Let’s stand up to the markets — we can’t bear this debt burden alone

TWO phrases that I heard recently have been going around and around in my head.

The first was a casual remark, made to me by a businessman in a meeting. “We’re living through the moment,” he said, “when the capitalist system decided to eat itself alive.”

The other remark was one made by David McWilliams on the Marian Finucane show on Sunday. He was being challenged to try to describe why every solution to the euro crisis seemed to be failing, and he said that the fundamental problem was that they were trying to shoehorn the laws and rules of politics into a situation that demanded to be addressed by the laws of economics.

He made a powerful point, using a business parallel. No business with a weak balance sheet and a poor trading position in the market would be advised to add to its problems by adding more debt. What most businesses in that position would be doing (providing they knew how to trade their way out of difficulties) would be looking for partners. They might try to persuade someone else to buy a share in the business — but the deal would have to be that you only get your money back if and when the business starts to make a profit again. The aim of the partnership would be to return the enterprise to growth, not to cripple it further.

And of course, if you continue the business example, if there is no partner, the usual alternative is examinership or receivership, when someone is appointed to try to sell the assets of the business as a going concern. In that scenario, the people owed money by the business might or might not be repaid, in whole or in part. But once the receivership starts, they will know with some certainty that they’re not going to be repaid in full if that means the business cannot continue to trade.

And if all that fails, the only option left is liquidation. In a liquidation, the assets of the business are sold for whatever they will fetch, and the proceeds are used to settle the debts of the business to the maximum extent possible. In virtually every liquidation, of course, the sale of the assets will enable only some proportion of the debts to be paid. Once the people who are owed the money take their hit, that’s the end of the matter.

Whatever about the laws of economics, the problem with the argument McWilliams was making is that you can only takes the rules of business so far – and that’s even if you put aside the argument that the rules of business, laxly applied and poorly regulated, contributed hugely to getting us into this mess.

Countries aren’t businesses. Nobody knows what would happen if you put a country into receivership or liquidation – or even how you do it. It’s arguable (and many have made the point) that our country was effectively put into receivership by the last government. But that’s not, strictly speaking, true, since there is nobody (yet, anyway) selling off our assets for whatever they will fetch, and writing off whatever remains of our debt. The rules of our “receivership”, and that of Greece and others, are that we must trade our way out of our debt situation, while accepting more debt on our shoulders at the same time.

And of course, we don’t have partners, investing in Ireland to help us to grow. We have enormous numbers of investors all right, taking advantage of the Irish market and Irish circumstances, but to pursue their own interests. That’s fine – in the main, the interests of investors like that (multi-national companies would be an example) coincide with ours. But we can’t offer them a bit of Ireland if they help us to return to profitability.

That’s not as illogical as it sounds. Democratically-elected governments must concern themselves with more than an economy. They are responsible for the safety and security of citizens too. In a modern western democracy, governments are responsible for certain minimum standards of healthcare, education, social protection, community endeavour. In other words, they must hold the ring between the needs of the economy and the needs of the society. In fact, they need to regard the economy as an engine that enables the building of a better society. That means they must manage the economy properly. No one who runs an engine into the ground, or starves it of fuel and lubricant, or allows it to overheat until it blows up, should be hired as a responsible manager of an economy.

And that’s what my other friend meant when he talked about the moment when the capitalist system decided to eat itself alive. Our economy, which was allowed to overheat badly for years, is now being totally starved of fuel and oil. And that is happening all over Europe — and the only solutions I’ve seen offered involve more of the same.

And that’s because there is a total stand-ff between the markets of the capitalist system — bastions of pure self-interest in every respect — and the democratically-elected governments of Europe, who must protect the interests of others.

It’s as if the last battle lines of capitalism are being drawn. On the one hand, markets are adamant that they will shoulder none of the risk and none of the cost of fixing Europe’s economy. And the democratically-elected governments are powerless, left wringing their hands impotently, in the face of the implacable determination of the markets.

BUT you know what? If this were a battlefield, it would be two high hills overlooking a valley. On one hill would be the faceless men who control the private capital of the world, and on the other the impotent governments of Europe. In the valley below would be the millions whose lives are being damaged by this stand-off, and who could be utterly destroyed once battle commences.

Because if this battle is fought by the market’s rules, it will be people who will suffer. People like me have never denied that cuts have to happen. We have to reduce the size of our indebtedness if we’re ever going to get out of the mess we’re in. But surely the time has come for governments throughout Europe to point out that reducing indebtedness is not the job of the people alone.

Since this crisis started, as a proportion of their own individual earnings, poorer children, people with intellectual disabilities and lone parents have made a bigger contribution to reducing Ireland’s indebtedness that anyone else has. That’s obscene and absurd. The cuts in support for these three categories of Irish citizen have been substantially disproportionate — all the more so since none of them caused the crisis.

Now is the time for our government – all the democratically elected governments to say enough. The burden of debt reduction must be shared. Creditors have to become partners in newly-growing exercises, not vultures who will rob economies of any growth. The people we elected must start to stand up to the markets. We’re not looking for forgiveness of our debt. We’re looking for the cost of recovery to be shared. It’s time our governments stood up for us.