The Real Thing

Imagine how frustrating it would be if you came up with the formula for Coca-Cola but couldn’t bring it to market.  Its as frustrating as listening to Left spokespersons trying to take credit for the Celtic Tiger economy.  Usually, they just assert it – as if Labour’s presence in Government during the period of 1992-1997 was sufficient justification for making that claim.  Sometimes, though, when rummaging around for specifics, the cut in corporation tax is produced to forensically prove Labour’s fingerprints on economic growth.  Yet, what gets missed, what is overlooked is a far more coherent and sustainable reason for the economic growth of the 1990s – an explanation that could put the Left in the driving seat on the debate over the economy.  And that’s frustrating.

First things first. The cut in corporation tax had nothing to do with the economic take-off. In fact, there was no actual tax cut for the sectors that were primarily responsible for the growth – the multi-national ‘modern’ sectors. At the time the manufacturing sector was subject to a 10% reduced tax rate while companies, usually multi-nationals, who earned 80% of their profits from exports were exempt from tax altogether - yes, 0%. So, if anything, the introduction of the new corporate tax in the mid 1990s which was forced on us by the EU (merging the reduced and standard rate at the time) actually increased the tax rate for companies at the cutting edge of the Celtic Tiger economy (actually it’s still being phased in). For the Left to try to take credit for the ‘tax cut’ is nothing less than trying to climb on board the Right’s bandwagon – and a wheel-less wagon at that (for more on this tax-cutting=economic growth bilge see ICTU's 'Tax Cuts Did Not Create the Celtic Tiger'.)

So what of the Celtic Tiger economy? Economic historians will be debating this one for decades to come, mostly because it emerged out of an amalgam of factors. However, there is one input which is extremely important, extremely progressive and totally ignored. And that is the role of the State in the development of the indigenous manufacturing sector resulting in increased employment, innovation, occupational upgrading, R&D and industrial upskilling.

This essential analysis was put forward by Sean Ó Rian of the NUI Maynooth in a paper entitled 'State, Competition and Industrial Change in Ireland 1991-1999', that I would urge everyone on the Left to read. He argues that:

. . . entrepreneurship was profoundly shaped and promoted by a dense network of public and semi-public institutions.

This is a profound challenge to a number of ideological schools: the slash’n’burn taxes school (which happened, but after the growth); the ‘if we build it they will come’ school which assumes that a hundred enterprises will bloom if only we will develop our infrastructure (this is the premise of Fianna Fail’s National Development Plan); or the ‘lone entrepreneur on the prairie’ school which sees wealth creation as a kind of Ayn Rand thought experiment.

In support of his argument, Ó Rian focuses on the ‘crucial mediating factor of institutions of innovation’ – which were not a bunch of workshops conducted by IBEC. He points out that a:

. . . highly significant alliance between science and technology-oriented state agencies, technical professionals and university constituencies emerged which supported the deepening of technical capabilities and collective learning across the Irish economy. This process was underpinned by state agencies, through their participation in this alliance, defined general priorities, provided finance and institutional supports and legitimated this agenda. These state agencies played a central role in upgrading industry and deepening Ireland’s production and innovation capabilities in the 1990s . . . The emergence of this alliance is the decisive feature which explains the transformation in Irish technological and organisational capabilities in the 1990s.

This had three effects:  first, state agencies defined which types of involvement in the international economy they would support. For instance, state agencies emphasised technology-related exporting in their support, such as software design, printing and electronics. State agencies managed to define the ‘character’ of Irish industry – namely moving it into higher valued-added export products.

The second effect of state involvement was to ‘make winners’:

The state was the major provider of external capital to indigenous industry. Furthermore, this more direct involvement of the state was significantly more effective in promoting productive investment than previous schemes aimed at providing business expansion funds for start-ups.

Thirdly, the state played a critical role in the creation of a network of industry and trade associations, universities, innovation and technology centres which provide an infrastructure for information-sharing, cooperation and innovation.

Ó Rian’s lengthy paper goes on to empirically validate his argument – which is a refreshing change from the assert-and-be-damned approach that dominates much of the economic debate.

But let’s be clear: this is an argument for understanding that market actions and outcomes are deeply embedded in institutions of state and society. The partial transformation of Irish industry was due in large part to the intervention of the state through industrial and other strategies. When one considers the IDA’s success in ‘picking winning sectors’ in the 1980s to promote foreign direct investment, the state’s educational and labour market strategies (FAS being one example), the massive public investment in critical infrastructure courtesy of EU structural funds ... when one takes all this into account we can see that the neo-liberal nonsense of taking credit for the Celtic Tiger economy is just that: nonsense.

But there is more. This is not just a dry formula for enterprise success (though that in itself would be a great advance for the Left). It has profound political implications, as Ó Rian points out:

The ‘Celtic Tiger’ is not a product of heroic entrepreneurs in the market but is a (partial) success made possible by the embeddedness of entrepreneurs and workers in dense social institutions. There is a significant collective contribution to the success of those who have benefited ‘from the market’ and those social groups are therefore subject to legitimate claims from those collective institutions. Society’s claim on the technical-professional classes and entrepreneurs who have benefited most from the ‘Celtic Tiger’ is not one of guilt or charity, but one of right, as the success of these firms and social classes rests heavily on collective social and state institutions.

This is a profoundly democratic and egalitarian critique, one that has historical roots in the ‘Lemassian bargain’. Of course, it’s a long way from having a progressive critique of the Celtic Tiger economy to actually producing the policies that can win over support. It’s not likely that slogans such as ‘What do we want? Densely embedded social networks! When do we want it? Now!’ will get us very far. But then, that’s the art of politics, encapsulating this critique into attractive and accessible policies.

Or, if you will, bringing the equivalent of an economic coca-cola formula, first to production, then to market.

Ahh, now that would be the real thing.

Comments

[Michael Mc Loughlin]

We could go further and argue that maintaining a value on educational investment (academic and vocational) has always been a vlaue of the left and no celtic tiger could have happened without this form the 60s on. I think there has been a cultural influence of the left as much from Europe and UK on some of our post war policies.