Address to Special Delegate Conference April 08

17 Apr 2008

David Begg SDC 08 David Begg speaking to SDC April 2008

Good morning colleagues. What I would like to do is explain under each of the headings in the motion before you, what the intentions of the Executive Council are with regard to these talks and also to speak about the OECD report which is in the newspapers this morning. I believe it is no coincidence that this report is being published today and it requires a response from Congress.

Now, first of all as a number of speakers have explained, the background to the construction of this motion is a series of Executive Council meetings during which we looked at individual sectors of the economy and the economy overall and then spent a further meeting an agenda for talks, which is reflected in the text of the motion. It is a little eccentric, I know, in the way it is constructed - certainly not what you are used to. It is based on the European Parliament model, but actually the circumstances of the debate were that we were trying to accommodate as best we could, the views of the TUI.

I think that it is true to say also that in terms of a platform for talks it is rather defensive on from our point of view, because we are trying to shore up our situation in the face of a whole range of threats against us and it is unfortunate that this is so because I think there is a strong case, in better circumstances, for us to be pushing forward on positive social legislation, like the provision of childcare, like the construction of a benefit range more in line with the needs of modern day Ireland and a wholesale reform of the PRSI system. But we are where we are and we have to deal with problems as we see them.

Now first of all and not in the order in which they are presented on the motion, can I mention just some of the considerations surrounding this. With respect to public services what the Executive Council is motivated by is the sure and certain knowledge that if we are to protect the quality of life of people in the lower and middle income stratas of society, particularly, the only real effective long term way to do so is by having good quality public services, because people in that income bracket cannot buy the private education and the private health care that richer people can afford for themselves. And we are trying to do it in circumstances where there is a pernicious campaign of privatisation, particularly within the health sector, which we have been very opposed to and which manifests itself under the euphemism of co-location but which is surely designed to change the model of health care provision to one that is more in line with the American model. And we have said on many, many occasions, the net outcome of this will be that if you take out the middle classes from the normal public hospital health provision - which would be in line with the US - you could find that a whole cohort of people who pay for medical insurance all their lives will end up not being able to afford it later in life, when they need it most.

But I will say this for the American model - it does actually provide health care specifically for elderly people, through Medicare and it does in fact invest more in the public health provision than we do here in Ireland. It is known that America spends about 20 percent of its GDP in health but what is not known is that on its public health it spends more than we do, so there is a huge myth being perpetrated here that health care, for example, is a black hole into which, you know, you throw more and more money. That, unfortunately, is what a large section of the population believes but it is not factually correct.

Let me mention now the question of pensions. We were promised in the first module of the agreement (Towards 2016) the delivery of a pensions' strategy and that has been delayed for nearly a year now. We have a Green Paper and we have got all sorts of consultations and that's right and proper, but it is not right and proper to postpone deliberation on that.

Now I mentioned the OECD report published this morning and in fairness it is not all bad from our point of view, because one of the things they come out in favour of is actually a mandatory pension scheme for the private sector, which I think is absolutely correct and that is the position delegates adopted at the Biennial Delegate Conference last year and something which we are trying to put forward, which as you know, is strongly opposed by the employers. And the employers are out this morning in the papers talking about the capping of public service pensions.

Well let me just say this - it is no part of our business to deliver equal shares of misery for everybody, it's no part of our business to seek to bring down the public sector level of pension provision - our job is to bring up the private sector pension provision so that it can be widely respected. And Mr McGinty (Ibec) is in the Irish Times this morning talking about the need to cap expenditure on pensions. Well now before anyone talks to us about that, let them look at capping the huge amounts of money - €250,000 tax free per year - which is allowed to wealthy people in the private sector, not in fact that it purports to be a pension scheme but what actually it is, is tax free savings arrangements. So that is something that we are not in any sense open to and it really galling to hear mention of measures like capping when there is such abuse of the public funds, as it is operated at the moment.

On the question of Agencies and Agency Work and Agency Workers, I think everybody is well plugged into this because a number of the trade unions affiliated to Congress have been pursuing a campaign to try to get justice for agency workers. As you know, what is really happening is our society is that the employment relationship is being redefined in that employers have copped on that as we have tightened up somewhat in respect of the normal regulation of the labour market, there is a way round it and the way round it is the use of employment agencies which have mushroomed in size to well over 500 operating in the country at the moment. And by using the law and the loopholes that are there, it is possible for employers to avoid entirely any provision in terms of equality and the paying of people the rate for the job, as between two people who do exactly the same work. It is more insidious than that as you also undoubtedly know, in that it is possible to avoid the general provisions for equality in the selection of people by profiling them and allowing agencies to put forward people who meet the profile of the employer and therefore they don't have to worry about discriminating against people who are pregnant, or people who are old or black or people who are disabled or any of these normal provisions. We have been working, together with the TUC and Scottish and Welch TUC and European Trade Union Confederation in trying to campaign for the enactment of a directive at Brussels level, which has been much delayed and it is much delayed because of the joint efforts of the UK and the Irish Government to prevent an accommodation being reached on it. So this is a major piece of work that we have to do going forward.

Finally, I want to mention the legal (Industrial Relations) framework under which we are operating. We have seen a series of sustained attacks on that framework and this is nothing at all to do with social partnership. What it is, is a direct attack on the Labour Court and on the system of industrial relations which was installed in the late forties and which has served this country reasonably well. We are all familiar with the Ryanair judgement and what that has meant to the Supreme Court and more recently we have seen the Hotels Federation apply the same approach to try to block the implementation of the Joint Labour Committee report and on top of that then you have these geniuses in the Competition Authority who are so wound up by their zeal for the free market that they have decreed that any person working alone is an "undertaking" and cannot take part in any form of collective bargaining if they work on their own.

So really, the combination of these three circumstances have seriously undermined the structure of industrial relations such that we find ourselves in a strange position where we have people from all over the world coming to see us and talk about his model of social partnership and how it works but the whole thing, in fact in a legal sense, is built on sand and it is not possible for it to endure in that way.

It is true, and I want to acknowledge - I don't want to come here as being totally negative about these things - we have over the course of the last agreement made very significant progress, particularly with respect to the Compliance Bill which has recently been published, and with the Exceptional Redundancies Bill and the amendments to the law in relation to Unfair Dismissals. We have also made good progress in terms of the Revenue Commissioners, monitoring of abuses, particularly in the construction industry and we are making progress at the moment as well in relation to the abuses of the educational system and the use of non-European Union students. Good things are happening but nevertheless these other things are there. We have a lot to do in terms of shaping up the labour market so that it is properly regulated.

If I may now I just want to say a few words about pay. When we entered the discussions the last time the forecast of all the bodies - the ESRI, Central Bank, Department of Finance, everybody - all the banks, stockbrokers and so on, was that we would be facing into an inflationary situation of around 2.7 percent. Now fortunately, the people who advise us were much wiser and were able to tell us in fact that that was a significant underestimate of how things were going to be. And we judged our approach to the pay talks on the basis of that advice and as you know, the net result was a settlement of 10.3% cumulatively over twenty-seven months. The problem, however, is that inflation has overshot that figure and depending on when you count it, and there is room for some disagreements about quite what the inflation figure is, but it is of the order of 12 percent which means that leaving out the special arrangements which were made for the people on the minimum wage and the lower paid, that if you take the bulk of people they are somewhat adrift of the rate of inflation over that period by around 1 to 1.5 percent, I would say.

Now, the other point to mention is that in that period of time, economic growth has been 11.5% over the twenty-seven months and we have had nothing of that at all. We have had no benefits from economic growth, even if you disagree over quite the computation of the inflation figure and the cost of living, certainly we can say clearly that in respect of the growth in the country we haven't managed to do anything like that at all. Now, again, to be fair, in the period since 2000-2007, taking that period as a whole, we have made real gains in wages over and above inflation of 11.5%.

But at the moment we are being advised by the powers that be that we must be careful, must be considered and reserved and moderate in our demands because if we are not we will really initiate a wage crises and we will all be doomed as a result of that. Now, to be honest, that is pure orthodox economics certainly, but it has no basis in recent historical facts because we have not had a wage price spiral either in Britain or Ireland since the 1980s and in fact all of the economic downturns that we have had, have been caused by inflation in assets and the subsequent collapse of the bubbles that have arisen from that. It is true, of course, that within the economy, there are people working in certain professional sectors who have jacked up their fees at every opportunity. There has been a constant rate of services inflation which has been much higher that the average rate of inflation and there has been a considerable amount of profit taking but that is not our fault and we are not going to carry the can for that. So as a proposition that we are engaged in an activity which is going to result in a wage price spiral - that is nonsense and we reject it completely and absolutely.

Now, in relation to the rate of inflation we are confronting at the moment - it is very high at 5 percent and there are changes taking place and if you look at what has happened again over the last two years we have had eight separate hikes of 25 basis points by the European Central Bank, which had been the responsible factor driving the inflationary increases. We have seen that sort of taper off and the European Central Bank is kind of saying it won't reduce rates for the future - it may or it may not - we don't know until later in the year, but that impetus for increase if you like in inflation has been replaced by two other factors - food prices and energy. And they both, I think, represent a structural change in the world and are there to stay because if you look at energy - energy has accounted for about just over half a percentage point of the inflation which we have had in the last year. And you see, of course, that the price of oil at the moment is something like $115 a barrel. Now its effect is mitigated by the fact that the dollar is weak, otherwise it would have a much bigger impact on inflation. But it is likely to stay high - that's the point because we have seen the announcement from Russia the other day, which is the second biggest supplier of oil in the world, which said that they were reaching a 'peak oil' situation.

On the question of food, I think the position is in many respects more serious. Food inflation over the last twelve months was 8.5 percent. And it arises from a number of factors: the increased demand for food throughout the world, adverse weather conditions and the transfer of land to the production of biofuels. So all of these combined have pushed up food prices and it is very important from the point of view of people in the lower income bracket that this be taken into account. Because overall I think we spend about 12 percent of our incomes on food but for people on lower incomes, food and energy and indeed fossil fuels together constitute a very significant part of their expenditure, so the point I am making is that in how we construct our wage claim to have regard to the lower paid because they are facing into a much more difficult future.

I suppose, therefore, in summary what we are looking at is that we live in a country where the cost of living is 20 percent above the European Union average - it is the second highest after Denmark, I think. We did fall short somewhat on first module, we didn't get anything from economic growth, and wage costs overall to some extent have been pushed down. We have seen, it is worth noting, a wage premium in almost every sector for trade union membership and we have seen also growing inequality reflected in the benchmarking exercises which have pulled, if you like, some inequality in the private sector into the public service.

I want to now, if I may colleagues, to deal with this report from the OECD which was published this morning. It has to be acknowledged straight away in terms of competitiveness that currency does matter, principally, and the real exchange rate is the ultimate arbitrator of competitiveness and it has moved adversely by about 24 percent since we joined the Euro. It takes account of the exchange rate, it's outweighed by the volume of trade and also by the relative level of inflation in the economy that is relative to other countries and it does, we know, have an effect on some industries like for example, Waterford Glass who export a lot of their product into the United States. But we have to keep a sense of proportion about all of this because in fact the growth in manufacturing output recovered after 2004 and has grown since and the reasons for closure of a number of enterprises, very often they have nothing to do with wages at all. They have to do with the opportunity that some of these people see they have in moving to other countries or for other reasons, but they don't principally have to do with wages. And in fact the reason for that is simple enough because foreign-owned companies here are the companies which export most of what is made in this country. But they also import 86 percent of the material for their products and they export around 94 percent of it and labour costs constitute only 5 percent of their total turnover. Overall, manufacturing accounts for about 10 percent of employment. Sometimes you will see a figure of around 13 percent but a lot of what is taken as manufacturing employment, some of it is service employment rather than pure manufacturing. And of the exporting firms around 14 percent of the exports to foreign firms go to the United States. So, if you can just take it from me that in terms of the proportion affected, it is really about 10 percent of total manufacturing output.

Now on the unit wage cost element of competitiveness, there has been no change in the relative position with other countries since around 2000 and in 2000 unit wage costs here were 57 percent below what they had been in 1990, so the competitive position which was built up in this country during the 1990s has been substantially maintained. And the real question you have to ask people who go very negative about this - well look can you give us data on how precisely industries are doing? To what extent are they gaining or losing market share? To what extent are they gaining or loosing profits? And what is happening to foreign direct investment? Now just take a couple of those: I took out of the Irish Times the profit results for a few companies in the last fortnight and I will give them to you. Take Kents Engineering, 22% increase in profits, Irish Nationwide Building Society, 64%, Tesco, 10% up to 156 million, Standard Life, 43% growth in profits, IIB Bank, 10%, the Irish Continental Group - they are the famous Irish Ferries people, 22%. That is substantial profit growth by anybody's reckoning. And in respect of foreign direct investment, the IDA pipeline this year is twice as strong as what it was last year.

Finally, now I would just like to say a word about this wage question particularly insofar as it arises in the OECD. If you look at our country here, in 2006 medium earnings for people coming from new member states into this country, were only two thirds of what applied here to Irish workers. Now, I say that for this reason particularly - the publication of this OECD report this morning is no coincidence at all I can assure you. I can remember when we went into talk to the employers and the Government the last time round (2006) and virtually on the first day we went into the talks and we were quite exercised about what was happening in the labour market - we had three reports put down in front of us. One was from the European Commission, one was from the ESRI and one was from one of the banks, and they all said there is no problem, there is no displacement, there is no exploitation of workers, and there is no evidence of any of this. But we know that from that statistic I have given you that if people come to this country they will be paid two thirds of what the going rate for their particular job is in this country. On the question of whether there has been displacement, there has been displacement now proven, of 23,000 in manufacturing industry, and the replacement by people, people who are not Irish, who work in manufacturing industry and earn 77 percent of what Irish workers earn. So there is a strong movement going on within the economy. We knew it was happening. We were told then that there wasn't a problem so I am just simply saying that you cannot believe that a lot of the advice you get is actually value free.

As to what is the composition of the Irish workforce at present - 20 percent of people earn less than €10 per hour. That is a fact here in this country. 50% earn between €10 - €20 per hour and two thirds earn less than €20 per hours overall. So 71 percent earn €38,000 or less. That is not by any standards a high wage situation for people and it was extraordinarily interesting when the Review Bodies for the public service looked at the private sector, and there is a point that we try to make in all the rula bula about the politicians and so on, that actually what was most important was they were reflecting a growing wage divergence within the private sector where people at the lower end were finding that they were on stagnant wages and people at the upper end were expanding their wages. And this is the fatal flaw in the whole benchmarking project, this trend has been imported into the public sector and for that reason it is not really a sustainable entity going forward because you are importing total inequality into something which was relatively egalitarian.

But let me just draw attention to just one other thing - I am so mad about this - on the injustice of the way this gets presented. No one ever talks about the abuses which take place in the private sector at the upper end and again I just reflect back on the last few weeks in terms of the findings which were issued with regard to higher remuneration for some of the companies. If you look at CRH, the Chief Executive earned €2.79 million; Smurfit Kappa - the Chief Executive earned €2.6 million; Irish Life & Permanent, the people who look after our pensions, and not too bloody well at the moment I might say, earned €1.36 million for not looking after our pensions very well, the Bank of Ireland, Brian Goggin, Chief Executive earned €4 million; the rest of them are in the halfpenny place by comparison to him, Diageo, the Chief Executive earned €3.75 million; AIB, the Chief Executive, Eugene Sheehy earned €2.4 million; the Chief Executive of Tullow Oil earned €1.6 million; the Chief Executive of Kerry Foods earned €1.2 million; even the Chief Financial Officer of Kerry Foods earned a million; our dear friend, head of Ryanair was very modest - he earned just under €1 million, Glanbia Chief Executive of that earned €927,000, and of course our closer friends at the head of the public service, the people who write the speeches for the Minister for Finance counselling wage restraints they just got the 13 to 14% increase in their salaries. That group of people when you think about it - they at least got their money legally. I hasten to, I don't wish to say honestly because I might be guilty of terminological inexactitute, but they certainly got it legally. On a point about this - were any of you following, this thing with Fyffes and DCC over the past few years where €80 million was actually robbed by insider trading and there is nothing about that - there is no outrage, there is nobody from the Opposition screaming about what has happened in our society as a result of that.

Now I just want to say something personally - I was at a conference in Galway last year, a Labour Party conference and there was a big debate about policy and all that type of thing and somebody referred to me as a "watery social democrat" and it's the truth actually. That's what I am. But I know one thing - I know when someone is taking me for a ride and this is what is happening in our economy at the moment and it just cannot go on. The Social Partnership project, in my opinion, was a good thing for a country and was based on some sense of the common good and some sense of shared values. Now it seems that is absent and Never the twain shall meet. It's as simple as that.

 

David Begg

General Secretary

17 April 2008

 

ends