Class, The Celtic Tiger and the Labour Party - Tom Johnson Summer School

17 Jul 2007

Paper Delivered to the Tom Johnson Summer School -Galway, 14th July 2007

It is only natural that there should be some measure of disappointment within the Labour Party at the outturn of the General Election. The benefits from the alternative Government compact seem to have accrued to Finn Gael and the inclusion of the Green Party in the new Government has fractured the scope for an alternative in the future. Nevertheless, by historical standards the performance of the party held up well and this week has seen the implosion of the P.D's, Labour's political nemesis. It is also a fact that Trotskyite Candidates did badly and Sinn Fein failed to achieve its expected gains.

It seems to me that there are only two pillars of electoral strategy available to the party in any election:

  • Either it must offer the prospect of an alterative Government

or

  • It must offer an alterative model of political economy

While these are not mutually exclusive options their combination requires compromise and is usually problematical. Possibly the only occasion when it was not so was in 1927 when Labour had the opportunity of forming a Government with the support of the National League Party and Fianna Fail who were about to enter the Dail for the first time. The opportunity was blown when R.M. Smylie, the editor of the Irish Times, prematurely published details of the putative cabinet after painstakingly putting together fragments of the list discarded by Tom Johnson, R.J Mortished and William O'Brien after a meeting in the Powerscourt Hotel in Enniskerry on 16th August, 1927. (Morrissy, 2007, 249)

Since the first option of presenting an alternative Government was not accepted by the electorate in the recent election I think it would be more useful for our purposes today for me to concentrate on the alternative of offering a vision of economy and society in order to attract electoral support. As requested, I shall try to locate my remarks in the context of Class and the Celtic Tiger.

Bernard Crick (2002) has written extensively about the evolution of class consciousness. His view is that the prosperity which followed the post war settlement eventually began to erode the social solidarity on which it was based. As people became better off they cared less about public expenditure than they did about the taxation to support it. Thatcher and Reagan were less the cause of the dismemberment of the social contract than the force that gave impetus to a trend already in existence. To some extent we see this in Ireland today. People who formerly might haven been local authority tenants now have mortgages. In fact we are a highly indebted population insofar as the average cost of financing a new mortgage is about 30 per cent of income. Yet this is what people want and, prima facie, upward mobility alters perspectives on class. Educational attainment has also improved bringing with it aspirations for higher social status. But the world is in a strange state of flux and everything may not be as it seems. I will return to this consideration of class later.

The second phenomenon I was asked to comment on is the so called 'Celtic Tiger'. The phrase is derived from the East Asia Tiger economies that impressed so much in the late Eighties and early Nineties. The transformation of the Irish economy has been truly remarkable. I was reminded by the RTE programme 'Reeling the Years' recently that, as late as 1992, unemployment stood at 290,000. GNI per capital changed from being 20 per cent below the EU average at that time to being 4 per cent above by 2002. GDP per capital is the indicator actually used by the OECD but, because of repatriation of profits by multinational companies, Gross National Income (GNI) is a more accurate indicator of wealth in Ireland's case. In short we are 17th in the league of rich nations.

Fahey, Russell and Whelan (2007) give the ESRI perspective on the social impact of the Celtic Tiger period. Their conclusion is that inequality in Ireland has not significantly changed. The gap has widened between the top 0.5 per cent of the population and the rest and also for people over 65. But there is no dramatic change between the top quintile and the bottom.

A similar conclusion is reached by the OECD (2007). In fact they observe that Spain and Ireland are the only countries to narrow the gap in terms of wage movement. While these findings tend to run counter to popular conceptions about modern society they have to be given some perspective other than the purely statistical. Ireland is now, and always has been a very unequal country. It falls within the middle range of OECD countries in keeps with its liberal welfare model, similar to the UK and unlike the model in social democratic countries. It seems to me that the important question to ask is not why we have not become a more unequal society but rather how can we be content not to have used our new found prosperity to reduce inequality? In this respect the era of the Celtic Tiger must be seen as something of a lost opportunity.

The larger than life Democratic politician, Tipp O'Neill, once famously observed that, "all politics is local". Nevertheless it is difficult, in the case of a small open economy like ours to frame a political programme without regard to whether global conditions will allow it to be implemented. One of the reasons, probably the most important, why today's world is a confusing and chaotic place is our natural instinct to look at it through the prism of yesterday. The assumptions and pre- conceptions that made sense of the past century do not fit the present.

Foremost amongst these is the change wrought by globalisation. In many ways consciousness of class in society is being redesigned by globalisation. In the current issue of Foreign Affairs Scheve and Slaughter (2007) opine that globalisation is in danger of being derailed unless some way can be found to allow the population at large to benefit from it. They point out that, even though unemployment stands at only 4.5 per cent, 96 per cent of Americans have seen their incomes stagnate in recent years. They calculate that globalisation is worth $500 billion to the US economy each year. Yet only those educated to PHD level or those able to benefit from corporate profitability have gained from it. The top 1 per cent gain 21.8 per cent of national income, a condition last seen in 1928. This state of affairs, they argue, is unsustainable and call for a 'New Deal' linking trade and investment liberalisation to significant income redistribution.

What is most significant about this is that Foreign Affairs is widely recognised as the House Magazine of the US establishment. If concerns for the future of globalisation are being voiced at this level then it must reflect a real worry about the implications of social inequality. These concerns could be dismissed when only blue collar jobs were affected, but now the middle class are suffering too and they are unlikely to put up with it indefinitely. What needs to be understood about Americans is that they care about Capitalism and will do what they need to do to defend it.

And that is not all. Robert Gordon, a renowned authority on productivity has argued that the benefits of productivity growth in the US economy have accrued to the top 10 per cent of the population. The American democratic party are campaigning for an improvement in collective bargaining legislations so that unions can do something about the gap between productivity and wages (Guha and Luce, 2007). Such luminaries as Lawrence Summers and James Rubin, who presided over US economic policy in the Nineteen Nineties, are now said to be deeply troubled by these trends which are passing most Americans by. Just this week Ernest and Young outsourced 300 tax consultancy jobs to India. Those jobs would normally go to graduates of UK universities.

So, my conclusion is that class definition as we know it is being rendered obsolete by globalisation and at least some elements of the US establishment have woken up to the implications of that for the future of Capitalism itself.

Returning to the question of the Celtic Tiger and its discontents I believe there is a strong argument for reorientating our national priorities. For the last 20 years our main social policy objective has been to end unemployment. That has been substantially achieved. Economic growth is not a goal for its own sake. It must serve a social purpose as well. For this reason our goal should be redefined to be one of optimising economic growth for sustainable development. Sustainability, in this context, requires us to deal with deficits in the following areas:

  • Health care
  • An infrastructure of care for children,eldery people and people with disabilities
  • Housing affordability
  • Pensions
  • Migration and Integration
  • Family life
  • Upskilling and workforce
  • Energy and the environment

It is my contention that these areas will require very acute attention over the next few years with demographic trends set to give us a much greater cohort of people over 65 and as overall population increase to 5.5 million by 2026. Their resolution implies an interventionist state as distinct from the marker based solutions currently failing under most headings.

It is important to note also that we have a window of opportunity, while our dependency ratio is favourable and economic activity buoyant, to get things right. Within 10 years that window will have slammed shut.

So, what conclusions can be drawn from this analysis to inform the development of Labour party strategy?

Notwithstanding what I said earlier about the limitations of looking at affairs through the prism of the past, it is important also not to fail to learn the lesson of history.

Globalisation is not a new phenomenon. The first period of globalisation occurred between 1870 and 1914 but collapsed into the chaos of the First World War. Efforts to re-establish the model on the basis of liberal politics between the wars failed as did the League of Nations, the security bulwark designed by President Woodrow Wilson. There followed a decline into totalitarianism, fascism and communism, which did not end until 1989. A resurgent neo-liberalism is today in the ascendant, the economic manifestation of which is a kind if turbo-capitalism which can create great wealth. But alongside the wealth sits growing inequality. Developing countries remain in destitution while developed countries are struggling to maintain social democratic models of welfare.

Unless a model of global governance can be instituted which commands the broad support of the citizens of the planet it is not fanciful to conjecture that this epoch of globalisation could also fail. The alternatives that have been tried are not attractive. The only hope is to construct a global Governance system which tames the excesses of capitalism. The reality is that capitalism is mutating into something much outside the experience of anyone present here today. I have already presented evidence of the concern this is causing in the US. Martin Wolf writing in the Financial Times captured well the essence of what is happening:

"Last but not least are the challenges to politics itself. Across the globe there has been a sizeable shift in income from labour to capital. Newly "incentivised" managers, free from inhibitions, feel entitled to earn vast multiples of their employees' wages. Financial speculators earn billions of dollars, not over a life time but in a single year. Such outcomes raise political questions in most societies.... Our brave new capitalist word has many similarities to that of the early 1900's. But, in many ways, it has gone beyond it".

This from one of the High Priests of economic orthodoxy is significant indeed. It seems to me that the key political challenge facing the Labour party is to articulate a vision of the future which combines economic efficiency, individual freedom and social justice. It can look for its inspiration to the Scandinavian countries. The Nordic social democratic model comes closest to getting the balance right. Under the main criteria for competitiveness set by the world economic forum the Scandinavians countries are all in the top ten. Likewise under the heading of social cohesion and equality they score highest.

To move towards the Nordic model is not without political risk. There will be many defenders of the existing order who will attack the project on the grounds of the high public expenditure it involves. But the time and space and material conditions exist to allow its benefits to be explained.

The choice is between neo-liberalism and enlightened social democracy, everything else is irrelevant. Social Democracy is the philosophy of the Labour party. It has no choice but to fight for it.

Bibliography

  • Crick, Bernard (2002) Democracy - A Very Short Introduction. Oxford: Oxford University Press.
  • Guha, Krishna, Matthew J. (2007) 'Democratic Hopefuls Push for new way beyond Clintonomics; The Financial Times 15 June, 2007
  • Morrissy, Thomas J. (2007) William O'Brien 1881-1968 - Socialist, Republican, Dail Depth, Editor and Trade Union Leader. Dublin Four Courts Press.
  • Nolan, Brian and Maitre, Bertrand (2007) 'Economic Growth and Income Inequality: Setting the Context' in Tony Fahey, Helen Russell and Christopher T. Whelan (EDS). Best of Times? The Social Impact of the Celtic Tiger. Dublin Institute of Public Administration.
  • OECD (2007) Employment Outlook.
  • Scheme, Kenneth F. and Slaughter, Matthew J. (2007) 'A New Deal for Globalisation'. Foreign Affairs 86:4:34-47
  • Wolf, Martin (2007) 'The new capitalism - how unfettered finance is fast reshaping the global economy' The Financial Times 19 June, 2007.