Sounds from the workforce indicate the recent economic phase is over

The Irish political economy needs a new paradigm. As part of the change, the next set of agreements between employers and employees needs to be significantly different from the recent series of national pay agreements culminating in Partnership 2000. Most notably, the social partners need to agree on a new shared political economic perspective.

The catch-up phase in the political economy is almost over. The statistical trends are clearly showing this, for instance, GNP and unemployment. Even more importantly, the sounds from the workforce and the population also indicate the recent economic phase is over and a new direction needs to be identified and a new strategy devised.

The greatest benefit of the recent series of national agreements is that they guaranteed modest wage increases in the private sector, thereby resulting in substantial improvements in wage competitiveness for the economy and ultimately in big increases in employment.

But the Government as employer was also a beneficiary. Despite its fundamentally weak negotiating position because of employee job security, it achieved modest wage agreements by sheltering under the umbrella of national agreements and by citing the national interest of sound public finances.

It is only in the last few years that this strategy has begun to fail as some public sector unions have breached either the letter or the spirit of Partnership 2000 and its predecessor, the PCW.

But now the full impact of Celtic Tiger expectations has eliminated any prospect of another modest pay agreement in the public sector, as is shown by the nurses' dispute.

Some private-sector unions have always been less enthusiastic participants in the national agreements, mainly because they believed they could negotiate a better pay deal outside the national agreement with most employers. This sentiment will be exceptionally strong among private-sector unions in the current negotiations.

Even if the Government introduces additional elements that are attractive to employees (e.g. childcare tax relief and subsidies), the trade unions will not be able to accept a deal that does not deliver significant improvements in pre-tax incomes.

Profitable employers have a number of options, like profit-sharing schemes or bonus payments to avoid an unduly negative effect on wage costs.

But these arrangements also have disadvantages for both sides (provision of information, loss of control, greater financial risk to employees etc). It remains to be seen whether profit-related pay will play a significant role in the next agreement.

Alternative options for conferring financial reward on public-sector employees are limited, and ultimately a large pay increase will have to be agreed in all areas of the public sector.

ABSENT partners also have an impact; that is, the 50 per cent of the workforce who are not members of a trade union and their employers who are a majority of all Irish employers. Would those employers voluntarily implement any nationally agreed deal which would be bound to be relatively generous to employees compared to previous agreements? If they don't, what would be the reaction of the employees? Would many of them just seek another job or would they attempt to join a union?

The Government will undoubtedly attempt to make large income tax cuts conditional on a new agreement. However, it is questionable as to how useful a bargaining chip this will be since voters expect tax cuts anyway, particularly those who are not members of a trade union. The Government's negotiating position has also been undermined by Fine Gael's recent proposal for £2 billion of tax cuts.

Any successor agreement will require a much greater variety of options to accommodate the circumstances of different sectors compared to the current agreement. The extreme version of this outcome is that no national agreement is reached and employers, including the public sector, are forced to reach separate agreements with their employees.

It will probably not be possible for the employers' organisation to agree to a large pay increase on a national basis given the varying circumstances of business.

One possible outcome for the private sector is a framework agreement with considerable scope to finalise the detailed pay increase at local level. One problem for private sector employers is that if they are party to any form of national agreement that contains an explicit pay agreement for the public sector, it would be difficult to avoid that becoming the pay norm, or worse still, a baseline.

A shared political economic perspective which endured among the social partners for more than a decade is no longer valid. A range of national-interest factors encouraged employees and their trade union representatives to accept modest pay agreements, viz the national debt, the public finances and high unemployment.

No sensible trade unionist could accept these same arguments today against a political-economic background of tribunals, budget surpluses and visible profitability in the private sector.

There is little sign as yet of any new shared perspective among the three main social partners, although the next NESC report may make useful suggestions. It might also be more fruitful for the three main social partners to attempt to first agree a new perspective rather than staking out early negotiating positions that only serve to illustrate the gulf that divides them.

In view of the conflicting interests and the current circumstances of the Celtic Tiger economy, it will be very difficult to agree a new social partnership agreement unless the Government can outline a new and convincing political economic perspective. So far, the Government has made no attempt to do this.

Brendan Lynch is an economic consultant. He was special adviser to the Minister for Finance 1994-97