1.1 The importance of regional policy
Regional policy is vital for an economy, as seemingly isolated problems such as unemployment or incomeinequality, can quickly become country-wide issues (Armstrong & Taylor 2000). Regional disparities arecostly for governments as public spending must be individually allocated for social infrastructure and services(Armstrong and Taylor 2000).Regional policy focuses on increasing capital, labour and knowledge mobility (Kaldor 1970). The mostimportant policy strategy for Northern Ireland is to create conditions under which these barriers are limited, toencourage domestic start-ups and expansion, and foreign investment (HM Treasury 2011a).When reviewing regional policy,
goals require different types of policies for their achievement
(Armstrong and Taylor, 2000 pp.230). It is for this reason thatpartial devolution is necessary; giving moreresponsibility to Northern Ireland and its people to make the best decisions most suited to the local economy.
‘Local policy makers are closer to the economic issues which affect the local economy’ (
EAG 2011a, pp.23).
1.2 Northern Ir
Political instability has had negative implications for Northern Ireland, however all market failure cannot beattributed to the peace process. Employment growth began prior to the Good Friday Agreement (Brownlow2010), thus continued economic issues are not solely due to political instability.The local economy has a history of slow growth in comparison to other UK regions (PWC 2011; HM Treasury2011a). Many of the economic issues in Northern Ireland are on the supply-side such as industry structure,limited trade, an underdeveloped supply-chain base, low-skilled labour force, lack of R&I andentrepreneurship, and inadequate welfare policy. However there are also demand-side issues to consider including long term unemployment and insufficient demand.Regional policy should aim to create equality,improve efficiency, prevent congestion and limit inflationary pressure (Kaldor 1970); suggesting local regionalpolicy should aim to reduce income, productivity and employment gaps with the rest of the UK.Northern Ireland has a reputation for excessive public spending and an inadequate private sector (PWC2011). The private sector lacks competition and the innovation and support to be the main driver of theeconomy (EAG 2011a). Northern Ireland has low living standards, low skill levels and low productivity whencompared with UK averages (EAG 2011a), it is vital that education/training, innovation and R&D, and welfarereform are addressed in order to stimulate regional growth. Northern Ireland needs to move away fromtraditional low value added sectors and towards new higher value sectors (NISP et al 2011). Previous policy has taken a more Keynesian, intervention focused approach (Martin 1989a; 1988). Therehas been high reliance on the public sector and excessive supply-side support for industry and commerce,resulting in inadequate private investment and structural weaknesses. This spending is not sustainablebecause it results in unmanageable fiscal deficit, crowding out and limited encouragement for competition(Martin and Minns 1995; Varney 2008).
1.3 Public and private sector imbalances
Future public sector investment will be limited due to recessionary impacts and new EU policy changing thescope for financial assistance (HM Treasury 2011a). This will have a massive effect on Northern Ireland dueto its large reliance on the public sector (Varney 2008; HM Treasury 2011a). Figure 1.1 displays historical