Time for a new Social Contract

Posted: September 29, 2014 in Economy, Government

The era of austerity is not yet over but its high watermark has now passed. From here on in budgets will be less painful and less contentious.

That does not mean that there will be no more hardship. The deficit may be on track to meet its EU targets but the debt-to-GDP ratio is still way off course. Debt servicing will continue to absorb what little excess revenue the state has for some time to come.

But the Governments narrative is changing. The hard decisions are now behind us. Fiscal restraint has had the desired effect. Growth –job and GDP- is returning to the economy. We have finally turned the corner.

Of course you can only sustain such a view if you blind yourself to the social and economic costs of the Government’s austerity policies.

But for Fine Gael and Labour the human cost of austerity is of little consequence – from them it’s back to business as usual.

The problem is that business as usual was the cause of the crisis in the first place.

While Fianna Fáil drove the economy off a cliff in 2008 the real problem was not their corrupt and inept stewardship of the state, but the model of social and economic development itself.

Since the late 1980s successive governments all subscribed to a similar model.

A social contract was put in place by the Fianna Fáil Programme for National Recovery in 1987. Economic growth would be underpinned by three commitments – the state would keep taxes low, business would maintain competitiveness and unions would deliver wage restraint.

From 1993 this social contract produced impressive results in terms of job and GDP growth. But the growth was neither secure nor sustainable.

Low taxes left the state with little capacity to invest in social or economic infrastructure. Inequality rose, investment in health and education remained low and indigenous business was left behind in the rush to attract foreign direct investors.

For workers, wage restraint combined with post Euro low interest rates fueled the credit boom. In the absence of sustainable state-led housing or childcare policies, families were left at the mercy of the market. Costs spiraled out of control as did personal debt.

When the inevitable crash came the focus of blame was firmly on Fianna Fáil and their friends in their banking and building game. Reckless fiscal policy drove the speculative boom while light-touch regulation meant there was no one to shout stop.

Unfortunately the model of social and economic development that underpinned all of this has received far less public scrutiny.

As a result the social contract that bound Government, business and unions throughout the 1990s continues to form the policy consensus within Fianna Fáil, Fine Gael and Labour.

As the economy starts to emerge from a decade of crippling austerity there is a real danger that this consensus will once again drive Government policy – leading us back into yet another boom and bust cycle.

There is an urgent need for an alternative narrative beyond the anti-austerity programme that has been the primary focus of the Irish left since 2008.

Those of us who believe that a better Ireland is possible must start to map out what our model of social and economic development looks like. We need to define and promote a new social contract.

In opposition to the liberal consensus that dominates the political mainstream we must posit a progressive consensus – a social contract that is about social and economic investment, fair taxation and sustainable social, economic and environmental development.

This progressive social contract must be based on four clear commitments:

1. Government must invest in public services and indigenous business to create high quality well paid jobs and high quality social supports in education, health, housing and child care. This will require a progressive increase in tax take and social spending to at least EU averages. It will also require the state to champion high quality public services and a real state investment bank with the funds to influence the nature and direction of private sector investment.
2. Business must also increase its investment in both its own capacity and that of its workforce. It must replace its self-defeating advocacy of the low-wage low-tax economy in favour of long term public and private investment. It must also start to put indigenous small and medium sized business first.
3. Unions must demand and mobilise for a better deal for workers starting with a meaningful increase in the social wage – childcare, health, public housing, secure pensions- and addressing the growing pay inequalities in the public and private sector.
4. All of this must be done within a policy framework that demands social solidarity and environmental sustainability.

The liberal social contract that underpinned the Celtic Tiger has not served us well. The same policy consensus drove the austerity agenda that made ordinary people pay for the recklessness of politicians, bankers and developers.

That consensus is still with us and is driving the much lauded recovery strategy of the current government.

It we want to ensure that history doesn’t repeat itself we need to define, popularise and eventually implement an alternative model of social and economic development – a progressive social contract that invests in people and communities, creates well-paid high-quality jobs, provides world class public services, promotes equality and protects the environment.

There is little point in changing the parties in Government at the next general election if they continue to implement the same failed model of social and economic development. We need a new Government with the political will and strength to implement a new social contract if we are to have any chance of building a better fairer society.

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