John FitzGerald ||

The Good Friday/Belfast Agreement provided for the possibility of a referendum in Northern Ireland on Irish unification at some future date. Some, especially in Northern Ireland, would like to trigger such a referendum over the coming decade. However, even if polls showed a small majority in favour of such a move in Northern Ireland, it would be premature to go down that route until extensive institutional changes had first been implemented, especially within Northern Ireland. As Seamus Mallon said, even if there were a narrow majority for unification, it could well be unworkable with a large, very disconsolate unionist minority. ¹

There is an additional strong reason to avoid such a referendum in the foreseeable future. Irish unification would require a referendum in the Republic to approve a new constitution implementing unification and, unless the major economic and social consequences of unification for the people of the Republic were first addressed, the result could be a rejection of unification by the Southern electorate.

In the first thirty years of independence the people of the Republic, through successive governments, repeatedly prioritised their economic and social well-being over major initiatives to improve the lot of people in Northern Ireland. Thereafter, until the ‘Troubles’ began in 1969, the Republic lost interest in Northern Ireland. From 1969 until the Belfast/Good Friday Agreement, the focus of attention in the Republic was on protecting the Republic from the fallout from the unrest in Northern Ireland and helping to bring peace within the North.

It is only over the last twenty-five years that attention south of the border has been concerned with the details of how we can work together to improve economic and social conditions across the island – now encapsulated in the Shared Island Initiative. Nonetheless, there remains a major economic gulf between the two jurisdictions on the island, with the economy of the Republic being far more productive than that of Northern Ireland.

As outlined here, the economic and social consequences for the Republic of unification could be very costly unless the current gap in economic and social conditions between the North and the South is greatly reduced by reforms within Northern Ireland. Without obvious other significant economic and social benefits for the people of the Republic, this could well result in the rejection of unification if the question were put in a referendum over the next twenty years.

If a premature set of referenda North and South resulted in a rejection of unification by the Republic, this would leave Northern Ireland in a much worse position than if the referenda had never taken place. This would have very serious consequences, with Northern Ireland orphaned by both the UK and Ireland. This could be very destabilising for all on the island, as well as having negative consequences for the rest of the UK. Thus, there are very good reasons why the UK should not call a referendum in the North in the foreseeable future.

Section 2 of this article considers aspects of the economic and social development of the two parts of the island of Ireland. Section 3 very briefly discusses some aspects of the last century of economic and social relations between the two parts of this island. Section 4 looks at the direct economic cost if unification happened in the near future. Section 5 considers what changes are needed in Northern Ireland to greatly improve its economic and social performance and narrow the productivity gap with the Republic. Section 6 concludes.

2. A century of economic and social development

The early 1920s saw the partition of the island of Ireland into two jurisdictions, an independent Irish Free State, later Republic of Ireland, and Northern Ireland, which remained part of the United Kingdom. At the time ‘partition’ caused significant angst. While it reflected differences in the predominant religious affiliations of those in the two jurisdictions, which influenced their populations’ political preferences, it also reflected economic and demographic differences between the two parts of the island.

The 1911 census showed that very few people born in what would become Northern Ireland were then living in what became the Republic of Ireland and, similarly, very few people born in what was to become the Republic were living in Northern Ireland.² The population of the two jurisdictions lived rather separate lives, many of them emigrating from the island but few moving across what was to become the border.

The data from the latest censuses show a rather similar picture. As in 1911, in 2021 very few people born in the Republic of Ireland had moved to live in Northern Ireland: only 2% of the Northern Ireland population were born in the Republic, down from 5% in 1911. A similar situation is shown by the 2022 census for the Republic of Ireland, with still only 1% of the population having been born in Northern Ireland.

In both jurisdictions in 1922 more of the population had been born in Great Britain than in the other part of the island. This remains the case today, indicating more family links with Great Britain than with the other jurisdiction on the island. Thus the social distance between the two jurisdictions, which was there at partition, has not changed, leaving mutual understanding between the two parts of the island more difficult.

As well as the social distance between the two jurisdictions over the last century, their economies have had a very different trajectory. In 1922 the Northern Ireland economy had a much bigger industrial base than what became the Republic. It had major strengths in engineering, especially shipbuilding, and textiles and clothing. The economy of what became the Irish Free State in 1922 was much more dependent on agriculture. In both cases their trading links were almost exclusively with Great Britain.

In 1922 Northern Ireland probably had a slightly higher income per head than the Irish Free State, though well below that of the rest of the UK.³ The world depression that began in 1929 hit the industrialised Northern Ireland economy more heavily than the Irish Free State. Also, the Free State benefitted from a significant financial injection through the ending of the payment of land annuities to the UK in 1932.

The war years and the 1950s were good for Northern Ireland, with demand for its engineering sector booming. By contrast, the Republic of Ireland economy was in suspended animation during the Second World War and performed very poorly in the late 1940s and the 1950s, suffering from the very closed nature of its economy. The result was that the standard of living in Northern Ireland was significantly higher than in the Republic in 1960.

Over the 1960s and the early 1970s, when Ireland joined the European Economic Community, living standards rose in the Republic relative to the UK, narrowing the gap that had existed in 1960. However, living standards in Northern Ireland were badly hit by the Troubles from 1970, so that the gap in living standards between the North and the South had largely closed by 1980. This left them both with living standards around 70% of the UK and the then EU average.

From 1990 onwards the benefits for the Republic of a major investment in education, which began in the late 1960s, when combined with the benefits of EU membership and the EU Single Market (1993), saw the Republic make dramatic economic progress. By 2000 Irish living standards equalled those in the UK and the EU 15. Since then they have risen well above the UK, Northern Ireland, and the EU 15.

By contrast, Northern Ireland did not benefit from a major investment in reforming its education system,⁴ and it also suffered from the Troubles up to the late 1990s. The result was that living standards in Northern Ireland have continued to languish at around 80% of the UK and the EU 15. As a result, there is a huge productivity gap between Northern Ireland and the Republic today.

The superior economic performance in the Republic is reflected in superior public services, welfare provisions, and infrastructure. This is despite the fact that there is a major transfer of resources from the UK government to Northern Ireland to help maintain welfare and service standards broadly in line with the rest of the UK.

3.  Forgetting and remembering Northern Ireland

Over the first fifty years of independence, the Irish Free State/Republic rarely thought about Northern Ireland. There were two major opportunities when the government in the South could have influenced developments in Northern Ireland, but in both cases the Southern government chose, instead, to further its economic interests.

In the negotiations to mitigate the fallout from the draft report of the Boundary Commission in November 1925, the Irish government sought major reforms in Northern Ireland to protect the nationalist community there in return for accepting the border. However, in the end they settled for a dramatic reduction in the Free State’s liability for the UK debt. This potential liability amounted to around 80% of the state’s national income.⁵ The very favourable economic outcome of these negotiations was prioritised over a possible significant improvement in the lot of nationalists in Northern Ireland. Again in 1938 there were negotiations in London between the two governments to end the economic ‘war’ that had ensued when Ireland withheld land annuity payments from the UK in 1932. Once again the possibility of reforms being implemented to protect the nationalist population came up. Prime Minister Chamberlain said that it might be possible ‘to remedy any discrimination against the minority in Northern Ireland without having recourse to the abolition of partition’.⁶ However, this option was not pursued by the Irish side. Instead the ultimate settlement involved returning control of all ports to Ireland, together with a very favourable financial settlement of the land annuities dispute.

Chamberlain had also suggested that the Republic could reduce punitive duties on goods coming from Northern Ireland. However, this was rejected by the Irish side as it would have adversely affected employment in the South. Northern Ireland was treated as a domestic issue in the 1920s and 1930s, so not an issue for the Department of Foreign (External) Affairs. Even in the post-war years the department did not devote any resources to Northern Ireland, nor did any other government department. Thus the Irish administration had to rapidly develop its understanding of the situation in Northern Ireland after the Troubles began in 1969. For much of the 1970s and 1980s a major concern of governments in the Republic was to prevent the problems in Northern Ireland spilling over to the Republic.

Since the early 1970s, reaching a settlement that would bring peace in Northern Ireland was a major priority for both governments. Pursuing this objective was also essential for the economic interests of the Republic. The outbreak of the Troubles in 1969 had come at some cost for the economy of the Republic in the early 1970s. However, the situation was managed in subsequent decades so that what was happening in Northern Ireland did not adversely affect the economy of the Republic.

In the first fifty years of independence, the Republic put its economic interests ahead of the possibility of resolving the disabilities of Northern nationalists. In the second fifty years, public policy, in seeking a satisfactory settlement of the Troubles within Northern Ireland, was fully consistent with the economic interests of the Republic.

4.  Unification: possible cost

Since the foundation of the state a number of studies have been carried out comparing the two economies on the island. In more recent times, taking account of the difference in economic circumstances, they have also considered the possible costs of unification for the two jurisdictions on the island.

In 1972, when living standards in Northern Ireland were probably slightly higher than in the Republic as a result of transfers from London, Garret FitzGerald considered the costs of unification. On the basis of optimistic assumptions, he suggested that that these costs would be manageable.⁷ However, Dowling, based on more realistic assumptions, estimated the likely cost to the economy of the Republic would be nearer to 15% of Gross National Product.⁸

In 1983, a report for the New Ireland Forum suggested that the loss of Northern transfers from London under unification would be ‘catastrophic’ for Northern Ireland.

Since the 1980s, as discussed above, there have been major changes in the economies on the island, especially in the Republic. FitzGerald and Morgenroth considered some of the possible costs of unification today.⁹ These estimates were subsequently updated.¹⁰

The transfers from the British central government to Northern Ireland arise from the fact that productivity in Northern Ireland is very much lower than in the rest of the UK. Thus to provide a UK standard of public services requires major transfers to supplement the meagre revenue coming from the limited local tax base.

Concentrating on the importance of the transfers from the central government to Northern Ireland, we estimated that in recent years they amounted to over 5% of the Republic’s national income. This would be the cost for the Republic of unification if the objective were merely to maintain the standard of public services and welfare payments in Northern Ireland.

However, if the standard of services in Northern Ireland were to be raised to the level of the Republic on unification, the cost would amount to over 10% of national income. While lower than that estimated by Dowling in 1974, it would still represent a major reduction in living standards in the Republic. The full impact of these costs could be delayed by a gradual phasing of the alignment of benefit levels. However, unless Northern Ireland were to be permanently treated as a poor relation, the cost of equalising benefit rates would, eventually, have to be carried by taxpayers of the Republic.

Advocates of Irish unification have argued that the UK government would continue to fund some of the existing transfers to Northern Ireland for some time after unification. In our estimate of the direct cost of unification, we assume that a share of the UK’s public debt would be carried by Northern Ireland into a united Ireland. This was the approach agreed in 1922 on Irish independence and has been the approach used in the breakup of other unions – for example, the USSR in 1991 and Czechoslovakia in 1992. It was also the approach that would have been taken if Scotland had voted for independence in 2014.

The UK might be glad to shed the burden of supporting Northern Ireland and allow it to leave the UK without its share of the UK debt. However, this would set a precedent for Scotland, if the Scottish electorate eventually voted for independence. As Scotland is much larger than Northern Ireland, extending the same terms for an independent Scotland would be much more expensive for the UK. Thus the UK might not want to set a precedent by letting the North leave the UK debt-free.

A second argument made by advocates of a united Ireland is that the UK would be legally obliged to continue to pay social insurance benefits in Northern Ireland after unification. If this happened, it would reduce the costs of unification for the Republic by between 1% and 1.5% of national income. However, this ignores the fact that the social insurance systems in Ireland and the UK are not funded schemes. The payments every year are covered by the social insurance contributions each year. Thus it would be inconceivable that the UK would continue to pay social insurance benefits in Northern Ireland after unification, while a united Ireland collected the social insurance contributions in the North that previously funded these benefits. There would be other economic consequences of unification.

The Northern Ireland economy is fully integrated into the wider UK economy. This level of integration has caused major difficulties in a post- Brexit world. However, suitable mechanisms have been found to allow Northern Ireland to share the benefits of access to the EU Single Market for goods while, at the same time, not disrupting the essential economic links between the North and Great Britain.

However, if Northern Ireland left the UK, because of the high level of integration of the North in the wider UK economy, Brexit would make the dislocation of Northern Ireland leaving the UK even greater than if the UK were still an EU member. The costs of this dislocation would initially be a major loss of national income in Northern Ireland. These potential costs have not, as yet, been quantified. In the event of unification these costs would add to the burden on the Republic of absorbing a low productivity Northern Ireland economy into a united Ireland.

While the dislocation of breaking the Northern Ireland economy away from that of Great Britain would be very significant in the decade after unification, there would be benefits from integrating into a wider island economy and closer alignment with the rest of the EU. However, while the costs would arise on day one, it would take longer for the benefits of integration to grow. In the next section the structural problems of the Northern Ireland economy are considered. Of these the most serious is the low level of human capital in the Northern Ireland labour force. This is due to the problems with the education system in Northern Ireland. As Siedschlag and Koecklin have shown, the low human capital in Northern Ireland would make it very difficult for it to benefit from the model underlying the success of the economy of the Republic.¹¹ The growth of the Foreign Direct Investment sector in the Republic over the last thirty years has depended on the very elastic supply of highly qualified labour, something that Northern Ireland cannot match. Thus the benefits from integrating the Northern Ireland economy with that of the Republic would be much more limited than if the level of human capital in the North approached that of the Republic.

5.  Reforming Northern Ireland’s economy

As a result of policy choices made by Northern Ireland over the last seventy years, its economy suffers from a major deficiency in its capital stock, human and physical. In turn, this shortage of capital helps explain the continuing low level of productivity of the Northern Ireland economy. By far the most important of these gaps in capital is due to problems with the Northern Ireland education system. A series of studies highlight this failure.¹²

Firstly, while quite a high proportion of young people in the North progress to third level education, many of them end up going to university in Great Britain. This contributes to a high proportion of these graduates living permanently outside Northern Ireland. An important factor in this loss of human capital, due to students studying in Great Britain, is the shortage of third level places in Northern Ireland.

A second problem, and a major one, arises from the fact that the education system fails 60% of young people at age eleven, routing them to separate schools from the high performers. The studies cited above show that not only is there low progression to third level from these schools, but the drop-out rate before age eighteen is very high. Borooah and Knox show that the problem is particularly severe for young people from a Protestant/unionist background, but that it also affects those from a Catholic/nationalist background.¹³

The result of the selection process at age eleven is, thus, that there is a much higher proportion of early school leavers in the labour force, with poor labour market prospects and low productivity when employed. The studies cited also show that, when compared to the Republic, the opportunities for children from a poor background to progress to higher paid employment and higher living standards are much fewer in Northern Ireland, with wider social implications.

Remedying these problems, in particular the problem of early school leavers, would require a dramatic change in the Northern Ireland education system to move it to a model similar to that in more successful economies, e.g. Scotland, Finland, or the Republic of Ireland. However, the benefits of such a change in policy would take decades to mature.

The second gap in the Northern Ireland economy, contributing to its low productivity, is the poor physical infrastructure. Over recent decades there has been limited investment in key areas such as transport and water.

Remedying these problems would require a major reprioritisation of resources in Northern Ireland. In the case of physical infrastructure, if policy changed today, the benefits for productivity could begin to flow within ten to twenty years. In the case of the even more urgent need to reform the education system, the benefits, while much greater, would take much longer to mature.

6.  Conclusions

For those who advocate Irish unity, it is important to recognise that obstacles to realising their dream lie not just in persuading a majority of the population in Northern Ireland that it is a good idea; they will also have to persuade a majority in the Republic to sign up to unification, despite the fact that it would seriously affect their standard of living. It would also require major institutional changes in the Republic to integrate Northerners into the administration.

Over the last fifty years, through pursuing appropriate but difficult policies, the Republic has transformed itself into a very successful economy, with full employment and a high standard of living. It has also moved to make its society one of the more equal in the developed world through appropriate tax and welfare policies.

Looking to the future there is no reason to suppose that the people of the Republic will behave differently from the past; they will continue to pay major attention to their economic and social interests. Without major changes in Northern Ireland to enhance its productivity and provide better opportunities for children of all backgrounds, unification would be very costly for people in the Republic. Thus wooing a Southern electorate and persuading them to merge with a much poorer Northern Ireland, which would require continuing large scale support from the Republic over many decades, would be a hard ask. The potential benefits from unification for the people of the Republic are more difficult to identify.

What would substantially reduce the potential cost of unification is if Northern Ireland made major changes to address its internal problems in terms of human capital and infrastructure. This would make Northern Ireland much better off and help develop a fairer society. It would also mean that after thirty years the costs of unification for the Republic would be much lower than today. However, it would also mean that if the people of Northern Ireland chose to remain indefinitely part of the UK, they would also be markedly better off. Thus major policy reforms in Northern Ireland are in the interest of both unionists and nationalists and are especially desirable for the current generation of children who are ill-served by the education system.

John FitzGerald is Adjunct Professor of Economics at Trinity College Dub- lin and Research Affiliate at the Economic & Social Research Institute. He is a member of the Royal Irish Academy.

Notes

1. Pat Leahy, ‘Seamus Mallon warns against premature border poll’, The Irish Times, 17 May 2019, www.irishtimes.com/news/politics/seamus-mallon-warns-against-premature-border- poll-1.3894881
2. John FitzGerald, ‘ One Island, Two Labour Markets’, Irish Studies in International Affairs, 22:2 (2022), pp. 315–371.
3. Cormac Ó’Grada, Ireland: a New Economic History (Oxford University Press, 1994).
4. The 1947 Education Act in Northern Ireland introduced free second-level education structured along the lines of the 1944 Education Act for Great Britain. This system selected 30% of pupils into grammar schools at age eleven. The adverse effects of this selection process were mitigated in England and Wales by changes beginning in the 1960s, while in Northern Ireland selection remains; see Vani Borooah and Colin Knox, The Economics of Schooling in a Divided Society: the Case for Shared Education (London: Palgrave Macmillan, 2015).
5. John FitzGerald and Seán Kenny, ‘“Till Debt Do Us Part”: Financial Implications of the Divorce of the Irish Free State from the UK, 1922–6’, European Review of Economic History, 24:4 (2020), pp. 818–842.
6. Documents on Irish Foreign Policy, online, vol. 5, no. 143, www.difp.ie/volume-5/1938/british- irish-conference/2289/#section-documentpage
7. Garret FitzGerald, Towards a New Ireland (London: Charles Knight, 1972).
8. Brendan Dowling in Economic and Social Implications of the Political Alternatives That May Be Open to Northern Ireland, ed by N. J. Gibson (Coleraine: The New University of Ulster, 1974).
9. John FitzGerald and Edgar Morgenroth, ‘The Northern Ireland Economy: Problems and Prospects’, Journal of the Statistical and Social Inquiry Society of Ireland, 49 (2020), pp. 64–87.
10. John FitzGerald and Edgar Morgenroth, Northern Ireland Subvention: Possible Unification Effects (Institute of International and European Affairs, 2024). www.iiea.com/images/uploads/ resources/Northern_Ireland_Subvention_Possible_Unification_Effects.pdf
11. Iulia Siedschlag and Manuel Koecklin, The Impact of Brexit Uncertainty on FDI-related New Jobs in Northern Ireland (Northern Ireland Department for the Economy, 2019), www.esri. ie/system/files/publications/The-Impact-of-Brexit-Uncertainty-on-FDI-related-New-Jobs-in- NI_0.pdf
12. Borooah and Knox, Economics of Schooling; John FitzGerald, ‘Investment in Education and Economic Growth on the Island of Ireland’, Journal of the Statistical and Social Inquiry Society of Ireland, XLVIII (2018/2019), pp. 195–210; Anne Devlin, Seamus McGuinness, Adele Bergin and Emer Smyth, 2023, ‘Education Across the Island of Ireland: Examining Educational Outcomes, Earnings and Intergenerational Mobility’, Irish Studies in International Affairs, 34:2 (2023), pp. 30–47.
13. Borooah and Knox, Economics of Schooling.