Ireland could learn a lot from Hamburg’s economic model

The docks in Hamburg are one of the most impressive industrial sights you are likely to see. I realise that only economic nerds like myself can get off on looking at docks, ships, cranes and the like, but here is the best place in Europe to see globalisation at work. Enormous Chinese tankers offload tonnes of computer equipment, while the docks themselves are a testament to the endurance of German engineering on its way out for export.

Further inland, the river Elbe is jammed with barges laden down with goods from the German heartland, all progressing relentlessly to the docks and on to the rest of the world.

But Hamburg is not only about trade in ��hard��, heavy German stuff. It is also about design, architecture, insurance, finance and numerous other ��soft�� activities which combine to ensure that this is the richest city in Germany. The city has been trading for centuries. It was the centre of the Hanseatic League in the 12th century – the earliest forerunner of the EU. The league was a free-trading arrangement between cities which stretched from Russia to Belgium. Like today�s EU, it had its own taxes, currency and migrants from all over northern Europe who travelled freely and set up businesses in an area stretching two thousand miles.

Back then, salt made Hamburg rich.

Great salt flats just off the North Sea coast gave the Hamburgers a monopoly in the most valuable commodity of the Middle Ages. Salt preserved food and, as such, it was essential. The more food that you could preserve, the greater the self-reliance of cities and thus the higher the price merchants would pay for it. Salt facilitated the export of meat and fish which, without salt, had to be consumed immediately. Salt was the key commodity behind the Middle Ages expansion of trading cities, a bit like the computer these days. Salt flats were the 12th-century equivalent of Microsoft, Intel and Dell producing computers, software and hardware in your city.

From this base, Hamburg expanded relentlessly. What makes today�s Hamburg so fascinating is that it is a vibrant, self-confident city which produces such a diversified range of products and is not particularly over-reliant on any one industry.

I visited the city a few weeks ago, when it was in full World Cup swing, and was struck by the fact that the football tourists associated with the tournament were welcomed but not fawned over. Yes, they were important, but so are the local designers who have a much more permanent impact on Hamburg�s society.

Hamburg has learned the lesson of globalisation for great cities and regions: it is crucial to do many things well and not be over-dependent on one thing.

This brings us to Ireland. Our economy has no depth. We are desperately over-dependent on two sectors: construction and computers. The history of economics tells us that mature regions move from being suppliers of one or two things to being producers and consumers of many things. Great regions diversify, while regions that have their day in the sun and then disappear, almost incomprehensibly, are those that lean too heavily on one commodity or another.

For example in medieval times, Sardinia supplied most of Italy with cheese – but only cheese. This made the island rich, until other agricultural regions copped on and Sardinia fell back into poverty. Likewise, anyone coming back from the Canaries this week can�t but be struck by the old wealth evident in cities like La Laguna. Where did that come from?

In Renaissance times, the Canaries supplied all the sugar cane to all of Europe – but only sugar. This made it unfeasibly rich for awhile – which explains the great buildings – because building booms are often coincident with periods of dramatic increases in wealth.

That was until Europeans discovered the Caribbean and, with imported black slaves from Africa, harvested sugar at a fraction of the cost of the rich peasants of the Canaries. Up until recently, Wales was one of the world�s largest exporters of coal, importing thousands of labourers from Ireland to mine the stuff. Today, these Welsh villages are backwaters.

I could go on, but you get the picture. If a region is simply a supplier of a small number of products upon which it is highly dependent (even if they are in great demand), it leaves itself vulnerable to others coming in and undercutting it.

We in Ireland should heed these lessons because, not only does economic history have a habit of repeating itself, but today�s globalisation truncates economic cycles, making periods of ascendancy shorter. I have made the point before, but it is worth reiterating – that 87 per cent of our total exports come from American multinationals that employ only one worker in every 20.This is dependence of the Sardinian cheese variety.

The other commodity on which we are highly dependent, is other people�s money. This drives our crazy property market, over which we have no control.

This week, I listened to the Minister for Finance, Brian Cowen, saying that he ��hoped�� the recent interest rate rises in Europe would dampen some of the speculation in Irish property.

It is disconcerting that a minister can only ��hope�� that the activities of someone else might affect our speculative urges, but then again, he was only being honest.

Irish politicians and the establishment class have no control over what happens.

By joining EMU, we have given away all competence over the turbo-charged property market. All the while, the property business sucks in money and people, throwing off increases in ��wealth�� and tax revenue. But both of these are illusory.

First, the wealth is an illusion. Property booms don�t make societies wealthy, they simply transfer wealth from one section of society to another. In our case, it is from the young to the old, the landless to the landlords.

Furthermore, when we read articles trumpeting Ireland�s housing stock as being worth �400 billion, we need to ask: who says so? Who will buy Ireland�s housing stock? What foreigner has any interest in bidding for our entire housing stock? Is it liquid? I don�t think so.

The second result of the property boom is a huge increase in tax revenue from stamp duty and the like. But this is simply a transfer to the government of money we have borrowed largely from foreigners via the housing market. It is no miracle, but rather a piece of basic mathematics that a child in national school could work out.

��If I take ten apples from Johnny and give them to Jim who gives them to Mary, how many apples does Mary have?�� All this does is play a trick on us, so that, when the revenue from houses slows, we will have a huge hole in the public finances.

A good example of this carry-on was seen in Finland in 1992. Its property market stalled and the next year the budget went from a surplus to a deficit of 15 per cent of GDP.

Getting back to Hamburg, most of the football tourists will have left Germany by today, the day of the World Cup final.

The tournament was an organisational triumph, and Germany and Hamburg�s reputations have been enhanced. Tomorrow, the city and region will get back to the business of trade, commerce and high-end design, safe in the knowledge that it is a diverse, mature, trading entity.

This is what a well-balanced economy looks like. Ireland, on the other hand, looks more and more like a two-trick pony having its day in the sun but blowing our cash and putting little in place for the next generation. Medieval Sardinia comes to mind. As they said in Monty Python�s Life of Brian: ��Blessed are the cheesemakers.�