If dollars rained down on Northern Ireland, it would be surprisingly challenging to put them to productive use.
President Biden told an audience in Belfast last week that US investment in the region could triple over the next decade to $6 billion. Political leaders in Brussels, London and Dublin are urging Stormont parties – by which they mean the DUP – to seize the opportunities of the Windsor Framework for a prosperous future.
There is an assumption this means foreign direct investment to capitalise on dual-market access. But where would the workforce come from? Unemployment in Northern Ireland is 2.4 per cent, matching the record low set just before the pandemic. This is effectively full employment, remarkable for anyone who remembers the Troubles, when joblessness was closer to 20 per cent and seemed doomed to be so forever. From this era stems the lingering DeLorean dream of an American factory falling from the sky, solving economic and political problems by the straightforward mechanism of providing jobs.
That vision of foreign investment is now decades out of date. Unemployment in Northern Ireland began a steady decline from 1993, more in parallel with the peace process than because of it. By the time of the Belfast Agreement it had halved, yet this scarcely dispelled the desperate sense of gratitude to any overseas investor. Stormont’s idea of a peace dividend was subsidising call centres and other low-quality employers, who deskilled the workforce before predictably moving on. The culture of gratitude persisted until around a decade ago, when everyone finally relaxed enough to make strategic choices and focus on raising productivity.
But better investment requires a higher-skilled workforce, which is even harder to find. Northern Ireland has fewer graduates and more people without qualifications than the rest of the UK and Ireland. This is due to a selective school system that unionists refuse to reform, plus a cap on university places in order to subsidise tuition fees, which unionists and nationalists refuse to reform. Four out of five businesses report skills shortages impacting output, profitability or growth – a problem only projected to get worse.
If the recruitment bottleneck was overcome, investment would run into further structural constraints. Northern Ireland Water objects to all planning applications in Belfast because the sewage system is at capacity. Transport and energy infrastructure are stretched to the limit. Housing may cost less than in the Republic but it is still scarce and prices are rising. Government paralysis is a larger problem than the latest Stormont stalemate: the administrative failures exposed by the Renewable Heat Incentive remain largely unaddressed. To take an example from this week’s headlines, 1,300 new houses in Lisburn have been held up for two years because civil servants are dithering over approving an access road.
While the Republic may experience similar obstacles, it can be a centre of corporate profits and services. The Windsor Framework applies only to goods – capitalising on dual-market access implies manufacturing and distribution.
None of this means Northern Ireland should spurn the promised wave of private investment, but ways must be found to uncork the bottlenecks, perhaps as a first priority. Ideally, foreign investors could help.
Neo-Thatcherite policies such as privatising water and creating a free market in university places were attempted by Labour ministers during the last period of direct rule. When Stormont returned in 2007 it put a stop to them. Stormont did adopt various Labour and Conservative private finance initiatives before these were discredited as an expensive way to disguise government debt. Outsourcing of public services has also lost its sheen.
In recent years, despite its general dysfunction, Stormont has explored cannier approaches to private investment, by giving arms-length bodies borrowing powers.
This was accomplished last year for housing associations and is increasingly discussed for Northern Ireland Water, which could become a non-profit mutual company, as in Wales. There is no squeamishness north of the border about build-to-rent housing – even Sinn Féin has welcomed it. More could be encouraged. In England, universities are turning to privately-arranged loans for expansion. US funds have piled into this ‘private placement’ market. They could be attracted to Northern Ireland if the cap on places were lifted.
A British government briefing paper, leaked this week, advises water charges and higher tuition fees in Northern Ireland, as well as reform of the civil service. London is mainly thinking of balancing the budget but such revenue streams also unlock private investment by demonstrating an income.
While Stormont’s return can be safely assumed, implementing difficult policies is another matter. Sinn Féin has a particular horror of reversing popular giveaways, although it may affect a more responsible stance as largest party.
It might be convenient for all concerned if the Northern Secretary introduced a few charges and reforms before devolution is restored.