Both public sector and Government must face reality

ECONOMICS:The best that can be expected is a deal for €1.3 billion in public- sector pay cuts, but this is nowhere near enough, writes PAT McARDLE

I WENT on strike once. It was only for a day and it was more than 20 years ago but the memory is still vivid. At the time, I was a civil servant, one of those higher grades who recently caused a bit of a stir when they announced that they would participate in this week’s one-day action.

For most of us, it was a first experience; for me, it was also a last one. In the building where I was based only two people passed the pickets – I still remember their names.

Strikes are emotive and occasionally traumatic. Moreover, they are not something that senior public servants resort to easily. Civil servants are generally well educated and usually well informed. I remember with affection the tea breaks at which people would club together to fund the tea and biscuits. This would be accompanied by a discussion of world affairs that was more informed than anything I came across in the private sector.

How then, could such erudite people resort to a strike that surely has to be fruitless? Do they not know that we are broke, that they have secure, well-paid, pensionable jobs, etc? Clearly, they think otherwise.

It was in this frame of mind that I encountered picketers on St Stephen’s Green in Dublin. Ironically, they were from the Department of Justice, Equality and Law Reform. I wondered if they would be somewhat shamefaced, half hiding behind their placards. Not a bit of it. If anything, they were exuberant, clearly enjoying their day off and responding to the occasional honk from a passing car.

The lesson I take from this is that there is a disconnect from reality here. Union leaders seem to be following rather than leading their troops. The situation is different from the 1980s, when we were beaten down by almost a decade of penury. Today’s Celtic Tiger cubs expect to have a job. As a caller recently told a radio interviewer: “I didn’t do a degree to have to resort to menial work.”

In the 1980s, we were glad to do menial work; the alternative was the emigrant ship.

By the same token, many public servants seem to believe genuinely that they are being discriminated against and that, having yielded one pay cut, they should now be exempt. The situation has not been helped by the Government’s stop-start short-term approach.

At the beginning of the year, several months were wasted in fruitless discussions with the social partners. The best that can be expected from the current discussions is agreement on a €1.3 billion package of pay cuts, but this is nowhere near enough.

One of the strangest aspects of the present approach is its short-term nature.

Last April, the budget set out the scale of the task. The requirement is to find €16 billion “cuts”, not €4 billion. These estimates have since been ratified by a range of international bodies – the EU, the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development, etc.

We can only speculate as to how much of this should come from pay. Let us assume that one-quarter, or €4 billion, would be appropriate. The Government bill for pay and pensions is €20 billion. Cuts of €4 billion equate to 20 per cent. As studies by the Central Statistics Office and Economic and Social Research Institute show that public- sector wages are between 20 per cent and 30 per cent above equivalent private-sector levels, this would merely bring them into line.

Assuming the present discussions are successful and deliver the €1.3 billion sought, are we going to have a rerun of the same debates, tensions and stoppages next year, and again the year after? The prospect is too depressing for words.

Could it be that the Michael O’Leary approach is the correct one and the Government should have gone for €4 billion in pay cuts in one go? At the moment, neither side appears to be taking the long view.

The only chink of light that I have seen came from Siptu president Jack O’Connor, who was reported as saying that any pay solution would have to be in the context of competitiveness. As we have lost competitiveness hand over fist in recent years, this would point to potentially large wage reductions.

Failing this, the prospects are fairly bleak. Failure by the Government to deliver in not only this year’s budget but in subsequent budgets could quickly see us back to a situation similar to last February.

While some have characterised this as inevitably leading to a bailout by the IMF, it is more likely that the EU would effectively front for the IMF, which gives balance-of-payments assistance. However, the end result would be the same: an enforced correction by an external agency. A somewhat extreme, but in many respects similar, example of what we could expect is provided by Latvia. Last December, it accepted IMF assistance. The accompanying IMF report stated: “To improve competitiveness, the authorities are cutting wages and bonuses in the public sector by 25 per cent in 2009 compared to 2008.”

The Irish approach, by comparison, looks “softly, softly”.