March 9, 2008
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 passÃ©. 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.