Can the south afford a tax and spend north?

It seems the Republic is now the second wealthiest nation in the world. Previous urban myths amongst some in Northern Ireland had it that it was all based on hand outs from the EU. Not so. Indeed, as Newton Emerson points out in the Irish News article below, there have been some profound political shifts in the south. The mismatch with Northern Ireland’s spend and hang the consequences attitudes may be the biggest barrier to an eventual united Ireland:By Newton Emerson

The Department of Enterprise says that Northern Ireland’s economy is performing well – but Sinn Fein economy spokesman Mitchel McLaughlin is not impressed.

“The reality is that economic activity is dependent on the public sector,” he says. “Unemployment figures hide the fact that over 220,000 people are on sickness or incapacity benefits.” As a solution, Sinn Fein proposes a 10-year £10 billion ‘Peace Building Strategy’ to eradicate “regional socio and economic disparities.”

The pleasure of hearing a local politician discuss real issues is somewhat spoiled by the fact that Mr McLaughlin is talking out of his hat. Dependence on the public sector cannot be solved by adding another £1 billion a year to public sector spending. Sinn Fein’s ‘Peace Building Strategy’ would increase the NIO’s already-bloated budget by over 10 per cent, making the private sector even more reliant on government business and the unemployed even more reliant on government largesse. A better way to reduce dependence on the public sector would be to cut £1 billion off the NIO budget and return the savings to the public themselves.

In fairness to Mr McLaughlin, he is not alone in confusing this obvious point. There is hardly a politician in Northern Ireland who does not believe that handouts are a solution to economic woes – and there certainly isn’t a politician in Northern Ireland who openly believes that handouts are a cause of economic woes. The NIO is never going to put itself on a diet and far too many of our direct rule ministers are New Labour’s left-wing leftovers.

The present government has presided over an enormous expansion of our public sector, although the last government was no better and the next one may even be worse. After all, Gordon Brown’s idea of helping the poor is the ‘working families tax credit’ – the most expensive means ever devised of giving people back their own money. As a result of our long-standing charity case status, Northern Ireland is a post-Thatcher society with a pre-Thatcher economy. We got the handbag all right, but we never got the purse.

The pity of this is that shaving £1 billion off local public spending would be surprisingly painless. Hours of fun can be had playing fantasy finance minister at the NIO’s ‘Priorities and Budget’ website, where every needless imposition on the taxpayer is itemised in appalling detail.

For example, we could save £1,045 million a year by closing down Invest-NI, abolishing the dead and made-up language agencies, leaving youth and community relations to volunteers, sacking the human rights, equality and children’s commissioners, rationalising the existing number of excess school places, making students pay the full cost of their own Mickey Mouse degrees and halving the number of NIO departmental administrators. T

his would be enough to raise Northern Ireland’s income tax threshold from £4,895 to £12,276 – putting an extra £1,624 a year in every working person’s pocket, taking everyone on minimum wage out of tax altogether and completely eliminating the benefit trap without cutting benefits at all. Alternatively, if we wanted to encourage entrepreneurs more directly, the savings could be used to reduce corporation tax and retain full industrial de-rating.

Of course, such a goal is a complete non-starter in Northern Ireland – precisely because of the dependency to which Mr McLaughlin refers. Sinn Fein actually wants to raise taxes while no other local party can even be bothered to mention them. Britain won’t countenance separate fiscal arrangements within the UK and Europe has an active agenda of encouraging regional subsidies. But there is one place in these islands where the low-tax, small-state model is both healthy and popular. The Irish Republic is booming thanks to a decade of slashing back its public sector. Only the Progressive Democrats flaunt their Thatcherism openly but ruling partner Fianna Fail is happy enough to hide behind them.

Everyone in Dublin is a Tory these days – they merely differ in the extent to which they admit it. Nobody is in any doubt that low corporation tax, presently 12.5 per cent in the south compared to 30 per cent in the north, is the bed-rock of their prosperity. The Republic’s overall tax burden is just 31 per cent of national income compared to 42 per cent in the UK. So perhaps the solution to our public sector dependency is a vigorous dose of right-wing economic policies – and the best way to achieve that is on a cross-border basis. Alas, this isn’t quite the united Ireland that Mitchel McLaughlin has in mind.

  • willis

    “But there is one place in these islands where the low-tax, small-state model is both healthy and popular”

    I can count at least 3 more, and they are all in the United Kingdom. Isle of Man, Jersey and Guernsey. If their seperate status can be lived with, why not here?

  • willis

    Everyone should be given a car at Dublin Airport and told to drive to Aldergrove in case they do not understand about investing in infrastructure.

  • Brian Boru

    Our economy down here depends on exports – we export around 95% of what we produce. This allows us to harness the strength of vastly bigger markets in other countries. In NI on the other hand what is going on is the regurgitation of a Westminster subsidy. Even this doesn’t let the North catch up economically with the South, because Keynesianism just does not work. It was not throwing money at their problems that got Japan out of its 10 yr recession, but rather the free-market reforms of PM Junichiro Koizumi.

    Regarding the references to Thatcherism I agree only to a point. What we imported from that ideology is privatisation and tax-cuts – though we went further than her on corporate-taxes. But we refused to import one notable feature of her reign – rendering the unions powerless. I don’t believe in crazy French-style trade-unions but neither do I believe in completely neutered ones. Our reforms to industrial-relations legislation reflected the need for this balance. We forced the unions to ballot their members before strikes, and to give a certain period of strike notice. But we did not send cops or the army onto the streets to smash and arrest strikers. The “Irish model” is one which removes disincentives for business to increase employment and punitive taxes, while leaving the unions with enough influence to stand up to the worst kind of employers. Of course, the latter isn’t much good if your company doesn’t allow unions, as with most of the US multinationals. But the unions still have an important role in negotiating the National Pay Agreements (current one being Towards 2016) where they can put their case for workers rights in return for industrial peace in talks with the bosses and govt. This helps reconcile – unlike the British situation and its castrated trade-unions – the free-market with a social-conscience. Because we believe there is such a thing as society. At least South of the border. 😉

    On the question of an economic barrier to a UI, as I have already said, I believe this will erode over time. Hain has already signalled reforms like cuts to local-govt bureaucracy. If I were him I would next look at the library boards and education boards, which seem like jobs for the boys to me. Over time, the public-sector would hopefully be trimmed so as to stimulate people into entrepreneurship and this, together with tax-incentives will hopefully return the North to the private-sector based economy it once was. However the holy grail of corporate-taxes comparable to the Republic will probably remain as elusive as the real one…until 26+6=1 again!

  • Henry94

    Susan McKay’s article about Ballymena in this mornings Irish Times makes depressing reading. How can people who exist in that reality be expected to adjust to the modern world?

    Northern Ireland exists for the same reason East Germany existed, because of the interference plus the military and economic support of a large and powerful neighbour.

    That it is an utterly destructive relationship for the client state is now obvious.

  • kensei

    “because Keynesianism just does not work.”

    What a nonsense statement, and what a profound lack of understanding of Keynesianism. Odd then, that when President Bush was faced with a potential recession he launched a huge cut cut in a clasic Keynesian move. And a voided a full blown recession, btw. We are all Keynesians now, just as we are all monetarists now and sensible governments use both in a wider economic policy.

    Public spending and personal taxation is more or less a matter of political will and preference; the Nordic countries are in many ways more successful than Ireland if you extend beyond pure economic measures. Sadly corporate taxation must stay low, because we are in a race to the bottom.

    Over 70% state dominance? Even Sweden would baulk. Clearly too high and the public sector needs slashed. Not the same as wanting Reaganism and red claw Capitalism. The South could do with being pulled to the Left a wee bit anyway, forcing it to look at some of the inequality that has arisen.

  • Yokel

    Can it afford it? No.

    Next question.

  • John

    “220,000 people are on sickness or incapacity benefits” –

    We’re spongers, that’s the problem. We’re too use to getting hand outs. 5 Billion in subvention every year from Great Britain. Is this because we have no pride in ourselves because of a deep down lack of national identity, ie we’re not really British or not really Irish?

  • slug

    Don’t be so hard on yourselves everyone!

  • John Maynard

    Yes, but can anyone explain why Sinn Fein thinks increasing public spending is the key to ending public sector dependency?

  • Young Fogey

    Wills, the Isle of Man, Jersey and Guernsey are not in the United Kingdom.

    Doesn’t anyone else get amused that retread Socialists in the SDLP and Sinn Féin start breathing heavily in excitement when they talk about the neo-Thatcherite economy of the Republic, which incidentally would see every dubious language activist and community worker sacked if applied in the North.

    At the same time, the allegedly right-of-centre Unionists spend their time moaning that their ex-paramilitaries don’t have enough taxpayer-funded, make-work, jobs, and completely failing to understand the reasons for the economic boom in the South.

    Does Northern Ireland need a John Cowperthwaite?

  • slug

    John Maynard. If the public spending is targeted at helping business. If its on good health and education, and good infrastructure, then its good for business.

  • John Maynard

    Errr, no it isn’t. Are you not familiar with even the Keynesian concept of ‘crowding out’?
    Directing public spending at business encourages dependency on the state just as much as any other form of welfare.

  • Nestor Makhno

    Newton – One in five children in the Republic lives in poverty. You don’t hear much about them because they don’t write to the Irish Times or have shows on RTE.

    The success of the last decade has been very asymetrical – sure a large number of people have made a shed load of money. But the inequalities in Irish society are big – and they’re widening.

    The weakness of the monetarist argument is the belief that given a level playing field everyone will get a fair share of the spoils.

    The reality is that a large percentage of the population enter the market at a severe and often unbridgeable disadantage (generational poverty, poor education, lower than average intelligence, etc.)

    That’s why we need the state to intervene to make sure that those 20% of kids do not end up in the gutter. Yes, the country needs wealth to afford to do this – but the social programmes which Newton seems so dimissive of – ‘youth work can be left to volunteers’ – play a part in making our society a bit more humane.

  • kensei

    “Errr, no it isn’t. Are you not familiar with even the Keynesian concept of ‘crowding out’?
    Directing public spending at business encourages dependency on the state just as much as any other form of welfare”

    And you didn’t read what was said.

  • slug

    “Errr, no it isn’t. Are you not familiar with even the Keynesian concept of ‘crowding out’?
    Directing public spending at business encourages dependency on the state just as much as any other form of welfare. ”

    Crowding out in the traditional Keynesian sense (as described in the General Theory) is through of the effect that an increase in government spending has on interest rates, which then chokes out private investment. This is unlikely to apply in a small region like NI since NI conditions have only a very small effect on the Bank of England. In a looser sense it is possible there is crowding out if all the best workers go to the public sector. However there is also the concept of “crowding in”. For example, it is often forgotten that the high level of investment in education was instrumental in the success of the Irish economy. That was public sector investment. So if public spending is investment, in health, in education, in infrastructure, then it can help business.

  • David

    From what I can see one of the few points of agreement between unionist and nationalist politicians in Northern ireland is that the UK cash cow has to be milked for more money.

    For NI to have any long term future the public sector dependency has to be broken, yet nobody in the political world wants to state this quite obvious fact.

    There is no incentive for unionists to work for economic viability, because the current dependency makes a united Ireland impossible. There is no incentive for nationalists to work for economic viability because an economically functional Northern Ireland would be very difficult to describe as a “failed political entity”.

    In short, do not expect any change from here.

  • slug

    The NI economy has greatly improved over 10 years. Its still got a long way to go but I think its currently moving its way from worst UK region to somewhere within the range of the UK regions. In terms of GVA per head. There is certainly an issue of public sector dependency but I think while there is scope for public sector cuts, the greater scope is for private sector growth. That is happening, although its gradual. I would expect that a country containing the very wealthy world financial centre of the City of London will always have transfers to its regions. So I think all the self-flagellating can be overdone.

  • Stephen Copeland

    Nestor Makhno,

    One in five children in the Republic lives in poverty …

    You’re actually referring to risk of poverty, rather than actual consistent poverty. Neither is good, of course, but the actual figure for persons in consistent poverty are as follows:

    Ages 0-14 (2003): 12.2%
    Ages 0-14 (2004): 9.5%

    So, bad figures, but decreasing.

    [Source: Table 4.5 on page 41 of Measuring Ireland’s Progress 2005]

  • John Maynard

    Agreed, Slug – which brings us back to the point of why Sinn Fein thinks it can solve this problem by making it worse to the tune of £10 billion.

  • fair_deal

    MICK

    Give me a ring want your approval before I put up a possible fundrasing thread.

  • Animus

    So young people’s services should be staffed by volunteers? Most of them already are, but as the services are required to be more professional, incorporate best practice on governance and child protection, etc, a paid-for service is required. Do you want to argue that children’s services are not worthy of a professional, well-maintained service? Youth services are vital to informal learning, and more importantly, keep the nippers off the street. Kids in youth services don’t tend to tangle as often with the police, so one might see it as an investment, rather than a waste of taxpayer’s money.

    And as for the equality and human rights commissions, isn’t there a duty on the state to ensure that those least able to look out for their interests should be protected by the state? Or should kind-hearted volunteers step up to ensure that our most vulnerable citizens are cared for? That’s not very likely is it? Isn’t there a degree of expertise required? (By the way the south has an Equality Authority itself which is pretty successful and a human rights commission which isn’t.)

    My own view is that if structural inequality is dealt with well, there will be less likelihood of long-term illness and benefit dependency. And for all the guff about benefit fraud, what about the huge numbers of people who are entitled to benefit, but don’t know it? (About 1 in 3 pensioners is entitled to more benefit than they claim.)

  • slug

    “Agreed, Slug – which brings us back to the point of why Sinn Fein thinks it can solve this problem by making it worse to the tune of £10 billion. ”

    If that £10bn was targeted on things like:

    1. Building up some good research centres at Queens with potential for high teh spin offs

    2. Building up better numeracy and literacy levels especially for those more deprived communities where educational underachievement is greatest.

    3. Transport communications and and utilities infrastructure including the light rail e-way in congested East Belfast.

    4. Investment in health to shorten waiting times.

    5. Government tax relief on R&D-intensive expenditure.

    …then spending £10bn would be investing in the future, making things better for businesses. Businesses would have access to a healthier better educated workforce, who would have free access to healthcare, and an uncongested commute to work.

    Therefore, on the question of Sinn Fein’s £10bn idea, it could help the private sector, depdending on how it is spent.

  • John

    I’d like to hear a bit of realism from the Unionists here. Do you agree that a heavy dependency on the money from GB is in fact holding NI back economically and socially?

  • John Maynard

    It’s not the unionists demanding an extra £10 billion.

  • Brian Boru

    “Newton – One in five children in the Republic lives in poverty. You don’t hear much about them because they don’t write to the Irish Times or have shows on RTE.”

    Can only be true of “relative poverty” which means earning half the average industrial wage. The flaw in considering this true poverty is that it means that every time the average industrial wage increases so do the numbers of “impoverished”. Even the poor are now far better off with the social-welfare increases for the unemployed and sick. I prefer “absolute poverty” as a definition.

  • kensei

    “Can only be true of “relative poverty” which means earning half the average industrial wage. The flaw in considering this true poverty is that it means that every time the average industrial wage increases so do the numbers of “impoverished”. Even the poor are now far better off with the social-welfare increases for the unemployed and sick. I prefer “absolute poverty” as a definition.”

    Of course you do, because it means you can shut your eyes and ignore it. It’s not real poverty anyway.

    Relative poverty can be just as damaging to a society as absolute poverty. Actions that would be an overall benefit to society can be blocked as they would cost people who are at the top of the food chain.

    But that also assuumes relative poverty is a picnic. What would under half the minimum wag be? Somewhere in the range of £10-15,000 family income? I’d not fancy raising kids on that.

  • idunnomeself

    kensai,

    but your arguments miss the point that the poorest have far more money in their pockets now that they used to have (in the ROI). They feel a lot better off, their housing in better, they are better fed and clothed and so on.

    For example in Northern Ireland one of the indicators of poverty is that you don’t have a computer for the children to do homework on.

    Now I didn’t have a computer when I was small and I can’t say I was either damaged or impoverished. The goal posts have just moved.

    It’s a totally different conversation about relative poverty and it is disingenuous to use the language of the ‘absolute poverty’ debate in a discussion about relative poverty.

  • Young Fogey

    Neston Makhno

    That’s right. The South was much better before the economic boom. After all, when 20% of the population were unemployed, there was much less inequality in the country. And having 100,000 odd people a year emigrate was ay-okay as well.

    The Republic was a much better place when it was full of potholed roads, crumbling buildings, child bronchitis, toothless old women and unwashed traveller children smelling of paint thinners.

    It doesn’t matter how much poverty there is, as long as it’s spread reasonably equally.

    Go to the top of the class.

    Animius

    incorporate best practice on governance and child protection, etc, a paid-for service is required. Do you want to argue that children’s services are not worthy of a professional, well-maintained service?

    What you are saying is that we need more state funded ‘voluntary’ sector jobs to develop complex, over-bureaucratic plans which make no practical difference becuase nobody reads them anyway because nobody has the time.

    Incidentally, the creation of all this formal child-protection machinery has exacerbated the fall in the number of people willing to give time to voluntary work with children, turning it into a collapse. Especially in working class areas, a century old network of kids’ football teams, church youth groups, scouts, etc., is close to collapse. Partly, the criminal record background check scares people, especially men who’ve had a minor theft/drugs/vandalism conviction when they were teenagers. Partly, the form filling scares people off in and of itself. And partly, the fear of false accusations scares people, and I’ve heard enough horror stories for me not to regard that as an idle fear.

    Whatever, the political lobbying of the professional voluntary sector has ended up destroying true voluntarism.

    kensei

    What would under half the minimum wag be?

    I don’t know, but surely that would be illegal, anyway? The proverty figures in any case aren’t based on half the minimum wage, but half the average income. Quite a difference. I wonder to lefties geuinely not understand these sort of things, or do they deliberately misunderstand to boost their own case, kind of like the Equality Commission comparing female part-time earnings with male full-time earnings.

    Not, of course, that bringing up a family on £12k is a barrel of laughs, but surely taking everyone on the minumum wage out of tax would be better than paying for a lot of middle-class, sociology graduate, layabouts to feel their pain – and be their ‘advocate’, whether they like it or not.

  • “I’d like to hear a bit of realism from the Unionists here. Do you agree that a heavy dependency on the money from GB is in fact holding NI back economically and socially? “

    Yes. Completely. I think the public sector should be slowly eroded (rather than dramatically cut) so as to allow the redundant workers to move gradually into the private sector instead of releasing all of them onto unemployment at once.

  • John

    http://u.tv/newsroom/indepth.asp?id=75077&pt=n

    Does the reduction in adult drinking indicate a society that is more content and fulfilled? I wonder if the adult drinking levels are down here in the North?

  • J McConnell

    Its articles based on junk numbers like the BOI ‘report’ that convince me the the ROI is absolutely guaranteed to have a Japaneses style economic train wreck in the next few years.

    75% of the BOI reports notional wealth measure is based on property valuations in a completely out of control property bubble. Even assuming that Ireland does not suffer a complete Japaneses style property market collapse the most optimistic numbers I’ve seen is that ROI property market is 50% overvalued so come the crash there goes 25% of Ireland’s ‘wealth’ in a year or two.

    Using real numbers, GNP and PPP, the ROI is nowhere near the top even in the EU let alone the world. So in 5 or 10 years time, post bubble, NI’s economy wont look so bad in comparison with the after-the-party wreckage down south.

  • slug

    “Does the reduction in adult drinking indicate a society that is more content and fulfilled? I wonder if the adult drinking levels are down here in the North?”

    Hope so! NI has the lowest per-capita alchohol consumption rates in the UK.

  • Animus

    Young Fogey – the number of sports clubs is on the rise and church groups are thriving. I concede that one of the reasons scouts and other groups are seeing fewer volunteers is that they are getting too old and leaving. The myth of the working class, spirit of the blitz, everybody pitch in in the community is false. They aren’t being scared out by child protection – just another excuse for not getting involved. Not buying it.

    Nowhere did I imply that voluntary sector workers should carry out ‘bureacratic plans’ but I am saying that after schools clubs and evening youth club provision should be properly maintained and administrated. Many people who volunteer are working themselves and it would be onerous on them to carry the weight of the system.

    I don’t think voluntarism has been destroyed by lobbying. I work for an organisation which delivers services, uses a huge number of volunteers and works on policy development. This is a good way to ensure that policy works in practice and to develop policy given evidence of need. This old lament of what it was like in the old days is a bit rose-tinted and forgetful. In any volunteering activity, there has had to be someone organising behind the scenes. For many services that requires full-time work. Would you like to work for free for your entire week? Giving a few hours a week or month is one thing, but do you expect someone to work so hard for nothing?

  • Brian Boru

    “Using real numbers, GNP and PPP, the ROI is nowhere near the top even in the EU let alone the world. So in 5 or 10 years time, post bubble, NI’s economy wont look so bad in comparison with the after-the-party wreckage down south.”

    Well on GNI (more accurate barometer of living-standards than GDP) we are still 116% of the EU average. Also, remember that some of the countries supposedly higher than us on this actually have lower take-home-pay because of super-high taxes.

  • kensei

    “but your arguments miss the point that the poorest have far more money in their pockets now that they used to have (in the ROI). They feel a lot better off, their housing in better, they are better fed and clothed and so on.”

    No, I don’t miss the point. There has been improvements, but don’t kid yourself this is a barallel of laughs or it doesn’t matter. It does.

    “I don’t know, but surely that would be illegal, anyway? The proverty figures in any case aren’t based on half the minimum wage, but half the average income. Quite a difference.”

    Bah. It was a typo. I meant average, and the point still stands.

    “Not, of course, that bringing up a family on £12k is a barrel of laughs, but surely taking everyone on the minumum wage out of tax would be better than paying for a lot of middle-class, sociology graduate, layabouts to feel their pain – and be their ‘advocate’, whether they like it or not.”

    On the second bit – what? Stick anyway from the rants, love.

    Anyway, taking them out tax would help them, yes, but it’s not necessarily the best way to go about it. And it would probably have to be balanced by pushing the taxation up the scale, not that I’m against redistribution. In the long run, probably having a decent the minimum wage, good education and good health is going to count for a lot more.

  • Greenflag

    ‘surely taking everyone on the minumum wage out of tax would be better than paying for a lot of middle-class, sociology graduate, layabouts to feel their pain – and be their ‘advocate’, whether they like it or not. ‘

    Precisely YF 🙂 Just look at what the never ending supply of ‘advocates’ have achieved in NI in the past 40 years ?

    The lowest GDP per person of any region in the UK and the lowest in western europe . A 70% public sector dominated economy and apparently 200,000 people living off disability ?

    Obviously nothing rotten in the State of Denmark but a whole lot rotten in the ‘failed entity’!

  • Greenflag

    ‘Even assuming that Ireland does not suffer a complete Japaneses style property market collapse ‘

    Apparently the Japanese property market collapse has not affected the Japanese still rating number 1 in the ‘net worth /wealth’ league table .

    ‘So in 5 or 10 years time, post bubble, NI’s economy wont look so bad in comparison’

    The present construction boom is predicted to go on for another 15 years . Everybody knows that property values are inflated so the effect of a bubble burst will be minimal .

    Property prices have risen world wide in the past decade . Ireland is not alone in this phenomenon . Even NI with it’s miserable rate of economic growth and it’s decaying public infrastructure has seen property prices increase in recent year .

    The challenge for the Irish Republic is straightforward enough . Bertie Ahern knows it will be an issue in the election and that is making housing affordable for young people starting out in life . There will also need to be an increase in the supply of public housing for a rapidly increasing population as part of an overall policy .

    Confidence builds on itself and despite the possibilty of a future small reduction in property values the overall outlook remains largely positive .

  • John

    “Its articles based on junk numbers like the BOI ‘report’ that convince me the the ROI is absolutely guaranteed to have a Japaneses style economic train wreck in the next few years.”

    Funny how things are contorted to suit. Irish (per capita) have 14% disposable income, up from 7% a few years ago. Uk have 5% and USA have 1%, and wait for it, Japan have 16% disposable income!!!! ROI have over 33,000 millionares. We’ve been hearing of the Celtic Tiger dying over 6 years ago!!! The Irish are the second wealthiest nation in the world, yes the world!!! Does this annoy the Unionists with their caps in hand Oliver Twist style, “please sir, can I have another 5 Billion”?

  • John Maynard

    ‘the Unionists with their caps in hand Oliver Twist style, “please sir, can I have another 5 Billion”?’

    …or the Shinners, with their caps in hand Oliver Twist style, “please sir, can I have another 10 Billion”?

    I’m still waiting for some of the sneering republicans around here to explain why Sinn Fein thinks more public spending will reduce public sector dependency, or help to mesh our economy with the low-tax right wing economy to the south.

  • Greenflag

    ‘So perhaps the solution to our public sector dependency is a vigorous dose of right-wing economic policies ‘

    If NI was an ‘independent country’ and/or a normal democracy where the politicians were fully accountable to the electorate there would at this stage be no other choice than your ‘vigorous dose’ of right wing economic policies . At this stage the NI private sector is so small that any major redundancy in public sectors could not be absorbed by the private sector . Given the ‘sectarian’ nature of the NI State the sole concern of the local politicians would be how many of our ones would suffer as opposed to them un’s .

    This is why NI is not only a failed political entity but also a failed economy. It cannot stand alone and the truth is it never could . Even in the heydays of Empire the NI State was buttressed by the English taxpayer . They have become so used to the drip that they have never had to consider economic existence without it.

    The local politicians are squabbling over who gets to choose how exactly the English taxpayer’s money gets to be spent in NI. Meanwhile the NI politicians are looking for more public sector funds in order to wean NI off public sector dependency ?

    Surreal is not the word . The ‘dependency syndrome’ manifested at it’s most ludicrous ?

    Most of the NI electorate continue nevertheless to indulge their politician’s fantasy! Someday they may be prepared to admit that these ’emperors’ have no clothes !

  • Travis

    What about this t hreat to the Irish economy-

    http://www.thepost.ie/post/pages/p/wholestory.aspx-qqqt=DA

    VID MACWILLAMS-qqqs=commentandanalysis-qqqsectionid=3-qq

    qc=5.2.0.0-qqqn=1-qqqx=1.asp

  • John Maynard

    So it’s hello to an all-Ireland monetarist policy then?
    There’s been a lot of comment on this thread about how useless Northern Ireland is – mostly, I suspect, to avoid comment on how useless Sinn Fein’s economic platform is.
    This article suggests a small-state, low-tax united Ireland as the only viable solution to NI’s problems.
    It is noticeable that the united Ireland lobby hereabouts doesn’t want to talk about that.

  • Travis

    Ireland could learn a lot from Hamburg’s economic model

    09 July 2006 By David McWilliams

    The docks in Hamburg are one of the most impressive industrial sights you are likely to see. I realise that only economic nerds like myself can get off on looking at docks, ships, cranes and the like, but here is the best place in Europe to see globalisation at work. Enormous Chinese tankers offload tonnes of computer equipment, while the docks themselves are a testament to the endurance of German engineering on its way out for export.

    Further inland, the river Elbe is jammed with barges laden down with goods from the German heartland, all progressing relentlessly to the docks and on to the rest of the world.

    But Hamburg is not only about trade in ‘‘hard’’, heavy German stuff. It is also about design, architecture, insurance, finance and numerous other ‘‘soft’’ activities which combine to ensure that this is the richest city in Germany. The city has been trading for centuries. It was the centre of the Hanseatic League in the 12th century – the earliest forerunner of the EU. The league was a free-trading arrangement between cities which stretched from Russia to Belgium. Like today’s EU, it had its own taxes, currency and migrants from all over northern Europe who travelled freely and set up businesses in an area stretching two thousand miles.

    Back then, salt made Hamburg rich.

    Great salt flats just off the North Sea coast gave the Hamburgers a monopoly in the most valuable commodity of the Middle Ages. Salt preserved food and, as such, it was essential. The more food that you could preserve, the greater the self-reliance of cities and thus the higher the price merchants would pay for it. Salt facilitated the export of meat and fish which, without salt, had to be consumed immediately. Salt was the key commodity behind the Middle Ages expansion of trading cities, a bit like the computer these days. Salt flats were the 12th-century equivalent of Microsoft, Intel and Dell producing computers, software and hardware in your city.

    From this base, Hamburg expanded relentlessly. What makes today’s Hamburg so fascinating is that it is a vibrant, self-confident city which produces such a diversified range of products and is not particularly over-reliant on any one industry.

    I visited the city a few weeks ago, when it was in full World Cup swing, and was struck by the fact that the football tourists associated with the tournament were welcomed but not fawned over. Yes, they were important, but so are the local designers who have a much more permanent impact on Hamburg’s society.

    Hamburg has learned the lesson of globalisation for great cities and regions: it is crucial to do many things well and not be over-dependent on one thing.

    This brings us to Ireland. Our economy has no depth. We are desperately over-dependent on two sectors: construction and computers. The history of economics tells us that mature regions move from being suppliers of one or two things to being producers and consumers of many things. Great regions diversify, while regions that have their day in the sun and then disappear, almost incomprehensibly, are those that lean too heavily on one commodity or another.

    For example in medieval times, Sardinia supplied most of Italy with cheese – but only cheese. This made the island rich, until other agricultural regions copped on and Sardinia fell back into poverty. Likewise, anyone coming back from the Canaries this week can’t but be struck by the old wealth evident in cities like La Laguna. Where did that come from?

    In Renaissance times, the Canaries supplied all the sugar cane to all of Europe – but only sugar. This made it unfeasibly rich for awhile – which explains the great buildings – because building booms are often coincident with periods of dramatic increases in wealth.

    That was until Europeans discovered the Caribbean and, with imported black slaves from Africa, harvested sugar at a fraction of the cost of the rich peasants of the Canaries. Up until recently, Wales was one of the world’s largest exporters of coal, importing thousands of labourers from Ireland to mine the stuff. Today, these Welsh villages are backwaters.

  • Travis

    David McWilliams continues…..

    I could go on, but you get the picture. If a region is simply a supplier of a small number of products upon which it is highly dependent (even if they are in great demand), it leaves itself vulnerable to others coming in and undercutting it.

    We in Ireland should heed these lessons because, not only does economic history have a habit of repeating itself, but today’s globalisation truncates economic cycles, making periods of ascendancy shorter. I have made the point before, but it is worth reiterating – that 87 per cent of our total exports come from American multinationals that employ only one worker in every 20.This is dependence of the Sardinian cheese variety.

    The other commodity on which we are highly dependent, is other people’s money. This drives our crazy property market, over which we have no control.

    This week, I listened to the Minister for Finance, Brian Cowen, saying that he ‘‘hoped’’ the recent interest rate rises in Europe would dampen some of the speculation in Irish property.

    It is disconcerting that a minister can only ‘‘hope’’ that the activities of someone else might affect our speculative urges, but then again, he was only being honest.

    Irish politicians and the establishment class have no control over what happens.

    By joining EMU, we have given away all competence over the turbo-charged property market. All the while, the property business sucks in money and people, throwing off increases in ‘‘wealth’’ and tax revenue. But both of these are illusory.

    First, the wealth is an illusion. Property booms don’t make societies wealthy, they simply transfer wealth from one section of society to another. In our case, it is from the young to the old, the landless to the landlords.

    Furthermore, when we read articles trumpeting Ireland’s housing stock as being worth €400 billion, we need to ask: who says so? Who will buy Ireland’s housing stock? What foreigner has any interest in bidding for our entire housing stock? Is it liquid? I don’t think so.

    The second result of the property boom is a huge increase in tax revenue from stamp duty and the like. But this is simply a transfer to the government of money we have borrowed largely from foreigners via the housing market. It is no miracle, but rather a piece of basic mathematics that a child in national school could work out.

    ‘‘If I take ten apples from Johnny and give them to Jim who gives them to Mary, how many apples does Mary have?’’ All this does is play a trick on us, so that, when the revenue from houses slows, we will have a huge hole in the public finances.

    A good example of this carry-on was seen in Finland in 1992. Its property market stalled and the next year the budget went from a surplus to a deficit of 15 per cent of GDP.

    Getting back to Hamburg, most of the football tourists will have left Germany by today, the day of the World Cup final.

    The tournament was an organisational triumph, and Germany and Hamburg’s reputations have been enhanced. Tomorrow, the city and region will get back to the business of trade, commerce and high-end design, safe in the knowledge that it is a diverse, mature, trading entity.

    This is what a well-balanced economy looks like. Ireland, on the other hand, looks more and more like a two-trick pony having its day in the sun but blowing our cash and putting little in place for the next generation. Medieval Sardinia comes to mind. As they said in Monty Python’s Life of Brian: ‘‘Blessed are the cheesemakers.”

  • slug

    “The Irish are the second wealthiest nation in the world, yes the world!!! Does this annoy the Unionists with their caps in hand Oliver Twist style, “please sir, can I have another 5 Billion”? ”

    Not at all. I am pleased about it.

  • Fraggle

    J McConnell, you are talking rubbish. Please supply figures to back up your silly claims. FYI, Ireland’s GNI PPP was higher than the UK’s for 2005.

  • Greenflag

    ‘why Sinn Fein thinks more public spending will reduce public sector dependency’

    I don’t know about ‘sneering republicans’ but I know that the vast majority of Irish voters will not vote for politicians whose response to the economy dying from overdosing on public sector spending is to prescribe more of the same ? . SF are not keen on a 6 county economic recovery and may indeed have a vested interest in a) the demise of NI (their stated objective) and/or b) the bleeding dry of HMG and the long suffering English taxpayer.

    ‘ or help to mesh our economy with the low-tax right wing economy to the south. ‘

    There will be no meshing. NI does not have an economy to mesh with . In the event of a UI there would be a ‘buy out’ of any significant sized private sector firms in NI by the Republic’s companies . The NI public sector would be amalgamated with the Republic’s and then the ‘overstaffing’ would be phased out with early retirement and non replacement . As NI has missed the major inward investment boom of the 1990’s the NI economy will have to rely on significant sums of new investment coming from the Republic. NI can reasonably expect ‘significant economic pain’ in any UI transitional situation .

    A repartition solution would be more easily affordable for the Irish Republic and would allow for the greater focus of economic investment in those areas of NI which due to political and geographical factors have always been disadvantaged .

  • Greenflag

    ‘Ireland could learn a lot from Hamburg’s economic model ‘

    Perhaps the German economic model would be a better fit . In the 1970’s the number of medium size engineering firms in West Germany was slightly greater than their equivalent in the UK . Through development of specialisation in niche market areas the number of medium size German engineering companies has been able to increase and as a result of new computer technologies many of these ‘medium’ size engineering companies while still based in Germany employ millions ( 4 million IIRC ) overseas. Contrast the German result with that of Thatcher’s impact on British engineering ?

    There was a very intersting article a few weeks back in the FT on the German economy and in particular on the success of it’s engineering sector .

    Ireland apart from a small area around Belfast has never had much of a tradition in the engineering ‘sector’ . The loss of the traditional industries in NI has meant a corresponding loss to the engineering sector which supplied and supported those industries .

    Maybe economist Friedrich List was right after all ? List’s ‘economic moral’ was that those countries which made the machines which made the machines that made the money ended up on top of the ‘economic ladder’

    In List’s day there was no global economy and mass democracy was only on the horizon . There was no fast developing China or India either .

    We know that Ireland cannot rely on salt or cheese (although Kerrygold has made inroads into China ( In construction CRH /Oldcastle has made huge inroads into international markets . Many Irish companies have invested millions abroad simply because our local domestic market is too small. Every small country faces that same situation .

    Ireland will have to find it’s own longer term solution to over reliance on some sectors. But Ireland is no different in this respect than any other country past or present in that the first stage of economic growth has to be financed from capital growth which can only happen through domestic economic growth and significant investment both internal and from abroad. You could say that as a small country we have at least reached the first stage . During the period 1700 through 1922 Ireland never even came close to getting a foothold on the economic growth ladder . Instead we were utterly dependant on the UK which had no interest in a ‘declining ‘ province when there were much better investment returns to be made form sugar , slaves and textiles .

    Hey folks we’ re doing much better than we ever did under direct British rule . Can the same be said for NI ?

  • lib2016

    Of course nobody has mentioned that German reunification was a temporary problem which is being overcome – as we all saw during the recent footie competitions.

    In the long run client states and colonies don’t do well – not in East Germany and not in NI. Even in the case of American investment in England as opposed to Ireland there doesn’t seem to be much of a competition.

    In the long run this island is one economic unit. Eventually the politics will take account of that fact.

  • John Maynard

    Yes, but what sort of economic unit?
    The Thatcher sort or the socialist-Shinner sort?

  • rafa benitez

    Yes, but what sort of economic unit?
    The Thatcher sort or the socialist-Shinner sort?

    How about the Irish social partnership model that’s been working for the last 10 years?

  • Greenflag

    ‘In the long run this island is one economic unit. ‘

    Actually longer run the world is becoming one economic unit.. This was brought home to me a decade or two back when it was exlained to me that a TV set made in Japan or Hong Kong could be transported anywhere in the world for a fiver . I can’t recall the price of the TV but the transport cost was not a barrier to trade then and is even less so now . A friend recently purchased an item on line direct from Shanghai and saved 40 euros on a comparable product made elsewhere .

    The big question which nobody seems to want to tackle is how will ‘national politics’ cope with a one world economic unit . The trend appears to be for greater regional political integration the EU , NAFTA , Asian community etc but there are whole areas of the world where the economic players are willing but their political counterparts are still on the fence . Northern Ireland’s politicians cannot agree there is a fence much less agree to sit on it 🙁

    ‘The Thatcher sort or the socialist-Shinner sort? ‘

    Another of the famed Unionist ‘black and white thinking ‘ dead ends . Looking back who can deny that Thatcher ‘rescued’ England from economic chaos despite the horror of mass unemployment? Looking forward who cannot look at socialism SF style without seeing it as the harbinger of economic ruin and misery should they ever win majority party rule with their present economic policies . Obviously people in NI do not see or want to see any economic connections beyond those of the present ‘political impasse’.As long as HMG coughs up the ‘readies’ the people are under no pressure to think outside the box of their self imposed dependency ‘coffin’?

    Two terms in the Dail will cure most SF economic ‘idealists’ of their ‘public sector dependency syndrome’ . There are very few votes out there for a poverty stricken socialist United Ireland . SF are already becoming increasingly aware of that political home truth . Unionist politicians are irrelevant to the debate anyway for they are committed to growing dependency .

    Bertie’s ‘partnership’ model works and with some further tweaking it can work better still .

  • J McConnell

    Greenflag et al

    You remind me of the person who thinks they are wealthy because they have a gross income of E60000, a 100% mortgage of E300K, 30 year ARM @4%, a E30K leased car, and a E10K limit on their credit cards….

    Of course their net income is really E40K and when the interest rates return to their historic range range of 6% to 8% they can no longer afford their mortgage or car payments, their property quickly declines 25% in value, so their house and car is reposed and their credit cards are cut up.

    No more cheap credit equal no more boom in Ireland. The equation is as simple as that.

    A lot of the people posting here have obviously never experienced a full bust / boom / bust cycle, have never had to pay a mortgage when the interest rates were 14% plus, have never seen home prices decline 40% in a few years, or know anything about the vicious decade long recession Japan went through after its property bubble burst. Because if the did, they would be very worried at just how precarious the ROI economy is at the moment.

    Here are some numbers to think about from the CSO, Eurostat and OECD web sites. Why is the ROI the only country with such a huge difference between GDP and GNI/GNP? Why is the construction/real estate sector 2 to 3 times larger, as a percentage of GNP, than other like-sized economies? Why is the ROI the only export-oriented economy, 60% plus of GNP, where 90% plus of all exports are accounted for by non-native tax-avoiding multi-nationals?

    Now look closely at the cso trade pattern numbers. Notice how the output from the computer/software sectors has been pretty flat the last five years, in fact some of these sectors have actually declined. Notice the huge increase in pharmaceutical exports in the same period. Notice how much is accounted for by a few companies exporting to Belgium. All very odd.. Now go look at the trade and economic numbers from Denmark or Finland. A very different story.

    These are all signs of a deeply unbalanced economy. The ROI has a classic very high leverage boom/bust economy, so the greater the boom the nastier the bust. A quick search with google will provide you with a plethora of papers on the subject.

  • lib2016

    Greenflag,

    You are quite right. The day when one identity was enough is already over. There are economic blocs and now a global market, presided over by the international corporations.

    It seems to me that the trade unions will have to evolve but I don’t have a clue how that will come about. We will possibly have to invent some new kind of NGO.

  • Bill

    Funny how the RoI Central Bank is worried that the building sector is too big at 13% and nobody notices (It is the blinkers)that 33% of NI’s is governemnt.