Notes on the Front

Our man from Ongar, Leo Varadkar, TD, is in madness mode.   At a debate on the Future of Social Partnership at the Young Fine Gael Summer School he demanded:

Now, when anyone calls for ‘moderate’ pay deals in a high-inflation economy there is only one thing they mean: pay cuts.  But ‘moderate’ sound so much more reasonable than ‘cut workers’ pay’.  So there’s only one thing I have to say to Leo:  What the hell do you think has been happening?  We are in the middle of pay cuts.  They’ve been going on for a year or more.  What you are demanding is already happening.

Take clerical, sales and service employees in the Financial Services. In the last quarter of 2006 they were averaging €19.56 per hour.  How much did their wages rise in 2007?  They didn’t.  These employees, working in the wealthiest sector of the economy, making up nearly half of all employees in that sector, experienced a wage cut.  By the final quarter of 2007, their average wage was reduced to €18.79.  That’s a nominal cut of 4%.  Factor in inflation and that’s real cut of over 8%.  Wage moderation?  Some workers should be so lucky.

Oh, but the financial sector has been taking a hit of late.  I’m not sure if that can explain the cut in 2007.  But in any event, some get hit and some don’t.  Managers and professionals in the Financial Sector got a wage increase of over 8% during the same period as their fellow, lower-paid employees were taking a cut.

Or take manual workers in the manufacturing sector.  These 140,000 workers received an increase of 40 cents an hour in 2007.  After tax, that amounts to a grand total of €2.20 per day.  These are the same people being blamed for our lack of competitiveness.  And yet, they took a 2% real cut in wages.

Our man Leo must think this is a good thing.  He wants more.  He wants it to stretch out for the next two to three years under a new social partnership agreement – that pain-thingthat right-wing politicians love to go on about.  Well, here’s a little economics lesson for Leo and his fellow-travellers:

Whatever about the long-term policies needed to develop a new generation of indigenous enterprises capable of competing internationally (and that’s a big ask considering the state of Irish-owned companies) there’s only one thing in the short-term stopping this economy from turning into a sink estate: domestic demand.  Domestic demand is made up of consumer spending, government spending and investment.  Given that the latter has plummeted since it was so focused on construction, we have to fall back on the other two.  So:

• Borrow, and if you must cut, cut the tax subsidies to the well-off through the tax system. This will increase government revenue and allow the government to spend more (though, of course, there is the issue of the quality of spending).
• Maintain people’s living standardsso that they continue spending, even if it is reduced from the unsustainable heights of a few years ago.

Here’s a simple calculation: if you cut people’s wages don’t be surprised if they don’t frequent the shops anymore. Or, if you don’t trust your calculator, go ask a retailer – would it do your business any good to cut people’s income?  Well, er, no – less money in the pocket, less spend in the shops, less turnover, less profit, lay people off, close down.  Spread that out to any any number of services and goods in society and you get the point.

Now this is not a platform to launch a new stage of wealth generation.  But it is a tide-things-over to get to that platform.  It is little short of madness to cut the very thing that can keep us from collapsing altogether – people’s incomes.

But recessions have a habit of bringing out the madness.