European Trade Union Institute Bd du Roi Albert II, 5 1210 Brussels Belgium Tel.: +32 (0)2 224 04 70 Fax: +32 (0)2 224 05 02 [email protected] www.etui.org A triumph of failed ideas European models of capitalism in the crisis Edited by Steffen Lehndorff A triumph of failed ideas The current crisis in Europe is being labelled, in mainstream media and politics, as a ‘public debt crisis’. The present book draws a markedly different picture. What European models of is happening now is rooted, in a variety of different ways, in the destabilisation of national models of capitalism due to the predominance of neoliberalism since capitalism in the crisis the demise of the post-war ‘golden age’. Ten country analyses provide insights into national ways of coping – or failing to cope – with the ongoing crisis. They — reveal the extent to which the respective socio-economic development models are unsustainable, either for the country in question, or for other countries. This Edited by assessment holds not just for ‘weak’ countries like Greece but equally for an Steffen Lehndorff allegedly ‘strong’ country like Germany. ideas of failed A triumph Lehndorff by Steffen Edited The bottom-line of the book is twofold. First, there will be no European reform agenda at all unless each country does its own homework. Second, and equally urgent, is a new European reform agenda without which alternative approaches in individual countries will inevitably be suffocated. This message, delivered by the country chapters, is underscored by more general chapters on the prospects of trade union policy in Europe and on current austerity policies and how they interact with the new approaches to economic governance at the EU level. These insights are aimed at providing a better understanding across borders at a time when European rhetoric is being used as a smokescreen for national egoism. Price: € 20 D/2012/10.574/01 ISBN: 978-2-87452-246-8 9 782874 522468 After the party’s over: the Irish employment model and the paradoxes of non-learning James Wickham 1. Introduction Until 2008 Ireland was the poster boy of neoliberal politicians. With its economic growth at times reaching Asian proportions for over two decades, the so-called Celtic Tiger apparently demonstrated the veracity of liberal economic principles: global openness, low taxation and a flexible labour market. Ireland was held up as a model by the (then) UK Shadow Chancellor George Osborne as a lesson for the UK and by the President of the European Commission Manuel Barroso as a model for Europe. Today, Ireland is one of the bankrupt states of Europe, but Irish politicians like to claim that Ireland is not Greece or Portugal. That is precisely the point. Nobody ever claimed that Greece or Portugal were models for the rest of us, but the crisis in Ireland is the crisis of a success story. Logically, one would expect that the depth of the crisis would lead to a questioning of the model, but that has not happened. The Irish crisis shows how whole political systems can go into denial. The chapter begins (Section 2) by describing the bubble labour market of the final years of the Celtic Tiger and its sudden collapse. Section 3 shows how the road to the crisis was prepared by four core features of the Irish model: the veto-power of Foreign Direct Investment (FDI), the financialisation of everyday life, the importance of the banking sector and, last but not least, social partnership. Section 4 outlines the changes that have occurred so far in the employment system during the crisis. The chapter concludes with the paradox that the country where the relative impact of the crisis has been greatest appears to have learnt least from the experience. A triumph of failed ideas – European models of capitalism in the crisis 59 James Wickham ................................................................................................................................................................. 2. The bubble labour market Conventional accounts of recent Irish political economy contrast a good boom with a subsequent bad bubble. The boom was export-led FDI lasting from the late 1980s through to the start of the twenty-first century, after which it was overlaid with a domestic asset-based bubble. After the slump of the early 1980s, Irish economic growth began again in the late 1980s with GDP growing both absolutely and in per capita terms through the 1990s and reaching 10.7 per cent in 2000. GDP growth continued for the first few years thereafter, reaching 6.0 per cent in 2007. This time, however, the driving force was the expansion of domestic credit leading to rapidly rising asset prices – a classic property bubble. The collapse came in 2008, when GDP contracted by 3.0 per cent and fully 7.1 per cent in 2009 (European Commission 2010). These developments were reflected in the labour market. In the mid- 1980s Ireland had mass unemployment and mass emigration. In 1985, for example, unemployment stood at 16.8 per cent (in the then EU only Spain was higher, at 21.6 per cent). While GDP growth began, recovery in the labour market was initially slow. As late as 1996 the unemployment rate was still 9.9 per cent, although it fell to 5.7 per cent in 1999. The number in work was growing, but so too was the labour force: Ireland’s late baby boomers of the 1970s were entering the job market, more women were now looking for work and emigrants were returning. After 2000, employment continued to grow, reaching a peak of 2.122 million in 2007, an increase of more than 50 per cent on the 1997 figure (European Commission 2010). From about 2000, employment growth was driven largely by immigration. Between 2001 and 2007, the number of Irish people in work rose from 1.555 million to 1.660 million, an increase of just over a hundred thousand. By contrast, in the same period the number of foreigners (‘non- nationals’ in official parlance) at work rose from 77,000 to fully 312,000, an increase of nearly a quarter of a million! By the time of the 2006 census Poles had become the second largest group of non-national citizens in Ireland after the British, and by 2008 estimates of the total Polish population were as high as a quarter of a million. There was more Polish than Irish spoken on the streets of Dublin. This immigra- tion was a mass labour migration within the European Union: new member state (NMS) migrants had the same employment rights and 60 A triumph of failed ideas – European models of capitalism in the crisis After the party’s over: the Irish employment model and the paradoxes of non-learning ................................................................................................................................................................. largely the same social welfare rights as Irish citizens. Unlike illegals, they could not be threatened with deportation; unlike immigrants on work permits they were not tied to specific employers. Total employment in construction rose to a peak of 269,900 in 2007, at which point it comprised 13.4 per cent of total employment. Within the EU only Spain had similar proportions (CSO 2008: 18). As Figure 1 shows, in just three years between 2004 and 2007 the number in work in construction rose by over a quarter. At the end of 2007, 18.3 per cent of all construction jobs were held by immigrants (13.5 per cent from NMS) and there was some truth in the popular understanding of the Irish building industry as Polish immigrants building apartment blocks for the next wave of new arrivals to inhabit. However, unlike in Spain, immigrants spread through most of the occupational structure. At the peak of employment in 2007 immigrants from the NMS accounted for 8.1 per cent of all those in work, including 20.2 per cent of all jobs in accommodation and food, 11.5 per cent of all manufacturing but also 13.9 per cent of administration and even 2.6 per cent of financial services. Indeed, despite overrepresentation in less skilled jobs, 7 per cent of all NMS immigrants in work were employed in professional and managerial occupations (CSO 2011a). Figure 1 Total employment and unemployment 2004–2010 total construction total non-national total New Member States total unemployment (ILO) 350 thousands 300 250 200 150 100 50 0 2004 2007 2010 Source: Derived from CSO (2011a). A triumph of failed ideas – European models of capitalism in the crisis 61 James Wickham ................................................................................................................................................................. The astonishing employment growth shows how, just as Ireland had an asset bubble, it also had a labour market bubble. There are striking historical parallels with the booms in the new settler societies of the nineteenth century: extraordinarily rapid growth in which populations could double in ten years; ‘boosterism’, propaganda that involved a suspension of normal beliefs so that continued exponential growth seemed possible; and finally dramatic crashes when growth ceased and population fell (Belich 2010; Reeves et al. 2010). Just as in the settler booms the rapid growth of employment depended on the continued inflow of new settlers, so in a bubble labour market there is a continued inflow of new workers. The notion of a territorially bounded labour market collapses. The apparently inexhaustible supply of labour involves a paradox. On the one hand, migrants flood in because they assume they will obtain well-paid jobs. On the other hand, this continued inflow reduces wage inflation: demand for labour rises, but so does supply. The paradox can be resolved when we realise that there are two frames of reference involved. For the migrant, the point of comparison is the wages back home (Waldinger and Lichter 2003); for the employer, the comparison is wages in the local labour market.