December 10, 2008
It was a mirage fabricated by other people’s money. There was no miracle; it was an overdraft
One of the most harrowing memories of the past few years is of my children, strapped into car seats, screaming the Harvey Norman ad — yes, you know the one — the most annoying ad in recent Irish history. Harvey Norman hijacked our radio airspace, screeching about cheap furniture. Nothing represented the boom in housing, the interiors fetish and the lower, more seedy end of the property porn market, than the repetitive Aussie belting out “go Harvey go”.
You don’t hear that much about Harvey now because the market has collapsed and with it, the demand for beds, kitchens and furnishing. On the good side, a generation of young Irish children will be spared the ads; but the huge downside is that many of the same children will be brought up in families and estates that will have been traumatised by this downturn.
Ireland is about to experience its first middle-class recession. The big difference between this recession and previous ones is that this one will have a dramatically negative impact on the expectations of a generation whose world-view was almost unquestionably positive.
Commuter towns such as Naas, Arklow and Navan are likely to be hit hardest and the people who will lose their jobs and, eventually, their homes are the very ones who bought into the boom most. They are the young working families, largely employed in white-collar jobs, who believed the hype and bought the new houses, complete with decking and barbeques, close to the top of the market. They are the Decklanders and Ireland is about to endure the great “Deckland Depression”.
A few years ago, it was all so different. Deckland, that vast expanse of new suburbs, which emerged in the past 10 years, was the most optimistic place in the country. It was young, energetic and despite the snobbishness of many commentators who believed that these new towns were soulless, Deckland was as vibrant and community-focused as any new suburb has ever been. If you dispute this contention, look at the growth of community organisations like the GAA or new school rolls in the commuter counties. Deckland was Ireland’s “Babybelt”; and for many thousands of people, Deckland represented a New Ireland, where people could settle, own their own houses and begin the great Irish process of trading up. Deckland embodied the essence of the New Irish Dream, where the population was on an upwardly mobile conveyor belt, propelled by the twin forces of easy credit and rising house prices. Everyone could be a winner.
Now all that is shattered and the dream is over. Unemployment is rising fastest in these areas, house prices are falling quickest and a recent survey indicated that the most insecure part of the workforce are young, heavily committed white collar workers.
The reason that Deckland has every reason to be fearful is that it is home to a much higher percentage of non-public sector workers than more traditional, older suburbs. This is because the public sector has a considerably older age profile than the private sector and therefore, safe public sector workers don’t, in large concentrations, live in the newest suburbs. Secondly, considerably more immigrants live in Deckland; as they leave to go home, house prices in these estates will collapse because there is simply no one to replace them.
Thus, most Decklanders work in the highly vulnerable domestic service economy, which boomed even as the signs from elsewhere were turning negative. Over the past few years, as Ireland Inc has become dramatically more uncompetitive, the domestic service economy managed to continue growing. This confounded many people. If Ireland was so uncompetitive, how could unemployment keep falling?
The answer is simple: it is all down to easy credit. If we look at the activities of the three largest banks in the country since 2004, we see that they all nearly doubled their loan books, funnelling money into the country.
To achieve these rates of credit growth, they abandoned all sense of banking decorum and borrowed heavily abroad. As a result, domestic spending went through the roof and Irish inflation rocketed. The prices of everything rose; as did wages. This massive increase in Irish costs was ironically most easily gauged by free-spending Irish tourists complaining to Joe Duffy about the great value they could get in Spain in comparison to home. The difference between a dinner for two in Spain and the same in Athlone, became the staple conversation of the new Irish middle class.
All this disparity was telling you was that Ireland was pricing itself out of the world market. We could only keep the show on the road by borrowing even more of other people’s money we didn’t have, to buy stuff we didn’t need.
We were all on the same trip.
Such huge spending meant the local service industry didn’t feel the global effects of our country going off the rails. Tax revenue, itself a derivative of all the borrowing, kept rolling in, allowing Deckland’s “group trip” to continue. No one could wreck the buzz.
Then the international banks stopped lending to each other and stopped lending to Irish banks, who, in turn, stopped lending to us. This had the effect of someone turning off the tap.
When people ask bewilderingly now, how did it all stop so quickly, the answer is simple, it had to stop quickly, because it was a mirage fabricated by other people’s money.
There was no miracle; it was an overdraft. This simple fact will plunge Deckland into a depression, because without inflated local demand there is nothing there to keep people in jobs.
Consider this one fact. Now all our politicians are talking about the need to switch to an export economy. But just think about how many people the exporting sector actually employs and then make a stab at how many people can be productively employed in a short space of time in this sector — even if they had the skills. The multinational sector accounts for 87pc of Irish exports and only 100,000 employees, whereas total employment is 2,000,000. So there are 20 times more people employed in the domestic sector than the export sector. Therefore, the export sector has only the most modest capacity to take up the slack caused by collapsing local activity.
Ultimately, Deckland is facing a depression. We are beginning to see the first signs of this in the official figures, but if you want to get the real story just drive out to the new shopping centres, to the Woodies DIYs and the Currys of the new out-of-town stores. They are empty now and next year it will be worse as we will see the total capitulation of the consumer.
What will this mean for the country? What happens when a generation is betrayed? How will the Deckland Depression manifest itself? And how will it affect Irish politics?
With this background noise, history suggests Ireland won’t be pretty; and one thing is certain, the new soundtrack of the suburbs will not include anything by Harvey Norman