Concerns Over Costs of Irish Unity Exaggerated, Potential Benefits Underestimated…

I know what you are thinking. Its been at least a whole day since we have had a post on reunification. But lest you get the DT’s Professor John Doyle and Professor Brendan O’Leary come along to kick their highly polished patent leather boots into the IIEA report from the other week.

The last time I called it report tennis, with each side lobbing reports back and forward. But I prefer to think of this one as a WWE tag team smackdown.

Writing in the Irish Times they go into great detail why they think the IIEA report is wrong. From the article:

In their IIEA report titled “Northern Ireland Subvention: Possible Unification Effects”, economists John FitzGerald and Edgar Morgenroth focus on two fears: the possible transfer of the bulk of the UK’s current “subvention” of Northern Ireland to Ireland as a whole, including Northern Ireland’s imputed share of UK public debt; and the cost of increasing currently lower public sector wages, pensions, and benefits in the North to match those in the Republic.

Our view is much more positive, on evidence of work published under the auspices of ARINS (Analyzing and Researching Ireland North and South). And our view is more political – in a positive sense.

The “subvention” is the UK’s official estimate of the gap between what is allegedly raised in taxation and what is allegedly public expenditure in the North. Our use of allegedly is deliberate.
It is widely accepted, including by FitzGerald and Morgenroth, that the UK estimates undercount what is raised in taxation in the North because many firms report their Corporation tax and VAT receipts to London, at their headquarters.

On the other side of the ledger, the UK estimates overcount public expenditure in Northern Ireland because they include a measure of average public expenditure per head across the whole of the UK, and then impute a share to Northern Ireland – though such monies may not be spent there.
We are not claiming that there is no subvention, but it should be decomposed and exposed to strong light. The residue when that is done, is much, much less.

Currently, the North’s economy, especially its private sector, is much weaker than the Republic’s. But comparatively it is in better shape than East Germany was in 1990, and the Republic, however we measure matters, is significantly richer per head than West Germany was in 1990.
Jobs based on Foreign Direct Investment in the North are a fifth of the level in the South, after allowing for population size. Tourism revenues are at a similarly low level. Adel Bergin and Seamus McGuinness have shown that productivity levels per worker, the main driver of wage levels, were very similar North and South in 1998, but are now forty per cent higher in the Republic (even allowing for the distorting impact of the multinational sector).
We should all agree with FitzGerald and Morgenroth that better educational and skills attainments, more foreign investment, EU membership, and sustained political stability help explain the growing North-South gap in economic performance, and between Ireland and all regions in Great Britain outside London. We should also agree that the North’s economic performance can improve before unification.
But we should also ask: are the people of the North incapable of catching up on the performance of the Republic – under the same laws and incentives?
It is not hyper-optimistic to believe that if reunification extended demonstrably successful Southern economic and educational policies across the island, then Northern Ireland would benefit, with or without a devolved government. If the North’s economy begins to be like that of Cork and Kerry, private sector wage levels and tax revenues would rise, and after transition, pay its own way.
There may be other benefits: Belfast is still large enough to become a high-performing second city again, relieving congestion inside the M50. The West and Northwest will be more attractive regions for development without any border, or border functions. Long-limited all-island market integration should see a step-up in performance.
In short, it rational to believe that the whole island will benefit from the Republic’s policies in the long term. Yes, there will be uneven development – there always is. But redistribution, done properly, will be from rich to middle and poor, not from the South to the North.
The costs of unification are therefore overdone, and the benefits often underplayed.

There is a lot more but I am sure the Irish Times would prefer you to read it on their site. 

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