Abstract
The Irish government has been held up as a model pupil of the IMF and the EU Commission because of its adoption of an intensified neoliberal response to the crisis. It has developed a policy consensus in support of wage cuts and severe austerity in order to prop up its banking system. However, the economic expertise that it relies on displays a considerable class bias. Under the guise of a neutral, technical language, the interests of a wealthy elite are being protected. Levels of social deprivation and inequality have, as a result, risen considerably. Yet despite its apparent success, there is considerable evidence that an investment strike is under way and there is no sign of a sustained recovery.
When the Irish Prime Minister, Enda Kenny, visited Berlin in October 2011, he received the red carpet treatment. There was little talk about the calamitous collapse of his country’s economy and the focus was on efforts to lead a recovery. Der Spiegel described Kenny as ‘the anti-Papandreou’ and suggested that the German Prime Minister Merkel would ‘be generous in her praise of her guest’ (Der Spiegel, 2011). Germany wanted an example for how austerity was working and Ireland was presented as a country to emulate. If Greece symbolized crisis and political instability, Ireland signified an oasis of calm in difficult times. The implicit suggestion was that its people would soon reap the economic rewards for their obedience. A similar message was assiduously repeated by Irish government ministers. At one stage, the Finance Minister, Michael Noonan, even joked that he would print t-shirts with the words ‘Ireland is not Greece’ (Irish Independent, 2011a).
Over the past year, Ireland has been elevated to the ‘model pupil’ of the International Monetary Fund (IMF) and the EU Commission. Antonio Borges, the IMF’s European department director, has claimed that its austerity programme was ‘exemplary’ and has linked it to a ‘surprisingly positive economic performance’ (Irish Independent, 2011b). The EU Commission President, José Manuel Barroso, publicly praised Ireland’s economic performance and staff at the Directorate-General for Economic and Financial Affairs have stated that the Irish ‘authorities are to be commended for continued strong programme implementation’ (EU Commission, 2011a: 25). However, this praise is highly ideological. Its primary purpose is to point to an imaginary solution for a deep economic crisis that has enveloped the European periphery and which is spreading to its core. The stark reality behind the Irish story is that austerity is not working.
Origins of the crisis
The Irish crisis dates from September 2008 when the state provided a guarantee to cover the debts and deposits of the six domestic banks. The guarantee extended over assets and liabilities to the volume of €440 billion. The context was a looming crisis in the property market which exposed huge levels of bank debt. In 2007, at the high point of the boom, Irish banks lent out €342 billion to the Irish private sector, the bulk of it for property speculation. That was three times the size of the Irish economy and was far higher than the €166 billion they held in deposits (EU Commission, 2011b: 9). The shortfall was made up by borrowings from the money markets of the eurozone and was used to stimulate an over-investment in property.
The scale of Ireland’s property boom was astounding. Thirteen per cent of the Irish workforce were employed in construction, which was nearly twice the norm for most other EU countries, and the overall weight of the property sector accounted for over 16 per cent of gross national product (GNP) (Gurdgiev, 2011: 112). At the height of the boom, Ireland was building the equivalent of 21 housing units per 1,000 of the population compared with an average of 7 in the rest of Europe. The only other country that experienced a boom of similar magnitude was Spain which was building 15 units per 1,000. A similar over-investment in commercial property also took place. In the decade between 1996 and 2006, the capital value of office investment increased by nearly 160 per cent (McDonald and Sheridan, 2008: 7). Irish speculators became one of the most active participants in the British commercial property markets and by 2006 were investing €5.5 billion, which was a spectacular rise from the €100 million they had invested in the whole of the EU property market in the mid 1990s (Lyons and Carey, 2011).
Close ties developed between bankers, property speculators and the Fianna Fáil party and the state actively supported the construction boom through tax breaks and restrictions on social housing which forced people into the private market (O Toole, 2009). At the pinnacle of this nexus lay one particular bank, Anglo-Irish, which specialized in ‘relationship banking’ with Ireland’s new entrepreneurial class. Its golf classics became the focal point of its business strategy because as one developer later explained, ‘If you want to borrow money from a bank during the summer, your best chance for a soft hearing is on the golf course’ (Kelly, 2010: 68). When the crash occurred, Anglo-Irish originally claimed that it was suffering from a short-term liquidity crisis. Later it was revealed that it had losses of €34 billion on a loan book of €72 billion.
This level of reckless lending was made possible by the Irish state’s enthusiastic embrace of neoliberal policies. In particular, it accepted the arguments advanced by Alan Greenspan, the chair of the US Federal Reserve, that de-regulation was necessary to stimulate growth and innovation. Writing for an American audience, Paul Krugman aptly summed up the pattern:
How did Ireland get into its current bind? By being just like us [Americans], only more so. Like its near-namesake, Iceland, Ireland jumped with both feet into the brave new world of unsupervised global markets. Last year the Heritage Foundation declared Ireland the third freest economy in the world, behind only Hong Kong and Singapore. (Krugman, 2009)
The IMF also noted that ‘Ireland consistently ranks among the top 10 countries for ease of doing business’ (IMF, 2010: 26). State officials assumed that de-regulated markets, tax cuts and privatization were the key to economic growth. As the country sought to gain a niche in the global financial markets, de-regulation in this sector became particularly lax. The Financial Regulator, Patrick Neary, defined his philosophy as a ‘principles’ approach’ which assumed that there was ‘mutual trust between ourselves and the industry’ (Neary, 2007). Policy changes that pertained to the Irish Financial Services Centre were first funnelled through a special IFSC Clearing House Group, which was composed of representatives of the largest banks, hedge funds and the legal firms which serviced them. Little concern was expressed when former regulators became directors of the finance houses they had been regulating. The overall result was that Irish banks were allowed to maintain one of the lowest bank capitalization ratios in Western Europe. By December 2008, the ratio of bank capital and reserves to total assets was only 4.3 per cent (Becker, 2009).
Ireland could, therefore, be presented as a textbook case for the failures of neoliberalism. The open embrace of light regulation in finance and tax breaks to stimulate a housing market led directly to the crash. Yet far from producing a re-think, the crash has led to an intensification of neoliberal policies. In fact, Ireland has led the way in Europe in promoting such a response.
Neoliberalism intensified
In the past, the Irish state has often sought to gain first mover advantage over its economic rivals by adopting measures which at first appeared as extreme. It was one of the key pioneers of low taxes on business by cutting the corporation profits tax to an official rate of 12.5 per cent. This headline figure was further backed up by a series of tax allowances so that the effective tax rate on profits varies between 4 per cent and 7 per cent, depending on the measure used (Stewart, 2011). This record predisposed it to take bold measures when the crisis occurred. So it moved quickly to issue a blanket guarantee to its banks despite the vocal opposition of Britain, Germany and France. It also moved quicker than other countries in embracing pay cuts. These quick, ad hoc responses to the crisis soon morphed into a broad intellectual consensus that straddled the state, business, conventional economists and the media. At its core was a rejection of any form of Keynesian solution to the crisis. The Irish state, it was asserted, could play little role in stimulating the economy because it was a small open economy and the benefits of any stimulus package would only flow to its economic rivals. The Irish strategy would instead focus on ‘regaining competitiveness’ in order to gain increased market share for its exports. As the crisis developed, this consensus hardened into a number of claims which can be summarized as follows.
1. As every state needs a functioning banking system, it was necessary to bail out and fully re-capitalize the banks
At the start of the crisis in 2008, the Minister for Finance, Brian Lenihan, claimed that it would be ‘the cheapest bailout in the world’ (Irish Times, 2008). Unfortunately, this prediction fell very far short of the mark. Current figures for direct state support to the banks range from €62.8 billion (EU Commission, 2011b) to €70 billion (Dáil Éireann, 2011). Up to December 2010, the state had directly provided €46.3 billion but a loss assessment exercise performed by BlackRock Solutions estimated that a further €24 billion was required.
In addition, the Irish state has undertaken to ‘clean up’ the loan book of the banks by purchasing faulty loans at discount prices. Its National Assets Management Agency has become the largest property owner after it acquired property that was initially valued at €72 billion for €32 billion. However, it is by no means clear that it will recover this outlay as Irish property prices have already fallen by between 40 per cent and 50 per cent. Given an enormous overhang of vacant and habitable houses – currently about 15 per cent of the housing stock – prices can be expected to fall further. In the meantime, NAMA has been financed by state bonds which carry relatively high rates of interest.
Taking all these factors into account, Standard and Poor has estimated that the cost of Ireland’s bank bailout will reach €90 billion (Standard and Poor, 2010).
2. The Irish state can cope with this level of sovereign debt. There would be a few hard years but the finances of the state would eventually recover
The main advocate of this position has been the Economic and Social Research Institute (ESRI). In its Quarterly Economic Commentary in the spring of 2010, it stated that the debt was ‘manageable’ and ‘would in no way threaten the solvency of the state’ (Barrett et al., 2010: 7). A year later its chief economist, John Fitzgerald, made the same argument in a more extensive analysis of Irish debt dynamics, claiming that if the Irish government stuck to its austerity programme, ‘the Irish debt burden will stabilise at a manageable level in 2013 and 2014’ though there would be considerable uncertainty in the future (Fitzgerald and Kearney, 2011: 27).
These predictions are primarily based on an assumption of growth in the Irish economy. A modest level of growth, it was claimed, would ensure that the debt to gross domestic product (GDP) ratio would decline.
3. The key to growth was for Ireland to export its way out of the recession. To do so, it had to increase competitiveness
The main strength of the Irish economy has been its export performance and this has led to a trade surplus during the three years of the recessions as Table 1 indicates. The strategy was to grow these exports in order to pull forward the Irish economy as a whole and reduce the debt to GDP ratio.
Ireland’s imports, exports and trade surplus
Source: Central Statistics Office, Trade Statistics August 2011.
These export figures are concentrated on a very narrow spectrum which is dominated by foreign multinationals. Two thirds of all exports are composed of chemicals, pharmaceuticals and medical service exports. Overall, multinationals account for 75 per cent of all Irish exports and the exports of the indigenous sector are concentrated in food and drink.
4. One of the main ways in which competitiveness could be increased was by reducing pay. This would function as a type of ‘internal devaluation’ and compensate for the fact that Ireland was locked into a single currency where external devaluation was not possible
The demand for pay cuts arose from the employers’ organization, the Irish Business and Employers Confederation. In February 2009, they issued a policy document which called for a ‘downward correction of the order of 10 percent’ and, while acknowledging that it would have a deflationary effect in 2009 and 2010, claimed that it would lead to a bold recovery thereafter (IBEC, 2009: 4). At first this call was not particularly successful in the private sector as it faced union resistance and it only gained impetus after the government embarked on pay cuts for its own employees. A pensions’ levy which averaged a 7.5 per cent cut on gross pay was imposed on the public sector in February 2009 and this was then followed in December 2009 by pay cuts of 5 per cent on the first €30,000 of salary, 7.5 per cent on the next €40,000 of salary and 10 per cent on the next €55,000.
The argument for pay cuts was given intellectual support by the ESRI Professor, John Fitzgerald who put the matter succinctly in an article entitled ‘How Ireland Can Stage an Economic Recovery’. He advocated nominal pay cuts and suggested that ‘if cuts in public sector pay rates mirrored cuts in private sector wage rates there would be a very significant gain in competitiveness, with a big reduction in unemployment after three or four years’ (Fitzgerald, 2009). The link between the public and private sector was significant. Private sector employers were not sufficiently strong by themselves to enforce pay reductions and moreover could face a number of legal complications in attempting to do so.
Official state support was necessary to achieve the pay reductions for two reasons. First, if the state cut the pay of its own staff this would set a semi official target which would allow individual employers to move beyond a consideration of their own balance sheets to presenting the issue as one of national policy. The more cuts in wages were presented as part of the national interest, the more they were likely to succeed. Second, the vast majority of union members were in the public sector and union density in the private sector had fallen to only 20 per cent. If major pay reductions could be imposed on the best organized workers, then it would be easier to carry through on the example to the rest.
In order to achieve the pay reductions, a major assault was launched on the pay and conditions of public sector workers. The ‘inflated’ pay levels of Irish public sector workers became a constant theme in the media. At one level, this offensive functioned as a form of anger displacement so that grievances against bankers and politicians were miraculously transmuted into a grievance against ‘over-paid’ civil servants. These individuals were, apparently, responsible for causing Ireland’s ‘structural’ deficit. This referred to the gap between public spending and tax revenues and became the main framing mechanism for explaining the crisis. High public sector wages were deemed to be one of the major causes of this deficit.
Figures from the OECD, however, provided a more complex picture than the propaganda might suggest. These showed that the salary levels of medical specialists or consultant doctors were way above the OECD average. So too were those of central government managers. But that was as far as it went. Using a comparison based on purchasing power parities and adjusted for differences in hours and holidays, the average annual compensation for employees in secretarial positions in the public sector was around the OECD average. So too was the starting salary of teachers although the salary at the top of the scale was slightly higher (OECD, 2011: chapter 6).
5. Wage cuts would not necessarily depress the economy. They would rather increase the ‘confidence’ of international investors and so Ireland would benefit from being the model pupil
The issue here was framed as a type of morality tale and the population were told that if they took pain for a short number of years, they would reap rewards later. It was almost as if there had to be atonement for the party years of the Celtic Tiger.
Expert economic advice was also on hand to show that this was a viable strategy. Thus Kevin O Rourke, Professor of Economics at Trinity College Dublin, informed the population in a popular piece in the Irish Independent that ‘the cross-country evidence from the Great Depression is unambiguous: the more wages fell during the 1930s, the less output declined’ (O Rourke, 2009).
The government has been largely successful at depressing the living standards of those at work. In 2008, the average annual equivalized disposable income for those at work stood at €29,240 but by 2010 this had dropped to €28,144 (CSO, 2011a: Table 1; CSO, 2010a: Table 1.4). Findings from the Fifth European Survey on Working Conditions have shown that Irish and Baltic state workers were among those most likely to have experienced a pay cut in 2010. Forty-eight per cent of Irish workers have experienced a pay cut compared to 16 per cent of all European workers (Industrial Relations News, 2010).
Economic expertise
This policy consensus between the Irish state and the intellectual establishment is presented as a technical solution that transcends politics. It is not supposed to be a matter of policy choices or conflict between social forces about the direction of state policy. There are simply no other realistic solutions and so ‘there is no alternative’. The near obliteration of political choices has primarily been effected through the greater use of economic experts in the media and in public discourse more widely. So, for example, it is frequently claimed that top civil servants ‘fell asleep at the wheel’ during the boom years and failed to see the warning signs. One of the key reasons was that the Irish Department of Finance had an ‘extraordinarily low’ number of professional economists in its employment and it failed to have ‘sufficient engagement with the broader economic community in Ireland’ (Wright, 2010: 45, 6). This lack of ‘expertise’ at the highest levels of the state is then deemed to be one of the primary causes of the crisis. The solution was the creation of an ‘independent’ Fiscal Advisory Council composed of such experts,
This rather narrow focus on the expertise of elite decision makers ignores how the Irish state had been developing a policy bias towards the neoliberal agenda for some time. It also ignores how most professional economists championed that bias and failed to predict the massive crisis facing the Irish economy. The ESRI, for example, which is the most prestigious research institute, claimed in 2008 that there would be ‘a modest recovery in 2009’, that GNP would grow by 3 per cent and that 24,000 net jobs would be created (ESRI, 2008: 1). In fact, the economy entered a severe contraction in 2009, with GNP falling by 10.7 per cent and over 100,000 job losses. Yet despite this evident failure of analysis, professional economists have effectively been exonerated by the crash and are deemed to be more needed than ever. As Ireland turns its back on the Catholic Church and becomes more secular, they appear to have taken up the role vacated by the priesthood. The economic priesthood reads the signs of Markets rather than of deities and preaches their sermons from television studios rather than church pulpits. Ironically, however, the message bears a remarkable similarity. Sacrifices from the majority are necessary for the atonement of sin and the promise of a happier life in the hereafter.
This elevation of economic expertise serves as thin disguise for avoiding questions about the direction of Irish state policy after the crash. Yet all the evidence suggests that it has deepened poverty and inequality. To put it more bluntly, the reliance on expertise from neoliberal economists gives cover to a class bias. This is most evident in the policies which have been implemented in order to close the ‘structural deficit’. This economic category refers to the gap which exists between state revenue and spending and which is deemed to be separate and distinct from the bank bailout. It is currently projected at €18 billion or about 7 per cent of GDP.
However, the separation of this ‘structural deficit’ from the banking crisis is somewhat artificial. For one thing, it includes figures for interest payments which arise as a direct result of the bank bailout and re-capitalization. Interest payments on Irish state debt have risen from €2 billion in 2008 to €4.9 billion in 2010 and to €5.1 billion in 2011. The policy of austerity, which has been implemented to pay for the bank bailout, has also had a negative effect on tax revenues. Unemployment has grown to 15 per cent of the workforce and this has led to a major fall in tax revenue and a rise in social welfare costs. In reality, the focus on the structural deficit is an ideological construction designed to de-politicize the wider austerity programme by presenting it as a form of good housekeeping. Nevertheless, even within these narrow, ideologically prescribed limits a distinct class bias is evident.
Class bias
First, there is a clear bias towards raising extra tax revenue from income rather than capital. This is evident in the five budgets which have been introduced since the crisis began (Table 2).
Tax revenue from income and capital
Includes reduction in tax relief for Approved Retirement Funds (APFs). **Includes further restrictions on tax relief for APFs and removal of some property reliefs. ***Includes removal of some property reliefs.
Source: Department of Finance, Budget and Estimates Measures, various years. Figures for tax revenue on capital compiled from Corporation Profit Tax, Capital Acquisitions Tax and Capital Gains Tax.
Ninety-five per cent of Irish income tax earners earn less than €100,000 and 49 per cent have a gross income below €30,000. The Revenue Commissioners claim that those earning over €100,000 contribute 24 per cent of income tax. But this figure is inflated because 65 per cent of this category is composed of tax cases (rather than individuals), where married couples are both earning (Revenue Commissioners, 2011: 6). The burden of the tax adjustments is, therefore, falling on low and middle income earners.
Second, the other main area for generating tax revenues has been indirect taxes. Traditionally, Ireland has relied heavily on indirect taxes rather than taxes on wealth or capital, with 44 per cent of its overall taxation being derived from this source as compared to an average of 35 per cent for the EU (Barrett and Wall, 2006). The longer term strategy of the state is to increase reliance on such taxes through property taxes, water charges, carbon taxes and an increased rate of VAT. The 2010 budget introduced a carbon tax and the most recent one for 2012 has increased the standard rate of VAT to 23 per cent. Between them, these two taxes will raise €1 billion annually. In addition, a flat rate property tax of €100 per household has been introduced and water charges will be introduced in 2013. In both cases, there is a promise to structure these taxes according to ability to pay but it is unclear how this will occur.
There is considerable evidence to show that indirect taxes hit the poorest sections of the population harder. One international study, for example, showed that the poorest 10 per cent pay at least twice as much indirect tax relative to their income as the richest (Decoster et al., 2010: 335). An Irish study came to a broadly similar conclusion, suggesting that ‘indirect tax payments for households in the lowest decile amounted to almost 21 per cent of income – the corresponding figure at the upper end of the distribution was 9.6 per cent’ (Barrett and Wall, 2006: 8). Despite attempts to package the new charges with a progressive rhetoric, they represent an intensification of the ‘user fee’ model that forms a core part of the neoliberal approach. Some gestures may be made to provide a minimum level of water for free but the user charges will ease the way to privatization and this eventually will lead to a removal of all social considerations. This certainly has been the pattern with charges for waste collections for domestic households.
Third, the other strategy for closing the ‘structural deficit’ has been to cut public spending but this has also tended to hit lower income groups harder. The largest cut in the 2012 budget was on social welfare and protection, with a projected €812 million in savings. These have been concentrated on lone parents, the unemployed and short-time workers, the elderly and large families. Lone parents have been a particular target of the Labour Minister, Joan Bruton, and henceforth, once a child reaches the age of 7, his or her parent will be deprived of One Parent Family Allowance. They will also only be allowed to earn €60 a week rather than the current €146 before their allowance is reduced. Social welfare for the unemployed was cut the previous year and this year the rental supplement was cut by a further €6 a week. Short-term workers will lose out on social welfare allowances, particularly if they work on Sundays. The fuel allowance for the elderly has been cut, even though Ireland has one of the highest rates of ‘excess deaths’ with an estimated 2,800 passing away due to hypothermia over the winter months (Public Health Policy Centre, 2007). Large families have been hit by a reduction of €19 and €17 a month in children’s allowance for the third and fourth child respectively.
However, in a broader sense the attacks on public services have a discriminatory effect. By definition, the poor are more likely to rely exclusively on these services rather than use others which require private funding. Even during the boom years, Irish public services lagged far behind the growth of the economy and middle income groups were encouraged to find private solutions to make up for these shortfalls (Allen, 2000). Thus, 47 per cent of persons aged over 18, for example, took out private health insurance (CSO, 2010b: Figure 1) and many resorted to private grinds (tuition) for children to gain access to third level education. The cuts have exacerbated this two tier system, though more people are being forced off private health insurance.
At present, 40,631 people are on waiting lists for day care procedures and 14,061 are waiting for inpatient treatment. Most of these will wait over three months and nearly one in ten of those looking for inpatient treatment will wait over two years (HSE, 2011: 26). A survey conducted by the Central Statistics Office (CSO) also shows an increase in numbers on waiting lists, with 8 per cent of the population on a list in 2010 compared to 6 per cent in 2007 (CSO, 2010b: 6). The situation for elderly patients who need long stay beds is reaching crisis point as the state is withdrawing from direct provision via the Health Services Executive (HSE). Table 3 illustrates the wider pattern on closure of public beds and the growth of the private sector. This is now set to accelerate after the last budget as a further estimated 600–900 public beds will close. One result is that 1,100 older people, who are medically in need of a nursing home place and have been through a rigorous means test, are languishing on a waiting list for that bed. They are literally waiting for others to die before accessing a bed.
Beds by category of long stay accommodation
Source: Department of Health, Long Stay Statistics, various years.
Inequality
Of course there has been some debate about how to close the ‘structural deficit’. But that debate has been framed as one about raising extra taxes or cutting public spending. Those for raising more taxes are said to lean to the ‘left’ and those who favour more cuts are said to lean to the ‘right’. In reality, they are both different elements of the same strategy. The low and middle income sectors of the population are carrying the main burden of paying for a banking crisis that was caused by a very small elite group. There has been no serious attempt to impose a wealth tax or to increase the very low rate of corporation profits tax. Even new sources of revenue which are based on the taxation of property do not discriminate against the wealthy but rather seek to raise extra funds from the majority of the population. The result of these policies has been a rise in social deprivation and inequality.
The deprivation rate – which is defined as those experiencing two or more types of enforced deprivation according to a common EU index – has nearly doubled from 11.8 per cent of the population in 2007 to 22.5 per cent in 2010. The most significant increase was among children aged between 0 and 17. Here there was a rise from 24 per cent in 2009 to 30 per cent in 2010. Average household income has also dropped 5 per cent between 2009 and 2010 (CSO, 2011a). These figures are particularly worrying because the Irish entered the recession with one of the highest ratios of debt to disposable income in the EU. In 1995, just before the Celtic Tiger began, the ratio of household debt to disposable income stood at 48 per cent. But by 2008, this had risen to 176 per cent – an increase of 267 per cent (Oireachtas Library and Research Service, 2010).
The lethal combination of rising deprivation, unemployment and high rates of debt is creating a looming crisis in mortgages. Ireland has a high rate of home ownership, with 76 per cent of the population owning their own homes. The cost of houses during the Celtic Tiger years and the fact that banks are charging very high variable rates of interest to re-capitalize themselves are creating a major problem of arrears. Unlike the US, the Irish state has actively opposed a foreclosure policy for fear of creating greater social instability. Yet the problem has not gone away and today 8.1 per cent of mortgages are in arrears for over ninety days and a further 4.3 per cent have been re-structured due to financial difficulties but are still in arrears (Central Bank, 2011). In the longer term, this will lead to further major problems for Irish society.
This pattern of social suffering has also been accompanied by a rising level of inequality. Contrary to official propaganda, not everyone is ‘tightening their belt’. After the crash of 2007, the net financial assets of households fell dramatically but since then they have recovered and surpassed the pre-crisis level. In 2008, the net financial assets stood at €71,876 million but by 2010 they had increased to €117,153 million, representing a recovery of €45 million (CSO, 2011b: Table 3). The distribution of these assets is profoundly uneven but the issue is under-researched. The main source of information on wealth comes from the Bank of Ireland wealth report which was taken at the height of the boom. This indicated that the top 1 per cent of Irish society hold 34 per cent of the wealth, when housing is excluded (Bank of Ireland, 2007). We may safely assume that the bulk of the recovery in financial assets – which includes cash, shares, pension and insurance funds and business assets or liabilities – comes from this sector.
Further evidence of the growth in inequality comes from the latest survey on income inequality. The income quintile share ratio and the Gini coefficient both show an increase in inequality since the crash, with a more dramatic jump between 2009 and 2010. In 2010, the average income of those in the highest income quintile was 5.5 times that of those in the lowest income quintile. A year earlier, the ratio was 4.3. The Gini coefficient showed a similar pattern increasing from 29.3 per cent in 2009 to 33.9 per cent in 2010 as Table 4 illustrates.
Indicators of income inequality by year
Source: Central Statistics Office (2011a) ‘Survey on Income and Living Conditions’ (SILC), Preliminary results for 2010.
Profits are also showing signs of recovery as a direct result of wage cuts. The dry language of the Central Statistics Office makes the point with devastating accuracy.
The operating surplus or profits of non-financial corporations (NFCs) increased from €35.2bn in 2009 to €37.8bn in 2010 … The other main component of value added is compensation of employees or wages and salaries which declined from €37.3bn in 2009 to €34.9bn in 2010. Therefore the improved profit share relates more to a decline in payroll costs for these corporations rather than to an increase in overall value added. (CSO, 2011b: 7)
Investment strike
Some might argue that an increased level of inequality – particularly if it is a temporary phenomenon – might be an unpalatable but a necessary feature of a recovery. From this viewpoint, the crash may represent a sharp adjustment in the relative strengths between labour and capital. This re-distribution of income in favour of profit might encourage investment and help restore confidence in the economy again. But there is little evidence to show that. All indications are that the level of investment by private corporations has shown a calamitous fall and that, if anything, this fall is accelerating. In the period since 2007, the investment ratio fell from a high of 19 per cent in 2006 to just 8 per cent in 2010 (CSO, 2011b). Table 5 illustrates the same pattern in absolute figures.
Gross domestic fixed capital formation (€ million)
Source: Central Statistics Office, Quarterly National Accounts 2011, Table 3.
With investment declining, household consumption reducing and cuts in government spending, it is difficult to see how the Irish economy is set to recover. An optimistic scenario must rely entirely on a strategy of exporting in order to achieve growth. But the simplistic assumption that wage cuts would increase competitiveness and so lead to increased levels of exports is breaking down. In the first instance, those sectors of the economy which had the highest level of exports tended to have the higher wage rates. Thus chemicals and pharmaceuticals which account for the bulk of exports were paying an average of €19.85 an hour compared to an average of €15.11 an hour for all of manufacturing (CSO, 2007: Table 5). But more generally, a reliance on export markets to lead a recovery was based on the assumption that the recession in the global markets would be short lived and that the two main sales areas, the EU (56 per cent of Irish exports) and the US (24 per cent of Irish exports) would recover quickly.
However, the optimism about the fate of the global economy is rapidly diminishing and much of the concern is centred on the eurozone in particular. The debate about the survival of the euro and the position of the peripheral countries within it has only added to the uncertainty. The harsh truth is that the Irish elite gambled everything on being the model pupils of the IMF and the EU and that gamble is coming unstuck. Despite the periodic announcements, that a recovery is just around the corner, the economy has shrunk again in 2011. GDP showed a marginal increase of 0.7 per cent but GNP declined by 2.5 per cent (CSO, 2012: 1).
Conclusion
We are therefore left with an Irish and not a Greek tragedy. In its endeavours to be the best austerity pupil in the class, the Irish government has taken €24 billion out of its economy since 2008 in a series of five harsh budgets. That is the equivalent of 16 per cent of its GDP and represents the biggest fiscal adjustment of any advanced country in the past thirty years (Whelan, 2011). It thought that by doing so foreign markets and foreign investors would come to its rescue and that it could pay off a ‘manageable’ debt. However, the over-optimistic predictions about growth have come unstuck and Ireland’s debt is rapidly becoming unmanageable. This becomes clear if we use GNP rather than GDP as the measure for the size of the Irish economy. In most countries, it makes little practical difference but in Ireland GDP is inflated by the transfer pricing practices of multinationals and it suffers from a high level of profit repatriation. If GNP is the measure used, the Irish debt is scheduled to peak at 150 per cent by 2013 and even that is based on modest hopes of some growth. Should that occur – and it seems the most likely scenario – then Ireland will enter the same territory as Greece. The only difference is that its population will have made huge sacrifices to gain the prize for the model pupil of the IMF and EU. When they unwrap the packaging, they may very well ask why they bothered.
They may also engage in far more resistance. Up to now, the Irish government has won praise in elite circles for its ability to manage social discontent and many commentators have also asked why there has been so little protest. In reality, there have been considerable protests but they have tended to be highly sectional and have not broadened into an overall assault on state policies. Large numbers of pensioners and students have taken part in national protests; public sector workers have gone on strike for a day against wage cuts; and there have been huge local mobilizations against hospital closures. The principal reason these protests have not escalated or generalized is because of the structures of social partnership which have been in place since 1987. These involve the union leaders in an alignment of their policies to the needs of Irish capitalism. At present the unions have accepted wage cuts and a huge reduction in public sector numbers in return for job security. However, the growing problems of the Irish economy mean that the government will probably come back for more and this could unravel the Croke Park deal – named after a famous football stadium where it was negotiated – which has been the main reason why there has been so little response from organized workers. Moreover, the discontent in Irish society also appears to be seeking other channels. A huge boycott campaign is under way against new household charges and redundant workers have started to occupy places of work. It is by no means certain that the government will get away with its boast ‘We are not like the Greeks’ for too long.