Explaining and countering the crisis: Ireland’s Credit Crunch reviewed

Kevin Keating, Jonathan Morrison & Joe Corrigan, Ireland’s Credit Crunch: the costs and the alternative, London, Resistance Press, 2010

reviewed by Philip Ferguson

“. . . the free market system had built hundreds of thousands of houses which no one wanted to live in or could not afford; created an economic and financial disaster and, even during the boom, created little of lasting value.  Instead it left a legacy of unemployment and a level of debt that will weigh down generations.  And this is the system that virtually every politician and expert commentator says we must rely on to get us out of the current mess.”     – Kevin Keating, Jonathan Morrison & Joe Corrigan, Ireland’s Credit Crunch: the costs and the alternative, London, Resistance Press, 2010, pp17-18.

The above quote pretty much sums up what this excellent little book is about. It opens with a chapter on the causes of the crisis, beginning with a 2009 quote from the Guardian about the south of Ireland undergoing “the biggest contraction in an industrialised country since the Great Depression”.  However, as the authors make clear, it might be a stretch to refer to the 26-couny economy as if it’s a modern industrialised society; rather the boom has highlighted the much more fragile neo-colonial nature of the southern economy ever since the Free State was established.

They also rightly draw attention to two quite distinct phases of the boom period from the early 1990s to 2008.  The initial ‘Celtic Tiger’ phase, although uneven and more fragile than its cheerleaders suggested, did actually involve (primarily foreign) investment in the real economy; investment was in production and so jobs, incomes and real growth did expand.  However, this phase didn’t last very long; the authors note that by 2001 this kind of investment was flowing away from Ireland and the new boom was driven by credit-fuelled property speculation, most especially in building office and apartment  blocks and estates.

However, while some key features of globalisation that drove investment in Ireland during the Celtic Tiger period are noted, the single most important cause isn’t: the fall in the rate of profit in the real economy led not only to the assault on the working class in the advanced capitalist countries but also drove imperialist capital in search of higher profits elsewhere – in the artificial economy within the imperialist world itself, in more efficient imperialist economies and in the neo-colonial world (countries like the twenty-six counties which are politically independent  but economically dominated by imperialism).  This is an important point, since as far back as the late 1850s Marx identified the law of the tendency of the rate of profit to fall as “the single most important law of modern political economy”.  It doesn’t operate crudely, and involves off-setting tendencies, including the export of capital, which is especially important in terms of dependent economies like that of the 26 counties.  And the authors do note the “relative weakness of native industrial capital”, how “the Irish State remains one dominated by the capital accumulation needs of foreign capital” and that the failure to develop any dynamic indigenous industrial base leaves local capitalists “more dependent on parasitical activities” (pp17-18).

(This has important political consequences.  For instance, it means the development of a two-stage revolution based on some kind of cross-class or pan-nationalist alliance to create a national-capitalist state – the perspective of New Sinn Fein – is doomed to failure.  It’s not just the northern Unionist bosses who have no material interest in a united Ireland!))

The authors are to be congratulated, too, for providing a great mass of empirical data showing conclusively the lopsided nature of the boom periods, while clearly identifying essential elements of the crisis.  They note three distinct but inter-related features: a deep financial crisis set off by the collapse in the bloated construction sector within the real economy and, in turn, bringing about the deterioration of public finances and the slowdown of the entire economy – manifested in falling GDP, investment and employment.  “The nexus between finance and property, and the credit-fuelled growth it produced, has therefore been central to the unfolding crisis,” the authors note (p7).  But the growth of property was not a response to rising demand, but to speculation.   (My abiding memory from my trip last year was the ghost office blocks and ghost estates, while the housing list in the south was already nearly 60,000.)

The government’s response to the emerging financial crisis was in marked contrast to the usual free-market mantra of “no free lunches”.  They nationalised the losses of the bankers with massive rescue packages and the creation of a “bad bank” owned and operated by the state to take on the losses of private banks to the tune of tens upon tens of billions of euros!  And so to NAMA (the National Asset Management Agency).   On top of the already obvious massive cost, moreover, there were a number of hidden costs, which the authors outline.  They note then how the cost of bailing out the profligate banking system was transferred by the Dublin government – and continued now by the Fine Gael-Labour coalition – onto the working class through cuts to public services, welfare, the pay of public employees and extended working years.

EU membership, supposedly the saviour of the twenty-six counties when proposed in the late 1960s and early 1970s has proven the opposite.  In the early years much indigenous industry was wiped out, with resulting job losses and the growth of emigration; more recently, EU membership helped fuel the credit-driven artificial boom.

While the state has been busy bailing out the bankers and driving down working class living standards, the response of the workers’ supposed first line of defence has been hopeless.  As the book notes, “Over 20 years of social partnership has produced a leadership that is completely integrated within the establishment consensus” (p33).  Attempts by workers to fight back have been continuously thwarted as the Irish Congress of Trade Unions has acted to contain working class anger and demoralise workers; in effect the ICTU bosses and their flunkeys have acted as a fifth column within – or, more accurately, atop – the official working class movement.   The authors spend almost 12 pages providing readers with the betrayals of the ICTU leadership, noting that their total unwillingness to take on the governments of austerity have simply emboldened those governments to attack the working class more.

What NAMA is about is hardly a secret.  The authors begin chapter 2, which is about “The NAMA cure” with a great quote from former World Bank chief economist Joseph Stiglitz.  Part of the quote is that the Irish bank bailout “is a simple transfer from taxpayers to bondholders, and it will saddle generations to come. . . we see this type of thing happening in banana republics all over the world.”  This chapter is useful for showing how, even in capitalist terms, the NAMA “cure” isn’t likely to produce the desired results.  The authors also note how the promises that NAMA operations would be “transparent” were simply lies.  Indeed, the government soon proposed a Special Purposes Vehicle (SPV) to manage NAMA and the SPV would have a majority made up of private investors, including bankers.  As the authors record, “In other words bankers were to be on both sides of the table negotiating the transfer of the loans.  Conflict of interest? – you really couldn’t make this up!”

One of the useful insights in this section is that while NAMA is irrational, in the sense that it won’t work, and this has been the focus of criticism of it by academic and mainstream opponents, it is perfectly rational in terms of how capitalism actually works.  Capitalism isn’t just about the market and the market determining that badly-run businesses go the wall; it’s also about class power and class rule.  The bank bailouts may affront those commentators and analysts who have an idealist view of how capitalism works, but they are the necessary and inevitable result of the power wielded by the capitalist class, especially those who, as in the case of the Irish bourgeoisie, live off so much off parasitism in the artificial economy rather than production of real goods and real services and the real economy.  NAMA is thus “a mechanism of class rule – a means to transfer wealth from labour to capital and make workers pay for a crisis created by the capitalist class and their system” (p70).

This brings us to the question of the alternative.  Before putting forward their own alternative, they examine the hopeless perspective offered  by the “leadership” of the existing union movement.  The view of the ICTU brass is that, while workers played no part in creating the crisis, they should pay some share of the cost of it!

In contrast, the authors rightly note that developing an alternative means a starting point that is crystal clear that the working class did not create this crisis, is in no way, shape or form responsible for it and should pay absolutely nothing of the cost of it.

Why are the union leaders so hopeless?

The authors report some of the salaries of union leaders; the head  of SIPTU  is on €125,000 and the head of INTO €170,000).  (For NZ readers, INTO is the teachers’ union and SIPTU is roughly the equivalent of the EPMU; the salaries translate roughly to about $185,000 and over $250,000!  Plus cars and expenses!)

These folks are a privileged layer, existing outside and above the working class.  They sit on the boards of state agencies and companies, with the bankers and other Irish capitalists and their privileged lives and salaries depend on the system continuing.

In dealing with the alternatives that have been put forward, the authors mention that, in the past, demands like nationalisation might have seemed radical.  But nationalisation, they make clear, is not at all a radical way of dealing with the current situation.  “The nationalisation of the crony bank Anglo-Irish is evidence of this”; all it does is maintain a useless bank, keep its secrets hidden and try to prepare it for future parasitism.  No wonder, they say, the IMF and OECD approved the nationalisation.

Unfortunately, much of the left doesn’t really go much beyond an alternative set of capitalist economic policies – essentially Keynesianism.  The centre of this is often the demand to tax the rich.  By contrast the authors make the crucial point that the crisis is not the result of one set of capitalist economic policies – “neo-liberalism” – but the logical consequence of the workings of capitalism as a system.  The crisis therefore must raise the issue of posing an alternative system to capitalism, not merely some new economic arrangements within capitalism.

“Economic crisis,” they rightly point out, “is precisely the mechanism by which the tensions and contradictions within the economic system are resolved at the expense of those capitalists forced into bankruptcy and the wider working population forced to pick up the bill required to restore growth to those capitalists surviving.  What this means is that if one is looking for an alternative to the massive cuts in living standards now demanded, the obscene transfer of wealth from the poorest to the very richest, and with no promise that a renewed crisis will not erupt, in fact the very opposite, then one has to look beyond capitalism.”

It is at this point, however, that the authors run into some problems.  Having noted that capitalism needs to be abolished, they then fall back on calls such as “Bank workers must immediately, with the support of their trade unions and the wider union movement, release full details of the bad loans that the Government has demanded we pay for.”  But, given what the authors have already said about the state of the union movement, has is this a goer?  The authors call for the banks to be expropriated “and their numbers reduced in the interests of efficiency”.  Developers and speculators who don’t pay what they owe should have their assets seized.  But, it strikes me, these are just somewhat more radical versions of the policies the writers have already lambasted.  Even more disorienting are suggestions that “Even a small tax of 10 percent on this wealth” (they seem to be referring to the richest 50 people – PF) would substantially help the government budget, they say, and these rich folks would still be incredibly wealthy.

Since capitalism is the problem there’s no point muddying the waters with these kinds of calls and comments.  Happily, since this book was first published Socialist Democracy seems to have become much more critical of these kinds of tax policies, which don’t even begin to deal with the problem.  (See here.)

The authors also suggest workers call on the top union leaders to abandon collaboration with the state, something which is clearly not going to happen for the very reasons they themselves have already explained.

In terms of the union movement, a better policy might be to help build the small but already clearly class struggle-oriented Independent Workers Union.  On a broader level, however, what is needed is an anti-capitalist movement and that can only be built from the ground up, in workplaces and working class communities, both sides of the border, on the basis of opposing the two states on the island and capital and counterposing workers’ power and socialism to the existing order.

The other criticism I’d have is that there is something artificial about writing about the economic crisis in the twenty-six county state.  While the crisis in the north is less intense, it still exists there.  Indeed, the current situation is one which should provide some openings for pushing the importance of the national question across all 32 counties.

Hopefully this is a work that SD will maintain in print, through new editions over the next few years.  Including a short section, even an appendix, on Marx’s crisis theory and how it explains what has happened in Ireland; expanding the scope of the book to incorporate the national question; and using the section on the alternative to pose anti-capitalism more sharply, as they do on their website, would sharpen up a future edition.

In the meantime, however, this is an important book.  Anyone wanting to understand what has happened in the twenty-six county economy and why needs to read it.  And apologies that I have taken so long to review this fine piece of work, which has sat on my shelf all year.


Posted on October 29, 2012, in 21st century republicanism and socialism, Anti-household and anti-water tax, Democratic rights - general, Economy and workers' resistance, Irish politics today, Natural resources, Political education and theory, Reviews - books, Social conditions, Toadyism, twenty-six counties. Bookmark the permalink. 1 Comment.

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