Irish Election are pleased to announce our collection of Irish 
C’mon Ye Know-Nothings
Read more about: Economy, Fianna Fail, Labour Party
‘ . . . some people are saying that the economy is ruined. Anyone who says that knows nothing about nothing.’
Thus, Taoiseach Bertie Ahern responding to the growing concerns about the economy. Of course, a straw-person is being employed here – no one is saying that the economy is in ‘ruins’. But it is probably unfortunate for him that his comments were front-page news following the first installment of David McWilliams’ new RTE series, ‘The Generation Game’. Mr. McWilliams took us on, yet again, a whirlwind tour of the Irish economy, repeating his warnings about an over-cooked property market and an overdraft life-style. Mr. McWilliams is a know-nothing. In fact, any economist, analyst or thoughtful citizen who considers the issues – regardless of their political orientation or prescriptions – will eventually come to be labeled the same thing. Yes, we know-nothings are growing in numbers.
Mr. McWilliams irritates a lot of people: his relentless use of social labels, his grand, simplified narratives that gloss over important and inconvenient details, his sometimes class-blinkered view of society, his Cassandra mantra that goes back years and the fact that he’s never far away from an RTE studio. There’s much to complain about. I’ve done it in the past. But if it takes Mr. McWilliams, with all his baggage, to popularise the very real issues of our economy to a wider audience, then we are the better for it. Indeed, given that all political parties are living in denial about the fundamentals of our economy, Mr. McWilliams is providing a credible political service (there are others, of course, who are doing the same, if better, job but they are not ‘econ-entertainers’).
Mr. McWilliams thesis is simple: we don’t, as a nation, make and sell things. Multi-nationals do it for us. We, as a nation, don’t invest in enterprise; we throw our money into property. We, as a nation, don’t plan or shape our economy; it’s done for us – by forces outside our control. We are maxed-out, overdrawn and involved in a lot of financial juggling to make ends meet. What we think is real is not. What we think is sustainable is certainly not. And what we think is the good life is merely a faded ad in a Sunday magazine supplement. Nothing new you might say. Well, that’s that point.
On his way through this tour de force, he says some curious things. The argument that Gulf state sheiks and Bin Laden are taking our money at the petrol pump and forcing up our asset prices is peculiar (I remember the panic in the US following the creation of OPEC when solid citizens believed that Saudis would buy out McDonalds and force us all to eat falafel). The phenomenon of petrol money has been with us for decades. The demise of the Uruguay economy only works as an example if it can be argued that Ireland is a single-commodity dependent economy (maybe Mr. McWilliams had the chemical/pharmaceutical industry and, of course, construction in mind). And the ‘Irish job-for-life culture’? Where did he come up with that one? Until the mid-90s the only culture many had, with some very temporary exceptions, was one of emigration, poverty and unemployment.
Still, this is television and it did give Mr. McWilliams a chance to check out the craic in Montevideo. Despite the ridicule he receives the central thesis he puts forward – by no means earth-shattering – is uncontestable. The fact that political parties are not addressing it - while people in pubs and dinner parties, on the sidelines of under-12 GAA matches, even the pit bulls on Dublin local authority estates, are all talking about it - is one more indication of the surreal detachment that the political establishment has from Planet Ireland.
What do we get instead? Mr. Ahern, addressing reporters after a Fianna Fail Parliamentary Party meeting, congratulated himself on the housing market:
‘We were trying to get supply and demand in equilibrium. Thankfully, it is happening.’
Geez, I missed that operation. Here is a party that only recently was still pump-priming demand in the market – through cutting stamp duties and increasing mortgage interest relief. But in Bertie’s little world, shutting down hospital wards are not ‘cuts’ but rather a ‘realigning of resources’.
As for Fine Gael, I honestly don’t know what they have to say about these fundamental issues that isn’t just Fianna Fail-lite. Please e-mail me if someone out there can enlighten me.
And the Left? Here is where we could shine. We could produce a critique which is qualitatively different than that served up by the Government, even if the proposals are yet to be fleshed out. Unfortunately, the new Labour leader, Eamon Gilmore, TD, didn’t give us (yet) a lot to look forward to. Appearing on Questions & Answers immediately following Mr. McWilliams, he referred to the fact that we have a ‘strong economy.’ He has stated that before. I don’t know what impact that would have on those who had just finished watching the Generation Game.
Why does Mr. Gilmore continue with this line? It’s not out of loyalty to his predecessor who spoke of a ’strong economy but a weak society’. On two occasions he distanced himself form Pat Rabbitte, TD (on the issue of Labour’s ‘branding’ and the past reluctance to criticise Mr. Ahern’s financial explanations). It certainly would be unreasonable to expect anyone becoming Labour leader to launch a comprehensive economic policy the next morning. But that hasn’t stopped Joan Burton, TD – candidate for Deputy Leadership – from criticising the party’s past failure to take on economic issues. Mr. Gilmore could have taken this lead.
Of course, if Mr. Gilmore had attacked the economic record of the Government he would have had John Bowman harassing him about what he would do different and here’s the problem – the Left hasn’t worked it out yet (besides, if the argument deteriorated to the level of Mr. Bowman’s knowledge of Labour’s electoral history it wouldn’t have been very informative).
Still, that is no excuse for continuing the ‘economy is strong’ argument when clearly it is not. We can work out some other, better breathing-space phrase than the one that cedes the policy ground to the Government and the Right. What might that phrase be? I don’t know but a good starting place might be to pilfer some of Mr. McWilliams’ lines – he is, after all, the phrase-meister.
And that’s not being flippant. Many on the Left are suspicious of Mr. McWilliams’s analysis. They shouldn’t be for that analysis leads, or can lead, to a largely progressive end. I was struck by Mr. McWilliams summing up – that people are dogged by over-crowded schools, inadequate health care, and high childcare and pension costs. To me, that tees-up a Left programme of educational investment, universal health insurance, public service crèches and a state earnings-related pension.
But more to the point – the failure to plan our economy, our over-reliance on multi-nationals, unproductive investment, and a neo-liberal ideology of market self-selection; all these cry out for a different, modern, social approach – one in which only the Left can and, hopefully, wants to expouse.
I, for one, look forward to the next installment of the Generation Game. I look forward to reading the book. I look forward to being frustrated, exasperated and, more to the point, being provided with any material that can be put to progressive good. For Mr. McWilliams and I are, if only temporarily, allies of a kind.
We are both know-nothings.
Nice term know-nothings
Can’t take credit, Simon. It’s pure Bertie. He also said that he wouldn’t ‘give a dime’ to us know-nothings to go to the shop. Conjures up the ol’ ‘Brother, can you spare a dime?’ When Bertie’s on a roll, everyone had better get out of the way.
A good overview from Michael Taft.
David McWilliams makes his points succinctly, which annoys people. He speaks with authority, at a time when politicians waffle - or read papers prepared by spin-doctors or back room PR hacks.
Damien Kiberd is one of the best commentators on the Irish economy and might be a better reference point.
Alan Ruddock is also a fine reader of the political & economic climate in Ireland.
All draw from international trends; especially the United States of America & the Pacific Rim.
I wrote a paper “Whither Apathy” in May 2006 and posted it on this site.
In it I made suggestions where costs could be cut to provide the necessary funding for social programmes.
You ask why Fine Gael have no strategies to deal with a potential recession.
Part of the solution to a reduction of the tax take, following a shrinkage in the cash-cow of construction, would be a reduction of the cost of Government.
That would mean 1 Dail seat per 100,000 of population = 40 TDs…
…and the abolition of the Seanad.
This would hurt Fine Gael - and all parties - as part of the main reason of going in to Government, is the power and the perks.
A smaller cake might make politics a less than attractive career.
In such a situation, it would fall to the idealists, like Joe Higgins and Tony Gregory to soldier on.
The career politicians, like Bertie Ahern and most of Fianna Fail, are self-servers, in it for what they can get out, whether it be the several pensions; the interest free loans & gifts; or the Gulf Stream & helicopters to beat the traffic - or even the humble Mercedes-Benz with a driver who is not obliged to keep the speed limits - when, for instance, Micheal Martin is in a hurry to get to a race meeting.
This is what Fine Gael cannot shape up to lose. And maybe even Labour. Pat Rabbitte never said “no” to the Mercedes Benz - “the cost of running this would provide a hospital bed for the poor”.
I doubt if Sean Healy - the loud mouth of the Poverty Party - would sell his motor car and give to the poor.
No - to cut the waste & use the tax take prudently is not on the Agenda of any of the parties.
If this is what Fine Gael - or Labour - stand for - let them put it in a written Policy Document and publish it.
They would get my vote and that of all people who carry the tax burden of the State, with no guaranteed, inflation-linked pensions.
OTHERWISE BE PREPARED FOR A LONG WAIT ON THE OPPOSITION BENCHES.
There is nothing wrong with an economy that doesn’t manufacture physical goods. What does it matter whether you export stuff or export services, as long as you get the hard foreign currency off the buyer? There are many examples of how seemingly wishy-washy services directly or indirectly (even some marketing helps, as much as I hate to admit it!) create real wealth (food, goods, entertainment …).
So don’t let the upcoming debate (after the ongoing house price correction has become plain for all to see) be sidetracked with nonsense about a lack of manufacturing. Also, this credit crunch has NOTHING to do with stamp duty and you won’t find a real economist who claims it has anything to do with stamp duty. There are probably a few other red herrings that’ll be thrown in, and from what I’ve read in the papers recently, the newspapers will be talking as much rubbish as anyone else.
Put simply, lenders became very loose with their money and ended up accidentally lending without regard to risk. I must stress that it was all essentially accidental; debt was repackaged and sold on, banks had no incentive to be careful with their mortgages as the debt was being bought by somebody else, ending with banks telling customers to lie on the application form.
What has happened in the last weeks and months is that the lenders around the world (who lent money to Ireland and the rest of the world) realised that they were being sold rubbish debt and pulled the plug. There is NOTHING that can be turn to force lenders to unlearn this. This new knowledge, like all new knowledge, will ultimately be good for the economy as capital is redirected away from the riskiest investments. The potential problem is that lenders will be overly cautious for a time as they have to reinvestigate from scratch about what is risky and what isn’t risky.
Returning to the housing market, it should now be plain that house price increases don’t create wealth. Remortgaging is nothing more than borrowing, every penny of which will have to be repaid someday. One can’t say that one has made money on a house until after you’ve sold it, paid off the mortgage, and are sitting on a pile of cash. And even then, it’s probably been at somebody else’s expense, so Ireland as a whole is no better off.
If anything, the recent madness of risky people buying houses for themselves (or even to let them lie empty as an ‘investment’) has actually decreased the real wealth in Ireland. This is because the property is being badly underutilised. The good news is the credit crunch, and resulting house price corrections, will help to fix it all. There has been a huge number of houses built and the population increase hasn’t kept up (despite what some people will tell you). Supply will increase dramatically as subprime borrowers return to shared accomodation (after repossession), sharers forget about buying a place for themselves, and the empty properties are let out by ‘investors’ struggling to pay their mortgage payments. Oh yes, and interest rates for many/most borrowers are going up, even if central banks cut rates a bit.
House prices will drop more dramatically in the cities than in the countryside. It’s in the cities where the crazy 7-times-income mortgages were used. It’s these mortgages that’ll be pulled by the banks.
i disagree Aaron, i think his point is not entirely directed at the production and manufacturing of goods but the nature of what we do manufacture. We have spent a great deal of time cultivating the FDI inputs which have generated enormous wealth but failed, while we had hte money sloshing about, to build indigenous enterprise at the same pace.
This is not a new failing, it dates back to the 60s as far as i cant tell. There has been a tendency to employ the wrong policy to grow both elements in unity rather one tended to feed off the other. Michaels point in this regard is underlined by todays rather innocent 200 jobs going at Intel but there is a big hole in economic policy that creating wealth through local business needs to fill.
I agree fully on the credit aspect Aaron, as many of us have said on here its about cheap mortgages pushing up prices and this post over at A Random Walk underlines that it everyone knew it.
INTEL came to Ireland in 1989. That gave us 28 years to learn how to build processors. Wasted.
“INTEL came to Ireland in 1989. That gave us 28 years to learn how to build processors. Wasted.”
Do you mean 18 years, Conor?
Of course! Just testing, that’s all. (Ahem).
Conor do you know the capital costs involved in making processors? It is absolutely Billions. The two biggest processors manufactures in Ireland Intel and Analog have invested billions in production. Fab 24 in Intel cost 4 billion to build. They are not moving that for years not until 24 inch fab becomes uncompetitive. Which is the reason that Analog left people go in it’s 6 inch fab as it was moving to the more economical 8 inch fab. I can’t see 24 inch fab being uneconomical for years. Considering that they still have other plants at fab 12 I can’t see them moving to soon. (Incase anyone is wondering fab 24 means they fabricate on 24 inch diameter slaps of silicon. The large the diameter the more you can fit on each slab, with less waste and the more economical it is. This requires massive investment in facilities and tools to make them). Also most manufacturing of chips come from designs that are printed on reticles, these come from designers not manufacturing plants. This is done by analog and by intel(in Shannon) these are even more knowledge intensive and even less likely to go. Or were you being sarcastic?
Anyway omn Arron’s point I have to agree on the nature of exports. There is an interesting piece in Foreign affairs a while back .
http://www.foreignaffairs.org/20060301faessay85209/alan-s-blinder/offshoring-the-next-industrial-revolution.html
Which I wrote a bit about a while ago http://www.irishelection.com/04/beating-offshoring/
simply saying we should have done what the chinese are doing. I mean, why didn’t we get into making processors? We’ve spent billions on houses over the last ten years, haven’t we? Where’s that left out economy? I’m just saying it’s a vision thing. We can see no problem in spending billions on housing, but spending billions in developing an industry? sure that’s mad!
It really is just not that easy it is a cut throat constantly evolving field. I have worked in the industry there is a reason their is only 2 main producers of processors in the world Intel and AMD. A company the size of IBM has pretty much given up on it so cut throat is the competition. It is not about vision it is sense. If we spent billions on processors I sincerely doubt we would have a processor company. And the billions we have invested in property have come mainly from people buying homes if they did not buy homes they would be well homeless. It might be like processors putting our eggs in one basket but at least with housing we get homes. Processors we would just get loses.
I agree we need vision but vision is not taking on giants it should be about doing something not done yet innovation.
you know the point I’m making, though, simon. We’ve been sub-letting the economy for more than I can care to remember. I remember a German friend of mine telling me that in Germany they rent their homes but invest in jobs. In Ireland, we invest in homes, and rent our jobs.
Nice phrase but that is what people do. I have argued this before. What would you do. Have house purchasing banned? How can you get people to invest in business. Hell most Irish people want a job for life not take a risk on their own business. When they do they get ridiculed like Michael O’Leary does. Most countries would praise him but in Ireland success is to be ridiculed and we wonder why no one wants to put their head above the parapet. It is all linked I have talked about it before
http://www.irishelection.com/07/ireland-second-wealthiest-in-world-yet-are-we-mad/
you don’t ban house purchasing, that’s just silly. you could do what the Belgians and the Germans do, and take it out of the speculative markets. To treat the housing market the same way as frozen orange juice leads to serious fault-lines in the economy - as the Irish are about to find out.
Speculation in the housing market was encouraged by FF. The refusal of any Irish government to tackle land speculation has a similar origin, for both benefited the financial backers not only of FF, but of FG as well.
People have been buying homes in this country for generations, often with generous government assistance. Rampant speculation on house prices, though, that’s a recent phenomen.
That the Irish want a job for life is a myth. Irish people f**king emigrated to work. That’s the true defining characteristic of the Irish work experience, and was until about 15 years ago. And nobody has been offering jobs for life in the past 15 years, have they?
Mind you, there’s a generation now in Ireland who’ve never had that emigrant experience, and that’s the way it should be. But… that doesn’t mean that media and political commentators can get away with ‘job for life’ guff as an excuse for FF’s economic policy of living off the back of house price speculation. Brian Cowen. what a genius!
As an example of the national planning skills of this government, 30 years of work by the IDA in the Shannon area is undermined at a stroke by FF/PD mantra policies.
There’s no point in blaming the Irish people for stuff they haven’t done, and for thoughts they’ve never had, in order to get government policy - or lack thereof - off the hook.
Just came across an article on http://www. finfacts.ie that makes for interesting reading. Ireland has the third-highest level of early entrepreneurial activity in the EU.
http://www.finfacts.com/irelandbusinessnews/publish/article_1011233.shtml
A couple of points.
Holland is the same size as Munster, most of it below sea-level; they support a population of c. 16 million; export flowers; chocolate; beer; liqueurs; and other agricultural products all over the world.
Ireland, with a land mass more than three times theirs and a population of 4 million has seen its agriculture shrink to 3% of GNP (or GDP - i keep mixing them up).
WHY?
Second point:
This I have mentioned in several earlier posts.
The Irish have been trading their houses for some years past.
The reason? The Profit - the surplus on sale of a principal private residence - a flexible definition! - after all selling expenses - is TAX FREE!
If all land was registered and give a folio number, All transfers on sale would be th eregistered proprerty in the Folio.
Each dwelling house would be valued at the Insured cost of reinstatement.
This would be the Index value - and any uplift would be tax free upon sale.
The land, upon which the house is built, would also be Index valued and any uplift would be subject to CGT.
Surely this is not rocket science, as they say, and relatively simple to set up and enforce?
Interesting report Conor. Will have to read it and come back to you on it. But still the point that most people invest in property rather then business. If someone has a bit of money what do they invest in a second house or shares?
Just referring to Aaron’s point re: the issue of manufacturing or service exports, it should still be remembered, in these days of ‘knowledge capital’ etc. that the exports of goods is still the predominant source of our export wealth (as it is with every other country). Goods exports were approx. €83 billion (2005) while service exports were nearly half that amount (we currently operate a ’services trade deficit’). Of particular note is that manufacturing firms in the traded sector contributed over €24 billion to the economy in terms of wages and sourcing of Irish materials and services, while the traded services sector contributed €4 billion. Given that the services contribution increased by €3 billion in the last 9 years shows that for some time to come goods exports will play a dominant role. However, we shouldn’t polarise this distinction as there is a considerable ‘blurring effect’ between goods and services with some companies exporting both and with both sectors relying on each other for inputs. What we should be focusing on is the new platforms for export growth and ask the fundamental question: can we rely on the self-selection of an economic market that is overwhelmingly reliant on multi-nationals - in both the manufacturing and services sectors - with indigenous companies playing a very minor role, or do we need to develop a more planned and interventionist approach?
Well, it seems that the Irish ‘investor’ invests in property - either here or abroad. Brian cowen calls them Ireland’s entrepreneurs - he’d be better off giving true entrepreneurs a helping hand, rather than just builders and property speculators.
The point I’d like to make, though, is that rampant speculation in property and housing has been socially managed, through government incentives and tax breaks. It is not the result of some spontaneous overflowing of powerful emotion. Add to that the ‘common sense’ view of property and housing as a ’safe bet’, along with banks flushed with easy credit for ridiculous mortgages, and you’ve got a situation - socially managed as well - that should never have been allowed to occur.
To go back to Michael’s point, though. We do need to start investing in jobs, not just renting them.
mind you, the Irish view of housing as a safe bet has gotten a bit of a kick in the goolies recently. Billions upon billions of euros later as well.
Some of the Incentives have been positive such student housing has been highly successful. Especially in Limerick. However I don’t know much of the other housing subsidies. What else is there?
From our good friends at http://www.finfact.ie - dated 6 June 2007
Venture capital investment in Irish companies in 2006 amounted to just €192 million invested in 52 enterprises compared with Irish investors putting €11 billion in commercial property - €3 billion of this was spent on domestic deals.
While some lollipops have been offered to promote business start-ups in the export sector over the past decade, a halving of capital gains tax from 40% to 20% coupled with a massive extension of tax incentive schemes for domestic construction at a time when economic fundamentals were very strong, made property the default investment and the riskier export sector was just frozen out.
Accountancy firms soon found that producing business plans for start-ups was a mugs’ game compared with getting involved in property investment.
Full article here:
http://www.finfacts.com/irelandbusinessnews/publish/article_1010263.shtml
I mean, you’re right, Simon. some schemes are worthwhile and, indeed, necessary. But, when it turns into the main focus of government policy, that’s when alarms bells should be ringing - especially when you have full public knowledge of FF’s links with the construction industry. These links have allowed one sector of the business community full access to government - to the detriment of all others.
Capital gains would apply to industry as well as construction. But what tax incentive schemes are you talking about for domestic construction? Write off’s for people’s morgages?
I’m no tax expert, and the article is finfact’s, not mine. But, second-home buyers for investment could get an exemption from paying VAT as a lump sum. Also, i came across this from KPMG. http://www.kpmg.ie/industries/construct/overview/prop_taxes_taxshelters.html
Tax Shelters for Property Investors
Changes in tax legislation over the past number of years has resulted in the phasing out of the various tax shelters for Property Investors. Of the remaining schemes, a critical condition is that expenditure must be incurred by the relevant date for the particular scheme in order for the relief to apply. KPMG can assist in establishing what this effectively means for a particular project in terms of the maximum amount qualifying for the relief.
* Relief for Rented Residential Accommodation -“Section 23 Type” Relief
Section 23-type relief provides relief in respect of capital expenditure incurred on the construction, refurbishment or conversion of rented residential accommodation. The relief is granted by way of a deduction against Case V income.
Any rental loss created as a result of the deduction may be offset against other Irish rental income of the taxpayer in the current or subsequent periods. This relief applies where the conditions for “qualifying premises” let under a “qualifying lease” are met.
* Section 50 relief – Student Accommodation
Section 50 relief operates in a similar manner to the relief for rented residential accommodation above. However, Section 50 relief specifically relates to qualifying student accommodation property transactions. It is important to note that there are a number of complex conditions to be met in order for the relief to apply. Equally, rules apply in calculating the amount of expenditure, which qualifies for this relief.
* Other reliefs available include those available under the following schemes:
Rural Renewal Scheme 1999 – incentives for property development in the upper Shannon region. It will apply to all of counties Leitrim and Longford, as well as certain areas in Cavan, Roscommon and Sligo. Available, subject to certain restrictions and conditions, until 31 July 2008.
Urban Renewal Scheme 1999 – incentive for property development in areas, as approved by the Minister for the Environment, selected from integrated area plans drawn up by local authorities. Available, subject to certain restrictions and conditions, until 31 July 2008.
Living Over the Shop Scheme 2001 – incentive for the development of vacant spaces over commercial premises in Dublin, Cork, Waterford, Galway and Limerick. It applies to expenditure on certain buildings, which front on to a “qualifying street” in the above cities, as designated by local government and the Minister for the Environment. Available, subject to certain restrictions and conditions, until 31 July 2008.
Town Renewal Scheme 2000 – incentive for the redevelopment of small and medium sized towns (i.e. populations between 500 and 6,000). The scheme relates to the development of industrial, commercial and residential property in any of the 101 approved town renewal plans submitted to the Department of Environment and Local Government. Available, subject to certain restrictions and conditions, until 31 July 2008.
Multi-Storey Car Parks – incentive for the development of car parks consisting of two or more storeys. Available, subject to certain restrictions and conditions, until 31 July 2008.
Park and Ride Facilities – Incentive for development of qualifying facilities and associated residential and commercial premises. Available, subject to certain restrictions and conditions, until 31 July 2008.
There’s the area based construction tax incentives for the Shannon area as well - mainly for people living 12km of the Shannon. Introduced in last year’s budget. According to Goodbody Economic Consultants, “These tax costs [to the exchequer] are high relative to the outputs achieved. For example, the present value of tax costs represent up to 43% of the building costs associated with developments undertaken as part of the schemes”.
As I said, the original article was finfacts. But give me a week of research and I’ll have something a bit more substantial. I usually trust http://www.finfacts.ie on these things, but sure no harm to double-check.