The Economic Crisis

Following last June’s “‘mini-budget” a strange line up of forces emerged in the economic and political sphere, with the Government backing the demands of the trade union leaders as against those of the Federated Union of Employers. Of course we are used to the government employers and trade union bureaucrats playing their little games in the hope of bemusing and pacifying the rank and file workers, But on this occasion it would be dangerously wrong to think that the performing trio is putting on just another act. In fact what we are witnessing is a real crisis of perspective in the ruling class.

Buying time The Federated Union of Employers see that the economy is ina critical condition and is demanding immediate and decisive action to deal with the situation. On the other hand the government and trade union leaders, who have their reputations to think about, want to pursue a policy of, literally, buying time.

This is the policy that all three partners have been pursuing, for a long time, especially over the last period. Lreland’s rate of inflation (which has been consistently higher than all our main trading partners over the past several years) has lead to a loss of industrial competitiveness which, under normal circumstances, would have lead to an-enormous crisis of profitability, a fall in investment, massive redundancies, a . decline in consumer demand culminating in a general economic collapse, As it is these symtoms are already menacingly apparant. Hut an outbreak of crisis has been temporarily averted by a large dose of Government borrowing (which expanded by 610% since 1970) and by running up a debt with our trading partners (equivalent to 10% of our GNP). The massive proportions of this borrowing and balance of payments deficit shows the extent to which Irish capitalism is living on borrowed time. Sooner or later these debts will have to be paid back, Originally it was hoped to avoid the hour of reckoning by using the “borrowed time” to re-establish industrial competitiveness by reducing wages and increasing productivity ie. by reducing wage-unit costs. This was the objective of government policy which over the last period, combined expansionist budgetary policy with the implementation of National Wage Agreements. somewhat restricted, there was no major change on this front. According to the National Economic and Social Council, real wages rose by 124% under the first NWA, 12%% under the second NWA and by 28% under thei third NWA (co/f The Economy in 1974 and Outlook for 1975 p. 41). In the meantime the battle for productivity was not showing much. success either, Output per man hour increased by only 15% in the past three years, which, while reasonable by international standards was not nearly sufficient to compensate for parallel wage increases. Thus over the period unit wage costs rose by a whopping 37.2% which was way above the figure for all our closest trading partners (e.g. U.W.C.s in Britain, France and West Germany increased by only 32.8%, 25.2% and 14.8% respectively)

Underlying crisis come to the surface The underlying crisis in Irish capitalism and the smouldering crisis in the ruling class's strategy for dealing with i has been brought into focus by the international recession. Every major economic indicator shows that the crisis cannot be concealed or postponed for much longer. Gross ‘domestic fixed capital is expected to fall by 8% this year. Output will be down a further on last year, unemployment is now over 1(% and consumer expenditure, which has been falling continuously since the second quarter of 1973, was expected to fall again by another 3% before the mini-budget was announced, inflation was expected to rise bya further 25% this year. Tf the Irish economy is to escape a total collapse then it must be geared to take advantage of any short term upturn that may possibly follow from Europe and the U.S.A. This means that industrial competitiveness must be re-established immediately. The only possible way to accomplish this mission is by a drastic cut back in wages. And that is exactly what the employers are demanding from the government and trade unions.

* The government and trade union leaders are aware of the urgency of the situation, But they must consider the political consequence of any sudden move to tighten the workers belt. They have therefore opted for a stages approach — they want to borrow a bit more time ond make a more serious effort within the space of this time to reduce wages substantially. Accordingly there has been a dramatic turn about since the January budget when the Minister for Finance introduced a “moderately” expansionary budget borrowing only £127m. Even this sum was considered by the government to be a bit on the extravagent side.

Since then the government has opted, in the June mini-budget, to borrow a further 70m. The purpose of this is to finance a reduction in consumer prices in order to entice workers to abandon phases two and three of the 4th NWA and accept a wage cut instead. [t is then hoped that once the magic spell of wage increase is broken that workers will resign themselves to the hairshirt and tight belt in the future. This is what Mr, Ryan means when he speaks of the governments “package deal” being designed to break the “inflation psychology”.

Employers sceptical The employers, however, are sceptical that the policy of “buying time”, even with the utmost cooperation of the trade union bureaucracy, will be any more successful as a short-term strategy than it was as a long term strategy. Firstly the price reductions are too costly for the amount of breathing space and manoeuvring they offer — according to the Summer Central Bank Report, prices will be rising again in the last quarter of the year and the annual rate of inflation will have been reduced from 255% to only 22.7%. This does not offer much hope for defeating the

“pay chology of inflation”, while the expense of