After the property gold rush, it’s now time for us to focus on small businesses in areas that make sense for the country’s economy.
The biggest lie doing the rounds here in the past few days – peddled by the same stockbrokers, estate agents, journalists and banks who told you that there would be a ‘‘soft landing’’ in the Irish property market – is that the collapse in Irish shares is merely a symptom of a greater global malaise. This is not true.
Ireland is suffering disproportionately because investors think we are in deep trouble as a result of a five-year borrowing binge, a hubristic attitude towards criticism and a willingness to believe our own propaganda.
In time, we will get over this and the economy will recover, but not before the pain we are seeing in the stock market seeps into the broader economy. With all the flannel being spun in reaction to the slump in the market, it seems we are still in the denial phase. Previously (SBP, August 19, 2007), this column has explained how reaction to a dramatic change in our economy can be viewed through the prism of the classic five stages of bereavement: denial, followed by anger, bargaining, depression and then acceptance.
In the denial phase, people put their heads in the sand and assume the problems will go away. Failing that, they create excuses in their heads as to why something is happening, absolving themselves of any culpability. This is what is happening at the moment. But it doesn’t wash.
Unfortunately, the Irish stock market is a good barometer of our economy, in the sense that it is dominated by purveyors of cheap credit and house-builders. Friday saw a ‘‘dead cat bounce’’ when Irish shares rose by 4.4 per cent as investors moved to safeguard their positions. However, the mood remains poor, and the negative implication of the sell-off of recent months is unambiguous.
Ironically, many of those nowselling bank shares are the very developers who borrowed from the banks in the first place, creating the bubble. If you are a developer sitting on an apartment scheme that you can’t sell, the only way to protect yourself from a faltering property market is to make money from selling the only liquid asset in Ireland at the moment – the quoted banks.
If you still believe the spin that what is happening in Ireland is happening everywhere, contrast the performance of the French and Irish markets. France, this week, is on strike. The trade unions caused chaos, reminding everyone, once again, who actually runs that country.
This should cause investors to flee in droves. For the supposed free capitalist financial markets, the sight of French workers on the streets should be enough. Yet the market actually rose during the week.
In free-wheeling Ireland, none of this is going on. US multinationals are still here enjoying tax breaks. The unions are emasculated by partnership and there are hundreds of thousands of immigrants keeping labour costs down. Yet the market is crashing.
The reason is simple – the housing recession is upon us, and it will get dramatically worse. The banks are the best leading indicator of this. Just as happened in the boom, where the banks led, the economy followed. Today in the slump, where the banks lead, the economy will also follow.
The era of easy money, accidental millionaires and cheap credit is over. The days when getting rich was as simple as buying property, waiting and selling on are also over.
Now we have to reinvent ourselves. We have to think of a new economic blueprint, one that is not based on buying and selling houses to each other with other people’s money. Ireland has got to get back to making stuff, generating value added and getting our hands dirty.
Believe it or not, this is actually good news. For the past few years, the property monster stymied real business. The best way to look at the malignant influence of property is to compare it to a gold rush. In the 1850s Californian gold rush, everyone wanted gold and nothing else. Even the schools in San Francisco closed down as teachers and pupils joined the prospectors in the hills. Everything else apart from gold speculating dried up. When the gold rush ended, there was nothing to fall back on.
We too became similarly obsessed, and good businesses with entrepreneurial ideas and real vision found themselves struggling for finance as the banks bailed into the fools’ gold of property.
But now it is time to focus on small businesses in areas that make sense for Ireland. One such obvious industry was on display in the Shelbourne Hotel last week. Good Food Ireland (www.goodfoodireland.ie) is a new movement which aims at fusing the best of Irish food with the best of Irish tourism to position Ireland as a food destination for tourists. On display on Monday was the very best that Ireland has to offer in two growing areas where we should be strong – food and tourism.
We are talking about small businesses, everyday entrepreneurs who are butchers, hoteliers, pub owners, restaurateurs, cheese makers, fishermen and bakers.
These are people who get up every day, make stuff, sell it for a profit and start again the next day. They employ thousands of us. They are the unsung heroes behind the glittering headlines of the economy. Most importantly, they are building markets and businesses. They are exporting and enhancing our brand all the time.
Think about it. After the bubble in construction, food and tourism are Ireland’s two biggest indigenous industries, with a combined turnover of close to €16 billion. They are labour-intensive industries and most importantly internationally, they are growing industries. People of all ages and classes eat and travel.
Look at the top rated TV programmes – many are about food and travel. Among the top-selling books every year are cookbooks and celebrity chef annuals.
Likewise, we are travelling more than ever. Airports have become part of people’s weekly hassle, rather than somewhere you visit once a year before your hols. Now that construction is ebbing away fast, where are we going to create both the jobs and, more importantly, the sustainable markets over the next ten years?
The beauty of an idea like Good Food Ireland is that it is a simple fusion of two existing industries. No one is reinventing the wheel here. Ireland has the infrastructure, the contacts, the networks and the products.
Of course, that’s not to say that this is a guaranteed business. On the contrary, as the aim of Good Food Ireland is to put food up there with golf, the scenery, the pub and the people as part of the Irish tourist experience, they clearly have their work cut out for them. We are way behind the likes of Tuscany, Burgundy and Galicia, but that’s the challenge.
Now that the economy is moving into a new phase, we have to go back to basics — and what could be more fundamental to Ireland than food, drink and hospitality?
A weeks wages (for some) for a meal for two in a good Dublin restaurant? The dollar in free fall?
Fresh fish for 18-25 Euros a kilo in the irish supermarkets. meat an untold luxury despite the “pensions for life” subsidy decupling, farm support schemes.
The tourists may come once to see the place. They wont make a return visit. Unless they have their own private jets.
Hey swotboy, shut the f*** up about Galicia or I´ll kick your ginger ass into next week. We like the place as it is. The last thing we want is bloody property developers coming anywhere near our Celtic shores (Galicia is green like Ireland but with sun and amazing seafood) … I mean there are beaches with actual sand dunes have not been turned into golf courses. But seriously, David nice name check but Galicia is along way from Tuscany or Burgundy as far as developing its tourism potential. Camino de Santiago apart. So stick to the chatting up the… Read more »
Ooooooh!
Saucer of milk for the lady at table citrus.
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Here is a (two year old) price comparison I did between two Lidl stores,one in the south of France, and the other in Dublin.
http://www.soldiersofdestiny.org/lidlpricecheck.htm
Some people blame Lidl and Aldi for abetting the economic refugee influx.If these cheap stores did not have a foot hold in Ireland most of the cheap, agency contract, labour utilized by industry, hoteliers, and the farming sector would have starved-or left the country! Standing in a checkout queue in any of these irish stores is truly amazing .All human life is represented.Every colour, creed, language, and nationality on the face of the earth.
As a foreign outsider looking at Ireland’s economy I’d like to play devil’s advocate if I may as I get conflicting reports about what is happening from those “on the property ladder” and those “off the ladder”. So… indulge me, if you will (facts and stats are more then welcome rather then bar stool econometrics of “hearsay” regarding the following Arguments / myths; (Argument/Myth 1.) “There was, and still is, a shortage of housing in Ireland. There is too much demand and not enough supply. Once the wealth effect kicked in from the Celtic Tiger this was the chief driver… Read more »
In answer to the American. No one knows a thing, why you say, because to know something one has to ask for information. And the Gov as of to-day has not asked.
But here is another, cheap labour. When the employment ends, is there enough going into the Exchequer to cover their costs, and for how long.
Its certainly “back to basics” for the workers manning the hotels across Ireland if the latest challenge constitutional to the minimum wage legislation, by wealthy businessmen/hoteliers nationwide, in the courts ,is successful.
That should help to keep down costs for the influx of tourists whom David hopes will be serviced by the new small businesses sector.
http://www.examiner.ie/irishexaminer/pages/story.aspx-qqqg=business-qqqm=business-qqqa=business-qqqid=48892-qqqx=1.asp
As for the construction industry statistics, those who have missed a recent article in the Sunday Business Post could do worse than read it:
http://www.thepost.ie/post/pages/p/story.aspx-qqqt=NEWS+FEATURES-qqqm=nav-qqqid=28502-qqqx=1.asp
For the American There is a reported 13% unoccupied housing in Ireland – this is either an indication of wealth or of stupid government policy. Which ever way you look at it, it smacks of excess. The country has been obsesses with property ,to the exclusion of everything else, for the past 10 years. A considerable number, including myself, have made virtual gains from this run – the gains, however, are only realisable if I move to France or some other Country where property is relative cheap. In the meantime, the Industrial base is American and for all intents and… Read more »
What the government doesn’t realise that our “Boom” is just money that was invested from elsewhere and those investors borrowed it from questionable sources with shady practises. The exact same thing happened in Thailand when they were an economic tiger in the 80’s and 90’s, houses were springing up all over the place from Bangkok, Chiang Mai in the north and Koh Samui. The problem was that they were building houses much faster than there was demand and they of course were very expensive for the idigenous population. Any similarities here? Then all of a sudden in the late 9o’s… Read more »
The thought of our homeless (itinerants?) moving into posh apartment blocks-left empty by developers so as not to flood the market- and squatting in places like Dublin 4 is too much-even for my imagination. Great idea though!
It would probably give people like Sean Dunne a taste of their own medicine and Albert Reynolds, the entire bunch of fraudsters who are dishonest trypes on the countries honesty & Integrity.
Finally the Old Wesley Disco will have met their match and have a higher age bracket to deal with and not “Spoilt D4 Brats” who aren’t even old enough to rent a video.
That might tumble the D4 Tower idea that is planned and will hopefully fail.
From what I can see it would appear that the lack of numbers, stats and facts of what is really going on in the REAL Irish economy points to a probable scenario where, yes, there will be a downturn due to the micro and macro factors currently at play but I don’t think Ireland is looking at a Thailand-like collapse scenario…the Irish economy and Irish workforce are far more flexible then that. I suspect a slowdown followed by a short-medium downturn will be on the cards resulting in the irish economy going back to “normal’ levels of growth. Hardly a… Read more »
With reference to the American Outsider above, the problem for the Irish property market is such that, the average wage must be around €40,000, when the banks go back to normal lending practices, that is two and a half times your income plus if your lucky once your partners wage of lets say €35,000. Equals to €40,000 X 2.5 + €35,000 thats the possibility of getting a mortgage of € 135,000. Thats it, thats all you get when house prices are €300,000 for the national average. So it wont be possible for people to buy much over €150,000 with their… Read more »
Hi again David, I agree that Ireland Inc can do more with both tourism and food and leverage Ireland’s advantages in thaht area, open green county-side and artisan micro-producers of food products. However, the county cant live on that, I dont think a boutique-like food-agri economy could be the mainstay of an economy in Europe. Every little bit helps though. However, I had always thought that we are already good at this and have been exploiting it already. Tourism is more difficult as the cost of living is a factor. But in the general scheme of things Ireland will attract… Read more »
Good synopsis of current capital markets crisis.. For those who may be interested this is a relatively good (and shirt) summary of the current global financial credit crunch taking place…. ‘You gotta know you’re in real trouble when the New York Post starts talking about the inability of investment banks to price their CDO holdings. (The Post says they may be out by as much as 20%, so it’s probably far worse than that.) Ok, so they’re some 3 months late with the news, and it’s something we market pros have been going over with a fine tooth comb since… Read more »
Average Industiral wage in Ireland is at 32,000 euros and minimum wage is at 17,500 euros. All central banks calculate that the average price of property should be equal to five times the average Industrial wage. Average House price = 5 * Average Industrial wage Average House price = 5 * 32000 Average House price = 160,000 euros If the property market moves above this figure then the property market starts to become overvalued. It is also important to note that if the jobs market goes into free fall then the average industrial wage start to come lower which in… Read more »
If small business is so important and critical in Ireland then why, why have the self employed been demonized and stigmatized in Ireland for so many years?
Glen Quin> All central banks calculate that the average price of property should be equal to five times the average Industrial wage. 5 * 32000 = 160,000 euros. It doesn’t take a mathematican to add up that the current property market is overvalued by at least 40%. The ‘5 times’ rule is an over-simplification, a rough rule-of-thumb instrument at best. But property markets do not move in unison with average incomes (isnt average income now 36,000 and some evidence of it being closer to 40,000), they are subject to the vagaries of supply and demand and even lemming-effects. Bubbles (over… Read more »
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