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Dispelling some illusions

Posted on April 18, 2019 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

‘It shall be the first duty of the Government of the Republic to make provision for the physical, mental and spiritual well-being of the children, to secure that no child shall suffer hunger or cold from lack of food, clothing, or shelter.’  So reads the revised Democratic Programme of January 1919.

Clearly, the values underlying that Programme have not been reflected in social policy in either jurisdiction of Ireland over the last century.

Why is it that Ireland failed and continues to fail its children? This question is considered in chapter 1 of An Ireland Worth Working For (IWWF): Towards a New Democratic Programme.  Unlike many other small, open and liberal economies of Northern Europe, neither the economy of the Republic of Ireland nor the regional economy of Northern Ireland has matched the levels of sustainable and equitable development seen elsewhere.  We are rich in terms of GDP per capita but relatively poor in terms of first world healthcare and equity of access to such care. A similar point arises in the case of housing where prices are a multiple of average annual earnings and rents in the major cities are akin to those in London and New York.

There is much to be positive about both in the huge growth in living standards and quality of life over the last half century. Yet, major areas of weakness, imbalance and inequality persist. Examples of this include an over-reliance and over-indulgence in foreign direct investment. FDI is good but without a strong, dynamic and world-class native enterprise sector we are not at the races in terms of sustainable economic development. Take a look at Figure 1 from IWWF.

Clearly, there is something very odd about productivity (and by association GDP) in the Republic of Ireland. The words ‘tax haven’ come to mind.

The huge slice of GDP accounted for by booked multinational profits in the Republic means that the labour share of total value-added (much the same thing as GDP) is artificially low. Wages have been under pressure from capital.  While average living standards have recovered since the crash of 2008-2012, many have been left behind. As a result, the State has much ‘heavy lifting’ to do in order to even out income. Surprisingly, perhaps, the evidence indicates that the Republic of Ireland falls about mid-way in a European Union comparison of countries in regards to income inequality – both before and after state welfare payments (Figure 5 from IWWF).

Low productivity and income inequality is, also, a feature of the Northern Ireland economy. Incredibly, it is not possible to directly compare poverty levels in both parts of Ireland due to lack of statistical alignment of definitions and published data. However, we do know that large numbers of households remain stuck in poverty even before the recession kicked in (Figure 8 in IWWF).

The Celtic Tiger was not just an aberration from which we have learned our salutary lesson, never to happen again because we have taken the necessary actions. That ‘all right to private property must be subordinated to the public right and welfare’ as stated in the Democratic Programme a century ago has not been the case is well illustrated by recent economic history. The deadly combination of a love affair with property ownership, a dedication to the rights of private property and land over all else as well as the linkages between economic power, politics and social class privilege set the scene for the last crash.

The causes of the recent economic malaise go beyond failures in corporate and public governance and relate to the fundamental choices and values at the heart of political economy. There was a broad consensus in the Republic of Ireland, which saw the new order of deregulation or light-touch regulation from banking to planning as both desirable and unavoidable in a fast-changing and competitive world. It was assumed that everyone could be better off by paying lower taxes and by purchasing their own home, education and future pension on the basis of a share in finance capitalism. The illusion was shattered in the last recession.

Next week I will consider three major challenges confronting Ireland at this time.

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