Since the second World War, Ireland has experienced seven economic downturns of varying intensity. Several of these were mainly the outcome of external events beyond domestic control, but others were failures of government economic policies, Garret FitzGerald
By far the most damaging of these economic downturns was that of the 1980s, precipitated by grossly inflationary government action between 1977 and 1981 which combined irresponsible tax cuts with huge spending increases. (In the single year 1979 the public service pay bill was increased by 34 per cent). Within four short years the National Debt had been trebled and by mid-1981, when I was elected taoiseach, our State was threatened with a an Exchequer borrowing rate of well over 20 per cent of GNP for the following year.
It took eight painful years, and the loss of 200,000 emigrants, for our society to recover from that self-inflicted disaster - three times as long as any other economic downturn before or since. And when the long delayed recovery finally came in 1989/1990, it was stopped in its tracks by the impact on western European interest rates of the cost of German reunification.
There followed, however, the prolonged period of astonishing economic growth that we know as the Celtic Tiger, which by the turn of the millennium had brought us, for the first time ever, full employment. Unhappily in 2000 and 2001 the then minister for finance, Charlie McCreevy, introduced not just one but two election budgets in succession. At the height of the boom that was bringing us full employment, these two budgets boosted current public spending by over 30 per cent.
The inevitable consequence of these acts of economic lunacy was an acceleration of Irish inflation to a level without contemporary parallel anywhere in western Europe. By election year 2002, our cost level vis-a-vis the rest of the EU had deteriorated by 20 per cent, transforming Ireland from one of the lowest-cost countries in western Europe to one with a cost level higher than almost anywhere else in the continent. That grave injury to our competitiveness was inflicted by a minister for finance who, more than anyone else in the State, should have been aware that the grave damage thus inflicted on our competitiveness could no longer be retrieved by a devaluation of our currency - for at that very time we were about to join the euro.
This severe loss of competitiveness vis-a-vis all of our EU partners inevitably contributed to a fall in the value of our exports and to the emergence for the first time in several decades of an external payments deficit.
Moreover, because of our loss of competitiveness, we have since been left in a worse position than any of our partners to cope with a fall in the euro value of the dollar, which most observers believe is likely to happen within the next couple of years.
Furthermore, our economy is now more vulnerable than any other in Europe to a possible property boom reversal. For the construction of private dwellings in Ireland currently accounts for over 60 per cent of all fixed investment and almost 15 per cent of our GNP and employs about 10 per cent of our workforce - figures that are totally out of line with those for any other EU country.
For several months past international economic institutions such as the IMF have been urging our Government to exercise restraint in next December's budget - warnings that have recently elicited reassurances from the present Minister for Finance, Brian Cowen. It will be his difficult political task in three months to devise a budget that will satisfy his party's electoral ambitions while at the same time dampening down an economy that since the middle of last year has been growing at an annual rate of no less than 7.2 per cent.
In Ireland at least, the current boom, now being fuelled by the swelling flow of SSIA payments, is likely to be sustained at least until the middle of next year but neither domestic nor external factors suggest that it will persist much beyond that. And whenever the downturn may come, it is likely to be more severe here than in most neighbouring countries, simply because of the huge dependence of our national output and our tax revenue upon a quite phenomenal expansion of private dwelling construction, which is well over four times greater than in the rest of the EU in relation to our population.
Whatever government may come to power after the forthcoming election is thus likely to have the difficult task of limiting the scale of what may turn out to be a quite severe recession - one that could involve a sharp rise in unemployment, especially among well over 150,000 workers currently engaged in the construction of dwellings. Such unemployment would be only partly mitigated by the return home of some eastern European building workers. Both in economic and social terms the most effective way of minimising the scale of economic disruption that we could face would be to boost very substantially the scale of social housing construction. For one of the most neglected aspect of social policy during the last decade has been the housing of people who cannot afford to buy or rent accommodation. (Only 6.5 per cent of housing is social housing). And by far the easiest way of tackling unemployment of workers currently engaged in building private dwellings would clearly be to switch them into work on social housing.
There are two preconditions to a smooth switch-over from private to social housing. First of all, in the aftermath of next December's budget, the government's finances would need to remain healthy enough - despite the sharp fall in public revenue that will be a feature of the downturn - to permit subsequent large-scale spending on social housing.
But money alone would not secure a smooth switch from private to social housing. The public authorities in every part of the country would also need to have social housing plans ready to go, and have adequate serviced land available, (if necessary taking additional powers to secure speedy compulsory purchase), in order to scale-up the social housing programme at a tempo that will match any fall-off in the private housing sector. A government that carried through such a programme speedily and successfully would, I believe, have a very good chance of being re-elected to office in 2012.