Social democratic economics works

Comment: The "Comment" by Constantin T Gurdgiev (Irish Times 30/07/04) on my pamphlet The Fair Economy is a deeply distorted and grossly inaccurate presentation of what the pamphlet actually says.

A full and comprehensive correction of the record would require a lengthy and perhaps tedious article. So, instead, I invite readers to access the pamphlet on www.labour.ie and judge for themselves. Here I focus on a number of points that are important in the ongoing debate about economic policy that has arisen since the June elections.

The first issue relates to the sources of Ireland's economic success since 1987.

I do not accept that the Celtic Tiger was the result of neo-liberal policies, nor do I believe that policy-making since 1987 has been dominated by neo-liberalism. Instead, there was a wide range of factors, and governments, that contributed to the boom over at least three decades. Jim O'Leary, writing on the same page as Mr Gurdgiev, makes just this point.

Mr Gurdgiev's assertion, for example, that "lower taxes and higher wages spurred an unprecedented increase in labour force participation by women, which accounts for a vast share of the Celtic Tiger success" is fanciful. It completely neglects the progressive improvements in the position of Irish women achieved since the 1970s. The ending of the marriage bar, the equal pay legislation, and the right to paid maternity leave, however inadequate, were far more important in providing opportunities to a generation of Irish women whose mothers had rarely worked after marriage than any reductions in personal taxation after 1997.

Indeed, as I point out in the pamphlet, the major reductions in personal taxation of the 1990s came after the boom, and as a result of it, rather than before it.

After 1997, there was a discernible shift to the right under Mr McCreevy.

This involved the reduction in the share of national income devoted to state services in his first three years in office. Mr McCreevy's belief in Fianna Fáil, however, is every bit as strong as his neo-liberalism, and he engaged in a massive spending splurge to buy the 2002 election at taxpayers' expense.

This was then followed by significant tax increases. While accusing others of favouring tax and spend, he was engaged in a policy of "spend and tax".

To claim that Labour favours a reckless "tax and spend" policy is simply ridiculous, and reflects a stereotype of the Labour Party from which Mr Gurdgiev cannot, or does not wish to, escape.

Labour favours sustained and sustainable improvement in public services, achieved through steady investment, and significant reform. For the past seven years we have seen the share of national income channelled into public services being first reduced and then increased, in a stop-go economic policy that is bad for growth, price-stability, quality of life, and value-for-money.

Unaccountably, in describing how we would fund better services, Mr Gurdgiev omits the argument made in The Fair Economy that renewed economic growth will deliver significant new resources, and that our priority, rather than fresh tax cuts, should be to use growth to improve public services. I also argue for debt-financing of infrastructure investment, as we have been doing since 2001.

In a rather hysterical reaction, I am accused of "economic illiteracy" for claiming that neo-liberals favour a stronger centralised state and/or market mechanisms. If true, that illiteracy extends to the eminent British political scientist Andrew Gamble, and his book The Free Economy and the Strong State: The Politics of Thatcherism, or to any account of recent British history.

In the Irish case, the effective destruction of the Freedom of Information Act by Mr McCreevy, and the emasculation of local government by the present Government, are good examples of the centralising tendencies in neo-liberals.

In The Fair Economy, I made the argument that social democrats should shed any residual hesitancy about the role competition can play in protecting consumer interests, and contrasted the rhetoric and the record of the PDs in this area.

I also argued against the traditional focus of social democrats on producer, rather than consumer, interests. Despite this, the Labour Party is accused by Mr Gurdgiev of not supporting "a more competitive economy where such policy will undermine the power of their trade union clients". Again, the stereotype replaces the written text.

Apparently, however, I have failed the litmus test of the modern Irish neo-liberal - I don't approve of Minister Brennan's plans for Aer Rianta.

As I said in the pamphlet, and on numerous occasions in the Dáil, I take that position simply because I don't think the plan will work. Indeed, I regard it as an illustration of blind allegiance to the idea of competition for its own sake, without any regard being given to the particular circumstances of the industry involved.

Competitive markets often produce desirable results for society, but not in all and every circumstance. Governments must recognise where markets fail and deal with those failures through a variety of mechanisms.

Mr Gurdgiev is apparently the director of the "Open Republic Institute". To my mind, vigorous debate between people of opposing views on economic policy is a feature of a healthy democracy. Apparently in his version of the open republic, it is to be replaced by distortion and hysteria. What a pity.

The author is the leader of the Labour Party.