The Economic Shock Doctrine for Northern Ireland

Citizens across the Republic have been inundated by a deluge of announcements of pay cuts, job losses, tax increases, public sector cutbacks and widespread threats of privatisation. In its attempts to provide a pretext for this assault on its electorate, the Government have raised the spectre of even greater threats on the horizon such as a threatened IMF intervention recently discussed by Mary Harney. It remains to be seen whether the McCarthy report was another such threat or whether it presented a wide array of measures which may eventually be implemented.

Recently, the government have highlighted the unsustainability of borrowing as a proportion of overall spending with figures as varied as repaying borrowing amounting to €2 in every €3 in income tax if the current deficit was to continue. Of course these threats are full of spin.

Firstly, borrowing at the downturn of the industrial cycle as a proportion of total income appears significantly worse at this point because the costs of increased benefits and social expenditure peak precisely when revenues are lowest from lower consumption and corporate tax receipts. A second sleight of hand is involved in extending these ratios forwards indefinitely beyond the current crisis and then projecting them as a fraction of a much reduced income tax stream.

It should be noticed in any case, that it is the neo-liberalist path chosen by the Republic that has resulted in it being identified by the IMF as the worst affected developed economy anywhere in the world. The extent of its current borrowings demonstrates the exposure resulting from a dependence of government receipts on a bubble in the housing sector and the disproportionate size of the speculative financial services sector in the relatively small Irish economy.

From South to North

There is no one in the Republic who has not already felt the sting of job losses, wages cuts or public sector cutbacks associated with the downturn. In working-class areas, anger is palpitable at the fact that, yet again, they will have to carry the can of paying for the inevitable and cyclic collapse at the end of the capitalist industrial cycle. No one is under any illusions but that things will get worse and that the only way to combat this assault is to get active, to get organised and put the pressure on the Government.

Not so the north, where there is a largely a 'phony' recession. While many in border areas have lost their jobs from the collapse of the construction sector in the Republic and property developers are feeling the heat, the bulk of the population in this economy (which is hugely reliant on the public sector) have largely been unscathed. In some border areas, the boom in retail sales have actually generated employment for younger workers. Indeed the deflation in consumer goods and interest rates may have actually resulted in medium income families feeling relatively well off despite seeing the negative impact elsewhere.

So far so good, but things are not looking rosy in the next few years. Despite the recent announcements of a measly 400 US stock exchange jobs (built on the distribution of surplus value largely super-exploited from third world producers) and a pathetic 100 run-of-the-mill low-wage call centre type jobs in Derry the wider economy has already experienced a rise in unemployment of 2.2% since the beginning of the recession. It would appear, however, that the local political parties are completely unaware of the scale of the challenges that are gathering like a perfect storm.

Sammy Wilson's unilateral announcement of a need to fill a £370 million funding gap pointed towards a harsh reality facing him but looks more like providing political cover for the decision to introduce water rates which might provide for £260 million towards that.

Socialism or Barbarism want to take this opportunity to expose the devious lie at the heart of this suggestion. Sammy Wilson is pleading that these decisions have been forced by the recent downturn in the British economy whereas the truth is that the issue of water rates has hung over politicians in the North like a sword of damacles since they all agreed not to introduce them ahead of the last Assembly election.

As evidence of his astounding lack of economic understanding, his suggestion that he might partially meet the shortfall by cutting £150 million out of the capital expenditure budget would only further exacerbate the downturn's impact on the construction sector causing further contraction across the economy through a negative multiplier impact. Such a move would also be incredibly short-sighted as it would miss the opportunity offered to the public sector to award infrastructural contracts at a relatively low-cost period.

The real tsunami approaches

Sammy is finding it difficult just making ends meet within his existing budget but this was set long before the current downturn due to the unchanging Barnett formula and the 3-year budgeting system adopted in the Comprehensive Spending Review. But the real problems are just starting for him and his fellow Ministers.

One sign of their scale is the growing number of reports coming out of think-tanks making quite outlandish suggestions to enable the UK to meet its funding gap (the British had a particular dependence on a bloated Financial Services sector which now has collapsed leaving them in terrible difficulty). Yesterday, the CBI proposed €120 billion extra spending cuts and the privatisation of every aspect of government up to and including a significant proportion of the defence 'services'.

When asked how far government should be privatised, the CEO of Interserve was quoted by the Financial Times as saying:

"You don't want private armies, no, but...if you look at the American model of military logistics support it is, you know, contractualised virtually up to the finger on the trigger."

Clearly, a massive privatisation tsunami is heading its way to all the local politicians irrespective of any paper commitment to socialism they may retain.

Will NI's local politicians push up the retirement age?

Today, the National Institute for Economic and Social Research recommended four measures to deal with the UK shortfall. The first was to raise the pension age to 70 and getting rid of income support for those aged over 60. Other suggestions were to freeze public sector pay for five years, cut 120,000 public sector jobs a year for the next five years, increase the basic income tax rate by 7% and applying VAT to everything barring food and children's clothing. The NIESR noted that taking even two of these latter steps in tandem would be insufficient to meet the shortfall!

Now some may attribute these comments to a British equivalent of the pretext setting statements provided by the Irish Government listed above but that would be to miss a very significant difference. These statements are not by a government or its civil service who are setting up 'straw men' to provide cover for harsh but smaller cutbacks, rather these are the statements of a conservative party on the brink of power. These statements are to gear the people up for what is coming and to secure a mandate to face down opposition on the other side of an election.

The Tory shadow chancellor of the Exchequer George Osborne has already publicly faced up to being the most unpopular man in Britain in six months time. All this is setting the stage for a scale of cutback that have not been experienced since the first half of the 1920s when the Geddes report led to cutbacks of up to 25% across the public sector.

If anything the scale of the cuts being identified by the Conservative party are considerable below those identified as necessary by right-wing economic think-tanks. The conservatives have conceded the need to raise the retirement age to 66 but have not envisaged anything more severe. Instead of the £120 billion of cuts recommended by the CBI, the Conservatives are considering £7 billion. Obviously, these figures will inflate if, and when, the Conservatives finally 'get sight' of how serious the economic crisis is that is facing them (no doubt immediately after a successful general election).

In any case, the impact of these cuts on the Northern Ireland 'economy' if that is what you can call it will be apocalytic. It is known that in addition to the direct employment in the public sector the economic impact of public spending percolates through the economy supporting many more jobs in the local service sector. In total it is estimated around 70% of all jobs in the north depend on public sector expenditure either directly or indirectly.

As such, a widespread collapse in public sector spending such as is being planned in Westminster will have a dramatic adverse impact on the Northern Ireland economy. The conservative party have already begun to sell this as a positive thing (bringing balance to an unsustainable economy) and this has been echoed by the First Minister himself. Parallel to that funding for the community and voluntary sector has already began to dry up and the size of the subvention for the agricultural sector is likely to collapse on the back of any global trade deal.

All of this means more privatisation, more closures, more cutbacks and much more deprivation. Of course there will be difficulty in getting local politicians to agree just where the axe falls first and the experience of decisions such as the agreement on the safeguarding of the rates cap (at the expense of lower-income families), the decision to adopt a planning policy poorly attuned to the needs of rural communities and the protection of funding for private sector profits through Invest NI is not encouraging. We can be sure that the axe will continue to fall disproportionately on working class communities, irrespective of their communal identity.

Turning a blind eye to these realities is already becoming ever more difficult for those on the left it will become impossible as these cutbacks and neo-liberalist shock therapy 'house-trains' the local politicians. The only way to counter these cuts is to organise working class resistance to these neoliberal policies across communal lines and against a Stormont Executive built on sectarian pillars.