The Northern Ireland economy during the violent years

Sharp deindustrialization and a massive growth in the public sector were two standout features of the Northern Ireland economy during the conflict years. In the 1960s, before the outbreak of violence, the region had a fairly dynamic manufacturing base, with industrial production growing much faster than in the UK as a whole (Wilson 1989). Traditional industries such as linen and shipbuilding did continue their long-term decline, but this was compensated by the growth of new manufacturing activity in areas such as synthetic fibres, mechanical engineering, and metal goods, which largely occurred due to inward investment by foreign multinationals and companies from other parts of the UK. In 1970, the first year of serious violence, manufacturing employment was only slightly below the levels of the mid-1950s (Brownlow 2012). But this situation changed markedly in the early 1970s. With the eruption of violence many firms external to the region either turned their backs on Northern Ireland or did not consider it a viable site for inward investment: between 1966 and 1971. British and foreign multinationals created 11,000 manufacturing jobs, whereas between 1972 and 1976 they created only 900 jobs (Teague 1987). This situation was massively compounded by the world-wide economic slump that started in 1974. All parts of the manufacturing sector were negatively affected by this global slump, with output and employment falling most acutely in textiles, man-made fibres, and engineering. The manufacturing sector in the region never recovered from this economic shock and the story of subsequent years was one of near continual deindustrialization.

The sharp contraction in the region’s manufacturing base was accompanied by a rapid growth in service sector activity, the lion’s share of it being in the public sector (Rowthorn 1981). During the 1970s, public sector employment in Northern Ireland’s economy grew at a rate 2.5 times greater than the UK as a whole. Employment in the police and prison services more than doubled, which presumably was almost entirely due to the region descending into near open conflict. But jobs in the health and education sectors also expanded rapidly too. This massive expansion in security-related and care-related employment in a relatively short period of time significantly reshaped the employment structure of the regional economy. By the early eighties roughly 37 per cent of the regional workforce was employed in the public sector. Rowthorn (1987) rather unflatteringly suggested that the Northern Ireland economy had been transformed into a workhouse economy as huge numbers of people were either engaged in caring or controlling each other. Such a rapid expansion in the public sector would not have been possible without the British Government sanctioning a large increase in the subvention to Northern Ireland - the money provided by the UK Treasury to fund the gap between the amount of tax collected regionally and levels of regional public expenditure. Although the annual subvention involved hefty sums - around £7/8bn yearly in the 1980s - the amount never exceeded more than 1.0 per cent of UK GDR It seems that a calculation was made at Westminster that the subvention was well worth paying as it indemnified a British Government from the risk of an economic crisis emerging alongside the political crisis in the region, a scenario that could have easily pushed Northern Ireland into full scale civil war (Bew et al 1997).

While the massive expansion of the public sector brought economic relief from the destructive gales of deindustrialization, by no means did it ensure buoyant economic times in the region. Despite the big increase in the subvention, Northern Ireland by the end of the 1970s was an unemployment blackspot, with the worst jobless figures in the UK (Gibson and Spencer

1981). The main problem is that even though the total number of jobs increased between 1970 and 1985, the rate of employment growth was insufficient to keep pace with the numbers entering the labour market due to the high birth rate in the region: too few jobs were being created to cope with the growth in the working age population. Significant levels of emigration brought some relief to the imbalance between the demand and supply sides of the labour market, but not enough to prevent unemployment reaching 20 per cent at the start of the 1980s. At the same time, those fortunate enough to find employment in the public sector were likely to have enjoyed a standard of living commensurate with, if not exceeding, the UK average. Centralized collective bargaining ensured that the vast majority of public sector workers enjoyed national rates of pay even though property prices in the region were much lower than the rest of the UK. In the wake of the large expansion in the public sector, the Northern Ireland labour market had a distinctly bifurcated feel to it (see Teague 1994a).

Thus, by the start of the 1980s - a decade or so after the outbreak of violence - the Northern Ireland economy had been radically reshaped and it was to retain this character for the remainder of the conflict. A large public sector had emerged alongside a fairly immiserated manufacturing sector (Rowthorn and Wayne 1988). Multinationals more or less shunned the region, preferring instead to invest in more peaceful parts of the UK and Ireland. Unemployment and emigration were high even though employment growth relative to other UK regions was reasonable enough. Government actively sought to turn around the fortunes of a flagging private sector. Local enterprise agencies were created to dispense quite generous grants and other forms of financial assistance to promote the creation of new small firms and the expansion of existing ones (Teague 1989). But in a careful study, Roper (1996) found that the first order effects of these government subsidies were to boost firms’ profits in the absence of any expansion of output and employment. On occasions, the eagerness of the British Government to boost private sector activity led it to provide lavish subsidies to highly precarious commercial ventures, the De Lorean project being the most notorious example (Brownlow 2015). A narrative began to take hold that the emergence of a large public sector was simultaneously the saviour of the Northern Ireland economy but also its albatross (Bew et al 1997). While the massive increase in the Government subvention may have prevented the economy fully hitting the buffers, it also had the effect of making the region too dependent on public expenditure.

A second major debate about the nature of the Northern Ireland economy concerned the vexed question of Catholic labour market discrimination. Claims of discrimination against Catholics in all walks of economic and social life go to the heart of the Northern Ireland problem. The years of violence were in part triggered by a Civil Rights campaign that demanded an end to Catholic disadvantage. Undoubtedly, a deep sense of injustice and grievance within the Catholic community about being treated unfairly helped the Irish Republican Army (IRA) attract recruits. That Catholics performed worst in the labour market than Protestants is not disputed to any great extent. In the 1970s and 1980s, a fair degree of consensus emerged about the labour market profiles of the two communities, which can be summarized as follows: (1) Catholic males were more than twice as likely to be unemployed than Protestant males; (2) Protestants were over-represented in professional, managerial, and skilled occupations, whereas Catholics were over-represented in semi-skilled and unskilled jobs; (3) Catholic males were hugely underrepresented in security-related employment; (4) Catholic females were underrepresented in administrative and managerial jobs and in clerical, secretarial, and sales occupations, but, over-represented, curiously, in professional jobs (Teague 1997).

However, when it came to explaining why one group fared better than the other, the consensus quickly broke down. A fair degree of acrimony existed about whether or not Catholics faced systematic discrimination in the labour market. One of the first reviews of the evidence by John Whyte (1983) concluded that Catholics experienced direct discrimination in many parts of local government and indirect discrimination in other parts of the public sector, particularly the civil service. With regard to the private sector, he suggested that Catholics were disadvantaged relative to Protestants in the labour market, but he stopped short of concluding that Catholics encountered systematic employment discrimination. Yet reviewing more or less the same data, McGarry and O’Leary (1995) reached the conclusion that Catholics were systematically discriminated against in the labour market. No agreement emerged from these debates and the extent to which Catholics experienced systematic discrimination remains contentious.

Perhaps the biggest controversy surrounded explanations as to why Catholic males were twice as likely as Protestant males to be unemployed. One of the first statistical studies on the matter was conducted by Smith and Chambers (1990), who found that half the male unemployment differential between the two communities could be explained by factors such as different age and demographic structures, different educational qualifications, location, class, and family structure and that the other half was due largely to discrimination. A subsequent study by Murphy and Armstrong (1994) using quite different statistical techniques and assumptions reached broadly similar findings to Smith and Chambers (1990). Yet a further study by Breen and Gudgin (1996), which used a labour market accounting framework that emphasizes stocks and flows in and out of employment and unemployment, found that the unemployment differential between Catholic and Protestant males could not be attributed to labour market discrimination. They suggested that the entire differential could be explained by Catholics having a much higher rate of labour force growth; by Protestants having a higher propensity to migrate; by Catholics having much higher quit rates; and by Catholics suffering from a range of socio-economic disadvantages that placed Protestants in a better position to obtain a job. This study provoked serious controversy about the robustness of the model employed, data quality defects and unrealistic assumptions about the behaviour of Catholics and Protestants in the labour market (see Bradley 1997; Murphy 1996). At times the strong, even heated, exchanges that occurred on the Catholic/Protestant male unemployment differential merely reflected the high polarized unionist/ nationalist narratives about the nature of the Northern Ireland problem.

Successive British Governments approached the contentious matter of labour market discrimination against Catholics in a more calculating way. On the one hand, they recognized that policy initiatives would be necessary to address the unequal employment performance of the two communities. On the other hand, initially at least, they did not want to create a strong anti-discrimination policy regime as there was concern that this would lend credibility to the nationalist argument that Northern Ireland was a sectarian state (Heaton and Teague 1997). As a result, the first fair employment legislation created only weak enforcement procedures to tackle labour market discrimination. Almost immediately, concerted campaigns were launched to highlight the inadequacies of this fair employment regime and to demand stronger regulatory interventions - perhaps the most high profile campaign was the McBride Principles, a code of conduct consisting of nine fair employment principles, which was largely targeted at American companies and politicians. These campaigns alongside internal reviews conducted by the British Government, which highlighted that slow progress was being made to improve the labour market position of Catholics, led to a considerable toughing of the fair employment regime in 1989 (McCrudden 2001).

The more effective enforcement of fair employment legislation during the 1990s led to a steady reduction in labour market inequalities between Catholics and Protestants (Muttarak et al 2013). But even more concerted moves to create a fairer labour market in Northern Ireland were introduced as part of the Belfast Agreement. The Patten Commission that recommended the overhaul of the existing police force in Northern Ireland, the Royal Ulster Constabulary (RUC), and the creation of a new service, the Police Service of Northern Ireland (PSNI) was adopted by the British Government. A key recommendation of the Commission was an employment quota system that would allow for 50:50 recruitment of Catholics and Protestants into the new police service until Catholics made up 30 per cent of the organization (Murphy 2013). In addition, section 75 of the Northern Ireland Act 1998, which is the legal foundation of the Belfast Agreement, established an equality duty on public bodies and a public monitoring system to assess the extent to which this obligation was being met in practice (Muttarak et al 2009). Thus, whilst the debate about the nature and extent of the labour market disadvantage of Catholics continued to rage, Government had accepted the need for a comprehensive battery of public policy measures to realize fair employment in Northern Ireland. Creating a more religiously balanced labour market had become integral to the wider political project of building a new, more inclusive Northern Ireland, without which no peace deal would be sustainable.

The third key economic debate about the Northern Ireland was the extent to which stronger economic links should be fostered between the north and south of Ireland. Nationalists have long argued that the partition of Ireland in 1921 hugely distorted the geographical integrity of the all-island economy, thus causing both parts of the Island to perform sub-optimally. But in the decade before the end of violence, the idea of an all-island economy gained currency amongst the north’s (and south's) business elites (Teague 1994b). To a large extent, the call for greater north-south cooperation was motivated by the idea that if the north's over-dependency on the public sector was to be challenged effectively then the Northern Ireland economy would have to be significantly reconfigured (Bradley and Hamilton 1999). The notion of an ‘economic corridor’ between Belfast and Dublin was at the centre of the demand for an all-island economy. Influenced by the economic geography literature on industrial districts, the argument put forward was that a Belfast- Dublin economic corridor would generate new external economies of scale - dynamic effects that were external to firms, but internal to the corridor - that would create new businesses and improve performance of existing ones (Quigley 1992).

Just what form these external economies of scale would take and how they would be generated was never spelt out with any precision. Similarly, other proposals for greater north-south cooperation were set out in fairly schematic ways. Nevertheless, the broad idea that substantial benefits would arise if business and economic connections were strengthened between the two parts of Ireland gained considerable support (Bradley 1996). It can be reasonably argued that the Belfast Agreement provided institutional support to this idea by creating six cross border implementation bodies to cover areas such as trade, tourism, food safety, inland waterways language, and the administration of special EU programmes. The purpose of these bodies was to enact all-island cooperation initiatives agreed by the Irish Government and the Executive of the newly established Northern Ireland Assembly (O’Leary 1999). In the wake of the signing of the Belfast Agreement, the big question was whether the creation of six cross border implementation bodies alongside other formal arrangements for cooperation and collaboration between the two parts of the island was mostly a political move to provide institutional expression to the nationalist identity held by many Catholics in Northern Ireland or a new institutional platform to launch initiatives designed to strengthen economic integration between the two parts of the island.

Thus, three economic challenges faced Northern Ireland in the immediate aftermath of the signing of the Belfast Agreement: (1) would peace reduce Northern Ireland’s need for a large annual subvention from the UK Treasury; (2) would further progress be made to eliminate labour market discrimination against Catholics; and (3) would the Belfast Agreement trigger deeper economic cooperation between the north and south of Ireland. In the remainder of this chapter, the two challenges relating to ‘internal' dimensions of the Northern Ireland economy are examined, while Chapter 3 addresses more systemically the matter of north-south economic cooperation.