Is there any role for regional policy in a regional economy? There are obvious political motivations for earmarking transfers to place. Economic justification, however, turns on the contribution of such policy to national productivity and personal redistribution. Judged on this basis the case for regional policy is very weak.
The 19th century Archbishop of Dublin, Whately, explained the determination of value with the observation that "pearls do not fetch a high price because men dive to great depths to retrieve them, rather men dive for pearls because they fetch a high price". Regional productivity divergence within the Republic can be explained in a similar way. Productivity is high in certain areas not because of the firms that have located there. Firms locate in such regions because they can achieve higher productivity there.
Many regional lobbyists believe that the Government should dictate where firms locate. This is particularly the case in respect of IDA-backed multinational enterprise. Research by ourselves and others suggests that this is a misleading perspective. Location, aside from the grantaid achieved by coming here, may have been irrelevant to the 1970s-type multinational investment.
Today, however, location - in particular the advantages it may confer through availability of skilled labour force and the opportunity to exploit economies associated with agglomeration - is a key deciding factor in the decision to operate from the Republic. There is quite a divergence across regions in the Republic in respect of personal income before tax transfers. The tax benefit system - which is neutral with respect to location - corrects for a lot of this inequality. The regional inequality that persists reflects underling personal inequality. Therefore, more efforts to redistribute between people irrespective of where they live is likely to reduce regional inequality.
National product can achieve its potential by facilitating the growth of enterprise in areas of high productivity. This facilitation involves enabling the exploitation of scale economies due to agglomeration, while adopting measures to reduce the congestion associated with urban living.
In the Republic's regional economy the greater Dublin area is the only centre capable of achieving the critical mass to be one of the European economy's - that is, the economy of which we are a region - leading urban areas. At present this potential is threatened by the failure to deal with congestion.
What is needed is a public transport spine that enables people to live apart from their work. At the core of this spine must be a dedicated network that can only be provided by high-speed trains. There is no reason why commuting to work in Dublin from Navan or even Portlaoise should be the ordeal it is at present. In essence our problem is that we have a US transport model for a European city. The inconsistencies have been overcome up to now because of spare road capacity. This breathing space has now been exhausted. The gridlock of recent years will be mild compared to what is coming. The outcome is that the exploitation of Dublin's productivity advantage will not be feasible.
Does this mean that we will be able to re-route business to the regions? No. Enterprise will migrate to other cities with potential akin to that of Dublin. To avoid this a massive programme of investment is required to create a public transport network around the city.
The primary policy objectives of achieving potential national product while attending to personal redistribution do not offer up a case for regional policy in a regional economy. This regional economy has only one internationally viable city. In a post-agricultural society, this city - and in particular the ability to exploit the advantages associated with it - is central to national wealth creation.
Transfers to remote regions cannot be primary policy objectives in that they are not part of wealth creation or personal redistribution. They should be seen for what they are - special interest group pleading. In this case the ones that would gain would be property owners in such areas. The less well-off would gain far more from region-neutral transfers through the tax and benefit system.
The US economist Paul Krugman, in response to a question from one of the authors, dismissed the idea of regional policy for a regional economy. This is a view that we would strongly endorse. While we were both raised outside the Pale - and can still appreciate and see the need to preserve the special character of our home places - we recognise that economic policy is not about sentiment. Moreover we recognise that despite the obvious integrity of campaigners, the ultimate beneficiaries of regional policy would be those adept at fumbling "in the greasy till".
Prof Gerry Boyle and Dr Tom McCarthy are attached to the Economics Department at NUI Maynooth
