January 1, 2006

It's the North, stupid

Posted in Irish Economy ·

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′� 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 �whataboutery’� 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 �153,000,while down here it is �271,000.
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.

  1. Gerry

    You need to check a few of your figures… by my
    reckoning, the population of the Republic is about 2.2
    times that of the North, not three and a half! Doesn’t
    take away your argument but puts it in a slightly
    different context.

    As for the South using the North as an economic resource,
    I’m all for it. Get some proper, go-getting, enterprise
    culture to give us all a boot up the backside up here…
    that doesn’t necessarily require government action.
    There’s nothing stopping Southern business making more use
    of the North, in our post-Nationalist Europe of Regions,
    except for the border in people’s minds. I’m not sure
    government action can do much to change the perception
    that usuns up here are mad neanderthals and this place is
    bad to do business in.

    In fact, it’s generally a really bad idea to give
    governments very wide remits to tackle very vague tasks.
    Let economic pressures make Southern companies take a
    closer look at the North.

    As for the cross-border commuters, where do you thing half
    of Dublin’s building workers come from? (Yes, I know, the
    other half come from Lodz and Gdynia).

  2. Kieran

    I enjoyed this as i think it’s a reasonably valid point. Of
    course, any business person with an ambitious and
    expansionist mind will have considered this route. Please
    see various news items on illegal cross border meat imports
    etc etc

    I do reject your “labour supply” view based on demography
    with little or no understanding of how labour markets work
    in reality – full of friction of both a geographical and a
    occupational mobility nature. What type of workers do we
    want or need to attract? Which ones should we grow
    ourselves (such as the high value added ones) and which
    ones should we set about to bring in? What type of workers
    and with what skills are available? What are the barriers
    to them participating in the republic’s economy – have they
    childcare responsibilities or do they possess basic
    literacy and numeracy needs (as 25% of the UK adult
    population does)?

    Your consumer led pop analysis is fun and thought
    provoking. I would consider it stronger on social
    commentary and consumer trends rather than more complex
    economic development policy questions.

  3. Laura

    There are two other differences that you didn’t point out
    which dramatically separate the north and the republic.
    1. Health service –> NI much more dependent on state-
    funded/tax funded public health (NHS) whereas non-welfare
    dependents generally have to pay privately for medical and
    dental treatment in the republic.
    2. Social welfare replacement levels very different –>
    basic adult rate for unemployment benefit in NI is not even
    50% of the Irish rate. Also criteria for qualifying for
    disability benefits are tougher (i.e. you cannot claim on
    the grounds of depression or illnesses not considered to be
    totally debilitating). This effectively forces people to
    work for lower wages.

  4. Leinster Separatist

    Hm.. 11,000 immigrants per month this year. So if current
    trends continue, in ten years time that would be 15.84
    million immigrants? sounds unbelievable..

  5. Leinster Separatist

    sorry for the terrible maths I meant 1.3 million..

  6. Leinster Separatist

    So what is the current immigrant population? A quarter of
    a million?

  7. Pete

    Based on your analysis, the logical thing for a
    businessperson to do would be to set up their business
    just south of the border (for low corporation tax) and
    hire cheap workers who live north of the border but
    commute accross it every day. Surely that would bad for
    the economy in the Republic?

  8. adrian

    Nice article David.
    One item that is a hinderance to cross border integration
    is the cost of roaming around the island with a mobile
    phone. Its an outrage!!! Mark Durcan is none too impresed
    with his roaming charges and he actively campaigns for law
    to enforce an all ireland network.
    Surely any Son of Ulster withe thier meene Ulster Scotts
    streek in them would welcome lower bills!(but when will
    they learn to spell?)

    On the main subject it looks like the British Government is
    on the drive to cut spending in Northern Ireland. The
    noneconomy in the north is propped up by generous British
    spending. Are the British arranging to put the north onto
    an economic diet in an attempt to starve the north into an
    all Ireland economy? (likely influenced by that mean fisted
    Scott himself Gordon Brown, having no fondness for his
    Ulster Scotts cousins!)
    Big Ian has a message for Gordon…
    We shall never go down that Dublin Road. NEVER NEVER NEVER!

  9. Paul Rux, Ph.D.

    David, this is a humane, timely article; I salute you for
    it! When I was at Trinity College as a students, 1964-
    1965, there were talks between the North and the Republic
    about joint economic cooperation. Politics intervened to
    set this budding cooperation back. However, as you
    observe, the time is right for Ireland to be one country
    on one island, with a common stake in the welfare of all
    of its sons and daughters, North, South, East, or West.

    For Ireland not to cooperate as you suggest would be like
    the lower half of our Mississippi River valley refusing to
    conduct commerce with the upper half! Even our Civil War
    could not halt the geographic, economic logic of north-
    south trade and economic cooperation.

    God willing, I hope to have a chance to make my first
    visit to the North yet this year! My wife and I badly
    want to visit one of our favorite places in the world –
    Ireland. God bless Ireland.

    Paul Rux, PH.D.
    Mount Horeb, Wisconsin USA

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