"Part of the Desmond DNA is a responsibility to contribute where possible to Ireland"
Dermot Desmond, the patron saint of tour pros, stood up at the Convention Centre in Dublin less than a fortnight ago to address a golf business conference.
There were no tips on shares just his take on the finanacial meltdown and what Ireland can do to get back on track. He will be watching our progress with great interest from Gilbraltar, Barbados, London, Glasgow etc and contributing “where possible” ….
As he explains: “I have lived outside Ireland for most of the last two decades. Despite the oft-repeated incorrect claim that this was tax driven, it was actually because I wanted to pursue international opportunities and not be suffocated by journalists and politicians here. Irrespective of where I reside or what passport I hold, I was born in Ireland and will die an Irishman. Part of the Desmond DNA is a responsibility to contribute where possible to Ireland.”
If you wish to hear more, the entire text of his speech is outlined below:
Ladies, Gentlemen & Distinguished Guests
I have been asked to address you today, not as an expert on the golf industry but as a keen observer of the Irish economy.
In 2010 our golf fortunes in performance terms have never been better. Irish professional golfers dominate the world rankings relative to our size. We have three in the world top 25 for an island population of 6m - a ratio of 2m:1 compared with Australia, our closest rival, with 11m:1, England 13m:1 and the USA with a ratio of 30m:1. My point is that Padraig, Rory and Graeme did not lick their talent off the ground - it was nurtured and developed by many of the people, organisations and clubs here today. It is interesting to compare this easily recognisable success with the much reported demise of the Irish economy and State.
Ireland’s success since the foundation of the State is often best observed from outside rather than from within. We are an island nation with real spirit which has time and again fought against and dealt with enormous economic challenges. Today is no different and to appreciate those challenges we should examine the facts of the current situation and not the emotion.
In the last twenty years, when resources in the ground and former empires no longer afforded the Western world an easy living, Ireland has prospered. It is often overlooked, but Ireland’s economy has been largely people-based for centuries, not just the few years that the knowledge economy has been the buzz word. What was once exported via the boat and aeroplane was retained which generated great opportunity and real success for Ireland. By way of example consider the IFSC of which I am slightly familiar with. Today the IFSC directly employs 32,700 of which 6,000 are in indigenous Irish firms, and pays almost EUR2bn of wages not to mention the multiplier effect around that. Nationally the IFSC generates EUR2.1Bn in tax per annum, 36% of all corporation taxes, accounts for 10% of multi-national employment, contributes 7.1% of Irish GDP and comprises 5% of all 27 EU cross border financial services. It accounts for about a third of Ireland’s service exports numbered at EUR20bn.
Today Ireland exports in total EUR84Bn compared to 1990 when our exports were EUR18Bn. The growth in technology and other knowledge based sectors has driven the success of Ireland. Do not let the fake marvel of the property boom and its collapse take from those achievements as they form the bedrock for our next stage of success. It is not by fluke or some sentimental journey that the leaders of the technology and pharmaceutical industries have major operations here. World class companies like Google, Microsoft, Intel, Wyeth and IBM are here because of our knowledge-based abilities.
Anything that nourishes this trend should be the priority for Irish society, anything that hampers it should be choked off ruthlessly. In times when your back is to the wall, it is fundamental truths like this that matter. All good decisions flow from being aware of these truths, conversely all bad decisions are the ones that ignore them. At the risk of pride I should know, for I have probably made as many good decisions as bad ones - the surprising fact is that I’m equally proud of most of them, albeit for different reasons! As they say, good judgement comes from experience, experience comes from bad judgement.
Ireland was in serious economic crisis between 1987 and 1992. While the boom created an unsustainable bubble in property, the fundamentals of our position in 20 years have been undeniably transformed. Debt to GNP in 1987 was almost 125% and it took almost one third of the tax take to pay for the interest alone. The spread over German bunds in 1987 was a full 10%; even with a cloud of default hanging over us we have not reached those levels. In 1993 Ireland was forced to devalue its currency by 10% and unemployment was 18%. Our national statistics are hard to compare because of the impact of foreign corporations, however according to the NTMA our net Debt to GDP ratio was 40% at the end of 2009, before we factor in the cost of NAMA. The cost of servicing the debt is the real short term determinant and that will be a fraction of what it was in the late 1980s. On every measure we are not back to where we were and people should be re-assured on this point.
Mistakes may be painful to bear witness to, but they are incredibly valuable if learned from. All decisions can be criticised with the benefit of hindsight; the leader’s role is to make the call based on the data to hand and their own best instincts. Unfortunately, the data and forecasts provided by Government Departments particularly Finance have been well wide of the mark.
In 1987, GNP was EUR32bn - today the latest estimate for 2009 was that it was EUR131bn, which, even when you factor in the definite drop this year, is a huge jump. Population in Ireland today is 4.5m compared with 3.8m in 1990 when it was actually decreasing. Despite the job losses since 2008, the Irish workforce today stands at 1.86m, compared with 1.94m in 2005 and only 1.28m in 1990. This is a huge ‘positive’ in terms of going forward and serves to underline the difference relative to twenty years ago.
The discussions on the mismanagement of the economy, the behaviour and ineffective regulation of the banks compounded by NAMA understandably arouse great fury but they largely miss the point. What matters now is that we learn from the mistakes and use our position to best effect, however challenging that may be.
In terms of actions to ensure that Ireland prospers, it is fundamental that the human talent that can drive that process is not incentivised to leave. We used to talk of capital flight in Ireland 20 years ago - the real danger today is the flight of the skills and the know-how needed for the next chapter in our story. Having invested in their education and skills are we prepared to let that ability leave? It seems to me that Ireland faces a choice between a moderate tax economy with a competitive social welfare and public sector, versus an economy with high taxes and generous social and public packages. It cannot now do both; it could have only chosen the latter if the property derived tax income of the bubble had not been squandered.
I have lived outside Ireland for most of the last two decades. Despite the oft-repeated incorrect claim that this was tax driven, it was actually because I wanted to pursue international opportunities and not be suffocated by journalists and politicians here. Irrespective of where I reside or what passport I hold, I was born in Ireland and will die an Irishman. Part of the Desmond DNA is a responsibility to contribute where possible to Ireland. Since 2000 I have invested a Net €250m in the country, generating many jobs, tax income for the State and high value/knowledge based revenue for the export market. However, I could have done this elsewhere but in my view there is no better opportunity than to work with your fellow countrymen and women.
The State must ensure that it deploys its resources in line with the needs of a modern knowledge based economy. Training people with skills for foreign building sites will not facilitate growth here. Incentivising people through the tax system to invest in their own knowledge and skills will derive more benefits than anything I can think of, for it is impossible to waste a penny on education. Ireland has previously used the tax system to incentivise pensions, investment and, to excessive levels, the property market - what if we were to use it now to drive the real opportunity for Ireland in the knowledge economy? Society can only afford to help those actually in need if there is an engine capable of delivering the income to the State; looking around we are somewhat short of that horsepower.
It is often said that Ireland competes for foreign direct investment solely on the merits of its low corporate taxes. This is incorrect - there are many other forces at play that Ireland combines for advantage. However it is vital that the country offers an attractive employment destination for key employees of foreign owned corporations. In the same way that we lost competitiveness as a result of high costs, the high tax rates of the 1980s drove talent and many dynamic people from these shores. A repeat of this will be disastrous for Ireland. Uncertainty in this regard is toxic. If there are to be tax rises and welfare reductions, then share that knowledge and let people plan, not live in ‘fear and hoarding’. Equally, if the personal debt mountain is to be managed, detail the reforms and measures now with urgency and do not let the international markets hazard a guess and discount on uncertainty as they do today.
I would like to address the issue of ‘the Banks’. Wherever one sits on the matter of the bank guarantee and NAMA, we must move on and deal with the matter now that it has happened. Because NAMA continues its misguided deeds today I feel I need to make certain comments. NAMA was never going to work as it created a paradox of epic proportions; the less NAMA paid for loans, the greater the extent of the balance sheet crisis for the Banks. By forcing matters based on an untested theory misleadingly framed, borne of a totally inexact non-science and coming from a discredited source, we deprived ourselves of the natural facility to let time cure some of the problem. Furthermore, we have allowed those managers who lent the money, to slink away from dealing with and ameliorating the consequences of their decisions; a cardinal sin in management. The approach is unparalleled in the world and the direct opposite of the measures taken in the most advanced economies. NAMA must be reformed if we are to retrieve the situation to any extent.
Banks themselves are really nothing more than huge pools of assets and liabilities, managed and regulated by humans with varying degrees of fallibility. In a financial collapse the only part of the Bank that can be valued with any certainty are the liabilities. When the asset dominoes begin to fall it takes a bulwark to stop them. What we are seeing now is simply the absence of such a bulwark.
The nuances of the Irish public finances are largely irrelevant in the eyes of the bond market. The bond market simply views the Irish State and the Banks as the same bet. It is the weight of the liabilities of the Banks that is driving the cost of borrowing money, not the latest budget projections. Ireland’s combined Bank and State balance sheets are obviously unsustainably large. As the Banks have begun to shrink their own positions they have merely transferred the problem to the State.
The reality is, with the daily dependency on the ECB as a lender of last resort, the combined Bank State has already been refinanced. The most glaring anomaly is that this refinance is short-term in nature and not matched with the longer term funding need. The irony is that this was the main reason the Irish Banks failed when they did - borrowing short to lend long, a schoolboy level error. Least you think otherwise, the Banks would have failed in the medium term anyway as the underlying position was totally unsustainable with insane valuations.
There is much talk of Ireland losing its fiscal independence and economic sovereignty. This is patronising in the extreme, for every adult knows that Ireland ceded this sovereignty as far back as the Maastricht treaty and the subsequent establishment of the Euro. Up to 2008, the Euro was the greatest risk taken in the history of the State. However imperfect, the Euro has provided a vital ingredient in the platform for long term reward. Our national strategy would amount to nothing if the punt was floating today as we do not have the scale or wealth generated by the City of London as Britain does.
At this point, it seems to me that we must make a choice between a number of options - losing the Banks, refinancing through the EU/IMF or a sovereign default. In short to get the Banks off our balance sheet we must move them on and lose control of their strategic direction which might be no bad thing. Assuming it’s highly unlikely that we can get rid of them soon unless there is an international visionary banker Ireland will be forced into tapping alternative funding or into a default.
I am not privy to what is going on in Europe or the ECB but I have never in my experience seen a situation where delaying restructuring has improved matters. As an Irishman, it wounds my pride to see the country in this position but, as a business man, there is only one choice that must appear obvious to all; we must refinance urgently with the EU, while we can and before the rush. Other nations, great and small, have debt crises but they have not been exposed as ours have.
Assuming we are stuck with the Banks, it is vital that we become unstuck very quickly even after the current phase has run its course. It is vital that, as a minimum, either Bank of Ireland or AIB be handed over to foreign or private ownership. Otherwise Ireland will be doomed to an uncompetitive, politicised banking system overseen by faceless mandarins in the Department of Finance, the Central Bank and their political masters.
While there are some very good people in the public service and I am the son of a civil servant, there is little depth and quality at the senior departmental levels. The complete regulatory failure aside, if the quality was there the solutions to the current crisis would be commensurate with the horrendous scale of the problem. The visionaries of the civil service we saw in early years have not been replaced. Today the senior management of the service can’t take criticism, abandon their responsibilities to a bewildering array of quangos, become suspicious of success and are never accountable. The standard response to failure is to move the senior civil servant on to another parish. I have over the past 18 months written to various government departments with suggestions and in most cases I haven’t even got an acknowledgement. It is my experience that if you challenge these people they will endeavour to make you persona non grata. Let’s second people from the Private to Public sector and vice versa so we will again see vibrancy, transparency and accountability.
There is a stratum within Irish society that takes a form of delight in disaster and the failure of others. In their land of squinting windows, pouring scorn and being resentful of success is standard fare. The identity of these people is self-evident, but most decent people choose not to descend to their level and confront them. We will not be able to deal with the problems in our society if the true meaning of the word ‘fair’ is not reintroduced to the everyday lexicon. For as long as this handful from the media, unions and political elite control the national dialogue, Ireland shall struggle. They are the modern inheritors of the mantle of the censors, the hierarchy and the pious who forced so much Irish ability overseas in the past. They must not be allowed to reign again.
On a point of optimism, the reality is that by dealing with the state finances professionally and aggressively, we can make the most of our position. As long as the truths I mention above are kept in mind and the macro economic factors are managed, I think Ireland will bounce back quickly afterwards. I know that with the right vision and reform the Irish people shall ensure it.
I state this with confidence because we remain a compelling story for success. Our commercial sector is very adaptive, flexible, creative and motivated. Despite my earlier comments, certain parts of our public sector are strong, particularly the state agencies handling innovation and inward investment. Our workforce has depth, with 0.5m more in employment now than 16 years ago, when we were first dubbed the Celtic Tiger. Ireland is also far more diverse than at any time before; the new Irish present opportunities to harness the power of inward emigration that has driven other economies.
As you might guess from my earlier views, I believe that there must be fundamental political and constitutional reform of the State. Without it, how can the citizens of this Republic have any faith in the solution and strategy for success from the same source that has failed them? Talented people of whatever background and belief should be involved in fixing the problems. The era of Civil War politics, passed on as a family business across generations must be laid to rest.
We have people and companies in Ireland today that are world leaders and deal with the most advanced and sophisticated international concerns. While officialdom here might wish to fool themselves that they don’t exist, we must find a way to bring them into the solution. Ireland has a small population and market. Many of our best commercial people ply their trade in the markets outside of the country. We have a national emergency, not merely of a financial nature, but of values as well. We need to combine these people with the other outstanding people in Ireland, who are more often found in caring professions and vocations where financial reward is not sought. The great patriotic men and women who formed the State left something which, while not perfect, was noble. We must rally to that cause and eliminate those obstacles that are in the way.
Finally to bring it back to today’s golf business theme there is some really good news that I would like to bring to your attention. The urbanisation of the World which drives the demand for the services and technology sectors that we do well in Ireland is accelerating at an exponential pace. Sometime during the last three years, more than 50% of the World’s population became urban, for the first time EVER. By 2030, i.e. in twenty years’ time, 75% of the World’s population will live in cities. That is phenomenal and the sort of thing that we here today should be paying attention to.
Surely it is not hard in marketing terms to excite this world of high-rise, congested, financially wealthy but time-poor urban dwellers with images of the excellence of golf and ‘craic’ in Ireland. I suggest to you here today that that image form part of your thinking - golf is unique in terms of the nourishment of the human spirit; where else do you get space, fresh air, scenery and a few hours to ponder one’s own learning?
I mention the Irish spirit above with all that comes with it. For the golfer, be they domestic, British, American or from further afield, that spirit translates into our culture. ‘Fun, interesting, boisterous, personal and dedicated’ is how the Irish and our golf industry differentiate. There are others speaking here today who know more about integrating those qualities into a business than I, so I shall leave that to them.
If Ireland is to succeed with its golf industry, it seems to me that we must play to our strengths. We have a first class infrastructure. What seems to me to be vitally important is getting the golfer on the island in the first place. Thereafter, it is a simple process of a few hours’ drive to link the main golf clusters on the East and South West coasts with the rest of the country. There is little advantage in spreading marketing resources thinly everywhere - it might be ‘fair’ but competition is not fair. The fairness can be addressed later when we can refine and drive the golfer to different parts of the island less saturated than elsewhere.
In conclusion, I would like to thank you all for listening to me today. I wish you all well with the conference. I would like to pay tribute to the Carr family for all they have given golf in Ireland and the wider World.
In terms of Ireland, I would ask that you all consider the fact that it doesn’t get dark at 5pm every day which is always good news for golfers and economists alike…..