Sunday 17 February 2019

Bosses, unions and the state must unite again to drive recovery

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Sean O Riain

After the economic crisis of 2008, the 'social partnership' was cast as one of the villains of the drama of Irish bubble and bust. However, partnership in various forms remains common across Europe's most successful economies and can play a key role in building a sustainable recovery here.

Formal partnership arrangements fell apart in the crisis, although in practice many concessions have been made with very little conflict. Wages have been cut and so have public services. Cost advantages and efficiencies have been achieved but significant damage has been done to living standards and well-being and to the capacities of our private companies and public institutions.

This will be a major issue in pushing forward the economic recovery that seems to be emerging, although in a very fragile form.

There is a real danger that the recovery will be spread very unevenly – we already see that wages are recovering among managers and professionals but not across the whole economy. In the absence of some kind of national social bargain, the strongest can fight their corner while the weakest will be left behind. We could end up with the worst of both worlds – increasing wage costs and rising inequality at the same time.

Furthermore, there are a range of issues that go beyond wages. Domestic business will be crucial to recovery but many SMEs still have a long way to go to compete with similar firms around Europe – and they are receiving little help from banks in accessing credit to build these capacities. On the public side, recent talk about lower taxes suggests that we have not learned the lessons of the bubble about sustainable public finances.

A new social partnership can address these issues and build recovery. But it cannot be the partnership of the Celtic Tiger years. Those partnership agreements traded worker wage restraint for tax cuts on the part of government. In the context of high tax rates and improving public finances these deals made sense for a period of time. Today they do not.

We now need a different partnership deal – one that is investment-centred. This would have three key elements. First, a national wage bargain that would provide wage increases that would be steady, more modest than the strongest employees could get on the open market but better than the raises that the weakest workers could negotiate. This would boost demand, support competitiveness and promote an egalitarian recovery.

Second, government can add to the benefits for workers through a better 'social wage' that is shared across all employees and in many cases all citizens. This typically is only loosely related to an employee's wages and takes the form of education and training, health and childcare, pension provisions or other benefits. A 'social wage' is crucial to protecting living stand-ards, promoting opportunity in even the poorest families and investing in an active, skilled labour force.

Third, government can also promote a 'productivity dividend' through measures based on enabling credit for firms to invest and sup- ports for upgrading the capabilities of companies and the skills of their workforces. Irish domestic business has long been hampered by low levels of investment, weak financing for such investment and by poor supports for their workforces' skills and participation. A new model of partnership challenges firms to upgrade and supports them in doing so.

Partnership had significant weaknesses in the 2000s, failing to manage the balance between the public and private sectors and between wages and growth. But there is plenty of blame to go around – it was primarily party politics, weak regulation and planning, and poor central oversight of government finances that allowed the bubble to inflate. In the 1980s, partnership helped begin Ireland's recovery by delivering wage restraint and industrial peace during a deep economic crisis. In the 1990s, additional efforts were made to make creative investments in workers (through training and education), communities (through local area partnerships), companies (through enterprise policy and venture capital) and even in new policy institutions (often disparaged as 'quangos').

A new social partnership along the lines outlined above can re-capture these strengths of earlier periods without the failings of the 2000s. The most competitive and egalitarian economies in Europe operate on this model – supporting the development of their businesses, investing in their populations and protecting their societies.

It is time for a conversation about how a different partnership can help a sustainable recovery that will boost business development, improve well-being and invest in the future of businesses, citizens and communities.

Prof Sean O Riain is author of 'The Rise and Fall of Ireland's Celtic Tiger' and is co-director of the Master's in Work, Labour Markets and Employment at NUI Maynooth

Irish Independent

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