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30 October 1997 Edition

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Workers in struggle: Black `97 crisis threatens Irish economy

How and why the stock market crisis happened


     
The last week shows that the livelihoods of workers around the world are dependent on a small elite of financiers who have little or no interest in the long-term consequences of their actions
1997 really is the best of times and the worst of times. The turmoil on stock markets in Hong Kong and South East Asia which caused a knock-on spiral of falling share prices and frenzied crises in Wall Street, London and even Dublin (where £2.5 billion was knocked off the value of shares in one day) showed just a glimpse of the chaos we could face if the global economy falters.

The fact that the international economic environment is precarious is lost on the pundits and politicians who tell us it is the best of times in the Celtic Tiger and they are the ones who built this rags to riches fairytale.

This week the reality of the largest international stock market crisis since 1987 began to expose the cracks in the economic fairytale that those in power present to us today. Last Friday the Hong Kong stock exchange dropped 10% of the value of its shares. This triggered a wave of share selling in other regional stock markets in South East Asia. By Monday the US Wall Street exchange was in freefall and had to be suspended first for half an hour and then closed for the day recording its biggest one day fall since 1987. On Tuesday the same exchange posted its largest one day increase. By Wednesday the rollercoaster had slowed considerably and the values of shares stabilised globally.

The week of turmoil dominated the front pages of news papers and hourly news bulletins. Now that the crisis has passed a range of unanswered questions remains. Who or what is to blame? Why is it happening now? What are the consequences? Will the Irish economy be affected?

Who is to blame?


There are three factors driving the initial share crisis in Hong Kong and South East Asia. They are: the links between South East Asian economies and the USA; the actions of international currency speculators and a fear that the Asian economic boom is ending.

The South East Asian states are the original tiger economies, fast growing industrialised states exporting huge volumes of technology and other goods around the world. Their financial markets are built upon the premise that they need stability. This stability was up until recent weeks got by pegging their currencies to the the Hong Kong dollar, which is in turn pegged to the US dollar.

Speculators have been targeting the Asian currencies since late summer causing instability in these economies. This led to unease in the international stock market from investors who have billions of pounds of funds in these markets. Billions of pounds of Irish pension funds are tied into these markets. The investments are made in the belief that the value of the shares will increase and that the companies will continue to generate significant profits.

Why now?


The currency instability led investors to believe that the previously rapid economic growth in these markets is at an end and they began to disinvest.

This caused a spiral of share selling across the world on the premise that if the tiger economies were in crisis it was because the First World markets where they sell their exports were also at the end of their current growth cycle.

Investors moved their money out of shares into US government bonds, a stable but relatively low return investment. The fall in the Wall Street Dow Jones and Nasdaq exchanges triggered similar falls in European stock exchanges as investors sought safe refuge for their billions.

The consequences


Now a week after the initial crisis stock markets around the world are carrying on regardless. They are driven by footloose feckless investors. The last week shows that the livelihoods of workers around the world are dependent on a small elite of financiers who have little or no interest in the long-term consequences of their actions. Their only motives are short-term profit and acquisition. To have the global economy beholden to these people could be disastrous.

The Irish economy


In Ireland our economy is not unlike the tigers in Asia. We are export driven and if economic crises arise outside of Ireland, our workers and our economy will be the first victims. If the stock market crash did lead to a global economic down turn it would lead to desolation in the Irish economy. The last week shows how paper thin the Celtic Tiger fairytale really is.


Banking bonus


It is not all bad news in financial markets this week. Take for example the earnings of chief executives in companies at Dublin's International Financial Services Centre. A survey by Ernst and Young has found that the top executives can earn up to £140,000 annually. The good news doesn't stop there. Some also earn bonuses of up to 70% of basic salary. The average bonus was a meagre 26% of annual salary, up from 22% in 1996.

The average basic salary of chief executives was £88,428, an increase of over 8% on 1996. Employees across all financial jobs in the centre enjoyed annual increases of over 7%. This is more than double the increases paid to workers bound by the PCW and Partnership 2000 agreements.

Much hype has been made in recent weeks of the thousands of new jobs that are to be created in the Docklands area. Many of these are supposed to be in the financial services sector. It makes you wonder how many of the current local residents will get access to these jobs. How many of them have access to this employment now?

IBEC - CBI shortsightedness exposed


The Dublin Belfast economic corridor project sponsored by the Irish Business and Employers Confederation and the Confederation of British Industry has come in for criticism in this paper for not considering the need for an east west economic development plan.

Sinn Fein has often made the case for a proper development plan that would tackle all the negative effects of partition that have decimated local economies in the border region. Partition has led to a serious imbalance in the level of economic development with the border regions and west coast either drained of resources or just simply overlooked.

Apart from the Peace and Reconciliation Funds and some EU structural funds all of the emphasis has been put on the East Coast and the Dublin Belfast corridor.

Imagine our delight then when we heard that IBEC and the CBI were joining a trade axis that concentrates on the east-west relationship. Then we realised that it was an east west axis that includes business, universities and local authorities in Britain, Netherlands, Germany and Eastern Europe.

Local authorities, business and third level colleges west of Dundalk are it seems to be ignored. Someone should buy the IBEC and CBI joint business council a map quick.

An Phoblacht
44 Parnell Sq.
Dublin 1
Ireland