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Emperor Cowen Has No Clothes

Twenty-Six County minister for finance Brian Cowen yesterday (Wednesday) delivered his fourth annual budget in Leinster House. The run up to his speech had witnessed hypocritical calls for wage restraint and the ‘tightening of belts’ by senior ministers who themselves can’t find belts big enough to contain their own recently inflated wages.

It’s Capitalism Stupid!
The media have, by and large, prepared the ground for Cowen; telling us all that this will be the ‘tightest budget in years’ due to a ‘reduction of exchequer returns’.  But what the media have failed to do is provide an adequate reason for this sudden and dramatic change in the fortunes of the Dublin government.

While the radio airwaves and print column inches have been full of predictions and analysis from a host of ‘experts’ and ‘economists’ attempting to attribute the recent downturn to the sub-prime lending crisis or a downturn in house building, virtually no-one has been willing to mention the elephant in the room.  The current downturn in the economy was always going to happen; the only questions now are how great is the collapse going to be and how long is it going to last?  Put another way ‘It’s capitalism stupid!’

Thatcherite Politics
Even before Margaret Thatcher’s ascendancy to power in Britain, some within the political establishment in Ireland were advocating a ‘free market’ system of economic governance. From the late ‘70s onwards Fianna Fáil ministers such as Dessie O’Malley argued for a reduced role for government in economic matters – arguing for a programme of privatisation of state companies and the creation of a low-tax, low-intervention regime.

The first state companies to face privatisation were those which were already in financial difficulties, such as Irish Shipping, which was liquidated in 1984.  The likes of Irish Steel followed more then a decade later as the Thatcherites now largely, but by no means exclusively, organised in the Fianna Fáil satellite - the Progressive Democrats - argued that there was no role for the state in running commercial companies.

It was the closing down, liquidation and selling-off of poorly run or inefficient state companies that set the precedent for the more ambitious, ideologically driven plans of the new generation of Thatcherites within Fianna Fáil and the Progressive Democrats; individuals such as Bertie Ahern, Charlie McCreevy, Martin Cullen and Mary Harney.
Soon, profitable and viable state companies followed the same pattern as Irish Shipping and Irish Steel.  Eircom, ACC Bank, ICC Bank, Cablelink, Aer Lingus and, most recently, the Great Southern Hotel chain have all been privatised.  Other companies such as Bus Eireann, Dublin Bus and the ESB are widely expected to follow.  While much of the impetus for these moves has come from EU legislation relating to the ‘opening up’ of markets, Fianna Fáil have always been willing partners in the sell-off of the infrastructure of the Twenty-Six County state.
This process of privatising existing state companies has been accompanied by a parallel process of privatising state services and new infrastructure.  Ever-increasing amounts of the most basic services within the southern state are incrementally moving into private hands.  Housing, healthcare and education – possibly the three most important resources necessary for the fulfilment of human potential – are now all being handed over to for-profit companies.
The vast, and long overdue, road building programme of the late 1990’s and the first decade of this century has also been handed over to private construction companies.  These enterprises are rewarded lucrative long-term tolling contracts in return for building the roads.  In many cases these roads are the only efficient routes for those wishing to travel within or between the major cities in the country.  The prospect of one road for the rich and another for the poor is fast becoming a reality in the Ireland of the 21st century. 

Across all aspects of the state, the process of sell-off and the euphemistically entitled Public Private Partnership are now the norm. And, in the place of publicly owned companies and state provision of basic services, what are the Thatcherites proposing?

We are told that the ‘free market’ and the laws of ‘supply and demand’ will stimulate economic activity and provide employment; that the private sector will provide better services cheaper then the state.  What we aren’t told is that the ‘free market’ works on inevitable cycles of ‘boom’ and ‘bust’ and that capital follows the booms and the poorest suffer the worst during the ‘bust’.

A Giant Pyramid Scheme
For the last 10 years Fianna Fáil has played the capitalist game as cutely as only they could.  The labour surplus (particularly of well-educated English speaking labour) of the late 1990’s combined with the lowest corporation tax rate in Europe and generous Industrial Development Agency  packages represented an attractive offer for (mainly US based) multinationals looking for a European base.  This, combined with an unprecedented construction boom, fuelled by this inward investment, planning corruption, tax breaks and vast personal indebtedness helped create the  ‘Celtic Tiger’.

But, like every pyramid scheme, somebody always has to pay in the end.  The competitive advantage that the Twenty-Six County state once enjoyed over other states, both within and outside of the EU, is now gone.  Other EU states have introduced equally low, and lower, rates of corporation tax.  Within the EU there are vast pools of labour available within the recently joined states of eastern Europe, where proficiency in the English language and education levels are rapidly rising  - as are the incentives offered by the governments of those same countries.  Outside of the EU, India and China are leading the charge in offering low-cost manufacturing bases for multinationals and indigenous Irish companies alike.

The last 12 months has seen a large number of multinationals closing the doors of their Irish operations.  As recently as Tuesday (November 4), more than 500 workers were made redundant in Galway by Abbot Vascular Devices - a US multinational.

Construction, and construction related activity, represents a dangerously high proportion of all employment and economic activity in the Twenty-Six Counties, with some estimates suggesting that up to one quarter of all jobs are in construction or construction related areas such as banking, estate agencies etc.

This boom has been driven by a phenomenal rise in the price of housing, which in turn has put the best part of a generation into a lifetime of debt.  The price of the average house rose by 270 per cent between 1996 and 2006.  In monetary terms that means that a  house which cost somewhere in the region of €75,000 (£54,000) in 2006 cost more than €280,000 a decade later (£200,000).

Eventually, and inevitably, the bubble had to burst as the cost of a basic home moved beyond the reach of the majority of the population.  And when demand drops so too do prices; which in turn causes a reduction in profit and a drop off in activity as the wealthy move their capital elsewhere.

In 2006 more then 90,000 housing units were built, yet the indications for 2008 are that only somewhere in the region of 45,000 units will be built.  This slowdown is already causing layoffs in construction and construction related jobs.  How many of these newly unemployed workers will struggle to pay grossly inflated mortgages and all to keep the profits of the private banks intact?

There is also the added factor that much of the demand for housing over the last five years has been caused by a massive influx of immigrants into the Twenty-Six Counties.

Up to 10 percent of the working population are now made up of  ‘non-nationals’.

While a proportion of these people may well purchase homes and settle in Ireland, a higher proportion are short-term economic migrants, all of whom require housing – predominantly in the rental sector.  Many of these same workers who are working in the construction sector may well be forced to return home or move to other countries as construction activity reduces.  This in turn may lead to a further increase in the supply of housing and a further drop in the price of housing.  A double whammy if ever there was one.

House prices have fallen by up to 10 per cent already this year with no sign of the market having ‘bottomed-out’.  While, in theory, this drop will assist many people trying to acquire a family home, the broader economic downturn with the accompanying rise in unemployment could neutralise many of the benefits of more affordable housing.

Unemployment rates are already creeping towards the five per cent figure, which represents up to 130,000 people.  This figure is now at a four year high.

The Perfect Storm
If it was only a matter of decreasing competitiveness and a slow-down in construction that was impacting on the Twenty-Six County economy perhaps the ‘bust’, and all of the accompanying suffering that goes with it, might be minimised.  But it isn’t only the flight of the multinationals and a collapse in construction that are threatening the southern economy.  The global economic situation over the last number of months has impacted disproportionately on the Twenty-Six County economy.  The ‘sub-prime’ loan crisis, which has led to vast drops in stock exchanges across the world, has tipped an already shaky Irish Stock Exchange over the edge.

The value of shares on the ISEQ have dropped by close to 40 per cent in 2007, with more than 19 per cent of the value of the ISEQ being lost in November alone.  Unsurprisingly, the banking and construction sectors are taking the hardest hits.  Most worryingly, the value of many private pension funds have also dropped dramatically.  For those who are close to retirement, who were effectively blackmailed by the Dublin government into taking out private pensions, these are worrying times indeed as they watch years of savings potentially disappear over night.

International energy costs are continuing to rise, with the price of oil reaching almost $100 (£50/€70)  per barrel in November 2007.  This is very bad news for an economy that relies on foreign supplied oil and gas for 90 per cent of its energy requirements and further compounds the criminal act of the sell off of Irish oil reserves to Shell and Statoil

The ceding of many economic powers to Europe in recent years  further exacerbates the problem.  One of the most powerful tools of any finance minister – the ability to determine the rate of interest within the economy – was handed over to the European Central Bank some years ago.  While a reduction in interest rates would be the logical step to kick-start the economy this is unlikely to occur unless such a move is demanded by the larger European economies of Germany and France.

It is the combination of all of the above factors that are creating the conditions for, not just a slow down, but also an actual recession, and quite possibly a dramatic recession. When Brian Cowen stood up in Leinster House yesterday, he did so with a budget that was two billion euro short of expectations.  This figure is all the more dramatic when it is compared with the four billion euro surplus that Cowen enjoyed at budget time last year.

Another Way is Possible
If Fianna Fáil are about to oversee a major recession in the economy, it is a recession entirely of their own making.  It was a series of decisions made by that party and their allies in government over the last decade that have brought us to where we are now.

The decision to cede economic sovereignty to Europe, to privatise and sell off publicly-owned companies, to place an overly high level of value on foreign (mainly US) inward investment, to cosy up to private construction barons within a culture of planning corruption and to giveaway Ireland’s gas reserves were all decisions made and implemented by Fianna Fáil in the pursuit of a right-wing philosophy championed by the likes of Margaret Thatcher

The out-workings of these decisions have left a generation of young Irish families unable to acquire a home or, alternatively, plunged them into a life-time of debt.  Simultaneously, an older generation of Irish people now live in fear of a retirement of poverty.  People of all ages live in dread of illness and the prospect of having to run the gauntlet of a sub-standard public health system or the ever-increasing price of the government subsidised private system.  Parents scramble to get their children into public schools in the knowledge that the private schools are able to attract the best teachers while picking and choosing which pupils to accept.

And all of this was for what?  To make Irish banks some of the most profitable in the world?  To allow a small section of the population to buy multiple properties at home and abroad while the rest of us sit in traffic jams on private roads?  For parents forced to drop children into private crèches before dawn and pick them up after nightfall?

The ‘free market’ works on the basis of survival of the fittest – where the ‘strong’, the ruthless and the uncaring survive and prosper on the backs of those who are ‘weaker’ or unwilling to cannibalise their fellow citizens.  This is the law of the jungle – with all of the brutalities, the cruelness and the uncontrolled feasts and famines that accompany life in the jungle.

The question facing the Irish people today is do they want to live by the rules of the jungle or do they want to live by the rules of human decency?

Another way is possible.  A society based upon the concepts of community and co-operation as opposed to the concepts of the individual and competition.  An economy based upon the need for planned, consistent, managed growth and not never-ending booms and busts, which benefit only the few.

The road to such a just society is through the creation of an all-Ireland, democratic socialist republic geared towards the provision of all of the services necessary for us all to unlock our full potential as human beings.

éirigí is fully committed and ready to play its part in the pursuit of this ideal.