Ich bin ein Berliner

Slí Eile: Garret got it wrong on 'Hiring economic advisers would have been government's smartest investment' He wrote:

In particular, there is no evidence that any minister challenged the increasingly dangerous financial policies being pursued by minister for finance Charlie McCreevy in his budgets of 1999, 2000, and 2001. Those three budgets increased current public spending by more than one-half within that very short period of three years, at an annual rate of almost 15 per cent a year.

The evidence is otherwise. Check out the latest downloadable Eurostat data (and go to Government statistics) Taking 2000 as a starting point - total spend was 31.3% of GDP. This figure moved up, during the Bertie years, to reach 36.2% by general election time 2007. By contrast, our already socialist afflicted Berlin-inclined EU neighbours (EU15) suffered a small increase from 45.4% in 2000 to 46% in 2007 - the year before the crisis broke and unemployment started increasing.

The thing is spending tracks revenue and revenue tracks the economy along with the business cycle and different electorates and different countries have different preferences and tastes for public spending. Some folks like to spend lots on childcare, hospitals and schools from various revenues - local and national. Other folks like to spend less and boast about us (us) while leaving the private sector, business, households and individuals take on the burden (for those who can better afford of course). Its down to political economy and there are no magic solutions. As for me I am more Ich bin ein Berliner than Bostoner. By the way, Germany’s public spend went from 48.4% in 1997 to 43.7% in 2008. So, if the Germans have to bail out some time we can say that we want their level of taxes and spending in equal measure.

Not only was there no rampant and runaway public spending in the noughties contrary to established wisdom, taking account of income growth and our depleted social infrastructure, there was retrenchment. The year Ruairí Quinn left office in 1997 public spend was 36.7% and it fell to 31.3% by 2000 due to the arrival of that other socialist Bertie. Neo-liberalism was having a party in Ireland at this time and the Seanies and the Fingles were laughing all the way before any accelerated property and lending boom in the 2002-2007 period.

In a previous blog by Nat O'Connor mention was made of a 'low tax target' of 34.9% of GDP.
However, we need to distinguish between total revenue (taxes plus social insurance plus other revenues to central and local government) and total taxes. Using latest Eurostat data, the % of GDP raised in total revenue was 34.9 in 2008. The corresponding total public spend ('Total general government expenditure') was 42.0%. Of the 34.9% in total revenue about 30.8 percent points was accounted for by taxes (referred to ideologically in Government accounts as tax BURDEN!). Moving forward to 2010 the latest estimates (from the Stability Programme Update SPU issued by D/Finance in December 2009) show 35.2% for total revenue for 2010 for Ireland of which 29.4% points is tax revenue.

If Social Justice's proposal for 34.9% points 'low tax' target were implemented right now (2010) it would push total government revenue up towards 40%. Keeping at that level for next 4 years would generate a lot of extra revenue (which could be used for higher spending). However, it would suggest a level of spending coming down gradually from 46.8% of GDP in 2010 (source: SPU update) towards what I estimate would be 42.8% in 2014 per Social Justice Ireland. This would be still short of the 'John Fitzgerald' benchmark of 45% and well short of the EU average (which was 47% in 2008 for EU15 average and is probably higher in 2010) and way way short of the 'Nordic' model used in France (!), Sweden, Belgium and Denmark (all above spend of 50% of GDP in 2008).

On the other hand, it may be argued that - all going well and avoiding another financial volcano and double dip etc - a gentle increase in revenue while keeping Ireland in the 'low tax' club can raise spending on welfare and public services. However, I would not like to sell a 'low tax' solution and comfort to the poor, the unemployed and children in schools and hospitals all in one breath. I'd aim for the top and compete with those Nordics. After all they have the highest well-being, best health and most cohesive societies and levels of civic participation. Now that's where we need to compete - on inequality and quality of life!

...but what kind of capitalism do we want?....

Slí Eile: Speaking, last week, at the World Economic Forum (WEF at Davos), French President Nicolas Sarkozy was in big picture mode discussing the future of globalisation, capitalism, humanity and other things in between. Refreshing to hear a senior political figure talking at this level even if the speaker would not be the number 1 fan of everyone using this site. The text of his speech can be downloaded here (or, if you prefer the more authentic version in French, here)
The punchline was the following:

Let us be clear about this: we're not asking ourselves what we will replace capitalism with, but what kind of capitalism we want.

[Not that many people would be asking themselves that question in Davos. However, others were saying, last week, that ‘another world is possible’ (however that might look) at the World Social Forum (see its Site there) – the first of which took place in Brazil in 2001 and has been held each year to coincide with the WEF (sort of like the TASC Economics Conference shadowing the Kenmare Economics Workshop and this website Progressive Economy shadowing Irish Economy if you get the drift…). The WSF is running Forums in various places around the globe (has anyone considered one for dear Ireland?)]

Back to Sarkozy ....

If Le Président is not asking how to replace capitalism he is asking how to reform it.
He said: ‘C’est une crise de la dénaturation du capitalisme’ – clumsily translated in the following way…

The crisis we are experiencing is not a crisis of capitalism. It is a crisis of the denaturing of capitalism – a crisis linked to loss of the values and references that have always been the foundation of capitalism. Capitalism has always been inseparable from a system of values, a conception of civilisation, an idea of mankind. Purely financial capitalism is a distortion, and we have seen the risks it involves for the world economy. But anti-capitalism is a dead end that is even worse. We can only save capitalism by rebuilding it, by restoring its moral dimension. I know that this expression will call forth many questions.

So, it is about saving capitalism and not replacing it. Rather, it is about ‘re-norming’ it – giving it a set of moral values to curb/regulate/channel the greed (some might say distribute it by creating a property-owning democracy….). A worthy sentiment and one that is probably shared by most (?) on the ‘left’ (please clarify) right now in Ireland and abroad. ‘Socialism’ got a very bad press in the 20th century for reasons that I consider entirely reasonable. Moreover people are more interested in peace, bread and land than in ideology (if the irony here is pardoned).
But, can capitalism be tamed and reformed in the interests of the ‘common good’ (whatever that constitutes) or that of the ‘working classes’ (which haven’t gone away)?

I reckon we will have to see. It is too early to say yet (what the full effects of the French Revolution were on Liberté, Égalité and Fraternité)
However, it is a fair question. Put it this way:

Would a good dose of positive corporate governance, tight banking regulation, high taxes on the wealthy, Scandinavian welfarism and plenty of fiscal stimulus when capitalism goes into bust mode ….. save, reform, rebuild ‘capitalism’ (please define)?
The debate has shifted from mid-20th century socialism versus capitalism to various capitalisms in competition with each other:
Market-led Neo-Liberal
Ireland - US, UK
Corporate - Japan, Korea ?
Social-Democratic - Nordic countries plus strong elements in some other continental countries (Austria? Germany? Netherlands?)
State-led - France, Germany (and China?)
These designations are, of course, over-simplistic. For example, Ireland’s acclaimed neo-liberal status needs to be qualified. Minimum wages, social partnership, the role of the semi-states, labour market restrictions etc were legacies of a significantly modified neo-liberal model. However, there is little doubt that Ireland took the neo-liberal path more and more with its high-point in the slashing of capital gains taxes and the unleashing of the property bubble in the 2001-2006 era. The price we paid for all that is well documented on this Site and elsewhere.
On a sobering conclusion, I suggest that:

* The room for policy manoeuvre is not that great these days where capital, labour and reputation are highly mobile internationally – anyway we are in a euro-club where different macro-economies have different priorities and some predominate
* There is the problem of the environment – ‘left’, ‘right’, ‘green’ have yet to solve this one and I suspect that any version of capitalism you like will not do the necessary
* Almost anything could happen, politically, socially and culturally in the next ten years – economic bounce back (ESRI hopefuls), ‘Japanese’ prolonged depression (hope not), jobless, joyless ‘growth’ while Ireland exports its young (and not so young)….And there is all the other unpredictables – wars, nationalism, natural disasters.

As for the ‘left’ – in Ireland at any rate - it has some ground to catch up.,,,
On the positive side……. There are huge possibilities going well beyond the old tribal and ideological boundaries. A positive in the situation is that support for Fianna Gael, here, has dropped to roughly 55%. Not that 45% is clamouring to ‘replace capitalism’ to use Sarkhozy’s term. Many in the 45% are tied into global markets by a 1,000 threads: personal debt, mortgages, precarious jobs, insecure DB pensions and so on. But, many people are desperate to see:

A fundamental break with the existing model of capitalism however that may be described or conceptualised
A clear, convincing and broad-based political leadership ‘from the ranks’ to bring this change about.
Any programme for change needs to:
Happen at a co-ordinated international level (our membership of the EU is a huge plus compared to the period before 1973)
Respect universal human rights, democracy and peace
In this sense, democratic socialism building on what is positive in the Scandinavian model (if there is one such model) but going beyond that can offer a ray of hope for the future. We have to start somewhere.
So, political economies need to be rethought morally from the ground up and M. Sarkozy is right even if he is thinking of this from the sky down, He asks ‘how can we return the economy to the service of mankind’?. (In the meantime, along with his government he is seeking to reduce the public sector deficit in France by reducing public spending as in a recent speech to the Assembly).

The term ‘invisible hand’ of the market has been ascribed to Adam Smith. However, the same Smith also wrote The Theory of Moral Sentiment. And speaking of moral sentiments, the Davos event was marked by a survey of public opinions on values (of 130,000 persons in 10 developed market economies using Facebook). See the results on pages 1-17. The results (Q8) show that over two thirds believed that the current global economic crisis is also a crisis of ethics and values. The full Report is in ‘Faith and the Global Agenda: Values for the Post-Crisis Economy’

The Reports contains contributions by a wide range of religious persons. One contributor, Archbishop of Munich, Dr Reinhard Marx (no relation) uses the title ‘
Decisive Turning Point’ (P37). We’ll see.
‘Quel capitalisme voulons- nous?’ asked Sarkhozy. The wrong question I suggest. Rather we need a decentralised but global political economy that founded on and providing:
Liberté
Egalité
Fraternité
These terms are so well known that they scarcely have to be translated into any language. So, far none of the great ‘isms’ of the 20th Century have provided all three in abundance. The Nordic model was a beginning though.

Interrogating the Irish model

Peadar Kirby: This week saw a rare mention of political economy models entering the debate on the future of Irish society. Carl O’Brien’s series on the trade unions quoted David Begg as advocating a Nordic model for Ireland to replace the current ‘neoliberal path that we’re on’. Begg added that ‘what’s clear is we don’t have any future in the current model’ (The Irish Times, Jan 26th 2010). It’s not the first time that Begg has tried to stimulate a public debate on political economy models; he made a valiant and lone effort in the run-up to the 2007 election which fell on deaf ears.

It is remarkable how little attention is devoted to interrogating the political economy model that has led us into the present crisis; indeed, it is rare indeed to even find acknowledgement that such exists. For example, in reading the range of recent books by journalists and commentators on the present crisis, what is striking is the personalist nature of the analysis advanced. By this I mean that the many ills analysed – the poor quality of governance, the too close relationship between politicians and so-called ‘developers’, the failures of regulation, the growth of a banking culture that threw caution to the winds in its lending practices – are ultimately attributed to the failures of individuals. There is a deeply ad hominem quality to it all.

It must say something about just how badly we social scientists have educated generations of our students that the most fundamental insights of our trade are largely missing in the public debate – namely that power is structured and that individuals and groups are greatly constrained by the structures in which they operate. During the years of the Celtic Tiger, the term ‘Irish model’ began to be used to describe the state-market relationship in the Irish case, though it was used much more outside Ireland than within. It was a relationship that came to be envied among other latecomers to development in regions such as central and eastern Europe, the Middle East and Latin America where significant effort was devoted to learning and emulating the lessons. Yet, while basking in the international attention, Irish policy makers, politicians and the academic community made no attempt to recognise the nature of structured power that constituted this model. David Begg was very much a lone voice in advocating that a different model was needed.

Even after the collapse of the model, debate remains characterised by an almost total failure to examine the nature of the way that the state-market relationship came to be structured in Ireland, the origins and trajectories of this relationship, and what needs to be done to change it, as advocated by Begg. My own forthcoming book Collapse of the Celtic Tiger (Palgrave Macmillan, April 2010) has as its subtitle Explaining the Weaknesses of the Irish Model and is an attempt to examine the interrogate the particular ways that political, economic and social power have come to interact and mutually constitute one another, particularly over the course of the Celtic Tiger period, the legacies of which enormously constrain the sort of path that Begg advocates that Ireland now take, namely a social democratic Nordic-style model.

Examining the Irish model requires a recognition of the ways in which political power constituted a particular kind of market economy in the Irish case, one characterised by an enormous dependence on multinational capital. This is arguably the most fundamental constraint on moving in the direction that Begg champions; for example, there is a substantial literature in Irish political science, sociology and the more enlightened corners of economics that gives evidence of the ways that this dependence constrains Irish public policy across a wide range of areas. We urgently need more recognition of this and more public debate about it.

Various weaknesses of the Irish political system have come to feature in the current debate but little attention has been devoted to how reforms advocated might result in turning Irish policy making into a space of real deliberation of political economy options. Another feature of the Irish model is the weak and dependent nature of civil society organisations, drawn into far too close and subservient a relationship with the state especially over the course of the economic boom, with the result that it has almost entirely abdicated its function of being the incubator of alternative models from outside the dominant power structures. O’Brien’s two articles in The Irish Times this week illustrated well how the trade union movement is now grappling with overcoming this legacy. The very interesting project entitled Is Féidir Linn is doing something similar for a range of civil society groups. In these spaces the task of moving to a new model is beginning in the most initial, tentative and fragile of ways. It needs recognition and much support.

It is to be hoped that Begg’s advocacy of a Nordic model does not encounter the silence on this occasion that it encountered in mid 2007. For his recognition of the unsustainable nature of the present Irish model and therefore of the need for a new political economy model, relating public and private power in a new and more socially just way, is identifying a framework to analyse our situation that is vital if we are to get to the heart of the current crisis and find a sustainable way out of it. He himself recognises just how difficult it is going to be to move beyond the present model but a necessary first step is to begin to acknowledge that such a model exists and to begin to interrogate its many features.

Climbing out of the Abyss

Slí Eile: Have ‘non-economists’ anything to contribute on how we climb out of this abyss?

In a series entitled ‘Re-imagining the Future’ the Irish Times has begun a series on how creative thinking can offer a way forward as some artists and writers talk ‘about where we’re at and how we can move on’. In today’s piece, Booker Prize- winning novelist and writer, Anne Enright is quoted as follows:If you look at a model of how to do that, the people that have been most successful in doing that are the Scandinavians, and their high-tax economies, the opposite of the road we took in terms of looking after each other. And they’re very good at it . . . It’s a real pity this crash has happened now, because, if it hadn’t, in 100 years’ time we might be really mature, comfortably bourgeois with Scandinavian communal systems, lots of good affordable creches.

What do PE readers think? May be the impetus towards a new social deal arises from the failure of the present one to deliver an adequate quality of life to many or most people.