Action required on Northern Ireland competitiveness review

This week the first comprehensive Northern Ireland Competitiveness Scorecard was published. This publication is a landmark for Northern Ireland as it compares its competitiveness position with that of a wide range of OECD and European Union countries.

The decision to produce a scorecard was made long before Brexit was an issue. Post-referendum, it will be useful for both business and policymakers as they look ahead to have this first set of 150 comparative indicators for the North’s economy.

Tough challenge

As a region of the UK, Northern Ireland is taking on a tough challenge in comparing itself with other countries, since it does not have control over many policy areas, and particularly its macro environment. But of course as a region it does not need to break even – there is a very large subvention coming from Westminster into the economy.

The scorecard was commissioned from the Ulster University's Economic Policy Centre by the economic advisory group to the North's Department for the Economy. The approach taken is very similar to that developed by the National Competitiveness Council (NCC) over the past 15 years in the Republic.

For most indicators, the new scorecard makes comparisons across about 30 countries and 12 regions (in the case of comparisons with the rest of the UK). The framework has sets of aggregate indicators grouped under three headings: sustainable growth, essential conditions and policy inputs.

Rich information

For many indicators, Northern Ireland is in the bottom half of the distribution – for example, its ratio of private-sector gross domestic product (GDP) to total GDP is at the bottom (31/31), as is its traffic congestion (20/20). On the other hand it fares very well on many indicators such as business regulation and is top for the cost of prime office space (1/30) and superfast broadband availability (1/12 UK regions). The report is rich with comparative information that can feed into the policymaking process, signalling issues to be explored and viewpoints to be challenged.

The new scorecard data allows the first direct comparison of competitiveness in the North and in the Republic – which again is timely in the face of Brexit and the challenges for the island economy.

On many but not all indicators the Republic’s competitiveness performance exceeds the North’s, reflecting the latter’s standard of living over recent decades being possible only because of significant budgetary transfers from Westminster.

Five-year comparative data

Somewhat worryingly from the North’s perspective is the limited improvement in those competitiveness metrics for which five-year comparative data are available; in the Republic by contrast, there has been significant improvement in relative competitiveness in most areas over that period.

In contrast to the very new role for competitiveness in the North, the Republic put national competitiveness centre stage in the policy process over two decades ago. The NCC’s competitiveness framework was introduced as a way of promoting joined-up thinking and planning for the enterprise sector across all government departments. It is not perfect but is a great improvement on an earlier approach to industrial policy, which had concentrated largely on providing grants and tax reliefs to individual Irish and foreign enterprises, and ignored other factors that impacted on costs and productivity.

The NCC was set up as an independent body to report to government on competitiveness. It produces an annual indicator scorecard, and an annual report identifying specific areas where government action is needed.

Acting on findings

Should the North consider establishing its own independent competitiveness council along similar lines? And what can the North learn from the Republic’s experience?

The first lesson is that producing a scorecard and identifying actions (which has not yet been done in the North) is not enough. Government must both consider and act on the findings. This did not happen in the Republic in the years ahead of the crash. For example, warnings about economic overheating and loss of competitiveness given by the NCC (and many other bodies) were completely ignored.

Secondly, producing a scorecard annually (as the NCC has done) is not necessary but there should be a commitment to doing it at least every three years if it is to have policy impact. This should not be seen as an occasional publication.

Thirdly, competitiveness indicators need to evolve and be interpreted carefully in the local context. For example, in the current scorecard, Northern Ireland is registered at the bottom for the number of air routes available in the country. This might suggest to some greater investment in the North’s airports. But this would be wrong.

Northern businesses and consumers have access to Dublin Airport's large and increasing number of air routes. Indeed, a policy approach grounded in competitiveness would suggest that the North should recognise Dublin Airport facilities as part of its available infrastructure (assuming no hard Border) and consider carefully the current and future economic role of each of the two small airports currently servicing Belfast.

Finally, the framework for looking at competitiveness needs to be reviewed regularly so that it reflects the overall direction of the economy. So back in the late 1990s people did not worry much about sustainability – the crash has made us all very aware of the dangers of growth paths that are not sustainable, and indicators relevant to sustainability need to be included.

Inclusive growth

The framework also should reflect the requirement for growth to be inclusive – Brexit itself is a testament to the failure to take account of the distribution effects of growth policies. In the future it may make sense to generate subsets of competitiveness indicators for cities, recognising their importance as centres for innovation and growth and that international competition for major foreign-direct-investment projects is increasingly between cities rather than countries.

The NCC is now looking again at its framework – and this is not before time. It is exploring how it can take account of beyond-GDP elements in overall measures of economic performance, and the wider variations across enterprises within subsectors of the enterprise sector. It would be important for Northern Ireland to ensure its scorecard develops appropriately in the years ahead.

Seen alongside the publication on May 27th of a draft outcomes-based programme for government (which is currently out for consultation), and the OECD review of reform of public administration published on July 6th, the publication of the competitiveness scorecard suggests Northern Ireland is maturing in its approach to policymaking and taking a greater responsibility for delivering a better future for itself.

This will be to the benefit of the whole island.

Prof Frances Ruane is a former director of the ESRI and has been a member of the Economic Advisory Group in Northern Ireland since 2011. Details on the new competitiveness indicators can be found at eagni.ie