FT article on German growth

This post was written by Kevin O’Rourke

This FT article is well worth reading. It asks a question I had been idly wondering about: is German growth just a reflection of Chinese growth? If so, then the issue of whether Chinese (or more broadly, perhaps, Asian) growth can become self-sustaining, or will continue to largely depend on sales to over-indebted American households, is a question with major implications for the European economy.

Update: I have just come across this piece by David McWilliams on similar themes. I guess the hope for Germany is that their growth is based on more, ultimately, than Chinese exports to the likes of us.

28 Responses to “FT article on German growth”

  1. hoganmahew Says:

    The WSJ looks at the story from the other side - who has benefitted from German success - it isn’t German workers… http://online.wsj.com/article/SB10001424052748704296704575431240767523752.html?mod=WSJ_hps_LEFTWhatsNews

    But is this also a China effect? Or at least a low wage effect - higher wages in the low wage sector would lead to fewer jobs as more scurry to low wage (and conditions) jurisdictions.

    The same competitive pressure is also evident in the US with the unemployment rate for positions earning over 150k at 4% and for the lowest paid 20% of the workforce at 35%.

    The problem for Germany (and the US) is that the low paid use money quickly and in ways that support other low paid jobs. It looks, to me, like Germany is in a bind. It has to have a low paid work force to compete in the markets it is selling into, but by being successful doing that, it is restricted in what it can do for domestic consumption.

  2. Brian O' Hanlon Says:

    From the article:

    But after strengthening their competitiveness and radically improving their workforce flexibility in the past decade, most companies were able to cope with the roller coaster ride. Many businesses held on to their core staff during the crisis, helped by their own flexibility measures as well as a government-sponsored short-time working scheme where the state chips in for as much as two-thirds of wages lost when working hours are reduced.

    This contrasts very sharply with Ireland doesn’t it. When our booming domestic demand led property bubble spattered out in 2008 - there was precious little talk then, about measures to ensure that companies held onto a ‘core’ workforce. Rather, it had more to do with, how fast things can be rushed down to the high court for insolvency proceedings.

    China-led demand or not, in some parts of the Irish economy, there was very little worth holding onto. Very little worth salvaging out of the wreckage. It was a simple matter, of dragging the carcass down to the scarp yard, and flogging it for what you could get. BOH.

  3. Brian O' Hanlon Says:

    hoganmahew says:

    The problem for Germany (and the US) is that the low paid use money quickly and in ways that support other low paid jobs.

    This is true in Ireland also. What is interesting in Ireland is the pattern of job losses. Much of the lowest paid sectors have not been hit at all, and continue life as normal. We can certainly get indications in Ireland, that the cancer of the current recession is one, that prefers to go after the higher skilled, higher paid end of the workforce. That segment that is most capable of servicing loans for various kinds of long term investment - either personal or for the state, via the taxes they pay.

    If one was to take a snapshot of the Irish workforce in 2010, and design a taxation policy around it, it would have to be one aimed at charging taxes to the lower paid, in various means. Not as easy, and as politically acceptable as taxing higher income brackets. But the problem is, the higher income strata are disappearing faster and faster. BOH.

  4. Michael Hennigan - Finfacts Says:

    Deutsche Bank said on Friday that the expected 12% export growth of 2010 is poised to slow to about 6% in 2011.

    DB said earlier this year that the US and the European countries, led by France, will remain Germany’s main export markets over the next few years. Pre-crisis growth in exports to these countries, however, was already weaker - - at 4% to 6% p.a. from 1991 to 2009 - - than the increase in exports to the emerging markets. The crisis simply reinforced an already existing trend. Over the next few years exports to China will likely keep up their impressive momentum (+19% p.a. between 1991 and 2009). China’s share in German exports of currently about 5% could thus double in just six years.

    Trade with other emerging markets, both the Non-China BRICs and in Eastern Europe is also strong.

    There are risks from the fragile recovery in the US; China is working on rebalancing its economy and earlier this month, the China Daily reported that more than half of

    China’s existing residential houses will be demolished and rebuilt in the next 20 years.

    Each year, China uses 40% of the world’s cement and steel, the main ingredients for construction, according to the newspaper.

    Germany: 2003; ‘Sick man of Europe’; 2010; Eurozone growth powerhouse

    @ hoganmahew

    It has to have a low paid work force to compete in the markets it is selling into, but by being successful doing that, it is restricted in what it can do for domestic consumption.

    For consumer products such as cars, it has to have local production in for example China.

    In Germany, it has the ability to have high productivity and it showed during the crisis, that its labour markets are flexible, in particular the linking of collective agreements with economic conditions.

  5. Brian O' Hanlon Says:

    MH says:

    In Germany, it has the ability to have high productivity and it showed during the crisis, that its labour markets are flexible, in particular the linking of collective agreements with economic conditions.

    I think what happened in Ireland during our boom era, was that ‘low-paid’ labour suddenly shot up to become vastly over-paid labour. And not just vastly over-paid labour, but inflexible into the bargain. We have paid for that today, in lagging behind the rest of the EU in benefitting from any recovery. We have missed the boat. I mean, the fact that many small German producers are willing to re-hire, or expand production in 2010, is testament to the existence of a genuine agreement between labour and production in Germany.

    That never existed in Ireland, and throughout the course of the boom, the relationship between labour and production in Ireland became more and more nasty. BOH.

  6. Michael Hennigan - Finfacts Says:

    Breakdown of German exports by region and main country markets:

    http://www.finfacts.ie/irishfinancenews/article_1019597.shtml

  7. Brian O' Hanlon Says:

    @ All,

    There is just one more theory I would like to present before everyone today, and it goes as follows. We experienced impressive levels of economic growth for most of a decade in Ireland, and added enormously to the number of those ‘at work’ in Ireland. However, my experience on the ground was, the health of the relationship between labour and production did not evolve quickly enough during the same period. In fact, by the height of the boom era in 2006, I noticed that employers had become thoroughly dissatisfied with the relationship and were merely waiting for the opportunity to cut lose. With the problem in 2010, that dis-trust between the employer and worker lingers on. Employers are simply too tired of the wage inflation (and associated property inflation) they experience during the Celtic Tiger. Most employers I know personally, and that numbers quite a few, are in no rush to return to the rat race they knew during the Celtic Tiger. Where any little investment or effort you put into your workforce, was rewarded by the same going down the road and obtaining higher earnings. Many employers who were eager to trade in Ireland and had plans for longer term sustained expansion and development, became frustrated in their efforts, because of this constant battle they seemed to be fighting with their own workforce. I wanted to present this argument to folk here, as our situation in Ireland, in managing that interface with the workforce seems to differ radically from the same in Germany. BOH.

  8. zhou_enlai Says:

    @hoganmahew

    The LSE held an event on the changes in labour rights. I think the main focus is on Germany.

    Flexible Employment, Stable Society?
    Speaker: Professor Wolfgang Streeck
    http://www2.lse.ac.uk/publicEvents/events/2008/20081203t1643z001.aspx

    The way I see it is that there has been a general trend towards less job-security and lower wages in all Western countries. The post-war deal is defunct. Companies can make bigger and bigger profits at the expense of their workers.

    National labour law structures are altered by the need to be competitive and to accomodate global capital rather than by the desire to create a healthy society with good income and conditions for citizens. Citizens agree to this because they have no choice in a globalised world. There is little global co-ordination of labour laws in the same way that countries within the EU will sign up to minimum standards in terms of working hours and worker equality.

    Capitalism is a function of an international market. The more international and free the market the more pronounced the capitalistic behaviour. Global international policy has been to create ever freer markets. Accordingly, it is only natural that companies should behave in such a way as to maximaise the owners profits at the expense of the workers and even the State.

    If one wants to avoid protecionism then one needs to have a degree of global co-operation on these issues. Unfortunately, the world’s trade unionists do not appear to be providing the co-ordinate impetus necessary to achieve this. One reason might be that the developing countries feel that unless they can exploit their workers, as the Western powers did before, they will never be able to catch up. The same areguments apply to corruption and environmental irresponsibility.

    Protectionism causes greater economic pain and global co-ordination is unlikely. Therefore the prognosis is not great. At the same time the mechanics of western capitalism are now forcing the state and the taxpayer to indemnify financial capitalists against losses. I don’t think this will lead to crisis although it is possible.

  9. JohnTheOptimist Says:

    What exactly is so great about the German GDP growth?

    The Q2 growth brings total GDP growth in Germany since 2000 to 5.9pc.

    What’s so earth-shattering about 5.9pc in a decade?

    Its one of the lowest figures in the world?

    The corresponding figures for Ireland are 29.3pc GDP and 19.9pc GNP, even at the 2009 trough of the recession. Other countries like the US and UK are somewhere in between Ireland and Germany.

    Compared with the lower-tax higher-enterprise economies (like Ireland, US and to a lesser extent UK), Germany has chronically low growth for a decade and more. Then, it registers growth of 2.2pc in one quarter, and everyone talks about what a great economy it is. The 2.2pc German GDP growth in Q2 is less than Ireland achieved in Q1. I have no idea what Ireland’s Q2 GDP growth will be (notoriously volatile and difficult to predict), but I wouldn’t be the least surprised if it was higher than Germany’s.

  10. Michael Hennigan - Finfacts Says:

    What a difference a few months make!

    Germany was lambasted for prudence and some even suggested it was the primary cause of the woes of the PIIGS!

    It was news to some of these critics that Germany had experienced painful labour and welfare reforms in the early years of the last decade.

    These reforms had in effect cost Gerhard Schröder his job as chancellor — people bemoan jellyfish politicians but when they get one with backbone, they don’t like that either!

    It’s easy to fall for groupthink and last June Jacob Funk Kirkegaard, a Danish economist at the Peterson Institute for International Economics in Washington DC, wondered about the level of disdain reflected in surveys of City of London economists and global investors showing agreement about the likelihood of a breakup of the Eurozone. He asked how can a majority of 25 City of London economists conclude that “a euro breakup of greater or lesser proportions will occur during the next Parliamentary term“ - - within five years, in other words - - a view supported by 40% of global investors polled by Bloomberg?

    @ JTO

    Can you seriously compare a small economy that is dependent on foreign firms for 90% of its tradable exports and in the past decade had growth fuelled by an-out-of-control property bubble, with a large economy like Germany’s?

    This is like the PDs’ chorus: we cut the capital gains tax rate and revenues have gone up! We have found the philosophers’ stone by emulating Ronald Reagan!

    You have a good knack with statistics and no doubt if it suited your argument you would trumpet loudly an annualised quarterly growth of almost 9% compared with the experience of for example the US and today’s data from Japan for Q2.

    So to support your negative argument, we get these past comparisons.

    So should future Irish growth performance be compared with the years when the banks went to hell in a handcart?

    You may not know but Germany ended up paying more than it expected in the preceding decade in integrating West and East; the agreement on currency parity in 1990 may not have been wise but the subsequent financial story is the story.

    Contrary to the widespread cliché of American dynamism versus European economic stagnation, over the past decade Europe’s top companies have beaten America’s (not to mention Japan’s) by an often substantial margin.

    Despite the rise of China and the rest, Europe has held roughly steady, at about 17%, its share of world exports since 2000, while America’s has fallen by more than a third, from 17 to 11%  - - a crude but significant indicator of global competitiveness. Since the early 1990s, Europe has steadily expanded its share of the world’s 100 biggest multinationals compiled annually by the UN Conference on Trade and Development, from 57 in 1991 to 61 last year, while the US number has dropped from 26 to 19.

    Germany is home to several of the world’s top firms in their sectors.

  11. zhou_enlai Says:

    Indeed Ireland has its own Asia strategy and is active in the East. However, I don’t know if McWilliams’ verison of German economic genius is all that fantastic. Sending you neighbours deeper into debt and trade deficits via China while lending vast sums to your nighbours at the same time may seem to be the international version of owning the company store. However, if and when something gives, via debt default or protectionism, the consequences could be pretty drastic.

  12. Brian O' Hanlon Says:

    Jto says:

    Compared with the lower-tax higher-enterprise economies (like Ireland, US and to a lesser extent UK), Germany has chronically low growth for a decade and more. Then, it registers growth of 2.2pc in one quarter, and everyone talks about what a great economy it is.

    We are quite guilty in Ireland of confusing which problem it is we are trying to solve. The problem is, we have probably defined our problems at the moment incorrectly. There is a lot of evidence, in my mind, the debate about the banking crisis is merely a continuation of an earlier anomosity between labour and employers. In the days of the Celtic Tiger, we had massive wage inflation because our economy became over-heated. Which led to a situation where labour could become militant enough to demand almost any rewards it asked for. In the aftermath of the Celtic Tiger, most of the genuine employers on the island have stopped trying to interface with the workforce, and have opted out of the game. Labour no longer has the bargaining power it did in the past. But what it had in the past, wasn’t bargaining power in the true sense of the term. It was only a technique of holding employers to ransom. It was a game played on both the public and private sides of the fence, by labour during the Celtic Tiger. Labour has now rallied around the issue of the banking crisis as a means to try and hold itself together - not because it is particularly interested in the banking crisis. The banking crisis does have deep and real impacts on employers though - so lets look at that.

    We believe in Ireland, the entire problem can be explained in terms of a rational equation - whereby turning on the ‘credit taps’ leads to a sudden rush to recovery and growth in the Irish economy. I listened to Matt Cooper on Today FM radio this evening. The head of the students union of Ireland reported of his colleagues dressed up in Robin outfits - and searching in Ballingcollig for ‘Batman’, minister for education Batt O’ Keefe. The student union president projected that all graduates from Ireland in the next five years, will leave the country. Approximately 150k people, I think. Students in Ireland today need to understand they are victims of a very dysfunctional deal struck between employers and labour in Ireland during the boom years. Instead of working out a decent agreement, we simply bought off labour in order to make problems go away.

    This has left a situation today, where the structures do not exist today, which would enable a student union president of Ireland and a minister for education to cooperate. The president of the Students Union of Ireland was incorrect in his repeated use of the phrase ‘when the recovery comes.’ Because, other economies are currently experiencing a recovery, but Ireland isn’t. Maybe our idea of a ‘recovery’ in Ireland, is a return to the Celtic Tiger idea. An over-inflated economy where labour hold all the cards, and employers are held to ransom. But employers have been there, and worn that T-shirt. They ain’t for gone back. That is the essence of the credit flow problem in Ireland. Minister Eamon Ryan says that banking is about ‘trust’. We should extend that defintion a bit further, to acknowledge that banks need consumers of credit - i.e. employers. Because we don’t have an agreement between labour and production in Ireland, except for a dis-functional one - we are stuck in a dead-lock situation. Therefore the recovery doesn’t matter. Because employers have been burned too badly in the last decade in Ireland. The higher wages went, the more houses were worth. The more houses were built. The more workforce was drawn away from employment, and into construction - and the whole cycle continued - until it spun completely out of control. We ended up chasing our tails. BOH.

  13. seafoid Says:

    @BOH “Where any little investment or effort you put into your workforce, was rewarded by the same going down the road and obtaining higher earnings.”

    Was it ever any different in any country experiencing a sudden massive rise in economic growth? I read in Forbes a while ago about a HK knicker manufacturer who set up a factory in Shenzhen and then periodically upped sticks and moved 100 km inland once the location became too expensive. I know from working in India that salaries went through the roof in many industries once the India shining story became well known. You couldn’t hang onto people without upping their salaries. So Ireland was in no respects unique.

    The other point missing from any analysis I have seen about the property crash is that people were driven out of Dublin because a very small coterie of builders, no more thn 8 in total controlled all of the land banks around the city and pushed prices up to such a level that people had no choice but to ask for higher wages and salaries. In addition to moving to Portarlington.

    The Manic street preachers have a nice line about “feudal serfs to spenders” .

    Certain elements of more recent Irish behaviour such as flaunting the wife and chattels in the local version of VIP magazine, many obnoxious bungalows or that famous photo of Sean Dunne in his over leveraged house in D4 were signs of a tacky adherence to money that older more prosperous groups would never have countenanced , a sort of rite of passage that some commentators felt the country had to go through.

  14. Brian O' Hanlon Says:

    @ Seafoid,

    The whole India story is indeed a fascinating one. I read somewhere during that time, of the amounts of land which were being swallowed up for urbanisation on that continent during its boom years. We are talking vast quantities of land per annum. I forget the actual statistics, but it did set my mind going at that time. Land that previously had been used for agriculture. So it does make one wonder.

    I remember thinking, that in Ireland we were buying and selling a lot of land also. And I remember thinking of how different the population pressures in Ireland and India were. What I mean is, in India one could see that too much land was being acquired for development purposes, but there was a real surge of population behind it. Michael Hennigan I am sure, has mentioned the statistics for people in India reaching the working age. I think it was a couple of hundred million. In Ireland, what have we got? The students union of Ireland president talked about 150k graduates will emigrate from the island in the next five years. But what is that in the greater scale of things? A blog entry version of my above post is linked below. BOH.

    http://designcomment.blogspot.com/2010/08/batman-in-ballincollig.html

  15. zhou_enlai Says:

    @JtO

    When comparing average growt rates, isn’t it important to note one’s starting point (in terms of GDP per capita) and to use the geometric average?

  16. seafoid Says:

    @BOH

    I don’t think the India working population numbers add up to much. The question is whether or not those working will have work that develops them. The answer for most Indians is “no”. I worked in insurance in India and the country had around 5000 actuarial students in 2008. India only needs around 500. What are the rest going to do? Nothing insurance related.

    Work opportunities are still tightly controlled by managers and those with the right connections. It is very hard to break the glass ceilings that exist.
    India’s population seems to me to be a massive hindrance rather than something to crow about. In general as a society we talk about unlimited population growth in positive terms rather than look at the very serious implications of it.

    If people are denied a decent education it doesn’t matter how many millions of them there are. Most would prefer to be an Irish graduate, even if it meant emigration. Every day I get unsolicited mails from Indians looking for work, “will relocate anywhere” they say. .
    Ireland’s problems could be solved with say €30bn. India’s problems by contrast I couldn’t put a price on.

  17. JohnTheOptimist Says:

    @Brian O’Hanlon

    The head of the students union of Ireland projected that all graduates from Ireland in the next five years, will leave the country.

    JTO again:

    What an absurd claim. Isn’t it a fact that the only requirement to become head of the students union of Ireland is total insanity? It was in my day. From the above comment, it looks like little has changed. Why do media presenters give such lunatics the time of day on their programs? Oh yes, I forgot. Most media presenters in Ireland are former heads of the students union.

  18. JohnTheOptimist Says:

    @Michael Hennigan

    You (JTO) have a good knack with statistics and no doubt if it suited your argument you would trumpet loudly an annualised quarterly growth of almost 9% compared with the experience of for example the US and today’s data from Japan for Q2.

    JTO again:

    No, I wouldn’t, Michael. Because, if I annualised figures in the way you suggest, Ireland’s annualised GDP growth rate from Q1 would be 10.8%. And, not even I believe that is likely.

    The point is this: In contrast to the US, over the past 60 quarters or so, Germany has varied between low, very low, abysmal, derisory, and negative growth. Now, it has one quarter of good growth, and it is being trumpeted by the likes of McWilliams as the powerhouse of the global economy, and its economy superior to that of the US. It is no such thing. Its long-term growth rate will continue to be much lower than that of the US. Its demographics ensure that.

  19. Michael Hennigan - Finfacts Says:

    @ JTO

    “Its long-term growth rate will continue to be much lower than that of the US. Its demographics ensure that.

    John,

    So the experts knee-jerkily say but they may well be wrong.

    Japan has a particular problem because it’s not a very attractive place for immigrants but whether it’s peak oil or ageing, be cautious of doom mantras on issues decades away!

  20. Brian O' Hanlon Says:

    @ All,

    If there is anything I have learned from reading many discussions here at the Irish Economy blog over the last year plus, it is as follows. Imagine a network diagram, with a whole lot of network node points and connections running between those points. It is at the points, that we find the accumulations of data and statistics. Those are indeed very valuable and costly to collect, maintain on record and perform useful analysis on. Sure information technology has helped, because our human brains aren’t able to crunch through vast quantities of data.

    But here is the thing. To solve our problems in Ireland efficiently, we do need to begin training ourselves to work with the connections, and see the entire systems, and cyclical loops - and how one feedback loop interacts with another, to create a circumstance, a kind of condition. Because we often find ourselves in positions, where we become a prisoner to the system of connections and ‘routing patterns’ to use the network technician’s speak. In order to change anything we need to learn how to re-route the information flows and develop different connections. We need to have at least some degree of command over that, rather than allowing it to happen in random fashion. There will always be some degree of randomness, about the way connections are made, but that should not discourage us from pursuit of better understanding.

    I know what I am talking about has no firm basis in academia. It isn’t something commonly taught within one faculty in any institution. In fact, it is the kind of subject that might be cross-disciplinary. I just think we should get ourselves into the habit in Ireland of building simply models of how the dynamics of situations work. Yesterday evening, I heard on radio the talk of a bridge collapse in Malahide and a report commissioned 12 years ago. That is a very physical manifestation of a systems breakdown - but one could argue, the same in occuring in all kinds of quarters. The breakdowns are often concealed. But there must be some common body of knowledge, which if understood properly would enable us to analyse and work on a whole variety of problems. I was in a county council headquarters recently, where I learned it cost the building occupier €40,000-00 every six months to keep the glass clean. Clearly in many parts of our society and our processes, we need to be more critical and assertive, in terms of standards we demand. A bunch of statistics will certainly provide the firing power - but solutions will only come, by making the right connections, at the right times. BOH.

  21. Brian O' Hanlon Says:

    @ Jto,

    Yes, if you were to analyse the comments of the president of the students union of Ireland, from a statistical analysis point of view, he would fair poorly. Those guys probably are not familiar enough with figures to make a meaningful argument based on numbers.

    But you will also notice, that his analysis of the problem from a systems point of view, wasn’t all that bad. At least, he seemed to be making useful connections. Granted, there are some points I would add. But still, this is my point about the network nodes and their respective connections. We have to learn in Ireland to walk and chew the jum at the same time. To stand back from figures and data every once and a while, and ask ourselves the question, why things are the way they are? BOH.

  22. Tony Owens Says:

    @ BOH:

    “see the entire systems, and cyclical loops - and how one feedback loop interacts with another, to create a circumstance, a kind of condition. ”

    and

    “there must be some common body of knowledge, which if understood properly would enable us to analyse and work on a whole variety of problems.”

    Brian the subject is new and emergent. At a prominent mgmt consulting company I once worked for we called it System Dynamics or systems engineering. It was then sold as a service for helping ‘manage’ large critical projects where overruns have big financial repercussions - e.g. nuclear sub builds, the channel tunnel fiasco etc. It involves discovering and modelling functional relationships within and between lots of parallel processes then exploring the systems evolutionary behaviour using stochastic simulations. There are cut-down versions of this type of modelling used in complex manufacturing for yield improvement and even for simulation of projects on desktop computers.
    My own reflections on what I’ve seen this approach achieve is that more benefit is obtained from the close scrutiny of control loops with the system under study (i.e introducing transparency and measurement) than from the data-intensive models that are actually built and their potential for running sims and exploring change scenarios.
    Reflect on the CIE bridge event and the circumstances that led up to and followed this.
    Lack of accountability
    Lack of transparency
    Lack of inspection
    Lack of control
    Lack of contrition
    Lack of consequences

    Ireland’s slowness to reform the legal system frustrates transparency. Reduction in the assiduous building of information differentials and secrecy between different parties that opacity encourages is fundamental to transforming Ireland’s performance in all aspects: ethical, economic and civic. With the removal of legal impediments the sterilising effects of the sunlight of public scrutiny can police performance far more effectively than armies of regulators and inspectors. Think of a sort of Stiftung Warentest focused on Irish products and services of all sorts.
    How such change can be brought about is far beyond my competence!

  23. Brian O' Hanlon Says:

    Tony Owens says:

    My own reflections on what I’ve seen this approach achieve is that more benefit is obtained from the close scrutiny of control loops with the system under study (i.e introducing transparency and measurement) than from the data-intensive models that are actually built and their potential for running sims and exploring change scenarios.

    Indeed, the value of all kinds of Irish products and services, would be greatly enhanced by more efficient and better information and report sharing. The information needs to go through a process of verification, so that management can act. But there is a huge problem, in the delay it takes to obtain verification, the said information gets lost again in the system, and the attention focusses somewhere else.

    Two examples from the world of engineering spring to mind. In a fire alarm system, the major chunk of the information collected at source by various detector heads and sensors is discarded by the panel which reads that information. Which may not be a bad thing. But it is important to realise, collection of information is not always the problem. It can be discarded in huge chunks (or handled inappropriately) at certain points in the system. It is crucial in Ireland, if we are to advance that we become skilled at identification of the main components in the architecture - so as we can become efficient, and invite the necessary expertise to focus where we want them to.

    In the electricity supply board for instance, they are quite advanced in that regard, and can quickly identify locations of problems. This is important in that business, because relatively small components of the system, and send the entire network into disarray. I suppose, that was the key insight of some forces in the world today, and why a lot of our systems are undergoing review to see how they stand up to attacks. We could look at our flood defense systems in the same way, and it might be a worthwhile investment against the cost of future events.

    Maybe we require a different accounting system, or budgeting system to acknowledge the things I speak about. The cost of cleaning windows at €80,000 per annum, would indicate a weakness in the accounting system, which has led to a deficiency in the engineering system. We could argue the same about financial systems, I have no doubt. Rory Kirrane’s lecture is interesting as it mentions the agreement systems in place for the channel tunnel. Like you mention, it had a lot to do with transparency and the kind of legal contract that was established from the get-go. BOH.

    http://www.engineersireland.com/services/web-tv/9/title-3591-en.html

  24. Brian O' Hanlon Says:

    I said above,

    It is crucial in Ireland, if we are to advance that we become skilled at identification of the main components in the architecture - so as we can become efficient, and invite the necessary expertise to focus where we want them to.

    This is where the major cost of risk accumulates in contracts. As the specialist has to price for the fact, their employer may not have a clue where to send them to. In other words, the expert may spend too long work in the wrong part of the system, only to discover at the end, where their efforts should have been focussed. Sometimes it is unavoidable. But there should be no excuse for brittle and ineffective information reporting. What you save up front in doing so, can be lost multiple times elsewhere, in driving up the cost of risk in various contracts. It is like in financial markets, when interest premiums rise where the market perceives there are skeletons ready to fall out. In Ireland’s case, does it mean the markets know something which we don’t? BOH.

  25. Tony Owens Says:

    @BOH

    “The cost of cleaning windows at €80,000 per annum, would indicate a weakness in the accounting system, which has led to a deficiency in the engineering system”

    Perhaps - but it also suggests an unawareness of technology trends and perhaps a degree of complacency. The problem of how to clean inaccessible panels was solved years ago by Pilkington and by others using what might be described as a nanotech-based solution:

    self cleaning glass: http://en.wikipedia.org/wiki/Self-cleaning_glass
    and
    http://www.pilkington.com/international+products/activ/default.htm

    The upcoming state of the art may be here: http://www.xerocoat.com/Anti-Reflective-Coatings.aspx

  26. McGarrell Reilly Says:

    China and Germany are working very close, China may become Germany’s top export customer by 2016 as German exports to the emerging giant are expected to keep the impressive momentum of 19% per annum growth in 1991-2008 period.

  27. Tony Owens Says:

    Brian, I have an aversion to piling systems upon systems - to validate, manage or referee. The most ideal ’systems’, whether technical, business, biological or economic are self-correcting, self-adapting, self-healing and as they evolve they are trimmed of superfluous elements. Adding things to the system does not help, when the overriding need is to trim elements that serve no useful function or which cause more harm than good.

    In my view many of Ireland’s regulatory mechanisms for subsystems in the overall life of the island, some state operated, others de-facto and maintained by industry associations and professional bodies have been captured and rendered ineffective by a legal system that tends to work only for the very rich and the very poor. Consequently, the normal evolutionary development of many important subsystems such as planning and policy development, education provision, industrial planning, waste management, energy provisioning, entertainment and religious service delivery, disaster provisioning, air links and healthcare has been compromised. One effect of this is that cost of living and operating global businesses has risen relative to other jurisdictions resulting in lost competitiveness.

    Darwinism applies to all systems and the consequences are evident in emigration, rising bond spreads, and a growing proportion of the trading economy no longer willing and/or able to underwrite the state’s inefficient management functions and moving to the black economy.

    At the root of the problem are Irish cultural attitudes and behaviour, which must change if our society is catch up in evolutionary terms with leaner more purposeful places. An accessible, cost-effective and streamlined legal system coupled with better transparency to public scrutiny will provide much of the necessary framework to help our island’s ’system’ evolve and repair itself without adding further layers of admin.

    Do you agree?

  28. Brian O' Hanlon Says:

    Tony Owens said,

    Brian, I have an aversion to piling systems upon systems - to validate, manage or referee.

    Agreed. When I talked above about focussing the experts in a certain area, that too is very dangerous. It leads to further brittleness, where experts are confined to a specific area, and may not be allowed to wander outside of it, and notice other problem areas using the same expertise. I have experience in the past, of being given as much freedom to wander as my energy would allow me to do. But that was a unique situation, and I didn’t think for a second my supervisor wouldn’t have pulled me off the project, if I chanced anything without running it through him first. And I mean, a thorough description, lacking in no details necessary, of my proposals and my definition of the problem. The relationship was also based on the mutual knowledge, that my supervisor could at any moment alter my solution (or even his own solution), if something occured to him, to change his mind. In other words, I represented a degree of flexibility in the system for him as the supervisor, and in return I gained a lot more responsibility myself, which I would not otherwise have. The relationship succeeded also, throughout the entire course of a contract. But I would never be naive enough to hope things go that smoothly always.

    Tony Owens says, Adding things to the system does not help, when the overriding need is to trim elements that serve no useful function or which cause more harm than good. I think one has to know the basic core system well enough in the first place, to diagnose the fact the system might be behaving differently, due to some additional part, which was not part of the original design. I guess, this is what Andy Grove was talking about in his book, Only the Paranoid Survive. One of the key indicators for Grove was, when things that used to work fine, suddenly display erratic behaviours. Which at first may be barely discernable, but if you wait too long to get the full picture, it may be too late. Clayton Christensen talks about it too, and even senator Fergal Quinn on radio yesterday spoke about changing the price of tomatoes while the people were at mass on Sunday mornings. Quinn’s point was, in that retail trade he had the ability to make instant changes like that.

    Tony Owens said, maintained by industry associations and professional bodies have been captured and rendered ineffective by a legal system that tends to work only for the very rich and the very poor. You may be on to something there. It is worth talking to some people who remember the land commission in Ireland. It was disbanded in the early 1980s I think, but prior to that had operated in the market for agricultural land since famine times. Professor Ruane of the ERSI has some interesting comments about our ability in Ireland to monitor programs at intervals over the longer period. I guess, what I mean is, a zombie agency could persist for a century or longer, because of various legal arrangements - but fulfill a very different purpose from its original intention. The danger arising where the stated original intention of the body, and its current un-stated intentions are very different. But you have to offset against that, the ability to create value through legal wrappers. As in the iPod being a classic example of very open, mainstream technology which is contained inside some legal structure, which enables it to trade and create value for a company. It is a big, big debate. Nicholas G. Carr is a very interesting reference.

    Tony Owens says, One effect of this is that cost of living and operating global businesses has risen relative to other jurisdictions resulting in lost competitiveness. Excellent point. What you are suggesting in your comments above, is some very fruitful ground for further research. I do hope that some post-graduate students (either business, law, engineering or social sciences) are listening to this, and can make it the subject of their focus. I guess the big issue, if we do decide to hone back our systems to their barest essentials, is that we complete the process. I mean, there is no reward for going half the journey. This would indicate to me, that certain sectors could advance along the path your describe faster than others. You mention the legal sector, an area I have no knowledge about. I have no knowledge about banking or finance either, and perhaps that was a bad area to rationalise first? The removal in the land commission though was a big step in the field of agriculture. The big one with the cleaning of the glass windows, was to shift more responsibility onto the designer to consider health and safety of future maintenance personnel down the future. But equally, I should argue, we need to start doing basic life cycle costing analysis. BOH.

    http://designcomment.blogspot.com/2009/06/dublin-airport-authoritys-capital.html

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