April 10, 2017
The 2pm train from Heuston to Cork is hurtling through Tipperary on a glorious Friday afternoon in April, and I am struck by just how empty the country is. With a better transport system, such as French-style fast commuter trains, most of the main conurbations of Ireland could be accessed east to west and north to south in less than an hour. French TGVs travel at an average speed of 200 miles per hour meaning that Dublin to Cork, a distance of 157 miles, could be done in about 45 minutes. Belfast to Cork could be done in under an hour and half, while Dublin to Galway would be just over 30 minutes.
With a train system like this, there would be no housing crisis because we would all be living in what would feel like, in terms of commuting, a big suburb.
This should be the objective of the country, irrespective of what government is in power, because a society that can travel around efficiently and in comfort is a society that’s going places. Look at the most sophisticated societies around the world: they are all characterised by clean, efficient, democratic transport systems. The reason for this is that such systems bring down the cost of land and housing, offering in effect a subsidy to business because basic costs of production are lowered.
This drives productivity upwards.
Now the reason all of this is important, is because this week we received two very important documents that tell us what is going on in our society.
The first is the census, which is a reason for celebration. The population is rising and heading back to pre-famine levels. This is great news. A rising population in a rich country tells you all you need to know about the economy. In a world of birth control, people have kids when they are confident about the future. Also, rising migration – another acid test for success – reveals that lots of people are moving in and out of the country. This is a good sign.
Unfortunately, far too many people live in the baby belt — a giant arc which stretches from Drogheda in the North, to Mullingar, towards Port Laoise, down to Carlow and reaching the sea at Arklow. This has to stop and will only do so if there is an efficient transport system. Interestingly, when you compare the levels of population to famine times, the most extraordinary aspect is the fact that rural Ireland, now denuded of people, was full. There were twice as many people living in County Cork than in the whole of Dublin. Now Dublin is ten times bigger than metropolitan Cork. Such a degree of centralization is unheard of in modern western societies. But it won’t change on its own because there is a tendency for economic activity to cluster around large, dominant cities.
But a massive programme of investment in rail, to compliment the investment in motorways, would change this reality, and quickly.
Talk of investment brings us to the second important set of figures released this week: the upbeat economic forecasts from the central bank. Regular readers will know that this column has been highly optimistic about the economy for some time now. It’s interesting to see the normally cautious central bank getting giddy now, particularly as it went out on such a limb suggesting Brexit would hole the economy below the water line last year.
The central bank’s chief economist Gabriel Fagan, a very fine economist with a sense of humour as sharp as his intellect (I worked with him many years back), described the rapid recovery in the economy as being similar to emerging market countries that recover rapidly from financial meltdowns. The term is a “Phoenix Recovery” and it describes a recovery that happens in the absence of debt and credit.
We’ve been arguing this here for some time, observing that the economy is growing remarkably strongly without commensurate borrowing. This is an extremely healthy place to be because, more than anything else, it means there is no bubble building, even in the housing market.
There may be a bubble in the Dublin commercial market because those prices have been driven skywards by foreign funds that are using money borrowed abroad or as investments by leveraged rich foreigners looking for returns in Ireland. Counter-intuitively, if there is a crash in Dublin’s commercial market it will be good for “Ireland Inc” as prices would fall without the knock-on to Irish wealth, because Irish balance sheets are not exposed there in any material sense. But you’d be mad to chase this market up at these levels because you are just giving foreign investors an exit strategy.
However, in the general economy the level of new debt is low (and very low for this new level of growth), which means growth is coming through income and productivity – i.e. we are getting more from less.
We see similar developments in emerging economies like Argentina, Korea, Mexico and Thailand after they all experienced something like an economic coronary arrest. The same thing happened here. In 2008 capital not only stopped flowing into the country but flowed out rapidly. This caused what economists refer to as a “sudden systemic stop”. But very quickly the economy recovers. The idea is that companies that had lots of access to credit suddenly become much better at operating without overdrafts in the slump. Your mother would describe this as “cutting your cloth”.
Form here, I believe the economy will grow rapidly and for some time. The reason is that Ireland isn’t really a domestic economy in the true sense of the word, rather we are a part of the global corporate supply change. As long as the world economy is motoring, and it is, we will do well. We just need to remain competitive. This means massive investment in public infrastructure, like trains and education. We are now a high wage, high skill economy. We can’t go backwards. We must go forward.
International capital is our life-blood and international capital is like water – it goes to the place of least resistance. The way you ensure that we don’t get caught out again is by making sure the banking system is kept in check. This means hawk-like vigilance about over borrowing. Once we do that, in effect minimizing the damage we can do locally, there are more than enough positives in the economy as a global place for production, capital and trade, to make the future look rosy.
In fact, taken together with the census, once we realize that Ireland is part of the global supply chain, rather than an autonomous economic entity, there’s no reason to believe that we can’t experience a golden-era ahead. And this is despite Brexit and Trump. By boxing clever now, there’s no reason to believe that this Phoenix must fall back to earth.
In fact, it can soar.