Turbulence Ahead

An Inhospitable Climate

2009-07-15T08:02:00.006+01:00

The British are increasingly worried about their energy security. We should be worried too. One (more) consequence of the credit crunch has been the mothballing of various plans by major energy companies like RWE and E.On to invest in new electricity generation capacity in the UK. Just as the UK needs to be rapidly expanding its capacity (which we will benefit from as well).

The figure is from a new report by Nigel Hawkins for the Adam Smith Institute - Re-Energizing Britain. Hawkins argues that the belated u-turn on building nuclear power stations to replace those now being de-commissioned came rather late. Not least because the capital cost of building nuclear power stations is substantially higher than coal and gas power stations (even if the generation costs are lower when up and running). And right now, raising billions for investment in power stations is even more difficult than it used to be. Hawkins worries that the German and French power companies now dominant in the UK may look to other countries to invest (including Germany if its ban on new build nuclear power plants is lifted as some have suggested).

Building smaller nuclear power stations doesn't solve the problem either - a false economy, as noted in this analysis of micro-nuclear. Though I like the Russian innovation of building a floating nuclear power station - I wonder could we float one into Dublin Bay on those occasions when the wind doesn't blow?

I look forward to a growing emphasis on more efficient and effective energy generation technologies in coming years. As a recent paper on How to get climate policy back on course (pdf) points out, target emissions setting strategies such as Kyoto have failed - and will continue to do so. What is needed an engineering focus on decarbonization which directly addresses the main source of CO2 emissions (and pollution in developing countries): namely the provision of heat and light, mostly via electricity generation.

And who knows, by doing so we might even shed more light than heat on our own tortuous energy 'debate' here in Ireland.

Nobody's In Charge

2009-07-13T17:08:00.008+01:00

The challenge for the State is to steer economic and social endeavour towards objectives of improved living standards, well-being, quality of life, social cohesion and inclusion, and environmental sustainability. Sharing Our Future, p.125

It isn't actually. The challenge for those temporarily in charge of the State is to avoid getting in the way of those individuals, businesses and communities who - through their own endeavours - are raising our standard of living, our quality of life, and improving our environment. Though I don't hold out much hope for that given the tone of the new report from Forfás: Sharing Our Future: Ireland 2025 - Strategic Policy Requirements for Enterprise Development. The report signals a profound leftward shift by our political masters towards a more dirigiste approach to policy development for Ireland. Take this extract from page 117:

There is a need for greater debate on Irish values, society and the economy as we emerge from the current crisis that should include redressing of the balance between a strong economic emphasis and the possible adoption of a more northern European model of society. Mechanisms should be developed to create shared perspectives, encourage collaborative and collective responses at local and national levels, examine how to enable ownership of responses to big issues and involve people and enable them to see the impacts etc. Consideration should be given to the development mechanisms for community engagement as occurs in other countries that have compulsory military or community service to revive social cohesion, as well as to address emerging environmental and security issues.

Sounds like we're turning distinctly Scandinavian. That said, the report itself is a useful summary in one document of a lot of prevailing thinking about a host of issues from demography to energy, from regulation to innovation. It even sets out four interesting scenarios for Ireland's long term future in the appendix - a methodology I have noted before.

It follows the same style and tone of most such 'futures' reports from organisations like Forfás: full of 'musts', 'shoulds' and 'oughts' - mostly re-cycled from many previous studies and commentaries published by Forfás. Mind you, the following passage certainly stood out from the usual, 'neutral' tone (also page 117):

There is a need to understand and encourage the longer-term debate as Ireland moves from a relatively closed and poor society to a wealthier and outward looking society, more open to international trends and with more flexibility in both social and cultural terms. This could be done by encouraging the development of wider aspirations and more inner directed self actualisation values, by debating how to replace traditional organising principles and by discussing alternative options for meeting spiritual needs.

Forfás channeling John O'Donohue it seems!

The fundamental problem for me, however, is the assumption running through the report that the State is capable of foreseeing the future and then steering economic and social developments accordingly. The schema above copied from the report captures this conceit perfectly: the world of business (the economy) is enveloped in the guiding embrace of planning and governance (the state).

I don't think so. William Easterly gets to the heart of matter in a commentary on Pope Benedict's recent encyclical. Easterly notes the predilection of the Pope, politicians and policy makers generally (including Forfás it seems) to fall for the Man in Charge fallacy:

The Pope has fallen for the venerable “Man in Charge” fallacy. There is a “Man in Charge” of the global economy (or, according to the Pope, there should be). So all that we need is to get the right comprehensive set of recommendations to the Man in Charge to fix the global economy.
This a fallacy simply because: there is no Man in Charge of the global economy. There never has been, and there never will be. There is no Man in Charge of any national economy either. This is not about the debate about the role of government vs. markets, this is simply a statement of fact. There are government leaders, to be sure, but they are only one among many different power centers in the political system, society, and in the economy, all with sharply conflicting interests and tools to effect change, and so any individual leader has very limited power to change things. This is true of both authoritarian and democratic systems. You may want one of those leaders to act on a particular problem, which is fine, but you should not think that leader is the Man in Charge.

Easterly then goes on to a make a point about economic development strategies that goes to the heart of the Forfás approach:

The Man in Charge fallacy contaminates much of the discussion in development economics. There is an endless search for the right comprehensive strategy to end global poverty, or to achieve national economic development. Such a search only makes sense if there is a Man in Charge, which there isn’t, who would have the power to implement The Strategy. Once you realize that all power is partial, you seek ways to achieve incremental beneficial changes and you end the unproductive search for the Complete Grand Plan to solve the problem all at once.

So why do we all fall for the Man in Charge fallacy?

We like to anthropomorphize a complex system of multiple power centers, bottom-up social norms, and spontaneous markets, innovators, and entrepreneurs, because it is scary to think of such a complex system with no Man in Charge.

There you have it: the role of the Forfás report is to give the impression that 'someone is in charge' and that 'someone has a plan'. Don't get me wrong: there is some value in this - not least because the Forfás report invites us to raise our gaze above the day-to-day fallout from the economic crisis we are going through. It even provides a sense of hope as it points to a future that is much better than the present. I for one am grateful for any such efforts in these difficult times.

Nevertheless, we need to be grown up about the future. I take my cue from Kevin Kelly (yes, I do read others but he is very good!) when he notes that the future - be it our own personal future, that of a technology, or that of the human race as a whole - is subject to three distinct forces:

In addition to the primary drive of preordained development (force #1), and in addition to the escapable influences of technological history (force #2), there is society's collective free will in shaping the technium (force #3). Under the first force of inevitability, the path of technological evolution is steered by both the laws of physics, and by self-organizing biases within its large complex adaptive system. The technium will tend toward certain macro forms, even if you rerun the tape of time. The path of the technium is further constrained by the second force created by the momentum of past decisions, or technological history. At any moment of technological conception what happens next is contingent of what has already happened, and so history constrains our choices forward. These two forces channel the technium along a limited path, and severely restrict our choices. We like to think that "anything is possible next" but in fact anything is not possible in technology.
In contrast to these two, the third force is our free will to make individual choices of use, and collective policy decisions. Compared to all possibilities that we can imagine we have a very narrow range of choices. But compared to 10,000 years ago, or even 1,000 years ago, or even last year, our possibilities are expanding. Although restricted in the cosmic sense, we have more choice than we know what to do with. And via the engine of the technium, these real choices will keep expanding (even though the larger path is preordained).

I like his idea of expanding choices made possible by the accumulating outcomes of choices made by our predecessors. The future will also be the outcome of the many choices freely made by individuals, businesses and communities today and tomorrow - not those of the Man in Charge. For that we should be grateful: that is how we got here in the first place (and Ireland in 2009 is still a much, much better country than it was 10, 50, or 100 years ago). And it will be even better in 2025 because of that freedom.

From Husbands to Handouts

2009-07-11T11:20:00.008+01:00

"What are you looking for in a husband?" Without batting an eye or pausing for thought, [the young Swedish woman] answered: "Three things. One, he must be good in bed. Two, he must be a good father. Three, when we divorce, he mustn’t be bitter." Jonathan Power

Yesterday saw the publication of the first results of the ESRI/TCD study Growing Up in Ireland. As with all such studies it reflects the cultural priorities and prejudices of its time. So, for example, report No. 2: The Families of 9 Year-Olds manages to discuss family life in Ireland without mentioning marriage. Not even once. As David Quinn has rightly observed, there is now an extraordinary cultural prejudice against the institution of marriage among academics and media commentators. Such that it is now airbrushed out of state-funded studies such as Growing Up in Ireland.

The exception, of course, is gay or same-sex marriage: to my mind an utter distraction from the main issue of marriage's future given than only 1.6% of Irish men and 0.4% of Irish women are homosexual according to the Irish Study of Sexual Health and Relationships. Moreover, it is likely that only a minority of Irish gay men or women (though more of the latter) will enter same-sex marriages. Perhaps as few as 2-3% if the experience of gays in Sweden/Netherlands - where same-sex marriages have been legal for some time - is anything to go by. So we are talking about a tiny minority of a tiny minority of the population.

Like I said, a distraction from the main issue. And yes, I am in favour of the recent civil partnership initiative for same-sex couples: so now, can we get back to debating marriage for the 98% of the population who are heterosexual and the vast majority of whom will get married at some stage in their adult lives?

Except, we can't have a debate if we don't have any data - can we? The prevailing orthodoxy appears to be that assessing families in terms of marital status is somehow passing judgement on the 'choices' that individuals and couples have made. And passing judgement is the one, remaining sin in our secular age. Which is a pity really, because the continuing breakdown in parenting practices - driven by the rising incidence of births outside marriage (33% of the total in the most recent CSO data) - is a measure of the problems we now face, see chart below:

I can't help feeling that the fact that half of all births in Cork City and Limerick City are outside marriage just might - might, mind you - be responsible for some of the social, economic and criminal problems we are witnessing there (and elsewhere) on a daily basis? But there I go - passing judgement again, tut tut.

In the United States the incidence of births outside marriage has now risen to 40%. Nor is this just a function of lifestyle choices and shifts in cultural mores about pre-marital sex. It is also a consequence of deeper shifts in terms of economic independence for women and the substitution of state handouts for husbands for many mothers not in paid employment. As Robin Hanson has recently noted, it also means a reversal of the historical arrangement whereby most men had access to regular sex via monogamy, and its replacement with one whereby a minority of alpha males 'monopolise' sexual access.

Roissy in DC takes it further, of course: he thinks America's destiny is to become more like Sweden - one in which most women view relationships with the fathers of their children as a temporary arrangement (not unlike the young woman referred to in the quote at the top of this post). An arrangement only made possible by the continued substitution of the state for husbands in a growing number of families.

All of these issues are, naturally, outside of the mainstream discourse on family life in Ireland. One that doesn't even like to use the word 'marriage' in state-funded studies of contemporary family life.

Instead we are left with the demographic car crash now under way thanks to the unwillingness and inability of political, religious and cultural leaders (and not just in Ireland) to speak forcefully and convincingly in defence of heterosexual marriage as the best arrangement for raising our nation's children.

And thus ends Western Civilisation ...

Take the Test

2009-07-10T18:26:00.004+01:00

I'm a sucker for science news and views, and for online tests. So I was delighted to take part in the Pew Research Center's Science Knowledge Quiz. You answer 12 science-related questions and they give you your score. I got 12 out of 12 (I'm not bragging - it's not that difficult, trust me!)

What is worrying is that 90% of the US population in a nationwide survey didn't get all 12 questions right. Admittedly I have a few things going for me that make it more likely I'll be in the top 10%: I'm male, middle-aged and college educated (according to Pew's own demographic breakdown of correct responses).

The Pew quiz is part of a larger study of US citizen attitudes towards science - which are re-assuringly positive (though soldiers then teachers score higher in terms of 'contributing a lot to the wellbeing of our society', with scientists coming in third). Oh, and business executives score lowest of all professions surveyed - oops ...

With Ireland intent on becoming a smart economy I wonder how well a similar sample of Irish citizens would perform? Still it's nice to know that aul ones like me can continue to play our part. So go ahead, take the test.

Birth of The Recession

2009-07-08T09:03:00.006+01:00

Literally? Does the trend in births indicate (albeit at a lag) the outlook for the economy? Brendan Walsh thinks so as he has shown a strong 3-quarters lag between the numbers unemployed and the number of births. That's using quarterly data. But what about other factors such as consumer confidence: given that the decision to have or not have children can be based on a mental image of the future?

I recently got hold of data for the monthly number of births in the National Maternity and Rotunda Hospitals here in Dublin. Kindly supplied by their respective information departments. The chart shows the trend in the combined total number of births since January 2007 (lefthand axis), overlaid with a three month moving-average of the percentage change (year-on-year) in birth numbers.

The first thing you notice is the seasonal pattern - see the separate analysis of this pattern here by my own company. Also it is evident that there has been a levelling out in birth numbers, clearly shown by the sharp decline in the growth rate. The rate of increase peaked in December 2007, though the actual number of births peaked in July 2008. From the summer of last year, the rate has fallen sharply - even turning negative. Though there is some evidence of a recent recovery (though the growth rate is still in low single digit percentages).

Given that Ireland's recession started early last year, could we attribute any of the recent fall in births to the recession? One, albeit simplistic exercise is to look at the correlation between the ESRI consumer confidence index and the rate of change in births. What I have found is that there is a significant correlation of 0.46 between current confidence and current birth trends; and a correlation of 0.51 if we use consumer confidence lagged nine months.

This doesn't make life any easier for those running and planning maternity services of course. If birth numbers are seemingly influenced by psychological/economic factors then forecasting future demand for maternity services (say 2-3 years out - after that demographic factors are probably more important) becomes an exercise in economic forecasting. Another reason why we might want to tread carefully with mooted changes to child benefit lest we risk futuricide.

At the end of the day, the invisible hand of population control will hold sway, but we don't need to increase the opportunity cost of becoming a parent any further surely?

Indexing Recovery

2009-07-07T13:15:00.004+01:00

One thing we can be certain about in relation to the current recession is that it will be the most measured, analysed and studied recession ever. A veritable cornucopia of economics Phds for generations to come!

And to add to the data stream, my own company has just developed an Economic Recovery Index that uses the opinions of 1,000 adults answering an online survey every month to try and guage where we are on the economic cycle (recession-trough-recovery etc).

We've been running it since April. The chart shows the shift in the percentages of the sample selecting each of five potential statements about the current economic situation. Like a number of other measures recently it suggests that people think things are 'getting bad more slowly' than recovering per se. Nevertheless there has been an across-the-board improvement in sentiments about the economy across all demographic groups between April and June. That said, older adults (over 50) tend to be more optimistic than the average, as do women more than men.

We are not seeing economic optimism translate into greater consumer activity yet - only 16% of adults in June agree 'I am more relaxed about spending money than I was a few months ago', unchanged since April. But a slight majority (53%) agree that 'now is a good time for young people to buy their first home' (also unchanged since April as it happens).

It's early days - I'll keep you posted if anything interesting happens in future waves.

Should We Envy Albania?

2009-07-06T16:34:00.005+01:00

You know things are bad (as in, off the scale horrendous) when a new study compares Ireland less favourably to Albania. But before you go buy your one way ticket to the people's paradise of Tirana, it might be worth drilling into the numbers a little more first.

The study - The Happy Planet Index - is from the New Economics Foundation. They have created a composite index (the HPI) that is derived from measures of life satisfaction, life expectancy and a measure of a country's ecological footprint. The HPI is then derived from a combination of these three variables. The higher satisfaction/expectancy the better - and the lower the ecological footprint the better.

As with all such indices - derived from data not originally gathered for the purpose of generating any particular index - you do tend to get some strange anomalies. Like Costa Rica topping the list (and there isn't a single European country in the top 20), and Albania scoring much better than Ireland (along with Eygpt, Saudi Arabia, Cuba and a few other surprise 'winners').

Somebody once said about the United Nations' Human Development Index that it is a measure of how 'Scandinavian' your country is. In other words, what gets measured gets compared. Still, it is reassuring to see Sweden coming out ahead of Ireland on the HPI ranking (even if it ranks a lowly 53rd in the world!) given how the natural order of things is to always compare us unfavourably with Scandinavia ... ;-)

A lot of the messages that NEF take from their HPI ranking are harmless enough. Their Manifesto for a Happier Planet on page 48 of their report identifies the role of alleviating poverty and improving the environment in terms of making people happier. Though their nostrums about 'the evils of consumerism' might date somewhat as the recession bites.

But I would suggestion one possible improvement to their index: add in net migration statistics for each country - immigrants minus emigrants. Those with negative scores (more emigrants than immigrants) would presumably be countries that are not such great places to live? I'm guessing that Cuba might not retain its position at number seven in the world, for example.

Mind you - Ireland might not do too well on that measure either come to think of it. I wonder will Ryanair be opening a route to Tirana any time soon?

Praise Where Praise Is Due

2009-07-05T14:38:00.005+01:00

Having recently cast aspersions on Dublin City Council's bike rental initiative, let me also give praise where praise is due. I have recently signed up to the Council's mobile Parking Tag service, operated by Payzone. You first register your mobile phone number, car registration and credit card details. Then they send you a small barcode sticker for your windscreen and thereafter, whenever you park in the city centre, you simply send a short text to Parking Tag that includes the zone you are in (colour coded) and the number of minutes you want to stay. No need to feed the meter ever again.

This is a godsend to me since I never have enough coins for the meter (especially on days when I have two or more meetings in different parts of the city centre). And it also means I don't have to use the awful MPark service anymore, which is being phased out at the end of this month anyway (awful because the meters were out of order at least 50% of the time in my experience).

I've already used the service several times and it works flawlessly. Whenever you text your parking details to Parking Tag you get a text message reply noting when your time is up. They even send you a text 10 minutes before your time is up just as a reminder. This is one of those technology-driven advances that really does make life a lot easier and a great deal less stressful.

I'm with Kevin Kelly - the smartest commentator on big picture technological trends on the planet - when he observes that:

In our ceaseless collective generation of new technologies, we technology boosters can invent more appropriate tools for minimalism, even though they are not doing that for us. Nonetheless, the Amish and minimites have something important to teach us about selecting what we embrace. I don't want a lot of devices that add maintenance chores to my life without adding real benefits. I do want to be slow to embrace technology that I can back out of. I don't want stuff that closes off options to others (like weapons). And I do want the minimum because I've learned that I have limited time or attention.
I think I can put it this way: What we are seeking is the minimum amount of technology that will generate the maximum number of options for all.

Parking Tag is just that: an ideal combination of technological simplicity, efficiency and liberty. Well done.

Scéal Eile

2009-07-01T20:44:00.007+01:00

I've been meaning to write about the subject of 'stories' or 'narrative' for some time. I think one of the fundamental challenges we face in Ireland right now is that of shaping a shared, compelling narrative or story about our nation's future and the path to it.

We once had a story but we lost it. Watching RTE's broadcast about Lemass last night, it struck me that the story we once told ourselves had an outline something like this:

We are the young Europeans, with an ancient history behind us and an exciting future ahead of us. And our time has come to take our place in the modern world; to reap the benefits of modernity and to bequeath a much better country to our children and grandchildren.

I don't think that that's the story we tell ourselves now. Optimism, modernity and even the future have become tarnished by cynicism and despair brought on by the hyperbolic boom-bust we are now experiencing. But it will pass. And a new story will emerge/converge around new realities and possibilities.

What that story might be is something I want to come back to it in a future post, but in the meantime I want to share with you some quotes from a delightful book I have just read (and re-read) called The Healing Power of Stories by Daniel Taylor. It's out of print, but Amazon's brilliant used book service will source it for you if you are interested.

Here's a flavour of Taylor's wisdom - firstly on why stories are so compelling:

We are drawn to narratives because we experience our own lives as a narrative, as story.

... The human brain is so constructed that it actually processes experiences in narrative form. It seeks to integrate separate actions, actors (characters), sequence, cause and effect (the primary link between actors and actions) into a meaningful whole.

... Seeing our lives as stories, rather than as an unrelated series of random events, increases the possibility for having in our lives what we find in the best stories: significant, purposeful action. We all want very much for it to have mattered that we were here.

... Understanding my life in this way gives me better reasons than I otherwise have to live life with optimism and courage.

And here he is on why stories matter (for individuals, groups and nations):

The inability to imagine a variety of future stories for ourselves in which our lives are rich and meaningful diminishes on the everyday level the actual possibilities for our lives.

... Stories multiply our possibilities.

... This power of the imagination links the past and present to the future, and gives us the possibility not only to know things, but to create whole new realities.

... Story understands that if we do not know something emotionally we do not know it completely.

... Story is a vessel for carrying meaning. ... Detach meaning from story and both die.

... A genuine story will not leave us alone. It insists, sometimes in the most impolite terms, on changing us. Not necessarily cataclysmic, life-redirecting change, but change notheless.

Here he is on what stories do to us:

A good story is one that makes you good, or at least better. I mean this in the widest sense. Good stories don't simply make you a nicer or more ethical person - though some can; they draw out of you more of what makes you a feeling, giving, thinking, creating, laughing, curious human being.

... For all our individualism, we seem to have a fear and loathing of true freedom. Growing from the deterministic seeds embedded in Darwin, Marx, and Freud, and egged on by the radical scepticism of postmodernism in the humanities, the view has spread that we are powerless to shape the character of our lives.

... Stories tell us otherwise. They insist on the link between character and plot.

... What is a character? A character is a bundle of values in action.

... Everything that happens in a story has the potential for revealing and forming character. The essence of plot is characters choosing. Like it or not, story tells us we are free and therefore responsible. We may be failures but we are not robots.

... Characters in stories much choose, and are responsible for the consequences of their choices. With choosing comes significance.

... Every choice a character makes is a vote against the chaos of infinite possibilities. In a random world everything is possible but nothing significant is likely. ... Story transforms the useless freedom of chaos into the invaluable freedom of responsibility, and it does so by insisting on the significance of choices.

... By truly choosing, a character both limits freedom and gives it value. Each choice limits subsequent possibilities in a way that increases the likelihood of significance. ... Each choice in the middle [of the story] reduces the possible endings, but without those choices the end would have no meaning.

And why stories are our only true guides to the future, and not statistics or forecasts:

Stories engage both the heart and the head and move people to action. Statistics elicit counterstatistics and move people to argue. Stories demand a response (that is, responsibility); statistics encourage a rebuttal.

Finally:

The power of an imagined end, and it literally can only be imagined, lies in its ability to influence present choices.

I hope these few lines extracted from the book (and there were many, many more I could have chosen) give you a sense of why I think stories are so important. The stories we tell ourselves about our future as a nation - and the choices they 'make' us make - will do more to shape the country we will become in five, ten or even fifty years time than anything else we do. As Sean Lemass proved.

Like I said, I'll come back to this topic again (and probably again) in future posts.

Open For Business?

2009-06-30T14:14:00.006+01:00

Today's Central Bank statistics add more to fuel to the fire about bank lending to Irish businesses. The latest data are for March and April 2009. I have taken Table B2.2 new business lending volumes to non-financial corporations and I have combined the monthly 2009 data and the equivalent 2008 data to determine what the year-on-year trend is. Note that Easter was in March last year but in April this year - so combining the two months offsets any potential seasonal influences.

Nevertheless the picture is quite disturbing: overdraft facilities are up on last year - just (by 1.1%). But smaller loans (under €1 million) are down: by nearly 18%. And larger loans (over €1 million) are down by over 19%. In the case of the latter there appears to have been a collapse in longer term loans of over 5 years duration between March and April 2009. I have no idea why.

I used to wonder what is the point of Anglo-Irish Bank: now I'm beginning to worry about all the rest of them ...

Horse, Stable, Bolted

2009-06-30T13:14:00.006+01:00

Consumers are becoming more price conscious and thereby forcing retailers to cut their prices - shock, horror! That's just about the conclusion of today's Retail-Related Import and Distribution Study from the Competition Authority. It examines the grocery, clothing and pharmaceutical sectors in Ireland for evidence of 'anti-consumer' practices and abuses. Though as the word cloud I've created from the text of the report shows, consumers don't actually get much of a mention in the report ...

The report has rather more to say about the role of government in preventing consumers from getting a better deal. Take pharmaceutical products - the study notes that:

The prices of the vast majority of medicines in the Republic of Ireland and the UK (and thus Northern Ireland) are determined by State policy. Approximately 80% of the value of all medicine sales in the Republic of Ireland is recouped from the State, effectively making it the single largest buyer of pharmaceutical products in the Republic of Ireland.

As part of the tight controls on the sale of medicines in the Republic of Ireland, retailers and wholesalers are legally restricted from going outside the Republic of Ireland for supplies of pharmaceuticals - with the exception of a very small number of specially-licensed importers who, typically have less than 5% of the Republic of Ireland wholesale market.

The impact of the sterling depreciation has been negligible in terms of reducing sales or lowering prices of medicines in Republic of Ireland. Demand for medicines is always relatively stable, even the recession has had only a small impact. The sterling depreciation has given a boost to licensed importers but they are such a tiny part of the supply chain that there is little or no benefit to consumers.

Which might explain why prices in most categories are falling except in those dominated by state pricing decisions (pdf) - namely education and health (and, indirectly, alcohol and tobacco).

Nevertheless, there is a sense from reading the Competition Authority report that it's analyses are already rather dated. Much of the sterling/euro exchange rate anxiety that vexed so many late last year has partially abated. Moreover, recent efforts by retailers to avail of more efficient international buying processes (Tesco and now Dunnes) have ensured further gains for Ireland's cash strapped consumers.

Let's hope their next study takes a more detailed look at the impact of Government policies themselves on consumer welfare (and harm). I suspect there's much, much more room for improvement in that regard. And maybe the forthcoming report from An Bord Snip Nua might go some way to delivering said improvements.

The Economics of Deferred Gratification

2009-06-28T17:25:00.008+01:00

A famous experiment in the 1960s involved a group of 4 year olds who were given a marshmallow. They were then left alone in a room having been told they could have a second marshmallow if they just waited 20 minutes before eating the first one. The story goes that those children who did wait 20 minutes then went on to do better at school, be more successful in their careers, report greater levels of happiness, and be less likely to divorce (I exaggerate only slightly!)

The experiment was all about deferred gratification - that quintessentially middle class virtue. Deferred gratification is what gives us the savings that are in turn loaned by banks to businesses who create jobs and wealth; the pension funds that keep us comfortable in our old age; as well as the willingness of parents to invest in their children's education. Without it we would all be a great deal poorer. Deferred gratification may well be the most powerful force operating in the economy: though perhaps the least acknowledged.

The bad news is that deferred gratification isn't what it used to be. Indeed, it appears that the demise of deferred gratification may have been partly responsible for the credit crisis (deferred gratifiers don't max out their credit cards nor take out sub-prime loans). Another consequence of this demise has been the collapse in birth rates in many developed countries and a growing number of developing countries. As The Economist reports this week in a brilliant Survey of Ageing Populations, fertility is now below replacement levels in over 70 countries, which together account for nearly half the world's population.

But surely falling birth rates are the ultimate indicator of 'deferred gratification'? Yes and no: 'yes' in terms of the conscious decision by millions of couples to postpone having children - or not to have them at all (as in the case of a quarter of all German women now in their 40s). 'No' because the decline in birth rates has nevertheless been accompanied by a massive increase in pre-marital sex - reversing the practice in most societies before the invention of effective contraception. As illustrated in the graph below:

It comes from a fascinating paper on Social Change: The Sexual Revolution by economists Jeremy Greenwood and Nezih Gunery. They note that:

Technological progress affects society's consumption and production possibilities. It therefore changes individuals' incentives to abide by social customs and mores. As people gradually change their behavior to take advantage of emerging opportunities, custom (an aggregation of individual behavior) slowly evolves too.

This notion is applied here to the rocket-like rise in premarital sex that occurred over the last century. Now, a majority of youth engage in premarital sex. One hundred years ago almost none did. This is traced here to the dramatic decline in the expected cost of premarital sex, due technological improvement in contraceptives and their increased availability.

... Improvement in contraceptive technology may also partially explain the decline in the fraction of life spent married for a female from 0.88 in 1950 to 0.60 in 1995. This is due to delays in first marriages and remarriages, and a rise in divorce. Historically, the institution of marriage was a mechanism to have safe sex, among other things. As sex became safer, the need for marriage declined on this account.

The contraceptive pill will be fifty years old next year (it was approved for use in the United States by the Food & Drug Administration in 1960). Nearly half a century later we are still coming to terms with the consequences of a remarkable technological innovation and its wider social, cultural and economic impact. Including the fall in birth rates (not all attributable to the pill obviously), and the huge problem this is creating in terms of supporting ageing populations around the world.

Sticking with the economic impact, we are faced with a growing debate about the role of personal consumption in driving global economic recovery. The argument goes that high saving, high exporting countries (Germany, Japan, China in particular) need to save less and consume more in order to facilitate a 're-balancing' in the global economy. But it isn't going to happen: these countries are ageing faster than many others and - if anything - have an incentive to save even more and spend less. Deutsche Bank's Norbert Walter has argued recently in relation to Germany's imminent labour shortage due to its ageing population that:

In order to create a cushion for that period we should continue to generate current account surpluses and use the corresponding savings now to specifically finance infrastructure investments in emerging markets and developing countries, so that the recipient countries become more productive. They can then help us to finance our import surplus from 2015 onwards via dividend payments on these high-yielding investments. Germans should not indulge in overconsumption now and then have to endure poverty in old age.

So he's calling for more deferred gratification - not less!

Here in Ireland the forthcoming Commission on Taxation looks set to reduce the incentive for deferred gratification by reducing tax relief on pension contributions. It may even go further and compound matters by taxing child benefit without any compensating measures to encourage married couples to have children via the tax system. It might make sense in the short term ... but in the long term it will only accelerate our convergence with demographically-challenged countries like Japan and Germany.

Are there any silver linings in all this? Well it seems from another economic study that older people adopt more of a 'live for today' attitude as they get older - increasing their marginal propensity to consume (ht Geary Behavioural Economics Blog). So with a bit of luck the demise in deferred gratification that gave us the ageing population problem in developed countries might at least partially solve itself due to the 'spendthrift' nature of the generation now retiring.

Of course, if they leave nothing to their children then there might not be any grandchildren ...

Slaughtering Sacred Cows

2009-06-26T17:24:00.008+01:00

The Irish Academy of Engineering are likely to upset most everyone with their latest report: Review of Ireland's Energy in the Context of The Changing Economy. There is hardly a sacred cow that left unslaughtered in their report. And like most engineering analyses it is precise, logical ... and quite convincing.

The following cows are put through the IAE abattoir:

Electric vehicles - 'an unwise investment'
East-West Interconnection (one of my favourites) - wait until the UK build more nuclear power stations
Smart metering - 'postpone any major commitment'
Gas/wind bias of current plan - country 'vulnerable to major supply interruptions'
Additional electricity generation - better off 'focusing on energy efficiency'
Renewables share of capacity - don't go beyond minimum EU requirement

It's a plan that assumes we will be a long time getting back to the type of growth trend that warranted a significant expansion of electricity generation capacity until quite recently. Engineers making economists look like raging optimists - who would have thought?

They sensibly call for the removal of the legislative ban on nuclear energy (so that it can be properly considered - not necessarily adopted if the economics don't make sense). And they have a robust focus on making sure the consumer/taxpayer does not end up paying for policy decisions by government in cahoots with the energy sector that are driven by ideology and lobbying rather than by what is robust and affordable.

One other sacred cow taken to the slaughter house is that of green jobs. In relation, for example, to ocean energy and jobs they note:

the Academy cautions against excessive optimism concerning the creation of long term manufacturing jobs associated with these technologies. Ireland is a small market with high labour costs and little tradition of mechanical engineering manufacture. It is always likely to be more successful in creating jobs with a high intellectual value.

Wise words, not least because of experiences elsewhere. For example, Professor Gabriel Calzada has analysed the impact of Spain's renewable energy drive on jobs and found that:

they often are temporary and have received $752,000 to $800,000 each in subsidies -- wind industry jobs cost even more, $1.4 million each. And each new job entails the loss of 2.2 other jobs that are either lost or not created in other industries because of the political allocation -- sub-optimum in terms of economic efficiency -- of capital. (European media regularly report "eco-corruption" leaving a "footprint of sleaze" -- gaming the subsidy systems, profiteering from land sales for wind farms, etc.) Calzada says the creation of jobs in alternative energy has subtracted about 110,000 jobs elsewhere in Spain's economy.

We need more sober thinking like that of the IAE if we are to avoid compounding the economic policy mistakes of the past decade with energy policy mistakes over the next decade.

Just The Business

2009-06-25T20:28:00.005+01:00

By coincidence the latest trade data from the CSO points to a recovery in Irish export performance on the same day that the National Competitiveness Council tells us we've become too expensive as a location for exporters. It's probably more of an aberration than a contradiction: the NCC case is compelling (and familiar to anyone following the debate).

The collapse in imports rather than the mild recovery in exports is the truer indicator of domestic economic realities. Both the OECD and the IMF produced separate forecasts yesterday showing a collapse in Irish consumer demand this year, and a gentler reduction next year. It will likely take until 2014 for consumer spending to get back to where it was in 2007. Seven lean years indeed.

More importantly in the short term is the issue of bank lending to businesses. The NCC addresses the issue thus:

There are serious concerns that the turmoil in global financial markets and the exposure of Irish banks to bad loans in the declining property sector is affecting Irish firms, particularly small firms, in terms of their ease of access to finance and its cost. It is critical that the success of viable businesses is not hindered by the tightening of credit standards or the high cost of capital. The ongoing efforts to resolve the banking crisis should:

- Support viable businesses: ensure that the State uses its funds and influence to ensure that banks are lending to viable businesses;

But with the banks forecast by the IMF to lose up to €35 billion on property loans then their appetite for lending might just be a tad restrained. Both the NCC and ISME have drawn attention to this problem - with limited effect so far.

That's a pity because lending to businesses (as opposed to property and land speculators) is crucial to long term economic growth. Chris Dillow references new research which shows that:

a 10 percentage point rise in the ratio of bank lending to firms to GDP is associated with an increase in GDP growth of 0.2 percentage points a year. This controls for other influences upon growth, including stock market activity.
... The researchers also found that bank lending to households has no influence upon long-term growth. ... This has an important implication. It means that if policy-makers want banks to help the economy, they must do more than just ensure the banks are adequately capitalized and tolerant of risk. They must also get banks lending to firms.

It would be a pity if we went and got our costs down to make us more competitive, and incurred all the pain of adjusting taxes and public expenditure, only to discover that the banks are open for business but there's nobody behind the counter? That'll only lead to exporting people. And we know that that didn't work.

One Day Like This

2009-06-25T07:36:00.002+01:00

Never mind the IMF and OECD, one day like this a year would see me right ...

The Silence of the Sheep

2009-06-23T20:31:00.011+01:00

I'm back on the theme of Bye Irish again. IBEC today published a useful paper on the Irish Food & Drinks Industry (pdf) focusing on competitiveness indicators. Or rather, the lack thereof.

The paper laments the concentration of retailers and their dominant position vis-a-vis Irish food manufacturers. It also notes the comparatively high cost of doing business here versus just-about-anywhere-else. All verifiable and useful analyses. However, there is one thing the report is curiously silent about, and that is the Common Agricultural Policy. Which is a bit like discussing Ireland's monetary policy without mentioning the European Central Bank.

Luckily the CSO has helped flesh out IBEC's analyses with its publication of Output, Input and Income in Agriculture 2008. Among the more disturbing aspects of the analyses in the report is the fact that subsidies net of production taxes make up 82% of the entire operating surplus of Ireland's agriculture sector. This has prompted Constantin Gurdgiev to wonder why we still have "a Department of Agriculture in this country if the net and gross value added by this sector is smaller than the net subsidies the sector receive."

The problem for IBEC and the wider food sector that it represents is that we have an indigenous agricultural production system hopelessly distorted by the perverse incentives of the Common Agricultural Programme. Take sheep, for example. The numbers of other livestock in Irish agriculture (cattle, pigs, chickens) have remained broadly stable over the past five years. But the number of sheep have fallen by 17% from their peak four years ago. Could it be due to a virulent ovine disease perhaps? Or a sudden collapse in the demand for woollen jumpers due to global warming? Well no, the answer is in Table 5 - Subsidies to Products. The value of subsidies to sheep fell from €106.6 million in 2004 to zero in 2007. The farmers were responding to prices all right - but they were the artificial prices created by CAP subsidies. I have often thought that if the CAP offered subsidies for camels then Ireland would end up with the biggest herd outside of Saudi Arabia.

Still, the good news is that farmers will respond to prices (and to the demise of subsidies). In the long run this can only mean a healthier food and agri sector driven more by consumer demand and less by vote-buying subsidies. The sooner the better - and then we might see an Irish food sector thriving despite the issues identified by IBEC.

The Abysmal Science

2009-06-22T18:15:00.006+01:00

When did the recession start? Curiously, the recession - as far as housing is concerned - seemed to set in around Q2 2006 - almost two years before it showed up in negative GDP data. The chart shows the year-on-year growth trend in residential volume production. There was a brief (albeit spectacular), positive blip in Q1 2007 (the peak of Irish housing and stock market valuations) but thereafter the trend (re)turned negative. And then some: a 56% volume decline in residential production in Q1 2009 on the year previous - according to today's CSO report.

And yet nobody was calling it a recession in 2006 (or 2007), though a few did see it coming thereafter. What does this say about economics and its analytical/forecasting skills? Here's one take on the 'abysmal science', from Thomas Naylor - a professor of economics as it happens at Duke University:

No academic discipline has ever been so thoroughly discredited in such a short period of time as has economics over the past year. Virtually no business, government, or academic economists foresaw what may prove to be the greatest economic meltdown in history. Even though all of the evidence points to a major recession, many economists are still in denial as to the downside risk.

Naylor accuses the profession of having been 'blind-sided' by an ideology that preached unregulated markets and low/no taxes. Government was an innocent (though too easily duped) bystander in this version of history. On the other hand, David Simpson's analysis for the Adam Smith Institute of what went wrong observes that:

Governments and their central banks contributed to the boom by: (1) keeping interest rates too low for too long, allowing asset-price bubbles to build; (2) giving implicit guarantees to the banks and other borrowers; (3) failing in their functions of prudential supervision and financial market regulation; and (4) encouraging borrowing by those least able to afford it.

Not quite the 'regulation-free' picture painted by Naylor. Add in the Principal-Agency Problem in relation to bank shareholders vs. bank trader/employees and you get the perfect storm that is still blowing (albeit less forcefully than at the start of the year). I find Simpson's analysis more convincing, even if it lacks the hand-bagging force of Naylor's reasoning. I also find myself convinced by Simpson's take on the when and how of economic recovery (in the UK, but also by extension in the USA and Ireland):

Most Western economies are now in the middle of a painful but inevitable process of de-leveraging debt. Some of these economies are more resilient than others, but nowhere is it possible for an economist to predict exactly when this recession will end. If the present recession in the UK were to follow the pattern of the recession of the early 1980s, as it has done so far, it would take another year to bottom out, and a further two years before returning to pre-recession levels. But there is no reason why it should follow the earlier pattern.

What one can say with confidence is that it will come to an end, because recessions always do. They do so because the market economy is a continuously self-adjusting process of growth and change. There may be political constraints placed on this process, for good reasons and bad, but the satisfaction of both individual and collective wants in the future, as well as developments in technology, provides unbounded opportunities for investment and therefore for the resumption of growth in the aggregate as well as in the particular.

That doesn't mean a recovery in the Irish housing sector any time soon however. Then again, the recession in housing was well underway before a full blown recession set in. Therefore could it lead the recovery? The economic consensus is that it will lag recovery rather than lead it - which I'm inclined to agree with this time.

But it isn't all 'dismal' news from economics. Anti-Dismal reminds us that economics affects political fortunes as well, for good or bad, citing research by Andrew Leigh which shows that:

voters commit systematic attribution errors when casting their ballots – tending to oust their national leaders when the world economy slumps, and retain them when it booms. In the preferred specification, a 1 percent increase in world GDP growth is associated with an 8 percent increase in the probability that an incumbent leader will be re-elected. To put this into perspective, national leaders are re-elected, on average, 57 percent of the time. An extra 1 percent of world growth raises this probability to 65 percent.

Maybe Cowen, Lenihan et al just need to hang in there until a real recovery is underway ...?

A (Bicycle) Accident Waiting to Happen

2009-06-21T13:56:00.004+01:00

I spotted a row of unusual grey metal columns in Dublin's Exchequer Street yesterday. I eventually figured they were part of the imminent 'bike-rental' scheme to be launched in September by the Council and JC Decaux. Dublin City Council is getting 450 bikes for 'free' from JC Decaux in return for the latter having use of advertising space around the city.

The bikes are the same as those used in a similar scheme in Paris. Which is why we should be worried. Here's Division of Labour on the Parisian experience:

Parisians have clearly taken to Vélib'. They are also taking the bicycles, and wrecking them, at an unanticipated rate.
Since the program started in July, 2007, 8,000 of the bicycles have been stolen, and nearly 1,400 people were arrested for Vélib' theft just last year.

Police have retrieved about 100 of the purloined bicycles from the depths of Paris canals and the Seine River. Some have been spotted on balconies. There have been reports that a few turned up, mysteriously, on the streets of other European cities. But the fate of most of the missing bicycles is unknown.

At the same time, 16,000 bicycles have been vandalized.

It seems half of all the bikes have had to be replaced by JC Decaux. No big deal for Dublin County Council surely - after all the deal is that JC Decaux must have 450 bikes available at all times? So they, and not the Council, are financially liable for replacements. Problem is: the same deal was done in Paris, but it turns out the city council there is now having to pay for replacements themselves - at a cost of €1.6 million a year.

On yer bike I say to that kind of deal. Though preferably not one subsidised by the taxpayer/rate payer.

Avoiding Futuricide

2009-06-19T16:50:00.003+01:00

The chart shows what happened to births in Ireland the last time we had a prolonged increase in the unemployment rate. It's a from a timely post by Brendan Walsh over at The Irish Economy blog. Brendan wonders, as do I, whether the current recession will precipitate a collapse in Irish birth numbers, reversing the baby boom previously underway.

I suspect it will, but the cohort effects are probably different from the 1970s/1980s and it might not be as severe. At least I hope not - if we are to avoid the fate of Latvia. And we certainly don't need child-unfriendly changes to tax and social welfare policies that dis-incentivise couples having children. A mistake now being made in Latvia: leading one commentator to accuse the powers-that-be there of national futuricide.

Inconspicuous Consumption

2009-06-17T21:26:00.005+01:00

Are you sick and tired of being sick and tired? Sounds like Recession Fatigue. I first came across it in the early 1990s (that's two recessions ago for our younger readers). One psychologist writing about the UK recession back then described the symptoms as follows (pdf):

• a growing sense of frustration, uncertainty, disappointment and ineffectiveness, often described as a sense of losing control.
• increasing tiredness, confusion, and malaise, feeling punch-drunk with too many problems to solve.
• a feeling of personal isolation from family and friends at home and work.
• a sense of inadequacy in family life due to lack of time/money to maintain former lifestyles.
• a personal dilemma between the temptation to quit or give in to despair, and the courage or “bottle” it takes to hang on and keep trying.

I suspect more than a few of us have experienced some or all of these symptoms in recent months. But there comes a time - for the vast majority of people still in jobs, and still receiving regular salaries and wages - when you can only take so much of the constant mood music of doom and gloom and you need to escape ...

Which is why I am beginning to suspect that Irish consumers might just play a bigger role in Ireland's economic recovery than we are giving them credit for. A lot of the analyses of the Irish consumer assume:

a) they are all up to their neck in debt, and
b) consumer spending will be the last thing to recover until unemployment has fallen.

Both assumptions are wrong. In fact, the majority of adults in Ireland have no debts: 60% according to a recent report on Financial Capability from the Central Bank. The problem of private sector debt is actually a problem of developer debt: a small number of individuals have enormous debts, alongside a small minority with debts arising from second mortgages. The majority have no debts, not even credit cards. If anything, it appears that consumers save too much, rather than too little.

Regarding the second assumption, my own analysis shows that consumer confidence picks up when spending levels off - it doesn't have to fall back before confidence rises. Simply put: once unemployment levels off, those in jobs assume they have 'dodged the bullet' and start spending again.

Moreover, some research by my own company has seen a sharp fall between April and May in the percentage of adults who think that 'the economy is bad and getting worse' (though they're still the majority), and a commensurate increase in the percentages thinking 'the economy is bad but stable/bad but showing signs of improvement'. It doesn't amount to a field of green shoots, but it might just suggest that a growing minority of consumers are tired of recession fatigue and starting to loosen the purse and wallet strings. And maybe it's because they realise that this time is not different.

Of course, in the current climate, we won't see too much conspicuous consumption, but maybe some of the inconspicuous type (though 'seeing' it will be a challenge).

Tax the Tall, Not the Fertile

2009-06-16T13:41:00.006+01:00

The leaks have started. We are being prepared for the forthcoming recommendations by the Commission on Taxation. The Sunday Business Post has given us a flavour, including:

the introduction of a tax on residential property
tax on child benefit payments
restriction on pension tax relief and
new tax treatment for retirement lump sums

The property tax is clearly the big one: Ronan Lyons estimates such a tax could raise €4 billion for our cash-strapped government. Ronan is a fan: I'm not so sure myself - I think taxes, if we must have them, should be based on flows (income/interest/inheritance etc) rather than assets. Especially assets that might not even provide a flow of income (such as family homes).

The Commission's terms of reference note the Government's commitment in its programme to "increasing the fairness of the tax system". Fair enough - but why stop at property? If we want to tax assets that do provide significant income advantages to the asset holder then we should tax tall people and beautiful people. One recent, somewhat tongue-in-cheek analysis of the impact of height on earnings capacity suggests that optimally set taxes on tall and medium sized people could lead to transfers of up to 13% of their income to short people. But why stop there: some have suggested that human growth hormone should be given to the siblings of short people as a matter of social policy designed to reduce income inequality. And not just income inequality: there is a significant, negative correlation between the height of Irish women and the incidence of depression.

But if taxing tall people is not to your taste (nor that of the Commission), then why not tax beauty instead? A long term study (pdf) by Harvard University has shown that attractive people enjoy higher incomes - other things being equal - than less attractive people. Robin Hanson has suggested that the logical extreme of such findings would be to tax beauty products as they provide unfair advantages to users by way of enhancing attractiveness.

Isn't it weird where you end up when you start thinking about tax and fairness?

Don't worry, I'm not really suggesting a tax on make up. Anyway, as the picture above shows, our concepts of beauty (in women) have changed markedly over the past fifty years - as noted by Roissy in DC (n.b.: his are witty and very explicit musings on the life of the single male in Washington DC - personally I'd rather be helicopter-dropped into the middle of the Serengeti with nothing but a catapult than take that on ...)

But on a more serious note, we should think long and hard about the second and third order effects of measures such as taxing child benefit payments simply to reduce expenditure (rather than as part of a coherent set of child-centred policy measures). Countries like Latvia (and Iran as it happens) are in demographic freefall due to collapsing birth rates. In the case of Latvia, the economic crisis appears to be the main culprit - and recent decisions there to cut child benefit are likely to make a disastrous situation catastrophic. We have been warned.

Immaculate Recovery

2009-06-15T08:18:00.008+01:00

Where will growth come from? That's the question bugging me and quite a few of my clients. Wolfgang Münchau puts it well in today's FT:

Instead of solving the problems to generate a recovery, the political strategies have consisted of waiting for a recovery to solve the problem. The Europeans are relying on the Americans to generate growth. The Americans are relying on the Chinese, who in turn are waiting for the rest of the world.

At this rate, any recovery will be an immaculate recovery as it seems none of the necessary conditions for it are actually in place. But at least it looks like a re-run of the Great Depression has been avoided - though at a price. This week's Economist paints a bleak picture of the growing indebtedness of the consumer, corporate and government sectors. A situation now being exacerbated by demographic change in countries like the United States that are facing huge payouts for medical and social welfare payments for their ageing populations. And the only way of making such payments will be to foist more debt on future generations ...

The huge level of debts that now constrain governments mean that traditional fiscal and monetary policies no longer have the same multiplier impact on the wider economy. As noted in this recent guest post on Willem Buiter's blog:

Yet the decision to use monetary policy to keep alive an economy drowning in debt turns also fiscal policy incapable of stimulating the economy, as noted by Irving Fisher. As long as excessive debt is not digested, both monetary and fiscal policies are inefficient. There is not much of an alternative. Either to let the economy collapse, in order to reduce debts, and then use fiscal policy to revive it, or inundate the insolvent economy with public credit, to avoid the collapse, and loose the ability of fiscal policy to pull it out of a prolonged lethargy. Either a horrible end or an endless horror.

So which way is out for Ireland? Exports and trade generally will have a limited role in generating growth so long as the global economy remains stagnant. Investment has collapsed due to the housing crunch, and will keep falling so long as the banks absent themselves from the business of lending. That leaves public spending and consumer spending. Unfortunately the government's insistence on fuelling the former via tax increases means that the latter is falling rather than rising. Worse, we have an inflating state weighing on a deflating economy: not exactly a recipe for success ...

But it doesn't have to be that way. We should be demanding more bang for our buck from public spending: in particular through a focus on public sector productivity. The UK publishes regular updates on its own public sector's performance (not great), and by bringing a similar focus to bear on Irish public sector performance we should be able to get much more for a great deal less. And no, I don't know where or how - but by empowering managers throughout the ranks of the civil and public service (including the power to hire and fire) we will tap into the knowledge that is already there about where real efficiency gains can be made.

This needs to be done quickly: otherwise we are going to have the one possible engine of growth - consumer spending - put on hold because of a political unwillingness to make significant changes to how taxpayers' money is spent. However, if politicians can grasp that particular nettle, the prize will be a surge in consumer spending if taxes are cut. Indeed, I suspect the Irish consumer will play a more important part in the coming recovery than most give him or her credit for. And I'll explain why in a future post.

Drowning in Hyperbole

2009-06-12T07:44:00.005+01:00

I'm thinking of having a barbecue weekend after next. I went to the Met Eireann website for the weather forecast for eight days hence. There isn't one.

So you can imagine my surprise when I read in yesterday's Irish Times that Prof John Sweeney from NUI Maynooth is predicting that (in the absence of a climate change plan) "If we do not implement a plan over the next decade or two, we will run out of water". Met Eireann can't tell me what the weather will be like in seven days' time but John is predicting the weather with complete certainty for twenty, forty and even one hundred years time.

Upping the hyperbole stakes even further, Oisín Coghlan of Friends of the Earth is quoted in the same article as saying that the summit on climate change in Copenhagen this December will be the “most important meeting of world leaders since World War II”. All if which is a bit odd because the EPA's recent report on climate change and its impact on Ireland paints a far, far less alarming and more manageable picture.

But I guess that doesn't make for interesting headlines, does it? Still, here's one forecast I am certain of: expect a disturbing rise in the level of alarming claims about climate change over the next six months - far in excess of any rise in sea levels over the next sixty years.

And for a more sober and sensible read on the climate challenges we face (and the far more pressing energy challenges) check out this fascinating interview with Prof Ian Plimer. He brings an earthy, Australian perspective to the climate debate.

Fianna Fáil – The Culchie Party?

2009-06-10T21:02:00.005+01:00

I was at the launch this morning of a new report on the future of Dublin. The report is by The Futures Academy at DIT called Dublin at the Crossroads. As with previous reports by the Academy, it doesn’t pull any punches in terms of the difficulties facing our capital city. Its powerful use of scenarios brings the reader face-to-face with a range of possible futures for the capital. Indeed, it paints a picture of a Dublin metropolitan area coping with the legacy of benign and not so benign neglect that has characterised successive national governments – including the previous one led by a Dubliner.

But while Fianna Fáil-led governments have failed to notice the consequences of their neglect of Dublin, the people of Dublin have noticed. And they’re not happy about it: as witness the recent elections which saw Fianna Fáil lose its MEP in Dublin and its support contract to make it just the third largest party in the capital.

As I've noted before, the extraordinary pattern of Irish regional development ('Anywhere But Dublin') seems driven by a parochial, atavistic culchie versus townie antipathy. But the townies have had enough. As Conor Skehan, a fellow of The Futures Academy, has noted, the demographic destiny of the country is for the greater Dublin metropolitan area to form a growing share of the country's population. And when the capital gets allocated the number of TDs it deserves then the political boot will be on the other foot.

Now that'll be an interesting scenario to contemplate.

Bye Irish

2009-06-09T06:24:00.002+01:00

Barely a week goes by without one foreign-owned company or another announcing it is shrinking or closing its Irish operations due to costs. Especially those serving the Irish retail sector (the most recent example is Coca-Cola). Their rationale is that meeting retailer demands for equivalent prices to what they pay suppliers in the UK and elsewhere makes it too expensive to have a separate, dedicated operation in Ireland.

Of course, it isn't just foreign-owned suppliers to Irish-based retailers who are facing the pressure. Irish brands selling into chains like Tesco are likewise under pressure to reduce prices and reduce costs - or face shrinking sales as they are replaced by cheaper, non-Irish brands on the supermarket shelves.

What is driving this? For operators like Tesco it's simple: if they don't provide Irish consumers with the same value-for-money offers that cross-border shoppers and shoppers at discount stores like Aldi and Lidl are demanding then their business will also be threatened. Irish consumers want their diminishing incomes to go further: and old nostrums about buying Irish are increasingly ignored. Tesco and others are simply responding to these new realities - as they always have. That's good news for Ireland's hard pressed consumers - even if it makes life more difficult for hard pressed suppliers.

So where will it end? For the profession I know best - marketing - things look challenging. A lot of managers of fmcg companies that I have spoken to in recent months are now under ferocious pressure to deliver on price reductions to their retail customers. Taken to its logical conclusion this could see the mass closure of the Irish operations of a great many fmcg brands - with Ireland becoming part of their UK sales divisions. A region once again.

But what about Irish brands? Here I am more optimistic. Patriotism might well be the last refuge of a scoundrel - and initiatives like Guaranteed Irish may have run their course - but many consumer markets are still remarkably local. Parochial even. Moreover, the Irish consumer market is a lot bigger than it was back in the 1970s and 1980s when 'Buy Irish' was a matter of government policy. Consumers will spend an average of €88 billion this year and next, even allowing for the worst of the recession.

That's a big enough market for many Irish brands, entrepreneurs and innovators to get started: and from which to expand into the UK and further afield. As they often have in the past. Irish businesses need to learn from one of the most successful Irish businesses of all time: Ryanair. Who in turn learned much of their trade from Southwest Airlines. And as a new report from the Economist Intelligence Unit - Taking Advantage of the Pitstop - reminds us, businesses that respond effectively to recessions (like Southwest) often go on to be significant global players in their own right.

But back on the ground, retailers are in the business of selling consumers what they want at a price they are prepared to pay. And so the Irish suppliers who will succeed will be those who demonstrate a better understanding of what Irish consumers want and that can meet their needs at a price they will pay. It isn't 'Bye Irish' yet. Not by a long shot.