For us in Ireland, the example of New Zealand should give us cause for hope, because it reveals that a new government with a fresh mandate can reverse the decline
In a crisis, some countries choose to survive and others don’t. If you are prepared to act boldly, you can turn things around. History is full of such examples. In the 1950s, both Uruguay and New Zealand were among the richest countries in the world. Both went into decline as agricultural markets in Europe shut down to them. Both have survived. Compared to other countries in Latin America, the Uruguayans have performed extremely well and their default on their national debt in 2002 did nothing to affect that performance.
But of the two, the turnabout in New Zealand has been the most dramatic. For us in Ireland, the example of New Zealand should give us cause for hope because it reveals that a new government with a fresh mandate can reverse the decline. Not only did the Kiwis dust themselves down and turn their fortunes around, but they did it in the traditional way. While they deregulated, education didn’t suffer. While they stripped down their health system to rebuild it, the provision of healthcare didn’t suffer.
The Kiwis didn’t just change how their public service operated, they changed their laws. Can you imagine Ireland introducing something as logical as a ‘no fault’-based compensation system for personal injury? So if you fall down and break your leg, you get a fixed compensation and you can’t sue anyone for more than that. This seems completely logical and maybe that’s what clear thinking government, unencumbered by vested interests, gets you.
Today, for example, did you know that the average child in secondary school in New Zealand has a mathematical achievement standard that is twice as high as the average child in school in Ireland?
Yes twice as high. In New Zealand, according to a study from Stanford University, 16 per cent of 16-year-olds are performing at an ‘‘advanced level of maths proficiency’’. In Ireland the corresponding figure is 7.9 per cent.
The reason this is important is because it matters to potential job recruiters. We talk about the ‘‘smart economy’’ and have given over much discussion to our corporate tax rate, yet the key to investment is the people not the tax rate and if your people are not as qualified as their counterparts abroad, we become less and less attractive, irrespective of the tax rate.
So how did the Kiwis do it? And could our new government do something similar? In the late 1980s,New Zealand was devastated by the collapse of its main industry – agriculture – its public sector was grossly inefficient and expensive, it suffered persistent fiscal deficits and successive regimes valued mediocre stability over ambitious innovation. In the 1970s, New Zealand had lost access to its traditional food market in Britain after that country joined the EEC. This meant that exports of agricultural products were not producing the returns they had for previous generations. Couple this with the global slowdown from the oil crisis and by the start of the 1980s New Zealand found itself in dire economic straits.
The New Zealand economic model had been one of protectionism, tight regulation of many industries and state support for indigenous industries. What we would now call ‘big government’.
By the time the 1984 election came, the writing was on the wall for the incoming Labour government. Luckily for New Zealand, they had Roger Douglas as finance minister, who had clear ideas on reform. He devalued the currency by 20 per cent. He deregulated many industries.
He set about changing the way the government of New Zealand worked.
He said that he had to work fast in implementing his policies, because if he slowed down, interest groups would have time to get in the way of his reforms. His big message was that the interest groups needed to be smashed if New Zealand was to survive and thrive. Sound familiar?
In 1990, the incoming National Party government of James Brendan Bolger, the son of immigrants from Gorey, faced exactly what Enda Kenny will face today: a banking crisis. The largest bank in New Zealand needed to be bailed out after Australian mortgage loans went bad.
Bolger injected capital into the bank only after forcing the bank and its bondholders and shareholders to take losses.
He also had an exit strategy, which was to sell it to a bigger Australian bank and to get it off the New Zealand books as quickly as possible. Two years later it was sold for a profit to National Australia Bank.
The New Zealand approach of completely changing the health and education services, forcing all public servants to take individual contracts to reduce collective bargaining and removing the ban on firing public servants might not be exactly what is needed here, but it does suggest that it can be done.
The most interesting thing about New Zealand is that someone with a new political mandate decided that change had to come. This is desperately needed here.
Ireland is at that tipping point. We can go on pretending that everything is all right, that everything will work out, or we can face the unpalatable reality and admit that we are on the wrong road. If we do not change, we are going to lose a lot more than billions of euro on the banking system. We are going to lose our sovereignty.
Bolger and the other Kiwis realised that they had to have a credible plan to balance the books. The second thing they realised was that it was not the government’s job to pick industrial winners.
Bolger removed subsidies on industries (especially agriculture).He said that the government should not choose which industries should survive while allowing others to fail. He stated that government subsidies were a function of influence/ lobbying of government by powerful industries.
He would never have believed in the ongoing corporate welfare that has been extended to our banks. In New Zealand, they fixed the banks quickly and then sold them on for a profit.
Today, New Zealand is a rich country. The health service is cited by many as an exemplar, both in terms of the system itself and the way in which it is funded. We can see from the figures that its education service is in the top 2 per cent in the world, while ours is falling back.
However, as we arrive at the point of no return, the New Zealand case is interesting because it shows that the lead has to come from politics.
Now that we have a new government, we have a new opportunity. Our only hope is that this new government seizes the opportunity and, although we know it will be nasty for the next year or two, it has our support. Go for it.
I have spent most of my life negotiating various deals in the Financial Markets and on that basis I am prepared to give my opinion as to what the new Government should do now. First let me remind people of a well known fact and that is ……. Any threat if it is to be effective must be credible…….. Having said that then, it should be very easy when re-negotiating with Europe with regard to Ireland and its “support funding” as I will now call it. The key to this is to tell Europe that what ever deal is agreed… Read more »
Irish people should be the only interest group in this country, Whats best for us is not always whats best for vested interests and so we all lose. We are like a big dysfunctional family. Lets start with this bank bail out: Please sign this petition I created, so that the Irish people are the only interest group when it comes to renegotiation.
http://www.petitionbuzz.com/petitions/referendumbankirl
There is a lot of relevant information for us, in what happened in NZ. But, I don’t expect any of it to matter. The Beards were soiling their pants over the fact that a government was going to be elected that would not have a SIPTU/ICTU proxy at the cabinet table. And the far from giving FG a boost, the intervention of Jack O’Connor and David Begg scared some people away from FG and Independents into voting ILP. The Beards are still in control. I can also tell you that if FG do a deal with the ILP, you can… Read more »
By the way, as a result of compromise with ILP, FG’s 5 point plan will be reduced to a two point plan. The biggest loser of all will be the health system. As things stand IMPACT effectively run the hospitals in the EHB area. And SIPTU run most of the others. The ILP and Gilmore will not end this under any circumstances. Gilmore has already stated that he will retain the HSE. Even more alarmingly, his pet project (I have impeccable sources here) is to extend the same central authority model to the education system. It is part of his… Read more »
David,
Is there any way of forcing a section 27 referendum by going to the courts to declare additional funding of the banks excessive for a country with only 1.8m workers.
subscribe.
John Mauldin outlines the stark future facing Ireland and other heavily indebted western economies in this article. http://www.johnmauldin.com/frontlinethoughts/#when In reality the Irish Debt Problem exists only as a subplot to the greater drama playing out all over the western economies. The decision that faces Ireland will also have to be taken by Japan U.S. U.K. France etc. The consequences of the inevitable boom bust crackup have yet to be fully discussed. We had the prophets (DMcW etc)telling us rightly what would happen after the housing/credit bubble bursting. We really need to have a similar clear vision of what will happen… Read more »
There is nobody to ‘act boldly’ for us. This will be a benign government, it will just be there and have little or no effect. There is a range of opinion on how to deal with bondholders from the Sinn Fein/Shane Ross stance who say ‘burn ’em!’ to Peter Mathews who would probably be the best negotiator (if he is not gagged like George Lee was)but Enda and Co. will just twiddle their thumbs on the issue with a ‘wait and see’ attitude.
David – your article is one week too late.
But if you published it last week, the power of the institutional left would make sure that you were finished. Therefore, in consideration that you actually gave us this, we can forgive you.
The beards are still in power. It is like the “good ol’ days” when Bertie the Socialist was in power.
‘Our only hope is that this new Government seizes the opportunity, and, although we know it will be nasty for the next year or two, it has our support. Go for it.’ Things change. They do. Things have an extraordinary capacity to re-generate under extremely adverse conditions. I had given up on them. In their little pots outside. Sometimes covered with snow, but almost always, over a period, with lids of hard ice, over the small amounts of soil beneath. Without any sunlight during the cold dark days. But there they were again. Their little yellow daffodil heads bobbing away… Read more »
NZ doesn’t have fixed a exchange rate! No chance of Suds and Cox giving the finger to europe.Will the Brits take us back ?
Ive heard from reliable sources that there are stil non-exec bankers working in Anglo on half a mill p.a. We still need to sort this sh*t out as they are effectively public sector workers. Noone seems to be able to do do the maths in this country.
Latest Heist by Irish Nationwide Building Society
http://www.rte.ie/news/2011/0301/irishnationwide-business.html
This is the smallest snatch to date. The 80% discount (so-called) will result in c. 100 euros being snatched from the pockets of every working person in the State.
If you are a central bank governor or regulator on €350,000 per annum what is €100 here or there?
INBS is insolvent and the bonds are worthless so the DISCOUNT should be 100%; but the HEIST continues.
What is Enda going to say or will he reveal himself to be gutless in the face of ECB dictats?
How about leaving the EURO and asking not the U.K but Sweden or Norway to let us use their currency. The germans are going to rack up the interest rates over the next couple of years and thats not what Ireland needs. If the EU give Ireland too generous terms for our bailout they will have to do the same for greece and then perhaps portugal etc. Their hands are kind of tied becuase they have to answer to their own financial lobby, banks and people so they don’t want Irish banks to defualt on the their debt either. In… Read more »
We have to make serious changes to the cost of running this country. ILP cannot and will not be allowed get in the way. The elephant in the room is the shockingly inefficient union protected PS. We simply cannot afford it any longer – with or without the bank guarantee. Ditto for all the quangos which cost us umpteen billions per annum. So forget about what ILP may or may not do to water down FG…will not happen…and if it does, forces outside our control will force a default and then more mess. Die is cast. Change is inevitable. Embrace… Read more »
Interesting article David. However there is one major flaw in the theory. Yes what you say is correct , it could be done but we are now probally going to be led by the party who snuffed out George Lee and his ideals.He had a new way of doing things but came up aginst a brick wall in Fine Gael. According to Fine Gael there was a set way of doing things and everybody had to follow this. Now you put that party with their set ways of doing things in charge and expect there to be major change in… Read more »
Was New Zealand ever under obligation to a new ‘family’ of countries like Ireland when it joined the EEC, big brothers and sisters lending us money and telling us what we should and should not do with our resources etc. only for their own good. If we pull out default on our debt etc (even go back to our own currency?) will our European brother and sister countries turn their back on us and boycott our new independently run and regulated export trade in agriculture fisheries etc.,
in retaliation of our ungratefulness…just an uneducated thought from a concerned citizen
Good positive article. That’s all one can do, keep looking for solutions. Rambling post follows. I suppose I have an anti FG/Tory bias in me as the pictures of them rejoicing made me uneasy (more fear than hatred, probably just mere dislike), but then again there was plenty of cause for concern the way things were anyway. I don’t go as far as Deco above as regards the malign influence of the unions, in fact on the whole I’d take the very opposite view in global terms and see the last few decades as the super-rich rolling back the gains… Read more »
Great article as usual David but I’m afraid we will have to dream on. We all know this will never happen here. We are currently waiting for Portugal to fail so that the EU can solve our problems for us. There will be no bold steps from any politician on this island. A civil servant has just described self employed people to me as “leeches on the state”. Thats what you are up against I am afraid.
There is a big issue made of the Civil War. If you look at a map of England you will see that the Conservatives get most of the vote that sided with the Parlaiment in the English Civil War in the 1640s. Scotland and Northern England – which fought for the Royalist side votes predominantly Labour. The South West of England, and the Welsh borderlands vote predominantly Lib Dem. In the US the Republicans could not get elected to any state in the former Confederate states for 100 years, voting solidly for the Democrats, in contempt of Abe Lincoln. Not… Read more »
Not getting any notifications of posts by email. This site is a shambles in terms of functionality.
Iceland Planning to Improve Its Lot http://www.bloomberg.com/news/2011-02-28/iceland-channels-volcanoes-to-win-europe-s-clean-energy-supply-race.html Pity the Greens did not have the imagination or vision to argue that the 35 billion euros which has been dumped into the Anglo/INBS black hole should be channelled into massive alternative energy projects. Based on estimates I have been given for a single wind turbine built at a cost of one million euros capable of providing for the annual power consumption of 200 homes we could in theory have put up 35,000 such turbines capable of generating power for 7 million homes. Bondholders could have been obliged to participate in this venture… Read more »
I watched PRIMETIME’S interview with Prof Honohan tonight – what a waste of time, and, yes, I should have known better! I feel Patrick Honohan should have been shown the replays of quotes/misquotes one-by-one and asked to confirm EXACTLY what he said or wrote in each instance. His evasiveness was an obscenity when one reflects on the fact that we pay him circa €350,000 per annum – 2 times the salary of Bernanke. What’s happened to ACCOUNTABILITY? I have lost all confidence in PROF. HONOHAN: He fails to acknowledge that the United States will recover more quickly thanks to banking… Read more »
Hi David, I hope you had a good election, although I didnt hear did any of the New Vision candidates get in? Politics is a long-term ‘game’, or should be. I agree that reform of many areas is required. Our lists of problems are long. Lance The Boil = Reform. DavidMcW> Can you imagine Ireland introducing something as logical as a ‘no fault’-based compensation system for personal injury? well, I wish tere was. People fail to realise that large payouts is a zero-sum game (mathemtically) so those that domnt benefit must pay those that do. Payouts can be warranted but… Read more »
Well the big news this morning is the Wright report. http://www.independent.ie/national-news/how-ahern-ignored-key-warnings-on-economy-2561798.html Bertie Ahern was not listening to the DoF – he was reading the prognostications of Dan McLaughlin (and Austin Hughes) from the IT Business Supplement every Friday. The astounding thing about Ahern is that on the one occassion when McCreevy decided to rein in spending, and encourage people to save their money – he got lamabasted, castigated, plotted against. And then Ditherer sacked him. I can remember 2003-2004. The social partners, the media and the rest of the cabinet all decided that McCreevy was going down the wrong course.… Read more »
This is what the Wright report had to say about social partnership (aka IBEC-ICTU running the country).
http://www.independent.ie/national-news/benchmarking-pay-was-euro12bn-annual-mistake-2561679.html
Basically, what I have been saying for a long time, and what many others have also been saying.
It is a failure.
Now, can we see Shane Ross, Donnelly, Ming, etc.. talking with FG, so that we can have government without ICTU-IBEC in the back seat ?
It’s great to finally see that our friends in FF consistently ignored the best quality advice. See http://www.independent.ie/opinion/columnists/fionnan-sheahan/fionnan-sheahan-if-youve-got-it-spend-it-was-mantra-of-ministers-2561684.html Is it just me but has anyone else noticed that some Irish people think there is an inherent fault in getting outside advice? Is it a type of insecurity but I’ve often been at meetings where I might suggest we talk to somebody “who’s done it already” only to be told we’ll do it ourselves? There is also a line in yesterdays report that says the Dept of Finance should welcome the opinions of external Economists – Which strongly indicates that the… Read more »
Mathematically Perfected Economy http://www.youtube.com/watch?v=menOXvoKw7U
Didya see the Primetime interview with Prof Honahan last night. As we all know Honan is governor of The Central Bank, a banker. If you missed it, http://www.rte.ie/player/#v=1092938 I’ve previously compared Prof Honahan to Lord Cardigan who led The Charge of the Light Brigade: “Cardigan survived the battle. Although stories circulated afterwards that he was not actually present,[7] he led the charge from the front and, never looking back, did not see what was happening to the troops behind him. He reached the Russian guns, took part in the fight, and then returned alone up the valley without bothering to… Read more »
A question to those who know a bit more than me.. but if a bank/bondholder made an investment (loaned money) to Anglo or AIB, would they also not take out some sort of insurance ? When we say “burn the bondholders” surely we’re saying let them claim on their insurance ?
Or do they “self insure” ? Is there any figure for how much of this money was insured, or is that deemed “financially sensitive” ?
[…] calibre of Ólafur Ragnar GrÃmsson, President of Iceland, Bo Lundgrum of Sweden, or as DmcW writes http://www.davidmcwilliams.ie/2011/03/01/time-for-ireland-to-act-boldly: “In 1990, the incoming National Party government of James Brendan Bolger, the son of […]
David. Article reads an interesting case. Ireland to follow New Zealand s example has to extract the levers of power away from the insider elites before any of these ideas can be implented. Any ideas on how to do that ? Cos the political system and the economic system rigged as it is and over run with crony networks as it is are all standing in the way of every idea above outlined in your article. So before we live in a hope of a worthiness and innocence one must face the reality of the underlying dynamics blocking the reformation… Read more »
Dear David,
Are you suggesting we follow NewZealand’s line of attack? And, would that work given the new Government we now have?
http://namawinelake.wordpress.com/2010/10/14/anglo%E2%80%99s-david-drumm-files-for-bankruptcy-%E2%80%93-entitled-to-keep-%E2%80%9Ctwo-cows-twelve-sheep-two-swine-and-four-tons-of-hay%E2%80%9D/
http://namawinelake.wordpress.com/2011/01/10/nama%E2%80%99s-tally-of-receiverships-likely-to-grow-after-mcinerney%E2%80%99s-scheme-of-arrangement-is-dismissed/
http://politicalreform.ie/2011/03/05/wholl-get-the-department-of-defence/
http://ftalphaville.ft.com/blog/2011/03/04/504871/mean-reverting-us-government-bonds/
http://www.examiner.ie/ireland/kenny-burning-of-bond-holders-off-table-147299.html
FYI