The global economy is entering into an era of instability and uncertainty and our economic policies (both North and South) are going to have to adjust if our economies and societies are to flourish in this new reality.
There are many positive aspects to economic performance on the Island of Ireland. The Republic ranked 11th out of 193 countries in the United Nations Human Development Index (HDI) in 2023 (flattered somewhat by the measure of output used) while the UK ranked 13th. Perhaps significantly the strong developmental welfare states of Iceland, Norway, Switzerland, Denmark, Germany and Sweden rounded out the top 6 countries. The UK has very strong elite universities while the Republic has a very high level of university graduation. Life expectancy at birth is over 81 years in both jurisdictions. The Republic ranked 4th in the IMD World Competitiveness rankings in 2024 and the UK 28th. The Global Peace Index ranks the Republic 2nd globally for safety and quality of life and the UK 34th. Trust in public institutions exceeds the OECD average in the Republic although the UK is below the average. Both economies have been operating at close to full employment in recent years. In these and many other ways the economies and institutions on the Island are relatively successful compared to that of most other countries around the world.
Even so, both economies on the Island contain significant weakness which global economic turbulence and the evolving megatrends (rapidly ageing populations, climate catastrophe, de-globalisation and geopolitical rupture, and of course technological disruption including AI) will ultimately expose. These enormous challenges come on top of a number of immediate problems and challenges. The Republic and the UK have skewed two-tier economies. High living costs, especially in the South, sit beside under-resourced public services in both jurisdictions. The UK has seen its productivity levels stagnate in recent decades. The Southern Irish economy, in particular, has repeatedly exhibited boom bust tendencies, although the UK, and by extension Northern Ireland, are not immune to unwise macro-policies as the Truss premiership’s swift collapse and denouement showed. There is a swathe of festering policy failures in areas as diverse as homelessness and housing, infrastructure delivery, and environmental degradation, while the longer-term fiscal sustainability problems in both jurisdictions have yet to be adequately addressed. We need a new economic model in both jurisdictions. With this backdrop our latest NERI Working Paper (No.76) sketches out what a framework or ‘New Economic Model’ (NEM) for inclusive and environmentally sustainable economic progress on the Island of Ireland in the 21st century might potentially look like.
Specifically, we articulate an economic model based on four interconnected ‘pillars’ or goals defined as:
(A) The productive economy: This is about the pursuit of inclusive and environmentally sustainable growth. It emphasises the importance of knowledge, new ideas and their diffusion, education and skills, and investments in productive infrastructure, and in research and development (R&D). It also encompasses new institutional practices such as horizontal innovation through the democratisation of workplace relationships and promoting best enterprise practice, as well as business and organisational models that don’t simply displace environmental or care costs elsewhere in the economy. The ‘good company’ should become the norm.
(B) More and Better Jobs: This is about the pursuit of full employment with decent jobs for all. It emphasises policies that protect the labour market from volatile swings, and that increase both the quality and quantity of labour supply and demand. It encompasses the promotion of quality employment and increased participation, and the phasing out of low-road workplace practices. The ‘good company’ based on being a good place to work should become the norm.
(C) Economic and Social Security: This is about the pursuit of economic security throughout people’s lives, reducing inequality, and abolishing poverty and deprivation. It emphasises the importance of decent wages, a proper social safety set based on social insurance, an adequate welfare system, and the provision of universal basic services. Such policies support the ‘high road’ model of growth beyond the limits of the employing organisation.
(D) Economic Resilience: This is about the simultaneous pursuit of economic dynamism alongside fiscal, price and climate stability. It emphasises the importance of providing suitable macro conditions to facilitate an ‘anti-fragile’ economic system based on economic dynamism, long-term gains in sustainable and green growth, and a foundation of resilience from foreseen challenges and unforeseen shocks. Such shocks have historically had regular negative effects on workers, households and firms. Proper policy design and system resilience is critical to defending the high road model of growth, employment and well-being.
The working paper reflects on the type of policy suite that, in aggregate, could simultaneously achieve all four goals. The paper begins by exploring the major challenges or megatrends facing the modern advanced economies. It then turns to a description of the four pillars and attendant recommendations about the needed direction of policy.
In essence, we are arguing that policymakers need to replace the Island of Ireland’s current ‘low-road’ models of domestic economic development, based as it is on a particular form of competitiveness through cost reduction, low pay and precariousness. We instead argue that policymakers should aim for a ‘high-road’ model of development based on highly productive well-paid jobs in ‘good companies’ embedded within top quality social supports and a robust economic and fiscal structure. Such a strategy requires a rethink and evolution of our existing enterprise strategy and the nature of economic supports provided.
Over the coming weeks, months and years we will outline different aspects of the NEM and show how the different components complement and reinforce each other. Economic progress will require many tough choices and decisions, not least in the area of fiscal policy. Next week we will begin a series of blogs on Budget 2026 and on other policy developments in the Republic and discuss how policymakers can begin to push the economy towards a high-road’ model of development.*
*Hint: It isn’t through regressive tax breaks for low value added sectors.