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Look out Spain - the luck of the Irish is on its way

George Osborne once wrote that the rest of Europe had much to learn from the Irish. Sadly it looks a

It is that time of year when we snowbirds head south to Florida for the winter. We drove 1,750 miles in three days and visited the kids at their universities along the way. Once again we spotted signs for El Cheapo gas station, as well as several huge billboards advertising "no scalpel vasectomies - 15,000 served at last count". The high point was a large sign saying "We bare all - exit now". Needless to say, we didn't.

Meanwhile, the European Union and International Monetary Fund brokered a £77bn bail­out package for Ireland's failing banks, a condition of which was the adoption of further austerity measures. The forthcoming emergency budget in Ireland is expected to contain severe cuts in the minimum wage, social-welfare spending and public-sector jobs, as well as a new property tax and higher income taxes.

This is consistent with the recommendations set out in a paper published by the IMF, which argued that Ireland should gradually lower unemployment benefits and cut the level of its minimum wage to boost employment. The austerity measures previously announced in Ireland did not reassure the bond markets, which turned against the Irish as economic growth slowed once again. Having experienced positive GDP growth in the first quarter of 2010, Ireland saw growth turn negative in the second quarter.

The people pay

Speculation has been growing that Ireland may have to raise its corporation tax rate from 12.5 per cent as a condition of the bailout, which would make it hard for the country to attract and keep foreign direct investment. "We don't have a position on the domestic democratic politics of Ireland, but it is essential that the budget will be adopted in time and we will be able to conclude the negotiations on the EU/IMF programme in time," said the European monetary affairs commissioner, Olli Rehn. His statement implies that they do have a position - that ordinary citizens must suffer for the profligacy of the bankers. Seems rather unfair, wouldn't you say?

It remains unclear why those who didn't cause the crisis are paying such a heavy price and why they should go along with such an awful deal. Unsurprisingly there has been unrest on the streets of Dublin, and at times the government has seemed on the brink of collapse. The Green Party, a minority partner in the Fianna Fáil-led coalition, called for an election to be held in January, while two other independent coalition supporters threatened to vote against elements of the austerity budget. There is every prospect that the prime minister, Brian Cowen, may lose a no-confidence vote filed by the opposition. Political turmoil often follows in the wake of financial crises. Default might still be a better option for the Irish.

The big fear for the EU is contagion of the crisis to other countries, hence the pressure on Ireland to accept a deal and to go away quietly and suffer alone.

There remains growing unease in the markets that a separate rescue package will be required for Portugal. Spain looks to be next in line. This is a major cause for concern because Spain is a much larger country and has experienced a huge decline in house prices. And every­one assumes that the Greeks will have no choice but to default on their debt; the only question is when.

In the Times on 23 February 2006, the then shadow chancellor, George Osborne, wrote an opinion column entitled "Look and learn from across the Irish Sea", which he must now regret. "The new global economy poses real long-term challenges to Britain, but also real opportunities for us to prosper and succeed," he wrote. "In Ireland they understand this. They have freed their markets, developed the skills of their workforce, encouraged enterprise and innovation and created a dynamic economy. They have much to teach us, if only we are willing to learn."

It must have been rather embarrassing for young George to tell MPs that it is in Britain's interest to take part in the Irish bailout. Ireland, apparently, is "a friend in need". A promise to cough up around £7bn, and as much as £9bn if the Irish were to default, has inevitably not gone down terribly well with the Eurosceptics in the Tory party. Being in government is rather different from being in opposition. However, to be fair to the Chancellor, he had no choice given the exposure of UK banks in Ireland. Interesting, though, that he could find money to stimulate the Irish economy, but could not do the same for the UK economy. He may yet have to reverse course.

What has happened suggests that the stress tests that were conducted on European banks a while ago were of no value, because all the Irish banks passed. It seems likely, too, that other banks are more stressed than we thought.

Loss of confidence

All of this brings us back to Britain's own austerity package, which, unlike its Irish counterpart, is supposed to raise growth and lower unemployment. The data is not pointing that way. According to the latest ICAEW/Grant Thornton UK Business Confidence Monitor, businesses have lowered expectations for 2011. The major findings for the fourth quarter of 2010 include the following: the business confidence index has fallen by nearly 10 points since the third quarter of 2010; the percentage of businesses less confident about the coming 12 months has risen from 19 per cent in the third quarter to 24 per cent; and confidence in the retail and wholesale, manufacturing and engineering and property sectors has fallen significantly.

The concern I have had for a long time is that the scale of the shock to the world financial system has been underestimated and that there are still many twists and turns of the crisis to come.

It is important, in evaluating what has happened, to ask what is the counter-factual - what, in other words, would it have been like without the swift action of the monetary and fiscal authorities? Unemployment, in my view, could well have risen to over 20 per cent in Britain and still might. That is the ever-present danger of withdrawing stimulus too soon. Plus, inflation is irrelevant right now. Central banks are still in depression and deflation-preventing mode.

The Irish certainly have much to teach us, if only we are willing to learn.

David Blanchflower is a labour economist and a professor at Dartmouth College, New Hampshire, and the University of Stirling.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

This article first appeared in the 29 November 2010 issue of the New Statesman, Congo

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What's to be done about racial inequality?

David Cameron's words on equal opportunities are to be welcomed - now for some action, says Sunder Katwala.

David Cameron made the strongest, clearest and most high profile statement about ethnic inequalities and the need to tackle discrimination ever yet offered by a British Prime Minister in his leader’s speech to the Conservative Party conference in Manchester.
“Picture this. You’ve graduated with a good degree. You send out your CV far and wide. But you get rejection after rejection. What’s wrong? It’s not the qualifications or the previous experience. It’s just two words at the top: first name, surname. Do you know that in our country today: even if they have exactly the same qualifications, people with white-sounding names are nearly twice as likely to get call backs for jobs than people with ethnic-sounding names? … That, in 21st century Britain, is disgraceful. We can talk all we want about opportunity, but it’s meaningless unless people are really judged equally”, said Cameron.
While the proof of the pudding will be in the eating, this was a powerfully argued Prime Ministerial intervention – and a particularly well-timed one, for three reasons.

Firstly, the Prime Minister was able to root his case in an all-but-universally accepted appeal for equal opportunities. It will always prove more difficult in practice to put political energy and resources behind efforts to remedy discrimination against a minority of the population unless a convincing fairness case is made that values cherished across our whole society are at stake. Cameron’s argument, that any party which tells itself that it is the party of the ‘fair chance’ and ‘the equal shot’ must have a response when there is such clear evidence of discrimination, should prove persuasive to a Conservative Party that has not seen race inequalities as its natural territory. Cameron argued that the same principles should animate responses to discrimination when it comes to race, gender and social class. Put like that, wanting job interviews to be fair – by eradicating conscious and unconscious patterns of bias wherever possible – would strike most Britons as offering as clear a case of the values of fair play as wanting the best baker to win the Great British Bake-Off on television.
Secondly, Cameron’s intervention comes at a potential "tipping point" moment for fair opportunities across ethnic groups. Traditionally, ethnic discrimination has been discussed primarily through the lens of its impact on the most marginalised. Certainly, persistent gaps in the criminal justice system, mental health provision and unemployment rates remain stark for some minority groups. What has been less noticed is the emergence of a much more complex pattern of opportunity and disadvantage – not least as a consequence of significant ethnic minority progress.

Most strikingly of all, in educational outcomes, historic attainment gaps between ethnic minorities and their white British peers have disappeared over the last decade. In the aggregate, ethnic minorities get better GCSE results on average. Ethnic minority Britons are more likely, not less likely, to be university graduates than their fellow citizens. 

As a result of that progress, Cameron’s intervention comes at a moment of significant potential – but significant risk too. Britain’s ethnic minorities are the youngest and fastest-growing sections of British society. If that educational progress translates into economic success, it will make a significant contribution to the "Great British Take-Off" that the Prime Minister envisions. But if that does not happen, with educational convergence combined with current ‘ethnic penalties’ in employment and income persisting, then that potential could well curdle into frustration that the British promise of equal opportunities is not being kept.  Cameron also mirrored his own language in committing himself to both a ‘fight against extremism’ and a ‘fight against discrimination’: while those are distinct challenges and causes, actively pursuing both tracks simultaneously has the potential, at least, depolarise some debates about responses to extremism  - and so to help deepen the broad social coalitions we need for a more cohesive society too.

Thirdly, Cameron’s challenge could mark an important deepening in the political competition between the major parties on race issues. Many have been struck by the increase in political attention on the centre-right to race issues over the last five to ten years. The focus has been on the politics of representation. By increasing the number of non-white Conservative MPs from two to seventeen since 2005, Cameron has sent a powerful signal that Labour’s traditional claim to be ‘the party of ethnic minorities’ would now be contested. Cameron was again able to celebrate in Manchester several ways in which his Cabinet and Parliamentary benches demonstrate many successful journeys of migrant and minority integration in British society. That might perhaps help to ease the fears, about integration being impossible in an era of higher immigration, which the Home Secretary had articulated the previous day.

So symbolism can matter. But facial diversity is not enough. The politics of ethnic minority opportunity needs to be about more than visits to gurdwaras, diversity nights at the party conference fringes and unveiling statues of Mahatma Gandhi in Parliament Square. Jeremy Corbyn’s first speech as Labour leader did include one brief celebratory reference to Britain’s ethnic diversity – “as I travelled the country during the leadership campaign it was wonderful to see the diversity of all the people in our country” – and to Labour bringing in more black, Asian and ethnic minority members - but it did not include any substantial content on discrimination. Tim Farron acknowledged during his leadership campaign that the Liberal Democrats have struggled to get to the starting-line on race and diversity at all. The opposition parties too will no doubt now be challenged to match not just the Prime Minister’s rhetorical commitment to challenging inequalities but also to propose how it could be done in practice.

Non-white Britons expect substance, not just symbolism from all of the parties on race inequalites.  Survation’s large survey of ethnic minority voters for British Future showed the Conservatives winning more ethnic minority support than ever before – but just 29 per cent of non-white respondents were confident that the Conservatives are committed to treating people of every ethnic background equally, while 54 per cent said this of Labour. Respondents were twice as likely to say that the Conservatives needto do more to reach out – and the Prime Minister would seem to be committed to showing that he has got that message.  Moreover, there is evidence that ethnic inclusion could be important in broadening a party’s appeal to other younger, urban and more liberal white voters too – which is why it made sense for this issue to form part of a broader attempt by David Cameron to colonise the broad centre of British politics in his Manchester speech.

But the case for caution is that there has been limited policy attention to ethnic inequalities under the last two governments. Restaurateur Iqbal Wahhab decided to give up his role chairing an ethnic minority taskforce for successive governments, unconvinced there was a political commitment to do much more than convene a talking shop. Lib Dem equalities minister Lynne Featherstone did push the CV discrimination issue – but many Conservatives were sceptical. Cameron’s new commitment may face similar challenges from those whose instinct is to worry that more attention to discrimination or bias in the jobs market will mean more red tape for business.

Labour had a separate race inequalities manifesto in 2015, outside of its main election manifesto, while the Conservative manifesto did not contain significant commitments to racial inequality. The mid-campaign launch in Croydon of a series of race equality pledges showed an increasing awareness of the growing importance of ethnic minority votes - though the fact that they all involved aiming for increases of 20 per cent by 2020 gave them a slightly back-of-the-envelope feel. 

Prime Ministerial commitments have an important agenda-setting function. A generation ago the Stephen Lawrence case opened the eyes of middle England to racist violence and police failures, particularly through the Daily Mail’s persistent challenging of those injustices. A Conservative Prime Minister’s words could similarly make a big difference in the mainstreaming of the issue of inequalities of opportunity. What action should follow words? Between now and next year’s party conference season, that must will now be the test for this Conservative government – and for their political opponents too. 

Sunder Katwala is director of British Future and former general secretary of the Fabian Society.