Wednesday 20 February 2019

The case against social partnership is overwhelming

Brendan Howlin
Brendan Howlin
Dan O'Brien

Dan O'Brien

According to the Constitution it is the Oireachtas and the Cabinet which govern this country. But for many years after 1987, a widening range of government decisions were made by interest groups negotiating behind closed doors in the social partnership framework.

To describe this as unconstitional or undemocratic would be to go too far, but the history of partnership raises issues that need scrutiny. They need all the more scrutiny because the Coalition is now proposing a new framework to give interest groups more say in government decisions.

Earlier this week Minister for Public Expenditure Brendan Howlin spoke of creating a "national economic dialogue" covering tax and public spending. He also said - ominously - that the dialogue would include public sector pay, just as did the past incarnation of social partnership with disastrous results.

The most serious concern about such arrangements is that they undermine the parliament, which should be the first among equals of the branches of government. That is of particular concern in Ireland because the Oireachtas is an unusually weak parliament when compared to our peer democracies (I recall a foreign diplomat once describing it derisively as "a Mickey Mouse" parliament).

In the era of social partnership up to 2008, law makers were effectively presented with faits accomplis. TDs and senators had absolutely no influence over deals struck, not least because if they demanded changes the entire package might have unravelled. Worse still, those who raised questions about the functioning of partnership were shouted down and had their motives impugned.

Because social partnership structures are inclined by their nature to undermine parliaments, I am instinctively sceptical of them. That said a pragmatic case can be made for them if they prove to be effective.

Looking at other countries is always instructive when considering matters such as these. The classic case is Austria, as it has one of the most extensive social partnership arrangements in the world.

There are many critics of social partnership in Austria, including those who say that it has given some interest groups huge and unaccountable power while locking others out of the process altogether. The rise of extremist parties in Austria over more than two decades is, in large part, linked to their tapping into discontent among the excluded. But advocates point to its apparent effectiveness - never in more than 50 years has Austrian unemployment risen above 6pc. This is a truly astonishing and unique record, and one which has trumped all concerns about social partnership's democratic legitimacy.

Austria's extraordinary success at keeping unemployment low and stable is to a considerable degree because of the capacity of the social partners - notably employers and trade unions - to agree a shared analysis of how the economy should be managed and then ensure that their members do what is needed to implement what they agree.

By contrast, Ireland's social partnership never generated any deep agreement on economic management issues, as its collapse within a very short time of the crash demonstrated. Such a fair-weather arrangement is worse than useless, as it delivers all the downsides of partnership (give-aways to insiders) and none of the upsides (being able to manage crises more effectively).

There is no reason to believe that the main interest groups have developed a shared analysis of how the economy should be managed or that business and trade unions have recently generated the internal cohesion to persuade their respective memberships to do things that they instinctively oppose.

Given all this, the case for a "national economic dialogue" is very weak. If such a dialogue were to include public sector pay issues, there are rock-solid reasons to oppose it tooth and nail.

Among the most damaging aspects of partnership up to 2008 was the manner in which public sector trade unions were allowed to grab an ever-greater share of the national pie.

Over the years of the bubble from 2002, the public sector pay bill rose from €11.7bn annually to over €20bn. That increase was far ahead of the increase in either the size of the economy or total government revenue.

Not only did the public sector take for itself a much larger share of public resources, it did so despite a large chunk of those resources being transitory as they came from the property bubble.

It cannot be stressed enough that while public sector workers have taken pay cuts since the crash, they have hung on to most of their bubble-era gains - the public pay bill in 2014 was still more than 50pc higher than when the bubble began in 2002.

The still-bloated size of the pay bill can be seen best when we compare it with the rest of Europe. In 2012 (the last year for which comparable figures are available) Ireland's bill stood at 11.5pc of GDP. As a share of GNP, often considered a better measure of the real size of the Irish economy, it stood at 14.1pc. That was the sixth-highest level among the 28 members of the EU.

The size of pay increases up to 2008 were utterly without justification. "Restoring" them now, as unions are seeking, is unjustifiable given the perilous state of the public finances and the spending pressures generated by population growth. To give already well-paid public servants more money would be grossly inequitable and an inefficient use of very scarce resources. It should be resisted.

Irish Independent

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