It is naive to believe that the 'smart economy' could solve our employment problems. We need to buy time by adopting the same job-sharing strategies as our European neighbours, writes DAVID BEGG
OVER THE course of the last week, we heard several high-profile criticisms from the business sector which decried the official belief that the “smart economy” is a silver bullet, in terms of jobs and growth.
There may have been a degree of co-ordination to the interventions from Colm McCarthy, Seán O’Driscoll, Jim O’Hara and others. Nonetheless, while the Irish Congress of Trade Unions did not agree with the sentiments, the crucial point is that they have helped initiate a long overdue debate.
The trade union movement has always been supportive of manufacturing. We recognise that skilled employment has been an important transmission mechanism to higher living standards. This is true for Ireland and most industrialised countries. But over recent years we have seen the rapid growth of the services sector – at the expense of manufacturing. This phenomenon was central to the now failed liberal market model. In Ireland and the UK, manufacturing has been reduced to just 12 per cent of economic activity. Our views on this decline are a matter of public record.
It was quite naive for anyone to believe that the so called smart economy could solve our employment problems. The Government’s own publication claims it would create just 117,000 jobs over 10 years.
Even allowing for the hyperbole inherent in such claims, that would not make much of a dent in the 455,000-plus currently out of work. Where this policy might have potential is in fostering the “national system of innovation” that has so long eluded indigenous industry. And it’s not as if we haven’t discussed this before: Norwegian sociologist Lars Mjoset first drew attention to this deficit in a report for the National Economic Social Council in 1992.
In this context, unless we are setting out to compete on wages with eastern Europe, we need to stop thinking in simplistic terms about competitiveness. Developing competitiveness depends on a range of factors: innovation, skills, communications and technology infrastructure (broadband, for example), marketing, and wage and non-wage costs.
In recent weeks, we have also heard commentary on centralised bargaining and wage levels. A few facts need to be pointed out here.
Firstly, it is an established fact that wages chase prices, and not vice versa. Thus, wage settlements will always be based on the cost of living. And as Aer Lingus chief executive Christoph Mueller has rightly pointed out, living costs are still very high in Ireland.
It is also important to note that the implications for competitiveness and exports have always been the primary focus of pay settlements. Of course, we could have had decentralised wage bargaining, which would have suited some of our affiliated unions – but the employers always resisted this.
We could now return to local bargaining, but employers who advocate this should be very careful what they wish for.
Ultimately, the question both employers and Government need to ask is: does anyone seriously contend that we can rebuild and expand our manufacturing sector based on eastern European wage levels?
In addition, we must quickly abandon the aversion to even having an industrial policy, which was at the heart of the free market model. As we now know, that is the road to nowhere. It is only a slight caricature to say that economists theorise about the behaviour of economic “actors” – firms, workers and consumers – based on an abstract ahistorical conception of markets, and their theories are supposed to apply in all circumstances and situations.
By contrast, a comparative political economy approach sees markets as embedded in societal institutions. Developing comparative advantage depends on how effectively economic activity is co-ordinated through these institutions.
The most successful economy in Europe at the moment is Germany – a highly co-ordinated market economy. Ireland can never be like Germany, but it could emulate the equally successful co-ordinated economies of northern Europe.
The Nordic countries have long been more dependent on international trade than either Ireland or Britain. In the 1950s Sweden first adopted the so-called Rehn-Meidner model, and thereafter it was adopted throughout the region. The limitations of space do not allow for a full explanation of what this involves, but suffice to say that all these countries have much higher levels of employment, more productive and competitive economies and more egalitarian societies, and their public services are better than anything we will ever achieve under the liberal market paradigm.
My own reading of the recent high-profile contributions from the business sector is that they represent a growing realisation that the Irish growth model has failed. We need an alternative, and I have suggested on many occasions what that might be. But let’s not knee-jerk our way to alternative approaches. We cannot make transitions like that overnight. And right now we badly need to buy some time.
We need to address the jobs crisis as a matter of urgency, and this we can do quickly by embracing the type of job-sharing strategies most of our European neighbours have successfully implemented.
And crucially, we need to stretch out the period of fiscal adjustment long enough to give growth a chance to take hold. In light of recent events, the continued insistence that we reduce the deficit to 3 per cent by 2014 is now untenable.
This is a view we have held for some time and it is gaining traction within the financial community, as a September 8th briefing from Bloxham illustrated: “. . . there is a lot to be said for the trade union view that fiscal correction, not just in Ireland, but in euroland as a whole, takes place over a longer timespan . . . Asking for further fiscal austerity at a time when the economic recovery remains fragile is a recipe for disaster, and the bond markets know this.”
Unless we change course quickly there will be little point debating any strategies for the future.
David Begg is general secretary of the Irish Congress of Trade Unions