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in selective secondary schools. Vocational schools, whose curriculum was extended
to provide secondary education in 1967, are disproportionately attended by children
with working class backgrounds, many of them lower ability pupils coming from
deprived and socially excluded backgrounds (Smyth/Hannan 2000: 113). Furthermore, the rising importance of the correlation between educational credentials, employment and incomes greatly disadvantages children with working class backgrounds, in particular those from unskilled households (NESC 2002: 232).173
Hence, increased absolute social mobility is not a result of increased state activism. Instead, it is a consequence of economic expansion, which increased the number of higher class occupational positions. Beyond the aggregate figures, educational
inequalities based on class origin continue to persist. They define the chances of an
individual to experience social mobility. Therefore, the lower the class origin, the
lower is the level of education, the higher is the propensity to be unemployed or to
accept under average earnings or to experience poverty (Whelan/Hannan 1999: 291).
4.5.3 Poverty, Inequality and the Irish State
Benign observers, such as Schröder (2005: 82), are jubilant in their assessment of
Ireland’s record of unemployment and poverty reduction. They claim that the Irish
example shows how a lean welfare state with polices prioritising economic growth
can successfully tackle social exclusion without massive redistribution. However, as
demonstrated, the enlargement of national income was not distributed equally. Part
of the growth in national income was exported in the form of profit repatriations by
TNCs, prompting O’Hearn (2001: 187) to exclaim, “The main recipients of economic growth in Ireland were a foreign capitalist class rather than a domestic one”.
Nevertheless, profit repatriations are the flipside of the FDI-led development
strategy. More realistically, the level of failure to cater for an equal redistribution of
the far larger share of national income remaining in the country has definitely benefited the domestic capitalist class. It, therefore, brings the role of the Irish state back
into the forefront of the discussion, as redistribution outcomes are the result of political decision-making. Hence, the lack in state capacity to attempt to spread the
fruits of economic growth more evenly is voluntary, resulting from political efficacy
and policy legacies (Cousins 1995: 159).
173 Over the period of 1996-1998, early school leaving rates are the highest amongst children
from unskilled households. 3.2% of the school leavers with no qualifications came from semiskilled households and 9.1% of non-qualified school leavers originated from unskilled households; the national average was 3.7%. The level of completed secondary and tertiary education
was the lowest. 65.4% of pupils from the unskilled manual class and 75.1% of semi-skilled
class pupils completed secondary education, while the national average was 80.6% (NESC
2002: 232).
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The Irish Welfare State
The portrayed bias of the Irish state towards the middle higher income groups has
been a dominant feature of Irish society. Industrial development in Ireland has maintained social inequalities (Ó Riain 2004a: 134). Historically, social equality as an
overriding policy goal was never followed by the Irish state (Ó Riain/O’Connell
2000: 324-334). Instead, the evolution of the Irish welfare state from the 1960s onward displayed a considerable path-dependency, whereby the “regime of accumulation” was favoured over a “regime of distribution” (Kirby 2006: 188). Breen et al.
(1990: 97-99) as well as Hardiman (2002b: 54) show, that large farmers, selfemployed professionals and entrepreneurs as well as affluent property owners, constituting the country’s capitalist class, have been traditionally the focal point of the
state’s redistribution policies.
Solidarity was enforced through the introduction of almost universal pay-related
social security and services (Ó Riain/O’Connell 2000: 326). However, the expansion
of the social welfare state was not combined with the reduction of social inequality
(O’Connell/Rottman 1992: 224). In contrast, while basic universal services were
guarantied, middle and higher income groups were able to supplement their guarantied incomes through additional private resources and favourable taxation by the
introduction and expansion of a two-tired welfare system.
The introduction of private pension schemes and healthcare reinforced already
present market based inequalities to the advantage of privileged groups
(Ó Riain/O’Connell 2000: 327, 333). The middle class and the affluent were able to
avail of privately funded services, which are subsidised by the Irish state (Wren
2004: 17-18). In contrast, lower income groups have to make do with chronically
under-funded public services (O’Reardon 2004: 38). As shown by a benchmark
report (NCC 2005), Ireland fares very badly internationally on the provision of public services.
Persistent social inequality is, therefore, a result of the structure of the political
system and the specific socioeconomic cleavages. Both inhibited the development of
a re-distributional political agenda. Ireland had “a history of exporting social problems through the emigration of marginalised groups” (Whelan/Layte 2004: 91).
As a result, the Malthusian Irish state focused its redistributive policies on those
members of society with access to market incomes and therefore on those remaining
in the country. The continuation of this bias in Irish social policy displays the persistence of Lee’s (1989) “possessor principle” in social welfare policy-making.
Furthermore, failed industrialisation, ongoing indigenous industrial demise in the
1980s, rising unemployment and wide working class support for the dominant catchall political party Fianna Fáil increasingly marginalised the political labour movement (Ó Riain/O’Connell 2000: 337).
Hence, in difference to mainland European experiences, where the empowerment
of the labour movement and Social Democracy led to a focus on the reduction in
inequality, an organised political re-distributional agenda never surfaced in Ireland
(Mjøset 1992: 148).
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This bias was further deepened due to economic expansion in the 1990s. As
shown, TNC-induced technological change raised the demand for skilled employees.
The supply of labour for the increased number of skilled technical as well as professional and managerial positions came from the middle class, who traditionally had
disproportionate access to higher education (Ó Riain 2004a: 134).
The skewed political economy of the Irish tax and social welfare regime was continued and deepened especially after 1997. As a result, middle class and affluent
voters gained the most from economic expansion, as they were able to dramatically
increase their market-based privileges with substantial tax gains and the expansion
of private welfare services (Ó Riain/O’Connell 2000: 339).
Redistribution, Poverty Alleviation and Inclusion
The bias of the state towards the middle class and the affluent is displayed in the
regressive redistribution of incomes throughout the 1990s (Kirby 2006: 189). The
social partnership process rewarded moderate nominal wage increases with a decline
in income taxation (Hardiman 2002b: 47). As a result of the tax reforms, income
taxes for a single industrial worker fell by 20% and by 26% for an industrial household with two children between 1987 and 2004 (Schröder 2005: 25).
Consequently, take home pay increased with net wages growing by 42% outpacing the growth of gross wages of 16% between 1994 and 2001 (Schröder 2005: 26).
Accordingly, the tax burden, measured as the proportion of tax revenues of GDP,
fell from 34% in 1990 to 30% in 2001 (OECD 2006a; Callan/Nolan 2000: 193). The
gamble paid off. Owing to economic expansion, which created employment and
increased corporate profits, and EU transfers lowering public expenditure, government tax revenues increased from € 10 bn in 1990 to € 33.4 bn in 2001 (Sweeny
2004: 4), leading to sizeable budget surpluses after 1997 (OECD 2006a).
Obviously, the budget surpluses were used to finance the income tax reforms,
state investment and to repay the government debt accumulated in the 1970s and
1980s. However, the income tax reductions, especially after 1997 under the centreright Fianna Fáil-led coalition government, not only exceeded the levels stated in the
social partnership agreements, but they also disproportionately benefited middle and
higher income earners (Hardiman 2002b: 47).
It was only after the 2000 Budget, which replaced the system of tax allowances
with income tax credits, that lower income earners experienced substantial net gains,
offsetting the previous substantial marginal tax rate inequalities (Hardiman 2002b:
48-49).
Income taxes are only one of various revenue forms. On the one hand, higher income groups have been to able to avail of substantial reductions in their taxation of
their total incomes due to changes in non-income taxation and the introduction of
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various tax breaks and loopholes.174 On the other hand, consumption taxes were
expanded and belong to the highest with the EU. The rise in spending taxes, constituting the largest revenue source, contains direct and indirect taxes on consumption,
administrative fees and levies (Sweeny 2004: 6). They contributed to the rise in Irish
living costs, which are the highest in EU exceeding EU averages by 18% (Sweeny
2004: 5). However, spending taxes have a larger impact on smaller net incomes
compared to higher income groups (Sweeny 2004: 13).
Turning to the distributional effect of the tax and social welfare system, the impact of government policy has been regressive. Despite the fact that the growth in
social welfare expenditure per capita was the second highest in the EU-15 between
1990 and 2002 (Schröder 2005: 80), social expenditure relative to economic growth,
the so-called welfare effort, actually declined, falling from 20% in 1990 to just under 14% of GDP in 2001 (OECD 2006a). The Irish welfare effort was the sixth lowest in the EU-25 plus Norway, Iceland and Switzerland (Kirby 2006: 189). Moreover, the increases in social welfare expenditures were dwarfed by the sum of income tax reductions. Social transfers increased by a yearly average of € 62 million
compared to an average of € 629 million in tax reductions p.a. between 1994 and
2001 (Schröder 2005: 72).
Although the lowest income deciles benefited absolutely through increased poverty targeting and from changes in the tax system (Callan/Nolan 1999: 186), the
state focused more on general tax cuts than on increasing and improving social welfare transfers as well as services (Schröder 2005: ibid). Consequently, net income
gains for low-income households were offset by the income tax cuts, from which
middle and higher income groups disproportionately gained (Schröder 2005: 73-74).
Hence, net incomes were redistributed to the advantage of middle and higher income
groups, as distributional policies were “driven by the politics of the median voter”
(Hardiman 2000b: 835).
As a result of the non-indexation of taxes and social welfare transfers to wage developments and the Irish state’s regressive budgetary policies between 1994 and
1998, the top ten percent of earning households were able to increase their net income by 4%. In contrast, the lowest 30% of households lost 2% of their disposable
income (Callan and Nolan 2000: 196-197). Commenting on the whole period from
1994 to 2001, Callan et al. (2004: 45) note, “The 1990s gains in budgetary policy
changes were greatest towards the top of income distribution”.
In terms of the state’s record on poverty alleviation, Nolan (2002: 9) concludes,
“Compared with broader macroeconomic trends and policies […] the [government’s] anti-poverty strategy in all likelihood made only a marginal contribution”.
Rather, FDI-led economic expansion fuelled labour demand decreasing unemployment and poverty rates. Economic growth prompted an increase in national income,
174 For instance, property tax was abolished in 1997 and the capital gains taxes were reduced
from 40% to 20%, resulting in channelling of income into property investment, fuelling the
increase in speculation-induced house price increases during the latter half of the 1990s (Hardiman 2002b: 51-52).
237
which was unequally spread among the population according to the political importance of key electoral groups. As Callan and Nolan (2000: 202) note on the impact
of successive changes to the Irish tax and social welfare regime, “their overall impact has been to permit or to produce a redistribution of income from the bottom of
the distribution to the top”.
Social Partnership Revisited
The degree of social inequality in Ireland is bewildering in the face of the Irish neocorporatist social partnership process, which has increasingly been extended to include the issue of equality and poverty alleviation (Murphy 2002: 80). They constitute the second dimension of social partnership (Kirby 2002: 135). Although the
consensual agreements have been heralded as “flexible network governance” (Hardiman 2006: 348) by guaranteeing a reciprocal communication platform between the
tripartite actors as well as social stakeholders, this flexibility is in reality one sided.
The government centre-right coalition led by Fianna Fáil in power since 1997 has
repeatedly used the social partnership agreements to rubber stamp its regressive redistributional policies.
The neo-corporatist negations were widened to include the issues of social equality after economic recovery was restored and growing prosperity had to be managed
(Hardiman 2002a: 10). Inline with this widened remit, participation was also extended to include the National Economic and Social Forum and the “Third Strand”
in 1996 (Hardiman 1998: 124-125). The latter contained eight civil society organisations, which constituted the Community Pillar. The so-called Community Platform,
a member of the Community Pillar, was itself an umbrella organisation for various
social and special interest groups (Larragy 2006: 385-386).
The common denominator of this plethora of community and voluntary action
groups is their involvement on local level consultation and monitoring procedures of
the distribution of European Structural Funds (Larragy 2006: 383). The inclusion of
these local social action groups is a result of the strong centralised character of the
Irish state, where local government structure is very weak and decision making takes
place on the central level (Ó Broin 2006: 158-159).
In similarity to the national wage agreements, social and poverty policy agreed to
on national level is mirrored by local partnership processes involving the community
and voluntary sector as well as local administration. The social partnership process
is therefore linked to the Irish National Development Plan, which stipulates the
distribution of structural funds, and the National Anti-Poverty Strategy, encompassing anti-poverty policy (Hardiman 1998: 125).
Notwithstanding this outwardly consensual approach, the failure to effectively
address the issues of social inequality questions the effectiveness of the increasingly
complex and arduous Irish social partnership process (Murphy 2002: 83-84). Local
partnerships suffer from the institutional weakness of local administration to financially or politically implement the local agreements (Kirby 2002: 140). Furthermore,
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the process has implications for Irish democracy. On the one hand, the democratic
legitimation of the involved groups as well as the criteria of their selection to participate is questionable (Ó Cinnéide 1999: 48). On the other hand, the extension of
the social partnership process to include the controversial issue of social equality
should be seen within the general thrust of the Irish state to depoliticise controversial
issues by outsourcing the debate on these issues to actors beyond the political system (Clancy/Murphy 2006: 10; Murphy 2002: 84). As a result, the role of the Irish
legislative, the Dáil, in debating the central issues of social equality is further marginalised (Ó Cinnéide 1999: 45-46).
Moreover, the inclusion of community and voluntary actors also acts as a fig leaf
for the government. In the case of criticism, it can point to the consensual agreements and silence organised dissent (Kirby 2006: 194; Murphy 2002: 85). Despite
the importance attached to the agreements, the last word rests with the government,
displaying the primacy of politics (Hardiman 2006: 348) and the autonomy of the
state on socioeconomic issues. In difference to other corporatist regimes, tax cuts
have never been negotiated on in detail. Indeed, the participants have had no influence on the level, form and distributive results of budgetary policy. Government can
thereby sideline the recommendations in the accords in order to continue to follow
the interests of its key voters, the middleclass and the affluent, by “[defining] the
budgetary allocation to support them” (Hardiman 2006: ibid.).
Finally, whilst the social partnership process has managed to maintain a floor for
basic social rights, the agreements suffer from their voluntary nature and nonuniversal coverage. As shown, the agreements are irrelevant for the majority of
TNCs, who constitute the most important private economic actors in the Irish economy. Similarly, the increasing number of members of the highly skilled and remunerated professional and managerial class, characterising the winners of economic
expansion in the 1990s, are also beyond the agreements (Ó Riain/O’Connell 2000:
338). Increasingly able to negotiate above average wage increases outside of the
social partnership process, this traditionally privileged social class has additionally
benefited through the substantial decreases in income taxes to increase their net
incomes (Ó Riain/O’Connell 2000: 339).
4.5.4 Irish Social Dichotomy
The analysis of the social outcomes of the Irish FDI-led development strategy
poignantly displays the incapacity of the Irish state to cater for increased social
equality. The large sum of FDI inflows led to an unprecedented level and duration of
economic growth. Affluence expanded to levels unknown in Irish history. However,
the resulting increase in national income was not spread equally. Ireland remains
one of the most unequal economies in the EU and belongs to the top three unequal
countries within the OECD, portraying the dichotomous nature of Irish society.
On the one hand, income inequality reflects the differences in remuneration along
the lines of skill attainment, economic sector and nationality of employer. The high-
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References
Zusammenfassung
Irland und Ungarn verfolgen eine Entwicklungsstrategie, die in bewusster Abhängigkeit von Globalisierungsprozessen in Form von ausländischen Direktinvestitionen steht und sich als Paradigma in der Peripherie durchgesetzt hat. Doch dieser Entwicklungspfad hat zu einer ungleichen und abhängigen Entwicklung geführt. Dies ist laut dem Autor das Resultat des mangelnden Gestaltungswillens beider Staaten, für einen gleichgewichtigen Wachstumsprozess zu sorgen. Die historische Analyse zeigt, dass eine auf ausländische Firmen fußende Entwicklungsstrategie nicht ausreicht, um traditionelle Peripheralität zu überwinden. Der Autor fordert eine Reform des Entwicklungsparadigmas, um eine gleichgewichtige Entwicklung zu ermöglichen.