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Executive faces same challenges that the government was confronted with in 1945 after six years of brutal conflict

Published 12/05/2015

Esmond Birnie, chief economist PwC
Esmond Birnie, chief economist PwC

Victory in Europe, or VE Day - May 8, 1945 - is often regarded as the end of the Second World War even though fighting in the Pacific continued for a further five months. The 1939-45 war had been the most destructive in human history with about 60 million lives lost, with the financial cost to the USA estimated at $4,100bn and the cost to the UK about one-third of that.

While Northern Ireland also suffered a terrible human cost in terms of lives lost in the armed forces and the Belfast Blitz of April 1941, the impact on the Northern Ireland economy had in many ways been positive.

In the first major study of the post-war Northern Ireland economy, Professors Isles and Cuthbert of Queen's University noted that between 1938 and 1945 the level of income per head of the population in Northern Ireland had actually increased from 55% of the UK average to 67%.

Although there continues to be dispute to this day about just how efficient the Northern Ireland economy really was during the war, some of the statistics are striking.

Northern Ireland's agricultural acreage doubled during the Second World War and 25,000 gallons of milk were being exported daily to Great Britain. Two hundred million square yards of cloth were produced for uniforms and other military use. Of particular note were two million flax-fabric parachutes. Alongside this, the shipyards, which reached a peak employment of 36,000 people, launched 140 warships and 123 merchant vessels and also made 500 Churchill tanks. Short and Harlands (now Bombardier) built 1,200 Stirling bombers and 125 Sunderland flying boats.

If that was a snapshot of the Northern Ireland economy during the War, how does life today - 70 years later - compare to VE Day? One very obvious answer is that there are a lot more people living today in Northern Ireland and the UK, and they are on average a lot richer. Since the end of the war, the population in both the UK and Northern Ireland has increased by about one-third. Income, or GDP, per head of the population has increased more than one-hundred fold in cash terms. Such a cash or nominal comparison is misleading given the pace of post-war inflation.

Consumer prices in 2015 stand at about 30 times the level in 1945. By implication, the real level of GDP per head in the UK grew by about four-and-a-half-fold since 1945 with the pace of growth in Northern Ireland being a bit faster given there was some, albeit limited, convergence between Northern Ireland's GDP per head and the UK average level when the 2010s are compared to 1945.

We might tend to think of the period since 2010 as being characterised by both high government borrowing and austerity.

The statistics for 1945 put some of those perceptions into perspective.

At the end of the war the level of government debt in the UK was about 250% of GDP and government spending was equivalent to about 60% of GDP and the budget deficit was about 18% of GDP. By the early 2000s the Government was still paying off its wartime debts to the USA. Of course the Northern Ireland economy of 2015 looks very different from its predecessor of 70 years earlier. We have entire sectors which would have been unknown in 1945 such as pharma and life sciences, ICT and business services. On the other hand, shipbuilding, textiles and clothing, which together employed 108,000 people in 1948, have practically disappeared.

On May 8, 1945, the Stormont Government faced the triple challenges of sustaining its fiscal position relative to the UK government, narrowing the productivity and living standards gap relative to the rest of the UK and reducing severe poverty and social distress. To a great extent, the Stormont Executive of 2015 faces the very same challenges.

Belfast Telegraph

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