Paul Sweeney: Yesterday, I got to shake the hand of the 5th most powerful man in the world - reluctantly!
Yesterday, JC Trichet, the President of the European Central Bank, said by Newsweek magazine to the 5th most powerful man in the world, made a speech in Dublin. As he left the meeting, I was introduced to him, and I shook his hand, but reluctantly. I suspect that he was somewhat reluctant to shake my hand too, as he heard I was with the Irish Congress of Trade Unions.
Here was a very powerful man in a world economy which is in deep crisis, who had just given a speech on Competitiveness which was straight from the 1980s. It was not economics but pure political economy, serving the interests of the Irish employers and government in their attempts to cut wages. His main message was that we must keep labour costs down.
It was straight from the 1980s understanding of competitiveness because it was the kind economics that Ireland left well behind, back then. It focused largely on cost competitiveness and then on wages, with some reference to unit labour costs. “I believe there should be more public awareness that insufficient attention of wage setting to current and expected productivity developments makes any correction to previous losses of competitiveness more painful in terms of output and employment losses,” he said. He also said “As I mentioned before, wage restraint would help a lot.”
M Trichet did not, however, advocate cuts, like some indigenous economists. He called for “wage setting to take account of the competitiveness and labour market conditions” (not unreasonable) in a what he termed a “responsible and timely manner”. And he said that “national authorities should pursue courageous policies of spending restraint especially in the case of public wages.”
So the government that messed up the economy with light regulation and pro-cyclical policies during the boom is now courageous?
He pointed out that many of Ireland’s fundamental economic strengths have not gone away and the economy is well placed when the international recovery occurs. But he said our success was due to a number of factors, including “a business-friendly regulatory environment.” I thought, reading the papers and listening to the radio, that our business-friendly regulatory environment was the reason Ireland is in deep trouble! Clearly, I was misled! It’s the overpaid workers!
Ireland, fortunately, developed a comprehensive view of what makes a country competitive, in the late 1980s - and Ireland moved on. For a while it became the Celtic Tiger, basing its economics on a whole world view of this complex issue. With a shared view of the total complexity of competitiveness, employers and unions and politicians worked together in a form of Social Partnership to push up employment massively, together with profits and real wages.
Back in 1982, in reaction to a government sponsored report on Competitiveness, by the Three Wise Men, I, with a group of other economists, the Socialist Economists, published Jobs and Wages: the True Story of Competitiveness. In a booklet, we set out the framework for a real comprehensive understanding of what makes a country competitive, from productivity, a functioning banking and insurance systems, good roads and interconnectedness, education and even advocated social partnership! The Irish government later actually set up a social partnership body called the National Competitiveness Council, as the behest of the employers, to analyse the issues on a continuous basis. It has produced excellent work in the area for many years.
However, in recent weeks, some Irish economists, who, believe it or not, avoided the area, (except to pepper reports with the word, 'competitiveness') have come back into it, but like M Trichet, have taken up where the so-called Three Wise Men left off – back 30 years ago.
For a group of economists, the panacea for all our problems appears to be wage cuts (for employees only; only occasionally for others). Now this is understandable because they can measure movements in wages. Economists love to measure things! They hate the impact of institutional and political factors on economies as they cant measure them. Wages are very measurable. One economist just sticks up a graph on total costs, which as we all know have been rising fast and concludes, without blushing, that Ireland’s competitiveness is heading south and wages should be cut (consumer costs are way above the EU average here – 14% above for goods and 21% for services in the EU27 or as high as 33% for consumer services).
Irish costs are way above the EU average, but the reasons are, much more complex than wages. On the other hand, wages have risen faster here than in other EU countries, but in a later blog, I will address this issue in some depth.
The emphasis on wages by economists and by M Trichet is worrying. If we, as a country, are to redefine competitiveness simply as wages, or even unit labour costs or even total costs, we will have lost our shared understanding of an important and real issue which makes our economy work.
It is the naked class nature of their analysis which is worrying. Will we soon stop shaking hands?
Paul Sweeney is Economic Advisor to ICTU