Neolibs’ great experiment in meltdown

Marty G
14 years ago
Categories: capitalism, economy, International, tax

With huge infusions of EU cash and deregulation that brought in foreign companies looking to make a quick buck, Ireland’s economy grew pretty quickly over the past 25 years. On the back of their new-found wealth, Irish governments implemented a neoliberal revolution – cutting taxes for the rich, privatising public assets, the usual formula for hollowing out government. They called it the Celtic Tiger and as recently as last year John Key was saying we should emulate their model (how he planned for us to be situated on the periphery of the world’s largest single-market, I don’t know).

The problem with the Celtic Tiger was that it was made of paper and it would only stay standing as long as it was held together by a healthy global economy. With the tax-base hollowed out by cuts for the wealthy and businesses, the government ran deficits for all but 5 of the last 25 years, a situation that was manageable only as long as growth continued. When the global economy went into reverse, the paper Tiger collapsed – the housing bubble burst, deflation took hold, unemployment skyrocketed (12.6%), and so did government debt. This year’s deficit will be over 15% of GDP and the country’s credit rating has been downgraded. GDP has fallen 11% over the course of the country’s 2-year recession.

Wherever or not Ireland’s neoliberal policies actually contributed much to its growth is debatable – the EU money (ie big government), worth â‚¬40 billion since Ireland joined, was certainly vital. But the blame for the subsequent collapse can surely be laid with the kind of neoliberal policies that Don Brash and others would have us enact here.

While other governments (like New Zealand’s) came into the recession with a broad tax base and healthy books, the neolibs had left the Irish government threadbare. When it should have built up surpluses and assets on the back of rapid growth, it gave tax cuts instead. That would be fine if the myth that neoliberal policies lead to endless growth were true but it isn’t – the growth was cyclical, the tax cuts were structural. Then came the recession and with it falling tax revenues. The government had no money to pay the bills.

The Irish government has been forced into crisis mode to try to control its debt. It has just introduced its second emergency budget this year. It is unwinding neoliberal policies by increasing upper-end income taxes, capital gains tax, and capital acquisition tax, broadening the tax base, and regaining control of the banking system. But even that is not enough to control spiralling debt. To save money the government wants to slash benefits and all public sector workers’ pay by 5-6%. That’s a huge income cut for hundreds of thousands of beneficiaries and 400,000 workers, which is going to devastate families and probably lead to a massive strike.

They call it cowboy capitalism for a reason. Neoliberal policies are short-termist and irresponsible. They run countries like some frontier town in the old West. It might lead to dramatic growth in the short-term but, eventually, it comes crashing down.