“Positive bad news”? What exports can and cannot do for the Irish economy…

Susan
By Susan August 23, 2011 11:07

“Positive bad news”? What exports can and cannot do for the Irish economy…

 

So we know that exports are good for our economy, and that the Irish are good at selling. But as I said, I don’t think exports can magically erase the recession. So it would seem ironic that on the one hand we have this very good news trumpeted in the media while on the other hand things are looking very, very bleak for us.

Exports of goods and services represent more than €161bn growing by a satisfying 6.7% rate, despite the worldwide recession. But at the same time it’s hard not to feel at least slightly humiliated – and very worried – that we need the help of the EU and IMF just to keep afloat, not to talk about bank recapitalization. How come Ireland at the same time that it needs a bailout is doing so well with exports? Are not exports a good marker of a country’s financial health?

 

No, exports cannot solve all our problems

 

Well, a country’s financial health is measured by how much it can earn in comparison to how much it spends.

Exports are good, yes, but they only relate in an indirect way to the bailout for example, and to the overall economic situation of the country in general. We came to need the bailout due to both the cost of, and the amount of, debt that the Irish state incurred. The interest rate spiralled out of control, as measured by our bond yield. We currently spend €18bn more than we take in.

In other words, we as a country are spending more than we earn, and therein lies the rub. We as businesses (business owners, employees, etc.) of course contribute to the budget of the state, through taxes, but the money that is collected through taxes on profits from trade (i.e. corporation tax), exports or otherwise, is relatively tiny in comparison to the abyss of the deficit that we face. In 2011, we are expected to take in €4,020 in corporation tax and we have the aforementioned €18bn of a gap, that is to say, of deficit, to close through higher taxes or lower spending. Growing exports means more tax is collected, and that of course contributes to funding the country, but it’s not enough to even begin to fill the debt hole we’ve dug ourselves into.

Also let’s not forget that exports are a two-way process: they do bring money into the country, but businesses that export also spend money in the country to which they export. Let’s take the example of a haulage company in Ireland. It transports goods from, say, Dublin to Cork, and another cargo of goods from Cork to Dublin. The driver might stay overnight in Cork before setting off again the next day. He will need to eat and drink, and to refill the tank on the way. All that money is spent in Ireland. But what about the same truck driver on the continent?

This was also my experience when I delivered training in Malta during May: yes, my business was exporting services to Malta, but when I was there I slept in Maltese hotels, ate in Maltese restaurants and shopped in Maltese shops. Also an exporter might need to get advice and information from experts in the country they plan to export to. All that is money going out of Ireland.

And, last but not least, exports are only a small part of aggregate demand. Aggregate demand – where we earn our money – is made up of :

– consumption,

– investment,

– government spending

– and net exports (total exports minus total imports).

One of the elements of our current problem is that consumption is simply not happening. Note that in 2010, net exports (i.e. exports – imports) are worth 36% of personal consumption to GDP or aggregate demand. Domestic demand is shrinking and confidence levels are at an all-time low. Exports cannot really help with that, however fast they grow.

 

How to use the news to your advantage

 

At this point you are thinking “How can she have the cheek of calling herself the Positive Economist?!” Where’s the positive in all that? Well, I strongly believe the positive is in your attitude: with a can-do attitude, you will strive to see how the news applies to you.

If you cling to the hope that exports might save the day, this is, in essence, a passive attitude: waiting for exports and exporters to “lead the way” out of the recession is just that – waiting. It is the same if you downplay this piece of news, asking what good it is – since exports can’t in and of themselves solve our economic problems. This all-or-nothing mentality is not really conducive to action – after all, if you can’t save the world, why bother to do anything in the first place?

But there is a third way, which I would like you to consider. How about this: you read the news, and instead of embarking on an emotional rollercoaster, you acknowledge the good, the bad and then – try and find out how to use this news.

After all, this is the cliché of the effective businessman: we picture them in their pinstripe suits reading the Wall Street Journal or the Financial Times and immediately picking up the phone to set things in motion. And there is a kernel of truth to that, even if it’s a romanticized vision of business. The real truth is…

You don’t need to wear a pinstripe suit – I usually wear pencil skirts. The part about acting on the news? Oh, that is definitely true.

 

So what do you make of the good exports news?

 

So what does it mean that exports are up? It means many positive things. It means that Irish businesses got something seriously right. It means that they have remained truly competitive in the global marketplace. It means that there is a real solution for businesses, that it is not necessary for all Irish businesses to struggle domestically – let them look to foreign lands.

If you are a business owner, you are a problem-solver. If your business is having some difficulties, you can look to growing exports and think the solution might well be in there. This is why this particular piece of news is real good news.

 

“But I’m not an exporter”

“But I don’t have a business”

“But I don’t know how to export!”

 

Well, this is where you might think again about the change of attitude I was mentioning earlier. Why not start exporting? Why not start a business? Why not learn about exporting your products or services?

Believe me, when I thought I might want to try and export to Malta, I had no idea where to start. But I went to work to find out more (and I will show you how! Stay tuned to this series). Today exports are roughly half of my revenue. It was a massive boost to my company – it took us to a whole new level…

 

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Susan
By Susan August 23, 2011 11:07