Monday, May 11, 2009

Social Partnership needs an urgent reality check if its legacy is not to be ‘a one-trick pony’

ictu logo

brian-boru-celtic-harp ibec logo CIF IFA

Peter McLoone, General Secretary of IMPACT and chairman of FÁS (2006-2010), warns of an ‘abyss’ as the social partners are “staring failure in the face”. Would this not suggest that it is time to restate the fundamental objective of partnership in the context of prevailing circumstances and a Live Register that has increased by well over 100% in twelve months?

We cannot spend our way out of recession - even if this is a classical economic response to reigniting an economy. We cannot subsidise our way out of difficulty either. The Government faces the prospect of only being able to fund 53% of what in intends to spend in 2009 out of what it is likely to earn in 2009. Personal debt, at €172 billion, is well in excess of what is prudent and a by-product of housing bubble where buyers bought houses at the equivalent of up to 15 times their household income. We cannot tax our way out of difficulty because that aggravates the basic problem rather than ameliorates it.

We are told that when an international recovery becomes evident that we can aspire to an ‘export-led recovery’. But what will the components of this be?

There have been many own-goals that contribute to current difficulties and one of these is the erosion of competitiveness. Many cliché-laden tomes have been published commenting on this but little action has been taken to improve matters.

If social partnership has any real purpose surely that should relate to enhancing national competitiveness.

If the process is to degenerate into a bidding process where each of the social partners are essentially seeking parity of subsidy (€1 billion ++) for their particular constituency, it is hardly worth the cost of the Pledge furniture polish the maintain the talks table.

Can partnership offer anything that will stimulate economic recovery and growth or is it merely a subsidy -dispersing talk-shop with each stakeholder reduced to seeking parity of resources? Is the suggestion that the national Partnership process in its current form maybe faltering really such a bad thing?

Social Partnership has been in existence since 1987 and has accomplished a great deal. It brought the industrial relations process to a more sophisticated and far reaching level and its impact extended beyond bilateral industrial relations matters to encompass the perspective of farmers, construction and the voluntary sector. It reduced the incidence of days lost through strikes (4,179 in 2008, 6,038 in 2007) to provide me and thousands of beneficiaries with a sense of enhanced prosperity that are now illusory as a consequence of the financial crisis and especially that element of it that is attributable to an absence of economic leadership and direction in Ireland. We now realise that a society cannot be economically sustainable on the basis of its citizens buying poorly constructed houses in out-of-the-way locations for 15 times their annual income when they ought to be able to do so for three times their annual income. The fault lines of voodoo economics and its first cousin, leveraged investment, have been brutally exposed.

However, the process has been defined by the stakeholders in the one-dimensional direction of being able to deliver incremental financial benefits to their constituencies. We are in an environment where the Government is intending to spend €63 billion out of a potential income of €34 billion in 2009.

The last time that Ireland operated with the level of tax revenue anticipated this year was in 2003. The following gives a high-level glimpse of how fiscal circumstances 2009 compares with those of 2003:


€ 000


€ 000

GDP at current market prices


Est 168,000


Department of Social & Family Affairs
Department of Community, Rural and Gaelteacht Affairs

Department of Enterprise, Trade and Employment

Expenditure % GDP














National Debt

Cost to service National Debt



Mar 54.245


Surplus (Deficit) on current account

Surplus (Deficit) on capital account

Exchequer Balance







Live Register





Apr 11.4%

The foregoing does not take into account the implications of redeeming our zombie bank sector. The recent US announcement that tests to of the capacity of leading American banks to survive an economic downturn will require to raise the level of core capital by collectively raising $75 billion in new equity and to maintain a higher ratio of core capital. Irish banks do not have a high level of core capital by international standards. If they are to compete for new equity with American banks they will be judged adversely for the inadequacy of their core capital in the context of these higher norms.

ICTU and IBEC have each advocate spending initiatives costing €1 billion plus to respond to their individual constituencies. Who is going to pay for this against this fiscal background?

A consequence of partnership since 1996 is the erosion of Ireland’s competitiveness and this has resulted in the benefits that recipients thought were assured were in fact unsustainable.

The most recent quarterly report from the Central Bank demonstrates how this has come about:




Ireland: average hourly earnings




Major trading partners:
average hourly earnings




Our labour force in December 2008, 2.28 million was 17,200 lower than a year earlier. Unemployment increased from 101,500 to 170,700 in this period. The participation rate in the workforce dropped from 65.1% in December 2007 to 54.1% in December 2008. The index for modern industrial production at December 2008 was 152.5 compared to 173.8 in December 2007, a downturn of 12.3%.

Many of the multinational businesses operating in Ireland have established positions in developed countries. Some are seeking growth in emerging countries which account for 85% of the world’s population and more than 50% of potential worldwide GDP growth. Can Ireland offer products and services to these markets and be competitive in doing so? When this recession eases and new businesses begin to emerge across the world they will seek lower barriers to entry and affordable technology. Will Ireland have anything to offer them and will the advantages be sustainable?

If economic recovery in Ireland is predicated on exports can partnership contribute to Ireland becoming sufficiently competitive to achieve the earnings and the tax revenue to pay its way, or is it incapable of doing so?

A second issue concerns leadership. McLoone, in his remarks to the IMPACT biennial conference on May 8th also stated with his chairmanship of FÁS, “when the heat came on”, in relation to the spending controversies, his initial reaction was to walk away. He also stated that trade unions had no influence in the State’s key economic agencies. Power comes to those who seize it and use it. To suggest that the chairman of a State agency with a budget north of €1 billion is disingenuous.

A crisis need stellar leaders, not fair weather friends. Can the social partners provide this or are they merely capable of cheer-leading to the most short-term postures of perceived influence?

To summarize: we cannot subsidize our way to recovery; we cannot tax our way to recovery and we cannot spend our way to recovery. But we can compete our way to recovery and we can only prosper to the extent that we can pay our way. The alternative is that the economic management of the nation is outsourced and the vested interests are rendered truly impotent.


  1. Ireland has a very low tax burden. Given the inability to set appropriate interest rates, the government should have had higher tax rates for the last decade. But then, they believed they said, in a rising tide.... Interesting philosophy traceable to the Chicago school?

    Having cut public service costs already, it is imperative to raise taxes and the property based tax seems reasonable. People would do well to remember that taxes are best paid when the economy is doing well, as it always appears more harsh when paid in a depression as they must be higher then.

    Don't you agree?

  2. There was no moderating influence on credit growth since interest rates in Ireland were determined in Frankfurt. When the Swedish property bubble burst in 1992, private sector credit had increased from 85% to 135% of GDP in the preceding five years. The corresponding growth in private sector credit in Ireland in the five years prior to our property bubble bursting increased from 136% to 216% of GDP. Following the increases in taxes and levies since last October I am not convinced that ordinary taxpayers can tollerate any further burden, whatever the label. The implosion of retail sales is evidence of this. I agree that it is better that the tax burden is higher when times are good, providing that these resources are used prudently!