The Negotiated Economy

1. The Negotiated Economy A Contribution to the Development of a New Enterprise Policy for the Labour Party For internal discussion

2. The Necessity of a Progressive Enterprise StrategyLabour has been absent from the debate for too long • This presentation focuses on one important aspect of economic policy – enterprise strategy. • We have allowed the Right to dominate the debate over enterprise development, competitiveness and wealth generation. • The Left has focused on ‘how to spend’ the wealth but have not addressed the best way to generate that wealth. • This must end. Only the Left can address the core issues regarding generation of wealth. • More work will have to be done on labour market policies, new investment sources, promotion of best workplace practice, etc. The following hopefully sets out a starting point in which those new policies can be integrated.

3. The Failure of Indigenous Private EnterpriseThe economic priority is to create strong indigenous enterprises Throughout history measures were taken to create a indigenous enterprise class capable of growing the economy. They all failed. • In the 1930’s a policy of tariffs and protectionism. • In the 1960s, a policy of introducing multi-nationals into the economy to tutor indigenous enterprise • In the late 1970’s a policy of pump-priming the economy failed and created the recession of the 1980s. • Today, the Government is gambling that capital investment will create a strong indigenous sector – a ‘build-it-and-they-will-come’ policy. History, and a forensic analysis of enterprise’s shortcomings, shows that this will fail. The goal of Labour policy must be to do something that has never been done before – create a flourishing Irish enterprise sector

4. Let’s First Deal with Some Myths Propagated by Fianna Fail Ministers, Fine Gael, Corporate Lobbyists and their allies in the media

5. The Myths of the RightVested Interests Promote a number of policies that suit them • Taxes are too high: Ireland already has one of the lowest corporate tax rates in the industrialised world. . • Employers’ PRSI is a burden: Ireland has the lowest level of PRSI in the EU-15 • There’s too much Regulation: Ireland has one of the least regulated business environments in the EU and OECD. Forfas states that regulation is not an issue. The World Bank ranks Ireland 3rd in the EU-15 for ‘the overall ease of doing business’. Labour must challenge these myths and promote policies that address the real economic problems. Otherwise, we will continue to be marginalised in the debate and have nothing new to offer the Irish people. Corporate interests want to cut taxes, PRSI and regulations even further to suit them, not to promote economic growth and prosperity.

6. Irish wage levels are low be EU-15 standards. The OECD shows that private sector wages are over 10% below the EU-15 average. Irish wages rank 11th out of 15 countries. This is confirmed by the EU AMECO database, the US Bureau of Labor Statistics and EUROSTAT data. Over 30% of Irish workers in the private sector earn below the EU’s official low-pay threshold. Some Numbers from the CSO (2006 – for the private sector) 50% of workers earn less than €13.92 per hour 50% of women earn less than €12.34 per hour 50% of young people earn below €10 per hour In answer to a PQ by Ciaran Lynch, TD it was revealed that 1.4 million people earn less than €38,000 per year These figures show the reality of wages and living standards – a reality that the Right won’t acknowledge. The Myth of High WagesThe Right blame wage levels which are below the EU average

7. What Are The Real Problems Behind Our Poor Enterprise Performance And the Real Culprits

8. Fianna Fail’s ResponsibilityThe Government’s long-term lack of investment is responsible for our poor competitiveness • Ireland’s infrastructure is one of the worst in the OECD. Transport, seaports, electricity grid, telecommunications, etc. – we trail almost all other industrialised countries. The World Economic Summit described Ireland’s poor infrastructure as one of the main obstacles to improving our competitiveness. • The Government’s investment in ‘knowledge capital’ has been abysmal. Forfas shows that in over 2/3 of knowledge categories (e.g. education funding, pupil-teacher ratios, researchers, etc.) the Government’s record is either ‘alarming’ or ‘concerning’. When Ministers go on about our competitiveness Labour should point out that it has been nearly two decades of Government low-tax, low-spend policies that are the chief culprit.

9. FAS, Forfas and Enterprise Ireland have highlighted the huge skills deficit in our indigenous management sector Low innovation capability, failure to keep up with technological development, low R&D investment, poor labour practices, low take-up of management development courses, poor use of IT – the list goes on and on. Multi-nationals attract the best managerial talent because they pay better, have better career development prospects, are better places to work. Indigenous enterprise suffers by comparison. ‘Overall, general management skills in Irish SMEs were assessed as poor.’ (FAS) ‘The lack of management expertise among many owners has had an adverse impact on the strategic direction and performance of the (print and packaging) industry. (Enterprise Ireland) A Sunday Business Post survey showed most Irish companies aren’t even aware of simple tax reliefs (because they don’t employ tax advisors). Adoption of best practice management techniques among Irish owned firms, remainsrelatively low. (Forfas) Managerial IncompetenceOfficial reports reveal the poor state of managerial skills

10. Ireland needs multi-nationals. Without them there would be no Celtic Tiger. We wouldn’t be exporting in high-tech sectors. We would not have the wage levels, consumer spending and tax revenue to maintain our current living standards. The IDA’s strategy of targeting multi-nationals in high value-added sectors ended decades of high unemployment and emigration. Still, there are severe problems in our over reliance on multi-nationals. The foreign-owned sector . . . produces goods that were designed elsewhere, to satisfy market requirements that were specified elsewhere, and sold by other people to customers with whom the Irish operation has little contact and over whom it has little influence. (Enterprise Strategy Group) The skills we need – in R&D, innovation, sales, marketing, research – are generally not present in Irish MNC operations. We can’t continue to rely on companies based in New York, London, Paris and Tokyo. We have to start doing the work ourselves - learning skills, investing our own money, setting and expanding our own businesses, developing export markets ourselves. The Problems of Over-Reliance on MNCsWe need to build up our own knowledge capital

11. The Lack of an Enterprise Strategy • Apart from the IDA obtaining new foreign investment (which predates this Government by decades) Fianna Fail has no enterprise strategy. • They use a scatter-gun approach to grant-funding and tax reliefs • There is no strategic framework, no planning mechanisms, no resource targeting. • There is no linkage between the numerous agencies in order to target resources on ‘progressive companies’ or in ‘high growth potential sectors’. • It is left to public agencies to resource Irish businesses on the basis of ‘self-selection’ whereby the ‘market’ determines who gets supported, not a rational and democratic planning process.

12. Summarising The Real Problems Facing the Irish SectorIrish companies face a range of problems that they cannot, on their own, overcome. • Fragmentation and lack of scale: Irish companies are too small to achieve economies of scale –lower cost production, resources for R&D and innovation, investment for expansion or skill training. • Managerial Ineffectiveness: FAS and Enterprise Ireland have highlighted substantial skill deficits within management • Difficulties in accessing capital: Irish companies in start-up and developmental phase, cannot compete for investment with stronger established companies and overseas property market. • High costs of accessing export markets: It is very costly for most Irish companies to access export markets or compete at home against multi-nationals. • Poor labour relations strategies: Many Irish companies pursue out-of-date labour practices, causing poor productivity and higher costs. Labour policy must address these problems and not go chasing after the issues promoted by right-wing commentators and vested interest groups.

13. There’s One More Area to be Explored Before We Propose a New Enterprise Strategy What caused the Celtic Tiger Economy? That answer will give us the direction we need.

14. Tax cuts did not create the Celtic Tiger economy MNCs – the main driver of economic growth – already had low tax rates Cuts in income and capital taxes happened years after the start of the Celtic Tiger. Nor did cutting wages or regulation or Employers’ PRSI: Ireland never had high-waged, high-regulation, high payroll tax economy The idea that tax cuts and a neo-liberal economic environment created the economic growth is the biggest myth of all. “The promotion of the myth that low taxes created the Irish economic ‘miracle’ is part of a wider, conservative political agenda which, in essence, seeks to limit the role of the state and maintain the benefits reaped by a small minority, during the Celtic Tiger years. For them, Ireland is a low-tax economy and self-interest dictates that it should remain so.” ICTU What Didn’t Cause The Celtic TigerThe Left should combat the claims of the Right

15. A Number of Factors Contributed to the Celtic TigerThese are just a few • Demographics – we had more young people and fewer elderly than other EU countries (which meant our ‘dependency-ratio was low) • Devaluation of the Irish Punt (which reduced the price of our exports) • The creation of the European Single Market which opened up new market opportunities and helped reduce our reliance on the UK • Social Partnership – creating stability in the labour market But these would have not had the impact were it not for the most important reason

16. The Celtic Tiger was Public Sector-ledIt was created by politically determined strategies • It was the strategy devised by the IDA – a public sector agency – that was the major contributor to economic growth • They targeted MNCs in very specific, high value-added areas (electronics, pharmaceuticals, chemicals, software, etc.) • This wasn’t the self-selection pursued now – it was a deliberate targeting of sectors and companies that could deliver jobs, growth and wealth, working within the ‘market’ but making it work for us. • For decades Ireland had low taxes (for MNCs), low wages, little regulation, etc. This didn’t create wealth. It took the public sector to go out and make that happen.

17. The Celtic Tiger was Public Expenditure LedPublic expenditure was vital • There was a huge increase in public expenditure thanks to the EU taxpayer: structural and cohesion funds. • It has been referred to as a ‘mini-Marshall Plan’ for Ireland • The amount was over 6 times the annual capital expenditure in the early 1990s (and in today’s money is still more than the 2007 capital budget) • This was used to upgrade capital and social infrastructure – roads, airports, telecommunications, training, etc. • This helped modernise the economy (at the stage) and facilitated the strategies pursued by public agencies

18. The Celtic Tiger was Public Investment LedState investment led enterprise development • The major source of investment in high-tech indigenous enterprises in the 1990s was the state – not the private sector (they only came after firms were established) • The state was the primary source of funding throughout the important period of initial growth and consolidation of indigenous firms • This was coupled with other state aids – marketing, management development, R&D • In addition, the IDA was working on linking indigenous firms with MNCs (as supply sources in the manufacturing and service areas. • The engine of start-up and development growth was public investment led.

19. The Winning FormulaTried and Trusted We don’t have to reinvent the wheel We know what created the Celtic Tiger economy • Public-led strategies – with state expenditure and investment - working within the market, but with wider social goals • We have to do for indigenous enterprise what the IDA did for MNC enterprise – identify the sectors and companies that can grow the economy – led by democratic intervention in the economy. • This is what ‘social market’ economies do – to great benefit for enterprises, the economy and society That is the key to Labour’s new winning formula

20. Only the Left Can Offer a New Enterprise Strategy Because it will be based on planning, democratic participation, and public investment.

21. It Won’t Be Easy • The IDA had the great advantage of working with successful, internationally competitive companies already in place. • We need to create and build up such companies within Ireland – sometimes from scratch. • We have seen the problems the indigenous private sector faces – poor infrastructure, lack of investment, poor management skills, backward labour practices. • It’s easier to attract one successful foreign company into Ireland than to build up one from the ground up (never mind hundreds) • What is needed is not just a transformation in policy and institutions – we require a revolution in the business culture itself – on the part of management, trade unions, the state: everyone.

22. There are serious flaws in the current social partnership model One partner refuses to accept the existence of the other (when employers refuse to recognise the rights of workers to bargain collectively) The partnership rarely exists below the top level There is little public intervention in wealth generation Social partnership is the starting point of a new enterprise policy but it is in need of radical reform We need to reform the current model to ensure that: Partners – trade unions and employers – are recognised at all levels of the economy. Active partnership permeates all aspects of the economy down to the level of the firm – not to just at the top It is capable of being integrated into new interventionist policies. We need a new Democratic Partnership The Starting Point: A Democratic Planning ProcessSocial Partnership can provide a new model . . . but . . .

23. New Institutional Frameworks at the Sectoral LevelCreating Participation, Partnership and Competitiveness • The second starting point is the creation of new institutional frameworks at sectoral level – in the manufacturing and service sectors • At the sectoral level the social partners can come together, backed up by the resources of the state, whereby the problems and solutions of the sector can be resolved • Based on these agreements, the state would commit itself to providing the resources to achieve the goals negotiated by the social partners. • The priority sectors would be those in the tradable manufacturing and service sectors – where Irish companies would develop new export markets and compete internationally. But eventually it would be rolled out to all sectors in the economy.

24. What the Social Partners Would Do Agree a programme to overcome the obstacles identified: management development, R&D, network establishment for small companies to overcome economies of scale, market intelligence, linkages to innovation centres (e.g. universities), costs (labour and non-labour), seed capital, employee participation schemes, etc. Participating employers and employees in the sector would jointly monitor the programme – creating trust and participation by pursuing mutually beneficial goals together. What the State Would Do Undertake to organise the resources necessary to fulfill the programme agreed between employers and employees – either through direct state provision or sharing costs with and between employers. Establish a direct one-shop link between all the state and private agencies that would help in the delivery of the programme. What Sectoral Frameworks Would DoAfter drawing up a comprehensive audit of the companies in the sector, benchmarking them against international performance, identifying strengths and weaknesses* *An excellent template is Enterprise Ireland’s study of the Print & Packaging Sector (see below)

25. Companies Committed to Upgrading management skills and practice Investing in workplace training, upskilling, R&D and innovation Participating in business networks to share costs Expanding the company into, eventually, export markets Expanding employee participation, recognising employees’ right to bargain collectively and accepting their legitimate role in strategic decisions Employees Committed to Improving the commercial performance of the company in ways that serve the interests of workers, customers, owners and society. Serving the interests of customers, staff and stakeholders To work with the company in new patterns of obligations and responsibilities which expand traditional collective bargaining relationships What Companies Would ParticipateA new ‘best practice’ criteria would dictate who would participate in these sectoral institutions

26. Many owner-managers have little or no management training with poor performance in finance and stock control The industry is overly reliant on a few sectors Average capacity utilisation is below optimum with low levels of management information systems or net based technologies. Lack of integrated workflow systems to facilitate flexibility, short production runs and efficient customer response High staff turnover High local authority and electricity costs Many companies have invested in expensive presses and other production technology without a proper business review Industry has failed to enter co-operative arrangements to exploit new market opportunities. The need to radically reform apprentice system / in –house skill training to keep up with new processes Industry doesn’t interact in a formal way with the education sector A lack of marketing expertise The study’s conclusion: low level of exporting and a failure to exploit new product and service markets Case Study: Print & Packaging SectorProblems identified by Enterprise Ireland study

27. The problem with the Print & Packaging sector is not high wages, taxes, regulation or other myths of the Right The Enterprise Ireland study shows the problems are much more deep-rooted. The problems are rooted in the small scale of companies, their internal operations and lack of strategies to expand and succeed This is challenge can only be met by democratic partnership and state support. Management development Marketing support Cooperative arrangements and networking Reform of the apprentice system and create links with the education sector Investment capital Addressing the ProblemsConcrete solutions, not rhetoric

28. Labour should become the party of enterprise development Investment, growth, labour practices, etc. should be negotiated with all stakeholders – not a ‘statist’ economy, nor one relying on ‘free market forces’. The Right doesn’t have the answers. They just repeat anti-social, anti-trade union and anti-tax slogans Only the Left – with a programme of democratic intervention – can assist Irish enterprise to reach it’s full potential. This programme to be based on: Consistent and vocal rejection of the neo-liberal agenda Radical reform of the social partnership model to ensure all partners are recognised and that participation is extended to key economic sectors. Sectoral institutions to identify the real problems and agree a programme of growth and prosperity between the social partners The state to support these programmes through sustained investment and agency assistance in a targeted way – concentrating first on the potential export sectors. The Negotiated EconomyNeither statist nor ‘free market’

29. This challenge goes beyond policy proposals or claiming ‘we can manage the economy better’ It constitutes a fundamental challenge to the Right’s low-tax, low-spend, let-the-market-sort-it-out-philosophy This is a political challenge that requires constant campaigning A good ‘philosophical’ starting point: it was stated by a Fianna Fail leader but it remains an admirable summation of social democratic values. Except now, Labour is going to take this aspiration and put it into practice. ‘Nobody nowadays regards the operation of an important industrial undertaking as being the exclusive private concern of its owners. Each such undertaking is looked upon as a national asset contributing to the country’s economic and social advancement. The social consequences of business activity are matters of public debate. The industrial manager has unavoidable responsibilities, wider than those placed on him by his employer. He should be regarded and regard himself as a public servant in the finest meaning of that term.’ Sean Lemass Reclaiming the GroundLabour’s challenge to the right-wing consensus

30. Agricultural MachineryAviation IndustryBiotechnologyClothing and TextilesConstruction ProductsElectronicsEngineeringFurnitureGiftwareInternationally Traded ServicesLearning/eLearning Medical Devices and DiagnosticsPharmaceuticals and ChemicalsPhotonicsPlasticsPrint and PackagingProcess EngineeringSoftwareTelecommunicationsTraining and EducationNanotechnology Sectors covered by Enterprise IrelandThese are just a some of the economic sectors that could be covered by new sectoral institutions within a new democratic partnership.