Ireland's Future : Chicago or Copenhagen? - Philip Monahan Memorial Lecture

27 Feb 2006

UCD, Cork, 27 February 2006
Address by David Begg, General Secretary, Irish Congress of Trade Unions

A few weeks ago there was an article in the "Irish Independent" about the current Social Partnership talks. It suggested that really all that was necessary was for Turlough O'Sullivan (Director of IBEC) and myself to adjourn to Foley's Bar on Merrion Row and do the pay deal over a few pints. It wasn't a hostile article, it wasn't meant to be taken too seriously but it did tend to reinforce a stereotypical image of Social Partnership, and what it is about, which is simplistic and not in accordance with reality.

I am not criticising the "Irish Independent". In my experience its industrial relations and economic commentary is sometimes harsh but generally fair and objective. I gave up reading the "Sunday Independent" a long time ago.

I am just trying to make the point that it is difficult to communicate to the public what the Social Partnership project is about. The fact that it is topical, and the opportunity to address this distinguished audience, suggested itself as the most relevant subject for my contribution today. I see the process we are engaged in, together with the Government, the employers, the Community & Voluntary Organisations and the Farmers, as a refined exercise in democratic participation and an opportunity to continue to shape Ireland's social and economic journey. I have a particular view on where that journey should take us and it requires us to chart a North Easterly course rather than a Westerly one.

Let me start though by introducing you to the concept of social democratic trade unionism. The mission of our movement is to pursue the objective of a just society. We do this by organising workers in trade unions and using our collective influence to achieve a redistribution of wealth in the economy. We are the only actors in the market with this objective. The market economy is capable of generating great wealth but it has no imperative to share that wealth. Left to itself the market will concentrate wealth in the hands of the most powerful actors and will tend towards ever greater inequality. The share of wealth taken by labour and capital adjusts in relation to the relative strength of each. In the last twenty years deregulation, the increased mobility of capital and the process of globalisation have weakened trade unions relative to global corporations.

Ireland is not immune from this process of globalisation. Indeed up to now we have benefited from it. Trade unions have also remained relatively strong. There is very great hostility to us amongst people of a liberal disposition who favour free markets and who see us as an unwarranted interference in the functioning of the market. The focus of their attack is to say that we are a declining force which should be ignored by Government and business. An example of what I mean was an article in last week's "Economist" about Germany regretting the resurgence of the labour movement there. The headline was "There's life in the old dinosaurs yet". This Jurassic imagery is much favoured by our critics. I feature in this manifestation regularly in articles by Kevin Myers and Shane Ross. I think its some kind of fetish on their part - a sort of journalistic stalking!

Now if you were to take this kind of commentary seriously you could be forgiven for believing that, in accordance with the Jurassic imagery, trade unions will soon disappear from the landscape. But actually, Congress now has the highest numbers of members in affliliated unions in its history. We have 770,000 members increasing at the rate of about 8000 a year. We are the largest civil society organisation and we are one united body covering the entire 32 counties. Moreover, we generally manage to speak with one voice as distinct from employers who are represented by five competing organisations and the Farmers with six. So we are not going away anytime soon.

The reason I am telling you all this is to create a context for the vision of the future I want to try to persuade you to embrace. And also, to be truthful, because it seems to me that the economic faculties of our universities are thinly populated by Social Democrats who have the gift of the gab. Most, I am pleased to say, are good union members but don't seem to get as excited by the opportunity to write or broadcast as the Right Wingers or the Trotskyites for that matter.

I was involved from the beginning with the Social Partnership project which was in 1987. I missed out on one five year period from 1997 when I worked for Concern.

Social Partnership is not an Irish invention. It is derived from the European social dialogue process which is a cornerstone of the social market model. Jacque Delores was the man most responsible for developing the idea of a Social Europe to complement the economic integration associated with the internal market. It is an idea rooted in Catholic social philosophy.

I agree with Senator Martin Manseragh when he said in this Irish Times column last week:

"Right-wing critics claim partnership is undemocratic, as if democracy consisted only of parliamentary majority rule, rather than multi-layered participation in public affairs. While nominally Seanad Éireann is composed along corporatist lines, social partnership is much closer to the real thing. It is corporatism as an extra dimension to democracy, rather than as a substitute for it as envisaged by some in the 1930's"

Those who lived through the Eighties know how bad things were in Ireland then. Those who are younger would find it difficult to conceptualise how far we were removed from today's prosperity. It was the era of high unemployment, high emigration, shambolic public finances and corrupt politics. We didn't know the extent of the offshore accounts and the planning payoffs at the time. My family were small then and my greatest fear was that none of them would be able to live and work in their own country. Social Partnership has helped to change all by creating a stable climate for investment and economic growth.

The primary social policy objective of those years was that of ending unemployment which has been substantially achieved. That objective required an accommodation which provided business with whatever it wanted - low corporate taxes, low social insurance costs and minimal labour market regulation - and even up to recently, determination of immigration policy.

The other part of the core bargain which sustained the partnership project over the years was a trade off between modest wage growth and income tax reductions.

Taken together, and from the viewpoint of the ordinary person, these elements of the bargain, although they worked, might be considered to have something of a Faustian aspect to them. Still, ending large scale unemployment and emigration was a price worth some sacrifices. In effect we have caught up with the rest of Europe and outperformed it in some respects.

But there is no longer an employment premium to be gained from this bargain. So a new paradigm of partnership is called for, one which recognises that:

  • Maximising economic growth for its own sake no longer has a social dividend and may in fact have social deficits build in;
  • That increasing GNP as distinct from GNP per capita does not improve wellbeing and living standards;
  • That sustainable development is in keeping with the common good

And

  • That economic development requires complementary social development.

The accumulated social deficits of the catch up phase of our development are exacerbated by a number of factors, viz: population increase, changing demographics, increased labour market participation and inadequate investment. The priorities from a Congress perspective must be:

  • Health care in respect of which we want to propose a policy approach based on a report prepared for us by Professor Dale Tussing and Ms Maev Ann Wren";
  • The provision of an infrastructure of caring embracing children, older people and people with disabilities. While the measures included in Budget 2006 are welcome we believe, for reasons set out in the ESRI Medium Term Review and our own policy document "Who Cares", that a more strategic response is necessary. We are not persuaded that a market based solution is possible and it may be that caring will have to achieve the status of a "public good" that education has now;
  • With respect to education we believe that early childhood learning is crucial to a child's future. Indeed child care needs to be seen in this context rather than in just responding to labour market needs. At another point in the spectrum the equipping of people in work with the skills to move up the value chain and to enhance their employability in terms of life long learning is crucial. In this regard we will be seeking a sea change in policy including the elimination of anomalies in relation to fees and time off which militate against this objective;
  • Pensions - we are pleased that pensions have moved up the political agenda and we will have specific proposals to put in line with our own published policy document and the increasingly compelling case for moving to a mandatory and state based provision.

Nearly all of these social policy issues have a complementary function in sustaining the competitiveness of the economy. Just to give one example, if we don't provide a proper infrastructure of care women will find it difficult to continue working and labour supply will, accordingly, be curtailed.

Ireland has achieved the catch up phase of its economic development. It must now address the deficits in its economic and social infrastructure. We need a vision of the type of country we want it to be.

In my opinion the great political challenge for any society is to balance economic efficiency, individual freedom and social justice. Francis Fukuyama thought he had it sussed when he wrote "The End of History and the Last Man" ten years ago. His thesis was that, with the collapse of communism, liberal democracy would permeate the world with a set of universal values, and everything would be fine. The problem is that liberal democracy, in the American manifestation anyway, has a fatal gene. It cannot prevent growing inequality. I was interested to see Fukuyama resile from his earlier assertions in an article in the Guardian last week.

So, with what country should Ireland compare itself? Where should we look to find a society we would want to emulate? This is not an entirely new question. The Boston versus Berlin argument has been around for several years.

I think, however, that it is becoming clearer that American society has fewer and fewer attractions for us. One friend of mine told me that Christmas had decided the Boston versus Berlin question for him. Americans think hard of taking Christmas Day off while we have managed to push it to nearly a fortnight at this stage!

On a more serious point though, American society is storing up some serious problems and I am not talking just about its trade deficit. The preoccupation of the Bush administration with tax cuts for the rich leaves their fiscal situation pretty sticky too. The shortly to retire "Baby Boomers" will be facing into old age against a deficit, according to the economist, Paul Krugmann, of 2.6 trillion dollars.

Moreover, there is, as you know, very little by way of state provided health services or pensions. Mostly they are provided by companies as part of the employment package. In the US the trade union movement is weak and unable in many cases to prevent companies from opting out of health care and pension provision. Companies are doing that because the costs of both are escalating at a very high rate. This will, I think, be a very serious challenge to the political establishment of the United States.

Germany will soon again be the economic powerhouse of Europe. Its exports are gaining market share while the US is loosing it. While the German social and economic model has its many attractions, I do not think realistically it is appropriate to our vision either. Germany is a strong industrial nation at the heart of Europe with a population of 80 million. Its industrial base and its markets are incomparably different to ours. It is also a much more regulated economy and basically we have to be more agile as a small open economy on the periphery of the continent.

The origin of the "Boston V Berlin" question is attributed to Mary Harney when she said we were spiritually closer to the former than the latter. For reasons of contemporary history there is some truth in this. Many thousands of the Eighties generation went to Boston to seek employment. But Boston is not America. As a matter of fact it boasts a very strong labour tradition. The anthem most often heard in Boston pubs is not "The Star Spangled Banner" but rather "Whose Side Are You On". In the debate that has ensured "Boston versus Berlin" has become a metaphor for the choice between neo-liberalism and social democracy. It is for that reason that I have chosen to locate one pole of the choice I want to present to you in Chicago - the home of Milton Friedman and free market capitalism red in tooth and claw.

The choice for the city with which to more appropriately juxtaposition Chicago is driven by considerations of geography, population and yes, even history. If we want to look to countries more geographically comparable by being on the periphery of Europe, being closer in population size and which are successful we must turn to the Scandinavian countries. They manage to combine economic efficiency and social cohesion. They all feature in the top ten countries for competitiveness, productivity, labour force participation, public services and social infrastructure such as childcare. They are highly unionised and operate on the principles of a well defined social dialogue. They have flexible labour markets in which the emphasis is on "employability" rather than job protection perse.

In our circumstances where, although we have high levels of employment now, we still suffer the consequences of factory closures like that of NEC in Ballivor last week. It is cold comfort to the 350 people involved that everybody else has a job! The social welfare model we have is designed for an era of mass unemployment. We need a universal system but one which can be tailored to dealing with sectoral problems in an otherwise full employment economy. We have something to learn, for example, from the Danish model of "Flexicurity". As the name implies it combines flexibility to change with security of income. It works by guaranteeing a redundant worker up to 90 per cent of his wages provided he retrains for another job. This "Flexicurity" system, combined with an overall investment in upskilling, would help Ireland to deal with the pressures of globalisation. Finding a niche in global supply chains which is not vulnerable to relocating may be the key to keeping our manufacturing base at least at its current level of 12 per cent of employment.

Why, you might ask, would people not see the obvious attractions of the Nordic model for Ireland? The problem is that it would represent a huge cultural change away from the Anglo-Saxon model of low public spending and low taxes which is deemed to be the cornerstone of our transition to a wealthy country. But we have huge under-provision of health care, childcare, care of the elderly, education and pensions. We have to invest in hard infrastructure. We need 50,000 units of social housing. We need to invest in upskilling and we need to reform our social welfare model. If we accept that immigration is a long term phenomenon then we also need to invest in integration. We need to provide for an increasing ageing population. One way or another this is going to cost so staying with the approach of the last 20 years is not really an option.

One other question needs to be addressed too. Is the comparison with the Nordic countries viable on economic grounds? Is the Irish economy, with its high reliance and vulnerability to foreign direct investment comparable to countries which have a strong indigenous industrial base?

In a special article in the ESRI Winter Quarterly Economic Commentary, Frank Barry raises important questions about Ireland's status as a regional economy. These questions cannot easily be dismissed but in an age when national champions - witness the takeover of steel giant Arcelor by Mittal - are all vulnerable to globalisation, one wonders how much weight should be put on this consideration.

The realpolitik of Ireland's situation is that we are not going to adopt the Nordic model anytime soon. Indeed, it would seem at first sight to be an impossible dream. A country whose people recently enthusiastically supported improved provision of care for the elderly but who baulked at even a mild increase in PRSI to fund it, would seem to be unlikely candidates for such a transition. But some of this can be explained by legacy problems in respect of the unfairness of our tax system where wealthy people, up to now at least, have had a wide variety of tax shelters to avoid paying their fair share. People need to be able to believe that the tax system is fair and that the money is efficiently and effectively used on their behalf. It will take time to build confidence in this regard.

This to be frank is very difficult territory for our political leaders. Even if they can be intellectually convinced of the case for a more progressive society they cannot easily jettison the baggage of twenty years or get too far ahead of their constituencies. Nevertheless things may not be quite as difficult as they seem. In Canada, Sweden and Britain conservative parties are all converging on the centre ground. David Cameron has at times in recent weeks seemed to be to the left of Tony Blair - which is not much of a challenge admittedly! The popularity which Angela Merkel has attained as head of a Centrist Government is far more than she would ever have achieved as a CDU Chancellor. The fact is that the voters do not like gung ho free market approaches and they are rather attached to high quality public services. The rejection of the Draft EU Constitution in France and the popular opposition to the proposed Services Directive is proof of this for those with the discernment to realise it. Moreover, the extremes of the neo-conservative Bush administration and its failures at home and abroad has left the world out of sympathy with that type of politics.

This is a medium to long term journey. For the reasons already mentioned, to stay on our current trajectory is unsustainable. We have to make a choice and work towards it at our own chosen speed. For me anyway the facts about the Nordic model are compelling for anyone who wants a just society and a prosperous economy.

The strategy report of the National Economic and Social Council (NESC) recently published offers a via media between the Nordic model and where we are now. NESC is a body representative of Government, independent economists and social partners. It is more or less the same people who are engaged in the current discussions about a new social partnership agreement. It is unlikely, I think, that working in an adversarial environment for six weeks they will produce a better programme than that which they produced in a more reflective environment over 12 months.

For this reason, and others already mentioned, we have proposed a new approach to social partnership - a new paradigm if you will. We have suggested a medium term agreement of between 6 and 10 years based on the NESC strategy with priorities selected for attention in two year modules. Pay should also be negotiated at these intervals.

This new paradigm of social partnership offers the possibility of ushering in a new progressive era for Ireland. It is a prize worth striving for.

Reflecting on this question in recent times I have come to the conclusion that the greatest errors in public policy affecting Ireland's development were not made in the first thirty years since the foundations of the state as is generally supposed. The worst decision was made a long time before that and if matters had worked out differently we would now be enjoying:

  • Excellent public health services free at the point of delivery;
  • State run childcare services, staffed by fully qualified childcare professionals, in every local housing estate;
  • Payment of full wages to everybody during periods of illnesses;
  • Payment of full wages during maternity and paternity leave;
  • 32 weeks paid parental leave;
  • A Government retirement pension of 51% of final earnings or 74% for a married couple on a final salary of €30,000.

The political leader who made this mistake was the Klutz, Brian Boru, when he defeated the Danes at the Battle of Clontarf in 1014!

But a thousand years is a long time and hopefully the Danes have forgiven us. Copenhagen has an altogether better ring to it than Chicago.