Part I. The Economics of a United Ireland

Published: 14 August, 2005

I. The Economics of a United Ireland

Strand Two of the GFA was supposed to connect North and South through common sense economic, social and environmental forums and instituations.

Nationalists were committed to these reforms becasue it was thought that this could provide democratic momentum towards a Untied Ireland.

At the very least, it would provide releif for the impoverished border corridor and seek to coordinate issues of health, education, agriculture, commerce and infrastructure.

So far, due to the suspension of the political institutions and the sustaining of the Unionist Veto, little has been done although the cross border bodies are in place. 

One aspect of a United Ireland that all prudent individuals on both sides of the national or sovereignty issue should seriously explore, through the GFA, is the financial and economic aspects of reunification.

The Economics of a United Ireland

The logic of history, international law, human rights and peace dictate the re-unification of the island of Ireland.  The reality of the moment, in the Good Friday Agreement and the development of the All-Ireland institutions of governance, attest to this momentum. 

Putting the human and political rightness of a United Ireland aside, many people raise fundamentally economic questions which revolve around the issue of "Can the South afford unification with the North?"

This question is most often answered in simplistic terms of the size of the British subsidy and whether the Dublin Government can afford to match it.  This is a gross oversimplification of the economics of reunification.  Thinking that presupposes all other things, upon reunification, remain equal is unsound:  Everything in the economy changes.  Any projection of the net cost or gain must take this into account. 

Cost of British Occupation

Savings to the British Government of withdrawal from the North, with the reduction of its commitment to the Ministry of Defense and PSNI budgets would be quite substantial.

Government Integration

In the transitional period to a United Ireland, it would be likely that the large costs of reintegrating the Governmental systems North and South would need to be supported by EU funding.   However, given the large disparity between public sector employment in the two states, much larger in the North, it might be anticipated that large savings would accrue from integrating the two Public Sectors across the island.

Further discussion of the costs of reunification makes little or no sense in the absence of these considerations.

What may happen to the Six County economy on reunification? 

To answer this question we should look at the current state of the Six County economy.

There is absolutely no question that the rates of growth experienced in the last decade in the Twenty-Six Counties have been startling.  Those who would argue that the costs of reunification to the Southern economy would be high have argued that these rates of growth would be lower in a re-unified Ireland: that one of the costs of absorption of the Six County economy into a Thirty-two County economy would be a markedly lower growth rate in the South

There is a strong case to be made to reject this argument on purely economic grounds.

Causes for the Weakness of the Six County Economy

Firstly, there is no question that the Six County economy has been held back through its dependence upon, and domination by, the British economy.

The Six Counties have suffered the effects of British misrule for nearly a century.  It has been cut off and isolated from the economic expansion which has characterized the rest of Ireland over the past decade of the 'Celtic Tiger'.

The latest statistics would seem to indicate that the Six County economy is in terminal decline.  Currently, only 66% of the population of working age are in employment. Manufacturing employment has fallen from 172,400 people to a current all time low of 92,700 indicating a severe contraction in this core sector. The sector itself is predominantly small scale, low value-added, and uncompetitive as a result of inadequate infrastructure and input costs, including electricity prices, which are 15% higher in the North than in the rest of Ireland.

Employment in agriculture, textiles, the public and the voluntary sector are all expected to decline.  The only sector showing any buoyancy is the low skill, low wage service sector.

Cost of Political Insecurity

The political instability caused by British capitulation to the “Unionist Veto” has impacted on the economy dramatically.  Since the loss of locally elected Executive powers, there has been a drop of 14% in employment in Manufacturing compared to increases in employment in the sector in the earlier periods of the Peace Process.  Quite clearly, direct rule is failing to address the economic crisis currently ravaging the Six Counties.

A Huge Public Sector

In any economy, Public Sectors are cost centers, not profit centers.

The under-development of the private and community sectors reflects the heavy dependence on a huge Public Sector:  Public Sector expenditure is 61% as compared to 42% in Britain.  One third of males and one half of females are employed in this sector.

Business formation rates - indicative of economic activity and growth - are excessively low: the North has the third lowest figure as compared to regions in Britain.  Research and Development expenditure: a key barometer of future economic growth is already low (0.7% of GDP) and unlike every other country in the world is actually falling (in 2002 it fell by 8%). Of this miniscule expenditure, over 60% is concentrated in the top 10 Multinationals, which means little of the benefits stay in the area.  There is no wonder that 75% of all graduates leave and don't return to the Six Counties.

The Negative Effect of Being Embedded in the British Economy

This brief survey tells the story of an economy in terminal decline, a result of isolation from the economy in the rest of the island and the peripheral nature of the Northern economy within the "U.K."  Decisions in London have reflected the economic needs of the English economy, which are far from the needs and growth opportunities evident within the Six County economy.

The EU Market vs. the British Market

This situation has also been made worse by the failure of Six County industry to fully embrace the EU market - unlike the Twenty-six Counties.  It is clear that with increased European integration and the creation of a market of almost 300 million people, the greatest opportunities for export growth are through a pan-European focus and away from dependency on the much smaller British market.

West of the Bann and Border Corridor Isolation

The industrial manufacturing base has been heavily concentrated in the Belfast region, without any provision for economic growth and expansion into outlying areas, which, near the border, were cut off from their natural regional economy.  This difficulty was made worse by the lack of appropriate infrastructural connections West of the Bann. The fluctuation of exchange rates and fiscal regimes, not to mention the structural and military barriers to cross-border labor force mobility, have also all significantly undercut the ability of businesses to develop in these areas.

Potential For Economic Growth

It is now, in the context of the GFA, the work of InterTradeIreland, and the potential in the Common Chapter, that the opportunity for the economic development of the Six Counties, as an integral part of the island as a whole, have come onto the agenda. They hold out considerable economic potential, not just for the Six Counties, but for the development of the whole island.

All Ireland Economic Potential

There are numerous examples of potential all Ireland economic growth areas which strengthen the argument beyond doubt that All Ireland economic development, far from limiting the growth in the Twenty-Six Counties, will in fact offer new opportunities for exploitation of Ireland's unique economic advantages. 

All-Ireland Agriculture

One example is the potential for the development of an all-Ireland Agricultural sector with opportunities to fully exploit Ireland's unique comparative advantage in grass-based agriculture. There is scope for all-Ireland agriculture, as a single unit, to negotiate a common Irish position within the EU.  Agriculture is but one example.  Fishing and development of Ireland’s unique resources for aquaculture, fishing and fish processing, and marine based facilities, are another. 

Thirty-Two County Tourism

Similarly, there has already been outstanding growth in Tourism in the Twenty Six Counties, which has bucked international trends following "9/11".  There are clearly all-Ireland gains to be made from marketing of the whole island as a tourism venue.  Imagine the effects on employment, incomes and tax revenue if the Six Counties had similar proportions of visitors come to the North as came to the rest of Ireland. Tourism in the South has the tendency to stop at the Galway - Dublin axis.  Development of all Ireland tourism would undoubtedly benefit areas on both side of the current border. 

Energy

Another example is energy. The unique Irish coast line and weather conditions have the potential to meet the needs of the entire EU energy demand over the next generation through exploitation of wind power and utilizing the electricity inter-connector to Europe. The exploitation of this resource relies upon an All-Ireland economic policy that is able to take advantage of these opportunities.

High Tech and “Universities Ireland”

Primary among the growth sectors that have been marked out within the all-Ireland economy, is the Computer Technology sector, which has played so important a part in Ireland's economic growth over recent years.  This sector will face a serious challenge from the low-cost, and well educated labor force available in Eastern Europe and Southeast Asia. 

The ability to compete effectively in this sector will require greater levels of integration between educational institutions in providing sufficient numbers of qualified engineers.  The consolidation of all the universities across Ireland into "Universities Ireland", also offers an opportunity to develop jointly the key sector of Research and Development, which has fallen markedly behind in the share of the Twenty-Six County government budget allocation to a position of second lowest in the EU.  

Pharmaceuticals

The Pharmaceutical industry is a key sector in the Twenty-Six County economy: conservative estimates of this sector are 12 Billion euros yearly  The main constraint to continuing growth is the availability of science graduates - recent surveys indicate a likely shortfall of 600 skilled staff and 180 researchers in the sector alone. As such, the sector is a prime example of the opportunities for improved future, all-Ireland development with large numbers of graduates and the advanced research capability in the Six County's third level program and research.

The biotech industry is not confined to the pharmaceutical industry. It is clearly a sustainable growth sector for the future, if supported by sufficient R&D investment, which spreads its tentacles into marine, food, agri-business and a variety of areas all of which are central to economic growth in all of Ireland.

Financial Services

This sector employs 12,000 in the Twenty-Six Counties, with a further 2,000 employed in advisory firms and in the associated retail sector of the Docklands Development area.  Similar development, in its infancy, is spurring growth in Laganside, where a variety of blue chip investors and a growing e-commerce development where it is said that Northern electronics companies have Europe's lowest operating costs (approximately 38% lower than their competitors in London). 

The potential for mutual growth is an obvious example of opportunity for growth in the financial and services sectors, and offers wide opportunities for all-Ireland development with the employment of a highly educated workforce, both North and South.

All Ireland Economic Development

Far from being the case that the reunification will lead to the slowing of growth in the economy of the Twenty-Six Counties, the very opposite would appear to be the situation - that the very bottlenecks of skilled educated graduates, investment in R & D, and lack of all-Ireland hands-on government investment, can be seen, in the all Ireland context, to offer huge scope for all Ireland economic development.

These are but a few examples of the potential growth areas in a reunified Ireland.  There are many more.  Together they add up to the simple point that the scope for development in an united Ireland, within a context of progressive government policy which fosters and supports economic growth and development, is huge, and becomes possible precisely because it is an All-Ireland economy which an International Agreement has facilitated.

Potential Loss of Jobs in Streamlining an All-Ireland Governance

Another argument often raised in the context of the costs of re-unification has been the need to streamline government departments across the island, which inevitably must lead to savings in Government expenditure.   The downside, however, would be the loss of employment, particularly in the North, where two thirds of employment is accounted for by the Government sector. 

How can All Ireland governance accommodate the job losses that reunification will give rise to?  In fact, savings due to economies of scale in government administration have often been considered one of the economic advantages of re-unification. This is true especially when it is considered that one of the greatest scarcities in the Six County economy has been the lack of entrepreneurial and social community skill base. 

Government, public sector employees may have jobs, but they are non-revenue producing jobs and their salaries are being paid for by the tax payer.  Their loss cannot be considered an economic cost of Re-Unification.  It is in fact, an advantage of reunification.

The Open Economy

The dependence of the Twenty-Six County economy upon foreign investment, and the dependence of the Six County economy on the markets in the UK, makes both economies extremely vulnerable to changes in outside forces and the global economy, over which neither part of the Irish economy has any control.  Ireland as a whole is one of the most open economies in the world, and as such is most vulnerable to the effects of movements in international trade.

An all Ireland economy creates these opportunities for progressive economic management of the all Ireland economy, the logic of which is irresistible, and which, if grasped by the All Ireland government, would substantially benefit the small indigenous economic sector to everyone's advantage in proving a counter-cyclical cushion against effects of international recession.

A Common Currency

The Twenty-Six County economy, on joining the Euro, has secured a crucial advantage in that the currency is stable and consequently the Irish currency is not subject to the speculation and fluctuations which make economic life so hard for small, open economies. 

Movements of Sterling against the Euro and the Dollar impose additional problems for the Six Counties and causes inter-trade problems within Ireland itself, with continuously varying exchange rates between the Euro and Sterling.   

Prudent economists, business people and organizations, regardless of political orientation, should weigh the costs and benefits of the Six County economy joining the Euro currency area.

Conclusions

There is little doubt of the potential for economic development in a united Ireland and little reason to believe that the costs will out weigh the benefits.  Separation of the two economies, partition and dependency of the Six County economy on an economic policy determined in London, which never was geared to the needs and development potential of the Six County economy, imposed severe disadvantage through the years of partition.  

Re-unification holds a strong promise for the reversal of these trends in the Six Counties. 

Furthermore, there is every reason to believe that a future Thirty-two County economy would offer significant opportunities to foster indigenous industry and services, to develop R&D in key sectors, to relieve bottlenecks on continued growth especially through a highly educated workforce currently not employed to its full potential in the North, becoming available to all Ireland economy.   

In addition, the potential for sizeable influx of profit producing employees and small to medium sized entrepreneurs through the reduction of all-Ireland expenditure on government administration are all key factors which augur well for the continued growth path of an All-Ireland economy.

Continued growth of the economy, reunified, is undoubtedly possible, but it will require the new authority to engage and participate in the model of economic planning and development envisaged in the Common Chapter.

Without this, economic development in Ireland, whether united or divided, will not be able to withstand the effects of global competitive forces competing for markets, withdrawal of foreign investment to low cost economies, and the penetration of indigenous economies of cheap manufactured goods.

Using the GFA to Promote Unity Through Economic Reintegration

The Agreement created the all-Ireland Ministerial Council for all-Ireland development where ministers North and South were to work in co-operation, and it set up implementation bodies, with executive functions, to implement all-Ireland policies on Language, Inter-trade, Food Safety, Ireland's Waterways, and Tourism. 

Sinn Féin argued in negotiations for more areas of policy to be covered and for the implementation bodies to have greater powers.  However, they are a start.  Their impact goes far beyond their remit in eroding the border through creating seeds that could grow into all-Ireland governance.

While the Agreement created specific all-Ireland structures, it could provide momentum towards national democracy and social and economic equality in Ireland.

The test of their success will be whether they provide for the focused interaction of all the people of Ireland and the groups, agencies and political parties that advocate on their behalf through principle or self-interest.

All-Ireland development goes beyond the provisions of the Agreement and the structures it established.  It encompasses other constituencies and groups such as the EU, Local Government, the trade union movement, business, NGO's and Advocate Groups, Community Partnerships and other sections of civic society and their common concerns. Common concerns are increasingly addressed in an all-Ireland context.

Equality and Strategic Cohesion Needed for Reunification

While these developments are welcome, the two strategies have not been designed to bring about spatial equality and there is lack of strategic cohesion in relation to promoting North/South integration. However, the institutionalization of the all-Ireland relations in Strand 2 of the Good Friday Agreement has taken on a life of its own and has impacted significantly on policy development.

This dynamic also impacts on the nature of sovereignty on this island.   Reunification is, ultimately, the only practical and democratic way forward because it is the people of Ireland who are sovereign.

The urgency of undertaking this planning by the two governments requires that a detailed study be made of:

*        The potential for, and policies needed, to foster All-Ireland growth in the areas of the Common Chapter.

*        The construction of an Econometric model for a future United Ireland Economy and the projection of public finance under a variety of scenarios.

*        Planning of the departmental merging of the two administrations and the resultant savings.  The need for a plan, developed on the basis of social partnership, for retraining and reallocation of human capital resources to regional and community-development work in a strategic and planned manner.

*        A cost-benefit analysis of the Six Counties adopting the Euro.

*        An assessment of the savings to exchequer funding on the withdrawal of the British military establishment in the Six Counties and a plan for the redistribution of this as a real Peace Dividend.

*        The inclusion of the predicted costs of reunification and structural harmonization in future European Union’s INTERREG program.

*        Full consultation, under the GFA, with trade unions on the effects of reunification upon workers, the future potential of sectors of industry and services within which they work, and the collaborative potential within an All-Ireland Consultative Civic Forum in addressing common interests in the determination of real wages and social service provision based on the aspiration of an Ireland of equals, from which all the people stand to gain.

The very process of organizing the consultations required to effect this research is part of the process of building a unified economy, discovering and exploiting the great potential for economic growth and development that an all-Ireland economy offers.