Ireland: the sick tiger

Issue: 122
Posted: 31 March 09

Kieran Allen

Ireland, once hailed as the success story of neoliberalism, is undergoing a traumatic economic crash. In its wake a political earthquake is brewing that could shape its politics for decades to come.

Formerly known as the “Celtic Tiger”, the Irish economy grew by 7 percent a year until recently. The term was coined in 1995 by an economist working with Morgan Stanley, who compared Ireland with the more commonly known “Asian Tigers” of the time. Soon the country was hailed by neoliberals as a model for others to follow. Thomas Friedman, the right wing columnist of the New York Times, for example, recommended that “old Europe” change its ways and catch up with the “leapin’ leprechaun”. Here is a sample of his missionary fervour:

The Germans and French may want to take a few tips from the Celtic Tiger. One of the first reforms Ireland instituted was to make it easier to fire people, without having to pay years of severance. Sounds brutal, I know. But the easier it is to fire people, the more willing companies are to hire people.1

In a similar vein, the right wing think tank the Cato Institute published an article on the Celtic Tiger to prove that its growth came after it fully embraced “economic freedom”.2

In fact the Irish economy contained two structural weaknesses which have now come back to haunt it.

First, while the early phase of the boom was fuelled by a spectacular inflow of US investment, this began to dry up. At one stage Ireland attracted 25 percent of US investment in the EU, despite having just 1 percent of the EU’s population. In later years, however, US companies sought cheaper labour opportunities in Eastern Europe. The Irish state responded by encouraging a property bubble to prolong the boom. Social housing was cut back and a tight alliance emerged between the Fianna Fail party, big Irish builders and the banks to hype up the property market. The result was an extraordinary transformation of the economy. By 2006 construction accounted for 20 percent of gross national product. The numbers employed in the building industry rose to 14 percent of the workforce—about twice the number normally employed in this sector in other countries. A staggering €110 billion was lent to the builders by Irish banks as a mania of greed overtook the wealthy and they came to believe that they could walk on water.

Second, as part of their growing alliance with US capital, the Irish ruling class emphasised financial services. They assumed that by acting as a slightly shady “back office” for the City of London they could attract highly mobile finance to Dublin. In 2006 alone nearly €500 billion flowed into hedge funds based in the Irish Financial Services Centre. Some 70 percent of these funds were actually domiciled in the Cayman Islands, a notorious tax haven, and simply administered in Dublin. Companies such as Merrill Lynch located a major part of their operations in Dublin to benefit from its lax regime. The state encouraged multinational firms to engage in creative accountancy in order to benefit from taxes set at 12.5 percent. By 2005 the New York Times was describing Dublin as “the Wild West of European finance”.

While the boom continued, the political elite were able to develop a peculiar form of social partnership with the union leaders. Wage increases were constrained by national deals but workers saw living standards rise through tax cuts. The union leaders claimed that in return for encouraging wage restraint they gained influence in the corridors of power. Yet none of this influence appeared to present any obstacle to the transformation of Ireland into one of the most unequal and neoliberal societies in Europe. Union density fell from 44 percent of the workforce in 1995 to 33 percent today.

The crash

Today the whole edifice has crumbled. This year the Irish economy will shrink by about 6 percent, the largest fall ever recorded. The collapse of the property bubble has had a spectacular effect on state finances, which drew a disproportionate share of revenue from this sector. A few months ago the Irish ruling class felt perfectly safe with the EU Growth and Stability Pact, which limited state borrowing to just 3 percent of GDP. Today they will have to borrow at least 10 percent of GDP just to keep the state functioning. They will also be charged comparatively high interest rates because they are increasingly labelled as an “at risk” country by ratings agencies.

To make matters worse, Ireland faces a banking crisis that is even worse than elsewhere. Six major Irish banks hold bad debts estimated at €40 billion. One of them, the Anglo-Irish Bank, is commonly known as a Fianna Fail bank because so many of its directors and borrowers were tied to the party. When it went into freefall, the government tried to bail it out at huge cost to the taxpayer but was forced to nationalise it. Despite injecting billions of taxpayers’ money into the two largest banks, the Allied Irish Bank and Bank of Ireland, it is likely that they will also be nationalised in the coming months. The purpose of such nationalisation is, naturally, to offload the toxic debts of the rich onto the population at large. As a result, according to the government’s own figures, the economy faces four more years of horrendous cuts, causing social suffering on a vast scale.

The crisis could not have come at a worse moment for Fianna Fail (FF). The party is one of the great peculiarities of European politics: it has a working class voting base even though it pursues policies that blatantly benefit its rich supporters. It developed its peculiar form of populism by translating the high ideals of Irish Republicanism into the small change of economic nationalism. It argues that if all classes in Ireland “pull together”, the nation will advance economically and workers will benefit. This appeal was only successful because of the weakness of the Labour Party, which implicitly accepted the same economic nationalist framework. Yet to convince workers FF also needed some real evidence of economic success. The decade-long Celtic Tiger provided this and, for a period, helped to halt the long-term decline of a party that was linked to the Catholic church and “family values”.

In May 2007 FF was returned to office on a promise of maintaining the Celtic Tiger. Despite dramatic revelations of corruption, the anxiety of workers about the possible end of the boom led them to vote FF in the hope that they were the only party that could prolong it. Symbolically, the face of FF in this now almost forgotten era was represented by Bertie Ahern, a political conman who mimicked Ronald Reagan in his ability to talk to the “plain people” of Ireland. The party took office for the third time in a row with the help of the Green Party, which had previously masqueraded as a left of centre party.

FF soon found that its spectacular victory was in fact a poisoned chalice. Ahern was driven from office by mounting revelations about the source of funds that financed his election campaign. He was replaced by Brian Cowen, a surly backroom operator of FF, who also had close connections to the business class. Within months of coming to office he managed to lose the vote on the Lisbon Treaty (the replacement for the rejected EU constitution), mainly because voters rejected the growing militarisation of Europe. Significantly, the referendum indicated a sharp polarisation of voting patterns on class lines that had rarely been seen before.

When the economic crash hit, the party was singularly ill equipped to impose the type of solutions that the ruling class wanted. In October 2008 it introduced an emergency budget to cut back on spending by attacking both the elderly and the young.

Over 70s in Ireland were originally granted free medical treatment as a result of an electoral manoeuvre by right wing politicians to secure their votes. But the FF-Green government launched an attack on the very idea of “universal benefits” and insisted on means-testing for medical care. The result was one of the most spectacular protests ever seen. Starting with an assembly in a church, a social movement emerged that drew on networks created by Ireland’s “active retirement” groups. Soon 20,000 people marched on the parliament, making full use of a free travel scheme—another “gift” of an opportunist right wing politician—to ride the trains to Dublin. Government ministers, who thought they would receive some deference from the elderly when they expressed their “understanding and sorrow”, were booed off the stage. Within days the government was forced to retreat, making apologies for its “insensitivity”.

The young faced savage cutbacks in school funding and this too provoked a wave of protest. In a series of huge mobilisations, teachers joined with parents on a number of larger marches. This time the government fared somewhat better because the teachers’ union leaders did not show the same militancy as the over 70s. Nevertheless, the FF-Green government was forced to make some concessions.

Even while these battles were being fought at the end of 2008, the ruling class regrouped. The commentariat of the right wing media lambasted the government for its weakness and a determined media campaign was mounted against “privileged” public sector workers. The instigators of this press campaign were the employers’ organisation, IBEC, who set out to divide workers in the public sector, where union density is at 80 percent, from those in the private sector, where density has fallen to 20 percent. This had two main objectives: first, to deflect a rising public anger against the rich by scapegoating public sector workers; second, to re-establish a political agenda around a programme of wage cuts. If wage cuts could be imposed on public sector workers, the way was clear for reductions throughout the economy.

Soon the real agenda of the Irish ruling class emerged to full view. Backed up by a chorus of the same neoliberal economists, who did not utter a word of criticism of the low regulatory regime during the Celtic Tiger, their slogan became “Restore competitiveness”. Irish wages, it was argued, had risen too far during the boom and, according to Cowen, living standards had to fall by at least 10 percent. Instead of launching a stimulus package to reflate the economy as other governments had done, wholesale deflation became the order of the day. Unemployment was to be allowed to soar so that the working class could be disciplined and forced to accept lower wage levels. Once headline wage cuts were imposed the aim was to reduce the minimum wage, attack social welfare benefits and impose water taxes on a population already overburdened by regressive indirect taxes.

The new agenda of wage cuts became evident when a “pension levy” was imposed on public sector workers. Most public sector workers employed since 1995 already pay a 6.6 percent contribution to their defined benefit pension. However, in order to impose an effective wage cut—while circumventing certain legal obstacles—the government imposed a further levy of between 4 percent and 9 percent on those same workers. Before doing so, however, they embroiled the union leaders in a discussion on “stabilising the state’s finances” and then, at the very last moment, landed the proposal for a pension levy on them.

The response of the grassroots was one of huge anger. On 21 February over 120,000 people came out on the streets of Dublin and many took up the call raised by the left for a one-day national strike. The response from the union leaders was, however, ambiguous. Instead of telling the government that workers would not pay for a crisis that they had not caused, they talked about a fairer sharing of the pain. They hired a Swedish social democrat as a consultant to develop a ten point plan which demanded greater tax concessions from the rich but failed to demand the full withdrawal of the levy. Like old singers who could not learn new tunes, they imagined that the game of threatening action and then calling it off to enter partnership talks was still in play. They hoped that after the display of strength on 21 February the government would invite them back into a national consensus to solve the problem of the Irish economy.

However, in the face of a deepening crisis of Irish capitalism and growing pressure from the grassroots, the union leaders found they were no longer free agents. Within days of the huge march they announced a ballot for a national strike on 30 March.

The escalation in class struggle is already having dramatic political effects. Opinion polls have shown a huge swing to the left and a decline in FF support. For the first time in Irish history the party has been overtaken by its main right wing rival, Fine Gael, and, in one poll, by the Labour Party as well. The same poll indicated that in Dublin the party’s support appears to have declined to a mere 13 percent.

The Labour Party has so far been the principal beneficiary of this turn. At the onset of the crisis the party tacked left and publicly denounced a state guarantee scheme for the banks. By contrast, Sinn Fein, in an untimely effort to gain respectability, voted for the guarantee. In one of those great moments of irony, the IRA’s political wing had decided that bank robbery had to be replaced by state contributions to the financial elite. However, Labour’s shift leftwards is deeply contradictory. Even while it attacks the bail-out of the bankers, the party holds to the idea of a national consensus to solve Ireland’s economic woes. Its ultimate aim is to shore up its electoral base by tacking left and then to enter a coalition government with the right.

All of this creates extremely favourable terrain for the emergence of new forces on the radical left. One hopeful sign is the development of the People before Profit Alliance, a new coalition of forces that groups together the Socialist Workers Party, former key figures of the Socialist Party and a host of community activists. The alliance will be running about 15 candidates in upcoming local elections and hopes to gain a cohort of new councillors as part of a strategy to offer a more serious electoral challenge to Labour. The alliance has developed an alternative economic agenda to challenge the priorities of the political establishment and has become prominent in a variety of local campaigns that oppose the cuts.

It is also necessary to build a strong revolutionary socialist organisation alongside the radical left. During the 21 February demonstration off_duty soldiers from their union, PDFORA, took part in the huge demonstration, despite pressure from their officers. So did substantial numbers of police, who turned out a few days later to march against their government. As the crisis escalates it will become clearer that every attempt at serious change to ameliorate the suffering of workers will come up against the strict limits of Irish capitalism. The question of a practical revolutionary approach to solving the Irish and global crisis could soon emerge. We are in a race against time to prepare the ground.


Notes

1: Thomas Friedman, “Follow The Leapin’ Leprechaun”, New York Times, 1 July 2005.

2: Benjamin Powell, “Economic Freedom and Growth: The Case of the Celtic Tiger”, Cato Journal, volume 22, number 3.