The economy is growing, but who’s reaping the rewards?

As Ireland faces years of consecutive economic growth, is the so-called recovery being felt and is it sustainable?

appleie
A recent report by the European Commission predicts growth in Ireland for 2018 to be 5.6%, with ongoing but reduced growth of 4.0% in 2019. Roughly a decade on from the Great Recession, years of successive growth in the economy may give rise to a false sense of security and reinforce the idea that the world economy – which Ireland is extremely exposed to – has returned to stability and growth.
Unfortunately, measures of GDP and even GNP are extremely ineffective with regards to getting an accurate reflection of economic activity in Ireland. This is due to the distorting effect of multinational corporations on measurements. After Ireland posted an unbelievable GDP growth figure of 26% in 2015, criticised by US economist Paul Krugman as “Leprechaun economics”, the Central Statistics Office (CSO) began introducing a new measurement, GNI* (Modified Gross National Income), to measure our economic activity. The 26% growth figure was caused by restructuring by Apple, and its rerouting of profits, intellectual property transfers and so on, through the Irish state in order to avail of our low tax system. In 2014, Apple had a 0.005% tax rate – or €50 for every million it made in profits. While Apple’s tax inversions reflected no actual growth in the Irish economy, it did result in an increase of roughly €300 million (~20%) in Ireland’s contribution to the EU budget by means of the GDP Levy.
EC2018SummerForecast
Source: European Commission Economic Forecast, Summer 2018

So, should we find the claim by the European Commission that we’re facing 5.7% growth in 2018 reliable? Not particularly – after all, that absurd 26% growth figure that Ireland achieved in 2015 was fully in compliance with Eurostat regulations. When compared to GNI*, GDP growth for Ireland in 2016 was revised downwards by the CSO by roughly a third. Under our new measurements, the March 2018 OECD survey found that, in 2015, the GNI*-to-debt ratio was 116.5%, contrasting to the GDP-to-debt ratio of around 76.6%, painting a significantly different picture for the state of the Irish economy. It also found Ireland’s debt per capita to be the second highest in the OECD, at roughly $62,000 per person.

Things have moved on a bit since 2015, but that fundamentals of the Irish economy remain essentially the same, that of fairly strong on-paper growth, downward unemployment and increasing consumer spending. At the same time, wealth inequality across Europe is at the highest point it has ever been, and Ireland is little different with the top 5% of households holding 37.7% of the wealth, while the bottom 50% own less than 5%. The figures get more striking when we look at the fact that the top 10% in Ireland owns 82% of all land (by value). The uneven nature of the Irish economic recovery remains abundantly clear when the top layers of society hold such massive amounts of wealth. In the decade since 2008, the top 20 richest people in Ireland increased their wealth by over €35 billion – an increase of 145%. At the same time, the great recession resulted in the largest drop in real wages since World War II, our public services have been gutted, we’re in the midst of a colossal housing crisis, with rents going up a staggering 70% since their lowest point in 2010 (along with state subsidies for landlords to the tune of €6.4 billion over the past 12 years), and the rate of precarious work has skyrocketed, with a 179% increase in non-permanent employment since 2008.
DublinRentalTrends
Source: Daft.ie Rental Price Report Q1 2018

Overheating?

In this context, there’s an ongoing debate over whether or not the Irish economy can be considered to be “overheating” – that is, whether or not our actual output (economic activity) is exceeding our potential output, and if our economy is doing more than is sustainable for our economic base. Capital and labour gets overemployed and and the end result is that the labour pool becomes “inflexible” and we’re unable to take on new major projects or public works. It’s a fundamentally unsustainable situation given that we cannot indefinitely overemploy labour. There is no consensus with regards to Ireland’s status, with the OECD warning us of overheating whilst the European Commission projects that Ireland will be operating below potential capacity into 2019. If Ireland were overheating, the consensus would be for the Irish government to engage in contractionary fiscal policies in an attempt to decrease consumption and deflate the level of demand in the economy, and key social needs such as mass housing builds to resolve the housing crisis would be completely off the table.

Ultimately, the framing of the discussion is wrong – if Ireland is in danger of overheating, we simply need to adopt policies which increase our potential capacity. We can invest all the capital we want, but it will be unproductive if there are no workers to be employed. However, considering the prevalence of precarious work, the burden put on parents by the cost of childcare and insecure housing, full participation in the Irish economy is proving impossible for hundreds of thousands of workers. “Overheating” in this case, is the product of right wing economic policies adopted by successive Irish governments. Simply put, we can go a long way towards improving Ireland’s capacity for economic activity by tackling key social problems.

In addition to this, policies such as relaxing immigration restrictions, ending Direct Provision and opening up our country to refugees, would have the impact of expanding the available labour pool in the Irish economy. Historically, right wing governments have taken advantage of immigrant labour to undercut pay and conditions of workers and to stir up racial tensions, all while exploiting them for economic gain and greater profits for their business partners. Contrary to this rotten approach, a government pursuing leftist policies could institute rigorous labour rights protections, facilitate stronger unions and the provide secure employment for all.

Danger ahead

The open nature of the Irish economy on the back of decades of neoliberal policy making has resulted in an intense vulnerability to tremors in global capitalism. The global financial crisis hit Ireland especially hard because of our exposure to the global banking system and reliance on foreign direct investment compounded with the fact that the Irish government was completely unwilling to curtail an obvious property speculation boom. In terms of fundamentals, little has changed other than the fact that successive governments have doubled down on our low-tax model and have gone kowtowing to multinational companies for investments.

globalgrowthproj
Global growth projections into 2020 Source: World Bank Global Prospects June 2018

The uncertain nature of Brexit and the Trump presidency leave the Irish economy laid bare and at the mercy of the global markets, and the economic stagnation occurring globally means that Ireland’s period of on-paper growth is ultimately unsustainable. A recent report by the World Bank argues that recent growth may be fleeting with a projected deceleration of growth rates and investment in the coming years, and a danger of further shocks to the global economy and a potential recession within the next decade.

While the Irish government fought tooth and nail for Apple to keep its ill gotten €18 billion in the name of jobs, they conveniently ignored that a state investment of roughly one billion euros could create up to 16,000 jobs. State investment and public ownership provides the way out of the uncertain nature of the Irish economy, and the reality that in the face of global economic downturns that productive investment dries up and we get left to the vultures. If we want to turn this uneven recovery, a recovery for the top layers of Irish society, into a socially and economically just one – then the first prerequisite is a recognition of the necessity to break with the neoliberal capitalist status quo and push for the implementation of left policies which would bring industry into public control, radically redistribute wealth and plan our economy with the future in mind. If we should have learned anything from the past decade, our economic model leaves our economy and the working people of this country extremely exposed on all sides – we need a socialist model to correct it.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s