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

  • Glencoppagagh

    “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”
    Dr Bradley has taken the words right out of my mouth but much more eloquently of course.

  • Glencoppagagh

    His arguments in favour of an all-Ireland economy appear rather flimsy, however.
    To give him the benefit of the doubt can you provide a link to his complete paper?

  • DK

    Strictly speaking we have two cities on the Island powering growth (at least until recently) and a lot of impoverished hinterland. I have seen a few regional breakdowns and they show that Dublin and Belfast have esentially left the rest of the country behind.

    The concern is that in an all-Ireland economy, one of the two will lose out – despite the call for a non zero sum approach. From sheer scale (and political muscle), it is bound to be Belfast.

  • Jean Baudrillard

    Reading Frances McDonnell in today’s Irish Times, do you think the south would actually be mad enough to want to hitch their economy to ours?

    […] Then the credit crunch arrived and Northern Ireland politicians’ unfailing ability to make a bad situation worse destroyed what little chance there may have been to come up with a plan to lessen the impact of the economic downturn…

  • Jean Baudrillard

    DK: I have seen a few regional breakdowns and they show that Dublin and Belfast have esentially left the rest of the country behind.

    That’s an interesting statement but I’m not sure it’s entirely accurate for Belfast. I may be wrong (I often am) but certainly looking at Belfast’s figures compared to the rest of NI it actually isn’t doing very well.

    Rough ‘GDP’ or ‘GVA’ figures for Belfast city are lower than the rest of NI. So too is median household income. The size of manufacturing and the number of SMEs are lower per capita too.

    Urban Belfast remains a hollowed out basket case – too few people live there (it has only a third of the population that a city of its physical size could efficiently accomodate) and those that do live there are more likely to be at risk of deprivation (48% of its population live in the most deprived wards in NI as defined by the Noble Index).

    What wealth that is ‘created’ is mostly due to retail and the fact that most of NI’s public sector jobs are based there. It doesn’t even get the full benefit of this as higher paid public sector workers tend to live in a wealthier suurban ring around the urban core.

    Belfast remains, by a long stretch, Dublin’s smaller, sicker brother.

  • DC

    Jean,

    You raise a valid point about the state of Belfast and indeed NI regionally.

    People say the elephant in the room is such and such nowadays but perhaps it is the collapse of the manufacturing sector altogether here, which wasn’t the case even in the 70s.

    This is an extremely big challenge to those that remain in NI, it is a contemporary one and one that really needs faced up to.

  • John East Belfast

    He is thinking about a solution for a problem that exists south of the border.

    ie Northern Ireland already has a solution for a small region and population with no natural resources on the western edge of Europe – it called the UK and it is about hitching yourself to one of the world’s econmic power houses.

    Scotland, Wales and Northern England do largely the same thing.

    The wealth of that Kingdom is concentrated around the South East and the Historic and Financial centre of London – our capital city.

    Citisens of the UK will share together and we wont adopt selfish or individual regional tax policies that will upset the Cash Cow of London.

    I am quite happy for the nation’s overall wealth to be distributed around the Kingdom – it is our fair share.

    That we could do better true – and that should always be strived for.

    However unlike the ROI we dont have to contort our Tax regimes so that FDI will come and when the ill winds change the corporates who dont pay their fair share will up and go leaving the tax burden on the citisens.

    When our Banking System goes to the edge ultimatley it will be bailed out by 60 million citisens and their wealth creating ability. Unlike the Republic where 3.5m people are effectively personally guaranteeing billions. That the ROI could end up like Iceland cannot be discounted yet.

    All this talk about the need for an Island economy is nonsence – what these islands need is an economy of the isles – ie the UK.

    Nobody in their right mind would jeopardise Northern Ireland’s financial position within the UK because of any daft notions that it would somehow be more prosperous by aligning itself more with the small island Ireland ecomomy.

    There really is so much politically driven but ill defined bull around about the economic benefits of the so called all Ireland economy.

    There already is one via the EU but if we are also talking about aligning taxes, laws and currencies then we are asking NI to detach from the UK economy to something much weaker.

    The Celtic Tiger is/(maybe was) 15 years old whereas the UK will be still at the top of the tree in 150 years time.

    Just as in Scotland the experiences of the current economic crisis will cement partition for another generation at least as practicalities and self interest will outweigh nostalgia.
    And that doesnt even take into consdieration the ROI becoming a basket case out of all this.

  • Jean Baudrillard

    Loking at investment strategies for Belfast – (possibly created by the City Council?) – the emphasis seems to have been on creative industries, advanced manufacturing and, particularly, financial and business services.

    I assume that financial and business services – which was a small but growing sector in NI – is now dead in the water. The other two remain interesting – but are never likely to be sources of employment for most people.

    Things look bleak.

  • Greagoir O’ Frainclin

    “Citisens of the UK will share together and we wont adopt selfish or individual regional tax policies that will upset the Cash Cow of London.
    – Morelike, some folk are always willing to be on the take!

    I am quite happy for the nation’s overall wealth to be distributed around the Kingdom – it is our fair share.”
    – Sounds kinda like socialism/communism 😉

    I bet the English taxpayers wouldn’t be too happy reading your comments, John East Belfast!

  • John East Belfast,

    Basically you want Northern Ireland to play high-priced hooker to England’s sugar-daddy?

    Great long-term strategy.

    🙁

  • JEB
    Your complacency is unbelievable. I hope NI isn’t full of people like you are unwilling and perhaps incapable of taking charge of their own destiny.
    First of all, the all Ireland economy exists and has done for years. A simple manifestation is the lines of traffic heading north this xmas for their shopping. This exists at all levels of trade and business. It will grow because of common sense and business/trade imperatives not out of some political or sentimental impulse.

    Secondly, as someone who does business in both Ireland and Britain, but who pays his taxes from a London base, I’d advise you not to take the largesse of the British taxpayer for granted for too much longer. They have bigger things to worry about than NI now.

  • Jean Baudrillard

    John East Belfast “Citisens of the UK will share together and we wont adopt selfish or individual regional tax policies that will upset the Cash Cow of London.

    John, you argument is completely backwards. The state has already adopted selfish economic policies.

    However, these national policies are in place purely to support the City of London and the economy of the south-east. Most commentators agree that this has been to the deteriment of the rest of the UK – including Northern Ireland – and has hampered growth in other regions.

    This has been the case with the current Labour goverment and even more so under the previous Tory administration.

    The Republic will ultimately be bailed out by fellow members of the European Union. The UK is on its own – with a dash into the Eurozone as a last resort if Sterling looks like its going to die (which is not totally unlikely).

  • dub

    JEB,

    Scotland, Wales and Northern England are impoverished and on a downward slope this last 80 years. Scots realise that the only antidote to this dependency which ends up making you poorer – as all such dependencies do – is to break out of it.

    Your barely concealed contempt for the Republic is indeed barely concealed.

    If only we could team you and Gregory Campbell up and send you around the “mainland” with a begging bowl… the Union would be over in 5 minutes flat.

  • Dec

    The Celtic Tiger is/(maybe was) 15 years old whereas the UK will be still at the top of the tree in 150 years time.

    JEB

    Have you made Alisdair Darling aware of your economic growth forecasts for the next century and a half?

  • Mack

    JEB – that post was depressing! Your economic analysis in the past has been excellent, but really what you are descibing is an uncompetitive parasite economy.

    Why shouldn’t Northern Ireland compete? Competition between and within states isn’t really the competition of states – it’s a battle of ideas, hitch your wagon to the right economic ideas and see the economy grow! (The quality of current NI pols suggests this may be risk – but with real incentives things can change) Do you really want your children to subsist in dead-end public sector makey-uppey jobs? Where is the self-esteem in that?

    Also

    1/ Population of the Republic of Ireland 4.45 million (source CSO. 2008)

    2/ The UK has been in relative decline for the last century, are you suggesting that 3/4 of the UK by region can sit back and coast? (dead wood, dead wood!) The trend would continue. Anyway, you know what happens dead wood in the private sector?

  • Mack

    One additional point – people seem to assume that RoI may become a basket case economy. That is only really possible if the government totally feck things up.

    1/ The guarantee on the banks is only for 2 years. The state need only let them tick over until then.

    As such the state has options

    2/ Recapitalisation by the state
    3/ Encourage foreign takeovers of at least some of the banks (reducing potential burden on state)
    4/ Nurse the banks through the crises – then do the could capitalist thing and let them imprudent dolts fail!
    Open the field to prudently managed banks. There is this nonsense doing the rounds about foreign banks not acting in Irish economy’s best interest. Let’s be clear our own banks didn’t act in the economy’s best interest – they got us into this mess. Better to have a prudent well managed foreign bank than the loose lending eejits we had. In a less cosy system, the regulator might actually have shown some teeth!