Friday, 20 August 2010

Trade Unions Call for Investment as the Means to Economic Recovery

By Michael Burke

'The government's deflationary policies have been a major driver in our recession. They have cut growth and economic activity, reduced employment, driven down tax revenues and driven up unemployment costs.... borrowing costs increased. It's like running in quicksand – the more the government cuts, the more we sink. The dole queues, the emigration lines, and the vacant shop-fronts are a testament to government policy.' So says Jimmy Kelly, Irish Regional Secretary of UNITE, the union, writing in the latest Sunday Business Post .
In British Tory circles, the policy of the Irish government in moving straight to massive spending cuts is much admired, even if the outcome has been an embarrassment. Prior to the recession there was a small budget surplus. The deficit rose to 7.3% of GDP by the end of 2008 as the recession began to bite. But the policies of the Irish government in effect doubled it to 14.3% of GDP in 2009- and created the longest and deepest recession in Western Europe. Yet, while welfare payments to young jobseekers were halved, medical cards for the elderly withdrawn, and payments to single parents and the disabled were slashed, huge sums have repeatedly been found to bail out zombie banks. The €25bn to Anglo-Irish Bank alone dwarfed the spending cuts of over €14bn. If the bank bailouts are also included the deficit rises to just under 20% of GDP.
Despite all this, the debate in Ireland is frequently dominated by Thatcherite ideology, shared not simply by government supporters (who have dwindled to below 20% in opinion polls) but also by many of their supposed critics. One of these erstwhile critics, central bank Governor Honohan recently claimed in a New York Times article that 'no-one is arguing for stimulus.' This is not true, with ITUC General Secretary David Beg calling for investment, a view echoed by the main employers' association the IBEC.
In fact, Jimmy Kelly is calling for something far more productive than stimulus. 'This is not a traditional stimulus programme, whereby the government temporarily boosts demand until such time as the private sector gets back on its feet. It is an investment-led programme constituting a major drive to modernise our economic base and boost productivity.'
'Take the example of our physical infrastructure; our transport, telecommunications and energy networks are ranked as among the worst in the industrialised world. This is a major drag on growth, productivity and competitiveness. An investment drive that delivered next generation broadband to every house and business, a coherent public transport system, a water network that didn't leak and an upgrading of our building stock to the highest possible energy rating is the type of bold, creative vision we need.
'The best thing is that this will not cost the country any real money. Investment in wealth-creating and cost-reducing assets does not create debt – it creates an economic return which, in turn, reduces deficits and debt. We must invest our way to a balanced budget'.

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