Sunday, May 09, 2021

A dream of a United Ireland with a population of over 7m people

Ireland and UK from the International Space Station

The centenaries of the momentous political events that occurred in Ireland in the early years after the end of the First World war have raised the issue of the likelihood of a United Ireland. Does it make sense in a political, social and economic framework or are a few decades more required for reconciliation between the two communities in Northern Ireland?

In December 1920 King George V gave the royal assent to The Government of Ireland Bill that provided for the political partition of the island. On June 22, 1921 the king gave a speech in Belfast City Hall at the opening of a Parliament for Northern Ireland. He said:

"I appeal to all Irishmen to pause, to stretch out the hand of forbearance and conciliation, to forgive and to forget, and to join in making for the land which they love a new era of peace, contentment, and goodwill.

It is my earnest desire that in Southern Ireland, too, there may ere long take place a parallel to what is now passing in this Hall; that there a similar occasion may present itself and a similar ceremony be performed ...May this historic gathering be the prelude of a day in which the Irish people, North and South, under one Parliament or two, as those Parliaments may themselves decide, shall work together in common love for Ireland upon the sure foundations of mutual justice and respect."

On the issue of Irish unity and the Anglo-Irish Treaty, Prof Diarmaid Ferriter of UCD in 2011 ahead of the 90th anniversary, referred to research by the historian Maureen Wall (1918-1972), "which revealed that the treaty debates in late 1921 and early 1922 had witnessed relative silence on the subject of Northern Ireland. Of the 338 pages of the debates printed in the Dáil report, only nine referred to partition."

In 1922 when the Irish Free State was formally established in Southern Ireland with dominion status similar to Canada within the British Empire, there was already a Civil War in progress.

In the 1930s the political leaders of the two Irish jurisdictions asserted separately that 1) the Free State was a "Catholic nation," and 2) Northern Ireland had "A Protestant Parliament and Protestant state." The first meeting of prime ministers was in 1965 and then in 1968-1998 a civil rights campaign was eclipsed by a campaign of violence that resulted in over 3,500 deaths of whom 52% were civilians.

The 1998 Belfast Agreement provided for power-sharing in a regional government and cross-border bodies. Sinn Féin, which was founded in Belfast in 1970 as the political front for the terrorist Provisional IRA (Irish Republican Army) organisation, and the Democratic Unionist Party (DUP) which was founded in 1971 by Ian Paisley, a demagogic Protestant preacher/ politician, who had incited violence, both became the dominant political parties.

In the almost quarter-century since the Belfast Agreement, Northern Ireland is "far from a society in which diversity and difference are welcomed and celebrated," while the Republic of Ireland has become a diverse liberal European democracy.

'A Political History of the Two Irelands: From Partition to Peace' Brian Walker (2012)

Population and economy

The population of the island will soon be 7m (currently NI is at 1.9m and the Republic 5.04m).

The population was estimated to be 8.2m in 1841 (the six counties that became NI had a population of 1.7m and the 26 counties that became the Irish Free State and the Republic of Ireland in 1949 was at 6.5m).

When Ireland was partitioned in 1921, Northern Ireland had two-thirds of industrial output on the island. Today NI has employment in manufacturing that is less than a third of the Republic's.

The Free State was dominated by agriculture while in the 1920s in other small European countries such as Sweden, Denmark, Netherlands, and Belgium, about 25% of their workforces engaged in manufacturing. Only 130 companies employed more than 100 people according to Denis O'Hearn in 'The Atlantic Economy: Britain, the US and Ireland.'

In the early years of NI its ‘Imperial Contribution’ to the British Treasury - reflecting the strong economy - was in a substantial surplus but from the latter part of the 1930s, the region has depended on subsidies from the British government as the economy has persistently underperformed.

In 1924, the textiles and clothing sectors (e.g. Irish linen) were the biggest components of manufacturing in NI accounting for 54% of output, but only 2.4% in the South. By 1961 NI had 164,000 employed in manufacturing compared with 158,000 in the Republic.

NI's external exports to Great Britain and the world were valued at £23bn (€26bn) in 2019 with £11.3bn to Great Britain and £11.7bn to the world including £4.5bn to the Republic. Services accounted for about £7bn.

Great Britain and the Republic of Ireland accounted for 69%.

GDP was at €51bn in 2019 — €27,000 per capita. Annual net transfers from London are a fifth of economic output.

The Republic's national income per capita may have ranged from €36,000 per capita to €41,000 in 2019.

Modified Gross National Income (GNI*) has been introduced in recent years to strip out 3 major multinational tax avoidance distortions in the national accounts. However, other distortions remain.

Moy Park, a poultry processor, is NI's biggest firm. It was "bought" in 2017 by Pilgrim's Pride, an American firm, from Brazil-based JBS SA — one of the largest meat producers in the world.

JBS had a credit crunch after a big fine in Brazil and it sold Moy Park to Pilgrim's Pride for £1bn; JBS owns 79% of Pilgrim's Pride and JBS/Pilgrim's Pride are facing a court trial in the US following a shareholder revolt.

Moy Park employs about 6,500 in NI which is about 31% of food industry employment. The company's net profit to revenues ratio in 2019 was just over 4%, which is low.

Public debt and fiscal deficits

The NI economy had a £9.4bn (€10.8bn) budget deficit in 2019. The annual deficit is covered by the British government. Some of it relates to pensions, and the pensions of continuing public sector staff in NI would become the responsibility of the all-Ireland government.

It's also unlikely that a British government would allow an independent Scotland to begin its existence without assuming a share of UK debt. The same could apply in respect of Ireland.

Data from the European Commission show that the Republic is forecast to have total government debt of €241.6bn in 2021. On a per-capita basis, the debt burden this year is €48,291 — the highest across the European Union and the UK. The EU-27 average is €29,217.

Based on the UK's per capita level of €38,463, it would put the NI share of the national debt at €73bn.

The British government had made a claim in line with the Anglo Irish Treaty of 1921 that the Irish Free State should assume £155.75m of UK national debt. "The addition to the ...debt stock was the equivalent of between 80 and 100% of GDP. An annuity ...would have equalled 24% of 1925 tax receipts" in the Free State.

Following a leaked report that the Boundary Commission would not make any changes in the Irish border, William T Cosgrave, the president of the Executive Council of the Free State, in London negotiated with Winston Churchill, the chancellor of the exchequer, and Cosgrave warned that his government faced collapse. The debt was forgiven.

Economic synergies?

The Republic has its challenges with a high dependence on exporting foreign firms while the indigenous international sector has been underperforming for decades.

Innovation is low and the ratio of SME employer firm exporters is almost as low as Greece's level.

The level of employer entrepreneurship in the Republic is also uninspiring.

Ireland's FDI over-dependence and surging population

FT 1000: 3 Irish on 2021 list of Europe’s fastest-growing companies

Global business R&D: US has 800 firms; EU27 400 and East Asia 1,000 — Ireland has 4 Irish firms (there are 24 foreign firms that are Irish for tax purposes) on the Scoreboard including 2 banks

State of Irish high tech and biotech 2020

Key indicators and Ireland's non-Covid economic challenges into 2021

Retooling Ireland's economic engine - look to Denmark & Netherlands

Dutch food innovation lessons for Ireland

Irish employer entrepreneurship remains on respirator

Ireland among 7 big tax havens as US seeks global minimum corporate tax of 21%

Irish material standard of living per capita below EU-27 average in 2019

Ireland's missing exporters

The chart above shows that Ireland was in 21st place in a World Bank ranking of Actual Individual Consumption per capita adjusted for price differences (purchasing power parities - PPS) and comprising both public and private consumption of goods and services. It is widely seen as a useful measure of individual welfare. Here the 25 countries have populations above 1m.

Ireland’s AIC per capita in 2019 was about 95% of the EU average, down from 115% in 2006-7. This placed Ireland behind not only the UK and all 6 of the original founder members of the EEC but also Austria and the three Nordic member states.

Patrick Honohan, emeritus professor of economics at Trinty College and governor of the Central Bank of Ireland 2019-2015, says in a February 2021 Central Bank Economic Letter:

"On average across the world, AIC includes about two-thirds of GDP, but the ratio varies widely. Still, if one is going to use one of these available national data series as a rough measure of current living standards of households, AIC, adjusted for price differentials across countries seems a good option."

The World Bank noted that while Singapore has the highest PPP-based GDP per capita in the Asia-Pacific region at $93,981, its PPP-based AIC per capita is significantly lower at $31,966.

The corresponding Irish levels are $78,211 and $26,744.

The Organisation for Economic Cooperation and Development (OECD) — a club for mainly rich countries — has Ireland at 19th ranking for household adjusted disposable income1.

Economists John FitzGerald and Edgar L.W. Morgenroth in a 2019 paper concluded "As a result of the policies pursued by the Northern Ireland administration, over the last 20 years productivity in Northern Ireland has fallen relative to the UK average. In turn, UK productivity has itself performed very poorly over the same period. This is the central problem of the Northern economy.

This performance contrasts with that of East Germany where there has been steady progress since unification in 1990, with productivity gradually converging towards the national average. In the case of the Mezzogiorno, while productivity has not risen relative to the rest of Italy, it has at least maintained its position. The key factor behind the poor productivity performance in Northern Ireland has been the low rate of investment in physical and human capital. In particular, the failure to reform the education system to provide equal opportunity for children of different abilities means that Northern Ireland today has the highest rate of early school leaving in these islands."

Based on 2016 household consumption of public and private goods and services boosted by the transfers from London, the economists said that that "the standard of living in Northern Ireland is close to the UK average and above that of Ireland (5%)."

Sinn Féin published a discussion document  'Economic Benefits of a United Ireland' in November 2020.

"Irish reunification would allow for more coordinated and strategic economic development across the island and especially within the border region, attracting more investment, improved productivity, and with it enhanced essential infrastructure. In turn, this offers significant economic benefits across the island of Ireland, by way of public revenue returns, overall increases in output, and boosts in higher-skilled employment."

Almost 70% of exports go to Great Britain and the Republic but the "vast potential for increased economic growth if the economic opportunities of reunification are realised" requires a lot of optimism that is not realistic.

NI has the choice today of cutting the corporation tax rate to the Republic's level of 12.5%.

In 2019 there were about 250,000 cross-border journeys at 12 crossings in most months of the year, suggesting that there was significant commercial activity. So the arguments that the end of the border would create a surge in new companies in the area requires more compelling evidence. 

If a United Ireland would become a reality in a decade, besides the risk of communal conflict, it's unlikely that there would be a big surge in foreign direct investment from the US while an Irish Government would have to borrow heavily for investment in the North at a time when there is a clamour for public investment in housing.

1. The OECD says "It's the maximum amount that a household can afford to consume without having to reduce its assets or to increase its liabilities. It's obtained, as defined by the System of National Accounts – SNA, by adding to people’s gross income (earnings, self-employment and capital income, as well as current monetary transfers received from other sectors) the social transfers in-kind that households receive from governments (such as education and health care services), and then subtracting the taxes on income and wealth, the social security contributions paid by households as well as the depreciation of capital goods consumed by households. Available data refer to the sum of households and non-profit institution serving households."