The Rise and Fall of Irish Social Partnership - Aidan Regan

236 Pages·2012·1.38 MB·English

The Rise and Fall of
Irish Social Partnership
The Political Economy of Institutional
Change in European Varieties of Capitalism
Aidan Regan
Irish social partnership was the result of a historically contingent political strategy to Th
navigate the integration of a small open economy into a globalized market, in which e
R
being able to attract and retain volatile capital was paramount. The main architect
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behind this strategy was the state, and the primary objective was industrial stability. e
a
At a critical juncture in 1987 the Irish government chose to adopt a labour inclu- n
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sive strategy of adjustment to a fiscal crisis, the opposite of what occurred in the UK. F
This choice resonated with the ideational toolbox of the leading political party in a
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power, Fianna Fáil. Given external constraints, and institutional legacies, the terms o
f
had to be such that no beneficial constraints were going to be imposed on business. I
r
i
Unlike other small open European countries no legal-statutory changes were intro- s
h
duced to institutionalise the countervailing power of trade unions. In light of these S
o
features the author argues that the outcome was broadly neoliberal in orientation. c
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Social partnership was premised on a privatized political exchange in which wage al
P
moderation was compensated with increases in private consumption through tax re-
a
r
ductions. It was not premised on the social democratic bargain of increasing public t
n
consumption and redistribution that occurred in classic Scandinavian corporatism. e
r
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The author drives us through the various stages of social partnership pre and post h
i
EMU, from its origins as crisis management and economic development, to a sub- p
sequent phase in which government used the spoils of economic growth to buy off
social dissent, to its eventual collapse in response to the Eurozone crisis. The book
takes a strong stance against economistic accounts of institutional change in which
actors pursue rational strategies and come up with optimal institutional designs.
Drawing upon theories of institutional change in comparative political economy,
it argues that economic institutions are premised on volatile political coalitions,
and the main determinants of outcomes are the power resources controlled by the
various actors. It is these domestic institutional resources that condition how na-
tional actors respond to the adjustment constraints of global market capitalism.
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The Rise and Fall of Irish Social Partnership

The Political Economy of Institutional Change in European
Varieties of Capitalism

The Rise and Fall of Irish Social Partnership

The Political Economy of Institutional Change in European
Varieties of Capitalism

Aidan Regan
© Aidan Regan, 2012

All rights reserved. Save exceptions stated by the law, no part of this publication maybe
reproduced, stored in a retrieval system of any nature, or transmitted in any form or by
any means, electronic, mechanical, photocopying, recording otherwise, included a
complete or partial transcription, without the prior written permission of the authors,
application for which should be addressed to author.

The thesis is submitted to University College Dublin in fulfillment of the requirements
for the degree of Doctor of Philosophy, March 2012.

ISBN 978 90 361 0310 7

Cover photo: Freda Hughes

Euro-Irish Public Policy

http://aregan.wordpress.com

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Table of Contents
Acknowledgements…………………………………………………………………………VII
List of Tables and Figures…………………………………………………………………..IX
List of Abbreviations………………………………………………………………………....XI
Abstract ……………………………………………………………………………..............XIV

Introduction: Ireland and European Economic and Monetary Union (EMU)……….....1
Chapter Overview…………………………………………………………………………….18

Chapter 1: A Theory of Institutional Change in European Varieties of
Capitalism

1. Introduction………………………………………………………………………………....23
2. Explaining Institutional change from Keynesianism to Neoliberalism……………………….24
3. Neoclassical Economics, Critical Marxism, Comparative Political Economy………………...28
4. Rational Choice, Historical and Power-Distributional Institutionalism………………………33
5. Neo-Corporatism, Varieties of Capitalism and Centralised Wage Bargaining………………...37
6. Historical Political Approach to Comparative Political Economy…………………………....42
7. Conclusion…………………………………………………………………………………..43

Chapter 2: Explaining the Renaissance of Social Pacts in European
Industrial Relations

1. Introduction………………………………………………………………………………....44
2. Comparative Indicators on the Decline of Effective Labour Power…………………………45
3. Comparative Indicators on the Rise of Corporatist Policy Making…………………………..49
4. Explaining the Institutionalisation of Social Partnership…………………………………….56
5. Bringing Structures of Collective Bargaining Back In………………………………………..60
6. Trajectories of Liberalisation in European Industrial Relations……………………………...63
7. Conclusion……………………………………………………………………………...........65

V
Chapter 3: Methodology and Comparative Historical Social Science

1. Introduction ………………………………………………………………………………...67
2. Ontology, Research Design and Case Selection……………………………………………...67
3. Causal Inference in Case Studies; Boolean Algebra and Process Tracing…………………….73
4. Temporal Sequence in the Process of Institutional Change………………………………….76
5. Strategies of Data Collection………………………………………………………………...77
6. Conclusion…………………………………………………………………………………..80

Chapter 4: The Emergence of Social Partnership in the Single European
Market (1987-1992)

1. Introduction………………………………………………………………………………....82
2. The Coordinating Role of the State in Labour Relations………………………………….....83
3. Confronting a Fiscal and Debt Crisis in the European Monetary System…………………....85
4. NESC, Small States and Global Markets………………………………………………….....89
5. The Political Factors and Negotiated Adjustment …………………………………………..92
6. The Political Exchange of the National Wage Agreements………………………………….98
7. Declining Power Resources of Irish Trade Unions…………………………………………101
8. Conclusion…………………………………………………………………………………104

Chapter 5: The Consolidation of Social Partnership Under the Constraints of
Maastricht (1993-1999)

1. Introduction………………………………………………………………………………..108
2. Confronting an Employment Crisis in the European Monetary System……………………109
3. The Constraints of Maastricht in Framing Domestic Policies………………………………113
4. The Political Emergence of a Centre-Left Coalition Government………………………….114
5. The Political Exchange of National Wage Agreements……………………………………..117
6. Assessing the Employment Performance of Centralised Wage Bargaining…………………122
7. The Emergent Faustian Dilemma of Irish Social Partnership………………………………129
8. Conclusion………………………………………………………………………………....130

VI
Chapter 6: The Consolidation of Social Partnership in the Economic and
Monetary Union (1999-2006)
1. Introduction………………………………………………………………………………..132
2. Reconstituting the Welfare State in a Period of Economic Growth………………………...133
3. Coordinating Social Policy in the Economic and Monetary Union…………………………137
4. The Politics of Low Taxes and Increased Public Spending…………………………………139
5. Public Sector Pay, Inflation and Benchmarking…………………………………………….140
6. From National Wage Agreements to Network Governance………………………………..147
7. Social Partnership and Building State Capacity……………………………………………..150
8. Conclusion…………………………………………………………………………………153

Chapter 7: The Collapse of Social Partnership in Response to the Eurozone
Crisis (2007-2010)

1. Introduction………………………………………………………………………………..155
2. The Politics of Adjustment under the Constraints of EMU………………………………...156
3. The Impact of ECB Interest Rates…………………………………………………………160
4. The Impact of Pro-Cyclical Fiscal Policies…………………………………………………163
5. EU Enlargement, Migrant Labour and Industrial Relations………………………………..166
6. The Shift from a Negotiated to a Unilateral Adjustment…………………………………...170
7. The End of Social Partnership? ……………………………………………………………174
8. Conclusion…………………………………………………………………………………192

Conclusion: The Future Trajectory of European Industrial Relations; Hayek or
Polanyi? Learning From the Irish Model of Capitalism

1. Introduction...........................................................................................................................................180
2. The State and Liberal Market Capitalism..........................................................................................181
3. Power Resources and Institutional Change......................................................................................183
4. Privatised Political Exchange and Political Coalitions....................................................................185
5. The Political Challenge of Constraining Markets............................................................................187
6. A Hayekian or Polanyian Europe? ....................................................................................................189
7. New Research Agendas........................................................................................................................190

Appendix – List of Interviewees…………………………………………………………....192
References…………………………………………………………………………………...194
VII
Acknowledgements

When reflecting back over this research project I am reminded of the famous remark by Karl
Marx in das Kapital; “there is no royal road to science and only those who do not dread the
fatiguing climb of its steep path have a chance of gaining its luminous summits”. Marx forgot to
add that many injuries are picked up along the way and rarely does one reach the top of the
summit before a desire to climb another mountain kicks in. This PhD has not brought me to the
top of the summit but it has provided a useful training exercise to get started. The eurozone crisis,
the explosion in income inequality and the suspension of democracy in a variety of European
countries has re-ignited an intellectual flame inside all academics engaged in political economic
research. I hope this PhD is the beginning of my humble contribution to a rigorous debate on
the future trajectory of change underpinning democratic capitalism in Europe.
Throughout this research project I have presented my work and visited research centres
in Dublin, Cork, London, Amsterdam, Berlin, Cologne, Geneva, Madrid, Washington and
Jerusalem. I have met a lot of inspiring people who encouraged me to keep going despite my
doubts and provided valuable feedback on how to improve the project. For the final twelve
months of the PhD I worked at the Amsterdam Institute for Advanced Labour Studies (AIAS) at
the University of Amsterdam. This was a fantastic experience and I am extremely grateful to all
of the staff at AIAS. During my time in Amsterdam I made a lot of great friends. In particular I
want to thank Stefania, Antonio, Riccardo, Davide, Giovanni and Nienke. I also want to thank
Paul and Fergal for their classic Irish wit and humour that kept me grounded at all stages. These
personal relationships have the made the final stretch of my PhD a memorable experience.
There are two people whom I want to give special thanks, Niamh Hardiman, my primary
supervisor at University College Dublin (UCD), and Maarten Keune, my mentor at the
University of Amsterdam (UVA). Without Niamhs’ feedback, advice and constructive criticism
this PhD would not have been possible. Her guidance and professionalism has been invaluable.
Maarten made every effort to support my research visit at AIAS. His down to earth manner,
humour and encouragement have been an inspiration. I also want to thank Brian Nolan for his
ready to hand professional advice, Roland Erne and Alex Afonso who both provided important
feedback, and all of my interviewees, particularly the staff in the Department of an Taoiseach,
without whom this project would not have been possible. I also want to thank Brian Sheehan for
providing me with access to Industrial Relations News.
Finally, I want to thank my parents and beloved grandfather, Tommy Connaughton,
none of whom had an opportunity to pursue third level education. This is for them.

VIII
List of Tables and Figures

Tables

Table 1.1: Characteristics of Keynesian and Neoliberal Capitalist Regimes……………………..26
Table 1.2: Explaining Institutional Change from Keynesian to Neoliberalism………………….28
Table 2.1: List of Countries and Year Social Pacts Signed ……………………………………..51
Table 2.2: Modes of Economic Governance in European Industrial Relations………………...64
Table 2.3: Corporatism Index: Country Scores and Rankings…………………………………..66
Table 6.2: Irish National Wage Agreements Pre-EMU………………………………………..141
Table 6.3: Irish National Wage Agreements Post-EMU………………………………………142

Figures

Figure 2.1: Five Year Mean Trade Union Density in Eurozone Countries……………………...45
Figure 2.2: Five Year Mean Collective Bargaining Coverage in Eurozone Countries…………...46
Figure 2.3 Trends in Wage Coordination in Eurozone Countries ……………………………...46
Figure 2.4: Decline in Wage Share as a percent of GDP in Eurozone Countries……………….47
Figure 2.5: Tripartite Social Pact Agreements in Europe……………………………………….49
Figure 2.6: Decline in Parliamentary Seats of Social Democratic Parties in Europe…………….55
Figure 4.1: Unemployment Rate in the Irish Economy......................……………………………87
Figure 4.2: National Debt as a Percent of GDP………………………………………………..87
Figure 4.3: Percentage Change in GNP and Exchequer Balance…………………………….....87
Figure 4.4 European Social Investment in Ireland……………………………………………..98
Figure 4.5: Real Percentage Change in Take Home Pay………………………………………100
Figure 4.6: Trends in Trade Union Density…………………………………………………...104
Figure 4.7: Decline in Total Number of Industrial Disputes…………………………………..110
Figure 5.1: Trends in GNP Growth and Unemployment……………………………………..112
Figure 5.2: Trends in Debt Interest Repayments as Percent of Tax Revenue…………………112
Figure 5.3: Trends in Consumer Price Index Inflation………………………………………...114
Figure 5.4: Trends in Interbank Interest Rate after 1986 and 1992 Devaluation………………118
Figure 5.5: Unit Wage Costs in all Industries …………………………………………………118
Figure 5.6: Percentage Change in Average Earnings in all Industries………………………….123
Figure 5.7: Trends in Total Employment and Labour Force in Irish Economy……………….125
Figure 5.8: Trends in Sectoral Composition of the Labour Market …………………………...126
Figure 5.9: Trends in Employment in Services………………………………………………..135
IX