distorting the markets and making things worse in health and housing. Climate need much more leadership and while the tax and welfare system is partly addressing inequality, non-market inequality, which is at its root, requires new policies, including the right of collective bargaining for unions and multilateral action curbing corporate power. Government seems to be incapable of ending the two-tier health system, such is the power of vested interests, combined with un-strategic top management. In fact, it is not actually incapable. It lacks the political will, partly due to its reliance on defunct economic ideas.
Thus, Ireland has a lot going well, very well, but as the President implied, with a pivot in our economic governance, with all our skills and public finances, we have the opportunity to improve things dramatically. In the next blog, I will examine the major avoidable crises which should not have happened, had Ireland not been so dependent on mainstream economic theory.
Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He was a President of the Statistical and Social Enquiry Society of Ireland, former member of the Economic Committee of the ETUC, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.