Ireland’s Thatcher Moment

‘Ireland’s suffering offers a glimpse of Britain’s future
under the Tories’. This was a recent headline in the Guardian newspaper
written by its economics editor, Larry Elliot. It was spot on.
Despite the impression manufactured by the Irish media that the only way
forward is pay and welfare cuts, what is happening in Ireland is a full frontal
assault by people wedded to far-right Thatcherite politics.

Within mainstream economics, there are two conventional
approaches to a recession.

One supports greater state intervention to stimulate a
recovery. Broadly described as Keynesian, after the famous British economist of
the depression era, JM Keynes, this suggests that a government should adopt
‘counter-cyclical’ responses and inject money into its economy to make up for a
collapse in private sector investment.  This approach has been adopted by most
governments in the world, whether they use right wing or left wing rhetoric,
including those as diverse as China and the US.

The other response comes from the hard right who claim that
‘market forces’ eventually recover, provided the state stands back. These argue
that a stimulus package only creates future debt and so are willing let
unemployment rise steadily.

But even on this right wing end of the spectrum, Ireland is
positioned on the extreme edge. It has enacted a Financial Emergency Measures
(Number 2) Act, which contains a clause (Section 7) which states that ‘in 2011
and every year after 2011’,the government will review public sector wage cuts
in the light of ‘national competitiveness’ and prepare recommendations for the
Dail.

 In other words, the public sector is being used as a lever
to enforce a downright ‘race to the bottom’ on wages throughout the economy.

Evidence of what this strategy means can be seen in the
private hospitals. Groups like the Mater, Bons  Secors and Mount Carmel have
all tried to cut wages to maintain parity with wages that have been cut in the
HSE.

As wage cuts form a central pillar of government policy,
other measures naturally follow. Not only is social welfare being  cut, but
particularly vicious measures –cuts of 50% - are directed at young people to
force them to emigrate.

Next in line are 300,000 workers in sectors such as hotels,
retail and catering who are covered by Employment Rights Orders. On foot of a
Labour Court order, these workers used to get nearly a euro above the minimum
wage. The government is now working closely with the small firms association,
ISME, to allow them claim an ‘inability to pay’. Once that is done, the
government will claim that the national minimum wage is uncompetitive for other
firms and will seek reductions.

It all adds up to a ‘shock doctrine’ technique described by
the writer Naomi Klein. She has pointed to a pattern where a hard line section
of the ruling elite emerges to exploit a situation where people are reeling
from either natural or social disasters. Driven by a fanatical belief in ‘pure’
capitalism, the hard liners promote mass unemployment as a way of disciplining
people to accept new ‘market realities’.

The Irish Thatcherite response is being carefully
orchestrated by RTE and the corporate  media. Typically, they use a chorus of
neo-liberal economists who see no reason to revise their opinions about ‘market
efficiency’ even after the global crash.

Their latest choreographed message is that ‘the worst is
over’ and as its reward for taking hard medicine Ireland will experience a
recovery, some say as soon as the second half of this year, others say in 2012.
On the same day that the government advisor, Alan Ahern, claimed that wage cuts
would ‘kickstart growth’, the ESRI Professor John Fitzgerald claimed that 2012
would see a ‘vigorous recovery’. (The same expert had predicted a booming
economy in 2009!)

There is, however, a major problem at the core of
Thatcherite economics: cutting wages in the midst of a depression  risks
setting off an even deeper cycle of economic failure. There are several reasons
to think that this has already started to happen in Ireland.

First, private investment by capitalists is in free fall. Ireland’s gross domestic fixed capital formation fell by 43%
between  2007 and 2009. In Germany, the fall from peak has been nearly 12%, and
in the UK and iUS, 15%.

Second, as the capitalists go on an
investment strike during the recession, revenues to the state enter an even
sharper decline. The severe retrenchment in the Irish economy means that ever
more workers are being laid off. With 436,936 signing on the live register,
PAYE taxes go down, and VAT goes down because everyone is spending less.

As a result, in January, 2010 taxes
declined by a further €700 million compared to the previous year. Or to put it
differently, one third of the ‘savings’ generated by cutting public sector
wages were lost immediately in the state’s lower tax take.

Third, wage cuts plus lay-offs have created
a time bomb in housing. Vast numbers of people are living in houses that are
now worth much less than they owe on their mortgages (negative equity) and a
minority of these have already fallen into arrears with their mortgage
payments. Over €1 billion is already outstanding as 26,000 people are more than
90 days in arrears.

With over 300,000 unoccupied dwellings,
there is little prospect that people will recover their property investment and
will instead be overloaded with debt for the rest of their lives.

And as interest rates rise, there will a
surge in house repossessions that will trigger another banking crisis as the
banks won’t be able to sell the houses, and the state won’t be able to raise
the money to bail the banks out a second time.

Finally, the suffering which the government
is imposing is all premised on one big gamble – that after the whip of
unemployment, workers will be glad of new jobs at lower pay rates and so make
Ireland Inc ‘competitive’ again – just as the global economy  takes off. But
this assumes that there will be a sustained recovery.

While predictions are difficult, there are
growing signs that the recovery underway is weaker than expected and there are
even some signs of a ‘double dip’ recession – a false recovery followed by an
even bigger collapse.

The stimulus package which governments
created has left them with a huge hangover of debt. In the crazy world of
global capitalism this in turn has become a target for a new wave of
speculation as hedge funds target countries like Greece. (Later they may turn
on Spain, Ireland and Portugal  - these four countries are known in the
financial world as  the PIGS of the EU)

Moreover even if a recovery develops, it is
more likely to be centred in Asia, as China emerges as the major centre of
capital accumulation in the world economy. Irish capitalism, tied for decades
to the US, has few links in this area – and so wage cuts will do little to
increase ‘competitiveness’ in this arena.

The reality therefore is that Irish
capitalism is in desperate straits despite the bluster offered by the
government and its chorus of economist hacks. Its only answer is more attacks
on workers for at least two more years.

This is Ireland’s Thatcher moment – and it
is time to fight back.