ONE of the common misconceptions which have been comprehensively dismissed by the recent global financial crisis is that developed countries manage their fiscal policy more scrupulously and more responsibly and hence are less prone to debt crises than developing countries.

Several developed countries in Europe have experienced debt crises, the origins of which were internal and were not due to external shocks. Poor economic management made these economies more vulnerable to the fallout emanating from the recession in the world economy. Three recent and still evolving cases, namely, Iceland, Ireland, Portugal and Greece have been the subject matter of books.

Fintan O'Toole — Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger (Public Affairs, 2010, 226 pages) — is a journalist and author, and therefore his approach is not one weighted to economic analysis. His story centres on political corruption, greed and stupidity. The collusion between corrupt politicians and greedy businessmen exists in varying degrees and is neither novel not particularly interesting except to a subset of readers of the true crime genre.

More insightful are the factors which are encompassed by what he terms "stupidity". This rubric captures the euphoria which intoxicated politicians, technocrats, bankers and regulators. This is where the author should have devoted more investigative analysis. It is not insightful to make sweeping statements like: "The role of sheer idiocy should not be understated" (page 24).

Ireland experienced several years of very rapid growth due to the confluence of favourable circumstances, EU aid, inexpensive labour and openness to foreign investment. So spectacular was the economic growth that Ireland became known as the "Celtic Tiger".

It was described as an economic miracle eg Paul Sweeney, The Celtic Tiger. Ireland's Economic Miracle (1998) and The Celtic Tiger. Ireland's Continuing Economic Miracle (2000). Ireland was heralded as a showcase of how a small, poor country could pull itself up to developed status.

A visit to Ireland came to be regarded as the first step in learning what policies to pursue to achieve rapid economic development. There is the perennial of the transferability of the "model" which O'Toole questions: "Instead of a small place with very specific circumstances, Ireland came to stand for a formula that could be applied anywhere from Armenia to Zambia" (page 11). Investors rushed to Ireland so that by the year 2000 foreign investment per capita was US$38,000, six times the EU average.

When economies experience an economic boom of the magnitude and pace of that of Ireland, the financial sector expands rapidly, accompanied by careless lending, lax prudential standards, a short-term approach to profitability and by an intake of unqualified/inexperienced staff.

If this is accompanied by weak supervision and regulation, the financial sector overheats. This is often paralleled by public sector financial problems involving fiscal mismanagement on

both the taxation side and on the financing side.

In Ireland the financial crisis was characterised by astronomic inflation of house prices fed by an expansion of credit which the author describes (but gives no figures) as: "Probably the highest expansion in any country anywhere, ever" (page 116). By 2009, the level of debt among Irish households and companies was the highest in the EU. At the same time, we are told that the Government was "injecting itself every day with the narcotic of easy money from the property bubble" (page 122).

The central question of why the crisis was not spotted and corrective action taken has to do with the nexus of corruption which paralyses the regulatory system. The gravamen of O'Toole's argument is that officials were dealing with "bankers connected to politicians who in turn held power over the regulators" (page 74).

The answer is to find the ways and means to prevent the nexus of corruption from paralysing competent regulation and timely policy interventions. The quality of systems is important, but a system is only as good as the conduct and integrity of those responsible for administering the system.

This is an easily readable account (not requiring economic or financial knowledge) of how corruption contributed to the implosion of Ireland's so-called economic miracle. But with all mono-causal accounts, the full story is likely to be more complicated. However, having read Ship of Fools we should realise that Confucius was correct when he warned that: "When prosperity comes, do not use all of it".