How deep is the Irish economic crisis?

It is the greatest economic crisis since the 1930s. There is no precedent for a change from a ‘miracle’ economy to one that will shrink by 5 percent next year.
Government finances to run the country are in free fall.

During the Lisbon Treaty debate, the right wing parties claimed that the EU Growth and Stability Pact was necessary for economic stability. This limits borrowing to 3% of GDP- but Irish state debt is now running at 10%!

The crisis is causing huge social suffering because Ireland has the largest personal debt to disposable income ratio in the EU. So you can imagine the panic about job losses.

What has brought about such a disastrous collapse?

The root causes arise from an inherent contradiction in global capitalism.

As rates of profits fell from the 1970s onwards, our rulers embraced neo-liberalism as a cover to reduce the share of an economy distributed to wages and social welfare. US workers, for example, are work an extra month on average each year compared to the sixties but their pay levels did not rise accordingly.

But capitalism needs to find markets for goods and the more they cut the share allocated to wages, the greater is the fall in ‘consumer demand’.

In the nineties, they developed a two-fold solution to this problem by, firstly, expanding working class debt based on inflated home prices and, secondly, shifting capital into newer forms of speculation. About 35% of profits in the US now come from finance compared to 15% in the 1960s.

Today this global financial system has come crashing down and is triggering a 1930s style crash. Yet few of the so-called economic experts who lectured workers about market forces never saw it coming.

According to JK Galbraith, of the 30,000 economists working in the US, only about 15 came near to predicting the current crash.

Far from being a science, conventional economics has become a form of propaganda that hides the contradictions of capitalism.

Why is Ireland’s crisis worse than elsewhere?

The main reason is that Ireland followed the neo-liberal model more slavishly than elsewhere.

The government adopted a trickle down philosophy and cut taxes on wealth and profits to encourage the rich to invest.  Today Ireland has the lowest level of state spending in the EU. The boom was squandered and little investment was put into schools and hospitals.

The constant message was that ‘market forces’ should be given a free hand.

This worked until 2001 when the Irish economy was caught in a minor US recession and capital began to flow to elsewhere.

The government’s response was to stimulate property speculation by forging an unholy alliance between state officials, bankers and property developers. The end results of their efforts are incredible.

Up to recently, 20 percent of state finances come from property taxes. 14 percent of the labour force was employed in construction – double the average elsewhere. 60 percent of bank loans went into property,

As US capital continued to withdraw from manufacturing – today only 13 percent of the Irish workforce are employed in this sector- the neo-liberals dreamt that Ireland could become a service economy, supplying financial services in particular.

Ireland was marketed abroad as a location for  ‘light regulation’ to attract the speculators. Even before the current crash, it was known financial ‘Wild West’ where a business friendly government turned a blind eye to all sort of ‘financial engineering’.

The turning of a blind eye to the Anglo-Irish scams was therefore not accidental – it was part of state policy.

What is the official strategy for overcoming the crisis?

They don’t have any – they engage in pure fantasies about their long term prospects.  Up to recently they talked about Ireland becoming the ‘knowledge economy’ of Europe. This was despite that fact that we have a woeful scientific culture because of the refusal to invest in elementary items like science lab in schools.

The latest buzz word is ‘the smart economy’. We are supposed to imagine that Irish capitalists who thrived on profits from beef and property speculation will risk all on ‘innovation’!

Behind the fantasies, the real strategy is to cut workers wages in order to regain competitiveness and benefit from reflationary policies elsewhere. The immediate target is the public sector because 80% of union members work there.

If they can impose pay cuts – in the guise of a pension levy- this will be a signal to every private capitalist to cut wages and pension benefits.

It really is disgusting! Irish people must contribute billions to help the banks which helped cause the problem – and take pay cuts as well!

What should socialists advocate as an answer to the crisis?

First, the banking sector should be nationalised and the whole sector consolidated into one state bank that bans speculation and provides credit for socially useful projects.

Why should €500 billion be made available as a guarantee for toxic debts run up by speculators? The existing capitalists should be declared bankrupt so that their debts are liquidated and the state should nationalise the remaining assets.

Second, instead of supporting bankers state money should be used to fund an emergency job creation programme. We need a state construction corps to take on unemployed building workers and embark on major projects in public transport, a housing insulation programme; the building of crèches and social housing. We need alternative industries that provide jobs rather than condemning a new generation to emigration and the dole queue.

Third, we should immediately take the natural resources such as those in the Corrib or Dunquinn fields back into public ownership and use the surplus to develop alternative sources of energy.

Fourth, instead of cutting wages we should increase the tax base by claw-back taxes on wealth. The super-rich made an extra €41 billion in the last years of the Celtic Tiger. We should impose a 70% sur-tax on everyone earning over €100,000; we should impose an annual wealth tax on all assets; we should restore capital gains tax to at least 40% and eliminate all property relief taxes.

Fifth, we should a adopt a strict Right to Work policy which penalises employers who sack workers and gives full protection to those declared redundant. Workers should be encouraged to occupy firms that declare redundancy to demand that their account books are opened. Where they show continuing profits, their assets should expropriated to pay back all state grants and tax subsidies. Where they are bankrupt, they should be taken into public ownership to facilitate alternative job creation. To save jobs we should cut the working week, share out overtime and maintain living standards.

These are radical measures – but they are needed. And there is lots more we can do if we build a real political alternative – one that sees capitalism as a dead end system that needs replacement.