November 25, 2007
After the property gold rush, it’s now time for us to focus on small businesses in areas that make sense for the country’s economy.
The biggest lie doing the rounds here in the past few days – peddled by the same stockbrokers, estate agents, journalists and banks who told you that there would be a ‘‘soft landing’’ in the Irish property market – is that the collapse in Irish shares is merely a symptom of a greater global malaise. This is not true.
Ireland is suffering disproportionately because investors think we are in deep trouble as a result of a five-year borrowing binge, a hubristic attitude towards criticism and a willingness to believe our own propaganda.
In time, we will get over this and the economy will recover, but not before the pain we are seeing in the stock market seeps into the broader economy. With all the flannel being spun in reaction to the slump in the market, it seems we are still in the denial phase. Previously (SBP, August 19, 2007), this column has explained how reaction to a dramatic change in our economy can be viewed through the prism of the classic five stages of bereavement: denial, followed by anger, bargaining, depression and then acceptance.
In the denial phase, people put their heads in the sand and assume the problems will go away. Failing that, they create excuses in their heads as to why something is happening, absolving themselves of any culpability. This is what is happening at the moment. But it doesn’t wash.
Unfortunately, the Irish stock market is a good barometer of our economy, in the sense that it is dominated by purveyors of cheap credit and house-builders. Friday saw a ‘‘dead cat bounce’’ when Irish shares rose by 4.4 per cent as investors moved to safeguard their positions. However, the mood remains poor, and the negative implication of the sell-off of recent months is unambiguous.
Ironically, many of those nowselling bank shares are the very developers who borrowed from the banks in the first place, creating the bubble. If you are a developer sitting on an apartment scheme that you can’t sell, the only way to protect yourself from a faltering property market is to make money from selling the only liquid asset in Ireland at the moment – the quoted banks.
If you still believe the spin that what is happening in Ireland is happening everywhere, contrast the performance of the French and Irish markets. France, this week, is on strike. The trade unions caused chaos, reminding everyone, once again, who actually runs that country.
This should cause investors to flee in droves. For the supposed free capitalist financial markets, the sight of French workers on the streets should be enough. Yet the market actually rose during the week.
In free-wheeling Ireland, none of this is going on. US multinationals are still here enjoying tax breaks. The unions are emasculated by partnership and there are hundreds of thousands of immigrants keeping labour costs down. Yet the market is crashing.
The reason is simple – the housing recession is upon us, and it will get dramatically worse. The banks are the best leading indicator of this. Just as happened in the boom, where the banks led, the economy followed. Today in the slump, where the banks lead, the economy will also follow.
The era of easy money, accidental millionaires and cheap credit is over. The days when getting rich was as simple as buying property, waiting and selling on are also over.
Now we have to reinvent ourselves. We have to think of a new economic blueprint, one that is not based on buying and selling houses to each other with other people’s money. Ireland has got to get back to making stuff, generating value added and getting our hands dirty.
Believe it or not, this is actually good news. For the past few years, the property monster stymied real business. The best way to look at the malignant influence of property is to compare it to a gold rush. In the 1850s Californian gold rush, everyone wanted gold and nothing else. Even the schools in San Francisco closed down as teachers and pupils joined the prospectors in the hills. Everything else apart from gold speculating dried up. When the gold rush ended, there was nothing to fall back on.
We too became similarly obsessed, and good businesses with entrepreneurial ideas and real vision found themselves struggling for finance as the banks bailed into the fools’ gold of property.
But now it is time to focus on small businesses in areas that make sense for Ireland. One such obvious industry was on display in the Shelbourne Hotel last week. Good Food Ireland (www.goodfoodireland.ie) is a new movement which aims at fusing the best of Irish food with the best of Irish tourism to position Ireland as a food destination for tourists. On display on Monday was the very best that Ireland has to offer in two growing areas where we should be strong – food and tourism.
We are talking about small businesses, everyday entrepreneurs who are butchers, hoteliers, pub owners, restaurateurs, cheese makers, fishermen and bakers.
These are people who get up every day, make stuff, sell it for a profit and start again the next day. They employ thousands of us. They are the unsung heroes behind the glittering headlines of the economy. Most importantly, they are building markets and businesses. They are exporting and enhancing our brand all the time.
Think about it. After the bubble in construction, food and tourism are Ireland’s two biggest indigenous industries, with a combined turnover of close to â‚¬16 billion. They are labour-intensive industries and most importantly internationally, they are growing industries. People of all ages and classes eat and travel.
Look at the top rated TV programmes – many are about food and travel. Among the top-selling books every year are cookbooks and celebrity chef annuals.
Likewise, we are travelling more than ever. Airports have become part of people’s weekly hassle, rather than somewhere you visit once a year before your hols. Now that construction is ebbing away fast, where are we going to create both the jobs and, more importantly, the sustainable markets over the next ten years?
The beauty of an idea like Good Food Ireland is that it is a simple fusion of two existing industries. No one is reinventing the wheel here. Ireland has the infrastructure, the contacts, the networks and the products.
Of course, that’s not to say that this is a guaranteed business. On the contrary, as the aim of Good Food Ireland is to put food up there with golf, the scenery, the pub and the people as part of the Irish tourist experience, they clearly have their work cut out for them. We are way behind the likes of Tuscany, Burgundy and Galicia, but that’s the challenge.
Now that the economy is moving into a new phase, we have to go back to basics — and what could be more fundamental to Ireland than food, drink and hospitality?