In a single week, the government has been faced with crises in many areas of Irish life.
The news last week from the Central Bank, Waterford Crystal and the World Economic Forum captured an economy in transition.
In just seven days, we got a snapshot of the housing market, the state of Irish manufacturing, the immigrant surge, the pre-eminence of the multinationals and the appalling job the state is doing with its infrastructure.
Let’s deal with each set of data in turn. The Central Bank revealed that mortgage lending was 30 per cent down last month vis-a’ -vis the same month last year. This is unambiguously positive.
It is not patriotic to talk up the housing market; the best thing that has happened to the economy this year is that the financial nihilism of rising house prices has come to an end at a pace that many thought impossible. This is not a crisis, but a boon.
The pinnacle of our economic development cannot be to condemn a generation of workers to paying 15 times their annual salary for a shoebox in the commuter belt. This is a sign of economic failure, not economic success, and the sooner it unravels the better.
Now that the mystique of rising prices has been punctured, prices will go the way of mortgage borrowing – downwards. People, seeing that house prices are falling, will just stand back and allow the market to do its thing. This is what the economy needs.
In the recent past, there has been such a cacophony regarding the housing market. Those who believe that it was all a bubble have been, bizarrely, branded as unpatriotic.
What nonsense! The main problem with the debate is that the discussion on the Irish economy has been hijacked by the housing lobby and its agents. So the economic debate is jaundiced.
The central myth propagated by the housing lobby is that the housing market and the economy are one and the same thing. They are not, and for the economy to breathe, the stranglehold of the housing mania needs to be loosened.
To see why this is the case, just look at the second major piece of news this week. In Waterford, one of Ireland’s best known brands -Waterford Crystal – is laying off close to half its workforce. The reason is that Ireland is far too expensive, and one of the reasons for this is the cost of housing, which workers need to put into their considerations when they are looking for higher wages.
This means that Ireland is pricing itself out of the market when compared to other parts of the world that have not allowed the housing market to get out of control. It is now likely that Waterford will follow many other European manufacturing companies. It will split the world into three: the production will be done in Asia, the branding and heritage aspects of the product will be bolstered in Europe, and the selling will be done in America.
This geographical split highlights another issue which has remained un-debated in Ireland in any real sense, and this is the wisdom of EMU for us. We still do far more trade with the US and Britain than we do with Europe, so, from a trade flow perspective, EMU is totally inappropriate for Ireland. Yet our political elite is so wedded to Europe that even raising this topic is seen as dangerous.
However, Sweden and Britain are members of the European Union without the added complication of a currency union. In fact, Sweden and Britain are the fourth and ninth most competitive countries in the world, according to the World Economic Forum. They are 18 and 13 places above us.
We also share a similar immigration policy with Sweden and Britain. Only three countries – Ireland, Sweden and Britain – allowed the free movement of central European workers after accession. In Ireland, this new immigration policy has resulted in an estimate this week by the Chambers of Commerce that 17 per cent of our workforce are immigrants.
This is a truly enormous figure of close to 400,000 people. Many readers will know this already, and anecdotal evidence might suggest a higher figure. The immigrants have two overall macroeconomic impacts on the economy.
While immigration makes the overall growth rate go up because you are adding more potential to the economy with every new immigrant, this GDP figure really tells you nothing. Yes, every time a Romanian sells a copy of the Big Issue, GDP goes up, but what does that tell you about the overall impact of immigration?
From a winner-and-loser perspective, immigrants also push wages lower than they would otherwise be in the absence of immigration, and they push up rents and house prices higher than they would be. This has the impact of reducing the wages of people in direct competition with immigrants, while at the same time pushing up their housing costs.
The positivity or otherwise of immigration will depend on where you stand. If you are a worker competing in the jobs or the housing market, you will have a very different view from that of a landlord, builder or company owner.
The one area where Ireland is doing very well is in the proportion of foreign owned companies here. For this, we have to thank previous public planners, who saw that we could offer an attractive package of tax breaks, graduates, links to Europe and a light regulatory touch which allowed them to flourish.
In the event, the majority of American multinational production is re-exported back to the US, but the European angle is positive for both cherry-picking smart EU graduates to bolster Irish capacity and for tax reasons.
This is an area in which Ireland needs to focus all its attention simply to stand still, because when you are number one, the only place to go is downwards.
The World Economic Forum highlighted appalling infrastructure as our biggest problem. At least we know what to do. Our ports, railways and roads are Third World, so let’s just get on with it and build them up.
If the problem is the planning system, then fast-track it. If it is competence, then give the contract to the best people in the world and do it. This is what government is supposed to do – so stop acting the maggot and get on with the job.
We are now at a dangerous period for the economy: the fallout from the faltering housing market will be magnified in personal consumption, as people realise that they have to tighten their belts. For Ireland to make a smooth transition, the state has to step up to the plate and accelerate the public works schemes. All we need is leadership.
The worst thing the state could do now is lose its nerve and retrench. We need infrastructure, so just build it! The taxpayer will get better value in a downturn rather than a boom, so now is the ideal time.
Also, if there are too many immigrants here and it is concluded that a quota system would work better, then decide what it is and implement it. The French have the expression ‘‘to govern is to choose’’. The time has come to make that choice.
As per, you are on the mark here. Slowly, but surely, your opinions and forecasts are proving themselves correct ie that the gravity defying Irish economy and our absolute heroin-like addiction to the seemlingly one and only asset class that Irish investors know of and want – property (both a home and abroad) – would sooner or later have to come down from it’s lofty, exuberant heights. In the future someone should write a thesis on the apparent Irish economic management tool known as “talking down the economy”. What naivety to think that we have any real monetary control over… Read more »
While watching the NY marathon on Sunday, it seemed that the city needed a biggish renewal. While not at Hill St blues standards of the 70s 80s, not that far from it. It would seem that the boom on the island is sucking much of the risk/developement money out of the boroughs. And this is an aspect of what is happening here. You are correct when you say that the ports etc. are in need of upgrade, or better yet moving to another site. How idiotic is it, that the main port is at the far end of the biggest… Read more »
Robert Shiller is an American economist, academic. Back in 1993 he wrote about the volatility of housing prices and the resulting risk and suggests that: “Speculative booms and busts in residential real estate markets are potentially more damaging than those in financial markets, in that the participants usually have much of their wealth concentrated in that local market and may be highly leveraged through their mortgages.” House price collapses generally affect the wider economy in three ways. First, households lose wealth and start to repay loans instead of spending. Secondly, banks reduce lending as they lose money on bad loans.… Read more »
David, It must have been an horrendous insult to you to be branded as unpatriotic. You have mentioned it a few times now. I think when the Taoiseach used that word in relation to you (it was you he was talking about – let’s be honest) he insulted anyone who believes in free speech in the truest old fashioned sense of the term. However it was a more personal attack than that also. He took a look at a guy who – despite not needing to be one of us – has stood beside and defended ordinary Irish workers against… Read more »
Yes, I think many of these things will come to a head in our economy in the near term. I fear there will be a very significant tightening in the Irish labour market over the next six months to a year. The two main employment creation drivers: construction and the public service, have either dried up or are falling. Perhaps high migration numbers will ameliorate in response. This is what FÃS in their employment projections and some commentators are predicting. I wouldn’t be confident that this will happen to a significant degree, at least not very quickly anyway. Accession state… Read more »
David,
Once again you have hit the nail on the head and called it just like it is. Keep up the good work.
17% of the workforce being immigrants in a space of 10 years is very dangerous, there was a man who recently said in America that the immigration into Ireland will damage it in the long-term. He happened to identify also that there were 21,000 poles in this nation circa 2002 and when 2004 arrived it has shot them up to 260,000! This is the same with Asylum Seekers from Africa who only made about 5,000 in 2002 and are surely circulating at about 40,000! Plus there is the other 110,000 non-nationals in this country, the more that arrive in this… Read more »
Donal,
With respect, I think the last thing Ireland needs is “some of the congressmen and senators”!
David You are supposed to be a trained and experienced economist so either you have forgotten what you have learned or deliberately ignore it for the purpose of attaining higher levels of notoriety. You state that house prices are a factor in Waterford Crystal moving out of Ireland. The impact that house prices has had on Waterford Crystals decision is really minimal when compared to the impact that the falling dollar and the change in retail patterns has had – yet you don’t mention either. Disingenuous? House affordability (not house price inflation) has been an issue – but look at… Read more »
Brian, it’s pretty hypocritical to call David disingenuous when you provide some stonkers yourself. Attempting to only look at the monthly affordability of a mortgage without considering the term length or the amount of people needed to service it is very poor form. The fact remains that more of a person’s working life is required to pay for a house in Ireland than ever before. You can dress it up whatever way you like, but affordable it is not.
The basic point that Brian had was correct. It was extremely disingenuous to blame the job losses at Waterford Crystal on house prices. The main reasons for the job losses are. . . 1. Everytime the Dollar weakens further, it’s another nail in the coffin for Waterford exports. We really cannot overstate this impact. 2. For a manufacturing company, making low-volumes of luxury items, 1,000 is simply far too many people to have on the payroll. 3. Unprofit overseas subsidiaries like Royal Doulton are actually more culpable in cripping Waterford, than the crystal manufacturing arm itself. Don’t forget, that Waterford… Read more »
Donal said “Plus there is the other 110,000 non-nationals in this country, the more that arrive in this country and successfully find work will add more venom to the already growing intolerance of the Irish people.” i am one of the other 110,000 non-nationals. Recently i renewed my work permit (this time for 2 years). it was supposed to take 6 weeks but took only 4 days. that, Donal, is an example of how badly Ireland needs skilled professionals to work in this country. If you make it difficult for the non-nationals who run all of the large multinationals, we’ll… Read more »
“The fact remains that more of a person’s working life is required to pay for a house in Ireland than ever before. You can dress it up whatever way you like, but affordable it is not.” Well said Kevin. I think any commuter couple who spend 3 hours on the road 5 days a week and are put to the pin of their collar paying a 30 year mortgage on a house 40 or 50 miles away from where they work will agree with you. Andrew, why aren’t the multinationals influencing education in Ireland so we can produce the calibre… Read more »
Vandala, I understand your comment and will take it with a pinch of salt. I appreciate your criticism, my point was that some Irish American Senators would take more pride and care in governing this country more efficiently in some specific areas – The Private Healthcare system in the US is a fine example of an ideal service to expect but there is of course much to improve e.g. giving free healthcare to the poor and elderly. Andrew, the Irish do need you for the time being but I make no error in judgement by saying that you’ll recieve no… Read more »
Perfectly put David. All the evidence is here to see and the sooner the desparate gap between housing prices and real incomes comes down the better. Anyone who really believes that the politicians, the financial institutions or the press are being ‘honest’ when they talk of ‘soft landings’ are frankly, either deluded or part of the problem (i.e. property developers who have only the obscenely high price of property as their own vested interest.) Regardless of how anyone may feel about a property crash, unless average incomes were to increase by some 200% (which in itself is no good thing,)… Read more »
Irish-Americans growing ‘distant’ from Ireland Sean O’Driscoll in New York Former president of the Coca-Cola corporation Donald Keough has warned that Ireland is becoming more “mentally distant” for Irish-Americans and may have to consider a looser, Israeli-type citizenship test for people of Irish origin. Mr Keough, who is also the former chairman of Columbia Pictures, said the world’s focus on a successful, peaceful Ireland is waning. “The global white light of attention is finding new stages in eastern Europe, Brazil, China and India,” he said, adding that Irish-Americans, in particular, view Ireland as more mentally distant with each passing generation.… Read more »
Nick, very good article and very attentive. He is certainly an ideal person this country could welcome with open arms and without any hostility what so ever. Problem is that although Israel has a very good system of enabling citizenship for jews…. there is one fundamental flaw. Judaism is a religion not an ethnic group as many people depict it: Before anyone accuses me of being prejudicial let’s make one fact known. There are Jews whom are: Caucasian (Which you see the most common) Black (Ethiopians, Ugandans etc) Oriental (This includes not just northern africa and Iran but china!) Arab… Read more »
Hi David, Some valid points there. One thing though, whether it was 400,000 immigrant workers or 400,000 Irish workers from the lower ‘levels’ of income, that does not matter to businesses/employers. Its true that there is more competition at the lower income levels but income levels are a pyramid that (legally) start at the minimum wage level of 8ish euro per hour and that competition pushes up the line. Not all of the 400,000 immigrants are here for lower paid jobs either. But the large influx of 17%, which seems about right, actually also leads to some price pressure downwards,… Read more »
Re ,Waterford Glass, I always wondered why they did not use the world famous brand names they own to diversify into other prestige products.They dabbled with jewellery,at one point, but regretably seem to have lost interest in this very suitable diversification area. They are now doing bed linen and kitchenware again, but wrist watches for example, and other products such as quality clothing, ( sport shirts-a la “Lacoste”?) has never been explored or exploited.
Re American company’s Intel Ireland is currently makeing half of its total revenue in one (FAB24) of three plants they have in Ireland.The other two fabs (FAB14 &FAB10) are losing money making flash chips This is all going to change in the next six months when two new plants (FAB28 and FAB32) will be making all the new fast processors on sites outside Ireland, and Ireland will be making the much less profitable chip sets ,and the two old plants will most lightly close in less than 12 months with a large loss of jobs not sure of the number… Read more »
Donal, I’m not sure if you yourself are so comfortable with the “one-of-us” rules that you are trying to come up with. Do you really want to put in a colour bar or the Irish language as a requisite for being Irish? What does that say to the many Irish in the north or those in the diaspora that everyone on this site seem to enthusiastically want to reclaim? David, Agree with some previous posters that you are dancing on eggs using stereotypical imagery to make your points on immigrants. Clearly there are posters that see such comments as carte… Read more »
Thats interesting news re Intel.3com have left some years past, and IBM are downscaling continually.A new political party anybody-in time for the next election.? Then again, why bother- the Public Service and the farming vote will copperfasten the Soldiers of destiny´s stranglehold on power ad infinitum, come hurricane, high wind, famine, cancer, cryptosporidium,-or any other man made or natural disasters.! “It´s the numbers stupid ” and if there´s one thing Fianna Fail do well-its strategic re-distribution of other peoples cash/taxes to maintain a perpetual majority of happy voters. The Great Divide.The strategy is called “divide and conquer”. A two tier… Read more »
Wessel, there has to be a requisite for being Irish and the if the Irish language is to survive, the diaspora should as everyone else not be exempt from this. The Gaelscoilanna was an idea that should have been acted upon years ago, and its partly our fault for not continuing to speak the language after leaving school or learn in our own way. I am comfortable with having a criteria for allowing descendents to return home, the bar on Irish ethnicity under a specific amount would have to exist in order to prevent future ethnic inequality. This could be… Read more »
For anyone who believes that Britain is tolerant you should think again.
All you need do is look at Quotes 416, 428 & 429. This was debated only just last thursday and the results of peoples opinions is overwhelmingly negative, and they have been dealing with Immigration for over 50 years and they are having enough.
http://www.bbc.co.uk/blogs/newsnight/2007/11/the_big_immigration_debate.html
I found that the phrase “Ethnic Cleansing” quite frequent
David wrote: “The World Economic Forum highlighted appalling infrastructure as our biggest problem. At least we know what to do. Our ports, railways and roads are Third World, so let’s just get on with it and build them up. If the problem is the planning system, then fast-track it. If it is competence, then give the contract to the best people in the world and do it. This is what government is supposed to do – so stop acting the maggot and get on with the job.” Go East, Mr Ahem! If we really want the best people in the… Read more »