by Sheilanagig
November 20, 2008
The Irish economy is about to take a ride down the greased chute of major economic recession; in short, it is fecked. The best thing from this is that at least the government and the business sector are no longer trying to razzle and dazzle the people about the future.
In 2009, unemployment to hit 8%, GDP to shrink by 4%, exports to decrease by 6%, consumer spending down by more than 8%; and of course, this does not even touch all the inevitable social consequences that will surely follow these grim predictions. Economic recovery now predicted to take as long as eight years. We can only hope that these projections are not optimistic; and as Margot Channing once said, "Fasten your seat belts, this is going to be a bumpy night."
Watching the Dail debate on the current crisis is a bit like watching siblings fighting over who did what and should be reprimanded. If finger pointing were money, our government would be in fine shape. In this respect, Ireland is no different than any other country and is totally in line with our historical traditions of infighting for the best part of 800 years, no matter what the problem.
In reality, Ireland is a small open economy and can no more hide from global economic shocks than can any island in the path of a hurricane. Ireland has no natural resources to speak of and 90% of our export has been produced by American multinational companies who have located here to avail of low corporation tax. While this strategy may have worked for the past ten years, the affluence it has produced has cost Ireland in development of its indigenous business sector. Now, as the USA economy crashes, our dependence on it has become our greatest weakness.
In the mad rush to keep up with and even surpass the consumer materialism of our American cousins, the Irish have gorged themselves on credit to purchase all that 'stuff' their parents could never afford. Much like the post WW2 generation in the States, parents sought to give themselves and their children the consumer luxuries that were never available to previous generations. An entire generation has been suckled never knowing the hardship of want, able to splurge on any luxury, no matter how foolish, by using their plastic pass to Neverland, (credit cards financed by German money.) Ireland moved to the top of the EU as an economic success strategy; the future held the promise of more, more and more, as the population plunged deeper and deeper into debt.
The twenty something generation bought houses for a quarter million euros plus and all drove new 30K new cars, wore the lastest clothes and splurged on expensive vacations, all on credit. Every child had new mobile phones, designer shoes, the latest video games, personal computers and every other gadget the marketing machines said was needed to be 'normal'.
As the banks doled out money hand over fist, the property bubble inflated even larger than the American bubble, and still, the Celtic Tiger babies paid more and more for homes that were overpriced. All this revenue from property flooded the treasury coffers and the Irish thought they were now permanently among the richest countries in the world.
The Irish love affair with the American consumer lifestyle and business model beckoned us like the Pied Piper of Hamlet and we trustingly followed the tune right into the river. Razzle dazzle of American consumerism may have blinded traditional common sense; but surely few saw the underlying rotten structure of a lifestyle based entirely on debt and living beyond ones means. The Irish spent like drunken sailors with never a thought for tomorrow; but now the painful hangover has begun.
And 'begun' is the proper participle here, for property values have not hit bottom. In the USA, many properties have lost 30-40% of their value and are still dropping. Many states have enacted emergency legislation to give homeowners a chance before they are evicted from 'home sweet home'. Those who were the first victims of foreclosure often committed suicide, burned their houses down or simply walked away, homeless. Considering that Ireland's property bubble was even bigger than that of the USA, this hangover could be painful indeed, albeit on a smaller scale.
Besides blaming each other for our current state of economic decline, we could learn a few lessons with which to build a more stable future. The first lesson is, 'Monkey see, monkey do' is not the right strategy for a small open economy like Ireland. However desirable it is to liberalise trade, it cannot be done at the expense of our indigenous businesses. Our exports must reflect our comparative advantage which at present is the Irish brand.
Strategies that work for large industrial countries cannot be copied without sacrficing our political and economic well being.
The second lesson is one forgotton from centuries of oppression at the hands of the English: compassion, not material stuff, is the wealth of any community or country. There are values more important for the soul of a culture than the profit motive; the main goals of progress cannot be me, me and me, but rather, we, we and we. Marketing must be brought around to build prosperity on cooperation and community, rather than turning people into shallow images of consumer affluence emphasizing competing for self worth based on purchasing power. Any product that uses un-ethical marketing which harms the culture and people, must be boycotted; and as a people, the Irish must have the sense and courage to act. Nothing hurts a capitalist like raiding the profit margin; the system is easily controlled with the right whip and carrot.
The third lesson Ireland must learn has to do with debt. While debt can provide liquidity to small and medium size enterprises for growth, it can be a disaster when used to excess for personal consumption. The key word is here moderation; somehow Irish consumers must learn to balance their personal debt level and appetites for consumer purchases, with their long term ability to repay the balances. When personal debt level reaches 125% of income, disaster is not far away. The 'I want what I want when I want it' mentality leads only to consumers digging deeper and deeper debt traps which they will remain in for decades. Of course, since the banks have no self discipline to curb their own greed, they certainly have no desire to limit credit expenditures to a healthy level for individuals. This must be a lesson passed on from parents to children; obviously if parents become undisciplined borrowers to satisfy whims, the next generation will do the same.
The upcoming recession is a good time for Ireland to reflect on these lessons and to build again for the future, this time with more emphasis on who we want to be, rather than cloning ourselves after Americans. By building indigenous businesses and promoting our Irish products as our own brand of excellence, Ireland will again become prosperous, hopefully based on values other than crass consumer affluence.
All the right ingredients are present and the lessons to utilise them upcoming. With Irish courage and Irish heart, Ireland has the opportunity to lead the world in creating a more civilised economic model which honours both its heritage and other peoples of the world without imitating the failed American economy and culture.
Related Articles
http://www.finfacts.ie/irishfinancenews/article_1015305.shtml
http://www.independent.ie/business/irish/economy-may-shrink-by-huge-4pc-
http://www.finfacts.ie/irishfinancenews/article_1015273.shtml
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