July 27, 2015
I am on Shaftesbury Avenue in London, quite shocked. I have just put my card into an ATM to get £200 and realise that it has cost me nearly €300. I was aware that the British currency was rocketing, but this exchange rate difference is extraordinary and is brilliant news for Irish exporters.
We should do a deal with the British, fix the exchange rate here and simply transport Britain’s industrial base to Ireland and hit the restart button.
Of course, I am joking, but there is a startling divergence between the British economy, our biggest trading partner, and the eurozone economy that Official Ireland pretends is our biggest trading partner.
Employment in Britain is growing for a start. As George Osborne claimed in his recent budget, Yorkshire has created more jobs than France.
Thankfully, the Irish economy is not a European economy in any meaningful sense. We are an Anglo-American economy with a Franco-German currency grafted onto us.
Despite politicians and senior civil servants going over and back to Brussels all the time, we are actually part of the Anglosphere which maps a giant global arch from Dublin to London, across the Atlantic through North America and down to Australia and New Zealand.
This is our world. This is where we trade, where our investments come from, where our people live. It is an interlinked web of culture, language and family.
Granted, there are some significant differences, but if we are honest, these differences are dwarfed by commonalities.
Economically, when the Anglosphere does well, we do well. Period.
In the past five years, Ireland’s economy has been dragged upwards by Britain and the US. Ireland’s youth have sought opportunities in booming Australia, Britain, Canada and the US. We head to Boston or Birmingham, not Brussels to look for work. These are the facts.
We are the only eurozone country that actually does more trade outside the eurozone than within it.
But this type of anomaly describes much of Irish economic policy – it’s an economic policy made up without much reference to the actual economy.
However, thankfully for us, our major trading partner – Britain and the US – are motoring and they have dragged Ireland out of the mire and put us on the road to recovery.
Ahead of the election, the government’s line is that EU-imposed austerity sorted things out and led to some ‘magic’ recovery.
This is not only untrue, but economically impossible. In reality we do €1 billion a week worth of trade with Britain and its growth drives our growth.
As we head into 1916 anniversaries, we should be down on bended knee thanking the Brits for picking us up and dusting us down in the past few years.
I know this is unfashionable and not pro-EU; even after all these years, there is still an anti-London narrative of Official Ireland.
So what happens next in the British economy is crucial for Ireland and is more important than what happens in Germany, France or any other eurozone country.
On the surface, Britain is flying. Retail sales are booming, unemployment is half our rate, the budget deficit is falling and the housing market is strong. London continues to suck in enormous amounts of capital from the rest of the world.
But there are some problems that we in Ireland should like the British to address, not least because their prosperity is our prosperity.
What gives economies their underlying strength is if they are productive and this means if the people and the capital used in the economy are being used to their best and most productive.
Here Britain has a problem. Productivity has been falling for a long time there. Declining productivity has been a problem across the western world in the post-financial crisis period, but it seems to be a particularly severe problem for Britain.
In the league of the world’s seven most advanced nations, Britain is behind every one except Japan.
This means that Britain is not getting the most out of its workers and its capital and you can see this in the fact that British wages are not rising and the fact that it continues to run large current account deficits.
Some people argue that the reason British workers haven’t been as productive as their continental or American counterparts over the past few years is that British business never regarded the slowdown in the economy post the 2008 crash as permanent.
Rather than fire people straight away at the first sign of a wobble in demand, British employers kept their workers. This explains why unemployment in Britain didn’t increase nearly as much as expected after the financial crash.
This implied that companies seem to have preferred to retain workers but have worked them less hard, hence the decline in productivity.
In the years ahead, there needs to be massive investment in Britain – public and private – to push productivity upwards. The British government knows this and so too do British companies.
In fact, British companies have among the lowest ratio of debts to profits in the world, so there is no capital constraint on British corporations.
In a world of mobile capital there can be few more attractive destinations for innovative and high-tech investment.
Britain has four of the top ten universities worldwide, generating world-class academic research. This is evidenced in the disproportionate number of British-based Nobel prize winners in science.
With the City, Britain has the deepest capital market in the world, dwarfing New York. This implies there is lots of capital in Britain looking for a home.
All told, Britain is well placed for the years ahead. For this we should be grateful because – despite the rhetoric of 1916 and all that stuff – our two economies are still profoundly linked. We forget that at our peril.