Dragon’s Den on Northern Ireland’s economic future…

Spotlight have last week’s programme up on line. Beware though, I could only get it to work on Internet Explorer. Good idea, well done. Mike Smyth, it says, has the toughest assignment: arguing that Northern Ireland could become economically independent. Fine start though: “Northern Ireland is the grumbling appendix of the United Kingdom. First of all because it gives the host pain and grief from time to time. Secondly, nobody really knows what its purpose is. And, thirdly, as you know, at some point in the near future it will have to be removed”.Northern Ireland is currently sitting at 20% below average UK income levels and has a structural deficit of £600 million pa and rising

But it is possible, he argues, to emulate the Republic with economic independence. He notes that in 1982 “Alan Dukes, Minister of Finance had to admit to the Dáil that 30% of the taxes he had levied were going to pay foreign debt. It was only the emergence of a policy consensus to cut public expenditure, close hospital wards, sack teachers that laid the foundations of what became the Celtic Tiger. The Republic is now one of the wealthiest countries in the developed world”.

His case for independence rests on low taxation and prudent, long term international borrowing. “A negotiated, managed, phased withdrawal from the Union over five to ten years can give us the breathing space to bridge the gap”. That would allow a cut in corporation tax to a level just at or below the Republic’s rate, which he believes would become self financing within fifteen years though increased Foreign Direct Investment leading to higher wages, higher tax paying jobs.

Crits from judges: too focused on the importance of foreign direct investment, and ignores the importance of the services sector and in the start up of small business. Need to create a vibrant entrepreneurial spirit, not jobs per se.

Next up. Frank Barry. Points up the advantages of integration to a greater extent with the economy of the south, although it is predicated on the political conditions remaining the same, and receipts from the subvention remaining. It is not a case for entrepreneurs of it being either north- south relations at the expense of east-west relations. If they are good they recognise opportunities globally, whether in the UK, Ireland, Europe or the US.

The sectors involved in the Republic’s prosperity are ones in which geographical peripherality is not an issue: ie where transport costs relative to the value added are insignificant, which includes financial services or commuter software, which are transported over the Internet. But he argues that there could be a marriage between NI’s traditional heavy engineering, and educated labour with the Republic’s high tech sectors.

Successful further integration will depend on successful updating of infrastructure. Funds are being made under the Republic’s National Development Plan to improve in parallel the road connections between north and south, partly to improve the Republic’s border regions and reduce their own peripherality.

Crits from judges: No mention of the government subsidies available to the south and the low rate of corporation tax. But he disallows it happening in Northern Ireland. Also doesn’t address NI’s lack of investment in R&D, particular in its traditional engineering base.

Graham Gudeon with the case for Northern Ireland inside the UK. NI has done remarkably well inside the UK. In particular it draws great strength and stablity from the huge amount of resources put into the public services from the London exchequer. Fastest growing regional economy within the last fifteen years. Similarly far better on job creation than another region – 1/4 million jobs in the last 20 years. Unemployment below the UK average, and half the European average. Cost base is low, education is high.

He also points to the value of the subsidy – £6 million or three thousand pounds for every man, woman or child. He reckons it would require a doubling of income tax. Productivity levels are low, which he believes could be achieved with lower profits based taxes.

Crits from judges: Brown won’t give on UK wide corporation tax – it would be easier to gain outside UK. No point in having a regional assembly, if there is no economic powers.

Judgements: Lorraine Sweeney (UIE), Denis Rooney (UIE), Lord Rana (INI), Gerry Robinson (UIE).

,

  • The show was a bit of a joke. I did miss the first 10 minutes or so missed part of the guy floating independence, but that Sweeney doll had her mind made up before she heard the arguments and as much as said that the Barry’s argument was terrible but she voted for him because she agreed with him anyway (shocker).

    On the plus side, was pleased to see the independence guy wasn’t laughed out of the room though. Gudeon did seem a bit lazy on the arguments for the Union and it was disappointing that he focused so much on retaining the subvention as I believe it should be gradually reduced as much as possible even though NI does remain in the UK.

  • Billy Pilgrim

    Very interesting programme. No-one in favour of the status quo. All seemed to agree that the union was an economic straightjacket.

    Gudgeon seemed to base his whole case on a “best of both worlds” argument – the Treasury will let us set our own rates of taxation, while at the same time keep sending over those £6 billion cheques every year. The panel described this as “lazy”. They were too kind. He overlooked the fact that setting differing rates of taxation within a member state is illegal under EU legislation. Therefore it couldn’t happen, even if the Treasury were willing to agree. (Which they aren’t.)

    It was interesting to see Gerry Robinson slowly come around to the realisation that it was the union that was the problem. An almost Damascene moment.

    I thought Prof Barry’s argument was poor – the guy was clearly scared stiff of going anywhere near political matters. Still, it was no surprise that his argument was most compelling – it couldn’t have failed to be.

    Fair play to Mike Smyth for making a very good pitch, though it was interesting to note that he clearly still thinks the role of an economy is to provide jobs. It’s not. It’s about prosperity. (Which should logically create jobs.) Very interesting to see the way in which the values/mindset of Belfast’s industrial past survives even in a brilliant economist like Prof Smyth.

    Beano

    I think you’re being unfair to Lorraine Sweeney. Remember, the panel here are not a jury – they’re not supposed to be a blank slate, simply judging those who come before them as though the world outside the room did not exist. As with Dragon’s Den (the format adopted by Spotlight), their role is to be the experts, bringing their knowledge and experience to bear. Lorraine Sweeney did that, as did Lord Rana (who backed independence) and Denis Rooney (who backed unification).

    The most interesting one was Gerry Robinson, who seemed to change his mind during the course of the programme. Again, it wasn’t so much that Prof Barry or Mr Gudgeon won him around, more that they simply caused him to think about it himself. And when he did so, using his own experience and expertise, he came to his own judgement.

    The fact that Lorraine Sweeney seemed to leave the room with the same opinion she entered with had little to do with her being intransigent, and much to do with the obviousness of the economics. (Obvious whether or not Prof Barry made his case well.)

  • Spongers Utd

    The pitch for independence was probably the best pitch on the day, but that was more down to the pitch for a UI economy being played out within the current political constraints, which in essence wasn’t really a UI economy.
    The pitch for remaining in the UK was nothing but pitching the status quo, which is obviously not working out.

  • Two Nations

    Fully agree with your points Beano.

    The argument for the Union seemed stymied. The Union does not create the need subvention, NI being an economic (socialist) basketcase creates the need for subvention.

    Having the need for subvention means the Union is the only possible working solution right now. By minimising the need of subvention or removing that need altogether would mean that all 3 scenarios could be possible!

    It is in ewveryone’s interest to make NI work. Then together we can decide where we want to belong.

    PS the panel on the show was woeful. The fish and chip woman was going to say UI whatever anybody said.

  • Billy Pilgrim

    Two Nations

    “The argument for the Union seemed stymied. The Union does not create the need subvention, NI being an economic (socialist) basketcase creates the need for subvention.”

    But the solution to NI’s economic woes, on which there seems to be consensus (ie lowering of corporation tax in order to attract FDI) is impossible within the union.

    Regardless of whether one thinks the union is the reason for our economic stagnation, it’s clearly the biggest hurdle to our getting out of it.

    “Having the need for subvention means the Union is the only possible working solution right now.”

    That’s a circular and self-defeating approach. In truth, the subvention is a huge part of the problem.

    “By minimising the need of subvention or removing that need altogether would mean that all 3 scenarios could be possible!”

    Yes but how do you achieve the end of the subvention? How do we create wealth here, without control of our own economic destiny? We can’t have that control as long as we remain within the union – hence we’ll always need the subvention.

    (Think of the subvention like a kind of economic heroin. We have to break our relationship with the dealer, unless we’re happy being a junkie?)

    “It is in everyone’s interest to make NI work. Then together we can decide where we want to belong.”

    But here’s the rub: the union fatally undermines our ability to make this place work to its best potential. What are we to do about that?

    “The fish and chip woman was going to say UI whatever anybody said.”

    But is she wrong?

    And what of the rest, all of whom agreed that the union was poison, and all but one of whom agreed that reunification was the way forward?

  • the Emerald Pimpernel

    From my limited understanding of business practices and government regulation in northern Ireland(I freely admit my knowledge is sparse) what they need more than anything is severe and encompassing deregulation. From what I have observed the opportunity to set up businesses that do anything but sit around and talk like lawyers and accountants, is almost non-existant. If the government is serious about creating jobs then they need to allow the small business men to try and succeed and fail if necesary. Regardless of who is listed as the head of state, with out opportunity there is no success

  • Two Nations

    Billy

    FDI is not the end all and be all.(In fact we have probably missed the boat. I assume Eastern Europe is a much more attractive option for FDI even if our tax rate was much lower)

    It is much more important to have homegrown industries. We need a less risk adverse society. The Assembly needs to deregulate and stimulate the business environment.

    The Union is not to blame for the state we’re in. WE ARE. It is our own mindset created through conflict caused by the tribal dispute.

    The Union or an UI are not the cause/cure.

    The dispute is now resolved (for the time being), so now is the first time ever than we can go about changing the negative mindset that permeates this society.

    There is no point standing about with your head in the sand blaming ALL our ills on the Union. WE ARE TO BLAME. We are the ones that need to be changed. Tax rates and FDI are meaningless compared to the negative mindset.

    The hand-out culture needs to be eradicated.

    Instead of looking for foreign investments, why not stimulate the formation of new industries that can serve the global market? Investment in the right technologies and the right companies can achieve this. The idea of national champions is a good way of bridging the gap between Public Sector and Private Sector.

    IMHO, another good idea is to build at least two nuclear power stations in NI. By doing this we create a number of benefits – jobs, cheap power and a resource that can then be sold on to GB, ROI and beyond. It is ideas like this that need to be embraced and not this obsession with corporation tax/FDI if we are to succeed economically.

  • Spongers Utd

    another good idea is to build at least two nuclear power stations in NI.

    Yeah good luck on that one. The ROI would sooner invade NI than allow a nuclear plant on this island. We’ve enough trouble with one leaky piece of glowing sh!t irradiating the whole Irish sea without another example of ‘British engineering’ making us all glow in our beds.

  • George

    Two Nations,
    class post. Why didn’t anyone think of it before?

    Northern Ireland as Europe’s nuclear hub, producing power to a UK and Europe desperate to be freed from dependancy on Russia.

    Don’t build just two, build 200 all dotted around Lough Neagh to provide the 30 million gallons of water needed per station per day.

  • Mick Fealty

    TN,

    I think that’s an important insight to come out of this programme. Smyth’s case is the best put, most comprehensive, and the toughest route to take. Although Sweeney took him to task for not mentioning the creation of entrepreneurial spirit, I am also terribly clear government can do that, other than by presenting opportunities, and in some respects by getting out of the way.

    Interesting to note that these were questions about developing economic rather than political contexts. Smyth’s ‘tough love’ may be the right medicine to let all three flourish, but the question is, will our politicians want to administer it, if the recovery is likely to be long term?

  • Frustrated Democrat

    What an awful program.

    A terrible panel and terrible presentations, how do they get to be professors?

    If these were the people deciding on Ireland’s future we would all be doomed!

  • I take it this isn’t the same Mike Smith who was Noel Edmonds’s sidekick on the Late Late Breakfast Show?

  • Two Nations

    SL/George

    Nuclear power produces the cleanest and most efficient energy. Just because Sellafield MAY be a bit leaky does not mean that nuclear is not a viable option. France produces the majority of their electricity this way. Certainly there is an ongoing debate in the ROI about the subject – so I do not think they will invade. Do not believe the Green lobby in all things; try and research the subject yourselves. If you want clean and affordable energy then nuclear power is the ONLY option.

    Mick

    Government needs to create the mechanisms to encourage the formation of cottage industries. These industries have to be based on emerging technologies that are a good match for our local skill sets. So the government should set about encouraging QUB/UU to develop technologies that can industrialised. Local companies can then be encouraged to spin-in to this industry. Money will play an important part in this but the most important aspect is the creation of technology and then the harnessing of the technology to create an industry or a national champion.

    We cannot have the system we now have were the government encourages buzzwords and local companies adapt-to-fit for the sole purpose of receiving a handout. Nothing is then achieved.

    Government must be tasked with creating industries by bringing together clusters and networks with the sole purpose of creating 10,000s jobs in each industry.

    The ROI achieved this by encouraging clusters in certain areas (eg pharma in Cork) through FDI. The technologies for these industries were brought over by big American companies, encouraged by IDA assistance. When some of these foreign companies upped and left they took the jobs with them but left behind the knowledge and skills. So what you then see are start-ups based on foreign technology replacing the foreign companies. You see prime examples of this in medical device sector, were Irish teams staged management buy-outs or set-up brand new companies in the wake.

    In NI, I think we will have to go about it by building from the bottom up instead of encouraging FDI. This is where we create the technology ourselves, and then this is developed and fostered. Instead of FDI we would have ITD (indigenous technology development). In the short term it would take more effort and money from Government but should bring longer term, securer dividends compared to FDI.
    Our entrepreneurial drive has to be more far reaching than encouraging people to open up their own hair salons and corner shops. Government needs to take into account the bigger picture and I do not believe chasing FDI is the answer.

  • Cahal

    Two Nations, in order to build a nuclear plant in the north, the British government would basically need permission from Dublin.

    Ain’t very likely.

  • Cahal

    Should have said I agree with most of the rest of your post. Too late for FDI.

    Bet the FFers could sort this place out if they tried.

  • Cahal

    The worrying thing is that most peoples idea of entrepreneurship is to buy a couple of houses and sell them for a huge profit….lord help us.

    It’s very difficult to pursue a financially risky business idea when you are a young graduate who has ‘zero’ chance of ever being able to afford a home.

  • Two Nations

    Cahal

    I would assume the ROI government would be open to the idea if it gave them a cheap source of electricity. Money does a whole lot of talking.

    I would build it somewhere like Tyrone where it could only improve the landscape. I would then build the second one in Monaghan for much the same reason.

    New nuclear technology is very safe and if the French have had very little problems with 30 year reactors (59 in total) then I cannot see why this island should not benefit from the technology. We could be energy independent, which is very powerful thing in this current climate. Ideally, if we all drove electric cars and used electric heating in our houses we would be a position of being free from Middle East oil and having severely reduced CO2 emissions.

    If we had electricity left over from all this then we have also created a resource.

  • DK

    Who would pay to build the power stations? They are not the sort of things that the private sector touches.

    Two would easily cover the energy needs of the whole of Ireland, plus surplus, although you would then need to update the connectors to Britain – more cost.

    Would it not be better to stimulate NI’s eceonomy by becoming world leaders in renewables technology? Lot of wind and coast here.

  • Two Nations

    From the Telegraph:-

    It is true that the cost of building a nuclear plant has fallen substantially. A typical station now costs £1.5 billion, but, as the pro-nuclear lobby points out, there are efficiencies of scale. Discounts can be haggled for a bulk purchase. Using the existing sites for the new stations will bring savings on the wires connecting them up.

    The French finance model is to have 50% come from the electric company (Electricit de France), 8% from government and 42% from commercial loans.
    £1.5 billion is not a tremendous amount of money considering the savings made in electricity costs. Consider also that in a few years time, money will be exchanged for carbon offset eg. NI could get paid to offset the carbon footprint of GB. Plus we could generate revenue by selling electricity to GB and beyond.

    Half our subvention would pay for two power stations. So that money instead of going into a black hole could be used to generate cold hard cash, as well as jobs. The initial outlay could be paid off in the most ten years.

    If we can get past the scare stories concerning nuclear power and tread where GB fears to, we could find ourselves in a very enviable position of being energy independent AND generating revenue.

  • Iano

    “Need to create a vibrant entrepreneurial spirit”

    “You cannot give a nation a brain transpalnt overnight” particularly the one that believes that the world revolves around it.

  • George

    Two Nations,
    the Irish government has pretty well decided that it will get its energy from the western seaboard in future and have told Shell and the rest to go out and find it and its all theirs.

    The logic they put forward is that being at the front of the energy pipeline with a stable source of energy rather than the end will only lead to more investment and more companies moving here. Ergo, more money and more jobs.

    Plus they take 25% in tax on all oil and gas found.

    Naturally others would say that there should be a state-run oil company and if I had the choice of investing billions in nuclear power or billions in a state-run oil company to explore the western seaboard and the newly extended Irish territorial waters, all 39,000-square kilometres that we got after 10 years of hard negotiations earlier this year, I would go with the oil company.