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Dublin: 10 °C Friday 24 October, 2014

Column: Labour should be pushing for social democracy, rather than abandoning it

With Labour backing income tax cuts in next year’s budget, Colm Ó Broin asks if the party is abandoning its support for social democracy.

Colm Ó Broin

IN RECENT WEEKS Minister for Enterprise Richard Bruton has spoken against pay rises for workers and an increase in the minimum wage. These measures would damage competitiveness, according to the Minister.

However Bruton doesn’t always object to high wages. You may recall he lobbied the Department of Finance last year to slash income tax on foreign executives working for multinationals and was one of the six ministers who breached the governments’s own salary cap for advisors.

Apparently high wages for executives and low wages for the rest of the population is good for the economy.

Taxes

Taxes and charges that affect the rich and not-so rich are okay with Fine Gael, but the party has opposed attempts to increase income tax on higher earners or a wealth tax.

Now supporters of these policies often point out that Ireland has one of the most progressive tax regimes in the world and that income inequality is around the OECD average. What you won’t hear is that income inequality is at the OECD average precisely because of our tax system – without it Ireland would be one of the most unequal countries in the industrialised world (Data Figure 2), significantly more unequal than even the US.

Concerns over inequality aside, one can only imagine the economic basket case Ireland would be in if we had a higher minimum wage and higher taxes on the well-off, the type of Cuban-style ‘pie in the sky’ policies advocated by assorted bearded lefties.

Equality

Maybe we would be something like Denmark, Finland and Sweden, the three countries at the top of the EU’s Quality of Life index published last week.

This isn’t the only index these countries do well in. They’re among the happiest, most developed, most equal and least corrupt countries in the world. They don’t actually have a national minimum wage – agreements between employers and trade unions mean the low-paid earn a lot more than they do elsewhere, about €14.50 an hour in the case of Denmark.

This system is possible because over 65 per cent of workers in these countries are in trade unions – the highest figures in the OECD.

It’s not just the do-gooder fluffy stuff they’re good at. Their overall unemployment rates are lower than Ireland’s and their long-term unemployment rates are among the lowest in the EU, less than 2 per cent in the case of Denmark and Finland.

Apart from being among the richest and most prosperous countries in the world, they’re the three best countries in the world for entrepreneurship and opportunities according to Legatum, a billion-dollar global investment group, i.e a group of capitalists.

Doing better than Ireland

And in terms of competitiveness, the alleged reason for blocking wage rises in Ireland, all three are doing better than Ireland.

These facts contradict the conventional low-wage, low-tax economic wisdom in Ireland, which is why you won’t hear about them from most economists or commentators.

With politicians it’s hard to know if they believe the economic principles they espouse. Successive governments have supported free trade in areas we are competitive in, like IT, but then opposed free trade in areas we aren’t, like agriculture.

One central lesson of the global financial crisis is that virtually no-one believes in free market capitalism. If they did banks would have been allowed to go bankrupt. Those who say economies would have been devastated if citizens had not paid for bank losses are openly admitting that the free market would destroy itself if left to its own devices.

Since the crisis began in 2008, we have not had any fundamental review of our economic policies. We could be asking, for example, how Denmark is richer than Ireland even though it exports less than we do, how South Korea has a total unemployment rate of 2 per cent, or even – brace yourself – how Finland is rich despite its people speaking a language that no-one else does.

Labour have been the traditional supporters of the Scandinavian economic model in Ireland, but that seems to be in doubt now with Eamon Gilmore backing income tax cuts in next year’s budget, rather than, for instance, reversing cuts to teaching, nursing and Garda numbers or investing in better infrastructure to make us more competitive.

Instead of abandoning social democracy, Labour should be pushing for it more than ever, because as Denmark, Sweden and Finland show, it works.

Colm Ó Broin is a freelance journalist. He blogs at Middle Class Dub.

Read Colm’s other articles for TheJournal.ie here.

We’re interested in your ideas and opinions – do you have a story you would like to see featured in Opinion & Insight? Email opinions@thejournal.ie

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