Opportunities for the island of Ireland

Serious discussions of Brexit tend to focus on the likely negative consequences for the island economy. Feared threats to island economic and political wellbeing tend to dominate, rather than any wider international threats to the rest of the EU, writes
John Bradley.

There is a risk that focus on negative consequences sends wrong signals to policy makers who may try to secure a post-Brexit negotiated outcome with respect to island relations with Britain close to pre-Brexit in the belief that this is the best of all possible options.

In the case of Ireland, where the matter is debated seriously, it helps to regard imminent Brexit-induced change not as a unique, existential threat, but rather as the third time in the last 70 years that the external context for strategic policy-making has fundamentally shifted. The first shift was in the 1960s when a long-standing policy of protectionism and import substitution (adopted in the 1930s) was abandoned and replaced by progressively freer trade, initially with the UK, and later with the then-EEC. The arrival of FDI eased this painful transition. The second was in the 1980s, involving ever deeper integration of the island economy into the European Union where, as potentially vulnerable “peripheral” regions, generous development aid in the form of Structural Funds facilitated refurbishment of physical infrastructure and human capital.

As with beneficial shifts in Irish economic structure that accompanied a switch to free trade in the 1960s and deeper integration into the single market in the 1990s, the Brexit shock, however challenging, is unlikely to be without its opportunities. Ireland successfully internationalised, mainly by attracting foreign direct investment. Northern Ireland has done so to a lesser extent. But in both economies the indigenous SME sectors still function as economic regions of the UK. This shows up both in the fact that the UK is the predominant export market for island SMEs and that the island is the fifth largest external sales destination for British firms (similar to that of France, and larger than China). Also, Ireland is the only significant UK trading partner with which it runs a trade surplus.

Brexit risks creating massive uncertainty in this bedrock island trading relationship that has its origins in geography and history, but a relationship that has not always been beneficial to island-wide economic development and transformation. Ireland has an economic strategy that is heavily based on the efficient hosting of inward investment, which requires maintaining close links with the EU and with the US. Northern Ireland seeks to emulate this strategy. The UK, on the other hand, has struggled to find a robust enterprise strategy. As UK traditional manufacturing sectors contracted, successive governments have not been able to put in place development strategies to revive its lagging regions in Scotland, Wales, Northern Ireland and northern England.

Past island industrial strategy success stories should not blind policy makers to challenges and dangers that lie ahead. But Brexit is simply an additional aspect of the changing face of globalisation. Knowledge of these changes and clear thinking about their longer-term structural implications must be essential elements of island enterprise strategy reformulation. Dealing with Brexit will be a challenge, but it can provide an opportunity for completing the modernisation, growth and international orientation of the island indigenous SME sector.

Dr John Bradley was a Research Professor at the Economic and Social Research Institute (ESRI) in Dublin, and is an international consultant in the area of analysis and modelling of economic development and industrial strategy (EMDS).

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