Social Partnership - NCI

22 Nov 2002

Address by David Begg to the National College of Ireland on Social Partnership 11 November 2002

I wish to locate my remarks tonight in the broad context of the historical evolution of partnerships in Ireland, the issues relevant to its current state of development, the European dimension of social dialogue and, in the course of these remarks, to address the issue of pay determination policies specifically.

Many of you present tonight will not remember what conditions were like in this country in 1987. Unemployment was at an all time high of 17 per cent, emigration peaked at 1.4 per cent of the population or 44,000 people, indigenous industry was largely regarded as having failed the country and the public finances were in a shambles. Our debt to equity ratio was 150 per cent and GDP per capita was 60 per cent of the European average.

Mrs Thatcher was then at the height of her powers in Britain. She was engaged in the process of dismantling the post-war settlement which had, up to then, allowed a form of social market capitalism to exist. Mrs Thatcher had admirers in this country too. The Progressive Democrat Party, standing on a platform of liberal economics, was founded around that time.

The possibility of negotiating a social contract was first mooted in trade union circles at the annual conference in Belfast in 1986. It was not an entirely new concept, however, and many of the ideas behind it would find a resonance in the writings of young Jim Larkin. The objective was to find some civilised way of achieving real improvements in the standard of living of workers by restoring stability to the economy. This you may feel was more appropriately a matter for politicians but is seemed to us, that unless a way could be found to achieve these objectives while maintaining social cohesion, the alternative would be the option of Thatcherite economics.

But the most important consideration for Congress in 1987 was to begin the process of transforming Ireland from a country with a strong traditional dependency on the United Kingdom and strong adversarial industrial relations tradition rooted in that experience. We wanted to move closer towards the European model and we were particularly influenced by the enlightened social democracies of Scandinavia. We wanted to achieve full employment and a high standard of living in a model that incorporated a high level of social provision. That remains our vision to this day although it has not of course been achieved yet.

Charles Haughey was then the Taoiseach and whatever the many faults attributed to him since then, he at least had the vision to see that this project could work. He gave it his support and he managed to bring a sceptical body of employers on board. Fine Gael opposed partnership at that time although the leader, John Bruton, subsequently recanted and gave it his wholehearted support. It is interesting that Mr Richard Bruton has recently reverted to the original position. In truth though, the political system has always been somewhat ambiguous seeing partnership as an imposition on parliamentary democracy. I do not think this is true, by the way, but it is nevertheless a view which is strongly held. Within the trade union movement there was also opposition mainly from those who believed that "free collective bargaining" was a better option. It is a fact, nonetheless, that free collective bargaining in the seven years before 1987 had achieved only a significant reduction in the real value of income for workers. The opponents were mainly British based unions who did not believe in any form of incomes policy. Within the British political tradition this was a logical enough conclusion because a strong Labour Party could be seen as the political wing of the labour movement whilst the trade unions were the industrial wing. On the other hand, the position in Ireland has been much different with the Labour Party never achieving the electoral strength necessary to deliver a social democratic agenda.

The first of the partnership agreements was the Programme for National Recovery agreed in 1987. It was modest in aspiration seeking to start correcting the public finances and arresting the trends towards even higher levels of unemployment. It combined modest wage increases in line with inflation with adjustments in the income tax code so that workers ended up with more take home pay.

Initial scepticism about the agreement gradually faded and the National Economic & Social Council supported the agreement with an analysis of the economy and its ongoing needs embracing three pillars as follows:

  • Macro-economic stability;
  • Capacity to handle distributional issues;
  • Supply side issues (meaning infrastructure and public service provision);

By the early 1990's macro-economic indicators had begun to improve significantly while unemployment remained stubbornly high. In order to find out why Ireland did not respond to economic growth in the way that other European economies did NESC commissioned Professor Mjøset, a Norwegian, to investigate and to make some recommendations. His report was published in 1993 (The Irish Economy in a Comparative Institutional Context, NESC Report No. 93) and identified three main causes why Ireland had failed to produced jobs to match its economic improvement, namely:

  • Lack of a national system of innovation;
  • The effect of emigration;
  • The fact that we did not benefit from the Marshall Plan after the war.

Mjøset's report was very insightful but received very little public debate. As it happens, things began to improve by 1994 heralded by the availability of eight billion pounds worth of cohesion funding from the European Union. In the period since 1994, 605,000 jobs have been created. Up to last year there was an exchequer surplus of four billion Euros and our debt to GPD ratio has been reduced to 34 per cent. National wealth now stands at 122 per cent of the European average GDP per capita. Consistent poverty has been halved although relative income poverty remains high.

The model of industrial development, which allowed this to happen, is known as the Flexible Developmental State. A paper on this topic by O'Riann (2000) is worth studying. It explains how an enabling environment was created, including by virtue of the partnership agreements, which allowed for low business taxes to attract foreign direct investment. FDI led to the creation of jobs which in turn generated more tax revenue for the Exchequer. The increase in employment meant that there was less dependency generally to finance from taxation, so a virtuous circle was created. Well almost anyway. The rub is in the fact that the rapid economic development which took place exacerbated inequality in Irish society. When this is measured by the Gini coefficient, or by considering the allocation of income to the top and bottom deciles in society, it can be seen that Ireland is one of the most unequal countries in Europe. Moreover, people outside the tent of partnership did what they wanted. They were the beneficiaries of the enabling environment and so many of the multi-national companies who were not unionised simply responded to labour market forces. During the boom years, when trade unions were constrained by the terms of the partnership agreements, they were able to pay what they wanted to secure good quality staff. O'Riann's paper demonstrates that, notwithstanding many of the recent criticisms from IBEC, only 25 per cent of the wage drift beyond the terms of the PPF occurred in unionised employments. By contrast over 63 per cent of that drift occurred in non-unionised employment. In reality what was happening was that these multi-national companies were using the level of pay settlements concluded in the partnership agreements as a base from which to develop their own pay arrangements. As a society we also had a very significant social service under provision and infrastructural deficit as everybody knows. The 122 per cent of average European GDP per capita that we now have disguises the fact that Ireland is 12th in the European Union wages league. We are at the third highest level when measured in terms of post-tax income but the cost of this is less financial allocation to the provision of public services. In terms of the social wage, therefore, we are less well off than our brothers and sisters in mainland Europe.

It seems to me that it is no longer appropriate, possible or desirable to continue with the partnership model that we have used for these 15 years. It is no longer appropriate because we have, notwithstanding the current downturn, effectively reached close to full employment. The case for economic growth at all costs is no longer as compelling. Economic growth at the rate of 10 per cent could, in any event, only be maintained if we were able to support very high levels of immigration.

The stress which has been placed on our infrastructure and public services would be worse if we pursued a high level of economic growth for its own sake. It would cause the economy to seriously overheat. Even if we assume a long-term trend growth rate of 5 per cent in the Irish economy as being comensurate with a mature industrial nation we will still have to be able to supply 200,000 extra people to meet the labour supply needs of the economy by 2007. Of course, at this difficult time, it is very hard to work out exactly what will happen with the global economy over the next few years. But the ESRI, in its medium-term review, does say that an initial increase in unemployment should be temporary with a return to full employment within two to three years. Let us hope that it works out that way.

The continuation of the existing model is no longer possible because the tax base of the economy has fallen below the level necessary to sustain public services and infrastructural development. It is therefore no longer possible to subvent wages by tax adjustments even if it were desirable to do so. In any event, giving workers back their own money in return for wage moderation is really only a subsidy to profits.

The current model is no longer desirable because the principle challenge we face as a nation is to achieve social convergence with the rest of Europe. This requires a gradual increase in public spending and a gradual widening of the tax base. Unless we accept this as a reality we also have to accept that we will never have the same health services or social welfare arrangements that the most developed economies of Europe have.

In a nutshell the challenge is to consolidate economic development and to eliminate the social and infrastructural deficits which mark a profound difference between our overall quality of life and those of our European neighbours.

So, the social partnership process needs some re-engineering! What might that be?

To answer this question it might be instructive to revisit the three pillars of the 1992 NESC strategy:

  1. Macro-economic Stability - has been largely circumscribed by the terms of the EU Stability and Growth Pact.
  2. Distributional Issues - inequality is the challenge. I will return to this later.
  3. Supply Side - the key areas here are:
    • Housing;
    • Infrastructure - roads;
    • Health services;
    • Childcare and caring generally.

All of these affect the quality of life. All effect the proper functioning of the economy because inadequacies in relation to them create severe bottlenecks and create conditions of high inflation. Our belief is that government, if it is interested in dealing with the issue of inflation, for example needs to intervene in a way which breaks the wage price spiral. What I mean is this. Many people have huge housing costs with housing inflation running at 13 per cent. Many people have to live very far from their place of work in order to afford a house in the first place. They incur huge cost in travelling to work. They clog up the roads in the provinces coming to work and they have requirements in terms of childcare which is rarely available at an adequate level or at a reasonable cost. The net result is that people have personal levels of inflation which are well ahead of the national average of 4.5 per cent. In order to live people have to seek more income. This places pressure on wage bargaining and drives up inflation. Rather than criticising wage pressures in the economy, government and employers should recognise that the way to deal with it is to intervene on those issues which are effecting the living cost of people and the quality of their working lives.

There is a fourth category of issues which I want to refer to and which I would designate as being strategic. Foremost amongst them is the whole issue of caring. We generally consider this in terms of childcare but it goes way beyond it. As people are expected to live longer their requirements in old age will be greater. The traditional carers in society, women, are no longer available to provide caring because they are, for the most part, engaged in the labour force. How are we to provide for these people? I predict that the big question ten years from now will be the issue of older people in society and their care.

A related issue is that of pensions. We are sitting on a demographic time bomb in this country. Less than 50 per cent of people have any occupational pension coverage and less than 30 per cent have a pension of any value. On top of that, for many years companies funding occupational pension schemes have been able to take a contributions holiday because most of the funds were invested in equities and equities were performing well. With the collapse of the asset bubble it now means that many pension schemes are under funded. Companies are trying to cut costs and so they are cutting pension scheme contributions. Pensions are calculated on the basis that people will live for fifteen years after retirement. As they live longer those who provide pension schemes will require more money in order to fund a longer period of retirement. The costs are potentially astronomical and can only be solved if people put a lot more money into pensions or are prepared to work into their seventies. This is a question which receives little or no consideration but is of vital importance.

Immigration is a critical issue too. Forty years ago our nearest neighbour had its first encounter with this phenomenon. Today there is still a race relations problem in Britain. It would be unconscionable, in my view, if we did not learn from that experience and plan how to deal with the issue of immigration here. We need to consider the capacity of our economy to support immigration and match what we do to that. We must also recognise that when people come to us to live they have to be treated the same way as everybody else. They cannot be left in second-class accommodation or in second-class jobs with second-class conditions of employment. It is a big issue which is not really being tackled in any serious way.

The latest NESC report which will be published soon will seek to set out a medium term vision for the future of this country. In my opinion the approach to a new partnership agreement should be to select some priorities from this longer-term vision and try to achieve them within a three-year timeframe. It must be recognised that this is a time of great uncertainty and that uncertainty provides a serious complication. War in the Gulf or the correction of the imbalances in the US economy could have the most profound implications for the global economy and for Ireland. It could give rise to an increase in the price of oil or a serious and rapid appreciation of the euro respectively. Negotiating a three-year agreement in these circumstances is certainly problematical. There might be a case for negotiating a shorter-term pay element within a broad three-year framework dealing with social and economic issues.

It is important, I think, to make a realistic assessment of social partnership in Ireland. It is not really based on any philosophical meeting of minds between the employers and ourselves. However our relationship with the employers may be characterised it is not really "partnership" within any reasonable definition of that term. The sharpest example of this is that so many members of IBEC refuse to recognise the right of trade unions even to exist. But partnership as a word has been imbued with such positive connotations that changing that description of the project would serve to undermine it. What we have really here is a pragmatic engagement with employers and government based on a problem solving approach.

A second ambiguity worth mentioning is that tax reform came at a price in terms of public service provision. There is a disconnect in the public mind between taxation and public services which is unhealthy and is too close to the American way of thinking.

The most fundamental ambiguity of all is that Ireland has not been able to make up its mind whether it is a regional European economy or a US outpost in Europe. This is the famous Boston or Berlin argument. And the long-term implications of this confusion are profound. There is a book which was published recently called "Nickled and Dimed" by an American author called Barbara Ehrenreich. She is a journalist who travelled the length and breath of United States working as a janitor or in any other low paid type of employment in the services sector she could find and where most of her colleagues were women. She explains the great difficulty of living in those circumstances. The inability to provide accommodation and the complete disrespect with which she was treated by the people she served. It illustrates the extent to which the United States is a divided society and that division is based largely on the conservative doctrine by which the United States is now governed.

In our own country the services sector has been the biggest area of expansion over the last six or seven years. Over 450,000 new jobs have been created mainly for women. The benefits of this job creation are obvious to a country which suffered so much historically from unemployment but within it also is contained the seeds of permanent inequality if the people who work in the sector are to be treated relatively poorly. This is all part of the liberal economic proposition that high employment can only be maintained with low-grade jobs. This is a proposition trade unions do not accept. We want to preserve the European social model. We want to be like countries like those of Scandinavia or The Netherlands where it is possible to have good quality jobs, good quality wages and high levels of employment and social provision. This is a model which is in marked contrast with the Anglo-American model of which we are currently a member with Britain.

I see our future very firmly in an integrated Europe. The history of the development of the European Union is one in which the European trade unions were strong supporters of the concept of integration. After the war the German unions particularly, and subsequently the French, gave huge support to Jean Monnet in his efforts to bring about the new order. It is interesting to note that when he set up the Action Committee on the formation of the Common Market Monnet refused to involve any employers in it. He did not believe that they were capable of taking a view other than one favourable to their sectional interests. He believed by contrast that the trade unions had a better sense of it. Congress is a member of the European Trade Union Confederation which represents 60 million workers in Europe. It is an organisation which is deeply integrationalist in outlook. It wishes to see a Europe in which the social market model is strongly consolidated. It wishes to see a Europe which holds an alternative set of values to those of the United States. This is why, for example, Congress campaigned so strongly on the Nice Referendum.

This has a relevance to the current argument about pay determination in the negotiations taking place between IBEC and ourselves at national level. Whether there is a new centralised agreement or not we have to have some rational way of determining pay. The employers' position is that pay movements should be in line with movements in the European Union generally which are of the order of 2 to 3 per cent at present. Prima facie this is a reasonable case but it fails to take account of the different inflation rates and of the different cost of living levels in Ireland and the other countries in the comparison. The logic of harmonisation is one we subscribe to, but it must take place on many fronts not just pay movements. If this were to happen the most contentious area would be that of taxation and particularly Ireland's corporation tax regime which, at 12.5 per cent, is one of the lowest in Europe. You may be sure that employers would not wish to go down this road but seeking to harmonise conditions on one element only is not rational. In the longer-term I believe that if Europe does go down the integrationist road the pressures to harmonise in terms of tax, in terms of industrial relations systems, in terms of pay movements and in terms of public services will become irresistible. As regards the social component of a new agreement the employers' general position is that they have no objection to enhancing social provision so long as it is subordinate to economic development. The difference in our two approaches is that we believe that economic development is a means to achieve social development and not an end in itself.

In summary then my belief is that the great political question of our time is how to combine economic efficiency, individual freedom and social justice in the right balance. It seems to me that a premium has been put on economic efficiency and individual freedom at the expense of social justice. Our mission as a movement is to achieve social justice and we do this through organising workers in trade unions so that they may be able to use their collective strength within the market system to force a redistribution of wealth. The so-called partnership project is a vehicle for achieving these ends. At this time it is difficult to forecast whether it will continue beyond its current age of fifteen years. Personally I hope it does because I think the issues affecting the quality of life for workers cannot really be dealt with in a framework of wage bargaining alone. The greatest achievement of social partnership was the achievement of full employment. For anybody of my generation who encountered the scourge of high unemployment it seemed that rectifying this was an unattainable goal. I am therefore firmly committed to seeking to achieve a new agreement.

I will finish by mentioning that some time ago I had the privilege of addressing ambassadors from all the European Union countries on the subject of the Congress input to the Forum on Europe. I was quite surprised to find that, in the question and answer session which followed my contribution, at least half the time was taken up talking about social partnership in Ireland. I concluded from this experience that the external perception of what Ireland has achieved is largely attributed to social partnership. If we are to completely abandon a way of doing things which has served us so well for so many years it will have implications well beyond anything that has emerged in public discourse to date.