Tag Archives: business

Why do we hate teachers?

Schoolmaster-with-cane-be-006We seem to hate teachers, at least if one goes by some of the comments one sees. Teachers are pretty regularly called thugs, bullies, parasites, derided as lazy, seen as grossly self interested, motivated only by money (as opposed to the pure desire of those commenting to help the public and work pro bono), and castigated for little johnny not progressing fast enough.  With the news that ASTI (the main second level teachers union) has rejected the Haddington Road  Agreement, expect this vitriol to seep out of the media once more.

One of the more egregious but alas not uncommon type of comment comes from the commentator and financial advisor Eddie Hobbs, who tweeted saturday

“Next weeks common Q at school gates: Are you TUI or one of those spoiled ASTI muppets on €60 grand a head +pensions €1m, threatening my kid?”

This sparked a good few conversations on the twitter machine, with a few comments (in the high negative) from yrs trly. I had to head off mid stream to continue the shopping/mind the two year old/do Saturday things, but the conversation continued. Eddies crowning glory was to seem to suggest that the (female dominated, 65% of staff) ASTI decision to reject the haddington road agreement was down to PMT. Classy

@brianmlucey Sal 60k @NRD (ASTI TUI) +Pen accurate ref annuities. Not about performance, about affordability. Increase dose feminax

 

Its this kind of frankly odd mixture of loathing, name calling and incitement to class division that got me thinking : why do we hate teachers so?

Three things seem to be particular bugbears: salaries and pensions, inability to deal with underperforming teachers and holidays.

The first is of course subject to massive confusion. Even someone like Eddie, who’s job it is to deal in figures, seems unable to find out the average salary. And it’s hard. But for 2012 we had a 2011 spend of 1,180,m on second level teachers salaries this year, and 2,052 on primary. In 2011 we had 32489 primary teachers and 26185 second level. So it’s a salary level of 1180000/26185 or 45k average for second level and 2052000/32489 or 63k for primary teachers on average. This gives a total average salary of 3232000/58674 or 55k. Not bad but not 60k. There is more to this however, on which I will talk below.

The second issue is entirely correct. There is no reason, other than a combination of managerial sloth and union power, combined with a healthy dose of political cowardice over decades, why we have not gotten in place some system for inservice evaluation, with rewards and sanctions, for pretty much every aspect of the public sector. We still don’t.

The third is strange. Many seem to think that the purpose of schools is to act as free crèches for the kids. By all means lets cut down on holidays – but will it serve any educational purpose? If we look at the West German experiment it seems not to matter. Other research suggests similar. And again, there is more to this than meets the eye.

Surely the issue is : how are we doing? Data driven analysis or discussion is alien to Irish commentators it seems. In this field there is a wonderful resource : every year the OECD publish a report comparing a whole pile of metrics in education round the OECD. Its called “Education at a glance” and is well worth reading . It has lots of information on the structure, costs, benefits and so forth of all levels of education. Money values are reported in PPP$ which is to say US Dollars adjusted for relative purchasing power, reflecting that its cheaper to live in Portugal than Norway. Thus these are broadly comparable.

The 2013 edition is out but recently. Its instructive to look at the data on second level teachers.  In a lot of the metrics the data are split into Lower and Upper secondary. This is roughly up to the Junior Cert and then the senior cycle. Many states have separate junior and senior schools.

 

  • Irish education manages to graduate more of those who start education (89%) than the OECD/EU average 83/84
  • A second level education in Ireland pays off. For a man it has a lifetime present value of  $142k , for a woman $118. The oecd averages are $100 and $69
  • We spend more per student per annum at second level,  $11k than the OECD or EU average $9k. Looking at this in terms of GDP per capita the discrepancy is less : 28% v 26% for the OECD/EU
  • We spend less on (primary and secondary) education – 7.4% – as  proportion of total government expenditure than the  OECD or EU – 8.6% and 7.6%
  •   Total current spending including all wages (94% of all spending) is slightly higher than the OECD and EU averages (92%)
  • Salary costs per student per annum are $3800, compared to OECD average of 3400. In per capital terms its less of a discrepancy, 10.3% vs 10%
  • Irish teachers, compared to other tertiary educated workers, earn 82% of average salary. This is less than the EU or OECD average of 89%.
  • Irish teachers spend more time, net, teaching (735h) than the OECD or EU average ( 686h, 650h) .

 

So : we pay second level teachers a bit more, but we seem to get more out of them than our peers. Which makes the frank hatred evinced from some quarters hard to fathom. I personally believe it comes down to bad experiences. I had some truly horrendous teachers. But I had more ok and a couple of really good ones. Instead of arguing from simply the curdled reflection of our school days we might want to look at the data as they are now. And they show a decent system. Lets stop demonsing the people in it.

 

 

 

 

 

 

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A New Journal – Journal of Behavioral and Experimental Finance

JBEF FINAL Cover Design Aug32012

A New Journal

Journals, for good or ill, represent the preeminent mode of scholarly communication. Publications count, in tenure, research evaluations and as a metric of research activity. Despite alternatives emerging such as post hoc refereeing, the double blind reviewed journal retains its gold standard, and will do for many many years.  Although there are  many journals, the scope, breadth and depth of finance continues to expand. So today we see a new journal.

The Journal of Behavioral and Experimental Finance is aimed at providing authors in these fields with a high quality outlet. There is at present no state of art high-level publication where one can go to obtain up to date examples of quality work in the areas of experimental and behavioral finance. The field is scattered. Bringing it together will, we can hope, act as a  useful resource for scholars, both those active in the field and those interested in how the area impacts.  There are many high quality existing journals that cover experimental economics or behavioral finance but none that act as a natural locus for both.

Experimental finance in particular is growing, with the Society for Experimental Finance having been established in the last number of years.  We believe that creating a journal that is open to experimental treatments of finance subjects will, we hope, generate interest in carrying out such.  At this juncture we  see behavioral and experimental approaches as lenses or methodologies through which to view issues and as such the journal will allow a broad perspective on an increasingly fragmented field. At the limit I agree wholeheartedly with Thaler.

I predict that in the not-too-distant future, the term “behavioral finance” will be correctly viewed as a redundant phrase. What other kind of finance is there? In their enlightenment, economists will routinely incorporate as much “behavior” into their models as they observe in the real world. After all, to do otherwise would be irrational.

We might add to this that finance, as a cognate discipline to economics and accounting, must adopt more scientific approaches to its investigations and must adopt a broader methodological perspective. Economics has seen major advances in adopting experimental approaches and finance is fast doing so. This can only assist in the rigor of our researchers. We are not yet at that shining city on the hill which Thaler saw in 1999, but in the interim I hope that this journal will aid in moving us towards it.

Some may well suggest that we have enough journals, and why start one especially as the top papers will always go to the top journals. A number of points need to be made. First, the existence of better (whatever that means in this context) journals does not make redundant the existence of others. That we have the Sistine Chapel does not make further paintings irrelevant. There is scope for quality product which for whatever reason does not get into or fit the top journals. Second, no journal is born ‘top’. Establishing  a journal is an act of calculated business and hope. The business is that there is a market, the hope is that the board and the authors will drive forward the reputation of the journal to everyone’s advantage. That I intend to do to the best of my ability. Third, in this case there is a clear gap in particular in the experimental area, and that gap deserves to be filled. Also, while there are excellent journals in the behavioral finance area there is none from Elsevier, who have a stable of already top-flight finance journals and the publishing, publication and editorial network to support this new venture.

The Process

The idea for this journal had been discussed amongst a number of persons, both in Elsevier and in the academic community, for about 18m. In February I was asked to put a formal proposal to Elsevier, which I did. This contained the usual things one would expect – details of existing complementary or competing journals, papers published that might perhaps fit the journal, learned societies and conferences in the area, main loci of research etc. The initial response was good therefore we proceeded to get together a draft editorial board (see below) and a more complete proposal was put to Elsevier in April. This was approved in June and we have spent the summer refining the details of the guide for authors, the peculiarities of how we want papers submitted etc. This is and will always be a work in process – as an Editor I have come to understand that there is no right way to guide a paper other than to say “highest quality possible please”. Submission minutiae are important but are secondary to that. In short, expect changes as we engage with the process of generating papers from submissions.

Journal Aims and Scope

The aim of the journal is to publish high quality research in the fields of corporate finance, asset pricing, financial econometrics, international finance, personal financial decision-making, macro-finance, banking and financial intermediation, capital markets, risk management and insurance, derivatives, quantitative finance, corporate governance and compensation, investments, market mechanisms, SME and microfinance and entrepreneurial finance, where such research is carried out with a behavioral perspective and/or is carried out via experimental methods.

The area of behavioral finance and the related area of experimental finance are now fully accepted as mainstream approaches within finance. Behavioral and experimental finance therefore represent lenses and approaches through which we can view financial decision-making. The journal aims to provide a single source for the latest research in these areas. It is open to but not limited to papers which cover investigations of biases, the role of various neurological markers in decision-making, national and organizational culture as it impacts on those organizations financial decision-making, sentiment and asset pricing, the design and implementation of experiments to investigate financial decision-making and trading, methodological experiments,  and natural experiments. Although primarily empirical, we will be more than open to theoretical and methodological papers which cast light on behavioral and experimental topics, as well as to meta analyses, surveys and overviews.

Where is it and who is involved?

The journal site is here  at and papers can be submitted here. The Editorial Board at present consists of the following, but we are actively seeking other persons.

  • Ackert, Lucy  Kennesaw State University, Coles College of Business, USA
  • Aggarwal, Raj The University of Akron, Ohio, USA
  • Asparouhova Elena N, University of Utah,  USA
  • Davies, Greg Head of Behavioral Finance and Investment Philosophy,  Barclays
  • Delaney, Liam   Stirling Management School, University of Stirling, UK
  • Dowling, Michael  Dublin City University Business School, Ireland
  • Goodell, John The University of Akron, Ohio, USA
  • Harmon, Colm  University of Sydney, School of Economics, Australia
  • Henker, Julie Bond University, Queensland, Australia
  • Holm, Håkan Jerker School of Economics and Management, Lund University, Sweden
  • Huber, Jürgen. The University of Innsbruck, Austria
  • Innocenti, Allesandro Experimental Economics Laboratory, University of Siena, Italy
  • Kim, Kenneth, Renmin University, Beijin, China.
  • Kirchler, Michael, The University of Innsbruck, Austria
  • Kramer, Lisa A. Rotman School of Management, University of Toronto, Canada
  • Lau, Morten, Copenhagen Business School Copenhagen Denmark
  • Leoni, Patrick L.  KEDGE, Marseille, France
  • Loncarski, Igor, Faculty of Economics Universty of Ljubjanja, Slovenia
  • Pompian, Michael Mercer Wealth Management, St Louis USA
  • Nawrocki, David, Villanova Univeristy, USA
  • Noussair, Charles, Tilburg University, Netherlands
  • Lunn, Pete  Economic and Social Research Institute Dublin, Ireland
  • Rabin, Matthew Brunel University, London UK
  • Pownall, Rachael , Maastricht University, Netherlands
  • Ricciardi, Victor.  Goucher College, Maryland, USA
  • Santoni, Alessandro, Banca Monte dei Paschi di Siena, Siena, Italy
  • Statman, Meir.  Santa Clara University, Santa Clara USA
  • Viole, Fred OVVO Financial Systems, Holmed, NJ USA
  • Wang, Mei. WHU – Otto Beisheim School of Management , Berlin, Germany
  • Weitzel, Utz. Radboud University Nijmegen, the Netherlands
  •  Zhu, Ning. UC Davis and Shanghai Advanced Institute for Finance, China

Brian Lucey

Founding Editor

For : Journal of Behavioral and Experimental Finance

 

Longlist – not exhaustive – of possible  topics

  • Adaptive Market Hypothesis
  • Adjustment
  • Agent-Based Modeling
  • Altruism
  • Ambiguity
  • Ambiguity Aversion
  • Ambiguity Bias
  • Anchoring
  • Anchoring And Adjustment
  • Anomalies
  • Appropriation
  • Asset Market
  • Asset Market Experiments
  • Assimilation Error
  • Asymmetric Information
  • Asymmetry
  • Attachment Bias
  • Attention
  • Attribution Theory
  • Auctions
  • Availability
  • Bargaining Power
  • Behavioral Biases
  • Behavioral Corporate Finance
  • Behavioral Finance
  • Beliefs
  • Benchmarking
  • Betrayal Aversion
  • Between-Subjects Design
  • Bidding
  • Bounded Rationality
  • Break-Even Effect
  • Bubble
  • Calendar Effects
  • Certainty Effect
  • Charitable Giving
  • Circle Network
  • Classification Game
  • Cognitive Abilities
  • Cognitive Dissonance
  • Cognitive Heuristic
  • Communication
  • Compatibility
  • Competitive Behavior
  • Competitiveness
  • Conditional Cooperation
  • Confirmation Bias/Confirmatory Bias
  • Conservatism Bias
  • Context Dependence
  • Contrarian
  • Cooperation
  • Coordination
  • Coordination Game
  • Corporate Governance
  • Corporate Social Responsibility
  • Cournot Oligopoly
  • Credence Goods
  • Crowding-Out Effect
  • Culture
  • Day Of The Week Effect
  • Decision Making Under Risk
  • Dictator Game
  • Digit Ratio
  • Disjunction
  • Disposition Effect
  • Downside Risk
  • Dynamic Choice
  • Electronic Markets
  • Emotion Regulation
  • Emotions
  • Endowment Effect
  • Equity
  • Expected Utility Theory
  • Experience
  • Experimental Design
  • Experimental Design
  • Experimental Market
  • Experimental Measurement
  • Experimental Methodology
  • Experimental Methods
  • Experimentation
  • Experiments
  • False Discovery Rate
  • False-Consensus Effect
  • Familiarity
  • Field Experiment
  • Financial Decision Making
  • Financial Literacy
  • Flexibility
  • Framing
  • Free-Riding
  • Group Behavior
  • Guessing Game
  • Halloween Effect
  • Happiness
  • Health
  • Heterogeneity
  • Heuristic
  • Hidden Information
  • Hindsight Bias
  • Home Bias
  • Hormones
  • House Money Effect
  • House-Money Effect
  • Household Finance
  • Idiosyncratic Risk Premium
  • Illusion Of Control
  • Illusion Of Knowledge
  • Incentives
  • Incomplete Contracts
  • Individual Behavior
  • Individual Choice
  • Individual Investors
  • Individual Preferences
  • Inequality Aversion
  • Information Quality
  • Information Sharing
  • Information Uncertainty
  • Insurance
  • Intelligence
  • Interdependent Preferences
  • Investment Horizon
  • Investor Characteristics
  • Investor Sentiment
  • Knowledge Attitudes
  • Knowledge Of Economics And Finance
  • Laboratory Experiments
  • Learning
  • Learning From Peers
  • Leniency
  • Level K Model
  • Loss Aversion
  • Loss Aversion
  • Lottery Choice Experiment
  • Magical Thinking
  • Managerial Biases
  • Manipulation
  • Market Composition
  • Market Design
  • Market Efficiency
  • Market Efficiency
  • Matching Market
  • Matching Procedure
  • Meme
  • Mental Accounting
  • Mental Accounting
  • Mental Compartments
  • Mental Health
  • Meta-Study
  • Model Uncertainty
  • Momentum
  • Monetary Incentive
  • Monetary Punishments
  • Monitoring
  • Month-Of-The-Year Effect
  • Moral Suasion
  • Motivation
  • Multiple Equilibria
  • National Culture
  • Natural Experiment
  • Natural Language
  • Neurofinance
  • Newspaper Experiment
  • Non-Cognitive Skills
  • Non-Monetary Punishments
  • Optimism
  • Optimism
  • Over-Optimism
  • Overconfidence
  • Overconfident Behaviour
  • Overreaction
  • Parameter Uncertainty
  • Payoff Tables
  • Peer Groups
  • Persistence
  • Personality
  • Persuasion Effect
  • Plasticity
  • Political Equilibrium
  • Portfolio Choice
  • Portfolio Optimization
  • Portfolio Selection
  • Post-Earnings-Announcement Drift
  • Price Bubbles
  • Pricing Rules
  • Prisoner’s Dilemma
  • Procedural Fairness
  • Prospect Theory
  • Public Goods Experiments
  • Punishment
  • Race
  • Random Incentive System
  • Rationality
  • Real-Time Experiment
  • Real-Time Monitoring
  • Reciprocity
  • Redistribution
  • Reference Point
  • Regret Theory
  • Religion
  • Repeated Games
  • Representiveness
  • Reputation
  • Return Seasonality
  • Risk Aversion
  • Risk Awareness
  • Risk Diversification
  • Risk-Return Tradeoff
  • Salience
  • Sanctions
  • Seasonal Affective Disorder
  • Seasonality
  • Selection Into Experiments
  • Self-Interest
  • Self-Serving Bias
  • Sentiment
  • Session-Effects
  • Shorting
  • Simple And Compound Events
  • Sleep
  • Social Connections
  • Social Distance
  • Social Effects
  • Social Interaction
  • Social Networks
  • Social Networks
  • Social Norms
  • Social Preferences
  • Social Welfare Maximizing
  • Socially Responsible Investing
  • Somatic
  • Sorting
  • Stakeholder Theory
  • Status
  • Status Quo Bias
  • Strategic Behavior
  • Sunk-Cost Effect
  • Technical Trading
  • Tournament Incentives
  • Trading Behavior
  • Trading Performance
  • Trend Chasing
  • Trust Game
  • Ultimatum Game
  • Underreaction
  • Week-Of-The-Month Effect
  • Week-Of-The-Year Effect
  • Well-Being
  • Willingness To Compete
  • Willingness To Pay
  • Within-Subjects Design
  • Yes-No Game

Strategic Mortgage Default: What does the research tell us?

keysWhat do we know about strategic (could meet obligations but choose not to ) defaulters in relation to mortgages?

As I argued earlier, in the Irish case very little is known. There is a little more information for the USA, but we should be very careful about blindly or even carefully transposing US experience to Ireland. The legal, cultural, economic and social climates are very different. We seem to be more tolerant of default than the USA but beyond that…That said, here are what I see as the present state of play. Im sure I have missed some research but for what its worth…

  • As few as 15% of US defaults might be strategic (Gerardi et al. 2013) . Or it might be higher (but the methodology (Guiso, Sapienza, and Zingales 2011) used is to ask people, in effect, if they know someone who they think could have repaid but didn’t…) at around 25%. If its not 1/3 or more in the USA with more liberal bankruptcy and recourse laws then is it credible that it is 1/3 here?
  • People feel regret but not shame when they default (M J Seiler et al. 2012). There is a massive ‘fear factor’ on which lenders play, as well as asymmetrical fears of moral hazard (White 2010c).
  • Default is not just an individual but also a  social phenomena and there can be “herding” in defaults (M J Seiler, Lane, and Harrison 2012). This is perhaps an under researched area.
  • The bankruptcy code really matters with lower rates the easier it is to strategically default (Edmonds, Stevenson, and Swisher 2011)
  • The more you repossess the less a stigma it is and the more likely people are to strategically default (Wilkinson-Ryan 2011). The law of unintended consequences therefore suggests that if we move to  a significantly more aggressive repossession culture we will see cascades of defaults with the consequent knocking back of property prices and erosion of bank balance sheets…. be careful for what you wish.
  • Less information about the process is useful from the perspective of the lender in reducing the incidence of default (M J Seiler 2013). Theres no doubt that the Irish system is opaque, and perhaps deliberatly so.
  • Amongst lower income US households most defaults are not strategic. (Riley 2013)
  • There’s a contract between the lender and the borrower but even in law there can be a ranking of contracts and the social/familial contract supersedes this other contract allowing for default. (White 2010b).
  • Many defaults precipitate not from rational but from emotional decisions, thus reducing the emotional crises points can and does reduce default (White 2010a). Most people want a fair deal, which allows them to continue servicing debts at a reasonable rate but with certainty about where the future lies.
  • People don’t default, strategically or otherwise, until they are deeply underwater, typically negative equity of 67%  are required in the USA. (Bhutta, Dokko, and Shan 2011)
  • Oh, and some people might be neurologically more inclined to default than others…( Seiler, Walden, and Lane 2012). Might we see MRI scans as well as payslips being required in future before mortgages are approved?

Bhutta, Neil, Jane K. Dokko, and Hui Shan. 2011. “Consumer Ruthlessness and Mortgage Default During the 2007-2009 Housing Bust.” SSRN Electronic Journal (December 31). doi:10.2139/ssrn.1626969. http://papers.ssrn.com/abstract=1626969.

Edmonds, T N, L J Stevenson, and J Swisher. 2011. “Forgive Us Our Debts: The Great Recession of 2008-09.” Journal of Legal, Ethical and Regulatory Issues 14 (2): 1–16. http://www.scopus.com/inward/record.url?eid=2-s2.0-84863525338&partnerID=40&md5=cc9d8b72b8b94a96ca05b675fccb4560.

Gerardi, Kristopher, Kyle Herkenhoff, Lee E. Ohanian, and Paul Willen. 2013. “Unemployment, Negative Equity, and Strategic Default.” http://papers.ssrn.com/abstract=2293152.

Guiso, Luigi, Paola Sapienza, and Luigi Zingales. 2011. “The Determinants of Attitudes Towards Strategic Default on Mortgages.” SSRN Electronic Journal (March 1). doi:10.2139/ssrn.1573328. http://papers.ssrn.com/abstract=1573328.

Riley, Sarah F. 2013. “Strategic Default Behavior and Attitudes Among Low-Income Homeowners” (February 1). http://papers.ssrn.com/abstract=2282518.

Seiler, M J. 2013. “The Role of Informational Uncertainty in the Decision to Strategically Default.” SSRN Electronic Journal (January 29). doi:10.2139/ssrn.2211933. http://papers.ssrn.com/abstract=2211933.

Seiler, M J, M A Lane, and D M Harrison. 2012. “Mimetic Herding Behavior and the Decision to Strategically Default.” Journal of Real Estate Finance and Economics. Old Dominion University, College of Business Administration, Norfolk, 23529-0223, United States. http://www.scopus.com/inward/record.url?eid=2-s2.0-84866282494&partnerID=40&md5=bd88e45d25c19dc9afd2a035c384852b.

Seiler, M J, V L Seiler, M A Lane, and D M Harrison. 2012. “Fear, Shame and Guilt: Economic and Behavioral Motivations for Strategic Default.” Real Estate Economics 40 (SUPPL. 1): S199–S233. http://www.scopus.com/inward/record.url?eid=2-s2.0-84871824267&partnerID=40&md5=cc8149feb524d374946f70929bc874fa.

Seiler, Michael Joseph, Eric A. Walden, and Mark Lane. 2012. “Strategic Mortgage Default and the Decision to Follow the Herd: A Neurological Explanation.” SSRN Electronic Journal (December 27). doi:10.2139/ssrn.2194254. http://papers.ssrn.com/abstract=2194254.

White, Brent T. 2010a. “Take This House and Shove It: The Emotional Drivers of Strategic Default.” SSRN Electronic Journal (May 14). doi:10.2139/ssrn.1603605. http://papers.ssrn.com/abstract=1603605.

———. 2010b. “The Morality of Strategic Default.” SSRN Electronic Journal (May 22). doi:10.2139/ssrn.1597835. http://papers.ssrn.com/abstract=1597835.

———. 2010c. “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.” SSRN Electronic Journal (October 27). doi:10.2139/ssrn.1494467. http://papers.ssrn.com/abstract=1494467.

Wilkinson-Ryan, T. 2011. “Breaching the Mortgage Contract: The Behavioral Economics of Strategic Default.” Vanderbilt Law Review 64 (5): 1547–1583. http://www.scopus.com/inward/record.url?eid=2-s2.0-81855184667&partnerID=40&md5=4546d2ad8953dfd098aacad6d2fadffc.

Will Irish Banks need further recapitalisation? If so, who will pay?

Kipper Williams - Bank losses 30-11-12This is a version of my column in The Irish Examiner on 6 April 2013 . It was written before the talk at the Cantillon School at which the Central Bank revealed that upwards of 25b of SME loans were now impaired. That is 50% of these loans a truly astounding percentage

Back in 2011 Blackrock undertook an analysis of the Irish banks mortgage books.  Blackrock are a respected and global financial services company and were given access to the inner details of the banking sector. They looked at the capital needs of the banks under a variety of scenarios, and in effect looked at how much additional capital would be needed. Under the ‘adverse scenario’ identified by them the banks were expected to lose an additional 43b euro, and 29.5b under the base scenario. Seamus Coffey has a good post on the PCARs and losses here . Deviation from this towards or through the adverse or stress scenario raises the specter of future capital calls from the banks. To this must be added the new normal, that deposits are to be seen as potentially in play where capital needs of banks emerge. We are in many respects at or beyond this adverse scenario.

 

The recent IMF report should put paid to the rosy notion of corners being turned on a carpet of green shoots. Although the headline unemployment rate, at 14.5% or so, is below the stress scenario the reality, as highlighted by the IMF, is involuntary parttime and discouraged workers, and a real rate of closer to 23% are masking that this is evident. The stress tests assumed rates of 15.6% or so, so it is clear that we are breaching this, as the effect of unemployment are to make mortgages more stressed. IMF forecasts do not see the unemployment rate falling to single digit figures till after 2018.Similarily the stress tests assumed levels of falls in government consumption and in non government investment that have now been well breached. Although residential property prices have not fallen as fast as the stress tests assumed, these same tests also suggested that by now we would be seeing a modest upturn in prices. While this may be the case for selected urban markets for the economy as a whole it is highly improbable that we will see the overall residential market picking up any time soon. Falling income, house taxes and an ever-growing problem in terms of mortgage arrears combine to weigh down the market. Commercial property was also to have shown recovery by now and this is not evident overall. Thus, we are close to or over the adverse scenario of the Blackrock capital tests in many of the key areas. The revelation that the SME losses are 6 times as bad as the adverse scenario should give massive concern.

 

While exports have performed remarkably well these do not translate except in the loosest terms into either jobs or revenue. With banks on average losing money and with capital buffers declining (although still high) we face into a possible crunch scenario. There is a quite extraordinary high level of non performing loans in the Irish banks property loan book. Some estimates suggest that these are strategic defaulters. This terminology is technically accurate – people facing falling income make decisions to allocate income and absent widespread repossession there is relativity little incentive to prioritize mortgages. It is however misleading in a social or political perspective and makes little distinction between BTL and private residences.

 

BTL investments which are underwater should be treated as any other investment and foreclosed on.  Of the  31b in buy to let mortgages some 24,000 cases with 7b in debt  are in arrears of more than 180 days. These are the hopeless cases with arrears of 1b. The problem for the banks is that this 7b is probably now worth at most 3b and perhaps far less. A hit of 4b to the banking sector would deeply damage their capital base. But that is what the capital base is there for, what we put in places for, to absorb losses. When we look at principal private residences we see 14b worth of mortgages in arrears of over 180 days. The total arrears here are 1.6b, suggesting not surprisingly, that people will attempt to keep arrears on their home low by comparison to investments. Nonetheless, the reality is that 23000 people are in arrears for more than 2 years and these also are hopeless cases. If the banks repossess the homes they will not realize the 4.7b in mortgage debt and under the new insolvency regime the greater part of these will be lost. So between the BTL  and residential mortgages the banks are looking at losses of 6b and more. Then we have the SME losses, with untold billions at risk.

What is the plan for this? Where will this leave the capital bases? Where will it leave the banks in terms of seeking capital? Where will it leave depositors if the government decides not to ask the taxpayer to go to the well one more time? A series of clear statements on what, if any, joined up thinking exists as between the desire to clean the banks balance sheets, the new insolvency regime, the growing mortgage arrears problem and the lack of desire to see mass repossessions  would be nice.

 

Entrepreneurship research in ireland

So with all the government fuss about the innovation island and the innovation economy, with all the (lip service?) paid to empowering entrepeneursip and with the push to make Irish universities into powerhouses of entrepreneurial enablement, nobody seems to have looked at the question : are we doing any research in the area.

A caveat : of course research publications are not in and of themselves sufficient for the fostering of an area. But  they are, I contend, necessary. If we didn’t have engineers, somewhere, in the country researching in and publishing on nano tech or bio tech or whatever tech is the fancy de jure of the Department of Hoping to Stumble on a new Google, we would not have companies in these areas. So also with any other area. A vibrant ecosystem of academic, applied and basic research is a prerequisite for a healthy growth.

So then onto looking into entrepreneurship and related. I looked at all papers published in the areas of Entrepreneurship, Innovation and   Small Business Management. The journals selected were those identified in the Academy of Business Schools. They are below, with their “ranks” – 4 is world class, 3 pretty good, 2 good and 1 ok. There are of course a myriad of other journals and the ABS is but one ranking. That said, it’s a generally accepted qualitative ranking of over 800 journals in 20 areas of business school activities.

Journal ABS Rank
Creativity and Innovation Management 1
Entrepreneurship and Regional Development 3
Entrepreneurship, Theory and Practice 4
European Journal of Innovation Management 1
Family Business Review 2
Industry and Innovation 2
International Entrepreneurship and Management Journal 1
International Journal of Entrepreneurial Behavior and Research 2
International Journal of Entrepreneurship and Innovation 2
International Journal of Entrepreneurship and Innovation Management (IJEIM) 1
International Journal of Innovation Management 2
International Small Business Journal 3
Journal of Business Venturing 4
Journal of Enterprising Culture 1
Journal of Entrepreneurship 1
Journal of International Entrepreneurship 1
Journal of Product Innovation Management 4
Journal of Small Business and Enterprise Development 2
Journal of Small Business Management 3
Journal of Techology Transfer 1
R and D Management 3
Small Business Economics 3
Social Enterprise 1
Strategic Entrepreneurship Journal 3
Technovation 3
Venture Capital: An International Journal of Entrepreneurial Finance 2
World Review of Entrepreneurship, Management and Sustainable Development 1

From Scopus I extracted over 8000 records – journal articles published in these journals from 2001 to 2012 inclusive. After cleaning up and a whack of macros in excel, I extracted records for the nationality of over 16000 authors. Many papers had one author, some had 10…. Bear in mind that Scopus, while excellent, is not 100% comprehensive and the more so as one goes back in time. Nonetheless it is the most comprehensive and accurate database that is available. So, take the data below with some salt, and I am happy to share the (very large) raw files with anyone who can build and improve on this. And, this is a blogpost not a peer reviewed article… 

Not surprisingly the USA leads the field in research. But, we don’t do too badly.  The first column of data are the number of authors published, the second these weighted by the ABS journal weight. The Average column is the ratio of these and represents a crude estimate of average paper quality;  in terms of authors we rank 22nd, in terms of average 26th. Not bad but the standout small countries in this list include Finland for numbers and Singapore for average quality.

Country Authors Weighted Average
USA 4303 13471  3.13
UK 2230 5989  2.69
Germany 996 2739  2.75
Netherlands 934 2687  2.88
Canada 902 2632  2.92
Spain 790 1984  2.51
Italy 632 1659  2.63
Sweden 604 1658  2.75
Australia 469 1155  2.46
Taiwan 421 1206  2.86
Finland 388 909  2.34
France 387 928  2.40
Belgium 327 964  2.95
Denmark 233 591  2.54
Japan 210 588  2.80
Switzerland 201 562  2.80
China 191 549  2.87
Norway 187 471  2.52
NZ 175 380  2.17
Korea 166 462  2.78
Austria 148 390  2.64
Ireland 144 365  2.53
Greece 129 313  2.43
Portugal 112 262  2.34
Singapore 93 303  3.26
India 88 200  2.27
Turkey 80 236  2.95
Israel 75 211  2.81
Kong 66 196  2.97
Brazil 62 159  2.56
SA 59 149  2.53
Slovenia 53 125  2.36
Chile 45 114  2.53
Malaysia 39 80  2.05
Nigeria 36 108  3.00
Mexico 34 74  2.18
Croatia 31 61  1.97
Thailand 27 72  2.67
Luxembourg 25 65  2.60
Liechtenstein 22 41  1.86
Estonia 22 44  2.00
Cyprus 22 47  2.14
Poland 22 47  2.14
Hungary 18 54  3.00
Fiji 13 17  1.31
Lebanon 13 33  2.54
Latvia 10 23  2.30

Where are we publishing? There’s a spread. We author a lot in the areas of small business and technology related ; not so much in r and d and the behavioral type journals.

Journal Irish Authors
Journal of Small Business and Enterprise Development 23
Small Business Economics 16
Technovation 16
International Journal of Entrepreneurship and Innovation Management 12
Journal of Technology Transfer 10
International Journal of Entrepreneurship and Small Business 9
Entrepreneurship and Regional Development 8
Journal of Product Innovation Management 8
International Small Business Journal 7
Venture Capital 6
International Entrepreneurship and Management Journal 5
Journal of Small Business Management 5
R and D Management 5
European Journal of Innovation Management 4
International Journal of Entrepreneurial Behaviour and Research 4
Industry and Innovation 3
Entrepreneurship: Theory and Practice 2
Journal of Business Venturing 1

And where does this come from? In total there were 95 journal articles that had one or more Irish affiliated authors. The institutional affiliation is below, again with an ABS weighting and an average. For what its worth, I have some papers in the set, papers in Small Business Economics.

Irish Institution Authors ABS Weighted Average
UCD 34 92  2.71
UL 30 76  2.53
DCU 18 41  2.28
NUIG 14 39  2.79
UCC 8 16  2.00
TCD 6 14  2.33
UU 6 13  2.17
DIT 5 15  3.00
DKIT 3 8  2.67
TIPP 3 6  2.00
WIT 3 6  2.00
ABBOT 2 6  3.00
ERINI 2 6  3.00
QUB 2 7  3.50
SKYTECH 2 6  3.00
CIT 1 3  3.00
DLIATD 1 3  3.00
IRC 1 3  3.00
ITT 1 3  3.00
MAYO 1 1  1.00
NUIM 1 3  3.00

One thing stands out very clearly – UL is producing significant work in this area and at a good standard. Another is that the Institutes of Technology are not. Again the caveat – a publication in an entrepreneurial or innovation journal is not proof of entrepreneurial activity or engagement. Not is lack of same evidence of lack of such. But we would, if we wished to see a thriving innovation economy and a fostering of entrepreneurship in Irish higher education graduates, want to see evidence of academic involvement all along the way – from the very applied to the very academic. Right now that is not evidently the case.

Nor can we turn academics with interests in areas other than entrepreneurship and innovation into people capable of mentoring students and publishing work of the highest world standard. Much more involvement of clinical (but with research expectations) and adjunct staff in the area is going to be needed, along with significant investment in the human capital of business and other schools. Finally, we have some centers of activity – UCD (not surprising given its size and scope), and UL. We should build on these platforms, determine the strengths of the other schools and let them build on those. One size does not fit all and neither can every school be good at everything.

What sectors have contracted most in the crash?

The CSO produced a very good set of tables on value added by sector 2002-9

The data tables contained in this release can be downloaded in excel from this link.

Summary : in terms of output the economy was 13% smaller in 2009 than 2002.  Service industries and agri have been hit hard, as with construction. Below are falls from peak.

 

Agriculture, forestry and fishing
Crop and animal production, hunting and related service activities -18%
Forestry and logging -25%
Fishing and aquaculture -20%
Total agriculture, forestry and fishing -18%
Production industries
Mining and quarrying -34%
Manufacturing industries
Manufacture of food products, beverages and tobacco products -8%
Manufacture of textiles, wearing apparel and leather products -38%
Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials -58%
Manufacture of paper and paper products -42%
Printing and reproduction of recorded media -29%
Manufacture of coke and refined petroleum products; Chemical industry -43%
Manufacture of pharmaceutical products 0%
Manufacture of rubber and plastic products -25%
Manufacture of other non-metallic mineral products -49%
Manufacture of basic metals -50%
Manufacture of fabricated metal products, except machinery and equipment -31%
Manufacture of computer, electronic and optical products -18%
Manufacture of electrical equipment -44%
Manufacture of machinery and equipment n.e.c. -15%
Manufacture of motor vehicles, trailers and semi-trailers -40%
Manufacture of other transport equipment -26%
Manufacture of furniture; Other manufacturing 0%
Repair and installation of machinery and equipment -40%
Total manufacturing industries -5%
Electricity, gas, steam and air-conditioning supply -10%
Water supply; sewerage, waste management and remediation activities
Water collection, treatment and supply 0%
Sewerage, waste management and remediation activities -15%
Total water supply; sewerage, waste management and remediation activities -13%
Total production industries -5%
Construction -57%
Service industries
Wholesale and retail trade; repair of motor vehicles and motorcycles
Wholesale and retail trade and repair of motor vehicles and motorcycles -32%
Wholesale trade, except of motor vehicles and motorcycles -17%
Retail trade, except of motor vehicles and motorcycles -8%
Total wholesale and retail trade; repair of motor vehicles and motorcycles -11%
Transportation and storage
Land transport and transport via pipelines -15%
Water transport -32%
Air transport -6%
Warehousing and support activities for transportation -17%
Postal and courier activities -12%
Total transportation and storage -12%
Accommodation; food and beverage service activities -13%
Information and communication
Publishing, audiovisual and broadcasting activities -14%
Telecommunications -32%
Computer programming, consultancy and related activities; information service activities 0%
Total information and communication -3%
Financial and insurance activities
Financial service activities, except insurance and pension funding -17%
Insurance, reinsurance and pension funding, except compulsory social security -23%
Activities auxiliary to financial services and insurance activities -25%
Total financial and insurance activities -20%
Real estate activities -18%
Professional, scientific and technical activities; administrative and support service activities
Legal and accounting activities; activities of head offices; management consultancy activities -28%
Architectural and engineering services; technical testing and analysis -21%
Scientific research and development -5%
Advertising and market research -36%
Other professional, scientific and technical activities; veterinary activities -17%
Rental and leasing activities -5%
Employment activities -33%
Travel agency, tour operator and other reservation services and related activities -38%
Security and investigation activities; services to buildings and landscape activities; office administrative, office support and other business support activities -11%
Total professional, scientific and technical activities; administrative and support service activities -14%
Public administration and defence; compulsory social security -10%
Education 0%
Human health activities; Social work activities 0%
Arts, entertainment and recreation activities and other services
Creative, arts and entertainment activities; libraries, archives, museums and other cultural activities; gambling and betting activities -9%
Sports activities and amusement and recreation activities -26%
Activities of membership organisations -4%
Repair of computers and personal and household goods -67%
Other personal service activities -4%
Activities of households as employers of domestic personnel; undifferentiated goods- and services-producing activities of households for own use -43%
Activities of extraterritorial organisations and bodies 0%
Total arts, entertainment and recreation activities and other services -10%
Total service industries -7%
All NACE economic sectors -12%

 

 

Plan B needed, times three, for the dangers ahead

This is an extended and linked version of an Irish Examiner oped published 24 November 2012

Irish governments over the years , and especially in the last few, have not exactly shown themselves to be shining examples when it comes to contingency planning. Time and again we have seen plans advanced which when they fall apart reveal that little or no obvious alternatives were in place, or if in place paid any heed to. The most egregious example is of course the creation of that vortex of wealth destruction that is IBRC, where despite alternatives being presented to cabinet a bullheaded politicized decision was taken which shot the economy in the head although the full damage took time to be realized.

In planning one plans for the worst and hope for the best. And some things that are planned for, or should be planned for, are what one might call grey swans – low probability high impact events. It is unlikely for example that we will see a tsunami hit Ireland but if it did we would be best advised to have plans in place. Mind you, in a country where the effect of releasing millions of gallons of water from a dam into a flooded river already bursting at its banks downstream seemed not to be planned in an integrated fashion one wonders…

Three major events, none of which one hopes will happen, are now beginning to make themselves felt on the economic stage. It is probably too much to hope that the system which gave us the so far abysmal performance on legacy bank debt can plan for these but at least the public at large might want to think on them. The three main possibilities are the effective removal of our tax shelter for MNC profits, the sundering of the EU via Britain huffing off, and a hard landing in china.

Take the latter : one of the safety valves which we have relied on for a long time is the ability of friendly countries not economically screwed up to take our surplus labour, either legally or to turn an effective blind eye. With over 80 thousand persons per annum emigrating not all are going to the UK, many (possibly as many as 20k) going to Australia and upwards of 6k to Canada. Both Australia and Canada are very dependent on the worldwide commodity boom fostered in large part by the expansion in the Chinese economy. And as the Chinese economy is faltering so too is business sentiment in these countries turning. With uncertainty about the future path of the chinese economy and the knock-on effects on these importers of Irish labor, what is the contingency plan should we have to absorb tens of thousands additional jobseekers?

A further blow could come from the deepening rift emerging between an increasingly euro skeptical UK and a Europe/Eurozone that sees greater integration (sometime, on the cheap ideally) as the only hope of longterm survival. Although not nearly as dominant as in the 1950s and 1960s the reality is that the UK is our largest market – our economies are intertwined. 11% of UK exports go to Ireland, and they source about 7% of their imports from us. Meanwhile. 33% of our imports and 16% of our exports go to the UK. When one looks at the situation excluding chemicals the export dominance of the UK is even starker. There seems to be in the UK a belief that they can selectively withdraw from large parts of the EU, ditching what is known as the Acquis, the body of laws that govern conduct and ensure harmonization. Faced with an intransigent UK and an exasperated EU, the prospects for a nasty split are while low growing. A UK out of the EU would pose massive challenges to Ireland – it would be fundamental decisions to either follow them, and forever accept that we are economically a region of the UK, or to stay with the EU (and be a region thereof). A UK out of the EU would one suspects be treated quite vindictively by the EU and in the shortterm face massive trade barriers. How we would deal with that scenario is no doubt the subject of a detailed think-tank in government…no doubt…

Allied to that and doubled down from the US we see a ratcheting up of the pressure on the tax front. Irish based MNCs are on the face of it the most productive entities in the world making profit per employee four times the EU average. It strains credulity to imagine that at least some of this booked profit does not arise from creative tax inspired planning. MNC’s can plan in such a way that the dell PC’s manufactured in Poland appear as Irish exports…There is a worldwide revolt against corporations and high net worth individuals engaging in legal but costly tax planning. We have seen companies grilled in the UK parliament; the French have simply taken the situation into their own hands and sent tax bills to MNC’s; and the issue of tax harmonization vi the common consolidated tax base has not gone away Meanwhile the US Senate has described Ireland as a tax haven and Microsoft has been used an example of aggressive tax planning in the US debate on clamping down on same. With global scrutiny now on Ireland, with the EU determined to srive forward on tax harmonization, what plans are in place, if any, to determine the fallout were our MNC friendly tax system to come under threat

These issues may never come to fruition. But a mature open debate on them, without calls for green jersey wearing or not talking down the economy or other such guff is required. We were illserved keeping our heads in the sand in the boom years and should learn the lesson that open debate is vital.