Social Dialogue?

(This is an unedited version of my Sunday Business Post Column from yesterday).

Nothing is ever learned for long.

It has been denied so strenuously by all and sundry so we can take it as read the collective wage bargaining arrangement known as social partnership is back as part of a new national social and economic dialogue process. The influence of the Juncker Commission in reviving the process at the European level is important to note, but we need to see the details of this process as it will work in the Irish context. Will it be a forum for constructive dialogue, a talking shop, or a veneer for collective wage agreements of old?

We are told social dialogue will have fewer closed door meetings and more Oireachtas oversight, but we are also told the talking will recommence forthwith. It’s hard to make out what’s happening. It does feel oddly like a return to the social partnership era. Next thing we’ll have pin stripe suited wavy haired bankers on the radio wailing about excessive regulation and a return to property as the only thing anybody in the country wants to talk about.

Talking is fine, and it is important that everyone’s views are listened to. A forum where policies can be discussed, debated, and agreed over is vital. We’ve had a government by four people in the economic management council for too long. What is not welcome is the re-creation of an insider culture that fostered too much cooperation with the pro-business view of the world that profits should be private while losses are for the public. Social partnership boiled to down to a deal: A quelling of industrial disputes in exchange for real wage increases. Let’s hope we don’t see the deal struck in the same way.

We know one of the drivers of the crisis was an excessive concentration of political and economic actors within a golden circle. None of the echoes within the chamber contained warnings of any crisis. Former leaders can say, perhaps with some legitimacy, that no one told them. Maybe they didn’t.

A bit of history. National wage agreements were re-introduced in Ireland in January 1988 and, while there is debate or controversy on the issue, were widely credited as being a significant factor underlining the economic prosperity of the 1990’s. By 2007, there had been seven successive agreements spanning a twenty-one year period. From 1988 to 2007 when the wheels fell off the bus, in nominal terms private sector wages went up 206%, public sector wages went up 214% excluding benchmarking and 234% including benchmarking.

In September 2008 a new 21 month pay award was agreed but, following an eleven month pay freeze, the government rescinded on paying the first 3.5% pay instalment and this ended the partnership process. Many sectors benefitted from the process, but competitiveness internationally suffered. In 2008, Irish unit labour costs were 112.5% of the Eurozone average and by 2013 this had fallen to 101%.

Fundamentally, social partnership lost its legitimacy for me, when, in a last gasp and, as the crisis in the state was becoming more visible, unaffordable pay and conditions awards were made to a public sector which could not be justified. The process should have stopped us losing the run of ourselves if it was to mean anything. But it didn’t.

 

Then Taoiseach Brian Cowen made the choice to keep the system as it was, while Finance Minister Brian Lenihan was staunchly opposed. The pain in restructuring the public sector, and the ongoing reform efffort described by the Secretary General of the Department of Public Expenditure and Reform, Robert Watt, in this paper last week, would have been lessened if the mid-crisis partnership talks were abandoned before they could get started. The hardest thing in politics is to take something back when people expect to receive it.

 

I should stress mone of the actors in the forum are to be blamed in this. Unions should advocate for their members interests, social interest groups for their members’ interests, and the government must seek every chance for stability and eventual re-election. The forum and its design is to blame. The mistake was to allow it in the first place.

Av. Weekly Earnings

(€)

Av. Weekly Earnings

(€)

 
1988 (Q1) 2007 (Q2) % change
 
1 Public sector (Excluding Health) 334.7 926.64 176.9
2 Financial Institutions 375.4 886.34 136.1
3 Building and Construction 235.4 800.05 239.9
4 Distribution and Business Services NA 708.47 NA
5 All Industries 244.2 627.24 156.8
Index Index
6 Public sector pay award (including benchmarking) 100 234.0 134.0
7 Public sector pay award (excluding benchmarking) 100 214.1 114.1
8 Private sector pay award 100 206.7 106.7

The Taoiseach insists the members of the forum won’t “lose the run of (themselves)” when thinking about pay increases. But his insistence is underscored by the failure of the benchmarking process to adjust downwards precisely when it was required to do so. We needed the Haddington Road agreement and its predecessor because social partnership failed.

Combined with what Regling and Watson in their report on the banking crisis describe as excessive groupthink, the excessive concentration of insiders ensured represented by the structure of social partnership meant that naysayers, whistleblowers, and those external to the system who issued warnings were either derided, or ignored. In a recent paper Elaine Byrne (of this parish) computed the relational distance between key political and economic actors in Ireland and showed that it was much closer pre-crisis than post-crisis. The progressive think tank TASC mapped the network of bank and state boards, showing a very large overlap. Unfortunately a followup study has not been attempted.

The ‘insider/outsider’ dynamic acted to shield important economic actors from criticism during the ‘buildup’ phase of the crisis. It is crucial any return to a coordinated approach to pay and taxation ditch the echo chamber all together.