Professor Niamh Hardiman:

I thank the Chairman. I have been invited to talk about governance practice in Ireland. I think that the broad outlines of the banking crisis are familiar enough. We know that the banks borrowed too much, they made too many risky loans and too little heed was taken of the growing property price bubble. So, from a political science perspective, some of the key weaknesses that stand out for me are, first, there was too little oversight and accountability going on in the Irish political system. The banks, we now know, were too lightly regulated, but in political life, too, the powers of Parliament to scrutinise policy were, in my view, too limited. There was not enough accountability for things that go wrong, so it was often hard to learn the right lessons for the next time, or even better so there would not be a next time.

Second, politicians and key public officials in some respects may have had too little distance from powerful private sector interests. Third, there was too much consensus over policy priorities and critical views were marginalised. There was too little specialised knowledge in the public service and there was a resistance to using expertise effectively. Each of these features of the political system is in conflict with principles of good governance. I would like to sketch in some of the institutional weaknesses that made these kinds of problem possible.

For a political scientist, institutions are important because institutions that work well are crucial for good political outcomes. They create the framework for people's interactions with one another. That is what an institution is. However, even good institutions can end up being run badly or operating badly, so there is always a need to have appropriate incentives to keep good standards of conduct going.

When we are thinking about good governance, there is not actually any single agreed definition. It is always something that is under debate, but there is an influential contribution to this debate developed by the Quality of Government Institute at the University of Gothenburg in Sweden, which says that good governance depends on what it calls the impartiality of institutions that exercise government authority. In this sense, there are two aspects of impartiality in the way that the State relates to its citizens. One concerns what I might say is the input side of things, that is, who gets access to public authority. The principle here is that privileged groups should not be able to gain preferential access to decision making in ways that would distort considerations of public interest. The other side of things is what I might call the output side of things, the outputs of political decision making, that is, the way political authority is exercised. This means that procedural rules and guidelines should always be respected and no individual or group should be either favoured or discriminated against.

So far, so good. We might say "relatively uncontroversial", because these formal principles are well represented in Irish public life, but if we think about the Irish experience, we can see that there are a number of weaknesses in institutional design and in actual political practices. I want to identify three areas that correspond with the three sets of problem that I mentioned just a moment ago. These are about, first of all, political oversight and accountability; second, the relationships between political actors and private interests; and, third, the contestation of ideas.

First, thinking about political oversight and accountability, governments have to manage public affairs, but policy also needs to be challenged and government needs to be held to account. We have a power dimension, one might say, of the exercise of public power and also a legitimacy dimension. It is more difficult in Ireland than elsewhere to scrutinise and amend legislative proposals and more difficult to hold the Government to account.

I believe this was the subject of discussions the committee held with Professor David Farrell in the last session. His, and other research, indicates that the Irish Legislature is still a bit of an outlier in comparative perspective on these indicators. Accountability within the public service is also a problem. We are not always good at learning from mistakes when things go wrong in the public service. Too often we are inclined to say that the system is to blame and we leave it at that. All this is in the process of change at the moment. The Civil Service renewal plans are aimed at reforming the ways the Civil Service functions and includes procedures to improve and strengthen accountability. This is all very much a work in progress.

My second point is about privileged access to decision making. There should be distance in the relationship between private interests and public authority in both input and output. We know there were close relationships between banks, builders, developers and political leaders during the years of the boom. This is potentially a problem on the input side of things. It may present a problem for Government's ability to take a measured view of its policy options or to establish enough distance and aggregate all the preferences it is exposed to in a public interest perspective. We have legislation on standards in public office, regulation of political donations and freedom of information legislation, all of which really do help to reduce the incidence of inappropriate access and influence - but poor practices may be harder to control or eliminate. Our ethics legislation dates from 1995 and 2001 and I do not think many people would suggest there were no problems at all in the years that followed. Making sure that legislation has the desired effect may not be quite so straightforward.

One way of having strong accountability in other European countries involves the strong role of parliamentary committees, but this is an area where there have been some weaknesses. When we think of regulation in the financial sector there is also a gap between what the formal rules say and the way informal practices actually play out. The powers that were available to the Financial Regulator before the crash were, as I understand, not excessively weak, but enforcing an effective regulatory regime is another matter. The Irish form of light-touch regulation was never going to get full disclosure of risks and liabilities on the part of the financial institutions. Ireland was not the only country to commit taxpayers' money to providing guarantees to the financial sector, but there are a couple of things that stand out about the Irish experience. Policymakers had fairly limited access to any kind of accurate information about the true state of the banks before the guarantee was extended. This is a problem which goes back well beyond 2008. It is a clear failure of the regulatory regime.

Although large guarantees were extended in other countries, they did not necessarily have to put them into practice. The difference lies in the organisation of the banking sector itself and the links they had with each other. Denmark for example committed 259% of GDP to guaranteeing its banks and Ireland committed 232% - similar orders of magnitude. While the Danish taxpayers were eventually liable for something like 1% of GDP, in 2012 it was estimated that the direct cost of the guarantee to the State was around €64 billion, which is 41% of GDP. It seems that the government in Denmark was able to negotiate a sector wide rescue scheme which involved a lot of participation by the financial industry itself.

I am not saying that the Danish experience is directly translatable to Ireland, there are many problems in trying to translate practices from one country to another, but what it does illuminate is that the Government seemed to have very little insight into what was going on until it was too late. As one analyst said it was "torn between denial and panic" when it was too late to do anything other than step into the breach with large guarantees. One might well think that in a small country like Ireland it is quite difficult to maintain appropriate distance between the Regulator and those who are regulated, or between the powerful, wealthy business interests and the politicians. Many of these people come from similar backgrounds. They went to the same schools and may even be related to one another. All of this plays a role in lowering the boundaries between the personal and the official political roles. However, Denmark is also very small and socially interlinked. Institutions need to be well designed and appropriate incentives and sanctions should encourage good practices to try to avoid the worst happening in the first place. This involves informal practices as well as the formal rules and sanctions.

My third point is about groupthink and critical evaluation, groupthink meaning when critical judgment is not properly exercised. Peoples' opinions converge on what is perceived as general wisdom without subjecting it to too much criticism. Many people have commented on the scale of groupthink during the boom and this was clearly a problem, not just in the case of bank risk, but in macroeconomic policy more generally. Ireland was far from unique in this naive faith in the self regulating market and the ideas that property prices were going to rise forever, there was going to be a soft landing and that this time is different. This time is never different. However, at the same time there were dissenting voices - people sounding the necessary warnings. There were those who were uneasy about bank risk and the sustainability of the property boom. Sometimes these people may have lacked the confidence to speak out too loudly, but there were enough who raised their doubts and their warnings. For the most part they were criticised or even ridiculed. The question now is how to create a space for those people who offer an alternative point of view, even though it is unpopular, so they get taken seriously and that countervailing opinion gets factored into the discussions, perspectives and anticipations?

Among the safeguards against groupthink in public life there has to be: high quality information available; a public service that can use the information well; practices such as having open environment for debate; critical engagement with different points of view in different fora; and encouragement of contestation over ideas in the policy process. Open debate is the basis for informed analysis and good policy formation. Developing the policy capacity of the public service was not very high on the list of political priorities during the boom. Indeed, during those years there was a proliferation of new agencies. Why were they created? It was because often it was easier to do new things by adding on new skills outside the existing public bureaucracy. We now have a lot of State agencies and there is a clear rationale for many of them. Agencies which operate at arm's length from Government can serve a valuable purpose. In other cases one might have expected these new positions to be created inside Departments themselves but instead we have this agency proliferation. In 2008 the OECD commented, not favourably, on what it called the "organisational zoo" of Irish State agencies.

Good policy making also needs access to good technical skills of all sorts and these are improving now. We have the Irish Government Economic and Evaluation Service, but there are other areas where there are skills and competence deficits. There have been questions, for example, about the management skills of the senior civil service. Reform is under way in these areas, but it is still very much a work in progress. We want the public service to act as a guardian of the public interest. To do this it needs to maintain a culture of independence from political influence. In formal terms that is well established in Ireland, but we sometimes hear it said that some senior civil servants may be less willing now than in the past to challenge Government ministers' points of view. There may be a number of reasons for this. In other countries, when a government is in power for a long period of time, civil servants may be more likely to align themselves with Government preferences. The way we organise career promotions may encourage anticipatory adjustments. It may be that civil servants are under a lot of day-to-day pressure to protect their Minister from criticism and from bad publicity in what is an intensely media saturated policy process.

Until quite recently, if individuals wanted to expose things that have gone wrong they could expect very little protection. We now have The Protected Disclosures Act 2014. That goes a good way towards remedying this, both in the private and the in the public sectors. Here again if we want the legislation to have the effect that we want more is likely to be needed. There has to be a culture of encouraging critical engagement. The most effective way of doing this is to develop an environment in which debate and disagreement is normal, where discussion is not shut down too quickly in the interests of getting a decision, where people do not feel that their right to speak out is determined by their place in the hierarchy.

Critical analysis is exactly what universities do. We engage in information, research, evidence and so on. Some progress has been made in engaging the universities in critical debate about public policy and public sector reform, but I think more could usefully be done. We can also think about the role that civil society organisations may play, an active role as watchdogs over the public interest, over regulatory and other bodies.

Inside the banks themselves we can now see that there were weaknesses in corporate governance to do with this phenomenon of group think. Banks engaged in very risky lending practices not least because their own shareholders put pressure on the directors to match the performance of the most profitable institutions, which were also the most risky. No bank can grow its profits at the extraordinary rates that we saw during the boom, in a safe manner. The brakes were off inside the high street banks too in terms of internal vigilance. It might be useful in this regard to think about the differences in the governance of the Irish and the Canadian banking sectors. The Canadian banks did not suffer systemic crisis this time around. One contrast between the two systems is the fact that the Canadian financial regulator played a very strong role. Bank directors expected rigorous and even painful scrutiny by the regulator and they internalised that expectation in the way that they conducted their own directorial responsibilities.

Inside the banks, the way the banks functioned also shows some interesting differences. As I understand it, directors can influence board decisions and bank outcomes through very much the same sort of practice that I mentioned a moment ago, good information, good preparation, an ability to ask hard and unexpected questions, a willingness to be critical and challenging towards management and to hold them to account effectively. In Canada, some of the corporate practices provided a stronger framework than may have been in existence in Ireland for encouraging these behaviours. For example, Canadian directors often, it seems, hold in camerasessions without management present. This lets them test ideas and build support among colleagues. This seems to have helped the non-executive directors to avoid excessive deference towards managers and it strengthened the independent and challenging voices on corporate boards.

In conclusion and in summary, I think what I have been focusing on is this feature of good governance centring on the idea of impartiality. Good institutional design is vital, but so too are the practices that make institutions work effectively. In the Irish case, this has implications in three areas that I have outlined. My first point was about political accountability. I noticed a relatively weak capacity to subject the Executive to scrutiny. Improving accountability is still in its early stages. The second point is about the relationship between private interests and public office holders and this needs to be constantly monitored. My third point is about the risk of group think and this persists as long as there is too little respect for informed critical opinion, too little willingness to look for high quality information and too little openness to debating and contesting ideas.