Businesses can prosper in spite of the politics in the short run. In the long run, there may be a ceiling on performance. NI may be a model of how not to do things.
Summary of a presentation to be given to delegates from Turkey and Middle East (visit organised by Democratic Progress Institute and Irish Government), morning 12 July, Europa Hotel Belfast
The evidence I present includes both good and bad news- international examples (e.g. Italy in the 1950s-60s and the US more recently) suggests the business sector can prosper and grow in spite of political dysfunction or instability.
That’s the good news, the bad news is that Italy over the last 17 years, for example, illustrates how far an economy can be held back when political institutions fail to deliver fundamental reform. The longer politics fails to work in Northern Ireland the greater the likelihood we are heading for an Italian stagnation.
The lack of a settled devolved government in Northern Ireland is considered far from ideal. The main “cost” is, however, more likely to be in political terms- the loss of whatever improvement in accountability occurs when local political representatives take decisions. It is much less clear whether there is a direct, necessary and short to medium term cost in terms of the economy.
The actual record of Stormont when it did operate during 1999-2017 suggested a reluctance to make “hard decisions”. It remains to be seen whether a form of Direct Rule would prove superior in that regard.
There is an often expressed view that political uncertainty discourages investment and hence reduces economic growth. What we do not know is how strong any such effect is.
What we can say about the impact of recent politics on the NI economy includes the following:
With the renewed inter-Party talks failing to reach a conclusion before the latest deadline (end June) what might the future hold for the NI economy?
The presentation notes the example of post-War Austria. For about half a century, 1945-99, Austria was governed by grand coalitions of the Left and Right together, the legacy Parties of those groupings which had been engaged in a near civil war in the mid 1930s. These arrangements were stable because the Austrian Conservatives and Socialists realized they had no alternative but to work together [see Note 3].
If the DUP and Sinn Fein cannot “do an Austria” then the optimistic scenario would be to be like Italy in the 1950s-60s when businesses prospered in spite of the politics.
There is, however, also the pessimistic possibility that NI will become more like Italy since 2000. A country where political decision making seems to be in paralysis, fundamental reform has been postponed so often that all the problems have been allowed to accumulate, economic growth has slowed towards zero and hence economic policy increasingly seems to be about squabbles over shares of a shrinking cake.
Finally, can parts of Turkey and the neighbouring areas of Syria and Iraq learn anything from the so-called “peace process” and its interaction with the NI economy. Esmond Birnie said,
We need to be extremely cautious, not only is every case study unique in some regards but there is always the danger of learning the wrong lessons. In any case, the available evidence is unfavourable. NI does not look like a model example of how to achieve prosperity in a deeply divided society. If anything, alas, we may become a textbook example of how not to manage the political economy of a divided society. This is because the political institutions are:
- Too complex
- Too costly to run
- “Lock-in” community division rather than promote greater flexibility
- Encourage wasteful behavior (what economists call “rent-seeking”)
- And give insufficient priority to improving the productive base of the economy and society.