Democracy or dependency?

Tom Griffin has picked up on my Guardian piece on the questions facing the Northern Irish economy, and puts it the context of a changing discourse around devolution. He believes the choice is between continuing dependency on the central UK exchequer, or self determination. It is a situation inherently favourable to nationalism, because he argues, “the choice for self-determination which is at the root of the nationalist ethos.” That said, only the DUP seem to have anticipated the need for fiscal control in the approach to the water rates issue.

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  • fair_deal

    The premise is flawed. If the NI economy is dependent on subvention then the argument is the RoI can’t afford to unify. If the NI economy is a success why leave the Union? The argument becomes if it isn’t broke don’t fix it.

    The Canadian federal model has provinces that are prosperous and others failing but with the exception of Quebec there are few serious atempts by other provinces to leave (despite some grumbling and gripping in the Western states), Quebec’s desire to leave being driven by identity rather than economics.

    The inability of Quebec to leave Canada even through its softer proposal of Sovreignty Association should be a warning to Irish nationalism of how difficult 50%+1 can be to achieve.

  • Jim

    Fair_deal “nationalism of how difficult 50%+1 can be to achieve”

    Yes, difficult to achieve, but achieve it we shall.

  • fair_deal

    Your grandchildren will be telling that to my grandchildren

  • Mick Fealty

    Jim,

    There’s some hefty data in the combined links above. It would be good to hear more on that score.

  • I believe that the single biggest issue affecting the Northern Economy has been the progressive and unrelenting emigration of its educated classes. Those with the best qualifications, the best brains, head south, west or east in an effort to secure appropriate reward for their talents.

    The regularisation of affairs in the North, however that resolves itself, will lead to a significant increase in retention of people, which will in turn reinvigorate the economy.

    Also, the most significant administrative / subventive cost of the North has long been security. Regularisation will also lead to a reduction in those costs.

  • Jim

    Britain has “no selfish, strategic or economic interest” in Northern Ireland.. I think that says it all in many ways. If you couple that with Peter Hain’s call for ‘an all-island economy’ then that window sill of teh Union the Unionists are sitting on is a window sill that was bought, built and owned by the Euro.

  • One other thing – just as the argument is strong for Corporation Tax harmonisation between north and south, can someone tell me what is the Capital Gains Tax rate in the North? In the south, it was reduced from 40% to 20% resulting in a four fold increase in exchequer returns, and a significant increase in capital investment…

  • abucs

    “Britain has no economic interest in Northern Ireland”.

    At least they are honest.

    I think most of the interest is in the SE of England.

    For Unionists who don’t want to be part of the Republic, i think some other form of government that allows similar powers of leading rather than following needs to be put in place.

  • mnob

    Oh dear, here we go again, an attempt to fill column space with certainties that just don’t exist.

    We have a situation on this island where for the first time the South is economically more prosperous than the North and nationalists are making hay. Unfortunately they seem to think the sun is going to shine forever.

    Turning this situation into plotical fodder is foolish to say the least. After all for the 60 odd years after partition, when the North was more prosperous than the south, there wasn’t much movement towards an all Island economy British style was there ?

    As for the sun shining forever – there are many who remember the last economic boom in the south in the 60s which turned bust very quickly. I’m not saying the same will happen, but when you have government reports in the South saying things like “In a decade the airports and ports of Ireland could be full of foreign investors leaving” then you have to think.

    Thanks to globalisation the Republic undoubtedly has been a great economic success story of late, but that doesn’t mean that apeing the things that made the Republic successful is appropriate. The EU and the world has moved a lot in the last 10 years and will continue to change rapidly.

    Northern Ireland has undergone a period of tremendous problems, with its main export being people. Any foreign investors who came near the place were at the very least dissuaded by the kidnappings and factory bombings of the 70s. Its hard to create a sustainable economy round that isnt it ? We’ve just come blinking out into the light of a new economic reality. Lets get a bit of perspective, we’re not going to become the richest economy in the world next week.

    Are things moving in the right direction ? Well private sector growth is the highest outside the SE of England, public sector growth the slowest in any UK region. That sounds good to me. Its a start. The ICT industry is four times the size it was 10 years ago – so here you have a private sector export centred knowledge based industry that is booming.

    Lets not let the selfish interests of a small number of media moghuls and the nation state political aspirations of a few take us down the wrong route. Lets actually think about how we position the region in world terms rather than letting political aspirations get in the way. After all the nation state is dead, long live globalisation.

  • English

    Tom Griffin makes a key point when he highlights, “The Republic is the only one of the Celtic nations which can currently stand comparison with the south-east of England for economic dynamism. It is also the only Celtic nation which is independent of Westminster. That is no coincidence.”

    Indeed, the Union has previously and will in future be run for the benefit of England first and foremost – this is obvious to the Northern Irish (some of them), the Scots and Welsh. The Scots and Welsh have already caught on to this, and see the benefits of devolution and fiscal independence.

    The difference is that Northern Ireland is unique, as that unlike the other countries it is founded on religious and economic discrimination more so than class and economic discrimination. Protestants will cling on to the Union as long as they feel it will give them some sort of economic advantage and maintain their wealth (or perceived wealth for most).

    The British Government will continue to de-regulate – partly to encourage privitisation and alternative economic growth to the large public sector, but mainly to cut costs for the British tax payer. This is going to run down the Northern Ireland economy further which is dependent on the public sector. The South is ideal for foreign investment in contrast, so the North can forget about anyone helping them out of the economic mess which will unfold over the next 20 years. Northern Ireland is going to have to stand up and look after itself, starting with an Assembley. Forward planning is required, rather than local politicians sitting on their hands in a competitive global economy.

  • abucs

    Leaving the perrenial national question aside. I think the question here is if the local government is going to be powerful and robust enough to take advantage of the ‘fast changing’ world.

    It doesn’t make a lot of sense to put that power in the hands of people who openly say they have no economic interest in the place and who announce that it is not a viable economy.

  • Jim

    mnob

    Your disillusioned. “The ICT industry is four times the size it was 10 years ago”. I think for such an industry it should be 1000-2000% it was 10 years ago. Or are you including Dave’s PC Outlet in Craigavon in your calculations.

    Economically there is no sympathy for what has happened in the past. Fact. It is purely a case of what is happening today. You are only measuring the Private/Public growth in a UK context which is flawed as historically in the UK no region has significantly bucked the trend.

    New ideas and new policies are what are required to make change.

  • slug

    1. Since people are making a lot of comment on the “no interest” statement, can I remind them that they said “no SELFISH interest”, that is their were no in NI for exploitative self-serving reasons. In particular there was no comma after selfish, so the word selfish qualified the two adjectives (economic or strategic).

    2. Looking at the positives from the wealth of the Republic, this has direct trade benefits, but also it is actually a great thing in terms of NI political consciousness. It brings a whole new level of competition between NI and ROI is opening up – a new reference point. It set up a challenge for NI to do better economically, refocuses our politics on the economic issues, and politicians, the journalist class, and the population are starting to think about politics in terms of prosperity and wealth. You can see the change happening as Tom Griffin says, politicians are talking more about economic issues. That is good news for NI.

  • Mick Fealty

    Jim,

    “New ideas and new policies are what are required to make change”.

    I’m with you 100% on that. Any ideas what those new ideas might be?

    I can’t claim to be a professional economist, but from what I understand of it, the turnaround in the Republic’s economy has two important sources.

    – the decision to abandon economic isolationism in the sixties, under the premiership of Lemass and the direction of Whittaker.

    – the Tallaght strategy adopted by the Fine Gael opposition that enabled the Fianna Fail government the lattitude to carry out harsh fiscal reforms.

    Any rejuvenation of Northern Ireland’s economy is surely going to have embrace both those aspects, before it can expect to create positive conditions for substantial economic growth.

    FD’s point about Quebec are worth pursuing further. Economic success is a win win for all the people in Northern Ireland.

    Tom is absolutely right when he says this should play into the Nationalist ethic of self determination. But, ironically, at the moment, only the DUP seems focused on the need for self reliance.

  • abucs

    At the moment the ROI is busy building up it’s infrastructure and general community wealth. This means better roads, more hospitals and importantly more local small businesses that will be a driving force in creating wealth in the future.

    This is very much underpinned by foreign investment. The advantage the ROI has is that it can respond quickly to attract that foreign investment through tax, subsidies and grants. Basically they are responsive to the needs of the big multi-nationals. Because they are a small country (like NI) these policies have a very large effect on the local economy.

    Now, the ROI’s advantage will come to an end at some stage and it will be up to the then government to come up with new policies.

    But in the mean time the infrastructure and local business culture are being enhanced and strengthened which will benefit the country well after any current advantage may dissappear.

    The danger for NI is that it will miss out on these obvious benefits and the time it gets its act together the world would have moved on again.

  • kensei

    “The danger for NI is that it will miss out on these obvious benefits and the time it gets its act together the world would have moved on again.”

    Yeah, the point is that the economic conditions are probably more favourable than they ever will be NOW, and that we should be moving to unity as fast as possible. Unity is probably the only stimulus that could effectively break this place’s public sector dependence.

  • Jim

    In any other market the 6 counites would try and differentiate itself through R&D, Taxation, Access to Markets etc – but in the instance they are directly competing with the ROI who have stolen a march as a favourable country for business that speaks English and is in the Euro then its a non starter.

    Realistically like any M&A (and that is what the political landscape in this Island will become) the North should position itself for the bext price it can get.

    Reminds me of a joke about the Japanese wanting to buy Texas but the Arabs wouldn’t sell.

  • The key point about the Republic’s economy is that it has matured. There were myriad reasons why the economy in the south stagnated post-partition (was it growing pre-partition?), and the relative difference was largely driven by the shipping and textiles industries in the North. The North has not replaced those industries successfully, and that accentuates the current gap. Therefore while there will undoubtedly be ups and downs in the Republic’s economy over the coming years and decades, it has established an economic infrastructure that can only be damaged by significant ideological adjustment in government (the Communist coup scenario).

    That said, there is a significant argument in the south about whether we are living in a society or in an economy. Crime rates while still low are rising steadily; the gap between rich and poor is growing; the weaker members of society such as the old and disabled are marginalised. Immigrants are treated appallingly in many circumstances. Therein the country needs to mature and grow, and if any argument were to be made against ‘the reintegration of the national territory’ or whatever you want to call it, it would be on that basis – that as a society, we have a long way to go.

  • abucs

    Look, i am a nationalist but the arguement i want to make is that the local government in NI should be robust and powerful enough to respond in a similar way to the ROI.

    The ROI has shown that their policies work NOW and are beneficial.

    Let’s get a local government that will mimic those policies and hopefully develop them and do even better.

  • English

    How is Northern Ireland going to move on though? The November 1990 speech of Secretary of State for Northern Ireland, Peter Brooke, declared that ‘the British government has no selfish strategic or economic interest in Northern Ireland.’ You can’t really get much clearer than this, and it is being proliferated further by the downsizing of the public sector at this time by the British Government through creating large Councils and Health Boards, and reduced investment in the infrastructure, security and education. Northern Ireland is not going to be very well equipped for the future, because comparatively it is not receiving the same level of investment from cebtral government as England, Scotland and Wales. There is no getting away from this.

  • abucs

    Yeah Anthony. How to handle and share that wealth to benefit the society is a very good question.

    Jim,

    “Reminds me of a joke about the Japanese wanting to buy Texas but the Arabs wouldn’t sell”.

    Perhaps George has advised the Arabs to hold out for a better price. :o)

  • Mick Fealty

    Kensai,

    “…we should be moving to unity as fast as possible”.

    That sounds fine in and of itself, but can it be a stand alone policy? From what others are saying regarding NI’s poor economic performance, time is of the essence.

    The potential risk in Nationalism just waiting for political unification is greater divergence in terms of economic culture, and that Northern Ireland simply turns into a dependent, inward-looking ghetto.

    Interestingly, both Lemass and O’Neill inherently understood the need to attract foreign investment in order to create a rising economic tide that would ‘lift all boats’.

  • fair_deal

    Policy suggestions

    1. Reduction and decentralisation in the Public sector. It has been started with councils (although i’d personnaly have gone for 8), cut back on quangoes, one health authroity and education authroity for NI, reduce the number and size of NI departments (if we have one education and health authority we dont need big departments for these either) and the reduce the size of the NI Assembly. Public services need to be delivered differently, multi-functional buildings which different public bodies can share, sitting in separate building expecting everyone to come to you doesn’t work in a decentralising world. This could address tackle rural isolation (The scottish have developed a very successful approach to accessing public services through one phone-line NI should be looking at).
    2. An overhaul of our wasteful and duplicatory education system, reform of the 11+ and better vocational training supplemented by initiatives to tackle the anti-education culture in deprived areas.
    3. Utilise the flexibility in the present devolution arrangements to introduce welfare reforms. The best social program for an adult human being is a job.
    4. PFI models are highly questionable in value for money but the IPPR has alternative models that are worthy of trying.
    5. In needy communities abandoning the negative needs apprach adopting the assets based market focused approach of resident owned mechanisms. Supplemented by research on deprived areas accessing private investment with a view to looking at the Community Credit Act for the UK.
    7. A review of all business regulation on the NI staute books which the aim to simplify and reduce it.
    8. Expand on the limited reforms made around bankruptcy laws to remove barriers to entreprenurship.
    9. Infrastructural investment.

    And the most difficult policy of all for all the politicians be prepared to do so even at the cost of votes as the policies will bear the necessary fruit in 10-15 years.

  • abucs

    When are you running for office fair_deal ? :o)

    Just before i go, i’ll ask what welfare reforms you are in favour of ?

  • fair_deal

    “When are you running for office fair_deal ? :o)”

    I’m not a people person so I’m not running for office.

    Welfare reforms

    Identify the perverse incentives and end them e.g. a system that encourages fake family break-up is a waste of benefits and public housing.
    The sickness benefit regime most definitely needs overhauled to tackle economic inactivity.
    I’d also examine time-limits being placed on particular benefits ie 10 year limit on unemployment benefit between the ages of 18-65. That would be the stick stuff.

    The carrot needs to be a radical overhaul of the poor quality training the recent Audit report highlighted plus the mismatch between market needs and training provision the West Belfast Taskforce highlighted for example decent Intermediary Labour Markets need to be developed to help the long-term unemployed get job ready (not the present mangled form DEL offers in West belfast and strabane).

  • PHIL

    English,

    “Indeed, the Union has previously and will in future be run for the benefit of England first and foremost”

    You’re joking aren’t you, have you never heard of the Barnett formula?

  • kensei

    “That sounds fine in and of itself, but can it be a stand alone policy? From what others are saying regarding NI’s poor economic performance, time is of the essence.”

    The point I’m making is not just to hang about and wait for unity, just that conditions at them moemnt are probably perfect, given the amount of investment that Ireland is getting. That investment for new startups and new factories that could head North in the event of unification may not be there in 30 years time. Seecondly, we are so hooked on public spending it would take a serious culture shock to remove it, and any stimulus would be nasty, unpopular and probably defeated. Unification gives us both the excuse, and potential cure. Time is indeed of the essence.

    But anyway, the key to almost all planning is stablity. This place is inherently unstable, because such a huge percentage of cizens want to end the current arrangements. It doesn’t bode well for the future.

    “The potential risk in Nationalism just waiting for political unification is greater divergence in terms of economic culture, and that Northern Ireland simply turns into a dependent, inward-looking ghetto.”

    Turn into…..??

  • Fair_Deal

    “And the most difficult policy of all for all the politicians be prepared to do so even at the cost of votes as the policies will bear the necessary fruit in 10-15 years.”

    You’ve hit on something here, the devolution model under GFA is perfect to achieve a strategy such as this. Due to the fact that all major parties have a seat at the cabinet table there’s no opposition to speak of. If they put their heads together they could push through any economic reforms they want to, without having to answer to opposition benches. It couldn’t work in Leinster House or Westiminister, but it’s gifted to the Stormont executive if they ever get their act together. That’s the real beauty of power sharing, the chance to execute policies with long term pay off, without suffering short term political hassle.

    I know it’s stating the obvious but the sooner the GFA is fully implemented the better for the NI economy.

  • Bog warrior

    Fair Deal

    Interesting policy suggestions. However when Stormont was up and running we tried to lobby Sean Farren the DEL minister and his senior officials at the time around changes to the New Deal programme and tried to secure support for our own social economy based on the Glasgow Works model. They wouldn’t hear tell of it and claimed that any changes in New Deal policy would require Westminster legislation and be OKed by Gordon Brown (which sounded like stalling tactics to us). The point is they weren’t prepared to deviate from the policy that was being handed down from Westminster and they certainly weren’t prepared to take a risk (further proof of the lack of an entrepreneurial culture?). Now maybe the reason was that they were only settling in to an unfamiliar role ie limited power with responsibility and were trying to get their feet under the desks before they made any radical decisions but we all need to take a relaity check on what the Assembly achieved and what any new Assembly will achieve if it gets going again. I personally can’t see Gordon Brown agreeing to harmonise corporation tax with the South to encourage inward investment.

  • “I personally can’t see Gordon Brown agreeing to harmonise corporation tax with the South to encourage inward investment.”

    Surely if the elected representatives of the area in question tell him that it’s not a question, and that it’s happening there’s very little he can do about it. Otherwise we are talking about a colonial master dictating to all of the locals what they can and can’t do against their wishes…

  • PopeBuckfastXVI: I think you’ll find that taxation policy of this kind is reserved for federal rather than local / regional authorities. In any case, such a major strategic shift would have undoubted international and regional political repercussions, and would need to be carefully managed by all stakeholders. For example, Scotland would want it too. The Republic of Ireland would not want the North to have it at all (unless there was something else in it for them). The ‘harmonisation’ may be seen as extended ‘greenification’ by some Northern politicians. Unfortunately, things are never that simple…

  • Anthony,

    I appreciate that, Brown is quite lucky that so many vote with their hearts not with their heads in the north-east. Forgive me if I see things more from a “self determination” perspective. I have no respect for apron string kids, especially when the apron strings are strangling them.

    If the union ain’t working… leave the union… simple.

  • Bog warrior

    PopeBuckfast

    Don’t think its as simple as that. The Assembly as far as i know had no powers at all in relation to taxation. That power was retained at Westminster. Obviously i agree that’s not a good thing for the North and anti-democratic but that was the reality.

  • English

    PHIL,

    Are you seriously suggesting that England is not the main beneficiary of Union? The Union has defended primarily English rule and economic and foreign policy for years!

    The difference is Northern Ireland is of no strategic or economic value to England anymore, unlike before. In fact it is a rather costly exercise. I don’t understand how Northern Ireland can in all honestly consider that remaining in the Union will benefit them in the longer term, unless people wish to maintain the status quo – which in all honesty isn’t a very good situation.

    Unionists “imagine” that they have some sort of special link with the mainland. Yet, if the mainland had a referendum on whether Northern Ireland remains in the Union, the answer would be no. The majority would like to cut the tie. What sort of relationship do you call this? Both the Conservative and Labour Parties want rid, it’s just the time and conditions for this to suit Britain haven’t arrived yet – but they will come about eventually.

  • Scotsman

    Phil mentions the Barnett formula which ostensibly overfunds Scotland and NI compared to RUK.

    Firstly, the true Barnett formula is designed to equalise spending per head over time (because it is a fixed percentage of England’s spending growth the relative advantage will fade over time)- but ways have been found in the past of lobbing extra cash at the “subsidy junkies” in addition to Barnett.

    More importantly, additional government spending cannot undo the fact that those sectors that have gained most economically in recent decades have been disproportionately based in SE England.
    You could just put this down to “the market” and the inherent economic superiority of London, or you could look at the policy environment and realise that certain political decisions were favourable to, for example, the big London financial interests rather than medium-sized manufacturing interests in our celtic fringe.

    You could also look at the effect of “unidentifiable” public spending on various regions e.g. defence research, the Navy and RAF, public transport subsidies, central government jobs distribution etc.

    Probably those with most to complain about are from northern England, but the basic point remains: the interests of NI are not uppermost in the minds of HMG, the Treasury or the Bank of England when making decisions.

  • I wonder has the concept of an all-island economic area been considered? The North-South bodies offer a limited amount of this kind of thing, but if, and it’s a big if, if Britain enters the Euro, then the barriers to the creation of such an entity would be far less significant. Successful national organisations such as the Industrial Development Authority and Enterprise Ireland could encompass the whole island, and corporation/capital gains/other commercial taxes could be pooled, on the basis of apre-agreed re-distribution of tax revenues (so that revenues generated in the North could not be used to subsidise a creche in Tralee!!)

    Probably a very, very complex one to negotiate, and even then it would be difficult to get past the DUP and other naysayers, although the one area that they have been consistently (of late) positive on is greater economic co-operation.

  • Garibaldy

    It seems to be that there is a potential issue of sustainability with the corporation tax argument. The Republic did benefit (eventually) from its low corporation rate, but only after sustained investment in infrastructure, much of which was funded by the EU, and only when the common market became much freer, particularly after 1992. The fact of the matter is that the Republic is no longer the most attractive place to site new industries for international capital. Poland and in particular the Czech Republic offer well-educated populations prepared to work for cheap wages, and smack in the centre of the EU. They will surely gain increasing amounts of investment from American, Asia, etc. Even if NI was to lower its corporation tax despite the political difficulties, the boat may well have sailed.

    The second issue of sustainability is ownership. By the late 1990s, the average multinational stayed in the republic for 5 years, although that may have changed by now. They owned the majority of the high-tech industries that helped change the Irish economy, and much of the sourcing was done abroad. Should the transfer of such industries elsewhere accelerate, then serious difficulties will be left. Nortel is a good example. The R&D was kept in NI, but the manufacturing was moved. So a small number of highly-educated and skilled computer people kept their jobs, but the majority went. The Republic will keep a flourishing high tech sector due to the skills there, but there is equally a good chance that the numbers involved will start to fall, and may freefall. Without native ownership, this seems more likely.

    The Republic will also suffer a Thatcherite crash in house prices at some point. Property prices are ridicuously inflated. Something similar may also hit the north. Like it or lump it, the government still has serious influence over the economic cycle in this day and age, and we won’t know how a non-Brownite chancellor will influence house prices in the future if they prove less able to provide stability. If some of the nuts in the Tories get their way, we’ll end up paying no tax, but won’t have a health system, education system, or transport system in return.

    As for an all-island economy, this is both a tautology and a myth. The economy has always been integrated in numerous sectors, and can’t be anything but. Equally, regional specialisation has been a fact of Irish economic life since the emergence of the modern economy in the C18th. The question is what will NI specialise in – a bastard version of the Republic’s technology economy when structural conditions are becoming less favourable, or something else?

  • fair_deal

    Pope

    Nice theory but the number of executive seats you get is determined by votes so unpopular polices are not without consequences e.g UUP from First Minister, 3 executive ministers and one junior minister to 2 executive ministers. The parties with the most unpopular departments would take a hit. To push through reforms needs a collective approach and the present system is fiefdoms plus in the two years of full devolution a lot of big decisions were avoided.

    Bog

    “However when Stormont was up and running we tried to lobby Sean Farren the DEL minister and his senior officials at the time around changes to the New Deal programme and tried to secure support for our own social economy based on the Glasgow Works model. They wouldn’t hear tell of it and claimed that any changes in New Deal policy would require Westminster legislation and be OKed by Gordon Brown (which sounded like stalling tactics to us).”

    I was involved in similar work. The fact Glasgow Works received New deal support without supplementary legislation shows DEL were lying. It is not the first time I have dealt with public bodies telling porkies to avoid change. I am sure you have similar exeperiences

    “further proof of the lack of an entrepreneurial culture?”

    Absolutley. It does raise the interesting question of what to do with the civil service. It has a culture of accepting policy hand-me-downs and little innovation. Over 30 years of little accountability has led to issues about attitudes especially at senior levels (although this is not universal). In terms of the divisions in our communities it generally adopts a conflict management approach rather than a resolutionary or transfromational one, explicably in the past but we need something different now.

    Politicians have been asked to change. Cmmunities have been asked to change. Structures have been massively overhauled. Maybe the same is needed for the civil service.

  • George

    Fair_deal,
    on some of your points:

    “1. Reduction and decentralisation in the Public sector.”
    – It is more important to get the private sector up and running. Otherwise, you will just have a reduced public sector which will accelerate the brain drain. 70,000 were leaving the Republic a year at the end of the 80s. Why? No jobs, public or otherwise, so no future. Can NI survive this painful readjustment?

    “3. Utilise the flexibility in the present devolution arrangements to introduce welfare reforms.”
    Agreed but you need to reduce the tax burden to make employment more attractive not lower the welfare provisions. Unfortunately, Northern Ireland doesn’t have the power to do this.

    As for infrastructure investment, who will pay and why?

  • slug

    “- It is more important to get the private sector up and running. Otherwise, you will just have a reduced public sector which will accelerate the brain drain. 70,000 were leaving the Republic a year at the end of the 80s. Why? No jobs, public or otherwise, so no future. Can NI survive this painful readjustment? ”

    Were in a different age – of much lower unemployment. I don’t think you can create a big private sector without losing public sector jobs (and I know there are the inactive and the registered long term ill, but they are unskilled and without being rude, probably not a great place to start employing from if you seek a dynamic workforce in your firm).

    Lets be realistic about the reductions in the public sector employment, this has been growing while the government has been trying to stop it. The best the government is going to be able to do is first to stop it growing and then to edge it down. Public sector job cuts are notoriously difficult to bring about so the kind of doomsday scenario you predict isn’t realistic.

  • Garibaldy,

    It’s true that it is becoming increasingly difficult to sustain the levels of Foreign Direct Investment (FDI) seen in the south in the last ten-fifteen years, particularly in manufacturing industry where the trend is definitely negative. More and more the favourable tax rate incentive has had to be supplemented by Employment grants and R&D support in order to secure FDI. However, an english speaking Euro spending well educated populace is still attractive, and with the Government increasingly focused on attracting greater and greater levels of R&D, so that the investment will be used to bolster the domestic knowledge base, the trend generally is positive in the knowledge sector. Technology is not all it’s about – we are continually investing more and more in developing world class educational institutions that can lead the way in science, engineering, and communications. These will form the bedrock of future economic growth.

    There is therefore an ackowledgement that foreign ownership means a lack of control, but that educated workers will remain and thrive.

    On house prices, they may indeed fall, but even a Thatcheresque fall in prices would only affect a small number of homeowners. A 20% drop in house prices would wipe out 12-18 months worth of gains over the last five years, and therefore only recent purchasers would be in difficulty. What it would do is make people more cautious, consumer sentiment would fall, and retail sales would drop, but I doubt it would be anything close to a cataclysm. In any case, it is more likely that a stabilisation in house prices will occur. The next coupld of years will be interesting, as SSIA’s mature and flood several billion disposable euros into the market, which will undoubtedly keep the housing market / bubble in its buoyant state.

    Investors are increasingly investing abroad (and increasingly Belfast too) as the rental yields here are languishing in the 2.5-2.6% bracket, which is abysmal.

    I had to look up tautology, thanks for my word of the day! It means ‘redundant repetition’, I am reliably informed. Whether NI retains a specialist area, or forms part of a greater whole in an integrated economy, I don’t know. However, NI can’t benefit from much of the economic activity in the South because of the lack of integration – tax being one area, employment law another (though admittedly a less significant impediment), and obviously currency – and is therefore only slightly more integrated than, say, Belgium and Holland. Even there, however, they have the Euro.

  • fair_deal

    George

    “It is more important to get the private sector up and running. Otherwise, you will just have a reduced public sector which will accelerate the brain drain. 70,000 were leaving the Republic a year at the end of the 80s. Why? No jobs, public or otherwise, so no future.”

    1. Hence my suggestions around regulation and encouraging entrepreneurship.
    2. Trying to sustain the unsustainable with a bloated public sector isn’t an option even if it has risks
    3. NI is importing labour and not just at entry level. So the drop in the public sector need not automatically cause a flight of human capital. It might actually contribute to ending the human resource issues some private companies face as a hamper on their development.

    “but you need to reduce the tax burden to make employment more attractive not lower the welfare provisions”

    The various UK tax credits (even if badly managed in the early years) have incentivised work more than it has been for years as has the minimum wage. So that dog doesn’t hunt for me. Welfare reforms aren’t always about cuts but were you put the incentives in the system.

    “As for infrastructure investment, who will pay and why?”
    A range of sources
    1. Some of the savings from the cuts in public agencies
    2. The alternative PFI models I mentioned
    3. Local taxation
    4. A significantly high proportion of EU Peace III should go into infrastructure.
    Then having maximised the resources we can get from elsewhere try and guilt trip a bit more out of London. In the Comprehensive agreement the government showed they were willing to do this around water infrastructure (not unsurprisngly as they gave the private water companies a golden handshake when the moved it out of public ownership there) so this isn’t a pipe dream option (BUT we shouldn’t kid ourselves that is one we can keep tapping).

  • slug

    Just something to add. One think that NI can tap is a very skilled workforce willing to move back – there are maybe 50,000 (very rough guess) skilled people who would be interested to move back home to NI if the high skill jobs were there. Here is where George is onto something about what positives there are possible if a high-skill private sector got up and running. Hard to get the ball rolling but the rewards are there if it does.

  • Absolutely, slug, all part of the ‘Peace Dividend’. Once the economy got going down South, thousands of ex-pats came home to new well paying jobs.

  • Garibaldy

    Anthony B,

    Enjoyed your post a lot, just one or two comments.
    As someone who is part of the knowledge economy (at least sort of), it is an encouraging sign that there is major investment in this area, but a few caveats. The truth of the matter is that the extent to which the Republic can produce world-class educational institutions is limited. Irish universities just cannot offer the research budget and facilities of places like Oxbridge, never mind the major American universities. There’s also the factor of weather, collegiality etc. On top of that, TCD has had several professorships turned down due to the fact that it would be impossible to buy a house in Dublin on the salaries, which are more generous than the UK. So a few world-class figures in certain areas certainly, but the hold on these people, particularly if they are not locals, will be tenuous.

    The real question is, who will benefit from the knowledge economy? Can Ireland provide its own telecommunications, medicine, and scientific industries, or will the benefits be felt elsewhere? And will the profits be exported by multi-nationals? Wealth will continue to be created, but could more wealth be kept at home than is currently the case? Will comparable numbers be employed?

    The housing market at some point I suspect will experience a crash, and as you point out that will have a knock-on effect. The SSIAs you point to are, in a longer-term perspective, temporary in so far as when that money is invested in houses, where will the replacement capital come from?

    Peace dividends can be dangerous – ask the shipyard workers across Britain where the promised benefits from the end of the Cold War went.

  • such a major strategic shift would have undoubted international and regional political repercussions, and would need to be carefully managed by all stakeholders. For example, Scotland would want it too.

    I suspect that is actually Scotland which will pave the way for Northern Ireland in terms of fiscal autonomy.

    The Scottish Liberal Democrats’ Steel Commission put out a very interesting paper on the subject recently, which may well form part of the basis of any coalition deal they enter in 2007. Even the Scottish Tories seem to be moving in a similar direction, since they’ve realised there’s little incentive to elect them to a Parliament which controls spending but not taxation.

  • PHIL

    English,

    “The difference is Northern Ireland is of no strategic or economic value to England anymore, unlike before. In fact it is a rather costly exercise.”

    Are Scotland and Wales not also a burden on England? Whatever benefit the union was to England in the past, I can’t see one now or in the future.

    Scotsman,

    “Probably those with most to complain about are from northern England.”

    Too right. As someone from the “prosperous” south of England, I rather resent the fact that more of my taxes are spent in foreign countries than on less affluent parts of England.

  • Mick Fealty

    Have you got a link to that Tom?

  • The Steel Commission report can be found here.

    Iain McWhirter’s commentary on it in the Sunday Herald might also be worth a look.

  • George

    Fair_deal,
    I know we may be talking chicken and egg here about what comes first, cutting the public sector or increasing the private sector but I don’t think it is possible to avoid an initial brain drain of graduates from NI as the public sector cuts mean there are no jobs for them.

    To encourage entrepreneurship, you first have to have the talented workers available. At the moment they aren’t there en masse as too many are lording it up in the public service.

    I agree that trying to sustain a bloated public sector isn’t an option but I equally don’t see a way around the pain of reducing employment in that area while the private sector is still too small to take up the slack.

    Also, as NI is weaned off its dependence on the state by reducing the scale of the public service, this will reduce the level of demand in the economy. This means less jobs.

    “3. NI is importing labour and not just at entry level. So the drop in the public sector need not automatically cause a flight of human capital. It might actually contribute to ending the human resource issues some private companies face as a hamper on their development.”

    I think you are being overly optimistic here.

    Northern Ireland increased its workforce by just over 4,600 in 2005, which hardly indicates a massively expanding economy with labour shortages.

    The Republic increased by 100,000 in the same period and has a higher rate of unemployment. If you take away new public sector jobs created in 2005, you may actually find that the numbers working in NI actually dropped over the last 12 months.

    “The various UK tax credits (even if badly managed in the early years) have incentivised work more than it has been for years as has the minimum wage. So that dog doesn’t hunt for me. Welfare reforms aren’t always about cuts but were you put the incentives in the system.”

    All I know is that 74% more people are on incapacity benefit in NI than should be and that percentage-wise to the Republic and GB around 100,000 less people are working than should be. Whatever the incentives are, they don’t seem to be working in Northern Ireland.

    Throw in the fact that NI’s population is much older than the Republic’s and I just don’t see a way around a painful transition. In 1987, when the Republic bit the economic bullet, over half the population was under 25. Today, nearly 20 years later, the NI baby boomers are around 10 years older than the current age of their counterparts in the Republic.

  • English

    English,

    “The difference is Northern Ireland is of no strategic or economic value to England anymore, unlike before. In fact it is a rather costly exercise.”

    Are Scotland and Wales not also a burden on England? Whatever benefit the union was to England in the past, I can’t see one now or in the future.

    Scotsman,

    “Probably those with most to complain about are from northern England.”

    Too right. As someone from the “prosperous” south of England, I rather resent the fact that more of my taxes are spent in foreign countries than on less affluent parts of England.

    Phil,

    I agree, the Union Jack is all but a dead flag, the Cross of St George has overtaken it. Why? I feel that English people have developed a greater sense of identity, and certainly do not associate themselves as British. The Scots (apart from Unionists) and Welsh are doing the same – they also have stronger self identity. Whilst, many Unionists over here in Northern Ireland may as well be living in the 1600’s!

    The Union has served England well, but devolution is now the best way forward, as Union has no strategic or economic benefit to England anymore.

    In relation to the North of England, I feel that you are grossly underestimating it. It’s major cities such as Liverpool, Manchester and Leeds are thriving in relation to what they were 25 years ago. The North of England can look after it’s self, which is more than can be said for Northern Ireland, Wales, and to a lesser extent Scotland.

  • Dread Cthulhu

    Jim: “Britain has “no selfish, strategic or economic interest” in Northern Ireland.. I think that says it all in many ways. If you couple that with Peter Hain’s call for ‘an all-island economy’ then that window sill of teh Union the Unionists are sitting on is a window sill that was bought, built and owned by the Euro.”

    And that is the the beginning of the end. All the has to happen is the development of a integrated economy and a slow defunding of the overgrown state economy.

  • The obvious anomaly that’s alluded to in the original post, but which hardly features in this thread, is that none of the nationalist parties appear to have grasped the need for tight fiscal control: ie they talk a good talk on self determination, but its pre-requisite (fiscal responsibility) is, by and large, only reflected in policy terms by the DUP.

    To an extent this is a function (as Tom has alluded to above) of only having control of spending. But it seems the DUP was aware of it when they put together their water rates document – well over two years ago.

    Given the downward pressure on a ‘new administration’ (ha – any new administration is likely only sit well over 3/4 of the way through its ‘new’ term) from the UK Exchequer, does this suggest that the DUP could be well placed to lead a new local government agenda?

  • PHIL

    English,

    Agree with what you say about the big cities in northern England, I visit many of them following my football club and for the most part they appear to be thriving. I was thinking more about former mining communities in Durham, Nottinghamshire or Yorkshire, former mill towns in Lancashire and farming communities in Norfolk or Devon etc. The Barnett formula discriminates against these communities in favour of similar areas outside of England. This would not happen if England left the union.

  • fair_deal

    George

    “Northern Ireland increased its workforce by just over 4,600 in 2005”

    The fact the Northern Ireland Labour Market absorbed over 20,000 Eastern Europeans is a demonstration of the scope in the private sector.

  • George

    Fair_deal,
    I don’t know where you got the 20,000 figure but if it is the case, this isn’t any indicator of the economy’s wellbeing.

    If this figure is true then 15,000 locals left the workplace last year which would alarming.

    Could be true if the following story is anything to go by.

    Earlier this year Northbrook Technologies, a company in Strabane, tried to recruit 60 workers in an unemployment blackspot and was unable to fill the jobs it had on offer despite widely advertising the posts. This even though 100 textile workers were laid off in the town not too long ago.

    At the time, there was a concern that that the wages on offer compared unfavourably with benefit payments.

    What happened as a result? Migrants took the jobs.

  • Brian Boru

    Fair_deal, Id hardly call it a success when the NI income per capita is €19,603 compared to $34,000 in the Republic (world’s 4th largest per capita income). Personally, I reject your thesis. It is true that there would be a problem if in the near future, a United Ireland were to be created, due to the fact that, while a wealthier country per capita and with much higher personal incomes, the South has a far smaller population of taxpayers than the UK and as such yes, it would be a problem replacing the subsidy. http://en.wikipedia.org/wiki/Republic_of_Ireland
    http://en.wikipedia.org/wiki/Economy_of_Northern_Ireland

    That is why I have repeatedly called for the subsidy to be reduced or largely phased out, via the scrapping or scaling down of much of the bureaucracy e.g. library boards, health-trusts and other quangos, recruitment controls on the civil service. The British govt could then give incentives for private-enterprise to expand and became the dominant part of the Northern economy. Then there wouldn’t be the same need for subsidy from a Dublin government – and people would actually be better off competing in overseas export markets with billions of people rather than just regurgitating a subsidy throughout the Northern economy – a subsidy which actually makes people poorer (see the gap between the income per capitas north and south) by stifling the incentive to set up a business. East Germany springs to mind in terms of the structure of the economy.

  • Dessertspoon

    All sounds good FD but what present devolution are you referring to? All I see is Peter the Great Dictator.

  • Crataegus

    English

    I think you are making both a fundamental mistake and are running away for the real problem which is why are ALL the peripheral regions performing poorly?

    Perhaps it is because of decades of financial management that favours the economic cycles in the South East coupled with greater centralisation?

    You also underestimate the benefit of the regions to the economy of the South East. It is not just a question of tax flow but of all financial transactions between the various regions. To take a few examples; I have been looking at my insurance policies all with companies based in Greater London, I am frequently in London and own an apartment on Albany Road. So money I earn here is transferred to London, the same happens with people taking weekend holidays and transferring flights through London or ordering goods etc. If we are separate we may be more likely to develop cultural, social and economic links elsewhere. It would take time but a drift away would be inevitable and that would hit trade in the South East. It may only be a few percent but compounded over years that can be significant.

    In tax I support all sorts of daft things like the war in Iraq and I doubt if this is of any benefit in NI but I am dammed sure that there are people employed in the South East as a result of it. Then look at lottery spending, schemes in London cost mega bucks compared with those in Newcastle or Durham.

    Give the regions greater control and responsibility over their own finances and I bet you will start to see real change. Repartition is not necessarily a solution for poor management.

    Locally I see little hope with the current crop of politicians.

  • John

    All citizens and tax payers are important to the success of the UK.

    Now that the terrorists in NI have been defeated by the people of NI and forced to surrender, perhaps the people of NI will have the opportunity to demonstrate their real value as succesful hard working citizens within an expansive UK which include many nations and nationalities the Isle of Man, Channel Islands, Shetland Isles etc.

  • Crataegus

    Fair deal

    Interesting list of proposals, try adding increasing the number of University places here and when at it keep an eye on the subjects on offer.

    Right now I think Tony would agree to just about anything to secure a deal here but alas our politicians are totally disunited and unable to grasp the opportunity.