Ship of Fools

Ship of Fools: How Stupidity and Corruption Sank The Celtic Tiger
By Fintan O’Toole
Faber and Faber, £12.99

Barely two years ago, Ireland was being hailed as the model of free-market globalisation, an example to small countries everywhere. Alex Salmond, first minister of Scotland’s devolved government, pledged to “create a Celtic Lion to rival the Celtic Tiger across the Irish Sea”.

Now, in Fintan O’Toole’s words, the tiger has become a “bedraggled alley cat”. Ravaged by a property crash, it faces the deepest downturn of any advanced country. Its budget this week will be the harshest in its 88-year history as the government seeks €4bn ($6bn) in spending cuts and tax increases to close a deficit set to reach 12 per cent next year.

O’Toole, Irish Times columnist and doyen of leftwing Dublin intellectuals, has produced a coruscating polemic against the cronyism and corruption that in his view helped to fuel the boom.

His invective accords few redeeming features to the Celtic Tiger model, with its low taxes and light-touch regulation. He has some justification to be angry, though, having warned that the boom was unsustainable while others were complacent.

Ireland was hardly alone in succumbing to property mania: the US, UK and Spain suffered too. O’Toole is strongest in identifying the cultural factors that let it reach such extremes in his country, including a historical addiction to owning land and property, and a political system based on cliques and personal patronage.

Ireland, having missed out on the Industrial Revolution, was trying to go from pre-modern to post-modern without ever fully creating the structures and habits of a modern democracy.

The fall was so painful because Ireland’s rise in the late 1990s had been so startling. Gross domestic product rose from two-thirds of the European Union average to 111 per cent. Inward investment soared as Ireland became the world’s largest exporter of computer software. Emigration gave way to large-scale immigration. “In its rise and fall, Ireland made Icarus look boringly stable,” writes O’Toole.

From 1995 to 2001, Ireland was catching up after decades of economic underperformance – a time of hope for a country long steeped in failure. O’Toole’s complaint is that the chance to invest in public services and infrastructure was missed, and that, as productivity gains ran out, politicians embarked on a reckless second phase by stoking the boom with an array of property-based tax breaks.

His main culprit is the Fianna Fáil-Progressive Democrat government led from 1997 to 2008 by Bertie Ahern. Mr Ahern’s mentor was Charles Haughey, the former prime minister who not only amassed €45m in office – 171 times his total salary payments as a politician – but even stole €250,000 from a fund set up to pay for a liver transplant for one of his closest friends.

A culture of cronyism emerged, O’Toole argues, in which it was not seen as wrong for politicians to take private donations from property developers and in which tax evasion, bribery and giving false evidence under oath went unpunished. Lax ethics permeated the establishment. The chairman of Anglo Irish Bank resigned when it transpired he had received €84m of loans from his bank, concealed in a manner that was, astonishingly, not illegal. Yet the public put up with all this. O’Toole attributes this in part to “localism and clientelism”, whereby politicians are elected not to implement policies but to provide a personal service to individuals and constituencies. It is also true that, after myriad revelations and inquiries brought no action, people grew cynical about politics.

O’Toole argues that the property developers and hangers-on amounted to a new aristocracy, invulnerable because they were Catholics whose nationalist forebears had challenged the land rights of the old Protestant Ascendancy, exploiting the public’s belief that there were no class distinctions in Ireland. Business ethics, especially in banking, became lax, he suggests, because Ireland’s religious culture saw sin as something to do with sex rather than money.

Somewhat idealistically, O’Toole advocates a Second Republic based on probity, institutional reform and realignment of a system currently based on two populist centre-right parties. That seems unlikely. While the population of Iceland overturned their establishment in anger at the ruination of their country, the Irish have reacted more fatalistically.

O’Toole no doubt underplays the good sides to the Celtic Tiger – the features that attracted so many US investors. More of value may survive than he allows. But his highly readable book is a salutary reminder that cronyism, light regulation and loose ethics can be a deadly combination.

The writer, the FT’s UK business and employment editor, was formerly editor of the Europe edition