Book Review: Ireland’s Economic Crash, by Kieran Allen, The Liffey Press
Kieran Allen’s excellent analysis of Ireland’s recession, the first that this writer has encountered from an Irish Marxist, is predicated on a single simple truth: Since 1970, in the worldwide capitalist system, profits have been falling. For example, ‘the profit rate in 1997 was only between 60% and 75% of its average value for the decade 1956-65’. Among other things, this accounts for the fact that capital has shifted from manufacturing (poor rate of returns on investment) to financial instruments. Repackaged mortgages pay better than machinery and even technology. In fact, capitalists are voting against capitalism and, in effect, by betting on various risks, putting their money on the horses and the dogs. Of course, it then becomes necessary for investment to come from somewhere, and this accounts, in part anyway, for the decision to make workers put up the capital that the capitalists aren’t prepared to invest – workers’ pensions that rely on stock market speculation are the result.
The heart of the problem for capitalists is a simple one. As Marx observed, competition always squeezes profits and when profits are squeezed workers are squeezed too, and when you reach rock-bottom with that process you must inevitably look for new people to squeeze: nowadays capitalists want to squeeze, among other hapless victims, pensioners, mortgage-holders and small investors.
The Reagan and Thatcher era was marked by increased worker productivity and a concomitant marked decline in wages – squeezing the workers. When that process came to its natural end a series of bubbles was generated in order to maintain profitability – Allen observes that the ‘bubble’ process is a natural function of capitalism – and ordinary people were encouraged to become shareholders and put their pensions in shares. Even the bubbles have been steadily weakening, however, and the last one, our most recent ‘boom’, was the weakest on record. The inescapable conclusion is that capitalism is a machine in decline, a system losing energy. This makes the current hue and cry in Ireland over shares-based pensions immoral in the extreme. Given the global decline in profitability, the economists know that workers will never see anything like the ‘historic’ returns on investment that occurred during the so-called golden age of capitalism (pre-1970) – when, of course, workers were not encouraged to buy shares.
The speculative boom of the last ten years or so, in which the lives of ordinary people were packaged as betting prospects, and in which the betting itself was an object of betting (and so on), was grasped as a solution to the decline in profits by weak-minded neoliberals, but the entire system, according to Allen, was built on three main elements: ‘surplus from Chinese workers, debt-induced spending from workers in advanced industrialised countries, and an orgy of speculation’.
It is not surprising that the secrecy and complexity of the financial system fooled most of us, but what is inexplicable is that economists, supposedly trained in the arcane art, couldn’t see that the whole thing was a giant pyramid scheme. The system in itself should not be a very intricate mechanism, nor even a very complicated one. But it is complicated by the fact that most of its products are things that no one in their right minds would buy – packages of mortgages that include the debts of people who cannot possibly pay them back, for example – and therefore they have to be dressed up in ideology and hidden behind masks and disguises. Add the effect of regulation, no matter how ‘light-touch’, and taxation and the necessity to be diabolically devious enters the system, bringing with it all sorts of opportunities for corruption. It is no accident that the IFSC, regarded in most countries as a haven for dodgy practices, was established during the reign of the most corrupt Fianna Fáil regime in the history of that shifty party.
So, capitalism is quietly eating itself and Ireland’s politicians, bankers and developers are hungry men. Allen documents – not always dispassionately – the development and collapse of Irish speculative capitalism. Unlike Fintan O’Toole’s otherwise excellent book, Allen’s is unashamedly founded upon Marxist theory. There are substantial sections devoted to explaining that our collapse is more or less a textbook case – as long as you read the right textbook. His quick tour through the relevant sections of Capital might well be useful to Irish economists desperate to find some narrative that explains where they went wrong.
It is rare indeed to be able to laugh in any of the books about Ireland’s mad rush to sell itself to its shiftiest shysters, but Allen brought tears of laughter to my eyes with his romp through the ‘predictions’ of our economists. Dan McLaughlin, for example, who must be either one of Ireland stupidest economists, or one of our crookedest, said that it was ‘completely ridiculous’ to suggest that ‘suddenly in 2008 the economy will fall off a cliff’. One of the things that has not been said much here is that this country is blessed with particularly stupid, venal and/or corrupt economists with enormous public profiles and consequent enormous egos, who wield incredible influence over public discourse in relation to work, unions, pensions, medical care, education, taxation and the economy in general. Their names are mentioned in hushed tones. They are Irish capitalism’s only acceptable intelligentsia. This writer humbly suggests that the next time an economist stands up to say something the general population should emit gentle farting sounds – through the orifice of choice, of course (neoliberalism is all about choice, although as with most neoliberal choices, authentic farters only have one real option).
Allen’s debunking of what he calls the five myths about our economy also makes salutary reading. He examines the claim that Ireland has a ‘bloated’ public service, for example, and dismisses it out of hand. The competitiveness mantra receives a similar treatment, as does the good tiger/bad tiger idea.
One of the startling discoveries for me was the link between the inventor of NAMA and property developers. Of course, we have all become used to the idea that the gene pool of Irish power is very small, but the idea that the Government would turn, for a solution for a collapsing property bubble to a property developer seems almost too stupid to be true. Yet NAMA was dreamed up by Peter Bacon, director of Ballymore Properties. The principal shareholder of Ballymore Properties, Sean Mulryan, is a Fianna Fáil hardhat – and his donations to that party include under-the table payments to the late-lamented Liam Lawlor. This incestuous system of kickbacks and favours, the perpetuum mobile of Irish privilege and power, has been brilliantly documented in Tasc’s paper Mapping the Golden Circle.
The book ends with Allen’s nine proposals for radical change. To be fair, he begins by admitting that these proposals are set against ‘the limitations of a for-profit system’. As such, his proposals are made through gritted teeth. Nevertheless they appear both reasonable and radical, especially in the detail. They are all worthy of consideration by a future government: nationalise the banks instead of saving them, create a national public works programme, take back Ireland’s natural resources, redistribute wealth through taxation or confiscation, remove the corporate ethos from the public sector, build a real knowledge society, give a state guarantee of the right to work, protect pensions and introduce serious regulation of the financial industry.
As a follow-up to his interesting The Corporate Take-Over of Ireland, this book represents an important contribution to the debate about this shambolic republic we live in. It makes a change from the mainly right-wing commentaries which mostly blame individuals for the collapse. Allen rightly points to the systemic failings that make this kind of collapse not only inevitable but necessary to capitalism. I recommend this book to anyone trying to understand how we have arrived at a point where autism services are paying for bank bonuses.
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