The Dublin Consensus

Sli Eile: We recall the term ‘Washington Consensus’ as it was first coined in the 1980s. Dani Rodrik summed it up as:
Stablize, Privatise, Liberalise.

Part of the recipe was to get your ‘macro balances in order’
In Table 1 of his paper, Rodrik (a critic of same) lists the 10 Washington Consensus principles as:

1. Fiscal discipline
2. Reorientation of public expenditures
3. Tax reform
4. Financial liberalization
5. Unified and competitive exchange rates
6. Trade liberalization
7. Openness to DFI
8. Privatization
9. Deregulation
10. Secure Property Rights
Sounds familiar?
Rodrik outlines a supplementary list in the ‘Augmented Washington Consensus’ (sounds a bit less familiar) as follows:
11. Corporate governance
12. Anti-corruption
13. Flexible labor markets
14. WTO agreements
15. Financial codes and standards
16. “Prudent” capital-account opening
17. Non-intermediate exchange rate regimes
18. Independent central banks/inflation targeting
19. Social safety nets
20. Targeted poverty reduction

I suggest that there is, already, a real ‘Dublin Consensus’ and it goes as follows:

1. Sort out Banking through some form of toxic-containment (folks differ on the details)
2. Frontload big, immediate cuts in nominal wages in the private and especially the public sectors (real ‘plain vanilla’ cuts and not just voluntary contributions from the judiciary, contrived ‘pension’ levies and various stealth charges)
3. Frontload big, immediate cuts in public spending across the board from pay (see above) to social welfare (‘the highest in Europe’ false claim) to ‘wasteful’ capital projects to other items
4. Bring the low and middle-income groups back into the tax net
5. Downsize and reform the public sector

There are a few supplementaries like privitising some state assets – but the core of the Dublin Consensus is captured in the above five points. This is a real, audible and visible consensus from the pages of the Irish Times to learned articles and conference papers to ‘economics for the simple’ on the public airways – and of course many but not all the comments among our separated brethren on irisheconomy.ie.

By the way, I completely disagree with the view that the ‘left’ is in any way winning the economic argument.

The right is winning hands down and we are looking at, potentially, the most deflationary fiscal stance since at least the 1950s and further erosion in our already weak public and social infrastructure – relative to the standard of provision and living standards people have become accustomed to following the Celtic Tiger.

So, when journalist Sarah Carey writing in today’s Irish Times argues that the ICTU should roll over and declare:

'Comrades, I have nothing to offer you but cuts and taxes. The deeper the pain now, the quicker all this will be over’

we have to ask:

Is there no other show in town?
Has the Dublin consensus won?

Should we fold up, go home and concede that the logic of market economics, international finances, a failed domestic banking model and an overwhelming media, economics and political consensus that the only path to recovery is through cuts, more cuts, unemployment and dramatic falls in living standards. Nobody likes to say it quite like this – but that is what most people are assuming – there is no other way – we have to price ourselves back into markets, we have to balance the public books fast and hold on until the tide comes back in on an international recovery.
The debate about jobs subsidies is a deflection.

Whether or not you think such subsidies will work is not the point. My original blog questioned the evidence that they would work and implied that other uses of this expenditure would be more effective. At this point in time it is hard to cast judgment since we have no details or analysis beyond a few media leaks. And there is no certainty on where different interests stand on the various issues. The point is that we need to move away from marginal debates about relatively marginal issues to confronting the real issues:

1. Domestic fiscal stimulus versus profound fiscal deflation for 2009-2012/13
2. Skills, innovation and growing the indigenous economy on world markets versus business as usual depending on FDI and a relatively protected and cosseted non-traded sector (as in price controls, costs and rigid work practices in the case of the public and civil service)
3. Corporate governance change versus cosmetic name change
4. Finding another way of dealing with banking rather than bleeding the whole country with a blanket cheque to recapitalise the failed (with the bail-out of Anglo-Irish ultimately costing more than an entire year’s education budget)

This is where the real debate needs to be reclaimed and the Dublin Consensus challenged. Self-proclaimed progressive and left folk including public sectors unions need to get serious about reform of the public service (which is one area where the Dublin Consensus is partially right) – how can we expect people to buy-into Scandinavian tax levels and redistribution policies unless we reform, root and branch, a slowing-moving, under-funded, under-staffed (yes I meant under-staffed) and inefficient public service operating in a very inefficient manner and subject to all sorts of political constraints and centralisation that is out of line with 21st Century public management.

(Glad that progressive economy trumps Grey’s Anatomy).

Posted in: Fiscal policy • Fiscal policy

Tagged with: fiscal stimulus • subsidies on wages