Categories Economics Fiscal Policy Gavyn Davies’ suggestion for most important macro graph of the year Post author By Kevin O’Rourke Post date December 23, 2010 40 Comments on Gavyn Davies’ suggestion for most important macro graph of the year Has anyone seen an Irish equivalent of this? A good way of framing macroeconomic debates… Related ← John Bruton on the EU response to the Irish Banking Crisis → Irish Version of Gavyn Davies’ Graph 40 replies on “Gavyn Davies’ suggestion for most important macro graph of the year” It is an interesting graph, although the sum-to-zero constraint means that it can fool the unaware viewer. The symmetry is an enforced feature not an empirical property. But still the graph provides an interesting perspective. When you ask for “an Irish equivalent” do you mean a contender for the graph of the year regarding the Irish economy, or the same graph with Irish data? The same graph with Irish data. I like the “Spot the bull” graph here http://gcalhoun.files.wordpress.com/2010/11/10-11-20-ft-beware-the-return-of-qe2-and-animal-spirits.pdf Nobody has a clue what is going to happen My favorite is still a scatter plot of debt (% of GDP) vs. deficit (% of GDP). My nominations are the bottom two graphs of Figure 8 from this OECD paper. http://www.oecd-ilibrary.org/economics/monetary-policy-market-excesses-and-financial-turmoil_244200148201 The two graphs show for individual EMU members over the 2001 – 2006 period: (a) the change in housing investment as a % GDP and the gap between the national interest rates which the Taylor Rule would have predicted and the EMU interest rates those countries actually got. Correlation coefficient = 0.828. (b) the change in construction investment as a % GDP and the gap between the national interest rates which the Taylor Rule would have predicted and the EMU interest rates those countries actually got. Correlation coefficient = 0.834. While these graphs date from a report that is now almost 3 years old, they are of especial value today as the graphs’ outliers – Ireland and Greece – are those EMU members currently suffering the most financial distress as a consequence of deflating credit/propoerty bubbles. The graphs also merit inclusion as 2010 was the year that saw the publication of the Honohan Report. That report purported that that three quarters of our economic crisis was home-made. These graphs flatly contradict that self-serving conclusion, reached by our ECB governor. It is far more likely that our crisis is one quarter home-made and three-quarters a consequence of wholly inappropriate monetary policy consequent on our misguided membership of EMU which is itself a misguided project. I’ve seen this plot before over on iTulip.com, SuddenDebt.blogspot and Market-Ticker. Prognoses were somewhat different. Main complaint was that some very questionable accounting scams were being used to disguise the true extent of debts – and this is where the predicament lies. Incomes are under pressure and debt load is rising. Some western, developed economies (US, UK, ourselves) are Regressing economically. You can only halt this back-slide by cramming down unpayable debt and re-instating domestic production. Once you off-load the latter to a dangerous mercantalist state – aka. China, your doomed to economic penuary. “Are we there yet?” No, but we are making steady progress in that direction. Definition of Recovery – (a la econs): Boxer is flattened onto canvas. Eyes half-glazed, he struggles up onto his hands and knees. “He’s recovered! screams the crowd. Alas, he promptly slumps back onto the canvas. Best wishs to all. BpW ps: Spot prices of crudes have gone above $90/bl. This is very bad news. Hopefully it is a seasonal uptick and the prices will fall back in the spring. If they do not – now we DO have a BIG economic problem. The (financial) sectoral balances model has been extensively cited by Martin Wolf in the FT over the last year. It originates with the late Wynn Godley and has been extensively used by his colleagues at the Levy Institute, several of whom write at Creditwritedowns, one of the best blogs around on these issues. I have never seen a very clear explanation of how exactly the figures are arrived at – though presumably it comes from flow of funds data – but Wolf did present data on many European countries for both 2006 and 2009, including Ireland, in a March 2010 FT article, which Ed Harrison of Creditwritedowns reproduced in this blog post, which also explains the model: http://www.creditwritedowns.com/2010/05/mmt-economics-101-on-federal-budget-deficits.html The figures for Ireland to my reading are Private: 2006, -7%; 2009, +7% Public: 2006, +3%; 2009, -12% Foreign: 2006, +3%; 2009, +2.5% Does anyone know exactly how they are calculated? PS Obviously the theory says that the figures should balance to zero so perhaps the figures I gave need a little modification but they’re roughly right Harrison has another thoughtful article on the model here, again building off Wolf and of Richard Koo’s work on Japan: http://www.creditwritedowns.com/2010/01/revisiting-the-sectoral-balances-model-in-japan.html Martin Wolf has been publishing versions of this for both the UK and the US for many months. The sectoral balances stuff originates with the recently deceased Wynn Godley and his colleagues at the Levy Institute and has been extensively covered at the Credit Writedowns blog. I’ve never yet seen clear explanation of how it is arrived at from national / central bank accounts though but in principle it should be doable for Ireland also. It would certainly add to the general austerity debate both for us and across Europe. [Disregard the last post sorry, dodgy wireless and multiple devices] I am back after a month’s absence and ready to do battle once again! Have just flown in to Heathrow from Chicago after a business trip to the US, and am currently on a Virgin train somewhere in the north of England, en route to Glasgow and then Stranraer. So, not ideal circumstances for analysing the graphs that Gavyn Davies has presented. However, a comparison between Ireland and the US for the most recent quarter (Q3 2010) would be roughly as follows: (a) The red line (government borrowing as a percentage of GDP) would now be at approximately the same level in both countries (deficit of around 11 per cent of GDP in both countries). (b) The green line (private sector balance) would now be significantly higher for Ireland than the US (surplus of around 12 per cent versus around 8 per cent for the US). (c) The broken line (external balance) would now be slightly above zero for Ireland (remember, these are net figures) compared with a deficit of around 3 to 4 per cent for the US, indicative of the fact that Ireland moved into balance-of-payments surplus in Q3 2010, while the US remained in deficit. The salient fact is that the government deficits in Ireland, the US and the UK are all roughly the same, around 11 per cent of GDP, but, of the three, only Ireland has now moved into blance-of-payments surplus (in Q3 2010), meaning that its requirement for external financing of its budget deficit is less than the US or UK. Nice to know that things haven’t changed while I’ve been away. On landing at Heathrow at 6am, the first thing I did was check the RTE web site. The lead story was a forecast by some forecaster that retail sales in the run-up to Christmas would be at ‘an all-time-low’ and would be ‘down 7 per cent’ compared with last Christmas. Then, at 11am the CSO publish the actual figures. Retail sales in November up 0.9 per cent on November 2009 and up 0.2 per cent on October. @JohnTheOptimist – take out car sales and you are looking at a 0.9% decrease. The prediction of a 7% decline comes from the sector itself – time will tell if they are right. Figure 1. (Determination of Debt Limit) from the IMF’s Fiscal Space research paper. http://www.imf.org/external/pubs/ft/spn/2010/spn1011.pdf Btw here’s my contender for Gavyn Davies’ question. Would also be interesting to see the equivalent Irish data: My contender would be drawn from Steve Keen’s work on identifying the link between the acceleration of private debt and broader macroeconomic indicators like growth and employment: http://cdn.debtdeflation.com/blogs/wp-content/uploads/2010/10/101910_1723_Deleveragin1.png His commentary “The chart below shows my confirmation of the relationship with the data on the annual change in unemployment in the USA and the annual rate of acceleration of private debt since 1955. The correlation is -0.67: a staggering correlation of a first and a second order variable over such a period, and across both booms and busts. The two dotted red lines labelled “S” and “E” show when the NBER thinks this recession started and ended, and they neatly coincide with turning points in the credit impulse—an indicator that the NBER is not even aware of, let alone one that it considers when attempting to date recessions. Superficially, one might think that since the credit impulse does indicate when unemployment is going to rise or fall, then the current data implies that the recession is indeed over—even if the NBER doesn’t understand the actual causal dynamics at play. But the chart also shows that there has never been a turndown in credit like this one—the peak rate of deceleration of debt was over 25 percent, versus a mere minus 6 percent in the deep recession of the 1970s. ” Full blog post here: http://www.debtdeflation.com/blogs/2010/10/19/deleveraging-deceleration-and-the-double-dip/ JtO’s back! And about time too, Christmas was in danger of being cancelled the way things are going at the moment… @JTO “The salient fact is that the government deficits in Ireland, the US and the UK are all roughly the same, around 11 per cent of GDP, but, of the three, only Ireland has now moved into blance-of-payments surplus (in Q3 2010), meaning that its requirement for external financing of its budget deficit is less than the US or UK.” Neither the US nor the UK have dying banks with suicide belts strapped around the sovereign. Where exactly do you fit ECB repo activity in the Irish version of this graph? Not a rhetorical question I am asking sincerely. It is sort-of-like the Federal Reserve but sort-of-not-like the Federal Reserve. The ECB repo desk constitutes an enormous partr of financial marekt asset flows for the Irish economy in 2010 so it needs to be accounted for in some way. Welcome back, JtO. Keep focusing on those parts of the real economy which, if not thriving, are doing OK. The EU/IMF is looking after everything else. @JtO You are neglecting that (for the moment at least) Ireland also has all that nasty bank debt. Also seasonally adjusted exports were down last quarter (though this is taken from the Irish Times who don’t know how to read statistics). So this means that the CA balance surplus is due to falling imports rather than increasing exports last quarter. Just checked. Seasonally adjusted exports are down 2% in October (imports just fell by more). http://www.cso.ie/releasespublications/documents/external_trade/current/extrade.pdf I find the work of Professors Bill Mitchell (Australia) & Randy Wray (US) compelling. That is, amongst other things, that some policy ‘target’ of budget deficit is a worthless shell game. I also like their notion that what really matters in an economy is ‘people’ not the interests of banksters & the financial classes. Things like near full employment & efficient use of resources. Of course, a prerequisite is a national sovereign currency & junking the other shell game that ‘financing’ a budget deficit via private banks is ever required. And the eroneous idea that a government must ‘save’ for future pensions or anything else. Or that the latter is anything but economically destructive in both present & future. Also implied is that the Euro cannot work without full fiscal integration. This is unlikely & even if politically possible, would raise other intractable problems due the widely differing structure of members’ economies. So Ireland has two choices. We can continue with the intellectually bankrupt ideologies of monetarist neo-liberalism & an EMU run along those lines (with or without ‘integration’), & destroy in perpetuity what little prosperity we have left. Or get out of the euro as fast as possible, with an excellent medium term prospect of recovery & near full employment, if ‘establishment’ economists can junk the idea that a national (sovereign currency) budget needs be run like a household budget when the two bear no relevant similarity whatsoever. Novices, & those experienced but in sore need of re-education, would do well to watch the two professors’ video’d lecture explaining the basics to ‘beginners’ audience. (Their write extensive blogs also.) http://e1.newcastle.edu.au/coffee/education/public_lectures/Macro_Lecture_2_May_20_2009/Macro_Lecture_2_May_20_2009.cfm @Cormac Lucey “the Honohan Report….purported that that three quarters of our economic crisis was home-made. These graphs flatly contradict that self-serving conclusion, reached by our ECB governor. It is far more likely that our crisis is one quarter home-made and three-quarters a consequence of wholly inappropriate monetary policy consequent on our misguided membership of EMU which is itself a misguided project” So your equally self serving conclusion, as a former chief of staff to McDowell is that the govt you advised bears little responsibility for the destruction of the Irish economy. Glad we sorted that out. @Rory O’Farrell Also seasonally adjusted exports were down last quarter (though this is taken from the Irish Times who don’t know how to read statistics). So this means that the CA balance surplus is due to falling imports rather than increasing exports last quarter. Just checked. Seasonally adjusted exports are down 2% in October (imports just fell by more). JTO again: I’m afraid that you are clutching at straws. Ireland’s trade figures often fluctuate wildly from month to month, as can be easily verified from the link you gave. Exports rose 3.6 per cent in volume in Q3 2010 over Q2 2010, and by 12.5 per cent in volume in Q3 2010 over Q3 2009. The figures published yesterday, for which you gave a link, showed merchandise exports down 2 per cent in October over September, but up 19 per cent over October 2009. The y-o-y increase is increasing by the month. @ the loan arranger I refer you to the graphs I referenced earlier. The very high correlation coefficients they show are not self-serving. They are a matter of fact. With reference to Patrick Honohan’s conclusion that our financial crisis was “three-quarters homemade”, I simply refer you to the fact that similar financial crises as ours simultaneously afflict Portugal, Greece and Spain. Is it a coincidence that these countries are all peripheral (geographically and economically) to the EMU core? Or it is to be suggested that the influence of FF and the PDs stretched to government in these states? The repeated desire of some to shoehorn international economic phenomena into a parochial domestic setting may provide political comfort but only at the expense of economic insight. As the Germans say “wir muessen ueber unsere eigene Schatten springen koennen” – we have to be able to jump beyond our own shadows. @ Cormac Lucey Are you saying because some other countries behaved nearly as poorly as we did, then that sort of makes it ok? surely not. @JohnTheOptimist Its true they fluctuate wildly. But you use these figures yourself a lot. The main thing I take from the data is that the ‘surge’ in exports is hugely exaggerated by the government. We have similar exports to February ’09. I don’t see the point in using year-on-year data when we have seasonally adjusted data. But anyway, what we can reliably take from the data is that the improvement in the trade surplus is entirely due to a drop in imports. @ Jarlath I am saying look at economic phenomena as primarily economic phenomena rather than as part of some parochial political morality play/grudge match. I am not saying that no errors were made in government between 2002 and 2007. But I am saying that they were minor in their implications compared to the enormous distortion caused by inappropriate monetary policy consequent on EMU membership. Honohan’s report as ECB governor wholly downplayed this central point despite having made it the centrepiece of his analysis while earlier a TCD academic. Read Gavyn Davies’ response to my posting on his blog for an example of a person who looks at economic phenomena as primarily economic phenomena. http://blogs.ft.com/gavyndavies/2010/12/22/the-most-important-graph-of-the-year/ Read Patrick Kavanagh’s poem “Epic” for a satirical look at the parochial approach. http://homepage.eircom.net/~odyssey/Quotes/Written/Epic.html @Rory O’Farrell I think it is more useful to look beyond one month (which is close to useless given the volaitility), to one year and beyond. Eurozone exports fell approx 13% in 2009, and are set to grow around 9% in 2010. Irish exports only fell 4% in 2009, and will grow by circa 10% this year. The suspicion had been that because we are in ‘defensive’ products (e.g. pharma, services) our exports were resilient in 2009, and once the bounce back happened (in 2010) we would fall to the bottom of the class. We have not. In fact Ireland has had the best performing export sector of the Eurozone taken over the last two years, at a time of hugely disadvantageous exchange rates. Please give a good reason if you do not accept this as evidence of an underlying export competitiveness that is only now being recognised in comment about the Irish economy. As for imports causing the closing of the BOP deficit, this is largely true, and is becasuse a surge in imports caused it in the first place as I have discussed some time ago on this site (April 2009: Ireland is Internationally Competitive: Guest Post from Ronnie O’Toole). At the time I used an IO decomposition to show that excess imports pulled in by the construction sector alone could explain a significnat portion of the CA deficit. We were internationally competiitve two years ago, and now we are more so. Our problem was excess imports due to the construction boom, and the deficit has now disappeared. @ Ronnie O’Toole Are you sure about the Eurozone? Here are the latest figures. http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/6-17122010-AP/EN/6-17122010-AP-EN.PDF It shows Ireland is one of the worst performers (only Luxembourg is worse). I’m really surprised by this, and I wonder if there is some methodological issue. I’d be happy if you can provide an explanation. Maybe we were already doing well and the others were catching up. I suppose its all very sensitive to the dates we choose. I just don’t agree we are having some sort of export boom, which is what the government would lead us to believe. Overall I do think we have a competitive economy, and that exports will grow. My emphasis is on improving our infrastructure and reducing legal fees etc to increase our productivity. Also our imports will surge tonight as Santa Claus delivers presents from the North Pole. I heard one of the elves sends the data directly to the CSO 😀 Merry Christmas @Ronnie O’Toole It is worth pointing out that 90% of ‘Irish exports’ originate from the FDI sector. These operations in some respects should not count as ‘Irish exports’ as Ireland does little more than host them and obtain some salaried employment for suitably educated locals. It would be more realistic to recognise that Ireland is not competitive for manufacturing outside the partitioned and highly-controlled FDI ecosystem, and has never been so. The internationally-traded services sector is relatively insubstantial at present. @Rory The data you refer to relates only to goods trade, which only accounts for little over half of Irish trade, with services accounting for much of the growth in irish trade in recent years. They are also not seasonally adjusted. Look at the National Accounts data for the combined, seasonally adjusted, figures for export volumes. I take the 2010 forecasts for Eurozone trade from Danske Bank forecasts. (A not complete answer though, let me return to my desk in 2011 and i will give you a fuller accounnt, because it is a good question. There are divergences between merchandise data and NA data which needs clarifying for the trade-nerds among us who find these things interesting.) @Tony Owens, The route to industrial development via-FDI is an unusual one for a European context, but is a perfectly valid model. I’m not sure what your comment “Ireland just hosts them” means. In other words, Ireland “just conducts much of the manufacturing, services, research and development, supply-chain management, managerial etc etc” for them. FDI accounts for 3/4 export facing jobs (ex-tourism), and is to a large extent our exporting sector, and providing sufficient incomes in the economy to finance a high quality of living and a CA in balance. Please look at the Forfas annual employment survey to see how many people are employed in manufacturing and services, and I think you will agree that ‘insubstantial’ or ‘some salaried employment’ is a misrepresentation. I also don’t know what you mean by ‘highly controlled’, please clarify. I would hope all exports are highly controlled. @ Ronnie ‘Please give a good reason if you do not accept this as evidence of an underlying export competitiveness that is only now being recognised in comment about the Irish economy. Our friend Dr Gurdgiev does a lot of number crunching. He offers this reason. ‘All of this data clearly suggests accelerated process of transfer pricing by profit-generative MNCs during the 2010 period. In fact, looking at log-relationships, growth in the trade balance is currently being explained by faster shrinking imports than the changes in exports. Coupled with deteriorating terms of trade, we have strong suggestion that our trade performance is being sustained primarily by the MNCs driving through strong expansion of profit-booking transfer pricing’ http://trueeconomics.blogspot.com/search?updated-min=2010-01-01T00%3A00%3A00-11%3A00&updated-max=2011-01-01T00%3A00%3A00-10%3A00&max-results=50 @Paul You will really have to ask Constantine about this. He says (as you quote), “… this data clearly suggests accelerated process of transfer pricing by profit-generative MNCs during the 2010 period”. It really isn’t ‘clear’ from the analysis why this is the case. In fact, Constantine’s analysis looks only at goods trade (46% of total trade), and trys to find correlations/trends in goods exports and goods imports. This ignores services exports and imports (54% of total trade), which are critical in understanding goods trade. Constantine’s argument seems to be that “growth in the trade balance is currently being explained by faster shrinking imports than the changes in exports.” I don’t understand the ‘clear’ conclusion from this that MNC profit repatriation is growing, though it appears to be (Constantine if you are out there, please clarify) that firms are booking greater exports, though actually importing less real imported intermediates, indicating that they are not producing more at all, in fact maybe less. Howver the composition of imports is important here. The major structural change in Irish goods trade over the last decade has been a shift away from electronics exports (which are very ‘goods imports’ heavy, i.e. hard drives etc) to pharma (which are very ‘services imports’ heavy, i.e. patent revenue etc). As such, while there has been a decline in goods imports (down 20% on 2001 in nominal terms) , there has been an increase in services imports (up 90%) as the economy has shifted to pharma. As such, an increase in goods exports in 2010 doesn’t necessarily increase goods imports by much, but rather an increase in money spent on imported services, and an increase in money spent locally on wages etc. Given the problem of goods trade/services trade/profit repatriation, I suggest the Current Account Balance is more informative than the Trade Balance, which as I have said is less than half the story. The CA shows that net income flows outwards are averaging around €0.7bn a quarter higher in 2010 than in firs 3 Qs of 2009. However goods + services trade balance is running €1.5bn higher per quarter on average. The net result is that the CA balance is €0.8bn per quarter (on average) better ytd 2010 than in the same time in 2009. In summary – more exports, more money being repatriated by the people who own the firms, and more money being earned locally by those who work and supply these businesses. A very simple story that you would expect from an export improvement. Hope this is of some use. @Ronnie Re my comment about FDI’s ‘Ireland just hosts them’. It is not necessary to have reams of quantitative analysis of the trends and composition of Irish trade to extract the key insights about Ireland’s competitiveness. The essential facts about the situation are qualitative. Ireland does not control the key wealth-producing assets in the state which generate most of its national income. Irish FDI excels in manufacturing innovation but in very little else. Bankable businesses are always based on there being some measure of control by investors. Yet the observation is that FDI companies (as you point out in the case of our electronics industry i.e. Dell) will partially or fully decamp to semi-skilled labour locations with greater ‘competitiveness’ anytime. They do this because there are no key assets tying them to Ireland. The key assets (R&D capability, valuable local market, experienced executives) reside elsewhere. The desirable situation is that the commercial and technical skills and experience needed to build significant indigenous Irish firms would diffuse from the large FDI sector into a carpet of value-adding SME’s. This has not happened in over 25 years of FDI operations, with the notable exception of knowledge-intensive construction-related businesses and also the medical device field to a small extent. Somehow the ‘competitiveness’ needed to perform relevant commercial startup, R&D, commercialisation and manufacturing has not appeared in the indigenous sector. Perhaps basing national income on volatile FDI manufacturing and marketing operations would not matter provided Ireland was successfully investing in building a knowledge-rich services sector. However as you alluded to with your reference to patent royalties being classified as services exports, much of this category is even less stable than the merchandise category. Irish commercial competitiveness is principally based on favourable taxation and a government compliant to the wishes of the FDI sector. This form of competitiveness is fine for attracting new FDI investment but has proven a failure from the perspective of building exporting indigenous business. Would it not be better to industrialise the process of building indigenous exporting businesses as Asia has done and India is doing, rather than being a host to volatile FDI businesses who leave without trace anytime they want to? Rather than looking for insight in historic output measures such as trade statistics perhaps it might be more useful to analyse: 1. why Irish entrepreneurs prefer to build businesses in other countries than to do so in Ireland 2. what ‘competitiveness’ would mean in the context of ‘mittelstand’ firms and identify whether and where this conflicts with ‘competitiveness’ from the FDI perspective 3. how to formulate a working definition of ‘competitiveness’ that recognises commercial sustainability rather than an exclusively focusing on unit costs of production. @Tony A couple of questions: What evidence do you have that FDI is volatile, or at the very least, what do you mean by this? We have a very comprehensive strategy for indigeneous firms, and in fact most of our industrial policy is common to them and FDI firms (e.g. investment in education, roads etc). What specific policy changes do you want us to do that we are not currently doing? My evidence for volatility of the actual trading-related income (as distinct from that attributable to financial engineering) is quantitative: e.g. your own FDI Intelligence Inward Investment Performance Monitor which shows a slight but steady decline in employment in the FDI sector since 2000 despite the efforts of IDA and others as summarised here for example: http://www.finfacts.ie/irishfinancenews/article_1019106.shtml and qualitative: from my own knowledge of FDI operations mainly in the medical device sector where ‘cash-cow’ manufacturing and service operations are regularly shipped to lower cost locations after they have been stabilised and ‘leaned-out’ by a generally-excellent Irish process development workforce. The defining characteristic of FDI volatility is lack of commitment. Project and product manufacturing lifecycles are artificially accelerated which limits employment generation, opportunities for diffusion of ‘trade-craft’ to the indigenous sector and the ability to sustain an ecosystem of service companies. Whole industries have come and gone from Ireland within 20 years and left few traces behind, the electronics and automotive industries for example. Faced with uncommitted Irish FDI customers, investing heavily in building a world-class support business to cater to their needs is quite a risk. I would not dignify the hodgepodge of national enterprise-related policy as a strategy. The focus of enterprise creation has been FDI for as long as I can remember. Indigenous entrepreneurship has to deal with risk-averse state procurement policies (the state buys >30% of all traded goods and services in Ireland), a protected private sector, clientelism and an ineffective and expensive national innovation system based on a fundamental misunderstanding of how innovation works. I am confident that all these things will be addressed as the state slims down in coming years. Canvassing the views of SME owner-managers as well as emigrated nationals who have helped build businesses abroad, and being prepared to act on a distillation of their views would probably be a good idea too. @ Tony ‘The defining characteristic of FDI volatility is lack of commitment. Project and product manufacturing lifecycles are artificially accelerated which limits employment generation, opportunities for diffusion of ‘trade-craft’ to the indigenous sector and the ability to sustain an ecosystem of service companies’ The only bit of that which I would question is the word ‘artificially’. Part of the reason for the success of US MNCs is their ‘principled’ detachment from community or national base. Its a fundamental of the corporate culture at this point in history, and only time will tell whether the mindset will endure. FDI relationships are necessarily constrained by strategic considerations. Getting in and out cleanly, arbitrage of tax and patent issues, limiting employment and other obligations, acceleration of the product lifecycle and flexible global relocation are standard. As MNC activities in Ireland now concern services more that goods, the financial, rather than real economy, aspect is probably even more to the fore. As the sociologist Bourdieu might put it, the MNCs maintain their dominant position by constantly changing their stance. While they draw on some of the same resources as indigenous firms, they evaluate them from a global perspective. That evaluation tends to be expressed in actions rather than words. @ Ronnie Your comments are appreciated, but we have a dual economy, which is typical of an ex-colony. Good luck to all those who can access employment and business opportunities with the MNCs, but it’s not going to be enough to prevent a big scrap in the domestic sector. @Paul Very interesting reflection about the FDI mindset. The essentially self-serving nature of US-based transnational businesses may be tempered to an extent by a degree of sentimentality at board level towards ‘oul Ireland. A desirable outcome would be a mixed model of strong indigenous mid-sized and large SME’s with commitment to exporting, growing, and being capable who could balance the FDI sector. For many reasons this still eludes Ireland, although apparently no other EU country. This blog is not perhaps the right venue to explore why this is I fear. http://www.nakedcapitalism.com/2010/12/guest-post-underneath-the-happy-talk-is-this-as-bad-as-the-great-depression.html This is only beginning. Ireland was set up and eagerly the regulators obliged. This is continuing in the IFSC. The explosion there will dwarf that of Anglo et al. The Euro “crisis” is designed to devalue the currency to inflate away debt. A traditional and sometimes faulty approach. Save what capital you have left! Sell all paper assets now. Sell the house also. If you have no net assets, then of course, do no such thing! May God have mercy on you all. Comments are closed.