Northern Ireland Economy

Performance, Prospects and Policy

Esmond Birnie, David M.W.N Hitchens

• Publisher: Routledge
• Year: 2019
• eBook ISBN: 9780429806667
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

First published in 1999, this timely study emerged at a critical juncture for the EU and Ireland, and aimed to review the past development and future prospects of the Northern Ireland economy in the light of the European Union and its possible expansion. Esmond Birnie and David M.W.N. Hitchens examine the economic circumstances in the wake of Northern Ireland's longstanding position as a region which lags behind UK performance in the EU. Here, they update the data and discussion contained in an earlier study by the authors, Closing the Productivity Gap (1990), through discussions including engines of growth, the process of convergence and the current and likely development of Northern Ireland-Republic of Ireland economic links. This book will be of use to both academics, undergraduates, A-level students and the general reader.

1 Living Standards and Unemployment

Summary

This Chapter provides a summary of the performance of the Northern Ireland economy. A comparative approach is employed in this Chapter and, indeed, throughout the rest of this book. Thus, the rest of the UK, the Republic of Ireland and other parts of the European Union are employed as standards of comparison. A brief historical outline of the development of the Irish economies since 1800 is presented in order to suggest implications for performance, prospects and policies in the 1990s. The Chapter concentrates on two indicators of macroeconomic performance: Gross Domestic Product (GDP) per capita (as a measure of living standards) and unemployment rates (as an indicator of the extent of full employment of resources in the labour market).

We argue that both these indicators are themselves influenced by the level of comparative labour productivity (output per person in work). GDP per employee, together with the size of the employed labour force as a proportion of the total population, is an immediate explanation of the level of GDP per head of the population. Labour productivity, along with relative wage and other labour costs, is a major influence on cost competitiveness, i.e. as labour productivity goes up, other things being equal, cost competitiveness would improve and hence the level of output and employment are also likely to increase. Given such relationships we present some summary data relating to Northern Ireland’s comparative labour productivity performance in this Chapter. Chapters 2 and 3 will provide a more detailed consideration of this aspect of performance with special reference to the major tradable goods and services sectors.

Regional Economic Performance Considered Through a Comparative Method

When measuring the performance of an economy two indicators tend to be given special attention by economists. First, the level of income per head of the population and, second, the rate of unemployment. Income per head (often measured as GDP per head of the population though, as we shall argue below, Gross National Product (GNP) may sometimes be a more appropriate measure) is of significance because it determines the amount of economic resources available for both individual consumption and public spending. Unemployment matters as an indicator of the waste of potential human resources in the economy as well as the social distress suffered by those who are out of work.

Figures on the past and present performance of Northern Ireland with respect to both GDP per head and unemployment rates will now be presented. It is worth stressing at the beginning that most of the data presented in this book will be of a comparative nature, i.e. Northern Ireland will be compared to other parts of the world. Mostly these comparisons will be to either the rest of the UK (i.e. Great Britain) or the Republic of Ireland though, on occasions, some of the other members of the European Union (EU) will be used as well as the USA.¹

Comparison to either the average for the UK or Great Britain is worthwhile given that the UK is the national economic and monetary union of which Northern Ireland is part. UK economic policies form the context within which any economic policies particular to Northern Ireland must operate. In fact, one of the aims of economic development strategies in Northern Ireland since the Second World War has been to close the gap in prosperity relative to the rest of the country (Harris, 1991). Great Britain also represents the largest ‘external’ market for most Northern Ireland businesses (see Table 6.1).

Comparisons with the Republic of Ireland are also of interest. This is because the two Irish economies were under common administration until the independence of southern Ireland from the UK in 1921 and since then (and especially since the Second World War) they have suffered similar problems and as a result have often introduced comparable policy responses (Kennedy, Giblin and McHugh, 1988; DFP, 1993; Bradley, 1996). At the same time, the Republic of Ireland offers a contrasting experience given that, first of all, it has the advantages and, indeed, sometimes disadvantages of being an independent nation state with much greater autonomy to set economic policy and, second, the human and material costs of the ‘Troubles’ since 1969 have largely been concentrated in Northern Ireland.

Historical Overview of Two Centuries of Development of the Two Irish Economies

One reason why it worthwhile comparing and contrasting the two Irish economies is because of interesting similarities and contrasts in terms of their economic development since the start of the nineteenth century. An overview of the past is also of value because it can shed light on the origins of some of the current competitiveness problems facing various sectors of the Northern Ireland economy. Chapter 2 will demonstrate that the shortfall in productivity performance in sectors such as manufacturing and agriculture has been present since the inter-war period and in this section we will show that there have been weaknesses in the economic performance of Northern Ireland throughout the period since 1800.

Pre-partition, 1800-1921

A notable similarity was the common administration during the period 1801-1921. A legacy of this has been broadly comparable institutions: the educational and training systems, trade unions, banks, types of business organisation and the civil service, for example. A very notable difference lay in the impact of the first industrial revolution (1780-1830s). The contrast was between the North which industrialised and the South which did so to a much lesser extent.

By 1914 there was a concentration of heavy industry around Belfast (shipbuilding and textiles) which was unique in the island. This area contained a large share of world output of certain commodities (8 per cent of all ships). The largest textile machinery, rope making and cigarette factories in the world were then operating within Belfast. This represented an example of the type of clustered economic development, i.e. firms linked together in networks through supply linkages, which some modern economists such as Porter (1990) have stressed as a key component of regional/national competitiveness.

There had been some industrialisation in the Dublin area too, e.g. in food processing, but this had not led on to growth in engineering. In what was to become the Republic of Ireland taken as a whole there was probably deindustrialisation in the early nineteenth century. Large numbers of jobs were shed in, for example, the pre-modern textiles industry.

Why was there this North-South difference? This problem has produced a prolonged debate, mainly amongst Southern Irish historians and economic historians as to ‘why the (southern) Irish economy failed to industrialise in the nineteenth century?’. Sometimes this question is turned around to ask ‘what advantage did the North have?’. Responses to this second question have included the following:

• Security in the system of land tenure which encouraged northern farmers to take a longer term view;
• The Protestant ‘work ethic’ (as in Max Weber (1930)) which promoted savings and investment and a modern commercial morality;
• Immigrant entrepreneurs coming from England, Scotland or Continental Europe: the Hugenots, Ritchie, Jaffa, Harland and Wolff, and Dunlop;
• ‘Chance’ happenings, i.e. small or chaotic variations which through cumulative processes, e.g. economies of scale or external economies, can eventually have very large effects.

According to the latter view it might take only fairly small differences between the extent of industrial development between Belfast and Dublin in the 1800s-1850s to ensure that the North would grow a cluster of manufacturing firms whereas the South did not.

The first two of these hypotheses had their adherents even in the mid-nineteenth century but the latter two find more favour with some modern economic historians (Ó’Gráda, 1994).

It is important to qualify this consideration of the contrasts between the two Irish economies. Even in 1914 Belfast was not that strong economically and some of the more recent problems stem from that period (see Chapters 2 and 3). It did not go through the ‘second industrial revolution’ (i.e. electrical engineering and chemicals from the 1880s onwards) and would in turn miss out on most of the third one which began in the post-Great Depression 1930s recovery, e.g. the development of cars and consumer goods manufacturing.

In fact, and notwithstanding the North’s greater success in terms of industrialisation, levels of GDP per capita were similar in the two Irish economies in the years immediately before the First World War at about 50-60 per cent of the UK average. Crafts (1984) estimated GNP per capita in 1910 in Ireland as a whole at about three-quarters of Denmark, Switzerland, Germany and the Netherlands (i.e. the Continental leaders) and still considerably higher than Italy and Spain. (By the late 1990s GDP per capita in purchasing power parity terms, i.e. making allowance for differences in cost of living, in Spain was about equal to Northern Ireland and Italy’s level was about one-fifth higher. In terms of GNP per capita the Republic of Ireland and Spain were at similar levels whilst Italy was substantially ahead of both.)

Partition, Great Depression and War, 1921 to early 1950s

Economic factors did have some part in causing the partition of Ireland between the 26 southern Counties and the six northern Counties in 1921. Unionists opposed Home Rule during 1886-1914 as a threat to Northern Ireland’s access to markets within the British Empire. Nationalists, and later Sinn Fein, argued for Home Rule or complete independence in order to introduce trade protection. I...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Figures
• Tables
• Foreword
• 1 Living Standards and Unemployment
• 2 Sectoral Competitiveness: Manufacturing
• 3 Sectoral Competitiveness: Agriculture, Business Services and Tourism
• 4 General Influences on the Competitiveness of the Northern Ireland Economy
• 5 Impact of EU Membership
• 6 Impact of EU Enlargement and Monetary Union
• 7 Northern Ireland and the Republic of Ireland
• 8 Policies, Peace and Prospects
• Bibliography