August 6, 2008
The end of partnership might not be such a bad thing after all. At the moment, it is difficult to turn on the TV or radio without hearing someone lamenting the demise of the national pay talks and warning of dire consequences.
For an institution that was supposed — at least, according to the people involved in it — to be the cornerstone of our economic policy, it crumbled pretty quickly. This capitulation in the face of its first real economic challenge suggests that partnership might not have been all it was cracked up to be.
Let’s get one thing clear: our economic growth rates in recent years had nothing to do with partnership. Anyone with a grasp of Leaving Cert economics could figure that out.
The growth rates were more or less a mirage based on a borrowing binge.
As we merrily waltzed ourselves up a debtors’ cul de sac and became the world’s most indebted private sector, this overdraft threw off lots of surplus cash which found its way into the Government’s coffers as various taxes such as VAT, excise duty and stamp duty.
The associated domestic boom in houses, cars, holidays and (demented) consumption, pushed up the demand for labour, generating buckets of services jobs and, in turn, lots of income tax. This created a government surplus and this surplus was divvied up among the social partners.
So partnership was the residual in this equation. Rather than being the beginning of the story, partnership was the result, the final chapter. It was not the catalyst or the spark, but the thankful recipient of a tax surplus.
When we stopped borrowing, late last year, the taxes dried up. There was no miracle, just a shell-shocked debtor clinging to the decaying edifice of a silly housing boom. Without the surplus borrowed cash, there was nothing left to divvy up and the great political structure called partnership has been exposed as another mirage, just like the housing boom. The various claims made about the link between partnership and Ireland’s growth rates are as spurious as the ones that told you houses prices could only go up. These assertions are simply bad economics for which a decent secondary school teacher should fail a student.
This is no one’s fault really; it’s just the way it goes.
Partnership was an example of national corporatism. Its proponents suggest that its existence account for the avoidance of industrial relations problems. They omitted to tell anyone that industrial relations problems virtually disappeared in all English-speaking economies in the past 20 years. The reason for this peace is the most prolonged boom we have experienced since the 1960s. When everyone is doing well, we don’t quarrel.
Furthermore, there is something adolescent about threatening strikes as a means of keeping an agreement together when you know that we are all facing into a profoundly different scenario. No one denies a man’s right to withdraw his labour if he feels he is being taken for a ride. However, this is not what is going on in Ireland at the moment.
Let’s go back to the Leaving Cert economics course to get a clearer picture of what is going on now and what is likely to pertain for the next few years on the industrial relations front.
AS unemployment rises, wage inflation will have to fall somewhat. This is the crux of the problem. We can no longer afford to mop up the unemployed with government-inspired work schemes (as we did by expanding the public sector from 2002 onwards).
So unemployment will rise in sectors where there are no productivity gains. If employers give higher wages without getting productivity increases, profits will fall.
The Government is Ireland’s biggest single employer, so instead of profits falling, if it were to give pay increases greater than productivity (which we know is impossible to measure in the public sector) the budget deficit would grow and could only be paid for by higher taxes or less spending elsewhere. On the other side of the coin, anyone who has been shopping for basic groceries in recent months will realise that inflation is rampant. Some of this is being imported, such as oil prices and food prices, but lots of the “mark up” has got to do with domestic costs. So the average worker — no matter where he works — is looking for wages to compensate for the diminishing buying power of his pay packet.
On top of this, the great Irish borrowing binge has to be paid back. The credit crunch is forcing up the monthly repayments on mortgages for hundreds of thousands of working families who find themselves in negative equity. The “under-40s” are hurting the most. Their take home pay is being squeezed from all three sides: wages have hit their ceiling, inflation is eroding spending power and debts have to be paid.
By the way, this pattern always happens in a downturn. This is what recessions are about and normally the three compounding facts are the recipe for a monumental struggle between workers and employers. And in Ireland, we have a new wildcard in the pack: immigrants.
In our Leaving Cert economic model (which is incidentally colour-blind), immigrants are just another bunch of workers fighting for the same thing. However, they will have the effect of bringing wages down lower than they otherwise would have been if the immigrants were not here. This implies they will be in direct competition with the local workers as the recession bites.
Something will have to give and it is likely that we will see a titanic struggle between workers and management, with immigrants adding a new flavour to the mix. This is something we haven’t seen before.
If the partnership head-honchos are honest they should tell it like it is, as a good Leaving Cert student would. Instead, we are getting spin, deception and finger-pointing.
If that’s all they can come up with, after 20 years of social partnership, then good riddance to the lot of them. They’re not worth saving.