Is social partnership essential to the Irish economy?



Partnership helped to lift economic gloom in the past by creating a shared understanding of the problems, and it can do so again now, writes RORY O'DONNELL

SINCE 1987, governments have entered a series of social partnership programmes with employers, unions, farm organisations and the community and voluntary pillar. Does this approach still have a role to play in dealing with economic difficulties and enhancing long-run prosperity? We should begin by asking what social partnership has provided to the Irish economy and society in the years since 1987. Most would agree that partnership played a role in helping Ireland escape from the deep economic crisis of the 1980s, by delivering agreement on the need for fiscal correction and modest wage growth.

The success of the first partnership programme prompted government and the partners to enter further agreements. Through the 1990s, the focus moved from fiscal correction to employment, long-term unemployment, the European internal market, weathering the exchange rate crisis of 1992-93, building economic and social infrastructure and preparing for the euro.

The partnership approach delivered and reflected a shared understanding of the key mechanisms in the economy. Why does this matter? Because, in a modern social economy, technical measures – the euro, fiscal policy rules, or labour legislation – do not work at a technical level alone. Their effectiveness depends on their acceptance by economic and social actors and the use they make of them.

Furthermore, consensus on overall economic strategy increases the chance of serious discussion of complex supply-side issues, such as public sector reform, training, innovation, social exclusion etc. By contrast, where broad strategy is contested, disagreement predominates and partners refuse to acknowledge the need for change in specific enterprises, sectors and programmes.

In recent years, focus has been on crafting a more unified view of the economy and society. This is reflected in the ambitious social policy goals set out in Towards 2016 and in investments in the National Development Plan. In a globalised world, the strength of Ireland’s economy and the attractiveness of our society will rest on the same foundations – the human qualities of participants.

Compare Ireland’s economic performance in the partnership years, 1987 to the present, with other periods.

In the 1960s and 1970s, Irish employers, unions and government struck national-level wage bargains. Each had radically different understandings of how the economy worked. Day-to-day interactions were conflict-ridden, and this damaged economic performance.

The national approach to wage bargaining was abandoned in the early 1980s. But this did not yield wage settlements that supported good economic performance. The absence of a shared understanding of Ireland’s economy was reflected in inconsistent policy and, as we know, crisis-levels of unemployment, emigration and falling living standards.

Partnership works when the partners focus on their long-term interests and the wider national interest. Co-ordinated bargaining then provides business, government, employees and others with a degree of certainty to pursue these interests. When conducted with skill, and using a shared analysis of the economy, it can reduce the risk of wages over- or under-shooting. Experience shows that deliberation, interaction and negotiation in the partnership process creates the context in which this approach is possible.

Some of the most successful small European countries, such as the Netherlands and Denmark, have what they call a “negotiated economy”, with co-ordinated wage bargaining.

Partnership is, and must be, open to criticism. It cannot escape some responsibility where policies fail to achieve desired outcomes. In discussions in the National Economic and Social Council, the partners have noted that over-arching strategies have not always mobilised real change, that “partnership has sometimes been invoked as a veto on change” and that “if partnership is not part of the solution, it will become part of the problem”.

The current economic situation is complex, with international instability, a strong euro, rising prices, job losses, a revenue shortfall and a structural shift away from construction and towards services. This creates a number of temptations that, if followed, would yield an inconsistent policy approach and repeat the mistakes of the past. On its record to date, social partnership has a role in managing this difficult conjuncture. It can do this largely because the Government and the partners are able to rely on a shared set of medium-term understandings and goals.

Is social partnership essential to the Irish economy? Life teaches us to be careful about saying that anything is either essential or impossible. Between these extremes, there is reason to believe that it can assist in managing both the uncertain current conjuncture and the next stage of Ireland’s economic development.

Rory O’Donnell is director of the National Economic and Social Council and chief officer of the National Economic and Social Development Office

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