Book Review: ‘Ireland’s Economic Crash: A Radical Agenda for Change’, Kieran Allen, The Liffey Press, Dublin 2009.
21 August 2009
In the introduction of this book Kieran Allen refers approvingly to an argument of the radical author Naomi Klein to the effect that when shocks occur to society its rulers often take advantage of them to restructure how they dominate that society. This usually involves increased inequality and repression. Allen argues that ‘Ireland is presently undergoing a form of shock therapy’, in particular a sustained push for significant wage cuts. (p.17).
There is of course an element of truth in this. In Socialist Democracy’s immediate response to the bank guarantee introduced last September, which promised the banks that the Irish State would guarantee well over €400 billion – two and a half times a whole year’s economic output , we noted how the sheer scale and suddenness of the measure had left workers stunned. It all seemed incomprehensible; how could this possibly be afforded? Since then this guarantee has been the basis for all the subsequent bank bail out plans, even though each in turn is proof of the original measure’s misconception and failure.
There is perhaps however an important sense in which this idea of a shock doctrine is misleading. After the initial shock, and introduction of measures attacking workers living standards in order to fund the bank support schemes, the ‘shock’ turned to anger. Pensioners and students, but especially the former, responded with such fury and militancy that it was the politicians who were visibly shocked, and forced to reverse their proposed reductions in elderly entitlement to health care. A huge demonstration of perhaps 130,000 or more took place in Dublin against the ‘pension’ levy on public sector workers, and ballots in a number of unions threatened to develop into a coordinated strike against the Government.
Then the leadership of the trade unions stepped in. It called off the strikes, defused the protests, went into talks with the Government and bosses, declared that they - or rather workers - were prepared to accept cuts as long as they were ‘fair’; and have made sure ever since that even more austerity measures could be introduced with little resistance.
How did this happen? Why was such angry and militant resistance so quickly defused? And what does this experience say about the prospect of building a new resistance and one that might not suffer the same fate?
From our perspective the crucial element of explanation is the role of the leadership of the trade unions in successfully using the ideas and machinery of social partnership to demobilise and frustrate workers healthy instinct to fight back. While workers suffer reductions in their living standards bankers, developers and child-abusing religious are bailed out by the State. But all this begs a question: why is this leadership and ideology so successful?
In no small part it is due to the power of the forces ranged in its support – the State, main political parties, employers and union bureaucracies. The ideology and practice of partnership is supported and reinforced by all these forces and more. Their ideas are pumped out day after day by the mass media, politicians, employers both native and foreign, and the education system. Allen points out in this book how the ideas he calls neo-liberalism have been so successfully pushed in education, the sector in which he works and has most opportunity to see at first hand.
Perhaps even more importantly, the ideas peddled by the union leaders fit neatly into how society and its economy seem to work – fierce competition driven by an impersonal market in which workers are dependent on their bosses and the huge funds of money the latter can mobilise. Calls by union leaders for workers to agree to ‘fair’ sacrifices for the sake of Irish capitalism fit comfortably into this picture of the world, bolstered by nationalistic calls which demand support for the Irish component of this world-wide competitive market.
None of this however is decisive. Calls by Brian Lenihan to patriotic duty in accepting the cuts were widely derided and ridiculed. None of the self-serving stuff about protecting the economy prevented huge numbers of workers protesting or threatening strike action. Something else, or rather something more, stopped workers in their tracks.
That something else was the acceptance by workers of the decisions of their leaders in ICTU and SIPTU etc, and their inability to see a coherent alternative both to their leaders’ arguments and their organisational hold over the union movement. Allen at the end of his book appears to makes the toing and froing of resistance and mobilisation revolve around the twin emotions of anger and fear but, important as they are, they are not the centre of what is going on. Workers are no less angry now than they were in February when they marched in their tens of thousands and threatened to strike. Fear takes hold only when there is no comprehension of, or hope for, an alternative.
What has happened since February is that the union leadership has successfully demobilised workers and given themselves, the State and the bosses the space to ram home their ideological advantage and exploit workers’ crucial weakness, which isn’t lack of anger or increased levels of fear. It is lack of a coherent political alternative, so cruelly exposed in the recent elections in which many workers voted for Fine Gael, a party promising to inflict even deeper cuts.
For socialists this can be summed up as a lack of class consciousness. Even the bureaucratic leaders’ vice-like grip on trade union organisation can be released if workers are motivated and determined enough to do so. What matters is a political understanding of the nature of the crisis, why workers should not pay for any of it, what an alternative programme might be, how the trade union leaders will never fight for this alternative, and what must be done to organise a real resistance. All this is summed up in class struggle and the decisive element of workers’ consciousness of their class interests.
This long preamble to a book review is necessary because this is the starting point for any socialist analysis of the economic crisis and the alternative. It must address one key problem. How do we advance workers class consciousness? How do we help them to understand the causes of the crisis and what the alternative is? Kieran Allen’s book is the first major attempt to address the crisis from a socialist perspective with the potential outreach that mainstream publishing allows. It is therefore important. It also allows us to review what the socialist response to the current crisis should be.
Allen acknowledges in the preface a ‘certain ambiguity’ about his advancement of ‘practical solutions’ but reassures readers that ‘the solutions advocated come up against limitations of a for-profit system.’ (p. viii) Read the last part of this sentence again and it is quite clear that his ambiguity is overcome by . . . ambiguity. Do the solutions come up against the limits of capitalism, or do they go beyond it? If Allen questions the system should there be any room for an ambiguous answer?
Since ambiguity is erased and ‘solved’ in the real world it is always necessary to inspect ambiguity in the written word to determine exactly what is being said behind unclear, imprecise or an ambiguous formulation of words.
The first part of the book surveys the causes and consequences of the Celtic Tiger, its legacy of inequality and acute problems in the provision of public services, especially in health but also education. He notes the rampant corruption revealed by Tribunals of inquiry over the period and notes that the trade union leaders played a key role in protecting the political class, Fianna Fail in particular, from paying the political price for this corruption. In fact during this period the trade unions were partners with this corrupt elite.
Unfortunately this theme is not developed and the critical role of the union bureaucrats in not only supporting but being at the very centre of the corruption that led to such a spectacular bust is not at the centre of analysis. Thus the fact that David Begg of ICTU was part of the Board of the Central Bank when this body so spectacularly failed to regulate corruption and speculation in the financial sector means little. That Peter McLoone of the IMPACT trade union was Chairman when the State body FAS was embroiled in junkets at workers expense is also not symbolic of something crucial to the crisis.
Social partnership has been claimed by all sides as crucial to the economic development of the State, yet when that development is shown to be based increasingly on speculation and corruption the relevant parties, especially the unions, act as if none of it is any of their responsibility. In general the left downplayed the role of social partnership during the boom and we in Socialist Democracy criticised them for it. Allen himself, for example, stood recently for an elected post in SIPTU and refused to oppose partnership. This is but one illustration of what ambiguity in the written word means in political practice.
This is not to say that much of what Allen describes about Irish economic development is wrong. He highlights the fact that the Celtic Tiger really came in two phases. The first founded on foreign direct investment based on easy entry into the European market, a skilled English speaking workforce and low corporate taxation. There is nothing novel in this explanation and we have elsewhere emphasised the international aspect of foreign direct investment, and its development being not so much an Irish driven process as an international development in which the Irish State benefited.
Allen notes that 90% of exports come mainly from US companies. The frequent observation that exports are the one bright spot on the economic horizon and that this is what will pull the economy out of recession throws into relief the poverty of indigenous economic performance.
This first phase of the Celtic Tiger gave way to a second phase when this foreign direct investment, which is still held out as our saviour, started to show a reduction in employment: from 251,000 in 2001 to 223,400 in 2007. (p.36). Much of this employment was in non-unionised workplaces which is one factor that laid the basis for the division between public and private sector workers that the Government is now attempting to exploit. Allen again misses the opportunity to present any analysis on the extent to which this was also a direct result of partnership and a tacit agreement between union leaders and the Government for the former not to attempt to unionise US multinationals.
In place of US FDI came an increase in the size and role of the financial sector, symbolised by the International Financial Services Centre in Dublin. Light regulation and low capital requirements were important characteristics attracting foreign operations. Allen points out the role the Irish State played in servicing rather more notorious tax dodging locations such as the Cayman Islands while it paraded its EU probity credentials. This did not stop it gaining a rather unsavoury reputation anyway, inevitable when tax avoidance is a main consideration in setting up operations. More recent revelations about low ethics in high banking circles has apparently further damaged the reputation of the Irish State although it is this reputation that is now apparently endangered if we don’t unthinkingly sign up to NAMA and the bail out of international capitalists who invested in Irish banks and lost.
It says much about how seriously all this talk about reputation is when we note that commentators are hoping that, although the Irish State may suffer from the international crack down on tax havens, it may be considered as the acceptable face of tax dodging and gain from movement of hot money from the outright dodgy locations. No wonder we hear that everything is relative.
The second aspect of the latter phase of the Celtic Tiger is of course the property and construction boom, on which topic Allen is appropriately scathing. He rightly rejects any idea that a new form of regulation can prevent crises in the future. In fact it is increasingly becoming clear that there might not be any significant change in regulation at all. . Not only that, but the measures being introduced to save Ireland Inc. from prolonged depression look awfully like the state of affairs that led us to the current mess in the first place.
As we noted, some hope that hot money from tax havens might help out a financial services industry blackened by scandal. Now we have NAMA, in which taxpayers will pay reduced prices to take bad property loans off the banks and then, in a matter of years, prices for this property will recover. But in order for the taxpayer not to make an enormous loss property prices would have to go up to bubble levels again. And anyway, who will fund the purchase of all the useless developments that the State will rely on to avoid a whacking great loss? The banks? The banks lending to buy property at inflated prices? Have we not been here before?
Allen argues that the Irish economic disaster is a failure of neoliberalism and he spends some pages refuting a number of those who he takes to be authors of the neoliberal view. This part of the book is weaker than the previous chapter and Allen can’t really do his academic credentials any good by dismissing so many thinkers so summarily. Right wing and wrong they may be, but this is just not serious. Even more puzzling is the statement that neoliberalism does not describe how capitalism actually works (p.74) and that ‘it never functioned as a real economic programme.’ (p.76)
This might explain why the anti-globalisation movement which was built on the basis of opposing neoliberalism disappeared just as it apparently went into crisis. The political tendency to which Allen belongs, the Socialist Workers Party, also engaged in this anti-neoliberal movement, more or less uncritically. I don’t recall it saying that it was a case of false identification. Opposing neoliberalism was, and is, therefore not opposing capitalism, not opposing the real author of the crisis and attacks on workers. No wonder this movement failed to build a sustained opposition, when the object of its opposition doesn’t really exist.
Instead Allen reiterates the continuing powerful role of the State in economic affairs in contrast to simplistic claims that free markets require minimal state intervention to allow optimum allocation of economic resources. He thus contrasts ‘socialism for the rich’ with ‘neoliberalism for the poor.’ By this he means corporate welfare for big business and cuts in public services for workers.
This is a handy phrase, but it is wrong; so wrong it should not be used. Corporate welfare is not socialism for the rich; even social welfare by the capitalist State is not socialism for the poor. State hand-outs are not socialism. This misidentification of working class socialism with capitalist State activity is a recurring theme of the book and is its principal political weakness. Employment of this phrase is the least of the illustrations of this fundamental fault.
Allen denies that a regulated capitalism is the answer but is aware that in order to defend such a view he must demonstrate that the crisis is not simply a result of speculation that regulation could tame.
There is of course ample evidence of speculation and of regulation being unwilling to prevent booms turning into bubbles that burst, but he wishes to situate the crisis more deeply. This he observes in a crisis of (lower) profitability which has seen ‘modern capitalism enter(ed) a long downturn’ (p. 89) In this he relies on writers such as Robert Brenner, (see references on page 118). Thus, while there was a relative upturn before the current crash, this ‘was the weakest ever in the post-war period.’ (p. 89)
There is a debate among Marxists as to whether there has indeed been a world wide downturn or whether in fact the current crisis comes after a period of very major growth. Indeed an alternative view criticises Brenner, for example, for excluding the developing world from his empirical analysis of profitability. (See the web site of the British Marxists www.permanentrevolution.net) Some views are that the crisis is one of financialisation and not rooted in a relative shortage of surplus value.
Allen himself notes that ‘One of the most remarkable economic developments of the twentieth century has been the transformation of China into the second most powerful economy. Its economy grew at a spectacular rate of around 8 per cent a year in the 1990s and in the early twenty-first century. It was powered by an industrial revolution that turned it into one of the key manufacturing centres of the world.’ (p.103) It must be said that it is a bit hard to square such an observation with a long period of downturn, even harder when it follows a passage which reads that ‘the system was getting older and was showing lower signs of energy.’ (p.102)
This debate is not referred to by Allen which is a pity. It may have required more time and effort than he had available and is perhaps not central to his purpose. It must be obvious however that it is an important one. Are we facing an upturn in the world economy or a long and protracted recession or even a deep depression? What do these varying scenarios imply for socialist politics?
Instead Allen wants to show the relevance of Marx to understanding the economic crisis and in particular that the falling rate of profit is related to Marx’s theory of surplus value. To do so he takes what appears as a relatively short digress to explain this theory in as popular a manner as possible in order to make it more readily understood to a potentially unfamiliar audience.
To abbreviate an already truncated discussion this involves arguing that the source of profit is unpaid labour provided by workers – surplus value. Capitalists strive to extend the amount of this unpaid surplus through various means, of which lowering wages is perhaps only the most obvious. One very important means is investment in machinery which carries out tasks previously performed solely or mainly by workers. By increasing productivity and lowering costs for the innovating capitalist the latter can acquire additional profit in relation to competitors.
Unfortunately, for the whole economy an increase in the amount of money invested in machinery and raw materials relative to living labour puts pressure on the potential surplus value which can be created relative to total investment. The rate of profit may therefore fall. Countering this tendency has meant cutting the wage share of the economy and moving production to lower wage economies, including China.
One possible problem is that workers do not then have the income to purchase all the goods that are produced for them to buy. Increasing credit and the level of debt is one way of ‘solving’ this problem and the explosion of consumer debt may be seen as evidence of just such a problem and just such a response. This is undoubtedly an element in the crisis and in popular explanations of it is an argument that socialists may legitimately employ.
As so far described however the argument can be described as an ‘underconsumptionist’ one i.e. that the workers don’t have the wages to consume all that has been made for them to buy. As such it does not therefore get to the kernel of the matter. What workers don’t buy capitalists can. If capitalists aren’t able to buy more consumer goods this may mean that the problem is simply one that the wrong type of good is being made and the problem is one of disproportionality. All goods could be sold and sold at a profit if the right type of goods were made. Indeed it would seem a strange argument that capitalism goes into crisis when wages are too low and profits too high. Higher profits give capitalists more money to buy more luxury goods, invest in more factories, offices and machinery or hire more labour. There is therefore no overall lack of income to buy what is produced. Temporary problems may simply mean that the wrong goods have been made but not that wages are too low or profits too high.
The argument of Marx however is that it is in relation to total investment that it is possible to say that profitability is too low, even while wages are depressed. The total amount of living labour producing surplus value falls in relation to the amount invested in machinery, raw materials etc. Crises for Marx were not in this sense the problem but an expression of the problem, which is the contradiction between production for use and production for profit. Crises are a means for temporarily resolving this contradiction. It is the means by which some firms go bust and their market taken over by rivals who can then grow by buying up their machinery cheap, so lowering their costs and boosting profitability. They may also be able to hire labour more cheaply because of unemployment. Lower wages by itself however is not a solution but neither, as implied by the underconsumptionist argument, is increasing wages. While increasing the amount that workers can buy, raising wages also puts up costs, lowers profit and lowers the amount of goods that capitalists can buy.
Allen is aware of the fallacy of the underconsumptionist case, but perhaps in his desire to present readily understood arguments he comes too close to repeating it. His rather too enthusiastic endorsement of the capitalist economist Keynes in the next chapter (pp 130-132) is a case in point. One further criticism is that he presents no empirical confirmation of Marx’s argument about the cause of declining profitability and this would be necessary to refute theories that we are witnessing primarily a financial crisis.
These contradictions are played out on the world stage with extreme exploitation of Chinese workers providing the funding for US debt. Allen points out some of the potential strains and conflicts that have arisen and will intensify because of this uneven development.
To be concluded