September 14, 2008
England's difficulty ruins Ireland's opportunityPosted in International Economy · 50 comments ·
In spite of an impressive ability to paper over the cracks of an empty economy, Britain’s hot-air boom is sinking – and ours with it.
Years ago, the state of a country’s railways gave you a good idea of the health of a country’s economy. Today, the leading barometer is a country’s airports. You can tell a lot about the business culture of a country by spending time in its main airport.
The airport is the first impression travellers get of a country. If it is big, well planned and spacious, you can be quite sure that the country invests significant sums in public infrastructure. Furthermore, the condition of the airport reflects the ambition of the country and its relative place in the global pecking order.
A comparison between the dilapidation of JFK in New York and the gleaming silver and steel citadel that is Shanghai’s new airport tells you all you need to know about which country is on the way up and which one is in relative decline.
Suffice it to say, Dublin Airport writes its own script – and by extension our script – when it comes to infrastructure investment, ambition and planning. All that returning emigrants have to do is take one look at the airport and they know there will still be tailbacks in Abbeyleix. There is no greater testimony to our underwhelming national ambition than Dublin Airport after ten years of plenty.
But this article isn’t about us. It’s about Britain – our biggest trade partner and home to 690,000 Irish-born people. Observing the chaotic bustle of Heathrow – hours after Britain’s third largest travel company XL went bust – is a good place to start. Heathrow encapsulates the contradiction of modern Britain. Despite all the queues, the half-built partitions and the sea of part-time, minimum-wage contract workers that seem to run the place, it miraculously works.
Heathrow is the world’s busiest airport. It creaks under the sheer weight of numbers and yet, somehow, it muddles through. However, the half-baked approach to capacity and planning sheds light on the rest of the British economy.
Apart from banking, property and entertainment, there is very little going on in Britain. The great industries that gave Britain its competitive edge over the years have disappeared. In comparison to Germany, France or even Italy, Britain is denuded of manufacturing. Over the past ten years, this state of affairs was regarded as a great asset.
Many commentators postulated that Britain was a model modern economy, where services trumped industry and where a mobile workforce was sufficiently flexible to compete. In the areas of entertainment and finance, there is little doubt that Britain is a world leader. The City of London is a significantly bigger financial centre than New York, even if there are precious few British banks operating there.
The model the British adopted in the City is termed, the ‘Wimbledon Model’. Like the lawn tennis tournament, the British host the show and take the kudos for it, even though British players rarely feature in the last 16.
The City is analogous. The big British banks are dwarfed by international names like Goldman Sachs and Merrill Lynch. Yet this hardly matters because the revenue, jobs and salaries stay in London, creating the cash and effervescence to keep it in pole position as a global cultural centre. In entertainment, the Premier League largely copies the City’s approach.
In the past few weeks, we’ve seen Manchester City taken over by an immensely wealthy Arab investor. Ever since Roman Abramovich arrived on the scene, English clubs have been open to the highest bidder. Manchester Utd, Liverpool and now Man City are all owned by foreign investors.
On the pitch too, the Premier League has become a global talent show, with English players making up fractions of many of the top teams. And, as evidenced by Gianfranco Zola’s appointment as West Ham manager last Friday, many top teams are managed by foreign professionals. But it works. The Premier League is the most lucrative league around, and Man United are the world’s largest sporting brand.
In youth culture, the British music industry remains enormously influential, and the ability of the country to create world-beating bands decade after decade is still truly phenomenal.
Equally, in television, Britain exports its drama and formats all around the globe. It is significant that the most feted British entrepreneur of the past few years is not a innovative manufacturer such as James Dyson, but a man who tinkers with television formats and insults people in the process, Simon Cowell.
Up until recently, this service economy worked; unemployment fell to historically low levels and the demand for workers prompted a massive influx of over one million immigrants from Poland alone.
However, the upswing was fuelled by massive debts and the ever-recurring British weakness – a housing boom. The British economy turned itself into, yet again, a large debt-laden casino. The more debt the locals incurred, the more they spent and the more the resulting ‘feel good factor’ reinforced the notion that this time it would be different.
Politically, as well, the Blair boom came with the sweetener of positive spin. Government PR gurus made sure that the population was inured to bad news – whether it be the truth about weapons of mass destruction or the reality of ever more debt.
Obviously, with sterling floating freely on the foreign exchange markets, this boom led to the currency rising rapidly against the euro, which put the remnants of Britain’s industrial heritage under severe cost pressure. By making imports cheaper, the strong sterling policy condemned Britain to its now perennial trade deficit.
The overwhelming problem with the British model of economics is that it is fatally prone to asset price bubbles. Without the anchor of a strong manufacturing base, every time the ‘feel good factor’ re-emerges, the price of houses goes through the roof and, each and every time, the people think this time it’s different. The banks get in on the act and a credit free-for-all ensues.
Now that the housing market is tanking, along with sterling, the nation appears to be in denial. For example, the chancellor, Alistair Darling, has come under ferocious attack for suggesting that the recession could be the worst that Britain has seen in 60 years. Rather than reward him for his honesty, people have accused the chancellor of irresponsibility.
What is more responsible than telling people the truth? Yet this is where the country has ended up after years of spin and overdrafts. Unfortunately for Ireland, and contrary to the old slogan, ‘England’s difficulty, Ireland’s opportunity’, we always benefit when Britain is economically strong.
Trade links ensure that Irish exporters do well. Irish investors in property make paper gains which they can realise if they get their timing right. A strong sterling makes British imports expensive and acts as a disincentive to shop across the border. Most significantly, a strong England – and a vibrant London in particular – gives thousands of Irish people job and career opportunities that they might not have in Ireland.
Today, we and the ‘auld enemy’ face recession together. The real shock, after nearly a century of independence, is just how similar we still are, and just how dependent we remain.