Notes on the Front

The antger I'm referring to is not about the meltdown in my broadband, my modem, my phone line – which has kept me off-line for the last two weeks.

After the anger, the rage, the disappointment – we are still left with the question: what do we do. Just because the EU Commission/IMF are in town doesn’t mean the laws of economic gravity are somehow suspended. Elementary facts, democratic imperatives and on-the-balance-of-probability expectations remain firmly in place.

1. The deflationary policies of the past three budgets didn’t work. They lengthened and deepened the domestic (demand) recession which, in turn, defeated deficit-reduction efforts. Why should we expect future deflationary policies to result in anything substantially different?

2. In 2011 we will enter into a fourth year of a domestic recession – with all the components still going south: consumer spending, government consumption, and investment. Using the average of the ESRI’s fiscal data, every €1 billion of fiscal adjustment has the potential of

• Cutting employment by over 5,000 jobs
• Reducing consumer spending by over ½ percent
• Cutting GDP growth by 0.3 percent and GNP growth by 0.4 percent

What impact will this have on tax revenue; and if emigration doesn’t absorb this – what impact will this have on unemployment costs? What bet that hitting wages, incomes, public sector employment and contracts to the private sector will keep the deficit sluggishly high?

3. Export growth will not come to our rescue. Goods export growth is concentrated in the foreign multinational sector (particularly in chemical / pharmaceuticals). These capital-intensive sectors have actually been shedding jobs, while inputs are mostly imported. There is little jobs boost, little downstream boost and, with our ultra-low corporate tax rate, little tax revenue boost. These sectors are islands off our island.

This is the desultory calculus that cannot be wished away, regardless of who is looking over the Government’s shoulder. So let’s go to the endgame. What does the EU and the IMF want?

They want, after three years in the stabilisation fund, for Ireland to re-enter the markets in a stronger state, capable of convincing the markets that it can repay its future debts. If this can be done, then borrowing costs will fall and everything will be returned to normal.

The arguments for an investment-based growth strategy remain valid. We certainly know that the irrational approach taken to date – that you can deflate your way out of a recession – has proven a failure (it was always going to). Therefore, all the proposals, all the data, all the projections remain the same. Can we convince the EU/IMF? If they are pragmatic, yes. If they come with blinkered ideological perspectives – still, yes.

Sources close to the Department of Finance have reported that the IMF team were reliant upon the analysis, the information and the data presented to them by the Department themselves; in other words, the Government’s. This shouldn’t be too surprising – the IMF is unlikely to be familiar with the details and the minutiae upon which much analysis and perspectives hinge. Hence, their model driven approach to much of their global macro-economic analysis; it can say much, it can’t say all and, in many instances, it produces the wrong result. That they have admitted this in many cases shows the extent of its reliance on domestic flows of information and argument.

As always, the issue returns to the elected Government – its skill at presenting a broad-based analysis and set of prescriptions based on fact, not assertion; its skill at winning over not only the IMF and the EU, but broad public opinion – the democratic heart of any society.

How can we ensure that the Government acts and argues in the way we want? Here is where democratic pressure comes in. In the case of the current Government, democratic sentiment dictates it should go and go immediately. Quite simply, they cannot be trusted to put the people’s case and the economy’s case – not after their record.

And a new Government? Such pressure must continue but in a new form – this pressure must be rooted in analysis and expressed in concrete form. Here is one example:

1. A sustained and substantial investment programme to get the economy working again – paid out of the €40 billion cash and assets available to the Government.
2. Tax-driven fiscal consolidation, starting with high income and wealth-rich groups.
3. No to austerity, no to cuts in overall public spending, no to victimising people's living standards – all savings and efficiencies to be reinvested back into the domestic economy.

These are the demands that must be made on any party that seeks to be part of the next government.

We can start next Saturday – at the ICTU march.

And continue. And continue. And continue until we succeed.