A new social and economic model

The first of Fórsa’s summer series took place online last Friday (26th June) and examined what a new social and economic model could look like in a post-Covid world. HAZEL GAVIGAN reports.

Last Friday’s panel was comprised of associate professor at the school of politics and international relations at University College Dublin, Aidan Regan; Labour specialist at PIRC, Alice Martin; Associate professor of economics at the University of Limerick, Stephen Kinsella; Fórsa general secretary, Kevin Callinan and moderated by Fórsa lead organiser, Grace Williams. The discussion looked at how the pandemic has challenged people’s common perceptions and preconceptions, outlining the opportunity we now have to devise a new model.

Each of the panellists emphasised that now is the time to re-think Ireland’s macro-economic policy and strongly invest in public services, stating this should be done while also building on the positives that have emerged from the crisis such as new remote and flexible work practices.

Kevin Callinan called for a reformation of the country’s entire tax system – not just income tax – stating it’s the only way to achieve the kind of public services seen in Northern European states. This sentiment is echoed in Professor Aidan Regan’s column, which is reproduced below with kind permission.

In this piece, professor Regan also outlines the history of social dialogue in Ireland. Prior to the Covid-19 crisis, Kevin Callinan  and the employer body IBEC continued to call for the creation of a new social dialogue to address social and economic challenges in Ireland. Covid-19 brings with it a fresh set of challenges on top of those existing in healthcare, housing and the environment, driving home the need for a new social dialogue model more than ever.

To register for future sessions, please contact us HERE.

This column first appeared in The Sunday Business Post on 21st June and is reproduced here with kind permission from the author as part of the #FórsaSummerSeries blog.

If we want a society like our northern European friends, we need similar taxes

 Professor Aidan Regan

The competitive nature of elections means that governments are not good at long-term planning. Even five-year policy strategies, built into programmes for government, often quickly fall by the wayside. The future is indeterminate and uncertain. Politicians react to voter concerns, which change regularly, and are heavily influenced by the media and news cycle.

The mission-oriented approach built into the proposed programme for government is admirable though. It attempts to outline a long-run strategy for the Fianna Fáil/Fine Gael/Green coalition government, laying the groundwork for the direction of travel that the government intends to follow. The direction is clearly Green and the language used can be broadly interpreted as centre-left, albeit without the tax changes required to really be centre-left.

Mission-oriented approaches to public policy have been championed by Mariana Mazzucato, the London-based economist. She has published a significant amount on the entrepreneurial role of the state in shaping and creating markets.

The basic idea is that governments don’t just intervene in the market to fix market failures, they actively shape and create markets through policy choices.

For Mazzucato, if we are to address long-term societal challenges, such as the climate crisis, we need to fundamentally rethink the role of government in the economy. To do this, government missions must ROAR loudly. This provocative acronym stands for four criteria to assess mission-oriented public policies: route, organisation, assessment and risk.

The mission must have a clear “route” of travel that signals the direction of change. It must be led by public “organisations” building strategic partnerships with civic and private partners. It must develop new tools of “assessment” and measurement that go beyond traditional indicators of economic success. And it must share “risks” and rewards.

The programme for government proposed by Fianna Fáil, Fine Gael and Green Party sets out 12 missions. Few have the level of detail that would be necessary to assess whether they can achieve their objectives. But they all clearly outline a horizon of ambition.

From the get-go, the document focuses on societal well-being and quality of life issues, with a particular focus on Green-oriented policies, in addition to an investment-led recovery. After this, the document gets vaguer and vaguer.

In this sense, it is reminiscent of the social partnership agreements from the 1990s, and the hugely ambitious ten-year programme negotiated in 2006, which was titled “Toward 2016”. These documents are well worth re-reading. If even half of their proposed policies were implemented, Ireland would be in a much better place. The 2008 banking crisis, followed by the sovereign debt crisis, shattered all those policy ambitions.

Social partnership fell apart because the government committed to increased public expenditures and investments on the basis of volatile taxes associated with the property bubble. When these taxes collapsed, Ireland experienced an unprecedented fiscal crisis.

The media reaction at the time was to almost entirely focus on the public expenditure side of the equation. But the real problem, which has not been solved, was the weak and narrow income tax base. The incoming government should learn from this mistake.

Reaching out to reach agreement

Social partnership was originally an attempt to pursue longer-term policy planning. During the 1990s, in many European countries, governments reached out to employers and unions to reach agreement on fiscal and labour market policy issues. The idea was to generate agreement on how to adjust to the new monetary realities of the eurozone. For the most part, these were widely lauded as successful attempts at forming public policy.

Ireland’s social partnership process began earlier. The first social partnership agreement was negotiated in 1987. It was called the Programme for National Recovery, and was designed to get trade unions to agree to wage restraint as a complement to the 1986 currency devaluation.

The second agreement, the Programme for Economic and Social Progress, was negotiated in 1991, and was designed to prepare for the EU’s Maastricht Treaty.

Ireland would go on to negotiate a further five social partnership agreements. This meant that for almost 20 years, social partnership was the defining feature of Irish public policy. In the mid to late 1990s, the policy direction, or mission, was very much focused on wages, jobs and employment. But by the 2000s, the route of travel became directionless, such that the social partnership agreements included almost every aspect of public policy.

When social partnership collapsed in response to the 2008-2010 economic crisis, it was widely discredited. It was lambasted as nothing more than a mechanism for vested interests to take control of government policy. Public sector unions were blamed for increasing the government’s wage bill, particularly during the ill-judged benchmarking process.

But taking a longer-term view, this is a rather unfair and narrow interpretation of the social partnership process, particularly in the 1990s. The responsibility for tax-and-spend policies in the 2000s fundamentally rested with the government. It was successive Fianna Fáil and Progressive Democrats governments that were responsible for these. They cut income taxes for over a decade for electoral gain. This had little to do with social partnership.

The origin of social partnership was an attempt to generate the conditions for longer-term strategic planning, outside the conservatism of the Department of Finance. Many of the senior civil servants associated with the process originated in the Department of Economic Planning. When this Department was wound down in the late 1970s, many of these administrators were transferred to a socio-economic affairs unit in the Taoiseach’s office.

This strategic unit was empowered by Charlie Haughey in the late 1980s, and became the brainchild of social partnership. Politically, it was an attempt to embolden the Taoiseach’s office’s role in socio-economic development vis-à-vis the Department of Finance. It also empowered the role of the National Economic and Social Council (NESC) within government, and public policymaking more broadly.

NESC would go on to become one of Ireland’s few social democratic institutions within the state. It provided the policy space for government ministers, senior civil servants, and employer and trade union leaders to negotiate and bargain outside the electoral cycle.

Each social partnership agreement was underpinned by a strategic NESC document. Reading these today, they look remarkably similar to Mazzucato’s mission-oriented policies.

It is often assumed that social partnership was nothing more than a series of glorified public sector wage deals, built around a liberal tax-based incomes policy. This is too simplistic. Social partnership was originally an attempt to generate the conditions for the state to engage in strategic economic policy. Notwithstanding its problems, it was about building state capacity, and rethinking the role of government and public policy in the economy.

Tax is the Achilles heel

The 12 missions proposed in the programme for government contain many similar ambitions to previous NESC strategy documents, and previous social partnership agreements.

For this reason, those who want a smaller state, and less of a role for government in the market, will not be happy with the proposals. Young conservatives in Fine Gael, for example, have already come out and rejected them.

The overarching mission in the programme for government is a strong focus on Green policies and economic recovery. This reflects wider changes that are taking place at EU level.

It is hard to imagine an investment-led economic recovery that does not take into account the bigger societal challenge of climate change. As I have written in this column in previous weeks, this is a real opportunity to radically reform the public sector.

The Achilles heel in the programme for government is taxation. It continues a long-standing tradition in Irish politics of trying to square the circle of wanting more public services and better infrastructure without tax changes. The government can borrow for capital infrastructural investments, and a fiscal stimulus. But in the long run, higher quality public services mean higher permanent current expenditures. This requires more revenue.

The programme for government is welcome. The missions set out a clear direction of travel. Green policies that give priority to quality of life issues are clearly evident, as is the need for a fiscal stimulus, and an investment-led recovery.

The challenge will be implementation, and making sure that these important strategic missions do not get lost in the reactionary nature of news-cycle politics. But at some point, the government will need to talk about more taxes.

The lesson of 20 years of social partnership is that longer-term and mission-oriented public policy ambitions mean nothing without strong and stable fiscal capacity. The fiscal capacity of the state is determined by its ability to raise revenue. If Ireland wants Northern European levels of public infrastructure, it requires Northern European style taxes.

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