The greatest socialisation ever of the world’s private sector is taking place hourly. It will continue until the end of 2020 and beyond. It is a profound transformation of the private/public divide or the state/market relationship. It was never planned. This massive socialisation of our economic system, capitalism, is the pragmatic solution to saving millions of lives and jobs. Many of the rescued firms will end up with such big debts that they may have to be taken over by the state.
This radical, unplanned, revolution of the economic system demands that the outcome be optimised for the benefit of all. Therefore, serious, in-depth thought must be given to guide this metamorphosis to radically improve the way the system works.
It presents an incredible opportunity to deal with the great pressing issues of our time – the existential climate crisis; unsustainable and growing inequality; the deep insecurity of people around healthcare, housing, incomes, automation etc.
The New Government
The incoming Irish government will be the most radical, ever. It will take over large parts of the private sector. But to do so in ways which optimises outcomes must be planned. The future is so uncertain now both because of the pandemic and because our two major political parties had become enamoured with rolling-back the state through privatisation and outsourcing. Influenced by Thatcherism and shareholder-only capitalism, they fell into the “public bad, private good” illusion. Yet for 60 years both parties had believed in and practiced the “mixed economy,” using the state to support a then weak Irish private sector.
In spite of wholesale privatisation of state assets, state income flow has remained the same. We still live in a mixed economy because; a) much of the private sector is subsidised by the public purse and; b) when it collapses, it is rescued by the public. Almost 10,000 full time equivalent public servants work in supporting the private sector. Billions in subsidies and tax breaks flow to the private sector, be it to agriculture, tourism, indigenous or foreign industry, landlords or private schools. Both private and public actually can and do work well together. But the misleading ideological narrative is that public is parasitical.
The myth was exposed by the 2008 Crash when the state had to bail out the auto industry, banking, insurance and building speculators. The power of the state over market was demonstrated then by showing that “it would do what it takes” to sort out the market messes. And it did.
This time is different; this crisis is much bigger and it is transformative. The new government will no longer be able to continue with that myth of private superiority. The reality of the power of the state is already determining many of the steps which have to be taken. The hated two-tier health system is abolished (if only for 3 months), a basic income is in place, a huge part of the private sector - thousands of collapsing firms - have been rescued by the state etc.
The interim government has undertaken radical reforms of many areas of the economy. It’s priority is the health of citizens, not the economy. So far, it is doing both well.
In this together
“Ni neart go cur le cheile.” We are in this together and we must ensure that we continue to pull together. The radical steps being taking in economic management must deliver the best outcomes for all. The importance of health care and other low-paid front-line workers is now recognised. Yet it is the “professionals” in finance who are highly paid, often excessively so. One might question if some of their work is actually value-destruction (eg in the big tax-avoidance industry based here). Let us take this transformative opportunity to realign economic rewards to favour the producers of real value. Finance did once play a productive role oiling the wheels of commerce, but financial engineering has enabled it not just to take disproportionate rewards but to hobble the real economy. Finance now employs 4%, contributes 7% to GDP but captures 25% of all corporate profits in the US. This has to change.
Public spending in the 2020s was due to rise because of aging populations seeking better health care. Post pandemic , woe betide any government which does not invest in an efficient public health system. Government must also improve the efficiency of a soon to be bigger public sector and ensure that the larger state protects civil liberties.
Additionally Government must reform the way companies are run to widen their focus on stakeholders not profit maximisation, whilst simultaneously the state itself must demonstrate greater entrepreneurial ability. Both private and public sectors must create real value by encouraging employees to develop process innovation and to manage data to deliver the needs and desires of their real bosses – customers and citizens.
Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He is a member of the Economic Committee of the ETUC and chair of TASC’s Economists’ Network. He was a President of the Statistical and Social Enquiry Society of Ireland, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.