Government’s strategy for growth – can it work?

Parts one and two of this article have explained the chronic nature of the capitalist crisis in Ireland. Part three will first of all investigate the rhetoric underlining a crucial part of the government’s strategy for recovery before analysing the consequences of the crisis for the workers’ movement.

Check out Parts One and Two.

 

How about a “smart green economy”?

In their desperation to promote the idea of economic recovery, the capitalist establishment has repeatedly resorted to largely empty rhetoric. The piece of rhetoric that has become the most ubiquitous at this stage is that of the need to transform Ireland into a “smart” and/or a “green” economy.

The impression is sometimes given that this is a novel idea, which other countries have not thought about, and will somehow allow for economic recovery and strong growth at the other side. The reality is very different of course. “Green” innovation is universally recognised as one of the few major growth areas, with most major capitalist countries seeking to position themselves as leaders in the area. In fact, the European Commission’s EU 2020 strategy document for the EU refers to the EU’s advantage in this area “being challenged by key competitors, notably China and North America.” Clearly, the market to be first in green innovation is a crowded one.

This rhetoric is “backed up” by a document produced by the government in 2008, entitled “Building Ireland’s Smart Economy”. The red thread running through this publication is the need for “innovation”, a term, which David Jacobs (in an article on progressive-economy.ie, “Innovation and the smart economy”) remarked is repeated more than 114 times in the course of the document, without once giving a definition! It is used to refer alternatively to ideas, research, and the commercialisation of research.

In broad terms, this focus on innovation represents a certain recognition of the weak nature of Irish capitalism and an attempt to build a stronger indigenous export base. However the strategy will prove unsuccessful because the means to effect this transformation are almost entirely reliant on incentivising the chronically weak private sector to innovate. The government’s policies of cutbacks in education and public services also point in the opposite direction to that of the development of a truly “smart” economy with high-tech infrastructure.

As an illustration of the reliance on incentivising the private sector, one of the key targets outlined is “Entrepreneurship, business start-ups and employment creation will be driven by a number of highly-favourable taxation measures”. This focus on giving tax breaks and other benefits to businesses shows that despite the crisis, the government remains firmly wedded to the ideas of neo-liberalism, and the supremacy of the market. But, experience in Ireland has clearly demonstrated that the private sector has been unwilling to seriously engage in innovation. Even at the height of the Celtic Tiger, with companies relatively flush with cash, R&D spending remained low. Short-term speculation in property and stock markets proved a more attractive option than investments in improving productivity.

Clearly, tax incentives and other measures can have a certain impact. However, the problem is a deep one that cannot simply be solved by incentives – it goes to the heart of the weak nature of capitalism in Ireland. The fate of broadband in Ireland since privatisation of Eircom is illustrative of the difficulties of the private sector in driving real innovation in the economy. Since privatisation, Eircom (previously Telecom Eireann) was repeatedly asset-stripped by different sets of venture capitalists. It has gone from being a profitable state owned company to one loaded with €4 billion in debt. The result of ownership for profit was asset-stripping and short-term profit-taking rather than long-term investment. The consequence is that Ireland lags behind the advanced economies in terms of broadband services – surely an essential infrastructural component of a “smart economy”!

Just as the government’s strategy for innovation is undermined by its reliance on private sector, the target of a “highly skilled and flexible workforce” is directly contradicted by its cutbacks in education. A central target of Ireland’s science policy is to double the number of PhDs produced by Ireland. If this was linked to a balanced approach to developing education for all age groups, it could be a useful target. However, instead, it is combined with a slashing of funding at all levels, which can only lead to an extremely unbalanced approach to the development of education – with a growing focus on commercially-oriented PhD research in universities, at the expense of undergraduates in universities, together with slashed investment in pre-primary, primary and secondary level – the vital foundation stones for an educated workforce.

The reality of course is that even the establishment do not seriously believe that the “Smart Green Economy” strategy will provide a way forward, at least immediately. That there is no miracle cure for the Irish economy. The fundamental “internal devaluation” policy of the Irish government will slash the domestic market and further undermine the basis for any “innovation revolution”.

Crisis will deepen

The question which is posed by every attempt to understand the crisis and the likely policy of the government in the coming months and years is how bad will the economic crisis get? Although it is impossible to answer this in detail now – the outlines of likely events are clear. Because of the scale of the crisis and the deflationary policies pursued by the government, the economic situation continues to worsen and clearly has further to drop.

A growing gap exists between the optimistic projections of the government and those of other capitalist institutions. While the government predicts growth in GDP of 3.3% in 2011 and 4.5% in 2012, the IMF, together with the EU Commission, has said that these predictions are over-optimistic, and instead predicts 1% and 2.3% growth for 2011 and 2012. Michael Taft in an article on progressive-economy.ie (“The day after the IMF’s tomorrow”) spelt out the gap between the government’s and IMF predictions: “Beween 2010 and 2014, the Government expects the economy to grow by 17.4 percent in real terms; the IMF, 8.8 percent.”

This gap and the likelihood that growth will prove weaker than the government’s projections, means that further budgetary “adjustments” are likely to be necessary from the government’s point of view. Further harsh attacks will be implemented in the next budget and that budget could come within months.

The European Commission, in its recommendation for a Council Opinion on Ireland’s stability programme, gives a glimpse of what is in store. “Ireland is invited to… rigorously implement the budget for 2010 … [implement] further pension reform measures … strengthen the enforceable nature of its medium-term budgetary framework”.

What this amounts to is another savage assault on living standards, with pensioners in the front line this time. We can expect public services of all sorts to be further slashed and social welfare recipients to come under renewed attack. The impact of these further cuts (if they are not resisted) will be a further deflationary spiral.

Crisis will give way to joyless recovery

However, this does not mean that a decline will continue forever. The very boom and bust nature of capitalist economics means that just as booms do not continue indefinitely, neither do busts. At a certain stage, under the impact of a weak recovery in the world economy, recession will give way to technical growth. At that moment, the right-wing establishment will declare that the pain that was inflicted on working people has paid off.

Such self-congratulation will be entirely unwarranted, as the likely character of that growth will make clear. There is no question of returning to Celtic Tiger growth. The Irish “recovery” is likely to mirror those economies currently experiencing “recovery” – with weak growth rates and rising unemployment.

As a result of the crisis and the government slashing of public services, the Irish economy has been fundamentally set back. It has been diverted from the growth trajectory of the Celtic Tiger to a decline that is, according to the OECD, “likely to have permanent effects”. The cutbacks in public services and attacks on living standards (and domestic market) will have ongoing ramifications even in the context of positive growth rates.

Even with nominal growth, it is likely to be a joyless, jobless and quite possibly job-loss recovery. The attacks on working people will continue as employers try to squeeze out a profit in a difficult environment. This growth is liable to give way to further crisis as Ireland returns to being an economy facing chronic crisis as a result of its weak base, similar to the other PIGS economies.

What consequences for the workers’ movement?

In the course of the Celtic Tiger, the majority of working people enjoyed rising living standards. “Social Partnership” delivered far less than what would have been possible with campaigning trade unions and free collective bargaining, but nevertheless, wage rises were secured. The trade union leaders became entirely wedded to this “partnership” process and the number of union activists and shop stewards dropped dramatically as the “partnership approach” became entrenched.

The fruits of this development are now seen – many trade union leaders are urging acceptance of a deal that will mean further pay cuts and massive counter-reforms in the public sector. It is clear that the economic crisis has dealt a fatal blow to the era of Social Partnership where minimal wage rises were able to be secured without any real struggle. Serious industrial struggle will be needed to defend living standards and win concessions.

The conclusion of the trade union leaders is therefore that public sector workers must accept the attacks. The conclusion of the Socialist Party is the opposite – public sector workers should prepare for a serious campaign of industrial action, including a 48 hour national strike and linking up with private sector workers. Such a movement could force a retreat and bring the government down.

An end to the ideas of “Social Partnership” is now desperately needed if private and public sector workers are to defend their living standards. A return to the militant traditions of Connolly and Larkin is required. The trade union movement must prepare to give fighting leadership to build a movement to defeat the government’s attacks and resist the government’s deflationary policies which threaten permanent damage to the economy.

In addition, the scale and depth of the economic crisis in Ireland demonstrates that socialist policies are necessary for the workers’ movement to combat the attacks of the government and employers. The crisis that has wreaked havoc on the lives of people in Ireland and around the world is a crisis of capitalism. The consensus of the establishment parties and commentators around the basic idea that severe cutbacks and drops in living standards are necessary, demonstrates how these policies flow from the nature of capitalism and the interests of big business.

In response, working people need fighting trade unions and a mass workers’ party armed with socialist policies that counter the bosses’ propaganda. Instead of accepting the cuts logic of capitalism, workers’ organisations should put forward a socialist programme. Instead of the bailout of banks and developers, they should argue for using the massive wealth and resources that still exist to create jobs and improve infrastructure and public services through a massive social works programme. An answer to the freezing of credit to small businesses and farmers is to demand democratic public ownership of the banks and key sections of the economy under workers’ control. Socialists should popularise the demand for a democratically planned economy to implement an emergency programme to redevelop the economy and avoid the boom and bust anarchy of the market.