Lessons from Ireland

This article appeared in the November 2008 edition of LMD (Lanka Monthly Digest) with the strapline: “Michael O’Leary recounts Ireland’s battles with corruption, which tarnished the offices of two of its Prime Ministers”.

 

Corruption thrives everywhere in the world. It is endemic in the US through what are known as ‘earmarks’ or ‘pork’. The saga of the ‘Alaskan Bridge to Nowhere’ has forced one US Senator to face criminal charges while the Republican Vice- Presidential candidate, Alaska Governor Sarah Palin, is now also implicated.

 

Ireland finds itself at a respectable No. 17 in the Corruption Perception Index (CPF) while the Economist Intelligence Unit (EIU) places it at the top of its Quality Of Life Index. Ireland has the world’s fifth-highest

GDP, although world conditions are currently de-fanging the Celtic Tiger. There has been a general recognition that to retain its attractiveness to foreign investors, the Irish state needed to tackle a culture of corruption. The ‘brown envelope’ (or bribing of planning officials) has long been a feature of Irish life – politicians at all levels have had a tendency to confuse party funds with their own personal income. ‘Gombeenism’ describes the kind of parish-pump, pork-barrel politics in which those elected to be legislators devote themselves to cronyism and self-aggrandisement rather than honestly representing their constituents’  interests.

 

It is a matter of public record what a Taoiseach (or Irish Prime Minister, pronounced ‘tea-shock’) earns. On this fairly modest amount, Charles Haughey enjoyed an opulent lifestyle. The McCracken Tribunal in 1997 unearthed illegal payments by businessmen into offshore accounts and Haughey faced criminal charges for obstructing the tribunal. It reported that the bribes, “when governments led by Mr Haughey were championing austerity, can only be said to have devalued the quality of a modern democracy”.

 

The tribunal concluded that Haughey had received around GBP 10 million from businessmen. A significant portion of funds donated for a liver-transplant operation for his former colleague Brian Lenihan was misappropriated by Haughey for personal use. Charlie’s protégé Bertie Ahern presided as the youngest-ever Taoiseach over a booming Irish economy and helped bring peace to Northern Ireland. Ahern signed the cheques from the Lenihan account, and this and other matters from the past came back to haunt him, forcing Ahern to set up the Mahon Tribunal which brought about his downfall.

 

In 1999, the International Federation of Accountants (IFAC) published a discussion paper, ‘The Accountancy Profession and The Fight against Corruption’, which urged accountants to help root out corruption. In Ireland, bankers and accountants colluded with and were protected by the perpetrators.

Des Traynor, Haughey’s own accountant, helped 120 of the country’s richest men to divert their money through London and the Cayman Islands, and back to Dublin, to evade tax. Allied Irish Banks (AIB) operated 50,000 bogus overseas accounts to avoid Deposit Interest Retention Tax (DIRT). AIB also wrote off Haughey’s huge overdraft. The phrase ‘banana republic’ was often bandied about at the time.

 

So, what is corruption? One definition is “the misuse of entrusted power for private gain”. For ordinary citizens, it is more up-close and personal than an abstract definition. It means citizens struggling to get what should be their right. ‘Speed money’ to fast-track public services might be seen as being akin to tipping a waiter at a restaurant, but this is part and parcel of a toxic culture.

 

Codes of conduct and training will remind officials that they are public servants. Corruption thrives when the wealth and potential of the public sector are used without the consent of those who happen to work in government. Economic theory and empirical evidence both demonstrate that corruption impedes economic growth by discouraging investment, deterring entrepreneurship, diverting public talent, reducing the quality of public infrastructure and distorting public finances. Regression analyses have shown a correlation between corruption and income inequality. Corruption leads to an unfair distribution of state resources and services.

Corruption also inhibits citizen participation, which in turn lowers the quality of public services and infrastructure. The poor suffer disproportionately from low-quality public services. When people perceive that the social system is inequitable, their incentive to engage in productive economic activities declines.

 

In 1997, Professor Robert Klitgaard, the world’s leading expert on corruption, recommended the following:

 

• “Fry a few big fish…”. Major corrupt figures need to be convicted to undermine the culture of impunity.
• Anonymous groups should conduct diagnostic studies of corrupt systems of procurement and contracting.
• Collect information to raise the probability of corruption being detected.
• Link officials’ salaries to success, so they earn enough to control temptation.

 

The corrupt would be comfortable if the citizenry took a pessimistic view that because corruption exists everywhere, nothing can be done about it. No one would argue that because pollution and disease exist in every country, nothing should be done to reduce them.

 

The Irish tribunals made a difference, in that they undermined the public’s tolerance for unethical behavior, and they destroyed the culture of silence in the process. Senior politicians such as Prime Ministers Haughey (death saved him from criminal conviction) and Ahern, Foreign Minister Ray Burke (who was jailed), and EU Commissioner Padraig Flynn and his daughter Minister Beverley Flynn (who was working for a bank when, in the Hiberno-English phrase, “the firm’s cash got mixed up with their own”) were named and shamed – and they paid the price.