2 July 2010
Economy: An unwanted leadership position ... and the alternative
FIANNA FÁIL'S economic policy is focused solely on transferring resources from the poor to bail out the formerly rich bankers and speculators
BY MICHAEL BURKE
IMPORTS have collapsed, foreign investment slowed to a trickle and tourism numbers plummeted, but the economic policy adopted by the Fianna Fáil-led government has gone global. It has never received so much attention or been so widely discussed internationally, probably not since for the formation of the state .
The latest to provide his view of Dublin’s economic policy and its impact on financial markets is the renowned economist, Paul Krugman, writing in his regular column in The New York Times. This piece reads like a rebuttal of an earlier article in The Wall Street Journal, which had come to praise the Government for its bravery in taking an axe to public spending.
Previously, The Financial Times had run an extremely lengthy but inconclusive piece on the same issue. George Osborne, though, was more certain . In the weeks before he became British Chancellor of the Exchequer, he repeatedly signed a number of articles praising the actions of his fellow Thatcherites in Leinster House, arguing that we should “look across the Irish Sea and learn the lessons”.
Britain’s Thatcherites, like Osborne, David Cameron himself and the newly-reappointed Professor Alan Budd have, Dracula-like, resurrected themselves from their role in the catastrophic British slump of the 1980s and the debacle of economic policy-making in the 1990s. They clearly recognise soulmates when they see them in the Fianna Fáil/Green Government benches.
But their admiration is also a recognition of the leadership role Messrs Cowen, Lenihan & Co have played in promoting their policy of savage cuts to public spending.
While the rest of the Euro Area and all the industrialised countries were adopting some sort of stimulus measures in 2009, the government in the South was already implementing cuts. The tax increases and spending cuts implemented to date have amounted to €14.6bn, which is equivalent to 8.9% of GDP. Within the Euro Area, only the Greek Government has depressed the economy further by its own economic policy.
What’s worse is that the Greek Government only did this with severe arm-twisting from the European Central Bank, the EU Commission and the International Monetary Fund . The Dublin Government is unique in volunteering for this type of disastrous policy; virtually every other country has had it forced upon them by a combination of international bodies, ratings agencies, media and, of course, the financial markets.
There are a number of reasons for the Dublin Government’s eagerness to adopt slash and burn economics, and many of them relate to the society inherited from British rule and the dominant economic groups as they have evolved since partition.
But NAMA proves that this government represents the interests of failed property speculators, failed bankers and associated groups. These are parasitical interests who actually produce nothing and compete internationally with no one. In a crisis, their sole response is to protect their capital and their rents by increasing the exploitation of those who do produce goods and services, most especially the workers and poor of Ireland.
By contrast, in other European countries, like Germany, producers are a key interest that all governments have tended to represent, or at least the interests of those who own the firms that produce goods and services.
The stimulus measures adopted in those countries were designed to help those interests. Disregarding the calls by multinational firms for increased investment in education, R&D and infrastructure, Dublin’s economic policy is focused solely on transferring resources from the poor to bail out the formerly rich bankers and speculators . The reason that it is so admired in London is that the British economy is increasingly dominated by a similar interest: the financial sector of the City of London.
George Osborne’s admiration for Fianna Fáil’s economic policy has been less vocal recently, even though he intends to enact similar policies. It remains to be seen how far he will get in implementing those measures where the Tories have been rejected, most especially in the North of Ireland. Meanwhile, he has transferred his affections to Canada’s Thatcherites of the early 1990s, and seems ignorant of the five-year-long domestic recession there which led to soaring unemployment and government debt even though it was off-set by the Clinton boom and an influx of wealthy immigration.
It is hard for Osborne to promote Irish Thatcherism as a role model with the latest CSO data showing a 13.7% unemployment rate. Even this is a huge understatement as tens of thousands become ineligible for benefits and others emigrate.
But the claimed thrust of policy was to get the deficit down and to reassure financial markets and even in those terms it has been a spectacular failure. At the outset of the recession, the Irish budget balance had a small surplus. After one year of recession that had risen to 7.3% of GDP. But after slash and burn was enacted, the deficit almost doubled to 14.3% of GDP. It is now by far the largest deficit in the Euro Area - wider than Greece’s.
Unsurprisingly, financial markets have not been reassured. Contrary to the Government’s supporters in the media and academia, its actions have not cut borrowing costs. Irish long-term interest rates have risen by nearly 1.5% since the beginning of 2008, even while most Euro Area interest rates have declined. This matters because higher borrowing costs eat into the funding available for roads, schools, hospitals and so on.
The Government threatens a further €3bn in cuts this year. There is an alternative to this madness.
At a recent seminar organised by the TASC independent economic think-tank in Croke Park, Sinn Féin TD Arthur Morgan joked that presentations he had heard were clearly economically illiterate as they are on the same lines as Sinn Féin’s calls for government investment as the way to economic recovery - and every time Sinn Féin argued this in the Dáil, they had been described as “economically illiterate”.
Current policy is not working. Government investment clearly is the way to economic recovery, reducing the welfare bill by bringing people back into work, spending and paying taxes, and reviving both the public and private sectors with investment in infrastructure, education and healthcare. There’s plenty of money that could be found to fund it. Just ask Anglo’s bondholders.