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Social consensus and economic recovery

Published:Sunday | April 18, 2010 | 12:00 AM
Morrison

Dennis Morrison, Contributor

Ireland, which earned the moniker 'Celtic Tiger' after its turbo-charged economic growth in the 1990s and first half of the last decade, suffered a near catastrophic downturn in the first half of 2008. Suddenly, the country that had succeeded in lifting itself from being the 'basket case' of Europe had to mount a massive government intervention to rescue its financial system, as the bubble that fed its runaway housing market and construction boom burst. These days, the picture-pretty country whose poetic name, 'Emerald Isle', portrays its green and stunningly beautiful countryside - which capti-vated me when I first visited in the late 1960s - is fast rebounding.

Observers are attributing this to the consensual approach to national economic management forged in its social partnership that succeeded in resolving another major economic crisis that beset the country in the 1980s. That experience and the collaboration between government, trade unions, business and civil society has fostered informed debate in Ireland as to how to escape the economic crisis, and paved the way for painful adjustments.

Already, Ireland has earned praise for an austerity programme that includes pay cuts, tax rises, and public-spending controls. Elsewhere, this would have triggered social instability and brought governments to their knees, but has been implemented there with only minimum industrial action. One needs only to glance at the social agitation in Greece, another of the fiscal stinkers known as the 'PIGS' [Portugal, Ireland, Greece and Spain] to understand the progress being made by the Irish. And Britain, which is shying away from its shocking fiscal problems and mushrooming debt, is also aware of the social turmoil that is likely to accompany the inevitably painful adjustment.

When the Irish economy imploded more than a year and a half ago, it was declining at nearly 10 per cent per year, and there were predictions that unemployment could rise to as high as 20 per cent, as has happened in Spain. Interest rates were skyrocketing as the national debt surged due to the bail-out of banks and other financial institutions, and the fiscal deficit was expected to reach 12 per cent of gross national product (GNP). By taking decisive action backed by social consensus to restore order in the economy, the Irish were able to contain the fallout, with the decline in GDP held to 7.1 per cent in 2009 and unemployment forecast to peak at under 15 per cent this year.

In the mid-1980s, the Irish had been confronted by a crumbling economy, with the national debt spiralling out of control as budget deficits rose sharply. Fearing that the country was on the verge of social chaos, political, trade union, business and civil society leaders negotiated a programme for national recovery that included severe adjustment measures. These included reductions in health and education expenditure, setting up of a national body with representatives from the key stakeholders to review every item of government expenditure, and an inde-pendent entity to manage the national debt.

The process of building up trust and credibility was difficult but was strengthened as the measures began to bear fruit; political competition became less disruptive as the people became convinced that there was shared sacrifice in making the adjustment. When the social partnership began in 1986, Ireland's budget deficit stood at 7.9 per cent of GNP, a huge figure in those days, but by 1990, it was reduced to 0.6 percent as it began an economic take-off. Similarly, the national debt went from 122 per cent of GNP to under 100 per cent by the early 1990s before falling spectacularly to 35 per cent by 2002, at the height of the country's economic glory days.

Feasible economic adjustment

Here in the Caribbean, the experience of Barbados in the early 1990s is the closest example of the decisive role of social capital in making difficult economic adjustment more feasible and less debilitating. Under the watershed tripartite protocol negotiated with unions, workers and business leaders in 1993, the country was able to implement wages and prices restraints as the means of stabilising the economy. It took this path instead of devaluing its currency, as demanded by the International Monetary Fund, recognising currency stability as a critical underpinning of the Barbadian economic framework.

Thus, Barbados avoided the inflation psychology that afflicted Jamaica while at the same time restoring economic momentum. People drawn from Jamaica's major political parties, trade unions and private-sector groups have been exposed to the lessons of the Irish experience through various exchange visits involving leading figures in the conceptualisation and implementation of the partnership. Yet after numerous attempts at developing building blocks, some of which I have been a participant in, such as the Bauxite Sector MOU (the Manley Accord), there is still ambivalence about the overarching benefits of this kind of process as a pillar for national development.

If social consensus can be playing such a vital part in Ireland's emergence from its economic crisis, shouldn't countries like Jamaica that are confronting fiscal austerity and negative debt dynamics, the JDX notwithstanding, be learning and applying the lessons?

Dennis Morrison is an economist. Feedback may be sent to columns@gleanerjm.com.