Economics: Back in 1998, the Government faced a problem as it prepared to enter negotiations for the next round of EU Structural Funds. Ireland had done so well in economic terms over the previous decade or so that, taken as a whole, it no longer qualified for the "Objective 1" status on which maximum financial assistance from the EU was predicated.
In the event, it was decided to divide the country into two regions: one comprising the Border, midlands and western counties and the other the southern and eastern (S&E) counties. The former, since known by its somewhat ironic acronym, BMW, successfully retained "Objective 1" status under the current round of EU funding.
I was reminded of this episode last week, when the CSO published its latest estimates of county incomes and regional Gross Domestic Product (GDP). This data tells an interesting story, but must be interpreted with great care. First impressions are that the gap between the BMW and S&E regions continues to widen. In 1995, the level of GDP per person in the BMW region was 75 per cent of the State average; by 1999, it had fallen to 72.4 per cent; and by 2002 (the latest year for which estimates are available), it had declined further to just over 69 per cent. Meanwhile, GDP per person in the S&E region increased from 109 per cent of the State average in 1995 to 110 per cent in 1999 and 111 per cent in 2002.
The more disaggregated data shows that each of the three subregions within the BMW area has experienced a relative decline in GDP per person since 1995. Surprisingly, the same is true of three of the five subregions that make up the S&E area: Dublin, the mid-east and the mid-west. (It is true, of course, that Dublin is well-ahead of the State average, at 29 per cent ahead in 2002, but it was almost 31 per cent ahead in 1995.) On the other hand, the southeast has experienced a relative increase: from 85 per cent to 89 per cent of the State average between 1995 and 2002. But this is as nothing compared with the southwest, which has seen its GDP per person shoot up from 105 per cent to 131 per cent of the national average over the same period.
Why has the southwest seemingly done so well? The reason has to do with the fact that it is host to a big concentration of multinational pharmaceutical companies, the value of whose output has risen at an extraordinarily rapid rate since the mid-1990s. I'm thinking especially of Pfizer and Viagra. However, a high proportion of this output value does not accrue to people in the southwest, or indeed to people resident in Ireland at all, but as profits and other remittances to foreigners - the shareholders in Pfizer prominent among them. It is for this sort of reason that GDP per person can be a poor barometer of living standards. This is true of Ireland as a whole, but even more the case with its regions.
A much more reliable measure of living standards is provided by disposable income per person. Such estimates also put the S&E region ahead of the BMW region - but by a considerably smaller margin. They also suggest, in contrast to the GDP data, that the gap between the two regions has not widened since 1995. It is estimated that in 2002, the BMW region enjoyed a level of disposable income per person equivalent to 92 per cent of the State average (S&E region: 103 per cent), almost precisely the same as its ratio of seven years earlier. At a subregional level, there's not much by way of significant change to report over the period. The spread between the poorest and richest subregions in 2002 (from 90 per cent to 109 per cent of the national average) is almost identical to the spread in 1995. It is important to realise that these figures make no allowance for regional differences in costs of living; it is likely that, if they did, the gaps between poorest and richest would be narrower still.
Among the reasons for the relatively narrow dispersion of the disposable income figures is the effect of taxes and transfers: the dispersion of direct income is somewhat greater.
Effectively, what the tax-transfer system does from a regional point of view is reduce the disposable incomes of people living in Dublin and the mid-east and boost the disposable income of people living in all other areas. This is because, uniquely amongst the subregions, people living in Dublin and the mid-east pay more in taxes than they receive in State-transfer payments.
While disposable income provides a more reliable barometer of living standards than GDP, it has its own deficiencies as a measure of economic dynamism. For example, disposable income may be propped up by subsidies to economic activities that would not otherwise be sustained, or by transfer payments that are predicated on economic dependency of one kind or another.
It is useful, therefore, to look at how the regions have performed in terms of employment and unemployment. Here, the BMW region decisively outscores the S&E area. Between 1998 and 2004, employment in the former rose at an annual average rate of 4.6 per cent, while the unemployment rate fell by almost 4 per cent. This compares with employment growth of 3.1 per cent and a fall in unemployment of 2.9 per cent in the S&E region over the same period. The subregion that experienced the lowest rate of employment growth over this period - by a considerable distance - was Dublin.
The notion that there is a yawning and widening gap between living standards in the BMW region and the rest of the country is not supported by the available data. Au contraire, the gap, as measured by nominal disposable income differentials, is modest and may actually have narrowed in recent years in inflation-adjusted terms. Moreover, comparing employment growth in the two regions suggests that the BMW area has been the more dynamic since the late 1990s. Whether all of this reflects a successful regional policy or a pattern that would have emerged in the absence of such Government intervention is an open question.
Jim O'Leary currently lectures in economics at NUI-Maynooth. He can be contacted at jim.oleary@nuim.ie
