It’s not just the econ­omy, stupid

Irish Independent - Business Week - - BUSINESSWEEK -

The coali­tion’s re-elec­tion cam­paign has fo­cused on a re­cov­ery that’s not cer­tain to last. Richard Cur­ran,

‘IT’S the econ­omy, stupid” has be­come some­thing of a cliché around gen­eral elec­tions. As the elec­torate cast their votes to­mor­row, how much space will the econ­omy take up in­side their heads and in­flu­ence their political pref­er­ences.

Based on how the elec­tion cam­paign has gone so far, prob­a­bly not as much as we might think. Peo­ple are talk­ing more about health, crime and lo­cal is­sues than GDP growth. The econ­omy has played an enor­mous role in the out­come of Ir­ish gen­eral elec­tions, par­tic­u­larly since 1997, when our fi­nances be­gan to pick up.

Be­fore that, the em­pha­sis was on pub­lic spend­ing and tax­a­tion – the prover­bial “pound in your pocket”. Once Ire­land found eco­nomic pros­per­ity for the first time, elec­tions were driven by which par­ties might help us all to hold on to the good times.

In 2004 Ber­tie Ah­ern re­dis­cov­ered his in­ner so­cial­ist while walk­ing on the beach near Inchy­doney, the West Cork lux­ury re­sort. The in­ner so­cial­ist meant a mas­sive in­crease in pub­lic ex­pen­di­ture while also con­tin­u­ing with tax re­liefs for the very wealthy. It re­duced the tax base while in­creas­ing ex­pen­di­ture.

Govern­ment ex­pen­di­ture rose by 140pc from 2000 to 2008, with the most marked in­creases ahead of the 2002 and 2007 gen­eral elec­tions.

Fol­low­ing the catas­tro­phe of the crash in 2008, the 2011 elec­tion was dom­i­nated by the need for change and a de­sire to pun­ish the party that helped blow up the sys­tem.

In 2016 the game ap­pears very dif­fer­ent. The govern­ment par­ties’ big­gest mis­take was to think, it was only about “the econ­omy, stupid”. Hav­ing steered the coun­try out of the troika bailout and into a GDP growth rate of 6.9pc, Fine Gael and Labour ca­su­ally as­sumed this would see them through. The “econ­omy, stupid” phrase was coined by James Carville in 1992 when he worked as a cam­paign strate­gist for Bill Clin­ton’s suc­cess­ful pres­i­den­tial cam­paign against Ge­orge Bush se­nior. The phrase was in­tended for an in­ter­nal cam­paign worker au­di­ence as one of three mes­sages to fo­cus on. The other two mes­sages were “change ver­sus more of the same” and “don’t for­get health­care.”

Clin­ton was not the in­cum­bent and the US was in poor eco­nomic health. De­liv­er­ing the econ­omy mes­sage couldn’t have been any eas­ier. For Fine Gael this time round the sit­u­a­tion is quite dif­fer­ent.

Be­ing in power dur­ing a pe­riod of rapid eco­nomic turn-around, is not the same as mak­ing that turn-around hap­pen. The Fine Gael-led govern­ment got a lot right in the tidy-up of the ex­che­quer mess, in re­build­ing Ire­land’s rep­u­ta­tion and tak­ing tough de­ci­sions on con­tain­ment of pub­lic ex­pen­di­ture. Yet, a lot of the eco­nomic growth has been down to blind luck with fac­tors com­pletely out­side our con­trol, such as low in­ter­est rates, a cheap euro for Ir­ish ex­ports and then cut price oil.

The prob­lem for the govern­ment par­ties is that many peo­ple say they sim­ply don’t see the ben­e­fits. There is wide­spread dis­il­lu­sion­ment with pol­i­tics and an at times, an un­nerv­ing hunger for some­thing dif­fer­ent, which isn’t al­ways prop­erly thought through.

The eco­nomic and ex­che­quer gains that have been made are gen­uine and real but they are also lim­ited and in­cred­i­bly frag­ile. There are sig­nif­i­cant eco­nomic risks com­pletely out­side the con­trol of the Ir­ish busi­ness com­mu­nity and any Ir­ish govern­ment. Progress has been made with the ex­che­quer fig­ures, but we still spent over €7bn on in­ter­est pay­ments on the na­tional debt last year. That is €135m per week.

Oil prices will not stay low for­ever. Eu­ro­zone in­ter­est rates look like re­main­ing low for a while yet but ul­ti­mately there is a cy­cle. The ad­van­ta­geous euro/ster­ling ex­change rate has been claw­ing back since the end of last year.

If you want to ap­pre­ci­ate how del­i­cate our eco­nomic for­tunes can be, look at Boris John­son. The Mayor of Lon­don seems happy to play the colour­ful clown and toff, yet his de­ci­sion this week to back a Brexit, pos­si­bly for per­sonal political gain, helped drag down the value of ster­ling.

John­son is a man who once said he voted for David Cameron as Con­ser­va­tive Party leader, “out of pure cyn­i­cal self-in­ter­est.” He once de­scribed Portsmouth as “too full of drugs, obe­sity, un­der­achieve­ment and Labour MPs.” Yet, in­cred­i­bly his de­ci­sion to back Brexit, hope­fully tem­po­rar­ily, re­duced the com­pet­i­tive­ness of Ir­ish firms ex­port­ing to the UK in the months ahead.

As one of the most open economies in the world, Ire­land is very vul­ner­a­ble to ex­ter­nal political and eco­nomic events.

We keep hear­ing that the Ir­ish econ­omy is at an im­por­tant cross­roads.

The econ­omy may be at a cross­roads, but the Govern­ment are not the ones driv­ing the car. The best we can hope for is a govern­ment that will keep its eyes peeled and safe­guard the pub­lic fi­nances for when we do go down a rocky road.

Yet the de­bate so far has been around driv­ing eco­nomic growth in­stead of putting for­ward a clear vi­sion of what they want to achieve with the lim­ited re­sources we have.

Any­one can have a vi­sion with un­re­al­is­tic fi­nan­cial prom­ises, as some left wing par­ties are promis­ing. Par­ties that are be­ing more re­al­is­tic with their fig­ures, seem to lack the vi­sion piece.

Th­ese short­com­ings in the cam­paigns of the es­tab­lished par­ties, have opened the door for greater un­cer­tainty and in­sta­bil­ity which could be very dam­ag­ing.

Dur­ing the week a group of se­nior busi­ness fig­ures wrote a let­ter to this news­pa­per warn­ing of the dan­gers of political in­sta­bil­ity and what that could mean for the econ­omy. They are ab­so­lutely right. But I am not sure that vot­ers who feel most dis­af­fected and cyn­i­cal about pol­i­tics will take ad­vice from some of the wealth­i­est busi­ness peo­ple in the coun­try.

Be­fore politi­cians com­pete on how to spend all of the money that might be­come avail­able, we should re­mem­ber that the fis­cal space could very eas­ily turn into a black hole.

The fis­cal space could very eas­ily turn into a black hole

The Govern­ment is fol­low­ing the mantra of Bill Clin­ton’s man, James Carville, right, that ‘it’s the econ­omy, stupid’

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