Ireland - Five years of austerity policy and fake economic "success"

Jul/Aug 1997

The Irish Labour party, unlike its opposite numbers in Britain and France, experienced a major setback in the June 6th Irish general election. Its share of the vote was almost halved, together with its representation in the Irish Dail. The Democratic Left, a right-wing split of the old Stalinist Workers' Party and Labour's political ally on the left, did not fare much better, since it was left with four TDs, having lost two seats gained in recent by-elections.

But this result does not set Ireland quite as much apart from the other two countries as it may seem. In fact these three general elections have several features in common.

First of all, for all the media talk about Ireland as the "Celtic Tiger", the vast majority of the Irish population has seen nothing of the country's alleged affluence, except years of austerity policy and a drastic reduction of their standard of living. For most voters, the background to this election was therefore one of worsening conditions.

Second, all the main parties standing in the election were advocating austerity and very little else, as regards the issues that matter most to ordinary voters - jobs, standard of living, public and social expenditure, etc.. - while championing more tax breaks and handouts to business.

Third, corruption scandals which have been dragging on since the early 90s have severely undermined the credit of the main parties. For all these reasons, just like in Britain and in France, the June 6th election in Ireland ended up being primarily a vote of defiance against the politicians who were blamed by voters for the policy of the outgoing government, rather than a vote in favour of the election programme put forward by any of the contending parties. This defiance vote seems to have been particularly strong among the electorate of the less affluent greater Dublin constituencies, where the turnout was very low and where Labour suffered its greatest losses.

In all three elections, the pendulum of bourgeois democracy has merely swung back. The British Labour party and the French Socialist party had been in opposition over the previous period and the pendulum swing pushed them back into office. The Irish Labour party, on the other hand, had been in government, at the forefront of the austerity drive. Moreover, it was the only party to have remained continuously in office over the previous five years, as part of two different coalitions - first with the populist Fianna Fail, the largest right-wing party, between 1992 and 1994, and then with Fine Gael, the other main right-wing party, and the Democratic Left, in the so-called "Rainbow coalition", until this election. As a result the Labour party became the main target of the discontent, particularly among the poorest layers of the electorate. The pendulum swing, therefore, pushed Labour out of office, for the time being at least.

In fact, in the case of Ireland, the pendulum effect is all the more striking as the state of the parties in the Dail is now almost exactly back to what it was after the last but one general election, in 1989. Just as after the 1989 election, the new government is a coalition between Fianna Fail and the much smaller Progressive Democrats (which split from Fianna Fail in the 1980s in opposition to this party's nationalist posturing over the Anglo-Irish agreement). And just as in 1989, this coalition comes into office with an austerity agenda, as a minority government which will have to rely on a few non-aligned TDs for its majority in the Dail.

It seems, therefore, that the circle is complete and Ireland is back to where it was in 1989. Except that since 1989, there have been eight years of deep austerity for the working class and the incoming coalition government is now much more open (and seems much more confident) about making the working population foot the bill of boosting capitalist profits.

Behind the growls of the "Celtic Tiger"

If something was totally absent from this election, even in the politicians' speeches, it was certainly the "feel-good factor" which Ireland's alleged affluence should have generated. So what is this "affluence" really about?

In a survey of Ireland published by the Financial Times, a financial "expert" with the Swiss bank, UBS, was quoted as saying that "Ireland offers the investor emerging market style growth with western European inflation". This, put in a nutshell, is the real substance of all the fuss over Ireland's "economic success". Or, to put it in a cruder but more accurate way, Ireland offers imperialist companies many of the benefits offered by some Third-World economies (like the so-called "tigers" of South-East Asia or the semi- industrialised countries of South-America), and a few other benefits, like easy access to the European market, without the political, economic and legal uncertainties usually attached to Third-World "emerging" markets.

The policy of trying to "sell" Ireland as an "export outpost" into Europe goes back as far as the 1950s, when the Industrial Development Authority (IDA), set up initially as a protectionist body in 1949, was given the brief to attract foreign industrial investment into Ireland. But this policy really took off only when Ireland joined the ancestor of the European Union, in 1973. This made Ireland much more attractive to manufacturers as a gateway into Europe while allowing the Irish government to receive a sizeable chunk of European development funds.

From the late 70s onwards, every Irish government, regardless of its political composition, made massive use of public funds and European grants to entice foreign companies into setting up business in Ireland. The rate of corporation tax paid by all manufacturing companies as well as service companies trading with foreign countries was reduced to 10% - the lowest by far in Europe. In order to supplement the IDA's effort, the country was covered with a maze of government-funded bodies whose job it was to develop ready-to-use industrial estates with all the requisite facilities. To all intents and purposes whole areas of Ireland were turned into a Europeanised version of what are known in the Third World as "Special Economic Zones".

It must be stressed, however, that this policy also served another purpose. For it provided governments with a neat pretext (fair competion!) to pour the same kind of subsidies and tax incentives into Irish-owned companies, though they did not need to be "attracted".

Judging by official statistics, this policy appears to have been quite successful in terms of attracting foreign investment. Today, foreign- owned firms account for 30% of Ireland's total output and 40% of its exports. In manufacturing, the figures are even higher, with over 50% of output and 75% of exports. Most of these foreign-owned firms are in high-tech, high value-added industries, mostly electronics and chemicals. In electronics, 40% of all US investment in Europe is located in Ireland, and more or less every other personal computer sold in Western Europe is assembled in Ireland.

Nor is the flow of foreign investment confined only to manufacturing. The setting up, in the early 90s, of Dublin's International Financial Services Centre, has attracted 400 foreign banks and finance companies by offering all modern facilities for financial dealings, with the additional incentive of the low 10% tax on profit, cheap business facilities and lots of ways of hiding their real profits from their national governments. Today Dublin has taken over from the Channel Islands as Britain's largest offshore fund management centre and the total value of its 600 funds is equivalent to over half of Ireland's entire national income. And judging from the German government's recent protest over its resulting shortfall of tax receipts, it seems that the Dublin Financial Centre has spread its net much further than Britain.

The increased inflow of foreign investment since the late 1980s was the main factor in the "emerging market style growth" celebrated by financial experts. In the 1990s, the country's output increased at an average 6% rate, three times faster than the rest of the European Union. This has led the so-called "experts" to predict that by the year 2000, Ireland will be "richer" than Britain, since its Gross Domestic Product per head will be higher - as opposed to 1987, for instance, when it was one-third lower than Britain's.

These "experts", and the Irish politicians who repeat similar fairy tales, are of course lying through their teeth. The multinationals operating in Ireland are there to make profits, not to boost the fortunes of the Irish economy. And the net outflow of their profits together with the interest paid on the country's huge national debt to foreign banks, today represents almost 15% of the country's output. Taking this into account, as well as the European funds received by Ireland (equivalent in average to 5.5% of Ireland's GDP every year since the early 80s), the real growth of the Irish economy looks much more modest. Seen in this light, the time when the country's real income per head will catch up with that of Britain disappears into the distant future - if it ever happens at all.

Moreover there are reasons to think that the "Celtic Tiger" is already beginning to lose some of its teeth. The experts' own favourite measurement - GDP's year on year growth - reached a 10% peak in 1995, falling to 7% the following year and it is officially predicted to slide further down to 5% in '97 and after. By 1999, the enlargement of the European Union to poorer Eastern European countries threatens to reduce Ireland's share of the European development funds, while the 10% corporation tax will come to an end by the year 2005 under a deal agreed with the European Union - assuming this deal is not killed earlier, under pressure from the German and French governments, in particular.

Last, but not least, the multinationals themselves have no particular reason to do Ireland any favours. Already, in 1992, a review by the British business weekly The Economist noted that "a number of major multinational firms have reduced or closed their Irish operations in recent years. They have included recently established US firms and older UK firms". This trend seems to have been carrying on since 1992, as was shown by some of last year's high profile closures - like that of General Motors' subcontractor Packard Electric, in Tallaght, or the Dublin Semperit plant, owned by the German tyre giant Continental. The fact is that today most multinationals are restructuring to boost profits - downsizing, as they say. Given the uncertainties looming over the incentives which have kept them in Ireland so far, why should they spare their Irish facilities?

Few jobs and even fewer winners in the Tiger's den

To justify diverting such large amounts of public money into capitalist coffers, Irish politicians claimed that seeking to attract foreign investment was the fastest and only way to resolve Ireland's endemic unemployment problem.

Yet the implementation of this policy never prevented unemployment from continuing to rise. As a columnist of the Irish Sunday Tribune wrote, Ireland is "one of the most successful unemployed economies in the world". This was in 1992, the year of the general election which brought the Irish Labour party back into office in a coalition with Fianna Fail. The following year, official unemployment reached its highest postwar level, with 300,000. This figure did not take into account another 80,000 or so - who were taken off the official count due to training schemes or being close to retirement age - bringing the total to around 380,000 or over a quarter of the active population!

Since then, unemployment - and under-employment - has soared even further, despite various measures aimed at reducing the official head count and the cost of unemployment to the state. In particular systematic pressure was applied on the so-called "work-shy" in order to intimidate them out of claiming benefits. This policy was in fact very similar to that used in Britain in the late 80s and early 90s under the Tories, except that in Ireland it was implemented under the guidance of Democratic Left leader Proinsias de Rossa, the Social Welfare minister of the "Rainbow coalition". In the general election campaign, the outgoing government boasted about the "reduced" official dole count of 255,000. But by adding the "hidden" unemployed, the real count increases to just under 400,000! Likewise, when the outgoing ministers congratulated themselves about the "record number of those in work", they failed to mention the recent sharp increase in part-time and casual jobs.

The fact is that the billions spent by the IDA in bribing foreign companies into setting up business in Ireland have created very few actual jobs if any at all. Already, in the early 90s, the government- sponsored Culliton report shed a crude light on this fact. Throughout the 1980s, IR£3bn had been spent on tax rebates to private companies and IR£1.58bn had been awarded by the IDA to grants for job creation. Among the companies which benefited from these handouts, those which were foreign-owned had created 24,000 jobs and shed 15,000, while those which were Irish-owned created 28,000 jobs and shed 30,000. The net balance of jobs created was therefore... only 7000 jobs. And by 1992, this had turned into a deficit of 25,000 jobs!

Despite this appalling record, the same policy has been carried out ever since, and with the same results as far as jobs are concerned, of course. But its real purpose has nothing to do with creating jobs anyway. The Irish bourgeoisie is far too small and lacks the stamina to be able to compete on the world market under its own steam. All the more so as a whole section of the traditional Irish-owned industries, food-processing and textiles in particular, is still tied up in the old unequal exchange with Britain. The Irish capitalists would be hardly able to survive if it were not for the crutch provided by the state in the form of direct subsidies and tax rebates.

Moreover, a whole section of the Irish bourgeoisie and upper middle- class has been able to thrive on the indirect profits generated by the inflow of foreign investment. The sharp growth of so-called business services, in the 1990s, feeds on the needs of foreign companies which are new to the Irish environment and need the assistance of all kinds of "experts" who are ever on the ready to milk them if they can. So the legal profession, business consultancies, accounting firms, etc.. are major parasitical growth areas.

A blatant example of this parasitism is the recent rise of Dublin as an offshore financial centre - in other words, as a tax haven used by a number of international firms. This role brings nothing whatsoever to the Irish economy except the swift transfer of large amounts of electronic money through Dublin in order to register these firms' profits in Ireland and benefit from its low corporation tax. Apart from a few clerical and cleaning jobs this kind of activity generates no jobs whatsoever. But it keeps a layer of affluent "finance professionals" in business, who would otherwise have to find themselves a more useful activity.

In other words, while the vast majority of the Irish population has had no benefit whatsoever from the state's drive for foreign investment, and particularly not in terms of jobs, the Irish bourgeoisie has been doing very well out of it, thank you!

The union and Labour machineries as austerity managers

From the early 80s onwards, low corporation tax and government grants to business went together with driving labour costs down - something which was, once again justified by the need to attract foreign investment in order to create jobs, but benefited just as much the existing Irish or foreign-owned companies operating in Ireland.

Official statistics show that between 1980 and 1993, real labour costs were cut by 14.2% in Ireland, compared to 1.6% in Britain and 7.9% in Germany. This was partly achieved through cutting employers' PRSI contributions (the Irish equivalent of the British NIC), but mainly through driving real wages down, particularly during the second half of this period.

In this, the bureaucracy of the ICTU (the Irish equivalent of the TUC) played a decisive role from 1987 onwards, through a series of national deals between the union leadership, employers' representatives and successive governments, which were in many ways similar to the "Social Contract" used by Wilson's Labour government in the 70s in order to enforce wage restraint. Such deals were not new in Irish politics, where the state has often sought to back up its interventionist economic policy with some form of so-called "social partnership" at the highest level.

The Programme for National Recovery (PNC) proposed to the ICTU by the new Fianna Fail prime minister Charles Haughey, after the 1987 general election, was just another such deal. Fianna Fail had won the election on its promise to scrap plans made by the outgoing Fine Gael prime minister to cut public spending and privatise some state companies. The PNC was presented as heralding a new era of social peace designed to facilitate job creation. In reality, in addition to enforcing lower-than-inflation wage increases over three years, it was primarily aimed at winning the union bureaucracy's backing for an even more drastic programme of social and public spending cuts than Fine Gael had ever dared to dream of. Moreover, Haughey managed to get the ICTU leadership to drop their traditional opposition to privatisation in return for a "long-term partnership" which would involve ICTU representatives in various government decision-making bodies. Within the framework of the PNC, the ICTU leadership even agreed to the 1990 Industrial Relations Act, which included many of Thatcher's anti-strike measures of the 1980s - like the compulsory use of secret ballots, limitations on picketting and the banning of secondary action - except that it gave the ICTU a prominent role in policing the enforcement of these measures.

After the PNC, came the Programme for Economic and Social Progress, which was negotiated in 1991, to be implemented in 1992-94. This time it was a much more wide-ranging deal which, in addition to wage guidelines, included future government spending plans, a vast array of public sector cuts, tighter constraints on the public-sector wage bill, the embryo of a privatisation programme, a special 1% increase on income tax, the taxation of welfare payments and a range of welfare cuts.

The 1992 general election took place right in the middle of the PESP period. Dick Spring, the Labour party leader, focused his campaign on a vigorous opposition to the planned cuts in public jobs and services. This probably did a lot towards winning the Labour party a 50% increase of its share of the vote. But no sooner had the Labour party entered government, in coalition with Fianna Fail, than Spring immediately proceeded to return to the PESP line - in the process he conveniently forgot his election pledge to support the Aer Lingus workers' fight against job cuts, and endorsed a policy which resulted in a thousand of them losing their jobs. As the policy of cutting jobs in the public sector expanded, large strikes broke out. After the Aer Lingus mechanics' dispute, the post office followed in 1993 with a six weeks dispute over 1500 job cuts and the closure of 550 sub-post offices in 1993, and in 1994 railway workers staged a national strike against changes in working practices and a round of job cuts. Each time the strikers were confronted with a unanimous block between the union bureaucrats and the public sector bosses, with the Labour party in the background, looking the other way.

By 1994, when the Labour party broke its coalition with Fianna Fail to form the "Rainbow coalition" with Fine Gael and the Democratic Left, the PESP was running into its last year and the economic situation had become significantly worse. This time, the left- wing members of the coalition took up battle positions in key government posts: in addition to the Labour leader Dick Spring, who became deputy prime minister, Labour's Ruairi Quinn became finance minister, while the leader of the Democratic Left took the Social Welfare portfolio and Pat Rabitte, a Democratic Left TD and former leading union official, became industry minister and, as such, took responsibility for dealing with the unions and the state industries. The objective of "social progress" was duly forgotten and replaced with that of "boosting job creation" by "achieving higher competitiveness".

So, the Programme for Economic and Social Progress became the Programme for Competitiveness and Work (PCW), without much change in its content, except that this time, while left-wing ministers were at the forefront of policing the deal with the help of union leaders, an increasing number of employers simply refused to implement the wage increases which had been signed by their own organisations. Meanwhile the drive to cut down wage costs in state-owned companies was stepped up. Thus, for instance, in January this year, the Dublin Bus company forced a deal on its drivers whereby, in exchange for job security (but for how long?), they had to agree to a cut in sick pay, an end to Sunday bonuses, a wage cut amounting to between IR£20 and IR£40/w and the gradual replacement of full-time jobs by part-time ones.

This year, the PCW is coming to an end. Already its replacement, called Partnership 2000, has been negotiated by Democratic Left minister Pat Rabitte and eventually agreed in December 1996.

Again this deal includes wage restraint, with a 7.25% increase over three years in the private sector, and 39 months in the public sector, below official inflation which is predicted to reach 8% at least, over this period. With this comes a series of cosmetic measures designed to create public-funded jobs for a few thousand long-term unemployed. But the main items are further cuts in corporation tax and PRSI contributions for employers, steps towards large-scale privatisations and a renewed commitment to dish out state grants to private companies as the primary means to boost job creation. In return for the union leaders' co-operation, they win a few perks. Thus the deal promotes profit- sharing and the distribution of shares to workers, either individually or to be held collectively for them by their unions. At the same time, a National Centre for Partnership is to be set up with, among its directors, John O'Dowd, who has just resigned from his position as general secretary of the largest civil service union. This Centre will promote partnership at workplace level by, among other things, organising joint training programmes bringing together company managers and union shop stewards, to "help them achieve a genuine common understanding"

The only mild complaint voiced by some ICTU leaders about this deal was the absence of any initiative encouraging union recognition. This is all the more ironical, as most of the new foreign-owned factories which these same bureaucrats are so enthusiastic about tend to refuse them recognition!

As it turned out, this deal proved to be a bit too much for union members and even many low-level officials. The balloting process was difficult in several unions. The membership of the retail sector union, Mandate, rejected the deal almost unanimously, arguing that it included nothing to prevent employers from replacing full-time jobs with casual, part-time ones, as they have done over the past few years in this industry. Even the largest industrial union, SIPTU, Pat Rabitte's own union, had a very close vote in favour of the deal, on an unusually high turnout. And it took all the manoeuvering skills of the ICTU bureaucrats to get the deal finally endorsed by a special delegates' conference. Even then, despite the bureaucratic "creaming off" of opponents in the delegate selection process, they failed to prevent a large opposition to the deal from expressing itself at the conference. For the first time since 1987, nearly 40% of the delegates voted against the deal, thereby giving a deadly blow to the alleged working class "concensus for social partnership".

If, in the end, Partnership 2000 was finally passed, the discontent it generated among a whole section of the working class, together with the past five years of austerity, eventually expressed itself in the June 6th general election, through a sharp drop in the Labour party's vote.

In most cases, this drop in Labour's vote benefited the right-wing parties, for the simple reason that there was no political force on the left capable of representing in any way the bitterness and anger of the poorest classes. There was one exception worth noting however, that of the Dublin West constituency. There, a revolutionary activist, the Socialist party candidate Joe Higgins, came second in the poll and was elected, leaving the Labour party with no TDs for this constituency. This result was no doubt due to the fact that as chairman of the Federation of Dublin anti-water charges campaigns, and one of the main initiators of this struggle against the introduction of service charges in the capital, Higgins represented the only successful fightback so far against the governments' austerity policy. And his success certainly shows that the Labour party's defeat in the Irish election does not indicate a "shift to the right" in the electorate, as some on the left have already argued, but rather the need for the working class to build up its own independent fightback against the austerity drive of the bourgeoisie.