Monday, 18 April 2011

Ireland's Future. Lessons From History

Since early 2007, the world capitalist free-market economic system has been experiencing a systemic crisis.  A report circulated by the Organisation for Economic Co-operation and Development (OECD) in 2008 stated the crisis was caused by “global macro policies affecting liquidity and by a very poor regulatory framework that, far from acting as a second line of defence, actually contributed to the crisis” (Blundell-Wignall et al, 2008, p. 2).  As a small and open free-market based economy, Ireland was caught in the contagion from the unfolding crisis of world capitalism.  However, far from being an innocent victim of conditions in the world economy, the Irish state’s economic problems were the result of both international and domestic factors. 
An official government report into the causes of Ireland’s problems cited three particular domestic policies areas that contributed to the crisis.  These were; that the government should have done more to control the flow of money and the level of liquidity into the Irish economy, that government ta
 x policy incentivised a property bubble and a lack of regulation in the financial sector caused reckless lending practices.  As the report stated, “official policies and banking practices in some cases added fuel to the fire.  Fiscal policy, bank governance and financial supervision left the economy vulnerable to a deep crisis”(Regling and Watson, 2010, p.5).  So, rather than being a sole product of international circumstances, the economic uncertainty and crisis that Ireland is experiencing is largely a result of domestic government policies.  These policies, both before and after the onset of the crisis, and in particular the Irish government’s decision to guarantee the
 deposits and bonds in a number of Irish banks,  have led to a massive collapse in the I
 rish economy, the implosion of the Irish banking system and the recent intervention of the International Monetary Fund (IMF) into Irish affairs.  To understand what influenced these policy decisions from the Irish government, an understanding of the theory and the ideology that influenced them is necessary.

The idea of free-market economics, the predominant system in the world today, which largely contributed to and influenced the policies of the Irish government, can be traced back to the theory of ‘the invisible hand of the market’ developed by Adam Smith (Brown, 1988, pp.127-137).  In this theory, when consumers are free to choose and purchase goods and services without restrictions, the ‘invisible hand’ of the market will regulate itself to set the fairest price.  For smith, this unregulated market system of competition, supply and demand was the best way to allocate resources in a society.  Smith’s theory was developed and modified into what has become known as neo-liberal, free-market economics.  The development of neo-liberalism as a form of economics has been most closely associated with the work of Milton Friedman.  He drew heavily upon the work of Smith (Friedman, 1980) and developed a more fervent form unregulated, pro-business free-market capitalism.  According to Harvey (2005, pp. 8-9), Friedman’s ‘Chicago School’ economics had a direct influence the two most prominent proponents of neo-liberalism during its inception, Reagan in the USA and Thatcher in Britain during the 1980’s.  It was during this period that neo-liberal economics began to become what Harvey calls “hegemonic as a mode of discourse”, and what emerged was an acceptance of its values by international institutions such as the IMF, The World Bank and the World Trade Organization (WTO).  It was this form of neo-liberal, free-market based economics that in many ways influenced policy decisions that the Irish government made both before and after the onset of the current economic crisis.  So, should Ireland learn some lessons from history and further pursue this type of economic policy?  That may seem like a imprudent course of action.   However, what were the alternatives?  Some would argue that a socialist planned and regulated economy, based on the ideas of Karl Marx, would have averted the current crisis.

The ideas of Marx are most commonly associated with two of his most prominent works, ‘Capital’ (2008) and ‘The Communist Manifesto’ (2008).  For Marx, “the history of all hitherto existing societies is the history of class struggles” (Marx and Engels, 2008, p.3).  Modern society is divided into two classes, the bourgeoisie, or the owners of the means of production and capital, and the proletariat, or the working class.  This society functions through the capitalist class exploiting the working class by paying the worker less than the ‘surplus value’ they produce through their expended labour (Marx, 2008, pp.115-131).  For Marx, the unregulated capitalist system will always favour the bourgeoisie, and the only way to reverse this trend is for the proletariat to seize control of the means of production, to create a society under democratic workers control and to implement a socialist, planned economy, eventually leading to communism.  But what do lessons from history teach us about this system and a possible future for Ireland?  The three most prominent examples of socialist, planned economies that the world has seen are those of the Soviet Union, China and Cuba.  Whilst each system is by no means a shining light of socialism, each did have many successes. However, these achievements of past and present socialist regimes would do little to convince many of a possible socialist future, and all in effect bear little resemblance to the socialism that Marx spoke of.  So, what are the lessons from history for Ireland in a time of economic uncertainty?

The economic future of the Irish state has been plunged into a period of uncertainty due to an adherence to neo-liberal economic policies and misguided policy choices.  History has some important lessons to teach regarding crisis of capitalism.  The most important lesson that Ireland can learn from this crisis is that a look back through history will reveal that capitalism is forever prone to boom and bust cycles, and as Marx suggested back in the nineteenth century, the bourgeoisie will prosper at the expense of the working class.  For evidence of this in the current crisis, one must acknowledge the massive transfer of wealth that has occurred from working people to pay for the losses of wealthy bondholders in institutions such as Anglo Irish Bank (The Irish Times, 2010).  So, on this type of evidence it would seem unwise for the working people of Ireland to support further a system that is stacked against them, and will favour the wealthy over the ordinary.  However, an alternative system, based on the socialist systems that have existed and currently exist is not likely to inspire many to seek change.  So, Ireland has two choices.  It could continue upon the path of capitalism, where it can’t be denied that living standards will rise for the poorer sections of society over a long period, but also whilst the gap between rich and poor grows.  In contrast to this, the Irish state could seek an alternative system based on socialist principles, learning from the failures of past socialist states, and instead adhering more closely to genuine Marxist principles of democratic workers control of a planned economy, rule by the majority rather than the minority, the redistribution of wealth rather than private profit, and a more equal and fair society for all.
Be Moderate? We Only Want The Earth.


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