If unreformed, social partnership could place an unnecessary burden on the economy, and the Celtic Tiger could go the way of the Roman Empire, writes Marc Coleman, Economics Editor.
In The Decline and Fall of the Roman Empire Edward Gibbons identified a major reason for that empire's collapse. His insight is relevant to our present debate on social partnership.
What he spotted was no great military blunder, but rather a simple administrative error made by the emperor Constantine. Constantine awarded pay increases to the guards and courtiers of his imperial palace that far exceeded those awarded to soldiers fighting on the empire's harsh borders.
A subsequent emperor was startled by the lavish court he had inherited: "He questioned the man concerning the profit of his employment, and was informed that, besides a large salary and some valuable perquisites, he enjoyed a daily allowance for 20 servants and as many horses - 1,000 barbers, 1,000 cupbearers, and 1,000 cooks, were distributed in the several offices of luxury; and the number of eunuchs could be compared only with the insects of a summer's day."
The book then contrasts this luxury with the brutal conditions endured by those engaged in battle far from the palace.
Influenced as it was by the need to placate a palace guard whose proximity was threatening, Constantine's decision was understandable. By contrast the more numerous and necessary front-line troops were out of sight and out of mind.
But his decision was disastrous in two respects. First, taxes needed to pay the palace guards eventually placed an intolerable burden on civilians, leading to internal discord.
More seriously, the soldiers doing the hard work on the frontiers were utterly demoralised by the disparity between their pay and that of those at court. They deserted the front line and opted to serve at court. The imperial frontiers became bereft of the best troops at a time when lean and hungry tribes presented a serious threat. They eventually broke through and the empire was ruined.
The Celtic Tiger is not the Roman empire, but is subject to similar errors and is not immune from decline or fall.
If unreformed, partnership could place an unnecessary burden on the productive economy, distorting the Irish labour market and demoralising many of those on the "front line" of our economy.
ESB staff were last week offered a pay increase of close to 10 per cent by the ESB's joint industrial council.
This comes on top of already generous pay increases awarded under Sustaining Progress.
And yet one union, the ATGWU, is demanding a special 18.5 per cent pay increase in return for agreeing to continue with social partnership. According to figures in the company's own annual report, the average salary per head in ESB is already over €60,000.
If these claims are conceded, consumers will face further increases in electricity bills at a time when oil price rises are putting unavoidable upward pressure on those bills.
And as recent consumer sentiment indicators have shown, rising energy costs are undermining confidence among consumers and business in a way that could damage the economy.
But modern-day Caesars have no choice but to listen to modern day palace guards who have the power to bring our economy to its knees.
The same fear that led Constantine to award outlandish pay increases to his palace guards allows ESB unions to extract a ransom. The justification for the claim by ESB workers is a €530 million deficit in the ESB's pension fund. This, say ESB unions, is management's responsibility and must be compensated for. But by raising the issue of pensions, ESB unions have only rubbed salt into the wound.
Those pensions, whatever their shortfalls, remain far more generous than those of private sector workers who must pay for their own pensions, as well as of those of public sector workers. And private sector workers must retire later. The retirement age of 60 harks back to a time when life expectancy was 65.
Life expectancy is now closer to 75. Reasonable people accept that working a few years later is a proportionate response to a longer lifespan. Public sector unions do not.
Like Constantine's error, the tendency towards generous pay increases in the public sector is having long-term negative effects. It draws competent workers towards a sector of our economy that is unproductive and away from its productive sectors.
Once attracted in those workers will bring little benefit to the public sector. Their competence and dynamism will be beaten down and frustrated by inefficient structures. But all serious attempts to reform those structures are blocked.
The ESB is a case in point. There is an overwhelming consensus that its transmission business needs to be separated from it, if competition is to flourish and consumers to benefit from lower costs. But unions oppose this tooth and nail. Although some progress has been made in reducing headcounts, the very generous conditions of employment in ESB appear very hard to justify.
But the ESB is merely a present example of a problem that exists right across the public sector. Take the civil service, for example. Its structures were conceived in Victorian times, when illiteracy and class structures dictated a top-down approach to disseminating information and decisions from the top to the bottom of an organisation.
Rising educational levels have combined with the information technology revolution to make these structures redundant. But whereas the private sector has seen a growing tendency to flatten structures and devolve decision-making to staff, some public sector unions are hostile to such rationalisation.
And unlike most modern organisations, the civil service retains the practice of only promoting staff to higher levels from within. This cuts off the vital flow of expertise and ideas from the rest of the economy.
Such insularity has led to conservative management practice and a culture that stifles change, productivity and creativity.
The tradition of hiring clever but generalist staff also contributes to a lack of essential specialised knowledge. The cost overruns for the PPARs health service payroll system is just one of many results of this.
In a full employment economy, the time for reforming the public sector is ripe. A shift to more efficient structures with fewer, more specialised staff and flatter, more flexible recruitment and management practice would create a performance and customer driven public sector.
This is beginning to happen, the Revenue Commissioners being one example. But many areas are far behind.
The case for change is not just increasing efficiency. There is a macroeconomic benefit to reform. Ireland's low income taxes are offset by what is among the highest burden of indirect taxes in Europe.
This feeds through to higher prices and wage pressures that hurt firms working on our economy's "front line". At a time when lean and hungry competitors from the east are bearing down on our economic frontiers, public sector reform is vital for reducing the cost of the State. The cost savings dividends of this should go equally into reducing indirect taxation and into the provision of better public services.
But our present system is not just economically damaging. The latest developments in ESB are undermining the credibility of the political process itself, and reinforcing an increasingly negative image of the public sector.
One important political difference between ancient Rome and modern Ireland deserves note. In ancient Rome the front-line troops were too far away from the palace to be of any concern to Caesar. But in an electoral democracy, they are never very far away.
With an election due in 2007 they are marching closer and closer. The social partners would be careless to ignore them in the decisions that are to be made in coming months on public sector pay and pensions and on taxation taken from the public to pay for them.