Leader column: tomorrow’s budget for cut-price economics

Tomorrow is budget day and we’ve been warned to expect the harshest budget in the history of the state, something that would, let’s face it, take some doing. Parts of the country are only now recovering from devastating flooding and many remain unable to return to their homes. The public sector strike threat rumbles on with Gardaí having joined the row, threatening to take illegal industrial action. The Catholic Church has been caught with its trousers down – again – and it transpires, as if we didn’t know, that the biggest criminal of all in the whole clerical sex abuse saga was the Irish government. The banks are still swallowing vast sums of public money and Anglo Irish Bank in particular, which looks set to be wound-up by European Union diktat early next year, may as well be pissing it up against the wall. And then there’s the employment market – which has ceased to exist.

Is it any wonder that ‘Christmas has been cancelled’ is a recurrent theme. Given the circumstances we all face it’s hard to find reasons to be cheerful.

And what does the government have to offer? A few cuts to services here, a tax hike there, a tax on carbon emissions and reductions to public sector salaries… Frankly it is nothing short of pathetic. What’s really bad, though, is the fact that the opposition’s plan is exactly the same.

The entire Irish political class has been running on empty since the recession started. Despite its successful propaganda campaign to drive a wedge between workers in the public and private sector and the fact that it has somehow managed to convince people that we must ‘share the pain’, forth is here to say that the Oireachtas is not only naked, it’s missing most of its skin too.

Goldman Sachs announced today that Ireland was taking the right course – a sure sign if ever there was one that the public is in for a kicking. These unproductive capitalists neither contribute anything to the economy nor do the want any economy, no Western one at any rate, to engage in the kind of productive activity that would actually result in a sound economy. The capitalist class has always dreamed of doing away with the mucky business of actually making things – it involved factories, capital investment and, worst of all, those bloody workers. Much better the produce money from thin air by using incomprehensible financial instruments and empty, rent-seeking activites. As long as you get out before the whole Ponzi scheme comes down around you.

Irish politicians and business leaders are so badly in hock to the discredited theories of the ‘weightless’ post-material economy that they have simply no idea how to develop a functional economy – at all.

Here, in a nutshell, is how it’s supposed to work: economics is rooted in the need for commodities. A commodity is a thing which addresses some or other human need. These commodities have something called a use-value which is determined by their usefulness – so, for instance, an economics article on a website has a much lower use-value than, let’s say, a ham sandwich. The use-value of any given commodity is intangible but the commodity will also have something called an exchange value. The exchange-value represents what the commodity can be exchanged for, in other words it’s worth. So, in our case, articles by unimportant journalists such as your author are given away free while ham sandwiches are sold at the local Spar for money. Of course, no-one has yet profited from any of these exchanges. This is where another kind of value comes in: surplus value. I’m not going to explain that for now except to say it’s basically a specific way of defining the source of what you, I and the local plutocrat call a profit. Nor, you will be glad to read, am I going to go into socially necessary labour time or the countless other things that really make the world go around. For what it’s worth, by the way, the commodity itself may be neither a beginner’s guide to economics nor a ham sandwich, but even the actual labour which goes into making another commodity.

Economics is a product of the social relations of production. What this sentence means in its totality is not important for now, the point is, as far as the economy goes, production is where it’s at.

The bottom line, as the accountants say, is this: the surplus-value (or profit) is produced by labour (or work) and appropriated (or taken) by whomever owns the business that is making whatever it is we are talking about. A typical economic crisis is brought about because, over time, these business owners invest in ever-greater productive technology which replaces labour and so the rate of profit falls as the economy grows. When the general rate of profit falls below a certain point the result is a recession. These business cycle recessions are, not to put too fine a point on it, as common as muck and are fixed, at least as far as business is concerned, by correcting (that is to say, reducing) wages. Sound familiar? 

However, that is not what has happened to bring about the current recession.

Instead, the current recession has occurred because instead of engaging in the kind of productive activity described above business, encouraged by politicians, instead sought to reduce its engagement with production as much as possible and profit from other, shorter-term, activities. However, while these activities were able to ‘produce’ gigantic bundles of money, they were more than usually prone to instability because they were dependent, as all economic activity is, on productive capacity but this capacity was located elsewhere.

The commonly held view in Ireland is that the problem stemmed from in the banking sector due to, depending on the ideology of whomever is speaking, lax regulation, the over-expansion of credit or interest rates. Throw in a few digs about Fianna Fáil and ‘the developers’ (cue scary music) and you have a typical newspaper editorial. I have absoultely no desire to defend bankers, property developers or Fianna Fáil, having suffered at the hand of each them over the years, but this is simply not a good enough explanation for what went wrong.

The problem is that Ireland’s much-ballyhooed economic growth was never sufficiently grounded in production. The post-war booms in Europe and the United States – something Ireland missed out on – resulted from economies engaged in the production of goods and services. Ireland’s late (in every sense of the word) boom did not. Instead, Ireland profited from what we might call financialisation – the trend that has, in other countries, seen not just financial activities but financial engineering take over the economy. As other countries retreated from production into finance, Ireland which never had a substantial productive base, aped them.

The above is simplified almost to the point of parody but it will suffice for now. If you really want to know more, there’s about 3,000 pages of it available in three volumes in any decent book shop – the typical exchange value of which is about €10 per book. In addition, it is of no importance in the current period whether any of us consider the above system of making stuff to make money moral, the simple fact is if we do not have any choice but to engage in genuinely productive activity – we must design, manufacture and sell things or else the economy will become a meaningless shell game with us as the rubes trying to find the coin under the cup. Here’s a hint: it’s not under any of them.

In order to disguise the fact that their economic strategy is completely discredited, modern politicians and business leaders use a number of rhetorical tricks. The first of these is that ‘There Is No Alternative’ to the way things are done today. Despite the fact that this is patently untrue, ahistorical and distinctly unenlightened anti-modern line of thinking, we shall give them a free pass for now and pretend it’s true. The big wheeze during the late 1990s was that we lived in a ‘weightless’ or ‘post-material’ economy. This proved to be a particularly seductive lie because it coincided with the exact period of history in which the (genuine) marvel that was the internet. No production was necessary, we were told. Instead we’d all be cybernauts and knowledge-workers.

Of course, this arrant nonsense hid the fact that the internet requires a number of other things in order to work, including electricity, microchips, a telecommunications infrastructure that includes undersea cables (and boats to lay it), millions of kilometres of fibre optics and satellites, millions of tonnes of plastic, dozens of kinds of metals and all manner of other things. All of these commodities, there’s that word again, were produced by digging something out of the ground, doing something to it and using the result in conjunction with other similarly produced material to make things, things that themselves were also commodities.

Now that might sound like a lot of work to you – and indeed it is, but here’s the really good bit. In order to avoid having to bother doing any of this messy, expensive and just plain irritating stuff our clever leaders latched on to another dodgy idea: sustainability. To most people, sustainability simply means being a little bit thrifty with resources. In political terms, however, what it means is paring back production to the absolute minimum. Doing so will not dig us out of the situation we are in because it not only further encourages the retreat from production, it makes the process of production more expensive and difficult for those fewer and fewer entreprises willing to bother engaging in it in the first place.

In closing, consider this: while it is true that China is currently the economic engine driving the world (largely because China’s political elite is replicating our what Western elites did in previous eras and taking production seriously), it is far from being the only significant manufacturer of goods in the world. Between 2003 and 2006 (I do not have access to more up to date figures) the world’s largest exporter was… No, not Taiwan or Korea or anywhere else we might associate with the grubby business of making stuff.

It was Germany.

Germany became the world’s largest exporter of goods in 2003. As an example of the importance of production for a real economy, remember the fact that this Western European country with higher salaries and living standards than Ireland or Britain (both of which were obsessed with making money from thin air) exported just under US$1,000bn worth of products in those three years. This is as much as the UK, France and the Netherlands combined managed to export in the same period. Exports alone generate some 40 per cent of German GDP.

Ireland, whose economy accounts for a pathetically small 2.1 per cent of overall output in the Euro area, has a service sector that account for 64 per cent of GDP. (1) Don’t you think we should maybe consider making a few things and seeing if anyone would like to buy them?

(1) The service sector is not necessarily ‘unproductive’ as services can be commodities but it is never a sufficient base for an economy

Note: In case anyone thinks farming is what Ireland is good at the figures say otherwise: agriculture accounts for an infinitesimally small three per cent of Irish GDP.