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January 13, 2009

Comments

Yvonne

I also have that sinking feeling! And a sense that we're missing an opportunity here to re-balance our society. I'm not up to the 'forensic deconstruction of the arguements' just yet and I will have to rely on your insights for now Michael, however, I think I do have a sense of what is just and not. And I think what is being proposed now in terms of public service pay cuts is entirely unjust.

For one, it is likely to be a blunt instrument that will take no cognisance of the history of pay awards to different groupings, and will result on those on the margins of a salary threshold being excessively penalised.

But there are more fundamental arguements than that. Were it a question of everyone doing their bit then there may be something to be said but there is a false dualism being presented here of poor private sector workers versus privileged public ones. As Tom Geraghty, Deputy General Secretary General of the PSEU alluded on Morning Ireland, there are plenty in the private sector on very favourable pay conditions compared with those in the public sector. Are they being asked to make proportionate sacrifices? We have seen that in many cases they are not.

Moreover, this false dualism is serving to distract, as it is intended to, from too close a scrutiny of other issues and the media are complicit. In as far as I understand Chomsky's notion, this is 'manufacturing consent'. That is why we need your 'forensic deconstruction'.

Liam Doran, INO General Secretary, quoted in the Irish Times today hit the nail on the head for me when he said the economic difficulties facing the country must be addressed “by all in Irish society in equal measure, according to their ability to pay." Suely increasing taxes and ending tax avoidance schemes is the principle way to achieve this?

James

I wonder how much of the problem with the debate is that people still concieve of the state's role only in terms of ensuring some level of equity and security through public services and the social welfare system and to do so in a way that least damages "the economy".

But this - protecting those unable to look after themselves in a market economy - is only one aspect of the state's role. If it were the only aspect then one would be correct in thinking that the only mistake the state can make is to set taxes too high or in an inefficient, incentive-distorting manner, thus fecking up the private ("productive") sector. This misconception leads people to assume that the private sector can look after itself so long as the state doesn't get in the way. Effectively, this view sees the state as the provider of optional extras (a health service, some redistribution etc.), concerned with the distribution of wealth that can only be created by the private sector. If one starts from this assumption it's hard to argue with any spending cuts because without a thriving economy everything else is impossible.

Sadly getting the state's role right is harder. The danger of taxes getting in the way of the private sector is not the only way of getting it wrong. Rather you can also damage the economy by failing to provide an adequate supply of public goods that are essential to a successful economy but can't be delivered by the market. In other words there isn't an economy on the one hand and a state on the other - the state is an essential part of the economy, has a positive economic role.

So some countries' problem might indeed be "big government". But others' might be excessively "small" government. Our pavlovian anti-state response seems to me to be a case of using the strategy of the last war (i.e. the 1980s, when some marginal tax rates may have been excessively high). But international comparisons as well as detailed analysis of our economy would suggest that we are at least as likely to suffer from an inadequate rather than an excessive public sector.

James

One typo correction Michael - in the last sentence of the "wages" section of your Dublin/Maastricht comparison I think "less is more" if you get me (or I've misunderstood...).

Paul

Michael, great post, and as always great encouragement to lazy overpaid workers everywhere :) There is an urgent need for progressives to put forward constructive left-wing economic arguements to counter the out-of-date neo-liberal scare tactics we get served up daily.

Michael Taft

Yvonne, deconstruction is only the first step and while necessary it is not sufficient. For intance, when we get these knee-jerk calls to cut public sector pay by 5%, we should respond with derision - that this will reduce the deficit by 0.2% if that; we should point out the poverty of policies; sarcasm and ridicule are potent weapons in the public debate. Then we can set the ground for an alternative - if only we had one.

James, first an apology (and this goes to all readers) for the mistake which I have corrected. I fear these will occur more frequently. My partner is not in the position she once was to edit my posts. And I am a terrible speller, grammarian, syntax-ician and proof-reader. I will try harder but please bear with me.

But you are on to something with your substantive point - the state is too often seen as the provider of last resort. Even our history of public enterprise was an aspect of that - when private capital couldn't provide us with electricity, an airline, peat products, life insurance, stud farming, fertiliser - governments established public enterprises. Are we not facing into a similar situation in many sectors today - possessing the skills and the ambition, but no private capital to make that happen.

Take housing - over the last couple of decades local authorities have been building (or contracting private sector companies) to build quality housing. But this is supposed to be only for 'poor' people. Why can't a public housing authority enter the market as a provider of houses and apartments for sale on the open market?

Public goods and public enterprise are not added-ons - only available when private capital gets its act together. It is an engine of growth - both for the economy at large and for private companies who will benefit from larger public spending or new competitive benchmarks that public enterprise can establish.

I will develop some posts on this theme in the future but I believe it holds one of the keys to growig ourselves out of this recession.

Yvonne

I can do derision!

Tomaltach

You made your calculations on the basis of the General Government Deficit of 17 billion. Please correct if I'm wrong but my understanding is that the GGD includes both capital and current. There is a very big capital component in there, and if it is taken out the effect of the pay cut becomes twice as significant as your calculated. The essential point is to focus on current or day to day spending. The long term stability of the public finances rest on this being manageable. The capital side of course is still there but doesn't give rise to the same sustainability problem.

The other thing I think is a bit unfair is the presumption that the private sector is somehow universally using the situation to punish workers by implementing their own wage cuts. I have no idea what percentage or which sections of the private sector have suffered pay cuts, though I am fairly certain some workers are having their pay cut. Certainly I am aware of a few companies which were employing people in jobs at or below the av industrial wage and have now implemented pay cuts. And of course most of the job losses are in the private sector. Yet it is unfair to suggest that somehow private sector bosses are doing this disengenously "as an excuse". I have worked in a company where we had to take 10% pay cuts. I can tell you that it was absolutely necessary for the financial viability of the company. As were subsequent layoffs. And I would suggest that in a declining economy and global downturn the vast majority of businesses which are cutting pay or staff are doing it to survive not as an excuse to increase profit.

James

If we're going into the details then we need to talk about the "structural" deficit - the deficit we would have if/when we return to something like full employment and growth.

Lenihan and Cowen continually tell us that the present borrowing levels are "unsustainable". Quite right, except that nobody is asking them to sustain it. More to the point, an economy shrinking at 4% per annum is fairly unsustainable, and nothing that fails to address that will help the public finances.

Joe Holt

Hold it! The ratio of GDP to wages does not really determine whether we have a 'low wage economy'. Surely population must enter the equation somewhere?

Simon

The ratio of GDP comparison is the most ridiculous justification for low wage economy I think I have ever heard. Apparently, we are so chocked with stats about low wages that you had to dig up a stat that was so irrelevant to the debate as to be laughable!
Your ratio of GDP also ignores the impact of repatriation of Multinational profits. Low wage economy, god I have not heard that old chestnut used since the days before benchmarking.

Pavement Trauma

Hey I've an idea! If cutting wages would be so bad for the economy, maybe increasing them would be, like, good! Let's keep giving ourselves lots of pay rises until we pay ourselves out of recession. It's ingenious.

Nomad

Your whole argument about 'Ireland' having low paid workers is a nonsense though, undermining the rest of the discussion.

This sort of fact is in pretty easy reach for example: "The average wage, if you divide GDP by population in Ireland, is around $50,000 (€37,000) whereas in Poland, it is $11,000."

Taken from The Observer. https://www.guardian.co.uk/world/2009/jan/11/ireland-economy-world-news

James

Except of course that dividing GDP by population is not a formula for average wages. As we've Micahel has told us, wages only amount to 41% of Irish GDP.

Fearghal

Yes, but as pointed out, this is NOT how we determine whether Ireland is a low wage economy!! Cost of living and inflation need to be considered.

Inflation is at a 10 year low right now. We are expecting deflation in the coming months (something that has not happened since the late 40s!). Deflation means that prices decrease, and the real value of your money (and wages) increases in relative terms. So why do we need to increase wages beyond this??

Aaron McDaid

Stop the childish whinging about 'neo liberal' this and 'neo conservative' that. This is absolutely not a left/right issue.

We owe huge amounts of euros to the rest of the world. And just like a family that owes millions, we have absolutely no other option but to drastically cut our standard of living.

We have to choose between mass unemployment (taking their money to fund the continued extravagant lifestyle of the rich) or proper pay cuts spread across society. This is where the only valid political argument can be had, and you don't have to be a lefty to see that unemployment will only make it more difficult for us to pay off our debts.

Lefties can't hide behind number games and pretend that a lefty government can magically fix everything with a magic wand and some balance sheet magic. Somebody somewhere is going to have to stop consuming and start working.

John O'Farrell

Wow. I just read the puerile fantasy on fincacts.ie by 'lean expert' Joseph McGrath (age 15 and a quarter).

I love the set of assumptions which his calculations are based upon. There are no calculations for redundancy payments on a massive scale, or the cost of unemployment payments. Even one of Thatcher's mininters admitted that the mass unemployment costs in the UK during the '80s were only possible by having North Sea oil to pay 4 million people UB.

I also like his idea of consulting - "It is important that this exercise is lead by outside consultants. Otherwise, public servants and their unions will be able to frustrate change." - presumably these consultants (such as wee Joey) will be working for buttons, or the private sector average wage, which ever is lower.

He obviously anticipates some trouble at t'mill, as his list of "core parts of the public sector" will be the very people needed to keep things in line, and patch up the damage ("doctors, nurses, gardai, the army, the courts, policy makers etc."). Of course, we will need policy wonks (such as Master McGrath), those sturdy ideologues. Indeed, their musings ought to be mandatory lessons for all Garda and Army head-splitters.

"Non-core" chunks of the inevitabily private/public sector will, of course, be 10% cheaper. Can one instance be ever made, anywhere, of a public service (a) improving and (b) getting cheaper for customers after being given (note: not sold) to the geniuses of the private sector? Answers, please, on the back of a Eircom shares certificate.

This madness, and its trimmed-down and poshed-up variations pushed and published daily in the Republic's newspapers and pimped by charlatans like George Lee, is the cause of the rot, not anything like the cure.

As I observe the economic debate from the perspective of an exiled Dubliner resident in the comparitively socialist paradise of Northern Ireland, I despair.
Keep up the good work Michael. You and WBS over at the Cedar Lounge are rare and flickering signs of intelligent life and, more necessary than ever, humanity in that wretched Republic.


Simon

So, anyway, if we are swimming in numbers that show we are a low wage economy(!), please do show us them.
If we were a household we would be foreclosed upon, thankfully we are not but at some point we have to pay back the money that we completely depended upon for the last 7 years to finance massive wage increases well beyond our trading partners and the massive increase in public sector workers. Remember the massive increase in public sector workers (+40% since around 2001) was paid for by money from the construction bubble that is now gone (and is not coming back).

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