After Neo-liberalism

The Citizen: Issue 3
Autumn 2010

Author: Jack O’Connor

The ‘Shock and Awe’ description attributed to the €750 billion package agreed at the meeting of EU finance ministers on 10 May 2010 was appropriate in more ways than one, given that it was originally used to describe the tactics employed in the illegal military invasion of Iraq. There was also unconscious irony in using the term to describe measures supposedly adopted to protect the eurozone states threatened with potential sovereign default, because they had no more to do with helping vulnerable peripheral economies than the invasion of Iraq had to do with finding weapons of mass destruction.

People should be in no doubt that it is a rescue package for the banks, especially the German and French banks – a point made more than once by economist David McWilliams. Reflecting the herd mentality, the news was ecstatically received in the financial markets on Monday, 10 May 2010. In the twisted logic of the ‘financial industry,’ this is quite consistent with the practice of being guided by the credit rating agencies, which are little more than vehicles for making money out of advising speculators on where to make the next quick buck. These agencies are the same institutions that saw nothing wrong with sub-prime lending, thus contributing enormously to the collapse of 2008.

It did not take too long before the financial markets began to think through the implications of the draconian austerity measures associated with the rescue packages for the medium- and long-term economies of the countries affected. Consequently, the euro had hit a four year low by the end of the week. The reality is that without countervailing measures this strategy will plunge more economies into recession and depression.

All of this dramatically highlights the fragility of European Monetary Union in the absence of political union. Whereas a great deal of ambiguity still exists around the measures being formulated to reinforce the credibility of the system, all the indications are that this entails the worst of both worlds. In other words, we are witnessing the enforcement of strictly orthodox financial criteria, reflecting the interests of the dominant banking institutions at the centre of the European economy, with no acknowledgement of the need for parallel provisions to redistribute resources, stimulate activity, and overcome the inevitable consequences of peripherality and underdevelopment in a community of such disparate states. The need to factor in this dimension is critical to the cohesion of monetary union and the long-term political health of the EU project.

There are enormous implications for ordinary citizens in peripheral countries such as Ireland. In the absence of the avenue of devaluation, the only alternative route is to simulate it through wage depression. This is the experiment that is under way here, with consequent implications that inevitably pose the threat of prolonged depression.

This is unfolding in the context of an ongoing crisis from which the global economy may be emerging, albeit laden with an unprecedented burden of debt that still threatens to engulf humanity. It is not so long since proponents of free market capitalism were crowing about the end of history in the aftermath of the fall of the Soviet Union. These days, it is looking increasingly as if we are witnessing the end of capitalism. It is too early to pronounce on that, but it is clear that in its current manifestation, which has prevailed for over a quarter of a century (and which would probably have offended Adam Smith as much as Karl Marx), it certainly does not work.

The idealistic notion of the free market has given way to the predominance of a bonus-driven autocracy, dominated by the most powerful players in the financial services industry, who eschew business ethics, morality, and the law. Regulations were made up as they went along, always facilitating and reflecting the interests of the dominant faction.

This is not, of course, the first time that capitalism as an economic model has collapsed; nor, indeed, contrary to common perception, is this the first age of globalisation. Similar dramatic examples of boom and bust existed for much of the nineteenth century and were accepted as almost as immutable as the weather.

The current crisis is, however, the greatest collapse since the 1930s, which means we are living through one of the most frightening periods in human history, because the depression of the 1930s resulted in the rise of fascism and World War II, the greatest conflagration in human history. That was a salutary lesson in the ultimate consequences of the unfettered dictatorship of the market. However, this crisis is equally a period of great hope because of the possibility of bringing about a better paradigm.

The Current Challenge to Democracy

All of this brings into sharp relief the question of democracy: the collective influence of humanity, democratic accountability, and regulation. The reality is that the global market has long since outgrown and increasingly displaced elected institutions in determining the course of human history. The insiders at the top of the banking system, globally and nationally, have been getting on with the business of dictating the agenda in an increasingly undemocratic, consumer-oriented world. This is even reflected in the language we use, in which consumers and clients with purchasing power have replaced the concept of citizens with inalienable rights.

Contrary to the prevailing wisdom, democracy and capitalism are not synonymous. The emergence of capitalism required democracy to challenge the old ruling class based on feudal privilege and ownership of land; but globalisation, consolidation, and the development of global monopolies have now outgrown democracy and are increasingly at odds with it. Salvation will be found in the reinvigoration of democracy and the reassertion of the concept of the public interest. However, this is easier said than done against a backdrop of the prevailing consumer culture and the dominance of private vested interests in the media and communications. There has been a parallel decline in volunteerism, while the power of branding and marketing has heralded the supremacy of slickness over substance.

Democracy is not dead, but it must be understood and practised in its proper context as the vigorous everyday interplay in an open society of the myriad of organisations and institutions through which people articulate their interests and not simply as restricted to voting in elections once every five years. When the definition and practice of democracy is restricted to the outcome of elections held at long intervals, it is increasingly vulnerable to the dominance of powerful vested interests with limitless resources to manipulate the media and political parties, in the same way that the patricians bought and then buried the Roman Republic when the chief magistrate became the imperator (or emperor).

Amidst all this enters the trade union movement, still the largest-membership civil society organisation in most western countries (albeit declining, but rapidly growing in the East). We are, embryonically, the vehicle for the interests and, perhaps, even the aspirations of the largest proportion of people in society. As such, we bear an obligation to assert the principle of the primacy of democratic accountability and popular participation, both globally and nationally. However, given our scale and social composition, we also reflect the disengagement and atomisation that characterises the prevailing consumer culture. Indeed, in many respects, parallels can be drawn between the demise of the US labour movement, both in terms of density and participation, and the recklessness of the financial aristocracy coupled with the reflection of their value system in popular political culture.

Of course, trade union organisation worldwide has been severely affected by the explosion in the number of vulnerable workers arriving in the global market place since the fall of the Soviet Union, particularly when migrant Chinese workers are included in the calculation. This has shifted the balance in the industrial world much further in favour of capital and to the detriment of working people.

Redressing this requires a global as well as a national response, with an emphasis on building the nascent global union federations, which must be capable of mobilising members in their role as citizens as well as producers and consumers of goods. It is an awesome task, but no more so than the challenge faced by the Tolpuddle Martyrs in 1834 or by the heroic men and women of Dublin who suffered and starved throughout the cruel winter of 1913-1914, simply to assert their right to organise in Larkin’s union.

Making Our Own History

Global questions are decided globally, but we make our own history in our own place. Many in the republican tradition attribute the domestic economic collapse to the folly of participation in the euro project, pointing to the contradiction of lower interest rates in an over-heating economy and the absence of the lever of devaluation in the current crisis. They may be correct, but this evaluation is distorted by the disastrous role played by the right-of-centre Fianna Fáil-Progressive Democrat governments since 1997.

Readers will recall that this government inherited a growth rate of 11.5 per cent, which was creating 1,000 new real jobs per week. Free third-level education had been achieved. Eircom, still in majority state ownership, was as well capitalised and as technologically advanced as any telecom company in the EU and better than most; and it was poised to capitalise on the emerging communications revolution. We had qualified for participation in the eurozone, with its enhanced market access and the availability of low-interest capital for sustainable investment.

Viewed in retrospect, the FF-PD government’s record resembles the progress of a swarm of locusts across a country side of hard-won crops. The new administration set about systematically dismantling the tax base in the interests of the wealthy. Eircom was sold off, ultimately falling prey to corporate raiders. Consequently, rather than being at the forefront of the communications revolution, we are now among the also-rans on broadband access, while the future of Eircom is increasingly in question.

Three banks (one of which the state did not even own) were sold off. Of course, as we now know, the Fianna Fáil-PD alliance had another policy for banking. Tax-incentivised property speculation became the order of the day, complemented by a policy of ‘look-the-other-way’ regulation. This resulted in the accumulated net foreign debts in our banking system rising from the equivalent of ten per cent of GDP in 2003 to sixty per cent of an artificially inflated GDP in 2008, mostly, as we found to our cost, to fund speculative investment in property.

Our new rulers even developed a ‘reward-the-better-off’ system, incentivising people who could afford to do so to save up to €250 a month in return for a twenty-five per cent state premium – all so that it could be pumped back into the economy during the twelve months preceding the general election of 2007. (The trade union movement argued for the development of an incentivised pension scheme, which could have supported sustainable economic growth while simultaneously providing incomes in retirement in a country in which half of the workforce has no such provision whatsoever.)

To put the tin hat on it all, they added fuel to an overheating economy by refusing trade union demands for enhanced employment legislation to combat exploitation prior to Ireland becoming one of only three countries to open their borders to workers from all ten new EU member states from 1 May 2004. This created an exploiter’s paradise, aggravating an overheating economy that might otherwise have been cooled by increasing labour prices.

The opponents of the euro may be correct, but the experience of the last decade does not demonstrate that membership of it is incompatible with the well-being of our small economy. It merely proves that the ‘get-rich-quick,’ ‘swashbuckling winner-takes-all’ approach to economic management is incompatible with monetary union.

The Role of Trade Unions

But what was the role of the trade union movement in all of this? After all, it was a participant in the social partnership project, which, it could be argued, entailed either endorsement of or at least ostensible acquiescence in what, viewed with hindsight, amounted to a disastrous public policy.

The question reflects a fundamental misunderstanding of the process itself, vigorously cultivated by critics on both the left and the right for diametrically opposing reasons. People on the left opposed social partnership because they saw it as compromising trade union organisation and the development of workers’ consciousness. The right saw it as providing the trade union movement, which they detest, with some influence on public policy as well as promoting better pay and conditions for all workers, including those not organised in unions. Both sides overstated the case.

The social partnership process developed against a backdrop of the domestic economic depression of the 1980s, when there was a coincidence of interests in promoting economic growth. Its success in that regard provided momentum, and it became central to employer-union bargaining and dispute resolution. Its influence on broader public policy was never more than minimal and never compared with the lobbying capacity of powerful interests in the media and business community. Public policy was determined exclusively by the tragic outcomes of the general elections of 1997 and 2002, which provided the right wing of Fianna Fáil and the Progressive Democrats with maximum leverage. The electorate decided the parameters, and we tried to make the best of the outcome.

However, we did endeavour to offer an alternative vision opposing: pro-cyclical tax cutting during the boom; tax shifting (i.e. moving taxes from direct to indirect sources); unsustainable tax breaks for property investment; deregulation and privatisation; and the concept of growth for growth’s sake. All this went largely unnoticed because it was confined to pre-budget submissions and position papers.

More visible trade union endeavours, both within and without social partnership, were concentrated on pay and living standards. This was accompanied by the struggle to enhance legislation protecting employment, including pensions, in the context of an accelerating ‘race to the bottom’ in a labour market experiencing an increasing number of migrant workers.

But the movement did not develop any independent research institute, much less a newspaper, journal, or other media outlet to contest the ideological space in the realm of ideas. Working people have paid dearly for this omission, especially in the period since the financial collapse of 2008. In summary, the problem was not participation in social partnership itself – it was the delusion that the strategy could serve as an alternative to continuously nurturing solidarity and building a powerful trade union organisation. This would have required a response in structural, organisational, and communications capacity to compensate for the absence of the cut-and-thrust of workplace pay-bargaining. Tragically, it never happened.

There are issues for the trade union movement, however, that need to be understood and addressed irrespective of the existence or not of social partnership. These relate particularly to the fragile nature of the trade union coalition. This is especially evident in the context of the coexistence of sometimes quite narrow vocational interests with the broader social solidarity objectives of the movement. While these tensions do not threaten cohesion and can sometimes generate a creative tension in the movement, they can also compromise its capacity to serve as a democratising influence in society. All of this presents a fundamental institutional challenge to us in terms of organisational structures, outlook, and direction. Some unions are struggling to respond to it, albeit hampered by limited resources and declining membership (although, ironically, density is increasing) in the context of falling employment.

We should not forget that the trade union movement played a crucial role in the struggle for national independence and the assertion of Irish sovereignty. But socialists never saw independence as an end in itself but as a means to giving working people greater control over their lives and the economy and achieving social equity, which are critical to the attainment of a better life for all.

Nostalgic identification with ‘our own money’ should not be confused with the means to a better life. The freedom to devalue would serve as a double-edged sword in the current environment, automatically multiplying gross national debt and consequently increasing the cost of borrowing, resulting in escalating interest rates or worse. While global debt restructuring is an increasing possibility, default by a small country offers no panacea, only a one-way ticket to a Stone Age economy. There are no short cuts on the road to the reassertion of democratic, popular control over the private ramparts of the banking system – nor are those ramparts unassailable. The key lies in the reinvigoration of democratic institutions, not just on a national but also on a European and international scale. Trade union organisation nationally and at EU level is critical for success, just as the trade union movement played a pivotal role in opposing fascism in the 1930s and 1940s and in subsequently building the social market, which provided the longest period of growth and improvement in living standards experienced by ordinary working people in the history of humanity.

The freebooting international banking system is the new threat we face. It, too, is incompatible with not only the creation of a global social market but also the restoration of any sustainable degree of stability to the world economy. We must unremittingly expose the absurdity of a system in which the future of humanity turns on the whim of a handful of speculators in the money market, whose decisions are informed by credit agencies that are themselves creatures of this parasitical network. Experience has demonstrated that it is only by rebuilding an organising, campaigning trade union movement, which can ally with similarly focused and resurgent social democratic and left political parties, that an instrument of popular democracy will be forged that can tame the monster.

Jack O’Connor is General President of SIPTU, and President of ICTU.

Copyright © The Citizen and the contributors, 2010