Every second economic commentator has been spreading the mantra that manufacturing in dead in Ireland and the future is financial services and software. It may well be the case that manufacturing is dead, or at least the sort where labour is the major cost input, but why should we thing we have a future as a financial services hub?
The City of London became a financial services hub because it was a trading hub, importing raw materials from around the world and exporting manufactured products. Rotterdam was (and is) also a major trading hub. The same goes for Hong Kong, New York, Tokyo, Frankfurt etc.
As trade (production and consumption) moved East over the coming decades will the tide go out on the Western money markets, leaving places just inside the high water mark, places like the IFSC, to wither and die?
Whatever was you look at it the financial markets are, at their core, a reflection of economic activity, usually primary and secondary activities such as mining, agriculture and manufacturing . We cannot expect to have one without the other.
This is not true; the wealth created purely by trading is just as real and measurable as Ricardo proved over 200 years ago. Your economic model (mercantilism) is a couple of centuries out of date. As a country, it is no more possible to indefinitely run a trade surplus than it is to run a deficit indefinitely.Real wealth is created by manufacturing and by running a trade surplus; i.e. offering the world more than you consume.
We've been hearing variants of this for the best part of 30 years and I simply don't believe it.The next financial centre will be Shanghai. Within 15 years it will rival NY and London. As you say; the secondary financial markets follow 'real' primary markets.
At the moment and for the next 40 years; the primary market are and will remain in Asia.
The City of London became a financial services hub because it was a trading hub, importing raw materials from around the world and exporting manufactured products. Rotterdam was (and is) also a major trading hub. The same goes for Hong Kong, New York, Tokyo, Frankfurt etc.
Western countries that grasp this new engineering and science lead model will prosper. We don't need to compete with the low end manufacturing of Asia (we couldn't) but we do need to learn to offer the world more 'high end' products and services rather than merely offering bling financial engineering.
The only successful economic model for the West over the next 10-20 years will be one built off the back of science and engineering.
The big flaw in this argument is that it assumes that Asian countries cant manufacture "high end" products. Even with the most sophisticated high end products, the vast majority of the manufacturing can be carried out by semi-skilled operatives. In the science and technology sector, the only way Western Europe can compete longterm is through generating intellectual property, not manufacturing.
The big flaw in this argument is that it assumes that Asian countries cant manufacture "high end" products. Even with the most sophisticated high end products, the vast majority of the manufacturing can be carried out by semi-skilled operatives. In the science and technology sector, the only way Western Europe can compete longterm is through generating intellectual property, not manufacturing.
It is also possible to generate wealth and run a trade surplus through the services sector. Any added value service can generate income that is independent from physical manufacturing.
Shanghai is destined to be a major financial hub shortly simply because the Chinese government will make it so. What they decree will happen. They have the financial and legislatory total power to create it, from thin air if needed. The fact is they don't though need to go to such extreme measures as there is already a huge industrial and service base in the region and large amounts of liquid rich investors. Once the property bust hits they will go back to investing in the stock market there.
The other reason China will have it's international financial centre? The other financial service centers speak a foreign language, who wants to work/trade with people in a foreign language? They are also outside the country...looks it's a no-brainer!
What about Singapore or, to lesser extent, Hong Kong? It's a genuine question; I don't know what makes them different.Totalitarian regimes are very inefficient users and generators of wealth.
I wouldn't say it is just an Irish problem. The whole West recently has been built on a false economy of finance and easy credit.
Real wealth is created by manufacturing and by running a trade surplus; i.e. offering the world more than you consume.
Peter Schiff spells it out well and simply. if you havent seen it, the first 10min of this explains it perfectly (apologies for ramping this video but I think it really is excellent)- http://www.youtube.com/watch?v=jj8rMwdQf6k
Good economies - production & savings
Bad economies - consumption and debt
It is no wonder the East is rising so much. They produce more than they consume, with a net effect of drawing money into their country.
They also save. Savings are the only mechanism for paying for tomorrow's capital investments or consumption. Debt is stealing from tomorrow's investments and consumption in order to pay for today's.
Its simple really. The West has simply got it all so wrong this past 15 years. To re-adjust back will take a long time.
We need less financial engineering and more real engineering.
The next financial centre will be Shanghai. Within 15 years it will rival NY and London. As you say; the secondary financial markets follow 'real' primary markets.
At the moment and for the next 40 years; the primary market are and will remain in Asia.
China can only go so far before it reaches a glass ceiling. Totalitarian regimes are very inefficient users and generators of wealth. China has simply replaced the USSR as the totalitarian system trying to take on the west. I regard the current wow factor developments in China as been akin to the USSR out doing the USA in the early years of the space race. In time, China will collapse ala USSR.
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