The modern company: too important to be left to the shareholders alone?

James Wickham:  Is there only one way to run a company?  If any group of people get together for a common economic activity, must they organise themselves as if they were a private limited company?

TASC has started a project 'Everyone's Business: Employee voice and the modern company'  to explore these questions.

Within Ireland it is usually taken for granted that the purpose of a company is solely to create the maximum possible value for its shareholders.   Such a model assumes that employees are simply resources for the company to use or discard as it sees fit; it assumes that employees have no independent voice; it posits that other possible stakeholders (customers, suppliers, the local community…) have a purely financial and contractual relation to the company.

Dominance of  shareholder value

Yet this ‘shareholder value’ understanding of the company is relatively new and is certainly not the only possible form of economic organisation within a market economy.  Indeed, the dominance of shareholder value is often seen as contributing to the recent expansion of economic inequality and job insecurity.

The dominance of shareholder value models now goes way beyond the private sector.  First of all, state-owned companies appear to be increasingly managed as if they were privately-owned – by shareholders.  Even more bizarrely, the governance systems of charities, NGOs and even housing associations and co-operatives are increasingly copied from the private sector – and a very particular private sector at that.

Alternative traditions

Elsewhere in the European Union there is a long tradition of employee representation within companies. For example in countries such as Germany employees are directly represented on the company’s supervisory board; in many more countries employees have representation at enterprise level through various forms of works councils.  By contrast in the UK employee voice is effectively limited to employee share-holding.  Some other European countries also facilitate co-operative forms of organisation which ensure the democratic participation of all involved.

In Ireland there is a strong tradition of co-operative enterprises within the. agri-food sector.  Nonetheless Ireland has become increasingly dominated by the ‘Anglo-Saxon’ shareholder value model of the enterprise, despite some experiments with workplace ‘partnership’ in the 2000s.  There is however one exception.  The Worker Participation in State Enterprises (1977) enabled the election of worker directors to the boards of state-owned companies. 

Thinking about employee voice

In 2012 the National Worker Directors’ Group commissioned a report from TASC on the effectiveness of worker directors on state company boards1.  Our new project firstly updates that report through a study of the current experience of worker directors in Ireland; secondly it places the Irish experience in the European context of other forms of employee representation.  The project aims to facilitate public discussion of forms of economic governance that can facilitate employee voice.

TASC Discussions on Employee Voice

Central to the project is a series of TASC Discussion events:

• Saturday 25 February 2017  ‘What would you do for work’  Public discussion of workers’ rights after screening of the film ‘7 Minutes’ as part of the Dublin International Film Festival.  Cineworld, Parnell Centre, Dublin 1, 14.00 - 16.30. 

• Thursday 23 March 2017 ‘Shareholders or Stakeholders? Enlightened corporate governance for our times.’ Expert discussion, ESB HQ, Fitzwilliam Street, Dublin 2, 18.00 - 20.30

• 11 May 2017 ‘No one way: Forms of employee voice in Europe.’ Expert discussion, GPO O'Connell Street, Dublin 1, 18.30 - 20.00

• September 2017 Report launch: ‘Everyone’s Business: Employee voice and the modern company’

TASC’s project is not about putting forward any one simple solution – it’s about making public the different experiences of company organisation and it’s about imagining different ways of organising firms in the  modern world.

James Wickham is Director of TASC.

Is Ireland Getting More Equal?

James Wickham:  Latest CSO figures...
 
On February 1st the CSO released the latest Irish results of the EU-SILC (European Union Survey on Income and Living Conditions).   It’s important to notice that these figures are for the year 2015 so they don’t necessarily describe the situation today in February 2017.  If the trends identified in these figures in 2015 have continued, the situation today should be even better.

Things are getting better?

Overall these figures show some welcome improvements: employment of course has been rising, but also for nearly everyone income has risen and for most people deprivation rates have fallen.  Crucially there has been a small but significant reduction in income inequality.

Do these results challenge the claim that inequality and deprivation continue within the recovery?  In terms of the Gini coefficient as a simple measure of inequality, certainly inequality has fallen somewhat:  in 2015 the Gini coefficient for annual equivalised income was 30.8, down from 32.0 the year before (Chart 1). 

Chart 1

But there is an enormous caveat.  These figures refer to the amount of disposable income that people have.  They say nothing about what people spend this money on.  If essential services (childcare, health, education, public transport) are effective and free, then the society will be more equal than in a society with a similar level of inequality in disposable income.  Furthermore, it may be the case that specific price increases (or increased taxes or charges) effect those on low incomes most.  In Ireland this seems to have happened with housing costs increasing – but most for those in the lower income groups. Nonetheless it is certainly possible that there has been some small reduction in income inequality. 

Measuring poverty

A crucial aspect of inequality is the extent of poverty.  This gets us closer to people’s actual experience.  The simplest measure of poverty is the so-called ‘at risk of poverty rate’, that is to say those people whose income is less than 60% of the median.  That hardly means that the poor are always with us.  It’s perfectly possible for nobody to have an income less than 60% of the median. Indeed in these terms some societies with broadly similar GDP to Ireland do better than us    – and many do worse (Chart 2).  Unsurprisingly, the at risk of poverty rate is lower in Denmark and Sweden than in Ireland.  Equally unsurprisingly, the rate is dramatically higher in Greece.  According to the latest CSO figures, the proportion of those at risk of poverty in Ireland stood at 16.9% of the population in 2015 – a non-significant fall compared to 2014.

Chart 2

Source: Eurostat [from EU-SILC]

Measures of material deprivation get us closest to the real experience of inequality.   The CSO defines the deprivation rate as the proportion of the population unable to afford two or more items from a list of eleven basic requirements (e.g. heating the house, a warm waterproof coat…).  This deprivation rate did fall from 2014 to 2015 but was then still 25.5% of the population.  The deprivation rate is significantly higher in households with children.  As Chart 2 shows, in Ireland the deprivation rate is significantly higher than in Scandinavia and indeed marginally higher even than Greece.  However, if we focus on extreme deprivation, the lack of four or more items, then Ireland appears more like a normal European country and now very different to Greece (and indeed most of the New Member States).    

A final statistical measure is that of ‘consistent poverty’, that is to say, the proportion of the population who both have an income below 60% of the median and live in a household without two or more of the list of basic necessities.  The new data shows the rate of consistent poverty staying essentially unchanged between 2014 and 2015 (it fell from 8.8% to 8.7% but this is not statistically significant).  As we have seen, overall deprivation rates have fallen, but worryingly for those in consistent poverty they have hardly changed at all.  In many ways therefore, those most at risk of poverty have actually been falling behind.

Comparing what matters

All of this depends on looking at net income – income after tax and social benefits. Every now and then you will hear people claiming that Ireland is the ‘most unequal society in Europe’ because of the inequality of gross incomes (i.e. before tax and transfers). Yet what matters for people’s living standards is not their gross pay, but how much money they actually have to spend – after tax and after any benefits.  To focus on gross income inequality while ignoring tax and benefits is like saying that Ireland’s summer is sunnier than Spain’s. Well, if you just count the hours of daylight that’s true, but there is the little matter of clouds and rain…

Chart 3

Source: Eurostat

In these terms the problem in Ireland is not that compared to other European countries we are uniquely unequal.  Chart 3 shows the Gini coefficients for all EU28 member states and ranks them from left to right in terms of inequality of disposable income:  states range from Slovakia, in these terms the most equal, to Lithuania, the most unequal.  Ireland is roughly in the middle.  Just a normal European country you might say.  However the right hand column shows the inequality of gross income, excluding transfers, and here Ireland is clearly the most unequal.  Furthermore, we have the largest gap between gross income and disposable income.

In Ireland the state has to work extraordinarily hard even to ensure our ‘normal’ level of inequality.  So much state expenditure has to go on income support that there is little left over for services and capital investment.  And in turn, the resulting deficiencies in education, childcare and health mean that as soon as they can afford it (and even if they can’t), people opt for private provision.  Rather less obviously, there is the question of state competence.  In some areas the Irish state is efficient and effective, but it clearly lacks the competences skills and institutional knowledge to organise effective healthcare and social services and is notoriously incompetent in physical planning and infrastructure.

Researching Ireland and the MNEs

David Jacobson:  The recent announcement that HP Inc is to shed almost 500 jobs as it closes its global print business in Kildare is a stark reminder of the role that Foreign Direct Investment (FDI) plays in Ireland.

What have Idi Amin, Erich Honecker and Theresa May in common?

James Wickham:  Welcome to the biggest loss of citizenship rights in recent European history...

Brexit is about taking away citizenship rights from millions of people: British people, Irish people, Polish people, indeed from anyone who is currently a citizen of an EU member state. 

Brexit is not just about economics and trade, it is fundamentally about politics, indeed about the most fundamental political issue of all.  Political boundaries and political rules define who can live where and thus who can fully participate in society. By definition, the citizens of a national state have the right to live within their national territory.   Every now and then however, national states decide that certain groups are not ‘really’ national and so are expelled.  To take away somebody’s citizenship is thus to remove them from the polity – and from politics.

The free movement of labour is often described as the ‘fourth freedom’ of the Single Market, along with (and subsequent to) the free movement of goods, services and finance.  But labour is people.  The right to work on the same terms as a national necessarily means access to civil rights and employment rights.  Our study of Polish migration to Dublin in the boom documented how newly arrived Poles were fully aware that they had the right to be in Ireland (Krings et al, 2013:137). Crucially this means that EU citizens are not bonded to a specific employer:  Polish workers in Ireland, like British workers in Germany, are free to leave their jobs if they wish without being sent ‘home’.  By contrast, in almost every country in the world some immigrants’ right to remain is tied to a specific employment.  At the most extreme, as for Pakistani building workers in the Gulf, this essentially amounts to bonded labour. Notice however that the same applies to expatriate professionals in Gulf – and can even apply to Irish engineers in Australia.

Although decisions of the European Court of Justice have extended the scope of free movement from workers to persons, European citizenship is not a complete generalisation of national citizenship.  Especially for pensioners, the right to reside in another country remains somewhat conditional – to varying degrees in different countries – on being able to support oneself.  Furthermore, European citizens’ political rights are usually limited to voting in local elections and in elections to the European parliament.  Nonetheless, the basic fact remains.  The free movement of labour has become the right to work and live in another member state.  Since these rights can be enforced by the European Court of Justice, they are not just dependent on the possibly temporary goodwill of a particular member state.

All of this highlights one bizarre bizarre feature of contemporary British discussion.  In Britain it seems that supporting EU citizenship is conflated with support for unrestricted (or at least weakly controlled) immigration in general.  Even more so than in other European countries, discussion of ‘immigration’ often takes little account of whether or not migrants are EU citizens.  Revealingly there is no British equivalent of the Italian term extracommunitari (people from outside the [European] community). For Brexiters and Remainers alike, it seems there is only one category of foreigners!

Theresa May has refused to guarantee the rights of EU citizens currently in the UK, on at least one occasion saying that this depends on how other member states treat their UK immigrants.  After World War I new national ethnic states were created in Europe (Poland, Ireland etc.) which usually contained minorities of the ‘wrong’ ethnicity.  These minorities became bargaining chips between countries – you be nice to ours and we’ll be nice to yours, give you better trade terms or whatever.   Worse was to come.  During the 1930s the Nazis declared that Jewish German citizens were no longer citizens: they could therefore be expelled and eventually murdered.  After the holocaust and the Nazi mass murders of whole population groups it was the turn of the Germans of the new Soviet empire: between 12 and 14 million Germans were driven West from East Prussia, Sudentenland etc. having lost their citizenship rights (Douglas 2012).

OK that all sounds a bit extreme.  Unfortunately states continue to decide that certain population groups are no longer citizens.  In 1972 Idi Amin decided that Ugandan Asians were not really Ugandans and expelled them; during the later years of the German ‘Democratic’ Republic the DDR government under Erich Honecker got tired of locking up its disobedient citizens.  Instead dissidents like Wolf Biermann were ‘ausgebürgert’ – expelled from their country because their citizenship was removed. 

By 2019 UK citizens entering Germany – or for that matter Ireland – will no longer enter through the EU citizens’ channel at the airport.  This will not just be an inconvenience, it indicates that they have lost the right to move within the European Union.  Brexit means that UK citizens will no longer be European citizens, so all UK citizens, even if they’ve never left the country, have lost their rights.  For those UK citizens living elsewhere in the EU Brexit means that they no longer have the right to live where they do (actually I should say ‘we’ since as a UK citizen living in Ireland this affects me personally). 

The fourth freedom changes the Single Market from a trading area into a polity in which citizens have rights.  In 2017 many Europeans are going to lose those rights.  Like Idi Amin and Erich Honecker before her, Mrs May is saying to a category of a people:  ‘No, you may live here but you have no right to be here, we might expel you, you might be ausgebürgert…

References:
Douglas, R. (2013) Orderly and Humane: The Expulsion of the Germans after the Second World War.  Yale UP.
Krings, T., Moriarty, E., Wickham, J., Bobek, A. and Salamo?ska, J.  (2013).New Mobilities in Europe: Polish migration to Ireland post-2004.  Manchester UP.

Europe's crisis: market competition instead of social bonds

TASC today issued a new discussion paper by James Wickham in which he argues that the elites dominating Europe have abandoned any commitment to 'Social Europe' and have instead turned European institutions in what he terms 'market-making' mechanisms. A PDF of Europe's Crisis: Market Competition instead of Social Bonds is available for download here, and a digital version is available here.

Sowing whirlwinds: European elites get the crisis they deserve

James Wickham: Europeans are getting fed up with Europe. Everywhere as the crisis deepens and as some experts demand closer European integration (‘fiscal union’, Treaty change, etc.), more Europeans are becoming disenchanted with the European project.The sociologist Neil Fligstein showed that European integration has had most support from the better off and the better educated.More generally, unlike the creation of modern Italy or even modern Germany in the 19th century, the European project was never a mass movement.

Today even some national elites are abandoning Europe.Certainly here in Ireland much elite opinion seems to be now more pro-American than pro-European, and anti-German jokes worthy of Biggles and the British Daily Mail appear to be normal in the media. Yet this is hardly an Irish peculiarity. Elite disenchantment is pervasive, probably a response to the growing popular discontent.

All of this arguably stems from two long-standing trends.In the past most Europeans have passively tolerated European integration.It was plausible that it had some connection to economic growth from which they benefitted; it sometimes delivered some small but tangible benefits in terms of ease of travel, rights to health services, etc; in some countries it brought better governance and more progressive social, cultural and environmental policies.And then of course some interest groups (e.g. farmers) gained, as did some regions.

The Maastricht Treaty even created some rights for us as European citizens.

But all of that is in the past. For the last decade the EU has been chipping away at the basis of its own popular support.It stands for the privatisation of state assets, and even more crucially, the marketisation of state services - the European Court of Justice not as enforcer of citizens’ rights but of the rights of the free market.If the European Social Model is built on national welfare states, then the European project is now about weakening these – and putting nothing in their place. Why on earth should anyone apart from neo-liberal thugs support it?

More recently another trend has surfaced.Central to the European project was the creation of European institutions (above all the Commission itself) which were to act for Europe as a whole.Although necessarily the big states might dominate Europe, such European institutions would ensure the smaller states had a disproportionate voice.Furthermore, European institutions could ensure that policy differences were not just between nation states, but between different European-wide interests.

Yet as the crisis has mounted, so European institutions have been sidelined. The member states have often ensured that European posts (such as above all the President of the European Commission) are filled by nonentities who can’t threaten them. Now European politics have collapsed to the level of 19th century nation-state realpolitik, with ‘Germany’ demanding this and ‘France’ demanding that and ‘Ireland’ protesting something else.In such a situation it’s hardly surprising that ordinary people understand the crisis in equally national terms (the nasty Germans want to boss ‘us’ around, the spendthrift Irish want to squander ‘our’ taxes, etc).

So why don’t progressives start calling for a new Treaty?One that links fiscal union to European democratic control? One starting point: a European President directly elected by all European citizens?

Learning like lemmings? Non-lessons of the crisis

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.

Time up on the tax scam

James Wickham: One of the bizarre features of current Irish politics is the way in which national independence, national sovereignty and even national identity have all become entangled with Ireland's low corporation tax rate. Everybody knows that this is increasingly a tax scam and an open invitation to social dumping. Nonetheless, it appears that to criticise it shows that you are not really Irish and outside of the great national consensus. It's perfectly understandable that the low tax rate is supported by the short-sighted adherents of untrammelled free markets, slightly bizarre if it's supported by national(ist) socialists (Sinn Fein etc), totally incomprehensible if it's supported by a political party like Labour which claims to be a European social democratic party.

There are two reasons why the low tax rate is problematic.

The first is obvious, and the reason why it is increasingly reviled across Europe. It creates a race to the bottom, putting pressure on other countries to reduce their corporation tax rate. Furthermore, if firms choose to re-locate part of their operations in Ireland from elsewhere in the EU, other countries lose part of their tax revenues. This undermines member states' ability to finance their social spending. Tax competition between members of a common political unit undermines the ability of the members to act collectively, whether these units are local authorities within a national state or the member states of the European Union.

Clearly, if corporation tax is to be used to attract foreign direct investment, this should be part of a European Union wide regional policy. The failure to do this is now coming home to roost. If a member state persists in development through tax competition, then other states and other regions will try to prevent it. Of course you can defend the tax rate in the name of national sovereignty, just as there are people in Somalia who feel proud of Somali pirates who prey on international shipping. That hardly makes the victims of piracy likely to tolerate it. The tax rate, in other words, is a brilliant way of creating enemies in general and of undermining the European Union in particular.

The second reason is less obvious but arguably more fundamental. To the extent that it becomes central to economic policy the low tax rate ties Irish economic growth to the fortunes of mobile businesses. For decades a key issue for progressives has been the ability of private enterprise to escape national control. Individual companies, like the global super rich, are very happy to receive the benefits of state spending, ranging from law and order to a well educated labour force; they just don't like paying for them.

If a country builds its FDI policy purely on its low tax rate, it has less incentive to develop the social and physical infrastructure or the effective governance from which mobile business also benefits along with the rest of the citizenry. This can be clearly seen in Ireland. Historically low tax rates certainly did attract FDI, but research usually found that this was only one element in location decisions, along with education, infrastructure etc. Today it seems that this is no longer the case. For example, none other than Craig Barrett (former chief executive of Intel) at the Farmleigh Global Irish Economic Forum (Irish Times, 26 September 2009) stated that of all the original reasons for Intel locating in Ireland, tax was now the only one remaining.

Concentrating on tax, in other words, is the classic easy way out: you don't tackle the problems, you don't create real advantages, you just cut the tax rate and wonder why your state is incompetent and your neighbours don't love you any more.

Tales from our lost boom

James Wickham: My summer reading has included an astonishing book: the global historian James Belich’s Replenishing the Earth: The Settler Revolution and the Rise of the Anglo-World, 1783-1939. It’s all about ‘settlerism’ – the dramatic sequence of booms and slumps through which the ‘Wests’ of the United States, Australia and so forth were created from almost nothing in just a few generations.

Part of the argument is about the nature of speculative settler booms. As Belich points out, the history of these booms is a strong antidote to those who still believe in the rationality of the market. And these settler booms have some curious echoes in our own recent history...

Belich claims that settler booms were self-sustaining: the business of growth was growth itself – shades of our housing boom when houses were being built by immigrants and the only people who would be filling them would be – the next immigrants. He stresses the hysterical commitment of boomtown politicians to their fantasy of continued exponential growth - remember Our Great Leader’s comment that people who doubted the boom should ‘commit suicide’? He notes the extraordinary casual destruction of natural resources. And finally, while all booms end in busts, not all busts end in recovery. Whole towns can ‘go ghost’ (approximately 700 in Australian Victoria after 1891) and stay that way forever; people can leave again (approximately 300,00 European immigrants from South Africa between 1904 and 1908)...

Who needs higher education anyway

James Wickham: To nobody’s surprise, the forthcoming Hunt Report on higher education will apparently recommend the re-introduction of student fees. This creates an opportunity to discuss the outlines of a progressive policy for higher education which involves more than just funding what we already have.

Two issues to start with...

Firstly, teaching standards - In the last few decades academic careers have become more international and more firmly based on relatively narrowly defined publication criteria. Notoriously therefore, academics have few incentives to teach well and even fewer incentives to contribute to the wider society. Please note what I am saying here: ‘few’ does not mean ‘none’ and some universities are beginning to tackle these issues. However, the international ranking schemes not only weight the quality of undergraduate teaching much lower than research, but they also use much vaguer definitions. Of course, we academics claim that we should be left to regulate ourselves, but bankers and Catholic priests have said the same thing...Putting money into universities may achieve other objectives, but by itself it won’t do much for undergraduate education. It may actually make it worse.

Secondly, who gets taught - In an era of mass higher education, universities are increasingly differentiated: there are elite universities, there are not-so-elite universities, there are mere universities. There are also significant international variations in the range of these hierarchies. The gap between the top and the bottom in the USA is probably much greater than anywhere in Europe, with the possible exception of the UK.

This is tied up with the role of higher education in the reproduction of inequality. Very crudely, there appears to be a linkage between growing income inequality in the USA since the mid-1970s, the slow-down in social mobility rates, and the extent to which graduates of elite universities increasingly dominate the best paid jobs.

It’s arguable that in the decades immediately after World War II higher education contributed to greater social equality in the USA and in Europe. It’s extremely debatable whether this is now the case. Certainly as far as the USA is concerned, higher education is now part of the problem of growing social inequality. And please notice, higher education in the USA is much more market-based than in Europe...

Rising tides, luxury yachts and leaky fishing boats

James Wickham: Everyone assumes that the aim of economic policy must be to return to "growth". But more than ever, we need to ask what sort of growth?

There is a growing awareness that conventional economic measures of growth are not necessarily related to quality-of-life and correlate with increased ecological damage. However, we also need to discuss the relationship or relationships between economic growth and inequality. The conventional wisdom is of course that "a rising tide lifts all boats". In the Celtic Tiger years everyone felt better off, even though income inequality remained constant or perhaps increased.

However, such discussions ignore the new role of the very rich in Ireland and the world. Traditionally, economists and sociologists have assumed that the very rich don't matter as individuals. Economists assume redistributing from the very rich will have negligible consequences overall, since the amounts of money involved are tiny once distributed across the rest of the population. Sociologists assume that what matters are social groups (e.g. "the service class"); they may recognise an elite but assume its members hold their positions as occupants of roles in a structure -- what matters is the role, not the person.

Today however individuals matter as individuals-- if they're very rich. The very rich are now economic agents in their own right. The wealth of somebody like Richard Branson or Michael O'Leary means that they have an impact as individuals, not as representatives of some larger corporation. This has also has implications, such as the importance of individuals of "high net worth" the banks, for economic policy and for philanthropy.

Since the 1970s in the USA and more recently elsewhere, the very rich have been pulling away from the rest of the society. In other words, they have been appropriating a greater share of the results of economic growth. In some cases indeed they have simply been appropriating or transferring resources to themselves. This appears to be the case for "salaries" at the top of the global financial services industry. According to the Financial Times (December 30, 2009) on Wall Street "About half of revenues are diverted to bonuses at many investment banks".
In economic history there have been periods and places where the rich have become richer simply by appropriating more resources: the palaces get bigger, the cottages get smaller. In Africa today the new palaces of the kleptocratic rulers go side by side with deteriorating living conditions of the masses. We are not there yet, but it's worth remembering that sometimes big yachts swamp little fishing boats...

Buses are not widgets

James Wickham: In a recent article in the Irish Times (29/10/2009) Sean Barrett criticised the new Public Transport Regulation Bill. He claimed it was like a situation where 78% of widgets were produced by one supplier, and this was then enforced by law. James Leahy and James Nix had a good reply last week in the Irish Times (11/11/2009). But let's look more closely at these widgets...

Actually, buses are not widgets. Just like its human counterpart, the rational economic man, the widget is a convenient fiction. But just like the rational economic man, the widget can often detract from reality. Whereas widgets are bought by consumers in a market free of institutions, buses are used citizens in a market defined by institutions.

There are actually three different ways buses can be operated:

• (A) By a publicly owned company which has a legal monopoly. This is effectively the current Dublin situation since other operators are very limited (Aircoach etc.).
• (B) By competition in the market (competition 'on the road'). Here operators do what they like, and regulation is just minimal safety requirements. This is what Barrett wants for Dublin and this is effectively the situation in the UK outside of London.
• (C) By competition for the market (competition 'off the road'). The regulator specifies routes, standards etc. and actively plans the network. Companies bid to provide routes ('bundles') or the whole network. This is the situation in London, but crucially it's also the situation in many continental European cities.

Option (A) gives power to trade unions. Historically it also created 'good bad jobs' - jobs that were boring and not especially well paid, but were at least secure and free from arbitrary authority. Deregulate and you get cleaners and other support staff working at minimum wages as in London. Preventing low wage casualised jobs is important, but most of us would probably say that subsidising inefficient monopolies is a rather expensive way to do it.

But it's not that simple. A state-owned monopoly can (not must) ensure a reasonably efficient and above all integrated system, especially because there is only one owner. German and Austrian cities would be a classic example of this, as would be the RATP - the Paris public transport company. The problem in Dublin is that we have the worst of both worlds - state owned companies which do not provide an integrated service.

The problems of option (B) are well known and well described by James Leahy and James Nix. This is a world in which the bus is treated like a widget, users like consumers, there is no integration: ridership falls, and the service declines. This is a world in which the role of public transport as ensuring the right of citizens to move around their city cannot be discussed. It is a world in which the role of public transport in creating European public spaces and European cities is quite simply incomprehensible.

Option (C) needs a strong regulator to organise the network, and even more, it needs overall political direction. The example of London is quite good here. The elected mayor makes the political decisions and raises the funds. Transport for London (TfL) delivers the service through contracts with private companies.

Originally it looked as if the planned Dublin Transport Authority was going to come close to Option (C). But before the DTA was even set up, it's now merged into the new National Transport Authority. Like Barrett, but for very different reasons, I think this will be just another mess.

In all this, what are the unions doing? The paradox is that if we had no unions on the buses, most buses would have disappeared and we probably already would have the disastrous public transport system of most American cities. Yet union pressure now seems to have created a situation where Dublin Bus keeps its existing routes, but new companies can enter the market on new routes. As Barrett also says, the Bill also seems to mean there is no transparent contract for the services Dublin Bus will provide. This means there will be no political pressure to improve services. At the same time, the NTA will have no overall planning power. The unions have protected their existing members' jobs, but have made the provision of a better transport system for Dublin even more difficult.

Scaring us into greater inequality

James Wickham: In a recent article in the Irish Times (4 November) Philip Lane warned that higher levels of income taxation could restrict Ireland's ability ' to attract and retain the highly skilled mobile professionals that are key to future economic growth'. This argument needs some discussion.

We could and probably should talk about whether it's desirable to commit ourselves to a form of economic growth that gives 'highly skilled mobile professionals' a veto over taxation policy. But there are smaller scale more empirical issues that can usefully be discussed.

Research on mobile professionals shows that taxation is only one of the reasons why people choose to live in a country. There is evidence that taxation influences location choice, but other things also matter. Issues here range from personal safety to the quality of life. Indeed there is a whole literature in urban geography associated with Richard Florida's claim that young and mobile professionals (the 'creative class') move to cities that offer social, cultural and intellectual diversity. Slightly facetiously, we could say: forget about taxation, just ensure there's some decent music and good craic...

Of course the point is that much 'quality of life' involves public expenditure. A decent health system, a proper public transport system, public broadcasting, even decent public spaces, do not come free. And interestingly, we do have research that suggests these things can attract people to live or stay in a country, and equally we do know that many young and mobile professionals bemoan the lack of such things in Ireland (e.g. Boyle (2006)).

It's also important to disaggregate these 'highly skilled mobile professionals'. For example, we could differentiate between 'visitors' who have no commitment to the country, and 'settlers' who intend to spend much of their life here; we could differentiate between 'experts' who earn say over than €60k (the current minimum income for the Irish Green Card permit) and 'stars' who receive more than (say) €150k. It's clear that what motivates visiting stars is probably very different to what motivates settler experts. Some people (visitors) do move temporarily to Dubai, but it's not clear whether such people are the same as those needed in Ireland - and do we really want to develop Dubai-type expat zones in Ireland anyway?

It can also be argued that relying on visiting stars has dangerous implications for the labour market - it creates a culture of high reward short termism, otherwise known as greed.

Most fundamentally of all, surely it's time to start discussing the disadvantages of inequality. Work such as Wilkinson & Pickett (The Spirit Level - Why More Equal Socieities almost always do better) has alerted social scientists to the detriminetal effects of inequality on all members of the society. In other words, in an unequal society even the better off do worse. And furthermore, these effects are generated by inequality 'at the top' (gap between the very wealthy and the rest) rather than just by inequality 'at the bottom' (gap between the poor and the rest). Facilitating visting stars, in other words, may actually have very detrimental indirect effects on the whole society.

Why (Irish) economists' eyes are smiling

James Wickham: There’s a curious paradox about economists in Ireland today. In the middle of the financial crisis, the public standing of economists is higher than ever before. This is odd, because in most countries the claim of economists to any special knowledge about the economy (or anything else) is subject to extensive criticism. Inside and outside the profession, there are calls for greater ‘modesty’. Furthermore, many ‘eccentric’ or ‘heterodox’ economists have long claimed that conventional academic economics has become essentially a branch of applied mathematics. Today their views are being given a wider audience than before. Readers of this blog will be aware of such developments, but they have had no impact in Ireland. Why?

Surely the answer lies in the national specificity of the Irish crisis. While the government claims that what has happened here is just part of a global crisis, this is of course nonsense. The global crisis – or more accurately, the crisis of Anglo-Saxon capitalism - has been exacerbated by our own construction and housing asset boom. And here I think - though I would like to check this - most Irish economists did point out that we were in a speculative bubble and many did call on the government to try to restrain it. However, I suspect that on a more general scale Irish economists were as guilty as their international colleagues. Even at home, how many called for tighter regulation of the banks? And abroad, how many pointed out the dangers of unregulated financial markets?

The Ryanair Model of Development?

James Wickham: Ryanair is an Irish success story. Ryanair’s high profile CEO, Michael O’Leary, is one of the country’s home grown billionaires. And Ryanair’s success can be taken as a metaphor for one unnoticed feature of the Celtic Tiger: the extent to which it succeeded by ‘externalising’ problems.

After all, part of the Ryanair experience is not only that you reach more places more cheaply than you ever thought possible, you are also asked to pay for things for which you never thought airlines could charge. Ryanair externalises costs onto its passengers, but also has expertise in externalising its other costs. The environmental costs of air travel are now well known, and Ryanair specialises in short-haul travel, which has the highest environmental impact. While campaigning against subsidies for state airlines, Ryanair has benefited massively from regional subsidies to local airports. Ryanair even ensures that its staff contribute to their own training costs.

The most obvious example of this externalisation process is the environment. What is remarkable about the Irish boom is how old fashioned it was. Whereas for years it has been clear that economic growth can come in more or less energy intensive forms, we accepted the old equation that economic growth equals environmental damage. In particular the boom led to massive urban sprawl - which in turn ensured high levels of private car usage with all the consequent environmental impacts. Dublin’s sprawl was highlighted as an example of bad planning by the EU’s Environmental Protection Agency. Importantly, this was a political choice. Instead of an effective land use planning policy, we had a Ryanair policy – leave the mess for someone else to clear up.

Although it’s probably politically incorrect to say so, immigration policy is another example of externalisation. Despite the massive increase in employment during the boom, Ireland never achieved the levels of employment normal in countries such as Denmark. For example, in 2006 the overall employment rate in Ireland was 68.6%; in Germany it was not much lower at 67.5%, but in Denmark it was 77.4%. Ensuring that the unemployed, the very unskilled and many women could take up jobs would have required a proper ‘activation’ policy with counselling and training, it would have required a proper childcare policy. How much easier just to import labour!

And for all the propaganda about ‘our wonderful education system’, much of the need for skilled labour also came from a failure to motivate, train and educate people in Ireland. Thus whereas domestic technical education was originally expanded in order to facilitate high technology industry and services, Ian Bruff and I have shown how the Irish software sector rapidly became dependent on the import of qualified labour from around the world (‘Skill Shortages are not what they seem’, New Technology Work & Employment vol 23, pp. 30-43).

Clearly a small labour market such as Ireland’s will always need to import some specialist labour, just as those with specialist qualifications will always be more likely to emigrate. However, to some extent immigration policy was a substitute for an effective educational policy, including the weakness of any formal vocational education system. In this sense the educational costs of Irish growth were also externalised.

And I won’t even mention the idea of economic development by competing in terms of ‘light touch regulation’...

Growing up about taxes

James Wickham: Maybe it’s time to grow up about taxes.

One feature of the Celtic Tiger years was the way in which Ireland’s role as a low tax economy became part of the national identity. This led to the absurd situation in which the Labour Party could claim that it supported the ‘right’ of Ireland to have a lower corporation tax rate than other EU member states. In other words, the Irish Labour Party defined itself in Europe as the Social Dumping Party.

There are several important consequences of this low tax mantra.

Most obviously, it contributed to the situation in which the major inheritance of the boom will be just a pile of rusting SUVs – of private goods that will deteriorate, not of public goods that will last. Historically Ireland missed out of the post World War II boom years (the ‘trente glorieuses’). These were marked by substantial social investment and the creation of the physical infrastructure of the European welfare states. By contrast, our boom involved relatively little public investment. Let’s be honest. Compared to ostensibly poorer European countries, our public infrastructure is pathetic. This is most obvious in public transport, but the same is broadly true in health, education, etc.

Because we have accepted that taxation is inherently bad, we have allowed a continual denigration of the notion of public service. On the one hand, we have denied that many people work as nurses, as teachers, as civil servants etc. partly because they actually want to do something more useful than just earning more money for private consumption. On the other hand, we have accepted that the public sector is inherently inefficient. Consequently, despite all the rhetoric of partnership, the public sector unions have never become the champions of an effective public service. All too often, opposition to changes that would produce a better service has come from the unions themselves. Take the current conflict in Dublin Bus. Despite the efforts of some rank-and-file busworkers, the conflict over the cutbacks has been posed entirely as about employment. The unions have not taken any stance about the deterioration of this crucial public service that the cuts will involve.

The rhetoric of low taxation is linked ideologically to that curiously ambiguous person, ‘the taxpayer’. In a market society virtually everyone does, of course, pay tax. However, a discussion of public policy based on ‘the taxpayer’ is rather different to one based on ‘the citizen’. For example, whereas all citizens are equal, taxpayers differ in terms of how much tax they pay. So presumably those who contribute more should have more say in how ‘their’ money is spent. And the belief that taxpayers give ‘their’ money to the state ignores that ‘their’ money could only have been acquired thanks to the state and the wider society. Even the super-rich use public goods and depend on some residual social solidarity for their very existence.

Finally, the low taxation mantra was a crucial part of the PD project to move Ireland closer to Boston than Berlin. One subterranean theme in the Lisbon referendum was that ‘we’ didn’t need those snotty Europeans any more. Whereas, after 1973, membership of ‘Europe’ made Ireland less and less an island behind an island, the boom years then made Ireland more and more firmly part of the Anglo-Saxon world. Maybe it’s time to move again?

Professor James Wickham teaches in the Department of Sociology, TCD