Economies pay the cost of campaign by IRA

In my recent book, Ireland In the World: Further Reflections (Liberties Press 2005), I wrote of the huge change that has taken…

In my recent book, Ireland In the World: Further Reflections (Liberties Press 2005), I wrote of the huge change that has taken place during the past half-century in the relative prosperity of Northern Ireland and the Republic, writes Garret FitzGerald.

When I first addressed this subject 50 years ago (Studies, Winter 1956), using Professor Charles Carter's estimates of Northern Ireland's Output and National Income in the year 1953, I found that in that year Northern Ireland's output per head was 27 per cent higher than ours.

However, when I next wrote on this subject (Towards A New Ireland 1972), I found that our economic growth in the 1960s had narrowed this gap to about 18 per cent.

Returning to this subject in 2005, I was frankly astonished to find that during the intervening decades this gap in economic performance had not merely been bridged, but had actually been reversed! Our output per head was now 21 per cent higher than that of Northern Ireland.

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What this means is that during those 35 years our output had almost quadrupled, whilst that of Northern Ireland had risen only two and one-third times. However, during this period our population had also risen more than twice as fast as that of Northern Ireland, which somewhat diluted the impact of our faster economic growth on output per head which nevertheless had almost trebled, whilst that of Northern Ireland had just doubled. What were the causes and consequences of this large growth rate differential?

Some part of Northern Ireland's less impressive economic performance must have been accounted for by the fact that in 1969 in addition to having an even larger volume of declining textile and clothing industries than the Republic, it also had a rapidly disappearing shipbuilding and associated heavy engineering sector.

Even if all other things had been equal, this would have left Northern Ireland at some disadvantage vis-a-vis the Republic during the industrial modernisation process of the late 20th century.

Until the 1960s, continued participation in the United Kingdom had proved economically beneficial to Northern Ireland. But from the 1970s onwards the fact that the Northern Ireland government lacked control of taxation began to work against a successful transition to a modern industrial structure.

By contrast, the Republic, which during the State's early decades had failed to take advantage of its independence, reversed engines abruptly at the end of the 1950s in favour of a dynamic outward-looking policy which utilised to the full its freedom to determine its own industrial taxation.

Once it had painfully sorted out the huge damage done by the disastrous overheating of the economy during the late 1970s, the abolition of taxation on export profits, which was later transmuted into a low rate of corporate taxation on industry, and later still on all economic activity, enabled the Irish State to achieve very rapid economic growth.

Given the larger scale of Northern Ireland's declining industry problem, as well as its lack of freedom in relation to industrial taxation, it was probably inevitable that in the latter decades of the 20th century it failed to achieve as high a growth rate as the Republic. So it was always probable that by the dawn of the 21st century the Republic would have caught up with Northern Ireland in terms of output per head.

What is astonishing, however, is that our State should have passed out Northern Ireland by such a large margin - so that it is now achieving a level of output per head over one-fifth higher than that of Northern Ireland, leaving that region dependent on financial transfers from Britain to maintain its living standards at a level at least equal to ours.

The additional factor that has inhibited Northern Ireland from catching up with Britain and achieving a level of output per head equal to that now enjoyed by the Republic was of course the campaign of violence and destruction waged over several decades by the IRA.

This had the effect of hugely discouraging investment in Northern Ireland. But for this factor, its economy would have been boosted at least sufficiently for it to have held its own vis-a-vis the Republic in terms of output per head - even if its lack of freedom to match our corporate tax regime would inevitably have held its growth rate below that of our State.

The scale of the divergence between the Northern and Southern economies created by the IRA campaign now poses what may prove to be an unbridgeable economic gulf between the two parts of our island. Why?

Simply because if Northern Ireland were now to move from the United Kingdom to an all-Ireland state, in order to maintain the living standards of its people we would need to find at least €6 billion to substitute for current British transfers to the North.

And that would require an increase of something like 12 per cent in our present level of taxation, which I greatly doubt our electorate would support.

Short of such a willingness on our part, there would be very few Northern nationalists, let alone unionists, who would be prepared to accept a reduction of something like one-fifth in their living standards.

As someone who has always thought that the division of the island in 1920 was a huge mistake, damaging in the long run to both North and South, I have to say that I deeply resent the damage thus done by the IRA in creating a major fresh obstacle to the prospect of eventual Irish unity.