The societal conditions for economic competitiveness

1. What is competition?

This is the question that nobody seems to be asking in Ireland. It is assumed that it means low costs and therefore wage cuts. This is an assumption not an argument. Several years ago the Nobel prize winner Paul Krugman wrote an article called ‘Competitiveness: A Dangerous Obsession’. The essential argument is that it is fundamentally wrong to view a national economy as a big corporation competing in the global market place. He argues that it is economically unsound and factual incorrect. The obsession with ‘national competitiveness’ distorts the nuanced complexities facing any domestic economy. Thinking in terms of ‘competitiveness’ leads to bad socio-economic policy. It favours tax cuts in the good times and wage cuts in the bad times. Progressive state-economic (public) policy ought to be concerned with investing in the necessary societal conditions for competitiveness. Ireland has a high wage economy similar to one of the most competitive countries in the OECD: Sweden. How do they manage to be competitive and retain high wages? They invested in the necessary social infrastructure that supports a market economy, and funded it through a broad based equitable tax system.

2. What are the societal conditions for this competitiveness?

Firstly, it requires re-conceptualising labour less as a ‘cost’ but a fundamental ‘capital-resource’ for successful competition. High quality labour is the basis for a competitive export economy.Investing in labour is an investment in competitive performance. This is not just about skills but organisational capacity, security, benefits and innovation. This applies to both the public and private sector. Many economists (the same ones who celebrated the expansion of Ireland’s property bubble) are attempting to drive a wedge between public and private sector workers. A wedge that will damage Ireland’s capacity to build a new sustainable economic future.

Secondly it requires investing in the productive and social economy. I take both of these to include education (primary, secondary and teritary), health care, housing, transport and various aspects of the labour market. Rather than conceptualise these areas as costs incurred by the ‘welfare state’ they should be conceptualised as the skeleton that supports the development of a successful market economy. The market is supported when it is embedded in societal institutions that facilitate competition. Investing in these societal conditions is an investment in the future competitiveness of the economy. This ought to have occurred during the boom times; but regrettably it did not. The government should use the current crisis as an opportunity. An opportunity to borrow, stimulate and invest in the future sustainability of the economy. A post-carbon social economy.

Who should finance it?

Increasing Ireland’s competitiveness requires stimulus not retrenchment. This stimulation can only be resourced via increases in taxation. The tax base should be brought in line with the rest of Europe. A long term strategy that is of benefit to all EU members is to have a harmonised tax base. If the EU wants to develop a stable and equitable EMU then it has to plan for the long term sustainability of an integrated network of regional economies. Ireland went from a Boom to Bubble after 2000. This asset price bubble led to a camouflaged economy. The speculative bubble was the direct result of policy choices. The government recklessly cut taxes over the past eight years. It fed the construction boom in the naive assumption that house prices would rise indefinitely. Re-examining how the state finances its expenditure is essential. This requires ending Ireland low tax regime.

To solve the problem in the public finances the state should  increase the top rate of tax for high earners, and an even higher rate of tax for the many multi millionaires that now reside in Ireland. Those who benefited and expanded the speculative boom since 2000 ought to pay to get us out of it.  This is where the focus should be, not on wage cuts for those earning the average industrial wage. This, however, requires a fundamental policy-paradigm shift in Irish public policy.

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