INTRODUCTION TO THE ECONOMIC DEBATE: David Begg, General Secretary
The Great Depression of the 1930s taught the western industrial nations a crucial lesson: the crisis was not an irresistible national catastrophe. It could have been avoided and, even after it began, its consequences could have been mitigated by appropriate counter measures. John Maynard Keynes subsequently created an economic theory to justify an approach to deflect financing which would achieve that objective.
These lessons were applied in the immediate aftermath of the 2008 crisis. Neo-liberal orthodoxy denied that such a crisis was possible in the first place. The efficient market hypothesis was shaken to the core. It was hard to publicly defend the logic of self-correcting markets when they are obviously not self-correcting
But by the time of the G20 meeting in Toronto in 2010 this had all changed. Keynes and stimulus was out and Germans ordoliberalism and "expansionary fiscal consolidation" – meaning austerity – was in. It has since proved to be a disastrous policy for Europe. The politics of debt have been turned into a morality play, one that has shifted the blame from the banks to the State. Austerity is the penance – the virtuous pain after the immoral party – except that we were never invited to the party but we are being asked to pay the bill.
When we initiated our campaign for "A Better Fairer Way" to deal with the economic crisis in 2008 we warned that deflationary policies would push the country into a prolonged slump similar to that experienced by Japan in the 1990s. We also tried to alert people to the risk of a lost generation of people forced into long term unemployment.
Our analysis called for a Keynesian focus on maintaining demand. We recognised the need to bring down the fiscal deficit but we wanted to do it over a longer timeframe – to 2017 – and to backload the adjustment so as to give growth a chance to do some heavy lifting. For us, maximising domestic demand was the key to preserving jobs. But we also argued for an investment stimulus for the German model of work sharing to be adopted.
We have consistently advocated for a demand side approach in the years since believing that supply side measures, though important, would never be enough on their own. What I mean is that activation for employment is the right thing to do but it won't amount to much if there are no jobs to activate them for.
Five years on we are confronted with irrefutable evidence that austerity is not working. Last week the CSO reported that GDP fell by 0.6 per cent in the first quarter of this year, the third consecutive quarter in which it has fallen. Likewise personal expenditure fell by a further 3 per cent and capital investment fell by 7.4 per cent. Austerity is not working in the UK either. Last week the Office of National Statistics confirmed that economic output is now 3.9 per cent lower than its pre-crash peak, compared with a previous estimate of 2.6 per cent. One wonders how policy makers can deny the reality of this evidence.
But the case against austerity is building steadily. The ETUC's argument for a Social Compact received a strong boost in a recently published book by the German Sociologist, Ulrich Beck. He makes the point – perhaps an obvious one to us but less so to others – that the problem created by a purely economic analysis of the European financial crisis is that it neglects the more crucial question of a European society.
In this Beck was following the great Hungarian Socialist, Karl Polyani, who held that the idea of a self-regulating market economy was an unachievable utopia. As he famously put it, "Laissez-faire was planned". He believed that the economy must always and everywhere be embedded in society and not the other way around.
How far Europe has drifted from Polanyi's concept of the natural order can be gauged in the existence of an unemployment rate of 12.3 per cent – 24 per cent for young people – coexisting with a situation where corporate Europe is sitting on an uninvested cash pile of €7 trillion.
This is evidence of a Keynesian liquidation trap if ever there was one. Moreover, as we have seen in recent weeks, many of these same corporates have developed the most complex and sophisticated systems for tax avoidance.
An article in the Guardian newspaper a couple of weeks ago opened with the following observation:
"Economic prosperity and social progress are key European Union goals. But for the past five years it has delivered neither. It has been in double dip recession since mid-2011, with unemployment now at a record high of 11% and no tangible improvement in sight...the reality of today's Eurozone is far too many people out of work, falling internal demand, increasing polarisation within societies – and a chasm dividing relatively prosperous core countries from a periphery destined for depression".
What a damning indictment of the policy of austerity. The extraordinary thing is that it was not written by a trade union representative, or an economic commentator, or a social activist, or even a journalist. It was written by a member of the European Commission, Laszlo Andor and co-authored by Joan Burton, Ireland's Minister for Social Protection.
Those of us who know these people might not be terribly surprised by their views. But even President Barroso has in recent weeks opined that austerity has reached the limits of political acceptability. This notwithstanding that he wrapped up the social summit in March by declaring that the Commission would not recommend a stimulus to the European economy.
Within the Eurozone the Dutch and Austrians, with the Germans, have been the most resolute champions of austerity. However, last week this began to fray at the edges with the Dutch labour leader, Diederik Samson, saying:
'three per cent is not holy for us. We are letting that go".
The collapse of a major construction company in Austria – the biggest bankruptcy since the war – had forced the Government into a modest stimulus package.
The high moral ground can be a difficult place to occupy when trouble comes knocking at your own door.
The truth of course is that austerity is now no more than a mantra without meaning. The intellectual underpinning for it has been discredited. A spread sheet flaw was found in Rogoff and Reinhardt's much cited paper "Growth in a Time of Debt" which had argued that Government debt above a critical threshold of 90 per cent can become a substantial drag on the economy. This was always at variance with the evidence anyway. Italian public-sector debt in 2002 was 105.7 per cent of GDP and no one cared. In 2009, it was almost exactly the same and everyone cared.
As well as that the IMF has admitted that it underestimated the multiplier effects of cuts on the real economy and that capital controls in some circumstances may be appropriate. As we now know that became a reality in Cyprus.
Again common sense dictates that we can't all be austere together. If a country's public and private sectors are paying back debt at the same time, then the only way that country can grow is by exporting more. But if everyone is trying to do the same we can only succeed if we establish trading relations with the people of Mars. This is the fallacy of composition, thinking that what is true of the individual parts is true of the whole. That is why the commonly used analogy of the household budget and the economy is such nonsense.
It also shows how much of an oxymoron the policy of "growth friendly fiscal consolidation", concocted at the G20 in Toronto in 2010 really is.
Even the Financial Times accepted in an editorial recently that, 'the case for a simultaneous contraction of fiscal policy in Eurozone Member States was based on a misdiagnosis of the crisis".
The biggest lie of all is to suggest that the crisis is due to excessive Government spending. In fact average OECD debt before the crisis was going down, not up. What happened was that banks promised growth, delivered losses, passed the cost on to the State, and then the State got the blame for generating the debt, and the crisis, in the first place, which of course must be paid for by expenditure cuts. The banks may have losses, but the citizens will have to pay for them.
Ireland is the most egregious example of this in Europe. Before the crisis we had a net public debt of 12 per cent, now it is ten times that amount. It cost €64 billion to bailout the banks and our grandchildren will spend their lives trying to pay off that debt.
Despite everything that has come to light over the last five years I think people were still shocked and certainly offended, by the boorish and cynical behaviour of the senior managers of Anglo-Irish bank revealed in the tapes made public last week.
But the justifiable anger at this behaviour should not blind us to the fact that the union members in IBRC are every bit as much victims of their conduct as are the taxpayers. I do not believe it is acceptable to this Congress for staff to be thrown on the side of the road with just statutory redundancy and I have so advised the Minster for Finance.
The truth about EMU is that, absent the facility to devalue, and in the event of a macro-economic shock, the whole burden of adjustment falls on workers. There is no social institution to balance the power and independence of the ECB. Paradoxically, the fact that social policy remains a national competence creates a collective action problem for member states. Unless there is a serious attempt at institutional reform the problems we now face will not be capable of resolution.
In the year of the Lockout, 1913, it is sobering to reflect that the capitalist world, although smaller than today, was highly globalised. Foreign Direct Investment in 1913 was at a level not again reached until the 1980s.
Before it collapsed into the chaos of the 1914-1918 war it could have been described as an integrated market for capital and industrial goods – and to a lesser degree for service and labour as well. It was in fact not under the control either of national Government's or of an international regulatory regime. It was, by and large, the world which Marx and Engels had described; with rapid technological progress and great gains in material wealth.
And yet this wealth was most unfairly distributed and financial crises were frequent. All over Europe workers were forming unions to fight against injustice.
Dublin was a cockpit of inequality and social deprivation. There were 385 families living in tenements in Henrietta Street in Dublin, over 100 people lived in No. 14 alone.
Last Thursday, the Labour Lord Mayor of Dublin, Oisin Quinn, officially opened a tenement museum in No. 14. This is a project initiated by Congress as part of the 1913 Commemoration and supported by the City Council, the Heritage Council, SIPTU and IMPACT. If you can find time to visit it I guarantee you will be deeply moved by the experience.
It is hard today to visualise the level of suffering endured during the Lockout. That the workers carried on as long as they did was only possible because of the support of the British TUC. On the occasion of this centenary conference I want to especially welcome the fraternal delegate from the TUC, Len McCloskey.
Ultimately the workers were starved into submission and the union movement was routed. But in time it was able to rebuild and carry on its work.
There are two lessons which we can all draw from our labour history.
One is to recognise that solidarity is the cement that binds us together. The other is that no crisis, however severe, lasts forever.
Indeed, that loud screeching noise coming from Brussels in recent weeks was the sound of a bandwagon going into reverse. The Eurozone has suddenly backed up in its approach to the financial crisis. Before it was all about cutting budget deficits. Now Member States are to be allowed to overshoot the 3 per cent target. But of course they still want structural reform of the labour market – a euphemism for giving employers the right to sack workers and cut wages. Nor have they made much progress implementing a banking union.
Still they know the game is up. Having virtually wrecked the European economy and created a lost generation of young European citizens, they are beginning to realise that there is a tipping point. This is what is motivating the €6 billion youth guarantee. A recent report from the respected Pew Research Centre showed a dramatic collapse in support for Europe across nearly all countries. This is the manifestation of Polanyi's second thesis; that all history shows that there will eventually be a countermovement by workers against economic conditions which oppress them.
The great dilemma confronting the European elite now is that, to save the European project, they must embark on the most ambitious phase of integration yet attempted in circumstances of growing public hostility to the idea.
So now is the opportunity for us here in Ireland and for the ETUC to press our case for an alternative approach.
Now is the hour to push for social investment and the construction of institutions of the social market economy to balance the power and independence of the ECB.
Now is the critical juncture to seek a commitment to the mutualisation of debt.
Now is the time to demand nothing less than the reflation of the European economy.
In the two years since our last conference we have been challenged on many fronts in ways that could not be foreseen. But we have achieved great results in one respect.
I am referring to the establishment of the Nevin Economic Research Institute. The output of the Institute has greatly strengthened our capacity for economic analysis and forecasting in Northern Ireland and the Republic. NERI is frequently referenced in Dáil Eireann and it is gradually carving out a place as a reliable source of alternative policy analysis. It was gratifying to hear it being acknowledged on Morning Ireland on Friday that Tom Healy has been the most accurate in forecasting economic trends. It was an acknowledgement that I imagine will cause some discomfort in Merrion Street, not to mention the ESRI, IBEC and others.
The medium term task for NERI even more challenging. It is no less than to formulate a plan for a new development model for Ireland – a political economy of the common good – just as the Swedish trade union economists, Gosta Rehn and Rudolf Meidner, did in creating the Nordic model in the 1950s.
Gramsci once wrote that:
Crisis consists precisely in the fact that the old order is dying and the new cannot be born".
The historic task of our generation is to be midwives to the birth of a new more socially and sustainable economy and society. Most particularly, it is to identify and work for the achievement of the political and institutional conditions under which full employment can be restored.
