There is a clear link between our dire financial situation and the growth in the cost of the public sector, and its roots are to be found in social partnership. The original thinking behind the partnership formed in 1987 was simple: unions delivered industrial peace and wage moderation in return for tax cuts and guaranteed pay rises. But what was first created as a sensible vehicle for economic recovery has transformed into a bonanza for the state’s most protected workers.
Richard Bruton of Fine Gael has recently opened up an interesting debate as to whether the social partnership model has departed. It is apparent there is national concern regarding the social partners’ ability to embrace the change that is necessary if we are to face the challenging period ahead. Perhaps it is time for the government to implement a national recovery plan, abandon the cooperative movement and look into a National Representative Forum (NRF), while it still has the change to take the lead in the drive to recovery.
Last week, business group ISME called for the current Social Partnership process to be cast aside immediately and instead establish an NRF which would ensure a return to “national long-term competitiveness”. According to the company, the previous beneficial aspects of the early partnership agreements were “cost competitiveness, predictability and industrial peace”. With the unions, IBEC and the government all in disarray, it is quite obvious that the process is now obsolete and that ISME have a valid argument. You would have to wonder if the prolonged existence of the social partnership regime is a result of it being part of an unorthodox system of institutional harmonies, that triggered a spectacular period of economic and employment growth.
Once more, following the Taoiseach’s comments on further spending cuts of €4 billion, the weakness of the partnership model is again in question. Union leaders argued that the solution to the problems affecting the public finances had to involve increases in taxation rather than public sector pay cuts. The Department of Finance must cut its budget deficit substantially for next year and this means it needs sure-fire cash savers, not waffling proposals.
Mr. Cowen has responded by saying: “The Government will engage fully in discussions over coming weeks and will respond in a considered way to the views put forward by the social partners. However, the Government must take decisions in the context of the forthcoming budget which it believes to be necessary to secure the future of the economy”. It is hard to believe public servants are going to spring forward with magical ways to make the public sector more efficient. Then again, these are the people who received an average special pay award of 8.9% not so long ago for their increasing efficiency- granted by Mr. Cowen himself while he was finance minister.
Unions are whipping up discontent among their members, claiming that they alone are being asked to make sacrifices in the battle to reduce the ballooning budget deficit, now estimated at €22 billion. They are right when they claim that their members are being targeted, but wrong when they argue that this is unfair. It is evident that easiest way for the government to cut spending is to focus on pay cuts, with or without the social partners’ consent.
It is up to the political system to forge a new social contract that would make partnership ultimately worthwhile. Unfortunately it is a complex system with many weaknesses and these weaknesses have been cruelly exposed by this recession. Ordinary workers and businesses are suffering the brunt of the pain in an uncompetitive economy without the support to help them manage the risks. Unions attempts to divert attention away from the public sector ignores the fact that Cowen and Brian Lenihan have been trying to soak the rich since the middle of last year. Despite this, they are still no closer to curing our €20 billion-a-year fiscal deficit. Weak substitutes for wage cuts such as “productivity commitments” just will not suffice. Solutions such as these are a recipe for disaster and would burn up our credibility with the European Union and Central Bank, who are currently paying for Ireland’s fiscal sins.
In the end, it will come back to pay and unpopular decisions will have to be made. Mr. Cowen and Mr. Lenihan will be forced eventually to do what is necessary: to cut the public sector pay and face the consequences. It shall be the first truly unpleasant decision they have made since they inherited their seats in Dáil Eireann. As the pressure builds ahead of December’s budget, we will soon find out whether it is the democratically elected government or unaccountable public-service unions who are running this country.