March 9, 2008

Time for new thinking?

Posted in Celtic Tiger · 44 comments ·
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It’s funny how an economic slowdown can crawl up on you — a missed fare here if you are a taxi man, falling tax take there if you are a revenue official, declining houses prices if you are a seller and ultimately, a P45 if you are a worker. Like a domino, one thing knocks into another and slowly but surely the links in the chain begin to reveal themselves. The headline figures, which seemed so impressive only this time last year, are not so stellar anymore.

Confidence, the hand maiden of success, ebbs slightly. Across the board, indicators – which in the boom were celebrated — turn down. As house prices fall, so too does borrowing. In time, government revenue, which has been geared to the housing sector for the past half decade, begins to slow. The ISEQ falls and continues to under-perform despite reasonably healthy corporate results. Everyone realises something is wrong. Overdrafts that were seen as worrying but manageable last year now look terrifying. Finally, jobs are threatened.

On Friday, Irish unemployment jumped and it jumped dramatically. The live register increased by 8,500 in February. That was the largest monthly rise in unemployment since 1980 — the year the Boomtown Rats released “Banana Republic”.

The unemployment figures should be our wake up call. If we sit back and do nothing, Ireland could find itself in a prolonged slump. However, if we put our head together, there is no reason to believe that the economy can’t emerge out of this – self-inflicted – difficulty in good shape.

We need to figure out a plan B. Unfashionable as it may sound, our country needs a new national vision. We are talking here about a Whitaker Plan Mark 2 which is both clear and achievable. These days, even speaking in terms of national plans, big new ideas and national rejuvenation is regarded as passé. National projects seem so 1970s. Yet this is exactly what we lack. Ireland needs an economic vision which can position the country to take advantage of the great opportunities that globalisation affords.

Unfortunately, we have a bit of catching up to do because a property boom acts as a sedative. The easy money of the past years has inured us to competition. We’ve been asleep. A country which experiences a property boom turns in on itself. The reason for this is very simple, property cannot be traded. Bricks and mortar are tied to the land and the land is fixed and can’t be exported. Therefore, the discipline of international competition is lost. The subsequent detachment lulls the country into a false sense of security. Ireland is like Rip Van Winkle waking up after a long, comfortable sleep and not recognising the world.

The worse thing we could do is react to an increase in unemployment with a 1990s policy of “jobs first”. In the past when we could not find enough work for our people, a “jobs at all cost” policy was the right thing to do. Today, it is not enough. Ireland has to create value not jobs. To do this we have to build our own companies. Other countries have shown us the way. We should now copy them.

For example, a few years back I worked in Israel. In the mid 1990s, Israel faced the prospect of economic and political meltdown as a combination of massive immigration from Russia and the costs associated with the Intifada, threatened to overwhelm it. The bank I worked for was employing people, offering good jobs and better wages than the average Israeli company. Yet no one wanted to come to work in a large international bank. In contrast, the young Israelis all wanted to set up their own companies. They were prepared to slog it out, build from the bottom and create value rather than put on a suit and acquire professional respectability. Everyone wanted to be an entrepreneur. They wanted to do their own thing, particularly in hi-tech.

Today, this entrepreneurial culture has paid off. Last year, after America and Canada, Israeli companies were the most successful on NASDAQ.

The Israeli government realised that they could only depend on multinationals like Intel and Microsoft to take them half of the way and that ultimately, they had to depend on their own brain power and perspiration. The State started to finance “hi-tech hothouses” for young hi-tech entrepreneurs. The country now has the most successful hi-tech industry outside North America. There is no shortage of venture capital money because the Israelis have proved that they can innovate, use the knowledge economy and most crucially, by extensive use of NASDAQ, they can give investors huge monetary returns.

This is the game that we should be playing. Enterprise Ireland are trying to finance start up companies and are playing a crucial role, however we have precious few indigenous success stories. Last year, we saw one or two Irish tech companies successfully cashing in via trade sales. For example, Havok the company which uses its “Physics” product to drive the animation in movies like The Matrix and blockbuster games like Guitar Hero 3 sold itself to Intel. However, such deals are few and far between.

In the next five years, we have to get into this game. The Israelis — a small country, with a similar population and a similar Diaspora in America has used its commercial smarts and its racial links in the US to reinvent itself, why can’t we?

Now that the downturn is upon us, it’s time to get the finger out. If you think it can’t be done, consider Nokia. In 1988, Nokia was a Finish conglomerate specialising in paper and pulp products but also making radios, televisions and Wellington Boots. In the late 1980s, one of its head honchos took a year out to study in Florence and think about the world. He came back and declared that the future was mobile. At the time Finland was going through a property bust — not dissimilar to what is happening here now. Their best brains vowed enough of property. Finland had to build something competitive and lasting. After a titanic internal power struggle, Nokia divested of all its businesses and focused exclusively on mobile phones. They took a risk and it paid off. Today, Nokia is the world’s largest maker of mobile phones, with over 100,000 employees in 122 countries.

We can do the same. Ireland can react to the slowdown with vigour, energy and optimism. Others have done it. All we need now is the courage to imagine a different future and the vision to plot the course we should steer for ourselves.


  1. John Q. Public

    Ah David you keep harking back to this point. We Irish don’t have it in us to think in the way you want us to think. Maybe what we need is an American think tank based here permanently to advise Enterprise Ireland, the IDA and the government. A foreign perspective, a fresh eye with different ideas is what we need to keep our future rosy. Here’s an idea: The next American MNC that wants to come here and make for example electronic components, let’s not let them in. Let’s do the market research first, build our own factory, our own electronic components, sell the stuff so the profits and tax revenues stay in Ireland. These MNCs know what sells and where. We should awaken the ‘cute hoor’ in the Irish once again and try and beat other companies at their game. We should say to ourselves ‘how do they do that?’ as opposed to ‘how can we do x, y and z?’ because there seems to be a big difference.

  2. MK

    Hi again David,

    Yes, the economy has taken a turn and the average person (and Government) is realising too late that property wasnt the be-all and end-all.

    However, entrepreneurship and setting up indigenous and succesful international trading companies is an ongoing thing. We do have some (eg: CRH), and indeed in several entrepreneurship benchmarks such as GEM, Ireland gets a favourable result.

    One thing which we shouldnt do though is compare ourselves to Israel. There are a number of key factors as to why it is an apples to oranges comparison. For one, Ireland is in the EU, and has a different labour market. Israel can leverage low-cost labour from indigenous residents (known as Arabs!), and to do so in Ireland would be illegal. A bigger difference is the linkage of US money. Israel has over the decades received funding from the US, and business is more entenched and intertwined. Most of the VC money comes from the US, and they are taking bigger bets that the US-Irish-disapora are doing in Ireland.

    In terms of high-tech successes, it is hard to scale-up businesses, and the many small local ones historically have never grown that big before the owners took their exit. That is partially down to ambition as well. Our best success now is Norkom Technologies, and recently EI/government gave them additional support, which is good to see. Iona had an opportunity to diversify and expand and acquire but they didnt do it. There are easily 100 good small tech companies here at any one time, which if combined would be a very good company, but combining them is something that wont happen naturally, as there are too many ego’s.

    Ireland, like most countries, only learns lessons the hard way. We are just starting another lesson.

    MK

  3. Reality Check

    What you say is true but is it really achievable with the current crop of politicans?

    We have a generational overhang in the public sector which was actively rewarded for gross incompetence and inefficiency by the government over the last ten years.

    The HSE is a prime example, If I were Minister for Health I would initiate a total audit of all HSE employees and functions to find out what “fat” needs to be trimmed, then through the oireachtas, put out to tender the functions of the HSE via quality assured contracts.

    If I did not achieve this within a fixed time frame I would resisgn.

    Sadly it seems, No politican on this island is willing to make the core changes needed to get things rolling again, instead we have excuse after excuse and the easy scalping of defenseless targets e.g. Pharmacists

    What chance have we, when for example you look at the sorry state of broadband in this country?

  4. AndrewGMooney

    Isn’t Israel a ‘special case’?
    Doesn’t their incredible economic innovation stem from a constant state of hyper-vigilance, a permanent ‘war-footing’ economy ?
    What level of their hi-tech industrial boom is attributable to the rest of the world having to ramp up it’s security systems to Israeli levels, using Israeli technologies following 9/11, 7/7, etc?
    I wonder how much money they’ve made now the rest of the world’s airports have to be on the same footing as Tel Aviv. Permanently.

    In earlier decades, they created intensive agribusiness / hydroponic miracles from bare desert, because they had to just to survive and trade. I’m just asking how much of their ‘entrepreneurial’ brilliance is attributable to the adrenaline of threat. And what could trigger similar levels of innovation in Ireland (or the U.K), countries that are largely peaceful, content and perhaps…..smug and lazy?

    As for Nokia and Finland, again: It only happened in response to crisis conditions. But it was facilitated by ‘the vision thing’. It didn’t really make ’economic’ sense, but was part of a wider strategic cultural vision for Finnish society.
    Ireland used to have intensive market garden businesses until the scallion field of Kildare were covered in nice new show-homes because it had successfully moved up the economic ‘food chain’ by becoming an off-shore base for American capital.

    What industries will it leap frog to for permanent wealth based not just on temporary cost-competitiveness? What’s the ‘strategic cultural, political and economic vision’ for Ireland. Can someone post a URL I can follow to read it?

    The credit crisis and collapse of inflated housing equity will make it much more difficult for ‘garage / kitchen -table’ entrepreneurs to get off the ground, never mind get to the next levels of expansion given the likely spasm / retrenchment in risky venture capital funds.

    It really is the fault of Central Governments and Bankers. They have presided over an enormous fictitious ramp-up of pseudo-wealth which is now collapsing. Cheap credit will become a thing of the past. From capital for the creation and then expansion of companies to credit cards for consumers to wild out at the Mall: It’s going to get very messy.

    When Bernanke seriously suggests that banks ‘restore housing equity’ and confidence by writing off part of their loans, you know we’re in a crazy place. Confidence is, indeed the hand-maiden of success, but it’s collapse is the harbinger of doom. You can’t just ‘wish’ new economic realities into being.

    A credit card is, in fact a debt card. You’re not in ‘credit’! A debit card is, in fact, a ‘credit’ card indicating you’re ability to pay: Instantly.
    A good place to start restoring sanity might be to force all providers of such services to provide health warnings on ‘credit’ cards: Just like on fags!
    And mortgages of 6 times your income should require you to undertake psychological evaluation before proceeding.

    I call all of this ‘trans-generational social equity theft’: The wealthy middle-aged political and business elites relax lending criteria, causing housing and other asset bubbles, print money thus debauching currencies, then what?

    A whole generation mired in negative equity, paying ridiculous interest rates to restore ‘sound money’, and facing ever greater difficulties in starting up businesses in recessionary environments.

    But that’s ok, so long as the Rich can pull up their individual drawbridges and pass on enough in a trust fund for ‘their’ children.

    Maybe complete systemic collapse is needed to allow ‘creative destruction’ and ‘real capitalism’ to re-emerge? Then a young Irish girl might be able to train to be the vet she dreams of, yet still afford somewhere to live and, who knows: Even be able to manage a few years off to have and nurture her own children!

    But that wouldn’t make ‘economic sense’ when you/we can just ‘import’ the next generation. There’ll be a billion ‘climate-change refugees’ flooding to Europe so I’ve read today…….!

    Israel is a unique country and culture united both by religion and by external threat. Finland has a unique language, culture and fierce sense of independence after decades of USSR encroachment.

    Ireland will be interesting. How many of the ‘next generation’ of potential entrepreneurs will stick out through thick and thin? How many will simply leave for foreign shores? As for those who ‘helped’ the Irish economy by buying their first house in the last 7 years: You’re in my prayers. I’ve been there. In 1990. In London.

    Will the elites of the Irish political, banking and business classes come out and admit that the property explosion they poured petrol on was short-term greed at the expense of long-term development?
    And will they also accept responsibility for the fire-sales which will happen in Ireland just as they are happening in Orlando and Cali?

    It’s my old chestnut of the primacy of Culture over Economics: That economic forms emerge from Culture. So I look forward to the development of a unique Irish Capitalism in the years ahead. The more ‘competition’: The better!

    John Q Public says: “We Irish don’t have it in us to think in the way you want us to think.”
    Is that Nature or Nurture? LOL! *rollseyes*

  5. aidan

    it wont happen (the big changes necessary) , because its fianna fail, we are going back to the eighties, if you look at the people in power they are all from the same gene pool, teachers, lawers, doctors, farmers, they are not the people to make dramatic corrective action especially if it affects their cronies, now they are going to crack down on cheap drink (and pub closing hours) in response to the upsurge in violence, this is tackling the symptom rather than the cause, what is needed is increased policing, changing shift patterns and work practices for guards so that more of them are on the beat, but this would mean taking on the public service so it won’t happen, dublin will return to the dull city of the eighties, the english stag parties will stop ( of course this will be welcomed initially , until it is realised that they have deserted because it is no longer the lively city of the celtic tiger years), the fact that so many people that should be living in dublin are living in mullingar will contribute to its decline, the dublin nightlife was another big reason why we attracted so much inward investment in the nineties

  6. Jerry

    Please David, change the record. Suggest something tangible.

  7. Hi Jerry, what’s intangible about looking around the world and copying “best practice”? best david

  8. Ed

    I think that one of our problems is that we don’t have a technical heritage to draw on. Finland had its own radio company Nordell & Koskinen from as far back as 1928 in the town of Salo – it changed its name to Salora (Salo Radio) and this eventually became part of the Nokia Corporation. Before mobile phones, they produced radio telephone systems for Finland’s isolated towns and villages. The next step was to portable phones and then to mobile phones. So they had a geographical requirement for the technology and a heritage in radio technology to fulfil it. The way that they were able to capitalised on that technology is amazing for such a small country. Producing almost half a billion units last year, as many as its competitors combined and forcing giants like Motorola to consider exiting the market altogether is truly remarkable. I don’t think that Ireland could ever achieve something as spectacular as that – we don’t appear to have the hunger or the grit for something on that scale. Our politicians are far too basic, there’re even struggling to provide the bare essentials for the MNCs.
    The property boom has almost everyone believing in Santa Clause – so, we now have neither heritage nor hunger to drive us forward.

  9. Martin

    Hi
    look on the bright side. true there has been an increase in unemployment, but this is as a result of a down turn in construction. Ireland is still attracting investments from abroad. (Bad news seems to get more headlines). The stock markets are in flux and commodities have gone through the roof. so how can Ireland benefit from all this. I believe there is a great opportunity to develop renewable energy technologies in Ireland. We have a great wind resource, The best climate in Europe for growing biomass. and if wave energy can be harnessed effectively. then there is potential for Irish companies to flourish by developing this new technology. During the 70s oil crisis. Denmark looked to wind as a source of energy. As a result of this Vestas the largest wing turbine manufacturer in the world was started. during a crisis innovators flourished. Ireland needs a clear vision with strong leadership. Can FF deliver this?

  10. Garry

    Jeasus lads, its not the end of the world

    theres loads of opportunities out there, yeah new thinking is needed, but not analysis paralysis. throw some shit at the problem and see what sticks.

    * – Were an island of 5 million… isolated…. disadvantage yes, but we can turn it to our advantage.
    We have the worlds biggest companies (google, microsoft, intel etc) here who invest billions in R&D every year. Why not use our isolation as an advantage and make it easy for them to trial new technologies here…. They gain by figuring out stuff like price points and functionality gaps and even feasibility before rolling it out to bigger markets, our isolation helps insure the roll out is controlled but yet they have a number of small sized cities to try stuff. We gain by having early adopter status and an insight on new trends to jump start the next wave. This kind of thing requires serious commitment at the highest levels in government.
    * – The next bubble could well be in green technology, what can we do there, again the country is small enough to trial stuff, not to mention the fact that were in the best position in Europe for wave power and probably wind power. And of course a far seeing government should be investing in nuclear right now!
    * – Theres big stuff like that the government could look at seeding, and also support for small startups. It doesnt have to be grants, it can be ensuring that startups know exactly what is being contracted for and getting an opportunity to compete for part of a project, I mean how hard can it be to knock out a government departments web site, its mostly brochureware….you don’t need one of the big 5 consultancies to do it.
    * – Most startups will fail and that should be factored in when supporting them. But a failure of a startup isn’t a problem, it just means theres more (hopefully wiser) entrepreneurs out there ready to go again. Politicians can help but ultimately companies will live or die on their own merits, we cant just blame the government. Remember Google is only 10 years old and for the first couple of years hadn’t a rashers how they were going to make money! In Ireland, they would have been laughed at.
    * – Expand the tax breaks on startups, sure if people are working there they arent on the dole or in MNC’s, more jobs for others.

    I’m sure smart people like ye have far better ideas, I remember when the e voting stuff was in full swing, that there was a real opening for an open source version of this which Ireland could pioneer rather than buying some stuff from a Dutch outfit which was closed to public inspection. We need to be more like the French, ignore the EU’s when it suits us.

  11. nick

    In the Telegraph today…..a tad alarmist?

    Irish banks may need life-support as property prices crash

    Last Updated: 12:48am GMT 0 11/03/2008

    The Dublin government appears to be almost powerless to prevent a severe downturn. Ambrose Evans-Pritchard reports

    The Irish banking system faces acute strains and may require a phase of temporary nationalisation as the property slump leads to a wave of defaults, according to a leading Irish economist.

    Morgan Kelly, of University College Dublin, said the government is almost powerless to stop the downturn becoming a severe slump. “We’re in a classic post-bubble recession, yet we can’t do anything that a country would normally do in this situation because we’re inside the eurozone,” Prof Kelly said. “We can’t cut interest rates, we can’t devalue, and there is a lot less room for fiscal stimulus than people think. We’re stuck.

    “We have a domestic recession now colliding with a global recession. It is the state of the banking system that will determine how terrible this will be, and frankly that is looking very shaky.”

    Irish house prices fell 7pc last year. The pace of decline has accelerated so far this year. The damage is spreading to the broader economy. Unemployment jumped to an eight-year high of 5.2pc in February, from 5pc in January.

    “We are going to see banks on life-support with very big bail-outs. The precedent for this is what happened in the Nordic countries in the early 1990s when they had to take over the banks. We may have to do something similar,” he said.

    Two of Sweden’s largest banks were nationalised before being nursed back to health and refloated. The Nordic rescue is seen as a model of how to tackle a banking crisis. However, Sweden succeeded only after it left the ERM’s fixed exchange system and regained control of its monetary instruments.

    The Bank for International Settlements said in its latest report that there had been a surge in euro bond and note issuance in Ireland in the third quarter to $35bn (£17.4bn), up from $10bn. This is a huge sum for a country of 4.2m people.

    It appears to reflect a distress move by banks to raise money for use as collateral at the European Central Bank after the credit crunch hit. “The increase in net issuance came mostly from financial institutions, whose borrowing in securities markets had largely dried up,” said the BIS. Irish borrowers built up $123bn in cross-border liabilities.

    Ireland has been a star performer over the past 20 years, transforming itself from a high-tax backwater in the early 1980s to a free-market tiger. However, the country is the most exposed in the EU to both the dollar and sterling blocs, leaving it more vulnerable to trade and investment effects of the soaring euro.

    Prof Kelly said Ireland had lost 20pc competitiveness against its trade partners since the launch of EMU.

    Eurozone rates of 2pc in the early part of this decade fuelled a credit bubble that has gravely distorted the economy. Household debt has reached 190pc of disposable income, the highest in the developed world. Bank lending rose by 30pc annually. Construction reached 15pc of national income, with 280,000 employed there,

    Matthew Taylor, a credit expert at Fitch Ratings, said 27pc of all outstanding loans by late last year were to property and construction, leaving banks heavily exposed. Irish Nationwide Building Society has been downgraded from A to A-.

    “If the downturn proves more severe than expected, a wider range of rating actions on Irish banks may be required,” he said. For now, the problem looks “manageable”.

    Over 55pc of all mortgage loans are at floating rates, with several banks offering 100pc mortgages at the top of boom. Interest-only loans made up 16pc of the total borrowing in the third quarter of 2007. Anglo-Irish Bank, Allied Irish Banks, Bank of Ireland and EBS, all have a big stake in the property sector.

    The establishment has pretended it’s business as usual. But the mood is now changing. The Irish Independent warned this week that the country is sliding into a serious slump.

    “Look at all the signs: every single one is screaming that the economy is in big, big trouble. Housing market dead, new car sales dead, consumer confidence is dead, record job losses, exporters being killed off by a strong euro, fuel prices spike, housing repossessions increase,” it said.

    Ireland is the only country to hold a referendum on the EU’s revamped constitution, now called the Lisbon Treaty. The darkening economic picture may greatly queer the pitch.

  12. John Q. Public

    Hey nick, I read this earlier today : http://www.rte.ie/business/2008/0311/housing.html

  13. Like someone else pointed out earlier on; if we’re going to develop an entrepreneural spirit, then we’re going to need desperate times.

    Too many people still have it too easy living off of property wealth.

  14. Ed

    The Israeli situation is different in that any country that is at war looks to technology for advantage. The risk atmosphere is ever present, so stepping out into the great unknown, would not be as difficult for them there, as it would be in a comfortable society like ours. The great thing about risk is that it sharpens the mind and its in that type of environment that individuals realise their full potential.

  15. Jonathan

    John Q. Public, that sounds like a load of spin to me. Lots of vested interests are predicting that things won’t be so bad and have been saying so since last year but things have gotten worse if anything.
    ECB rate cuts are not inevitable. Inflation in the eurozone is high and more oil price and commodity shocks are on the way. If anything I expect that the ECB may actually raise rate to curb inflation and follow later with expansionary policy to stimulate growth once inflation is under control. I wouldn’t hold my breath for a rate cut unless you can hold it till late 2008 or early 2009.
    As for any assertions that not that much of the economy revolves around construction,…., well, that’s laughable. Just have a look at the stats of how many people are employed and how much money has been pumped into the sector. In any case the real effects of the down turn have not yet been felt. Like David has said many times recently the property boom is well and truly over.
    Its time for hard graft, new ideas, vision and a few thing that have been utterly lacking from Ireland for a while, thrift and realistic expectations.

    John Q. Public said,

    on March 11th, 2008 at 2:07 pm

    Hey nick, I read this earlier today : http://www.rte.ie/business/2008/0311/housing.html

  16. SpinstaSista

    “We have the worlds biggest companies (google, microsoft, intel etc) here who invest billions in R&D every year.”

    That’s true, but how long will they stay here? We need to think long term and not rely on multinationals to prop us up.

    “Remember Google is only 10 years old and for the first couple of years hadn’t a rashers how they were going to make money! In Ireland, they would have been laughed at.”

    Sad but true. We need to change our our attitudes so we can have faith in our own entrepreneurs and not just financially successful multi-nationals. If you’re not linked to the establishment in Ireland it’s difficult to move forward. That’s why so many people left the country in the past and are leaving in increasing numbers today! These people knew they had the ability and the talent to make it, but unfortunately their ability and talent would go unrecognised or be crushed underfoot in Ireland.

  17. coldblow

    Yes, new thinking is required but I wonder where this “vision thing” is going to come from. Presumably from the top and that’s the worry. I gave the matter some thought and came up with the following.

    The current arrangement is a bit like one of those marriages where the partners both loathe and need each other. The establishment or Dublin 4 or whatever you like to call them see themselves as the rightful owners or guardians of the country and tolerate Fianna Fáil just so long as long as FF behave “appropriately” (to use a favoured term) and show due respect (a bit like GB with Labour or, referring to a recent thread here, the Turkish army vs the populist Islamic party/ parties). FF are therefore continually on the defensive and try to keep them off their backs by passing meaningless, pc legislation. Otherwise they are free to continue doing their FF “thing” as they see fit. The establishment/ D4 in return can bask in the “moral” glow of a job well done and see no need to engage any further. As a result no strategic thinking gets done, either in the Dáil or in the media, and we are left with the appearance of government but without the substance. In other words FF and their critics are opposite sides of the same coin. And they share an equal lack of comprehension of entrepreneurship (like myself, but at least I’m now convinced of its importance).

    Brief and to the point, and I don’t stand over a word of it.

    It would be interesting all the same to hear from Irish ex-pats or from immigrants here to find out what they think.

  18. Philip

    Ireland has to export from an indigineous base more than ever before, MNCs invest a capex with a 5 year life and then Poof! It’s business. Right now, our indigineous based of industries are nearly still as reliant on the UK economy as they were decases ago. With UK doing a wobbly, this is not going to auger well at all.

    I think this is going to be a biggie of a recession…it’ll hit the history books as a record breaker. I do not for one minute believe it’ll last 12-18 months. The comfort pundits are out all over the place as a sign that something really bad has happened. There is simply too much readjustment going on at a global level. Too much sloshing about of funny money chasing looney assets like headless chickens.

    The momentum or positive inertia that I see that’ll carry us over this sizable bump is education and skills which is at an all time high at a global level and in Ireland as well. As people start to be forced from conservative thinking, new ideas will emerge. Once someone takes your lunch, you start focusing. Right now, the scramble for bright ideas that might work are being looked for up and down organisations and government. The day of the ego has gone for the time being. People are looking for answers and it better make a lot of sense because the masses are a more critical bunch. Right now, we are counting the pennies and shying away from the flash and the vulgar. The best yet of times are coming…give it about 3 years…

    2010: Will be a the start of a new renaissance.

  19. Ed

    SpinstaSista, Faith is not the problem, it’s market size and this has always been a problem for any start up here – from day one, a foreign market has to be explored if there’s to be any hope of success. This is a big deterrent for most people and especially for those who haven’t worked abroad. Okay, you may say that encouraging the Diaspora to return would solve this – it used to be so, but I’m not so sure any more – the vast, vast, majority of those returning are only interested in jobs and the easy life. You have to be prepared to go bust at least twice and that doesn’t appeal to many, especially those with higher qualifications and a family. The rush of adrenaline in fine, but the sacrifice may be too much for most. Smarter politicians with a high degree of integrity would certainly help to smooth the way in foreign markets – as most foreign customers will tell you, perception is very important when it comes to business – it’s very easy to knock anything Irish at this point in time and I’m talking from experience here.

  20. Ed

    David, I see that you’re going to release the “The Popes Children” in the U.S. – excellent, I hope it does well, what about Australia and other countries?

  21. eugene

    John Q Public:

    Euan Kings article shows how degenerate a “science” economics is. Other scientists are expected to be peer reviewed, we should do the same for the bought and paid for sector of the private sector economictariat ( preferably peer reviewed by economists in Universities who have no ax to grind). Take this absurd logic:

    “”The construction sector did not lead the economic boom in the early 1990s, and housing has not been the dynamic factor for the past two years. Therefore, the Irish economy will not experience a serious setback on account of the current re-balancing of the property market.”"”

    What the first sentence says is that construction *did* lead the boom from the early nineties to two years ago – since when we have had a donwturn. Clearly, then, the next sentence does not follow.

  22. Get real lads … when I was in school it was ‘bet’ into us that Ireland was ‘on the periphery of Europe’ and had no natural resources and therefore would never be a wealthy country or successful exporter. If we just sit there moaning about how Israel or the US is different and better, Irish people can’t do it because X,Y,Z then the country really will go down the toilet. We just have to get up off our arses and build world-beating businesses.

  23. John Q. Public

    Yes and King says the demand for accomodation is ‘driven by demographics’, what about a few hundred thousand foreigners, a lot of whom could leave? He contradicts himself again by saying ‘the dip in demand for property will lead to increased consumer spending in other areas’. Is he distinguishing between rentals and purchases? Anyway,I doubt it, people are just holding off buying until it all settles if ever, and they won’t spend elsewhere.

  24. John Q. Public

    True Bob, but I’ll bet you did’nt get too much inspiration from the Irish or did you? I notice you are in software etc. I’ll bet you keep an eye on what the yanks and Indians are at and strive to equal their efforts.

  25. John,

    Not the Indians, as David points out you can’t compete on costs. I agree we can learn from the Americans, but at the end of the day if we don’t come up with original stuff ourselves forget about it. The software industry has been competing unprotected on the world stage for years already, it’s only now that some of the sheltered professions are having to face up to it. I’m pretty non-discriminating about where inspiration and talent comes from to be honest, if I see a good idea I don’t care who came up with it … of course you need the talent to recognise it as a good idea, and the skill to build a business from it, so there is more to it than having 20 low paid drones churning out software at low cost.

  26. [...] In other words these jobs don’t add value. We really need jobs that add value as has been pointed out here. [...]

  27. Julian Arnold

    David,

    I applaud your work on this subject. There simply doesn’t seem to be enough talk or action on the next phase. It’s almost as if some people are expecting another “80′s” and are paralyzed into inaction. I’ve been thinking about something like this for a while now and I’m prepared to look into it more deeply. Question I have for you and your good readers is, and I’m in collection mode at the moment is what areas are we likely to be strongest? Is it fiscal software like the success of First Derivatives or should we focus on say, the commodities market selling to India, China etc. Something like Venice used to be years ago… I think all we need now are a few ideas and some action on them.

    Thanks again David.

    Julian

  28. AndrewGMooney

    Ed said,

    ‘I think that one of our problems is that we don’t have a technical heritage to draw on.’

    OK: What heritage DOES Ireland have to draw on? Where might that lead?
    Let’s forget about the ‘Unique Irish Culture’ angle for a while. There’s only so many dentists in Antwerp and Doctors in London who you can beguile into the tourist traps. And only so many Bailey’s type ‘innovative’ drinks the world can cope with. Finland is unique. But, surely: So is Ireland.

    Farming? Agriculture? No, I’m not suggesting some Paddy Pol-Pot declares Year Zero and empties Dublin of it’s inhabitants so they can grow scallions and cabbages. I’m talking about creating ‘added value’ industries for the escalating food production and transportation crises. Is there any plausible reason why TetraPak couldn’t have emerged from the Irish Dairy Industries rather than from Sweden? No.

    Look at the futures on soy and wheat. Much as they may wish, the emerging populations of China and India won’t be living off beef, unless there’s going to be a complete environmental catastrophe. Bye Bye Amazonia, etc. New authentic pseudo-meats will be a goldmine for Asian consumers who already have tofu, tempeh and other ‘mock-meats’ as standard. But I guess they’re already on to it themselves, being of an entrepreneurial persuasion. Is there any reason why the next Quorn can’t be invented in Ireland? Other than a lack of r&d, investment and so on? No, there isn’t. Is C21st Agricultural Innovation worth a look at? Just a suggestion.

    Given Ireland is the epicentre of Viagra and Breast Implant production: Has Bertie financed that ‘Penis Extension’ R&D facility I advised him on? I’m sure you’d agree there would be an almost unlimited market for such an innovation. You could even call the company ‘Plastic Paddy’ after the revolutionary silicon implant which will make a porn star of every man of ‘slender means’ on the planet.
    Perhaps I need to work on my presentation skills. On reflection, I can see why Bertie and friends looked annoyed when I kept shouting ‘Big Pricks!’ from the floor. I didn’t really get to develop my theme before the Garda had me head-locked on the ground, out the door, and in a one-way Paddy Wagon taxi to Dublin Airport.

    Seriously: There must be niches from your (our) culture that some boffins can have their ‘Eureka moments’ about. There must be something else to do/be/become than a temporary host to parasitic American capital which will leave with all it’s patents to set up shop in Poland just as soon as conditions there are in place. Probably taking a hefty percentage of Irish skilled ‘knowledge workers’ with them.

    Poland + Germany + Russia = New production, logistic and research epicentre for the EU? Ok, maybe not Russia. You can rest assured that Germany will ensure appropriate Autobahns are in place between Hamburg-Berlin-Gdansk. Just like those gleaming ribbons of tarmac that now run between Dublin – Cork – Limerick – Galway -Belfast. Phew! At least the basics were put in place. Thank God! Glory Be…St Anthony bless, etc, etc.

    Does anyone seriously think Germany isn’t going to ‘win‘ this whole Euro game/scam? Having absorbed the equivalent of 19 bankrupt Liverpools? Now that’s an ‘economic miracle‘, even to have stayed stable and not collapsed. They now find themselves with a ‘new Ireland’ next door, a Polish society that, once it gets rid of the current inept cronies who ‘run’ the place, will finally be ready to take centre-stage at the heart of New Europe.

    Just like you did: They are throwing off the shackles, rapidly becoming ex-Catholic. Also ruthlessly ambitious and hard-working, with ‘something to prove‘ to reclaim their historic dignity after centuries of oppression..just like the Irish? Once they crack the ‘language’ issue, having been bottled up for decades, they’ll be ready to pop the cork. I imagine a lot of Polish policy wonks are studying ‘The Irish Economic Miracle’ very closely indeed. To make sure they don’t make the same mistakes…….ouch!

    Then maybe George Soros will become President of Hungary, having got bored of his marvellous Open Society Foundation? As President/Minister of Finance: He’ll find a way perhaps to enrich Hungary at the expense of the vain British Treasury. Or the E.C.B? By engineering some ‘financial witchcraft’ to ensure the Forint joins the Euro at some absurd advantage?

    Another ‘new Ireland’ may emerge. Or lots of ‘new Irelands’

    What will the Hungarians find from their heritage to re-imagine, re-vision and sell to the world. Goulash? Folk-dancing? Gypsy tourism? No, Ireland has that covered with it’s horse-drawn ‘tinker’ hypocrisies. I suspect they’ll find something rather more exciting if Soros is involved.

    The ‘language issue’ won’t last long. I’m a musician when I’m not typing nonsense onto sites like this and I was working with some speech/vocal synthesis software recently. It’s only a matter of time before BableFish and Google-Translate are running in real-time from any language to any other language, with regional inflection and idioms programmed in. You simply won’t be able to tell who on Earth is calling, never mind where they’re geographically based. Fanciful? My Dad said that about Men landing on the Moon. It’s gonna happen. 5 years max. Moore’s Law.

    What is the strategic vision for Ireland for the next 20 years? Once again, can someone show me which website I can find it on. Or one for the Dis-United Kingdom? Or the United States of America?

    Must go now, need to buy some more Swiss Francs!
    Regards.

  29. MK

    Bob,

    Whilst it is true that if many people ‘got off their arses more’ the country would do a lot better long-term. However, I would not hold out much hope of that. Our rate of working is a fabric of society and it wont change easily upwards and then only gradually. If anything, anecdotally, I would think that our work ethic has dropped in recent decades – have any academics measured this (productivity is not a measure as technology enables output, not a measure of hard work). If anything, I would say that it has drastically lowered, and we see this everywhere from politicians to public services and to private companies. Also, as our demographic gets older and as fewer ‘hungry’ young people emerge from our education systems, our ‘hard work metric’ is only likely to get lower.

    Here’s one for you ALL to ponder, yes you too Dave:

    Read an article at http://www.marketwatch.com about derivatives new ticking time bomb. You’ll find it via any search engine.

    Its like one banker I discussed with recently said, if A is loaning out 10 times the capital it has, and B the receiver of the loan is then loaning out 10 times what it has, etc, etc, are we all just living on a house of cards? Will all these promises come crashing around our ears someday on a global basis, as like the US depression of 1929, but on a much much larger scale.

    It may not happen in our lifetime, but can global credit keep increasing forever. Northern Rock was a pin-size example of how it can come down, as is sub-prime, and these are just small examples of whats out there.

    MK

  30. aidan

    “The current arrangement is a bit like one of those marriages where the partners both loathe and need each other. The establishment or Dublin 4 or whatever you like to call them see themselves as the rightful owners or guardians of the country and tolerate Fianna Fáil just so long as long as FF behave “appropriately”…… ”

    excellent analysis coldblow of the establishment here , i have rarely seen it explained better, the media like attacking fianna fail on the tribunals etc which are not that important from a big picture frame, but there does seem to be a cosy consensus, if RTE is too critical of the government which it was before the election , the government makes noises about the licence fee, and they shy away, the only organisation which is not in this consensus is the daily mail which is not part of the consensus, and which gets heavy criticism from both the government and the media establishment, it is interesting that the british media is shining a cold light on the irish economy which the irish media is still coy about, they only started attacking the property bubble when it had well and truly burst, they werent doing it in 2004/2005 when it was needed to counteract the vested interests pumping it up

  31. Ed

    We certainly need to have a serious debate on our future direction, nothing can be taken for granted anymore – http://www.nepcon.co.uk/

  32. Andy

    There is so much defeatism in this page. David is right. I have a friend who has a degree in Literature and he insists that all the greatest works are plagarised from someone elses efforts and repackaged as the relevant authors. As David says, we should copy other country’s actions from the past and replicate them. Maybe even improve upon their methods.
    There are some comments about us being unable to think outside the box. Well that is pathetic. Ambition will take us so far but creativity will help us but what we also need is a bit of luck. You cannot decide that you are going to think of a great idea and then try to think about what it is. You will always encounter a great idea, never think it up. Thats where luck comes in.

  33. Vandala

    I’m thinking of “re-packaging” Finnegan’s Wake and selling it as a self help manual.

    Do you think I could get a grant?

  34. Jonathan

    Here’s a suggestion for a simple way for the government to help entrepreneurs and get the country moving.
    Instead of section 22 tax breaks for car park, apartments and hotels, divert this money to startup industries. For example, tax on the returns for the first 10 times the original investment could be granted. Successful startup investors do very well (high risk should have high reward). Unsuccessful startup investors get little or nothing since there will not be much of a profit returned (this stops sham start ups for tax evasion).
    Billions of euro flows from Ireland into foreign property every year. Even more flowed into Irish property until recently. Imagine if some of this vast sum of money was reinvested in industries here. I don’t think we need American multinational money. We have plenty of our own if we would just invest in ourselves.

  35. John Q. Public

    Jonathan, you should have been an accountant and an advisor to Bertie and Cowen. We’re lost without you! Why not just catch the thieves that don’t pay their tax and try and stop the government from squandering all our money on voting machines, bogus asylum seekers etc. The only thing is we would need somebody to spend the money wisely, that could be your job!

  36. Jonathan

    #
    John Q. Public said,

    on March 14th, 2008 at 3:43 pm

    Jonathan, you should have been an accountant and an advisor to Bertie and Cowen. We’re lost without you! Why not just catch the thieves that don’t pay their tax and try and stop the government from squandering all our money on voting machines, bogus asylum seekers etc. The only thing is we would need somebody to spend the money wisely, that could be your job!

    Minister for Spending Money Wisely…..I like the sound of that. I propose John Q. Public for Minister for Cracking Down. The two of us could run the country nicely. :)
    I don’t know if I could have been Bertie’s accountant though. Whoever he or she is, they are seriously creative in ways that are beyond mere mortals. lol. And I know nothing about accounting.

  37. Colm

    I see there is an option on the poll that you might be ‘The cause of the downturn’! and I’ve listened to similar sentiments coming from government ministers when they are sulking in the media because the economy has turned as you and a few others suggested when the property boom inevitably cooled off. My question is, if you have such magical power over our economy shouldn’t the politicians be now paying you to reverse the slump and save their jobs?

  38. n

    Here we go folks…Bear Stearns goes down overnight. I reckon there are a few more US and possibly European banks to go under yet. Hang on to your knickers…WHOOSH !!

  39. Tom Kirwan

    David,

    Your right. Ireland cannot continue to rely on attracting MNC’s with low taxes and a smart productive workforce. As for the delusional obsession on property over the last few years, enough has been said and the final gory chapters are being written right now. Dues must be given for Ireland’s many successes but a focus on the strategies that have worked in the past is not going to work moving forward. In the words of Andy Grove, “Only the paranoid survive”. As with companies so with economies and cultures.

    Ireland and the world have changed dramatically since the 70′s and 80′s when the foundation stones for the current success was laid. I just came across this graph in biz week that maps international student performance against affluence. (http://images.businessweek.com/ss/08/02/0214_numbers_education/image/science.jpg) Ireland is sticking out as rich and not too educated in the sciences. We are behind every major industrialized country on the graph. The other 2 countries that stick out of the main clusters are Poland and Czech Republic except they are the inverse of Ireland – not so rich but smart in the sciences. Now if I am sitting in my corporate suite in Silicon Valley making strategic plans for locations in Europe where would I choose? So we need plan B as David says.

    David, you also touch on something about the nature of the Israeli entrepreneurial drive. There is something to emulate in relation to how they nurture a start-up environment. It is a country and people to watch and to understand. The number of Israeli start ups in the US are amazing. I am with my 2nd. The 1st went bust with the big dot com blow up. I met one of the co-founders recently and he is building his 2nd company. He had built an idea in to 200 people and a high valuation. He could have easily got a senior level position with a tech company. No, he decided to go back and start from scratch all over again.

    There is a mentality. Now, some of the comments saying that we could not do the same are based more on political biases than actual real observations. When developing policy we should look for the best and understand why a company/country succeeds rather then jumping to conclusions. If anything Israel is far less cohesive than Ireland. Beside the huge Israeli-Arab population there is a the religious jewish/secular divisions. So saying that Israeli “start-up” success is based upon cheap labor, $$ from uncle sam or because it is more homogeneous is letting ourselves off the hook. If anything, if there is any ethnic group more than the Israels that can pull on the good will of the Americans it is the Irish. Why do you think we have so many US MNC’s to begin with.

    American high-tech companies did not invest till our politicians/policy makers had something to sell – low tax rate, access to Europe, smart lads and lassies etc etc. The same is true for access to capital. If Ireland is brimming with ideas and becomes know for creating products/ideas/whatever stuff the market wants then the capital will flow.

    Ireland was a musical backwater till U2 decided to stay. Then all the music execs put Ireland on their maps. U2 and all the other bands/writers/artists have made it without gov support. It is a cultural thing. It is something we do well – tell stories. For a very small country we are over-represented in the literary arts. We are entering a time where entertainment is fluid and can be distributed seamlessly. We tell stories. There is a world looking for stories. It is a huge industry that is based on intellectual capital and therefore it can be easily defended. TV set production was one of the 1st industries to move out of the US. The content is still very much created and controlled in the US.

    And Ireland probably does not need foreign capital to kick start things as it has loads right now. It would be interesting to compare the amount of Irish $$ put in to VC funds versus the amount that went in to buying property around the world. It would be a lot more interesting to see those $$ go in to madcap ideas. There will be a lot of failures but that is the name of the game. It is also a lot more fun. We only need a few winners and the return will be far greater than rental income on condos in Florida.

  40. Seán

    David,

    There are many considerations that need to be addressed in Ireland before we could ever hope to move towards the kind of economy you have in mind.

    1. How would you address the brain drain of qualified technical people, salaries for ‘knowledge ecomony’ workers are below those for comparable business and administration roles, from technical disciplines into other, better rewarded sections of the economy?

    2. Where is the venture capital supposed to come from? Enterprise Ireland persists in providing substance grants instead of risk taking with backing which revolutionise the firms it supports. The enterprise support structures are mired in civil service, low risk taking, retention of maximum control attitudes which leave their dependant partners limping along like clients.

    3. Are you expecting stagnant academic institutions, with poor publication and research records, to drive or support this knowledge ecomony when industrial interaction is only tolerated as a source of funding?

    The answers to these issues individually is straightforward but the likelihood of an Irish government showing the dynamism to tackle all of these seems improbable.

  41. MadMax

    David,

    I think everything is about balance in the economy and also there is something that could be called a critical mass. By critical mass I mean professional groups, i.e. builders, drivers, engineers, doctors, etc. If critical mass suffer job losses then you would like to find some other space for these professionals. So you need to find a new opportunity for the redundant people. On the contrary to boost certain new sector the government needs to be able to build the critical mass consisting of enough talented people. Here the problem comes: not every redundant builder or line operator could become a high-tech industry engineer or eco-friendly energy producers employee. This is where I see some challenge. However there is a bit of optimism as well: Ireland is not populated by that many people, so it’s a way easier to transform economy of 4.5 milions rather than 40 (I’m Polish and know how slow the reforms could be in a bigger country).

  42. [...] developers [3], given how the huge property related taxes were contributing to their coffers. As David McWilliams, a leading Irish economist points out, a national focus on property is damaging as a ‘country [...]

  43. [...] developers [3], given how the huge property related taxes were contributing to their coffers. As David McWilliams, a leading Irish economist points out, a national focus on property is damaging as a ‘country [...]

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