Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger
by Fintan O’Toole
PublicAffairs, 230 pp., $25.95
In his Memoir published in 2005,1 the year before he died, the writer John McGahern began by describing the physical geography of the Irish county he was born in and to which he eventually returned. “The soil in Leitrim is poor, in places no more than an inch deep,” is McGahern’s opening sentence, comprising facts that as a part-time farmer he had good reason to know. He goes on to explain how the bands of clay and dense gravel that lie underneath have created, with the help of western Ireland’s heavy rainfall, a landscape clotted with lakes, small fields, and high hedges. “The very poorness of the soil saved these fields when old hedges and great trees were being levelled throughout Europe for factory farming,” McGahern writes, “and, amazingly, amid unrelenting change, these fields have hardly changed at all since I ran and played and worked in them as a boy.”
Some of McGahern’s great appeal as a writer lies in his evocation of a way of living—rural, poor, insular, morally tutored by the Catholic Church, stripped of its energetic young by their migration to Britain and America—that was slipping into history even as he looked out at it from his farmhouse window in the last decade of his life. Like many country people in Ireland, he lived with a powerful sense of the absent, and perhaps nowhere in Ireland was this sensation stronger than in Leitrim, which has the smallest population of any county in Ireland and none of the grand scenery and Atlantic seashore that bring tourists and their money to nearby counties such as Mayo and Galway. In 1841, before the famine and the collapse of its handloom industry, Leitrim could count a population of 155,000. Today its 613 square miles contain fewer than 30,000 people. After 1841 the population went down and down—until 2002 when, for the first time since the potato blight, the figure showed a small increase. A larger increase was registered in the census for 2006.
That was the year the Celtic Tiger leapt highest, and here, among McGahern’s poor fields, is where the beast has left some of its most visible paw prints. Bright signs stick above the dark hedgerows: “Luxury development of highly distinctive homes” and “€100,000 off original price.” Behind each of them lies a cluster of two-story houses with pitched roofs and carports that could just as easily belong in the suburbs of London or New York. Very few are occupied, some are unfinished, dandelions sprout on lawns that have run wild. Who was expected here? They look like houses built for junior executives with two children and two cars, but how many of them could the Leitrim economy possibly have supported even when the boom was at its height? They add another layer of human absence to the fields around them: first, the people who went away; now, the people who never came.
These scenes, as Fintan O’Toole shows in Ship of Fools, can be repeated all over Ireland. According to the country’s Institute of Regional and Spatial Analysis (NIRSA), more than 300,000 new houses were reported to be standing empty in January of this year, most of them in more than six hundred so-called “ghost estates” (or “developments,” as Americans would say). Many counties have more ghost estates than Leitrim—Cork has ninety of them—but Leitrim emerges as Ireland’s champion when empty houses are compared to the number of the local population. NIRSA’s director Rob Kitchin calculates that 2,945 homes were built in Leitrim between 2006 and 2009 when the growth trend suggested that only 588 would be needed—an oversupply of around 400 percent. The link between demand and supply had become “completely uncoupled,” Kitchin told The Irish Times, estimating that it would be seven to ten years before property prices in places such as Leitrim returned to “anything close” to their pre-crash levels. “A lot of these houses will undoubtedly have to be knocked [down] and their continued existence will keep the housing market in some areas depressed for a very long time to come.”
The mystery of how so many useless new houses came to be built in a remote part of Ireland might have the usual explanation: that rash speculation had been unwisely left to go its own way by the state. Such an impression of previous government passivity would certainly be helpful to the Fianna Fáil party, which has governed Ireland since 1997 and which on September 30 announced it would spend up to €18 billion on a further state bailout of Irish banks—otherwise, in the words of Brian Lenihan, the finance minister, their insolvency would “bring down” the Irish state itself, in ways he didn’t go on to describe.
Lenihan put the blame squarely on the banks for their “pattern of reckless lending,” but as Fintan O’Toole demonstrates time and again in this book, the government was far from being a helpless spectator. Its policies and behavior were crucial to the property boom that, when it inevitably turned to bust, wrecked the Irish economy so spectacularly. O’Toole has written much about the theater, including brilliant studies of Shakespeare and Sheridan, and he sees tragedy, absurdity, and of course hubris among the human ruins left standing on the national stage. What he shows most memorably, however, is how Ireland’s political leaders were complicit in the boom’s every aspect: land acquisition, planning permission, funding.
Taxation, for example: developers of new housing estates could set their costs against tax under a regulation, Section 23, that was originally intended to encourage the redevelopment of run-down areas in towns and cities. Property companies soon seized on Section 23 as a far broader tax-avoidance measure and local and national governments did nothing to discourage them. In Leitrim, which came late to the game, the local authority sought successfully to have Section 23 extended to the whole of the county. Consequently, O’Toole reports, one in every three of Leitrim’s houses now stand empty. Nationally, the state ended up subsidizing at a cost of about €2 billion “the building of houses whose purpose was to provide shelter, not for real people, but for the taxes of their builders.”
In 2006, at the height of the boom, construction accounted for almost a quarter of Ireland’s GDP and occupied a fifth of the workforce. Thousands of workers came from the poorer regions of Europe to meet the demand; Ireland, one of the great historical sources of emigration, became a net importer of labor. The migrants rented houses built by an earlier wave of migrants, while they built more houses that their employers hoped would be occupied by the next wave. The increase in debt was terrifying, or should have been (the taoiseach or prime minister, Bertie Ahern, cheerfully remarked, “The boom is getting boomier”). Bank lending for construction and real estate rose from €5.5 billion in 1999 to €96.2 billion in 2007—an increase of 1,730 percent—while house prices doubled in the six years to 2006. Estates for commuters now spread a long way out from Dublin. It cost more to service a mortgage on a house in a muddy field two hours’ drive from the city’s center, remote from shops and schools, than to pay rent for similar accommodation in a desirable part of the city. And on such mortgages the average Dublin couple spent a third of its income.
There had been warnings. As early as August 2000, well before the peak, a report from the IMF concluded that there hadn’t been “a single experience of price inflation on the scale of Ireland’s which did not end in prices falling.” In 2006, Professor Morgan Kelly of University College Dublin said there could be no “soft landing” for property values that had risen so much more steeply than incomes. Nobody wanted to listen. Prime Minister Ahern mocked Kelly as a moaner, and the press tended to take Ahern’s side. More remarkable, as O’Toole writes, was how few mainstream economists came to Kelly’s defense:
Every historically literate economist knew for sure that the Irish property boom was going to crash…. Yet the overwhelming majority of Irish economists either contented themselves with timid and carefully couched murmurs of unease, or, in the case of most of those who worked for stockbrokers, banks, and building societies and who dominated media discussion of the issue, joined in the reassurances about soft landings.
Why were people so stubborn in their refusal to see the blindingly obvious? Why had government, regulators, and speculators migrated en masse to, in O’Toole’s phrase, “the Republic of Catatonia”? The narrow political answer finds a British echo in Gordon Brown’s devotion to “light touch regulation” in the City of London. A democratic country that has chosen low taxes and tolerant financial supervision as the basis of its prosperity still needs to raise the funds that will deliver public goods and services. High salaries and corporate profits in London’s financial industries provided a steady tax stream to the Labour government, which allowed generous public spending.
In Ireland, company taxation and regulation were far lighter, but the governing party, Fianna Fáil, had to satisfy a coalition of voters that included the urban working class, people on welfare, and rural communities pressing expensive local demands on those they had sent to the Dublin parliament. How were these two ideological imperatives, low taxation and high public spending, to be juggled? Ahern’s Fianna Fáil came to depend on the taxes that flowed in from the property bubble; the tax incentives that helped get the property built in the first place were only the priming of the pump.
This was the Celtic Tiger’s crude mechanism, though at the phenomenon’s height very few observers saw its workings so clearly. Until the crash, Ireland was an economy to be admired rather than examined, to be emulated rather than avoided. It took a long time for the truth to come out. In February 2008—shortly before Scotland’s own banks went belly up—the leader of the Scottish National Party, Alex Salmond, was promising that an independent Scotland would create “a Celtic Lion economy to rival the Celtic Tiger across the Irish Sea.” Later in the same year Phil Gramm, economics adviser to presidential candidate John McCain, described Ireland as the “perfect example” of a country that had prospered through tax rates that were among the lowest in the world: “Senator McCain’s people immigrated from Ireland along with millions of others because they were hungry. Today…they [the Irish] have overtaken Americans in per capita income.”
McCain himself returned to the example in his televised debates with Obama, comparing American and Irish business taxes to show why America needed to cut them. “One of history’s weirdest reversals,” writes O’Toole: for centuries the Irish had dreamed of becoming Americans, and now some Americans wanted to be more like the Irish—not the charming, peasant Irish of John Ford’s The Quiet Man but the new Irish, with a Mercedes in the carport, a vacation home in Marbella, and corporation tax set at 12.5 percent. Ireland, though it belonged to the European Union and had earlier benefited from EU largesse, began to see itself as an outpost of American (or Anglo-American) free-market values on the far edge of a continent where various brands of social democracy were still the political norm.
Published in the US as All Will Be Well (Knopf, 2006); reviewed in these pages by Denis Donoghue, March 23, 2006.↩
Published in the US as All Will Be Well (Knopf, 2006); reviewed in these pages by Denis Donoghue, March 23, 2006.↩