Taking responsibility for our prosperity

OLIVER QuintinTaking responsibility for our prosperity
By Quintin Oliver and Allan Leonard (Fortnight)
9 May 2008

It is understandable if we get carried away by the recent announcement from brothers in arms Paisley and McGuinness that Northern Ireland will benefit from investments by the New York public pension fund through an ‘Emerald Equity Fund’, to the tune of $150 million.

However, the investors will expect a positive return, which our devolved administration at the Northern Ireland Assembly will have to guarantee.

Indeed, the situation is not dissimilar to the 2002 announcement by then Chancellor, Gordon Brown, of the reinvestment and reform initiative, and before that in 1998 to help encourage voters in the
upcoming May referendum. Again, the political classes and others got excited, under-appreciating that the facility offered was a loan mechanism, and without the full terms being clearly set out.

It was like getting approval for a credit card without asking the percentage of interest you were going to be charged.

HM Treasury was making it clear that the decades of the billion-pound subvention had to come to an end. If the people of Northern Ireland would not accept higher rates and water charges now, they can pay for the new money lent by other means.

The facts remain:

  • Northern Ireland productivity levels are 84% of the rest of UK, lowest of all regions¹
  • Public sector accounts for 30% of total NI employment, highest of all regions²
  • Economic inactivity rate 27% in NI, highest of all regions (UK average 21%)³
  • Subvention is £5-6 billion per year, c. 20-25% NI GDP*

One can appreciate the reasons whereby the Northern Ireland economy reached such a sorry state. One explanation is that with the onset of ‘The Troubles’, the public sector grew, partially to address high unemployment and guarantee an end to Nationalist / Catholic discrimination. While manufacturing industry suffered across the UK in the 1980s and beyond, it found some cushioning through continued Government subsidy in Northern Ireland (at least compared to England, for example). The political situation maintained Northern Ireland as unattractive for significant inward investment, and the grants commonly went towards capital costs, with little net gain in employment.

On the bright side, the cocooning of the local economy protected it from the ups and downs of firstly harsh Thatcherism, and latterly the globalisation occurring in the wider world.

No more, however.

Forget the edicts by direct rule ministers during recent Assembly suspensions. It is high time for us – all of us – to take responsibility for generating the wealth and prosperity that we need
constantly to improve the standards of our services and quality of life in Northern Ireland.

We can start with a debate on what our economy should look like.

Some individuals and groups already have. For example, in the 1990s the Northern Ireland Growth Challenge (transformed now to the Centre for Competitiveness) explored Michael Porter’s theory of competitive advantage: Northern Ireland should develop ‘clusters’ of those activities that it could keep ahead of the field, e.g. bio-medicine, applied engineering and tradable business services.

There will be constant pressure on familiar, traditional industries of textiles and heavy engineering, for which we can only compete if we add high value, as we have high labour costs (especially compared globally) and sometimes higher transport costs (‘the island off an island off the mouth of the Rhine’ or ‘une isle derriere une isle’.)

The settling in of our new Executive, with responsibility for outlining spending priorities and presenting a balanced budget, allows for a more mature debate about where we want to take our post-conflict economy, and how we are expecting to move there.

However, the most recent Budget approved by the Northern Ireland Assembly should give cause for concern.

Working for a shared and better future could have significant financial benefits. For example, how much of the estimated £1.5 billion additional expense of our divided society could be instead redirected towards frontline services for all?

Instead of placing such potential savings into the longer term, they should constitute a key theme in a medium-term growth strategy.

Also, the practice of industrial de-rating – abandoned by England in the 1960s – provides Northern Ireland firms cover from global market forces. Meanwhile, Finance Minister Peter Robinson decided to ignore advice here in a report he commissioned.

Another sop to populism was the decision to cap domestic rates for three years. Surely welcomed by households, but only postpones the day of reckoning when billions of pounds have to be found for a budget appropriate for our true needs in health and other services.

Put another way, it is like getting an extension in the term period on the mortgage of your negative equity home, while the plumbing and electrics still need repaired.

There are appropriate lessons to be learnt from elsewhere. The Republic of Ireland’s experience in transforming from a woeful macroeconomic situation has been often cited. While the conditions do not apply here, the drive for private sector vitality must not be discounted. Likewise, the experiences of Scotland and Sweden are instructive, especially in the latter case, the linked issue of ‘social gradient’ helping build a fairer and more effective economy.

Meanwhile, although conflict resolution in areas of deep deprivation may not have much relevance in terms of finance policy, there is ample evidence that economic growth is assisted where the circumstances that cause the underlying societal division are addressed.

This is rational, as otherwise the enmity always threatens to undo all of the sound economic policy work.

The time to progress our economy is now.

There is a vital role to be played by the business community, no longer with the begging bowl, the mendicant mentality and the ‘Chichester Street cash card’, but with positive, outward-looking and creative ideas and examples.

If the post-ceasefire political situation was too tenuous at the time of the Good Friday (Belfast) Agreement announcement and subsequent referendum, then the display of Northern Ireland plc by our local Ministers to audiences outside should at least indicate that they are willing to listen, to learn and go for growth.

The next step is to progress the agenda to the decision-makers. Exciting and brave work has been undertaken by many in the business community before. Now the effort must be broadened and deepened. Who is up for the challenge?

¹ Office of National Statistics, 2006.
² Office of National Statistics, June 2005.
³ DETI, Monthly Labour Market Report, 16 April 2008.
* Peter Hain, Economic and Social Challenges in Northern Ireland: Speech to the Fabian Society, 31 January 2006.

Quintin Oliver is Director of Stratagem (NI) and Allan Leonard is Director of the Northern Ireland Foundation.

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