South is a proxy not substitute for NI’s own market penetration…

OUr politicians having recently cleared the burden of having to seek renewed democratic mandates for a further three years have a breathing space to make something happen in the economic space. The financial conference next month is thought to be much smaller than that originally planned (credit crunch is taking up most of the US’s intellectual slack just now), but it could be seen as an opportunity to begin conversations that might lead to some important new relationships. But before anyone gets carried away, economist John Bradley, writing in last Friday’s Irish Times brings some very useful thoughts (subs needed) to bare:

In the South, faced by crisis situations, we have taken dramatic steps when necessary. After 1958 we abandoned tariff protection and embraced the global economy. In the middle of the 1980s we slashed public expenditure and designed social partnership institutions that permitted a radical re-orientation of the economy towards renewed growth.

The problem in the North is that there is no comparable sense of economic crisis. While Northern economic circumstances are not ideal, neither are they all that bad. The “do nothing” option would perpetuate massive dependency on the British exchequer, but would also guarantee a standard of living that is still – surprisingly – probably higher than enjoyed here in the South. As we in the South face into the threat of global recession, such automatic fiscal support is enviable!

What would Northern policy makers have to do to put their economy on a growth path out of dependency? How might they position the post-conflict Northern economy to regenerate the kind of economic resurgence that made early 20th century Belfast synonymous with global dynamism and entrepreneurship?

First, they must abandon the futile demand for fiscal autonomy unless it is in the context of a referendum permitting some kind of federal settlement within which such radical policy actions could be contemplated. Scotland is more likely to blaze the trail here.

Second, they must address the bloated Northern civil service and its effects on private sector risk-taking and innovation.

Third, they should recognise that as a region of the UK, they need to seek out synergies within the UK, using present or new UK policy instruments, combined with a radical mobilisation of the resources of local civil society. If the North is not an attractive place for British firms, it will be unattractive to foreign firms.

Finally, they must recognise that the Southern economy, even in its earlier Tigerish phase, is merely a proxy for the kind of external markets that Northern firms need to penetrate and emulate, and not a substitute for them. Ironically, the unionist parties appear to have a better understanding of this reality than the two nationalist parties, who place too much faith in cross-Border co-operation.

Our role in the South, as good neighbours, is to assist where such assistance is welcomed. But a lot needs to change north of the Border if the economy is to escape its semi-permanent state of dependency.

  • Yes, I read John Bradley last Friday with some interest, but with a strong feeling of déjà vu. That was not Bradley’s fault, but the result of his repeating the sound commonsense and conventional wisdom he offered through ESRI.

    Slugger readers with good recall may remember we came this way just over a year ago. On 30th March, last, the Economist had a leader:

    The next step to a normal Northern Ireland

    Over the 40 years of the troubles, the place has become a subsidy junkie that receives from Westminster £5 billion ($10 billion) more than is raised locally by taxation. More than a third of the 770,000 people in jobs are directly employed by the public sector (which accounts for nearly two-thirds of economic output), while half a million are officially classed as inactive. Part of the problem is the scarcity of private-sector investment, which is crowded out both by the omnipresent state and the large black economy that “peaceful’ paramilitaries on both sides of the religious divide hold sway over.

    Gordon Brown, as chancellor now and prime minister when Mr Blair goes, will be under pressure to keep the subsidy taps gushing. But what Northern Ireland needs now is a home-grown economic miracle of the kind achieved in the south. Easier said than done, but then getting Mr Paisley and Mr Adams to work together wasn’t easy either.

    All that we (perhaps that should be “I”) said then is even more valid now.

    If the opinion polls and other straws in the wind are indicative, Labour stands a fair chance of being eliminated as the Party of credit across large swathes of England.

    That, from the point of the Tories, is not necessarily a “good thing” — and certainly not from the vista at Stormont. It means that the scope for things going adrift increases proportionately (and people do not blame the Government when their dustbins don’t get emptied). It also means that, two years out from a General Election, the Conservative vote-share has to be maintained (it isn’t widely recognised that even poll leads of the kind we are currently seeing barely justify a Tory majority in the next Parliament). Unless something very strange happens (and this trimester is always the hardest for an incumbent Government), those poll leads will erode. Then what?

    Well, the Tory ultras (try Simon Heffer as an exemplar) will go hell-bent on the tax-cutting agenda.

    Now factor in the subsidy to NI (which does not deliver Tory votes).

    Bradley argues Northern Ireland’s economy must “escape its semi-permanent state of dependency” which “perpetuate[s] massive dependency on the British exchequer”.

    His solutions are “fiscal autonomy”; reducing public employment, and “seek[ing] out synergies within the UK … combined with a radical mobilisation of the resources of local civil society” (no, I didn’t get that bit, either). However, I bet that all translates into any future Westminster Government’s approach — but especially that of a Tory one.

  • Bigger Picture

    “Our role in the South, as good neighbours, is to assist where such assistance is welcomed.”

    I really dislike the language used by many in Northern Ireland that we should co-operate with the republic simply because we share the same island. It isn’t about that, it is the fact that we are a part of a greater European Union and as such Northern Ireland should be looking beyong the confines of the British Isles in order to expand our markets and economic growth. This after all is what the ROI has done so successfully in recent years. I really think people should see the benefit of greater economic co-operation throughout Europe and not see it as part of a ‘softly softly’ all-Ireland agenda.

  • kensei

    Good grief.

    First, they must abandon the futile demand for fiscal autonomy unless it is in the context of a referendum permitting some kind of federal settlement within which such radical policy actions could be contemplated. Scotland is more likely to blaze the trail here.

    No, they should be constantly pressing for fiscal autonomy, even if it is “futile” as the only dignified response. And probably the only one that will get anywhere.

    Third, they should recognise that as a region of the UK, they need to seek out synergies within the UK, using present or new UK policy instruments, combined with a radical mobilisation of the resources of local civil society. If the North is not an attractive place for British firms, it will be unattractive to foreign firms.

    Tell me, could a “radical mobilisation of civil society” complete with a 12.5% tax rate? The ability to set tax incentive zones. The fact that we don’t have enough university places here to start with, and a lot of our graduates leave? Huge amount of people left without any qualifications at all?

    No, because it’s meaningless nonsense. And outside the South East of England most of the rest of the UK has similar problems. We need a bit more policy tools than Leeds or Sheffield council.

    Finally, they must recognise that the Southern economy, even in its earlier Tigerish phase, is merely a proxy for the kind of external markets that Northern firms need to penetrate and emulate, and not a substitute for them

    And this is a huge misunderstanding of what the North is looking from the South. We are trying to piggyback or borrow some of the South’s advantages, not break into the bloody Irish market. Stupefying.

  • kensei @ 03:08 PM:

    We read the same passage, and saw it from opposite ends. I’m back now, looking again at Bradley’s bit about:

    the futile demand for fiscal autonomy unless it is in the context of a referendum permitting some kind of federal settlement within which such radical policy actions could be contemplated. Scotland is more likely to blaze the trail here.

    You see it as a total put-down. I still kinda think he’s saying what I tend to accept:

    Things fall apart; the centre cannot hold

    In other words, it’s too late to align the Union back in anything like its previous geometry.

    I think your reliance on CGT is a bit iffy, by the way. The comparison is not as simplistic as that.

    And, as for:

    We need a bit more policy tools than Leeds or Sheffield council,

    be careful. The population of South Yorkshire (i.e the Sheffield area) is over 1.26M; West Yorkshire (that’s Leeds) is over 2M; but NI is 1.7M. Tha doost na wanna be grievin’ thet lot.

  • DC

    Reminds me of a very germane piece by Alan Ruddock:

    http://belfastblogger.com/09/remote/alan-ruddock-addicted-to-state-subvention-north-will-suffer-when-its-gone/

    British subvention, ah, we will miss it when it’s gone!?

  • Sorry: my previous post: for CGT read “corporation tax”.

    The speed of the hand deceives the brain — or what’s left of it after Saturday afternoon/evening at the Cabbage Patch, the Misty Moon, the Rugby Tavern (it’s hell having to wait for the crowds to clear Twickenham station, especially when half of Munster is in town).

  • George

    Apart from the article pointing out the incredible waste that goes on in Northern Ireland (getting more subsidy cash in one year in 1998 than the entire six-year tranche Ireland got from the EU 1992-1998) it also mentioned the long-forgotten Strategy 2010.

    This a 258-page document from 1998 outlining the economic strategy for the newly devolved Northern Ireland.

    It’s quite quaint to look at it 10 years on and ask what progress has been made on these recommendations:

    – The “Shaping our Future” regional plan, looking to create hubs.

    – The need for an “Economic Development Forum”.

    – The Dearing Report should be implemented.

    – An “Information Age Commission” should be set up.

    – 5-year dispensation for special corporate tax rates.

    – a target to get GDP per head from 80% of the UK average to 90%.

    – Support for R & D.

    – extending industrial de-rating to areas outside manufacturing.

    – The establishment of a Venture Capital fund.

    – The creation of Business Angels initiative.

    – No out-of-town shopping developments for five years.

    – Priority given to Belfast-Dublin route.

    – Northern Ireland regional office in Brussels

    – Minister responsible for Northern Ireland’s European interests.

    – De-regulation of the B&B;sector.

    – Reduction of Public Sector.

    – Establishment of a Northern Ireland Development Fund.

    – Increase rates as they are only 40% of the UK average.

    – Introduce road tolling.

    http://www.detini.gov.uk/cgi-bin/downutildoc?id=222

  • kensei

    Malcolm

    In other words, it’s too late to align the Union back in anything like its previous geometry.

    Sure. But the idea we should be sitting and waiting for others to sort out our destiny is absurd.

    I think your reliance on CGT is a bit iffy, by the way. The comparison is not as simplistic as that.

    It is not the only factor, as I tried to attest. But it is certainly a concrete policy lever in comparison to well, I’m not sure what he was getting at.

    And, as for:

    We need a bit more policy tools than Leeds or Sheffield council,

    be careful. The population of South Yorkshire (i.e the Sheffield area) is over 1.26M; West Yorkshire (that’s Leeds) is over 2M; but NI is 1.7M. Tha doost na wanna be grievin’ thet lot.

    And yet, we are meant to be a separate and equal partner in a Union whereas Sheffield Council is not. They’d probably do better off with independence too, though 🙂

  • kensei @ 04:18 PM:

    1.

    sitting and waiting for others to sort out our destiny is absurd

    Spot on. Which is why I read Bradley to imply that we sit and wait just long enough for the Scots to make that easier for everyone else.

    2.

    [Corporation tax as a] policy lever in comparison to well, I’m not sure what he was
    getting at.

    Glad I’m not the only one baffled by that “argument”.

    However: the word of our new DUPmeister himself was “there are very few businesses that pay the full 30% Corporation Tax in Northern Ireland” [23 June 2006]. Apart from that, I find it somewhat weird, and even self-belittling, to hear flag-waving, fire-breathing Unionists pleading to be treated differently to the rest of the UK.

    3.

    My main disagreement with you (based on a lifetime of experience with close relatives) is that any Yorkshireman could conceivably affect enough humility to be “equal” with the rest of mere, suffering humanity.

  • Greenflag

    ‘is that any Yorkshireman could conceivably affect enough humility to be “equal” with the rest of mere, suffering humanity.’

    I seem to remeber an old adage

    ‘Yorkshire born and Yorkshire bred ‘
    Strong in the arm
    But **** in the head ‘

    Supply the missing word 🙂 but not perhaps in Yorkshire if you expect to return to civilisation alive 🙂

  • Greenflag

    George ,

    So that list is 10 years old . A lot of words and promises /intentions .

    Any of it actually happen ? been implemented ? within sight of being implemented or is just more of the usual jaw jaw and referencing back to a consultative committee to investigate all aspects and come up with an interim report which allow further in depth debate on the viability etc etc etc etc etc ?

    If there are 500,000 inactive in a population of 1.7 million and 200,000 already on the public payroll then getting out from beneath such public sector dependency will be a gargantuan task for any public policymaker/politician/minister . The somewhat anaemic NI Assembly simply does not have the powers nor do I suspect do any of the political parties have the cojones to take on the task . They can hope that if elected the Tories will put the boot in so that the ‘locals’ can still look askance at the NI voter and say in weasel words ‘ But it’s not us who are doing this ‘

  • [aside]

    Did someone mention subsidies? 😉

    Rathlin Island is to get a new ferry operator. I understand questions are being asked about the background to Murphy’s decision. It’s rumoured that CalMac, a Scottish government owned company, has been asked not to say too much.

  • Dewi

    Just reading “The Best is Yet Come”
    Transport infrastructure in the South seems still to be pretty decrepit. Need new fast Railways to create an island economy.

  • Dave

    “The problem in the North is that there is no comparable sense of economic crisis.”

    Northern Ireland is a ‘kept’ woman. Does a millionaire’s mistress ever feel a sense of economic crisis? I’d say that sensation is reserved for those who have to work for a living.

    “Finally, they must recognise that the Southern economy, even in its earlier Tigerish phase, is merely a proxy for the kind of external markets that Northern firms need to penetrate and emulate, and not a substitute for them.”

    Say what? If being a ‘proxy’ means that Ireland has more millionaires per capita than any country other than Japan, then bring it on, baby. It makes plenty of sense for Northern Ireland’s indigenous industry, particularly of the fledgling variety, to find markets for their goods and services in the Republic where the cost of gaining new business and supplying markets is likely to be substantially lower due to geographical proximity.

    The IDA states that foreign companies employ about 150,000 workers out of a total workforce of 2 million (that’s 7.5% of the workforce employed by non-indigenous employers compared to 92.5% of the workforce employed by indigenous employers), a figure that does not compensate for the 160,000 who are non-nationals employed in Ireland, so the best statement here is that the “proxy” of foreign investment has partically compensated for Ireland being a proxy for non-national employment. AIB gives a partial breakdown of where these non-nationals are employed:

    There are 23,100 non-nationals in the hotel and restaurant sector, representing 19.2% of that sector’s workforce.

    The financial and business services sector has 21,500 non-national workers (8.2% of that workforce).

    In health and education, the 21,200 non-nationals account for 12.8% of that workforce.

    There are almost 19,000 non-nationals in the wholesale/retail trades, representing 6.6% of total employment in that sector.

    In manufacturing, employment of Irish nationals fell by 19,400 in the year to Q3 2005.

    In agriculture, overall employment fell by 300 but non-national employment rose by 2,300 while the number of Irish employees fell by 2,600.

  • George

    Greenflag,
    of course it hasn’t been implemented, although GDP is up to 81 per-cent of the UK average so they should catch up by 2100.

    As Bradley says:

    “However, as I began to engage with Northern researchers in the early 1990s, I came to realise that viewed from the North, the Southern economy of that time was also seen by them in a critical light – still struggling to emerge from the recession of the 1980s, suffering emigration, dependent on foreign investment and with public expenditure supported by what was contemptuously referred to as “Euro-lolly”.

    At that crucial juncture in the island’s history in the mid-1990s, many unionist policy makers and analysts truly believed that a North at peace would enjoy again the kind of economic success that had existed in the years before partition.

    This view culminated in the flawed and arrogant development manifesto, Strategy 2010, published in 1998, which treated the North’s options in a time warp, as if it were 1920, and largely turned its back on the South. The same myopic attitude was played out in the tortuous negotiations that produced six largely innocuous cross-Border institutions within the Belfast Agreement of 1998.”

    And just in case any of us dare to hope that this mindset is in the past, Ian Paisley only last week said that Northern Ireland could “once again become a world leader”.

    Of course, Northern Ireland never was a world leader. The times of which he speaks were before partition.

  • Dave

    Continuing the truncated penultimate sentence: “In manufacturing, employment of Irish nationals fell by 19,400 in the year to Q3 2005. However, 8,500 more non-nationals were employed in the sector leaving overall employment down by 10,900.”

  • Driftwood

    Second, they must address the bloated Northern civil service and its effects on private sector risk-taking and innovation.

    Third, they should recognise that as a region of the UK, they need to seek out synergies within the UK, using present or new UK policy instruments, combined with a radical mobilisation of the resources of local civil society.
    If the North is not an attractive place for British firms, it will be unattractive to foreign firms.
    Bloody right, and bloody hell…
    Northern Ireland doesn’t have a viable business economy for anyone to invest in.
    Synergies within the UK???? WTF.
    The closure of RAF Aldergrove with 150 civvy redundancies and 600 service personnel going back to England was the economic story of the week and is treated as a side issue. Those were big contributors to Antrim/Lisburn economy. The closure of Massereene may please some nationalists, but, where are the decent jobs to replace the declining MoD presence?
    No-one from here (or very few) are going to MI5’s home from home at Palace Barracks.
    With the UK economy (and RoI’s)in stagnation,credit crunch etc.. all those new shopping centres are going to seem like mirages pretty soon. You can get Timberland shoes at a fraction of the price on the web anyway.
    You heard it here first…

  • kensei

    Malcolm

    Spot, on. Which is why I read Bradley to imply that we sit and wait just long enough for the Scots to make that easier for everyone else.

    It’s the “futile” that throws me off that. If pressure form the Scots can achieve it, then pressure form the Scots and the North can achieve it quicker, even slightly.

    However: the word of our new DUPmeister himself was “there are very few businesses that pay the full 30% Corporation Tax in Northern Ireland” [23 June 2006].

    There are very few paying 12.5% either, I’d wager. But given the DUP voted against a motion calling for fiscal autonomy, I’ll take what they say with a pinch of salt.

    Apart from that, I find it somewhat weird, and even self-belittling, to hear flag-waving, fire-breathing Unionists pleading to be treated differently to the rest of the UK.

    Historically very much in character though, usually with the same response.

    My main disagreement with you (based on a lifetime of experience with close relatives) is that any Yorkshireman could conceivably affect enough humility to be “equal” with the rest of mere, suffering humanity.

    Okay, here you’ve got me.

  • Greenflag

    George,

    ‘Ian Paisley only last week said that Northern Ireland could “once again become a world leader”.’

    Did he say at what ? Number of barking fundies per thousand of the population ? Number of ‘inactives’ per thousand ? NI is already a world leader in terms of public sector dependency . In second place I believe to North Korea 🙁

    Seriously it’s a tough issue but as ‘driftwood’ points about above re RAF Aldergrove ‘ there’s ‘nothing’ to replace these ‘public sector’ losses.

    I’d like to believe that a reduction in corporation profits tax would help NI but in the current international climate and given the short to medium term (5 to 10 terms) economic outlook perhaps the best that NI can hope for is to reduce it’s public sector ‘dependency’ to maybe 50% from it’s present 70%. Even that will be a struggle.

    Which is why IMO for Irish nationalists in NI ‘repartition’ would be a better bet economic bet than the present ‘kept woman’ status for another generation or two or three. Unionists are of course not averse to that status for they don’t quite see themselves as economic prostitutes even if some non unionists do.

    Stuck between two worlds -one dead and the other powerless (literally given the NI Assembly’s powers)to be born.

  • Greenflag

    correction above

    given the short to medium term (5 to 10 years)

    George,

    ‘although GDP is up to 81 per-cent of the UK average so they should catch up by 2100.’

    Their main hope for catching up on the UK average will be the extent to which they can import ‘economic growth’ from the Republic. As the latter’s growth rate has slowed in relation to the world economic downturn NI cannot expect much relief from that quarter for the next few years anyway..