An 'all-Ireland economy'

Nearly 70 per cent of economic activity in the North revolves around the public sector, compared to 37 per cent in the South. Finance Minister Brian Cowen recently announced €75 billion in cross-border investment, while Peter Hain has declared that the North's economy can only be seen as part of an 'all-Ireland economy'. Surprisingly, this has received cross-party support. Colm Heatley reports

When Northern Ireland Secretary of State, Peter Hain, declared last month that Northern Ireland's economy could in the future only be looked at as part of an 'all-Ireland economy' it provoked howls of outrage from Unionism.

Hain was accused of "green political correctness", but his claim is simply the latest in a line of British government statements that have sought to highlight the burden the Northern Ireland economy places on the British taxpayer, a situation it wants resolved through political progress and cooperation between the North's politicians.

In October, Peter Hain laid out plans for a controversial new water tax for the North, which the political parties there largely oppose.

"If you don't like it, you'll have to get back into the Assembly and oppose it from there," he told unionists and nationalists alike.

The message was clear – the North's economy will have to be normalised and the local politicians will have to take a lead role in the process.

Northern Ireland is a significant financial burden on the British exchequer, with an annual deficit of £5 billion with a further £1.5billion security budget. The economy suffers from a chronic lack of private enterprise.

Around 68 per cent of economic activity in the North revolves around the public sector, a figure more in line with eastern European communist states, pre-1989, than a western economy.

In the South, the level is 37 per cent, in Britain it is around 41 per cent, a figure which Downing Street regards as excessive.

Of the 690,000 people in full-time employment, around 220,000 (31 per cent) are working in the public sector, a figure far ahead of the rest of western Europe, which has an average of 20 per cent.

A "civil service" culture has also compounded the North's economic woes. Invest NI, the government-sponsored organisation tasked with generating private enterprise, has been heavily criticised for its performance to date. Small businessmen have accused it of lacking an understanding of private enterprise, an allegation denied by Invest NI.

However, earlier this year even the normally conservative Institute of Chartered Accountants launched a thinly-veiled attack on the organisation when it called for responsibility for small business development to be transferred to local councils. That would have effectively left Invest NI with no remit, since more than 90 per cent of private enterprise is conducted by small businesses.

Since 1969, the North's economy has been bolstered by British government subventions and dominated by a security agenda with its own annual budget of around £1.5 billion.

The peace process has done little to change that, but with an endgame in sight, the British Government wants to "disengage", at least economically. Michael Smyth, an economist with the University of Ulster, says radical changes are needed if the North's economy is to develop.

"The economy here is a bit like a stagnant pond that has had no oxygen breathed into it for the past 40 years.

"The Troubles created a culture of refusing to take risks and of government playing the key lead role in economic activity. That has to change.

"The South has overtaken Britain in terms of output per capita, so Northern Ireland needs to start looking south for economic opportunity."

The hyper-development of the South's economy has inadvertently weakened the North's economic prospects.

The North cannot compete with the low corporation tax, 12.5 per cent, offered by Dublin to entice multinationals to set up business in the South. That has led to a situation where just 680 of the 90,000 companies doing business in the North are foreign-owned. A third of those are from the South.

Of the "Fortune 500" companies, the 500 richest North American businesses, a third have bases in the South, not a single one has come north of the Border.

That in turn has led to a "brain drain" from Northern Ireland, with graduates seeking employment in Britain and in the South. A computer programmer in Dublin can, on average, expect to earn almost double what his counterpart in Belfast makes.

"Up until the dot com crash, the vast majority of computer graduates went to the Republic or Britain," says Smyth.

"In terms of Protestant graduates, the trend has been that if they get their degree from a university in Britain they remain there."

The end of the Troubles has, far from providing a "peace dividend", exposed the fragility of the North's economy.

Ailing industries, such as the Harland & Wolff shipyards, are no longer subsidised by the British government, who during the Troubles were anxious to shore-up one of the North's largest employers.

The shipyards, which provided employment to an almost exclusively Protestant workforce, have since closed.

Demilitarisation has also brought job losses for those involved in the lower levels of the security forces, such as prison officers, rank-and-file police officers and local industries which supported the needs of the British Army in the North.

The one bright spot on the North's economic landscape is tourism, which has increased year-on-year since the late 1990s.

However, the annual marching disputes every summer have lessened the potential of the tourism industry, which also lacks the infrastructure to attract top-end tourism.

Despite unionist complaints about Peter Hain's comments, there are signs of Unionist acceptance of an increase in cross-border economic cooperation.

At a conference held by the forum for All-Island Economic Co-operation outside Belfast at the end of October, the Minister for Finance, Brian Cowen, outlined a €75 billion investment in infrastructure over the next ten years.

He told the conference, which was also addressed by UUP leader Reg Empey and Sinn Féin's Mitchell McLaughlin, that £16 billion had been set aside for the development of infrastructure in Northern Ireland and called for an "all-island approach to infrastructure investment".

Perhaps surprisingly, there were few voices of dissent from within the Unionist camp.

Empey, himself from a business background, gave a broad welcome to the proposals.

Less than two weeks ago the North's bloated local government infrastructure was reorganised into a more streamlined system, which dramatically reduced the level of government departments and locally employed bureaucrats.

The Northern Ireland Federation of Small Business expressed the hope that the reforms would provide more scope for private enterprise to flourish.

The message from the British government seems to be that the normalisation and reform of the economy are as much a part of the peace process as police reform or devolution.

It also appears the British government sees the North's economic future in an All-Ireland perspective.