There is a widespread misunderstanding as to the causes of Ireland’s growth during the years of the ‘Celtic tiger’. The assumption is that it was all based on lower corporation tax rates, plus the generous grant funding regime of the Industrial Development Agency.
While it is true that this were significant, this is a long way from being the full story. Ireland benefited from a mix of factors. Alongside low tax rates and the IDA’s grant support there were three other decisive advantages. Two of these are shared with Northern Ireland – a clear legal framework for investors, plus the English language, which is important to US investors seeking a bridge-head in Europe.
But there is one ingredient that Ireland had – and still has – which is currently missing from the Northern Ireland Executive’s plans to expand our economy. That key ingredient is skills. (A 2001 US study of investment in the Republic found that labour market issues were the second most crucial factor in the decision-making.)
It would be easy to miss this crucial fact. Our society constantly bangs on about how good our schools are and how this leads to Northern Ireland having the highest rate of school leavers going on to university. Both these ‘facts’ are misleading.
At the top end, our grammar schools produce brilliant exam passes for those kids fortunate enough to attend. Too many of the non-selective schools, though, have children leaving without the basic skills needed for a worthwhile working career. Much of our further education budget is spent on trying to put that right.
Meanwhile, a third of those school leavers going on to university do so in Great Britain. More than half of those do not return. Hence our grammar schools are ‘brain factories’ that provide great outcomes for the economies of England and Scotland. Our export of students to universities in GB is equivalent to the size of a third university in Northern Ireland. This would not matter if our outflow of students was matched by an inflow from elsewhere. Sadly precious few students from other nations come to NI to study.
It is no accident that Ireland was able to attract overseas investment – and boost indigenous businesses – through a high quality education system. The Irish government long understood that the skills base not only boosted investment and growth, but also orientated this towards those sectors that are most beneficial to its economy. This means, for example, ICT and pharmaceuticals.
To quote from an Irish government report from 2007 “this increase in supply of skilled graduates had a very significant effect in influencing inward investment by multi-nationals both in terms of expectation of an increased supply of skilled graduates and a perception that the Irish government were responsive to the needs of the ICT industry and were prepared to develop rapid policy and practical responses to those expressed needs”. It added that during a previous downturn, the high skills base in Ireland caused overseas corporations to maintain their operations in the Republic, move up the value chain in doing so, while cutting lower value operations in other jurisdictions.
None of this should be a surprise to people here. A report for the Scottish Executive found that while Northern Ireland benefits from significant levels of inward investment, we have the lowest percentage of high quality foreign direct investment of any UK region. The highest quality investment in the UK went to the region containing the highest quality university-based research – the East of England, which benefits from Cambridge University.
This is not a criticism of Northern Ireland’s two universities – Queen’s and Ulster. The main challenge is that our university population is just too small. We need about 5,000 extra university students entering higher education every year – equivalent to a 15,000 place university. Nor should those additional places be located within Belfast, which would simply overheat our capital city, while leaving the rest of the province under-served. Just as important, the extra student places need to mostly be in those disciplines that service our economy – after all, student places are supported by public finance.
For those who say this is unaffordable, one solution is to look again at our policy on tuition fees. While undergraduates here will pay £3,805 for the 2015/16 year, they are likely to pay about £9,000