Notes on the Front

Commentary on Irish Political Economy by Michael Taft, researcher for SIPTU

November 5th Evening: The Recession Diaries

November 5, 2008

Mission accomplished! Unfortunately, the euphoria is short-lived as we return to the dismal news coming out of our own economy: unemployment rising to over 260,000 with the increase in October nearly equaling the entire rise in 2007; service business activity contracting at an alarming rate; the EU Commission opening excessive debt procedure against the Government and Minister Lenihan suggesting a mini-budget next year, with more cuts to come.

I would like to say there's a battle going on but a battle assumes there are two sides fighting. In Ireland, there isn't. The consensus that we have to prioritise the fiscal meltdown is almost complete. And let's be clear – this is nothing less than an attack on the public realm. And critical areas will not be spared. Health, education, and social welfare together make up nearly 70 percent of current spending. If the Taoiseach's promised cuts occur it's hard to see how these areas will escape. Unless we cut capital spending which, in essence, is a cut in future growth.

If the fiscal meltdown is the first item on the agenda, we are all in trouble. The Government is attempting to hold the deficit at €11.5 million. It will worsen and this will have knock on effects next year as revenue continues to nose-dive with job losses and wage cuts. Even more depressing is that the main parties – Fianna Fail and Fine Gael – are debating over who can cut more effectively.

In this respect, the Left's silence could be fatal. Is the Left arguing for increased borrowing? Substantial taxes on capital assets and high incomes? Draining the Pension Reserve dry? Are Labour spokespersons saying that public expenditure cuts, in principle, are wrong? That, indeed, we need to ramp up spending? If so, how will this be sustained over the recession cycle? Not only is there no connecting of the dots, there are a lot of dots missing.

In effect, the Left has vacated the fiscal ground, just as it had vacated the larger economic ground years ago. With no alternative analysis, never mind even an outline of a programme, the public will understandably assume there really is no alternative to the bloody evisceration of the public realm. In the battle between Hayek and Keynes, between a revamped neo-liberalism and a pragmatic social democracy, the latter are the losers because they have no champions, no tribunes.

Enda Kenny has spoken of leading Government within twelve months. Twelve months may be laughable but the prospects of a resurgent Fine Gael is worrying. Immediately following the last general election, Kenny claimed that his party would be the largest party after the next general election. They now have a healthy lead over Fianna Fail. They are set to become the largest political party at the local level after the elections next year. They are the only Opposition party to publish a comprehensive critique of the deteriorating budgetary situation. They have put forward specific proposals in this regard. Their economic spokespersons seem to be everywhere. All in all, they look like a party that is serious about leading a Government, despite the shortcomings of its leader.

Polly Toynbee, despairing of another Labour Party, called for an 'FDR moment', a championing of expansion and government intervention, a programme that can give people confidence and that most elusive political asset: hope. This requires ambition on a large canvas – an ambition of policy, an ambition to grab the levers of government to make that happen. It also requires a determination to challenge your opponents from whatever party, whatever constituency they emerge.

Whatever about the prospects of this happening in the UK (and I believe it more likely than not because at least the British Labour Party has such a tradition to fall back on), the tea-leaves here are more depressing. The Left does not have the look of leading a government, of developing the policies to lead a government. Nowhere is this more apparent than in the critical issue of fiscal policy. To argue for a social democratic expansionist programme, the Left must develop a credible fiscal platform to launch that programme. Simply opposing cuts is far from sufficient. The Left must go beyond that and show how public expenditure, buttressed by increased borrowing and taxation on unproductive capital is absolutely essential to financing our way out of the recession. That is the first task. There are many more after that.

The stakes are high. If the Left does not take matters in hand, it may well find its support increasing as former Fianna Fail supporters go in search of another party. It may well win a number of seats in the next general election. But without its own unique analysis, it will be irresistibly pulled towards another right-wing led coalition, hamstrung by a consensus it didn't attempt to challenge, without any mandate for an alternative strategy which it never bothered to seek.

For me, anyway, that is really depressing.

4 responses to “November 5th Evening: The Recession Diaries”

liam

November 6, 2008

I’ll be honest. I’ve a bottle of wine under my belt. But I just saw Eamonn Gilmore on Primetime, and you know he fits your tag of depressing. Why can no-one here argue for enhanced public services or at the very least their maintenance at the current low level without avoiding the issue of taxation? It’s very simple really. We have a structural problem. Even Gareth Fitzgerald recognizes it. We have an absolutely demolished taxation base.
As per your article we could establish a property tax (unproductive capital). Or we could direct activity and create a carbon tax.
Now I feel at this point I should point out that I am very much a green supporter. I believe in the future Green economy. But these guys are killing me. We don’t need to sacrifice services to reach this point. In fact by being involved in this stuff the Greens are… God what are they doing??? I don’t know! Please, remember the bottle of wine!!! (I wish it helped) And I wish they had the same excuse.
There is a need to understand what is happening here, and I don’t think Labour does (And I would love to be a Labour supporter, which I suppose I naturally am, but please use a small ‘s’). I should also admit at this point that I’m not an economist but an ecologist of sorts. So if you’ll allow me I’ll use ecology as my reference and analogy. And I think this is directly pertinent here as I believe we are in a successional moment.
So in succession ecology, which uses the r – k continuum as its model, “r” represents fast growing, short lived species which reproduce early, frequently and abundantly, with wide spread seed dispersal and rapid growth prior to rapid death. Typically in a forest tree species, it is hollow or at least very soft wood, which propagates itself by colonizing newly/disturbed terrain as opposed to the forest floor beneath existent species. The “r” species is a pioneer species that nurses slower growing “k” species by casting little shade. Typically it blankets an area so that it appears even aged and homogenous. It places no investment in its base other than the requirements for rapid growth. It is therefore highly unstable and requires copious quantities of water (credit/liquidity) to survive. Essentially it thrives in an environment of abundant and cheap resources: easy and cheap access to the sun (oil) and water (liquidity).
At this point: if you’re confused think of how cheap oil has been for the past twenty years, and think then of the abundant credit and then also the boom of first tech stocks and then housing. Everything else was secondary. This is typical monoculture growth. And if you want widespread dispersal, think of Iona and who owns it. It’s a bug bear of mine that we don’t grow our industries organically. We prize the sale price. So I’ll continue…
The “k” species is long living and slower growing. It typically exists in mature diverse forests, and reproduces slowly according to appropriate environmental conditions. Accordingly, its seeds are large and represent a considerable investment. Similarly it is stable, having invested in strategies to ensure long-term survival in adverse conditions. It propagates itself within a relatively short distance from the parent tree and in the under story and struggles away waiting for the canopy to open up. Forest ecology suggests that communities move from the pioneer “r” species to the mature and diverse “k” species.
Whilst r-k is not an all inclusive construct, it does provide a useful base for understanding how communities, societies, and economies evolve. The US to my mind appears to be going through a sharply disrupted succession and just to be honest, Ireland even more so. But given the past few days I have to admit that Obama is a ‘k’ president, and we have??????????
So we have chosen to exist on the continuum closer to the “r” end, with its high growth rates, high mobility of its enterprises, hollowed out base and lack of investment in stabilising mechanisms which make it clearly unstable. Further, we are either unable or unwilling to sustain a shock dry period of reduced liquidity. Europe with its slower growing and more diverse industrial base with high investment rates, and more efficient and equitable distribution of income (I’m sure some will debate that vociferously), has opted for a strategy closer to the k end of the continuum.
You might be wondering what exactly I’m getting at, so I’ll be straight forward. We are a small economy that has decided that the r end of the economy is what we require: i.e. fast growth rates, rapid dispersal of enterprise, and openness to economic investment. But in order for this to work we need: cheap resources, low investment requirements, and a stable business environment. Now it may be obvious at this stage that we have none of these, but this is the point. One follows the other. We require the left at this stage. The left is the k end of the spectrum. The r is the right end. The Americans understood this, intuitively at least, and voted in Obama. He is the left end. What about us. Can Labour stand up???
I wish it were so.

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Michael Taft

November 7, 2008

Liam, I’ve never come across the ‘k-r’ analysis before but it certainly fits into a generally progressive critique of our underlying economic problems. Notably, that we attempted to short-circuit (and did for a time) the long, difficult work of creating a strong indigenous enterprise base by importing wholesale multi-naitonal operations. Were FDI part of a longer-term strategy that sought, at its end, a vibrant Irish-owned base, then it would have been truly far-sighted. But of course, that wasn’t and isn’t the case and now we’re going to pay for it.
As to Eamon’s performance on Prime Time, it is difficult to elaborate on a progressive strategy when you’re being asked to come up with an instant solution to unemployment. The fact is were the most enlightened, progressive Government to come into power tomorrow, unemployment would continue to rise and would take time to put it right. However, the line that we put laid-off construction workers back to work building schools, social housing, etc. – while part of an overall mix – will wear thin if that’s the only idea we can come up with. What is needed is a ruthless deconstruction of past enterprise policy (or lack of as in the Irish case) combined with confronting the fiscal issues head on. The final twist would be to launch a set of principles to inform new government intiatives on developing our enterprise base. Unfortunately, the Left is a long way from unfolding this new narrative.

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Carrigaline

November 9, 2008

I feel your pain, and it’s frustrating that our elected representatives don’t seem to have a clue.
We, as Irish people, seem to think we can have our cake and eat it. We need to either put up, or shut up.

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Yvonne

November 10, 2008

Carrigaline suggests we need to put up or shut up but as the Carlsberg ad instructs us: “It’s not just A or B. There’s probably always a C”. In this case, ‘C’ might well be ‘jump in’ – as in get involved in the debate, and not wait for someone else to represent one’s views.

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