Sunday, January 2, 2011

When Secretary Snow met the gurus of the Celtic Tiger

Secretary of the US Treasury John W Snow came to Dublin on 14 and 15 November 2004 to sit at the ankles of far-sighted, visionary and sure-footed Irish Celtic Tiger architects to inhale their wisdom and discover what it takes to create an economic miracle, according to WikiLeaks.

Snow, formerly, chief executive of the railroad giant CSX Corporation, was appointed to this post in February 2003 by President George Bush and held this office until he was succeeded by Harry Poulson in July 2006. He was forced to resign when it emerged that Snow failed to pay income tax on a $24 million loan forgiveness he has received while chief executive of CSX Corporation.  Bush needed a ‘new face’ at the Treasury.

Snow was told that the concepts behind the Celtic Tiger economy ‘were simple’. ‘The political will to carry out reforms had to be seen in the context of the economic meltdown of the mid 1980’s (18% unemployment and a debt/GDP ratio of 130%). The social partnership process was described as a ‘good-faith relationship’ with trade unions, investment in education and a ‘dictatorial leadership’ that exposed industry to ‘the full discipline of the market’. Ireland’s ‘skill’ in securing EU subsidies and in ‘exploiting’ US policy on corporate tax had a role to play in the insemination of the Celtic Tiger cub.

Social partnership led to a ‘shared understanding’ between government and lobbyists on the importance of decent wages and housing. Even the most disgruntled trade unionist was given a voice but this process, Snow was advised, might not work in other jurisdictions which are more populous than Ireland with more diffuse trade union structures.

Former Finance Minister and architect of public sector decentralization, Charlie McCreevy told Snow that the introduction of free primary and second level education in Ireland in the mid 1960’s had been a boon to other countries, including the US which absorbed tens of thousands of undocumented Irish emigrants. But McCreevy expressed concern that the 1970’s Irish baby boom was a potential looming disaster which was averted by the jobs boom between 1997 and 2003 when unemployment levels dropped to 4%. McCreevy strongly advocated the concept of ‘dictatorial leadership’ to Snow – of incentivizing industries to achieve efficiencies by exposing them to the full discipline of the market, even at the risk of bankruptcies.

Snow responded to the lessons he was being taught by commenting that gains from economic reforms tend to be diffuse, losses were often more concentrated in particular sectors or geographic areas making it easier for those effected to organize political opposition. McCreevy replied that the test of any government was how well it explained to dislocated workers that the reforms responsible for their plight ‘were good for the country’

The boss of Indecon Economic Consultants, Alan Grey, piped up that as Ireland has given workers the skills to move across industries to the point where those laid off did not ask “have I any hope of a job?” but rather “which of my new employment choices should I take”

Albert Reynolds advised Snow that he had secured over €1 billion in EU subsidies when he supported the push of Germany’s Chancellor Kohl for EU enlargement.

Snow also met the then chief of the Ulster Bank, Cormac McCarthy who opined that ‘an ironic feature of Ireland’s success has been the Irish Government’s lack of monetary policy tools citing that strong international trading performance would be normally bolstered by interest rate and exchange rate levers. McCarthy considered that the low interest rates set by the European Central Bank at that time ‘had been a boon to Ireland’s private sector and had lent a sense of stability and consistency’ to the Irish market.

The boss of Forfás, Eoin O’Driscoll, told Snow that Ireland needed to guard against complacency if competitiveness is to be maintained and that Ireland needed a ‘new shared vision’ to go another rung higher than basic to produce innovative, high-value goods and services. This would involve marrying innovation to better business practices, particularly in sales and marketing that would emulate the US approach of perfecting product designs in the market as opposed to the European preference of the laboratory. Snow cautioned against an approach of ‘picking winners’ in the market but did endorse the sentiment that US prosperity lay in a culture of innovation and entrepreneurship.

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