Northern Part of Ireland Looks South

The institutionalized political insanity of Northern Ireland has an economic subtext. There is a cockamamie situation where in the North lies 25% unemployment and the public sector produces 61% of the province's output---due to the mindless 30% corporate taxes, no company wants to situate in the North.

Meanwhile, as the Economist points out in a free article online, Eire in the south is importing tens of thousands of workers from Eastern Europe to feed its booming economy, growing at a rate of 5% compared to 2% in the mixed-economy of Belfast and environs. The sad facts derive from the umbilical cord to a stagnating British economy:

If the region's politicians seem largely oblivious to the parlous state of the economy, businessmen and Peter Hain, the secretary of state for Northern Ireland at Westminster, are not. "Do we have a sustainable, self-supporting economy? No we don't," says Frank Cushnahan, the chairman of the Belfast Harbour Commissioners. Northern Ireland's GDP grew by 2% last year, faster than the United Kingdom's 1.8%. Its economy nonetheless suffers, says Philip McDonagh, an economist at accountants PricewaterhouseCoopers, from “potentially fatal underlying structural weaknesses”.

A sprawling state sector employs one in three people, thanks to the subsidies that kept the economy ticking over during three decades of conflict. About £5 billion more is spent in Northern Ireland each year than is raised there—almost £3,000 for each of its 1.7m inhabitants. Those figures are unsustainable, says Mr Hain, who is trying to cut costs and reduce the number of people employed by the state. For now, however, the public sector accounts for 61% of Ulster's output, compared with 42% in the United Kingdom as a whole.

Such assistance may once have kept a lid on social discontent but latterly it has crowded out private enterprise. Only 65 private-sector firms employ more than 500 people, and half of the region's exports are produced by just ten firms. Much traditional employment was in heavy industries which are now in decline throughout Europe. But problems go deeper than that. Northern Ireland's electricity grid is small and virtually cut off from Ireland's, so consumers pay the highest electricity prices in the United Kingdom—and more than their neighbours to the south. Its banks charge higher fees and pay lower interest to customers than they would if it had a genuinely competitive market for financial services, according to the Competition Commission in London.

Now that it is the south with the economic clout---Ireland's per capita income is second in the Euro area to Luxembourg---looking to invest in the North.
Catholic businessmen are making huge strides north of the border as the population from which they spring becomes more numerous and more prosperous. It should be no surprise that Northern Ireland's business community, who once thought its interests lay in throwing in its lot—economically as well as politically—with Britain, is looking increasingly to the south. Ireland's economy grew by an average of 9.5% a year between 1995 and 2000 and it still outstrips Northern Ireland and Britain (see chart). “Money talks,” says John FitzGerald, an architect working on the Titanic Quarter. “It pushes aside all sorts of territorial issues that get in its way.”

Mr Hain, who is pressing for closer de facto co-operation between the island's two economies, argues that the south lacks workers and particular skills that the north could supply. He has a point. A quarter of Northern Ireland's working-age population sits idle, yet Ireland's tight labour market is sucking in workers from eastern Europe and beyond. Mr Hain also reckons that Northern Ireland would receive more inward investment if it worked more closely with the south.

Yes, it would make sense if the two economies moved closer to each other, but antediluvian relics on both sides of the Irish Sea---fossilman Paisley in the North and socialist-wannabe fossil Gordon Brown in the UK---give the absurdities of Ireland's past sustained life because of their separate agendas:

This week, plans were announced to build a £120m electricity connection linking the island's two grids as a step towards creating a single market. And earlier this year mobile-phone companies stopped charging international fees for calls across the border. It would be easier to compete, Northern Ireland's businessmen argue, if their corporate taxes were cut from Britain's 30% to something nearer Ireland's 12.5%. Gordon Brown, Britain's chancellor of the exchequer, is unlikely to give them the time of day but the demand heralds growing pressure for convergence.

But that is a dangerous word to use in a country where every public utterance is scrutinised for signs that Northern Ireland is being nudged down the slippery slope towards political unification. "I wouldn't even use the term economic integration," advises a Belfast businessman. "Just say that people want to exploit the benefits of an all-island economy."

Ireland should take steps to accelerate some sort of economic progress toward alleviating the chronic economic problems of the North, if only to allow its Catholic co-religionists privileged entry. Better fellow Irishmen than Eastern Europeans, or am I missing something?