Guest post: Growing the economy

Michael Taft: UNITE the union has published a set of economic proposals – Growing the Economy – as a challenge; both to the orthodoxy which dominates the current debate, and to progressives, to start constructing an alternative framework. It is a first step towards a new narrative – but only a first step.

Its starting point is the failure of current Government policy to stop the recessionary slide (indeed, it argues that Government policy has actually deepened and lengthened the recession). Its alternative is rooted in identifying very real deficits of our productive capacity and how, by addressing these, we can at the same time create/save jobs and, so, address the fiscal deficit. In other words, it is unemployment and the lack of productive investment that is the disease, the fiscal crisis is the result:

• Our physical infrastructure is ranked as one of the worst in the industrialised world, while our social infrastructure is European in name only;

• Whatever the fall-out in the banking crisis, the immediate priority is to establish a bank dedicated to extending credit to SMEs – the first step in a broader reform of our banking structures.

• That people’s income and living standards are not an obstacle to growth but rather part of the solution – particularly those on low and average incomes; therefore, it calls for a new wage agreement, which disproportionately benefits these income groups through flat-rate payments.

• That it is cheaper to save jobs rather than create them; therefore, we need payroll subsidies for enterprises that short-time workers rather than resort to redundancy.

• That the development of an indigenous enterprise can start with an expansion of public enterprises to modernise our physical infrastructure through ICTU’s proposed State Industrial Holding Company (something Fine Gael has copied to argue that new public enterprises can create up to 100,000 jobs).

These measures can ensure that on the other side of the recession we will have a stronger infrastructure from which we can better exploit the eventual recovery in global demand; we will have saved a number of viable enterprises that would have otherwise collapsed owing to the credit crisis; that key skill-sets will have been saved through payroll subsidies and public equity; and we will have new enterprises under ICTU’s proposal – with the downstream jobs created/saved as a result.

Of course, there is a question of financing. However, as UNITE points out, our deficits and borrowing requirement are on the verge of spinning out of control under current policy (the EU Commission predicts the deficit to rise to over 15% next year). However, even on current trends, our overall debt level will remain under the Eurozone average for the next two/three years. This, in effect, is our window. By increasing our borrowing levels to European averages, we can direct expenditure towards these investments – which will reduce unemployment and increase economic activity, thus lowering the annual deficit.

A range of other measures would accompany this: increasing taxation on less-deflationary sources of revenue (unproductive capital, unearned and high incomes); reform of regressive tax expenditures; and the issuing of Economic Recovery Bonds to take advantage of our growing savings ratio.

Ultimately, UNITE claims that the way out of this crisis is productive investment, employment and growth. It has put forward a menu of other proposals (some developed here as Jim Stewart’s proposed consumer vouchers). It challenges the deflationist orthodoxy. But it is not the last word, merely the first.

Most importantly, it invites other progressives – trade unionists, left political parties, social organisations – to get into this debate with enthusiasm. There are, no doubt, other and better ways to achieve what UNITE is attempting to sketch out.

We won’t know that, however, until we engage in the hard work of constructing an alternative, a new narrative. The quicker we start that task, the better it will be for the economic debate – and for the future of the Irish economy.
Michael Taft is research officer with UNITE

Posted in: Politics • Fiscal policy

Tagged with: stimulus • public spending

Michael Taft     @notesonthefront

Michael Taft is an economic analyst and trade unionist. He is author of the Notes of the Front blog and a member of the TASC Economists’ Network.