Ireland has been hailed as an austerity success story. Kieran Allen examines the reality behind the hype and the prospects for resistance from below.
Ireland's exit from the Troika - the International Monetary Fund (IMF), European Union (EU) and European Central Bank (ECB) - bailout programme on 16 December is being celebrated as proof that austerity works. The storyline from the Irish ruling class is that sovereignty has been regained. They claim that 85 percent of the "heavy lifting" has been done and only a little more sacrifice needs to be squeezed from the population. The EU elite see the exit as a much-needed propaganda point to counter the growing criticism of their doctrine of "expansionary austerity".
The reality is that there is little to celebrate. The Troika brought tremendous social devastation - and there are few signs that much will change in the future. According to Forbes magazine - which named Ireland as the best country in the world for business - nominal wages have dropped by 17 percent since the Celtic Tiger crashed. Nearly 13 percent of the workforce is still unemployed even though over 300,000 have emigrated.
Tens of thousands have been conscripted into "labour activation" schemes which pay little beyond social welfare. Tax hikes on "pay as you earn" (PAYE) workers have increased dramatically, with those on a taxable income over 27,000 pounds paying a rate of 51 percent. New homes taxes and carbon taxes have further increased poverty, while water charges are set to increase at the end of 2014. Public spending on schools and hospitals has been cut dramatically.
None of these features will change with the bailout exit. Instead Ireland will enter into a new set of restrictions imposed by the EU Fiscal Treaty. It will be subjected to an "excessive deficit procedure" and the EU "six pack" rules. These ensure that the country will be monitored for strict adherence to artificial limits on public spending and will have to implement yet more "structural reform". In other words, far from an easing up on austerity, the country will continue under a regime of permanent surveillance to ensure the economy sticks to neoliberal targets.
In addition, the Irish state is committed to high interest rate payments on its national debt that will last until 2050. The current level of interest payment is 7.6 billion pounds a year. That is equivalent to giving away the entire budget for education to wealthy bondholders who have exploited the country's difficulty. These massive debts arose from a state decision to bail out private banks.
None of this, however, has stopped the Irish elite hyping up talk of a recovery. Bolstered by a lap dog commentariat, they believe that if enough "positive talk" is generated, investment will rapidly follow. They are also trying to manage the "austerity fatigue" of the population by pretending that there is a bright light at the end of their very dark tunnel.
Once again, however, the reality is very different. The primary strategy of the Irish ruling class has been to export their way out of the crash. They assumed that exports by multinationals would lead to growth and thus reduce debt repayments to "manageable" levels. But they failed to take account of the fact that the crash of 2008 was a systemic crisis and that recovery would at best be anaemic.
The continuing stagnation and weak growth rates in the global economy mean that the early success story of Ireland's exports is rapidly fading away. In the first six months of 2013, for example, the value of Ireland's merchandise exports fell by 6 percent. The persistence of stagnation and mass unemployment across the EU means that markets remain stunted.
All of this explains why there is a major divergence between the triumphalist propaganda of the state and private media about recovery and the actual underlying facts. Contrary to impressions given by the propaganda machine, the Irish economy has been marginally shrinking rather than growing in 2013. As a result, debt levels will remain at a strikingly high figure of 150 percent of Gross National Product (GDP) - the true measure of the Irish economy because it takes account of repatriated profits.
The Irish economy faces a number of deeper structural problems which arise from a development model adopted in recent decades. After the ending of the protectionist era in 1958, the strategy aimed to attract multinationals to boost economic growth. Ireland became one of the most globalised economies in the world, heavily dependent on both exports and foreign direct investment. In two periods - during the 1960s and between 1994 and 2008 - this strategy brought spectacular success as the economy boomed.
But problems have now emerged which threaten to derail it. First, foreign investment in manufacturing industries began to decline and became concentrated in three main sectors - pharmaceuticals, computers and medical devices. There is also the additional problem of the "patent cliff" in the pharmaceutical sector. Ireland is unusually reliant on the exports of US pharmaceutical companies. But as drugs such as Lipitor lose their 20-year patent protection, US investment is being scaled back.
These developments have been somewhat disguised by a spectacular increase in exports from the services sector. These come from companies such as Google, Apple and Microsoft - but figures are suspiciously high and do not appear to be related to significant extra employment.
Second, and related to this, as these sectors faced particular difficulties, Irish capitalism moved to being a centre for financial speculation. It provided a formal semblance of regulation while giving full freedom to the speculators. Today there is a shadow banking system - unregulated speculation - that is 11 times the size of the actual economy. As one of the top legal firms explains, "No special rules or authorisations are required in Ireland in order for a Special Purpose Vehicle to achieve tax neutral status." When the state elite talks in code about "restoring confidence in the financial markets", it really means bending to the wishes of this growing sector.
The changing dynamic of Irish capitalism means it is increasingly reliant on its status as a respectable tax haven. Manufacturing corporations increasingly set up plants as an adjunct or sideshow to their main activity - using Ireland as a base to hoover in untaxed profits from across the world. Thus Apple, for example, claimed to have earned 62 billion pounds through its Irish subsidiaries but only paid a tax rate of 2 percent. Facebook has paid a tax rate of 0.5 percent and Google 2.4 percent.
The growing reliance on financial speculation and growth in Ireland's tax haven status has had a number of major consequences. One is that the immediate whims and greed of the upper class are satisfied even more directly and crudely. The state machine has little leverage over them and so it bends to their every wish. When, for example, last year there was a decline in figures for investment due to a sudden downturn in the aircraft leasing business, the finance minister, Michael Noonan, rushed in a special unpublicised measure in his budget to give another tax break to this sector.
Overall the main effect of the crash has been to shift the burden of state revenue even further onto workers and away from profits. In 2007, for example, income tax accounted for 27 percent of all revenue but by 2012 it accounted for 42 percent when taken in conjunction with a new Universal Social Charge tax system. By contrast, corporation and capital taxes dropped from 20 percent to 13 percent.
The other consequence is that Ireland's broader industrial development - necessary to soak up the vast pools of unemployment and under-employment - has become more shaky, chaotic and dependent on wider international developments. A growing reliance on financial speculation is often associated with lower longer-term growth rates.
When a state tailors its policies to attract highly mobile financial capital, it often does so by squeezing its own domestic economy. Finance and property speculation are intertwined like Siamese twins and it is, therefore, not coincidental that the main basis for claims about an Irish recovery is the rise of construction and property prices, particularly in Dublin.
In addition, Ireland's status as the Atlantic tax haven is facing more scrutiny from the international ruling class. The very need to inject massive funds into the US economy has created a greater fiscal crisis of the state and this in turn has led to a Senate investigation into why US companies are hiding so much of their profits in Ireland.
Contrary to popular myth, there have been a considerable number of protests against austerity in Ireland. At the very start of the crisis in 2008, 15,000 pensioners surrounded Dail Eireann, the Irish parliament, and forced a government retreat on the withdrawal of medical cards. More than 100,000 people marched in protest at the imposition of a pension levy on public sector workers in 2009. Later that year 250,000 public sector workers staged a one-day strike and were about to repeat it when their union leaders called it off.
The demoralisation caused by that defeat gave the government considerable room for manoeuvre and the protest movements dropped off. After a short period, however, there was a revival around particular issues. Protests against hospital downgrades have mobilised extraordinary numbers, with 8,000 marching in Roscommon, 7,000 in Navan and an incredible 15,000 in Waterford. Mobilisations against the cuts to disadvantaged schools, the withdrawal of personal assistants to disabled people and cuts to home help care also extracted minor concessions.
The problem has not been the willingness of the population to protest, but rather the lack of a national organisation that was willing to "join the dots" and generalise the fight against austerity. The main organisations that could have done this are the unions. But the Irish unions had come through nearly two decades of social partnership where union leaders entered a consensus with the state elite to promote national development. The result was a huge weakening of the unions at grassroots level and a political disorientation when the crash came.
The major union in Ireland, SIPTU, is also led by a member of the Labour Party, who openly supported Labour's involvement in a coalition with Fine Gael, a right wing party. Up to now such union leaders have been able to feed off the demoralisation and defeatism they themselves created in order to further undermine serious worker-led resistance to the austerity programme. A rival axis in the union movement, which involves unions such as Unite, has been strong on a left rhetoric but weaker when it comes to delivering action.
So far the one movement that has been able to develop an alternative focus to the sell out strategy of the unions was the anti property tax campaign. It mobilised 10,000 on a national demonstration against the tax and was predominantly led by the far-left. The movement, however, made a tactical error in focusing on a boycott strategy as the primary weapon of resistance rather than street resistance and civil disobedience. An attempt to storm the Labour Party conference in 2012, for example, was met with condemnation from some leaders of the campaign.
The current situation in Ireland is, therefore, highly paradoxical. On the one hand, there is a mood of demoralisation among activists after the government scored two key victories. This year it was able to extract a further 0.8 billion pounds in concessions from public sector workers after SIPTU - which represents 200,000 workers - and the Irish Congress of Trade Unions managed to overturn a vote for resistance and use divide and rule tactics to get workers to accept reduced overtime payments and longer hours.
The deal, known as the Haddington Road agreement, cements the partnership arrangement between the state and the union leaders until 2016. In addition, the government was able to use the threat of the Revenue Commissioners forcefully extracting the home tax from wages and social welfare to defeat the anti property tax movement.
However, alongside the demoralisation there is a huge politicisation. In a country where, until recently, 85 percent of the population voted for the right wing parties of Fine Gael or Fianna Fail, a massive shift in the political landscape is under way. According to the latest polls, about 40 percent of the population is now looking to Sinn Fein and "independent" forces for an alternative. Sinn Fein has gained support by deploying a left rhetoric in the South - even while it implements neoliberal policies in Northern Ireland while in government with the dinosaurs of the Unionist DUP.
The space is clearly open for a principled left organisation. The first attempt to create such an organisation in the shape of the United Left Alliance floundered in a sea of internalised sectarianism. Yet other positive signs are slowly emerging. In the forthcoming local elections in May 2014 a strong challenge will be mounted by People Before Profit (PbP) which will be running about 50 candidates and also fielding a candidate in the European elections. The focus on elections arises from the present conjuncture where there is a low level of confidence among workers. But the strategy of PbP is to use the electoral campaign and the council seats won to push for real resistance.
Despite the triumphalist mood music of Ireland's rulers, rumblings of a political earthquake are slowly becoming louder.
Kieran Allen is the co-author of the book Austerity Ireland: the Failure of Irish Capitalism. Available from Bookmarks Bookshop.