The following report was drawn up by the Irish Marxist group, Socialist Democracy
10 November 2010
The Irish State is one of the most globalised in the world and for nearly two decades was held up as a model of economic development across Europe and further afield. Now it is in severe crisis and faces bankruptcy. The Irish Government has applauded its ‘first mover’ advantage in its efforts to enforce austerity – that it was taking the steps that sooner or later all other states would be forced to take. The small and weak character of the Irish State means that it often exaggerates trends that exist elsewhere. For all these reasons the Irish experience is an important one for others to study.
In particular because of the relatively early move to attack the living conditions of working people we have two years of experience of how this has been conducted, what reaction it has evoked from workers and what role the traditional workers’ movement has played. The weakness of the economy and State means that socialists have been faced with a fundamental crisis in which piecemeal or reformist solutions are not credible.
II Nature of the Crisis
The Irish economic crisis has been expressed through a huge property bubble in which huge credit was extended to build commercial and residential property leading to a massive increase in the size of the construction industry. This bubble became unsustainable with property being built for which there no market and house prices increased to the point that the loans necessary to purchase them could not conceivably be repaid. The bubble burst, property prices - especially of commercial property - have collapsed, and the banks which financed this speculation have become bankrupt.
The Irish State in September 2008, faced with one large bank unable to finance its immediate obligations, guaranteed the liabilities of all the domestic banking institutions. These liabilities had a potential cost of around €440 billion, which was over two times the size of the whole economy and could not possibly have been paid. The banks and the Government initially claimed that the problem was one simply of liquidity and not one of solvency. In fact it was perfectly clear then, and obvious now, that the problem was that the banks were insolvent.
Despite ideological opposition to state ownership the Irish State has been compelled to take four of the six domestic financial institutions into state ownership. In implementing the guarantee and carrying out nationalisation it has transferred the debts of the banks to the State. This means that the State has more than doubled the national debt in a couple of years. Because the State also relied on taxes that were dependent on property the collapse of this sector has meant a collapse of State revenue and an annual budget deficit of around 12 per cent of GDP.
The determination of the Irish State to protect those who invested and lent money to the Irish banks and its equal determination not to tax corporate profits, especially those of multinationals, now means it faces insolvency, having been forced to stop borrowing on the international markets because of the high interest rates being charged. Many large investors will now no longer buy Irish State debt.
III The European Dimension
The specific character of the crisis in Ireland is due to local circumstances although property bubbles have also taken place in the Spanish State and, of course, in the United States. The Irish crisis however could not have happened without the funding provided by the banks of the big EU countries, particularly Germany and France. Banks in these large countries sought to make profits from the unsustainable Irish property boom.
The policy of the Irish State has therefore been to get Irish workers to pay for the speculation of not just Irish banks but also those from Germany and France. The policy of the European Central Bank, just as with Greece, has been to bail out these large European banks. This has been achieved indirectly by supporting the EU States, which owe these banks money or have taken on the debts of local banks which owe them money, or directly through accepting poor collateral for ECB loans.
The origin of the Irish crisis therefore lies in the accumulation of money capital generated in the large EU states. The export of this has caused an asset bubble that is similar to those that have characterised economies across the world over the last few decades. In the EU this problem is intensified by the superior productivity of cores States such as Germany and the use of a common currency which prevents adaptation to the competitive pressures faced by the weaker States through devaluation. The EU was justified as a means of harmonising economies and achieving their convergence but the current crisis has shown that this is impossible under capitalist production.
In summary: the Irish financial crisis is the result of the accumulation of capital in the largest EU states which has not been applied to industrial investment and which is directed to profit from speculation. The political power of the largest states projected through the institutions of the EU means that the capitalists of the largest countries are protected despite their reckless investments. The workers of Germany etc. are exploited to generate this capital and the workers of Ireland and the other ‘PIIGS’ are expropriated to ensure it reaps its reward from speculation.
The bail out of the banks and sudden collapse of taxation revenue has compelled the Irish State to embark on a programme of massive austerity measures which have so far cut public sector wages, increased taxes, reduced services, cut public services and increased unemployment dramatically. These measures have produced a return to emigration, which over the last decade or so had been reversed with the country witnessing large immigration from Eastern Europe.
None of these measures has been enough and the increased estimates of the cost of the bank bail out plus a large fall in the size of the economy has precipitated such an increase in Irish State debt that it is no longer able to afford borrowing on the international capital markets. The State has enough cash until early next year but will be unable to afford to borrow if interest rates remain at their current high level – reaching over 8 per cent this month, higher than Argentina with its recent history of defaulting on its debt. The Irish State cannot afford to bail out its zombie banks and is now taking the first steps to sell off its productive state enterprises in order to attempt to stave off bankruptcy.
The EU Commission has demanded a programme of four more austerity budgets to bring the deficit to within 3 per cent of GDP by 2014 as required by the EU Growth and Stability Pact. Funding for the Irish banks and hence for the Irish State which owns most of them is completely dependent on the European Central Bank. The Irish State is now completely dependent on the EU Commission and must seek its approval for its programme of austerity. The Commission has sought to put pressure on all the large political parties in order to enlist their support for the current Government’s programme of cuts. All but one party – Sinn Fein - has agreed that the 2014 target for deficit reduction must be met while Sinn Fein, like the Irish Congress of Trade Unions (ICTU), has simply asked that the timescale for its achievement be postponed for a further few years.
V Workers’ Reaction
The first attacks on public sector workers evoked enormous anger from the whole population and a demonstration of over 120,000 took place in Dublin at the beginning of 2009. This is equivalent to a demonstration of 2.3 million in Berlin or 1.8 million in Paris. It was notable that this demonstration opposed all the austerity measures implemented and involved many unorganised workers. A number of public sector unions announced ballots for strike action and a number of strikes were due to take place simultaneously. The prospect was raised of a fight for a general strike of all workers.
It was this logic that prompted the leadership of the trade union movement to call off the promise of strikes and enter negotiations with the Government. They called for a continuation of the social partnership model which has involved a series of agreements with the Government and employers’ federation covering wage increases and other aspects of social policy including taxation and eliminating strike action. The Irish workforce is heavily unionised by international standards; around 40 per cent of the workforce is in a trade union although this falls to only 25 per cent in the private sector.
The negotiations signalled acceptance of the cuts that had just been implemented and that the union leaders had no intention of taking effective action to stop further cuts. The Government then introduced further cuts. The trade union leaders once again called demonstrations which were again well supported and also a one day strike by public sector workers but once again went into negotiations with the Government with the same results.
Eventually the union leaders accepted all the cuts that had been imposed plus further cuts in public services, including privatisations, on condition that there were no more cuts in wages or pensions and previous wage reductions would be reversed if this was possible. These last conditions could be broken by the Government if the economic situation worsened significantly, which it inevitably would.
The second round of protests, while large were not as widely supported as the initial demonstration. They did not include unorganised workers or any significant support from workers in the private sector. The Government had engaged in a strategy of divide and rule by blaming public sector workers for the budgetary problems that necessitated cuts. The trade union leaders played right into this trap by accepting cuts in public services that would affect all workers, while seeking only to put a limit to the pay and pension cuts applied to workers in the public sector. This made it look like the Government’s claims were true - that the trade unions were only interested in their public sector members.
The main reason however why the trade union leadership has been successful in demobilising and demoralising workers is that workers have failed to identify an alternative to austerity around which they could organise, mobilise and fight. They have no economic or political programme and their anger has found no means of political expression, which can eventually mean that it will settle into pure cynicism, demoralisation or embrace of reactionary prejudices that blame immigrant workers.
The major reason such an alternative has not developed is that workers have accepted the ‘alternative’ programme launched by ICTU - ‘A Better, Fairer Way’ - which accepts that workers pay for the crisis but that the rich should also pay. Since the bank bail out and budgetary cuts are designed to protect the very richest in society it is clear that the rich cannot be made to pay. It is also clear that since workers are not at all to blame for the situation they should not therefore pay anything. The trade union and Labour Party position is simply that the cuts and the reduction of the budget deficit to 3 per cent of GDP should be accomplished over a longer period of time.
This is justified by a nationalist view that ‘we are all in this together’ and must work together to save the State from bankruptcy. The capitalist assertion that Irish workers must be made competitive is not rejected but only contested on the narrow grounds that competitiveness is not determined solely by wages. No political party has put forward an alternative to the core arguments of the Government and the workers have been left politically disarmed, reduced to claiming that what is happening is not fair. This is not a basis on which successful resistance can be achieved.
Irish trade unions are extremely bureaucratic and tightly controlled. Workers political consciousness in Ireland has historically been quite low and this has been further depressed by decades of social partnership in which it is claimed that the interests of workers, State and bosses are compatible.
Trade union leaders have been placed on the Boards of Directors of State agencies as reward for their role in treating the State and bosses as partners. This has included being placed on the Boards of newly privatised companies. It has been estimated recently that the State has spent over €100 million in the last ten years on the infrastructure of social partnership which has generated enormous opportunities for fraud and corruption. This has led to uncovering serious scandals in which State funding for training of the most vulnerable workers has been misused to facilitate enormous profiteering by private companies and overseas junkets by senior union officials.
The previous economic boom and the scale of the funding for the partnership process has ensured that the corruption that is most visible at the top of the trade union movement has infected lower levels of the union movement. Workers opposed to the cuts have therefore had to face sabotage of their efforts to fight back from their own organisations. Workers opposed to the criminal policy of betrayal by their union organisations have found it extremely hard to organise within the unions to reverse the betrayal. They have been ill equipped to find the political and organisational resources not only to fight back against the State but also against their trade union leaderships.
The willingness of workers to fight back, their weakness in terms of control of their own union movement and their political weakness - reflected in acceptance of nationalist solutions - all point to the tasks to be accomplished. They point to the need for militant workers and socialists to independently organise the rank and file of workers inside, across and outside the trade union movement and to fight an ideological battle to win them to a programme that can provide the political resources for a genuine alternative that can arm them in their struggle.
The small socialist movement in Ireland is ill equipped to address these tasks but this situation is made immeasurably worse by the fact that this diagnosis of the situation is not accepted by most left organisations. Instead the major weakness of the working class over the past period has been identified by them as a crisis of working class representation. This means identifying the major weakness of the working class as inadequate electoral representation.
This is badly wrong for (at least) 8 reasons
· It leads to a refusal to draw the necessary lessons above.
· It reinforces electoralist illusions that real power lies in bourgeois parliaments. It necessarily downgrades and de-prioritises, the independent role of workers’ own action. It fails to record that while real power does not lie in parliament for the capitalist class this is even more the case for the working class.
· It is even truer today in Ireland that real power does not lie in the Dail (Irish parliament). The Irish State is now effectively being run through the instructions of the EU under the threats of the bond market.
· It leads to a search for electoral alliances which have involved surrendering socialist politics. Organisations calling themselves Marxist have even dropped references to socialism never mind gutted its content. This has meant lending false legitimacy to parties that have no claim to be progressive representatives of the working class in any respect. In Ireland this has included Sinn Fein and the Green Party which are in Government, North and South respectively, and have therefore had a chance to be well and truly tested.
· Similarly it has meant conscious refusal to break from and challenge the trade union bureaucracy. This has led to left organisations providing excuses for this bureaucracy by claiming that they have simply not acted strongly or bravely enough. Once again these organisations have lent legitimacy to the worst betrayers of working class interests.
· These organisations have fallen into the trap of the current Government which has clung on to power despite huge unpopularity knowing that it can impose austerity while workers opposition is imprisoned within the electoral calendar. It is widely accepted that the alternative Governing coalition that will take office after the next election will be just as enthusiastic in implementation of austerity and that therefore the left’s strategy is based on elections that are perhaps another five years away – after all the major cuts have been implemented!
· This reveals the passivity that electoralism engenders. Elections simply register the balance of the class struggle. If no successful resistance is created over the next period the elections that the left is pinning its hopes on will record demoralisation and further disorientation.
· The much needed unity of the left is much more difficult to achieve in the electoral arena, which brings to the fore the most narrow and sectarian instincts of left organisations. The political questions which divide the left are posed in a way that makes their resolution more difficult.
Large economic crises provoke crises of policy not only for the capitalist class and its state but for working class organisations. The current financial crisis has led to a vigorous debate within representatives of capital over the appropriate policy response. It is important that socialists do not find themselves following one or other of these factions.
The following must be taken into account.
· Nationalisation by the capitalist state is not a socialist measure. In Ireland it has been used to transfer the debts of irresponsible bankers and property developers to the general population, threatening the capitalist state with bankruptcy in the process, and burdening working people with a debt they did not incur.
· Keynesian-type measures including quantitative easing and deficit financing have been employed by numerous governments. Opposition to cuts should not lead socialists to support such measures since they are designed to reduce workers living standards through inflation and can at best only postpone austerity.
· Nationalist sentiments are stoked by particular policies which are designed to blame workers in other countries for the actions of their rulers. For example Greek workers are portrayed as lazy and German workers are encouraged to believe that they are paying for this when what they are paying for is a bail out of German bankers. Workers in every EU country are encouraged to compete with each other to lower wages and accept reduced public services and welfare.
The policy of socialists must be based on:
· Complete opposition to all cuts in wages, services, pensions and jobs. Companies declaring redundancies must be occupied by the workers and the demand raised for workers’ ownership. The state must be called upon to hep finance these worker enterprises and provide all other expert or logistical support that may be called for by the workers.
· A strategy of mass direct action must guide resistance with the perspective of a general strike that would demand a workers’ solution to the crisis based on workers ownership of enterprises and development of an economic plan drawn up by workers and other sectors excluded by capitalist ownership.
· The crisis exploded in the financial sector and further explosions are inevitable. Where such institutions are nationalised we must demand workers’ control. Instead of capitalist state ownership we should demand ownership by the workers with a workers plan developed to determine how the resources controlled by such institutions should be applied. This proposal can be utilised as a means to win other sectors of society to a socialist alternative and mobilise them in support of workers’ action.
· The EU and its bureaucracy has become a means to impose cuts and through the European Central Bank to blackmail countries into imposing austerity. The Stability and Growth Pact must be rejected. The debts of the ‘PIIGS’ must be repudiated and written off. Socialists should call for a European workers’ bank. We must demand a truly democratic European State and a United Socialist States of Europe.
Even the basics of such a programme are in complete opposition to the current leaders of the working class movement in every country. It can therefore only advance by defeating these current leaderships while using the methods of the united front to do so. This will require a long political struggle to organise and politicise the rank and file of the workers movement. This is not possible through electoral initiatives which are based on existing levels of working class consciousness and organisation. At most electoral initiatives can take a subsidiary role in such education and organisation.
The capitalist class, despite its division into competing capitals and competing states, is a thousand times better organised and united at the international level than is the working class. The fundamental policy of socialists must be to change this. Socialists must have a united approach to the crisis or they too will inevitably fall into nationalist ‘solutions.’ Socialists must have an international organisation and programme that rivals and surpasses that of the capitalist class. We must recognise that currently we lag far behind in this respect.
At the very least the European sections and sympathising organisations must produce a joint analysis of the crisis and a joint programme in response. Propaganda at an international level should not be beyond our organisational capacity. A project that brings together rank and file initiatives across Europe is one idea that could address some of the tasks above.