25/3/15: IMF on Ireland: Risk Assessment and Growth Outlook 2015-2016

In the previous post covering IMF latest research on Ireland, I looked at the IMF point of view relating to the distortions to our National Accounts and growth figures induced by the tax-optimising MNCs.

Here, let's take a look at the key Article IV conclusions.

All of the IMF assessment, disappointingly, still references Q1-Q3 2014 figures, even though more current data is now available. Overall, the IMF is happy with the onset of the recovery in Ireland and is full of praise on the positives.

It's assessment of the property markets is that "property markets are bouncing back rapidly from their lows but valuations do not yet appear stretched." This is pretty much in line with the latest data: see http://trueeconomics.blogspot.ie/2015/03/25315-irish-residential-property-prices.html

The fund notes that in a boom year of 2014 for Irish commercial property transactions "the volume of turnover in Irish commercial real estate in
2014 was higher than in the mid 2000s, with 37.5 percent from offshore investors." This roughly shows a share of the sales by Nama. Chart below illustrates the trend (also highlighted in my normal Irish Economy deck):

However what the cadet above fails to recognise is that even local purchases also involve, predominantly, Nama sales and are often based on REITs and other investment vehicles purchases co-funded from abroad. My estimate is that less than a third of the total volume of transactions in 2014 was down to organic domestic investment activity and, possibly, as little as 1/10th of this was likely to feed into the pipeline of value-added activities (new build, refurbishment, upgrading) in 2015. The vast majority of the purchases transactions excluding MNCs and public sector are down to "hold-and-flip" strategies consistent with vulture funds.

Decomposing the investment picture, the IMF states that "Investment is reviving but remains low by historical standards, with residential construction recovery modest to date. Investment (excluding aircraft orders and intangibles) in the year to Q3 2014 was up almost 40 percent from two years earlier, led by a rise in machinery and equipment spending."

Unfortunately, we have no idea how much of this is down to MNCs investments and how much down to domestic economy growth. Furthermore, we have no idea how much of the domestic growth is in non-agricultural sectors (remember, milk quotas abolition is triggering significant investment boom in agri-food sector, which is fine and handy).

"But the ratio of investment to GDP, at 16 percent, is still well below its 22 percent pre-boom average, primarily reflecting low construction. While house completions rose by 33 percent y/y in 2014, they remain just under one-half of estimated household formation needs. Rising house prices are making new construction more profitable, yet high costs appear to be slowing the supply response together with developers’ depleted equity and their slow transition to
using external equity financing."

All of this is not new to the readers of my blog.

The key to IMF Article IV papers, however, is not the praise for the past, but the assessment of the risks for the future. And here they are in the context of Ireland - unwelcome by the Ministers, but noted by the Fund.

While GDP growth prospects remain positive for Ireland (chart below), "growth is projected to moderate to 3½ percent in 2015 and to gradually ease to a 2½ percent pace", as "export growth is projected to revert to about 4 percent from 2015". Now, here the IMF may be too conservative - remember our 'knowledge development box' unveiled under a heavy veil of obscurity in Budget 2015? We are likely to see continued strong MNCs-led growth in 2015 on foot of that, except this time around via services side of the economy. After all, as IMF notes: "Competitiveness is strong in the services export sector, albeit driven by industries with relatively low domestic value added." Read: the Silicon Dock.

Here are the projections by the IMF across various parts of the National Accounts:

So now onto the risks: "Risks to Ireland’s growth prospects are broadly balanced within a wide range, with key sources being:

• "Financial market volatility could be triggered by a range of factors, yet Ireland’s vulnerability appears to be contained. Financial conditions are currently exceptionally favorable for both the sovereign and banks. A reassessment of sovereign risk in Europe or geopolitical developments could result in renewed volatility and spread widening. But market developments currently suggest contagion to Ireland would be contained by [ECB policies interventions]. Yet continued easy international financial conditions could lead to vulnerabilities in the medium term. For example, if the international search for yield drove up Irish commercial property prices, risks of an eventual slump in prices and construction would increase, weakening economic activity and potentially impacting domestic banks." In other words, unwinding the excesses of QE policies, globally, is likely to contain risks for the open economy, like Ireland.
• "Euro area stagnation would impede exports. Export projections are below the average growth in the past five years of 4¾ percent, implying some upside especially given recent euro depreciation. Yet Ireland is vulnerable to stagnation of the euro area, which accounts for 40 percent of exports. Over time, international action on corporate taxation could reduce Ireland’s attractiveness for some export-oriented FDI, but the authorities see limited risks in practice given other competitive advantages and as the corporate tax rate is not affected."
• "Domestic demand could sustain its recent momentum, yet concerns remain around possible weak lending in the medium term. Consumption growth may exceed the pace projected in coming years given improving property and labor market conditions. However, domestic demand recovery could in time be hindered by a weak lending revival if Basel III capital requirements became binding owing to insufficient bank profits, or if slow NPL resolution were to limit the redeployment of capital to profitable new loans." Do note that in the table listing IMF forecasts above, credit to the private sector is unlikely to return to growth until 2016 and even then, credit growth contribution will remain sluggish into 2017.

And the full risk assessment matrix:

Oh, and then there is debt. Glorious debt.

I blogged on IMF's view of the household debt earlier here: http://trueeconomics.blogspot.ie/2015/03/25315-imf-on-irish-household-debt-crisis.html and next will blog on Government debt risks, so stay tuned.

25/3/15: IMF on Irish household debt crisis

IMF on Irish household debt crisis (from today's Article IV paper):

"Household balance sheets are healing gradually, yet loan distress remains high and over half of arrears cases are prolonged. Households have cut nominal debts by 20 percent from peak through repayments primarily funded by a 4 percentage point rise in their trend savings rate. Debt ratio falls have been large by international standards but debt levels remain relatively high at 177 percent of disposable income. Household net worth has risen 25 percent
from its trough."

One note of caution: IMF statement ignores sales of household debt out of the Central Bank-covered statistics to vulture funds. Furthermore, repossessions, insolvencies, bankruptcies, voluntary surrenders and some mortgages restructurings have also contributed to the reduction in household debt. Thus, not all of the debt reduction is down to organic debt repayment by households.

It is also worth noting that per chart above, Irish household debt is currently at the levels of 2005-2006 - hardly a robust reduction on crisis-peak.

More from the IMF: "A recent survey finds household debts concentrated among families with mortgages, having 2 to 3 children, with the reference person aged 35 to 44, and in the two top income quintiles. Yet, their debt servicing burden is still similar to other groups, reflecting the high share of long-term “tracker” mortgages, with an average interest rate of 1.05 percent at end 2014."

The problem is that the recent survey IMF cites covers data through 2013 only! (http://www.cso.ie/en/media/csoie/releasespublications/documents/socialconditions/2013/hfcs2013.pdf).

Overall issues, therefore, are:

1. Irish household debts remain extreme relative to disposable income;
2. Distribution of household debts is adversely impacting the most productive segment of Irish population and the segment of population in critical years for pensions savings; and
3. Deleveraging of the households is by no means completed and remains exposed to the risk of rising interest rates in the future.

All points I raised before and all points largely ignored by Irish policymakers.

25/3/15: As Bogus Is, Bogus Does... IMF on Irish MNCs-led Growth

The IMF has published its Article IV consultation paper for Ireland and I will be blogging more on this later today. For now the top-level issue that I have been covering for some time now and that has been at the crux of the problems with irish economic 'growth' data: the role of MNCs.

My most recent post on this matter is here: http://trueeconomics.blogspot.ie/2015/03/24315-theres-no-number-left-untouched.html

IMF's Selected Issues paper published today alongside Article IV paper covers some of this in detail.

In dealing with the issues of technical challenges in estimating potential output in Ireland, the IMF states that "Irish GDP data volatility and revisions make it difficult to assess the cyclical position of the economy in the short-run. Ireland’s quarterly GDP growth data are among the most volatile of all European Union countries, more than twice the variability typically seen."

The IMF provides a handy chart:

And due to long lags in reporting final figures, as well as volatility, our GDP figures, even those reported, not just projected, are rather uncertain in their nature:

However, as IMF notes: other structural issues with the economy, besides poor reporting timing and quality and inherent volatility, further 'complicate' analysis:

"Multinational enterprises (MNE) accounting for one-quarter of Irish GDP can vary their output substantially with little change in domestic resource utilization. As shown in a recent study, MNEs represent only 2.1 percent of the number in enterprises in Ireland but slightly over half of the value added in the business economy. MNE output swings, sometimes related to sectoral idiosyncratic shocks (e.g., the “patent" cliff” in 2013...), can occur with little apparent change in
domestic resource utilization."

In other words, there is little tangible connection between output of many MNEs and the real economy. And the latest iteration of tax optimisation schemes deployed by the MNCs is not helping the matters: "The sharp increase in offshore contract manufacturing observed in 2014 is another example of such a shock. Such shocks to the productivity of the MNE sector may be best treated as shifts in potential GDP, because the result is a change in GDP without any significant change in resource tensions or slack in the
economy."

But MNCs are important for Ireland's tax base, right? Because apparently they are not that important for determining real rates of growth. Alas, the IMF has the following to say on that: "Swings in the value added of MNEs contribute substantially to variations in Irish GDP. Yet such swings are not found to have a significant effect on [government] revenues."


How big of an effect do MNCs have on the real economic growth as opposed to registered growth? IMF obliges: "The gross value added excluding the sectors dominated by MNEs behaves quite differently from aggregate GDP in some years. For example, in 2013 it grows by 3 percent at a time when official GDP data
were flat." In other words, the real, non-MNCs-led economy shrunk by roughly the amount of growth in the MNCs to result in near-zero growth across the official GDP.

However, since 2013 (over the course of 2014) a new optimisation scheme emerged as the dominant driver of manufacturing MNCs-led growth: contract manufacturing. IMF Article IV itself contains a handy box-out on that scheme, so important it is in distorting our GDP and GNP figures. Per IMF: "In 2014, multinational enterprises (MNEs) operating in Ireland made greater use of offshore
manufacturing under contract."

A handy CSO graphic illustrates what the hell IMF is talking about:

As covered in the link to my earlier blog post above, "Goods produced through contracted manufacturing agreements are treated differently in the national accounts than in customs measures of trade. As these goods do not cross the Irish border, they are not included in customs data on exports. If, however, the goods remain under the ownership of the Irish company, they are recorded as exports in the national accounts. Payments for manufacturing services and patent and royalty payments are service imports in the national accounts, offsetting in part the positive GDP impact of contracted manufacturing."

And to confirm my conclusions, here is IMF on the impact of contract manufacturing (just ONE scheme of many MNCs employ in Ireland) on Irish growth figures: "Contracted manufacturing appears to have had a significant impact on GDP growth in 2014 although it is difficult to make a precise estimate. Customs data on goods exports rose by 2.8 percent y/y in volume terms in the first nine months of 2014. In contrast, national accounts data on exports rose 12 percent in the same period. The gap between these two export measures can be attributed in part to contracted production, but could also reflect other factors like warehousing (goods produced in Ireland but stored and sold overseas) and valuation effects." Note: I cover this in more detail in my post.

"Assuming conservatively that contract manufacturing accounted for about half of the difference between customs and national accounts data, the implied gross contribution to GDP growth in the first three quarters of 2014 from contract manufacturing is 2 percentage points. However, there is a need to take into account the likelihood that service imports were higher than otherwise, but it is not possible to identify the volume of additional service imports linked to contract manufacturing."

One scheme by MNCs accounts for more than 2/5ths of the entire Irish 'miracle of growth'. Just one scheme!

And now… to the punchline:

Update: Seamus Coffey commented on the 2013 figure for domestic (real) economy cited above with an interesting point of view, also relating to the broader issue of the Contract Manufacturing: http://twishort.com/DTShc and his blogpost on the subject is here: http://economic-incentives.blogspot.ie/2015/03/the-growth-effect-of-contract.html

25/3/15: Irish Residential Property Prices Fell Marginally in February

The residential property price index from CSO covering Irish property markets has posted second monthly contraction in February, falling from 80.3 in January to 80.0 last month. With that, y/y on growth rate in Irish residential property prices has slowed from 15.54% in January to 14.94% in February, the first sub-15% reading since September 2014. In effect, property prices in Ireland have now fallen back to the levels between September and October 2014. Cumulated gains in property prices over the last 24 months are now totalling 24.22% or an annualised gain of 11.46%, outpacing growth in the economy by roughly 5-fold.

Based on Nama valuations formula, residential property prices are now somewhere 18.5% below Nama business model expectations.

Prices of all residential properties excluding Dublin  remained static in February at 74.8, same as in January and up 8.25% y/y, marking a slowdown in the y/y growth from 9.20% recorded in January.


The decline in national prices was driven by Dublin prices, which fell for the second month in a row from 82.2 in January to 81.6 in February. This is the lowest index reading since September 2014 and marks a slowdown in y/y growth rates to 21.43% - the slowest rate of growth since April 2014. Still, cumulated expansion in Dublin residential property prices over the last 24 months is blistering 37.6% (annualised rate of 17.3%).

Within Dublin segment:

• Houses were the driver to the downside in overall property prices, with houses price index for Dublin standing at 86.0 in February 2015, down from 86.9 in January 2015 and back to the levels of September 2014. Y/y rate of growth in Dublin house prices fell from 21.7% in January to 21.1% in February, although over the last 24 months hose prices in Dublin are still up cumulatively 37.6% (+17.3% annualised). 
• Apartments prices in Dublin rose in index terms to 72.2 in February from 70.8 in January, erasing the declines that took place during Q3-Q4 2014. Cumulated gains in Dublin apartments prices over the last 24 months stand at 37.5% (+17.3% annualised) and y/y prices are up 24.5% - the fastest growth rate in 3 months.

Few charts to illustrate the above trends:

 Lastly, summary of price changes on pre-crisis peak and y/y:

Despite all the talk about the new bubble in house prices in Ireland, three themes remain true:

1. Property prices are still far below fundamentals-justified levels. In Dublin, undershooting of long-run (inflation-linked) prices is around 26-27%.
2. Property price increases are worryingly high, especially in the Dublin segment, warranting some ongoing concern; and
3. Moderation in property prices and downward correction over the last two months, driven by Dublin (but likely to translate into similar outside Dublin with a lag), predicted on this blog before, is a welcome change. However, I suspect we will see renewed increases in property prices later this year, albeit at rates more sustainable in the longer run.

24/3/15: There's no number left untouched: Irish GDP, GNP and economy

According to Bloomberg, US companies are stashing some USD2.1 trillion of overseas cash reserves away from the IRS: http://www.bloomberg.com/news/articles/2015-03-04/u-s-companies-are-stashing-2-1-trillion-overseas-to-avoid-taxes?hootPostID=ffda3e167ae0ebabc3da4188e9bd22de

Ireland is named once in the report in a rather obscure case. Despite the fact we have been named on numerous other occasions in much larger cases. But beyond this, let's give a quick wonder.

1) Last year, exports of goods in Ireland leaped EUR89,074 million based on trade accounts with Q1-Q3 accounts showing exports of EUR66,148 million compared to the same period of 2013 at EUR65,381 million - a rise of 1.01% or EUR767 million. Full year rise was EUR2,075 million. So far so good. Now, national accounts also report exports of goods. These show: exports of goods in Q1-Q3 2013 at EUR69,731 million and exports of goods in Q1-Q3 2014 at EUR78,835 million, making y/y increase of EUR9,104 million. Full year 2014 - EUR108.989 billion a rise of EUR15.98 billion y/y. The discrepancy, for only 3 quarters, is EUR8,337 million or a massive 6.1% of GDP over the same period. For the full year it is EUR19.92 billion or 11% of annual GDP. Much of this difference of EUR19.92 billion was down to 'contract manufacturing' - yet another novel way for the MNCs to stash cash for the bash… IMF estimated the share of contract manufacturing to be at around 2/3rds of the annual rise in Q1-Q3 figures. Which suggests that around EUR7.4 billion (once we take account of imports of goods) of Irish GDP rise in 2014 was down to... err... just one tax optimisation scheme. That is EUR7.4 billion of increase out of EUR8.275 billion total economic expansion in the MiracleGrow state of ours.

2) Last month, Services activity index for Ireland posted a massive spike: overall services activity rose 12.59% y/y, the dynamic similar to what happened in Q2-Q3 last year with goods exports (Q1 2014 y/y +8.2%, Q2 2014 y/y +12.9% and Q3 2014 y/y +17.9%). Even more telling is the composition of Services growth by sectors: wholesales & retail trade sector up 8.83% (a third lower than the overall growth rate), transportation and storage - ditto at 8.4%, admin & supportive services +2.91%. Accommodation and food services posted rapid rise of 14.03% and professional, scientific & technical activities rose 13.97%. Meanwhile, tax optimisation-driven information & communication services activity was up 21.15%. What could have happened to generate such an expansion? Anybody's guess. Mine is 3 words: "knowledge development box" - a non-transparent black-box solution for tax optimisation announced as a replacement for the notorious "double-Irish" scheme. So let's suppose that half of the services sectors growth is down to MNCs and will have an effect on our 'exports'. In Q3 2014 these expanded by 13.4% y/y and in Q2 by 10.8% - adding EUR5,560 million to exports. January data on services activity suggests, under the above assumption, roughly the same trend continuing so far, which by year end can lead to a further MNCs-induced distortion of some EUR11 billion to our accounts on foot of Services sectors exports.

Take (1) and (2) together, you have roughly EUR21-22 billion of annual activity in the export areas of services and goods sectors that is likely (in 2015) to be down to MNCs washing profits through Ireland through just two schemes.

Then there are our factor payments abroad - what MNCs ship out of Ireland, in basic terms. As our total exports of goods and services been rising, the MNCs are taking less and less profit out of Ireland. Chart below sums these up. While profitability of MNCs is rising - a worldwide trend - Ireland-based MNCs remittances of profits are falling as percentage of exports. 2008-2012 average for the ratio of net remittances to exports is 18%, which suggests that even absent any uplift in profit margins, some EUR27.5 billion worth of profits should have been repatriated in Q1-Q3 2014 instead of EUR22.16 billion that was repatriated - a difference of EUR5.36 billion over 3 quarters or annualised rate of over EUR7.1 billion. Factoring in seasonality, the annualised rate jumps to closer to EUR8 billion.

On an annualised basis, for full year 2014, exports of goods and services from Ireland rose y EUR23.28 billion year-on-year, while net exports rose EUR3.784 billion. Meanwhile, profits repatriations (net) rose only EUR719 million. Aptly, for each euro of exports in 2013, Ireland's national accounts registered 74.2 cents in net factor payments abroad. In 2014 this figure hit historical low of 69.1 cent.

My guess is, MNCs have washed via Ireland close to EUR30 billion worth of profits or equivalent of 17.1% of 2013 full year GDP and close to 16.5% of 2014 GDP. Guess what was the GDP-GNP gap in 2013? 18.5 percent. And in 2014? 15.4%. Pretty darn close to my estimates.

Let's check this figure against aggregate differences in 2008-2014 GDP and GNP. The cumulated gap between the two measures, in nominal terms, stands at EUR201.3 billion, closer to EUR204 billion once we factor in seasonality in Q4 numbers to the estimate based on Q1-Q3 data. The above estimate of EUR29.97 billion in 'retained' profits implies, over 7 years a cumulated figure of EUR209.8 billion, or a variance of EUR827-1,200 million. Not much of a margin of error. I'll leave it to paid boffins of irish economics to complete estimates beyond Q3 2014, but you get the picture.

And now back to points (1) and (2) above: how much of the Irish growth in manufacturing and services - growth captured by one of the two exports accounts and by the likes of PMI metrics and sectoral activities indices is real and how much of it is an accounting trick? And what about other schemes run by the MNCs? And, finally and crucially, do note that contract manufacturing and knowledge development box types of tax optimisation schemes contribute to both GDP and GNP growth, thus completing the demolition job on Irish National Accounts. There is not a number left in this economy that is worth reading.


Update: we also have this handy graphic from the BusinessInsider (http://uk.businessinsider.com/us-corporate-cash-stashed-overseas-2015-3?r=US) charting the evolution of U.S. MNCs stash of cash offshore:

Ah, those U.S. MNCs err... FDI... mattresses...

23/3/15: Deflation... Dumbflation... It's Real Purchasing Power That Matters

I have written in the recent past about the bogus debate surrounding the 'threat of deflation' in the euro area. You can see my view on this here in the context of Ireland: http://trueeconomics.blogspot.ie/2015/02/27215-deflation-and-retail-sales.html and here in the broader context: http://trueeconomics.blogspot.ie/2015/02/18215-inflation-expectations-and.html.

And now Bloomberg weighs in with the similar: http://www.bloomberg.com/professional/kc-post/ecbs-failure-reach-inflation-target-blessing/

To quote: "The strengthening recovery [in the euro area] should add some inflationary pressure — although readings are likely to remain in negative territory for some months, with lower energy prices still feeding through the production pipeline. This month, the ECB revised down its 2015 inflation forecast to zero. Assuming nominal earnings grow at the same pace seen over the last few quarters, the upward trend in real pay should persist in 2015.

Households are likely to react — even if with some lag — to the purchasing-power bonus. Household consumption, which makes up about 55 percent of GDP, has been somewhat muted lately, only contributing to growth by an average 0.1 percentage point over the last seven quarters. That’s less than half what it used to bring in during the pre-crisis years. The re-emergence of this large growth driver should help to strengthen the 2015 recovery. Negative inflation is a welcome shortcut, meaning the region doesn’t have to wait for a decline in unemployment to see a revival in domestic consumption."

Bingo!

23/3/15: German Exports-led Recovery and Two BRICs

Because exports-led recovery is the only thing, besides hopium, that sustains the euro area (although there are some rumblings on the horizon of awakening consumers and even corporate investment), here are two charts worth considering:

First up, German exports to China:

Source: @FGoria

Self-explanatory. Next: German exports to Russia:

 Source: @FGoria

Self-explanatory.

Why we need QE? Because even though it is too late to drink water once kidneys have failed, it is patently no more feasible to drink schnapps.

23/3/15: EM Currencies on the rise

Today's week-on-week changes in emerging markets currencies vis-a-vis the USD:

Source: @komileva

And for the Ruble, this with zero CBR interventions.

23/3/15: Credit, Domestic Demand and Investment: Euro Area in Three Charts

Three interesting charts outlining the big themes in Euro area economy:

First the 'limping leg' of the euro recovery: credit. Chart below shows decomposition and dynamics in corporate credit, with Q1 2015 reading so far pointing to a very robust demand for credit, and (even more importantly) credit driven by fixed investment. This should provide some support for Domestic Demand, albeit at the expense of re-leveraging the economy via bank channel (as opposed to leverage-neutral equity or non-bank credit, such as direct debt issuance):

Source: @FGoria

The importance of investment uplift is hard to underestimate in the case of the euro area, as the next chart clearly illustrates:

 Source: @FGoria

And this translates into depressed Domestic Demand (C+G+I bit of the national accounts):

Source: @FGoria

The gap between U.S. and the euro area is understandable. But the gap between Japan and the euro area is truly shocking, once one considers the state of the Japanese economy and the sheer magnitude of monetary stimulus that Japan had to deploy to push its Domestic Demand up from 2011.

In simple terms, the above charts show some revival in the euro area fortunes. In more complex terms, one has to wonder what this revival hinges on. In my opinion, we are seeing a bounce in credit creation that is not sustainable given the state of the global economy (with global trade flows remaining weak) and the conditions of households across the euro area (with domestic consumption and household investment still weak). 

22/3/15: Ukraine: disastrous growth figures

Ten quarters of shrinking GDP, out of 11 last. Ukraine:

Source: FT

When's the next 'rethink' by the IMF of the debt projections?..

21/3/15: Two Pesky Facts and Russian 'Liberal Democracy' Dream

Here's a problem, folks. Let's take two facts:

1. Vladimir Putin's approval ratings are currently in the upper 80s: http://www.bloombergview.com/articles/2015-03-16/a-year-after-crimea-putin-stands-strong  
2. Russia ranks as the third country in the world in terms of access to internet: http://www.pewglobal.org/2015/03/19/1-communications-technology-in-emerging-and-developing-nations/

Which gets you thinking.

If Russian public opinion is down to Kremlin propaganda and media control, then how come Russians, enjoying wide access to internet, are not rushing to their web browsers for the alternatives presented  in the Western free press (including in Russian), the independent Russian press (which does exist) and in the new media (which is very rich, diverse and widely available in Russian)?

In the USSR days, when there was no internet and there was no access to foreign publications, media etc and when the Soviet authorities actively suppressed access to foreign broadcasts, while closed borders were enforced for the few who dared to smuggle in foreign press, many Russians tuned to these voices. I grew up regularly listening to the BBC Russian Service and Voice of America and Radio Liberty. Many of my friends and their families did as well. Apparently, today, the survivors of the same channels - available freely - have very little impact on Russian public opinion. Why?

Russian culture is culture of extreme scepticism over authority. Scepticism that borders on cynicism. And Russian culture is a culture of kitchen politics (in modern world perfectly facilitated by social networks and alternative media). Russians have access to these sources at a rate of access that is extremely high and open. And yet their views remain non-liberal in the Western context of this term.

Is today's state of traditional media control reinforcing what is already a prevalent Russian public view: the set of beliefs that are largely consistent with those espoused by the Kremlin? Is it possible that Kremlin is not necessarily actively altering the public opinion, but rather tailoring its own positions to that opinion, while reinforcing existent biases? Can it be that such tailoring of policies is more democratic than the liberal alternative that has no popular support in Russia?

In this, who wags what? The proverbial dog of Moscow, the proverbial tail of the nation or the bone of free media access dangled on the web?

The uncomfortable nature of this problem is that in the West, we are told to believe in the potency of the Russian liberal opposition (which has access to internet and uses it extensively to promote ideas, sketches of policies and even more actively - acts of protest and own image) and that this liberal opposition is democratically anchored. We are told that, were the opposition leaders given a chance, they would win democratic mandate from the people to change and reform Russia. We are told that once Putin is gone, Russia will embrace change led by the liberal opposition. And yet, where is the evidence to support any of this?

I sympathise with the principles and values espoused by some of the opposition leaders (not all, since there is a huge range of views these leaders hold). But, any serious observer of Russian politics and economics will quickly discover that the liberal opposition is incapable of providing a properly designed reforms agenda. I cannot find credibly structured and costed alternative budgets, legislative proposals, regulatory white papers etc - all that we, in the West, tend to associate with functional opposition. The opposition cannot even provide its potential base with a coherent core message, beyond the incessant talk about the need for more democracy, the need for drastic (but unspecified) anti-corruption reforms, and the need for more liberalisation of everything.

While the Russian Government can also be very sketchy on policies impact assessments ex-ante their adoption, at least it provides some data that can be used to measure their effectiveness in the medium term. Russian liberal opposition? Not much, if any.

Western democratic opposition parties publish own policies, own alternative budgets, factually comment on Government policies and produce alternative ideas that are tested in the public domain. Russian liberal opposition is predominantly pre-occupied with promoting itself to its own support base. When personality clashes abate for short periods of time, what is left in the public view is the talk about big ticket changes (opening up to foreign investors, achieving peace and partnership with the West, combatting corruption etc - all good ideas), but no tangible, specific, cost-benefit weighted proposals. The opposition can freely use internet to promote such analysis and proposals. It does not. Instead, it uses the web for sloganeering. An average Russian interested in, say, the expected impact of liberalisation of the domestic monopolies (or near-monopolies) on, say, unemployment is left with vacuum of data, estimates and insight. One cannot expect any, even remotely rational person, to vote for the opposition leaders promoting such a policy, unless that person is fully insulated from any potential fallout from it. Hence, the core support base for the liberals in Russia is... yes, the urban upper middle class

In other words, we, in the West, are being told to trust the dream that has very little basis in reality and feasibility, and despite alleged claims of democratic nature has very little support within the electorate. It all reminds us of the policy that promoted regime change in Iraq as the means for creating a functional democracy there, to be led by the liberal Iraqi opposition. It didn't happen thus, not because we didn't try, but because we couldn't find liberal opposition capable of governing. We based our expectations of Baghdad on a naive dream and we missed the real Baghdad by a mile. Ditto for Cairo, ditto for Tripoli, ditto for Kabul... keep counting.

Yes, Russia is not Iraq - neither philosophically, nor ethically, nor socially, nor economically, nor politically, nor historically, nor culturally, nor geopolitically. In all of these terms it is more complex, statehood and institutionally more developed and stronger. Which means the pretty dreams of the post-regime change nirvana are even more out of touch in the case of Russia than they were in Iraq.

In the Soviet days, people of Russia could have been excused for not actively pursuing the alternative because they didn't know better - they had no access to alternative media, internet and to Western 'voices'. Yet, they desired such access and sought it whenever it was available. Today, Russians support the values represented by Putin, even though they are not actively denied access to alternatives. It is uncomfortable for the Western ideologues of regime change, but it is thus.

Here are some of the opinion polls on public approval ratings for various Russian parties and politicians:

Political parties first:

Yes, the hope of liberal opposition is clearly alive... in the minds of the West, but not in the minds of the Russian voters. About the only two - very remote - democratic choice alternatives per Russian voters are: Communists and LDPR (nationalists). The entire liberal alternative is about powerful enough (if they concentrated all their votes on Moscow alone) to win a couple of seats in the city government.

Politicians next:

And once again, there is no sight of liberal alternatives anywhere in the positive trust territory. And, incidentally, none were present even before the Crimea and during the 'softer' power periods of the Kremlin rule. The entire political spectrum besides Vladimir Putin, even if it were to include Putin's closest allies, does not reach 34% of the voters in terms of trust.

Which brings us back to the first two facts: Russian voters have access to alternatives (even if imperfect, but certainly much wider than their access to the same during the Soviet era); no they do not support any of these alternatives. Firstly, as Hertzen once said: "Who is to blame?" and lastly. as Lenin put it: "What is to be done?"

Just some food for thought...


Update: Here is a 2012 article from WaPo on the weak performance by Russian liberal opposition in the Presidential polls: http://www.washingtonpost.com/world/europe/russian-opposition-weak-at-polls/2012/10/14/60f7f9a8-1638-11e2-9855-71f2b202721b_story.html

21/3/15: Irish patents filings Q4 2014

Latest data on Irish patents, courtesy of NewMorningIP.com: chart below shows a decline in total patents filings in Q4 2014 compared to Q3 2014 with Q4 2014 patents counts at 699 down from Q3 2014 count of 786. Of these, Irish invention patents were down to 321 in Q4 2014 from 331 in Q3 2014, but up on 236 a year ago. In Q4 2014, Irish inventors accounted for 45.9% of total Irish patents filed, with Irish enterprises and individuals filing only 247 patents - the lowest for any quarter since Q1 2014, but ahead of the disastrously poor performance in Q4 2013 (188 Irish enterprises & individuals patents). Irish academia produced 74 patents in Q4 2014, the highest reading since Q3 2013, but still accounting for only 10.6% of total patents filed in Ireland.

Chart to illustrate: