As­pi­ra­tions on both sides of the bor­der

Belfast Telegraph - Business Telegraph - - Front Page - by neil gib­son, chief econom is tey ire­land @eyire­land

Are the economies of North­ern Ire­land and the Repub­lic re­ally chalk and cheese, asks Neil Gib­son

Ire­cently passed my one year an­niver­sary as EY all-is­land chief econ­o­mist. While no gold medals are awarded for such a mile­stone, it is a good time to re­flect on how dif­fer­ent (or not) the two economies are.

am fre­quently asked how I am find­ing the role across the two economies, and whether they are ‘chalk and cheese’ as the head­line data sug­gests? There is of­ten some sur­prise when I re­mark that the economies have as many sim­i­lar­i­ties as dif­fer­ences.

There is one ob­vi­ous dif­fer­ence be­tween the two — one is a re­gion and the other a coun­try. In eco­nomic terms, this is very sig­nif­i­cant. The eco­nomic de­bate in Ire­land fo­cuses on the deficit and the cost of pub­lic policy choices. There is a pal­pa­ble de­bate fo­cused on ‘who pays?’

This is much less pro­nounced in North­ern Ire­land where there is no na­tional deficit or a re­quire­ment to ‘ bal­ance the books’ in any long-term sense. This im­por­tant dis­tinc­tion per­me­ates pub­lic policy and eco­nomic de­vel­op­ment de- bates and ma­te­ri­ally im­pacts the na­ture of the chief econ­o­mist role.

The dif­fer­en­tial in over­all eco­nomic per­for­mance, both on a lev­els and growth ba­sis, is of­ten the start­ing point for any eco­nomic com­par­i­son. The dif­fer­en­tial is stark. Ir­ish GDP per head is much higher than it is in North­ern Ire­land (and in­deed the UK).

Even us­ing the mod­i­fied mea­sure of na­tional in­come (GNI ), the dif­fer­en­tial re­mains sig­nif­i­cant. Ex­pressed per head, GNI is more than 10% higher than GDP per head in the UK and roughly 45% higher than GDP per head in NI.

NI’S poor GDP growth and its un­der­ly­ing weak pro­duc­tiv­ity has long been a fo­cus of policy mak­ers.

Part of this is struc­tural, with NI hav­ing a more mod­estly sized pri­vate sec­tor and a lim­ited multi­na­tional and plc sec­tor.

It is not sur­pris­ing that with a higher GDP, the level of in­come in the Repub­lic of Ire­land is also higher than it is in NI.

Av­er­age salaries are 30-35% higher in the Repub­lic. A fur­ther area of dif­fer­ence, which links to the re­gion ver­sus coun­try dis­tinc­tion, is the ex­tent to which the econ­omy en­joys (or en­dures) eco­nomic cy­cles.

The more cush­ioned NI econ­omy did not suf­fer any­thing like the scale of the eco­nomic crash that was en­dured in the Repub­lic a decade ago, but equally it did not reach the same highs be­fore or since.

The damp­en­ing ef­fect of a rel­a­tively large pub­lic sec­tor in NI is another ex­am­ple of dif­fer­ence. In­ter­est­ingly this is al­ways cited as a weak­ness, de­spite economies with a large pub­lic sec­tor, such as a num­ber in Scan­di­navia, of­ten be­ing cited as ex­em­plars of suc­cess.

So far so dif­fer­ent, but in other ways there is great sim­i­lar­ity. Firstly em­ploy­ment rates are very sim­i­lar. Un­em­ploy­ment is ac­tu­ally lower in NI de­spite the weaker GDP fig­ures.

From a cit­i­zens’ point of view it is ar­guably more im­por­tant to have higher em­ploy­ment rates than high GDP, though of course the two are re­lated. It is per­haps sur­pris­ing how rarely the labour mar­ket fea­tures in com­pare and con­trast ex­er­cises.

A ma­jor part of the role as chief econ­o­mist is ad­vis­ing lead­ing cor­po­rates north and south on eco­nomic mat­ters, per­haps on out­looks, Brexit, wage in­fla­tion or ex­change rates. This dif­fers very lit­tle across the is­land. There are great, world-class busi­nesses in both ju­ris­dic­tions, thus the level of so­phis­ti­ca­tion of anal­y­sis be­ing car­ried out dif­fers very lit­tle. The scale may be dif­fer­ent, there are less firms in NI, but global qual­ity ev­i­dently can flour­ish in di­verse places.

Another way in which both economies are, sadly, sim­i­lar is the vari­a­tion in per­for­mance within each juris­dic­tion. Both economies have ex­tremely strong sub-re­gions but also a num­ber of ar­eas suf­fer­ing stub­bornly high un­em­ploy­ment, labour mar­ket dis­en­gage­ment and un­der per­for­mance. The ex­tremes in per­for­mance are ar­guably higher in the Repub­lic where Dublin is a strik­ingly dif­fer­ent sub-re­gion, but both economies have found achiev­ing more bal­anced growth ex­tremely chal­leng­ing.

Look­ing again at the pub­lic sec­tor, is govern­ment spend­ing in this area in­deed a key dif­fer­en­tial? Cer­tainly the pub­lic sec­tor is a big­ger pro­por­tion of the econ­omy in NI than in the Repub­lic. Some 24% of Ir­ish em­ploy­ment is in pub­lic ad­min­is­tra­tion, health and ed­u­ca­tion and in NI the fig­ure is al­most 30%. A dif­fer­en­tial, but per­haps less pro­nounced than many ex­pect.

Spend­ing com­par­isons are rather tricky due to a range of def­i­ni­tional is­sues. For ex­am­ple, Ire­land in­curs spend­ing on na­tional debt and cen­tral ser­vices (like the Trea­sury) which NI does not. But tak­ing a sub­set of pub­lic ser­vices, namely ed­u­ca­tion, health, jus­tice, so­cial pro­tec­tion (in­clud­ing ben­e­fits and pen­sions) agri­cul­ture and trans­port; spend­ing is ac­tu­ally very sim­i­lar on a per head ba­sis at cur­rent ex­change rates.

One ob­vi­ous dif­fer­ence is that the Repub­lic has a govern­ment and NI does not (at the time of writ­ing). But the civil ser­vice ma­chin­ery that runs the two economies has con­sid­er­able sim­i­lar­i­ties in ex­per­tise and com­pe­ten­cies.

In eco­nomic policy terms there are clear par­al­lels be­tween the Na­tional Strate­gic Ob­jec­tives in the Ir­ish Na­tional De­vel­op­ment Plan and the Strate­gic Out­comes in the North­ern Ire­land Draft Pro­gramme for Govern­ment. The health, jus­tice and ed­u­ca­tion sec­tors each war­rant their own ar­ti­cle, but un­sur­pris­ingly there ar­eas of good and bad per­for­mance in both ju­ris­dic­tions.

Press cov­er­age de­picts a sig­nif­i­cant de­gree of com­mon­al­ity with is­sues of cost, time­li­ness and per­for­mance in pub­lic ser­vice preva­lent on ei­ther side of the bor­der. A ma­jor dif­fer­ence, stem­ming from the lack of a NI govern­ment, is the ex­tent to which policy de­ci­sions are be­ing made that will im­pact the decade ahead.

Ma­jor in­fra­struc­ture plans are com­ing to fruition in the Repub­lic whereas NI, with­out an Executive, is mak­ing slower progress.

The is­sues that mat­ter to peo­ple are also very sim­i­lar in­deed. As the OECD’S ‘How’s Life’ re­ports show, both the UK and Ire­land place a pre­mium on life sat­is­fac­tion, health and ed­u­ca­tion.

In­come, per­haps sur­pris­ingly, is not top of the list and is markedly lower in the UK. It is how­ever worth re­flect­ing on how in­come is a pre-req­ui­site for some of the other items to­wards the top of the list!

NI’S of­ten quoted ‘ hap­pi­ness’ lev­els re­main an im­por­tant feather in its cap, and cer­tainly young work­ers in Dublin are much more anx­ious about hous­ing costs and in­come pres­sures than their equiv­a­lents are in Belfast, just one more ex­am­ple of how the head­line data does not tell us ev­ery­thing we need to know.

Work­ing to help gov­ern­ments and firms across the is­land re­mains a priv­i­lege and many of the projects and asks for sup­port are very sim­i­lar.

There are clearly im­por­tant dif­fer­ences across the two ju­ris­dic­tions but the les­son, as so of­ten in eco­nom­ics, is that the head­line data does not tell the full story. Most firms, in­deed most cit­i­zens, have sim­i­lar as­pi­ra­tions for their busi­nesses or for their life.

There are common chal­lenges, in­clud­ing how to meet the ris­ing cost of pub­lic ser­vice, how to spread growth more eq­ui­tably and how to grow the econ­omy whilst not di­min­ish­ing cit­i­zens’ qual­ity of life.

The chal­lenge for me, and oth­ers, is to spend more time think­ing about how to tackle these rather than try­ing to say who is fastest, hap­pi­est, most global or most af­ford­able.

Most busi­nesses, and in­deed most cit­i­zens, have sim­i­lar as­pi­ra­tions

In next week’s Econ­omy Watch, we hear from Andrew Webb of Baker Tilly Mooney Moore

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