OPINION:THE MOST remarkable thing about the onset of the recession is its speed, writes DAVID BEGG.
It seems like only yesterday that scarcity was the big story. Energy and commodity prices were heading into the stratosphere, oil was running out, food shortages loomed, Russia was resurgent and China was marching into Africa amid a scramble for dwindling resources,.
Now? Prices are falling everywhere. Investment banks have disappeared and the global credit system is on life support. The big threat is deflation. A year ago the British baulked at nationalising Northern Rock. Recently the US nationalised Citigroup, the world's largest bank. Everywhere you look Keynesian demand management is replacing Adam Smith's "invisible hand". This recession is different from anything we have experienced before. It is global in scope and even the engines of economic growth - China and India - are suffering. Unlike the 1980s, there is nowhere else for people to go.
Many of the lost jobs are in the professions: engineers, architects, solicitors - people who never expected to face redundancy and are ill-equipped to deal with it, as many are burdened with big mortgages. The Government's capacity to protect people is restricted by the loss of property taxes, which once made up 20 per cent of the tax base.
The State needs to get credit flowing and prop up spending. And we need to rebalance our economy.
It is clear the banks need to be recapitalised. Their share prices are testament to the credibility of their repeated assertions of good health. But private equity funds are not suitable vehicles for recapitalisation. This is the type of finance that brought the global financial system to its knees in the first place and we can all see what venture capitalists did to Eircom.
There is a dawning realisation that only direct State control of banking will get credit flowing. As the 2008 Nobel Prize winner Paul Krugman has pointed out, this was the experience of Roosevelt's New Deal 75 years ago.
A way has to be found to reflate the economy, Keynesian style. We are in danger of people refusing to spend, thinking it is the patriotic thing to do. It is imperative to restore confidence so people feel safe to spend again.
The room for fiscal manoeuvre is limited, given the scale of our tax base and its reliance on property-related taxes such as stamp duty. Nobody will commit to buying a house if they think prices might drop. We need to broaden our tax base immediately by removing tax shelters which serve no clear economic purpose.
The only obvious road to reflation is to increase public spending with more National Development Plan projects, such as social housing. The co-location plan for hospitals should be abandoned and the State should directly increase capacity.
And then we must rebalance our economy. We can never return to the dominance of construction and financial services.
Manufacturing must enjoy a renaissance. Indigenous sectors with the capacity to be multinationals must be fostered.
Food production is uniquely suited to Ireland and world demand is expanding. We also need evidence of the efficacy of RD spending before putting all our eggs in that basket.
But most crucial of all is to recognise the reality of where we are. What is happening in the global economy is not a blip. We are living through a once-in-a-generation experience in which 30 years of liberal economic orthodoxy is exposed as bankrupt.
We pursued economic growth with a wilful disregard for quality of life. For 10 years we generated a current budget surplus averaging 5 per cent each year. Yet we squandered it all on pro-cyclical tax shelters for the business elite.
We need a social solidarity pact which ensures that the burden is not borne by those least able to bear it. That is the type of leadership the country needs and the trade unions will play their part in achieving it. But it will be pointless unless we recognise the mistakes that left us so exposed.
• David Begg is general secretary of the Irish Congress of Trade Unions. He is also a governor of The Irish Times Trust, proprietor of The Irish Times