Island of Ireland economy still a viable option

[This is taken from A Note from the Next Door Neighbours, the monthly e-bulletin of Andy Pollak, Director of the Centre for Cross Border Studies in Armagh and Dublin]

The economies on this island are now in dire straits, in common with every other economy in Europe and North America. The governments in London and Dublin are struggling to cope with the short-term management of the worst international financial crisis in nearly 80 years. There is little or no time for long-term, let alone visionary, thinking about what their economies might look like in 20 or 25 years.

Does this mean that the concept of an ‘island of Ireland’ economy and the deep mutual learning between the two parts of the island that such a concept implies are off the table for the foreseeable future? My strongest instincts tell me not – and I am looking at an address delivered by the prominent Irish economist Dr John Bradley to the British Irish Association conference in Oxford recently to support these instincts.

Dr Bradley, who spends most of his time these days advising governments in Central and Eastern Europe on medium-term economic strategies, pointed to two examples of how planned strategic change had helped to get the Irish – in this case the Southern Irish – economy out of crisis. The first was in 1958 when the chronically under-developed Republic faced a choice between continuing inward-looking penury behind protective tariff barriers (complete with very high unemployment and emigration) or export-led growth driven by openness to the world economy. The choice to take the latter route laid the seeds for the 1997-2007 ‘Celtic Tiger’ period, the most dramatic expansion of the Irish economy for over 200 years.

The second was in the mid-late 1980s when the Republic’s economy was on the edge of bankruptcy. Change at this point required powerful groups in society – business and the trade unions – to buy into a model that would require significant short-term hardship, and so Irish social partnership was born, in stark contrast to the social mayhem that characterised Margaret Thatcher’s Britain.

Northern Ireland, said Bradley, is facing future challenges of a very different kind. After 40 years of almost constant political and social crisis, it finds itself in a position where the British government has been prepared to support the Northern economy with massive subventions. This has meant, despite the occasional pro-business rhetoric, that economic self-reliance was not really on anyone’s agenda.

Bradley pointed to several key reasons why it will be difficult to bring about economic change in Northern Ireland. Because of the subventions, the average standard of living in the North probably remains slightly higher than in the South. Devolution of power to Stormont has not changed that comfortable situation, since the new regional executive has only “marginal wiggle room in which to plot change”. And even that modest scope for policy autonomy has so far been barely exercised by local politicians and civil servants. Bradley was unforgiving in his criticism of the one area where efforts at such policy autonomy were made: the attempt “to grab a massive tax benefit (i.e. a Southern rate of corporation tax) on the basis of ill-thought out and self-serving arguments, without ever surrendering any of Northern Ireland’s stark dependency on UK financial support. It gave me no pleasure to watch this politically and economically misguided initiative being shot out of the skies by the mandarins in Her Majesty’s Treasury.”

Bradley said what is required in Northern Ireland is “the evolution of a tough, self-reliant social, business and political culture that gratefully acknowledges British financial support in a time of need, but which strives to recapture the dynamism it once had historically, but has now lost.”

He then envisaged “two extreme futures” for the region: “The first would be more of the same: continued dependence with only marginal changes, and agendas crowded with the mistrust, recrimination and divisiveness of history. In this scenario, the driving force in the North will be what the UK government decides. Little else will matter. This drift will be accompanied by official rhetoric that simultaneously claims that Northern Ireland has a dynamic economy, and at the same time that it lags badly behind most other UK regions.

“The second would see a resurgence of this island, which would make huge demands on both North and South if it were to come about. It would be built on internal self-confidence and high trust. It would try to recapture the synergies that the island economy undoubtedly has, but which history has never managed to achieve (such as exploiting the synergies between high-tech niche areas like ICT and pharmaceuticals which underpinned the Celtic Tiger economy, and the rapidly diminishing residue of industrial excellence in the North in engineering design and manufacturing).

“It would break with a zero-sum attitude, where Belfast’s gain has to be Dublin’s loss. It would demand a hard-nosed but strategic approach, where the North must face honestly into making a break with dependency, and the South must recognise that its shiny Celtic Tiger development model is perilously insecure.”

Two insecure regional economies sharing an island on the furthest edge of Europe have a lot to learn from each other, a lot to share. It should be economics for beginners. But are we able to overcome our historic fears and prejudices enough to begin to take the necessary small but difficult steps for the benefit of the island as a whole? Bradley has his doubts, worrying that Northern Ireland will stick with comfortable dependency on the UK Treasury (however risky in the longer-term) while paying lip-service to an island economy, for fear of the greater political and social risks that will undoubtedly accompany a committed all-island approach.

Andy Pollak