ECONOMICS:Any union that takes on the Government will face a long battle, until its resources are depleted, writes PAT McARDLE
RECENT DEVELOPMENTS regarding the public sector wage deal are worrying, albeit not entirely unexpected.
A deal few thought possible is being rejected by the on-the-ground union members.
This parallels the situation last December when a similar deal was also rejected by popular demand, this time from the general public and the Fianna Fáil backbenchers.
The stakes are high, much higher than those involved seem to realise or at least acknowledge in public, and the course ahead is uncharted.
It is easy, but probably not very fruitful, to attribute blame and, like the banking crisis, the net could be cast widely. Suffice to say that partnership meant that the Government, employers and trade unions lost their bargaining skills, which were mothballed for a quarter of a century.
Communications, by both the Government and the unions, have been poor.
The Opposition and sections of the media have been unhelpful. By propagating the largely false notion that spending was being cut and taxes raised to bail out profligate bankers, they have fuelled the fires of discontent among ordinary workers.
Incredibly large amounts of money are being poured into the banks. General comment tends to treat this as current spending, ie funded by taxes or spending cuts, whereas most of it is borrowed. This week’s Economic and Social Research Institute (ESRI) report estimated that up to €25 billion in recapitalisation money may never come back, ie it will stay in the national debt forever in the same way that this year’s ordinary €19 billion budget deficit will.
The ongoing burden of this is the interest paid annually – about €1.25 billion. However, even this is an overstatement, as most of the recapitalisation money will be paid out gradually over 10-15 years starting next year, and interest will not begin to accrue until then. So far, the only direct drain on the exchequer has been the €4 billion that went into Anglo Irish Bank last year, which is costing us about €200 million a year. Yet no one bothers to explain this other than the Minister for Finance, and it seems that few listen to him when he does.
Substantial pay and other spending cuts would have been necessary even if the banks had not crashed because the property slowdown and global recession would have left the Government’s cupboard bare anyway.
Numerous studies have shown that public servants are overpaid relative to the private sector. We also know that productivity has been bought and paid for, but not delivered, more than once. Now, they lump the pensions levy and wage cuts together, treating them both as pay reductions. Fair enough, but this still leaves public servants with pensions that cannot be obtained in the private sector and also job security, which is more valuable than ever in current circumstances.
The accompanying graph shows the evolution of selected pay rates since 1978. It compares a clerical officer with an assistant secretary, taking the median point of the scale in each case. It also shows the evolution of average industrial wages and consumer prices.
The dotted line for the assistant secretaries includes the average 10 per cent bonus paid between 2001 and 2008. Including this, their pay is down 20 per cent from the peak, compared with 8 per cent for clerical officers. These figures include the pensions levy and the wage cuts announced in the last budget.
The average industrial wage series incorporates the ESRI view that falls will total 5 per cent over 2009 and 2010, which may be conservative.
Clearly, the reductions have been substantial, but the increases were bigger still. Since 1978, assistant secretary pay has outstripped the average industrial wage by 42 per cent. Clerical officers, one of the lowest and least demanding grades in the public sector (in the old days the requirement was for only an average second-level qualification), are 5 per cent worse off relative to the average worker than they were in the late 1970s but they are still doing better in relative terms than they did between 1984 and 2001.
More generally, all pay rates have escalated. Over the period in question, prices rose by a factor of 4.4 but average wages rose 6.6 times, a very substantial increase in real incomes. The public sector fared even better, with clerical officer and assistant secretary pay up 6.3 times and 9.3 times respectively.
This makes arguments that the public sector is being unfairly treated difficult to sustain. I see little case for a reversal of pay cuts at the lower end and the numbers quoted leave room for more action at the higher levels, should this become necessary.
The question arises as to what might happen if the deal is rejected. Some union spokespeople have indicated that there is no desire to rush into confrontation. This seems wise. If recent events at home and abroad have done anything, they have copper-fastened the notion that the Government cannot back down. This is not because it does not want to; it is because it has no choice. Any hint of a relaxation on its commitments would lead to an immediate loss of market confidence, higher interest rates on borrowings and a much greater fiscal mountain to climb, à la Greece.
There is no scope to reverse recent pay cuts on any foreseeable time horizon. Indeed, further reductions in the public-sector pay bill will be needed in the 2011 budget and probably the 2012 budget as well; a reality that only now seems to be percolating into the public arena.
Any union that takes on the Government will inevitably face a long battle, until all its resources are depleted. In the meantime, much damage will have been done. The comparison that comes to mind is Margaret Thatcher’s battle with the miners in the 1980s. Surely there is a better way.
