Partnership needs to embrace stakeholders

Economics: Who governs Britain? This was the question put to the British people in the 1974 election by their prime minister, Ted Heath.

Heath died this week prompting reminiscence about his mixed legacy: success in bringing the UK into Europe, but failure in managing the British economy. On the Thursday before his death, social partners in this State began talks on framing its next social partnership agreement. The last such agreement "Sustaining Progress", the sixth in a succession of such agreements, runs out this year. The next one will run until 2008. The next election is due in 2007.

It is a good time to think about the appropriate balance between government, business, the trade union movement and the electorate. Heath's simple election slogan in 1974 reflected a desire to curb the power of the trade union movement. By the mid-1970s that movement had acquired a level of power that was so unbalanced that Heath was defeated by it.

Trade unions became more powerful as a result. It was a pyrrhic victory, though. British unions overstretched their power and in 1979 they faced an angry electorate, as well as an opponent very different from the moderate Heath: Margaret Thatcher. Simply put, unions in Britain failed to understand the wisdom of an old English saying: "Better keep a hold of nurse for fear of finding something worse." A decade of severe - and avoidable - social and regional division followed in which the trade union movement in Britain was systematically emaciated.

On this island we have been more moderate and more fortunate. Our present partnership system began in 1987 at a point of economic crisis. At that time our levels of taxation and public debt were unsustainable. At the same time our competitiveness was being eroded by rates of wage growth that exceeded productivity growth. Social partnership brokered a deal between the economic key players to solve this problem. Unions and employers agreed to moderate wage increases. The government did its part by cutting income taxes. The economy improved as a result of this, but also for other domestic and external economic reasons. The essence of partnership is that it attempts to spread more evenly the short term pain of reforms which are in the long term social interest.

Today's challenges are very different. The first significant challenge to our economy is our high cost of living. The question of efficiency and cost in the public sector constitutes the second most important challenge. These two challenges are critical to our national competitiveness. The cost of living drives wage costs. So does taxation.

Reform is required in many sectors of our economy, not least in the public sector. But reform leads to winners and losers. Interest groups will fight their corner and - if everyone else is doing the same - who can blame them?

When the taxi industry was reformed years ago, its members woke up to realise that while they had deregulated, many other sectors retained the privileges of protection. The point of partnership is that it aims at getting important stakeholders in society to move together, so that we all win. The alternative risks inviting the response "reform yes, but not in my back yard".

The trick in any partnership system is to ensure that the right groups are represented. If today we were to redesign a system of social partnership from scratch, it would represent taxpayers and consumers more strongly than at present. The Government maintains that it does represents these groups in negotiations. It may do so. But it also depends on the votes of trade union members, as well as on political funding from business. Bertie Ahern has said that the age of tax cuts is over. Spending on public services is a priority, he says.

But events this week relating to the Abbey Theatre - not to mention the State's possible loss of €300 million on the sale of semi-state land - suggest that increases in public service provision can be funded alternatively by achieving more efficiency in government.

If the next partnership agreement foregoes tax cuts in favour of public spending increases, it must first be shown that this alternative source has been exhausted. This must also be justified in terms of proven benefits to our citizenry from that expenditure.

As far as wage growth is concerned, the partnership system should move firmly in the direction of more flexibility. The principle of benchmarking - accepting that wage growth must depend on productivity growth - must be more widely extended. The different pressures that global competition places on our vital internationally traded sector demands this. Above all, the workings of the social partners must be transparent. No closed sessions, no hidden agendas. Decisions relating to the expenditure of taxpayers' money must be open to particularly strong scrutiny.

While less intervention is justified on the wage front, there are areas where intervention might be increased. The revelations coming out of Aer Lingus this week have raised the issue of equity and dignity in the workplace.

Social partners should examine how the EU directive on workplace information and consultation - which must be fully implemented here by 2008 - can create workplace environments that are stimulating and motivating and not demeaning and humiliating. Maintaining motivated human capital is essential to our economy, as well as being socially just.

The next social partnership agreement must adapt to the real challenges of today, not the inherited agenda of the 1980s. In reality, its outcome will reflect the interests of those most strongly represented at the negotiation table.

The lessons of the Heath era are clear: The public will tolerate a constructive role of interest groups in policy making. But it will eventually react if that role is abused. The electorate will give its verdict on whatever the social partners agree in two years.

Who governs Ireland? The people will decide.