Editorial: Ideology and the Economic Crisis – The Impossible Things We Are Asked to Believe about the Economy

The Citizen: Issue 2
September/October 2009

In her article in this issue of The Citizen discussing the ideological class struggle being waged over the economic crisis, Ann Kelly tells us that like Alice we are expected to believe six impossible things before breakfast. It is not difficult to agree with her. The daily flow of pro-market, pro-capital messages that are presented as news and opinion in both print and broadcast media is relentless. For those of us who do not believe that market forces can either efficiently organise the economy or fairly distribute the socially created wealth, this tide of partisan ideas presented as common sense is both an urgent challenge to come up with a meaningful response and a difficult context for our efforts to build an alternative. The Citizen aims to play a part in the battle of ideas about the economy and society, firmly on the side of a theory and practice that recognises the social basis of all human activity and that promotes democracy, justice, and equality in all human affairs.

If there is any doubt about the day-to-day prosecution of this ideological struggle, a few examples should dispel them. On a recent Pat Kenny Show on RTÉ Radio 1, twenty minutes were spent discussing the minimum wage: the sole interviewee was Gerry Robinson, a wealthy, English-based businessman of Irish origins. Not surprisingly, he argued for a reduction in the minimum wage while defending enormous executive salaries as necessary to retain the ‘best’ people – in this, he was ably supported by Pat Kenny. This is neither proper journalism nor real debate: choosing Robinson ensured that the correct message would be delivered.

This is similar to the position of Colm McCarthy’s Special Group on Public Service Numbers and Expenditure Programmes: the group is not an independent committee of experts tasked with considering all aspects of a question and coming up with possible solutions. On the contrary, McCarthy and the others were chosen because it was already known what answers they would provide. They did not disappoint their political and official sponsors, the same people who will now implement the recommendations of the report. On a daily basis, we are asked to accept the views of bodies such as the ESRI, the IMF, the World Bank, the European Commission, the European Central Bank, and the OECD as objective and authoritative independent opinions. Of course, this is a complete fraud: these organisations all share the same neo-liberal and pro-market assumptions, and their proposals and remedies are neither neutral nor the product of unbiased reason.

Elsewhere, radio programmes such as RTÉ’s Morning Ireland and Newstalk’s The Wide Angle and newspapers such as the Irish Times and the Irish Independent act as cheerleaders for the tenets of neo-liberalism and capitalism. While their programmes and columns are filled with proponents of this belief system, the very few alternative voices are treated with a mixture of extreme scepticism and exasperated tolerance. How could anyone think that civil servants are not overpaid; that the minimum wage is not too high; that social welfare rates are not too generous; that government spending is not unacceptably high? These ideological assumptions are now so deeply rooted that for their proponents any challenging views are almost unintelligible, as if spoken in an unknown language. This type of journalism, which tells us, for example, that we all know that McCarthy’s cuts are necessary and unavoidable, is not about free and open investigation, consideration, and conclusion – it is an exercise in disseminating a message; it is activist in promoting the policies and desired outcomes of the establishments in Ireland and Europe.

Systematic questioning of the impossible things we are asked to believe by the establishment pundits goes a long way to exposing the poverty of their worldview. While there is no question that the Republic’s Gross National Product (GNP) – a measure of the total value of goods and services produced by Irish workers in any period – has decreased sharply since 2007, what the implications of this should be are not as simple as the pundits would have us believe. The Central Statistics Office figures show a 2.1% decrease in GNP in real terms (i.e. when GNP is calculated at constant prices to eliminate the effect of inflation) between 2007 and 2008. A much larger decrease is predicted from 2008 to 2009, with a further significant decrease in 2010. This means that in 2008, Irish workers produced €4.5 billion less goods and services than in 2007. Clearly, something has to give in this situation – but, the question is what, and that is precisely what the ideological struggle being waged by the Irish establishment is about.

Brian Cowen has suggested that by the time the Republic emerges from the recession, the economy will be performing at 2002 levels. In terms of GNP this would be 22.6% less than for 2007; or €124.7 billion as against €161.2 billion in 2007, a decrease in the wealth created in the economy of €36.5 billion per year. This is a huge fall in the amount of wealth available to Irish citizens, and it is reflected in the budgetary situation facing the government. As the economy grew up to 2007, government spending also increased – current expenditure by the government (that is spending on the day-to-day running of the country, excluding capital expenditure on infrastructure, buildings, and other fixed assets) increased from €22.6 billion in 2002 to €27.2 billion in 2007 – but revenue also grew rapidly in this period as employment, construction, and consumption provided more taxes. For 2007, the IMF data for the Republic showed government revenue of €65.1 billion and government expenditure (current and capital spending taken together) of €64.6 billion. The consequences of the recession include a sharp decline in government revenue, which presents a number of options for government policy: these are principally to maintain expenditure by increasing revenue (by raising taxes or borrowing more) or to cut expenditure.

These statistics and options are the parameters in which the establishment is conducting the debate about the economy. It is a narrow and selective presentation of the economic data, and it is driven by ideology and the pursuit of self-interest (class interest). Before addressing the issues of ideology and interests, it is necessary to expand the parameters of the economic debate. The first important fact is that Irish GNP is, even in this recession, at historically high levels – in other words, there is more wealth being created by Irish workers than at any time previously. At 2002 levels, Irish GNP would be at €124.7 billion. Secondly, GNP per capita is also at historically high levels: using Cowen’s 2002 yardstick, GNP per head of population will be €31,844 per annum at the end of the recession. If we use an even more revealing figure, GNP per person in employment will be €70,535 per annum in 2011 or thereabouts. Thirdly, government spending as a percentage of GNP in the Republic has historically lagged behind other European and developed countries – this means that public services cannot be provided at the same level as elsewhere and that there is less scope for redistribution of wealth (not surprisingly, the Republic is consistently rated as one of the OECD countries with the greatest income inequality).

In a comparative study of OECD countries for 2003 and 2004, Forbes magazine showed that the overall tax burden in the Republic was lower than for all the other EU countries surveyed (Sweden, Denmark, France, Italy, Britain, Spain, Greece, Germany, Poland, and Portugal, amongst others, all had a higher tax burden – and therefore higher government spending). Because governments also borrow money, government spending is generally ahead of tax revenues. Taking this into account and using GNP figures for the Republic, the smaller size of the Irish state in terms of both taxes raised and government spending is confirmed. [Gross Domestic Product is the value of all goods and services produced by workers in an economy. Because government policy of relying heavily on foreign investment in the Irish economy means that a higher proportion of GDP in the Republic is repatriated by foreign companies, economists generally consider that Irish GDP is too high and does not represent a good picture of the wealth available to Irish citizens. Gross National Product excludes the income of foreign companies in the Republic and includes the income of Irish companies abroad. GNP is therefore regarded as a more useful comparative figure for the Republic.] Eurostat figures for 2005 show the Republic’s government spending at 34.5% of GDP, the lowest in the EU – an approximate figure for GNP would be 40%, which is still lower than all EU states other than Latvia and Lithuania (Sweden’s government spending was 56.4% of GDP, Britain’s 44.8%, and France’s 53.9%). Fourthly, the contention that labour costs in the Republic are out of control and significantly ahead of other EU and OECD countries cannot be accepted at face value. Meaningful comparisons in this area are notoriously difficult: income distribution, cost of living, structure of the economy and employment, and productivity levels are among the factors that must be brought to bear on any calculations. Nonetheless, Eurostat figures show labour costs in manufacturing at approximately 25% below rates in the EU and US in 2002. Finally, as mentioned already, inequality in the Republic is greatest of all EU countries in the OECD and close to US levels – it is significant that Britain comes in as the second most unequal country in the EU: the Republic shares with Britain and the US an ideological preference for privatisation of as much social provision as possible and a hostility to ‘big’ government.

Using these facts about the Irish economy to expand the narrow focus of the official discourse about the current economic crisis, we can say something meaningful about this discourse on two levels: we can criticise it on its own terms; and we can begin to unpick its ideological basis. The two are, of course, closely connected and interdependent.

Every first-year student of political science is told that one of the most useful definitions of politics is that it is the means of deciding who gets what, when, and how. In neutral terminology like this, the definition is not considered controversial. But, if we use different language, it becomes more interesting. What students learn is that politics is about determining the distribution of wealth – Marxists call this class struggle: groups of people with specific roles in the production of wealth and with specific interests in how that wealth is distributed are in continuous struggle over what is produced, how it is produced, and how it is distributed and consumed. If this is regarded as self-evident when advocated by a professor of political science, why is it so fiercely resisted when the language of class is used?

All the exertion of the official discourse is about asserting a particular set of interests and a particular ideological view about how the wealth created by workers should be distributed. The politicians, the media, the academics, the bureaucrats, and others who are part of this discourse present as irrefutable common sense what are, in fact, partisan arguments that defend the status quo. They insist that capitalism is the only basis for organising the economy and society and advocate the interests of those groups that appropriate a disproportionate share of the socially produced wealth.

So, when we are told that the economy is shrinking significantly, that government spending is far too high and government borrowing becoming unsustainable, that the economy is becoming uncompetitive, that workers are being paid too much, that the minimum wage must be lowered, that social welfare rates are too high – well, we should know that this is not common sense, it is the agenda of an ideology that serves the interests of a small class in society.

Returning to the figures, one of the most striking revelations is the high level of wealth per capita being created by workers. At 2002 levels (or post-recession levels, according to Brian Cowen), this amounts to €31,844 per annum for every man, woman, and child in the population; and to €70,535 per annum for every person in employment. If we apply this to the different types of households that make up Irish society, we might be inclined to ask where the crisis is. If every household with two adults and two children received €127,376, with just two adults received €63,688, or with a single person received €31,844, the levels of overall welfare and well-being would be hugely different than they are now. Using the figure for every person in employment and allowing for an unemployment rate of 10%, then, at this level (2002 levels, or post-recession levels according to Brian Cowen), every adult would have an income of €63,481.5 per year if the socially created wealth was distributed equally. This hardly looks like a crisis – so, when there is so much wealth available, why is there so much hardship during this recession and why are there so many real problems for the economy and society? While this might look like a rhetorical question (the answer seems obvious), it is a question that the official discourse does not address and cannot answer.

These problems persist, aggravated and heightened at times of recession, but always present, because of the way society and the economy are organised. Capitalism insists that socially created wealth should be treated as the product of individual effort (including intelligence, luck, aggression, skill, selfishness, etc.) and individuals should be able to appropriate for their own private use as much of it as they can. In this upside-down view of the world, the mantras that ‘we are all in this together’ and ‘we must all share the burden of the recession’ mean that someone in RTÉ earning €500,000 might take a pay cut down to €450,000, someone on €31,844 might be cut back to €28,660, and someone on basic social welfare might be reduced from €204 per week to €183.6. Sharing the burden fairly means that the RTÉ star will see no change in lifestyle (unless they are drinking €300/400 bottles of wine every week), those on average wages will find it increasingly difficult to meet their ordinary commitments (housing, utilities, food, clothing, etc.), and those on or below minimum wage or on welfare will have to eliminate items from their weekly expenditure (eat cheaper food or less food, make clothing and shoes last longer, use less heating and light, stop buying the €5 bottle of wine). If this appears fair in the worldview of capitalism and the Irish establishment, it does not seems so from a republican understanding of the common good or a Marxist understanding of the social basis of all wealth creation.

The reason that the establishment is united on the need for cutbacks in workers’ pay (though they are much more hesitant about cutting executive pay); for cutbacks in government expenditure (including on health and education); for cutbacks in the minimum wage and social welfare rates; and for increases in taxation that affect those on the lowest incomes (to the extent of drawing low income earners previously outside the tax net into the new levy deductions) is that they wish to preserve the present system. They are also the people who gain most from the way capitalism distributes wealth.

The alternative to the cutbacks now being pursued is to be found in the figures for the Irish economy detailed earlier. If government spending amounts to 40% of GNP, then 60% of the wealth produced by workers is still available in the economy. How that wealth is distributed is a matter that we as a society have the power to decide. But, in different ways we have ceded this power to interests and classes that make these decisions over our heads. For example, in the cumulative cession of powers to the EU to date, the Republic is bound to adhere to neo-liberal economic principles (including reduced government, free trade, competition, low levels of government borrowing, etc.); cannot change interest or currency rates to suit our needs; and cannot freely intervene in the economy to promote the common good because the rules of the EU’s economic and monetary union stipulate that the government deficit (the amount by which expenditure exceeds revenue in the budget) should not exceed 3% and government debt (the ratio of debt to GDP) should not exceed 60%, while government support for employment is severely limited since it is regarded as anti-competitive (for example, if the government wished to support employment in a company threatened by the recession, thereby saving on social welfare payments and preserving tax revenues, it would face possible legal action from other companies and intervention by the European Commission on the grounds that such supports were anti-competitive).

In our laws, we have consistently protected private property against the common good: from the Democratic Programme to the Constitution, the common good has always been asserted in a way that protects property rights. In Ireland’s full operation of capitalism and neo-liberalism, we have ceded huge powers to big business and finance: the situation with the Irish banks is a pertinent example. These banks, in a cosy and mutually beneficial relationship with developers and speculators, may have lent recklessly to the extent of leaving themselves practically unviable in this recession; but, because our economy is integrated into the global system of capitalism, the consequences of allowing these private profit-making businesses to fail may be very damaging socially. If it is the case that the government and Irish businesses would not be able to borrow money internationally, that foreign investment in Ireland would be threatened, and that even foreign trade might be impeded by a collapse in these private banks, then it would seem that being part of this system makes us dependent on it in ways that seriously undermine our freedom and well-being.

But this dependence does not justify the government’s response. The National Assets Management Agency proposes to use large amounts of the wealth produced by workers to bail out the shareholders of the banks and the speculators who deposited money in them, now that their reckless lending has left them facing huge losses. This reckless speculation was also socially destructive: it drove up house prices, creating the now collapsed property bubble and leaving many households with punishing debt – and it should be remembered that the bankers, the speculators, and the builders and developers aimed to extract their inflated profits from workers earning ordinary wages. Nationalisation of these banks, taking over their assets as well as the bad debts, without compensation, and without a view to re-privatising them once they have been returned to profitability, would be a more just response and one serving the common good. The establishment of a state bank to use capital to promote economic and social development for the common good, not greedy speculators, would also be welcome: instead of the wealth created by workers being used to enrich the few, it could be used to promote employment, support pensions, provide affordable housing, and generally encourage economic activity that increases societal well-being.

While we are discussing banks, speculators, and their reckless pursuit of profits, it is worth restating that all wealth is the result of production by workers. This is the critical issue in deconstructing the ideological mystifications of the supporters of capitalism and free markets. One of the impossible things that they ask us to believe is that bankers, financiers, and speculators can create wealth through devising ever more complex ways to invent and sell financial products, which are essentially concerned with packaging and repackaging debts and selling them to gain a profit. But, the inescapable reality is that all debt and all paper money must finally be realised in what is produced by workers – there is no other basis for any wealth. In many ways all debts are a promise to pay a specific amount of future production over to the lenders in return for the loan now. What this means is that the bankers, financiers, and speculators who extended credit recklessly and created the unsustainable web of financial products were actually laying claim to ever greater shares of the wealth produced by workers; not only wealth produced by workers now, but wealth produced by workers far into the future. The shabby and shameless greed at the heart of this money grabbing can be seen in the sub-prime mortgage lending whose collapse marked the start of the current financial crisis – here, some of the richest individuals and corporations sought to earn enhanced profits by lending to some of the poorest people. This is one of the truths that the ideology of capitalism works to conceal from us. Another is that the creation of the huge market in financial products can be best characterised as one of the greatest robberies in history: by selling and reselling debts, the bankers, financiers, and speculators intended to arrogate to themselves larger and larger proportions of the socially created wealth. Because these financial products create no wealth in themselves and are socially useless, those who must service the debts that underwrite them must extract ever more wealth from workers – so, developers must charge ever higher prices for houses or manufacturers must expropriate ever more of what their workers produce (either through increased productivity or reduced wages). Workers receive a decreasing share of the wealth they produce in order to pay for the ‘fictitious’ profits created by the finance houses. The role of ideology and ideologues is critical in disguising this theft.

Ideology always serves an interest – even when it is genuinely held and believed. Some may honestly believe that private property, small government, free markets, and competition are in the common good and will lead to the most efficient use of resources, the greatest possible creation of wealth, and the highest possible levels of income for all, but this does not mean that such beliefs do not serve an interest. In this recession, these ideological values are being reasserted and protected at the very moment that they have proven unsustainable on their own terms and when the ideologues have almost all demanded state intervention. It may have all the appearance of unreality that Wonderland had for Alice, but those who gain most from capitalism and free markets will do whatever they can to preserve them. And the degree of success they have had can be seen in the fact that not even the left-wing parties in the Dáil (Labour and Sinn Féin) believe that there is an alternative to capitalism: they want to tweak it around the margins to make it fairer and mitigate its worst excesses, but they still believe it is the only viable form of economics.

As already noted, 60% of GNP remains outside the government sector and beyond any form of social control. Without altering the capitalist basis of the economy or interfering with its principles of free markets and competition, it would be possible for the government to claim a greater share of this wealth and use it to further the common good. It could maintain and improve education and health services; it could uphold and increase social welfare and pensions; it could stimulate and increase employment. Such a policy would not constitute a revolution; it would not significantly reduce the inequalities in society; it would not recognise that all wealth is socially created and should be distributed and consumed accordingly. The fact that France, Britain, Sweden, and others all have much greater levels of government spending shows that such an option for the Republic would not be very radical, but it still seems a step too far.

Bringing 100% of GNP under full social and democratic control would be a far preferable solution. All wealth is created socially by workers – it should be distributed and consumed accordingly. Only in such an organisation of the economy and society can we eliminate the socially and individually damaging consequences of the current ways of doing things, so clearly evident at a time of crisis and recession, but always present at other times, preventing people from realising the full potential of their lives and limiting the development and flourishing of human society as a whole. If politics is about deciding who gets what, when, and how, why do we persist with ideologies that limit our freedom to make these decisions in a democratic way in the interests of all? We can start the long struggle to change this situation by challenging the ideology that is constantly advanced by the establishment in Ireland and by insisting that there are alternatives. The figures discussed here show that even on its own terms capitalism is a system that is inherently damaging to the common good and human well-being.

Copyright © The Citizen and the contributors, 2009