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Monday, 29 September 2014

The Netherlands is turning into the data centre capital of the world. Is it due to our fantastic locations, perfect infrastructure and moderate climate? Or do the advantages for these companies start with the letters T.A.X.?

Microsoft, Google and other American giants from the ICT-industry are currently deploying for billions of dollars in data centre capacity on our Dutch shores. 

In my humble opinion, we should forget the fantastic locations, the perfect digital and transport infrastructure and even the moderate climate in The Netherlands: the biggest advantage for these companies to build their infrastructure overhere probably starts with the letters T... A... X...

Good news! Good news!

In the evolvement of The Netherlands from a country specialized in physical transport and distribution into a digital transport and distribution frontrunner, we have reached a few new milestones in less than one year.

Last year, the Dutch community already heard the fantastic news that Microsoft would develop a €2 billion data centre in Middenmeer: a rural town lying in the ‘cabbage, flowerbulbs and potato-belt’ in Noord-Holland, The Netherlands.

Between the greenhouse complexes in the ‘Kop van Noord-Holland’, a gargantuous data centre for Microsoft will start to emerge at the beginning of next year. A computer shed full of servers, instead of greenhouses full of tomatoes and other vegetables. Nobody should be surprised, when this would not be the last of its kind in this region.

Top-secret negotations took place upon ‘Project Blue’, as it is called. Various regions were in the race to haul in the computer giant. And not in vain. 

Reputedly, Microsoft will invest €2 billion in the project, which will supply work for a number of years for construction workers and installation companies. After being taken into operation, the centre will supply at least 150 to 200 steady jobs.

And last week, the news was spread that Microsoft’s "archenemy" Google will soon be deploying a €600 million data centre, located at the Eemshaven in Groningen (the Dutch province).

Google is going to deploy an enormous data centre in the Eemshaven in Groningen. The American internet giant will invest approximately €1 billion in the data centre, according to insiders. The Ministry of Economic Affairs mentions an amount of €600 million.

The centre will offer 150 structural jobs, and on top of that, also substantial amounts of indirect jobs. The construction phase itself will offer about 1000 jobs, according to Economic Affairs.

Reputedly, the company has been looking for a suitable place for its data centre since 2012. Google is already present in Eemshaven with a smaller data centre, which has a capacity of 20 Megawatts. The new facility will consume a six-fold of this energy usage: 120 Megawatts.

These data centres offer work for a host of specialized construction and electronic infrastructure companies. After being taken into operation, centres of such magnitude need about 150 - 200 people in fixed personnel for service, maintenance and surveillance and probably a variable number of indirect jobs, through subcontractors.

This is of course very good news for both regions. Especially Groningen is a lagging province, when it comes to employment and chances, as it is relatively far away from both the Dutch Randstad and the German Ruhr-area. 

This means that high-tech and high-profile jobs are quite hard to find in this region. In other words: the new data centre is more than welcome.

Also cities like Amsterdam and Almere – where I live  are increasingly becoming host cities for large data centres, on behalf of various domestic and foreign ICT companies. And it definitely makes sense for the large companies to establish their data centres in The Netherlands.

First, the country has generally a very moderate climate, with often relatively cool summers and soft winters. This makes the energy consumption of cooling installations much more predictable than in many other countries, with larger temperature fluctuations. The Dutch climate will not often present you with surprises, in the long run.

Besides that, the country offers a fantastic digital infrastructure, with:
  • A few globally important internet backbones being positioned in Amsterdam;
  • 11 important data cables on Dutch shores, which connect The Netherlands with a.o. the United States;
  • Broadband internet with mindboggling speeds, being available almost everywhere in the country. 

On top of that, there is a well-educated, multilingual population, favourable energy prices and a very good transport infrastructure, by road, as well as by air. 

The dense population of the country and short travelling distances top it off.

And wait…, hang on…, there is something more. 

There are also the very favourable corporate tax regulations for large companies, the ample availability of subsidies for employment and education and the (secret) tax rulings, which can be made with the local and central governments in The Netherlands. When jobs and (more important) prestige are at stake, the sky-is-the-limit in The Netherlands, with respect to the possibilities for favourable tax rulings.

The following snippets come from the Netherlands Foreign Investment Agency, a subsidiary of the Dutch Ministry of Economic Affairs, in an article from 2012.

The Netherlands is very popular among foreign suppliers of data center services. A good example is Terremark, an American company that chose Amsterdam over London, Frankfurt, and Paris for the construction of its first ‘Network Access Point’ in Europe.  Softlayer too recently opened its first European data center in Amsterdam. In addition, the British company TelecityGroup already has five operational data centers in Amsterdam. What exactly is making the Netherlands so attractive as a ‘data center country’?

The appeal of the Netherlands for foreign investors is certainly also playing a role in this matter. According to the NFIA, the appeal to foreign investors can be explained by the good telecommunications infrastructure, the reliable energy supply, the strategic location, and the innovative character of the Netherlands as a ‘data center country’, among other factors (see also the section ’10 factors for success’).

The Netherlands is one of the most connected countries in the world. Of the fifteen submarine cables, eleven are directly connected to the Netherlands. As a result, our country has an excellent broadband connection to the rest of the world. In addition, the largest internet junction in the world is located in the Netherlands. The Amsterdam Internet Exchange (AMS-IX) offers a fast, cheap, and redundant connection via the more than seventy carriers present at the AMS-IX sites to approximately 475 internet-related companies.

Additionally, the Netherlands is also appealing as far as the costs of constructing and maintaining data centers are concerned. The  Financial Times' ‘fDi Benchmark’ data for 2012 reveal that the costs of staff support are more favorable in Amsterdam than in Brussels, Frankfurt, and Paris. London is approximately at the same level. In Dublin, you generally pay somewhat less for positions such as an industrial engineer or a systems analyst. The real estate prices in the Netherlands have been declining steadily in recent years.

In addition, the Netherlands scores high as far as level of training and language skills are concerned. However, the favorable economic climate might be the most important reason why foreign parties opt for the Netherlands.

The Netherlands has one of the lowest corporate tax rates in Europe, and as a consequence, a very competitive tax climate. In addition, innovative entrepreneurs can qualify for additional tax cuts. Data centers using energy-saving or sustainable techniques can, for example,  claim the Energy Investment Allowance (Energie Investeringsaftrek, EIA).  Furthermore, the laws in the Netherlands are often experienced as less stringent than in other European countries. “Most importantly, the Netherlands has a relatively favorable economic climate,” added Eric Lisica of Terremark.

At the moment, 33 percent of the European data centers are located in Amsterdam. The presence of large data centers, such as those of Google in Eemshaven, Groningen, and Terremark’s NAP at Schiphol, will only further strengthen the appeal of the Netherlands to foreign suppliers of data center services, and create a snowball effect.

This whole article was a 3 page advertorial for the perfect conditions in The Netherlands for the establishment of tech-companies and especially data centres. But it is the red and bold text, which counts: come to us and we will give you all tax breaks and every special, secret(!) tax rulings that you want.

To emphasize that the Dutch goverment practices what it preaches, there is the confirmation that Google did receive a tax-break in Groningen (start looking from 12:00 minutes and further of this Dutch-spoken video), according to Professor Maarten Duijvendak of Economic History and the managing director of the Dutch Development Corporation (i.e. NOM), Siem Jansen:

Maarten Duijvendak (professor Economic History): There must have been some wheeling and dealing in the preliminary phase, when the terms of this contract were set. This mixture of advantages that Groningen offers to Google can also be found elsewhere in Europe: it's nothing special.

Siem Jansen of the NOM: No subsidies. We don't hand out subsidies on these kinds of large investments. What does happen, however, is that plans can be made with the Dutch government, regarding tax rulings on behalf of such companies. Also known as tax benefits. These companies do pay taxes, but not more taxes than in comparison with other places in Europe.

I bet that these companies pay much less taxes in The Netherlands, than in other European countries. Professor Duijvendak is undoubtedly right in this situation. To hand out some circumstancial evidence, there is the following article in the Dutch online magazine Webwereld:

It is a public secret that Apple, Google and Amazon benefit from two popular tax-constructions in Europe, in which a central role is played by Ireland and The Netherlands

The so-called “Double Irish" and the Amsterdam-based variant “Double Irish with a Dutch Sandwich" keeps the foreign profits of American tech companies out of the grabbing hands of the US taxes department. These companies make use of the ‘special arrangements’ in The Netherlands  and Ireland. Often, these taxes are evaded even further, by transfering the money to letterbox-companies in the Caribbeans or Bermuda.

Some companies receive billions of dollars in tax-breaks for a.o. the construction of a new plant. Penssylvania even created a totally new tax reduction plan for Shell, in order to haul in a production platform. Shell is pondering about this plan. Amazon uses its power to create jobs to repeatedly put pressure on local governments, in order to postpone tax payments. This yielded at least $348 million for the company.

Microsoft saved $312 million, with a.o. a program in the state Washington, which absolves the VAT (i.e. value added tax), which is calculated on sales. There were also favourable tax programs, in order to create employment, but Microsoft mainly establishes datacentres, which do not bring many new jobs.

There is the chance of a snowball in hell that these companies did not profit of the favourable taxes and the possibility for even more favourable tax rulings in The Netherlands. Not profiting is simply not in their nature.

So Google probably received a substantial tax-break in Groningen and you can safely bet all your money on it, that the same happened with Microsoft, when they signed their contract with Middenmeer and the province of Noord-Holland.

So forget the infrastructure… it are probably the Dutch tax-breaks, which signed the final deal. To say it in a proverbial way: “When all the guys are hunting for the same lady, then she never ever has to pay for her drinks”.

Of course, these companies have the right to profit from the ‘financial pork’, that they get handed out by the Dutch central and local government. And it almost seems a leading article in the “American Corporate Constitution” that corporate taxes ought to be paid as little as possible, by these companies.

Still, the same familiar questions always remain in such situations:
  • How many real, steady jobs for Dutch people are created, as a consequence of the tax breaks that such large companies get handed out?!
  • What will be the costs and benefits per job for such jobs, when the tax breaks are counted as government expenses?!
  • When this money would have been invested in research and development at small and large innovative companies, would these companies not have yielded much more employment than these data centres do?! 
You and I could do the math, when we only would know how high these tax-breaks to the likes of Google, Amazon and Microsoft have been!

Sunday, 28 September 2014

Is striking turning into a French weapon of “mass self-destruction” or will the French finally learn to adapt to the new reality?!

I have always been very much in favour of striking as a ‘means-of-last-resort’.

It is the ultimate measure to let an unwilling employer know that its personnel means business: for better wages, for better/safer labour circumstances or for another important goal. The right to strike has helped numerous formerly ‘powerless’ workers to gain more respect and appreciation from their bosses and to get better, safer and more rewarding jobs for themselves (both in money and in job satisfaction).

This is the reason that the right to strike should be an inalienable right for every worker in every country all over the world.

Countries where normal workers don’t have the right to strike or where this particular right is treated with much disapproval and disdain by the people in charge, are almost always the countries, where workers are treated very poorly and with blatant disrespect.

There is one country, however, which gained infamy for its aggressive and sometimes very violent strikes, as well as for the large number of strikes that it went through in the past: France. One should not underestimate the enormous (self-)destructive powers that such strikes have generated against certain companies, industries and even the whole country.  The French workers have sometimes struck until the bitter end and sometimes for causes that raised ‘a few eyebrows here-and-there’  in other European countries.

In many other countries strikes have indeed been means-of-last-resort, which were only deployed when the distress was at a peak level and workers did not see another way out to claim justice and / or better conditions for themselves.

In France, however, striking always runs the risk of becoming a weapon of ‘mass self destruction’.

The French economy is the 5th strongest economy in the world with a GDP of $2.7 trillion dollars. With this GDP, the country leaves many other countries behind, which are much, much bigger than France.  Many French products, irrespective whether they are agricultural produce, handmade luxury products or state-of-the-art pieces of technology, are second to none in quality. Often these products famous for their French twist, which makes them out of the ordinary and thus much more attractive.

Nevertheless, the French economy as a whole seems to be clutching at straws currently. The country has shown little more than anaemic growth for almost two decades now and there is a general unwillingness among the population to accept the hard, but very necessary changes, scared as they are by the outlook of losing certain privileges.

The last few presidents – irrespective whether they were from the left of the right wing – have traditionally scared away from making the really tough decisions upon their population. They were just too afraid that their country would be victimized by massive strikes, ubiquitous unrest, chaos and violence on the streets and too weak a person to get the population behind their bold, but necessary moves.

Nicholas Sarkozy, for instance, has proven to be more a yapper than a biter. And François Hollande has shown himself as a hopelessly weak president, who is seemingly more busy with driving on his scooter to his girlfriends  and mistresses, than with running the country towards better economic times. The fact that Hollande offers the impopular Sarkozy a chance for a second stint as president, proves how incredibly weak he has been.

When things don’t change soon in France, then the extremely right-wing Front National might even become the largest party in France and perhaps Marine Le Pen – the slightly friendlier face of the FN, after barking ‘pitbull’ Jean-Marie Le Pen –could become the winner of the next presidential elections. You know that, in such a case, the blame-game will be played to the fullest in France…  And that the blame will probably land at the French Algerians, central Africans and other minorities in the large cities, as they are the easiest groups to blame for the misery of the other French.

And in the end, France will only become weaker and less united from it, as the ‘divide and conquer’ strategy, which is used by Front National, is one of the most destructive political forces that any country could have.

When nothing dramatically changes in France, the whole country runs a substantial risk of losing the connection with the more progressive and vigorous countries in Europe, which already have eaten the sometimes bitter fruits of change. Thus France could become a second-rate economy in Europe: still important for the reason of its sheer size, but nevertheless hopelessly obsolete and scorned for that.

To be honest: although I praise the EU over and over again for the many good things that it did in Europe, the protection of workers has not always been one of them. To start with something positive: it is an undeniable fact that the safety situation for workers in the EU has improved dramatically under the EU labour regulations of the last fourty years.

However, this has not been the case for the security of labour and wages in particular. Both have moved in the direction of much looser, “liberal” regulation, which left much more leeway for large companies and smart entrepreneurs to wheel and deal with the wages and interests of their personnel. As a matter of fact: I disapprove of many new regulations and changes in the European (and Dutch) labour market and in the European economy, but consider them nevertheless to be a fact of life. 
  • Mini-Jobs in Germany and perhaps Belgium, which are creating a lower-class of workers, virtually without any rights and job security? I disapprove of it, but I can’t make it go away myself; 
  • Truck-drivers from Bulgaria, Romania and Lithuania, who have been hired through opaque labour contracts and straw firms in the low-wage countries? People, who are driving their trucks for long, long hours, at a fraction of the wages that a western European truck driver demands and without having their rights and privileges,?! If you can’t change it, you have to live with it;
  • Low-budget air carriers, which are demanding blind obedience from their personnel and which are sometimes flying at kerosene fumes, because the management is too stingy to buy sufficient fuel for their planes?! If you can’t catch them in-the-act for breaking the aviation laws, then you have to change your own earnings model as an airliner, if you don’t want to perish;
  • Large ICT principals in Europe, which are pushing their freelance professionals and fixed contract employees to lower their tariffs and hourly fees to the bare minimum, otherwise threatening to replace them with thousands of eager ICT-experts from Eastern Europe and the Far East. Whether you like it or not, it happens anyway!
  • Many youngsters for whom it is impossible to get a steady job, as they get one temporary contract after another? It is the way it is, at the moment. It is unfair, but no employer seemingly gives a rat’s behind about that.
This new paradigm in the European labour market is here and it is here to stay, probably for as long as the crisis and the time of moderate (i.e. poor) economic growth and poor consumption in the EU lasts. And both might last for a helluva time!

When the French remain being unable to adapt to this new paradigm, the country will definitely start to seriously lag behind to the other European countries, which already did adapt to it. 

Yet, the French population has shown at many occasions that it rather strikes and demonstrates against this new reality, than that it adapts to it. And so the French striking can indeed turn into a weapon of mass self-destruction.

To take the pilots of Air France as an example of this French self-destructive stubbornness: as off today they have been striking for more than ten days in a row, against the positioning of Air France-KLM subsidiary Transavia as a pan-European pricefighter. The bill for this strike has exceeded €150 million euro’s in damages already and we are still counting.

The French pilots are afraid that they might be forced to work for Transavia, which will probably offer worse labour conditions than Air France currently does. And presumably they are right about that. Transavia, on the other hand, would run the gauntlet against the leading pricefighters Ryanair and Easyjet, with still competitive prices, but slightly more comfort and a friendlier face than its British competitors.

The fact that the pan-European deployment of Transavia has now been postponed (until eternity(?)) under pressure of the French strikers, does not mean that Ryanair and Easyjet do not exist anymore. And it doesn’t mean at all that this will stop the other large European airliners from adapting to the new reality of ‘flying-more-for-less-money’.

On top of that, it does also not mean that Air France will suddenly start to make mindboggling profits. To the contrary…

It could very well be that the French pilots will be punished soon for their inability to adapt to the new reality, by losing their job and/or even losing their employer through a massive bankruptcy. And perhaps the French pilots will even become an involuntary stereotype for a whole nation’s inability to adapt to this new reality. As a giant panda, sticking to his menu of bamboo shoots, in a world where there is less and less room for bamboo and consequently, pandas. 

If I were the French, I would fight for fair labour legislation and fair treatment for everybody within the EU (in which they are still among the undisputed leaders), but still open my eyes towards the new reality, instead of being surprised by it eventually…

Thursday, 25 September 2014

Royal Philips NV pulled another rabbit out of the hat: the company is being split into two “baby Phil’s”, to become more profitable.

Yesterday, there was breaking news from the Dutch multinational giant in healthcare products, lighting and consumer electronics, Koninklijke (i.e. Royal) Philips NV ($PHG).

The company had a genuine bombshell for its investors, which made a large number of them very happy: Philips will be split up into two “baby Phil’s”:
  • Philips Healthcare + Consumer Electronics, using the label Philips HealthTech;
  • Philips Lighting.

In order to give you some valuable background information about this Dutch giant with approximately 115,000 employees worldwide, I refer to an older article: Does a new CEO in his rookie year always generate losses and dropping stockprices for Philips?

Philips (PHG) is a multinational company in lighting, healthcare and consumer electronics from The Netherlands, that you can best compare with a phoenix: every time you think the company is finished, it reinvents itself and returns from its ashes to grow bigger and stronger again.

The bad news is that the company is an investor’s worst nightmare. Cor Boonstra, CEO of the company from 1996-2001 called the organization structure in 1996: “a plate of spaghetti”. And that was after Operation Centurion, the worldwide reorganization of Philips, started by previous CEO Jan Timmer, had ‘finished’.  And also after the discharge of tens of thousands of ‘redundant’ employees and some drastic changes in the organization structure.

The problem was that the company was so big, versatile and sluggish, operated in so many countries and had an organization that was so complex, that it could be compared with a super tanker where the captain is frantically turning the steering rudder: nothing happens… Trying to change the company seems like pulling on a dead horse. If you look over the last 40 years, the numbers of reorganizations, strategic reorientations and buy-outs of company parts is truly countless. And for a few exceptions, nothing seems to have the desired effect.

But just when you think there is no strategy left, the product lines are hopeless, there is no subsidiary left to sell and the company has finally sung its swansong, other parts of the company become successful again and grow enormously, thus saving the company from bankruptcy.

Again this legend proved to be true for Philips. After a shaky start for Frans van Houten in 2011 and in spite of a series of scandals, regarding bribery, corruption and offending EU competition rules, the company saw its stock value rise again to values north of $37 dollar at the beginning of 2014.

5 year stock rate overview of Koninklijke Philips NV ($PHG)
Chart courtesy of Bloomberg
Click to enlarge
With this improved performance during the last three years, Philips proved once more the following statement that I made in the same aforementioned article from June, 2011.

In the last full working year of a Philips CEO, the company almost always shows good profits and a high stock price. In the first year of the new CEO the company often reports (record) losses and the stock price drops .

Of course there is no guarantee that this is a winning strategy. Especially after the crash of the dotcom bubble and in 2008, the stock got hammered. But it seems more than a coindicental pattern, that the last full year of the old CEO of Philips is always successful if you look at the stock price, while the next year is a year with reported losses and falling stock prices.

Of course CEO Frans van Houten is probably only in the middle of his stint as CEO of Philips and so he has still a few years left to work on his legacy for the company. 

Nevertheless, after the stock rates of Philips plummeted to $30 in August, 2014 from their $37 peak in January and the voices demanding a corporate split up of Philips became louder and louder, Van Houten decided to choose for the nuclear option indeed and split up the company.

The following snippets come from Het Financieele Dagblad:

Philips comes with a major intervention in the organisation. The company, with yet three divisions, will split itself up in two separate companies. The company will merge the Consumer Lifestyle division, which produces a.o. razors and coffeemachines, into the Healthcare division, operating under the label Philips HealthTech.

The Lighting division will be put into a new legal entity. This is the first step for a split up, after which other shareholders could enter into this division. Philips keeps several options open, concerning the future of this newly formed subsidiary. Still, it is the most intrusive step of Van Houten, Philips CEO since 2011, who already sold other subsidiaries of the company.

Both divisions will remain active under the Philips brand. However, putting the lighting division in a separate legal entity could mean that the stock-rated company wants to separate these company parts from the core organization. Philips already used this strategy a number of times before to outsource numerous other activities. The most famous split-offs are ASML (manufacturer of state-of-the-art lithography machines for the microprocessor industry) and NXP (microprocessor production).

Van Houten reckons that these interventions will make the company more “lean and mean”, enabling it to battle the competition. By merging Consumer Electronics into Healthcare, he thinks that Philips can become a front-runner in the development and sales of medical products all over the world. And by separating Lighting, this division is better able to expand its strong market position in the world, according to CEO Van Houten.

This morning, the FD came with a further analysis with respect to this corporate split up of Royal Philips NV:

Is it a briljant move or will it prove to be the end of Philips as independent company?! It is impossible to answer this question yet, but CEO Van Houten made a bold move, by announcing the split up of Philips.

A split up was high on the wishlists, which circulated among investors and analysts who follow Philips. Yet, the announcement came unexpected. 

Analysts initially reckoned that Van Houten would first solve the various problems at the Healthcare and Lighting divisions. This is yet possible. The timebox for the transformation is 12 to 18 months, enabling Philips to guide this process thoroughly. It is a major operation, which will undoubtedly be very intrusive for the 115,000 employees of the corporation.

The corporation also takes a risky step. Such transformations offer opportunities to competitors, as well as financials, to perform an ‘air assault’ on these new companies, as the value of the new companies is only €15 billion (HealtTech) and €7 billion (Lighting) respectively.

Van Houten acknowledged yesterday that Philips has been put “under possible jeopardy” with this action: Both companies are leaders in their respective markets. We think that when we act rapidly and create proper value, we don’t have to worry about forms of activism (among shareholders) and takeovers”.

Suffice it to say that CEO Frans van Houten of Philips had his hand firmly on the “chicken switch”, when he made this announcement to split up the company:
  • This split up had been high on the wishlist of the shareholders (first red and bold text);
  • Probably the activist investors (TCI and its likes) had been banging on the door of Philips for some time now, and Van Houten decided to make a flight forward under their pressure (second red and bold text).

Perhaps the split up might be a sensible step after all for Philips, in order to avoid either a hostile take-over by a stronger competitor or a revolt under the (activist) shareholders, as a consequence of Philips’ poor performance in 2014.

Still, I don’t see it as a particularly brave step: it could be the end for the Lighting division as an inseparable part of the Philips legacy, which started in 1891 with this very division. 

In The Netherlands, Philips has been famous for ages under the moniker “the light bulb factory in the south of the country”. Lighting was just as an inseparable part of Philips, as the city of its establishment Eindhoven was. 

That this Lighting division will now be put on its own two feet is something that will sadden many (former) workers of Philips and will send shockwaves among numerous inhabitants of Eindhoven.

On top of that, I have serious doubts whether this step will make Philips-as-a-whole more successful!

In the past, Philips was as close to the famous A.C.M.E. company (i.e. American Company Manufacturing Everything) from the Looney Tunes cartoons, as could be: 

They. Made. Litterally. Everything...

However, that was 25 years ago. Since then, the company went through dozens and dozens of outsourcings, shut-downs, overhauls and moves of whole factories to the low wage countries.

The Philips company, infamous from the ‘Plate of Spaghetti’ methaphor and established in the hundred years before Cor Boonstra, has changed to an ever leaner and meaner company, focusing at only three successful divisions (even if they had their ups and downs in the recent past). In these years, world-famous institutions like Philips NatLab (i.e. Physical Lab) and the Philips television department have been abandoned or sold.

There comes, however, a time when famous large companies stop being viable, after too many divisions or company parts have been sold or outsourced. 

In the second FD article (see the aforementioned further analysis link), Frans van Houten refered to Nokia, as a company which waited too long with changing their main strategy and product lines.

The sad truth is in fact, that Nokia (once a part of ITT) was the Finnish cousin of Philips, specializing in all kinds of consumer electronics. That was before it started to focus on mobile phones exclusively. 

From a healthy, quite successful, company with a broad product range and sufficient cash cows, Nokia changed into a one-trick pony, which burned up like a flare. The company finally 'perished' (or would you call the take-over by Microsoft differently?!) when their telephones fell from grace with the consumers, under pressure from the competition.

Of course it is impossible to say whether Nokia would have survived as a broad producer of consumer electronics, or that it would have disappeared just like the German companies ‘Grundig’ and ‘Telefunken’ did earlier. We will never know…

Still, I have fears that this latest overhaul will turn Philips from a healthy, innovative company with (unfortunately) cyclical stock rates and a 'revolving CEO problem', into two “one-trick-pony’s”, which will become very vulnerable for the risk of falling from grace at their customers. 

However, the investors obviously didn’t share these fears of mine, as the stock rate of Philips skyrocketed after Van Houten made his announcement yesterday.

Monday, 22 September 2014

Based on new methodology of the Central Bureau of Statistics, Dutch intra-crisis growth has been higher than estimated previously. Before you raise the flag: this could actually be bad news for the whole retail industry

Every now and then you hear new theories and concepts, that almost sound too good to true. But sometimes it happens that such ‘good’ news is actually a burden-in-disguise.

Mathijs Bouman, the distinguished financial/economic columnist and co-host of the Dutch economic television magazine RTL-Z presented such “good news as bad news-in-disguise”  in his weekly column in Het Financieele Dagblad.

The following lines contain the most important snippets from his column of Saturday, September 20th.

Starting this year, the Dutch Gross Domestic Product is calculated in a new way. A better way, according to the Dutch Central Bureau of Statistics (CBS), using new sources and in accordance with new, international agreements.

This revision of the national accounts, as the operation is called, has considerable consequences for the most important core data of the Dutch economy. Apparently, the Dutch GDP is 7% higher than previously calculated by the CBS. Consequently, the state debt as a percentage of GDP is immediately much better bearable. The revision also changed the economic history of the past crisis years.

This news made this week’s Macro Economic Outlook (i.e. MEV) from the Dutch Central Planning Bureau – the first one based on the new CBS data – particularly interesting.
According to the new data, the investments have dropped less considerably than initially estimated. The gloomy trend of constantly decreasing investments and thus decreasing economic growth potential is not visible anymore in the new data. One worry less…

There is another story which should be rewritten: that of the dropped available income.

According to the old data, there had been a steep drop of total available income coming from labour, by over 7%. It made sense that the consumer had been so frugal, that consumption dropped for years and years and utter silence struck the shopping malls and streets.

However, in the new MEV things look much more favourable. The total available income from labour actually rose during the crisis years and in 2015 it will end almost 4.5% higher than in 2008. This is the consequence of a bigger-than-initially-forecasted growth in 2009, when Finance Minister Wouter Bos skipped the employees’  share of the unemployment benefit premiums.

Nevertheless, this does not mean that national consumption also developed more favourable. The old and new consumption data differ marginally. Why has the consumer been so frugal, when the available income developed much more favourable than expected. The answer is: as a consequence of the dropping housing prices.

The development of the available income from labour had and will have a positive effect on consumption during the period from 2008 until 2015. Only in 2013, this factor suppressed consumption.

But then look at the dropping housing prices; these have suppressed consumption during all years since 2010.

The cashing of surplusses in residential real estate value, through new and higher mortgages, came to an sudden end. The comforting idea of the eternally rising housing prices got replaced by the fear that the own house would come underwater. The shopping streets became empty and abandoned, as a consequence of the plummeting value of owner-occupied houses. The house as private ATM came to a bitter end…

How is that for a bombshell…?!

Personally, I always get a little uptight, when research bureaus of impeccable reputation, like the Dutch CBS, suddenly adopt a new methodology, which is (almost) a new paradigm.

Was their old methodology that wrong?! Have their earlier data in fact been unreliable for all those years? Or is it just a small twist in the reliability of the data: merely a drop of water in the ocean?

Hence, a 7% higher GDP than initially estimated is more than a drop of water. It is rather a landslide difference in these crisis years, even when this higher percentage is earned during 7 crisis years.

If the new CBS methodology is more accurate than the old one indeed, we were actually all much richer than we thought we were.

Nevertheless, we FELT much poorer instead, as we couldn’t use our own house as ATM anymore, due to the steadily dropping housing prices. Personally, I consider this quite hard to believe and not only because my own salary is back at pre-2008 levels these days.

The last seven years have been the years of wage restraint for many middle- and lower class citizens, with a fixed contract in The Netherlands.

It have also been the years of endless flex-contracts for youngsters. And of freelancers, having a race to the bottom with their tariffs and fees, as they have been in fierce competition with knowledge-workers and professionals from the low-wage countries, who were willing to do the same work for much, much less salary.

Yesterday, my dear neighbour told me that her 17-year old grandson had to work long and hard hours in the supermarket, in exchange for very low payment; sometimes even without having a break during six or seven hours of working. And the foreman of this kid still had the nerves to complain that he worked too slow.

As the boy had a zero hour contract without any formal rights, he had to hope and prey every week that his supermarket had some work for him to spare. The “salary” this kid earned, was €3 per hour. This is roughly the same hourly fee as I earned 30 (!) years ago, as a “professional” dishwasher. However, the purchase power of this boy’s money is a fraction of what it was in the eighties.

So, when the CBS states that we – as a nation – earned 7% more money than we thought we did, I take this news with a few grains of salt. Can I be wrong?! I can be wrong!

Yet, if this new methodology of CBS is indeed better and more reliable, and it were actually the dropping housing prices which caused the stalling consumption in The Netherlands and not a stalling or slightly dropping average in personal income, this might have fierce implications on future consumption in The Netherlands.

This is the reason….

I expect that the Dutch economy will cautiously start to grow again in a few years, when the worst effects of the crisis have become a thing of the past. As the aging population has a narrowing effect on the labour market, skilled (knowledge) workers could become scarce, in spite of the influx of foreign workers.

It is implausible that these foreign workers can totally fulfil the demand for ICT-workers, engineers, skilled craftsmen and administrative personnel in The Netherlands. English is the ‘lingua franca’ in many multinational companies, but Dutch SME companies often require thorough knowledge of Dutch, as their main operational language.

I also don’t believe in the full robotization of human labour, which some pundits see as our immediate future; simply for the reason that people are still suckers for top notch quality and handmade objects.

In other words: the average quality of Chinese, robot-made products still distinguishes  Dutch, French, German and Italian quality as exceptional. I do believe that people still want to pay top-dollar for exceptional craftsmanship in any aspect.

This means that salary increases close to or even substantially higher than the Dutch inflation rates are very likely to occur in the near future.

However, when the new CBS data are indeed more reliable and it were indeed the dropping housing prices, which were to blame for the lackluster consumption in The Netherlands, the increased salaries in the near future will not matter much for domestic consumption. Arguably, we already ‘have been there’ after all, during the last seven years.

This would be extremely bad news for the retail industry in The Netherlands, which is already suffering from blatant, excess store capacity, the comeuppance of online shopping and plumetting numbers of spending-happy consumers.

A housing frenzy,  like the one we had between 1995 and 2007, is unlikely to ever happen again within the next 70 years. The mixture of artifical housing scarcity and interest rates hitting rock-bottom in The Netherlands, is really unique and one-off.

This means that the soaring housing prices during those years and the emergence of owner-occupied houses, used as ATM’s for mass consumption, will never come back again. Yet, almost the whole Dutch retail industry and the shocking amount of excess shopping space is based on particularly these years of exuberance and conspicuous consumption.

The result of the coming, prolongued period of reduced growth in housing prices will be – when CBS is right – that the whole retail industry will go through a long and painful process of starvation and annihilation of the weakest representatives in the retail industry. 

Contrary to what you might think, these are not necessarily the owner-operated small shops and unique niche-stores. No, those could very well be the massive store chains with lackluster performance and a boring assortment, which have turned Dutch shopping centres in oceans of boredom, monotony and lack of surprise. I bet you can name one or two of such chains…

Sunday, 21 September 2014

Hopefully, Westminster realizes now that there is “life outside London”, as Moscow-at-the-Thames: not only in Scotland, but also in the rest of the United Kingdom

It's so much better when everyone is in, are you in?

In spite of the fact that the Scottish ‘yes-vote’ officially lost the referendum and a quite convincing majority chose to stick with the United Kingdom after all, it was far from business-as-usual in Westminster the day after.

The leaders of the three largest parties in the United Kingdom David Cameron (Tories), Nick Clegg (LibDem) and Ed Miliband (Labour), aka “The Three Amigo’s” as they were scornfully called in Scotland, probably realized they had a very close escape Thursday.

They also discovered that there was a whole world within the United Kingdom that didn’t saw London as the centre of the universe. And that world had been screaming for attention…

Today, Mathijs Schiffers, the correspondent for the United Kingdom of Dutch financial / economic newspaper Het Financieele Dagblad  wrote an excellent article about the aftermath of the Scottish referendum for independence. One of the most striking quotes in the article was this one:

The high attendance to the referendum is the achievement of Salmond. The former economist showed that the people in Westminster, the political centre of the United Kingdom, are totally clueless about what is going on outside the British capital. Only at the time when an opinion poll put the ‘yes’-camp in front, two weeks ago, London came into motion.

After reading this quote, I suddenly saw the striking resemblance between London, the British capital, and Moscow, the capital of Russia.

Both London and Moscow are the capitals of large countries with a vast, merely rural hinterland (albeit each on its own scale, of course) and very different levels of progress, economic and social development. On top of that, both cities earn an extraordinary large amount of the Gross Domestic Product for their respective countries and form the epitomy of wealth, luxury and blatant exuberance there.

London does so through its role of financial reserve-capital of the world, while Moscow is the narrow centre of the Russian commodities ‘hourglass’, where almost all the Russian money flows through.

And most important: both cities are genuine tinseltowns, which seem to have a bedazzling influence on the politicians who work there, seemingly making them forget their descent and the grassroots for whom they are working.

The skyscrapers, penthouses, theatres, luxurious restaurants and expensive shops of their capitals become their universe and not the hard-working, but often not very wealthy people, who these politicians are supposed to represent in their parliaments.

There is one big difference, however…  Russians outside Moscow (or St-Petersburg) have very little confidence in themselves ever being able to attract the attention of the powers-that-be in their national capital.

They mostly live their lives with the meekness and fatalism of people, who know in reality that nothing is going to change … ever: there have been different singers over the years, but the song always ended the same.

These people also know that protests against the rulers will eventually end in violence and further suppression. When the pain and despair become too heavy, then they turn to their old friend ‘King Vodka’ and drink themselves out of the misery. Others try to escape from the rural country or the large, gloomy cities through a foreign boyfriend/girlfriend or through finding labour abroad. However, these are only exceptions, applicable to people with good looks or a good, sought-after education.

The people in the United Kingdom, however, never gave up their fight for attention. Especially in the era of Margaret Thatcher, they did so through massive strikes, riots and protests, which brought England almost on the brink of catastrophy.

And even in the 21st century a little spark is enough to start massive, violent riots or massive protests against the government in Westminster. Also pop music and popular culture (f.i. punk and new wave music) have always been powerful tools in the United Kingdom for people to utter themselves in protests against their situation and lift themselves out of obscurity.

Nevertheless, there are still big differences in income and wealth within the United Kingdom and during the crisis years these differences have rather increased than decreased. And – like the Russians - the Brittons have their own versions of problematic drinking and alcohol- or football-related violence. However, this was something that could always be easily detested or ignored by the leading British politicians in their London-based cocoon of luxury and wealth: annoying, but not at all dangerous for their position.

To this respect, you can say that the Scottish referendum has been a massive wake-up call for the central government in London. This referendum, which started so innocently for the British central government, suddenly threatened to turn into a nightmare.

The yes-voters seemed in the lead one weak ago and had a fair chance of winning the referendum, in spite of the ubiquitous fearmongering by the central British government and the large Scotland-based corporations.

Would these yes-voters have indeed won the referendum, then David Cameron would have been confronted with an exodus, leading to an untwining operation of epic proportions: not the British exodus out of the European Union, but the Scottish exodus out of the UK.

And the worst would have been, that this could have become a signal for other British nations within the UK (Wales, Northern Ireland and perhaps even England itself) to turn their back on London too. In that case the United Kingdom would have become a landless kingdom and London a capital without hinterland.

That was the reason that there sounded a lot of hope in Cameron’s speech, when he stated that the Scottish plan to leave the Union ‘was now settled for at least one generation’. Probably it is hope against better knowing.

The Scots got rewarded for their ‘close call’ referendum through a series of new commitments and privileges from Westminster, which will give them more freedom and independence from the central government in London.

However, the other nations within the UK will undoubtedly also demand their ‘slice of the pie’, when it comes to more independence, privileges and attention (!) from the government in London.

Consequently, it could very well be that “The Three Amigo’s” might have to ride again in an upcoming sequel, in their struggle to keep their whole country together.

Westminster will definitely realize that there is life outside London, as with the ‘referendum for independence’ the Scottish population have given the other Brittons a powerful weapon to draw the unconditional attention of the central British government: a weapon that will probably not become blunt in the next few years. 

Of course, it would be grotesque to compare the situation in the United Kingdom with the situation in Russia and that is not the purpose of this article. It is, however, useful to look at the similarities between Moscow and London as centres of their own universe.

Friday, 19 September 2014

The banker’s oath and the value of symbol politics in The Netherlands and abroad

Today, my principal, one of the largest banks in The Netherlands, had a slightly surprising message for me.

On 18 September 2014, the Second Chamber of Dutch Parliament has decided that I, as an employee – albeit it a temporary one – of a Dutch bank, have to make the banker’s oath. This will be effectuated in the beginning of 2015, for all employees of all Dutch banks. Translated, the oath contains the following promises:

I swear / promise that, within the boundaries of my function, which I fulfil at any moment in the banking industry:
  • That I will practice my function with integrity and scrupulousness;
  • That I will choose a cautious balance between the interests of all stakeholders, which are involved in the company:
    • Customers;
    • Shareholders;
    • Employees;
    • The society in which the company operates;
  • That I will put the interest of the customer in centre of this deliberation;
  • That I will behave in accordance of the laws, the regulations and the codes of conduct, which are applicable to me:
    • That I will keep a secret the knowledge that I’m entrusted with;
    • That I will not abuse my knowledge;
    • That I will behave myself open and assessable and will be aware of my responsibility against society;
    • That I will make efforts to maintain and spur the trust in the financial industry
So help me God almighty / I declare and promise that!

This is an official oath and consequently, it brings one ‘under oath’ for the rest of one’s career in the banking industry! Or doesn’t it?!

Probably  as I am a consultant with only temporary assignments  I have to make the same oath over and over again, every time when I return to the banking industry for a new assignment at the ICT department of a Dutch bank. 

This – as a matter of fact – makes the value of this very oath “null and void”.

And a big question is: when I’m ‘under oath’ through this oath, I am under oath of what?!

I neither want to speak about the blatantly religious and grandiloquent texts of this oath, nor about the fact that some texts are slightly contradictory:
  • “Keeping a secret the knowledge that I’m entrusted with”, versus “Behaving open and assessable”;
  • “Choosing a cautious balance between the interests of all stakeholders”, versus “putting the customer in centre of this deliberation”; 
My problem with this oath is much more structural and fundamental in nature: 
  • Which problem is exactly solved with this oath?
  • Against which kind of behaviour of bank employees this oath will help, while not having it would leave the problematic behaviour intact?
    • Why would this oath help already honest people to remain honest, while at the same time putting people, with a slight tendency to dishonesty and undignified behaviour, on the right track again?! 
  • Why would this oath help to put the customer back in centre again, when this is such an easy sounding, but very hard thing to do?
  • And why would this oath help to make banks more accessible and approachable for their customers, when their whole operation is aimed – under pressure of the fierce competition from inside and outside the banking industry - in the direction of:
    • more efficiency;
    • a more computerized, robotized and virtualized handling of all transactions;
    • much lower expenses;
    • much less personnel;
    • much less handling of physical money and, consequently, less Automated Teller Machines (ATM’s) and less brick-and-mortar bank offices?!
And of course the Million Dollar Question-of-Conscience is:

What is this oath more than a sop for Dutch and European politicians and a blatant example of symbol politics, without any tangible value for the banking industry itself or for society? 

This oath will not do anything to restore the confidence of the Dutch and European citizens in the banking industry and it will not do anything to restore the trust of European politicians in the banking industry?!

The only thing that the banking industry can do to restore trust in the future is being simply honest (!) and straightforward for many, many years, while giving real value and service to their customers. Many banks already do so these days and some banks have never stopped doing so; even in the prelude to 2008.

Then – at one beautiful day – the banking industry will have earned back the confidence that they enjoyed and also thorougly deserved during many years in the past.

And politicians and central bankers themselves could help this process enormously, by not chosing for the easy solutions every time: solutions which help their wealthy grassroots getting more rich, but ruin the middle classes of their societies in the process.

No, they should make the hard decisions, like “raising the interest rates”, in spite of the large investors, stock traders and massive borrowers of ‘virtually free money’. 

And they should finally make a real start with deploying the legal framework, which is needed to enable the ‘list of things-to-do’ that every economist with half-a-brain can sum up for you.

And what about the oath…? I will make it!

First, because I have to, to keep my job. 

And second, because I endorse most paragraphs in this oath by heart… 

Sunday, 14 September 2014

Will the possible separation of Scotland from the United Kingdom lead to a host of ‘independent’ small states in Europe, in these current ‘micro-nationalist’ times?

If I go there will be trouble
An' if I stay it will be double
So come on and let me know
Should I stay or should I go

These are nationalist times... Very nationalist times indeed.

By itself, nationalism is not a bad thing. People can get extra motivation from the idea that they are working, sporting or making art for their motherland, as well as their leaders and fellow citizens.

At sports events like the Olympic Games, the Davis Cup of tennis or the World Championships Football or at an musical event like the Eurovision song contest, mildly nationalist feelings among the protagonists work like gasoline for a thirsty engine. Such feelings enable people to reach higher than they thought in advance would be possible.

However, nationalism has also a dark side. And it seems that this dark side is currently getting stronger around the world and especially in the small, but densely populated melting pot called Europe, with its enormous number of separate countries and ethnical groups and its centuries-long history of wars and (internal) conflicts.

Especially here in Europe, the merely positive nationalist feelings that people get from the achievements of their own country in the terrains of economy, sports and arts have been replaced by a negative – even brooding – nationalism, based on two opposite, but nevertheless inseparable feelings:
  • A (false) sense of superiority that groups of people and countries experience, lifting them and their values – in their eyes – above other countries or groups of people;
  • A feeling that other groups of people and / or other countries are more or less to blame for one’s personal misery or the misery of their particular group;

This negative variant of nationalism has already been looming during the last two decades, but its presence has been massively reinforced by the economic crisis, which has battered the European territory for over six years now. It is a fact that this nationalism does not stop at the borders of a country, but can become a strong force within a country itself. Especially when there are clearly separated regions in a country, which are inhabited by different ethnic groups and minorities from other ethnical groups.
You could call this then micro-nationalism.

Perhaps the worst example in recent European history has been the implosion of former Yugoslavia, where especially the intended separation of Slovenians, Croatians, Bosnians and Kosovars from the Yugoslavian ‘mother land’  led to eight years of civil war with massive bloodshed and countless civilian casualties.

And of course, the current situation in Ukraine is also caused by an outburst of such micro-nationalism and strong feelings that others than the own group are guilty of changing the situation in their home country for the worse.

One of the trade marks of such strongly emerging micro-nationalism is often that the leading majority in the country in question is seemingly deaf and blind for the needs of the minorities or even actively suppresses these needs: for instance by prohibiting particular habits of ethnic groups, by violating certain human rights or by not recognizing the own language of the ethnic groups as a national language.  

Subsequently, these ethnic groups don’t feel themselves esteemed citizens of their own country anymore and can even develop hatred against their own country.

One of the clearest examples of such isolated, (in their own eyes) discriminated and  increasingly hostile groups where the Basques in Spain, during the period from the seventies to the nineties, in which the ETA was at war with the Spanish government.

Also Belgium is a very good example of a country, which hosts two (in fact three) totally estranged and increasingly envious and hostile groups of citizens, albeit it on a much more innocent scale yet.

And although the situation in the Basque country has dramatically improved since the guerrilla war with Spain ended, the Basques - and the Catalunyians (i.e. Barcelona region) as well – are undoubtedly still elaborating their plans to separate from motherland Spain, when their cards are turning.

And their cards may turn… with a little help from their Scottish ‘friends’.

Next Thursday, September 18th, will be the day that the Scotts speak themselves out about the question whether they want to stay in or leave the United Kingdom as a nation.

What – to these eyes – is a big difference between the Scottish situation and – for instance – the situation in former Yugoslavia, is a. the fact that Scotland is already a separate country under the flag of the United Kingdom and b. that there is seemingly little animosity, heartfelt envy and subdued aggression between Scotland and its sister countries in the United Kingdom: 
  • Former Yugoslavia in the beginning of the nineties was aking to a shaken bottle of champagne with the cork still hanging on ‘by a whisker’. Decades of frustrations within the Yugoslavian territory and centuries of shared history regarding earlier brawls and wars between the ethnical groups, formed an explosive mixture. 
  • Spain had dealt with its share of domestic violence, initially coming from the Franco dictatorship and afterwards from the Basque freedom movement ETA;
  • Belgium has been suffering for ages from the infinite anger, envy and frustration about the impossibility for the ethnic groups (Walloons and Flemish) to live together in a positive, respectful and cooperative way. This has led to a totally obstructed relation between these groups and an increasing political and economical separation within this more and more politically uncontrollable nation. 

Scotland and England, however,  seem more like a married couple, where the love and passion have vanished over the years: they have still strong feelings for each other, but one partner wonders whether life as a single would not be a better solution, while the other partner sticks his head in the sand, assuming the ostrich position.

What is probably accelerating the process of separation within the United Kingdom is the growing political difference between the Scotts and the English.

The more conservatively oriented English feel increasingly alienated from the tight bindings with the – in their eyes - patronizing and meddlesome European Union and focus foremost on the economic wellbeing of their capital, as a global financial centre and as the engine of their national economy. They experience the EU more and more as a burden, instead of an enrichment for their country.

The merely social-democrat Scotts, however, want to reinforce the bonds with (the countries in) the European Union and they are dissatisfied with the current political direction of the Cameron cabinet in Westminster, of which they see the policy as ‘second hand Thatcherism.

And now the situation is that ‘Westminster’ and the English in general do acknowledge a possible negative outcome of the Scottish referendum and will probably respect the Scottish decision, but do not understand it… at all!

One dear English colleague of mine said to me yesterday

“We rescued the Scotts from bankruptcy a few hundred years ago and welcomed them in the United Kingdom. Every year we send millions of pounds to them to keep their economy afloat.

When they want to stand on their own two feet, their country will be bankrupted in a couple of years and they will return to us crying, begging to be taken back into the United Kingdom”

He, as well as probably many more British citizens, was adamant against a Scottish ‘Alleingang’ .

Nevertheless, one should not forget that this is the time of micro-nationalism: a time in which the heart and gutfeelings of people often overpower the rational thoughts and ideas!

The consequence of this is that the more the representatives of the English government and large businesses are warning the Scotts “not to break free” and tell them about the fierce consequences (through classical fearmongering) of such a separation, the more stubborn Scottish separatists and some doubting Scotts will become to do this anyway.

An interesting question is, however, what the European Union will do when the Scotts do indeed decide to separate themselves from the UK, next Thursday.

When the EU do not give the separated Scotts a warm welcome in the EU, than Scotland could become an orphan state, having poor relations with its former mother land, while having no-one else to go to. 

Scotland then might indeed become a failed state very soon, with little economic prosperity and few chances for the future. This bleakish outlook would probably scare off other (small) regions with ambitions for independence.

However, when the Scotts are indeed given a warm welcome by the EU within a reasonable amount of time, then we could expect a host of small, independent ‘me too’ states within 20 years, when the current economic crisis and the accompanying depression endure:
  • Flanders;
  • Wallonia;
  • Basque Country;
  • Catalunya;
  • Andalucia;
  • Northern Italy aka Padania;
  • Northern (Turkish) Cyprus;
  • Bavaria (Germany);
  • Republica Srpska (Bosnia)
  • And many, many more…
In my humble opinion, it is inevitable to recognize that elevated micro-nationalism and hostile feelings against the leading factions in a country or state are clear symptoms of the enduring economic depression that we are in these days.

Those feelings of micro-nationalism, as well as a desire for separation and even hostile feelings against fellow countrymen belonging to another ethnical group, might always be there in the European countries and abroad.

Yet, in times of economic prosperity and elevated common wealth it is much easier to overcome or even ignore those micro-nationalist feelings, knowing that you are doing fine. Nevertheless, when your local economy is making a turn for the worse and your outlook has become quite bleak, it is typical for groups of people to look for someone or something to blame. 

In case of the Scotts, this might become the United Kingdom…