Let's think about the economy for once
There are five factors at play – and how we manage them will determine how we emerge into the 2030s. If we drift along we will pay a heavy price.
They are: navigating Brexit; the post Covid-19 recovery; the drive to zero carbon; exploiting new technology and dealing with an ageing population.
None of these can be wished away – they are all upon us already.
All of these are connected in one way or another and the collective economic challenge they pose is one of the biggest ever faced. It will require a strategy that doesn’t currently exist – and the time to develop one is short.
The think tank the Resolution Foundation has joined force with the Centre for Economic Performance at the LSE to instigate a two year inquiry Economy 2030 which will lead to proposals to address all these matters. It will be especially relevant to Northern Ireland which has both unique challenges and opportunities to deal with.
Life will not return to normal after the pandemic. There will be lasting change as a result, with both winners and losers. Two of the most obvious impacts have been a massive increase in online activity, especially shopping and home working. The former is likely to increase further – it is not yet clear what the future of desk work is, but it is unlikely to completely return to the office.
This has positive and negative implications. For example it’s great for higher paid office workers and online retailers. It poses serious challenges for traditional high streets, those who work in them who may have to find new jobs in new places. It may mean that those in the right job with enough money can live further away from a workplace they don’t need to visit as often. This might spread well-paid jobs between areas a little better. However, at a time of spiraling housing costs, it also means that it will be difficult for those whose skills are not needed to move elsewhere to work.
The report cites some startling figures: online retail has jumped from 19% of total retail sales in February 2020 to 36% in January of this year. The opening up of the high street appears to have had minimal impact on this. Similarly those working from home went from 5% before the pandemic to almost 50% in February of this year.
It’s not just the scale of these changes but the speed at which they have happened that requires an urgent response from policy-makers. How do you maximise benefits whilst minimising the impact on those most adversely affected who are likely to be the lowest paid? And how do we breathe new life into dying high streets?
The impact of Brexit is only just being felt. Last week we focused on the political instabilities that it, and the ensuing protocol have caused. These will feed into our economic prospects. Investors do not like instability.
But there are tremendous economic opportunities afforded by Northern Ireland’s unique status both inside the EU and the UK. There needs to be a real focus on how best to leverage that. Northern Ireland has much to play for but we’re not seeing enough discussion about how we can exploit the advantages we now possess.
More broadly too both leavers and remainers are still re-fighting battles long after the war ended. This seemingly endless and pointless debate where one side is downplaying the economic effects of leaving whilst the other harps on about the costs means that there has been almost no discussion about what are objectives should be now we have left.
This needs to change because the impacts are now coming thick and fast. Take for example all those sectors (in Northern Ireland we have many) who have relied on low-skilled migrant labour. What do they do now. Shrink? Automate?
Also the rest of the UK may well have priorities in terms of securing trade deals that NI may not share. Just one example: meat production is perceived to be of relatively low value to GB but is of very high value here. It might be attractive for Westminster to do a deal with Australia that would see GB markets accessing cheap Australian beef, but this will not do anything for our farmers.
The implications for the economy of Brexit are only just emerging. There are opportunities and threats and no strategy.
It looks like the cost of transition will be lower than previously thought and that in the medium to long term investments in carbon reduction will pay for themselves. For example it will be cheaper to buy and run an electric car than a traditional vehicle by 2025. We’re also rich in renewable sources, particularly wind.
What’s missing is the investment strategy to get there. There are currently 337 charging points for electric cars in NI, currently provided ESB. We’ll need more of them and they will need to be faster too. And as electric vehicles proliferate the government will need to replace lost road tax revenues, presumably through general taxation.
In any event the changes necessary to reach zero carbon are about to get both much more visible and to intrude more directly into peoples’ lives whether that be how we heat our homes, what food we eat as well as how we travel around. How do we plan to manage this change? And most important of all how are the costs to be shared – specifically how much more will it cost consumers?
Productivity rates in the UK are falling behind other advanced economies and NI has the lowest rates in the UK. For example Germany and France are about 15 per cent more productive than the UK. The prime cause of this is a lack of investment in new technology.
Ironically most of the debate about the 4th industrial revolution has focused on concerns that change such as automated production and driverless cars will create widespread unemployment. For example to OECD believes that 14% of jobs could disappear in the next 15-20 years. Yet the most pressing problem we currently face is our slowness in investing in change.
How to promote investment whilst finding alternative employment for those whose jobs will disappear is the key question to resolve.
If investment is not stimulated we face falling behind our competitors with deteriorating economic performance.
All these factors will take place during a decade of significant change in the age profile of the population The report states: “The ratio of those under 20 or over 65 to those aged between 20 and 64 is set to increase from 72 per 100 to 79 per 100 between 2020 and 2030 – a faster change than has occurred in, or is projected for, any other decade in the first half of this century.”
The fact that the ratio between those retired and those still working will increasingly pose multiple challenges for example to the health service, the tax system and for the speed at which automation can be accelerated.
These are the issues we must grapple with over the next decade – and how we deal with them will determine whether we can look forward to a prosperous future or one of economic decline.
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