Economic case for Irish Unity by economist Michael Burke by Sinn Féin

The

Economic Case for Irish Unity Michael Burke

CONTENTS Introduction: Michael Burke

Chapter 1: Prosperity in the debate about reunification

Chapter 2: Economic fundamentals and a unified Irish economy

Chapter 3: An Analysis of the Irish Economy

Chapter 4: A Unified Irish Economy

Chapter 5: The resources to end austerity In Ireland

Index

The Economic Case for Irish Unity Michael Burke Introduction The debate on a United Ireland has not much focused on the economy.This is regrettable. Economic self-interest is crucial to argument for Irish reunification.The collection of essays and presentations in this pamphlet aims to show that economics should be central to the arguments for a United Ireland. In presenting the case for a United Ireland economy it is necessary to address the most fundamental issues in economics, what drives growth and prosperity? This is the ability of humans to co-operate with one another; to utilise the labour of others and the machinery that their labour creates, and to improve their own level of education and training in order to produce more goods and services more efficiently. Formerly the whole of Ireland was a colony of Britain, although with important regional economic differences between the area around Belfast and the rest of the country. Colonies violate these fundamental principles of economic development, which are based on the division of labour or the socialisation of production. The transformation of one part of Irelandâ&#x20AC;&#x2122;s colonial status has also ultimately transformed its economic performance. At the same time the vestigial colonial relationship of the North to Britain limits the scope of its economic performance. Removing that vestige would improve the economic outlook for the whole island. In addition the two divided economies have unexplored synergies.They are also highly complementary, if current barriers are removed and investment is fostered. Irish reunification is an economic growth story. The main counter-argument is that the NI economy is in receipt of a massive â&#x20AC;&#x2DC;subventionâ&#x20AC;&#x2122; from the British public purse and that a United Ireland economy would collapse under the same burden.This argument rests on gross distortion while completely ignoring the growth potential of a unified economy. Quite simply put, the whole population of Ireland would benefit economically from reunification. The essays collected here were presented separately at a series of events.They have been edited to minimise repetition. They have also been updated where new data or other material have come to light. But the main arguments are as originally presented.

Michael Burke October 2015

Michael Burke works as an economic consultant to private and public sector bodies including trade unions and campaign organisations providing advice commentary and detailed research on international and domestic economic trends, financial markets, and government finances at national and devolved level. He has written extensively on the All-Ireland economy and the transition to a New Ireland. He was previously senior international economist with Citibank in London.

Chapter 1:

Prosperity in the debate about reunification The question of economic prosperity is not as central as it might be in the debate on the de/merits of the Union with Britain or a United Ireland. This is a large topic but it is important to set out some facts to inform that debate and to push this issue up the agenda. The key issue in all economics is, or should be, what determines the optimal growth in the living standards of the population? A key measure of that is the level and growth rates of per capita GDP. Fig 1.1 shows the levels of per capita output in 1921 in what were later to become Northern Ireland (NI), the Republic of Ireland (RoI) and the UK. Fig 1.1 GDP Per Capita in 1921: Britain, NI, ROI

The industrial area around Belfast had long been the most prosperous part of Ireland and enjoyed a particular boom during the course of the First World War. As a result, despite the post-World War I decline the UK Treasury estimates show that per capita GDP was fractionally higher in NI than the UK as a whole at that time. By contrast outside of Dublin the rest of Ireland was largely rural. On UK Treasury estimates at the time of Partition per capita GDP in what is now the RoI was 45% of the level of what is now Northern Ireland. Fig 1. 2 shows the most recent data, from the OECD (using their estimates of Purchasing Power Parities, which are comparable but not identical to the Maddison data cited above).This shows two opposite trends. In the 90 years following Partition per capita GDP in the RoI has caught up and then surpassed that of the UK (around the turn of the 21st century). Meanwhile per capita GDP in Northern Ireland has relatively declined, to just under 80% of the level in the UK.While incomes in the North have grown by five times in 60 years, in the South they have grown by twenty times. Fig 1.2 GDP Per Capita in 2012: Britan, NI, ROI

There can be no single explanation for these trends. But similar trends have been noted elsewhere. In particular, colonies always face two key problems in relation to the metropolitan centre relating to the relative lack of investment and ‘closed’ trade patterns (not integrated into the world economy through trade). This can be illustrated by Fig 1.3 which shows three former colonies of Britain and their cumulative growth preand post-independence. The 3 colonies are China, India and Ireland. For each country the 100-year period of growth in per capita GDP between 1850 and 1950 is shown. For China there was no growth on this measure at all over the course of a century. Per capita GDP actually fell by a quarter under British/French/US and then Japanese rule. In India per capita GDP grew by one-sixth over that period while in Ireland it almost doubled. Fig 1.3 Change in Per Capita GDP 1850-1950 and 1950 to 2010: China, India and Ireland

However, taking the shorter 60-year period from 1950 to 2010 the growth rates of per capita GDP have been transformed (Maddison & OECD). In India per capita GDP has increased by over 330% in 60 years. In RoI it has increased by more than 10 times. In China it has risen by more than 16 times. It might be argued that this was simply a tendency to ‘catch-up’ with the living standards of more advanced western economies. But that would not explain why Ireland was able to surpass the UK at the end of last century. Crucially, it cannot explain why that catch-up did not occur in any case while the 3 countries remained colonies. The technical objection that Irish GDP is inflated by the tax accounting activities of multinational companies is valid and widely-known. But so too is Britain’s GDP inflated, though less discussed through its related network of ‘offshore’ financial centres. If unidistorted measures such as value added in industry are used the same conclusion is drawn; per capita output in the RoI surpassed the UK before the turn of this century and remains there despite the crisis. This does not exhaust the questions relating to economic policy and Northern Ireland’s place in the Union or its potential place in a United Ireland. Neither should it be interpreted as an endorsement of the economic policy of successive Dublin governments. In the view of this author, the exceptional growth rate of the Irish economy for part of the post-1921 period was caused by the combination of globalisation meeting a wave of increased investment, mainly from the EU. But it does highlight the difficulties of all colonies in maintaining relative prosperity and their greater potential to prosper once the colonial status has ended. In general, the larger the size of the home market, the greater potential exists for raising the productivity of the economy. That potential can only be realized through both increasing participation in the division of labour (including the international division of labour) and high rates of investment.

Chapter 2:

Economic fundamentals and a unified Irish economy In Ireland there are two separate economic entities which both run up against the fundamental laws of economics, as first identified by Adam Smithi. In the first instance it is the size of the home market which determines the scope of the division of labour. But in Ireland both economies, by their separation, have a truncated home market.This was not always the case. As part of the British Empire the North East portion of the island was highly integrated into what was then the largest ‘home’ market in human history. At the same time most of the rest of the island was primarily a breeding ground for cattle, to help feed the large metropolitan imperial centres. Post-Partition the situation has dramatically changed.The Empire is gone while the southern economy has both developed a home market of a certain size while integrating itself to one of the world’s largest markets in the EU.This is the key fundamental fact which explains the dramatic changes in average living standards in the two parts of the Ireland since Partition. This is illustrated in Fig 2.1 below, which shows per capita GDP using common international Dollars (adjusted for Purchasing Power Parities, first Angus Maddison and then OECD). It amounts to startling transformation of relative prosperity within Ireland. Fig 2.1 Relative Per Capita GDP 1921 and 2013

As the size of the home sets the boundary for the scope of the national division of labour, it follows that increasing the size of the national market would increase the scope for all enterprises to benefit from the increased size of the home market.This is true of enterprises whether they operate in the public or private sectors, or both, an airline or a bank as much An Post as or the NHS. The arithmetic of a unified Irish home market is straightforward. In 2013, in common currency terms (OECD PPPs) the RoI economy produced $210bn and the NI economy produced $50bn.Therefore a unified Irish economy would increase the scope of the home market for all enterprises currently operating in RoI by nearly 25% while the home market for NI enterprises would increase by fourfold. The home market is only decisive in the first instance, as domestic enterprises are established and develop.The division of labour also occurs on an international or even global scale through the medium of overseas tradeii.This is increasingly the case and is the underlying power of ‘globalisation’ which draws billions of producers into world markets, and into greater prosperity.iii After removing itself from the dominant relationship with Britain, the RoI economy has become more integrated into the world economy.The same is not true of the NI economy. NI ‘external sales’ amounted to just £14.3bniv in the most recent annual data. In RoI the value of exports in 2013 was €89bnv.The composition and quality of international trade is equally important. A key problem is that its trade is increasingly dominated by Britain, which accounts for more than half the total. By contrast Britain is the destination for about one-eighth of RoI’s exports. This is important because trade is not simply the exchange of commodities, especially in advanced economies. International trade reinforces the international division of labour and the level of productivity through the exchange of the most advanced capital goods. RoI’s trade (both exports and imports) is mainly with countries that have a higher level of productivity than Britainvi, Fig 2.2. Britain has one of the lowest levels of productivity in both the G7 and among the major EU economies.

Fig 2.2 Productivity (output per hour worked) in selected EU economies

A key facet of the effect of the division of labour is the rise in the proportion of capital goods and fixed capital in the economyvii. Machinery, transport goods, computers etc. represent the embodiment of someone elseâ&#x20AC;&#x2122;s skilled labour.The more advanced the machinery used, the higher the output per hour and therefore the greater prosperity in the economy as a whole. Therefore the level of investment plays a decisive role in realising the potential created by the division of labour, along with the educational quality of the workforce.The long-term relative decline of the NI economy is in part a function of the low level of investment. In RoI the misdirection of investment towards housing helped to cause the crisis and the failure of investment to recover is prolonging the crisis (and productivity is falling in the recent period, shown in Fig 2.2). The potential benefits of a unified Irish economy would remain unrealised without increased investment. But German reunification provides a cautionary tale, as post-reunification growth is slower because investment was cut.viii The important question remains how will the potential of a unified Irish economy be realised. In different degrees, the private sector in both parts of the Irish economy is not providing the investment necessary to lead to sustainable economic development. This requires a political answer to an economic question. Unifying the Irish economy will require a political leadership at governmental level, willing to prioritise investment. Only in this way can the very substantial potential of a unified Irish economy and increased prosperity be realised.

Chapter 3:

An Analysis of the Irish Economy The following charts illustrate some key points regarding the arguments about the importance of what Adam Smith call the division of labour, the importance of trade including international trade, investment and breaking colonial economic relationships. Fig 3.1 Being a Colony s Bad for Your Wealth

At the time of the Partition of Ireland in 1922 the part of Ireland which became the Republic of Ireland had an average living standard (per capita GDP) which was approximately 44% below that of Britain. By 1999 it had surpassed that in Britain and by 2008 the relative levels were Britain was 15% below.The OECD estimates is that by 2014 average incomes (at Purchasing Power Parities) were 22% higher in RoI than in Britain.These estimates and milestones are shown in Table 3.1 below. Table 3.1. Comparisons of Per Capita GDP, Maddison & OECD, International/PPP Dollars

NB: Different base years and calculation methods are used by Maddison and OECD so data are not comparable over time

It should be noted that the process of converging and then overtaking living standards in Britain was long-delayed. RoI economy policy was autarkic for a prolonged period post-Independence which had the effect of cutting off the Irish economy from world trade even more than when it was a colony. It was only subsequently that trade increased which led to the surpassing of British per capita GDP. Fig 3.2. Being a Colony is Still Bad for Your Wealth

Source: ONS

The data above shows the level of per capita income of the main regions of the UK and the variation in their sub-regions. So, this shows that highest level of average per capita income is in the London borough of Westminster, and that the lowest average level in London is in Barking.There are of course people who live in either borough who much have higher/lower incomes than these averages. But as a region, NI has close to the lowest average sub-regional per capita income. It also has by far the lowest ‘high’ sub-regional average income.This is a marker of both relative poverty and of relative lack of opportunity and underdevelopment. Fig 3.3 below shows the relative proportion of trade in GDP for the UK economy and for the RoI economy.The UK is not an especially ‘open’ economy. This matters because it is neither a very large economy nor is it at the forefront of league tables on productivity.Therefore it has limited deployment of the most advanced global technologies. It is not fully participating in the international division of labour. By comparison Germany’s trade is equivalent to around 70% of its GDP, while for the UK this falls to around 40%. Fig 3.3. International Division of Labour

The fall in international trade which occurred in the Great Recession has hit the RoI economy hard, and it has far from fully recovered. Even so, the proportion of trade in GDP is now approximately 80%.This is twice the UK ratio. It means that Irish participation in the international division of labour is approximately twice that of the UK. The growth of inputs for production grows faster than outputs as the division of labour grows. World trade is a key aspect of the growth of inputs and tends to grow significantly faster than the economy as a whole. All other things being equal (investment levels, the growth of the labour force and the level of education), the growth rate of the RoI economy will be around twice that of the UK economy while this chasm in openness to trade persists. In order to trade anything other than basic commodities it is necessary to invest. Even commodity extraction requires machinery. But trade in intermediate and capital goods requires ever-greater levels of investment. Therefore success in international trade requires high levels of investment. At the same time, these can become self-reinforcing as investment fosters the growth of trade and access to the highest global levels of technological development improves the efficiency of all investment. If country A trades coal for shovels with country B, they will both gain far less than if they trade advanced machine tools for aerospace technology. The proportion of GDP devoted to investment is decisive.After participation in the international division of labour, the investment rate of any economy is the most important motor of economic growth. In the advanced industrialised countries fixed capital investment accounts for approximately 58% of all growthix. As already noted, the RoI economy has a greater openness to world trade than the UK economy. It also frequently has a greater proportion of GDP devoted to investment (Gross Fixed Capital Formation), as shown in the Chart below. Fig 3.4. Realising Potential through Investment

Chapter 4:

An Unified Irish Economy In economics, the geographic context is a more or less immutable given. But political geography is very different, both changeable and changing. No-one charged solely with the creation of the optimal economic entity on the island of Ireland would dream of separating the north-east corner from the rest of country, and imposing two different currencies, legal and tax frameworks, and two different legislatures either side of that border. The optimal entity would be a single unified all-Ireland economy.The current arrangements naturally interrupt the free movement of goods, labour and capital with the island which would optimise growth. They also impose a cost on that movement in the form of taxes, currency hedging costs, and opportunity costs in the form of sub-optimal planning and policy cohesion.These are the irritations and inconveniences which are most keenly felt in the border areas but inevitably affect the whole economy. Yet there is a wider detriment beyond these symptoms.Adam Smith taught us that the basis of all prosperity is the scope for the division of labour, which is itself limited by the size of the market. In the first instance this is the size of the home market. The history of this island is that it has never been able to establish a single, unified home market on the island, which has important negative consequences for economic development, growth and prosperity.

What’s In It For Us? Addressing the issue in purely economic terms, Irish reunification increases the scope of the home market both sides of the borderx. This especially important as both economies are obliged to operate in the much larger European market. In 2012 the output of the NI economy was £32.5bnxi. On a comparable GVA (GrossValue Added) basis the output of the RoI economy was €154.5bn in the same year.Table 1 below converts these two to common currencies using OECD estimates of Purchasing Power Parities (PPPs). Table 4.1. Output of RoI & NI economies, in local currencies and in PPPs terms

Source, CSO, ONS, OECD, author’s calculations

From the perspective of all enterprises in RoI, whether in the private or the public sectors, the size of the home market would increase by 25% with Irish reunification. For enterprises in NI it would increase fourfold. This snapshot of economic output does not take account of the likely impact on the growth rate of both economies for reunification, where the NI economy could be projected to lead the way, in a process of ‘catch-up’.The degree of underperformance of the NI economy is both chronic and acute. According to the ONS, real GVA contracted by 5.4% between 2008 and 2012, making the NI economy one of the ‘crisis’ economies of the EU.This follows decades of relative economic decline. The element of catch-up within the process of reunification could provide a very large impulse to growth across the island.This is what occurred to the RoI following Partition, with the major fillip coming from EU investment in the 1980s and 1990s. Fig.1 below shows the relative performance of three economies since Partition. Prior to partition per capital GDP in what became the RoI was a fraction of the level on both Britain and in NI but is now the highest of the three and significantly above that of NI.This indicates the potential degree of ‘catch-up’ that might reasonably be expected towards RoI per capita GDP levels, which would have beneficial effects across the island in terms of growth for all enterprises and consequent prosperity.

Fig 4.1 Per Capita GDP Britain, RoI & NI, 1921 & 2013, International Dollars

Source: Maddison, CSO, ONS, OECD, author’s calculations

Therefore the 25% increase in the home market for enterprises based in the RoI is simply the current startingpoint for the actual benefits, with significant scope for greater potential benefits. Crucially, the development of the home market provides a missing link in the structure of the Irish economy.The missing link is an indigenous enterprise sector which would directly relate to trends in the Irish economy and provide high-skilled jobs on a large scale.This would be a factor in reducing the over-reliance on overseas MNCs and the numerous distortions to the economy and economic policy making that this generates. In supplying this ‘missing link’ the economy ion Ni would play a particular role.

Synergies The very different structures of the two economies in Ireland necessarily generate a combination of shared challenges, discrepancies and complementary differences. Essentially, the NI economy has highly developed, although somewhat distorted public sector combined with the vestiges of indigenous industrial capacity.The RoI economy has a vibrant private sector which is overly reliant on finance and dominated by MNCs alongside stunted public services.At the same time, both economies suffer from underdevelopment of key sectors.These include agriculture, leisure and tourism, and ICT. In addition, education is slightly under the OECD average as a proportion of the economy and could be improved, not least because of the relative youth of both societies.xii 1.

It is widely asserted that the NI economy is overly dependent on the public sectorxiii without examining the composition of that output.The categories, civil service (including police) and defence, education and health account for 25.5% of NI’s economy. On a comparable basis, they account for 16.9% of RoI’s economy, of which somewhat more is private sector activity. But 5% of that NI total is the excess level of civil service and defence jobs in NI. At 10% of total output it is approximately double the proportion of the RoI economy. (This excessive civil service/defence spending equivalent to 5% of output also almost entirely accounts for the subvention from Westminster). Education output is broadly comparable, although it should be improved. It is health output as a proportion of the economy which mainly accounts for the remaining discrepancy. Yet at 9.5% of the economy, the NI economy’s output of health services is only in line with the OECD average. It is the RoI’s 6.3% health output which is way below the OECD average. It is not simply that RoI would benefit from a health service more like that of NI.There is a body of expertise and capacity which has been accumulated and managed through the Northern Ireland executive and Health and Social Care (HSC) which can be expanded across the island. In addition, there are clear synergies with the burgeoning medical supplies business in Ireland.This is primarily private sector, but could be integrated with publicly directed health services and supplemented with public R&D and education investment to become a key sector in the unified economy.perating in RoIxiv.These include but are not confined to food processing, aerospace, 11

The NI economy is home to a series of large firms operating in sectors which are, or have the potential to be complementary to enterprises operating in RoIxiv.These include but are not confined to food processing, aerospace, building machinery, pharma, telecoms and IT. First, in certain sectors (food processing, pharma, etc), reunification would provide a competitive boost and diversification away from over-reliance on single very large firms in RoI. Secondly, other established sectors are complementary and would benefit from integration in a unified economy. This is especially true in the aerospace sector, where the RoI has well-established financial engineering and other services related to leasing and other areas, whereas NI has significant aerospace industrial capacity.Thirdly, public sector output and integration is key to economic development across a range of services, including road and rail services, postal, telecoms, water and energy and so on. These are some of the largest firms operating in both jurisdictions in workforce and/or output terms.They are channels for development and economic integration, and could facilitate a large increase in productivity and hence prosperity.

A degree of economic integration is taking place in any event, with many very large and some small firms operating on a cross-border basis. But this is haphazard, subject to the hurdles and outlined above and frequently initiated to overcome economic or financial failure.The public sector lags this private sector trend, constrained by the political and economic settlement. In addition, a certain element of integration is frequently initiated to overcome economic or financial failure. In these categories could be placed the former ownership by NAMA of large-scale property holdings in NI, the takeover by ESB of NIE being two examples.The rationalisation and integration process is taking place.The question is whether this can be utilised for the benefit of the entire economy and the population as whole.

Realising potential Every reform aimed at reducing the barriers to economic integration will yield a result, however modest. The big prize of a much larger and more prosperous economy across the island requires unification. The division of labour is the cause of growing prosperity over decades and more.The size of the home market limits the scope for that division of labour on national terrain, and increasing the home market increases the scope for greater prosperity. In addition, all economies are also obliged to operate in a global market to some extent.The most important international market for the RoI is the EU.The addition of a home market of 25% or more to the existing RoI economy increases its capacity to both compete in and integrate with the wider EU economy. The economies of the RoI and NI have clear synergies.These occur in terms of competition/diversification, entirely new capacity and in the balance of the public and private sectors.These are all significant factors that, if the potential is realised through investment, could substantially raise the prosperity of the whole island.

Appendix Chapter 4 Appendix Structure of the economies: Selected categories of output as % of total GVA, RoI and NI

Sources: CSO, ONS, authorâ&#x20AC;&#x2122;s calculations

Chapter 5:

The resources to end austerity in Ireland The claim from supporters of austerity is that there is no money left and that therefore TINA, There Is No Alternative policy.These assertions are false. Table 5.1 below shows the level of output in the Irish economy on both sides of the border, either GDP or GVA (Gross Value Added). GVA is subdivided into two main elements, the compensation of employees (CoE) and the gross operating surplus of firms (GOS).The total compensation of employees is less than half the total GVA of the economy in RoI and only little more than half in NI. (For comparison, in the US the proportion of CoE of total output, known as the ‘labour share of national income’ was 54% in 2014). Table 5.1.

Sources: CSO, ONS

In any economy there are only two uses of output or income, it is either consumed or invested. Only investment can sustainably increase the future income or output of the whole economy; it is not possible to consume your way to prosperity. The reason firms are accorded a central place in explanations of how the economy should work is that in a capitalist economy they ought to be the primary agents for investment. But in Ireland, in common with almost every Western economy currently, only a portion of firms’ surplus (or profits) is being invested. In RoI companies saved rather than invested €24.4bn of their profits.The data for NI is unavailable but if it is comparable to the UK as a whole uninvested profits in 2013 were approximately £1.5bn. This shortfall, the very high level of uninvested profits, is in fact the cause of the present crisis. Identifying the cause of the crisis demonstrates that there are ample resources to end austerity in Ireland. It also provides a pointer as to how that might be done. As all output/income is either invested or consumed, the very high level of uninvested profits tends to fuel unsustainable consumption.This takes various forms but is channelled in tow ways; either directly from firms via enormous bonuses, stock options and so on, or indirectly through the banks who are willing to provide these uninvested profits for speculation in the stock market, the housing market, company mergers of no economic value, the consumption of luxury goods, and so on. Therefore an overall tax system which directs incomes away from the rich, from speculation and from luxury consumption, and towards public goods and investment is a key part of ending the austerity offensive.This can be supplemented by other important measures, including; • Directing the banks towards productive investment and way from funding speculation • Direct government intervention, through the creation of funds or banks which channel private savings towards productive investment, such as public sector investment banks In addition firms can be regulated so that they conform to both social requirements and the need for investment (equal pay, apprenticeships, living wages plus training, energy standards, contributions to infrastructure development, and so on). Industry-wide levies can be applied to fund these. There are plenty of resources available to end austerity and fund investment.What is required is the political will to mobilise them. 13

The ‘subvention’ Outlandish numbers are frequently cited for the so-called subvention from Westminster, which is not included in the resources generated in NI. But the data above shows that there are resources available in NI that make any subvention unnecessary. It should also be noted that, if those outlandish numbers were even close, the combined effect of the output generated in NI and a massive ‘subvention’ from Westminster would make the population of the province among the wealthiest in the whole of Europe, which is certainly not the case (as shown below). Recent ONS data specified the total of taxes and benefits for all households in Britain and in NIxv. On average households in NI receive £982 more in benefits than they contribute in taxes and charges. As there 739,000 households in NI, the total subvention to households is just over £700 million.To be absolutely clear, these benefits are not solely welfare, but all forms of social protection transfers, plus the NHS, education, bus passes for the elderly, free school meals, etc., etc. (The difference between Britain and NI is that households in Britain are net contributors to government finances of £152 per annum.This is accounted for by a lower proportion of the population in work and lower paid jobs in NI- a marker of successive failures of British economic policy in NI). Complementary economic units Under certain conditions, economic growth can be a geometric process, not an arithmetical one. Between 1992 and 2000 the RoI economy almost doubled in real terms, a period of 8 years. By contrast, it has taken from 1985 to 2014 for the British economy to double in size, a period of 30 years. The economic unification of Ireland would provide those key conditions for growth as they would significantly increase the size of the ‘home market’, the basis for the division of labour and would allow the NI economy to integrate with the world economy, the international division of labour. The potential for very rapid growth can be realised through significantly increased productive investment. The RoI and NI are in fact highly complementary economies. RoI has a dynamic MNC sector, and an underdeveloped indigenous business sector and public sector. The opposite is the case in NI. Key industries are complementary, eg aircraft leasing/manufacture & medical research and equipment. Education, tourism, transport would all provide very large returns if invested in nationally. Chapter 5:Appendix Incomes, transfers and the ‘subvention’ The comparison of income, taxes and benefits in NI versus UK. The following is from ONS data on household incomes and benefits in Britain and in NI. UK average household wage income is in Britain £24,192and in NI is £20,112.The table below shows benefits and taxes are distributed/fall on households. Table. 1 Benefits and Taxes

Source: ONS

As there 739,000 households in NI, the total subvention to households is just over £700 million to NI per annum in total.This includes the benefit of the NHS, etc. Anything else is just the overwieldy British State. The difference in benefits is very limited between NI and UK. NI households pay for more in indirect taxes (and so are much more important for devolution of fiscal powers). On that basis NI households receive less than UK ones if netted against direct and indirect benefits (£6,439 in NI versus £7,226 in UK). The big gap is in IndirectTaxes, which arises primarily from income tax and employees’ NI Contributions.This is simply a function of the weaker economy in NI and lower pay (which needs to be addressed by investment and higher wages). The so-called subvention as it affects households is tiny, and is overwhelmingly a function of failure of British economic policy in Ireland.

i In The Wealth of Nations Smith's genius was to identify the division of labour as the primary driving force of all increases in prosperity. From this it follows that size of the market, the central role of labour in the creation of value, the inherent trend of increasing in the stock of capital goods and the key role of international trade are all derived, and more besides. Rather than the ‘hidden hand of the market’ which is phrase invoked by neoliberal economists who appear not to have read Smith, his focus was on the powerful effects of increasing division of labour, that is of increasingly socialised production; the rising co-operation of individuals, firms and countries in economic development. ii Difficulties of road transport meant that in Smith’s time bulk goods were more likely to be transported by sea, which made international trade the near-equivalent of domestic trade- it was as easy to ship goods from Newcastle to the Low Countries as it was to London. iii Global growth rises and falls with the growth of international trade.The many critics of globalisation are expressing discontent with the distribution of the effects of globalisation, particularly regarding inequality within economies.Yet the more integrated any economy is into the world economy, the faster it will grow; because it is participating in the international division of labour. iv http://www.detini.gov.uk/stats-manufacturing-sales-exports v http://www.cso.ie/multiquicktables/quickTables.aspx?id=tsa01 vi US, Germany and France each have a productivity level (output per hour worked) 28% higher than Britain. vii Smith calls this ‘stock’ viii Both parts of the reunified Germany now grow more slowly than when they were separate.This is because the German government engaged in a process of disinvestment, scrapping productive capacity primarily in the East and not replacing it http://martinamep.eu/wp-content/uploads/2013/12/Mick-Burke-Reuniting-Ireland-contribution.pdf ix ‘The Dynamics of Economic Growth’,Vu Minh Khuong, Edward Elgar, 2013 x It may of course be objected that NI loses out on the much bigger British market through Irish reunification. But the EU is the decisive market for the British economy too and, operating outside the Europe and with low and falling productivity it is obliged to reduce costs (including wages) continuously simply in order to maintain market share. NI operates largely as a forgotten outpost of this declining economic model. xi ONS, Gross Value added (GVA) of NI http://www.ons.gov.uk/ons/publications/re-referencetables.html?edition=tcm%3A77-346342 xii OECD http://www.oecd.org/education/skills-beyond-school/48630884.pdf (pdf) xiii In Britain this is official government policy, HM Treasury, Rebalancing the Northern Ireland Economy https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/81554/rebalancing_the_northern_ireland_eco nomy_consultation.pdf (pdf) xiv Belfast Telegraph, NI’s Top 100 companies http://www.belfasttelegraph.co.uk/business/top-100-companies/

Appendix 1 Structure of the economies: Selected categories of output as % of total GVA, RoI and NI

Sources: CSO, ONS, authorâ&#x20AC;&#x2122;s calculations xv http://www.ons.gov.uk/ons/rel/household-income/the-effects-of-taxes-and-benefits-on-household-income/2013-2014/index.html

The Economic Case for Irish Unity