Social partnership at a crucial juncture

In November 1999, Ireland's social partners commenced talks on a new partnership agreement to replace the existing deal, Partnership 2000, which is due to expire early in 2000. The context of social partnership has changed from "managing crisis" to "managing economic growth and rising expectations". This fundamentally different context has generated a number of significant tensions, which revolve around two main related issues: income distribution and social equity.

On 9 November 1999, talks formally opened over a national agreement to succeed the current Partnership 2000 (IE9702103F), which expires in early 2000. The negotiations were launched by Prime Minister Bertie Ahern, and involve employers, trade unions, farming interests and the voluntary and community sector.

The transformation in the fortunes of the Irish economy during the past decade or so has meant that the context in which national agreements have been negotiated has changed from one of "managing crisis" to one of "managing growth and rising expectations". During the 1980s, the Irish economy was in serious crisis, and burdened with mass unemployment, falling living standards and huge debt. Since then, Ireland has experienced exceptional growth and rising living standards, and the economy is gradually edging towards full employment. Successive national agreements based on "negotiated consensus/social partnership" have undoubtedly played a significant part in this success, culminating in Partnership 2000. However, the recent economic boom has arguably resulted in the "old"-style national agreements effectively becoming obsolete. The most fundamental change is inextricably linked to the fact that strong growth, and the associated promotion of the image of a vibrant "celtic tiger" economy, has fuelled rising expectations, which, in turn, has generated a number of tensions.

Tensions

The tensions created by Ireland's economic success essentially revolve around two related themes: pay and social equity

Pay determination and overall pay settlements

1. Pay determination. The government and the social partners have recognised that new forms of pay determination will need to be introduced in both the private and public sectors. In the private sector, it has been generally accepted that a much greater emphasis than hitherto needs to be placed on promoting profit-sharing and gainsharing schemes (IE9904276N). A perceived advantage of these schemes is that they allow employees to share in the fruits of economic success, while curbing inflation. Pay determination is a more complex issue in the public sector, however (IE9909292N). The nine-day nurse's strike in October 1999 (IE9910297N) starkly illustrated the tensions surrounding public service pay. Although the strike was resolved, with the nurses voting by a margin of two to one to accept a Labour Court recommendation, this has by no means removed the possibility of other groups, such as teachers and the police, responding by pursuing "knock-on" pay claims in an attempt to bridge the relativity gap. The government has emphasised that the existing system of public service pay determination, based on pay relativities, is outdated and that new ways will have to be found to reform it (IE9910295F).

2. Overall pay settlements. There are also tensions over the issue of overall pay settlements during the recent period of social partnership. Although, national agreements have undoubtedly delivered significant pay increases to the majority of workers, at least when tax reforms and low inflation are taken into account, there is still a quite widespread perception amongst employees, particularly the low paid, that productivity and profit levels have far outstripped pay settlements. That is, employers have disproportionately benefited from economic expansion, while employees have been urged to show wage restraint. The latest quarterly economic figures from the independent Economic and Social Research Institute (ESRI) show that over the past three years, wages in the non-agricultural sectors have risen by 36%, while at the same time profits have gone up by 62%. Consequentially, in this context, it is highly likely that unions and employees will demand higher pay settlements as a precondition for entering any new national agreement. There have already been calls from individual union officials for substantial flat-rate pay increases to reward the high productivity of Irish workers.

3. Other pay issues. Another unresolved pay issue is the rate at which the new statutory national minimum wage (IE9907140F) is to be set, when introduced in April 2000.

Social equity

These tensions surrounding pay are closely linked to tensions surrounding the issue of social equity. There is a strong feeling amongst trade unionists and employees that the wealth that is being generated by rapid economic growth should be distributed more equitably and that substantial investment should be directed at improving infrastructural areas such as transport, housing and childcare. Moreover, these feelings have now been further inflamed by recent disclosures of widespread income tax evasion amongst a section of the "corporate elite" during the 1980s. The anger of employees who have tax deducted from their pay at source (through PAYE) has been exacerbated by the fact that the 1980s were a period of hardship for many people.

A recent Irish Times/MRBI survey indicates that, although most believe that Ireland is now undoubtedly a more prosperous country overall, only 19% of respondents felt that social partnership had reduced the gap between rich and poor, while 33% felt that partnership had increased the gap. The majority, 44%, believed that partnership had made no difference to the gap.

The importance of addressing social equity issues has been stressed in a recent report from the National Economic and Social Council (NESC) - a body that advises the government on the development of the economy and provides a forum for tripartite debate, whose reports have provided a framework for earlier national agreements (IE9906281N). The report - "Opportunities, challenges and capacities for choice. Overview, conclusions and recommendations", NESC, No. 104, November 1999- suggests that a number of measures need to be implemented to tackle the inequalities associated with "relative income poverty", which is deemed to have increased in the second half of the 1990s, primarily, though not exclusively, because social welfare benefit rates have not matched increases in average earnings.

Attitudes towards social partnership

Despite these tensions, there is still a strong consensus in Ireland that social partnership is the most preferable model of regulating economic and social issues. The government, employers, trade unions and employees still generally have a positive attitude towards social partnership; although it has its opponents, such as the MANDATE retail workers' union and the Amalgamated Transport and General Workers Union (ATGWU). The majority of trade unions believe that they can exert a real influence over important economic and social issues only through national agreements. Ireland's largest trade union, the Services Industrial Professional and Technical Union (SIPTU), recently voted overwhelmingly to enter talks on a new agreement, as did the Irish Congress of Trade Unions (ICTU). There is certainly no great desire amongst the unions to return to the "free-for-all" system of local collective bargaining that characterised much of the 1980s. The Irish Business and Employers Confederation (IBEC) also has a positive attitude towards centralised agreements. Furthermore, the general public would appear to have quite a positive attitude to social partnership. The Irish Times/MRBI survey referred to above found that 50% of respondents thought that social partnership is "very important" to the country's economic development and 28% that it is "quite important". Only 8% felt that it was either "not particularly important or not at all important".

Recent and future developments

Other recent and future developments of relevance to the outcome of the talks over a new national agreement include the following.

1. NESC report. The recommendations contained in the recent NESC report referred to above are likely to have important implications for future developments. The recommendations include increases in personal tax allowances and the standard-rate tax band, and significant increases in child benefit, as well as other social welfare payments, as part of a package to tackle "relative income inequality".

2. National Development Plan. In November 1999, the government released a National Development Plan for the next seven years (2000-2006). The plan is quite ambitious, and involves a total spending package of IEP 40.6 billion. The main provisions include investing almost IEP 21 billion in much-needed economic and social infrastructural improvements. In addition, IEP 10 billion has been set aside for investment in employment and human resources.

3. December 1999 Budget. The December Budget will have major implications for negotiating a successor to Partnership 2000. Employers favour significant tax cuts because this will reduce the pressure on them to deliver significant wage increases. In contrast, trade unions such as SIPTU favour tax cuts and flat-rate wage increases to compensate for the high productivity of employees and to improve the living standards of the low-paid. ICTU is calling for the first IEP 135 of weekly income to be tax free, while also proposing a widening of the standard-rate band.

The NESC report, the National Development Plan and the December Budget are each likely to exert a significant influence on the contours of any new national agreement.

Commentary

Social partnership agreements based around a "negotiated consensus" have undoubtedly contributed to Ireland's current socio-economic context of strong growth, rising living standards, a budget surplus, and an unemployment rate that has fallen to nearly 5%. There is now an opportunity to build on the existing achievements of social partnership, in a context that has changed from "managing crisis" to "managing growth and rising expectations" in an economy that is gradually moving towards full employment. The Irish economy is now at a crucial juncture, and the government and the social partners have important choices to make. In particular, they will have to address the tensions associated with the related issues of pay and social equity, which are inextricably linked to the requirement to prioritise wealth redistribution.

A combination of measures could be used to help to resolve the tensions associated with pay. These could potentially incorporate: new forms of pay determination such as gainsharing; flat-rate pay settlements for PAYE workers; the national minimum wage; and tax reforms that involve increasing personal allowances and removing low-paid workers from the tax net. An important task facing the government and the social partners is to develop pay systems which reward local productivity gains and reduce the incentive for employees and their unions to use their "muscle" in the labour market.

With regard to social equity, it is apparent that the wealth that is being generated by strong economic growth could be distributed more equitably. Reducing inequality is not simply a matter of altruism, it is also a crucial means of boosting economic development. There is an opportunity to develop a national "social contract" to promote a reduction in inequality and substantial investment in the social and physical infrastructure. For instance, social welfare benefit rates, such as childcare benefit, could be increased in line with increases in average earnings in order to alleviate the worst effects of poverty. Measures such as this are all the more important given the recent revelations of tax evasion by sections of the "corporate elite" during the 1980s, when the Irish economy was in deep "crisis".

The context of continuing economic growth provides an opportunity to develop a new model of social partnership to address these issues. Moreover, there is a broad consensus in support of the continuation of centralised agreements. Although there are undoubtedly problems with social partnership, the concept itself provides opportunities for progress which, it is feared, are currently not being fully grasped. A reformulation of social partnership appears to be an eminently preferable option than a return to a collective bargaining free-for-all reminiscent of the 1980s. There are fears that a free-for-all could generate sectionalism and benefit those with "industrial muscle", at the expense of weaker sections of society. (Tony Dobbins, UCD)