a genuine economic crisis

Unlike the more speculative recent articles on the economy north and south, Alan Ruddock, in the Sunday Times, assesses the prospects in a more grounded political reality. It’s still not a pretty picture and, as he says, not only is there little prospect of the all-island economy Peter Hain disingenuously prescribed, but the opportunity may have been missed to capitalise on the majority of the inward investment available over the past 10 years or so, leaving the only hope, and it has to be only an outside chance, the developing of a combination of entrepreneurialism and political realism.From the Sunday Times

Northern Ireland is stuck with what it holds, so for Hain to talk of participation in an island of Ireland economy is nonsense, and he knows it. There is no island economy, and cannot be while two separate tax, legal and currency regimes exist. There is undoubtedly opportunity for greater trade between north and south, but businessmen both sides of the border know that, and pursue opportunities where they see them.

Since Hain’s prescription holds no water, his diagnosis is particularly troubling. If Northern Ireland’s economy is unsustainable, and if there is no easy fix by blending with an island economy, then what is to happen?

After identifying some of the main problems with the local economy, and where the British Government may chose to trim the subvention.. he arrives at what can only be described as a less than optimistic conclusion –

Sinn Fein struggles with the concept of democracy, plays fast and loose with decommissioning, indulges in espionage and deceit, and forgets that its posturing eats away at the economic prospects of its people. Unionism sees plots and conspiracies at every turn, struggles to embrace cross-border initiatives and devotes none of its energies to tackling what is threatening to become a genuine crisis.

And all the while the republic ticks along, creating jobs and enjoying a prosperity that was once beyond its dreams. In 1970, Northern Ireland enjoyed a standard of living and an economic output that exceeded the republic’s by almost a third. Now it lags behind, and the gap grows daily.

Where the fault lies no longer matters: Northern Ireland’s economy is unsustainable because the British exchequer no longer has the interest or the resources to maintain it in the style, however faded, to which it has become accustomed. The province’s politicians, who draw a salary for doing diddlysquat, need to wake up to their crisis, resolve their contrived differences, and get on with the serious business of providing leadership and direction.

Northern Ireland has to wean itself away from state dependency, and that requires a combination of entrepreneurialism and political realism. Republicans must realise that those in the republic who yearn for unity would prefer a successful Northern Ireland that does not require huge state subvention. Unionism must accept that cross-border co-operation on every possible economic level is essential to its prosperity. Without realism the impasse will remain and the province’s economy will founder.

  • Brian Boru

    A good article. No matter what your perspective on the border question, few should have reason to seriously disagree with what Ruddock is saying.

  • Crataegus

    The article is spot on. The economy should be a priority and we must develop ALL opportunities.

    The politicians here need to wake up the problem is real, there just isn’t a good entrepreneurial environment in NI. Business does not like political instability. Worse than that there is no constructive sense of purpose. Our political class are an economic liability of major proportions.

    Equally I would not expect Hain’s administration to do anything constructive. His pronouncements are often ill considered. I would not expect any constructive economic package or initiative from this administration.

    In the long term a failing economy can be politically destabilising.

  • Henry94

    Brian Boru

    I agree.

    Where the fault lies no longer matters

    So 99% of what passes for politics in the north is pointless. But we knew that already.

    I’d like to see the four parties bringing in a panel of independent economic experts from around the world. Mandate them to come up with a plan for the economy with the objectives of full-employment and growth.

    The parties should then demand the powers they need to implement it.

  • elfinto

    As the Chancellor, Gordon Brown, is likely to be the next PM, efforts should be made to convince him of the benefits to the UK as a whole of making NI a special case, harmonising tax rates with the Republic and introducing the Euro. This would undoubtably stimulate the economy and make NI less of a burden on the GB tax-payer. Of course unionists would oppose it but that isn’t a good enough reason for carrying on with the present stagnation.

  • Bretagne

    Who is going to provide the leadership to drive the economy forward? – I dont see where it is coming from. And before anyone says the local poltiticians – I draw attention to the fact that
    Derry Council just voted to give away 250k worth of real estate. It doesn’t matter who it was to – there is complete lack of realistion of the value of assets in the public sector. Frankly having more idiotic decisions like this at a macro-economic level is frightening. In a comprehensive analysis – the only thing not analysed is who should be responsible to drive the economy forward?

  • Richard Dowling

    Alan Ruddock has a point. At the moment it’s probably a lot
    easier (for someone from the Republic) to buy anything
    over the internet from the States than it is to order it from
    mainland Britain. All the English papers carry ads which
    do not apply here in the South. And we have been in the
    same FREE TRADE AREA of the EU since 1973.

    You would think there was a difference of opinion between
    the EU and the UK — surely not! Where’s Charlie McCreevy
    whe you need him.

  • Crataegus

    Henry

    I like the idea of a panel of economic experts providing experience and perhaps fronting up what business people have been saying and giving it weight. It could provide a structure that justifies treating this place as somewhere special. Any such panel would need to act with some haste and we would need to ensure that it does not become yet another Quango and that its recommendations will be implemented Assembly or no Assembly.

    Elfinto

    It is risky to jump to conclusions that what worked in the South would now work here. Parts may but there may be better ways forward. It doesn’t have to be exact harmony on everything for if we do that we risk loosing trade with the UK. Also the South is a competitor and we should be looking for an edge.

    A package may include long term enterprise zones around airports and harbours, duty free areas, coordinated with changes in planning criteria (and fast tracking) and altering the rating system etc One of the mistakes in the past was to try to promote business in places business did not want to go though we do need to look at how we can develop West of the Bann. We want 6 county development not just around Belfast.

    Promote business on one hand and on the other reduce the public sector. Though if the private sector grows the other will decrease as a percentage anyway.

    Has anyone come across studies into the possibility of duel currencies. Sterling is an asset from a UK point of view, but a liability elsewhere in Europe and has higher interest rates. Many businesses here now operate duel accounts with the obvious costs and many will accept payment in Euros. At one time I reckoned Sterling cost my business at the very least around £100,000 a year. That’s enough to employ two people and I could do with them and I own but a small business. The physiological difference that being part of the Euro zone would make should not be underestimated.

  • Ex pat Ulster

    Decent article. I love Northern Ireland but it is an economic disaster. The IRA tried (and failed) to bomb the heart out of the economy but the real problem is the mentality in NI. Too many cushy public sector jobs and no real incentive to take risk – the government has been guilty of pouring too much money into nonsense projects just to keep the local political cranks happy. It’s a real shame Unionists and SDLP (I’m ignoring Sinn Fein because their economics policies are a joke) failed to focus more on creating a climate for business to flourish. I think NI politicians would rather rule a pile of rubble than share owership of a castle.

  • aquifer

    Great Article

    I was usefully reminded that NI is underprovided with university places. Voting registration forms used to some out in september, as if to maximise the chance of them registering at their parents’ home. Keeping the local electorate thick and in line, and fattening grammar school intellect for export like the cattle.

    It is possible to have large public sector expenditure and a competitive economy without the bloated central government payroll. But who is interested in investing in education, world class public transport, tourism, the arts, or the voluntary sector? or in employing senior civil servants on time limited contracts? Not our most civil servants.

    The civil service dominate this place economically and even culturally. Penny wise, pound foolish, and local watercolour landscapes.

    A couple of years back even the number of students studying computers were capped. Unbebloodyleivable.

  • slug

    The cap on university places makes even less sense now that students pay the fees. The cap actually prevents the local universities from taking on students who would now largely pay for themselves!

  • IJP

    An outstanding article.

    Henry

    A panel of economic experts?

    I’m sorry, but this attitude is the very problem, Henry. The last thing we need is: a) to rely on outsiders yet again; and b) to appoint yet another ‘independent panel’ (with vast accompanying costs).

    Henry, we have to deal with these things ourselves. We have a bloody great 108-member ‘panel of experts’ available to us right now!

    If the four main parties can’t do the job themselves, then it’s up to the electorate to get rid of them.

  • Crataegus

    IJP

    The advantage of the panel would be to give weight to the proposals. NI needs to be regarded as different by No11 and how do you do that without there being a clamber from other regions? As one of those unresolved issues or expectations that formed the basis of the agreement perhaps? There is not a hope in hell of special status if the local Chambers of Commerce or Federation of Small Business came up with proposals.

    That said I share your worries about more bodies hence the comments in the earlier post about need for haste etc.

    With regards the Assembly (if it were running) I don’t think most MLA’s have the slightest interest in the economy or understand the needs of business. In any case it doesn’t have the powers necessary to implement the type of measures necessary.

    The Assembly is gridlocked as predicted; I am not sure what Alliance contributed to the current structures, probably not much, but clearly they do not work. Structures cannot ensure cooperation where there is no trust in the first place. The whole thing is institutionalised sectarianism. It validates it.

    The political reality is that no matter how much you, or I, would like to think otherwise people vote DUP, SF, UUP and SDLP in droves and then a very long way down the field Alliance and trailing way behind all the others. The electorate have had plenty of choice, but over and over they just don’t buy what Alliance etc offer

    In my opinion the last administration was less than inspiring before its demise and I can’t see any hope with the current crop. Tribal loyalty (for want of a better term) is more important here than competence, ideas or vision. That may change but it will be a long time coming.

    Here people who are dissatisfied simple stay, and Alliance need to ask why. In my opinion one of the reasons is because the sectarian structures themselves treat you as lesser. To be other is a disadvantage. You and those who vote for you were considered not important by those that drew up this farce.

  • BogExile

    What an appallingly subversive outbreak of unity on this blog!

    Progressive (meeting nightly in the cupboard under my stairs)Unionists should have nothing to fear from economic unity which enables both parts of the island to trade and benefit from the exchange of ideas and commerce.

    The psychology of a successful NI economy is interesting. on the one hand, paying our way might delay or cancel out the economic argument for Irish unity. On the other hand, increased prosperity and a broader based economy might encourage even greater integration. But it all sounds good for the mainstream.

    Of course the Shinners prefer the ‘basket case’ stereotype as it superficially assists their republican aims. But lads, you don’t want to knock through your nice shiny semi into next doors crack den, do you? Have a titter of wit!

    Is this conciliatory enough?

  • Henry94

    IJP

    I don’t share your faith in the economic ability of the MLA’s. But as they have never shown the slightest interest in economics it remains an open question. Maybe they’ll surprise us.

    But I don’t expect the voters to punish them if they don’t. They have no interest in economics either.

    My hope was that the MLAs might recognise that economics wasn’t their thing as commission some experts. Where the politicans would come in is in arguing for the powers required to implement the plan.

    But of course this is fantasy stuff unless there is an outbreak of mass maturity.

  • john doheny

    How exactly would harmonising the VAT rate with the Republic assist the economy given that it is 17.5% in the North and 21.5% in the South?

  • mnob

    John, I think the theory is that the taxation system be aligned with the Republics in its entirety so as not to create a ‘third’ system which would be cherry picked by some companies and create greater complexity for most.

    (Also the reduction in corporation tax would have to be paid for in some way. Up the taxes for the individual so that compaines could work the system.)

    The theory is that it worked for the Republic so it could work here. I personally believe it is a lazy thinkers option and wont work as now we are competing with many Eastern states with the same idea.

    There are many different options such as targeting the incentives with r&d tax credits for example, or investing in education and training so that you create a sustainable resource with a vested interest in NI (rather than a setup today leave tomorrow company), or introducing a 15% flat rate tax on everything such as Latvia has done (this is a very interesting option I would encourage everyone to check it out).

  • mnob

    … erm … Estonia’s flat tax model … sorry … Baltic states all look the same to me …

  • George

    Everything Ruddock has stated in his nicely worded article has been stated by various contributors here over the last while.

    Unfortunately, it will have as much effect now as it did then.

    He points out one of my favourites, that there was a chance in 1998 for the parties to extract some meaningful economic concessions from Britain and the EU in 1998, such as corporate tax etc. but all the NI parties missed the boat.

    The foreign investment boat has also been missed (NI got 1% of what the Republic did) and anyone that thinks the same parties that couldn’t see the Northern Ireland economic forest from the trees in 1998 will somehow have an epiphany in 2006 are deluded.

    For example, no Unionist party is for dual currency because the euro is essentially seen as weakening the link with Britain, it doesn’t matter if, for argument’s sake, it was essential for the future economic welfare of Norhtern Ireland.

    No, Ruddock is right. The good people of Northern Ireland are going to have to suffer the ignomy of bearing the brunt of British cutbacks over the next years to help an economy which will grow at a slower rate than the supposedly sclerotic eurozone in 2006. That’s the plain economic situation. Nobody should be fooled.

    Dark days ahead but the people of Northern Ireland have brought it upon themselves for failing to realise that working together means doing what’s best, not doing what’s considered best by their own particular tribe.

    Whatever friends and allies both sides (unionist and republican) have or had, they have treated with varying degrees of contempt.

    There will be no tears shed south of the border either as most people are sick to the back teeth of it all, especially as most unionists still look upon the Republic as some inferior entity worthy of only contempt and most republicans still have an a la carte attitude to the democratic wishes of the Irish people.

    The British, Irish, Americans and Europeans have tried to coax and cajole the voters of NI into reality to no avail, all that’s left is to show them the economic and policitical truths in 2006 and to hell with the consequences.

    They don’t deserve any more sympathy than the struggling people of Burnley, Ballymun or Ayrshire.

    Time to cut them loose and force them to grow up.

  • elfinto

    George,

    If only things were that simple, George. Cutting NI off could make the place slide into the abyss. The reality is that NI needs drastic economic surgery which can only be imposed from without by a British government with a vision for the future.

  • George

    elfinito,
    your solution is what I’m advocating out of total desperation and exasperation after a decade of hoping the people of Northern Irleand would wake up to real world, which is that the British government do what they want to show the people of NI how irrelevant they are in the greater economic scheme of things.

    The problem with this desperate measure is that the British government either doesn’t know or doesn’t want to know what Northern Ireland needs to right itself.

    The harsh reality is that Britain’s interests in 2006 are not the same as Northern Ireland’s interests and, even more interestingly, it appears their interests in Ireland bear no relevance to Northern Ireland anymore.

    Where does that leave us?

    It leaves us to hope that the elected representatives in Northern Ireland wake up and suggest the vision.

    But before the vision comes the sacrifice – 40 days in the desert and all that.

    Who will stand up in Northern Ireland and say there are tough times ahead? Who will lead the place into the desert?

    Who will outline a plan to get the number of public sector workers down, for example?

    They have had a decade to think of something and they have done nothing. We could wait another ten and we would still be in the same situation.

    That leaves the British to pull the plug on the false life the “province” has been leading.

    The Truman Show is over and, truth be told, the people of Northern Ireland should be grateful.

  • Crataegus

    George

    Good posts, but one of my worries is that rapid economic decline here could be destabilising. I think we need to be careful this place could still turn very nasty.

    As for the Assembly, it is an utter waste of money and a liability. Stop funding politicians, let them dwindle. They are the biggest single waste of money in NI. While we are at it do we need 18 MPs? Should we pay people who don’t turn up? We need leadership and perhaps structures that confine the political class to the wilderness for 40 days may hit those most responsible.

    John Doheny

    We don’t necessarily want harmonisation. We simply want it recognised that the economy here is a priority and having suffered 30 years of bombs and intimidation (still continuing in parts) rather than viewing the place as a basket case introduce measures that would address the problem.

    The South is a competitor and we need an edge over them as well as elsewhere. Harmonisation would not give us that.

    The points that various people make regarding Education etc are spot on and would all be part of a possible package.

    Among other things I would like to see

    •The entire NI treated as an enterprise zone with low business taxes. I would not include the retail sector in the tax breaks.
    •Investment in Universities and in particular areas where we have academic strength.
    •Tax free zones around harbours and air ports.
    •A review of planning to ensure that the leakage of commercial land to residential stops, that decisions are made quicker and that people can operate a wide variety of business from home. Free up peoples principle asset. Also a lot of rezoning around existing rail and road networks.
    •Government reviewing its land ownership and releasing much of it for commercial development.
    •Tax on fuel cost pegged below those in the south, and similar measures.
    •Investment in energy production and positive development in an all Ireland Energy market.
    •An Island based transport policy and coordinated improvements aimed to create a west coast ‘corridor’.
    •Island based cooperation in Tourism.
    •Government investment in the R&D end of businesses but no other grant aid or incentives other than the Tax structure.
    •If it is possible twin currencies.
    •Combined National Insurance and Income Tax.
    •A major look at the Administration here and axing and merging bodies where possible. Reduction of Departments, simplification of Health and Education structures.
    •Encourage cross border health care and dentistry as a source of revenue.

    Anyone any ideas on Agriculture?

  • elfinto

    The British government needs to back up Peter Hain’s words with action by implementing an all-Ireland economy. That’s the only hope that the Brits have of getting rid of the burden that is Norn Iron. Gordon Brown is the man who has to be persuaded of this, the sooner, the better.

  • Crataegus

    elfinto

    The mission is a vibrant self reliant NI Economy, an all Ireland structure may or may not be the best solution. Don’t mix economic reality with political aspirations. Because something worked in the south a decade ago does not mean that it will of necessity work here now, but also be sure you know exactly what generated the start of the upturn and what factors caused its continuance. A strong economy is in everyone’s interest so let’s get on with it but without preconceptions and political models.

  • Brian Boru

    Crataegus, do you think NI being allowed to join the Euro without the rest of the UK would also help? Think of the lower mortgage rates for example, and the end of destabilising (for exports/imports) exchange-rates.

  • elfinto

    Crateagus,

    The economic reality now is that Norn Iron is up sewage creek without a paddle. Radical action is required. Some sacred cows must be slaughtered. the notion of a self-reliant NI is one of these – it is nothing more than a unionist pipe-dream.

  • Congal Claen

    Hi all,

    I agree with a lot of the article. However, from the same paper it was stated that the RoI’s stock market was the worst performer last year bar Venezuela (I think it was Venezuela) and also that indigenous jobs in the RoI are only 10,000 more that those created from foreign companies – which explains the big difference in GDP and GNP. Is this really the way we want to go? As someone from NI I would say no. (I would wouldn’t I tho’)

    It has been mentioned about joining the Euro. For the RoI this was a good idea as the Punt was a weak currency. However, Sterling isn’t. Other countries with strong currencies, notably Germany, would vote to return to their National currencies based on popular opinion poles. The Italians are thought to be on the verge of exiting the Euro. Although that may just be sabre rattling. Lower mortgage rates? Last year, I remortgaged my house. I checked what rates were being offered by banks in the RoI. There was practically no difference with those offered by UK banks. The reason being that competition in the UK banking sector is much more intense than in the Republic. So, even tho’ the underlying base rate is lower, the bank rates were similar. So, no benefit there either. Incidentally, the banks in the Republic I contacted wouldn’t mortgage a house in NI. So much for free trade.

    It has also been mentioned that NI should harmonize to the Republic’s 10% corporation rate. But, how much longer is the Republic going to get away with this? The US for example is looking into the matter as it results in US companies such as MS or Google routing profits thro’ the Republic rather than where they were actually generated. This is obviously brilliant while it lasts. But how much longer will this continue? And is it the basis for a long term economic strategy?

    Last point – I work in the NICS. I can assure you it’s no cushy number. I don’t do a big lot! But, out of all my mates I earn by far the least…

  • TOT

    Brian Boru
    “Think of the lower mortgage rates” – yes but this is reflected in the exchange rate, a basic student of economics knows the interest rate differential is reflected in the exchange rate hence the rate might be lower but the asset cost is higher. Therefore no saving.

    Exchanges rates can be as much an asset as a liability if managed correctly.

    NI needs radical action or it is, in a word, knackered.

    Basic premises spring to mind are

    Reduce tax rates to nil for start up companies (up to turnover £500k).

    This should be paid or by increased vat receipts generated from spending by these companies and a general multiplier effect from a higher level.

    Remove cap on University spaces.

    Specific tax breaks for R&D spending – would generate economic activity and also bring high tech jobs in.

    i Have aboput a hundred other ideas if I thought anyone was listening……

  • Crataegus

    Brian Boru

    I think being in the Euro zone would benefit the economy here. It would benefit any business that trades to the Euro zone. It would also benefit tourists from here and coming to here. Lower interest rates would be a massive help to business but would push up house prices which is why I have always argued for the need to build more homes to reduce demand.

    On the down side being in the Euro zone would be a disadvantage to us regarding trade and communications with Britain which is sizable.

    If there could be twin currencies here, and I am not sure what exactly the complications of that would be, I would jump at it.

    For myself personally, given the choice I would prefer to be in the Euro zone. Better free trade with 300million plus than 60 million. Also in the long run I think the Euro has more chance of stability. I don’t believe in the arguments that suggest that interest rates are a tool of governance, they are simply market driven.

    On Sky One tonight at 10.00 a programme that argues that the reason for the Iraq war was that Saddam was going to switch to Euros rather than dollars and Bush intervened to protect the US economy. It may be fanciful but a competing reserve currency does not suit the US.

    As far as I am concerned sterling benefits only the Banks and increases costs it is a liability that belongs in bygone times.

  • Congal Claen

    Hi Crataegus,

    “Better free trade with 300million plus than 60 million”

    You do not need to be in the Euro to have free trade. All the Euro does is allow the movement of physical currency. Electronic Euro transfer still incurs charges. Say for example, you lodged a Euro cheque drawn on a French bank into a German Bank or indeed an Irish bank you’ll still be charged for the transaction as the banks aren’t part of the same banking system. All they share is the same currency. As the world is swiftly moving to electronic rather than physical currency I don’t see a big benefit. You should also remember that even tho’ the UK isn’t in the Euro, London trades more Euros than any other exchange in the world.

  • Crataegus

    Elfinto

    No economy is self reliant, NI or the Republic. I agree with you that radical action is needed but where we disagree is that you have a preconceived solution. I repeat; what worked in the South in the late 80s and early 90s may not work here in 2005. I think we need to be even more radical. It is that serious!!!

    I believe your aspirations are Unity on this island, but surely it is to the advantage of everyone that this place is an economic asset. From a nationalist point of view better economic growth and closer cooperation and trust than taking a position that simply alienates?

    On the down side I am deeply worried that an economic recession here could have political consequences and could cause serious civil unrest. There is a lot of bitterness here.

  • Crataegus

    Congal Claen

    I agree with many of the points you raise and in particular the abuse of the 10% corporation tax rate. As it would happen I do not think we should rely on the inward investment of large corporations to provide our economic salvation. More important is to create an aggressive and outward looking business culture here and building wealth in the business sector so that it can expand.

    The cost of Banking and currency conversion really depends on the type of business you run. The cost of loans to the business sector are usually base plus 2-3% and for business it is substantially cheaper to borrow in the Euro zone but currency fluctuations make this a dangerous option. For me being Sterling is a liability, for most businesses it does not matter as they work solely within the UK. That is why I think the physiological difference of being in the Euro zone would be considerable. I don’t think Italy or anyone else will be hopping out in a hurry. Politicians are blaming the Euro for their own failings.

    TOT

    Good post; agree with most of the suggestions but less sanguine about currency movement, experience has taught me that international money markets are far from predictable. You could loose your shirt if you get it wrong. I prefer simplicity and predictability and I think so do most businesses. If I am investing what is more important is a predictable profit rather than gambling on an enormous profit. Violent currency changes or interest rate fluctuations really are bad news.

    If you have any other ideas I am listening. Any ideas on agriculture? It is one sector that really has me searching.