March 9, 2003
Investing in land will send us hotfoot on the road to povertyPosted in · 2 comments ·
If Ireland continues to plough money into land, incentivised by bizarre tax breaks and hyped by an all-pervasive industry peddling the virtues of land, we will be immeasurably poorer in 50 years time than if we invest now in science, technology and innovation.
Just look at financial and economic history. One of the great mysteries of economic history concerns what happened to China.Why did Europe conquer the seas,why did Europe emerge in 1500 as the powerhouse of the world and what happened to the advantage that sophisticated China had over the rest of the world at a time when we were still cattle rustling?
In 1400 China was so far ahead of Europe that anyone would have forecast that London would become a trading outpost of the Chinese Empire rather than Hong Kong being part of the British Empire. The list of Chinese inventions a few years before Columbus set sail is impressive: the wheelbarrow, the stirrup, the rigid horse collar (to prevent choking), the compass, paper, printing, clocks, gunpowder and porcelain.
The Chinese had water-driven machines for spinning hemp 500 years before the Europeans. In the 11th century the Chinese were churning out 125,000 tons of pig iron – a figure that Britain only surpassed 700 years later. Yet something happened in China and it never realised its potential on the world stage.
It appears that China failed to commercialise these inventions.One of the major reasons for this was the fact that the mandarins or scholars who ran the society never allowed ideas to disseminate down to the artisan class.
The mandarins believed knowledge was power and maintained a 700-year tyranny of academic snobbery. So they invented the clock, without encouraging clockmakers. They invented paper and printing, but didn’t educate people to write.They invented the compass, but failed to allow merchants to travel the seas to trade.
The mandarins believed that agriculture and land were superior to commerce, so money was ploughed into land, making it more productive and expensive. China had land price booms, bubbles and troughs, whereas Europe was noted for innovation, profits and trade.
These lessons are crucial for Irish competitiveness. My China syndrome was sparked by three apparently unconnected events this week.
First, I chaired an academic conference on science and economics.
Second, this week’s Young Scientist exhibition attracted thousands of scientifically talented youngsters.
Third, it was revealed that Irish investors had ploughed over €3 billion into the British property market (not to mention the huge amount invested here) in the past few years.
All three circumstances are related. The conference was an eye-opener. A few years ago,while flirting withthe more academic side of economics at the Central Bank, I was perplexed to find that economists spent an inordinate amount of time writing difficult articles for obscure academic journals that were read by a tiny audience of other academics.
The people who sat in judgment on the content of these journals – the pompously titled `editorial board’ – seemed to me to be more interested in humiliating young academics, tripping them up on esoteric technical issues, rather than encouraging ideas. Therefore, all the pressure on academics was (and still is) to impress their peers with their cleverness.
To progress in academia, scientists and economists have to publish more and more to a narrower and narrower audience.
Each publication brings them further up the academic ladder and further from the public.
If ever a system was designed to make scientific enquiry irrelevant both commercially and socially it is this.
Yet this is the way some of our best brains are judged, ending up knowing more and more about less and less. If the objective is to be the cleverest boy in the clever club, well, then so be it, but such petty vanity should not be allowed to dominate academia.
In contrast, for society and academia, the objective should be to democratise learning, making it available and comprehensible to all. This demands getting the ideas out there into the commercial field.
Instead we have a strange situation where the mandarins have taken over the asylum, and great Irish invention is not getting to the commercial stage and not getting paid properly. Not surprisingly, science does not appear like a smart career move to students.
Might the lack of career transparency explain why all our young scientists disappear? Every year,thousands of teenagers spend huge amounts of time and effort entering the Young Scientist competition. What happens to them all?
Clearly they do not go into the sciences. Maybe because they see the snobbery involved in academia? Maybe because they see that the market does not reward scientific effort? Maybe because the education system bores them after the age of 15 with its obsession with learning rather than thinking and enquiry?
Many thousands of schoolkids, whose imaginations are sparked by Newton, Watts, Crick and the like, end up in jobs like marketing, for example. Obviously, the market tells them to forget the science and learn how to flog houses instead.
This is where the government should get involved, tinker with the market, enthuse and encourage young scientists by making science lucrative.
How would you do this? We only have to look to the last piece in the jigsaw: the great Irish land obsession is driven by tax favouritism.
We are told that the reason Paddies invest in land stems from a post-colonial fixation with a few acres or bricks and mortar. Nonsense. The real reason is simple: land has been made tax-friendly.
Land absorbs huge amounts of capital and crowds out investment in other areas such as science and innovation.Think about the tax breaks for landlords and homeowners.Why subsidise a totally unproductive asset?
This is the paradox of property: it generates profits without productivity only because, like gold, it is an entirely speculative asset.This makes it inherently less stable, and the tax breaks increase that instability, leaving land subject not to small fluctuations in price but to large, epoch-making booms and busts.
So we have very expensive land, which is crippling the younger generation of first-time buyers, while real scientific innovation is left to wallow.
Science is too important to be left in the hands of the sleeveen politicians that thrive in university departments.
If Ireland wants to be competitive, we need to foster our own talent. We need to get the most out of a world where the ability to translate science into commerce is the key to wealth.
We can no longer depend on tax breaks for multinationals or cheap labour; we must innovate and be entrepreneurial.
For starters, we could reduce the tax incentive to own land, and apply a bit of fiscal imagination to fostering science – moving, as Einstein said, from perspiration to inspiration. Otherwise, medieval China shows us what can happen to economic sprinters that confuse speed with distance.