IRA cost Northern Ireland its economic advantage

Until the outbreak of violence at the end of the 1960s, Northern Ireland had consistently been the most prosperous part of our…

Until the outbreak of violence at the end of the 1960s, Northern Ireland had consistently been the most prosperous part of our island.

But today it lags well behind our State in economic terms, mainly because of the impact of the prolonged IRA campaign of violence upon the flow of external investment to the North during that period, but more recently also because of the impact of the Celtic Tiger on the economy of the Irish State.

The relative economic strengths of the economies of Northern Ireland and the Republic can be traced over a period of more than half a century - ever since in December 1954 Prof Charles Carter published the first figures for output and incomes in Northern Ireland in a paper read to the Statistical and Social Enquiry Society.

Two years later I used this data to publish (Studies, Winter 1956) the first detailed comparison of the economies of Northern Ireland and our State.

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That study showed that in 1953 output per head in Northern Ireland was more than one-quarter higher than in our State, and living standards there were about one-third higher than here.

However, in my 1972 book Towards a New Ireland, I was able to demonstrate that, by 1969, with the decline of some older industries in Northern Ireland, the output-per-head advantage had been slightly reduced, to about one-fifth.

But at that time, because of financial transfers from Great Britain, living standards in Northern Ireland were nevertheless higher than ours by a margin of at least one-quarter.

Because the growth of both Irish economies during the 1960s had been a good deal faster than that of Britain, and because in 1972 imminent EU membership was projected to increase our State's growth rate from 4 per cent to about 5 per cent a year, I suggested in that book that within a quarter of a century, (viz. by 1997), output per head in both parts of our island might catch up with that of Britain.

Although of course, in that event the political obstacle to Irish unity would have remained, this development would have eliminated the additional economic obstacle to Irish unity that was posed by the practical impossibility of our State replacing British subsidies to Northern Ireland out of Irish exchequer receipts - the volume of which were then only about one-twentieth of the revenues of the United Kingdom government.

In the event, our loss of eight years of economic growth as a result of the damage done to our economy between 1977 and 1981 slowed our 1972-1997 growth rate from 5 per cent back to 4 per cent a year, with the result that Irish output per head did not catch up with that of Britain until about 2003.

However, in Northern Ireland, IRA violence had effectively halted the inflow of foreign investment, which in the 1960s had in fact brought to that part of the island more new large industries than we had secured in that earlier period. This hit the Northern Ireland growth rate severely.

An appendix to the report of the 1984 New Ireland Forum showed that by 1983 about three-fifths of the 20 per cent economic advantage that Northern Ireland in 1969 had enjoyed in relation to our State had been eroded by IRA violence, leaving that area in 1983 with an output per head only 8 per cent higher than ours.

But because of increased British financial transfers to Northern Ireland, average material living standards in the area were then still more than 25 per cent above the level in the Republic.

By 1995 the effect of the IRA campaign of violence was completed, leaving Northern Ireland without any economic advantage vis-a-vis the Republic.

By 2005 the combination of the impact of the Celtic Tiger upon our economy and the damage done earlier to Northern Ireland by the IRA campaign in effectively halting foreign investment there had dramatically reversed the North/South economic relationship.

By that year the value of output per head in our State was estimated by the OECD to have risen to about 3 per cent above the UK level. With Northern Ireland's output per head just 20 per cent below that of the UK average, our per capita output had thus risen to a level almost 30 per cent higher than that of Northern Ireland.

As a result, whereas 50 years earlier Northern Ireland had been responsible for three-eighths of this island's output, by 2005 that share had fallen back to no more than one-quarter.

Nevertheless, because of the scale of financial transfers from Great Britain, disposable income in Northern Ireland in 2005 was still at about the same level as here.

Indeed already by 2000 ownership of consumer durables here had reached a level almost identical with that in Northern Ireland - except that Northern households then had 15 per cent more microwaves, but enjoyed 20 per cent fewer dishwashers, than households in the Republic!

What all this data shows is that, by effectively depriving Northern Ireland of significant foreign investment for more than a quarter of a century, the IRA campaign of violence cost that area the economic advantage in relation to our State that it had inherited from its much more heavily industrialised past.

As a result the North was totally unprepared to benefit from the huge 1990s inflow to this island of new high-tech industrial and financial investment - almost all of which consequently located in this State.