Downturn in Irish Construction Industry

by Terence Fri Jun 16, 2006 12:58

A week or so ago on RTE one evening, they had a programme about the Celtic Tiger given by George Lee their economics man. His opinion was that in the first years of the mid 90s to about 2000 or 2001 there was indeed a booming economy based on real economic activity such as exports and that elusive thing they call competitiveness.

Since 2001 though he reckoned the economy has since then been sustained almost entirely by speculation and the building industry most of which has been fuelled by increasing levels of debt. For example he said in the 5 years since 2001, two-thirds of all new jobs created for males was in the building industry while two-thrids of all new jobs for females since then were created or filled by the Civil Service. In others if you subtract these two out, then there has been little growth.

He also noted that our competiveness had slipped from 3rd or 4th place down in the 26th I think and that since 2001, one manufacturing plant or factory in Ireland has closed every week. In other words the backbone of the Celtic Tiger, goods created and exported from Ireland has largely disappeared to be replaced by consumer spending and the property bubble fuelled by increasing debt and presumably some of the infrastructure projects.

Comparing things to the 1980s, he noted at the time personnel debt was 30% while national or government debt was 130% of GNP, whilst now it has swapped over completely where personnel debt is 130% -not sure now if that was collectively of GNP or of salary and government debt is 30% of GNP

Adding to that he quoted an OECD study of 49 housing/propery bubbles over 25 years or so in 22 (I think?) countries showed that they all ended badly. George Lee agreed with this view as I think many others do too. Thus in his view it is only a matter of time before it all ends.

At that point in the programme they switched to get a viewpoint from owner of the largest building firm in Ireland (can't remember his name) and he obviously said that he thought things would continue more or less okay for the next 5 to 10 years and there would be a soft landing. Completely at odds with reality, but very much in his own interest.

Whats even more ominious is that with all this increasing debt and the fact that now two people would need to be working and drawing a good wage in order to be able to buy a home, that in fact in real terms wages are stagnating and with the continuing Neo-Liberal assault, working conditions and security of employment is being reduced. On top of that the social services are increasingly being engineered towards privatisation either through direct government policy or by making the cake smaller and forcing various agencies / institutes to seek private capital. These things of course make daily life even more costily for people because they would now be forced to pay things like bin taxes, water taxes (on hold at the moment), medical insurance (at least if you want to be seen to), car insurance (because public transport is crap) and possibly education and so on.

Debt or freely available credit as we know has been fuelled by low interest rates -for mortages at least -and the EU has held rates low in order to be in line with the dollar where interest rates reached historically very low rates as part of the policy to stimulate the economy and prevent severe recession after the dot-com blowout. The low interest rates is thus the prime reason for the property bubble which is not unique to Ireland but pretty much is a worldwide phenomena affecting most countries.

And one other thing regarding debt that I have noted is that people tend to build up various short term loans and debt on credit cards -all at quite high interest rates, then consolidate them into longer term loans at low interest rates either with credit unions or by remortaging their house. But then what happens is that now that they have no short term loans they usually quickly end up with them again and building up credit card debt again. The net effect is a pumping mechanism of building up the overall debt level. While property prices remain high people don't seem to mind too much, but should they fall significantly and at the same time either there are job losses and or higher interest rates, then the money flow will quickly dry up, confidence will drop and stresses will appear.

From an environmental and social perspective one could argue that the consumer society is both unsustainable and bad because of the negative effects of the consumerist type of society, so they might see in this a chance for change. On the other hand it is also an opportunity for those in power to stir up right wing reactionary feelings to divert attention away from this last decade of transferring wealth from the larger population to themselves.

by Liam Fri Jun 16, 2006 16:25

Nice analysis, Terence.

by Jasbie Sun Jun 18, 2006 00:00

Wonder how the unscrupulous employers will react when they discover this downturn?

by Brian Reynolds Mon Jul 30, 2007 18:33

Great description Terrence.

There's a Republican Congressman in the U.S.A. Ron Paul who's creating quite a stir. He's opposed to the boom and bust economics that are due to the fiat money system in the U.S. and Europe too.

If we wish to have a solid economy that is equal for everyone we need to learn more about the economic end of things and make the necesssary changes.

Thanks,

Brian

by davekey Tue Jul 31, 2007 17:30

Recently a report came out in the news that there was recommendations in the 80's to buy agricultural land at a decent price and have it available for housing when the cities and towns expanded. This of course was shelved and so we had the land hording instead, drip feeding the market and jacking up prices. Now we have people who are 35 year slaves to the banksters and a huge flow of wealth from the middle/working classes to the elites.

I'm sure it would be no surprise if these same elites blocked this previous proposal.

If there's a downturn it will be the middle/working classes most afffected. The banksters and developers have already consolidated their vast profits and will simply move to other markets.

Seems like just another 'free market' con on the ordinary people.

Ron Paul's proposal to abolish the Federal Reserve in the US if elected sounds like a good start to end the tyrrany of the banksters and elites.