May 24, 2006

Partnership,(n): Charade; fraud; myth

Posted in Celtic Tiger · 17 comments ·

This morning, the news was grave. It focused on problems in social partnership. The reporter adopted momentous tones and outlined solemnly the impending disaster that was about to befall us if these giants of modern Irish economics could not hammer out a deal. You could swear a financial hurricane of Katrina proportions was about to rip through Ireland, devastating everything in its wake.

The truth is that if the partnership charade disappeared tomorrow, very few would miss it. The continuing fraud is one of the single biggest scams foisted on the Irish people in years.

This annual palaver with all its self-aggrandising pomposity is straight out of the Fossett’s Circus school of economics where the knife thrower never misses and the elephants never escape. Like the circus, the whole thing is a contrived piece of theatre.

Whereas the circus is aimed squarely at the mind of a nine-year-old, the partnership charade is a sad joke and the joke is at our expense. The main problem is that hard thinking has been replaced by mantras. Simply by repeating the mantra, it has become fact and by becoming fact, it becomes indisputable.

We are experiencing what the great US economist, Paul Samuelson, called “government by shibboleths”. He believed that certain economic policies acquired mantra-like characteristics, so that if they are repeated often enough they become unassailable. Gradually, the mantras come to replace hard thinking. To argue against the shibboleth is seen as heresy. In Ireland, the mantra – cheer-leaded by many in the media – is that social partnership is/has been the engine of Irish economic dynamism. Unfortunately for those of us that have to suffer the bizarre circus, this is a load of tosh. Let’s look at the facts. Partnership is now mainly a public sector event.

The vast majority of Irish workers are not represented by the trade unions because the majority is not unionised. Whether this is a good or bad thing is for another day, but it is a fact. So what we have are public sector unions talking to their employer, the Government, about their pay and conditions. In the rest of the economy, union representation is falling, and falling faster than anywhere else in Europe as a percentage of the workforce.

Have there been government moves to smash the unions? No, not as far as I recall. In fact, the opposite is the case – union membership is falling at a time when the unions’ political power has never been stronger. Why could this be? Is it because ordinary people have no need for a union? Maybe, who knows? For whatever reason, workers are not craving a union card. Clearly, work practices have improved across the board. If we look at the top ten companies on the Irish Independent sponsored ‘Best company to work for’ each year, a disproportionate amount of winners are non-unionised.

So it is not clear, contrary to the central claim of some trade unionists, that union presence on the floor automatically makes a company a better place to work. But let’s forget the unions for a second – because today’s concern is not about unions – good or bad. The issue at stake is why partnership is not addressing the key challenge for this country and why, if it were to disappear, no-one would miss it.

The central fact in Ireland is that we are dangerously over-dependent on multi-nationals and apart from their activity, we are nothing more than an economy that sells houses to one another, financed by other people’s money. We have a serious deficiency of native companies doing well and – although there is no shortage of capital – all this spare cash is going into property.

Property creates no value added, no innovation, no patents and no creative long-lasting capacity. The great consumer/producer brands of the world – Sony, Apple, Mercedes, Walt Disney, U2 – are not made of bricks and mortar but are made of brain power and are creativity-driven. We are not creating any of these brands. In fact, a recent Fortune 500 survey put only one Irish company – Ryanair – in the global top 500.

The implication of this development is that the producing capacity of the country is falling back alarmingly. If this continues, we will not be able to pay our increasing indebtedness.

Today, Microsoft, Dell and Intel, account for 20pc of our GDP. Think about that for a moment. The turnover of the operations of three multi-nationals in Ireland accounts for one euro in every five in circulation here! Furthermore, 72pc of all our exports came from two sectors – the “pharmachem” sector (chemicals and pharmaceuticals) and computer sector.

Multi-nationals accounted for an astounding 87.6pc of Irish exports, yet there are only 100,000 people working in the multi-nationals as opposed to 1.9m in the rest of the economy.

Of the remaining 12pc of our total exports, close to 8pc were agricultural goods, so domestic firms only account for a tiny 4pc of exports. Are things now becoming clear? The engine of growth in Ireland, the sector that earns hard currency for us, is the multi-nationals. They are non-unionised and are as a result, not directly covered by partnership. If we take the multi-nationals out of the equation, our productivity figures collapse.

So for example, the Enterprise Ireland sales-pitch claims that Irish productivity is the highest in the world but, when we take out the multi-nationals that impressive first in Europe, drops to a lowly eighth.

Without productivity growth, we cannot sustain wage increases indefinitely. This is the nub of the problem with partnership. Because it is a one-size-fits-all approach to the economy it operates on the basis of averages.

So those parts of the economy where productivity is low, manage to extract wage deals commensurate with sectors where productivity is high. This increases costs in the domestic side of the economy, which can only be paid for with lower profits.

All this makes the property market appear even more attractive for investors, because everyone thinks that prices can only go upwards. So the net result of partnership is to drive even more money into the property monster and away from domestic long-term wealth creating industries.

As long as everyone keeps borrowing and spending, these fundamental structural developments go unnoticed.

SO partnership, rather than making Irish workers more secure, is serving to waltz us up a cul de sac where real businesses are getting squeezed between the multi-nationals on the one side and on the property Leviathan on the other.

The multi-nationals are getting the best brains and the property industry is getting the cheapest capital. The piggy in the middle is the domestic private sector which is living off scraps.

This is not happening to the same extent in any other European country.

We are being blindly led by the feel-good factor associated with inflated house prices and the political imperative of the next general election.

With the world’s financial markets collapsing around us this week – signalling choppy waters in the future – all we seem to be worried about is the partnership charade. Rarely, has the feeling of living in an economic Lilliput been more intense.

  1. Billy

    I was speaking to the wife of a German property player and
    she was telling me that the Paddys are screwing up the
    property market in Berlin. The Germans are holding property
    to sell to the Paddys because the word on the street is that
    Paddys will buy anything, for the most inflated price and
    will Queue for it. We do the same here for houses that I
    believe a lot will have to be knocked in the future because
    they are so flimsily built and will not be suitable for when
    oil gets too expensive to have running all the time and
    because they were build at breakneck speed by hungover builders.

    We are trapped by a government still enthralled by the
    DeValera notion of self sufficency and the partnership crap
    is another manifestation of it. Because we are an island
    and becasue of the Infallible-alike Catholic hierarchy
    structure we are so fond of the person at the top table
    tells us what to do and we like loyal subjects must follow.
    And follow without question or asking why.

    We are a Banana republic run by vested interest after vested
    interest. But I do believe we get the governmemt we deserve
    and our inability to debate without reverting to mantras and
    blind faith is holding us back.

    To go forward we need to foster debate and not treat
    dissenting voices as the enemy. The infallibility of the
    Church is the reason we don’t question authority and the
    govermnent plays on this. We need a secular state and we
    will eventually regain our voice. The longer the church and
    the state are joined at the hip the longer we will be an
    immature state whos citizens gamble with property becasue of
    some notion that it will all work out in the end. We need
    to take responsibility for oour own actions and or money in
    order to become a mature society. We are a nation of gamblers.

  2. Sean

    Tis funny, for all the so called change in Ireland,
    landowners and public servants still run the show, same as
    it ever was, while the private sector worker pays in to
    meekly watch along.

    In the real world if the company you’re working for is not
    doing well, you’re either going to lose your job or take pay
    freeze/cut. I had a pay freeze for 3 years. This boohooing
    over pay deals and decentralisation makes me puke,
    especially in the light of job security and a guaranteed
    pension that workers in the private sector couldn’t dream of.

  3. Seán

    One of the major issues is the propaganda that has been
    generated by vested interest spin, half truths, distortions
    of the truth and lifestyle (via TV property programmes,
    websites, magazines, and of course word by mouth). It is
    not just the underlying objective economic fundamentals that
    operate in the market.
    It is the ongoing social construction of the ‘truth’ of the
    market that has a major impact on sentiment and hence the
    beliefs and behaviour of John and Mary Ryan. That ‘truth’
    is negotiated rather than being an objective absolute truth.
    Hence many people believe that high and rising house prices
    are a good thing is ‘true’.
    They also believe that the ‘truth’ is that house prices
    never really fall and that you are rich because of the
    equity in your house and that if you want to see house
    prices fall you are a ‘doom-monger’ and all round idiot and

    I do think one particular fundamental we should be directly
    challenging is the lending practices of mortgage lenders.
    As long as the lenders are willing to lend such large
    amounts of money to people the public will pay whatever
    prices are asked for property that the lending will allow
    them to purchase.

    Economic common sense and reality has gone out the window
    because the power of the vested interest spin and mantra has
    made that common sense and reality invisible, or if visible
    has turned it into ‘not true’.

  4. Brian

    So right, a disgraceful fraud from day one. Partnership did
    not create jobs it just made existing jobs cheaper for the
    employer.You infer that it really was designed to hold down
    public service pay because those workers are the most
    unionised in the country. You did not mention
    “Benchmarking”, another fraud designed to allow the public
    service to get pay increases over and above those
    “negotiated” in Partnership.The real losers were those
    workers trapped in the semi-state and private companies who
    were also unionised and whose employment was conditional on
    union membership.
    The whole mess is a legacy of Bertie Ahern’s stewardship as
    Minister of Labour back in the 80s.
    He treated SIPTU and ICTU as his own personal Branch
    (Cumann)of Fianna Fail and rewarded their leadership well
    for following his lead.
    The consequence of nineteen years of these so called
    partnerships is that we can no longer afford to live in our
    own country, a situation which existed before the first
    partnership was even dreamed of.
    It would be comical if was not so tragic.

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