The Rise and Fall of Irish Social Partnership The Political Economy of Institutional Change in European Varieties of Capitalism Aidan Regan The Rise and Fall of Irish Irish Partnership Socialof Fall and The Rise Irish social partnership was the result of a historically contingent political strategy to navigate the integration of a small open economy into a globalized market, in which being able to attract and retain volatile capital was paramount. The main architect behind this strategy was the state, and the primary objective was industrial stability. At a critical juncture in 1987 the Irish government chose to adopt a labour inclu- sive strategy of adjustment to a fiscal crisis, the opposite of what occurred in the UK. This choice resonated with the ideational toolbox of the leading political party in power, Fianna Fáil. Given external constraints, and institutional legacies, the terms had to be such that no beneficial constraints were going to be imposed on business. Unlike other small open European countries no legal-statutory changes were intro- duced to institutionalise the countervailing power of trade unions. In light of these features the author argues that the outcome was broadly neoliberal in orientation. Social partnership was premised on a privatized political exchange in which wage moderation was compensated with increases in private consumption through tax re- ductions. It was not premised on the social democratic bargain of increasing public consumption and redistribution that occurred in classic Scandinavian corporatism. The author drives us through the various stages of social partnership pre and post EMU, from its origins as crisis management and economic development, to a sub- sequent phase in which government used the spoils of economic growth to buy off social dissent, to its eventual collapse in response to the Eurozone crisis. The book takes a strong stance against economistic accounts of institutional change in which actors pursue rational strategies and come up with optimal institutional designs. Drawing upon theories of institutional change in comparative political economy, it argues that economic institutions are premised on volatile political coalitions, and the main determinants of outcomes are the power resources controlled by the various actors. It is these domestic institutional resources that condition how na- tional actors respond to the adjustment constraints of global market capitalism. Regan Aidan The Rise and Fall of Irish Social Partnership The Political Economy of Institutional Change in European Varieties of Capitalism The Rise and Fall of Irish Social Partnership The Political Economy of Institutional Change in European Varieties of Capitalism Aidan Regan © Aidan Regan, 2012 All rights reserved. Save exceptions stated by the law, no part of this publication maybe reproduced, stored in a retrieval system of any nature, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording otherwise, included a complete or partial transcription, without the prior written permission of the authors, application for which should be addressed to author. The thesis is submitted to University College Dublin in fulfillment of the requirements for the degree of Doctor of Philosophy, March 2012. ISBN 978 90 361 0310 7 Cover photo: Freda Hughes Euro-Irish Public Policy http://aregan.wordpress.com This edition is for informal purposes only and is not intended for trading purposes Printed by Rozenberg Publishing Services Lindengracht 302 1015 KN Amsterdam The Netherlands (+) 31 (0) 20 625 54 29 [email protected] www.rozenbergps.com Table of Contents Acknowledgements…………………………………………………………………………VII List of Tables and Figures…………………………………………………………………..IX List of Abbreviations………………………………………………………………………....XI Abstract ……………………………………………………………………………..............XIV Introduction: Ireland and European Economic and Monetary Union (EMU)……….....1 Chapter Overview…………………………………………………………………………….18 Chapter 1: A Theory of Institutional Change in European Varieties of Capitalism 1. Introduction………………………………………………………………………………....23 2. Explaining Institutional change from Keynesianism to Neoliberalism……………………….24 3. Neoclassical Economics, Critical Marxism, Comparative Political Economy………………...28 4. Rational Choice, Historical and Power-Distributional Institutionalism………………………33 5. Neo-Corporatism, Varieties of Capitalism and Centralised Wage Bargaining………………...37 6. Historical Political Approach to Comparative Political Economy…………………………....42 7. Conclusion…………………………………………………………………………………..43 Chapter 2: Explaining the Renaissance of Social Pacts in European Industrial Relations 1. Introduction………………………………………………………………………………....44 2. Comparative Indicators on the Decline of Effective Labour Power…………………………45 3. Comparative Indicators on the Rise of Corporatist Policy Making…………………………..49 4. Explaining the Institutionalisation of Social Partnership…………………………………….56 5. Bringing Structures of Collective Bargaining Back In………………………………………..60 6. Trajectories of Liberalisation in European Industrial Relations……………………………...63 7. Conclusion……………………………………………………………………………...........65 V Chapter 3: Methodology and Comparative Historical Social Science 1. Introduction ………………………………………………………………………………...67 2. Ontology, Research Design and Case Selection……………………………………………...67 3. Causal Inference in Case Studies; Boolean Algebra and Process Tracing…………………….73 4. Temporal Sequence in the Process of Institutional Change………………………………….76 5. Strategies of Data Collection………………………………………………………………...77 6. Conclusion…………………………………………………………………………………..80 Chapter 4: The Emergence of Social Partnership in the Single European Market (1987-1992) 1. Introduction………………………………………………………………………………....82 2. The Coordinating Role of the State in Labour Relations………………………………….....83 3. Confronting a Fiscal and Debt Crisis in the European Monetary System…………………....85 4. NESC, Small States and Global Markets………………………………………………….....89 5. The Political Factors and Negotiated Adjustment …………………………………………..92 6. The Political Exchange of the National Wage Agreements………………………………….98 7. Declining Power Resources of Irish Trade Unions…………………………………………101 8. Conclusion…………………………………………………………………………………104 Chapter 5: The Consolidation of Social Partnership Under the Constraints of Maastricht (1993-1999) 1. Introduction………………………………………………………………………………..108 2. Confronting an Employment Crisis in the European Monetary System……………………109 3. The Constraints of Maastricht in Framing Domestic Policies………………………………113 4. The Political Emergence of a Centre-Left Coalition Government………………………….114 5. The Political Exchange of National Wage Agreements……………………………………..117 6. Assessing the Employment Performance of Centralised Wage Bargaining…………………122 7. The Emergent Faustian Dilemma of Irish Social Partnership………………………………129 8. Conclusion………………………………………………………………………………....130 VI Chapter 6: The Consolidation of Social Partnership in the Economic and Monetary Union (1999-2006) 1. Introduction………………………………………………………………………………..132 2. Reconstituting the Welfare State in a Period of Economic Growth………………………...133 3. Coordinating Social Policy in the Economic and Monetary Union…………………………137 4. The Politics of Low Taxes and Increased Public Spending…………………………………139 5. Public Sector Pay, Inflation and Benchmarking…………………………………………….140 6. From National Wage Agreements to Network Governance………………………………..147 7. Social Partnership and Building State Capacity……………………………………………..150 8. Conclusion…………………………………………………………………………………153 Chapter 7: The Collapse of Social Partnership in Response to the Eurozone Crisis (2007-2010) 1. Introduction………………………………………………………………………………..155 2. The Politics of Adjustment under the Constraints of EMU………………………………...156 3. The Impact of ECB Interest Rates…………………………………………………………160 4. The Impact of Pro-Cyclical Fiscal Policies…………………………………………………163 5. EU Enlargement, Migrant Labour and Industrial Relations………………………………..166 6. The Shift from a Negotiated to a Unilateral Adjustment…………………………………...170 7. The End of Social Partnership? ……………………………………………………………174 8. Conclusion…………………………………………………………………………………192 Conclusion: The Future Trajectory of European Industrial Relations; Hayek or Polanyi? Learning From the Irish Model of Capitalism 1. Introduction...........................................................................................................................................180 2. The State and Liberal Market Capitalism..........................................................................................181 3. Power Resources and Institutional Change......................................................................................183 4. Privatised Political Exchange and Political Coalitions....................................................................185 5. The Political Challenge of Constraining Markets............................................................................187 6. A Hayekian or Polanyian Europe? ....................................................................................................189 7. New Research Agendas........................................................................................................................190 Appendix – List of Interviewees…………………………………………………………....192 References…………………………………………………………………………………...194 VII Acknowledgements When reflecting back over this research project I am reminded of the famous remark by Karl Marx in das Kapital; “there is no royal road to science