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Bloody Sunday, election, Irish, Ireland, British, Ulster, Unionist, Sinn Féin, SDLP, Ahern, Blair, Irish America

North-south economic integration could make United Ireland a real possibility

(by Liam Clarke, Sunday Times)

It is difficult to know if cross-border economic co-operation undermines partition or makes it more acceptable. Only time will ultimately tell, but in the short term the signs are decidedly mixed.

Back in the bad old days before the hostilities were over and the Celtic tiger roared, war-torn Londonderry used to coax nervous Donegal shoppers across the border by offering a straight pound for punt exchange rate, considerably better than you would get in the banks.

Gregory Campbell, the DUP politician, was once spotted paying for a suit in the city's Foyleside shopping centre with punts. Did that mean he was an Irishman, he was asked? Not at all, he replied. It just showed that as long as partition was maintained there would always be bargains to be had.

It is the much the same with Aer Lingus. On the face of it the move to Belfast underlines a common Irish identity and an emerging island economy. On the other hand, Aer Lingus picked Belfast as its first "foreign hub", and only after a competition with Birmingham for the honour of being the Irish national carrier's first "UK base". A large part of the rationale for moving north was that it was a different jurisdiction, with its own employment laws, pay levels and grants system.

Aer Lingus is currently fighting to avoid giving northern workers the same pay and benefits package as its employees in Dublin, Shannon or Cork, even though Northern Ireland wages are generally comparable to the rest of Ireland's.

As an Irish-based company, Aer Lingus can be expected to use transfer pricing to show as much of its profits in the republic as it can, in order to pay 12.5% corporation tax instead of the 30% levied in the north. At the same time the company can benefit from the increased levels of subsidy for almost everything in the UK. It can save on labour costs and can reinvest its increased profits in the north for as long as it is advantageous to do so.

The border has always offered considerable advantages to those who know how to work it. Taking advantage of partition to smuggle cattle, petrol and anything else that moved provided a large part of the finance for the IRA's campaign to end partition.

For many people in border areas the line on the map was like a natural resource. Colum Sands, the Co Down folk singer, commemorated it in verse: "If it wasn't for the border what would we do?/ We'd only have one parliament instead of having two. / I myself am unemployed, but the smuggling sees me through./ For the border is a way of life as I'll explain to you./ I draw the dole in Newry, and in Dundalk I draw it too./ Sure I couldn't live at all without the border."

Sands's song reflects a depressed economic climate that is now disappearing. In the 21st century there are no customs checks and little impediment to movement north and south, but partition is still built into everyone's economic calculations.

Once the Troubles ended the north became a hot spot for southern capital seeking new outlets. Property was the first boom as investors rushed in from the south to buy up in areas finally coming into their own after years of violence.

In 2006 Northern Ireland recorded the highest increase in house prices in Europe and once-troubled areas such as Newry and Derry boomed fastest because of their proximity to the frontier. One estate agent in Derry revealed that a single investor from the republic walked into his office one afternoon and spent £5m buying up houses.

The result is that Northern Ireland house prices are now the highest in the UK outside the south of England, and have probably peaked. That will leave some southern investors with property they can only sell at a loss. Local investors, who sold up to the southerners, are sinking their money into the north of England, Scotland or further afield.

The amount of southern money being pumped into the north is welcomed by both nationalists and unionists. The former believe that building the island economy brings unity closer, while the latter reckons that the more investment there is, the more viable Northern Ireland becomes.

Irish government money is being used to build up the infrastructure needed to stimulate the process. It has helped build road links between Dublin and Belfast that are far better than those between either Dublin and Cork or Belfast and Derry. A dynamic north/south economic corridor is being created that will link the 1m people in metropolitan Dublin with the 700,000 in the Belfast travel-to-work area, as well as taking in the crucial centres of Dundalk, Drogheda, Newry, Lisburn and Banbridge.

Road links between the republic and Derry are also being upgraded at Irish government expense and development grants are being given to peace-building projects in loyalist and republican areas. Recently the taoiseach's office was criticised by the family of Thomas Devlin, a boy murdered by loyalists, for giving a direct grant to Mount Vernon, the small housing estate where his killers live and which has refused to give them up.

Wrightbus in Ballymena has benefitted from Bus Eireann contracts that Ian Paisley helped secure through his links with Bertie Ahern. The Bank of Ireland has moved its hedge fund operations to Belfast, creating hundreds of well-paid jobs while taking advantage of lower office prices and a different system of employment and tax law.

Unionists don't feel threatened by this process of economic penetration. Instead the DUP chides Gordon Brown for not matching the economic commitment of the "foreign" Dublin government to the north.

The whole process of evening up the two economies still has some way to go. In UK terms, Northern Ireland's economic output is about 20% below the national average, and it is also well behind the Irish republic's. Even though it is experiencing net population growth as foreign workers flood in and emigrants return to take advantage of the peace dividend, the economy is hugely dependent on the public sector and still requires a net subsidy of up to £60 (€90) a week for everyone in Northern Ireland.

While the deficit remains at anything like that level, no referendum in either state will ever result in a vote for a united Ireland. In the north, a unitary state prompts fears of falling living standards. In the republic, the prospect of higher taxes to subsidise "the nordies" would not be popular either. Ironically the subvention and economic differential is one of the current drivers of Irish investment, which may yet stimulate the northern economy to the extent that the subsidy is no longer required.

Introducing 12% corporation tax in the north, an idea backed by all the political parties, would begin to remove the differential and to chip away the rationale for partition. The latest proposals, put forward by the economist Mike Smyth and the banker Sir George Quigley, are for Irish-based companies to pay Irish corporation tax on their activities in the north. This would encourage multinationals to set up bases south of the border from which to run operations in the north. Northern Ireland and UK companies might be expected to do the same.

The only loser would be the Treasury, but even it might not lose if, as a quid pro quo, southern-based companies had to offset their lower taxes by giving up some of the grants presently payable to those registered in Northern Ireland. Anyway the Treasury would gain if well-paid, private-sector jobs were created. This would reduce the subsidy, an exercise that seems to be Gordon Brown's main priority in Northern Ireland.

If that happened a united Ireland would become a real possibility. At the very least there would be a more comfortable north-south relationship based on continued partition. It's a debate we've had before, but this time the arguments won't be drowned out by the sound of gunfire.

liam.clarke@sunday-times.co.uk

August 18, 2007
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This article first appeared in the Sunday Times on August 18, 2007.

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