January 25, 2004

A pint of plain is your only economic indicator

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A friend of mine will not employ Irish builders on his sites. He claims Monday is usually a write-off and they don’t start work properly till Tuesday.


He believes that in comparison to the Estonians, Romanians and Lithuanians, Paddy is a lazy, expensive drunk.

Last Wednesday night Igot a glimpse of what he meant. I went missing in the “M50 triangle” – which, for those of you not familiar with Dublin’s half-built motorway, is a rutted maze of traffic cones, badly-lit flyovers, abandoned JCBs, potholes and muck that lies between the infamous Carrickmines “Castle” and the foothills of the Dublin mountains.

I was looking for a football pitch, and popped into the local pub to ask for directions.

At the bar were six stocious roadbuilders. It was 7.30pm. The lads had knocked off at six, and they were so jarred that when asked a question, each had to move his entire head to focus. No wonder the bloody M50 is overdue, over-budget and undersized.

A few years back, in the early 1990s, it was so different. Back then, when Irish workers were making fortunes in Russia building the new runway at Sheremetyevo Airport in Moscow, Russian workers were being punished for drinking too much by Gorbachev’s 1988 ban on vodka production.

One night in the dreary Soviet International Hotel on Karl Marx Square, surrounded by Russians, I heard the unmistakable sound of Limerick accents. A few Limerick lads were building the airport runway, making good money and sending it home. One of them was saving up this cash to open an Irish pub in Moscow, and everyone at the table thought he was mad.

A few years later I found myself in Kitty O’Shea’s in Kiev with a bit of a dilemma. I was working for a Swiss investme nt bank and was charge d with explaining to clients and the bank’s senior management what was going on in Russia and the Ukraine.

Having met the IMF, World Bank and EU delegations, along with consultants and other bottom-feeders, it struck me that these rarefied bureaucrats hadn’t a rashers what was going on in the place.

They were typical economists: removed, distant and naive – decent lads, but you wouldn’t give them a post office account to open back home, let alone ask them how to make money in the Wild West that was Eastern Europe in the 1990s.

One of the barman in Kitty’s was a different kettle of fish – a rogue and a bit of a chancer who had been around and was not exactly welcome in some of the cities he had visited. On the run? No. Avoiding people? Definitely.
We got talking about Irish pubs and opening them in Eastern and Central Europe. He knew the market, the demographics,who had money in Kiev and the ratio of expats to locals. He explained how to bribe the local officials, how to get import licences and how to weed out crooked `drifter’ Irish barmen.

He knew how to defer tax payments, how to spot a good site and a decent landlord. He knew where to source furniture locally, how to deal with local tradesmen, who to pay first, how to `incentivise’ officials.

Sean outlined his marketing strategy and which local movers and shakers to target as regulars. He advised about avoiding the Mafia. He emphasised the importance of the brand, the importance of the local aspirations.

This barman was a mine of information. Sean was obsessed with dissecting his market into expats and locals. For expats, the key was to feel at home; for local bigwigs, the opposite prevailed – it was crucial they felt as far away from Ukraine as possible.

He offered advice on pricing strategies, and had worked out precisely where the “sweet point” was – where he could maximise his profits, while at the same time increasing his revenue. Finally, Sean had figured out how to borrow in pounds, hedge his local currency risk and stay on good terms with the bank – quite an achievement.

That night he offered a blueprint. Sean outlined the basics of running a business in a foreign country. He outlined the rationale for the Irish Pub Index of economic development (which has since been used by hedge funds all over the world).

After a few pints, it struck me that the opening of an Irish pub in a developing city could tell you more about what exactly was going on in the economy than any economic report. The opening of an Irish pub tells you more about who is investing where,why and at what price than any statistic about inflation, budget deficits or trade deficits could.

With that in mind, the Irish Pub Index was born.The general theory is that wherever you see an Irish pub it reveals economic vibrancy, particularly in developing economies where official statistics tell you nothing.

So the more Irish pubs per head of population,the easier it is to do business.The easier it is to do business, the richer the city is likely to be. Therefore, if you want to get a snapshot of how a place is doing economically, forget reports by IMF, the World Bank, the large consultancies or the EU, check out the bars.

Ultimately, the more Irish bars the place has the richer it should be. That at least was the drunken “theory” I left Kitty O Shea’s with. I decided that I would calculate this Index and present it in Zurich to the bank’s top brass as our “in-depth” research for central and eastern European economic development.

Next morning, Guinness in Dublin provided the info on the Irish bars around Europe, and the Irish Pub Index of Economic Development emerged. Amazingly, in practice it was even more accurate than in theory.The foreign cities with the most Irish bars per head were indeed the richest in Europe.

Luxembourg had the most Irish bars per head, and it was also the richest city in Europe. The cities with the most Irish bars in descending order matched almost exactly the richest cities in the European income league as published by the EU Commission.

Even more valuable was the fact that unlike all the stuff published by the EU, the IMF and the like, the Irish Pub Index is predictive.The EUand the “traditional” economics that goes with it will tell you what income was two years ago (which if you are in business you will know already).

The Pub Index will tell you what income is going to be in two years, and reveals fascinating on-the-ground insights into who is spending, what brands are rocking, where investment is being made and what parts of the town are up-andcoming. In short, it tells us in advance what economic statistics will only pick up in hindsight.

Over the past few years, the Irish Pub Index has proved to be a much more accurate indicator of GDP five quarters ahead of time,than any complicated IMF,World Bank or Central Bank econometric model. In economics as well as life, “the pint of plain is your only man”.