Tuesday, August 31, 2004

The Fourth Green Field is in the Red

Last month Garrett Fitzgerald gave a lecture (still not available online) proposing that financial considerations make a united Ireland unlikely. Michael Smyth of the University of Ulster was quoted in the Irish Independent as supporting Dr Fitzgerald's view.

Marking the tenth anniversary of the IRA ceasefire in 1994, the FT today had a story on the North's economy headlined "Province's economy relies heavily on public sector". I thought it would be worth reproducing here before it dissappears into the subscription-only archive.

Marks and Spencer, that stalwart of the high street, offers a telling snapshot of the changing nature of Northern Ireland's economy.

The dramatic decline in the province's textile sector - once, along with engineering and food manufacturing, a pillar of the economy - was highlighted recently when the retailer cancelled a contract with Desmonds of Londonderry, a long-term supplier. The move added 260 job losses in a sector that has seen its numbers more than halve during the past 10 years.

Against that, M and S has been among the leaders of the retail investment surge in Northern Ireland. Along with services and tourism, retailing has been one of the drivers of recent robust economic performance in the province.

According to First Trust Bank, part of Allied Irish Bank, the economy will grow by 3 per cent this year and by between 2.5 and 3 per cent in 2005.

Second-quarter unemployment stood at a seasonally adjusted 5.3 per cent although this is flattered by a labour market activity rate of 70.5 per cent, markedly lower than the British average and a reflection of high rates of disability and retirement.
[The Republic's rates were 4.5 percent in 2000 and 77.8% in 1998, according to chapter 7 of John O'Hagan's book The Economy of Ireland]
Business optimism was reflected in Ulster Bank's purchasing managers' index report, which highlighted a 16th successive month of output growth in July.

Looking ahead, tourism - currently 2 per cent of gross domestic product compared with 7 per cent in the Irish Republic - is seen as having growth potential, although fears remain that some act of violence could jeopardise progress.

Broadband, which thanks to the province's role in a pilot project should be universally available from next year, is another source of optimism.

But on closer inspection, the situation is more mixed. "The economy is growing strongly but a lot is dependent on the public sector," says Nigel Smyth, local director of the CBI employers' group.

Some 62 per cent of gross domestic product is accounted for by public spending. Roughly a third of those in work are employed in the public sector. <[According to O'Hagan, the proportion of total government spending to GNP in the Republic was 42.9% (Table 3.2) and about 20% of the workforce was employed in the state-dominated sectors of public administration, defence, health and education (Table 6.10).]

The reasons for this are obvious, given Northern Ireland's troubled history. "The private sector got on a plane in the 1970s," says Michael Smyth, from the University of Ulster. "The public sector became the substitute for the private sector."

This situation is reflected in earnings where the private sector continues to trail the public sector.

Other legacies of "The Troubles" include a risk-averse banking sector and anti-discrimination laws for hiring that also demand continuous monitoring by businesses.

Local business people say they have learned to live with such things. Most say devolution does not directly affect their work, although they acknowledge that local rule made it easier to approach decision makers. "There was a high degree of response to such issues as high transport, energy and waste costs," says an executive from one prominent business.

The latter potentially holds implications for business elsewhere in the UK where there are fears that plans to bring together all Northern Ireland's equality and employment legislation in a single bill might form the template for a similar initiative elsewhere.

Against that, the province will also have to make the public-sector efficiency gains ordered by Gordon Brown following Sir Peter Gershon's review of government waste. The chancellor's influence can be seen in a recent decision to charge consumers for water usage for the first time.

The estimated £300m raised will go towards servicing a borrowing facility provided by Mr Brown after the signing of the Good Friday agreement, which allowed Northern Ireland to borrow cheaply but only if it could service the loans with a domestic revenue stream.

To mix metaphors from Frank Kitson and U2, it seems that London tried to drown the revolution in baby milk, but the revolution learned to swim.