Change key to escaping crisis

The Northern public has been cushioned so far from the recession, and may not be prepared for the austere measures that must lie ahead, writes DAN KEENAN

PUBLIC SECTOR-dependent, floating on an ocean of government spending and managed by institutions which are not fit for purpose – this is the view of the Northern economy held by perhaps the most influential think tank yet to report on it.

Prof Richard Barnett's Independent Review of Economic Policy,published last autumn, made tough reading for those in government and those agencies pushing Northern Ireland as a place in which to invest and do business.

It came in the wake of the politically dramatic restoration of the Stormont institutions, driven by Sinn Féin and the DUP, an unlikely partnership if ever there was one.

While the Executive grappled with the difficulties faced by a four-party coalition, the economy appeared to continue on its own merry way.

With the public sector approaching two-thirds of the overall economy, a horrific level of adult economic inactivity and an unhealthy reliance on low-skill, low-paid jobs which were likely to migrate at short notice, the new Minister for Enterprise knew something had to be done.

Arlene Foster called in Prof Richard Barnett from the University of Ulster and asked him and his team to sum up the region’s economic problems, and to map out a route map to economic salvation. He was assisted in this by Prof Brian Ashcroft of the University of Strathclyde, a board member of the Economic Research Institute of Northern Ireland; Dr Graham Gudgin, of the Centre for Business Research, University of Cambridge, and of consultants Oxford Economics; Prof Michael Moore of Queen’s University and Harvard University; and John Wright, former international banking director and current chairman and non-executive director of a number of companies in the UK and overseas.

It wasn’t the first economic initiative to have been tried.

In May 2008, 150 international business leaders spent three days in Belfast and Hillsborough in the company of InvestNI and of British prime minister Gordon Brown, Taoiseach Brian Cowen, Mayor Michael Bloomberg of New York, ambassadors and senior diplomats and the Stormont Executive, which was then marking its first anniversary since restoration of devolution. Then US president George W Bush and president of the European Commission José Manuel Barroso sent video messages urging investment in the region, which both the US and the EU had done so much to help.

A new and politically stable Northern Ireland was open for business. Unfortunately, the showcasing of Northern Ireland coincided with the beginning of the worst of the credit crunch and the devastation which that wreaked.

Dissident republicans had other ideas about the political stability of the North, and the first of many rows between Sinn Féin and the DUP over devolution of justice powers, education reform and other key policy areas was just beginning.

When it came, Prof Barnett’s investigation, by contrast, was low-key, specific and targeted.

He spelt out in simple language what many people already knew and privately feared.

The economy was in crisis, and required “a significant step change”, he reported. The scale of the public sector, government spending cuts and the scaling back of EU funds all posed challenges to an economy which had grown used to being bailed out by others. The rug was being pulled out from under Northern Ireland’s economy.

Calling for a programme of policy regeneration with a new emphasis on research and development, Prof Barnett appealed for radical reform.

“We are actually facing a potential crisis unless we change,” he said. “Can we change before getting into the crisis, where we are going to have tighter public expenditure? We are facing that crisis. Can we actually anticipate that and move on, because other countries are meeting the crises and then changing?”

Prof Barnett said it was madness for the Stormont Executive to have economic responsibilities spread over a range of departments, and he criticised the strategy of InvestNI.

He said it had spent £1 billion (€1.15 billion) in the seven years since its foundation, and not always to good effect.

He pushed the case for knowledge-based industries to be attracted, in preference to low-wage and highly mobile employers who migrate easily to lower-cost countries.

Insisting that “the status quo is not an option”, Prof Barnett said it was lamentable that productivity was stuck at about 75-80 per cent of the UK average, not counting the south-east of England.

Calling for a shake-up, he spoke of a plethora of programmes and initiatives and pointed to regional imbalances within Northern Ireland, suggesting that rural areas were put at a disadvantage by the private sector and that government strategies were adding to this problem.

Pointing out that InvestNI had not performed any worse than other comparable inward investment bodies, he said its spending decisions did not match the declared policy aims of the Executive, included in its programme for government.

Ms Foster was clearly not surprised, put the report out for six weeks’ consultation, and promised she would submit paper to the Executive – which she duly did. Last week Ms Foster said that action would follow.

Executive functions in the interim have been diverted (to put it mildly) by the turmoil over the transfer of justice powers and other crises which have caused many, including some ministers, to brand the entire Executive as dysfunctional.

Northern politics, meanwhile, has moved on. A devolved Minister for Justice was appointed on April 12th in a remarkably low-key ceremony, given what had gone before, and the parties are now fully absorbed in campaigning for the May Westminster election.

Regardless of which British party forms the next government, public spending is sure to be a key target as the UK struggles to contain its burgeoning public debt.

Stormont Minister for Finance Sammy Wilson has already pressed his Executive colleagues to deliver efficiencies, but more – perhaps much more – will be demanded when the next British government begins planning for the 2010-11 spending round.

Unlike the South, the Northern public has been cushioned from the effects of the recession, and may not be prepared for the austere economic measures that must lie ahead if the next British government properly faces up to reducing the UK’s huge debt.

The political selling of economic rectitude therefore may be difficult and troublesome for a powersharing Executive, particularly one with such ideological differences on economic matters.