KEY POINTS:
When Gerry Adams and Ian Paisley sat down for the first time together last week to seal a power sharing deal, the mood was not just politically upbeat. The agreement coincides with a booming property market - house prices rose nearly 40 per cent last year, outstripping the
rest of the UK - strong economic growth and a fair deal of optimism in a place where such is not customary.
Northern Ireland has become used to looking ruefully south at the "Celtic Tiger" Republic's double digit growth and high-tech employment opportunities. Now, people are saying Belfast can think of Dublin as a source of opportunity rather than envy. Peter Hain, the Northern Ireland Secretary, goes as far as to say: "Northern Ireland can have the best of both worlds by staying under the UK economic umbrella but also having closer links with the economy of the south."
Do house prices on Belfast's Shankill Road rising from £40,000 to £100,000 in two years, and the north outstripping the rest of the UK in job creation, suggest an economic turning point has been reached? Certainly, observers admit something unusual is going on.
Graham Gudgin, who has acted as economic adviser to the Northern Ireland Assembly, says: "There is a very different feel. There is higher employment and immigration [from EU accession states] and house prices are rising."
The province's economic history had been characterised by emigration, a flat property market and poor employment levels. Nigel Smyth of the Confederation of British Industry in Northern Ireland says that despite having some of the best A-level (school leaving exams at 17) results in the UK, the province loses a third of its top students every year to universities elsewhere in the UK, with only a quarter of those returning.
"We have not been able to create enough high quality jobs," he says. The Republic has attracted investment from mainly US-based high-tech multinationals such as Microsoft and Dell thanks to policies such as its 12.5 per cent corporate tax.
But as Gudgin points out, job creation in Northern Ireland has been in the public sector and low-skilled private sectors such as retail, construction and, latterly, tourism. The reasons are partly historical, partly political: with the decline of the textiles and heavy industries (particularly shipbuilding and capital goods production) during the Troubles, policymakers sought to counter unemployment and social instability by increasing public spending and creating public sector jobs.
Michael Moore, professor of finance at Queen's University, Belfast, says 36 per cent of employment in Northern Ireland is in the public sector, compared with 20.2 per cent in England, Scotland and Wales, and 22 per cent in the Republic. The public sector accounts for two-thirds of economic output, while it is just under half in the rest of the UK and just over a quarter in the Republic.
Meanwhile, many private companies in Northern Ireland are subsidised: selective financial assistance runs at £100 million a year. Gudgin says: "It is bringing in about 1000 jobs a year, most now in call centres."
Oxford Economics found that while people living in London made a £1741 contribution to public finances, those in Northern Ireland received £3723 each, the highest "subsidy" in the UK. The annual "subvention" - the difference between taxes raised and public spending - is between £5 billion and £6 billion.
Moore says: "The problem with this is incentives - it creates dependency and reliance on the public sector." Official statistics indicate that Northern Ireland's economic performance lags that of the rest of the UK. On productivity, Northern Ireland scores 80 (the UK as a whole is 100). Only Wales (78) and the northeast (79) score lower. Gudgin says: "There are low costs and low wages, and Northern Ireland has the lowest household incomes in the UK."
However, the economy has been growing faster than most UK regions, partly due to a high birth rate, which helps keep the pool of labour high but also holds down wages.
The boom in call centres is an indication of inward investment into the service sector. Official statistics show that while inward investment since 1998 has stayed similar to before the Good Friday Agreement, there has been a shift away from manufacturing and towards services.
With emigration a historic problem, job creation remains vital. Over the past 10 years employment has grown by 16.4 per cent, compared with 9.2 per cent for the UK as a whole. According to Smyth it is vital to upgrade these jobs, both to attract immigration and keep Northern Ireland's graduates in the province.
Here, he says, it should look south: "The education system in the Republic has been geared around the needs of the kinds of companies that are investing there. We need to do the same."
Indeed, despite many obstacles, not least currency and politics, many see closer alignment and stronger ties with the south as the way forward. Peter Hain says that with the south overheating, there are opportunities for the north.
There is clear evidence already in the property market. Moore says: "Convergence [with the UK] does not explain all of the rise. The Republic has seen massive house price growth and commuters have pushed further away from Dublin."
Hain says companies such as Citigroup have been attracted to Belfast by a high quality, relatively cheap workforce. A key move towards further integration would be to cut corporate tax to match the Republic.
Moore says: "Crossing the border from north to south is like going through Checkpoint Charlie from east to west Berlin in the Cold War." The north, he says, should be encouraging entrepreneurialism like the south.
Smyth says: "The most important thing for the economy is what you do with the tax rate." He says CBI calculations show that although there would be a short-term loss to the Treasury, in the long run subvention would fall by as much as two-thirds over the next decade with extra tax revenue from big business. Hain says harmonising corporation tax with the Republic cannot happen under European law, but tax credits for activities such as research and development are a greater stimulus in Northern Ireland than elsewhere. Meanwhile, the Chancellor, Gordon Brown, has announced a Northern Ireland tax review.
Another area where the north can learn from the south is infrastructure spending. The Republic has upgraded road and transport links using European and other funds, overtaking the north in the past two decades. Smyth says the Government has under-invested in Northern Ireland's infrastructure for years.
Spending has increased to £1.2 billion a year but the CBI believes it needs to run at £1.6 billion for the next 10 years.
Brown has talked of a £50 billion "peace dividend" for the province. If the peace holds he will not oversee this - it will fall to the politicians who agreed to share power last week.
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