ANALYSIS:Radical thinking is needed in Northern Ireland if its economy is to outgrow dependency on subsidies and cosy protectionism of a bloated civil service, writes John Bradley
MAJOR POLITICAL stages in the Northern peace process are usually followed by big investment conferences, where the benefits to potential foreign investors of engaging with Northern Ireland are paraded and praised.
The latest such conference will be held in Belfast, and much is expected of it in terms of revitalising the Northern economy. On the surface, the omens look good, with DUP first minister-designate Peter Robinson in the present powersharing administration. But below the surface all is not so well.
It has been claimed that Northern politicians have a reluctance, or inability, to engage with economic strategy (Garret FitzGerald, March 8th). According to this analysis, at best they and their economic advisers appeared to consider life as an integrated region of the UK preferable to the risks of any cloying relationship with their Southern neighbour. At worst, they failed to realise that if real policy concessions were to be sought (such as tax policy autonomy), they should have been part of the 1998 Good Friday negotiating brinkmanship.
There is much truth in this analysis. But it is only part of the story. I first became involved in research on the Northern economy in the early 1990s, before the ceasefire declarations of 1994. At that time, viewed through the fog of war, the Northern economy appeared to be bankrupt, kept afloat only by annual financial aid from Britain larger than the entire structural funds that the South received over the six years 1994-1999. Its public sector was too large, inefficient and inward looking. Its manufacturing sector had been shrinking since the mid-1960s, and surviving firms were predominantly traditional and labour intensive. Its market service sector was tired and old fashioned.
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.
However, this was not indifference to economic concerns, as Dr FitzGerald seemed to suggest. Rather, it was a flawed comprehension of what awaited the Northern economy once peace arrived, a local administration started operating, and Northern Ireland became just another lagging UK region.
As the complexity of the underlying economic problems in the North gradually became apparent after the Belfast Agreement, there was an understandable quest for simple, politically undemanding solutions.
In the absence of any deep analysis, all political parties and all Northern analysts last year championed a call for a Southern 12.5 per cent rate of corporation tax, in preference to the considerably higher UK rate of 30 per cent (20 per cent for small companies) that prevails in the North.
Politically, this was always going to be a doomed project since, if granted, it would have signalled the end of the UK fiscal union and possibly the beginning of the end of the UK itself (what with a resurgent SNP in power in Edinburgh). The analysis supporting the case for a lower corporate tax rate was of poor quality, and the self-serving arguments advanced in its favour were swept aside by robust counter analysis prepared for the UK Treasury by Sir David Varney, published in November 2007.
A curious and unsettling situation now prevails in the North. Having demolished a Northern development strategy based on fiscal autonomy, Sir David and the UK treasury propose to issue a second report, dealing with wider competitiveness challenges facing the Northern economy. This is scheduled for publication before the June conference in Belfast.
It seems incredible that such a task is being undertaken from London, at a time when there is a devolved administration in power in Belfast. If I were a Northern politician and/or policy maker, the only compelling reason that would make me wait for Sir David to draw up my strategy would be if I did not have any ideas of my own. Or, alternatively, if I felt that any strategy that I might draw up, and that made some sense, would simply generate too much opposition inside the North.
The current dilemma of the Northern administration is that it is starting to realise the problems associated with continuing to plan within the constraints of a UK region. But it is unwilling, or unable, to face into the challenges of designing radically different internal development strategies that would command cross-community support.
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.
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Dr John Bradley is an economic consultant, and was previously a professor at the Economic and Social Research Institute