Death of Irish Industry 2012-2012

 It's important at various times in our roller-coaster economy (a misnomer though, as it also implies upward motions), it is important to catch one's breath and observe the situation in more detail. This allows us to make an assessment of the wider economy and make a calculated perspective of the road ahead.

Accordingly, my observation for the next 12 months is exceptionally negative, and I will outline the reasons why over the next few paragraphs. I would welcome comments and opinion that agree and hopefully, disagree with my findings.

1. The twin-track economy. We have two economies in Ireland. We have one that is a mostly export driven one that specialises in products and services that people actually need. This economy is doing quite well as a comparison to the domestic one, but only on the basis that the wider global economy continues to show growth. This economy of course is what the government is counting on to raise our near-dead economic corpse off its death-bed in order to service our enormous tax burden. The fate of this economy is unknown purely because it is completely out of our hands. At any stage, the winds of ill-fortune may ensure a double-dip depression in the US, and thus the rest of the world. The only thing to be positive about is that the doom-sayers have been advocating this for the last two years with nothing to show for it......so far.

2. The narrow gauge track. This is our domestic economy, it's what we sell and service to ourselves and boy, is it screwed. And it's screwed for a number of reasons...    

3. First and primarily there is a continuing lack of confidence out there in consumer-land who are hoarding on to what gains they have in what banks or deposit based financial institutions that are left. This lack of confidence is perfectly understandable, but the main driving factor is that the consumer cannot see any end to the recession in sight, particularly with interest rate hikes forecast through the ECB.

4. Secondly we have a lack of credit in the marketplace. So from an Irish business perspective we have businesses that cannot access finance to tie them over the rough times as the banks simply don't have any money. Furthermore, banks have been actively decreasing their credit facilities in terms of reducing overdrafts or calling in existing loans. Now, in times of recession this is no bad thing as it weeds out unviable and unsustainable businesses that can only succeed in times of bubble economies. What is different now however, is that companies which are perfectly viable and sustainable are going to wall due to lack of credit and an inability to get paid by their debtors. In short, this weeding process has now gone too far, and the longer it goes on, the more and unrepairable the damage becomes.

5. Thirdly we now have serious upward pressures in terms of inflation, particularly for the manufacturing and service industries. Let me give you a simple example. At the moment we have a transport companies hammering on our doors looking to get our modest 32 county transport business. They are continually under-cutting themselves in terms of a 32 county pallet rate because they know our business is sound and they will get paid. In normal times this would be a welcome development, in times when raw costs such as diesel prices are going through the roof it's pretty clear this is not competition, it's desperation. It will literally be last man standing. And for every fuel increase there is every other kind of commodity increase you can think of which brings us to...

6. The slow and painful death of the Irish suppliers into the retail sector. What we have here is a big squeeze. From the topside, Irish manufacturers for the domestic market are facing enormous pressures on prices because of commodity increases in raw materials, increased energy costs and then a lack of credit to pay for them. They are selling these products into multiples that are looking for price reductions on the basis that their own customers are looking for value for money in a recession. In this impossible scenario something has got to give, and that something is not going to be the multiple or the consumer. So what we have here is the slow bleeding out of Irish manufacturers to be replaced by foreign imports, and this is on the basis that they are cheaper due to reduced manufacturing costs owing to scale and access to finance. A quick win for the Irish consumer, and a slow death for the domestic economy. You will see this as more and more business goes 'own brand' and I can guarantee you that 'own brand' with the exception of meats etc won't be Irish.

Therefore my supposition is that a lot of viable Irish businesses are about to hit the wall in the next 12 months unless the government take drastic steps to ameliorate the situation. This will become apparent as our unemployment rates continue to rise and our net emigration increases. Accordingly, the tax burden on those that remain, and remain employed becomes greater and more intolerant.

In the words of the film 'Something's Gotta Give'

Greece vs Ireland - Austerity Measures

Yes, after availing of the EU/IMF Stability Fund and paying a modest 5% rate of interest on the €110b in funding required to stabilise the country's finances, the IMF and the EU have insisted on the following austerity measures:

*Reduce the budget deficit from 13.6% to 3% by 2014
*Pay freeze on all public sector employees
*Scrapping the annual bonus scheme (basically a 20% bonus on wages)
*Increase in the retirement age from the current one of 62
*Full pension rights increased from minimum 37 to 40 years service
*Pensions to reflect average rather than final salary in the public sector
*VAT from 21% to 23%, increases to alcohol, cigarettes and fuel taxation
*Taxing of illegal construcion
*Privatisation of various state and semi-state bodies

Above we can see what the dreaded IMF will insist on just to provide Greece with the funding required to keep the nation afloat.     Scary eh?      Not really is it?

Let's be clear, regardless of our banking crisis and our incompetent governance, we are not Greece, not by a long way. Firstly we never lied about our balance of payments, we are a genuine open market economy, we have a generous corporate rate of tax, we have a language that everyone understands and we don't rely on tourism as an exclusive means to wealth.

So if we were to avail of the solidarity fund, how much worse would it be compared to the austerity measures that we have put in place and are going to put in place? Not a lot based on the evidence above.

But in the meantime, let's just destroy what's left of our economy while we pretend that the markets will allow us a sub-5% yield and that we can actually manage to get our deficit to 3% by 2014....

2011 and the Death of the Gombeen Princes

With the GE of 2011 we will finally see the end of a particular plague in Irish politics. The nature of our democratic process always lends itself to a coalition government, and the 2+1 nature of previous governments has had the added affliction of having independents and pseudo-independents all extracting their pound of flesh in order to support the status quo. But it's not as simple as that. The independent gombeen princes can only garner so much in favour and kind but retain their seats on the backbenches. Their power is limited compared to the real princes, who, because of their ability to top the local polls and bring in one or more TD's based on their surplus and preferences, have sought and maintained a ministry role within government and then used their influences at national level to bring favour to their local constituency.

And so since the early 1980's we have had a cyclical scenario in Irish politics where, thanks to the withdrawal of local taxation - which reinforced the reduction in the perceived role of councillors against TD's - we had a situation where people voted on local issues rather than national ones, nothing new I understand, but now a perception grew that by voting for independents and certain politicians, the constituents would gain in terms of employment, access to services, and improvement to those services and infrastructure. And this became self-prophesying. What was the point in voting for a national candidate when a local driven candidate could offer so much more in terms of payback? Thus we have 30 years where the local and parastatal nature of Irish politics and semi-state bodies has only increased their relevence and importance.

In order to bring this to a natural conclusion, we also have to pay attention to the other topic that has ruined our political landscape and that is the nature of legacy politics.

Roughly speaking, and paying little attention to offending sensibilities, legacy politics is literally dying on its feet. The idea of voting for a political party purely for family reasons is an anachronistic trapping from the past. By and large it benefits only two parties, FF and FG. A generalisation and perhaps a truism, is that these voters are both rural and aged. We have already seen how the rural/urban divide is striking in terms of how the respective voters vote. It's FF/FG in the rural areas and Labour/FG in the urban ones. The significance however, is that as this century continues along, populations continue to cluster towards the cities and away from these legacy strongholds. Furthermore, the forthcoming decade of stagnation will further increase the legacy flight by means of emigration to urban and foreign destination.

And so in 2011, we will have a coalition government with a comparative enormous majority over the opposition. FF, Green, SF and Independent TD's will be completely irrelevant in terms of importance in local and indeed national politics, The Irish electorate are no fools in terms of electing self-serving politicians. What is the point in electing these TD's if they are in no position to action on the promises whispered in bars, funerals and houses of their constituents? We will, after a very long time, finally have a government with a full mandate to govern on national issues only, with a sufficient majority to see things through, and a genuine opportunity to bring about genuine political reform.

It is at this point that we reach the unknown. Strategists in Labour and FG will be spending quite a lot if time cogitating on their most important task, and that is, remaining in power and a further reduction in FF's power-base. And therein lies the rub. Unless the forthcoming coalition engenders genuine political reform by doing away with the local parastatal nature of Irish politics, promoting local government to its proper place and installing a list system, we risk the possibility of returning to this awful spectre within 5 years. This cannot happen again. The unbelievable circumstances that have arisen to allow this change occur - and the price we are paying for it - must not be wasted. It is imperative that Labour and FG launch their campaigns on a joint platform of wide-reaching reform. This opportunity can only come about in the best of times and the worst of times.