There is a strong argument that Paschal Donohoe is the most powerful person in the country. A Ministers for Finance is always a powerful individual, but few previous ministers have held both a Europe-wide role (he is, of course, president of the Eurogroup) and had a blank cheque handed to them by a pandemic. Most finance ministers consider themselves very lucky to be able to spend an additional few billion in a year. Donohoe was able to spend north of €18 billion last year. His big worry is he might spend too much. By his side for the last few years, and with Labour before that, Ed Brophy saw the rise and rise of Paschal Donohoe from the inside. He is not just a witness to that ascension to power. He is someone who helped shape that ascension. In this discussion, we begin to unpack the key lessons of that unique experience.

Brophy has now left his role as chief advisor to the Minister for Finance. We spoke the Monday after his last Friday in the job. We get the obvious questions out of the way – why did you leave, what was it like, and so forth, and get down to deeper topics almost immediately. While personalities and daily controversies can be fun, I’m much more interested in the deeper lessons we can learn from Brophy’s experience.

Brophy’s time in the Department of Finance is not his first time in government circles. He was an advisor to Joan Burton in the Department of Social Protection, and when she became Tánaiste, he became her chief of staff.

Over the course of our conversation, we discuss the reality of policy making in a coalition government imposing austerity, a minority government encouraging recovery, and then a coalition government facing a pandemic. Brophy really has seen it all in his tour of duty for the state, across multiple governments and multiple parties.

We discuss the key lessons he’s learned from his time in government.

We discuss where the state excels, where it fails, the mechanisms by which these failures can be either reduced or removed. We discuss the larger issues of delivery of services for citizens, and probably most importantly, the political constraints that apply regardless of the state of the economy, the need to stay abreast of the news as it evolves, and react to it. The day-to-day work of a special advisor sounds exhausting, if I’m honest.

We talk about the main problems the state faces in the future, from technological change, climate change, to housing and other kinds of service delivery. We discuss some of the blockages standing in the way of a better outcome for Ireland’s citizens. The breadth is impressive.

I hope we can have other conversations as Brophy adjusts to life as a civilian. He’s earned at least a bit of a rest.

*****

Thinker, fixer, spinner: The role of a special advisor in government

Stephen Kinsella (SK): So, you’ve been in and around the corridors of power for ten years.  And it’s an important job, it’s a vital job, it’s the kind of thing I imagine policy nerds would love to do and I don’t think I’m probably unfair in characterising you as a policy nerd. So then the obvious question is why did you leave?

Ed Brophy (EB): Well, I suppose it is the kind of thing that it’s never easy to leave because whatever you do, whatever you’ve done before, or whatever you’ll do in the future, will probably not be as compelling or as interesting or as addictive as the world of government and politics. But I think it’s something that you probably need to leave at some stage because I think if you stay on beyond a particular time or a particular period you begin to see the world only through that lens and the truth is that there’s a much bigger, wider world out there that’s not just the world of politics and government and you need to replenish yourself and dip your toe back in that world as well. 

A decade is a long time to do a job like the job I do. It’s a pretty insecure job. There’s no guarantee that your job will be there in the morning and it’s all-consuming as well so in being all-consuming and insecure, I guess that sets it apart from many other things that you might do and I guess at a certain stage, after you’ve been doing it for as long as I have, the point comes where you feel you just have probably done your stint and you probably need to do other things. That doesn’t mean that those other things won’t have a dimension of policy or a dimension of politics or a dimension of government in them but just maybe it’s just a different way of advancing similar objectives outside of the kind of the inner sanctum of government.

SK: Just for people who are reading or maybe listening, can you give a sense of what a special advisor does. I mean you were not just a special advisor to one minister, you were a special advisor to multiple governments and multiple government parties which is very, very rare.  If you had to describe what it’s like to do that job or what even the job is, I wonder could you take a stab at doing that?

EB: Yeah, it’s not straightforward.  There is no job description and in truth, every special advisor probably has a different role depending on the nature of the minister they work for or the department they work in or the kind of government that they’re in. So being a special advisor for a minister in, say, the Department of Agriculture and that minister from a small party in a three-party coalition would be very different to being the advisor to the Minister for Finance in one of the two largest parties in a coalition.  So, it really does depend. It is a bit of a clichéd answer but it really does.

There are a few dimensions. I mean this has been studied a bit. Some are policy experts, some are people who are more focused on media and messaging and all that kind of aspect of it and some people are kind of fixers in the sense that they kind of broker deals within coalitions and they advance the interests of their party and their minister within the coalition. 

So, there are multiple different dimensions of it. If I boiled it down to its essentials, and certainly from my experience of it, it is the ability to advance the government and the minister’s policy objectives working with the civil service and working with the rest of the government, the other ministers and the other cabinet colleagues. You want to advance those policy objectives cognisant of the politics and the political dimension of everything.  So, it is advancing policy objectives in a kind of a political frame which is different from the civil service who are there to advise ministers and governments on the programme for government and on the advancement of policy objectives but who don’t necessarily do it in a political frame. 

So, it is trying to link up policy and politics in a way that is advancing the government and the minister’s agenda, priorities and interests. How you go about that? I think there are a few things.  The first is an awful lot of it is managing relationships, particularly relationships between the minister and the minister’s office and the senior civil service. The job can’t be done without there being a strong productive relationship between the civil service and the minister’s office and the minister’s advisor. It’s managing relationships within the government and that’s particularly the case when you work at somewhere like Finance and Public Expenditure where you have dealings with every other government department and colleagues in those departments. 

And maybe tips a little bit into the media and the messaging side, it is also seeking to position the person you work for or the minister you work for within the overall wider context of the government, the political situation, the economy, and, for maybe want of a better word, ensure that they are central to the national conversation whenever that is on the area that they’re focused on. 

So, for the Minister for Finance, it is to ensure that the Minister for Finance is always a presence in the national economic debate, has very relevant things to say about that, communicates them and works through it. So, there is that dimension to it as well.

SK: Sounds like you gave a typology there of policy, comms, fixers, it sounds like it’s a bit of all three, right?

EB: It is a bit of all three.

SK: Proportional, depending on the role, it’s proportional.

EB: It is. And it kind of depends again on the minister, the department, the type of government it is. I mean I’ll give you two examples from my own experience.  So, I worked in the government of 2011-2016, Fine Gael/Labour government, I worked for Joan Burton who was minister for Social Protection then. Her big agenda was to come in and reform social protection and social welfare and to pursue a more kind of activist approach to social welfare – labour market activation, keeping people close to the job market, assisting them, helping them to find work and not just being a kind of a passive payer of welfare or supports or transfers. So, that was a big reform job.  A lot of that was under the hood really, so it wasn’t something that would have been kind of particularly salient in the national conversation because it was just a large policy reform job. 

But it happened at the same time as what is called austerity, so obviously things that were potentially non-controversial at other times around that reform became associated with austerity, irrespective of whether they were or not. They were reforms but they would have been framed as austerity in the political debate.  So, it’s a good example of how you’re involved in policy reform but the way in which that gets framed or reflected in the public debate is different to maybe your experience of working on it in a government department and different from the experience of the officials. 

I mean the officials are just developing the policy, working through it making the reforms. You’re working with them on that but how those reforms and how that policy gets framed or reflected or discussed in public and political debate can be very different. And you’ve got to manage both. And these things then become self-reinforcing. To what extent is there constraint on the reforms because of the politics of the day or because of the perception of them, or to what extent do the politics of the day and the political discussion at any particular time reflect back into the reforms and constrain you in the reforms you can do. 

So, I think maybe it might sound a little bit abstract but it’s just an example of how the two are so intertwined and so in an advisor role, you’re never just one thing or just the other, you’re never just doing policy or just doing politics. You’re doing the kind of intersection or the kind of Venn diagram or the overlap when politics and policy entirely overlap. And that is, I guess, what is kind of distinctive about it.

The medium and the message

“We can have all the fantastic policy developments and policy wonkery in the world”

SK: It sounds like it can be, or could be, oddly, sort of quantum: you’re neither alive nor dead. You’re neither fish nor fowl. You describe the under-the-hood reforms but eventually, to put the metaphor further, maybe, they need to go, like the car has to go, you know, you change things under the hood in order that the car goes faster or is more efficient. I think there is a tendency, particularly for sort of policy wonks to say ‘oh but look at the way that the schedule is evolving, look at the parameters of the model.  People are like ‘does the car go or not’.  And I think that very often the issues of policy delivery, they often elude us. There’s that difference between a policy’s announcement, a policy’s genesis, how a policy is working out and how it then affects or does not affect the average person.

EB: Yes. And there’s a really interesting kind of literature that’s developed on this in political science in recent years, mainly from America, but I think it has a definite relevance and resonance here which is around how politics drives policy and how the more politically salient policy is, the better it can be. 

So, the example that’s always given is when the Obama people came in and they brought in the big stimulus or what at the time seemed like a massive stimulus and they sought to design it using behavioural economics in a way that people would hardly even notice. But they were getting stimulus cheques and a lot of them using negative tax credits and whatever the particular technocratic devices were. Because they felt that that would be the kind of if you’re in a policy lab and you’re designing it as if the real world doesn’t exist, that’s the best way to do it.

But of course, what happened as a result of that they got no benefit politically from the stimulus. And in fact, the opposite happened. The Republicans were able to kind of portray this stimulus as a waste of money because no one noticed the stimulus coming to them.

If you look at compare that to what the Biden people have done where some of the criticism has been that the stimulus has been too big, or it’s been wasted or sending people cheques with the US Government stamp on them is kind of unnecessary because it’s too much money and it’s creating inflation. 

But the big difference is that people are aware of the policy so they’re aware of the connection between what has happened in policy development and what has happened in the formation of policy and a tangible impact on their lives. And I think that is a really significant thing and it’s a lesson for me because it’s not to say it should be entirely self-serving or you’re developing policy purely for the advancement of your own political interest or your own position of the party you work for, the government you work for. 

So, how policy gets viewed by the public and how policy gets reflected in public opinion or public reactions or public perceptions about government and government effectiveness and connection of government to their lives is absolutely central, because if that isn’t there, we can have all the fantastic policy developments and policy wonkery in the world, but it’s not going to be perceived by the public as doing an awful lot for them. That then has some of the knock-on effects around trust in politics and all the other decouplings we’ve seen between publics and politics in recent years. 

So, I think that’s really an essential thing and I think it’s something that all governments need to really, really pay heed to if they’re not doing it now – they should be doing it and if they haven’t done it, they really do need to start doing it and it’s just interesting to compare the two experiences in the States on that. 

Incentives and incrementalism: what Irish government is good and bad at doing

SK: I mean there’s nobody in the country now who would deny the sort of primacy of policy, that we’ve spent €18 billion or something just this year effectively in stimulus cheques of one kind or another. But this won’t last, and we will get back to the old patterns of incrementalism.

But I’ve often wondered from your perspective why do you think we see so much incrementalism in Irish public policy? 

Why does incrementalism abound number one, and number two, how do you think we’re going to get through in the future when we have to go back to these relatively meagre numbers?

EB: Really, really good questions. The first one is kind of easier to answer because I’m not sure what will happen in the future with regard to the second question.

But the first one I guess is ultimately the incentive structure that is there is towards incrementalism. What do I mean by that? I mean we have quite a centralised cabinet government. We have ministers whose position in Cabinet is towards their sectors and advancing the interests of their sectors. That generally gets translated into additional public spending and so the incentive structure is there.

So, say, for example, at the moment housing is the number one priority of the government as we move on from the pandemic. That is a view that is shared at the very top of government. But when it comes to making budgets, the ministers who are not the Minister for Housing and who are not the Taoiseach, Tánaiste and Minister for Finance and Public Expenditure will say that’s all fine but I want something for Culture and I want something for Climate and I want something for Agriculture and I want something for Education and I want something for Higher Education and I want something for Health and I want something for Justice.  So, it is an incentive structure that just means it is very difficult to prioritise one or two things – everyone needs to get something and that just by definition means incrementalism. 

But there’s a little bit of a cliché that I think is kind of half right but half wrong about Irish government – that Irish government only really is good in a crisis, so it’s only in a crisis that big changes can be made and we get beyond this incrementalism. That’s right. But what Irish government is also really, really good at is keeping the lights on, it’s really good at incrementalism, it’s really good at ensuring everyone gets paid their welfare cheque and their welfare payment. The Department of Agriculture is really good at running its schemes, the Department of Justice is really good at keeping the lights on in the work it does, so the Irish state is both really good in a crisis, can respond very well because that centralised structure actually works well in a crisis, that top-down thing. 

And we could maybe come back to that a bit because that’s been my observation about the three crises I’ve been involved in when I’ve been in government – the bailout, Brexit and the pandemic. But it’s also really good at keeping the lights on. It’s really good at the day-to-day just nitty-gritty of keeping things going. 

The bit it’s not good at, and the bit that the incentive structure is not skewed towards, is what you’d kind of call middle reforms. So, big, long-term reforms that go beyond incrementalism but aren’t borne out of crisis. What do I mean by that? Housing, for example, is the classic one. Health reform is another one. Changing our industrial policy, that’s another one. so to answer your question, I guess the incentive structure is not there to get beyond incrementalism except in a crisis but we can’t advance these kind of bigger middle range reforms in a crisis but we can’t do them with incrementalism, so something would have to change in the incentive structure for us to get better at that. 

On the second question, I mean it’s the question I think that everyone’s grappling with because it doesn’t just affect governments, it affects central banks and whenever there’s even a hint the sugar high from the extraordinary monetary and fiscal support that’s been there in economies in the last 18 months and even before that, with quantitative easing, I’m just not sure, it’s really hard to know how we get onto the off-ramp of this. 

I mean obviously there won’t be any cliff-edge at all. But even moving off the ramp we’re on is going to be really, really challenging and I guess the answer is – and it’s kind of maybe a wonky answer – is what have we done over the last year and a half?  We’ve used the public sector balance sheet to substitute for lost private sector demand. As private sector demand recovers and the public sector balance sheet is just not needed as much, maybe there’s a substitution back on the private sector side and people don’t really notice it and it just all goes hunky-dory.  That’s the optimistic take on it.  The pessimistic take is it’s just going to be really, really tricky.

Defusing a pension timebomb

“Pensioner poverty was solved as a social issue in Ireland”

SK: Going back to the previous question about these kind of medium-term things that we just seem to not be able to get right like housing. We have not gotten it right. There’s been loads of stuff, almost every policy has been thrown at it at this point, every variant of demand-side, supply-side supports has been thrown at it apart from just building houses.  It’s less politically contentious but I think it’s actually more important on the pensions, on the aging side demographic, we simply haven’t been able to solve this problem. There’s only three ways to solve a pension problem, right?  Either you reduce the amount of it, make people wait for it or you force people to pay for it earlier. And depending on where you sit on the political spectrum, you’d choose one particular answer. It strikes me as being very, very interesting that with this particular policy, the ageing issue which is a long-run issue, the economics of it are really clear. There’s no real disagreement about the fact that an ageing population means lower levels of productivity and almost certainly higher fiscal spending on health and social protection, right.  There’s pretty much no disagreement with that.

The disagreement is how to pay for it all and who should bear the costs.  And I’m interested in that because we have these giant challenges of political economy and then sort of in your experience of the last ten years, – how do you think about trying to solve some of those, using the lens of the particular economy now, as opposed to the day-to-day surface level stuff of defending the minister and putting the fires out.  Like the deeper stuff, how do you think about that?

EB: Political economy questions are always ultimately distributional questions really, aren’t they? That is key. So, who gets what? What do they get? Who pays for it? And how does that play out then in terms of the constraints or trade-offs that policymakers or governments face? So, that’s the kind of key question on something like pensions or anything to do with demographics: where to start on this? I mean it’s such a thorny issue. One thing I think is definitely the case is that there is definitely an electoral dimension to this – that’s an obvious point but it is true and politicians don’t really deny it either because they can’t really deny it, so older people vote more, younger people vote less. The manner in which the resources of society get distributed has tracked towards being more distributed towards older generations than younger generations even though older generations are more prosperous and better off. So, that’s just a key distributional feature of our political economy. I don’t claim to know every country in Europe’s situation with regard to something like pensions, but I can’t imagine that any of them have really cracked it particularly. I remember Angela Merkel, I think, in the last general election talk about reducing the pension age and that’s Angela Merkel who is fiscally responsible to her core but there she is doing something that is going to burden future generations of German taxpayers. So, it’s really tricky. One, I think, of the unacknowledged aspects of this is – and it’s kind of one of these giant things that’s hiding in plain sight in Irish society – is that the Irish government solved pensioner poverty. So, we do not have pensioner poverty in Ireland in the way that there is pensioner poverty, for example, in the UK or in other countries in Europe and elsewhere in the west. 

So, Irish governments over time from the late 80s onwards, into the 90s and into the 2000s, pensioner poverty was solved as a social issue in Ireland so there was not pensioner poverty at the end of that period. There had been a real problem with pensioner poverty before that. And that’s a huge achievement. I think coming off the back of that, I think there’s probably an institutional memory and maybe a kind of something in the national psyche that because we did that and we don’t have pensioner poverty anymore, we don’t want to do anything that would even hint that there would be pensioner poverty in the future or we would make any decisions that would in any way lessen the position of pensioners in our society. And I think that’s deeply ingrained. Probably it’s one of those things that’s under the surface.  It’s unspoken but I think it’s there and I very much saw this to go into the day-to-day political dealings. I saw this when I worked for Joan Burton that irrespective of what the troika threw at us, and what the troika suggested we do and what the troika thought was a good idea, the one thing that was just never going to happen and was not up for debate was doing anything to reduce the pension or anything that would undermine the living standards of pensioners.

So, that was just off limits and it’s really hard to think of anything else that was off limits because when you think about it, we did everything else; there was nothing that was off limits beyond that. So, that is really difficult. It’s really difficult to have something where the economics are clear, the demographics are clear. The demographics won’t take care of themselves, definitely not.

And at the same time this in the minds of politicians, just this line beyond which they cannot go.  So, I’m not really sure. I mean it’s really interesting as well. 

And the other aspect that’s interesting and this is kind of the giant other thing that’s hiding in plain sight is when Joan Burton was the minister for Social Protection and in 2011 she increased the pension age, it just went through on the nod. I mean there was no political friction or anything about it. Even though it was this enormous thing and other European countries, other countries in the EU could not believe that we had done this. And it was part of the troika programme. But it went through on the nod. Then it became a politically contentious issue, years and years later. And so, the time dimension to these things is really difficult as well. You can do something, to kind of flip the example of what Joan did, you can do something where you take, upfront, huge political damage as a result of something but the benefits of that policy change, say on something like pensions, only play out down the road and are diffuse and are not entirely politically salient and may only have an impact on the bottom line of the state in ten or fifteen years when the politician who made the decision and put the damage upfront is long departed. 

So, the time dimension to these things is really, really difficult. And I don’t know, I don’t know how it will play out. I think there’s another element as well which I think the people are maybe a little bit ahead of the politics on this. A lot of older people don’t want to be labelled or categorised as having to retire at 65 and then they’re written off. I think a lot of older people want to work longer, live longer, the way people behave themselves will maybe tilt the balance here and it won’t come from the state and it won’t come from government, that there will be some solution where people say I want to work till 75 and want to keep on paying into my pension and I’ll have a different pension when they are 75 from the state as opposed to the one they got if they left when they were 65. I’m not sure. Maybe that’s ultimately how it plays out, that the public themselves have a different conception of ageing. 

You know, there’s this concept of the 100-year life now and there are many more stages of life than there would have been and maybe people don’t like the idea that two-thirds the way through their lives, the state says you are now a pensioner, and we will treat you as such. Maybe I’m clutching at straws but I do not see how a solution to this presents itself within the current way in which we do politics and the way politics is conducted in this country. And in many other western countries because they’re all grappling with this.

The bailout, Brexit and Ireland’s place in the world

SK: You’ve had this really interesting experience over a number of governments and a number of different crises and so these kinds of insights really matter.  I’d be interested to get your sense of how you feel about the state’s agency and its constraints, because we’re either caricatured as sort of this multinational lapdog or soft diplomatic superpower or Europe’s lapdogs when it comes to Brexit, or this idea that we couldn’t possibly close borders because of our connectedness through Covid. I was quite interested where you locate, from a political economy perspective maybe, or maybe from maybe even a risk perspective, where would you locate our place in the world, because it’s obviously none of those things. And maybe it’s everything. I’d be curious to understand your take.  I mean really what agency do we have and what constraints really exist for us at a given moment?

“I think the last decade has been probably a real twilight of illusions or delusions we might have had.”

EB: It has changed a lot in the last decade.  I mean if I look at the three kinds of crises that I was there for during my time in government – the bailout, Brexit and the pandemic – every one of them reinforces some reality about our place in the world that maybe had eluded us before or that we were in some way whimsical about or maybe a little bit delusional before. 

What did the bailout do? The bailout essentially showed to us the trade-offs involved in being part of a single currency in circumstances where you do not manage the solvency of your banking system. And where you’ve a half-formed monetary union that doesn’t have a resolution mechanism for bank failure. That was the hard edge that we had to experience there and we had no leverage and we were completely dependent on official lenders to keep the country going, to keep the lights on. So that was a real wake-up call, I think. 

Brexit paradoxically showed the opposite. It showed actually we had enormous influence and leverage at the highest level of European politics. And I think the one thing that Brexit shows, that was kind of surfaced by Brexit is that our friends and neighbours across the Irish Sea had no idea about the extent to which Ireland had leverage and influence at the very highest level of European politics. And it’s not just the Brexiteers who would characterise Ireland as such. I mean really, really people who are highly informed, highly educated, highly sympathetic British people in British public life, of influence, just didn’t see the extent to which Ireland was able to influence the entire stance of the European Union on Brexit. So, that’s kind of remarkable as well, so it’s almost the flip side of the bailout. 

And then the pandemic shows two things. One is that the risks implicit in being so central to a key economic region in the world mean that the risks that everyone else faces are the same ones that you face and there’s no division of risk. There’s no escaping the risks. At the margin, your response can be better or worse, but substantively we face the same risk. But also – and we see this in the vaccines, we have an enormous, insurance mechanism in being part of such an enormous economic bloc who can do these advance purchase agreements, can reorient our industrial policy to more R&D on mRNA vaccines, can do all the things that the EU has done after a slow start. It can just punch.  It’s a really big actor in these environments. 

So, what does that mean about our place in the world? I think the last decade has been probably a real twilight of illusions or delusions we might have had. I mean there was a debate that played out somewhat half-heartedly and never really very satisfactorily in the decades before that about were we Boston or were we Berlin and that was a question, I guess, of political economy and where we located ourselves. An awful lot of work that you and I have worked on in the past even, and we’ve discussed, about the place of small states in the world and what is the locus of influence or power or advantage for small states in the world. And I think the last decade has been a reality check for us. You know, both good and bad. We’re not a tiny state in the EU. Actually, we’re not one of the smallest ones – I guess we’re maybe not fully a middle-size EU state but we’re maybe the biggest of the small, and we have a very significant degree of influence.

But we have many, many constraints that are as a result of our membership of a single currency zone. I would daresay because we’re neutral but ultimately, I do think that the EU and NATO are very, very closely aligned organisations, so we have that and that’s something that’s not really discussed in Irish public life very much because of our neutrality, it almost eschews that discussion. And we are part of an EU that is changing very, very significantly because of Brexit and perhaps moving into new areas of public policy and of responsibility including health. Which we are going to have to make some choices on. And I think the other thing that’s probably hiding in plain sight and hasn’t been properly discussed and debated and surfaced here is we have gone in the last number of years from being a net beneficiary to being a very significant net contributor to the EU. And I don’t think it’s any secret, I think everyone knows this but the EU is not an organisation of equals. Some countries matter more in the EU than other countries. I mean that is just self-evident. We know that. But net contributors matter more than net beneficiaries.

So, as a net contributor, you are a much more powerful influential significant player whose voice is much more listened to in the EU and we are a net contributor now. We have been for a number of years. I don’t see that playing out in the national discussion about our position in the EU and our position as a country. And I compare other small states who are net contributors, like Denmark – the seriousness with which the national debate there is conducted about the EU and the choices Denmark has in the EU is very different to ours. I still think ours tilts between the characters that you mentioned and then what can we get out of the EU and how can we get a bit more on agriculture and how can we get a bit less on this or … without maybe having a strategic vision that comes from the increasingly powerful position we have as a net contributor and as a voice. I think Paschal Donohoe has tried to do some of that and Simon Coveney has as well, and Leo Varadkar has as well around the whole idea of Ireland being part of the Hanseatic league of small northern European countries where we have many, many overlaps in terms of our position in the EU and structure of our economy and our political economy and our national positions but it’s work that probably, I would think, need to be really doubled down on and really advanced because there’s the net contributor but then there’s also an EU post-Brexit and us really having gone all in on EU membership and EU membership being essentially the future pathway for this country with massive public support.

Ireland’s housing crisis

SK: I’m also struck by the idea that if the last decade was maybe the twilight of our delusions as you described it, the next decade is sort of the state as insurer of last resort.  We’re seeing the debate play out on a couple of different bases. I guess the most salient is the Mica debate up in Donegal but like there’s a bunch of them in flooding and other areas; housing is the other one where the idea is a larger state should ensure against any and all downsides, including pandemics, and I’d agree with almost all of that actually as a thing. Obviously, the larger state then has to be paid for which is where economists come in. 

But I’m quite interested in hearing what you think about these really, really big challenges?  So, I’ll just pick three: climate change, future of work, and obviously housing.  Just how do you think about these three things or maybe the interplay of them?  How do you think about them playing out for us over the next little while?

EB: So, the state as an insurer of last resort and the state underpinning people’s lives and mitigating risk is definitely the way the majority wants the state to go, I think.  I see again and again that probably in political disposition, we are probably a majority social democrat state, so I think public opinion is very much tilted towards the state being the kind of state you describe, a larger state that provides a very strong safety net that is an insurer of last resort and that mitigates risks. 

And interestingly, I think that is something that is happening elsewhere. We have just been quite late to this debate. We never really fully made the choices that would deliver that kind of state, but if you go as far back as 1992 when Ulrich Beck published his very famous book Risk Society where he talks about risk as being the kind of fundamental dimension of life in the 20th, 21st century and people’s response to risk and then how they expect politics to manage risk, mitigate risk, tackle risk being absolutely central to public expectations and public debate, I think is really resonant and I think the last year and a half has entirely illustrated that to us.

There are a few observations I would make about that. If you look at the big hinge in Irish economic development of Irish economic history, it’s in that period between the publication of economic developments and us joining the EU. That’s when I think hinge happened. When we go from being the poorest of the rich to now the among the richest and a huge kind of hinge happens. And what is that hinge? That hinge is kind of an openness to inward investment, the importation of capital and technology and innovation, because we couldn’t do it ourselves alone.  And, the development of industries in this country which are broadly international but that are at the technology frontier. 

The thing I think that didn’t happen at the same time, it happened a bit but it didn’t really happen, was the state didn’t develop a capacity to be at the governance frontier to align with those industries that we brought here. And then the domestic economy wasn’t able to keep pace with the technology frontier that this FDI economy developed and brought in and continues to operate at. 

So, the missing dimension here and the reason we haven’t really built that safety net and that insurer of last resort is because we never developed the state capacity. That would have been commensurate with us having an international economy in this country that is at the technology frontier. And I think the two go together actually. I think one is a flipside of the other. So, think of those three big risks you talk about, or those three big challenges you talked about: climate, the future of work, technological change and housing.

Taken one-by-one, housing is something where the state never really decided what it wanted to do. It wanted to build social housing, then it decided social housing could be developed and there could be rental agreements and there could be housing benefit with the private sector and that the rest of the market would take care of itself. I think housing will have to become something that is more provided by the state in the future. But in order for the state to provide more housing in the future, the state will have to do less potentially on other things. So, what are the trade-offs there? Or what are the distributional items there? That’s a big question and I’ll just park that a little bit. 

Climate change

EB: The issue on climate is really about what the trade-offs are for moving from a carbon-heavy economy to a zero-carbon or net-zero economy because there will be definitely winners and losers. And then how do we mitigate the losers. In the past what we’ve done is we have paid people welfare payments or we have paid them compensation or we have intervened with just transfer payments. We’ve given them money but that’s not really enough because in a situation of moving from a carbon economy to a zero-carbon economy, you cannot have the level of people left behind that that would involve. So, for example, where does agriculture go? Does agriculture in a zero-carbon economy just become a really tiny sector or do we use the opportunity of moving to a zero-carbon economy to just transform agriculture into a more scientific innovation-heavy sector, so I think that’s a real question.

I think there’s a downstream political impact of this as well. Because you’re beginning to see it, I think, in some of the reaction, most obviously with the gilets jaunes of France but I think also in Germany and in other countries between climate, salient voters and the rest of the electorate who have not really seen climate change as a salient factor in their political choices yet. And actually probably haven’t realised that in order to get to the targets that have been set, the level of change that is going to happen in the next ten, fifteen, twenty years will be really, really, really, really extraordinary. There won’t be any combustion engine cars available to buy in nine years’ time, eight and a half years’ time. Will they scrap combustion engine cars very soon after that? I mean people haven’t really just thought through that and I think that opens up a divide as well in addition to the one of the losers, it’s not necessarily people who are losers but people who will just experience radical lifestyle changes that they haven’t really prepared for and how does politics manage that and I think that’s a really coming divide. 

I think people’s position on kind of carbon use, on carbon lifestyles, has the potential to become as divisive an issue as education levels has been in some of the political schisms we’ve seen in recent years around Brexit and Trump and things like that. So, I think that’s another really, really, really challenging one.

The future of work

“These are huge questions.  I think we’re only really beginning to grapple with them.”

EB: In relation to the future work, that interacts with the FDI, and interacts with the kind of state we want to build because the reality is that – and Marc Andreessen had a great essay about this recently – is that like the decoupling or divorce of physical location from economic opportunity that has arisen as a result of just this forced social experiment in home working as a result of the pandemic.

I think if it persists post the pandemic and you had written a very good piece on this recently that I referenced as well. But I mean maybe it’s like the tip of the iceberg is, that there would be a small number of people who will be notionally working for companies here but will be based elsewhere and what kind of questions does that open up about tax and things like that. I think that’s probably the surface level stuff but I think the stuff that is more, probably more salient is how do we make Ireland attractive for investment or how does Irish, how does the Irish domestic economy deal with a situation where location is no longer a salient factor in the development of economic opportunity. 

And what does that mean for our cities, what does that mean for our towns, what does that mean for public investment in transport?  What does that mean, again to bring it back to housing, for public investment and housing?  What does that mean for education, what does that mean for the way people live their lives. I mean you’re in UL and we’ve talked about this before, what is distinctive about third-level education in Ireland now in circumstances where potentially you can avail of third-level education from the leading universities in the world from wherever you live?  What is the thing that gives the Irish third-level system an advantage in those circumstances? Or is it fundamentally disadvantaged and what does that mean for how we design our education system in the future. So, look, I think these are huge, these are huge questions.  I think we’re only really beginning to grapple with them.

But I think the one kind of choice we cannot eschew anymore is whether we need to build stronger, say, capacity to deal with all of these risks and to deal with the inevitable consequences of these risks. I think we do. I think we haven’t figured out a way to pay for it yet. And I think that will be the singular challenge facing this government and future governments as they try to weave their way through that and I think the other bit that is probably unspoken here and maybe unacknowledged is the state being back but also actually the quality of your state. 

Further reading:

Housing, childcare, health and tax: When Stephen Kinsella met Pearse Doherty

Fiscally speaking: When Stephen Kinsella met Paschal Donohoe

“Everything is dictated by the dynamics of how politics operates”: Stephen Kinsella meets Mary Lou McDonald