July 9th: The Recession Diaries
Lunchtime
No matter what point in the economic cycle a country is in, the science of history gets a battering. But in recession times, history is just simply invented.
Take Professor Mary Harney, TD, on Question & Answers the other night. She treated us to a yellow-note lecture on . . well . . . some country’s economic history, but certainly not our own:
‘Above all else, this economy cannot go back to a state it was in the 70s and in the 80s when in order to get out of the difficulties we had we borrowed, we taxed and we spent. We’re not going to do that . . . It’s low taxes on work, low taxes on business that has delivered the economic success we have experienced.’
In so few words a whole historical understanding is trashed. First, Professor Harney doesn’t explain how we got into the recession in the first place. The growth in spending accompanied by cuts in taxation that occurred in the late 1970s was the brainchild of Fianna Fail and, in particular, Martin O’Donoghue. It wasn’t some populist ‘to-hell-with-fiscal-policy’ vote-getting initiative. It was actually a well thought-out plan by the Government to stimulate indigenous Irish business through pump-priming the economy. The theory was that increased demand would stimulate native businesses to increase supply - thus increasing jobs, wealth, etc. Well thought out - and well wrong. For it assumed that the only problem with indigenous business was lack of demand whereas the entire history of the state showed there was something more systemic and more endemic at work. This gamble on indigenous business failed - inflation shot up, the Exchequer balance went all to hell, no substantial business activity was generated and the dole queues got longer. We paid for years gambling on native private sector growth.
Second, as every dog in the street knows, the economic boom was led by multi-national exports. Multi-nationals had been paying low-taxes since 1956. In the mid-1990s, almost all multi-nationals were either paying (a) 10 per cent under the Manufacturing Tax Relief, or (b) 0 per cent under the Export Sales Relief. Indeed, when the Rainbow Government phased in the new harmonised 12.5 per cent, it amounted to an increase in taxation on those very agents that were responsible for our economic boom. By all accounts, this should have knocked the boom off all the rails but it didn’t.
Likewise with personal taxation. For the first few years of the boom there was little downward movement in personal taxation. Increased living standards occurred through job creation and wages - the latter due to productivity gains. The slash n’ burn of capital and personal taxation only occurred well after the boom started. Instead of engaging in real tax reform (re-balancing the burden) and using the money to reinvest into the economy - both capital and social infrastructure - we let property and consumer markets rip.
A lot of commentators are at pains to say the situation today is far different than that of the 1970s/1980s. While in many respects they are correct, in one crucial respect they are ignoring a valuable lesson from history. Nearly 30 years ago we gambled on pump-priming the private sector and failed. In the late 1990s/early 2000s we pump-primed the private sector again (through tax cuts, tax reliefs, a free land market) and now look at the mess we’re in.
And now the government is at it again - slashing expenditure, beating up public sector workers and hoping that capital investment will pump-prime indigenous business in a weird ‘build-it-and-they-will-come’ gamble. We’re rolling the dice again. What a way to run an economy.
Professor Harney should study history a bit more.
Early Evening
God bless IBEC. If it didn’t exist we’d have to invent it - if only to fully understand how you can manipulate an argument out of all recognition from the conditions that gave rise to the argument in the first place. Take the agency workers’ directive, for instance. IBEC is getting all agitated. Apparently, they insist it would be ‘quite inappropriate’ for workers doing the same work to be paid the same rate and enjoy the same conditions. Hmmm. Apparently we shouldn’t do anything in this area that ‘would make us uncompetitive and enhance costs that are already crucifying a lot of companies’. Hmmm, hmmm.
IBEC and other employers’ organisations have argued for ‘flexibility’. Agency workers provide that. Never mind the current exploitation and abuse - there is a reasonable argument for companies to take on and let go workers at different cycles of their production process. Does the new directive interfere with that? No. So what’s IBEC’s problem?
Let’s do some straight talking. IBEC is not concerned with ‘flexbility” - that’s already factored in. It’s concerned with cutting pay and living conditions. It’s concerned with taking the hammer to non-national workers. Here’s how SIPTU’s Patricia King described one transport company’s concern:
At a meeting of the Oireachtas committee on enterprise, trade and employment earlier this month, Patricia King of Siptu instanced one truck company which paid their regular drivers €18.50 an hour plus bonus. But King discovered that up to a third of the drivers were non-nationals hired from an agency and were paid €11.20 per hour. “They received no overtime shift premium, were not covered for sick pay and if the employer did not like the look of them he would ring the agency and say, ‘Get rid of him and give me someone else, ‘” King said.
This has nothing to do with flexibility. This has nothing to do with facilitating cycles in the production process. This is about exploitation, pure and simple; about driving down wages and conditions; about our very own ‘race-to-the-bottom’. Enhance costs? No one is arguing that agency workers be paid more - just the same. With this slash n’ burn mentality - an endemic short-termism that eschews quality of product, re-investment, consumer servicing - no wonder we have stunted enterprise base; no wonder we can’t export, trade or grow ourselves into sustainable prosperity.
In one way, I don’t mind IBEC getting all agitated about having to treat employees equitably. After all, that’s their job. But at least, let’s not pervert the language. If IBEC only exists to show us how not to degrade the language, then their existence is more than justified - day after recessionary day.
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