June 13, 2004

Power of the soft economy

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No gaudy election posters blight theTuscan landscape; no inane or bewildered grins on faces beaming from every lamp post.


No one-off houses scar the hilltops and valleys. Small towns ban cars from their narrow streets and the architectural heritage is safeguarded like a vulnerable child.

Even the local farmers are in on the act; replicating perfect pastoral scenes for the benefit of visitors by growing meadows, rolling old-fashioned bales of hay and scattering them among the cypress trees.

Tuscany, in short, offers the tourist a centrefold straight out of a lifestyle magazine, all taste, refinement and truffle oil.

In return, tourists plough millions of euro back intoTuscany each day.They spread the word every week. Millions of foreigners leaveTuscany laden down with expensive souvenirs, posh wines and cookery books, deposits paid for next year’s fortnight. By unashamedly positioning itself at the upper end of the tourist game, Tuscany has ensured that it will keep its mediaeval private banks in business for a few years yet.

Incidentally,Tuscans do not scalp tourists.The food is exquisite and although expensive by Italian standards, eating and carousing inTuscany is much cheaper than in Courtown, Roscarberry, Kinsale or Clifden. So, as they say, everyone’s a winner: the Italians are kept wealthy and the tourists go home feeling travelled, cultured and, crucially, a genteel cut above their Marbella-bound neighbours.

Tuscany excels at what we might call soft economic power.This is the economic power and prowess that is not captured by the hard and increasingly inappropriate language of mainstream economics. The crude dialect of competitiveness, wage rates, productivity and exchange rates does not translate readily into soft economic power.Yet soft economic power will be crucial to Ireland’s well-being in the future and we ought to get a handle on it very quickly.

What is soft economic power? How is it different to hard economic power? And why is it so crucial for the future? To tease out the difference between soft and hard economic power it is helpful to think of geopolitical power. In international relations it has become fashionable to divide America’s power into hard and soft power.
We all know that America is pre-eminent in the area of hard power. It has more guns, bombs and bullets than any other country. It spends more on armaments than the next top ten spenders combined and it can blow the brains out of any adversary. It is the capo dI tutti capi of hard power. But America also has soft power.

This is diplomatic power, financial power and moral power. It is the power of alliances and it is the authority America derived since the second World War by operating (with some exceptions) a relatively benign foreign policy which, for many, put the US on a morally superior plateau to that of the Soviet Union during the Cold War. Soft power also refers to America’s domination in branding, music and the movie industry, all of which creates an impression of a strong America, quite distinct from that embodied in the 82nd Airborne Division.

Many are convinced that the twin exercising of soft power by persuasion, cajoling and economic or financial argument, together with the ultimate threat of hard power in extremis, has been the key to America’s pre-eminence. Over the past three years seasoned foreign policy observers have lamented GeorgeW Bush’s decision to resort to hard power and reject soft power. Indeed there is a very credible view that suggests that by relying exclusively on hard power America has punctured the very mystique of the superpower.This mystique allows a superpower to get what it wants without fighting for it. It is the minimal risk, maximum return dictum adopted by previous US administrations.This week, by going back to the UN Security Council on Iraq, the US has once more acknowledged the clout of soft power.

With that in mind, let’s now look at economic power in the 21st century. Hard power is nuts and bolts power. It is the economic prestige that derives from the manufacturing industry. It is measured by league-tables of output, by comparative GDP figures and by productivity measurements published each week in the back of the Economist. Hard power is gauged by multinational investment records and figures explaining repatriated profits. Over the past 15 years Ireland has been extraordinarily successful in this sphere, but now, in tandem with this hard power,we will have to cultivate soft economic power.

Soft economic power can be seen as anything that results in enhancing the well-being and bargaining position of Irish people over and above the wages we earn today. So, for example, last week I was lucky to interview Daniel Libeskind, the award winning architect who has just been commissioned to rebuild theTwin Towers.This is probably the most prestigious architectural project in the world and for New Yorkers the final structure will be far more than just a building, it will be a statement. In a similar vein, Libeskind was commissioned by the reunited Germany to build the Holocaust Museum in the centre of Berlin.

If ever a building was a statement, this was it. Libeskind’s Holocaust Museum is now the most visited building in Germany, generating huge financial returns.

Libeskind explained that in his view all cities were in competition with each other.The battleground is soft power areas such as architecture, theatre, festivals,public infrastructure, sports,the vibe and how we use amenities such as the mountains and the sea. Acity’s prowess is measured in the experience of the place.

Would I like to live there?Who else lives there? Could I bring upmy children there? Could I find the most creative people there? These are the types of soft competitive questions that Europe’s big cities have to answer.An acid test of soft power is the degree of openness of the city to influences and the simplest acid test of this is immigration. Those cities with the most soft power are also the most cosmopolitan (incidentally, they rarely have referendums on citizenship). History says it was ever thus.

Athens was in direct competition with Sparta, Venice with Dubrovnik, Florence with Siena, London withYork, Berlin with Breslau, and Barcelona with Madrid.The one crucial factor is that people flock to the cities that offer the best package. Manufacturing jobsmight migrate to deepest darkest Slovakia, but service jobs will flow into the cities that offer the best overall living experience.

Architecture helpsmake statements about the way a city sees itself.For exam- ple,what is the most photographed place in Australia? The Sydney OperaHouse. In recent years, London has seen an architectural revolution putting parts of its skyline on a par with NewYork’s, boosting the city’s prestige.Another example of “soft” economic power is the rapid increase inweekend tourism to the regional Basque capital of Bilbao as a result of its newGuggenheimMuseum. Soft economic power goes hand in hand with hard power.Soft power is often overlookedwhen making economic decisions.

For example, following the decision in favour ofone-off-housing,what is the likelihood that rural Ireland will again offer uninterrupted views? When a combination of Polish and Argentinian farmers finally buries Irish farming, will we have anything left to sell in the countryside?

We will have a once wild landscape blighted by ugly houses. This is an example of short-term expedient politics literally bulldozing soft economic prestige that could stand to us for decades and centuries. In our cities, if we do not build buildings of ambition,why will anyone cometo our capital for anything other than a piss-up? Today,we are punching above our weight with more than three million visitors to the capital.Now it is time to build some attractions with serious ambition.

Take our universities.What is the point of the state now reducing funding, forcing departments tomerge and undermining academiawhen all research tells us that intellectual prowess is the ultimate in soft power? Another acid test for whether a city has soft power or not is in its tolerance of gays.A recent article in theAtlanticMa- gazine published a gay map of the USA.

It revealed that the cities where gay men tended to live were also the richest in the US.This can be interpreted in many ways, however there is no getting away fromthe economic correlation between tolerance, soft power and affluence. Incidentally, Bloomsday to be celebrated onWednesday, is a great example of soft economic power.

Whatever your viewof Joyce, no other city can truly celebrate Bloomsday. It is uniquely Irish, uniquelyDublin and is an ultimate ex- pression of soft economic power. It will generate millions for traders in the city and it cannot relocate toMumbai or Bratislava.

It will not feature on the IDA’s list of economic successes this year, but it has far more potential than many of our trumpeted industries.Rightly, Bloomsday,Dublin’s unique expression of soft power celebrating the ultimate immi- grant, Leopold Bloom, son of aHungarian Jewish father, will be presided over by Joycean and gay rights activist David Norris.Here’s to soft power, here’s to outing the economy.   


  1. Paul Rux, Ph.D.

    David, you have restated the Ameircan bestseller “The Rise
    of the Creative Class” by Dr. Richard Florida.

    In it he footnotes what you have stated about “soft”
    economies this way: Technology, Tolerance, and Talent.

    1. Technology refers to the new Symbolic, the Information
    Age, “Menta (Designer) -Facture,” Knowledge-based, “soft”
    Economy — compared with the old the “Manu-facture”
    (Factory, Industrial Age, Mass Production)”hard” economy.

    From what I have read and heard, Ireland has moved into
    this “soft” economy because of its highly educated
    workforce, thanks to its rich tradition of disciplined,
    Catholic education. Please do not Americanize this!

    As you note, universities are part of the core
    infrastructure that supports this new Knowledge-
    based “soft” economy.

    2. Tolerance refers to a society’s capacity to absorb and
    honor talent, e.g. immigrants and gays. Abilities count
    more than “old school ties.”

    For example, I live in the Madison, Wisconsin, USA, metro
    region. We are at the forefront of biotechnology with a
    special focus on stem cell research and its applications.

    In over 30 years, not one mayor of Madison has been born
    or raised in Madison! Talent can come in from the outside
    and float to the top.

    3. Talent, Florida has discovered, includes the arts.
    There is a high correlation between the “soft” economy and
    artistic activities! Creative people in the Designer
    Economy like to associate with authentic, local artists,
    who energize the designers of the new information and
    biotechnology – based economies.

    This talent also values historical contexts, originals,
    antiques, distinct cuisine, not mass-produced knock-offs.
    Historic preservation is of high value to them.

    In a sense, it is like the Hollywood movie entitled “Back
    to the Future.” Tuscany is this as you descirbe it.

    A vibrant local music “scene” will do more for developing
    the “soft” economy than expensive, expansive sports
    stadiums that cater to passive, consuming “mass-man.”

    The “Creative Class” is active, not passive consumers.
    They prefer health clubs, outdoor activities, and personal
    fitness to passively watching sporting events.

    I teach Strategic Management of Technology to MBA students
    here in the USA. I base my courses on Florida’s research
    now. Moreover, I believe this research is also a key to
    rural development. Preserve the charm of the past. The
    Creative Class will value and pay for it, as you note.

    I would love to find a way to teach my courses in
    Ireland. They dovetail perfectly with your understanding
    of where we must go with economic development today. I
    welcome suggestions about how I might do this.

    By the way, some of us over here are waging the battle to
    preserve what is left of our “Tuscany,” the charm of our
    historic and natural legacies. Your insights validate our
    efforts.

    Paul Rux, Ph.D., http://www.paulrux.net

  2. David Mc Williams

    Hi Paul, thanks for the very interesting comments. I must
    get my hands on that Richard Florida book. Thanks again,
    David

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