Contrary to the frequently expressed view that Northern Ireland's economy is a basket case, there is an abundance of evidence to prove otherwise. Which is the appropriate benchmark for the Northern economy - the Republic or Great Britain? Comparisons with Great Britain are favourable. Manufacturing output growth has outstripped the rest of the UK for the past seven years. Employment in Northern Ireland's manufacturing industry has remained stable for the last five years - the only UK region in which this has occurred.
Employment overall is at record levels (620,000) and unemployment is near its all-time low (42,000 or 5.4 per cent).
If the Republic's economy is the chosen benchmark, then comparisons are indeed odious. How many OECD economies would bear comparison with the Celtic Tiger over the past seven years?
Most of the Republic's macroeconomic numbers - GDP growth, industrial output growth, disposable incomes, consumer spending, retail sales - have all been off the charts in recent years. It is clear that a proper understanding of Northern Ireland's economic performance needs to take into account factors that differentiate it from the rest of the UK on one hand and from the Republic of Ireland on the other. It is worth pointing out that it is the only UK region with a Border with the euro zone. Resulting exchange rate differences and indirect tax differences can cause serious distortions of trade and commerce.
The combination of an overvalued sterling and widening fuel excise duty differences has killed off much of the smaller retail sector along the northern side of the Border. The differential on diesel and heavy goods vehicle duties is such that more than 80 per cent of the road transport fleet is now registered in the Republic.
In general, the manufacturing industry has struggled to maintain a competitive position vis-a-vis the Republic. While sterling has been up to 30 per cent overvalued against the euro, Northern industry has been surviving by trading more intensively with the rest of the UK and also by raising productivity. Perhaps surprisingly, the official output data shows that the region's manufacturing productivity has been growing strongly in the face of very difficult trading conditions.
It is fair to say the economy faces a complex set of structural problems, many of them conditioned by the region's unique economic and political position. The problems facing agriculture stem directly from the strength of sterling as well as from the aftermath of the BSE crisis. The North's farming community is in crisis and there are little grounds for optimism about its short- to medium-term future.
Its textile and clothing industries have declined sharply over the past two years and further contraction is inevitable.
Overvalued sterling and global excess capacity has rendered much of the clothing sector uncompetitive. Even if sterling were to fall sharply, it is doubtful whether much of the textile sector would survive.
The food-processing industry is also in turmoil mainly due to upheaval in the UK retail sector. The arrival of several UK highstreet food retailers in recent years has increased competitive pressures on smaller local food processors, to the point where some have gone to the wall. Local bakeries, for example, are faced with uncompetitive pricing of bread by the retail multiples, resulting in ongoing serious losses.
A leading bakery chain has already closed one outlet and other closures are likely unless some remedial action is undertaken by the Assembly.
While most people fervently hope that the restoration of devolved government will pave the way to political and economic stability, it does not guarantee future economic prosperity.
There is an expectation that Northern Ireland will now regain a more normal share of foreign direct investment, but, under present fiscal and exchange rate conditions, it is difficult to envisage any substantial flow of inward investment.
Northern Ireland simply cannot compete against the Republic's low rate of corporate taxation. To make matters potentially much worse, corporate tax rates in the Republic are planned to move to a uniform rate of 12.5 per cent from January 2003. If the road haulage industry is anything to go by, large numbers of Northern Ireland businesses will also vote with their feet.
The lack of any real fiscal autonomy goes to the heart of the North's economic disadvantage compared with the Republic. As a small peripheral region of the UK, it does not have much policy autonomy. The ability to vary income tax rates has not been devolved to the Assembly.
Most of those people who voted Yes to the Belfast Agreement did so because they believed devolved government was preferable to a continuation of direct rule from Westminster. It is deemed preferable to direct rule mainly because it is expected to bring local solutions to local problems.
Many of Northern Ireland's economic problems are region-specific and therefore demand a region-specific response. Within the context of limited autonomy and a relatively tight public expenditure review, it is difficult to see where the policy innovations will come from. The long-awaited Programme for Government should make for interesting reading. It must contain some new ideas and an increased willingness to take risks within the public expenditure system; otherwise the exercise in devolution could become meaningless.
The optimists among the nationalist community look to the new North-South bodies as a source of new initiatives and ideas.
They may become sadly disillusioned. Both the British and Irish governments have had years to prepare the ground for these new North-South bodies, but to date there has been no substantial body of research undertaken to determine the nature and scope for North South co-operation for mutual gain. Even if it is possible to identify programmes and areas of fruitful co-operation, there is a suspicion that the bureaucracies on both sides of the Border are too deeply entrenched to facilitate meaningful progress.
Michael Smyth is senior lecturer in economics at the School of Public Policy, Economics and Law, University of Ulster, Jordanstown.
