What the Great Famine Tells us About our Economy
What the Stimulus Bill Means for Green Investors
My Pick for the Best Stimulus Stock
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Odds are you know at least something of the Great Famine of 1845-1850 that led to the long surge of Irish immigrants to American shores, many of whose descendants will be marching tomorrow to celebrate St. Patrick’s Day (including my mom, a proud immigrant from County Cork).
To us today, the Great Famine is an awful but distant thing. After all, it was poor people in an unenlightened corner of the world who suffered because they relied too much on the potato. A tragedy for sure, but hardly a mirror on us today. Right?
The reality is far more complex and much more troubling. Like America today, Ireland of the mid-1840s faced a deep crisis brought about by a failure of a key part of the economy. Much of the populace faced excessive payments on their homes and had livelihoods that barely paid the bills, and there was a vocal belief among many politicians that government intervention wasn’t a solution.
“A bad situation was made much worse by the rigid application of ideologically derived rules,” says Kevin O’Neill, a professor of history at Boston College and author of “Family and Farm in Pre-famine Ireland” (2003, Wisconsin, $20) “Stalin’s famines make a nice counterpoint--it was neither capitalism nor socialism that ‘made’ these famines, but blind faith in ideology turned crisis into catastrophe.”
To understand the Irish situation, we need to look at the potato. Due to its high nutritional content, ease of cultivation and, most importantly, the fact that they were too heavy and cheap to send to market, the potato became the staple of the Irish population. The rest of their crops were sold to pay rent to the (largely absentee) landlords. More than half of the potato crops were used to feed livestock while the rest provided the basis for a diet that actually was quite healthy, according to various health benchmarks.
In fact, rather than being a population of poor, ignorant subsistence farmers, research shows the Irish were among the top farmers in productivity in Europe, with yields equal to or greater than post-famine Britain and Denmark, considered the most progressive in mid-19th century agriculture. The productivity of Ireland was such that it even fueled a Dublin housing boom “only rivaled by that of the last decade,” O’Neill notes.
While Ireland was enjoying as much relative prosperity as a colony could, in Britain at the same time taking hold was the notion of the Invisible Hand, the Adam Smith philosophy of the self-correcting nature of the markets which many interpreted as necessitating a hands-off policy in managing the economy. When the potato blight combined with the hands-off approach of the Invisible Hand, Ireland was in deep trouble.
Crop failures and famines, in fact, weren’t all that unusual. In previous crises, the British rulers and relief agencies mobilized massive efforts and generally staved off disaster. But by the second consecutive potato crop failure in 1846, the British Whig party, in their thrall to the Invisible Hand, gained power and apocalypse took hold.
Rather than ease rents, the British enforced them, lest it create a moral hazard by letting tenants cut their costs. This led to widespread evictions, so much so that at the height of the famine, vast swaths of Irish farmland were vacant and untilled (half of County Waterford by one account). The British, angry at having to bail out what they felt were the excesses of landlords and skeptical that things were as bad in Ireland as reported, forced the Irish to pay for their own relief.
The result of the poor having to pay their already excessive rents and for the wealthier farmers and landlords to pay for relief led to massive food exports. Consider this: livestock exports from Ireland at the height of the famine were enough to feed two million people. Exports were so high, in fact, that to this day Ireland has never again exported as much cattle, pigs and sheep as it did in 1846, ’47 and ’48.
The result: Irish society was shattered. In five years, there were at least one million famine-related deaths and immediate emigration of 1.5 million people. In 1840, eight million people lived in Ireland. Today, between the Republic and Northern Ireland, there are just six million people.
We’re not on the verge of such a catastrophic upheaval today, but it’s worth considering, as we watch the parades and don a bit of green, the price we want to pay for the pride of our own ideologies.
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Fortunately, in my opinion, we have a government largely composed of those who recognize that swift action is needed. That doesn’t mean everything that has been done so far hasn’t been without fault (the Wall Street bailout comes foremost to mind), but at least we’re taking action in the right direction. It was Herbert Hoover’s inaction (that Invisible Hand again) that transformed a market crash into the Great Depression, after all.
A cornerstone of President Barack Obama’s short-term stimulus and long-term plan for revitalizing the economy is built around renewable energies and energy saving technologies. There is so much emphasis on it, that some have dubbed the stimulus billed passed in mid-February as the Green New Deal.
It’s easy to see why: by my calculation more than $115 billion of the $787 billion of the bill is directed to Green causes, ranging from cleaning up brownfields ($100 million) and NASA climate research ($400 million) to high speed rail capital investments ($8 billion) and a variety of tax cuts designed to spur alternative energy investments by companies and homeowners ($20 billion). That is a tremendous amount of money that is only just beginning to make its way through the various departments that will disburse the funds.
By mid-summer, expect to start seeing the money affecting the universe of American companies that do everything from design the next generation of hybrid car batteries to those that make wind turbines. The domestic solar panel industry alone expects 110,000 jobs to be created in the next two years, and many other industries have similar expectations.
While we are all struggling to deal with the market’s crash and the sudden slowdown in the economy, it’s easy to overlook what is going on here: we’re shifting from an economy of the past 25 years that was fueled by increasing the credit available to the average person (and therefore fueling the boom in retailers, commercial estate, homes and so on) to one powered by a new, high-tech renewable energy-focused industry. It’s going to fuel a boom in new jobs, new technologies and most importantly for investors, profitable new companies.
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If you follow the market, you know we’re still going through the pains of a shakeout from last year’s crash. I see it too; that’s why Cabot readers have been largely on the sidelines holding cash since we first saw the technical signs of a severe market slump in early September. It’s also why the Cabot Green Investor model portfolio lost only 15% in 2008 compared to the 40% that the S&P and Nasdaq lost, the 60% alternative energy mutual funds lost and the 70% Green ETFs lost last year.
Now we are seeing early signs the market is building a base that will lead to a new bull market. We’re still largely in cash waiting for confirmation of the trend, but Cabot Green Investor subscribers already have learned of some stocks we believe are ready to be winners.
One of those is Tetra Tech (TTEK), a Pasadena, California, firm that has expertise is a tremendous number of Green areas. Essentially, when a company or government needs the nitty gritty expertise to go Green, it hires Tetra Tech. We first alerted readers to the company in November, telling them to keep it on their Watch List. In early February, the technical indicators told us to buy and we added it to the portfolio.
Tetra Tech’s sales are growing about 20% annually, hitting $1.25 billion net revenues last year. Roughly 70% of sales come from resource management--work that ranges from consulting for the Port of Los Angeles on how to become less polluting to optimizing water resources for the U.S. Agency for International Development in Afghanistan.
The other 30% of work comes from engineering work, like consulting on wind farm locations for T. Boone Pickens and designing Manhattan’s 550,000-sf ultra-ecoconscious Visionaire building. The Intergovernmental Panel on Climate Change uses Tetra Tech’s proprietary computer models to predict the impact of global warming.
Right now, the company is helping Panama restore water quality in the Canal Zone and designing and supporting the extension of a commuter rail in Boston. In the first quarter of its fiscal 2009, the company booked its largest number of orders ever to build an order backlog of $1.8 billion.
Right now, shares are still looking good at 22, building a base and showing signs of strength. As the stimulus money works its way to the federal agencies and local governments that have long used Tetra Tec,h as well as the corporations looking for the expertise to go Green, shares should act well. And it should be sooner rather than later, if U.S. leaders can set aside their economic ideologies and focus on fixing problems.
All the best,
Brendan Coffey
For Cabot Wealth Advisory
Please note: In addition to Boston College’s Kevin O’Neill, credit for much of the discussion of the Great Famine goes to books by Irish historians Cormac ó Gráda, Joseph Lee and Gearóid O Tuathaigh and British historian K. Theodore Hoppen.
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