I spoke at a conference held at NUI Galway 24th March 2012, hosted by the EU Commission. The conference theme was “Challenges facing the Irish economy” and there was a particular hope to emphasize the role of social media in the ongoing economic policy debate in Ireland. I’m not sure the conference eventually did focus much on this latter, but perhaps it’d be a worth another go at some stage.
Dr Aidan Kane – The banking crisis from Digital Revolutionaries on Vimeo.
My slides are here.
The videos for the other speakers, John McHale, Ronan Lyons and Seamus Coffey are here
I was slotted to speak about the banking crisis–I should explain, as a stand-in for a colleague who actually knows something about this, but I stepped up to the plate anyway. It was an opportunity to pull together some thoughts that I’d been thinking about for a while.
I sketched an argument which first asked why we had such a dysfunctional financial system in the first place, i.e., one that, once liberalisation and entry to EMU happened, couldn’t fulfil the basic functions of finance, at least not without eventually failing systemically, and in the process, endangering state solvency and destroying large parts of the economy. I argued that in both the 18th and 19th centuries, our financial development was in some respects, quite precocious. In the 18th century, we had a fairly impressive national public finance system in Ireland, comparatively speaking, as evidenced initially in the evolution of a public debt and a recognisably modern system of public accounts. This public finance system might have been expected to underpin the evolution of more sophisticated financial markets and private institutions, as is argued was the case in much of the ‘financial revolution’ literature for other countries from the late seventeenth century.
In the 19th century, scholars have explored the dimensions of some fairly impressive micro-finance institutions, particularly in the pre-Famine era. Most notably, hundreds of ‘loan fund societies’ extended millions of loans to poor people not remotely served by the emergent banking sector. Fast forward to the 20th century and find we had a fairly stagnant private financial sector pre-Tiger. Why? Note that in the intervening periods, the state had taken on a substantial role as financial intermediary, which may have pre-empted private efforts. Three particular domains of state financial intermediation stand out:
- state finance for land purchase, on a particularly large scale from about 1903, but continuing through the 20th century,
- state finance for housing, comprising substantial grants and lending from central to local government, and onwards lending to individuals, as well as direct lending –again, spanning pre- and post-Independence eras, and
- state finance of industry, both of state-owned enterprises, directly and through state-banks, and through other mechanisms, including loan guarantees and trade credit insurance.
(There are other examples: not least state small savings schemes, and perhap a little bit of old-fashioned financial repression, as argued by Reinhart and Sbrancia (2011), whereby the state partially financed itself by imposing low returns on captured financial institutions.)
The data I presented on the three mechanisms above are by no means comprehensive and I suspect the argument has been considered more carefully before. Nevertheless, it’s suggestive to me of a form of institutional crowding out. Perhaps the state’s efforts (in some respects understandable responses to perceived capital market failures) pre-empted the development of a more dynamic, functioning private financial sector. When the Tiger arrived and the state stepped aside, perhaps the private financial sector hadn’t the institutional memory or capacity to fulfill relatively basic functions. Remember that the eventual failures, as has been noted on many occasions, were ‘plain vanilla’ involving rather uncomplicated mortgages products and a fairly unsophisticated approach to lending for commercial property.
I did try to link this apparent gap in the evolution of a financial sector to deficiencies in our democratic governance, and contrasted those deficiencies with the virtues of the blogosphere in the current debate on economic policy in Ireland.
Blogs and the social media generally are fairly open systems, with low barriers to entry. There is genuine diversity of insight and outlook, if you go looking for it, and autonomy from state agencies. My sense, in common with many others, is that state is fairly dominant in the Irish policy debate, and that the autonomy of other actors in civil society, (including universities) is under severe pressure. Without overstating the potential, I’m often impressed with the way in which some blogs enrich the debate and challenge those dominances. It seems to me that we see in the blogosphere a reflection of a potentially dynamic civil society which can otherwise be dormant or invisible. I don’t see economics blogs as being about only ‘experts communicating economics literacy’ from on-high to the great unwashed. There’s a much more dynamic set of interactions rightly involved, and in many cases, a healthy challenge to previous intellectual monopolies.
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