The Salmon School of Economics

Not many of us have the good fortune to found a school of thought. But David McWilliams is a fortunate man. In the final episode of RTE’s Generation Game he has conjured for us an innovative strategy to revitalising the ailing Celtic Tiger which deserves, if only fleeting, a recognisable status. I’d like to propose a title: the ‘Salmon School of Economics’. Like all innovations, it emerges out of things previous, but it is no less original for that – at least in its current application. Is it feasible? Is it desirable? Will it sell? Ah, well that’s a different matter. All innovations have to be market-tested. Not all survive.

Following a cogent summary of our economy – the over-dependency on foreign capital, the shift from making and selling to buying and borrowing – we were ready to be wowed with a considered prescription. And . . . wow.

In short, Mr. McWilliams proposes we open our borders to the children of the worldwide diaspora – from Argentina to Australia; that we provide them passports; that we create, among this disparate group, a worldwide network rooted in their spiritual home (here) to which they all, however subconsciously, long to return. All this in the hopes that a synergy that will bring to our shores new skills, creativity and money, to help us conquer new global markets. In essence, we should facilitate the arduous journey back upstream to create a new spawn, a new generation of prosperity. And more fish.

I will leave to others to discuss the spiritual-romantic aspect of the ‘nation’ or the ‘people’ that Mr. McWilliams crafts (it can, at extremes, be either sentimental or ominous). Essentially, this ‘salmon economics’ is no more than a variation on a theme that we have been humming since the late 1950s.

Following the collapse of protectionism, the Irish economy was opened up to foreign capital. The policy-makers never envisaged wholesale dependency on such inward investment. Rather, it was hoped that it would bring new skills, creativity and money from abroad into the economy and, for the native business sector, act as ‘teacher’, imparting the ways of commerce and trade. And one of the hopes expressed at the time was that émigrés might return with the skills and creativity they had learned abroad to help build a new economy.

Hit and miss though it was, some of it did rub off, aided by a more active Government in the economic and social spheres, but in large sections of the economy the native sector folded. The whole project went irreversibly south in the wake of the 1970s oil shock - inward investment dried up, local businesses continued to close.

There was one more shot at getting our native sector up to speed. In the late 1970s Fianna Fail engaged in an ill-conceived pump-priming exercise (labelled ‘vulgar Keynesianism’ and a ‘travesty of Keynesianism’). This was subsequently criticised as profligate public spending and it was – resulting in spiralling inflation and budgetary deficits. Ironically, it turned into a political attack on the public sector and planning; ironic because it was primarily an attempt to kick-start the native business sector. It was a market-driven project. But, as Joe Lee put it in his 'History of Ireland 1912-1985:

‘The assumption that the private sector would respond with a surge of expansion to meet increased demand ignored the lessons of history. There was no historical justification for reposing such confidence in Irish business.’

How did we emerge out of the wreckage of the 1980s? We turned to the public sector, namely the IDA whose remit was to, hell or high water, get foreign capital into Ireland big-time. And, thankfully, they succeeded, for there was literally no other game in town. Yes, they were aided by a number of factors – the Single Market, the devaluation of the punt in the early 1990s, the wage stability of national agreements, rising infrastructural investment, beneficial demographics, a low tax-rate (but that had been knocking about since the mid-1950s); but all this would have come to nothing if we hadn’t brought in skills, creativity and money from abroad.

And here we are again. As Mr. McWilliams rightly points out, we are under increasing international pressure. Report after official report stresses the urgency of addressing our sluggish native enterprise base. But no political party is making this an issue, and all we have for ballast is the last word in economic thinking – the National Development Plan.

So Mr. McWilliams takes us down memory lane: we need to lure skills, creativity and money. From where? Why, abroad of course. Again. This time it is dressed up in diaspora clothes but it amounts to the same thing. Of course, we are not treated to any analysis of what particular skills and creativity, never mind the dosh, particular groups might bring to what particular end? We could just end up with our distant - sometimes very distant - cousins turning huge swathes of the country into luxury golf courses as is happening in Portugal. Or, more prosaically, we might only be fuelling a situation that Michael Hennigan highlights with such fervour: that overseas commercial property investment was €5 billion in the first half of this year while in that same period venture capital investment in Irish tech companies was €62 million.  We are no better informed after watching Generation Game.

It is unfortunate Mr. McWilliams didn’t turn his attention to the real problems in building a skilled, creative and prosperous native enterprise base. In one of his many anecdotes he featured a young Asian woman claiming, quite rightly, that Ireland would benefit from employing immigrants with language skills to assist in marketing abroad. This would certainly help fill a deficit highlighted by the Enterprise Strategy Group. But there is a real danger that such skills would be wasted for there are a plethora of entry barriers to export development that stymie native businesses:

• Poor management skills, in particular marketing
• Small scale and under-investment
• Lack of R&D and innovation – both in products and processes
• The high cost of accessing foreign market information
• Lack of distribution networks
• Disconnect from ever changing consumer demands

Of course, to get into all this would be extremely boring and one thing Mr. McWilliams is not is boring. All this might lead us to new solutions – emphasising the potential dynamic of real ‘social and economic’ partnership, not only between capital and labour, but with the public realm and all stakeholders. But this could be boring, too. Delving might lead us to a profound, if obvious, insight: that ‘entrepreneurship’ is a social, not an individual act, requiring men and women at all levels of the firm and society to work together as equals – a tried-and-test dialectic of competition and cooperation. But such a programme wouldn’t be so sexy.

The problem is not lack of creativity or skills. It’s certainly not lack of money. We’re swimming in it. The problem is how enterprise and investment are structured or, rather, not structured. How, if it is left to its own unaccountable devices, they will seek out narrow, short-term commercial gain (e.g. property investments abroad) but not necessarily economic and social prosperity.  It's a matter of organising our skills, creativity and money.

Mr McWilliams has done us a significant service in highlight the deteriorating state of the Irish economy. But as to his solution, we are still swimming about the place in circles.

Comments

[Tomaltach]

I just made my way here via dublinopinion.com

Excellent piece. I agree entirely.

McWilliams is becoming to Irish Economics what Michael Moore is to American Politics: provocative, loud, simplistic, annoying, cliché ridden, but ultimately, very effective in stoking serious debate.

I don't buy his diaspora theory at all. Most creative entreprenuerial Irish or Irish descendants are perfectly happy where they are. And Ireland could offer them little they don't have already. His thesis that their coming home, and what about this for a clanger, "would save their souls" is wrong. Like all displaced peoples, home for them is a hybrid place. But the vast bulk of Irish Americans for example are more at home in American than here. They may love to visit, but they aren't queuing up at the Irish Embassy for visas.

In the end the discussion goes exactly where you brought it: to our inability to invent, to work together on a coherent strategy, to invest in the future of out country. Our inability to modernise our insitutions, especially political ones, for the new century.

Part of the trouble with us Irish is that we are self-delusional. We think of ourselves as flexible, pragmatic and open minded. In reality we are conservative, slow moving, narrow minded and selfish. Narrow minded - for example, when we think investment we mean property. When we think transport we mean tarmac. Selfish - when we think of prosperity, we mean prosperity for me. We are hopelessly uncommunal and present centred.

Our mentality shifted straight from colonial to conceited without picking up an ounce of humility along the way. Yes, conceited. We think we are the friendliest, cleverest, most travelled, and richest people in the world. In many ways we are none of these things.

The one area where we are first class is telling stories. The trouble is, we believe them ourselves.

[Keith]

It must be tempting to argue that "unrestrained capitalism" is at the root of this, but the problem is that capitalism has been restrained. We have a government who have introduced distortions into the property market through planning laws and taxation policies. Withdraw those distortions and you don't see massive new estates in Leitrim or apartments being built as tax shelters in Athlone. Supply and demand for property would meet and at a much lower price than where we currently are.

[Tomaltach]

Keith - I would agree about the undesireable effects of incoherent and ill-thought out distortions which were often brought into effect for all the wrong reasons.

But I don't think a purely unrestrained property market will provide a sustainable solution either. The market of itself might deliver a better price and avoid the Leitrim effect, but the market is not 'future' aware - the present worth of future environmental and social costs is not accounted for in its price mechanism. So left to itself - houses and huge appartment blocks would pop up willy-nilly in areas which are cheapest for builders. But the pattern would be ad hoc and wouldn't cater for future needs of the city. That is why planning is necessary. But planning only provides a benefit when it is done well by competent people who are not making decisions on the basis of brown envelopes.

[WorldbyStorm]

The history of indigenous capitalism from 1922 onwards is one of a desperate inability to act in anything other than the most localist/short termism. I had the dubious fortune to examine in research the growth of a certain industry during that period and what was most remarkable was that unlike anywhere else in Europe it wasn't technological improvements, or commercial objectives but simple state intervention that 'grew' it. Time and again from the late 1920s with the establishment and expansion of the ESB, a small flurry of activity in the 1930s under FF at their most corporatist...the late 1940s with the Inter party coalition and then sporadically thereafter... It really demonstrated the enormous inability of Irish enterprise to deliver any sort of serious outputs other than when primed...

Which is why I'd be very very dubious about Keith's proposition regarding an unrestrained capitalism in this state as regards say housing... more shorttermism...incidentally talking of regulations I note that the apartments considered 'suitable' in the 1990s to now by the construction industry (and to its shame DCC) are no longer quite suitable enough. That certainly wasn't a case of overheavy 'regulation'...

[Michael]

Thanks Tomaltach for your comments. Regarding that 'bring'em back' notion of Mr. McWilliams' - I was struck by the comment of the NYPD fella who, as Irish-American as they come, when asked if he would like to go back 'home', said 'I wouldn't do that. I have roots here.' For him, home is NYC. People are quite capable of juggling all manner of ethnic, national and cultural inputs without getting misty-eyed.

Thanks Keith for your comments and congrats on an excellent blog. I intend to link it. As for the competing 'restrained' and 'unrestrained' theories of capitalism, I tend to particularise issues as in many cases people, with much different perspectives, end up agreeing. I'm dubious of 'free market' arguments only because I can't imagine what a 'free' market looks like (save for the pages of textbooks which are merely exercises in abstraction). Markets, sophisticated ones anyway, are invariably 'socially' constructed to some extent. For instance, property: unlike so many other markets, it consists of a 'good' that cannot be enlarged or manufactured, namely land. That in itself makes it unique. Add on the good points made by Tomaltach regarding planning, the nature of housing as a 'social' good, the issue of externalities (which markets everywhere have difficulty in dealing with) and all of a sudden we realise that we are in need of 'policy'. The issue, therefore, is not so much restraining as 'directing'.

That's why you are aboslutely spot-on about the 'distortions' (though I wouldn't use that phrase). We have too little debate about the instruments we use and to what end they are put to. That's why this Government has been allowed to get away with policies that have exacerbated the 'market'. And that's why the opposition parties - in particularly, the Left - fail to grasp the nettle. And there are many nettles in these distortions: property tax, tax-subsidies, rezoning, promiscuous lending. I don't mind people running to the government looking for help (I'm keen on social solutions). But its frustrating that we don't get informed debates on how we got into the mess in the first place.

[Tomaltach]

Michael - it's interesting that the distortions we are talking about, and some of which you listed, are measures which are generally brought in to benefit the so-called vested interests. (I hate that term - it ususally means simply 'the rich'). Any distortions which are not there to serve the rich were made as populist measures - another terrible weakness of our political system in Ireland.

Paradoxically many of those who benefit most from the said distortions would have 'right wing' views and claim to be avowedly against government intervention! Nothing new there.