January 1, 2006
This weekend, do you feel a bit fuller, fatter and tighter than you did two weeks ago? Are you having difficulty squeezing into that slinky dress that fitted like a glove just before Christmas?
What about yesterday’s 16′ï¿½ collar that suddenly feels like a noose?
Let’s be honest, we’re all feeling the flab post-Christmas. We’ve gorged that bit too much and are feeling a bit constrained.
Inflation is the economic equivalent of obesity, and conspicuously higher prices are its stretch marks. What are we to do?
Either we stop consuming so much – which is unlikely to happen – or we try to find other people who have some time on their hands to do some of our work, build some of our houses, sell us some of their land and generally take some of the strain.
It will be good for both of us. We will get a breather, and they will get the obvious fruits of economic growth, such as higher wages, more jobs, rising house prices and associated wealth. In short, they will get some of our money, and we will get some of their time. The relationship will be perfectly symbiotic. But where are these saviours to be found?
They have been staring us in the face for the past ten years. Have we seen them?
Have we heck! The solution to Ireland’s economic dilemmas – like congestion, queues, rip-offs and not being able to find a good plumber – lies just up the road.
Northern Ireland is probably the greatest untapped economic resource on the island, but politics – or at least the incessant ï¿½whataboutery’ï¿½ that passes for sectarian politics – has ensured that we cannot see this.
Anyone who spends any time in the North will realise the logic of an all-Ireland economy, not from the narrow triumphalist view of nationalist politics, but from the pure common sense of geography. Everything is cheaper in the North, and the place is on our doorstep. To understand why we could all benefit by sharing the Republic’s ferocious economic appetite, it is important to establish why the North is so much cheaper.
The main reason prices have risen so fast here is because they could. Up North, there is a lot less money sloshing around, which in turn ensures that prices have not risen so rapidly.
This is a result of numerous factors.
First, the population structure is different.
Northern Ireland’s baby boom peaked in 1970, ours in 1980. So the key spending component of the economy is ten years older in the North than here.
Second, those who are spending are spending less. The easy caricature to explain this is the image of the parsimonious Prod versus the feckless Fenian, but a much more telling explanation lies in economics.
We are spending more because our incomes are growing much more quickly.
Job creation has been dramatic – unlike the North where it has been average. This year, the Republic – with a population barely three and half times bigger than the North – will create nine times more jobs.
Without taking into account the usual 100,000 of us who will change jobs next year, the Republic will absorb 11,000 immigrants a month in 2006. This is more than the entire increase in employment forecast for the North for the whole of this year.
Wages in the Republic are substantially higher, not because we are nice to our workers, but because productivity here is significantly higher. This productivity gap is largely explained by multinational investment, which has driven the economy here but has been almost absent in the North. For example, 95 per cent of the increase in Irish exports came from new multinational investment, propelling this country forward in the 1990s. In the North, however, multinational investment actually fell in the 1990s.
Tellingly, this multinational investment gave a positive boost to local suppliers of these new firms, which reinforced the uplift in productivity. This process did not occur up North.
A third factor has been the wealth effect associated with house prices. Although house prices have been rising in the North, they have not been anywhere near the spiralling nonsense down south. The average cost of a house in the North is ï¿½153,000,while down here it is ï¿½271,000.
The wealth effect of this divergence, driven by equity releases, has amplified the amount of credit in the Republic’s system, thus pushing house prices up further.
Finally, because the public service accounts for almost half of all employees in the North, as opposed to 18 per cent here, there is less dynamism and innovation in the workforce, and arguably a lack of risk-taking, which itself affects the overall feeling of economic sterility. This, again, is reinforced by figures published last year in the European Journal of Social and Regional Studies, showing that, proportionately, there are twice as many self-employed people in the Republic as there are in the North.
But the economic balance sheet is not game, set and match to the Republic by any means. The quality of life for many in Northern Ireland is extremely high, its infrastructure is first class and the new workforce is well-educated. Its economy has been growing strongly – by British standards. Daily life in the North is not dominated by relentless commuting, childcare problems and rip-off prices. Its telecom infrastructure is advanced, its road system is superb and its air links, particularly from Belfast’s expanded airport, are excellent. Huge stretches of former industrial wastelands have been regenerated, and there is a real feeling that things are on the right track. Unemployment is low, even if the jobs do not pay particularly well, while investment and confidence is rising.
However, it is still suffering a brain drain to Britain – particularly by young middle-class Protestants – and, as Peter Hain stated quite obviously, the Northern economy is not sustainable in its present form. By this, he was referring to the annual subvention the North receives from the British exchequer.
To put this figure into an all-Ireland context, the North, with its much smaller population, gets more subsidies in anyone year from Britain than the Republic did from the EU throughout the entire 1990s.
At some stage, the North must at least make some moves towards self-reliance.
We can help them in this process and, in turn, they can ease some of our congestion problems.
Belfast is the closest city to Dublin on the island of Ireland. It is the only one that has sufficient mass to act as a counterweight to the capital. It has the people, and they need our types of jobs. By 2007, with the completion of the final stretch of the Dundalk-Newry motorway, it will be only two hours away by car.
Geography demands that we wake up to the resource that is the North. We should help them to agitate Westminster for corporate tax breaks like ours, so that they can compete properly. They should be part of our sales pitch, not least because as we get too expensive, cheaper workers and better infrastructure in the North will become part of our unique selling point.
Reading all the antediluvian stuff about the North in the 1975 government papers over the past few days, one can’t help but feel that the best way to condemn that nonsense to history is indeed to join hands and jump together – in economics, if not in politics. They need us and we need them. Now that we can afford it, it is time for us to be both far-sighted and generous.