The Need to Embrace a Polity where Economy is Embedded in Society and not the Other Way Around

14 Jan 2008

Address by David Begg, General Secretary of Irish Congress of Trade Unions
to Cork Institute of Technology, Monday 14 January, 2008

In recent days the topic which has dominated the media is pay. The report of the Benchmarking Body contrasts fairly starkly with the awards made to ministers, judges and other senior figures in the public service.

From my perspective the real story in this is what is happening in the private sector because the public service pay recommendations are based on comparisons with the private sector. It is clear that there is increasing divergence in remuneration between the top and middle to lower income earners in the private sector and this has now been reflected on to the public service. This is most acutely focused on pensions.

The Benchmarking Body offset a value of 12 per cent of salary of public servants based on an analysis of private occupational pension schemes. While there is room for argument about the calculation supporting this figure it is true that private employers have been shedding responsibility for pension schemes as hard and fast as they could in recent years. The percentage of Defined Benefit Schemes has reduced from 67 per cent to 37 per cent with the result that there has been a huge transfer of risk from employers to workers. This is a complex area but suffice it to say that turbulence in global equity markets has increased costs and has been a major factor in employers' decisions.

Another feature of globalisation which has an effect is that 1.5 billion new workers have entered the global economy in recent years through the opening up of Asia and Eastern Europe. Economic convergence implies convergence of labour markets and this, together with migration of people to the West and outsourcing and delocation of manufacturing and some service industries, is putting downward pressure on wages. The effect of this is not unique to Ireland. The US median income has been static for most of 10 years and it is a concern voiced very frequently by Democrats in the current US election campaign.

This effect was succinctly captured by Martin Wolfe in The Financial Times on 19 June, 2007 when he wrote:

"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 lifetime but in a single year. Such outcomes raise political questions in most societies. In the US they seem to be tolerable. Elsewhere, however, they are less so.

Democratic politics, which gives power to the majority, is sure to react against the new concentrations of wealth and income".

In all that has been said and written about the subject in the last few days there has been surprisingly little scrutiny of how salaries and perks are decided for top people in the private sector. The reality is that these decisions are made by board remuneration committees populated by a small cohort of people who pop up in other boards across the economy. There is little or no shareholder policing of this practice.

Ireland is officially the most globalised country in the world. Globalisation in terms of interconnectedness, free movement of goods, people and services is objectively a good thing. What is at issue is its darker side manifested in the variant of capitalism underpinning it.

The global capitalist market-place, as we now see it, is marked by the massive influence of financial markets and the emergence of the weightless economy. Capitalism has had a continuity of existence for two centuries or beyond; but we are encountering a new form of capitalism in current times.

It is a tool both of job generation and of great inequality. One can't imagine a planned economy managing to be as creative or as destructive. The great Austrian economist Joseph Schumpter described capitalism's genius as creative destruction.

This has been made possible by the resurgence of neo-liberalism after the collapse of the Soviet Union. Francis Fukuyama (1992) proclaimed "The End of History" and predicted the universalisation of Western liberal values.

Accordingly to John Gray (2007), neo-liberals believe that the most important condition of individual liberty is the free market. The scope of government must be strictly limited. Democracy may be desirable but it must be limited to protect market freedoms. The free market is the most productive economic system and therefore tends to be emulated throughout the world. Free markets are not only the most efficient way of organising the economy but also the most peaceful. As they expand, the sources of human conflict are reduced. In a global free market war and tyranny will disappear. Humanity will advance to unprecedented heights.

With minor variations F.A. Hayek, Milton Friedman and a host of lesser lights all subscribed to these beliefs. All were exponents of late twentieth-century Enlightenment ideology whose basic tenets - despite being advanced as the results of scientific inquiry - are rooted in religious faith. Neo-liberals aimed to recover the lost purity of liberalism before its pollution by collectivist thinking, and like all fundamentalists they ended up with a caricature of the tradition they seek to revive. Neo-liberalism was a late twentieth-century parody of classical political economy. The classical economists of the eighteenth century believed all societies pass through definite stages of development leading to a single destination - a commercial civilisation based on market exchange - but they had a clear understanding of the flaws of market societies. Lacking this insight, neo-liberals turned classical economics into a utopian ideology.

In his classic work of economic history and social theory, The Great Transformation Karl Polanyi (1944) said that the goal of a disembedded, fully self-regulating market economy is a utopian project: it is something that cannot exist. Ultimately that is why the control of the economic system by the market is of overwhelming consequence to the whole organisation of society: it means no less than the running of society as an adjunct to the market. Instead of economy being embedded in social relations, social relations are embedded in the economic system.

The rise of authoritarian states in Russia and China should have put paid to the assumption that post-communist countries would take Western institutions as their model. Yet, despite this refutation by history, the myth that humanity is moving towards adopting the same values and institutions remains embedded in Western consciousness.

So, how has Ireland accommodated itself to these changing world conditions? Sean O'Riain (2000) is one of the most cited authors on this topic. Drawing on the international literature on the Developmental State, he identifies Ireland as a flexible Developmental State. This means really that we have achieved a kind of benign accommodation between the traditional economy and the modern economy in which MNCs are more or less free to do their own thing.

Peader Kirby (2006) is much less sanguine. Rather than characterising the Irish state as developmental, he says that it would be more accurate to describe it as 'The Competition State', an entity which has emerged under the pressure of globalisation and which has led to the expansion of state intervention in the name of competitiveness and marketisation. In political terms, it also marks a shift away from maximising welfare to the promotion of enterprise, innovation and profitability. It is a state that has reconfigured itself so that it serves the needs of corporate capital over those of its own citizens.

This, alas, is probably a more penetrating and accurate description of what we have become. And, to be fair, economic growth has been our mantra for almost all of the past 20 years. The question is whether this model is sustainable in the longer term? I think it is not.

There is no doubt that Ireland is aligned with Britain and some of the new accession states in the EU in its fidelity to the neo-liberal model. In our experience this is most evident pertaining to regulation of the labour market. The Department of Enterprise, Trade & Employment has developed into an art form minimalist notions of transposition of EU social policy directives and opposition to them for as long as possible. In the last few weeks, for example, we continued to support Britain in its opposition to a Directive on Agency Workers.

In the last few years we privatised Eircom, with the result that we have a poor system of broadband, and Aer Lingus with consequences still unfolding. We are wedded to a 'co-location' proposal geared towards more privatisation of health care. In the areas of child care and elder care we see these less as public goods than as problems amenable to market solutions (which they are not). We face a huge problem of private pension provision but we fail to contemplate any solutions not rooted in the market.

Also it is not that policy makers are uninformed on the social and economic unsustainability of these approaches. The National Economic & Social Council (NESC)[1] has recognised that economic and social progress are interdependent in the long run.

In fairness a lot of NESC thinking is reflected in Towards 2016 and The National Development Plan 2007-2013. The question is how much of the social content will be reflected in changed outcomes in society in the future.

For us these documents are important but they are compromises. They have to accommodate to a polity which is neo-liberal in orientation. The trade union movement sees the great political challenge of our age as being how to balance, in equal measure, individual freedom, economic efficiency and social justice. Trade unions are the only force operating within the market system, either interested in social justice or capable of achieving it in any measure. By definition then our movement is social democratic in nature.

The outstanding success story of Europe is the Nordic countries. On almost every criterion of economic efficiency - productivity, R&D, competitiveness - they come into the top ten countries in the world. They manage to couple this with a high degree of social cohesion, epitomised by their infrastructure of care for children and older people. These are the societies which embody the components of the political equation already outlined and, regardless of government changes, they pursue a broad social democratic polity.

Some time ago I read a speech by the leader of Fine Gael critical of the importance credited to social partnership in the political life of the country. I can accept that the process is open to criticism of is achievements. Indeed I implied as much in my remarks, but if the political mainstream is not engaged the question it begs is why not? I cannot remember in recent times any deep philosophical discussion in Dáil Eireann about the future direction of the country. It seems to me that what passes for political discourse is often quite superficial.

In my opinion Ireland has a window of opportunity of 7 to 10 years during which to figure out and put in place the structures for the kind of country it wants to be. During this time it will have a benign combination of good economic growth, a low dependency ratio and a favourable demographic profile. I am not here talking about structures in terms of bricks and mortar but social and economic infrastructure based on an accepted set of values. The late Susan Strange defined political economy in these terms:

"It concerns the social, political and economic arrangements....and the mix of values reflected therein. These arrangements are not divinely ordained, nor are they the fortuitous outcome of blind chance. Rather they are the result of human decisions taken in the course of man made institutions and sets of self set rules and customs".
(Strange, 1994: 18)

This is not the first epoch of globalisation. In the period between 1870 and 1914 the world was as open to movement of goods, money and people as it is today. That period too was dominated by a strong liberal influence. It all collapsed into the chaos of World War 1. Attempts to reinvent that liberal epoch were tried in the twenty years after the war but were not successful eventual dissolving in the Great Wall Street crash and subsequently, the demise of the League of Nations. There followed a dark period of totalitarianism - fascist and communist - which only ended in 1991.

The triumphalism which attended the resurgence of liberalism was not informed by history. Those who preach the meta-narrative need to be taken with caution. I suspect we are coming to the end of another 20 year cycle of liberalism. The experience of Laissez Fare capitalism in the nineteenth century challenged many liberal assumptions about human beings, the market and the role of the state. There are lessons in this for us to note, which in time I hope we will.

William Greider (1997) summoned it up like this in the concluding paragraph of a book he wrote in 1997:

"Many intelligent people have come to worship these market principles, like a spiritual code that will resolve all the larger questions for us, social and moral and otherwise, so long as no one interferes with its authority. In this modern secular age, many who think of themselves as rational and urbane have put their faith in this idea of the self-regulating market as piously as others put their trust in God.

When this God fails, as I think it must, people around the world may at last be free to see things more clearly again, and to reclaim responsibility for their own lives and begin organising the future in its more promising terms".

 

[1] NESC (2006) Strategy Report 10

 

Bibliography

  • Fukuyama, Francis (1992) The End Of History And The Last Man, London and New York: Penguin Books
  • Gray, John (2007) Black Mass: Apocalyptic Religion And The Death Of Utopia. London and New York: Penguin Books
  • Greider, William (1997) One World Ready Or Not: the Manic Logic Of Global Capitalism. New York: Simon and Schuster.
  • Kirby, Peadar (2006) "Ireland's Economic 'Miracle': Challenges From Development Theory" in Majda Bne Saad and Maura Leen (eds) Trade, Aid And Development: Essays In Honour Of Helen O'Neill. Dublin: UCD Press.
  • National Development Plan 2007-2016 www.irlgov.ie
  • O'Riain, Sean (2000) " The Flexible Developmental State: Globalisation, Information Technology, And The Celtic Tiger", Politics And Society 28 (2): 157-93.
  • Stiglitz, Joseph (2006) Making Globalisation Work: The Next Steps To Global Justice. London: Penguin Group.
  • Strange, Susan (1994) States And Markets. London and New York: Pinter Publishers.
  • Towards 2016L Ten Year Framework Social Partnership Agreement (2006) www.irlgov.ie
  • Wolf, Martin (2007) "The New Capitalism: How Unfettered Finance Is Fast Reshaping The Global Economy; The Financial Times, 19 June; 13.