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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
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From Conflict to Co-ordination:
Economic Governance and
Political Innovation in Ireland
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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
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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
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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
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‘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
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ECONOMIC GOVERNANCE IN IRELAND
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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’
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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
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7
partnership process, the European context of the 1990s played a vital role in
maintaining its stability.
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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
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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
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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.
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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.
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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
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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
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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
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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
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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
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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
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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
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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.
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APPENDIX
PAY TERMS OF PARTNERSHIP AGREEMENTS
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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
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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).
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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.
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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-
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11.
12.
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13.
14.
15.
16.
17.
18.
19.
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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
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(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
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40.
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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).