The Role of Social Partnership
THE ROLE OF SOCIAL PARTNERSHIP Rory O’Donnell From Studies, Volume 90, Number 357 1. Introduction Social partnership has been a conspicuous feature of Irish economic, social and political life in the past decade and a half. This paper assesses its role in Ireland’s economic transformation and considers what role it might have in the years to come.
Section 2 outlines the analytical foundations of Irish partnership and Section 3 shows how these are reflected in the five partners hip programmes since 1987.
Section 4 summarises the self-understanding of partnership as a system of bargaining, inclusion and deliberation. The impact of partnership on economic performance is discussed in section 5. The paper close with consideration of the pressures on partnership and its possible future. 2. The Analytical Foundations of Irish Social Partnership In 1990, the National Economic and Social Council (NESC) set out a framework which has informed its subsequent work, and which underlies the social partners’ understanding of the process.
It argued that there are three requirements for a consistent policy framework in a small, open, European democracy: (I) Macroeconomic: the economy must have a macroeconomic policy approach which guarantees low inflation and steady growth of aggregate demand; (ii) Distributional: there must be an evolution of incomes which ensures competitiveness, which handles distributional issues without disrupting the economy and which is fair; (iii) Structural: there must be a set of policies which facilitate and promote structural change in order to maintain competitiveness in an ever changing external environment.
The Council argued that, in the Irish case, the first of these requirements is best met by adherence to the European Exchange Rate Mechanism (ERM) and transition to EMU. It argued that the second of these requirements is best met by a negotiated determination of incomes. To be really effective, such a negotiated approach must encompass not only the evolution of pay, but also taxation, the public finances, monetary policy, the main areas of public provision and social welfare.
In pursuit of the third requirement, the Council advocated a programme of structural reform in taxation, social welfare, housing, industrial policy, manpower policy and the management of public enterprises. It argued that such reforms are best achieved with the consent and participation of those who work in the agencies and institutions concerned. The international orientation of Irish social partnership was further underlined in the 1996 NESC report Strategy into the 21st Century.
While globalisation has undermined many elements of national economic policy, there remain areas where national policy remains crucial. In a small, open, European democracy like Ireland: (I) Most of the policies which affect national prosperity are supply-side policies; (ii) Given rapid economic change, national policies must produce flexibility; (iii) Successful national supply-side policies, directed towards innovation and competitiveness, depend on the high level social cohesion and co-operation that the state can both call upon and develop.
This suggests that once a consensus on macroeconomic policy is in place, the main focus of policy should be on the supply-side measures that influence competitive advantage and social inclusion, and on institutional arrangements that allow discovery and implementation of such measures (NESC, 1996). 3. Five Social Partnership Agreements, 1987 to 2001 The content and process of social partnership has evolved significantly since 1987 (O’Donnell and O’Reardon, 1997, 2000).
All five programmes included agreement between employers, unions and government on the rate of wage increase in both the private and public sectors for a three-year period. The exchange of moderate wage increases for tax reductions has remained an important feature of partnership. Beyond pay and tax, the partnership programmes have contained agreement on an ever-increasing range of economic and social policies. A consistent theme has been the macroeconomic parameters of fiscal correction, the Maastricht criteria and transition to EMU. Another has been employment creation and the problem of long-term unemployment.
The 1990 agreement led to the creation of local partnership companies—involving the social partners, the community and voluntary sector and state agencies—to design and implement a more co-ordinated, multi-dimensional, approach to social exclusion (Sabel, 1996; Walsh et al, 1998). While partnership began by addressing a critical central issue, looming insolvency an economic collapse, it has since focused more and more on a range of complex supply-side matters. An important feature of Irish social partnership has been the widening of the process beyond the traditional social partners.
The National Economic and Social Forum (NESF) was established and membership of existing deliberative bodies (such as NESC) was widened to include representatives of the community and voluntary sector. The programmes negotiated in 1996 and 2000 involved representatives of the unemployed, women’s groups and others addressing social exclusion. Those agreements also included measures to promote partnership at enterprise level and agreement on action to modernise the public service. Using the consistent policy framework outlined in Section 2, we can identify a significant dual evolution of Irish social partnership.
Over the five programmes since 1987, the emphasis has shifted from macroeconomic matters to structural and supply side policies, and the range of supply-side issues has widened to address key constraints on Irish growth, such as childcare and life-long learning. This change in the substance or content partnership has involved a parallel change in method. While macroeconomic strategy can be agreed in high-level negotiation, complex cross-cutting policies on social exclusion, training, business development or childcare cannot be devised and implemented in high-level national deliberation or negotiation.
Consequently, to address the growing list of supply-side issues there has been an expanding array of working groups, task-forces, ‘frameworks’ and ‘forums’—involving representatives of the various social partners. In a few areas of policy—such as long-term unemployment, rural and urban re-generation and business development—new institutional arrangements have been created involve actors on the ground. + 4. Beyond Bargaining: Deliberation and Problem Solving Shared analysis of economic and social problems and policies has been a key aspect of the partnership process.
Indeed, that analysis has focused on the partnership system itself (NESC, 1996; NESF, 1997). This revealed that a distinction can be made between two conceptions, or dimensions, of partnership: 1. Functional interdependence, bargaining and deal making. 2. Solidarity, inclusiveness and participation. Effective partnership involves both of these, but cannot be based entirely on either. To fall entirely into the first could be to validate the claim that the process simply reflects the power of the traditional social partners.
To adopt a naive inclusivist view would risk reducing the process to a purely consultative one, in which all interests and groups merely voiced their views and demands. There is a third dimension of partnership, which transcends these two. ‘Bargaining’ or ‘negotiation’ describes a process in which each party comes with definite preferences and seeks to maximise its gains. But partnership involves the players in a process of deliberation that has the potential to shape and reshape their understanding, identity and preferences.
This idea is implicit in NESC’s description of the process as ‘dependent on a shared understanding’, and ‘characterised by a problem-solving approach designed to produce consensus’. This third dimension has to be added to the hard-headed notion of bargaining (and to the idea of solidarity) to adequately capture the process. The key to the process would seem to be the adoption of ‘a problem-solving approach’. As one experienced social partner put it, ‘The society expects us to be problem-solving’. A notable feature of effective partnership experiments is that the partners do not debate their ultimate social visions.
This problem-solving approach is a central aspect of the partnership process, and is critical to its effectiveness. This suggests that rather than being the pre-condition for partnership, consensus and shared understanding are more like an outcome. It is a remarkable, if not easily understood, fact that deliberation which is problem-solving and practical produces consensus, even where there are underlying conflicts of interest, and even where there was no shared understanding at the outset. It is also a fact that using that approach to produce a consensus in one area, facilitates use of the same approach in other areas.
The key may lie in understanding what kind of consensus is produced when problem-solving deliberation is used. It is generally a provisional consensus to proceed with practical action, as if a certain analytical perspective was correct, while holding open the possibility of a review of goals, means and underlying analysis. The word compromise is inadequate to describe this type of agreement, since compromise so often fudges the issues that need to be addressed. A similar account of the elements and process of concertation has independently emerged in recent work on the ‘Dutch miracle’ (Visser and Hemerijck, 1997; Visser, 1998).
Visser and Hemerijck draw attention to new combinations of centralisation and decentralisation, and emphasise the combination of interest-group dialogue and expert input which create a common definition of problems. This yielded a ‘problem-solving style of joint decision-making’, in which participants are ‘obliged to explain, give reasons and take responsibility for their decisions and strategies to each other, to their rank and file, and to the general public’ (Visser, 1998, p. 12). The institutions of concertation work where they facilitate shift from a ‘bargaining style’ to a ‘problem-solving style’.
Visser considers that ‘the most interesting property of social cencertation lies in the possibility that interest groups redefine the content of their self-interested strategies in a “public-regarding” way’ (Visser, 1998, p. 13). 5. The Impact of Partnership on Economic Performance The period of social partnership has been one of unprecedented economic success in Ireland. The country not only escaped from the deep economic, social and political crisis of the 1980s, but may have significantly addressed its long-term developmental problems of emigration, unemployment, trade deficits and weak indigenous business development.
Under partnership, growth resumed, inflation continued to decline, the budget deficit fell sharply, employment began to recover, but unemployment initially stayed stubbornly high. The European recession of the early 1990s and the ERM crisis of 1992-93 interrupted Ireland’s recovery somewhat. Strong growth after 1993 produced a dramatic increase in employment, huge budget surpluses and, eventually, a big reduction in unemployment. The combination of economic growth, tax reductions, reduced interest rates and wage increases yielded a substantial increase in real take home pay.
Between 1987 and 1999, the cumulative increase in real take home pay for a person on average manufacturing earnings was over 35 per cent. The performance of the Irish economy since the mid-1990s, was exceptionally strong, particularly in employment creation. Indeed, between 1994 and 1999, Ireland achieved a 28 per cent increase in employment, while the EU as a whole produced a 3 per cent increase. What role has partnership had in Ireland’s remarkable economic performance since 1987?
The partnership approach would seem to have had a significant impact on the Irish economy, though three channels: wage bargaining, coherent and consistent macroeconomic policy and change in supply-side factors. Consider first the impact of the partnership approach to wage bargaining. One of the most striking features of Irish economic performance in the period of partnership has been the enhanced profitability of business. Lane demonstrates that the rate of return on capital almost doubled, rising from 8. 6 percent in 1987 to 15. 4 per cent in 1996.
The sharp rise in profitability coincides with ‘the formation of a new consensus among the social partners, as formalised in the negotiation of a sequence of national agreements’, suggesting that ‘the incomes policy that lies at the heart of a new consensus is an important factor in explaining the income shift from labour to capital’ (Lane 1999, p. 228). The resulting environment of wage moderation and high profitability is almost certainly a key factor in Ireland’s employment creation, attraction of inward investment and the unprecedented commercial success of indigenous companies (see also Honohan, 1999; McHale, 2000).
FitzGerald’s econometric study of the Irish labour market leads him to suggest that the ‘impact of the partnership approach to wage formation has been less significant than many have assumed’, since ‘the partnership approach served more to validate the results which market forces had made inevitable’ (1999. p. 160 and p. 162). The main impact of partnership lay in improved industrial relations, which significantly enhanced economic performance, and the fact that ‘the partnership approach has also contributed to a more coherent approach to economic policy making’ (FitzGerald, 2000, p. 42).
This brings us to the second channel through which partnership influenced the economy. In macroeconomic terms, partnership was an important element in Ireland’s transition form a high-inflation, volatile and conflictual economy to a low-inflation, stable, economy. In particular, a shared understanding on the position of the Irish economy took the exchange rate, and therefore inflation, outside day-to-day party political competition and industrial relations conflict. This can be contrasted with an approach in which short-termism ruled in economic policy, business decisions and wage setting.
Through much of the post war period, that led the UK to short bursts of economic growth, followed by recessions imposed in order to reduce inflation. Ireland’s experiment since 1987, partly inoculated it from the unsuccessful combination of macro policy and income determination pursued in Britain for many years. Ireland finally escaped the most negative effects of Britain’s political business cycle. As a result, it achieved low and predictable inflation combined with strong growth of output and employment.
It has also preserved a higher level of social solidarity, which seems an essential pre-requisite to sustaining redistributive policies and addressing issues of structural change and reform in a non-conflictual way. Ray MacSharry, Minister of Finance during the critical period of fiscal correction, considers that ‘social partnership could well be regarded as the crowning achievement of the Celtic Tiger economy’ (MacSharry and White, 2000, p. 144). The third channel of influence on the economy is a supply-side mechanism.
This arose because there would seem to be a close connection between settling major macroeconomic and distributional issues, on the one hand, and constructive engagement with supply-side problems, on the other. Closing-off macroeconomic alternatives freed management, union, community and government energies for discussion of real issues that impact on competitiveness and social inclusion—corporate strategy, technical change, training, working practices, the commercialisation of state-owned enterprises, taxation, local re-generation, active labour market policy—and forced (almost) all to engage in realistic discussion of change.
During the period of Partnership 2000, the Irish economy has been in virtuous circle. Wage restraint has enhanced competitiveness, which has been converted into employment growth. This in turn has generated additional tax revenues which have been used to reduce direct taxes and hence underpin wage moderation. Indeed, the success of the 1990s has been so great that the constraints on Irish growth now consist of infrastructural bottlenecks and labour shortages, something I discuss in Section 6. It would clearly be inaccurate to attribute all the success of the Irish economy to social partnership.
Partnership enhanced competitiveness, assisted fiscal correction, produced consensus and stability in economic policy, and increased flexibility in both public policy and enterprises. This created the context within which Ireland’s long-term developmental strategy finally achieved its potential. That strategy involved heavy investment in education, particularly in information technology, attraction of inward investment and full participation in European integration (O’Donnell, 2000). The ‘Celtic Tiger’ of the 1990s resulted from the interaction of partnership with a set of supply-side characteristics that nhanced international competitiveness and encouraged fast economic growth. These included a young, well-educated, English-speaking workforce, improved infrastructure (funded by both the EU and the Irish state), an inflow of leading US enterprises (attracted by both Irish conditions and the deepening European market), a new population of Irish enterprises (free of the debilitating weaknesses of the past and open to new organisational patterns), and de-regulation of the service sectors (driven by the completion of the Euroean internal market).
The completion of the European internal market internal was a most important factor in the recovery and re-orientation of the Irish economy. One possible limit of consensus is the difficulty of undertaking radical action which disrupts entrenched interests in protected parts of both the public and private sector. While social partnership stabilised the economy, European integration produced a steady pressure to make public utilities and services more efficient, consumer-oriented and independent of state subsidy or protection+.
Thus, Ireland benefited from an unusual, but benign, combination of institutionalised co-ordinated of the key economic actors and pressure for market conformity (O’Donnell, 2000). While the evolution of Irish economic policy in the past fourteen years has been marked by a high level of consensus—between the social partners and across the political spectrum—the more liberal and orthodox economists have stood outside the consensus.
Their opposition, negligible in policy terms but influential in academia and the media, is both to the substance of the prevailing consensus and to the idea and value of consensus itself. Some have objected to the politicisation of industrial relations because they believe it adds to the bargaining power of trade unionism. Others have argued that the social partners are ‘insiders’, whose pay and conditions have been protected at the expense of ‘outsiders who would work for less’, and that social partnership has had the effect of ‘raising the level of unemployment and emigration’ (Walsh and Leddin, 1992).
In a recent historical review of Irish development, Haughton says ‘It was fortunate that the wage agreements have coincided with rapid economic growth, because the agreements create considerable rigidity in the labour market’ (Haughton, 1998, p. 37). An aspect of the strategy that has particularly provoked orthodox and neo-liberal economists is EMU. Opposition to the negotiated approach to economic and social management is combined, in almost all cases, with a strong attachment to sterling rather than the euro (e. g Neary and Thom, 1997). 6.
The Future of Social Partnership Given pressure on the wage agreement of the Programme for Prosperity and Fairness (PPF), many are asking ‘can partnership survive? It seems more useful to consider what is now required in the three elements of the consistent policy framework—macroeconomic, distribution and structural change—and to ask what role partnership has in facilitating the necessary policies. Adopting that approach, it is clear that structural issues are urgent and the distributional settlement in place since 1987 is under pressure.
The future of partnership revolves around these two. The urgency of structural and supply-side issues was recognised in the PPF. Rapid growth has led to bottlenecks in housing, labour supply, childcare, health, transport, telecommunications, electricity generation and waste management. While the primary goal of partnership had been fiscal correction and employment creation, public policy must now aim to increase living standards, enhance the quality of life, achieve infrastructural investment and lay the economic and social foundations for long-term prosperity.
Both short term sustainability and long-term prosperity and social cohesion, require a radical improvement in the level, quality and range of services. Does partnership have a role in achieving these structural and supply-side changes? The key to answering this question lies in recognising that many of these require fundamental change in public administration and the organisation of working life. This suggests a first role for social partnership: it can help to create a new national consensus for organisational change and continuous improvement.
The experience of the past shows that the partners’ strategic overview—if persuasive, oriented to the wider good and genuinely problem-solving—can been a critical element in achieving major change in Irish policy. Without a strong consensus on organisational change, pay issues (which do require attention) are likely to crowd out issues of service and organisational capability. In a consensus-oriented system, it is necessary to mobilise consensus to overcome veto points that systems of consultation can create.
But the solution of many of these structural and supply-side problems cannot be found in high-level deliberation and bargaining alone. While government is critical, it cannot on its own design and provide the necessary services. We require examination of the content, delivery, monitoring and evaluation of public policy and services. This recasting of public policy must include reconsideration of the roles of central departments, agencies, professionals, branch offices and citizens in setting goals, delivering services and monitoring performance (O’Donnell and Teague, 2000).
This suggests a second role for social partnership: government, its agencies and the social partners can jointly work out how certain supply-side services can best be provided. But it also demands that the evolution in the method of partnership—from high-level negotiation to multi-level problem solving—be taken much further, to include organisations on the ground and citizens in problem solving and policy design. It is clear that the distributional element of the partnership framework is also under considerable stress and requires re-examination and probably revision.
Indeed, it looks likely that all three elements of the distributional settlement require reconsideration: wage bargaining, public sector pay determination and social inclusion and the social wage. The pressure on these arrangements is largely a reflection of the dramatic change in the size and structure of the economy, the new approaches adopted within firms and changing patterns of social and family life. Some argue that in the face these pressures we should abandon the partnership approach and leave the distributional issues to be determined in a completely decentralised way.
This ignores a number of co-ordination problems which can hamper economic performance and lead to unfair outcomes. Fully decentralised pay determination, combined with no consensus on tax and public expenditure, can lead to over-shooting and inconsistent claims on the output of the economy. This would cause a loss of competitiveness and employment and leave the weakest most vulnerable. With or without a single national wage norm, Ireland must find an approach to distribution which avoids these problems.
While partnership began in an attempt to rescue the Irish economy, society and politics from the deep crisis of the 1980s, its development through the 1990s suggests that it should be seen as a part of the dramatic opening, Europeanisation, commercialisation and democratisation of Irish society. Since the destination of the society is unknown, so partnership must take new forms, provided it can continue to anticipate and help solve the problems that change throws up. REFERENCES FitzGerald, J. 1999) ‘Wage Formation and the Labour Market’, in F. Barry ed. Understanding Ireland’s Economic Growth, Macmillan, London. Haughton, J. (1998) ‘The dynamics of economic change’, in W. Crotty and D. Schmitt, Ireland and the Politics of Change, Longman, London. Honohan, P. (1999) ‘Fiscal and Monetary Policy Adjustment’, in F. Barry ed. Understanding Ireland’s Economic Growth, Macmillan, London. Lane, P. (1998) ‘Profits and wages in Ireland, 1987-1996’, Journal of the Social and Statistical Society, Vol XXVII, Part V. MacSharry, R. and White, P. 2000) The making of the Celtic Tiger: the Inside Story of Ireland’s Boom Economy. Cork: Mercier Press. McHale, J. (2000) ‘Options for Inflation Control in the Irish Economy’, Quarterly Economic Commentary, September 2000. Neary, J. P. and Thom, R. (1997) ‘Punts, Pounds and Euros: in Search of an optimum Currency Area’, mimeo, University College Dublin. NESC, (1990) A Strategy for the Nineties: Economic Stability and Structural Change, Dublin: National Economic and Social Council, NESC, (1996) ‘Strategy into the 21st Century, Dublin, National Economic and Social Council
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