Social dialogue and development of economic consensus

The consultation meeting on the budget held recently between the finance minister and the Malta Council for Economic and Social Development highlights the input of the social partners into policy making.

Does social partnership enhance the quality of the decisions taken? Does it encourage adherence to the decisions by the affected bodies? Does it lead to a possible solution of joint problems? These were some of the questions addressed by a 13-person delegation during a week-long study visit to Ireland.

This visit involved meetings with different organisations and institutions engaged in what is widely acknowledged to be a successful process of social dialogue which has been going on in Ireland since the late 1980s.

This process of social dialogue in Ireland started in the midst of a deep economic crisis. Up to the mid-1980s the Irish economy was beset by a Third World type of debt problem - government debt stood at 125 per cent of GDP while the Exchequer deficit was 8.3 per cent of GDP.

The unemployment rate was 17.1 per cent. The concomitant effects of this economic crisis were ineffective devaluations, significant industrial unrest and large-scale emigration.

Fostering cooperative industrial relations via national level dialogue and consensus was identified as part of the prescription to overcome this crisis.

From 1987 to 2002, five agreements have been signed between the social partners. The name given to each of these agreements is indicative of the different developmental stages of the economy from the late 1980s up to the beginning of this century. The five national agreements signed between social partners are the following:

1988-1990 Programme for National Recovery (PNR);

1991-1993 Programme for Economic and Social Progress (PESP);

1994-1996 Programme for Competitiveness and Work (PCW);

1997-2002 Partnership 2000;

2000-2002 Programme for Prosperity and Fairness (PPF).

The first agreement (PNR) was set to apply fiscal rectitude by cutting the budget deficit and maintaining tight control over inflation. As the economy started showing tangible signs of recovery the second agreement (PESP) tried to consolidate this growth by designing a long-term strategy to reduce the gap in living standards between the Irish and the rest of the EU members. Reform in the tax and welfare system formed part of this strategy.

The main focus of the third agreement (PCW) was on the enhancement of employment and on pay provisions differential between public employment and other workers. In Partnership 2000, the fourth agreement, civil society was included among the social partners as a fourth pillar to give a wider involvement in participation.

This agreement had a two-pronged aim: achieving significant reduction of social disparities and exclusion and at the same time maintaining an effective and consistent policy approach in a period of high economic growth.

The ongoing agreement (1999-2002) was set to achieve a higher level of equity since a feeling prevails that there is still a large section of the population who are not benefiting from the fruits of this economic growth.

The phenomenal economic growth in Ireland registered during these 15 years of social dialogue has been acknowledged worldwide. The front cover of The Economist in 1988 depicted Ireland as a squatting, ragged boy glancing at a tall, well dressed man passing by with the caption "The Poorest of the Rich".

In contrast in the front cover of this same international journal of May 1997, under the title in bold letters 'The Celtic Tiger' there is a map of Ireland radiating light to the rest of Europe with the caption "Europe's Shining, Light".

It may, of course, sound rather naïve to attribute this turnaround in economic fortunes simply to the process of social dialogue which was formalised in 1987.

There were naturally other factors contributing to this transformation. Among the causes cited are the foreign direct investment especially from the US, notably in the pharmaceutical industry and the investment in human capital through the expansion of technical and tertiary education.

It is also claimed that the EU structural funds and the political stability played a pivotal role in the upturn in the economy.

So the social dialogue may be only one of the ingredients of the recipe. Nevertheless, the contribution of social dialogue in the transformation of the Irish economy is hardly ever played down by Irish academics and persons involved in policy and decision-making.

The shared responsibility for decisions it induced meant that none of the social actors or stakers tried to shy away from change.

The complex decisions, often taken after long debates, ensured a strong commitment to the results. This approach did not allow actors to labour under any sort of illusions.

Neither did it allow any of the social partners to spring any surprises. Social partnership in the view of Bill Roche (Professor of Industrial Relations and Human Resources at the University College, Dublin) was conducive to the emergence of a virtuous circle. The wage restraint agreed by the social partners had the dual effect of ensuring industrial peace and enhancing competitiveness.

This resulted in the growth of employment and rising tax revenues. Due to this net increase in revenue the government reduced direct taxes and corporate tax.

By getting their feet under the table rather than engaging in trench warfare, the social partners managed to find a way to play a game in which there were few, if any, losers.

Social dialogue in the words of one of the top officials at the Department of Enterprise, Trade and Employment in Ireland provided the music for the dance to go on.

This rather sparkling picture has, of course, its blemishes. Slowdowns in the economy did occur. Indeed, during the phase of the second agreement (1991-1993), a conflict ensued when the government, facing a lower economic growth than predicted, imposed a flat increase of five Irish pounds instead of a three per cent increase as laid down in the agreement.

A consensus built system cannot tame the forces of the market. Voices in Ireland are at present quite vocal ,urging the Irish economy to move closer to the American model where the forces of the market are given free reins.

My impression is that after 15 years' experience of consensus-minded policy, which by and large managed to deliver, the American model would not be an easily accepted proposition in the wider Irish society. Maybe Ireland will be able to combine the best of both worlds - a market economy with a social dimension which will try to reach a high level of equity through welfare reforms and social dialogue.

Whatever the outcome of the present debate, the pragmatic approach adopted during this period of social dialogue provided the Irish policy makers with a set of problem solving techniques and conflict resolution mechanism at macro level that allowed enough breathing space for the economy to grow and prosper. This pragmatism was not, however, blinded by the maxim that the end justifies the means.

On the contrary, the policies and results emanating from these five agreements were continuously subjected to an analysis that took into consideration the social as well the economic impact on society. Moreover institutions were set up, such as the National Implementation Body, to deal with problems that fall outside the system designed through the agreements.

Constituent bodies were also set up to address a growing list of issues such as urban regeneration and lifelong learning, just to give two examples, which do not directly fall within the macro ambit approach at national level. The social dialogue provided each side to engage in a soul-searching exercise. As a result the trade unions broadened their agenda. Issues like taxation, inflation, unemployment and economic growth became part of the trade union agenda.

The Irish experience may indeed be an eye-opener to Malta. The similarities between Ireland and Malta have often been emphasised - a strong Catholic tradition, a long period of British rule with its long-term effects on the industrial relations system, the small size of the population which tends towards a low added value of its internal economic market and a history of emigration.

These similarities do not mean that the policies adopted in Ireland could be transplanted in Malta with a guarantee of the same degree of success. But the Irish experience can provide us with some of the ingredients of the recipe. It is then up to our policy maker and social partners to find out the best recipe for the economy of a small island sovereign state striving to get to grips with a globalised economy.

Mr Rizzo is a member of the WPDC academic staff at the University of Malta and an assistant lecturer at the Junior College.