Monday, 29 February 2016

The Unmaking of a Government: Part I - Fine Gael

General John Burgoyne was once asked what history would make of his comings and goings. History, he responded, would lie. Burgoyne had a point. The narratives that journalists and historians construct in order to explain historical events are often produced for purposes other than those of explaining what happened and why. Therefore, any resemblance they bear to reality is often entirely coincidental. So it is with the official narrative that has been emerging in relation to Fine Gael's 2016 meltdown, namely that the theme of "keeping the recovery going" represented a red rag to hundreds of thousands of voters who did not regard their own circumstances as having improved over the last five years. Like most official narratives, it's true to a point. The campaign was awful. Fine Gael decided, first, to buy the election with tax and spending promises, before concluding, almost at the eleventh hour, that voters would not take well to bribery. The confusion in relation to the "fiscal space" was farcical. As Fianna Fail surged and Sinn Fein stagnated in the polls, dire warnings about Sinn Fein-led government lost what little credibility they ever had. Enda Kenny's bizarre and splenetic rant about "whingers" in Castlebar and his equally bizarre and splenetic explanation for it gave the impression of a man who was increasingly disconnected from reality and suffering from delusions of grandeur. Government ministers (from both coalition parties) didn't help by coming across like parents lecturing their dissatisfied children on their ingratitude.

Unforced errors like the fiscal space debacle aside and accepting that communications could have been crisper, organisation more efficient and gaffes avoided, the underlying question which will face Fine Gael in conducting its postmortem is whether or not they had any real choice but to run on a "recovery" theme. The answer, I'm sorry to say, is probably not. Rather, the seeds of Fine Gael's annus horribilis were sown on the evening of 26 February 2011, when the party emerged as the largest in Ireland for the first time in its history. The previous evening, I had met a senior Fine Gael TD in the Horseshoe Bar on Stephen's Green. "Ireland is turning blue", he told me, as talk of an overall majority became louder and louder. However, the following morning's exit poll was a damp squib. At 36.1%, Fine Gael didn't have the horsepower to govern alone. Instead, it faced two unappealing prospects. One was to go it alone and rely on independents or Fianna Fail. The other was to cast their lot in with Labour, Fine Gael's sometime faithless ally who Kenny and Michael Noonan had spent two months viciously assailing as irresponsible tax-and-spend merchants. 

The disappointing result should have been seen as just that: disappointing. Furthermore, the challenging arithmetic of the 2011 Dail called for careful thought and reflection. Neither happened. As the first poll toppers crossed the line and the party clocked up gain after gain, the morning's disappointment quickly morphed into delight and then triumphalism. By dinnertime, nobody was asking how a 24 point collapse in Fianna Fail support had only delivered a paltry 9 point bounce in Fine Gael's vote. Instead of waiting for the results to emerge and keeping their own counsel, Fine Gael's grandees like Michael Noonan, Frances Fitzgerald, Alan Shatter and James Reilly quickly and enthusiastically expressed a preference for a coalition with Labour. Fine Gael's policy was now being made on the fly in television studios and at count centres, without even the pretence of internal consultation. As the final counts took place, a Fine Gael-Labour coalition became a done deal before negotiations even began. The speed with which the FG-Labour deal was consummated and the refusal to even contemplate any other option were indicators of disasters to come.

The "balanced government" which Eamon Gilmore claimed the coalition represented was a sham from the get-go, as was the self-serving bromide about "stability" being engendered by an alliance that was crafted in the "national interest". For Kenny and his entourage, the logic was simple. They had just "won" an election and a government with a turbo-charged super-majority that a Labour pact afforded them was a prize worth getting - seemingly, at any cost. The Fine Gael frontbench instantly coalesced around the logic that a pact with Labour was necessary in the "national interest", a convenient cop out designed to justify the party following the path of least resistance into its traditional comfort zone.

Before formal negotiations with Labour had begun, Fine Gael had revealed that a confidence and supply arrangement with independents or Fianna Fail was out of the question, giving the signal to Labour that there was no Plan-B for the senior party in the event that Labour walked out of negotiations. However, even before having so unwisely narrowed their options, Fine Gael was starting at a distinct tactical disadvantage. Labour, with its disproportionately educated and heavily ideological membership, had long since adopted a system of special delegate conferences to approve government programmes. Fine Gael, meanwhile, remained firmly rooted in the early 20th century culture of parliamentary supremacy. Every Fine Gael leader since the 1930s has been elected by the parliamentary party and, once elected, the party leader needs only to secure the support of his TDs, Senators and MEPs in order to approve a programme for government. In 2002, Leo Varadkar and Lucinda Creighton spearheaded a brave but unsuccessful campaign to give the membership more of a say on the choice of party leader and more influence on the content of government programmes. At a fringe meeting, Varadkar explained the dynamic of Fine Gael-Labour coalition negotiations. Labour negotiators, he explained, would often turn to the Fine Gael team and say something along the lines of: "I understand your point there, but we'd never get that past our membership...". Meanwhile, he said, the Fine Gael response would typically consist of: "That's fine. We don't have to consult our members on anything." Varadkar's warning was prescient. Fine Gael's lack of internal consultation proved disadvantageous in negotiating policy.

However, did anyone in Fine Gael's negotiating team care? Most of the party's high command consisted of Garrett FitzGerald-era retreads like Noonan and Shatter, who had spent their politically formative years comfortably inhabiting a left-of-centre social democratic political space before enthusiastically embracing a pro-business centre-right agenda months before the 2011 general election. Bluntly, it seems hard to avoid the conclusion that these are people who like office and are capable of affecting a passion for anything that delivers it safely to them. Hence the cave-ins began. What emerged was precisely the kind of government that the cynical had predicted all along. Fine Gael had campaigned on a pro-enterprise, anti-tax platform and explicitly assailed the Fianna Fail-led government of Brian Cowen for having spent too much money in the boom and for having responded to the bust by hiking taxes too much and cutting spending too little. Labour, by contrast, had no objections to Fianna Fail's Celtic Tiger-era spending and attacked Fianna Fail from the opposite end of the spectrum. Labour, said Eamon Gilmore would tax more and cut less than the outgoing government. In early 2011, this battle between "Cutbacks Kenny" and "Eamon Taxmore" created a vivid philosophical contrast which gave the public its most intellectually substantial election in generations. However, the post-election merger of forces between the two foes represented a fraud on the two parties' respective voters, with a compromise programme which hardly differed from the outgoing FF-Green coalition's in any material respect.

The two policies which, in hindsight, represented the most worrisome signs of the shape of things to come were the reversal of the previous government's minimum wage cut (which both parties had campaigned to do) and the introduction of gender quotas in politics (a Labour pet project). The first represented Fine Gael's willingness to go along with Labour's desire to preserve Ireland's rotten and antedilluvian public sector, welfare and regulatory state infrastructure off which the latter's donor class makes its living. The second represented the Labour Party's obsession with politically correct identity politics and Fine Gael's willingness to indulge it. The coalition was thus a doomed enterprise from Day-1, reflecting all of the worst intellectual weaknesses and conceits of both parties. 

On economic matters, each party sewed the other into a straight jacket which Fintan O'Toole aptly calls the TK Whittaker consensus, an incoherent mixture of pro-business, social democratic and Euro-federalist policy prescriptions perfectly aligned to the political needs of the post-De Valera "catch-all" Fianna Fail but ill-suited to either of the coalition parties or the straitened times in which they were cursed to govern. The acceptance by Fine Gael of the milk and water "reforms" of the Croke Park and Haddington Road agreements meant that any spending cuts imposed by the coalition would land on a substantially unreformed system of government and thus translate into disproportionate public pain. This meant that Fine Gael was severely limited in the cuts it could impose and the relief that it could afford to the hard-pressed taxpayer, whilst having to bear the full brunt of public displeasure at the cuts it did successfully impose. With a reformist agenda, Fine Gael could (and should) have delivered more economic (and thus political) gain to counteract the pain of austerity. However, the Labour alliance caused Fine Gael to fall between two stools: unable to avoid unpopular cuts but equally unable to leaven their effects with deep and meaningful reform. Unable to make sufficient savings on the spending side, Michael Noonan was left with little choice but to launch a tax raid on private pension funds, deposit interest, capital acquisitions and capital gains. Richard Bruton's plans to dispense with the JLC/ERO wage rigging structure came to nothing thanks to a Labour rebellion led by Alex White. Sensible plans by the Department of Finance to regionalise and index link the minimum wage could not survive the economic ignorance of Joan Burton and Ged Nash, who insisted on raising the minimum wage a second time. Meanwhile, Fine Gael caved into Alan Kelly's economically illiterate "rent certainty" policies. These measures respectively damaged capital formation, the labour markets and the housing markets but were incapable of winning over left wing voters for whom these measures were regarded as "too little-too late".

The fiscal failures generated spillover effects in relation to the two great "national" questions which had emerged from the 2008 crash, namely the socialisation of bank debt and the country's relationship with the European Union. Fine Gael had promised to combine a harder line on bank bondholders with a restoration of Ireland's fiscal sovereignty. However, the weakness of the government's fiscal response left these two matters as hostages to fortune - hostages which were taken out and unceremoniously shot. A Fine Gael government which was committed to a more rapid fiscal consolidation could have reduced the leverage that Brussels and the Troika had in relation to fiscal sovereignty and the socialisation of bank debt. However, Michael Noonan and Brendan Howlin were in no position to rapidly cure the Irish government of its addiction to borrowed money, meaning that it could neither extricate itself from the Troika bailout programme early nor realistically finance the government thereafter without backstop support from Dr. Draghi at the ECB. Without the ability to walk away from the bailout, Mr. Noonan found himself no more able than his predecessor Mr. Lenihan to push back on either IBRC (whose debts were absorbed onto the exchequer's balance sheet) or the EU Fiscal Treaty (which removed crucial budgetary powers permanently to Brussels and Frankfurt). Within a year of taking office, the Limerick streetfighter Noonan was reduced to bleating that "Europe has been good to us". For many younger and more working class voters, the perceived generosity to bank bondholders discredited the concept of public spending restraint, once and for all. 

On social matters, Fine Gael's performance was, if anything, even more woeful. It must always be remembered that whilst Fine Gael is a centre-right party, it has no intellectual roots in conservatism or classical liberalism and has always been content to take its moral direction from the prevailing political winds. As a party, Fine Gael has no permanent or fixed belief in personal liberty, tradition or the question of how the individual citizen relates to the state. It is, rather, a philosophically rootless party whose historic mission has been to get the best possible deal for the country's more prosperous classes within the rubric of the political consensus du jour. The 2008 economic crisis and its aftermath seemed to briefly jolt the party out of its torpor - but the effects of the crash soon wore off. 

To understand what happened, one must first look at what Fine Gael promised to the middle classes and the young. To the former, they promised that taxpayers would not be made to pay for the previous government's reckless expansion of the public sector and that, when it came to balancing the budget, the state would take the hit. To the young, the party promised economic dynamism, which would allow market-led restructuring of the Irish economy to generate new jobs and prosperity. However, in coalition with Labour, they could deliver neither. For the middle classes, the best that Fine Gael could do was to protect the headline rates of income tax from hikes and to reduce the universal social charge. For the young, it could do nothing at all. The protection of older public sector incumbents from the chill winds of reform meant hiring freezes and yellow-pack contracts for new entrants which disproportionately impacted younger voters. Meanwhile, the country's rickety infrastructure of employment laws protects older incumbent private sector workers' pay and job security whilst making it expensive and risky to hire newer and younger entrants to the labour market. Meanwhile, the government's housing strategy revolved around protecting home equity and preventing repossessions amongst property owning older voters, at the expense ensuring a supply of affordable housing for the young.

Fine Gael's answer to the problem of having failed to honour their commitments to middle class and young voters was to focus the party's attention on social "red meat" issues, which were designed to appeal to young and economically upscale voters without having to make expensive tax or spending commitments. The party thus became an enthusiastic convert to Labour's regnant ideology of politically correct identity politics with a culturally Marxist tinge. From 2012 onwards, the focus moved to indulging Labour's fixations in relation to abortion, same sex marriage and denominational education and, in so doing, incurring the wrath of their older and more conservative voters. In the aftermath of the same sex marriage referendum, young and middle class voters were neither terribly bowled over by Fine Gael's support for a policy that was being backed by the leaders of all of the country's main political parties, trade unions, business organisations, media outlets and civic groups, nor inclined to regard virtue signalling as a substitute for prosperity or job security. Moreover, by allowing the Yes campaign to be run in a manner which was conspicuously derogatory and dismissive towards its opponents, Fine Gael succeeded in insulting and demoralising between 40 and 50% of its 2011 electoral base.

To make matters worse, Fine Gael's conversion to progressive modernism was not accompanied by any liberalising instinct. James Reilly pursued a bizarre obsession with persecuting tobacco smokers. Leo Varadkar has demonstrated an almost feral nanny-statist attitude to compulsory calorie counts in restaurants and minimum alcohol prices. Meanwhile, no effort was made to rein in Minister of State Aodhan O'Riordain's obsession with expanding incitement to "hatred" laws to prohibit the expression of ideas that conflict with his own. The coalition, despite its supposedly liberal veneer, has been one of the most authoritarian in living memory.

The upshot of the above was that Fine Gael had no choice but to try to turn the 2016 election into a referendum on the state of the economy. Enda Kenny narrowed his entire election pitch down to five core messages:
  1. When we came to power, the economy was wrecked.
  2. Now the economy has recovered.
  3. Obviously, we're responsible for the recovery - after all, it started after we came to power.
  4. Obviously, Fianna Fail would wreck it again, just like they did last time.
  5. Sinn Fein is even more dangerous and only a vote for Fine Gael keeps them out.    
To put it mildly, such a simplistic pitch was never going to fool the electorate. Ultimately, voters were more interested in identifying what, if anything, Fine Gael had done to bring about the vaunted recovery and who would constitute the safest pair of hands going forward. An intelligent defence of Fine Gael's record would have consisted of saying:
  1. We did as we were told by the Troika, just like Fianna Fail did.
  2. It turns out that there was far less fundamental difference between what Fianna Fail did in the aftermath of the crash and what we would have done than we might have led you to believe in 2011.
  3. Okay, there was a degree of demagoguery in our oppositional attacks, but come on, what opposition hasn't gilded the lily just a tad?
  4. The important thing to know is that if we'd been in charge between 1997 and 2011, there wouldn't have been a crash.
  5. Of course, now that we think about it, we weren't in power during those 14 years so it's impossible to prove what might or might not have happened under a Fine Gael government that never existed.
  6. Hmmm, I guess you're going to have to take that one on trust.
Not exactly inspiring stuff. So left with no choice but to argue as it did, Fine Gael had to bet the house on voters using their own personal circumstances as benchmarks to measure its overall economic performance. Bluntly, those who felt that they and those around them were doing well gave Fine Gael the benefit of the doubt, Those who felt otherwise didn't. 

A picture has clearly emerged from the results and that picture bespeaks class and geographical divides. In the suburban Dublin constituencies in which there was a large concentration of affluent AB class voters, the party's vote held up well. Any residual sourness on the part of these upscale voters - of which there was plenty - appears to have been counteracted by a general satisfaction at the state of the white collar jobs market and a fear of an unstable and/or unreliable Fianna Fail or Sinn Fein-led alternative. 

However, in the rural constituencies, in which Fine Gael was much more reliant on lower/lower middle income C1 and C2 voters, the party's vote collapsed. Outside Dublin, a distinct pattern emerged. In constituencies which took in city council areas or suburbs and exurbs thereof, like Galway West, Galway East, Carlow Kilkenny, Waterford, Limerick City and Limerick County, the Fine Gael vote held up relatively well. However, in constituencies, like Roscommon Galway, Donegal, Kerry, Offaly, Tipperary and Cavan Monaghan, results were disastrous. 

In Dublin itself, there was also a divide. The party suffered heavy vote losses in constituencies in which there were large concentrations of C1 and C2 voters like Dublin Fingal (-10%) and Dublin South West (-7%) and in constituencies where affluent AB voters live alongside lower income C2 and DE class voters like Dublin Central (-6%) and Dublin South Central (-9%), whereas the wealthiest constituency in the country, Dun Laoghaire, actually posted a modest increase in the Fine Gael vote. Fine Gael's working and lower middle class voters seem to have decamped to Fianna Fail in large numbers, presenting the party with a mirror image of its problems in the high-octane 2000s. Back then, the party's less affluent rural base held up and its older middle class voters largely stayed loyal, but the party could not appeal to the younger, wealthier, high aspiration voters in the Dublin suburbs. Having spent more than a decade rebuilding the party's brand with those voters, Fine Gael seems to have found that the Dublin suburban vote is the only electoral cohort it now dominates.

In contrast to the white collar job market, which recovered quickly from the crash, the blue collar jobs market never did. The construction bubble of the 2000s helped to disguise a secular trend of declining employment in traditional blue collar sectors like manufacturing, resource extraction, forestry, agriculture, fisheries, logistics, energy and warehousing and its collapse seems to have dragged the economic prospects of the less well educated C1 and C2 voters down with it. Employment laws have helped to spread the pain unevenly, with younger blue collars bearing the brunt and older ones being relatively well protected. Many of these younger voters would generally not have voted but signed up to the electoral registers in order to vote Yes in the SSM referendum. Many of these voters stuck around to vote in the general election and they broke heavily for left candidates. Meanwhile, their parents were not terribly grateful for what economic respite they enjoyed as many have had to financially support unemployed children or lose them to emigration.

Contrary to popular belief, the problems of C1 and C2 voters (not just in Ireland, but right across the western world) are not going to improve with the economy - even if we can be sure that the economy will keep improving, which is a big if. With the most lavish education policy imaginable, there is no way that the entire population or even a majority of it can hope to obtain the kind of information technology or high finance and white collar professional jobs that the government wishes to create. Even if our politicians' pie-in-the-sky plans for turning Ireland into a technological hub of the world's creative economy were realistic, we would have to import many of the workers to fill the resulting jobs, which will not provide stable employment to those in the bottom and middle spectrum of the skills distribution. However, with our environmental, health and safety, land use, labour and trade policies stacked against the traditional blue collar economy, the political class's entire hope is now pinned to the finance and technology industries that the modern western regulatory state has not yet destroyed. This leaves little to hope for non-professional or supervisory workers but low end service industry work. However, even the availability of these jobs is severely diminished by immigration and minimum wage policies.

These trends were all present in 2011. However, back then, the immediacy of the economic crisis had at least given people the hope that stability would bring about tangible economic improvements. In this environment, Fine Gael was able to marshall together the last substantial-sized coalition of the countryside and the suburbs in favour of what Margaret Thatcher called popular capitalism - a sort of populist, optimistic and aspirational combination of traditional working class patriotism and free enterprise. The first big take-out is that, with one last opportunity to galvanise the population around a political agenda for a reformed free enterprise system, Fine Gael seems to have blown it - and blown it so irredeemably that there is now probably nothing it can do to change perception substantially. The second is that the rural-suburban coalition that Fine Gael brought together in 2011 is also gone. Whereas in 2011, Fine Gael dominated the countryside and the suburbs, with Labour dominating the city of Dublin, today Fine Gael rules the roost in the Dublin suburbs, Sinn Fein and the left the cities and Fianna Fail in the countryside. This political divide could last a whole generation. 

The current situation has interesting parallels across the Atlantic. In the United States, the Republican administration of George W. Bush instituted a reckless easy monetary policy and vastly increased the size of government, whilst spouting ritual incantations about its supposed passion for free markets. When his policies resulted in an economic heart attack in 2008, it was Bush's free market rhetoric and not his statist policies which were discredited - and the result was Obama. However, before Obama's even more destructive policies could reach escape velocity, a Republican Congress was elected and has obstructed some of his more ambitious plans. Obama has thus been able to scapegoat this "obstructionism" for the failures of his administration, which has led to younger voters seeking solace in the even more statist Bernie Sanders.  

In the same way, by spouting pro-enterprise and anti-tax rhetoric and delivering pious sermons about fiscal rectitude, whilst presiding over a sclerotic statist administration, Enda Kenny has discredited, in the eyes of a whole generation of younger voters, not his own policies, but his pro-enterprise rhetoric, leading to an unprecedented degree of collectivist and anti-free enterprise sentiment amongst younger voters. Again, this is likely to last a generation. This means that Fine Gael (and, increasingly the centre-right in general) will be reliant on a progressively aging demographic base to win elections. With the young increasingly succumbing to anti-capitalist sentiment and in no mood to countenance market-based solutions to their problems and the old implacably opposed to the loss of their privileges, there will be no reform of pensions, no reform of employment laws and no restoration of sanity in our regulatory policies. This will be Enda Kenny's principal legacy.

For Fine Gael, the policy prescriptions all look fairly grim. 

First off, if Ireland's welfare state, employment, land use and building control laws are considered non-negotiable parts of our political settlement, then jobs and housing will be in a permanent state of artificial scarcity and there will always be severe pressure on public monies. Sensible governments will have to adopt increasingly restrictionist immigration policies in order to control demand for jobs, housing and social services.

Secondly, if Ireland's regulatory state and its choke-hold over traditional "dirty" industries like manufacturing, construction, resource extraction and logistics are politically sacrosanct, then our ability to enjoy the benefits of free trade must fall by the wayside. Without radical deregulation, Ireland will have to accept a return to some variant of the De Valera-era policies of trade protection in order to make her into a self-reliant economy that can wash her own face without external subsidy. 

Thirdly, the above will require a divorce from the European Union, without which our trade and immigration sovereignty cannot be reclaimed.

Finally, in an environment in which the electorate has demonstrated an unwillingness to reduce the amount of government it consumes, it will be Fine Gael's job (and probably Fianna Fail's as well) to implement the massive, broad based tax increases (i.e. not just for the "rich") that will be necessary to pay for it.

The job of the centre-right for the last thirty years or so has been to make people love capitalism. Sadly, the project seems to have failed. The job of the centre-right going forward may be to give people the state they want and to force them to make the sacrifices necessary to pay for it. One way or the other, it would seem that Fine Gael's fate is to form a coalition with Fianna Fail, which will almost certainly lead both parties to a crushing defeat at the next election at the hands of a left-led coalition. Perhaps only then will the voters understand the logical consequences of their revealed preferences.