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This article was downloaded by: [Trinity College Dublin] On: 26 November 2010 Access details: Access Details: [subscription number 922095907] Publisher Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 3741 Mortimer Street, London W1T 3JH, UK West European Politics Publication details, including instructions for authors and subscription information: http://www.informaworld.com/smpp/title~content=t713395181 From Conflict to Co-ordination: Economic Governance and Political Innovation in Ireland N. Hardiman To cite this Article Hardiman, N.(2002) 'From Conflict to Co-ordination: Economic Governance and Political Innovation in Ireland', West European Politics, 25: 4, 1 — 24 To link to this Article: DOI: 10.1080/713601640 URL: http://dx.doi.org/10.1080/713601640 PLEASE SCROLL DOWN FOR ARTICLE Full terms and conditions of use: http://www.informaworld.com/terms-and-conditions-of-access.pdf This article may be used for research, teaching and private study purposes. Any substantial or systematic reproduction, re-distribution, re-selling, loan or sub-licensing, systematic supply or distribution in any form to anyone is expressly forbidden. The publisher does not give any warranty express or implied or make any representation that the contents will be complete or accurate or up to date. The accuracy of any instructions, formulae and drug doses should be independently verified with primary sources. The publisher shall not be liable for any loss, actions, claims, proceedings, demand or costs or damages whatsoever or howsoever caused arising directly or indirectly in connection with or arising out of the use of this material. 254wep01.qxd 11/10/02 09:54 Page 1 From Conflict to Co-ordination: Economic Governance and Political Innovation in Ireland Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 NIAMH HARDIMAN This article examines the transition in Ireland over the last 15 years from a relatively unco-ordinated approach to pay determination to a co-ordinated approach linking pay policy into the broader context of national economic governance. The new political model of ‘social partnership’ was central to the remarkable experience of growth, employment expansion, and rising living standards in Ireland during the 1990s. This very success brought new challenges to the strategy of politically mediated pay pacts. The prospects for the sustainability of these new networks of economic governance are examined. It is now generally recognised that globalising trends in trade and capital mobility do not necessarily induce convergence on a single model of capitalist social organisation. States retain a good deal of scope for policy choice, resulting in enduring diversity both in social policy provision and in overall features of economic performance. Analysts of the political economy of the advanced industrial societies have drawn attention to two kinds of constraints on state policy repertoires arising from the development of globalising trends. One is, of course, international: constraints of competitiveness are more keenly felt in an era of growing interdependence. The other is domestic and concerns the nature of the institutional framework within which public policy decisions are taken. Economic governance still varies significantly depending on, among other issues, the nature of labour market institutions.1 A number of influential commentators, many of them inspired by the work of David Soskice,2 have claimed that what is emerging is ‘dual convergence’, that is, the emergence of two alternative models of labour market regulation, with far-reaching consequences both for the scope of political initiatives and for economic outcomes in general.3 One is a deregulated, market-led, neo-liberal model, in which wage bargaining is both decentralised and fragmented; the English-speaking countries are generally taken to fall into this category, with Britain and the USA as the West European Politics, Vol.25, No.4 (October 2002), pp.1–24 PUBLISHED BY FRANK CASS, LONDON 254wep01.qxd Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 2 11/10/02 09:54 Page 2 WE S T E U R O P E A N P O L I T I C S principal exemplars. The other is a ‘co-ordinated market’ model, in which pay bargaining outcomes follow a pattern established within a leading sector; the organisational capacity of employers is as significant here as that of trade unions.4 The key feature, however, is that considerations of competitiveness are allowed to prevail. Germany is often taken as the paradigm case of this model. As Soskice, among others, has pointed out, business interests in the coordinated market economies of continental Europe and Japan have increasingly sought not deregulation on the British or American models, but reregulation of industrial relations and product markets, ‘to preserve for their companies long-term financial frameworks, cooperative skilled workforces, and research networks in order to remain competitive in world markets where such resources give them a competitive advantage’.5 The ‘co-ordinated’ model, he suggests, has simply been more successful in achieving these aims than has the highly centralised, Social Democratic, wage-equalisation model exemplified for a long period by the Swedish model. The latter approach has, it is argued, increasingly given way to a more German or Danish style of downward wage responsiveness, not only to industry-level variations, but also to firm-level competitiveness requirements, while retaining the capacity for extending settlements in the light of overall macroeconomic constraints.6 The principal distinction within this model, according to Traxler, is between systems which achieve co-ordinated decentralisation in a managed or ‘organised’ way, and those which reach it in a ‘disorganised’ way, through the disintegration of previously functioning national-level bargaining.7 There have been a number of important studies of the development of this ‘dual convergence’, focusing variously on the rise of the neo-liberal model, the demise of the Social Democratic model, and on attempts to deal with emergent tensions within the German model. What has thus far remained relatively unexamined is what happens when an attempt is made to abandon the decentralised, market-led approach, and to introduce a more co-ordinated approach to wage bargaining and labour market regulation in general. This is what has been attempted in Ireland for over a decade now, in the shape of what is termed ‘social partnership’. The Irish industrial relations system is still often conventionally categorised with Britain, in view of their shared organisational origins. Its welfare state, while difficult to categorise, has many features in common with the British. Yet, while decentralised pay bargaining and high unemployment greatly weakened organised labour in both countries during the first half of the 1980s, since then the two countries have taken quite different paths and have adopted contrasting models of political economy. While Britain in the 1980s was proceeding with one of 254wep01.qxd 11/10/02 09:54 Page 3 Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 ECONOMIC GOVERNANCE IN IRELAND 3 the most advanced experiments in neo-liberal economic management, Ireland moved in the direction of increasing co-ordination in the labour market. Their respective labour market institutions had common origins, but different political choices pressed each towards contrasting strategies of domestic adaptation to new economic conditions. Ireland experienced a sustained period of economic from the late 1980s, strengthening in the early to mid-1990s, and averaging about nine per cent per annum between 1994 and the early 2000s. A number of factors have contributed to this growth, among them the completion of a single European market in 1992 and the consequently greatly increased inflow of mobile investment capital, especially American, into Ireland; the availability of a well-educated labour supply in Ireland; and European transfer payments.8 The policy stance adopted by successive governments was, it is generally agreed, well adapted to taking advantage of these shifts in the international economy. More specifically, the achievements of social partnership since its inception in 1987 are now widely recognised to have contributed to this strong and sustained growth record.9 Industrial conflict declined dramatically. Inflation was kept low throughout the 1990s. Investors welcomed predictability in cost developments. Growth was converted not only into rising living standards, but also into record employment growth. From a situation of chronic unemployment and heavy emigration during the early to mid-1980s, Ireland’s unemployment fell to very low levels, and sizeable inward migration became common. The labour market organisations of trade unions and employers in Ireland might be categorised as moderately centralised. It is, therefore, not altogether obvious what form collective bargaining will take.10 Collective bargaining shifted from flawed attempts at centralised bargaining in the 1970s, to decentralised bargaining in the 1980s, to a more successful model of wage co-ordination from 1987 onwards. This article focuses on the role of social partnership in setting the conditions of economic success since then, examining the durability of this new institutional configuration, the stresses it has encountered, and how these have been managed. ‘Co-ordinated’ Pay Policy and National-Level Bargaining Among the co-ordinated responses to changes in the international economy, national-level politically mediated wage agreements have not been rendered obsolete. A new form of national-level social pact has emerged, although different in kind from the older form of corporatist pay pacts based on welfare state expansion. This model of ‘competitive corporatism’ is premised on acceptance of employer concerns about competitiveness and flexibility. While specific government commitments on social security measures are often involved, the principal emphasis is on moving toward an 254wep01.qxd 4 11/10/02 09:54 Page 4 WE S T E U R O P E A N P O L I T I C S Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 ‘employment-friendly welfare state’.11 The emergent model of ‘competitive corporatism’ may be identified in the agreements governing pay bargaining and social policy issues in The Netherlands, in Finland, and to some degree – with much weaker union involvement – in Spain and in Italy. The Irish experience of social partnership can be understood as a form of ‘competitive corporatism’.12 Catalysts to Co-ordination The growth of ‘competitive corporatism’ has its roots in domestic political conditions; the experience of severe economic crisis is, as earlier historians of corporatism had averred, still typically the catalyst for attempts to achieve greater co-ordination. But we must also be mindful of the interplay between what happens within labour market institutions, on the one hand, and the other sources of policy-making in the economy, on the other. In particular, it has been argued that the monetary policy authorities may act as a catalyst in inducing unions and employers to adopt a more co-ordinated approach to pay bargaining. In addition, the stance of the government may prove crucial to achieving the organisational and institutional transition in question. Central banks have recently emerged from their unwarranted neglect by political scientists; it is increasingly recognised that the degree of political independence enjoyed by monetary policy-makers may have a profound effect on the incentives facing unions or bargaining groups.13 Where the Central Bank is independent, and therefore known to be relatively nonaccommodating, the incentives to engage in potentially inflationary pay bargaining are correspondingly weakened. Where the Central Bank is more clearly subject to the political priorities of the government, monetary controls on inflation are likely to be less in evidence. This analysis has drawn attention to the role of the highly independent German Central Bank in stabilising the German industrial relations system for much of the postwar period. It also throws light on the willingness of the Swedish authorities, whose Central Bank decisions were until the 1990s subordinate to political priorities, to bear high levels of inflation as the cost of their commitment to ‘solidaristic’ pay agreements and very low unemployment. Of course, unions and employers must be capable of recognising and reacting to the ‘signals’ sent by the Central Bank; they must have an appropriate level of organisational coherence. What has become evident is that where the non-accommodating ‘signals’ are strong and plausible, they may actually induce a strategic change in labour market organisations previously engaged in more disaggregated bargaining activities. The key factor here, in a number of European countries, has been the desire to qualify for European Monetary Union by 1999, under the terms of the 254wep01.qxd 11/10/02 09:54 Page 5 Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 ECONOMIC GOVERNANCE IN IRELAND 5 Maastricht Treaty (1992), which required political authorities to adopt stringent performance targets on inflation, interest rates and fiscal deficits. Sofía Pérez, for example, has argued that attempts in both Spain and Italy to adjust to developments in the wider European economy, especially the need to adapt to the requirements of monetary union, had far-reaching consequences for remodelling the conduct of pay bargaining during the 1990s. She argues that ‘the imposition of a tight monetary policy … is likely to allow sheltered sectors to set the pace of inflation, and hence, eventually, that of nominal wage growth throughout the economy … It is only through framework bargaining or a re-centralisation of bargaining that the exposed sectors of an economy have a chance to regain some say over this pace’.14 The interest of the trade union leadership in sustaining employment led it to seek to balance the competing points of view of exposed and sheltered sectors through national-level framework pay agreements. There is indeed some general evidence that where the exchange rate is fixed or non-accommodating to inflationary pressures, a co-ordinated approach to pay bargaining works better than a market liberal or noncoordinated approach – and better than a highly centralised approach.15 The role of political leadership in achieving the transition from disaggregated pay bargaining may prove just as crucial. Pérez acknowledges that despite recognising the logic of the imperative to move towards a more coordinated approach to labour market policy, neither employers nor unions in Italy and Spain had much capacity to shift the locus of wage bargaining by themselves. Government initiative played a critical role in bringing it about. Equally, in Ireland, unions and employers’ organisations are strong, but not highly ‘authoritative’ and may find it difficult to achieve co-ordination autonomously, unlike, for example, the labour market organisations in Germany. The adoption of shared macroeconomic priorities in pay bargaining makes it easier for employers and unions to move towards a centrally negotiated framework pay agreement. But the intervention of government may be necessary to make it a reality. Monetary ‘Push’ and Political ‘Pull’ Factors in Ireland This perspective throws some light on the renewal of a centralised approach to pay bargaining in Ireland from 1987 onwards. The principal macroeconomic constraint was that of extreme fiscal difficulty – very much a domestic political issue. But throughout the late 1980s and the 1990s, pay bargaining was also conducted in the context of the need to adjust to broader European economic constraints, in which exchange rate policy featured increasingly strongly. The Irish pound broke the link with sterling and joined the European Monetary System (EMS) in 1979. The currency was not pegged to a ‘hard’ 254wep01.qxd Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 6 11/10/02 09:54 Page 6 WE S T E U R O P E A N P O L I T I C S anchor (in fact there were three devaluations over the whole period, in 1983, 1986 and 1993). It had to maintain a balance between exchange rates within the EMS and with sterling. While an increasing volume of exports was directed towards continental European markets, a great deal of labourintensive employment still relied mainly on Britain as its main export destination. Following the crisis within the EMS in 1992–93, the Irish pound benefited from the full range of flexibility available, depending on these dual criteria. But throughout the period of centralised pay agreements since 1987, maintaining the credibility of the currency was also a cornerstone of government policy. The acceptance of the Maastricht criteria for currency convergence, from 1992 on, reinforced this stance.16 Although Ireland did not follow a hard currency policy within the EMS, acceptance of the external constraints imposed by the need to maintain competitiveness within the European Union (EU), and the need to manage the exchange rate appropriately in the run-up to monetary union, did have implications for the conduct of pay bargaining. Political leadership has also been crucial not only in initiating the ‘social partnership’ approach to pay bargaining in Ireland, but also in underpinning its stability and durability. All the major political parties had a share in government during the period from 1987 on, when the turn towards centralised pay policy began; all have presided over the negotiation and implementation of at least one agreement. Although there were some differences among political parties initially, a marked cross-party consensus on the desirability of this approach was soon established.17 Neither the trade union movement (whose peak federation is the Irish Congress of Trade Unions, ICTU) nor the employers’ association (the Irish Business and Economic Confederation, IBEC) was highly centralised. But the organisational capacity of both was greater during the 1990s than this might suggest. The strategic shift towards a co-ordinated wage policy on the part of both unions and employers took place, as we shall see below, in the context of a deep domestic economic crisis during the 1980s.18 But the shift was only accomplished in the context of a political initiative from the top. Moreover, the domestic adoption of externally induced constraints (in order to conform to the Maastricht convergence criteria) was an important influence on centralised bargaining from 1987 on. The peak associations of unions and employers came to share a common view of Ireland as a small, open economy whose fortunes were ever more deeply implicated in those of the wider European economy. This recognition of the extent to which domestic economic performance depended on externally given circumstances marks a distinctively new phase in the development of social partnership. Thus, while its origins in the deep fiscal and economic difficulties of the mid-1980s profoundly shaped the character of the social 254wep01.qxd 11/10/02 09:54 Page 7 ECONOMIC GOVERNANCE IN IRELAND 7 partnership process, the European context of the 1990s played a vital role in maintaining its stability. Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 F R O M M A N A G I N G C R I S I S TO M A N A G I N G G R O W T H At the heart of successive governments’ approaches to macroeconomic management since 1987 has been a reliance on the processes of social partnership. Social partnership in the Irish context refers to a process of consultation between government and the principal organisations representing employers, trade unions and farmers. Increasingly, organisations from the ‘community and voluntary sector’ became drawn into this network. The forum through which social partnership was developed was a tripartite body, the National Economic and Social Council (NESC). Five national framework pay agreements, each of roughly three years’ duration, have been negotiated in Ireland between 1987 and the time of writing, each bargained within the context of the periodic strategy reports produced by NESC. Each agreement specified the pay terms that could be negotiated by lower level affiliates of the peak associations. Each was also contingent on government providing tax cuts for personal incomes, although the manner in which these would be distributed played no part in the agreements, and patterns varied greatly in successive budgets. The institutions of dispute resolution, the Labour Relations Commission and the Labour Court, functioned on a voluntarist basis, a role that did not change during the 1990s. Voluntary compliance, intra-associational co-ordination, and moral suasion were the methods of securing partnership agreements. Internal Crisis, External Constraints: The Origins of Social Partnership Yet the full story of the development of social partnership cannot be told without reference to the circumstances in which interests were reconfigured during the 1980s. Centrally negotiated pay agreements had a not altogether auspicious precedent in Ireland’s ‘policy repertoire’. Collective bargaining over the post-war decades had taken the form of a loose sequence of pay ‘rounds’. During the 1970s, in an attempt to dampen wage inflation and contain industrial conflict, governments had sponsored the negotiation of a series of national wage agreements, through which pay and tax had come to be explicitly linked. But these never really approximated the continental European model of ‘societal corporatism’ or ‘social concertation’. In view of the upward trend in nominal pay increases, rising inflation, and mounting strike rates, private sector employers withdrew their support in 1981. They were determined to make pay settlements more responsive to firm-level conditions and to ensure that real concessions were secured in exchange for 254wep01.qxd Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 8 11/10/02 09:54 Page 8 WE S T E U R O P E A N P O L I T I C S productivity-based pay increases. A period of decentralised bargaining ensued between 1981 and 1987, during which high and rising unemployment dampened wage pressures.19 A sense of escalating economic crisis, and the apparent inability of government to devise a convincing strategy in response to extreme fiscal difficulties, contributed to changing the context of pay bargaining. The fiscal crisis of the 1980s had grown rapidly in scale and severity. While Ireland had benefited from international economic growth in the second half of the 1970s, a series of fiscal mistakes intensified the effects of the boom, and incurred greatly increased public sector spending commitments just as the economy entered into a recessionary phase. Attempts to deal with public spending deficits through increased taxation worsened the effects of the economic downturn. Unemployment rose rapidly, further narrowing the tax base and adding to the public spending bill for transfer payments. The public sector borrowing requirement rose steadily, and adverse exchange rate movements meant that interest payments absorbed a rising share of tax receipts. It had become clear by 1984 that a tax-based adjustment to economic crisis was unsustainable. But the depth of the recession gave the Fine Gael–Labour coalition government of 1982–87 very little latitude to do much more than stabilise the public finances. Public sector borrowing was brought down from its peak of over 17 per cent in 1984 to about 15 per cent in 1987. Unemployment stood at over 227,000, or 17.4 per cent of the labour force, in 1986, and almost two-thirds of these were classified as longterm unemployed. Emigration increased steadily, taking many of the ‘best and brightest’. A sense of hopelessness reminiscent of the worst days of the depressed 1950s was widespread.20 The construction of the new institutions and practices of social partnership may, therefore, be attributed primarily to the intense economic crisis faced by the country in the mid-1980s. This was the context in which the tripartite consultative body, the National Economic and Social Council (NESC), originally established in 1973, took on a new role. In this forum, employer and union leaders developed a shared analysis of the nature of the country’s economic problems and the priorities that needed to be addressed. The resulting document, A Strategy for Recovery (1986), recognised that reform of the public finances was imperative. It accepted that moderation in pay increases would be essential to improve competitiveness and, thus, generate the necessary economic improvement, though it did not explicitly advocate an incomes policy. This NESC report committed the participant organisations to the attainment of specific performance targets on the public finances; in the words of one participant, ‘NESC developed the debt/GNP ratio as a performance measure long before Maastricht’.21 254wep01.qxd 11/10/02 09:54 Page 9 Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 ECONOMIC GOVERNANCE IN IRELAND 9 This proved to be the genesis of an ‘expectations consensus’ that transformed tripartite relationships from those prevailing in the prior period of centralised bargaining in the 1970s. The sense of domestic economic crisis concentrated the minds of all participants on identifying the economy’s medium-term prospects and on developing a strategy for escaping the current policy stalemate. The role of acute economic crisis in recasting the conventional style of industrial relations has its counterpart in other countries.22 While both employers and unions had worked out common priorities regarding the medium-term requirements of the Irish economy, it required a political impetus to convert this into a coherent economic strategy. The minority Fianna Fáil government that took office in 1987 convened tripartite talks leading to the negotiation of the Programme for National Recovery (PNR), in which a modest pay settlement was offset by cuts in personal income taxation. (Details of all the pay agreements are outlined in the Appendix). The intervention of government was crucial to achieving coordination between unions and employers, the need for which had already been recognised in principle. The outgoing centre-left coalition of Fine Gael and Labour had experienced a range of internal divisions over how to address the economic crisis, but the government stance had kept organised labour at arms-length. The incoming minority Fianna Fáil administration, which may be termed broadly nationalist-centrist, had indicated its intention to take decisive action on the national debt in line with the NESC document, entailing painful public spending cuts. The government offered a package of wage moderation and income tax relief in this context. The unions were given to understand that they could be, in the words of a senior trade union leader, ‘either part of the solution or part of the problem’. Mindful of the disasters befalling their counterparts in Britain at that time, the trade union movement opted for the former.23 The contingency of the first agreement is easy to forget in hindsight. The success of the package was secured by an upturn in the international economy and a drop in the inflation rate, which turned a modest pay-andtax-cuts deal into an increase in real disposable income. This contrasted with the period 1981–87, when the nominal earnings of manual workers rose by 101 per cent, but real take-home pay dropped by seven per cent.24 Fortuitous external circumstances helped the PNR to initiate a ‘virtuous circle’ of improved domestic economic performance, which paved the way for successor agreements. Undoubtedly the shared sense of economic crisis helped to bring trade union and employer leaders together; in this sense, patriotism and a sense of responsibility to the wider community played a part in shaping participants’ views. But both the institutional and the political bases for maintaining the ‘virtuous circle’ were now in place. 254wep01.qxd Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 10 11/10/02 09:54 Page 10 WE S T E U R O P E A N P O L I T I C S While the negotiation of a new agreement could never be taken for granted, there was certainly a bias in favour of renewal of the process with the expiry of each old agreement. After some initial misgivings, all political parties came to support the agreements. Furthermore, all parties in government also agreed that Ireland should aim to qualify for membership of European Monetary Union by 1999 – a priority also shared by the social partners within NESC. The negotiation of the next two three-year programmes, the Programme for Economic and Social Progress (PESP, 1990–93) and the Programme for Competitiveness and Work (PCW, 1993–96), broadened the range of bargaining issues surrounding the central framework pay agreement. The process of social partnership, it may be argued, gained in problem-solving capacity. Evidence suggests that wage drift was in general relatively low under the first three agreements – despite employers’ unease with the brief experiment in multi-level bargaining, under the PESP, in the form of a local productivity related bargaining clause. Turning the Corner: Managing Prosperity By 1996, the sense of economic crisis, of an economy near collapse, of a polity running out of ideas, had receded into the past. The growth that was to continue strongly for the rest of the decade was already well under way. Linkages between the foreign sector and the rest of the domestic economy also increased, generating more jobs. Furthermore, indigenous industry and services also grew rapidly, with increasing profitability and exports, and – unusually in the context of earlier Irish experience – sustained employment growth. The Irish economy grew at an average annual rate of 8.5 per cent per annum between 1994 and 1999, almost four times as fast as the EU15. Inflation averaged just above two per cent, below the EU15 average of 2.7 per cent. By this time, the debt/GDP ratio scarcely featured in economic commentary – the economy grew so rapidly that the debt declined to 52 per cent of GDP by 1998, or 68 per cent of GNP. Far from having to deal with fiscal deficits, steady growth and greatly increased labour force participation levels resulted in recurrent revenue overshoots, enabling governments to return fiscal surpluses in the late 1990s.25 Concerns about ‘jobless growth’ were now all but forgotten, as employment levels began to grow rapidly from 1994 on. Inward migration began to pick up, and unemployment also fell from almost 15 per cent in 1994 to four per cent in 2000. Amazingly for Ireland, the talk was of the growing problem of skill shortages and even of labour shortages in general. Cumulative employment expansion in Ireland between 1994 and 1999 was estimated by NESC at 28 per cent compared with 13 per cent in The Netherlands, five per cent in Britain and three per cent in the EU. 254wep01.qxd 11/10/02 09:54 Page 11 Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 ECONOMIC GOVERNANCE IN IRELAND 11 Against this backdrop, commitment to the ‘virtuous circle’ was maintained: a new pay agreement was negotiated, termed Partnership 2000 (1996–99), based on fairly modest nominal pay terms. But taking account of the tax cut aspect of the agreement, total average increase in take-home pay averaged around 15 per cent. In fact, NESC estimated that cumulative increases in real take-home pay over the whole period 1987–99 for an employee on average manufacturing earnings had come to over 35 per cent. The ‘virtuous circle’ was based on solid increases in real disposable income. Ireland became a member of the European Monetary Union (EMU) in January 1999. With no further domestic control over monetary or exchange rate policy, adjustment to external shocks could only be mediated through fiscal policy or pay adjustments. This gave pay agreements an even more important role in economic management than hitherto. A new pay agreement was negotiated, with the title of Programme for Prosperity and Fairness (PPF, 2000–2003). The pay terms, at about 15 per cent over 33 months, were a good deal higher than in any previous agreement. Tax cuts gave a further substantial boost of about ten per cent to disposable income. The rather high nominal pay terms reflect the tightness of the labour market and resultant heightened pay expectations. Indeed, in response to a sharp rise in inflation during 2000, and increasing strains on the terms of the pay agreement in some sectors, the unions secured a further upward revision of the pay terms of the PPF in December 2000. M AINTAINI NG THE DOM ESTI C COALI T I O N The pay agreements negotiated through the evolution of social partnership since 1987 undoubtedly contributed to the remarkable turnaround in the economy summarised above. Real increases in disposable income were delivered while keeping industrial conflict at low levels; inflation was curbed effectively, at least until 2000; the national finances were transformed. The national framework of pay bargaining made it possible for the far-reaching trade-offs between wage moderation and tax reform to take effect. The pay agreements helped to ensure that the benefits of growth were not dissipated by wage inflation and industrial conflict. The trade union movement particularly welcomed the opportunity to influence the wider terms of political debate on issues of unemployment, education, income maintenance policy, and a host of other issues relating to economic and social policy. The process of consultation itself broadened from 1997 onwards to include the ‘community and voluntary sector’ (embracing a number of social policy pressure groups, organisations representing minority or special interests, and non-governmental organisations), reflecting ‘the concern to ensure the fairness necessary for 254wep01.qxd Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 12 11/10/02 09:54 Page 12 WE S T E U R O P E A N P O L I T I C S social cohesion, an essential underpinning to successful policy implementation’.26 However, the overall experience of social partnership should not be construed as a frictionless exercise in consensus. Conflicts of interest do not arise neatly along a line dividing the peak federations of employees and employers; they may entail intra-associational tensions, and may generate new kinds of cross-associational alliances.27 Three sources of difficulty may be identified. The first is the sort of problem inherent in all forms of nationally negotiated pay agreements: it is difficult to devise a policy that suits the needs of all sectors of the economy. Conflicts of interest may emerge between capital- and labour-intensive industries, export-oriented and sheltered sectors, public and private sectors. The second issue concerns the difficulties posed for the trade union movement in an open economy that is well integrated into the wider European and international economy. ‘Competitive corporatism’ accords the unions a measure of political influence, but their power to influence non-pay issues that matter to them and to their members is limited by the emphasis on responsiveness to employers’ concerns. The third source of difficulty arises from what might be termed the paradox of success. Economic growth and employment expansion were made possible by a strategy of pay moderation, but these very conditions may generate a new set of difficulties for sustaining such a strategy. Moreover, the strength and duration of this phase of economic growth in Ireland are quite singular; Ireland may even be thought to have been suffering from a surfeit of success. Sectoral Conflicts The Irish economy has experienced profound structural change since 1987. Ireland’s industrial development strategy, dating from the mid-1950s, has been based on provision of investment incentives, especially a low corporation tax regime, to attract inward investment. While this had provided the basis of enhanced growth following Ireland’s entry to the European Economic Community (as the European Union then was) in 1973, the policy stance really came into its own with moves towards a single European market from the late 1980s. Since then, Ireland, with one per cent of the population of the European Union, secured over 20 per cent of new inward investment in Europe in combined manufacturing, software, telebusiness and shared-services sectors.28 Foreign direct investment accounts for about one-fifth of GDP. Foreign-owned firms now dominate the industrial base. Some industrial sectors have been very successful indeed, generating large productivity gains and profits; the foreign-owned sector overall has been far more successful than the indigenous sector.29 This is partly a function of enterprise scale, but is also a feature of the industrial 254wep01.qxd 11/10/02 09:54 Page 13 Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 ECONOMIC GOVERNANCE IN IRELAND 13 sectors in which they are concentrated, among them microelectronics, pharmaceuticals and chemicals. The foreign sector accounts directly for half of total employment in manufacturing industry, over three-quarters of industrial exports, and some two-thirds of output from the manufacturing sector. Upward pay pressures from the modern, high-tech sector, much of it foreign-owned, were contained for much of the 1990s. As much of the modern sector is not unionised, it would appear likely that employer coordination, through the extensive consultative processes undertaken on a regular basis within IBEC, was principally responsible for this. The unions accepted that some employment decline in the cost-sensitive, labourintensive, traditional manufacturing sector was inevitable.30 The OECD commented that, despite some element of wage drift, the danger of undermining the cost-base of that sector was avoided until well into the 1990s, through widespread observance of the terms of pay agreements within the high-tech sector.31 Employment expansion in the modern sector was greater than job loss in the traditional sector. These trends suggested that the management of economic restructuring was proceeding relatively smoothly. However, this situation began to change towards the end of the 1990s, when not only skills shortages but also labour shortages in general became more widely felt. In much of the software industry, for example, the supply of skilled labour was at a premium from the mid-1990s. Wage increases in excess of the pay agreement norms became more common. This trend is not confined to high-tech manufacturing, or indeed to the exporting sector. Earnings in the building industry, for example, also show spectacular gains from about 1994, especially for skilled manual trades. This placed upward pressure on pay rates elsewhere. By 1999, the OECD could comment that ‘there is probably substantial wage drift now’.32 The Irish trade union movement had undergone much rationalisation during the 1980s and 1990s. But it continued to be characterised by ‘weak internal governance’.33 The diversity of interests represented even by the single largest union – SIPTU, with some 40 per cent of total union membership – was considerable. The sectoral tensions of the Irish economy were reflected not only between unions, but also within unions. The rise in inter-union disputes over representation was symptomatic of this. The ‘expectations consensus’ had begun to unravel. Control over public sector pay also proved a recurrent problem. Public sector pay determination had neither market disciplines to respond to, nor any tradition of productivity-based assessment. Pay bargaining was mainly driven by well-established relativities, which had an in-built tendency to foster leap-frogging pay claims. It was further complicated by ‘special’ pay 254wep01.qxd Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 14 11/10/02 09:54 Page 14 WE S T E U R O P E A N P O L I T I C S increases, which tended to spread through the relativities networks. Attempts to link pay increases to measurable productivity gains proved controversial. Reform of the system was a politically difficult issue. An exercise in benchmarking public sector pay to changes in the market sector was set up in 2000, under the terms of PPF, and reported in mid-2002. But by then expectations had grown that benchmarking would deliver sizeable increases in public sector pay, particularly in response to industrial unrest among teachers. Public sector employees constituted a powerful bloc within the trade union movement. They were highly unionised, whereas private sector unionisation was estimated at about 25 per cent in the early 2000s. Public sector employees accounted for some 50 per cent of total trade union membership, both in public sector only unions and also within other unions.34 The leadership of the trade union federation, ICTU, has been hardpressed to balance the interests of its public sector membership against the rest. These problems would appear to bear out the contention of Garrett and Way that the strength of public sector unions can attenuate the association which otherwise obtains between trade union density (‘encompassment’), low inflation and low unemployment.35 Trade Unions and the Limits of Negotiability The nature of Ireland’s industrial development strategy depends on maximising the attractiveness of Ireland as an investment location for world-class enterprise. No initiative that might compromise this would be acceptable either to the employers’ federation or to government. This places a limit to the scope of union influence within the partnership process. From 1987, Irish business overall improved its profitability; the OECD commented that this was undoubtedly helped by the wage restraint entailed by the social partnership pay agreements. The share of capital income as a proportion of GDP rose from 25 per cent in 1987 to about 38 per cent in 1998, close to the European average.36 The aggregate wage share correspondingly declined, especially in manufacturing. The trade union movement had increasingly come to accept the need to promote growth, productivity and competitiveness at firm level.37 It had to acquiesce in the shift in the wage-capital ratio as the necessary cost of continued growth.38 Still, commitment to an ongoing series of centrally negotiated pay agreements presented the trade union movement with some difficult choices. The issue of union recognition is a case in point. Some of the most highly profitable sectors of industry and services, including American microelectronics firms and software-producing companies, have no trade union presence at all, as a matter of company policy. In general, the trade union movement has had to concede that the non-union status of such firms 254wep01.qxd 11/10/02 09:54 Page 15 Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 ECONOMIC GOVERNANCE IN IRELAND 15 cannot be challenged, at the risk of discouraging further investment in the strongest growth sectors of the economy. The issue of trade union recognition came to the fore in the mid-1990s, in a case involving an Irishbased employer – Ryanair – whereupon it was referred to a high-level working group under the terms of the Partnership 2000 agreement (1997–2000). The ensuing report was accepted by both unions and employers: it set out a procedural protocol and dispute resolution procedure for dealing with issues of recognition, with statutorily binding decisions coming into play only in the last instance. All sides welcomed the increased institutional support for dispute resolution. But voluntarism remained the touchstone of Irish industrial relations, and the scope for unions to advance their organisational and political interests through national-level initiatives remained constrained. Similarly, trade union preferences concerning the promotion of social partnership at enterprise level were limited by the nature of the country’s industrial structure, and the employer priorities that flowed from this. Under the terms of the Partnership 2000 agreement (1997–2000), pilot schemes in workplace participation were set up; an employer–labour National Centre for Partnership was established to promote the growth of new ones on a voluntary basis. But workplace social partnership is still quite weakly developed, relative to European systems. It would appear that ‘“exclusionary” forms of decision-making … dominate the postures of establishments towards the handling of change’. Furthermore, where change has taken place in workplace practices, it tends to be in line with that of other Anglo-American industrial systems, ‘which are not readily permeable to collaborative production’, or very favourable towards consultative or inclusive forms of decision-making.39 A similar fate appears to have befallen trade union attempts to promote financial participation at workplace level. The unions advocated the extension of profit and gain-sharing schemes to help resolve conflicts over compliance with a pay norm in profitable sectors. Research evidence produced estimates of the extent of all kinds of financial participation ranging from 22 per cent to 58 per cent of enterprises.40 But they were, in general, of marginal significance to the great majority of employees. The employers’ federation accepted the inclusion of workplace participation issues in the national social partnership agreements. But the key consideration from the employer point of view is that no such provisions should ever be required by legislation. They oppose the establishment of works councils, other than in the limited form required by EU legislation, or disclosure of company information to employees, or provisions for profit sharing or any other form of financial participation, on anything other than a voluntary basis. Their membership holds a range of 254wep01.qxd 16 11/10/02 09:54 Page 16 WE S T E U R O P E A N P O L I T I C S Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 views on these matters; indeed, non-union firms often have more extensive financial participation arrangements than unionised firms. But the emphasis on voluntary, firm-based negotiation on these issues limits the scope for unions to make gains on workplace issues through national-level agreements. The Paradox of Success If one of the challenges to a centrally negotiated pay agreement is an economic downturn in which there is no surplus to distribute, perhaps an even more difficult issue is that of maintaining commitment to such an agreement in the context of sustained and rapid growth. Two of the fundamental conditions of the stability of social partnership during the 1990s began to come into question towards the end of the 1990s. The first relates to the match between the expectations of the leadership of the employer and union confederations, and their capacity to keep their own affiliates broadly in support of the pay agreements. The second concerns the capacity of government to play the mediating role that had proved crucial at an earlier stage. The view began to grow among the employee workforce that, notwithstanding rising living standards, wage restraint had no place in the context of ongoing prosperity. Moreover, rapid growth and a sudden rise in the employee workforce brought many new problems, including housing shortages and severe traffic congestion. Price inflation further intensified grievances, resulting in the upward renegotiation of the terms of the PPF in December 2000. While the private sector employers had agreed to this in view of the labour market constraints they faced, employer priorities soon began to undergo change in the opposite direction. The downturn in the US economy and the global slowdown in the high-tech sector, evident during 2001, but intensified in the aftermath of 11 September, pointed towards tougher trading conditions. This made the private sector employers wary of the prospect of any renewed social partnership pay deal upon the expiry of PPF in late 2002. Specific concerns centred on the extent of wage drift, whereby local increases were negotiated on top of an already sizeable nationally agreed rate. Thus a divergence had opened up between employer and union perceptions concerning the conditions of competitiveness and what the economy could sustain. The process of forging a new agreed perspective, adequate to the constraints of living within the Euro-zone, appeared to face an unpropitious start. The personnel on both the union and the employer sides who had worked out the original social partnership approach had by now been replaced by a new generation of leaders. But although committed to the current partnership deal, both the leadership of the trade union movement and that of the employers’ federation faced new 254wep01.qxd 11/10/02 09:54 Page 17 Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 ECONOMIC GOVERNANCE IN IRELAND 17 demands from within their own organisations for more pay autonomy at devolved levels – but with very different expectations about what this would yield. The capacity of government to mediate social partnership processes was more limited now on every front. Domestic inflation was higher in the early 2000s in Ireland than in any other EU country. Indeed, the pro-cyclical budgetary stance in Budget 2001 (at the end of 2000) drew criticism from the European Commission with reference to the provisions of the Stability and Growth Pact. With the advent of European Monetary Union, the restrictive monetary policy responses, which had curbed inflation and also served to consolidate commitment to the co-ordinated wage strategy during the 1990s, were no longer possible. The principal policy instrument left to government was fiscal policy. Yet it proved politically difficult to adopt a counter-cyclical stance. A large part of the explanation can be traced to the government’s commitment to providing large tax cuts, as these underpinned the wage-moderating elements of social partnership.41 However, the capacity of government to continue any further with the strategy of offsetting wage moderation with tax cuts was now also in doubt. After some 15 years of tax cutting, Ireland in 2002 was among the OECD countries with the lowest ratio of tax to GDP (or more appropriately GNP in the Irish case).42 Meanwhile, government spending commitments had continued to grow. This was possible for several years due to the extreme buoyancy of revenue intake. With slowing growth rates, revenues began to flatten out in the early 2000s. The scope for continuing to support wage moderation through tax concessions was clearly limited. CONCLUSION Social partnership has been central to the undoubted successes of the Irish economy since the late 1980s. It was originally developed as a mediumterm response to fiscal crisis. It evolved into a strategy for facilitating steady growth and the continuing inward investment that fuelled it, over a longer time-span than anyone might have predicted at the outset. Throughout the 1990s, the institutional framework of pay determination acquired some of the features of the co-ordinated cost adjustments found in the ‘co-ordinated market economies’ of continental Europe and Scandinavia. Pay agreements and social partnership more generally were stabilised during the 1990s by congruence between government’s macroeconomic priorities and the development needs of the economy. Tight fiscal policy and reform of personal income taxation combined felicitously to underpin trade union and employer commitment to moderation in nominal wage agreements. Monetary policy was restrictive in conformity with externally 254wep01.qxd Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 18 11/10/02 09:54 Page 18 WE S T E U R O P E A N P O L I T I C S set performance targets, resulting in low inflation which further supported moderate pay settlements. The result was a successful strategy of macroeconomic management that helped to support rapid growth in output and employment. By the early 2000s, the situation had changed both externally and internally. The external monetary policy supports for pay co-ordination had gone; the European Central Bank’s monetary policy will not readily respond to the specific needs of a small economy such as Ireland’s. This removed the option of monetary policy responses to over-heating and the accumulation of inflationary pressures. Yet it proved difficult to use fiscal policy flexibly in response to changed circumstances. Domestically, the expectations consensus at the heart of pay bargaining and macroeconomic outcomes during the 1990s had come under increasing pressure by the early 2000s. The uneven sectoral distribution of growth had placed considerable strain on a ‘one-size-fits-all’ pay norm. Union expectations of an increased share of national wealth ran high – just at the moment when employers sought to reintroduce a sharper awareness of cost competitiveness constraints. The social partnership of the 1990s left a dense network of national-level institutional networks through which employer and union leaderships continued to interact. These were strongest at the peak level, and highly dependent to date on the ‘win–win’ strategy of linking pay agreements to tax cuts, resulting in rising real incomes at the same time as rising employment. But the fiscal scope for supporting this type of pay pact was now more limited, employers sought greater responsiveness to diverse cost conditions at firm level, and unions faced internal pressures to permit greater diversity in collective bargaining. The established solutions to the challenges of pay bargaining were no longer viable. The Irish industrial relations system faced pressures to decentralise pay processes. Whether this happened in a ‘disorganised’ way, or whether the institutions of social partnership could provide a framework for continuing an element of coordination while permitting ‘organised’ decentralisation, represented the principal challenge for the new phase of economic development. 254wep01.qxd 11/10/02 09:54 Page 19 ECONOMIC GOVERNANCE IN IRELAND 19 APPENDIX PAY TERMS OF PARTNERSHIP AGREEMENTS Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 Programme for National Recovery, 1987–90 Pay – private and public sector Duration 36 months. 3% on first £120 of weekly basic, 2% on balance. Low-paid Floor £4 per week. Other terms Weekly working hours reduced from 40 to 39 hours. Inability to pay clause. Ongoing co-operation with change. Tax cuts £225m promised over three years. Programme for Economic and Social Progress, 1991–93 Pay – private and public sector 10.75% over three years: 4.0% in first year, 3.0% in second, 3.75% in third. Low-paid ‘Floor’ of £5.00 per week in 1991, £5.25 in 1992, £5.75 in 1993. Other terms Local bargaining permitted for ‘exceptional’ increases of up to 3%, not earlier than 1992. In public service, negotiable with reference either to ‘grade restructuring, or to ‘special’ claim, not before third year. Private sector inability to pay clause. Industrial peace clause. Ongoing co-operation with change. Tax cuts £400m promised over three years. Programme for Competitiveness and Work, 1994–97 Pay – Private sector (excluding construction – separate) 8% in total, over 39 months. 2.0% in first year, 2.5% in second year, 2.5% for 6 months, 1% for 6 months. Public service 8% in total, over 42 months. Five-month pay pause, then 2% in first year, 2% in second year, 1.5% for four months, 1.5% for 3 months, 1% for 6 months. Low-paid Private sector floor of £3.50; public sector: £2.80 in first two years, £2.20 in later phases. Other terms Public sector implementation of 3% PCW local bargaining clause: 1% payable, balance subject to local negotiation. Private sector inability to pay clause. Industrial peace clause. Ongoing co-operation with change. Tax cuts No specific amount; to be targeted on low and middle earners. Partnership 2000 for Inclusion, Employment, and Competitiveness, 1997–2000 Pay – Private sector 7.25% over 3 years: 2.5% in first year, 2.25% in second year, 1.5% for 9 months, 1.0% for 6 months. Public service In first year, 2.5% of first £220 of weekly basic pay for nine 254wep01.qxd 20 11/10/02 09:54 Page 20 WE S T E U R O P E A N P O L I T I C S Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 months, then 2.5% of the balance for 3 months. Second and third years as private sector. Low-paid From second year, floor of £3.50 per week, then £2.40 next 9 months, then £1.60 next 6 months. Other terms Local negotiation of up to 2%, not before mid-1998 (private sector) or mid-1999 (public sector). Private sector inability to pay clause. Industrial peace clause. Ongoing co-operation with change. Tax cuts £1bn in total, 90% to go on employee income taxes. Programme for Participation and Fairness, 2000–2003 Pay – Private and public sector Duration 33 months. Cumulative 15%. 5.5% for 12 months, 5.5% for next 12 months, 4% for next 9 months. Low-paid Floor of £12, £11, £9 per week respectively in each phase. Statutory minimum wage of £4.40 per hour from April 2000, £4.70 from July 2001, £5 from October 2002. Other terms Private sector inability to pay clause. Industrial peace clause. Ongoing co-operation with change. Tax cuts No specific sum, but commitment that net take-home pay will increase by up to 25% or more by Budget 2003. Commitment to reform of tax administration and personal taxation. Sources: Programme for National Recovery (1987), Programme for Economic and Social Progress (1990), Programme for Competitiveness and Work (1993), Partnership 2000 for Inclusion, Employment and Competitiveness (1996), Programme for Participation and Fairness (2000). 254wep01.qxd 11/10/02 09:54 Page 21 ECONOMIC GOVERNANCE IN IRELAND 21 NOTES An earlier version of this article was presented at the 2000 Annual Meeting of the American Political Science Association in Washington DC. I am grateful to Raj Chari, Peter Hall, Jonas Pontusson, Martin Rhodes, and Chris Whelan for helpful comments on this work. 1. Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 2. 3. 4. 5. 6. 7. 8. 9. 10. See, for example, G. Garrett, Partisan Politics in the Global Economy (Cambridge: Cambridge University Press 1998); and the papers collected in F. Scharpf and V. Schmidt (eds.), Welfare and Work in the Open Economy, Vol.II, Diverse Responses to Common Challenges (Oxford: Oxford University Press 2000). See D. Soskice, ‘Wage Determination: The Changing Role of Institutions in Advanced Industrial Countries’, Oxford Review of Economic Policy (1990), pp.36–61; idem, ‘Divergent Production Regimes: Coordinated and Uncoordinated Market Economies in the 1980s and 1990s’, in H. Kitschelt et al., Continuity and Change in Contemporary Capitalism (Cambridge: Cambridge University Press 1999); idem, ‘Macroeconomic Analysis and the Political Economy of Unemployment’, in T. Iversen, J. Pontusson and D. Soskice (eds.), Unions, Employers and Central Banks: Macroeconomic Coordination and Institutional Change in Social Market Economies (Cambridge: Cambridge University Press 2000). T. Iversen and J. Pontusson, ‘Comparative Political Economy: A Northern European Perspective’, in Iversen et al. (eds.), Unions, Employers and Central Banks. L. Calmfors and J. Driffill, ‘Bargaining Structure, Corporatism and Macroeconomic Performance’, Economic Policy 3 (1988), pp.13–61, argued that a co-ordinated approach to pay policy depended mainly on the degree of centralisation of the trade union movement. But the case for according explanatory primacy to trade unions had been weakened by the recognition that moderately centralised systems have proved capable of achieving much greater levels of pay co-ordination than Calmfors and Driffill predicted. See Soskice, ‘Wage Determination’; idem, ‘Divergent Production Regimes’; idem, ‘Macroeconomic Analysis’; and P. Swenson, Fair Shares: Unions, Pay and Politics in Sweden and West Germany (Ithaca, NY: Cornell University Press 1989). Soskice, ‘Macroeconomic Analysis’, p.134. R.M. Locke and K. Thelen, ‘Apples and Oranges Revisited: Contextualized Comparisons and the Study of Comparative Labor Politics’, Politics and Society 23/3 (1995), pp.337–67; K. Thelen, ‘West European Labor in Transition: Sweden and Germany Compared’, World Politics 46/1 (1993), pp.23–49; J. Pontusson, ‘Labor Markets, Production Strategies and Wage-bargaining Institutions: The Swedish Employer Offensive in Comparative Perspective’, Comparative Political Studies 29/2 (1996), pp.223–50; T. Iversen, ‘Power, Flexibility and the Breakdown of Centralized Wage Bargaining’, Comparative Politics 28 (1998), pp.399–436. F. Traxler, ‘Farewell to Labour Market Associations? Organized versus Disorganized Decentralization as a Map for Industrial Relations’, in C. Crouch and F. Traxler (eds.), Organized Industrial Relations in Europe: What Future? (Aldershot: Avebury 1995). See the papers in F. Barry (ed.), Understanding Ireland’s Economic Growth (Basingstoke: Macmillan 1999). R. O’Donnell, Ireland’s Economic Transformation: Industrial Policy, European Integration and Social Partnership. Center for West European Studies, University of Pittsburgh, Working Paper No.2, 1998; N. Hardiman, ‘Social Partnership, Wage Bargaining and Growth’, in B. Nolan, P.J. O’Connell and C.T. Whelan (eds.), Growth, Inequality and Social Integration (Dublin: IPA 2000). The dilemma of whether to push for greater coherence in policy stance through decentralisation of collective bargaining, or through attempting to construct co- 254wep01.qxd 22 11. 12. Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 13. 14. 15. 16. 17. 18. 19. 11/10/02 09:54 Page 22 WE S T E U R O P E A N P O L I T I C S ordinating and possibly centralising institutions, is well analysed by Colin Crouch in his own chapter in C. Crouch (ed.), After the Euro: Shaping Institutions for Governance in the Wake of European Monetary Union (Oxford: Oxford University Press 2001). M. Rhodes, ‘Globalisation, Labour Markets and Welfare States: A Future of “Competitive Corporatism”?’, in M. Rhodes and Y. Mény (eds.), The Future of European Welfare: A New Social Contract? (London: Sage 1998). See also M. Regini, Between DeRegulation and Social Pacts. The Responses of European Economies to Globalization. Madrid, Juan March Institute. Working Paper 1999/133; and M. Ferrera, A. Hemerijck and M. Rhodes, The Future of Social Europe: Recasting Work and Welfare in the New Economy (Lisbon: Celta); J. Visser and A. Hemerijck, ‘A Dutch Miracle’: Job Growth, Welfare Reform and Corporatism in the Netherlands (Amsterdam: Amsterdam University Press 1997). See also A. Aust, ‘The “Celtic Tiger” and its Beneficiaries: “Competitive Corporatism” in Ireland’, ECPR Joint Sessions, Mannheim, March, 1999. P.A. Hall, ‘Central Bank Independence and Coordinated Wage Bargaining: Their Interaction in Germany and Europe’, German Politics and Society 31 (1994); R.J. Franzese and P.A. Hall, ‘Institutional Dimensions of Coordinating Wage Bargaining and Monetary Policy’, in Iversen et al. (eds.), Contested Economic Institutions. S.P. Pérez, The Resurgence of National Social Bargaining in Europe: Explaining the Italian and Spanish Experiences. Working Paper 1999/130, Juan March Institute, Madrid. For example, Torben Iversen argues that ‘non-accommodating monetary regimes produce inferior employment performance in highly centralized systems, but superior performance in intermediately centralized systems’, in Iversen et al. (eds.), Contested Economic Institutions. See P. Honohan, ‘Fiscal Adjustment and Disinflation in Ireland: Setting the Macro Basis of Economic Recovery and Expansion’, in Barry (ed.), Understanding Ireland’s Economic Growth; also National Economic and Social Council (NESC), A Strategy for Competitiveness, Growth, and Employment. Dublin. Report No. 96, 1993; NESC, Strategy Into the 21st Century. Report No. 99. Dublin, 1996. Marino Regini notes that acceptance of the disinflationary Maastricht priorities was a common feature of pay bargaining in other European countries during the 1990s, including The Netherlands, Finland, Portugal, Greece and Italy, as well as Ireland. The emphasis on adjusting to the requirements of EMU helped underpin commitment to social pacts – but the construction of social pacts came first – see Between Deregulation and Social Pacts: the Responses of European Economies to Globalization, Juan March Institute, Madrid, Working Paper 1999/133, p.19. Each agreement was negotiated by a different combination of parties in government. The first (PNR, 1987–90) was negotiated by a minority Fianna Fáil government; the second (PESP, 1990–93) by a Fianna Fáil-Progressive Democrat coalition; the third (PCW, 1994–97) by a Fianna Fáil–Labour coalition; the fourth (Partnership 2000, 1997–2000) – the first without Fianna Fáil participation – by a coalition of Fine Gael, Labour and Democratic Left; the fifth by a minority coalition of Fianna Fáil and Progressive Democrats. Iversen defines ‘strategic capacity’ within a co-ordinated bargaining system as developing when ‘the actions of economic players have predictable and discernible effects on the welfare and decisions of other players’; see Iversen et al. (eds.), Contested Economic Institutions, p.94. The strategic capacity of Ireland’s labour market institutions was considerably greater than that of, for example, Britain, its closest neighbour and the originator of the liberal industrial relations system from which the Irish model originally derived. See N. Hardiman, ‘The State and Economic Interests’, in J. Goldthorpe and C. Whelan 254wep01.qxd 11/10/02 09:54 Page 23 Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 ECONOMIC GOVERNANCE IN IRELAND 23 (eds.), The Development of Industrial Society in Ireland (Oxford: Clarendon Press 1992). 20. P. Honohan, ‘Fiscal Adjustment and Disinflation in Ireland’, in Barry (ed.), Understanding Ireland’s Economic Growth. 21. Interview with Dermot McCarthy, Secretary-General to Government, vice-chair of NESC. 22. See R. Dore, ‘Introduction: Incomes Policy: Why Now?’, in Dore et al. (eds.), The Return of Incomes Policy, p.29. 23. See N. Hardiman, Pay, Politics and Economic Performance (Oxford: Clarendon Press 1988), ch.8; MacSharry and White, The Making of the Celtic Tiger. 24. NESC, Opportunities, Challenges, and Capacities for Choice. Report No. 105. Dublin, 1999, p.237. 25. NESC, Opportunities, pp.10, 12; D. Duffy, ‘Budget 2000: A Macroeconomic Perspective’, in Budget Perspectives, ESRI Conference, 27 Sept. 1999. 26. D. McCarthy, ‘Building a Partnership’. Department of the Taoiseach, 1999, p.9. 27. Iversen and Pontusson, ‘Comparative Political Economy’, pp.30–31; also C. Crouch and W. Streeck, ‘Introduction: The Future of Capitalist Diversity?’ in idem (eds.), The Political Economy of Modern Capitalism (London: Sage 1997). 28. MacSharry and White, The Making of the Celtic Tiger. 29. NESC, Opportunities, pp.241, 325. 30. Many such enterprises found themselves at the critical edge of conflicting exchange-rate priorities that Irish governments were trying to balance during the 1990s. The Irish pound approached parity with sterling for a time during the mid-1990s, damaging export potential. The value of exports to non-sterling destinations was growing in significance compared with those to Britain. But a disproportionate number of jobs in marginally profitable and labour-intensive firms in traditional industries such as clothing, textiles, and food production, depended heavily on sales in Britain. The problem was not unique to Ireland: conflicts of interest over exchange-rate priorities between different groups of employees were felt in other European countries during the 1990s too. See J. Frieden, ‘Exchange Rate Policy and the Politics of Pay Determination’, in S. Jacoby (ed.), The Workers of Nations: Industrial Relations in a Global Economy (New York: Oxford University Press 1995). 31. OECD, Economic Survey: Ireland, 1999, pp.61, 102. 32. Ibid., pp.73–4. 33. See F. Traxler, ‘Wage Regulation between Industrial Democracy and Market Pressures’, European Sociological Review (2002). 34. SIPTU, the single largest union, with over 40 per cent of all trade union members, was estimated in the late 1990s to have 80,000 members in the public sector and 120,000 in the private sector. 35. G. Garrett and C. Way, ‘Public-sector Unions, Corporatism, and Wage Determination’, in Iversen et al. (eds.), Contested Economic Institutions. 36. OECD, Economic Outlook, 1998; NESC, Opportunities, p.240 Cost competitiveness improved across the economy taken a whole. Even though earnings in national currency rose faster than competitor countries in the late 1990s, exchange rate movements offset the negative consequences. 37. See, for example, ICTU policy documents New Forms of Work Organization (1999), Profit Sharing Guidelines for Employee Share Ownership (April 1999), Challenges Facing Unions and Irish Society in the New Millennium (June 1999). In part, this parallels a shift in thinking among the leadership away from adversarial industrial relations toward a new role as ‘business partners’ committed to promoting quality and productivity. 38. Moreover, as a senior union leader noted, the fall of the Berlin Wall and the collapse of 254wep01.qxd 24 39. 40. 41. Downloaded By: [Trinity College Dublin] At: 17:55 26 November 2010 42. 11/10/02 09:54 Page 24 WE S T E U R O P E A N P O L I T I C S the USSR on the one hand, and the results of a decade of Thatcherism in Britain on the other hand, served as a reminder to some union officials that ‘politically, there was nowhere else to go’ (interview with Peter Cassells). W.K. Roche and J. Geary, Collaborative Production’ and the Irish Boom: Work Organization, Partnership and Direct Involvement in Irish Workplaces. Dublin, UCD, Graduate School of Business. Working Paper No.26, 1998; NESC, Opportunities, p.268. NESC, Opportunities, pp.251–2. For example, the OECD Economic Survey of Ireland in 1999 estimated cumulative cuts in personal and corporation income tax between 1997 and 1999 at £1,730m, or 73 per cent more than the amount pledged under the terms of Partnership 2000 (p.95). By the termination of that agreement, total tax cuts negotiated under social partnership were estimated to have come to some £3bn. See N. Hardiman, ‘The Development of the Irish Tax State’, Irish Political Studies, 17 (2002).