Remember, Remember The 3rd Of September

'Singing Dirges In The Dark'

Remember the 3rd of September. That is the day the economic conservative consensus died, when all the certainties propagated by our one-party state were shredded. Fiona Fail has panicked in the face of rapid economic deterioration, brought forward the budget by a few weeks, and in that simple, technical act has unintentionally composed a dirge. No one day heralds the end of something as complex and layered as an economic cycle. But they can serve up symbols. September 3rd is such a symbol – of a coffin, and the Ministers polishing it.

Related Links: The Recession Diaries

But anyone familiar with George Romero’s films will know – the dead may be dead but they can still terrorise the living. Indeed, they can conquer whole cities. Already, Ministers, cheered on by right-wing commentators, are preparing for us a flesh-diet – of spending cuts, real wage cuts, tax increases (guess who’ll pay those), priming the wrong markets with the wrong instruments – just to be doing something, anything. We have had conservative economics, laissez-faire and neo-liberal economics; now we’re facing into undead economics.

So the conservative economic consensus may have died but it still stalks the land. Will it thrive, continuing its stranglehold over the national agenda? Don’t bet against it. Already, trade unions are being coerced into a new wage deal, if you can call real pay cuts a ‘deal’ – for the sake of the ‘national interest’. When you have no credible argument, you can always depend on that ol’ reliable – the national interest. In a city where the undead predominate, guess who defines the terms.

You might think this is a godsend for the Left – the unravelling of all those capitalist threads. Surely, now we can step forward with a new message, a message of how an economy should really work, integrated into social need; how prosperity shared – in both its production and consumption – is prosperity that lasts. So where is the Left? Nowhere. It’s in hiding. It’s been in hiding for a long time. It long ago vacated the economic debate, content to argue how wealth should be distributed but strangely mute on how it should be created.

It wasn’t always this way. The Left use to do blueprints. It didn’t succeed in storming the citadel, but boy could it draw up models. But then something happened – the Celtic Tiger economy. The Left were like rabbits in the headlights. It ran into the safe hedgerows of demanding more money for this, protesting against that. In almost all cases they were right but since they had little to say on ‘the economy’, people weren’t inclined to follow, even when they agreed. Fianna Fail may have carved up the health service for the benefit of international investors, but they were the economic game-masters. And if you want to play, you’ve got to keep the game-master happy.

This vacating of the economic space let the Right determine the debate and the vocabulary. They defined ‘efficiency’, ‘competitiveness’, ‘productivity’. Their synonyms became low taxes, low public spending and less regulation – a typical neo-liberal framework. And because the Left didn’t contest these wholly contestable terms, people just shrugged their shoulders and said, well, that’s the way of the world. Politics was reduced to which party could manage the agenda, not the agenda itself.

The Left has lost the art of story-telling, which is a shame because there is another story to be told about the Irish economy – and now, with everything in pieces, people might start listening, if only to pass the time in the dole queue or at home saving money on a Saturday night when they used to be out in a restaurant. It’s not a feel-good story, and we resist the temptation to jump to the ending in the hopes that we can make everyone happy. Let’s get the plotting right.

For at the end of the day, it all comes down to making and selling things – goods and services that people want, creating wealth, putting in place political structures to make that wealth work for people who, then, create more wealth, both economic and social: a virtuous cycle. Let’s start with that.

Start with Failure

The story of indigenous private enterprise is one of failure. In the 1930s Sean Lemass employed protectionism to build up a business base, a successful approach in other economies but inappropriate here. We didn’t have a large home market, we had to import since we lacked the resources. And then there was that war thing. In any event, our ‘entrepreneurs’ were too busy setting up cosy cartels to enhance their profits at the expense of consumers and employees. The first attempt failed.

For a couple of decades nothing really happened, apart from emigration, poverty, and mass unemployment. Once more, Sean Lemass popped up with a new approach – open up Ireland to foreign capital and bring it into the international trading system; in other words, join the world. He hoped that, through symbiosis, multi-nationals would act as tutors for our native entrepreneurs, imparting the skills of production and marketing and exporting and all good things. But, alas, most students failed: indigenous enterprises collapsed in the new trading environment. Those that graduated managed to turn their skills to the premier Irish ‘entrepreneurial’ activity – property speculation. Without infrastructure or strategic linkages, the first wave of foreign capital withered away, leaving no strong indigenous base. The project failed.

But god loves a trier, and Fianna Fail was at it again in the late 1970s. Employing what has been described as ‘vulgar Keynesianism’, they pump-primed the economy in order to increase demand. They hoped that this increased demand, through spending increases and tax cuts, would spur indigenous activity to increase supply. What a gamble, what a disaster. The indigenous base didn’t rise to the opportunity – blaming inflation, wage increases, anything but their own shortcomings. The pump-priming was unsustainable and the country quickly fell into recession. And we know what followed then – a Fine Gael-led government with a legacy of debt, unemployment, emigration and Gardai beating striking workers in O’Connell Street.

The Right Twists the Story

Three times out – three times back. So where did the Celtic Tiger come from? The Right have their story – about how wage growth was brought under control, spending was brought under control, taxes were cut and a hundred enterprises bloomed. What nonsense. On just about every claim they’re wrong. Here are two:

First, the tax cuts argument. This is now so discredited its tedious going over it but, simply put, tax cuts came after the Celtic Tiger economy was settled in. It didn’t cause it. The engine of economic growth – multi-nationals – had always benefited from a low-tax regime, ever since the 1950s (in some cases they were paying a statutory 0 percent). Tax cuts didn’t stimulate economic growth.

Second, wages in the period before the mid-1990s exceeded GNP growth. Indeed, wage growth exceeded that of most of our main trading partners. Of course, we were starting from a low base. Nonetheless, listening to IBEC spokespersons today, surely this must have meant the Celtic Tiger economy should have never gotten off the ground.

No, the Right’s story cannot explain the development of the Celtic Tiger economy; it can only feed off it.

Public Success

The explanation behind our rapid growth holds the key to the future success for the Left. For, in short, the Celtic Tiger economy was public policy-led, public expenditure-led and public investment-led. This our territory – we should reclaim it.

Public-policy: our growth was based on the multi-national export drive (exports more than doubled between 1993 and 1998). So the question is – given that we had prostituted our economy since the early 1960s just to woo foreign capital, why did it take so long to pay-off. It was due to the new policies led by that most prominent of public sector agencies – the IDA. In effect, the IDA picked ‘winners’ – it trawled through the world of foreign capital selecting particular companies in particular high value-added sectors: chemicals, pharmaceuticals, optical, computers. They went for the big bucks, and their strategy succeeded. This would not have happened if left to the ‘market’. It took a public agency to do this, following a public plan.

Public expenditure-led: Ireland was never very good at capital spending. It didn’t tax enough and it didn’t have the economic base to tax from (cattle grazing don’t build modern industrial economies). But, along came the EU – or rather, the EU taxpayer. Ireland got a public expenditure bonanza – described sometimes as a ‘mini-Marshall’ plan. With that money it was able to upgrade a creaky, out-of-date infrastructure into something approximating ‘modern’. If infrastructure waited on private capital, we’d still be in a time-warp.

Public investment-led: Investment money started flowing into start-up and development-stage indigenous enterprises – especially in the new high-tech sector. Where did it come from? The state. It was the state that was the risk-taker, using a plethora of grant-aid programmes and in-kind supports. Private capital came later because in Ireland, private capital only flows into success, it doesn’t create success.

Public sector-led, public expenditure-led, public investment-led: things were looking up: jobs created, incomes rising, exports exploding, businesses starting up; money was literally flooding into the economy. But even so, there was a potentially fatal flaw that, unless addressed soon, would expose this phenomenon for what it was – a short-cut. Rather than going through the long hard work of building enterprises from the ground up, learning the skills, learning the markets, learning the culture, we imported fully developed multi-nationals, trying to graft it on immature economic base. Still, we had options; there was time to put this right. But what happened next was probably one of the most criminal acts in modern economic history.

Party, Party, Party

Let’s use a metaphor. Imagine a company soldiering on for years, suddenly receiving a windfall. It could reinvest that money into skill and plant upgrading, innovation, product development and modern marketing and export strategies – to create further growth and transform the place with higher wages, higher profits and a nice canteen for everyone to enjoy. Or it could just blow it all on Jacuzzi suites and weekend parties in the Caribbean for the executives and hangers-on.

Fianna Fail and McCreevy took the economy to Bermuda, though most of us weren’t allowed on the beach. He slashed taxes on the wealthy, privatised major assets (telecommunications, air travel, shipping, etc.) and let the property market rip. For a time no one noticed – consumer spending and construction kept the economy afloat. But this was always unsustainable. And now we’re all stuck in the Triangle.

Most of all, Fianna Fail, having learned from history, didn’t bother with all that indigenous enterprise malarkey. Indeed, the few successful indigenous enterprises – public enterprises - were sold off to vulture capitalists and private equity firms. No, all we had to do was keep up the foreign capital flow (by maintaining low tax rates, by keeping stroppy unions at bay), pump prime the speculators and, buttressed by low interest rates, keep that consumption mojo happening.

That’s all over now. Speculators are facing bankruptcy, spending is collapsing and very nature of foreign capital has changed. The IDA is still selling Ireland as a glorified tax shelter but the projects they are getting are smaller scale, capital intensive and low-employment generation. And the profits that are made are quickly shipped out of the country. We are not so much generating wealth as we are transferring it.

Withdrawals

We became addicts: first, to foreign capital, then to property. We are going through withdrawal from the latter, but we still need our multi-national fixes. 90 percent of all our exports – both manufacturing and service – come form the foreign sector. This sector has the greatest proportion of high-skilled and high-waged employment, the greatest slice of value-added. This addiction is so bad that it skewers basic statistical collection. Forfas can’t trust our productivity figures since they are so distorted by transfer-pricing. So they just assume US rates of productivity in those sectors dominated by foreign capital and go on their merry way.

So now we’re stuck with a manufacturing sector that, according to the Enterprise Strategy Group,

‘. . . produces goods that were designed elsewhere, to satisfy market requirements that were specified elsewhere, and sold by other people to customers with whom the Irish operation has little contact and over whom it has little influence.’

We have a financial services sector – which the ESRI sets so much store by – which is laden down with ‘back-office’ activities but short on ‘front-office’ activities; which leaves that sector vulnerable to companies closing up shop and transferring elsewhere.

Our economy is part-illusion and part-aspiration – we feed the addiction to feel we’re getting by, and delight in GDP figures, but when you break down the measurements between the foreign and indigenous sectors, we only survive on the former. Take that out of the equation and we’re back to being the beggars of Europe. No wonder Minister Mary Hannafin is so anxious to ‘up-skill’ our workforce:

‘If you have an educated workforce that is your best opportunity to attract foreign direct investment . . . So that when as a government we are there with our American investors, or anybody else, we’re able to say to them, “no matter where you go to in Ireland, whether you go to the West coast or to the east coast, we can guarantee you an educated workforce . . . and we can make that workforce available to you.” And it’s a real selling point for us as a Government in attracting investment.’

Is there something wrong with this picture? Would a Minister in any other advanced European economy justify education and re-skilling in terms of its selling value to US foreign capital? Wouldn’t they, at least, make a nod towards creating their own businesses, their own economic activity? Or maybe home-grown enterprise development is a tad fashioned for our far-sighted, visionary Government.

Where to Start

That’s the story – about an economy that took a short-cut and found itself lost. Now we must write a new story, retracing our steps and starting over. It’s not all gloom, we still have a (multi-national) export platform and all the businesses that flow from that, something we didn’t have twenty years ago. But there is no silver bullet, slogans will not suffice, maximalist demands predicated on a minimalist economy are a recipe for disillusion and irrelevance. We have to prioritise. And the first priority is to generate wealth – our own wealth with our own resources, in a collective and participatory spirit.

In particular, the Left must rid itself of the false dichotomies of market and state, of public and private. These only play into the hands of the right who would have us believe that markets are a kind of natural phenomenon, rather than being socially constructed. All economic assets, including enterprises, are social assets, even if our political structures pander to certain 'owning' constituencies. From this perspective, the Left can start to dictate the terms, co-opt the vocabulary and put it to progressive use. Programmes will come later, let’s start with principles:

(1) Entrepreneurship is a collective activity. Ditch that lone-rider-on-the-plains nonsense that passes for theories of the entrepreneur. Wealth generation is a social act, an indispensable part of the public realm

(2) We need to do for the indigenous sector what the IDA did for the foreign sector – we have to select and develop, and where there is nothing to select from we have to create.

(3) This selection and development process needs to be embedded from the national through the sectoral down to the local level. It requires a new democratic partnership whereby all stakeholders participate equally: employers, trade union, the state, consumer and environmental concerns.

(4) This partnership will determine strategies for growth: overcoming problems of scale, investment, upgrading managerial skills, marketing and R&D costs, overcoming export entry barrier costs – all the obstacles to growth, productivity and competitiveness. The state would act as the guarantor of investment and agency supports.

(5) Enterprises participating in this democratic partnership will need to commit to the ‘high road’: uppgrading management skills and practice; investing in workplace training, upskilling, R&D and innovation; participating in business networks to share costs, expanding into export markets'; and extending employee participation, recognising employees’ right to bargain collectively and accepting their legitimate role in strategic decision-making.

This is the foundation the Left needs to develop in order take on the right – not a ‘free market’ economy, not a ‘statist economy’ but a ‘negotiated economy’ It is open to various interpretations and models. But it must be grounded in democratic and egalitarian structures and in a greater role for the public realm.

In this way the Left can start to tell a new story – one not predicated on the addiction to foreign capital or property or the equities market. It can begin to encompass a slow socialisation process of our economic assets, increasing taxation in order to invest into economic and social infrastructure, distributing wealth to share the wealth that everyone has participated in generating.

This new story can give people hope – people who are trying to secure themselves against the marauding armies of the undead who are ravaging our land. In time, this hope can give them confidence to come out of hiding and rid the city of these perverted walking ideologies.

And make a better place of it – for all of us, together.