CAIN: Democratic Dialogue: new Thinking for New Times (Report No. 1)

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New Thinking for
New Times

Modernisation and social partnership

Rory O'Donnell

In recent years, the Republic of Ireland has been undertaking an important experiment in policy-making, at both national and local level.

The background to this experiment, which began in 1987, was a combination of crises.

The economic crisis stemmed from the recessions of the 70s, adjustment to membership of the European Community - which involved an enormous change in the structure of the Irish economy, including the loss of many traditional industries - and, in the early 80s, a fiscal crisis, pushing the country almost towards insolvency.

That was combined with a political crisis. With no party able to command anything like a majority, intensified political competition lowered the quality of political behaviour, rather than improving it. Political decision-making became worse - more expedient, more short-term - exacerbating the fiscal crisis.

At the same time, in the early 80s, there was a social crisis. There was deep despair in the face of an economy stagnant for six or seven years in a row, falling real consumption, a doubling of unemployment and intractable debates around fundamentally divisive issues, like abortion and divorce.

The National Economic and Social Council is roughly similar to the Northern Ireland Economic Council. Funded by the state, it comprises the 'social partners' - representatives of trade unions, business and farmers (in the NESC case, civil servants are also included.) In 1986, the social partners, acting in the NESC, put together a package to get out of this vicious, downward spiral.

It was a package to avoid insolvency, while protecting welfare recipients and the unemployed, and envisaging fundamental changes in public expenditure and policy. This programme, put together voluntarily by the social partners - by a twist of fate, perhaps - was adopted by government in 1987 and formalised in a three-year agreement between it and the business, trade union and agricultural interests.

An aspect of the agreement - explored in more detail below - was the republic's adherence to the European Exchange Rate Mechanism (ERM). Indeed, the initiative reflected an emerging perspective on the republic's experience in the European Community.

Four main policy areas in the European Community influenced the republic dramatically: the internal market, the common agricultural policy, the monetary policy and structural (regional and social) policies. Yet, after 10 to 15 years of experiencing these policies, we discovered that the way they influenced the republic was dependent on our approaches to them - on domestic economic structures, political structures and firm structures.

This was quite surprising. The Common Agricultural Policy (CAP) was always the most centralised and common policy of the European Community, and yet the way it affected the republic was very much influenced by elements of agricultural policy over which we still had control, but had forgotten we had.

For example, there were fundamental structural problems in agriculture, which couldn't have been addressed by the CAP, but we had neglected making policy on them during those years. Similar comments could apply to the other Euro-policy areas: the internal market, the monetary policy and so on.

Borrowing from an American writer, I would describe this new understanding as an 'interactive outlook'. We discovered that the way European Community membership and, perforce, globalisation influenced the republic was, in fact, via an interaction between that globalisation and those larger European forces, on the one hand, and the domestic structures and policies, procedures and norms, on the other.

That interaction is much stronger than we first understood, having assumed - perhaps reflecting a long line of Irish thinking - that much in the republic was determined by some larger external force. There are two versions of that view - that it is benign and that it is malign; either way, it's a well - entrenched line of thought.

We had to abandon that view, that things were definitively externally determined. Likewise, we had to abandon the opposite view - equally mistaken - that

the republic is an organic entity and that one can apply principles to it on its own, without taking account of its openness and its interactions. (Although these two views are clearly faulty, it's very hard to avoid them when one starts to generate policy advice.)

What emerged, after a dozen or so years of European Community membership, was a quite different understanding of the scope of domestic policy and institutions, in shaping the way membership worked for and against the society. It's impossible to understand what has happened to the republic, without seeing the enormous impact of EC membership - not only through the state and high-level policy makers but also upon the society, through autonomous activity: people joining environmental groups, women s groups, local authority groups, at European level, and involving themselves in the numerous networks which really are what comprise the European Union.

There is also an interactive understanding of what happens at home in the republic. In looking at those policy areas - the internal market, the common agricultural policy, the monetary policy and the EU structural funds - one needs new ideas to understand how, in the European economy, a small region like the republic fares. One has to draw on a range of ideas, from regional studies, business studies, geography and so on all of which are moving in the same direction: they're all saying that the outcome is not as predetermined as we once thought.

An earlier body of geography and regional theory would have said that, in the face of globalisation, the periphery of Europe would definitely go in a negative direction. That deterministic view has to be qualified now, and that same qualification has occurred across a range of areas of expertise.

All this says to us that policy-making has to be different from in the past, when expert knowledge and bureaucratic techniques could put together a functioning policy fairly well. Whether policy will work or won't work now is much more dependent on engaging the main players in the society.

In sum, then, the notion of interaction - an interactive framework between the republic and international events and forces, and a more interactive view of what happens domestically - are important backgrounds to the new experiment in social partnership.

Now to the experiment itself. The Programme for National Recovery (PNR), agreed in 1987, was a three-year deal determining the evolution of pay in both the public and private sectors, but it was much more than a wage bargain. It involved an agreement on the state's part as to the broad evolution of the tax system, and of health and social welfare spending. The social partners and government also committed themselves to adhere to the ERM: if the punt came under pressure, neither employers, nor unions nor farm interests would immediately call for devaluation, but would stick to the policy for the medium or long term.

The PNR was successful and it was followed, in 1990, with a second three-year programme, the Programme for Economic and Social Progress. The PESP contained many of the same elements, but there was a new focus on the long-term unemployed and an experimental, area-based approach to addressing it.

In 1994, a third three-year agreement followed, the Programme for Competitiveness and Work (pcw). That, again, had the same key elements: wages, tax reform, expenditure on social welfare and health, adherence to the Maastricht criteria for transition to monetary union, as well as a further focus on employment and unemployment, training and local economic and social development.

What is significant about those three agreements - which differ from previous centralised wage agreements and other policy-making - was the shared analysis of many elements of the economic and social problem. That analysis was that, in a very volatile international economy, a country which is small and extremely open - in terms of its economic interactions - has to have three elements to its policy, all of them consistent.

It needs a macro-policy which ensures the growth of demand and low inflation. It needs distributional arrangements, which maintain competitiveness in the international environment and reduce tensions in the workplace and elsewhere, so that distributional conflict does not disrupt the economy. And it needs an ability to make structural changes - in firms, in the state, in the health system and so on - because it has to compete in a very volatile international environment which it can't influence that much; this calls for flexibility and continuous adjustment of the economy, the society and the public sector. It needs to achieve those three things.

The development, through various forums - like the NESC - of a shared analysis of some of the key problems was thus a fundamental, second element in this experiment.

Thirdly, there were institutional developments. A Central Review Committee was established, to manage these agreements. Every few weeks, the relevant ministers or senior civil servants meet the unions, business representatives and agricultural interests and monitor the programme, thus involving themselves in a continuous dialogue on key matters of policy as they arise.

Another institutional innovation, again unlike previous wage bargains - which were really put together by unions and business with each then settling separately with the state - has been the much more collective character of this experiment. In many ways, the state has played a key role as a co-ordinator of the process.

Given this broad outline of the national programmes, which made up this experiment, we must now consider a second strand of social partnership, which has operated locally.

When the PESP was being negotiated, the unions pushed very hard for a new initiative on long-term unemployment. The response was 12 pilot partnerships - local boards consisting of community groups, unemployed representatives, the social partners themselves in a given area, key state agencies (such as the training agencies and the tourist board) - with links to government. These were to attempt new ways of tackling long-term unemployment and reintroducing the long-term jobless into the labour market.

Secondly, a set of initiatives coming from the European Community were very significant. The Leader programme for rural development had a very similar structure - local boards on a partnership model, bringing together the key agents. (There, the focus was less on social exclusion and unemployment than on business development.) And there was Poverty 3, which operated in Northern Ireland as well: the European Commission s input was very significant in prompting the republic to experiment with local partnership in that sense.

Also, in managing the large transfers under the regional fund and the social fund, the republic - a very centralised state - was pushed by the European Commission towards some regionalisation of the monitoring of those expenditures. There's debate about how great and how genuine that regionalisation is, but it certainly has been there.

Finally, the pcw embraces a more articulated approach to local economic development - with partnerships established not only to address long-term unemployment, but also commercial and employment development, at a local level.

How should one assess and interpret this experiment? In terms of economic performance, it has undoubtedly been extremely successful. Between 1987 and 1993-4, the republic achieved one of the highest rates of output growth in the OECD countries and the second highest growth in employment.

The programmes played a key role in making the republic's macro-economic strategy work. The early 80s saw a vicious circle, in which the fiscal crisis was dealt with by raising taxes; workers then sought those taxes back in pay bargaining. Business was squeezed, between the state on one side and the unions on the other; this, in turn, compounded the fiscal problem.

What these agreements have done - as against previous centralised wage bargains - is to embrace in a common accord all the necessary elements to break out of this vicious circle, including taxation and the 'social wage', health and welfare expenditure. Only if all these are managed in a consistent way, in a way that is essentially agreed, can the policy hold together. In effect, inflation is taken out of industrial relations and domestic politics.

After the first experiment, the NESC saw a connection between the agreed understanding of some of the key problems, the consensual approach to distribution - in terms of both pay and public expenditure - and, interestingly, a distinct improvement in the quality of public policy-making. The ability of government to take strategic, non-pragmatic decisions seemed dramatically to increase under this régime.

It may or may not be connected, but the coincidence is striking, and indeed it has continued. In a still very competitive political environment - indeed, the instability of party support is even greater than in the late 70s and early 50s - the quality of policy-making is much more strategic, with hard decision-making where decisions need to be made.

So, in terms of economic performance, the assessment has to be very positive.

There is also a renewed focus on development. One of the striking features of a fiscal crisis is that it bleaches out any developmental thinking. There was a strong strand of developmental thinking in public policy in the republic, from the late 50s through to the early 70s, but this was wiped out as policy-makers became preoccupied with public expenditure. We have managed to reintroduce - again, very much prompted by the European Commission - a developmental element into policy-making and debate, at national and local level.

Thirdly, there has been a regeneration of local development and involvement. The republic is not only centralised, but has a strong tendency to perpetuate that centralisation. We have seen, under this regime, a renewed recognition, both in society and in policy-making, that local involvement is one of the wellsprings of both prosperity and social solidarity. Local partnership has been a very distinct achievement of this experiment.

There are, needless to say, severe difficulties in developing partnerships at local level. The success of local social and economic development, under this partnership model, seems to depend on a very strong 'vertical' relationship with high levels of state agencies, such as those responsible for training and industrial development. So it isn't 'bottom-up' development in any simple sense: it involves a strange mixture of bottom-up and top-down.

This experiment in policy-making is appropriate to a very internationalised economy, partly because it allows us to focus on those areas where a very small country - or, indeed, region - can still have some influence on its economic prosperity. To some degree, in the republic, it is a matter of getting clear what limited autonomy we have in areas of macro-policy.

But, more and more around the world, there is a concentration on the importance of 'supply-side' policies - education, training, technology, science, infrastructure and developing a flexible economy - to the prosperity of given countries and regions. All such policies, which influence prosperity much more now than in the past - and in ways which macro-economic policy or, indeed, large-scale industrial policy simply can't any more - are dispensed with great difficulty, and quite ineffectively, by state structures on their own, particularly by bureaucratic administrative structures.

What they depend upon is the collaboration of all the parties who are relevant to the policies. So it's impossible to imagine a successful training policy which doesn't engage the involvement, the willingness, of those whose skills are supposed to be improved. And the same applies across the board - to technology policy, infrastructure, communications and so on.

There is a lot of debate, internationally - and a little bit in the republic - about how to understand this model of social partnership. It's more than consultation: it's not a process whereby the state simply consults the social partners, or local community groups or whatever. It's more like negotiation or, indeed, shared authority. Government shares its authority - its right to pass law and spend public money - with those partners. It is addressing the limits of legal regulation and bureaucratic administration to solve problems, not only by consulting but also by sharing authority in a genuine partnership.

What are the challenges that remain? Two major challenges confront this experiment in the republic. It has succeeded in getting the macro-economy and macro-social issues into some balance, but it hasn't successfully addressed the core, long-run problem of the republic - weak indigenous economic development. So the question is: can this process be pushed into industrial policy, training policy, technology policy, finance for industry and so on?

Secondly, there is a challenge of long-term unemployment and social exclusion. This has not been utterly ignored in these programmes, but clearly it's an enormous challenge which requires continuous change.

A third challenge is that there is a challenge: there is opposition to this experiment. Opposition comes very strongly from liberal economists and from those at national level who are quite unhappy with the notion of the economy being regulated in a continuous dialogue between the state and the social partners.

At local level, too, there is a challenge to the notion of partnership, from those with a more traditional notion of democracy - who say it is quite inappropriate that public money be handled by voluntary associations of community groups and so on, and who wish to see all these programmes brought back firmly within the local authority or central government structure. The NESC looked at this issue very recently, and was not persuaded by such suggestions.

I am very reluctant to be prescriptive about what this model might imply for Northern Ireland, except to say two things. In thinking about this experiment in the republic, I've found it useful to forget, temporarily at least, one question: how much autonomy does the republic still have in a global economy, or in the EU? (Because when you look at it, the answer seems, on many fronts, to be really very little.)

Putting to one side the amount of autonomy at national level - and this might apply at regional level as well - allows us to look, instead, at policy-making and implementation. This means not focusing on the quantity of power to be mediated or the money to be spent, but rather on the patterns of policy-making. That way of thinking seems to be useful in the republic, at least up to a point, and it may have some parallel in Northern Ireland.

A second parallel is the involvement of the EU. Its impact on these processes may be very indirect, but it is very strong. The republic has been thrown open to Europeanisation of everything, and that seems to open up networks for ideas - finance, of course, as well - which can be used in a variety of ways. These networks are not determined entirely by high politics, by the Council of Ministers, and indeed are simply not recognised in the conventional debate about Euro-sovereignty versus national sovereignty: that debate looks right over all the networks of influence and misses much of what is relevant.

Globalisation is occurring worldwide, and with devastating and sometimes beneficial effects. But the EU is the most remarkable attempt to manage globalisation in the world: two years after the North American Free Trade Agreement, by comparison, both Mexico and Canada are in severe crisis. The EU model of internationalisation involves far more accompanying policies, far broader and deeper management of internationalisation.

It's to that process that the republic has been exposed. It did not cope too well for a while, but it has begun to get a handle on it. And, in diverse ways, it has let that influence the way people make policy and implement it.

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