OPINION:Amid the mayhem and disillusion, Ictu's social solidarity plan is the only formulation of an efficient way forward, writes DAVID BEGG.
ON SEPTEMBER 22nd, 2008, Lehman Brothers collapsed and with it fell the superstructure of the old world order. The liberal era ushered in with the deregulation of global capital markets in the 1970s is now over. There will be no return to business as usual, however long or short this recession may be. What will replace the old order remains unclear.
This global economic crisis is compounded in Ireland by the fact that we are facing five separate subcrises running concurrently: a banking crisis, a fiscal crisis, an economic crisis, a social crisis and a reputational crisis. The latter is the direct result of the actions of senior banking personnel, whose conduct has been well-documented.
The combination of these circumstances, and the inadequacy of the official response has generated both fear and anger in the population.
Fear arises from uncertainty about the future, about security of employment, pensions and the possibility of home repossessions. Anger arises because those responsible for the banking crisis have not been made accountable. There is anger too at the unfairness which imposes the burden of economic adjustment on those who had nothing to do with causing the crisis and who are often least able to bear it.
It is a rather ironic feature of the public discourse on this subject that those who are now most vocal in proposing solutions were formerly strong advocates of the “voodoo economics” that caused the crisis in the first instance. The principal orthodoxy embraced by this group is that the solution to our problem lies in a competitive devaluation of wages across the economy.
While the levy on public sector pensions is in part intended to plug the hole in the public finances caused by the loss of tax from the housing bubble, it is also intended to lead this devaluation in wages. The belief being that if the Government leads, the private sector will follow.
It is a co-ordinated strategy, as evidenced by the 10 per cent cut for the construction sector demanded by former PD minister Tom Parlon, the actions of the employers’ body Ibec and the arguments for a reduction in the minimum wage made by Minister for Health Mary Harney and Minister of State for Labour Affairs Billy Kelleher.
A competitive devaluation in wages is a proxy for currency devaluation, to restore competitiveness lost through weakening of sterling and the dollar. If it saved jobs, the trade union movement would have to consider it. But there are two questions which proponents of the idea need to answer convincingly.
The first relates to efficacy. The depth of the recession is such that it is doubtful a devaluation of wages could increase exports. Germany engaged in an effective devaluation of wages over 10 years (by accepting pay increases lower than its neighbours). Exports increased but domestic demand plummeted.
Now Germany is losing exports again due to the weak global economy – gross domestic product (GDP) fell by 2.1 per cent in the last quarter of 2008. Given that Germany experienced no property bubble, this decline can reasonably be associated with exports. If Germany’s experience was to be repeated here, it is conceivable we would fail to increase exports while also reducing consumer demand.
The second question relates to the distributional settlement that would have to accompany a wage devaluation. Why would workers accept this if profits, prices, costs and personal debt remained untouched? The proponents of this idea need to produce some convincing answers to these questions.
In the meantime, Ictu will continue to advocate for its 10-point plan for social solidarity. I note that it was attacked in this newspaper and elsewhere by Cathal O’Loughlin, a former assistant secretary in the Department of Finance and a gentleman who holds some doctrinaire, right-wing views. He either misunderstood or misinterpreted two key points: the first is that our campaign is not for the elimination of the pensions levy but rather for a fairer sharing of the burden of adjustment.
Second, he says that we don’t declare our hand on taxes. A cursory glance at our newspaper ads would reveal we do identify the tax reforms we seek. Clearly, O’Loughlin is a believer in the old adage that if you don’t have an answer to an argument the best tactic is to set up a straw man.
The 10-point plan for social solidarity draws its inspiration from the Swedish budget consolidation, achieved after its 1994-1998 banking crisis. A critical aspect of the Swedish approach, as documented by one of its advisers, Jens Henriksson, was to put together a package of measures that applied fairly across society and was well-communicated to the public.
This is the approach Ictu advocates: we want to ensure that pain is shared and the burden of adjustment is not loaded on those least able to bear it. And we understand that there are two effective levers to make this happen: cutting expenditure and raising revenue, with some easing oil applied through borrowing.
Unfortunately, the Government seems obsessed with cuts and has ignored raising revenue.
The time has come to move beyond fear and anger and towards hope.
Ictu has offered the Government a three-year agreement based on our 10-point plan, a “special period” to get us back on our feet and help restore confidence.
We accept that our plan is neither perfect nor prescriptive. But has anyone else got a better idea?
David Begg is general secretary of the Irish Congress of Trade Unions. He is also a governor of the Irish Times Trust, proprietor of The Irish Times