Does the Collapse of a ‘Public Sector Pay Deal’ Equate to the Demise of Social Partnership as a form of Economic Governance?

The default position of Irish politics and public policy since 1987 has been ’social partnership’. However, this concept has been used to describe a whole variety of changes in Irish industrial relations, public policy, political processes, governance institutions, conflict resolution and pay bargaining. Given the evolution of ‘partnership’ as a form of socioeconomic governance it is inevitable that few are fine tuned to its subtleties, contradictions and nuances. It is a process of national social dialogue among organised interests; employers, unions, farmers and community groups. Its tangible output is a negotiated bargain between government, employers and unions in the form of ‘national partnership’ agreements.

There have been seven national agreements to date: PNR (Programme for National Recovery), PESP (Programme for Economic and Social Progress), PCW (Programme for Competitiveness and Work), Partnership 2000, PPF (Programme for Prosperity and Fairness), Sustaining Progress and T2016 (Towards 2016).  Each contains agreement on pay-incomes policy. But, this is agreed in an overall socio-economic policy framework that includes everything from housing, social welfare transfers, employment and labour market policy. The main actors’ involved are not just organised social interests but key government departments; Finance, Enterprise, Social and Family affairs, Education and Health. The process is facilitated by the Taoiseachs department who act as a guardian of the agreements; monitoring and reviewing its progress. Prior to each national agreement a strategy document is developed by the National Economic Social Council (NESC). This outlines the economic and social context within which actors are negotiating.

Each agreement is a window to the context within which it is negotiated. The last agreement; T2016, was negotiated after the GAMA and Irish Ferries dispute and thus contains agreement on employment rights legislation. The National Employment Rights Authority (NERA) emerged from this social pact. In 1987 the context was a crisis in the public finances. The then government, led by Charles Haughey, negotiated a public policy contract with ICTU and the FUE (now IBEC). The basis was wage restraint in return for a complete overhaul of taxation policy. This agreement was different to the ‘national understandings’ in the early 1980’s in both policy content and the method of negotiation.  The pay agreement extended from 12 to 36 months and the negotiations extended into tax, fiscal, welfare and labour market policies.

This linking of fiscal and tax policy was a central rationale for organised labour (ICTU and the IFA) to enter into a public social accord with government. The government received assurance that all economic actors were behaving within a consistent framework; a framework that aimed to reduce the debt to GNP ratio and increase industrial peace. This stable and consistent policy background in turn produced a context favourable for foreign direct investment. Active state agencies such as the IDA, Enterprise Ireland and Forfás were subsequently able to advance the agenda of job creation. Ireland went from a position of industrial adversarialism in the 1970s and 1980’s to industrial peace in less than twenty years.  There were only 12 strikes recorded in the Irish economy in 2008.

The initial PNR agreement worked and created a path for actors to negotiate the Programme for Economic and Social Progress (PESP) in 1991. This social accord was heavily focused upon tax reform and active labour market policies. Again, it was dynamic and flexible. Both the PNR and PESP were negotiated in a context of soaring public debt yet they provided stability for government to get the debt and finances under control.  It ensured that actors behaved consistently within an overall macroeconomic framework.  The Programme for Competitiveness and Work (PCW) aimed to sustain job creation whilst increasing export led growth. Each subsequent national agreement contains its own political and policy priorities, reflecting the economic context and interests of actors involved.

Prior to the inflationary pressures brought about by the property boom the pay aspect of partnership was widely regarded as having instituted wage restraint.  Up until T2016, the wage agreements became a floor not a ceiling for the productive and export oriented multi-national sectors. All agreements to date contain a distributional outcome but none attempted to reduce income inequality. In all seven national agreements the nominal take home pay of workers increased. This is a central difference to the current context and therefore it is hard not to conclude that in the absence of a distributional outcome a social pact between government, ICTU and employers cannot be agreed.

But, the exchange that leads to a monetary outcome is only one dimension to the institutional evolution of social partnership in Ireland. It is a form of negotiated governance, a sharing of information and the generation of social capital amongst conflicting economic interests. This is a shift that is often conceptualised as a move from government to governance. This shift is not unique to Ireland but embedded in the European project and articulated in a series of treaties and directives to which we are signatories. The concept of economic governance recognises that market processes involve the coordinated behaviour of organised interests. Ensuring that this behaviour is aligned with central macroeconomic policy goals facilitates social and economic development. It enables the coordination of labour relations in a small open economy.

Furthermore, the negotiation of public policy contracts between government and organised economic interests is not unique to Ireland. These have emerged in a variety of forms across Europe since the early 1990’s. Between 1990 and 2007 there have been 80 attempts to negotiate a social pact in 18 different countries.  Of these 18 countries 14 negotiated a second social pact. But, only six countries (Ireland, Netherlands, Slovenia, Portugal, Italy and Finland) continued to successfully negotiate and conclude social partnership agreements on a continuous basis. Ireland and Portugal negotiated seven social pacts. Slovenia concluded 5 (but recently concluded another one in 2009), Netherlands concluded a seventh in 2008 and Finland and Italy have negotiated six. Many other countries across Europe have since adopted tri-partite forms of concertation to deal with the economic crisis.

The Programme for National Recovery emerged in 1987 and evolved into a governance process that we now call ’social partnership’. It has become institutionalised in a variety of ways and primarily reflected in the industrial relations and public policy process. This was an institutional change based upon a negotiated political consensus. It has not become embedded at firm or sectoral level as is the case in the more coordinated market economies of Denmark, Slovenia, Netherlands and Sweden. Yet, what Ireland has developed, similar to these countries is a centralised governance mechanism to align the strategic interests of conflicting actors into a shared socio-economic framework. It is unique from these countries in that it is government led.  It is state led. This facilitates a developmental trajectory that aligns income, fiscal, employment, welfare and labour market policy into a coherent public policy contract. It is a political process that creates the conditions for a coordinated response to a shared collective action problem.

This larger dimension to social partnership that focuses upon policy capacity and economic governance has been lost on those quick to eulogise its demise. Many in the trade union movement have opposed social partnership from the beginning. They have argued that ICTU got into bed with a centre right government in return for nothing other than nominal wage increases. Many economists are mathematically opposed to social partnership or any form of economic governance for it is perceived to distort the smooth operation of perfectly competitive labour markets. Some argue that it is anti-democratic for it engages unelected actors into a process of public policy decision making. Others have criticised social partnership as a mechanism that was supposed to deliver public sector reform and failed. It seems that it is the latter that has turned public opinion against partnership and perhaps for good reason.

But, it is important to distinguish between the public sector pay deal between government, represented as an employer by the Department of Finance, from the wider approach to social and economic governance. The pay deal between government and public sector unions is one aspect of social partnership. This disagreement is an industrial relations dispute that requires active intervention by the conflict resolution mechanisms that are part of a wider approach to labour relations in an open economy. A public sector pay deal could not be reached in December but this should not rule out the possibility of a new national social accord. But, whether partnership has the capacity to reinvent itself for the challenges facing Ireland in 2010 or whether it has the political legitimacy to do so is uncertain.

The question that the existing or a new government needs to ask itself is whether unilateral action is the optimal policy response to the economic crisis? In a small open economy, is a negotiated response more appropriate to the collective action problem we now face?  There are a variety of mechanisms that can be used to negotiate pay, i.e. the postponement of pay increases until sustainable economic growth occurs, in return for increases in productivity, reform and efficiency measures. But, more importantly, a focus on active labour market policies and job creation could become the basis of a new National Social Accord. The creation of sustainable employment and flexible public services akin to our European neighbours in Denmark and the Netherlands goes beyond party politics. It requires a coordinated response amongst all social and economic actors. This is what social partnership is about.

3 responses to “Does the Collapse of a ‘Public Sector Pay Deal’ Equate to the Demise of Social Partnership as a form of Economic Governance?

  1. Your final paragraph puzzles me.

    It reads like you assume that the government is interested in an ‘optimal policy response’.

    If the reports are reliable that there was a 8-5 split vote at the cabinet meeting that ended the talks, then the idea of ‘government’ policy, never mind an optimal policy, may not be a valid concept.

    Are in we in a kind or prisoners’ dilemma, where the best thing for the government (and the State) is not the same thing as what is best for some of the individual members of the cabinet?

  2. In fairness, I think cabinet-collective government is interested in an optimal policy response, whether it is capable of an optimal policy response is perhaps a more significant question.

    What is best for the state is certainly not the same thing as to what is best for individual members of cabinet. But, that is a much broader (and interesting) question that my article does not attempt to deal with. I am not sure I conceive it as a prisoners dillemm (or game), any minister who is perceived to act in his/her only interests would be quickly dropped by the Taoiseach.

    But, I will say this, one of the main reasons behind a shift toward more ‘delegated’ forms of governnace via partnership was to overcome veteo points as they emerge in the administrative system. I sense a lot of ministers envied the partnership agreements for they needed to get their policy priorities into the agreements, and hence felt they did not get the public recognition for it.

  3. My other main point, which I completely forgot (as I typed and deleted words and phrases in the comment above trying to make the English coherent) is that your evidence could be used to defend the Government’s stance. Only 14 countries have negotiated second social pacts, and only 18 have tried it. So, since there are far more than 18 countries in Europe and more (without the the ‘far’) in the OECD or EU, not all countries need one and it is, therefore, entirely possible to govern without one.

    I make this point not as a normative point, simply as an analytic one. I hope the other material you have on this would show that a negotiated pact is a string indicator of economic success or economic stability. (I pick economic stability and success rather than social because I think that is the only criteria that will carry any weight with the administration and the political leadership we have.)

    I presume that elsewhere in your research you will deal with the departure of (most of) the community and voluntary sector from the partnership — and reductions in access to the administration for those organisations afterwards. When I was doing my MSc, we had a C&V sector participant in the talks that led the their departure from partnership give a seminar on the process. A senior official in the Dept Taoiseach told him that the C&V sector’s mistake had been to bring politics into the partnership process.

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