CREDIT CRUNCH

David McWilliams Economist author and tv presenter

Is the era of economic prosperity over and if so, how hard will the casualties be hit by this financial storm? David McWilliams insists our financial miracle will be exposed as nothing more than an extravagant overdraft and tells Maree Morrissey what can be done to protect against this downward spiral

We’ve been burning the candle at both ends, submerged in a frenzied spending spree, fooling ourselves that we are economically strong but were in fact borrowing extensively. When we got our first taste of economic prosperity we were happy to indulge the fantasy. But by believing our own propaganda we have failed to notice the warning signs. We are in denial, and are in fact a lot more vulnerable than we think. For many the party is over and the early signs of economic ageing are now beginning to show.

So what went wrong and how can we survive this storm. According to David McWilliams we need to do is wake up from the dream, face reality and look at the bigger picture. Our reliance on the property market is being cruelly exposed and as the global financial crisis gathers pace we have duped ourselves into thinking that owning a few houses makes us rich and, worse still, we have misdiagnosed this easy money for economic strength. In fact, it is a sign of financial degeneracy. On the flipside he maintains it’s not all doom and gloom because there are things that we can do to endure any downturn that he predicts is on the way.

SPENDING SPREE

“The Irish are on a monumental borrowing spree. We have got into debt five times faster than the Americans and are now the most indebted country in the world. At the moment private debt is at the €50 million mark, which equals 52k for every man woman and child” McWilliams informs. He agrees that it wouldn’t be too bad if we were spending wisely, but he says we aren’t which is worrying. According to the populist economist we don’t have any long term objectives and we will need an economic miracle to counter-balance our obsession with property, borrowing and lavish spending habits. McWilliams attributes our insatiable and long standing addiction to property as being an indication as to where some of the problems may lie. He says we have put too much money and too much faith in the property market and that we need to get over our obsession quickly if we are to move forward and prosper.

CLIMATE FOR START-UPS

Many entrepreneurs starting out in business use equity from property to fund and grow their companies. But McWilliams insists that this era is long gone.

So with the property boom well and truly over what is the climate like for people starting out in business today and will the use of bank loans and property equity cripple small start-ups? “The future for Ireland is very good, if we can just get over this property obsession, because a property obsession kills. Everything else is there; we’ve got the brain power, the technology, the people, and the access to markets. If you’ve a good idea and you’re hard working and can build opportunities, you will be ok” McWilliams reveals. He compares Ireland to countries such as Germany, France and the United States and says there are valuable lessons we can learn from them. In these countries, “cash is available through hedge funds, and through venture capital, but no one has realised that in order for us to compete we need to set up similar start-up programmes,” McWilliams says.

He adds, “this year alone we will spend 60 times more on overseas property than we will on setting up new high-tech start-ups and we will pay between six to eight million a week on property alone.” McWilliams reiterates his point that we are over dependent on property and are basing the fundamentals of our economy on the property market at the expense of other potentially lucrative markets that will have more value in the long term, but which are being neglected in terms of investment.

MARKET FORCES

As far as McWilliams is concerned the economic climate is already changing and there is not much we can do about this, so is it too late to change the mindset? “We need to educate people and say, yes we all made money in property and now let’s go again, but in different markets. Markets always change; this is not new and the Irish have been told this, but they just haven’t listened,” he warns. McWilliams backs up this point by saying, “last year, 59% more houses were bought up for investment as second homes because people were greedy. It’s a market led by a combination of greed and fear, and this mass greed has now been replaced by mass fear.”

McWilliams agrees that this greed was people trying to get their moneys worth and was an attempt by them to create enough equity for their children. However, he does point out, “landowners and auctioneers have this country by the balls and until this grip is released, it's going to be very hard to tell people this and we’re going to have a lot of problems.”

There are other factors that will contribute to a prolonged downturn in the economy, which may require more aggressive action if we are to remain competitive in global markets.

GLOBAL COMPETITIVENESS

McWilliams warns that China is now on our doorstep and increasingly the world is being dictated to by events there. He also maintains there is a power struggle taking place between China and the US, which, if China wins, could be bad news for Ireland, because when America is doing well so are we.

His prediction suggests the centre of economic gravity is shifting from the US to China and this will not only erode our competitiveness but will also mean that economic change in Ireland will be dictated by what’s happening in China.

ATTRACTING THE DIASPORA

The only way we can reverse the impact of this trend is to inject new ideas, but according to McWilliams these new ideas will come from Irish people abroad. “All the Irish that were kicked out many years ago by our own poor economic system, are the only people who can change this because they can come back with cultural credibility. We need them to help us now,” the economist announces. “We’re going to have to re-invent the country, and just slow down and give ourselves the opportunity to take it easy and grab a hold of ourselves. We’re a nation, we’ve got to look after ourselves because we are a tribe,” he adds.

McWilliams explains that the theme of his new book the Generation Game is about bringing home creative people who can inject new ideas back into the country and can encourage people to work collectively. “Irish Americans wouldn’t tolerate the M50. If they had to get a train to Cork, with our trains never running on time; they wouldn’t tolerate it, and similarly you wouldn’t have tribunals, Americans wouldn’t stand for this carry on. These are the people who can change us, but the problem is we have a slibhín attitude to this, because they exiled this country. However, they are a resource and when they come home we’ve got to be generous to them,” he says.

THE GLOBAL TRIBE

McWilliams is quick to point out it is not all bad news and that the slow-down gives us the opportunity to take stock. Taking a trip around the globe from Shanghai to New York, from Latin America to Central Europe, we can learn from history and appreciate that Ireland has a unique economic resource; our Global Tribe. If we exploit the demographic potential of the Diaspora, we can re-invigorate the nation.

“The twenty-first century gives us the opportunity to see the island of Ireland as the cradle of a global nation which extends worldwide and is gelled together by the shared experience of the Tribe. The prosperity of future Irish generations is based on harnessing the collective power of past generations. This is the global generation game,” McWilliams concludes.

Published in the October 2007 Issue of Irish Entrepreneur