6 minute read
John Campbell
Columnist
John Campbell,
Economics & Business Editor, BBC Northern Ireland
A need to reshape public spending
BBC NI’s Economics & Business Editor, John Campbell reflects on Northern Ireland’s latest productivity figures and how we compare to the UK as a whole.
Northern Ireland’s latest productivity figures were published in February. The news was not good. The data, which covers 2018, indicates that the productivity of our economy declined by 2%.
Productivity is not always well understood, but in simplest terms it’s a measurement of the amount of economic output generated by each worker. In the long term, rising living standards are dependent on rising productivity.
The weak performance in 2018 shouldn’t come as a great surprise. It covers a period where our economy was creating lots of jobs but overall output was probably only growing by about 1%. This sort of high employment, low growth performance is not unique to Northern Ireland. It’s been the story of the UK economy since the financial crisis. But there are specific factors which can explain some of our longer term productivity weaknesses.
These are clearly explained in a recent working paper by the economists John FitzGerald and Edgar Morgenroth. The headlines are clear: we don’t invest enough and our education system does not produce enough highly skilled workers.
When it comes to public investment – government spending on things like roads and sewers – we are slightly above the UK average. But the composition of the spending differs. Using official figures from 2016 FitzGerald and Morgenroth suggest we invest much less in transport than the UK as a whole and significantly more in housing and recreation. They conclude that lack of transport investment is one culprit in our poor productivity performance: “Northern Ireland has fallen behind other UK regions and Ireland in investment in physical infrastructure.
“Having invested heavily in transport infrastructure in the 1960s, investment since then has been limited. “For example, the very poor quality of the roads linking Northern Ireland’s second city, Derry/Londonderry, with Belfast and Dublin impacts on development in the region.”
But it’s private sector investment – companies spending on plant and equipment – where we are way off the pace. That’s borne out by recent work by the NI Statistics and Research Agency which suggests that in 2016 capital investment accounted for 9% of “final use” here compared to 13% for the UK as whole.
FitzGerald and Morgenroth concede it’s difficult for government to directly address private sector investment. But they see a big role for government in what they conclude is the greatest cause of our productivity weakness – educational outcomes.
They say: ““Probably the most serious problem for the Northern Ireland economy is that it has the highest share of early school leavers of all UK regions and the lowest share of the workforce with third level qualifications.”
They point the finger at two aspects of our system: the continued use of selection at secondary level and limited places at our universities. There does not appear to be any chance of Stormont reaching a consensus to end the current system of semi-privatised selection.
There may be a better chance of expanding third level provision, though there is still a wide gap between the DUP and Sinn Fein on increasing tuition fees as a way of achieving that. But something will have to change if we want to tackle our chronically low productivity.
Stormont’s draft industrial strategy (which is now being reviewed) had a list of proven policies: investing in science, developing skills, upgrading infrastructure and focusing on comparative advantages. But FitzGerald and Morgenroth suggest what will be required is a more fundamental reordering of priorities.
“This should involve a large reallocation of resources from sustaining consumption, especially public consumption (public services), to investing in human and infrastructural capital.
“While painful initially, it would move the Northern Ireland economy onto a sustainable growth path where it would be less dependent on the whims of a London government.”
Is there an appetite at Stormont to reshape public spending priorities in this way?
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