THE COMBINATION of private debt and the public finance deficit constitutes an “existential threat” to the Irish State, the economist and author Will Hutton said in Dublin yesterday.
He said the 12.5 per cent contraction that is to occur in the Irish economy over a 2½-year period is “scarcely credible”. Nothing like it had happened in Irish or British economic history over the past century.
Mr Hutton, executive vice-chairman of the Work Foundation in the UK, said funding from Brussels and reliance on the bubble economy were no longer options for Ireland.
“The only way through this is the innovation investment story.”
Mr Hutton displayed a graph showing how British bank assets as a percentage of GDP had remained below 100 per cent for the century up to the 1980s. Then they had erupted in size to become five times GDP at their peak.
The peak for Ireland was four times GDP. The rate of growth was fundamentally unsustainable and Ireland was now pursuing the correct policy in scaling back its banks.
“Irish banks came close to, and could yet, bankrupt Ireland,” he said. Irish banks were much more focused on one area, property, than British banks had been.
However, banks in Britain were back to their old ways and a downturn in eight or 10 years time could see banks overwhelming the British state.
“You had some of the biggest banks in the world, a country of four million people. It is unbelievable.” Ireland was “living in la-la land up to 2008”.
As Ireland could not devalue its currency, it had instead to “take your medicine in the way you have done”.
He said Ireland was getting through its economic contraction because of the level of solidarity that existed. The markets were now measuring how “solidaristic” a society was. This was becoming a “must have”.
Mr Hutton said technological change and human demand would transform the world in the coming century and create a whole range of new jobs. What Ireland needed was an “innovation ecosystem” that would allow it to develop.
He said the innovation report published last week “does not go any way far enough” and what was needed was a range of new institutions that would allow for the nurturing of innovation and a knowledge economy.
Even if Ireland wanted to stimulate its economy by investing in innovation, it could not do so now because it did not have the necessary channels. The same was true of Britain.
He said the Irish financial system was “not just bust”, it was “pointing in the wrong direction”. It did not support entrepreneurship and the knowledge economy.
Mr Hutton’s talk in Liberty Hall was organised by the Irish Congress of Trade Unions and is the first in a series of such talks.
