As the social partners struggle to negotiate a new partnership agreement, Jim O'Leary argues that a new approach is needed
The corporatist arrangements that our elders and betters are pleased to call "social partnership" date from 1987, the year in which the Programme for National Recovery was negotiated between government, trade unions and employers. That is also the year that many commentators regard as marking the start of the Celtic Tiger era.
The institution of social partnership at a turning point in our economic fortunes and its cultivation throughout the next 15 years of unprecedented economic growth, have convinced observers that the two phenomena are intertwined.
The dominant view, espoused by no one with greater enthusiasm than the Taoiseach and Tánaiste, is that the impressive output and employment growth achieved since the late 1980s has been the result of "partnership".
This claim has assumed the status of a statement of the obvious, one that carries with it no burden of proof. The corollary is that scepticism is taken as a sign of badness - or madness.
One is reminded of Leonard Schapiro's remarks about propaganda: "The true object of propaganda is neither to convince nor even to persuade, but to produce a uniform pattern of public utterance in which the first trace of unorthodox thought reveals itself as a jarring dissonance."
However, scepticism is entirely warranted. There is no proof, or compelling evidence that "social partnership" has been a vital ingredient in our recent economic success.
Indeed, such evidence as exists about the links between partnership and economic performance lends as much support to the notion that partnership (at least Irish-style) is the result of rapid economic growth as it does to the notion that it has been the cause.
What is this thing they call "social partnership" anyway? Stripped of its overblown rhetoric, its elaborate institutional architecture (no fewer than 62 committees have been set up under the auspices of the PPF), and its cast of posturing protagonists, it is essentially a pay bargaining system. As such, its distinguishing features are that it is centralised and that it involves government as employer and as fiscal authority. However, in the Ireland of the 1990s what truly animated the pay bargaining system was the fact that government came to the table with the capacity to offer reductions in tax.
The deal was that government cut taxes and unions accepted moderate wage increases. The result was a virtuous circle of improving competitiveness, higher output and employment growth, and a rapidly expanding tax base, which provided the wherewithal for further tax cuts.
Actually, there was no need for an elaborate system of consultation and negotiation to activate and sustain this virtuous circle. Wage moderation resulted from tax cuts, not because the tax cuts gratified the desires of union leaders, but because they boosted labour supply.
Government didn't need to negotiate a wage-tax bargain with the unions; it could have unilaterally decided to cut taxes, and the same consequences in terms of increased labour supply, moderate wage increases and improved competitiveness would have ensued. Nevertheless, the social partners were happy to conspire to produce the impression that the tax cuts were the result of "partnership", because this allowed them to appropriate the credit for the improvements in competitiveness and the big gains in output and employment that followed.
The wage-tax bargain, institutionalised in the pay deals of the 1990s, was based on the notion of tax as an impost, as a deduction from wage packets, as something to be minimised, rather than as a payment for public services.
Happily, throughout most of the last 15 years there was no apparent conflict here: because of the exceptional buoyancy of the period, it was possible to reduce taxes and expand the provision of public services (or, at least, increase public spending).
AS a result, the payment of taxes and the provision of public services were increasingly disconnected, producing a climate that has been as inimical to the development of proper systems of public expenditure control and management, as it has been conducive to the persistence of waste and restrictive practices.
For most of the last 15 years, therefore, the parties to our corporatist arrangements have never had to make truly hard choices. The trade unions have never had to accept the concept of a "social wage", the notion that part of their members' remuneration package is paid in the form of public services.
In the circumstances, it is not clear in what sense the relations between government, trade unions, employers and the other parties involved can validly be characterised as "social" or even as "partnership".
Now that the tide of rapid economic growth has receded, and with it the buoyancy of government revenues, the landscape has been transformed. If the logic of the 1990s pay-tax trade-off is extended, the risk is that the virtuous circle described above will simply reverse in the period ahead. Tax increases will fuel wage inflation, which will damage competitiveness, which will in turn depress output and employment.
However, if higher taxes are required to finance desired enhancements in the quality of public services, why should there be compensating increases in wages? There shouldn't be, but how do we get to that position?
The challenge here is to weaken the connection between tax increases and competitiveness by strengthening the inclination of citizens to view taxes as payment for public services that are valued. Space does not permit a full elaboration of what this will entail here, so a few brief remarks will have to suffice. Fundamentally, it means that taxpayers will have to be persuaded that the public service is delivering what it should be delivering and doing so efficiently.
Not only does this require that public service organisations be performance-driven and yield value for money, but that they are seen to be such. This sort of agenda also has clear implications for public service pay and pay determination systems. At its simplest, pay must be closely linked to productivity, and mechanisms must be found to link rewards with performance. Whether a reform agenda along these lines can be successfully pursued within the existing corporatist arrangements is questionable.
One thing is sure though: it's the agenda that matters. Institutional arrangements are only a means to an end and should never be allowed become an end in themselves. If they don't work, change them.
Jim O'Leary is currently lecturing in economics at NUI-Maynooth. He can be contacted at jim.oleary@may.ie.
