Future Ireland / Economic Inequality: An emerging challenge for a New Ireland

In October last year, I attended a keynote speech delivered by President of Ireland Michael D Higgins to a packed auditorium at the University of Auckland, New Zealand. The speech was anchored around Michael Davitt’s 1896 visit to New Zealand, a visit where Davitt was impressed by the then Crown Colony’s progressive policies on land, tax, pensions and the economy. Subsequently, the founder of the Irish National Land League brought a number of these innovative ideas back to Ireland, to inform the organisation’s future direction and influence the policy agenda of the home rule movement.

President Higgins passionately argued that it was now time for similarly progressive policy solutions to address current and coming challenges including climate change; the ever-present threat of nuclear weapons; and growing inequalities in wealth, income and opportunity.

Regarding the latter, President Higgins’ concern was that the ideas which led to the Global Financial Crisis in 2008 still underpin global policy. And that these are largely failed ideas of a destructive, rather than a cohesive, disposition. The former Labour Minister highlighted that ‘more equal societies are healthier societies’ and that ‘societies with deep inequalities are not viable in terms of a stable, cohesive citizenship’. The President delivered a strong message, placing the challenge of growing economic inequality on a par with the threat of nuclear Armageddon.

His speech came just a day after Jacinda Ardern took office as the Prime Minister of New Zealand, leading a Labour led coalition which ousted the centre right National Party after nine years in government. President Higgins’ words were a metaphorical pep talk for the new Prime Minister, dispensed from a grandee of the Labour movement to a very modern one.

Returning to this island two months after Higgins’ speech, I carried some of his words with me.  Having researched inequalities in New Zealand, I was keen to understand how a recovering island of Ireland was faring.

While I discovered two economies with varying macro performances on this island, when both were unpicked they were welded by a common theme.

Both showed trends of a growing delta between those who were flourishing economically and those who were floundering. Many of the concerns highlighted by President Higgins in his Auckland speech are a reality in his homeland.

In Northern Ireland, the economic recovery has been slow, masked somewhat by significant job creation and strong export performance. Unemployment is at record low levels (4% in July 2018) but our economic inactivity rates remain the highest within the UK and youth unemployment remains at 8%.

Since the crash, wages have been stagnant, with the Institute for Fiscal Studies estimating that workers are 12% worse off than they would have been had pre-crisis growth continued. House prices haven’t recovered, remaining almost 40% lower than the 2007 peak, leaving many in negative equity and lumbered with the burden of servicing debt on assets valued well below their purchase price. Our economy is fuelled by household consumption and personal debt levels are the highest in the UK.

In the Republic, the recovery at a macro level has been remarkable. Investment, particularly inward investment and a deep labour pool, has accelerated GDP growth and rapid job creation.

However, the headline numbers mask deeper issues, albeit different to those in the north, but nevertheless equally concerning. While unemployment has declined, it remains at 5.1%, and youth unemployment sits at 11.7%. Household debt levels are the sixth highest in the OECD area at 158% of income, while over 70,000 people remain in mortgage arrears. Intriguingly, a different housing crisis has emerged, driven by under supply, which is forcing house prices up to almost pre-crisis levels. In parallel, wealth is highly concentrated with the top 10% holding 54% of wealth, higher than UK, France and Italy – startling statistics that are highlighted as drivers of inequality by French economist Thomas Piketty in his 2013 book ‘Capital in the 21st Century’.

Both north and south, those on lower incomes face a squeeze on living standards driven by stagnant wages and higher housing costs, as evidenced by recent research on housing inequalities and in work poverty by the Nevin Institute of Economic Research.

The indicator which caught my eye the most was deprivation, a policy area which has had years of investment. While data constraints allow for limited time series analysis, it is clear that the dial has not shifted.

In Northern Ireland, 80% of those areas that were ranked within the 10% most deprived in 2005, remain in that 10% bracket. It appears that the decks have merely been shuffled. Significantly, three quarters of the current 10% most deprived wards are in Belfast and Derry, with the most deprived living adjacent to employment and education provision – viewed historically as the avenues out of poverty. From this evidence, it appears that this traditional perception is no longer valid.

Meanwhile, in the Republic, 25% of the population is estimated to be deprived, lower than in 2013, but over 10% higher than in 2007. The deprivation challenge appears to be a different one, with higher concentrations of deprivation recorded outside Dublin. These deprivation stats begin to paint the picture of life for many across Ireland. Furthermore, homelessness in our towns and cities, with 9,500 people classified as homeless across the Republic in July 2018, a number which has trebled in four years, plus rising mental health issues, validate the story.

An economic inequality has emerged across this island, and it could be argued this is by design as opposed to coincidence. Fundamentally, it is as a result of the failed ideas highlighted by President Higgins and the inability and perceived unwillingness of London, Belfast and Dublin to adapt in the wake of the 2008 crisis. Trends would indicate that it has been building since the 1970s. But since 2008, the pace of inequality growth has quickened, driven in large parts by austerity measures implemented north and south.

Southern economic policy appears to remain almost exclusively based on attracting inward investment, a trend which has concerned the National Competitiveness Council, and there is a growing sense that, as in the mid 2000s, the Republic may have lost its charm.

In the North, our Industrial Strategy sits in draft format in an empty Stormont, and while it includes an inclusive growth pillar, it mainly repackages previous ideas under this pillar, many of which have not previously delivered. As part of a wider London orientated UK economy, there will only be so much a devolved industrial strategy can deliver.

Collectively a new Ireland needs to overcome these equality issues and be structured around economic inclusivity. Not a tip of the hat to inclusive growth, but the development of an economic framework which provides a fair platform for delivering prosperity.

It needs to create a successful economy that achieves sustainable growth, where the benefits of that growth go to citizens, and where prosperity is shared geographically and demographically. This will require progressive and bold policy solutions. It will likely include a shift in fiscal policies; incorporating a more direct role for the state; and the use of regulation to address areas of exploitation in certain areas, for example, zero-hour contracts.

A new Ireland also requires a wholesale rethink of how we approach economic development. Currently, north and south, the approach is highly fragmented and transaction oriented resulting in narrow short-term wins. Indeed, there is a perception that economic development starts and stops with our enterprise support and investment promotion agencies, whose success is measured by job announcements or export deals.

In fact, economic development needs to be much more rounded. It begins with education, right back at early years intervention, incorporates skills development, links to community development and the broader civics of society.

Social outcomes should not be assumed as a result of a domestic firms export deal or an inward investment project, but guaranteed as part of the framework. Local councils have a much more important role to play in economic development and empowering them to deliver on this is essential.

A progressive and economically inclusive agenda won’t be easily delivered. Referencing Piketty again, he describes his own policy solutions to growing inequality as ‘desperately needed but politically impossible’, particularly as our economies are tied to, and dependent on, the global economy.

However, there is the potential for progressive shifts as New Zealand has demonstrated. The Ardern Government has begun to push through her ‘politics with a bit of heart’ agenda, with Bills on Labour regulation and welfare reform. Predictably this has faced resistance from the right with reports surfacing of business confidence plummeting, recoiling after nine years of a less challenging government. This exemplifies the difficulty of enacting a progressive agenda at a time when national and global politics are fractured and conservatives worldwide are emboldened.

That is certainly the case on this island. Brexit underpins a fractious political dynamic in the north, and the fallout from the 2008 crash is re-shaping the dynamic in southern politics.

Should our future be as two economies or one, there is an urgent need for a more progressive and equitable approach. Should the recent spike in conversation around a border poll and a subsequent ‘new Ireland’ be realised, economic inclusivity should be founding principle of any new state.

However, given the pace of change in this part of the world, this is likely to take years, time that many of our citizens don’t have. So as Davitt did in 1896, we should learn from New Zealand, and others, recognising that the status quo is not delivering, and seek out and begin delivering on robust solutions that will.

** Part of the Future Ireland Series. Questions, ideas, pitches to Claire – [email protected] or David – [email protected] Contributions from economists, social policy specialists, and those with knowledge of a specific sector especially welcome.