The major risk now for Brian Cowen is that, like the Tories after Thatcher, the Fianna Fáil party after Ahern might lose the image of being sound on the economy.
When a developer is giving away Volvos to entice people to buy houses in Dublin 15,you know there is a problem in both the housing and car markets. Brian Cowen, too, has a problem. Out in Deckland, the new suburbs of the Bertie era, Breakfast Roll Man is getting uneasy.
Breakfast Roll Men won the last election for Ahern. These lads, who were buying places in Dublin 15 for fun, and who are more interested in foreign football trophies than domestic political tribunals, saw Ahern as one of their own.
More significantly, Breakfast Roll Man got rich through the housing market on Ahern’s watch. For Fianna Fáil, the big question is: has Brian Cowen got Ahern’s appeal? Can he cut it in Deckland? Ahern was Breakfast Roll Man’s hero.
The reasons are very clear. BRM does not do ideology. He does pragmatism. He votes for whoever he believes will keep the show on the road. He has only one allegiance, which is to his colours – be they football or GAA. He is politically agnostic.
He will drop Fianna Fáil if it is not seen to be able to manage the economy. As long as Fianna Fáil doesn’t mess with Breakfast Roll Man’s wallet, backhanders, bungs and bribes don’t matter.
The major risk now for Cowen is that, like the British Conservative Party after Thatcher, Fianna Fáil after Ahern might lose the image of being sound on the economy.
As the housing market deteriorates, the new boss will have to come upwith a new plan for the country which, while not quite offsetting the loss of the feel-good factor of the old days, will suggest to everyone that someone with a strategy is in charge.
Under Ahern, a new social contract evolved in Ireland between the state and the citizen, almost exclusively based on the continuing rise in the price of houses. In the past, people voted for the party they believed could deliver on whatever it was those individuals wanted, whether it was health, education or taxes.
Not any more. Under Ahern, that old social contract has been discarded – and Breakfast Roll Man (and Woman) out in Deckland vote for the party they believe will make them wealthy.
Ireland is now a country that lives in the future. An entire generation believes in the New Irish Dream, which is based on the chimera that tomorrow will always be better than today. The financial engine fuelling the dream is housing wealth.
As long as house prices are rising, Breakfast Roll Man, even if he is married with kids, will tolerate traffic, expensive childcare and over-crowded schools. He will tolerate immigrants bidding down wages on-site. In fact, because he may be a subcontractor now, he’s quite happy for the immigrants to be elbowing out Irish labourers.
So, the new social contract works like a conveyor belt. Once you are on, you have a vested interested that it keeps moving. Bertie guaranteed that house prices would keep rising, so Breakfast Roll Man feels that he is getting richer and, as a result, believes in the power of tomorrow. This allows him to ignore the realities of today. Ahern was the custodian of the future. He was the dream keeper.
The sting in the tail for Cowen is that the housing market is in freefall. Last year, Fianna Fáil just about managed to paper over the cracks. In the coming years, the market is only going one way – and that is down. This is the Achilles’ heel because, as it falls, the New Irish Dream will shatter and Breakfast Roll Man will realise that, for the first time in a generation, the future is not so bright.
In the early- and mid-1990s, the Conservatives in Britain faced a similar dilemma. Their power base was an aspirant middle England, who had become rich on the back of the housing market and became the fodder for caricatures such as Harry Enfield’s ‘Loadsamoney’ character. After four consecutive election victories, they were suddenly confronted by a property slump which bottomed in 1994.
The Conservatives, who, throughout the Thatcher years, had portrayed the Labour Party as a bunch of economic losers, lost the halo of economic competence. The voters of middle England realised that all the Conservative promises were based on cheap credit and rising house prices.
When this bubble burst, they defected, in their millions, to Tony Blair – who fought the 1997 election on the economy. This could be the fate of Cowen, if he does nothing. The mistake the Tories made was to react to the housing slump with a ‘business as usual’ approach. Other countries which experienced similar dilemmas reacted much more definitively and with vision.
Take Finland, where the banking system collapsed following a housing slump in the early 1990s.The Finns reacted by changing the focus of the economy. Through their largest company, Nokia they bet on high-tech and, in Nokia’s case, mobile telephony. They also enacted a root and branch reform of the education system, giving priority to maths and sciences.
Finally, reacting to 1970s and 1980s evidence that Finns – of all Europeans – were most likely to die of heart disease, the state engineered a change to the national diet, beginning with school dinners.
The result has been that, today, Finland has the biggest mobile phone company in the world, the highest educational rating in the OECD for maths and science, and the lowest rate of heart disease in the EU!
The US state of Massachusetts did something similar, following its housing bust in the late 1980s and early 1990s.Today, Boston is – outside of Silicon Valley – the high-tech start up hub of the US.
Meanwhile, Japan, which experienced a decade-long depression following its housing slump, never stopped investing in technology, and today remains the world’s most innovative country.
We in Ireland have huge advantages in terms of people, our education system and the existing multinational companies. There is no reason we can’t follow the Finnish or Bostonian examples and invest, not only in education but, more significantly, in bringing over to this country the venture capitalists who make the American high-tech economy tick.
To do this, we need to reinvent the script. This is Brian Cowen’s opportunity to stamp his authority on the economy. If he does so swiftly, the success of the Finns, rather than the plight of the Tories, could well be his prize.
Jaysus, your full of shite.
“This is Brian Cowen’s opportunity to stamp his authority on the economy”.
The only thing Brian Cowen will be stamping is his job application letter in about a year’s time.
To Marc:
Could you give us your thoughts, may be worth.
Two articles that David should read before he believes that the silicon valley can be created in somewhere like the Boyne valley . how to be Silicon Valley from Paul Graham of Y Combinator fame (VC who funded the Collison brothers ) http://www.paulgraham.com/siliconvalley.html and http://www.paulgraham.com/america.html Fergus Burns IIA net visionary 2007 Keynote at IWTC last month. http://blogs.msdn.com/martharotter/archive/2008/03/31/iwtc-2008-keynote-fergus-burns.aspx a couple of points we have a good enough education system but not a great education system. Irish school can’t/won’t teach innovation risk taking that is needed to have a creative knowledge based economy. ICT infrastructure is 5 years behind where we should… Read more »
David, agreed we need to be attracting American and international venture capitalists to invest in innvoative growth oriented irish companies who can be global winners ! Today, there seems to be little appetite for ‘private equity’. As well as VC funds, we need longer term investments funds who would have the capability to follow their money to create the next Kingspan, CRH, Paddy Power, Ryanair, Kerry Group etc. The ‘HNW family’ backed NTR and ‘leveraged’ Riverdeep models should also be promoted to finance the creation of market leaders in growth sectors like Airtricity. Unfortunately, there are no real signs of… Read more »
Thanks for the comments. Marc, yours was particularly insightful. John H thanks for that article from Paul Graham – just read it. It’s really excellent. But we can do it here. We can build a Silicon Valley if we get our act together. Most of the ingredients are here. Best David
David, you astound me! you talk about ‘bringing over to this country the venture capitalists who make the American high-tech economy tick’. Where are our own venture capitalists? Why not make our own economy tick on it’s own. Tom Kirwan made a good point in your last article about Auctomatic and two young entrepreneurs. Cowen should tap into this and develop it further. We tend to look on these success stories in Ireland as flukes or once offs which is wrong. ‘There is no reason we can’t follow the Finnish or Bostonian examples ‘- Yes and probably without the help… Read more »
It seems that you do not get FF at all. And until you do so, you’ll have no understanding of the dynamic of this Area. How in the very hell, FF can shift at each and every election, regardless in government or not, the idea that FG are the last Government. Last year, we had the son of one of those forced out, return to Uni’ at Galway. His mother was one of the women, who in 1926 moved to the USA, her family name is Sheen. While, the crap that went on with the church, no-one could see a… Read more »
John Q Public. The reason that the US VCs are important is that they know what they are doing. They have the commercial skills that our VCs – judging from the glaring lack of success in the past 10 years – lack. The US VCs have proven that they are capable of financing, mentoring and realising value in companies. I suppose the question is if a company like Google were founded in Ireland would it have grown into the world dominating player it is now? The model for this type of development is Israel. Now I could well be wrong,… Read more »
“having an ‘IFSC’ type centre for international VC funds, where they could use Ireland as base to ‘trade internationally’ maybe on the proviso they invest x% in Irish companies.”
That’s not a bad idea – it’s could be a way of attracting global expertise in the VC area – best idea so far. You may forget about local sources of VC, we don’t have the necessary experience or funds to gamble on start-ups.
I think there is not one reason that can be cited to suggest that a “Google” could not arise in Ireland. VCs also depend on deal flow – you cannot create good VCs withouth creating good, analysable opportunities for them and deal flow is erratic here at best. In addition, it may be virtually impossible to create the type of deal flow from indigenous sources here without some dramatic incentives. If Cowen does one thing, he should create the indigenous equivalent of the corporate tax scheme that attracted the MNCs in droves – except now he needs to attract entrepreneurs.… Read more »
David here. Thanks for the comments. John Q Public, the reason that the US VCs are important is that they know what they are doing. They have the commercial skills that our VCs – judging from the glaring lack of success in the past 10 years – lack. The US VCs have proven that they are capable of financing, mentoring and realising value in companies. I suppose the question is if a company like Google were founded in Ireland would it have grown into the world dominating player it is now? The model for this type of development is Israel.… Read more »
One other point on “US VCs are important is that they know what they are doing” – There is a lot of dross in the US VC community too. I have pitched many and would not consider them even for “pitching practice” any more – if the idea of bringing VCs into this country is to hold water we would need to be quite selective. This may also be problematic in the context of staying on the right side of the EU. Further thinking about your point on Israel – many of their opportunities don’t actually get to the “Google”… Read more »
David, Great ideas as usual, but you might as well be talking to the wall. If anything, things are getting worst for the high-tech industry in this country. You need only look at those two young lads from Limerick who developed that software for eBay. They didn’t even bother trying to set up in this country because they knew no one would get a brass cent from the IDA or Irish investors. If you want an interesting exercise, call up the universities and find out how many people are graduating with degrees in I.T. subjects this year. If it’s anything… Read more »
John Q Public, I’ve been in the tech business for decades and I can tell you that it’s almost impossible to get you’re hands on capital here. As a people we just don’t have a tradition in tech. and consequently we look up to the countries that have. Locals are more interested in the building that you’re operating from than in the project that you’re trying to finance. The American financers are driven by head count and not by buildings – if you can hang a widget from the noses of 10% of the U.S. population with a dollar margin… Read more »
Interesting tension between the ‘planned’ rebirth of Finland through state-sponsored Education, Innovation and Diet, and the laissez-faire American model in this article. Depending on how much Boston’s success was attributable to action by the State of Mass. I guess Ireland can merge the best of both approaches if there’s the national or cultural will to do so. Get Darina Allen to do a Jamie Oliver with school dinners! The Tories lost their reputation for economic competence after the debacle of Black Wednesday in 1992 when their ERM plot – lost it, so to speak. There’s no danger of that happening… Read more »
As I think about this more, I can agree that we have most of the elements here and others have weaknesses with respect to their quality. We have VCs – not large funds by US standards but could do seed and early stage in the context of a really big opportunity that will subsequently need a 10 or 20 million round to create a large value business. So we will definitely need large funds to take a look at Ireland and knowledge transfer there to increase the quality + we will need to get the indigenous guys comfortable that they… Read more »
It’s great to read constructive ideas on how to improve the country’s future prospects. Can political leaders be ‘incentivised’ to implement these changes now ? The election is over, no need to be in denial of issues with FDI, competitiveness, VC investment etc. Last week, Minister Martin (our next finance leader in waiting) came out with — “Part of my remit as Minister with responsibility for Innovation Policy is to foster and provide opportunities for growth in innovation demand and for creating an innovation culture in the economy and in society. In advancing this agenda the Government is making a… Read more »
I mentioned this in another post on a different article so I ve copied and pasted but I think Cowen has a massive opportunity. If I were in his position I would try and diffuse the Irish property situation as part of a ‘global downturn and pattern’ but at the same time acknowledge some possible wrong doings (ie to give credibility but indirectly say ‘its not 100% FF’s fault!). Whatever he decides to do, he should learn from the smoking ban sucess and publics reaction before and after. Everybody wanted it but nobody did it as we would be the… Read more »
” they’re quality roles with €30k starting salaries”
seriously, they would get far more as taxi drivers. IT ( and engineering in general) used to attract the top 10 percentile of leaving cert students. The capitalists outsourced, drove salaries down, and now complain about graduate quality. Cry me a river.
Interesting to note both the shift to Geneva / Switzerland from London by many new, large European VCs and also US VCs opening up their European offices there rather then London…wonder why this is? One other point…just throwing billions into gradiose “R&D” and “Innovation” is only part of the solution (Pollies seem to thing they are great if they launch these types of projects)…the bigger issue is that this ignores what happens after you have developed this IP or “technology” and how you commericalise it and get it to market. Commerical Technology is useless if it just sits in a… Read more »
There is a similar theme to this discussion as for the article on “Iceland’s economic ‘meltdown’” I agree Nick, the point I was trying to make was that we have done this (invested in R&D) and now we need to move the focus to commercialisation. (GOM said on April 1st, 2008 at 9:29 am “…Ireland is (now) one of the best funded regions in the world when it comes to research……the funding of research seems to have taken a big step forward, we need now to follow up with equally robust commercialisation strategies.”) I also agree with your statement re… Read more »
GOM, the point I was trying to make re. size of the Irish market, is that it’s considered to be the fall back position for most local VCs. – this is a problem for us as it is for the Finns, Danes and the others you mentioned. The Finns through Nokia and its previous incarnation, Salora, adopted a Trojan horse approach to the major markets of interest, that is, they set up sales/distribution and eventually manufacturing/customising in these markets – this gave them total control over their presence in that market and also, good options in the event of a… Read more »
Good point Nick about the importance of sales and marketing. It often seems there has been a lack of belief in the Irish psyche to think big (Mr Roy Keane and Michael O Leary take note!) and this could go someway to help explain why many ideas ‘sit in the lab’ as you say. Succesful business is more about ‘balls’ and execution as opposed to ideas, which are aplenty no doubt in Ireland.
There’s a lot of dross from the government about knowledge economies and supporting entrepreneurs etc. These guys haven’t a clue what they are at. Spending 6 billion doesn’t mean squat. It’s a lot easier to say what you are going to spend than what you are going to do. Enterprise Ireland is only OK at best and some of the research money being thrown at colleges is good but when it come to actual start ups and commercialisation there are obvious problems. Left unchecked this could simply end up as another pile of wasted money with nothing but a bloated… Read more »
“That’s not because the job is rubbish and is paying poorly, they’re quality roles with €30k starting salaries. I suppose these salaries might not be competitive in relation to the building trade or civil service, but I’m sure that will be sorted out in a few years.” You put your finger on a large part of the problem there. Why bother studying & doing exams for 4 years (sometimes more) to get a qualification when you can be earning that money straight after school? That’s been the attitude for a very long time and I know people with technical qualifications… Read more »
“IT courses don’t attract graduates because a lot of IT folks lost their jobs after the dot com bust and the sector is not perceived as providing safe employment.” And it’s just not well paid. The Independent had a piece on Dublin’s average wages yesterday – and the median was €51K. That €30K is just at the poverty line ( 60% of median income) . All the rest of the gumph being posted here doesn’t matter. We can increase the science courses all we like, and get more people doing mathematics etc. and they will become Doctors, lawyers, dentists, consultants,… Read more »
Spot on Eugene, the die is cast for now. Science and Tech are dead-enders and it’ll take a generation to sort it out – when accountancy, medicine etc prove to be similar and the playing pitch gets more level. Pity really, we do have a great tradition of great thinkers over the centuries – probably the best really :) When you get into the higher disciplines, it becomes a vocation. And if it’s drawing no respect (ala mollah), the interest will wane. Investing in innovation is a bit open ended and is a waste. We should reward results and VCs… Read more »
Hi David, Another thought provoking article. We here in ireland have been blighted by the property boom and will also pay heavily long-term for the bloated costs in the public services arena. We have effectively put ourselves into a trap. Why should anyone bust their ass in the private sector when they can take the lazy and safe option of getting a public sector job? We also need to measure our innovation and business success in several ways and benchmark against the right nations, not the US or the UK, but Finland, Sweden, etc. Switzerland is somewhat a special case… Read more »
Point on your comment ” But there is nothing to prevent Irish entrepreneurs from pitching to the US VC’s and establishing their businesses in Ireland. VC’s dont care where the money is made.” Correct – the US VCs do not care where the money “is made” and for most businesses that can attain VC-like returns – the money will most definitely NOT be made in Ireland. The MNCs “make” money in Ireland using elaborate transfer pricing structures associated with the level of operation they have here. What the US VCs care about (and this from experience) is what legal entity… Read more »
“I would love to see a number relating the amount of PhD and Post-Doc students in the US that are from overseas – I would conservatively suggest 25%.” The US will attract these people given the rep of it’s Universities, which we dont have and which are privately owned. The privately owned part is important because I dont see any acceptance of non-EU immigrants unless they pay the full cost of the PHD, and at that cost they may as well go to the US. Or stay at home. Otherwise it is a tax-subsidy. In any case you are not… Read more »
Eugene, If someone has a natural talent then they should follow it – going into a career for the sake of the money is the worst possible choice that anyone can make. Unless they have a natural talent/flair for the area of choice, they’ll always remain at a very ordinary level. The present protected professions will be forced to concede in the not too distant future as more and more of the population aspire to third level education. Law and accountancy are reaching saturation levels and unless the productive areas expand there will be less and less demand for their… Read more »
i have an economics exam coming up next month which i’m screwed in! can any of ye give me tips if i tell ye what i cant understand!?
eugene, we actually do have a lot of overseas researchers in our universities and national labs (many are from outside the European Economic Area – thanks for reminding me. The state of this however, is stangely parallel to the problem we all seem to agree, i.e., there is not enough going into commercialisation of the research beyond just letting the MNCs cherry pick from it. The parallel is that there is no incentive for a researcher to stay in the country beyond their period of study, i.e., there is nowhere for them to convert their education into commercial value. There… Read more »
Nice one Ronan!
Ireland Inc has an economics exam coming up this year, not looking so good either….
Economics isn’t a real science, find out what your lecturer wants to hear and tell it back to him….. Don’t feel so bad about not understanding it, methinks some of the best and brightest economists have spent the last few years telling people what they want to hear also
The is a lot of rubbish about Ireland’s tech capability and our involvement in Hi-tech over the last 10-20 years. Wake up everyone! This country is merely a transhipment entity, using low cost bright lads to make and ship product whose intellectual property is that of MNCs. That’s it. Look around all the business parks – they are either Shipping Firms (sorry – logistics) and Call Centres (sorry – Fulfillment & Customer Relationship Management Centres). Now that we are becoming hi cost for all the reasons mentioned, there is no demand for the Science and Tech skills and it is… Read more »
what are VC’s??
Venture Capitalists. Provide money to start up companies with a ground breaking, money making idea, for a share of the future profits. Dragon’s Den on the T.V. shows the system.
[…] growth. Neither country has grown massively compared to the other.This is an interesting result. David McWilliams often mentions the Fins and their response to the collapse to their property boom back in the early 90s. Where the […]
[…] growth. Neither country has grown massively compared to the other.This is an interesting result. David McWilliams often mentions the Fins and their response to the collapse to their property boom back in the early 90s. Where the […]
HOW do you asses the economic system of our country ar present
The quality of a country’s politicians is dependent on those who elect them. Fianna Fail, Fine Gael an labour are, throughout the history of the state, consistently receiving, give or take a couple %, 40%, 25% and 10% of the electorate’s vote. What incentive does a party have to maintain standards, accountability, adopt a long term viewpoint and not become complacent when their support base is so static? On occasion, a charismatic leader ie. Spring, Fitzgerald, Lynch will come along and defy this trend or a disastrously uncharismatic leader ie. Michael Noonan, Michael McDowell. Can anyone honestly say with a… Read more »
What I’m saying is unless the economy collapses Zimbabwean style, Cowen will still get re-elected because there is no incentive for him to make the tough decisions that are required.