OPINION: It can't be a return to business as usual for corporate Ireland, writes PAUL SWEENEY
ALAN AHEARNE, the economic adviser to Brian Lenihan, is grasping at green shoots if he thinks that a second quarter of weak growth means Ireland will soon be out of recession.
A deep recession, combined with a financial crisis, lasts a long time and recovery will be sluggish. It is further compounded by being synchronised – virtually every country in the world suffered negative growth last year and Ireland’s decline was one of the deepest.
Unless there is radical reform of governance worldwide, the recovery, when it comes, is likely to be followed by yet another recession. Already the bank bosses are in Davos opposing US president Barack Obama’s reforms.
In Ireland, it is clear Government policies will prolong our recession. Deflationary policies are pushing us deeper into recession; will prolong it; will throw tens of thousands more out of jobs; and reduce tax revenues. The poorest are paying the heaviest price.
Recovery, when it comes, must be judged, not on economic growth, but on job increases. That is a long way off.
To build a good recovery, we must learn from our mistakes. The deregulation and tax-cutting of free market fundamentalism generated a false boom and a big bust. This discredited ideology, still dominant in Ireland, is focused on slashing wages, welfare, public services and investment. They were so wrong before.
The record clearly shows that the policies advocated by the Irish Congress of Trade Unions (Ictu) over the last decade – as opposed to the policies some claim we pursued – were more correct and sustainable than those of government.
At the height of the boom, we were highly critical of the government’s pro-cyclical economic policies. Our analysis showed that income taxes were quite low, as were corporation taxes (eg The Irish Times November 20th, 2004, July 9th, 2004, etc). We repeatedly called for tax breaks to be abolished “especially those based on property” and for a move away from the pursuit of growth to development.
In 2005, the two Ictu members of the National Competitiveness Council (NCC) were the only ones to oppose the low direct tax and anti-regulation views of the council in a minority report. The NCC, a government advisory body, provides much excellent advice, but at the height of the boom it was extolling “the light administrative and regulatory requirements faced by firms, particularly compared with other EU countries”. It hailed our light bank regulation, thus giving intellectual support to the Irish Financial Services Regulatory Authority’s and Department of Finance’s stupor.
Few Irish economists supported our policies against tax breaks, for increases in direct tax, for increased regulation; and against the endless pursuit of economic growth during the boom. If implemented, they would have greatly lessened the collapse in the economy. Academics were silent and some financial economists/journalists were hostile.
While all parties and many economists supported the Government’s harsh, short period of recovery, Ictu opposed it and has again been proven correct on the need for a longer period – now likely to be 2015.
Ireland’s GNP in 2010 will be one-fifth lower than in the peak year 2007. Consumption, both private and government, is way down, driven by the economic collapse and also by the Government’s active deflationary policies. Unemployment has trebled and the Live Register may rise to 480,000 by year-end.
Total investment will be a mere 40 per cent of the 2007 figure of €50 billion. There is no jobs policy. Public investment was increased under the NDP in 2008 and 2009, but it was savaged in the budget, cut by a staggering 54 per cent. Such cuts are incomprehensible.
The Government’s policies of unilaterally cutting wages and welfare are deflationary, throwing more people out of work. Many economists have recently fixated on wages as if it were the only component of competitiveness. Yet in 2005-2006 Ictu highlighted the high cost base in Ireland when we had the money and opportunity to deal with it. No one was interested.
While a difficult balance has to be struck between the level of cuts, where they fall and in raising taxes, this Government has greatly erred in punishing the poor, low-paid public servants and in cutting capital spending, particularly when an alternative was on offer.
Government has shown little interest in the reform of corporate governance or in altering the balance of power between corporations and citizens. Yet the bank collapses and the tribunals’ and Shipsey reports confirm the dominant ethos in Irish business is deeply unethical.
It is vital that we do not go “back to business as usual”. Without deep and fundamental reform of economic and corporate governance, regulation, company law, in the balance between labour and capital, between “shareholder value” and all corporate stakeholders, in international agreements, in market rule-making, in governance in the private and public sectors, the small group of people who almost destroyed the economy will be empowered to do so again.
Recent displays of executive greed show that it is already “business as usual” for some banks. Goldman Sachs’ compensation costs for its 32,500 employees amounted to $16.2 billion in 2009 – or $498,000 per worker (if equitably shared!). And this is after scaling it back in response to public anger. When media interest wanes, it will begin again. Our media must give voice to critical voices and not allow the interests of the powerful to dominate as before.
Paul Sweeney is economic adviser to the Irish Congress of Trade Unions