Thursday, August 27, 2009

The Blame Game

Here in Ireland we have sailed into very troubled economic waters which are likely to remain so for a considerable time to come. While most European economies have been suffering due to the financially induced international recession, Ireland's problems have been compounded by the collapse of a greatly over hyped property boom.

Now, as so many false dreams lie in tatters the blame game has started in earnest with the Government, bankers and developers mainly in the firing line.

However the phenomenon of a boom is in fact a lot more complex reflecting a moral deficiency shared to a greater or lesser extent by the whole population.

During the Celtic Tiger years in Ireland a remarkable shift in values took place. The traditional system fostered by the Catholic Church gave way to an increasingly materialistic self serving attitude affecting all walks of life.

From this new perspective everyone seemed to be benefit as long as the Tiger continued. Government revenues soared due to rampant property sales and associated consumer spending. Unemployment effectively disappeared with countless new jobs servicing the boom being created. As house prices rocketed people saw their wealth rapidly increasing. With the banks anxious to provide as much credit as possible, mortgages for all and sundry became easy to obtain. In a continuing seeming win win situation, developers went on a wild splurge with commercial developments and housing estates mushrooming in every corner of the country.

When the home market no longer seemed sufficient to satisfy this insatiable demand, ambitions spread outwards. Around 2004-05 you could find any number of hotels hosting property conferences eagerly marketing new opportunities for buying apartments in Spain, Portugal, Hungary, Turkey, Dubai, Florida etc.

A key moment regarding the extent of this madness struck me when out of curiosity (around 2004) I studied the brochure for a forthcoming Conference in a South Dublin hotel concentrating on the new emerging Eastern European property market. Would you believe at that one Conference alone, 33 different exhibitors were lined up to sell apartments in Bulgaria!

During a prolonged boom such as we had in Ireland (from 1994 - 2007) a phony consensus develops in society where society as a whole unconsciously seeks to preserve the short term momentum of what has been achieved (while effectively dismissing long terms concerns). The general view at the time was that due to the "inherent strengths" of the Irish economy (as the fastest growing in Europe) that we could effectively deal with any downturn. Thus most economists predicted a "soft landing" if and when the property boom eventually stalled.

So in Ireland the Government in power greatly benefited from the boom with Bertie Ahern's Fianna Fail Party winning three straight elections. When it looked that the ruling party might lose the most recent election in 2007, in the final week support for it significantly improved (with the electorate entrusting it to prolong the boom)!

Likewise the construction sector and developers also had a clear vested interest in keeping the Tiger running. And as the increased income generated from this sector then created opportunities for other sectors e.g. hotels, car sales and consumer spending generally, business greatly benefited from the boom. Not least the general consumer electorate - who had seen years of full employment and sharply rising living standards - wanted the Tiger to continue.

In such an atmosphere, cautionary voices are effectively drowned out and accused of being negative and unpatriotic.

Say for example if management of a key bank had accurately foreseen some years ago the current slump thereby attempting to restrict credit, the consequent outrage of customers and shareholders would probably have led to dismissal of the existing directors and a speedy reversal of policy.

Likewise if a political party here in Ireland coming up to the last election had proposed taking immediate corrective measures if elected, it would have been duly rewarded by a dramatic fall in its vote.

When the false consciousness of a phony consensus exists in society, wiser voices are not heard. Rather those who seek to challenge the consensus are very often punished and ridiculed for their foresight.

Thus it is no comfort now to see the widespread condemnation by the electorate of Government, developers and bankers.

This is the same group that voted in the Government (to preserve the boom), who rushed to buy properties both here and abroad and who were only too happy to avail of the easy credit afforded by the bankers.

So, unfortunately these failures (which are very considerable) are shared by all in society to a greater or lesser extent. The requirement to fit in to the prevailing value system leads to an overall shift in behaviour and attitudes that is very difficult to avoid.

The great sin of capitalist Economics is that it attempts to divorce its workings from the moral responsibility of those actually exercising economic decisions.

Then when problems emerge with the system - as at present - the burden of failure is suffered in a greatly disproportionate fashion with those most culpable largely escaping and the truly vulnerable often worst hit. Unfortunately we will have much time to reflect on this glaring injustice in the coming years.

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