OPINION: Spendthrift economy? One, certainly, that doesn't invest enough
IT is well established that one of the main reasons why the UK economy has grown relatively slowly compared to many other countries over the last 100-plus years is that we simply don’t invest enough.
Investment is where resources are put aside to create buildings, machinery, infrastructure, innovation, IT and digital networks. By investing we will probably end up with less jam today, but we do create the capacity to have much more jam tomorrow.
A lack of investment is also a major reason why output per person or per worker tends to be lower in the UK as compared to many other economies: the British productivity problem. Some commentators blame a lot of this on Brexit, but the chronically low level of investment long pre-dates 2016.
That is the UK wide situation. What is especially worrying for us is that the position here in Northern Ireland appears to be even worse. Our rates of investment, whether by businesses or the public sector, fall behind even the fairly low standards set by the rest of the UK. That reduces our capacity to have sustained improvements in prosperity.
We know that Northern Ireland investment rates are very low because of some innovative research published last week by the Northern Ireland Statistics and Research Agency (Structure and Performance of the NI Economy 2018 and 2019). This showed that the total size of the Northern Ireland economy, i.e. gross domestic product (GDP), in 2018 was £47.6 billion and then £50 billion in 2019.
It also showed that household consumption represents the bulk of the regional economy, i.e. £30 billion, with government spending a further £13 billion and then investment (gross capital formation) £7.1bn. The exports from the region and the imports coming in were roughly the same.
That investment level of £7.1bn may seem a considerable sum of money, but it is important to compare the rate of investment with that in the rest of the UK, i.e. investment per person in the population.
NISRA show that Northern Ireland’s investment rate is only £3,775 per head of the population compared to the UK average of £6,121. The Northern Ireland rate is only about 60 per cent of the UK average.
Does this really matter? Yes it does. This is especially so if we are concerned about Northern Ireland’s economic livelihood not just for the current generation but for future generations. Our public choice to emphasis jam today translates into an industrial and commercial sector which, on average (there are obvious notable exceptions) is less innovative than its counterparts elsewhere.
"Jam today" policies in the public sector mean our provision of infrastructure and hence service delivery is falling behind elsewhere. And none of this takes into account the truly enormous investments which are going to be required to hit carbon zero standards, whether in terms of re-fitting household heating or shifting to electric vehicles.
It remains fundamentally unclear how Northern Ireland is going to pay for that bill. Like Charles Dickens’ Mr Micawber we seem to believe “something will turn up”.
All this represents a subtle but profound problem. Sadly, this dearth of investment hardly figures in political debate. There seems to be a general public and political reluctance to accept that if we want more of certain desirable things we will have to find resources for those things, sometimes at the expense of other things we might also wish to have.
Rather than face hard decisions the tendency has been to always lean in the direction of supporting consumption much more than investment: Jam now rather than next year or the year after.
We don’t have domestic water charges, welfare benefit receipt rates are well above the UK average, we try to maintain pay parity with GB, sometimes funding for public capital spending has been switched to fund current spending, and so on. There may be arguments for many of these policies but taken together they represent our long run bias towards the jam today economy.
Of course, some will say, this situation is yet another reason why Northern Ireland has an urgent need of a restored regional government.
I would sound a note of caution about that. A truly accountable government would, of course, be desirable in a number of ways. But we have got to remember that our current economic predicament- especially in terms of the lack of investment - is the result of decisions made by Northern Ireland administrations, whether devolved or Direct Rule, over the decades.
Teaching the old political dog (and the electorate) to learn new tricks will be a challenge.
Dr Esmond Birnie is senior economist and Ulster University Business School