After the Storm

When caught in a storm, long-term thinking is understandably sacrificed to more short-term concerns – like getting out of the rain. You’re wet, you’re going to get wetter (the bus stop has no shelter), and you’re just hoping you don’t get a chill or, worse, pneumonia. What you do afterwards can be considered when you’re a bit drier, warmer. So, stock market volatility, Federal Reserve cuts, rumours of recession, and a liquidity crisis: try to stay dry, try to stay warm. And think what to do next.

How this global collapse of share prices will play out is anyone’s guess – and a perusal of newspapers, websites and 24-hour business channels shows that’s just what the ‘experts’ are doing: guessing. Will investors, sensing that the Fed’s dramatic cut in interest rates is a panic measure, sell up, sending equities (and your retirement income) plummeting? Will the ECB cut European rates? Clearly, inflation-hawk Jean-Claude Trichet doesn’t want to but wait for business and governments to raise their voices even louder.

Is the US verging on recession? Depends on your perspective – is what is happening in the market a kind of hard ‘correction’ (or ‘nose-dive’ to us ordinary mortals) at the end of which the market will find its ‘natural’ level? The beginnings of a bear run where investors will calculate the moment they can pick up bargain basement stock (and so start the climb back upwards)? Or are the roots of this crisis structural, a symptom of a much deeper malaise?

And if the US does go into recession, will it drag down the rest of the world with it? European leaders are trying to be optimistic. They will have to try harder. Questions, questions.

And now we’ve got a new crisis looming. Just when we got our heads around ‘carry-trades’ (whereby investors borrow in a low-interest rate country to invest in another high-interest rate country without appreciating the currency risks they were exposing themselves to); just when we understood the damage that wrapping up dodgy sub-prime mortgages into unverifiable but pricey new financial products entails; now we got this monoline insurance thingy.

Monoline insurance provides coverage against the risk that a financial security will default; this is a last line of defense (in the private sector, anyway) in the labyrinth world of finance capital. If these companies start taking a hit then it could be lifeboats over (according to JP Morgan’s Chief Executive it would be ‘pretty terrible’ – and that’s saying something after that has gone on in the last few months). So far, the signs are not good: one monoline insurance company has had its AAA credit rating removed while another has experienced a nose-dive (no, not a correction) in its share price. In all probability, public authorities won’t let these companies go under – appalling vistas and all that. So expect all fingers to the dyke and even more public bail-out money for the last bastion of unfettered capitalism.

Wet, wet, wet.

What does all this spell for Ireland? We need all this like a hole in the head. We’re just coming down off our property high; consumption is falling and, with it, our spending-led growth rates, we’re suffering a credit crunch and seeing the currencies of our main trading partners – the US and the UK – going the wrong way, jeopardising our exports; our biggest manufacturing sector - chemicals and pharmaceuticals - is preparing for global restructuring (read: job losses, plant closures, investment deferred) and all the while the Taoiseach is assuring us that the Government is ‘monitoring the situation’.

Phew, that’s a relief. I feel drier already.

To raise the extremely damaging potential all this has is not to be alarmist – especially not in such a globalised economy as ours. The problem is we can’t even get a handle on the true situation. We have a deteriorating current account deficit, but Minister Brian Cowen does a 3-card trick and, presto, this deficit becomes a surplus. Trying to assure the punter that everything's okay, the Minister stated:

‘We have no current account deficit in the euro area, in fact it is in surplus, so we are exporting more than we are importing.’

Bizarre or what? And, as Michael Hennigan over at Finfacts is forever pointing out, when it suits Government Ministers and lazy commentators to talk about the robustness of Irish business, foreign-owned multi-nationals are conveniently labeled ‘Irish’. So the true picture of our economic performance is deliberately obscured – productivity, export performance, innovation and R&D, etc. I know that on St. Patrick’s Day over 40 million Americans claim to be Irish ... but Microsoft and Intel?

Fianna Fail can well whistle in the dark and find convenient scapegoats: public sector pay, high wages, commentators who talk down the economy, those events outside of our control. Fine Gael can always blame Fianna Fail – and that’s all they do. And what does the Left have to say?

Unfortunately, not a lot. Labour is still trying to recover from its effective abandonment of economic issues during the last election campaign. Sinn Fein has curiously out-sourced its policy making to local Chambers of Commerce. The Greens have retreated to environmental issues (or, rather, have not strayed from them).

Over the last few days there have been no statements from the progressive parties on this global crisis engulfing the news, not one perspective, not one analysis of how this might affect Ireland or how the Government should be responding.

How can progressives convince people that they are capable of leading a government if they cannot put a perspective on the economics issues of the day – especially when what is current is in crisis?

Of course, we can’t expect one statement, one speech, even a policy document to tie up a new economic policy in a bright red ribbon – especially when the Left has been out of the picture for so long. So here are some suggested starting points:

• Harry the Government over ridiculous comments, starting with Brian Cowen’s magical trade surplus. You’ll never run out of material.
• Exploit weak areas of Government policy – especially those relating to indigenous enterprise. All this takes is a little research but the information is out there.
• Ridicule neo-liberal nonsense from whatever quarter it is sounded (pre-budget demands by corporate interests to cut corporation tax and employers’ PRSI would have been prime candidates).
• Demand a one-day Dail debate on the impact of the global credit crisis on the Irish economy – you won’t get it but you’ll expose the Government’s complacency and, at least, appear relevant.

These are not substitutes for the hard work of creating new economic policy perspectives. But they can serve as stop-gaps, shelter if you will, until a broader agenda is put forward.

But clearly if the Left does not take up this work with urgency, then long after the global storm clouds have, however temporary, receded a little, we will still be running for shelter from another kind of deluge – the storm of irrelevancy.

And that storm will have been the Left’s own making.

Comments

[Aidan]

Good post. I wonder when will Labour get its as-s in gear, and start leading the debate on productivity, export performance, innovation and R&D!!!

[Ciarán MacAonghusa]

You admit that harrying the government is only a stop-gap while the main task is to work on economic policy.

Why has it taken the left so long to formulate a coherent policy response to the glaring flaws in the right wing orthodoxy?

The growing inequality within the freer market economies has been clear for a long time. The shortcomings of the anglo-saxon financial and governance system have been clear for some time (excessive short-termism, volatility, inequity, narrow objectives), massive breakdowns such as Enron and Worldcom showed its precarity and injustice. Now the credit crisis shows again the inherent instability. And so on and on.

In short, given the clarity with which the current orthodoxy sports its flaws and injustices, why has the left been incapable of formulating a comprehensive and coherent set of prescriptions?

[Michael]

Ciaran - good question. I suppose it's a number of factors but let's remember that the Labour Party is not the only one to suffer from this problem. British Labour, too, particularly under Blair, seems incapable to create an authentic alternative. And the SPD's Hartz 4 reforms were just plain capitulation to private capital (thankfully, the SPD is rowing back from that one). So Irish Labour is not unique. One could blame the inability of the Left to think itslef out of the crisis of the French Left Unity Government in the early 1980s when capital literally pulled the plug on the more statist policies; maybe it's lack of confidence; or ambition; or to engage in hard slog of winning people over to a new alternative; or maybe it's part of the near domination of Right thinking.

Whatever the combination of reasons - both throughout Europe and here at home - we should take some comfort that Eamon Gilmore is starting to address this issue - a speech before the SIPTU executive that you can find at http://www.labour.ie/press/listing/12012552771214794.html

So, Ciaran and Aidan, Labour has started the ball rolling. It's up to everyone to keep it in play, bring it forward and start scoring some goals. God knows we have a hell of a deficit to make up.

[Ciarán MacAonghusa]

Michael,
Thanks for pointing out the link. That speech is a genuine effort to grapple with some of the fundamentals.

Yes, you are right. The Irish left is not unique. I wonder why has the right wing orthodoxy managed to remain intact? Obviously an impressive array of forces are arranged in its side. But the extent of the discontent with the sheer rawness of the current structure is widely felt and should be a base on which to build a consensus for change.