What If Ireland Defaults? (32 page)

Having set out some of the benefits of community, we can now look at some of the evidence of community involvement taking hold in Irish society. For this we can look at community involvement statistics and also some broader measures of the importance attached to being socially active.

Irish society has always been highly community oriented. Researchers of early Irish history such as University College Dublin's (UCD) retired Professor of History, Francis John Byrne, and the late Professor Daniel A. Binchy described in vivid detail the role and importance of clans and tribes in early Irish history, and the importance this system attached to community cooperation and ties. Thus, Professor Binchy refers to the early Irish as ‘tribal, rural, hierarchical and familiar'. Rural Ireland also has a long-established tradition of ‘meitheal'; a Gaelic term used to describe volunteer labour groups who would assemble to help members of the community, for example to bring in the harvest. References to meitheal on paper are fleeting despite the widespread nature of the event, but the following gives some flavour of the idea:

At harvest time neighbours would combine together to help one another make hay or gather other crops. This co-operation was a great way of fostering neighbourliness and a spirit of togetherness in the community. Those in the ‘meitheal' joined the host farmer for a meal at the end of the day's work. Kitchens in the old farmhouses were very big so as to accommodate the large numbers. Every farmer would repay his neighbour by taking part in his meitheal next time round.

There are indications that Irish society is re-discovering its social roots. Although we would expect this to be a gradual process, especially given that people are quite naturally currently pre-occupied with handling the personal impact of the crisis on their lives. But the signs of a growth are there. The Tidy Towns community improvement initiative had 821 entrants in 2011; the highest number of competitors in its 53-year history, and compared to less than 700 entrants in pre-crisis 2006. The Social Entrepreneurs Ireland Awards and Pride of Place awards, two national schemes that are heavily focused on community initiatives, both reported record interest in their 2011 awards. There has been a doubling of participation in sports volunteering amongst the unemployed. Interestingly, the growth in sports volunteering has only been seen in team sports. The importance of building social capital appears to be slowly being re-discovered.

However, the real social revolution is not happening in physical communities, but through the social internet. The powerhouse of internet social communities in Ireland is a website called Boards.ie. This website has 435,000 members – overwhelmingly Irish – and 2.2 million unique visits every month, with discussions spread across 600 different sub-communities. Google Trends suggests the website is about three times more popular in 2011 as it was at the beginning of 2007. Want to talk about a personal problem? There's over half a million posts on people's problems and the associated advice given. Got a stutter? Have a read of the stuttering sub-forum. 200,000 posts on transport; 100,000 on parenting; 800,000 on politics …. Interested in scuba diving, mythology, the weather, palaeontology …? Communities of interest representing nearly 10 per cent of the Irish population have self-organised themselves around every possible interest, and Boards.ie is just one example, albeit a highly prominent one, of this new social movement.

Initial fears that physical communities would suffer from people spending more time online have been dismissed by studies of what actually happens. Thus, Andrea Kavanaugh from Virginia Tech University in the United States and her colleagues found in a 2005 study that being part of an online community for a town strengthened the feeling of belongingness to the linked physical community. Similar findings have been reported for users of Facebook – people are building social capital online that can be utilised offline. A 2010 study published in
American Behavioral Scientist
finds that people living in rural communities use the internet to maintain and build social capital in their physical communities, thus overcoming the hampering effect of distance between households in a typical rural community.

An Irish example of this online–offline linkage can be seen in Ballymacarbry Community Centre in Waterford, which won a 2011 Pride of Place award and was described by the judges as ‘the best they had ever seen in nine years of judging the Pride of Place Competition. … The judges were witness to how clear vision and single mindedness can create a cohesive community.' Despite Ballymacarbry only returning a population count of 436 in the 2011 census, they have 220 followers of their online page on Facebook. The local population can blend offline with online and be kept up to date on the schedule for community meetings, news on the latest bake sale (proceeds of €330 for donation to the Irish Society for the Prevention of Cruelty to Animals), and progress in having concerns addressed about a wind farm planned for construction in the near future. This is the new post-materialistic Ireland slowly emerging from the dust of materialism's failed promises.

Debt and Default: The Inadvertent Route to Societal Happiness?

Materialism is in decline, and community involvement is increasingly moving centre stage, helped by the recognition of the power of social capital and the boom in internet-organised communities. Of course, it would be naïve to assume that this is an entirely willing move on the part of Irish society; a large number of people who are no longer driving materialism forward are presumably inhibited from doing so due to a decline in their disposable income. Thus, it is quite possible that the ‘stick' of debt and default has brought us to where we are, rather than the ‘carrot' of putative benefits. That does make the suggestion of a societal value shift a bit more tentative. We can though speculate as to what a future community-centred Irish society would mean in terms of well-being and involvement.

Research in countries across the world shows money to be important in terms of national happiness, but only up to a certain level. Someone in abject poverty will be less happy than someone who can put food on the table. But the benefits of money level off quickly and benefits can easily be nullified if the more qualitative influences on life satisfaction fall as a result of economic development. Thus, China's tripling of household incomes for its population between 1990 and 2000 actually resulted in lower reported levels of happiness among the population.

Irish people report one of the highest levels of life satisfaction in the world. In 2007, 46 per cent of survey respondents claimed to be very happy with their lives. This makes us one of the happiest countries in the world. A 2011 research paper by Professor Brendan Walsh in UCD charted the long-term well-being of the Irish population from 1975 to 2011 and found very little increase as a result of the boom years in the 2000s, and only a minor decline in reported life satisfaction caused by the debt crisis. There was even an uptick in happiness reported in 2011.

Yet nearly every public discussion about the crisis seems to concentrate on gross domestic product, or debt or the possibility of default. The boom in doom-laden words in the media is in huge disparity to what's happening in people's lives. Clearly something is missing from the public debate. Could the Irish people have already discovered what policy makers are so desperately fumbling to find? – That just having money to spend on material goods is not really the route to societal happiness.

Ireland's future, if we continue along the route we have commenced, is to move closer to the Scandinavian countries – the happiest countries in the world. Ronald Inglehart and his colleagues in 2008 studied why these countries were so happy and found that what distinguished them was not their high income but their high levels of social capital. They had the highest reported levels of trusting other people, of openness, of prizing living in pleasant surroundings, of a wide range of social activities. In short, they attached greater importance to living in a community rather than an economy. We ideally wouldn't have chosen debt and crisis to get us to this same realisation, but now that we're here let's enjoy what we've inadvertently started – a renewed joy of social living.

18

A Political Activist and Businessperson's Perspective on Debt and Default

Declan Ganley

Declan is an entrepreneur and political activist.

12 July 1776, at the tip of Lower Manhattan, where the fast-flowing Hudson meets in confluence with the East River and opens out into the wide expanse of New York Harbour, standing in the pre-dawn darkness, was the figure of a young captain of artillery. Dressed in the attire of a local officer of militia, he was guarding the most important commercial hub of his nine-day-old country, the United States of America. His name was Alexander Hamilton. His small command consisted of six cannon and a small cadre of unruly men, some still suffering the early morning effects from a night of whisky and a deficit of sleep. Looming toward their position were two of King George's finest ships of the line, HMS
Phoenix
and HMS
Rose
, their combined 72 cannon primed and loaded to deliver His Britannic Majesty's first kinetic response to America's rebels. Other American founders would shortly and irrevocably put their necks on the line, affixing their signatures on 2 August to the Declaration of Independence, with the words of Benjamin Franklin ringing in their ears: ‘we must all hang together, or most assuredly, we shall all hang separately.'

As dawn broke, Hamilton's position came under the Royal Navy's guns and they opened fire with a thunder that witnesses were to attest was the most terrible and mighty sound to have ever been heard across New York up until that time. Hamilton's position was pummelled and yet, with comrades dead or dying around him, he stood his ground and returned the fire. This was the first of many heroic actions throughout Hamilton's life but I recount it here to underline that this was a man of extraordinary courage, honed in action to take risk and prepared to make any sacrifice for his country. Very many years later, Talleyrand, the famous French statesman, diplomat and manipulator of eighteenth and early nineteenth-century Europe, said of Hamilton, ‘I consider Napoleon, Fox and Hamilton the three greatest men of our epoch and, if I were forced to decide between the three, I would give without hesitation the first place to Hamilton.' Talleyrand had known all of these men on a personal basis and I believe that his measure of Hamilton is not without merit.

So what was it that Talleyrand recognised which marked out Hamilton from all the other leaders of his age and what lessons can we learn that might be applicable to Europe's current crisis? Hamilton after all, never got to lead his country; however, he did get to serve George Washington in a position that was to become absolutely pivotal to the survival of the United States of America, that role was as America's first Secretary of the Treasury.

On taking office shortly after the conclusion of America's War of Independence, Hamilton found himself with the challenge of shaping the economic framework upon which the nascent and very bankrupt United States would either perish or prevail. Hamilton's country had been ravaged by war and saddled by debt. On top of that, he had to find a way of paying off a well-armed army that in many cases was awaiting years of back-pay. In addition to domestic concerns, there were major foreign lenders, including some of the very largest and most powerful players in global finance at the time – French and Dutch bankers. With British Red Coats on the Canadian border and still holding western forts and the Royal Navy ruling the Atlantic waves, Hamilton quickly understood that the Union's credit rating would play a large part in deciding whether or not America really had a future.

Hamilton was a protégé of George Washington, commanding general of the Continental Army and the first American President. The young Hamilton was perhaps the closest to him of all his military officers. Washington was not just his commander, but more like a father. Hamilton was brilliant but sometimes divisive, viewed suspiciously by Jefferson, Adams and many others as a treacherous manipulator intent on creating a central power over the people and ruining the purity of the agrarian republic in favour of urban creditors and big money interests. It was a sort of Old Virginia v hustling New York conflict. Washington was trusted by, and stayed above, the factions. He backed Hamilton against his own Virginians and perhaps was the only man who could make Hamilton's ideas stick. It's remarkable that Washington, himself a devoted farmer and son of Old Virginia, with no finance or business experience, could make this choice so decisively. Hamilton, under Washington's protection as Secretary of the Treasury, was given the scope to establish the economic structural basis of America. That simply would not have been possible had Washington and the other ‘Founding Fathers' not already put in place the initial mechanisms for government by consent. Washington, a titan of history, also left on record his wishes to see Ireland with freedom to legislate and trade: ‘I would felicitate the Kingdom of Ireland on their Emancipation from British Control, and extend my pious entreaties, that Heaven may establish them in happy and perpetuated tranquillity, enjoying a freedom of legislation, and an unconfined extension of trade, that connecting link, which binds together the remotest countries'.
¹

Without Hamilton, or his patron Washington, the superstructure facilitating the fantastic nineteenth century burst of American economic growth would simply not have occurred. As an aside, Franklin was maybe the first to see the vast economic potential. Long before Hamilton or Washington, he was a businessman with interests throughout the colonies: his ‘Almanac' and postal delivery service were everywhere, slightly altered for each colony. His argument to the British in the 1760s was that a unified America would be an economic powerhouse, and they would be foolish in the extreme to risk losing it for the few seats the colonists wanted in the British Parliament. That hard-headed denial by the British elite, to bow to granting their colonies government by consent of the governed, was to have major consequences. There is no reason to doubt that a similar resistance by European elites could also have long-term consequences.

On dealing with the most pressing matter of government debt, Hamilton was faced with the fact that the thirteen founding states of the United States all had separate and disparate debts, built up during their times as separate colonies during the course of the War of Independence. As the war had been waged in some states more than others and as the contributions of the states to the war effort and cost had varied greatly, even that portion of debt that was directly attributable to a form of ‘joint enterprise and expenditure', was not evenly or proportionately disbursed across all of the states. On top of the states' debts, there was already a federal debt, which had been used to finance some of the cost of Washington's triumphant Continental Army, as well as some other federal borrowings.

Hamilton knew that he possessed limited short-term financial resources and that these many debts would have to be re-structured while enhancing the United States' reputation as a borrower. One dilemma was that many securities had changed hands at significant discounts, raising potential moral dilemmas. Weighing his options, Hamilton decided that security of transfer and its repercussions for private property were paramount to establishing credibility and thus assist a favourable credit rating. He then made the bold decision to federalise all of the state debts in distress, doing so to ensure the survival of the whole rather than the sacrifice of any member state.

Interest on the already incurred federal debt was at between 4 per cent and 5 per cent and Hamilton understood that, for the sake of American credibility, this debt, all owed to foreign lenders and primarily made to finance America's war effort, must be paid in full. The various interest rates on the debts of the thirteen states were high at 6 per cent and greater. Hamilton knew that his ability to raise revenue was simply not sufficient to allow the servicing of the combined states' debts. He also knew that bondholders sitting on state debts were exposed to a broad range of growing risks, of which they were well aware. Hamilton also saw the opportunity to shift the loyalty of those creditors by giving them a stake in preserving a federal government by having it federalise the state debts and thus make those creditors commit ‘risk on' to the new United Sates. However, given the fact that combined state debts and interest were just too high to sustain, Hamilton decided to deliver a federal ‘haircut' on assumption of the states' debts. Hamilton took the path of offering ‘voluntary' haircuts in a variety of options that largely boiled down to a partial payment at 6 per cent interest, a partial ‘equity swap' (in Hamilton's case, for western land that at the time was relatively valueless but had prospects), or payment at a lower interest rate over a longer term but sweetened by quarterly payments (rather than yearly) and paid from taxes specifically earmarked for the purpose of paying those bonds.

The creditors did the pragmatic thing and accepted Hamilton's offers; Hamilton drew those creditors into supporting his new country while at the same time rescuing many of his thirteen member states. Through his federalisation and re-structuring of unsustainable state debts Hamilton helped cement the disparate states together to form their ‘more perfect union'.

Hamilton's hands-on experience with a potentially catastrophic sovereign debt crisis provoked him to leave some wise advice for posterity that growing debt ‘is perhaps the natural disease of all Governments. And it is not easy to conceive anything more likely than this to lead to great and convulsive revolutions of Empire.' He also wisely advised that he ‘ardently wishes to see it incorporated as a fundamental maxim in the system of public credit of the United States that the creation of debt should always be accompanied with the means of extinguishment.' That is to say, you don't take on a sovereign debt without also having in place a specific revenue stream with which to pay it down. Europe of 2012 should duly take note. As a means to finance debt, Hamilton set up ‘sinking funds': revenue that was stored up to service debts and which he prudently and quietly used to buy back large amounts of government debt at bargain prices (Hamilton understood the central banker's art of ‘creative ambiguity').

When considering Hamilton's approach, bailouts were not his
modus operandi
. Hamilton's King's College (later to become Columbia University) friend and early companion in the Treasury Department was one William Duer. Early on, Duer had departed his assistant secretary role at the Treasury in order to engage in private banking and speculation, becoming a major New York ‘market maker' in the process. In 1791 and 1792, Hamilton was faced with the US's first banking and government securities crisis. Amongst the financial fallout, his powerful financial industry friend Duer had ended up in the position of needing a government bailout for his banking and financing interests or he would ultimately face debtors' prison. Hamilton, though empathising with Duer, would not provide the bailout. The end result was that Duer ended his days in a debtors' prison, sometimes visited by Hamilton but paying the ultimate price for Hamilton's allowing ‘the freedom to fail', which in the eighteenth century had steeper consequences than the more risk-friendly world of today. Given Hamilton's actions, it is hard to imagine why the principle of ‘freedom to fail' is not more readily afforded to European banks and institutions that held entirely private failed risk. The idea that any government would (like the Irish governments of 2010–2011) ever contemplate pledging taxpayer resources to fund already failed private bank risk, where the initial loans were not made to, nor expended by government, would have struck Hamilton as beyond absurd.

Hamilton's most recent (and excellent) biographer, Ron Chernow, summed up the completion of Hamilton's time in office as follows:

Bankrupt when Hamilton took office, the United States now enjoyed a credit rating equal to that of any European nation [back then, that was a good thing]. He had laid the groundwork for both liberal democracy and capitalism and helped to transform the role of the president from passive administrator to active policy maker, creating the institutional scaffolding for America's future emergence as a great power. He had demonstrated the creative uses of government and helped to weld the states irreversibly into one nation.
²

It is popular today for Europeans to look back at the early formation of the United States of America and to say that it was inevitable, unique and took place in an already cohesive and homogenous society. The facts of the matter are more complex. The thirteen colonies that made up the first states were disparate in their make-up and had regarded their existence in relation to their ties with London more than with each other. American cities were filled with immigrants from all of Europe's cultures, speaking a multitude of languages, with English and German being the most dominant. Great cultural differences existed between the states, perhaps the most acute being on their attitudes to slavery. In summary I would say the early institutional success of America's union was more due to the willingness and courage of a principled minority of gifted leaders, formed in a more meritocratic environment that, for its time, was somewhat less constrained by the sclerosis that often afflicts old establishments, and who were motivated by a common bond of morals and a pioneering willingness to make sacrifice and take risk for the greater good. This character served the United States well when, time and again, as its leaders were faced with seemingly insurmountable challenges, they took bold risks and eventually met with success (the revolutionary war at first consisted of a succession of military defeats for George Washington's army. Where others would have accepted the ‘inevitable' Washington and his men did not).

An observation of what some might consider a root of ‘American exceptionalism' was made by Alexis de Tocqueville, the great French statesman and writer of the nineteenth century. In his 1835 book
Democracy in America
de Tocqueville, observing the new American Union from the perspective of a European, made incisive observations on the American appetite for risk in commerce, first noting that although American seamen were paid higher wages, their way of business was more competitive. He went on to say: