The reluctance of the Taoiseach to compare current events with the crash of 1929 and its aftermath is remarkable, writes Fintan O'Toole
UNTIL VERY recently, Brian Cowen was telling us that only "temporary adjustments" to Government spending were necessary. Now he's telling us that "We are battling the most severe global economic and financial conditions for a century."
Leaving aside the alarming swing from complacency to near hysteria, this new analysis raises some interesting questions. Why does Brian Cowen think that the proper comparison for what's happening now is the banking crisis of 1907-1908? And why does he seem so anxious not to mention the Great Depression of the 1930s? In some respects, it is actually quite interesting that the Taoiseach should invite us to look back on the events of a century ago. Like the current crunch, that crisis was precipitated by naked greed within a lightly regulated financial system. In this case, an attempt to corner the copper market failed spectacularly. This triggered a chain reaction of collapsing brokerage houses, banks and trusts, and brought the stock exchange to its knees.
Assuming that he's been reading about these events, the Taoiseach must have noticed one of the most famous aspects of the crisis. The super-rich bankers responded to it by putting their own money into the system. JP Morgan, John D Rockefeller and others, ruthless capitalists the lot of them, saw it as their own responsibility to save the system they had operated, and poured huge sums into it to provide liquidity and stave off mass bankruptcy. Morgan alone sacrificed the then vast amount of $20 million in the belief that those who had benefited from the system had an obligation to fix it when it went wrong. It seems odd that, in reading about this crisis, the Taoiseach managed to miss out on this bit. Otherwise, he would not have done a deal to bail out the banks that gets softer with every new detail that is revealed.
It is even more remarkable that the Taoiseach is so reluctant to compare the events of today with the Wall Street crash of 1929 and the Great Depression that followed. Then, as now, a boom fuelled by enormous flows of international capital came to a juddering halt when the banking system collapsed under the weight of its own folly and greed. Yet there are good underlying reasons for his avoidance of the patently obvious comparison. For the lessons of the 1930s point both to the appalling mismanagement that has contributed to our local version of the crisis and to the need for profound political change.
The Great Depression killed off so-called free market capitalism for almost half a century. It created, across the developed world, the era of economic planning and regulation, and of welfare states. But it also created the most vicious wave of reactionary violence the world has ever seen, a flight from democracy into atavistic authoritarianism, culminating in the second World War and the Holocaust. Without being melodramatic, these alternatives - radical change within democracy or the collapse of democracy altogether - are now on the horizon. History never repeats itself in the same way, but if democratic governments can't adapt to the new economic conditions, a new wave of reactionary militancy is a distinct possibility.
Here's where the specific Irish dilemma comes in. If the recipe for dealing with the current crisis is some kind of new Keynesianism, we need a government with both the resources to put into the economy and the vision to use those resources well.
Our problem is that the Irish economy has been run on precisely the opposite lines. The intelligent thing for governments to do is to take money out of the economy in boom times and pump it back in when things go bust. We've been governed, though, by the McCreevy doctrine: "When I have it I spend it, and when I don't, I don't." This means hurling cash into the furnace of an unsustainable boom and then exacerbating the crash by taking more money out of the economy.
We've had the first part of this equation for the last decade of Fianna Fáil-led administrations, and now we're getting the second. But the lesson of the Great Depression is that governments need to be doing more, not less. This is a lesson that neither of the main parties is capable of putting into practice. Fianna Fáil is in the business of shrinking government when it needs to be expanding, and Fine Gael's only substantial objection is that it is not shrinking it enough.
If we're to survive what may be a long slump, we need radical, hands-on economic reform. For example, we need the cost of building land to be controlled. We need Eircom to be taken back into public ownership (using the Pension Reserve Fund) so that vital communications infrastructure can be provided. We need consistent investment in education. We need a serious commitment to developing world-leading green technologies. But if our current political leadership is unable even to mention the Great Depression, what are the chances that it can learn its lessons and apply them in the 21st century?