Examination of Witnesses (Questions 53
- 59)
WEDNESDAY 26 JANUARY 2000
DR PAUL
GORECKI AND
MR AIDAN
GOUGH
Chairman
53. We are extremely grateful to you for coming.
We apologise for the fact that we have not been absolutely punctual
ourselves in inviting you to enter the room. You have probably
gathered, from the media, that a fair number of people round the
room have been up all night, and therefore our mental processes
have not been quite as swift as they would normally be. We will
take questions from all Members of the Committee in a moment;
we will endeavour to follow a logical order, but the questions,
successive questions, may come from different corners of the room.
We would, of course, wholly understand if at any stage you wanted
to gloss any answer, either subsequent to having given it or,
indeed, subsequent to the session, at all, if there was something
you wanted to add or something you wanted to correct in evidence
you had given, and I hope you, in return, would allow us the freedom
to follow up with any questions in writing that, in the aftermath,
we decided we should have asked but had not asked. Is there anything
you would like to say, beyond the paper you have sent us, before
we start embarking on questions?
(Dr Gorecki) Chairman, I would like to
say that we are pleased to be here, to assist the Committee in
its deliberations on the issue of inward investment policy in
Northern Ireland; and just to say that my name is Paul Gorecki.
I am Director of the Northern Ireland Economic Council, and Aidan
Gough is Senior Economist with the Council. We are more than pleased
to not only answer questions but any follow-up enquiries you may
wish to raise with us.
Chairman: Thank you.
Mr McCabe
54. The Council published a Report in November
1992, for which I cannot quite work out the numbering order, but
it is, strangely enough, called Report No.99; and in that Report
the Council called for an extensive review of inward investment
policy, preferably by a person or organisation from outside Northern
Ireland. I wonder if you could tell me, did the Government act
on this recommendation?
(Dr Gorecki) The Council, you are quite correct, in
its Report of November 1992, argued strongly that there should
be an independent inquiry into inward investment in Northern Ireland,
partly because we felt that the review of industrial policy, which
was being conducted at that time, was largely directed at indigenous
investment and, to a large degree, excluded inward investment.
The Government declined to institute such an inquiry.
55. Thanks; and there was not any inquiry. Can
I ask, what assessment has the Council made of developments in
inward investment policy over the period, the seven years, since
that Report was published?
(Dr Gorecki) We have issued a number of reports which
have touched in various ways upon inward investment policy; there
are two that are perhaps worth mentioning. The first one was an
examination of the degree to which industrial policy had been
implemented in the 1990s; in Northern Ireland there was something
called "Competing in the 1990s" which was released in
1990, and that set the course for industrial policy within Northern
Ireland, and we examined the degree to which that had been implemented
over that period and we published a report late last year. We
looked at inward investment as part of that, the degree to which
that had become more important or less important, the degree to
which grant rates had declined or not declined; so it was in that
context we got to do it, and some of the major results from that
report are included in the memorandum. The other instance in which
we have looked at inward investment is in a study on regional
linkages, the degree to which inward investment had linkages to
the local economy, because we felt that was an important way in
which the benefits of inward investment could be captured by the
wider society within Northern Ireland, in terms of better jobs,
better technology. In that report we found there had been a decline
in the degree to which inward investment was linked to local firms,
from, I think it was, 26 to 20 per cent, over the period 1986
to 1998, in terms of their purchases and the inputs; and we made
a series of recommendations about how those linkages could be
built upon and strengthened so that there was a bigger return
for Northern Ireland for each pound of inward investment it was
able to secure.
(Mr Gough) Perhaps two other reports, which did not
deal specifically with inward investment but touched upon the
topic, because they were looking at regional development. They
are two commissioned reports; one looked at successful regions
and the lessons for Northern Ireland, and the other was a report
commissioned from John Dunning and others, in the Economists Advisory
Group, which looked at competitiveness issues in Northern Ireland.
Both of those reports referred to inward investment and its important
contribution to regional development particularly for a small
peripheral economy like Northern Ireland.
56. If I were to ask you to summarise, fairly
briefly, the objectives of inward investment policy, as far as
the Council are concerned, how would you summarise the objectives,
what do you think the objectives of inward investment policy should
be?
(Dr Gorecki) The Council takes the view that inward
investment policy should be there to assist the realisation of
the major goals of industrial policy in Northern Ireland, which
is to raise competitiveness, which in turn means raising productivity,
the amount of output you get from a given unit of input, and the
more you can raise productivity the higher wages you can pay and
other aspects of the economy can be improved. So that means that
inward investment in that sense can therefore lead to new products
being introduced, new processes, new management techniques, from
the firms that come in, it can be diffused throughout the economy
in their purchasing policies, they can upgrade the capabilities
of the local firms within the Northern Ireland economy, they can
also train workers, introduce the latest management techniques,
and so on. So those are broadly the sorts of ways in which inward
investment can complement and assist in achieving higher growth,
higher productivity, for the local economy. Because Northern Ireland
has only 1.5 million people and clearly it is going to have to
draw on the expertise of the rest of the world in terms of many
of these characteristics of successful firms, and by bringing
them into the economy they can diffuse that knowledge to the local
economy.
57. Thank you. If you had been asked to make
some kind of choice, and I appreciate it is not as straightforward
as this, but if you had been asked to make some kind of choice
between the goals of simply creating jobs, creating employment,
on the one hand, and, on the other hand, using inward investment
to stimulate and develop indigenous industries, where would you
see the priorities lying?
(Dr Gorecki) I think, partly it will depend upon the
state of the economy at the particular time you are talking about;
if you are talking about the Northern Ireland economy for much
of the seventies and eighties, when unemployment rates were very
high, substantially higher than any other region of the UK, maybe
50, 60 per cent higher than the UK average, then, clearly, getting
jobs would be a very important priority. If you are talking about
the current situation, in the year 2000, where unemployment rates
now, relative to the rest of the UK, are lower, where Northern
Ireland no longer has the highest level of unemployment of any
UK region, in fact, I think the North East has a higher level
of unemployment, then I think the priorities begin to shift. And
if we have peace and political stability, where not so much public
finance has to go into attracting inward investment and the premium,
because of political violence, is less, I think, you can start
to change the emphasis more towards trying to enhance the indigenous
aspect of inward investment, trying to get those sorts of spin-offs.
So I think it depends on the sort of macroeconomic situation of
the local economy.
(Mr Gough) I do not think that the two policy goals
are necessarily mutually exclusive, in that improving regional
competitiveness will generate jobs as well.
58. Absolutely, I accept that. I do not want
to put words in your mouth, but would I be right to assume that,
if we were looking at the current situation, you would put quite
a high emphasis on developing and stimulating local or indigenous
industries, that would be quite a high priority, because you would
see the basic case for immediate job creation as being quite as
critical as it would have been in the seventies?
(Dr Gorecki) I think the balance has changed, yes.
Mr Barnes
59. I will ask a general question, to start
with. How effective do you feel that inward investment into Northern
Ireland is; what is the Council's assessment?
(Dr Gorecki) We have presented a number of tables
in our memorandum, and I think that if you look at the period
of the 1990s, and if you look at the flow of inward investment
that was coming over at that period, then Northern Ireland, I
think, ranks about fifth in the UK regions and, against the background
of political violence, you might regard that as not a bad performance.
But, to some degree, those numbers may be misleading, to the extent
to which it refers to all inward investment, both new inward investment
but also expansions of existing firms that are here. And Northern
Ireland's stock of inward investment is much more biased than
other parts of the UK towards investment in textiles and clothing
and the food-processing industry, I think, during the 1990s, maybe
40 per cent of all inward investment was in those industries,
and these tend not to be fast growing industries, and so you would
expect that Northern Ireland's share of all inward investment,
therefore, would be perhaps a bit lower because of that. So an
alternative way of trying to remove that particular bias is just
to look at new greenfield inward investment, in other words, firms
that are coming in for the first time. When you look at that and
you look at some of the numbers that are presented there then
the local economy does seem to be doing quite well, in terms of
inward investment, both on a European scale and, if you looked
at the whole of the British Isles then, I think there is a table
where it shows Northern Ireland got 8 per cent of all projects
in 1998. But all we are looking at here is just those numbers,
we are not coming to a judgement about the effectiveness of policy;
there, you would have to start looking at other sorts of variables
before you could come to a conclusion about that, we are just
looking at the total inward flow of investment.
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