Don’t Believe the Jobs Hype: Fine Gael Will Increase Unemployment

One of the defining characteristics of the 2011 general election is the championing of “competence” over incompetence. Foolish decisions made by politicians, both during the our relatively short lived ‘boom’, and since the collapse in the economy, are condemned by those eager to stress that they are the kind of professional management team that this country needs to bring us back to prosperity. Team Fine Gael, with their five point plan, provides the perfect embodiment of this kind of managerialism, a platform of five good men and true capable of inspiring confidence. Last June, these hard-headed technocrats, bristling with professional qualifications and jaw-dropping being-on-top-of-their-brief-ness were involved in a management heave designed to replace their CEO, who was charged with not appearing to be on top of his brief. Now, in an election, there are no doubts, only strength, confidence, stability.

I think it is safe to suggest that anyone reading this site treats the Fine Gael election campaign with nothing but contempt. I do not need to stress, for example, that their plan to try and reduce the deficit to 3% by cutting a further 9bn out of the economy by 2014 while projecting a growth rate of 3% is a sham. It’s shoddiness was reinforced by Michael Noonan’s decision yesterday to cite Irish Times economics editor Dan O’Brien’s description of the claims as “bunkum” when responding to criticism. O’Brien’s debunking was superficial to say the least, claiming that the EU commission’s forecasts (3.1% for nominal GDP over 2011-2014, compared with FG’s 3.9%) were the most ‘pessimistic’ of the domestic institutions and the IMF.

“Last week, the commission forecasters said that to reach the target using its GDP forecasts, the 2011-14 budgetary adjustment would have to be between €19.5 billion and €20 billion, rather than the €15 billion set out in the bailout conditions.”

This analysis on the part of the EU acknowledges the effect of cuts on economic activity while at the same time arguing that further consolidation, if extended deeply enough, would staunch the decline: a crystalline contradiction shimmering with political and ideological hypocrisy. Fine Gael say that they are relying on the Irish Government’s projections, as outlined in the four year plan, and should growth not match predictions they will seek to extend the timeframe for adjustment by one year. Dan O’Brien believes that a 9bn euro adjustment will reduce the deficit by 2014, and claims as evidence the fact that….the evidence about whether this works is not available, yet.

“These divisions between fiscal doves and hawks are not confined to the rarified world of academic economists, but are to be found among Ireland’s bailout troika. The commission’s report last week confirmed that it was in the hawks’ camp, along with the über-hawkish European Central Bank. The IMF, by contrast, is more dovish. Who is right? The truth is that the evidence base is just not strong enough to say for certain.”

See what he did there? The disagreement about the effects of fiscal consolidations is between the EU and the IMF (with Fine Gael to the right of those uber-hawks, the EU). The argument is an ‘academic spat’ and beyond that there is mild disagreement between the institutions involved in imposing their political and ideological program. However technocratic can you get?

Of course, we know that only someone who is ignoring the evidence would say that the evidence is not strong enough. Indeed, we do not have to look far to find a weakness in Dan O’Brien predictive powers, as this amusing video illustrates. More on this here and here.

However, the main trust of Fine Gael’s campaign is around jobs. Their 7bn stimulus program is supposed to “get Ireland working”. Again, I don’t have to point out the absurdity of reducing employment whether through redundancies in the public sector or through 9bn of wider cuts in the broader economy, already suffering from the loss of 14bn in the previous 2 years, while initiating a “jobs” stimulus. We have long argued about the need for investment in infrastructure, including increased government investment in schools, health and broadband and to use this to provide jobs immediately.

But while Fine Gael appears to be about moving government investment around so it’s more effectively used, it isn’t. It’s about using public money to establish a company or modifying an existing one that would then be sold to the private sector. This way the private sector is boosted by being able to make a return with considerably less investment than such a return would normally require. As has been shown with PPPs, any private sector investment is marginal compared to government investment, while it makes the largest gains.

We know that Fine Gael’s policies are very right-wing, and are closely based on policies developed recently by the Conservative Party in Britain and implemented by the coalition government (one example: VAT rise in the UK, Increases in standard rate of VAT to 22% in 2012 and 23% in 2013, p23). They are ideological and political and to follow Klein’s book Shock Doctrine, use “crisis” fostered by ‘incompetence’ as a means of passing public goods over to the private sector. But specifically, what this election’s emphasis on creating jobs disguises is that the policy of reducing the deficit with wonky figures and Fantasy Island style projections for growth, facilitates increasing unemployment.

So far, the Fianna Fail government has done a good job of implementing this policy by doing nothing to provide a stimulus for investment which would address the rapid increase in unemployment. But Fine Gael’s continuation of this policy – with their bare-face contradiction in the face of the evidence that it doesn’t reduce the deficit – shows the ideological nature of their plans.

Fresh evidence of the policy can seen in Michael Burke very important article which he has just published on Socialist Economic Bulletin. With considerable detail, he shows that during the two previous recessions in the UK a Tory policy of ‘monetarism’ and ‘bearing down on inflation’ where used to avoid any increase in government investment and to spur the privatization of state industries and functions, and that this resulted in increasing unemployment. This unemployment however, was considered to be beneficial during a recession, which is effectively a private sector investment strike, because it drove down labour costs and increased the rate of profit without requiring the private sector to increase investment.

Michael looks at recent unemployment figures in the UK, which have risen by 44,000 in the latest 3-month period to December (after a modest improvement attributable to the UK’s 2009 budget) and makes a comparison with the unemployment figures during the two previous UK recessions (1980/81 and 1990/91). Michael shows that in contrast to the moderate stimulus provided in 2009 the policy decisions taken at the time increased unemployment considerably more, despite being far less significant recessions.

As Michael says:

“The policy difference in the different recessions is marked. The decline in employment in the latest recession was more muted than in the two preceding recessions. In addition, the resumption of net job creation was much earlier than in the two preceding recessions. The net job losses arising from the recession were therefore much lower, less than 400,000 compared to over 1.6 million in both prior cases.”

However, the reasoning behind this policy is clear.

“The crucial difference lies in policy, and its aims. In both the 1980s and 1990s, under different guises of ‘monetarism’ and ‘bearing down on inflation’, Tory governments actively pursued a policy of increasing the rate of unemployment. On this occasion the purported reason is deficit-reduction. But the content is the same. Cuts to public spending were combined with changes to the tax regime which favoured business and high income earners. This reduced aggregate demand via driving unemployment higher and average wages lower thereby reducing consumption demand.

In all three cases the private sector had become a net saver via reducing investment. The response of the Thatcher and Major governments was not to increase its own investment, but to parallel the private sector’s investment strike. The aim of this, combined with privatisation of existing industries or state functions, was to increase the output of the private sector even with its investment rate remaining low. The effect of these measures combined to increase the rate of profit. In Marxist terms, this is the capitalist dream, to be able to ‘sell without buying’, that is to increase output without first investing.”

This is not an endorsement of New Labour. You would have to be very ignorant of recent political history not to know that many of New Labour’s policies were a continuation of those of the previous Tory governments. However, the response to the latest crisis was markedly different, despite resistance within Cabinet at the time from those strong advocates of neo-liberal nostrums, to what is being put in place now by the Coalition government even though the crisis is far from over.

The priority of driving down the deficit, the argument given now for curtailing government expenditure when private sector investment is put on hold is designed to boost the rate of profit for the private sector, and are a re-introduction of those Thatcherite policies of early 80s and the early 90s.

So while others may admire Enda Kenny’s ability during the leaders debates to keep on top of his brief and imagine him as someone able to provide “competence”, “leadership” and “stability” let us instead be aware and tell as many others as we can what the real agenda is behind this election campaign. While the emphasis is on jobs its real purpose is to increase unemployment to boost the private sectors rate of profit without them having do anything for it, unlike everyone else, who will have to pay for it.

Michael Burke’s post is here, and as usual it’s worth reading in full.

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Donagh

Donagh is the editor of Irish Left Review. Contact Donagh through email: dublinopinionAtgmail.com

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