A clean conscience despite sins of omission

The ESRI’s withdrawal of a report this week has seen a similar scenario of critics lining up. But with Frances Ruane as director, the institute has a better reputation than many others in Ireland, writes Kyran Fitzgerald

Mention Richard Tol to any senior member of the Economic and Social Research Institute these days and you are likely to provoke a sharp intake of breath.

Tol departed the institute with all guns blazing six months ago. At the time, the Dutch-born academic accused his long-time employer of being xenophobic and of being insufficiently insulated from Government interference.

Tol was in the news again this week after one of his research papers went off like an explosive device.

In a working paper published on the ESRI website, Tol suggested, among other things, that 44% of working people with families would be better off on the dole when factors such as spending on transport and childcare are taken into account.

The story was picked up by the national media and, soon after, the offending report was removed from the website, provoking dark suggestions of government interference with free speech. This suggestion was, in turn, vigorously denied by spokespeople for Joan Burton, the social protection minister.

The spat, coming during a gathering global financial crisis, could be said to have provided people with some welcome light relief, but it is yet another headache for the ESRI and its director, Frances Ruane, one of Ireland’s most experienced economists.

Ruane took over as director, in Dec 2006, just as the property bubble was beginning to burst. She has had to field much criticism to the effect that the ESRI failed to adequately warn of the impending crisis.

The cacophony of complaint reached a peak around the time of the ESRI’s 50th anniversary two years ago.

One national newspaper suggested the ESRI’s “previously stellar reputation” had been “tarnished by recent forecasting failures” and there were suggestions it was too close to the Department of Finance.

At the time, Ruane responded with frankness to the criticisms. “The issue is that we didn’t know what was going on in banking... If we had the resources we could probably have done a better job.”

Many rushed to the defence of the ESRI. According to UCD economist Karl Whelan: “The ESRI has been far more than the ‘forecasting outfit’ the media presents it as. Much of its work on social policy, education, health, energy, the environment, and macro-modelling has been invaluable.”

Another person writing online in defence of Ruane was none other than Richard Tol.

Describing as unfair media criticism of the director, Tol argued the ESRI had long tried to fill the gap in its expertise on matters financial. It was also hobbled by the poor quality of financial information available.

The latest saga has raised questions about the dedication of the ESRI to a free and open exchange of information.

Nobody doubts that Tol is a character who enjoys rocking boats. As an environmental economist, he is viewed as a sceptic on climate change. An ESRI report commissioned by Dublin City Council, backer of the proposed Poolbeg incinerator, which Tol helped prepare, drew a sharp reaction from the then environment minister, John Gormley, a longtime opponent of the project.

Tol has suggested he felt less free to speak out than he would be if employed in a university.

Ruane, his former boss, spent most of her career at Trinity College Dublin, where she built a reputation as an expert on industrial policy, while rising up the administrative ranks to become college bursar, holder of the student purse strings.

Ruane’s research focus over the past 20 to 30 years has been on the micro economy, foreign investment in Ireland, labour markets, and taxation.

She has written extensively on factors driving foreign direct investment in Ireland such as the development of clusters and “agglomeration economics”.

She regards the consistently positive stance of successive Irish governments towards multinational investments as critical, but warned that Ireland’s corporation tax regime is “under pressure in an EU context”.

As a sister of retired senior banker Jim Ruane and sister-in-law of former attorney general Paul Gallagher, who was closely involved in the events of Sept 2008 and in the run-up to the Nov 2010 bailout, the ESRI director is well connected to the business and legal establishment.

She has served as a director of several high-profile organisations including the Abbey Theatre and Bord Gáis. She also served as a non-executive director of Depfa Bank, the IFSC-based German property lender which ran up billions of euro in losses and had to be rescued by the German government in 2007.

However, she is just one of a long line of people who have discovered to their cost that membership of the board of a financial institution comes with reputational strings attached.

At a post-crisis seminar in Trinity, Ruane argued that Ireland has suffered reputational damage and faces a skills shortage, particularly in the public sector. Something similar could be said about the organisation she heads up.

However, few can deny the achievements of the ESRI. With a relatively modest annual income of just under €13m, it has generated research across a wide range of fields.

Its quarterly commentaries contained a series of warnings about the dangers of over-reliance on property and construction during 2005 to 2007.

In earlier reports, the ESRI was sceptical about benchmarking, the growing cost of the public service, and the gradual loss of competitiveness.

It carries far less culpability for the financial mess than the Central Bank, Department of Finance, or the stockbroking firms, all of which wore the green jersey and blew the national trumpet when required.

However, there was a failure to air these concerns with sufficient vigour — a failure that can be put down more to the innate caution and tendency to understate a position that is typical of academics. It is this sin of omission which stands out along with a failure to grasp the full implications of the asset price bubble which it was quick to identify.

But then, isn’t hindsight a wonderful thing?

Looking forward, Ruane has the job of ensuring the ESRI engages directly with the public, and with the State agencies and institutions which provide it with most of its income.

Richard Tol may win few marks for diplomacy or sensitivity, but his ability to communicate directly and forcefully using new media is worth imitating.

The ESRI has become — unjustly — the butt of criticism, particularly in trade union circles where it is regarded with near loathing by Siptu general secretary Jack O’Connor.

In reality, the contribution of its research team to the debate on poverty and long-term unemployment has been considerable.

Researchers such as Tim Callan and Philip O’Connell have built strong international reputations in these fields. Much of this commitment can be traced back to former director Kieran Kennedy, who was no slouch when it came to pointing out to Merrion St in particular the errors of its ways.

A muzzling or sidelining of the organisation would not serve the national interest. It remains one of the few sources of disinterested information in the country, with a much greater focus on applied economics than exists in the third-level sector.

The organisation needs to become more assertive — and perhaps less respectful and introspective. It needs to adapt, like it or not, to the age of the tweet and the instant response, and its executives need to speak truth to power, and specifically to the business and bureaucratic mandarins on its governing council.

Getting to know

* Born: 1951; Tuam, Co Galway.

* Education: Graduate, economics, politics, statistics, UCD. PhD — University of Oxford, Nuffield College.

* Career: 1971-73: Planning officer, IDA. 1973-74: Research economist, Central Bank of Ireland. 1977-2006: Department of Economics, TCD. 1991-95: Bursar, TCD. 1997-2000: Head of department. 2006 to-date: Director, ESRI.

* Director: Abbey Theatre; Forfas; Depfa (German bank).

* Family: Two adult children.

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