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Philipp Fink, Poverty, Inequality and the Irish State in:

Philipp Fink

Late Development in Hungary and Ireland, page 233 - 238

From Rags to Riches?

1. Edition 2009, ISBN print: 978-3-8329-4173-4, ISBN online: 978-3-8452-1720-8 https://doi.org/10.5771/9783845217208

Series: Nomos Universitätsschriften - Politik, vol. 168

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233 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). 234 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). 235 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 236 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, 238 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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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.