James Wickham: Why did the Irish crisis happen in Ireland? Most public discussion still seems to oscillate between personalising the issue (‘greedy bankers’) and over-abstraction ('the global crisis'). Certainly, conventional economic commentary is more sophisticated, but ignores institutional features of the Irish socio-economic model which in retrospect meant the crisis was pre-ordained. Thus a focus on the combination on eurozone membership (cheap credit) and weak banking regulation conveniently ignores the fundamental political commitment to an ‘Anglo-Saxon’ financial system within a liberal market economy. This ensured a disproportionate role for banks within the national economy. And remember, after the crisis of the 1980s, a key element of the national growth strategy became the promotion of the Dublin International Financial Services Centre in which ‘light touch regulation’ was explicit policy. This is the institutional context for the ‘golden circle’ of property developers and politicians at the apex of the system.
Secondly, the key role of banking finance was interwoven with the financialisation of everyday life. To previous high levels of home ownership was added extensive mortgage credit creating a particular form of ‘residential capitalism’. Asset ownership (‘lite wealth’) expanded amongst the middle mass of the population (from cars to private pension and second homes) so that income from employment was only one determinant of life chances. The welfare state had become one of the most extreme ‘liberal’ states of the EU15, with very limited state services and most services (health, childcare…) provided through the market. Paradoxically, the financialisation of everyday life was accelerated by a key feature of the employment system itself: social partnership. Since 1987 tripartite agreements contributed to higher employment but also focused on delivering higher real wages. Accordingly reducing taxation was a priority, improving state services was not. Equally, cash benefits in the welfare system were high by European standards, but labour market activation was almost non-existent.
Thirdly, the central role of FDI in the national growth strategy also opened the way for the crash. Given the political priority for public tax-cutting, state policy towards FDI paid decreasing attention to social and physical infrastructure and focused increasingly on low corporate tax as the incentive for FDI. All of this ensured that a political conflict with other EU member states was pre-programmed. Such a conflict was further promoted by the Americanisation of Irish public discourse and economic thought, the promotion of ‘Boston not Berlin’ as a social model, and the direct and indirect influence of the Dublin American Chamber of Commerce on political decision-making.
Far from stimulating any re-think of the national development strategy, the crisis has turned the reliance on FDI into a national fetish. Bizarrely, not only the Labour Party but even the left nationalist Sinn Féin have made ‘our’ corporate tax rate into a symbol of national independence. While personal taxes have risen, the desirability of low personal tax rates also remains part of the national political consensus. Thus there is no sense that the crisis could stimulate any move towards collective provision in the face of collective adversity (the contrast with the creation of the British welfare state in post-1945 austerity is instructive). Instead, privatisation of pensions, education and (to some extent) health continues, while state assets are to be sold. Rather than strengthening the state, the response is to weaken it. The jettisoning of social partnership has ensured that other features of the Irish model have been consolidated. The Irish experience shows how, confronted by a cliff, lemmings will sometimes rush to fall over its edge.
2 comments:
Excellent analysis. Since the 1990's there has been a progressive and systemic capture of Ireland's political (including many trade unions) , administrative and regulatory institutions by large multinationals (mainly from the US) and the newly deregulated and aggressive financial services industry.
The predominantly Anglo-American neo-liberal ideology provided a very attractive and persuasive "free market " narrative for the wholesale privatisation of public services.
In spite of the fact that the "free market" ideology has been discredited by the worldwide banking debacle, there are too many captured minds and powerful vested interests to accept this.
I cannot see your excellent analysis getting too much airtime or column inches in Irish media at present. Maybe in 2 years time.
James,
I'd like to second Aidan above.
You know, I can't quite make out if we're dealing with dupes or foils.
Take the privatisation issue. They harp on about privatisation, about efficiencies, the rent seeking of the state, etc, etc, but when the privatisations occur are shocked, shocked I tell you, that the results prove to be rent seeking, inefficient outcomes. But this is not what we advocated, they argue. What we advocated was reasonable.
Well, I'd ask the question of them, are they fools or foils?
I would also argue, there is an even more fundamental schism at play, and one that has yet to be properly challenged, ideologically at least: the role and indeed existence of the “independent” central bank.
Granted, it's been institutionalised for us with the ECB, (the worst of all possible central banking models). But the point is, the capital markets are creatures of the central bank. They have usurped the printing press. Government bonds are not bought by the central bank, but through the marketplace. Sovereignty, and therefore policy, resides in the markets.
In the US, this was brought about as a consequence of the inflation of the seventies and eighties. I read recently an article suggesting that if they were to approximate the inflation indices of the US pre 1983, post 1983 inflation rates would have averaged 5%. But through the use of global wage arbitrage to deflate the prices on products for the average joe, and using a heavily refined definition of inflation, they allowed for massive monetary easing to flow into the capital, equity, and housing markets, thus pushing up the demand for debt.
Now this may or may not have direct relevance here. I would suggest ideologically it did. But if I read Conor McCabe right, and (I think) Michael Burke holds this position, that the monetary policy of this state being outsourced from the very beginning to the Bank of England had a profound impact on the industrialization (or lack thereof) of the Irish state. Thus we were led to the third way of Whitaker/Lemass, the search for FDI.
I find it striking that France now is in competition with ourselves for FDI. In fact, it has stolen a march on us and was the greatest recipient of FDI in the EU last year. Could this be due to the outsourcing of monetary policy to the ECB? I would say, yes.
I would also contend that with such a monetary policy, the only means through which a currency area can maintain high employment and continued industrialization is through consistent current account surpluses. This is what the Germans understand. But it will only work for a short period and is a vulnerable system, for it requires the outsourcing of demand, leads to reduced infrastructural investment, ever weakening labour regulations, an ever shrinking tax base, increased inequality, ever weakening financial regulation, etc., etc.
Of course they’ll call this good governance…
Lemmings eh…
Post a Comment