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A Tale of Two States

by Frank Schnittger Thu May 26th, 2016 at 07:02:20 AM EST

The relative performance of the Republic of Ireland and Northern Ireland economies since independence provides a stark case study in how political decisions can have a dramatic impact on the relative economic performance and social progress of two neighbouring states. The Republic of Ireland has prospered, whilst Northern Ireland was stagnating before and during the "Troubles", and has not recovered since.

Now Brexit threatens to put that sharp divergence into even starker contrast, re-igniting the political tensions that led to the Troubles, and putting a United Ireland back on the agenda. It may even be good news for almost all in the longer term, but at what cost in the short and medium turn? Follow me below the fold for an exploration of the chain of events that Brexit might unleash on the island of Ireland.

100 years ago some southern Irish republicans staged the last in a long line of uprisings against British rule in Ireland. The Easter 1916 rebellion was a military fiasco which divided the country. It resulted in the deaths of some 500 people, mostly civilians not involved in the fighting, and caused a lot of damage, particularly in Dublin, where most of the violence took place.  

As was often the case, the British mishandled the aftermath, and in executing 15 of the rising leaders following secret summary Court Martials without defence counsels, they succeeded in re-uniting southern Ireland behind the physical force tradition in Irish Nationalism.  Further attempts to pacify the Irish through the use of secret police, informers and the infamous Black and Tans failed and, eventually, in 1921, the British sued for peace and handed independence to 26 of the 32 counties of Ireland.

The 6 counties of North east Ireland were retained as part of the United Kingdom of Britain and Ireland because the majority protestant population there, made up largely of the descendants of 17th-century Scottish planters, felt threatened by the Catholic nationalist majority throughout the island and wanted their own state. In the years which followed they used this state to ruthlessly maintain their dominant economic and political position by denying Catholics equal access to employment, public services and voting rights.

What is less well known is that they also destroyed their own long term economic prospects in the process. Belfast was, in 1916, one of the power houses of the industrial revolution with 80% of industrial production in Ireland located in its environs. Its population had grown from 7,000 in 1800, to 400,000 in 1900 and it was the largest and most developed city in Ireland. The famous Harland and Wolf shipyards had built the Titanic; the cotton, textile and rope industries flourished until the 1960's; Shorts was to become a viable aircraft manufacturer and the ill-fated DeLorean sports car manufacturing venture had sought to expand the industrial base. Northern protestants even had the grudging respect of hard-line southern republicans as hard-working, innovative, and entrepreneurial industrialists.

Southern Ireland in 1916 was by contrast a relatively poor, agrarian and underdeveloped economy with only Guinness and the Jacobs biscuit factory providing some semblance of advanced industrial production in Dublin. Today, despite an €11 billion annual subsidy from the British Exchequer, N. Ireland lags far behind the Irish Republic in industrial development, GDP per capita, and living standards. Industrial production in the Republic is now 10 times that in N. Ireland, and exports from the Republic are €89 billion compared to €6 billion from N. Ireland.

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The total size of the Republic's economy is now four times of that of the North, even though the labour force is not even two and a half times bigger. In terms of income per head, the Republic is now almost twice as rich per person as the North. The average income per head in the Republic is €39,873, while it languishes at €23,700 up North.  The differing fortunes of North and South can be easily seen in the fact that, having been smaller than Belfast at the time of partition, the population of the greater Dublin area is now almost three times bigger than the greater Belfast metropolitan region.

How and why has this remarkable transformation taken place, and how could Brexit exacerbate it further? Ireland North and south is a classic case study in how political and economic development are inextricably intertwined, and how a failure in one area can have catastrophic effects in the other.

A number of factors have contributed to this enormous economic divergence: firstly, the Republic of Ireland has embraced globalisation, whereas the industrial base of N. Ireland has been largely destroyed by the shipbuilding, textiles, and manufacturing industries moving east. Starting with the T K Whitaker inspired opening up of the Irish economy to foreign direct investment in the early 1960s and carried forward through membership of the EU in 1973, the southern Irish economy has been transformed with virtually every leading US information technology and pharmaceutical multi-national locating its European headquarters and often quite substantial manufacturing facilities there.

The Industrial Development Authority has become one of the most successful FDI attraction agencies in the world. The introduction of relatively free secondary education in the 1960s, very high tertiary education participation rates, a relatively sophisticated industrial dispute resolution and wage bargaining infrastructure, access to the Single European Market, and relatively low corporate taxation rates were other factors in this success.

The N. Ireland economy has, by way of contrast, stagnated, much as have many of the other industrial regions of the English North and Midlands, Wales and parts of Scotland. London-centric rule has led to a focus on marketing and financial services and a systematic de-industrialisation of the regions. Even N. Ireland agriculture has suffered relative to the south for lack of government focus despite EU incentives for agriculture on both parts of the island.

The emergence of the Troubles in the 1970s and 1980s exacerbated the process of decline, destroying N. Ireland's tourist industry, and discouraging new FDI. However even the past 25 years of relative peace haven't led to the expected peace dividend, and the N. Ireland economy remains heavily dependant on central-exchequer-funded service industries and thus disproportionately exposed to London-imposed austerity measures.

When it comes to economic development, there is nothing like having a sovereign government fighting your corner, and N. Ireland has suffered badly from the relative lack of interest in its affairs in London and in the corporate boardrooms that matter. Indeed this may have become even more pronounced since the end of the Troubles removed N. Ireland from cabinet agenda in London. Irish Officials at meetings in London on EU or bilateral business have frequently noted how eyes glaze over whenever N. Ireland is mentioned. The Republic of Ireland, as a voting sovereign member of the EU, receives much more respect by way of contrast.

So how would Brexit impact on N. Ireland in particular? Northern Ireland would lose the benefit of EU agricultural and regional funds and a re-emergence of border controls could well re-ignite the dynamic of active agitation for a united Ireland sooner rather than later, re-activating all of the atavistic fears of an increasingly isolated Unionist community. This would be further exacerbated if Scotland opted for Independence and continued membership of the EU as most Unionist family and cultural ties are with Scotland rather than England.

Ironically the Democratic Unionist party, the main Unionist party, is campaigning for Brexit, possibly out of an atavistic fear of anything that might distance them from the UK but probably more out of an ideological connection with extreme (British) nationalist conservative thinking. The majority in Northern Ireland, made up of nationalists, socialists, non-aligned and some unionists will however vote for remaining within the EU, by an almost 2:1 margin, and this could form the basis for a broader consensus on policy in the years to come, especially if Brexit were to come to be seen as a further disaster for the N. Ireland economy.

Should Scotland leave the UK, and Wales show signs of disaffection, N. Ireland will be the least of England's concerns within a rump UK. It has long been my fear that one day England will simply lose interest in N. Ireland, cut central exchequer funding dramatically, and simply dump it into a constitutional no-man's land completely unprepared for any political future, be that a united Ireland, an independent N. Ireland, or some kind of awkward con-federation between the two Irelands. The Republic, for its part, would be unprepared to take on a sudden €11 billion p.a. liability, especially if that were also to mean taking on a very disaffected and possibly quite violent Unionist community from the north.

Some argue that this is an historical demographic inevitability in any case, as the Nationalist community expands much more rapidly than a static unionist population. However to date those trends have, if anything, led to a larger non-aligned or disengaged population, one unlikely to take to the ramparts for either cause. All this could change however if Brexit, followed by a further English disengagement, were to put the current constitutional settlement into disarray.

Some major historical changes can come about with surprising ease and rapidity - as witnessed to by the end of Apartheid and the re-unification of Germany. The differences between most Northern Ireland Unionists and the rest of the Irish population are nowhere near as deep as is commonly supposed. Both play for the same Irish rugby team. Both have increasingly close economic, social and family connections. Intermarriage is common, as is the rise of other ethnic identities unconnected with either. Politics in both jurisdictions is increasingly dominated by more mundane bread-and-butter issues rather than questions of religious or national identity. The transition could be difficult, the lived reality afterwards surprisingly serene.

But there are still significant ghettoes of working-class unionist and nationalist communities who cling onto their rival identities in direct proportion to the degree to which they have been ill-served by either. The EU could yet play a major role in bringing those pockets of deprivation and mutual fear and disdain into closer integration. Certainly the British government has shown little interest in doing so, and it is difficult for the Irish government to be seen as a disinterested actor for the common good. Brexit could bring all of these issues to a head much sooner than anyone thinks, whilst most would prefer a slow and much more gradual evolution towards ever greater North-south cooperation and integration. Certainly the current status quo is looking gradually more unsustainable the more the economic divergence of North and south continues.

The only question is whether a peaceful path can be found to address existing and legitimate fears and grievances. It will require great political skill and leadership, but it is by no means impossible. Either way, the EU could yet play a key role, which is partly why it's possible disintegration would be such a tragedy for Ireland.

You make it sound like the Irish economy was managed brilliantly. It was just less appallingly incompetent than that in the North - which wasn't managed for growth for more of the period but for maintenance of a minority power group.

The other problem for the North is that it's not even a provincial shithole, like the South. I don't think Belfast is integrated into the global city network (which is the world's actual economy, outside of artificial national boundaries) in the way Dublin is. Basically the North's natural place is as part of Dublin's hinterland but it can't accept or move into that role.

by Colman (colman at eurotrib.com) on Thu May 26th, 2016 at 07:25:21 AM EST
It won't have to.  Give President Trump a year or two.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 26th, 2016 at 12:04:21 PM EST
[ Parent ]
we were not supposed to joke about.

We can send you François Hollande or Manuel Valls, if you like, we have no use for them here.

by John Redmond (Ladybeaterz@NolesAD.com) on Thu May 26th, 2016 at 12:23:54 PM EST
[ Parent ]
Does it still count if we're only half-joking?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 26th, 2016 at 12:40:25 PM EST
[ Parent ]
Der Drumpfenfuehrer is neither half-ass nor half-joke.  He is all both.
by rifek on Thu May 26th, 2016 at 11:37:47 PM EST
[ Parent ]
But then, I am far far away, and watch with fascination. Not even registered anymore to vote...over there anyhow.
by John Redmond (Ladybeaterz@NolesAD.com) on Fri May 27th, 2016 at 09:44:07 AM EST
[ Parent ]
Gallows humor.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri May 27th, 2016 at 11:17:39 AM EST
[ Parent ]
The best gallows humor.  Just tremendous -- that I can tell you.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun May 29th, 2016 at 07:59:51 AM EST
[ Parent ]
The quality of economic management is relative, and is more than just a matter of direct Government action. The IDA's performance has been world class, and liberal economic theory has never given adequate credit to the role of Ireland's industrial relations infrastructure. The EU has also been enormously helpful, as much by enforcing good social and employment practices and access to wider markets as by direct subventions. We should also not forget the fact that 50 years of extensive US multinational presence in Ireland has helped create two generations of management cadres many of whom have gone on to establish their own not insubstantial businesses.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu May 26th, 2016 at 03:12:04 PM EST
[ Parent ]
Belfast is such a beautiful and historic town, and one can clearly see, portside and elsewhere, the extent of its prior industrial glory.

It is truly sad, what has become of it. But one could say similar things of Glasgow.

Unionism has been poorly served by its dogmatic fealty to London.

by John Redmond (Ladybeaterz@NolesAD.com) on Thu May 26th, 2016 at 08:35:46 AM EST
Just noticed the new email address.  Let the record show he was acquitted.

/damned Yankee hockey lovers

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 26th, 2016 at 11:58:22 AM EST
[ Parent ]
Johnny Cochrane was the defense attorney, no?
by John Redmond (Ladybeaterz@NolesAD.com) on Thu May 26th, 2016 at 12:23:07 PM EST
[ Parent ]
Is he even still alive?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 26th, 2016 at 12:39:32 PM EST
[ Parent ]
No, gone 11 years now.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu May 26th, 2016 at 02:38:57 PM EST
[ Parent ]
How much of that export value is from Irish value added work. Are the figures net of the value of input precursors? And how much is due to Ireland's favorable treatment of corporate taxation issues? Finally, how much better would the Irish economy be had the Fianna Fail government not accepted all of the bad debt accumulated by foreign banks on its soil? I would have thought a 50/50 split would have been generous.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu May 26th, 2016 at 02:46:55 PM EST
Yes, there is an increasing divergence between Ireland's GDP and GNP:

And yes, lower tax corporate tax rates cause some multi-nationals to book profits in Ireland which were in reality earned elsewhere, inflating Ireland's GDP figures.

The banks covered by the Bank Guarantee were baled out to the tune of €60 Billion but most of this is expected to be recovered as Nama (National Assets Management Agency) is expected to make a profit on the bad loans it acquired at c. 40% face value. So yes there was some loss sharing.

Despite the above, Ireland's economic recovery is real.  Unemployment has reduced from 15.1% to 8.4% in three years and the rate of employment increase (in all sectors of the economy) is currently accelerating despite international headwinds.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu May 26th, 2016 at 03:58:43 PM EST
[ Parent ]
Has Ireland put in place adequate prudential regulation of banks doing business in Ireland or is it still relying on 'others' to do this?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu May 26th, 2016 at 05:37:18 PM EST
[ Parent ]
The largest Bank, AIB, is currently still 99% state owned, and so, in theory, state controlled.  The Central Bank and the Financial regulator, previously asleep on the job, have been significantly revamped. The worst offenders - Anglo-Irish Bank and Irish Nationwide Building Society - have been shut down. Irish Nationwide's chief executive, Michael Fingleton is still being investigated by the Central Bank. David Drumm, former Anglo-Irish CEO has just been extradited from the USA to face trial here. Larger banks will in future be overseen by the ECB.  So some progress. I cannot comment on the adequacy of current prudential legislation as this is not a field I know a lot about.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu May 26th, 2016 at 06:09:22 PM EST
[ Parent ]
Well, all I can say about the US Fed as a model for prudential regulation is that it has been pathetic and I see no prospect for that to change. By law it has the power to pull the banking license of any bank in the Federal Reserve System, but it would be a financial earthquake if they ever did so. Without a major change in Fed leadership I don't see this even on the horizon. I wish I could take comfort from Lenin's old dictum: "The worse the better."

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu May 26th, 2016 at 08:03:12 PM EST
[ Parent ]
The Fed is occupied by current banksters, as opposed to, say, the SEC, which is occupied by once and future banksters.  So I expect the Fed to rein in the banks about three days after Hell freezes over, and since I don't believe in Hell....
by rifek on Fri May 27th, 2016 at 12:09:58 AM EST
[ Parent ]

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