When is “an independent study” on Irish unification not independent?

When it has been commissioned, under cover, by Friends of Sinn Féin USA, perhaps…

Sinn Féin were quick to welcome the recent announcement of the “first-ever economic modeling [of the] economic benefits Of Irish unification” at the Harvard Club in Manhattan.  Twice, in fact.  An Phoblacht were too.

The press release from Sinn Féin MEP, Matt Carthy, “party spokesperson on the campaign for Irish Unity”, welcomed the “independent study which shows that Irish Unity would be economically beneficial for both jurisdictions on the island.”

The statement from his party colleague, Peadar Tóibín TD, claimed that the study “stated that the political and economic reunification of Ireland would lead to significant growth north and south and create up to €35.6bn of GDP growth in 8 years.”

Well, perhaps…  The Irish Times’ Francess McDonnell had a more sober look at the press release.

I’m not an economist, so I’ll leave the technical aspects of the modelling to someone more qualified in that field. [Above your pay grade? – Ed] Indeed.

What I will note is that, after collating their raw data, the study [17Mb pdf file], available via KLC consultants, makes five economically beneficial assumptions for the envisaged Irish unity.

1. Harmonization of the tax systems across the Island, with the North adopting the tax rates and regulations of the south. This harmonization of taxes would involve both changes in adoption of activity taxes as well as taxes on imports, commodities, and institutional taxes. These changes would likely foster greater FDI in the north and contribute to economic growth.
2. Diminished trade barriers and greater access of Northern Irish firms to the common market. The modeling in the KLC report assumes that unification would lower trade costs associated with transport and currency transaction between Northern Ireland, the ROI, and other Eurozone countries. This reduction in transactions costs is projected to increase per-capita income.
3. Adoption of the Euro in the North. Given the current strength of the pound against the euro, adoption of the Euro in the North would provide a short run boost to economic output associated with an improvement in Northern Ireland’s terms of trade.
4. Productivity Improvements. Currently there is a sizable productivity differential between Northern Ireland and the ROI. This differential is driven in part by differences in the industrial structure of the two economies, which in turn, is partly caused by the different political and economic institutions. Convergence of productivity levels in the North to those of the ROI would directly the impact of the output in the North and indirectly impact output and incomes in the ROI through higher trade volume.
5. Fiscal Transfers. Northern Ireland currently and historically runs a fiscal deficit that is financed by inter-governmental transfers from the UK. Unification would require that this deficit be financed and assumed by the ROI. However, unification would also eliminate the need for two parallel governmental structures in many domains and likely result in public spending in the north that diminishes over time. In the short run, reductions in public spending may reduce output and per-capita output to the extent that labor and capital once employed in the public sector are not reallocated towards other uses. In the longer running, public sector savings may be reinvested in the private economy or in public projects that enhance the long-term productivity of the country.

The model was then run through three increasingly optimistic scenarios.

The first scenario is the most conservative, indeed almost implausibly so. The unified Ireland finances the entire NI budget deficit; the harmonization of government functions reduces NI public expenditure by 2 percent; and NI’s adoption of the ROI tax system has no impact on attracting FDI or boosting productivity.
In the second scenario, ROI finances the NI fiscal deficit; NI reduces public expenditure by 2 percent. However in this scenario, the adoption the ROI tax system and approach to FDI catalyzes FDI inflows that drive a convergence of NI productivity to the level of ROI over a 15 year period.
The third scenario embodies the assumptions of the second scenario with the added twist that government savings are reinvested in the form of public investment.

Given those constraints perhaps the most surprising thing about the study is that the forecasted growth is not more significant.

As shown in figure 18 of the report, under scenario 1, there is an immediate boost to NI growth that peters out over the course of the simulation. Even though it converges back to its long-run path, NI is clearly better off due to the boost to growth in the intermediate years.
In scenario 2, the intermediate scenario, enhanced FDI inflows means that rather than petering out, unification amounts to a permanent upward shift in NI’s growth path as illustrated in figure 20.
Finally, in scenario 3 which envisions additional public investment, NI’s growth path is not only permanently higher, but diverges in an ever widening course from the no unification base case trajectory (figure 22).
In all three scenarios, ROI benefits to a varying degree, though as expected the impact of unification is not nearly as profound.

Interestingly, the bulk of the forecasted growth comes from the effective devaluation of the (northern) currency via the adoption of the euro.  [And damn the torpedoes trilemma! – Ed].  It does claim to be an economic study and not a political one.

Additionally some of the assumptions don’t require unification to be achieved.  The DUP and Sinn Fein recently agreed, Fresh Start, to lower the rate of Corporation Tax in Northern Ireland to match the Republic’s 12.5%.  Although they might not have told everyone…

“As for corporation tax, we won’t be signing up to any cut unless we afford it and we won’t be able to afford it any time soon comrades.” [Sinn Féin Belfast City Council group leader Cllr Jim McVeigh]

To be fair to the authors of the study they appear to be aware of the limitations of their approach.

“Our modeling exercise points to strong positive unification effects driven by successful currency devaluation and a policy dependent industrial turn-around,” said Dr. Hubner. “While these effects occur in a static global economic environment, under ideal political conditions, they underline the potential of political and economic unification when it is supported by smart economic policy.”

[Adopting the Republic’s current low-taxation austerity model? – Ed]  Perhaps…   Whether certain economic consultants [and contributor to the study? – Ed] are as aware is one of those known unknowns.

Other economists may differ on their handling of “an endogenously determined 2009 fiscal transfer from GB
of 4.9 billion GBP.”

Fiscal Transfer
Fiscal transfer into NI, which covers the short-fall between government revenue and expenditure, is modeled as a revenue source and doesn’t impact government gross-fixed capital expenditure. The quantity of fiscal transfer, however, is affected by changes in both government expenditure and revenue imposed by other counterfactual components. In other words, changes in NI’s income tax revenue will change the amount of the fiscal transfer, as will changes in government consumption.
We found that changing the origin of the fiscal transfer had no effect on output or trade valuations, but did affect the quantity of net foreign capital, and thus at least the regional distribution of the current account balance. For this reason, all scenarios and components in the model are run under the assumption that the ROI funds entirely the fiscal transfer to NI, paid by GB prior to 2018. Again, given model architecture, this changes the ROI’s deficit but not the ROI’s investment level, the extra funding required to fund investment is sourced from the net foreign borrowings. For future exercises that can allow detailed analysis of the current account balance, NIROI is coded with alternative incidences in fiscal transfer. These include: 1) a scenario that assumes a 50% split between GB and Brussels (REUZ) in the incidence of fiscal transfer, followed by a 5% annual increase in the funds paid from Brussels and a commensurate decrease in funds paid by GB; 2) a 50% split of the transfer, in the policy year, between ROI and Brussels, with annual increase of 5% in funds by the ROI and a commensurate decrease in funds paid by Brussels.

Of course, as any fule noe, economics, and economic predictions in particular, is an art, not a science.

 

Given Sinn Féin’s promotion of the independence of the study, I was intrigued to know who had commissioned it.

The press release tells us that

The study was commissioned by K.R.B., a San Francisco Bay area–based non-profit social welfare organization that promotes social welfare and conflict resolution through education.

When we get to the study itself, there is slightly more detail

Report commissioned by K.R.B.
A voluntary California Non Profit Social Welfare organization that is based in the San Francisco Bay area. It promotes friendship and peaceful resolutions to conflict. We would hope that this particular project will come to the attention of those that are involved politically and /or economically in Ireland. Conflict resolution leads to a more stable form of government which, in turn, leads to a more productive workforce and economy which leads to better returns on investments. Our organization believes that in today’s world, if people are made aware of an alternative to the current situation, and that that alternative can bring a better quality of life then this may lead to a change in thinking of age old beliefs and prejudices. We believe that through totally independent studies such as this and by educating people and those of influence within governments on how their everyday lives may improve with change, that they may become more prone to cooperate and understand their adversaries point of view.

So who are K.R.B –  the voluntary educational “non-profit social welfare organization”?

The study’s list of references reveals

Knights of the Red Branch Inc. (K.R.B.)

And this is where it starts to get interesting.

Because this isn’t the mythical Red Branch, nor is it the 19th/20th Century Irish Catholic fraternal organisation.

This Knights of the Red  Branch, Inc. appears to have been established in June 2010 – at the fag-end of Gerry Adams’ World Tour for Irish Unity [including New York City and San Francisco], and around the time that economic consultant, and ex-CitiBanker, Michael Burke, was telling ‘Unity’ audiences that the economic case for reunification and independence was stronger than ever.

According to an on-line listing for Knights of the Red  Branch, Inc. the registered agent for the organisation is Ciaran Scally and the business address is in Oakland, California.

Ciaran Scally made the news in 1999, when he convinced Oakland City Council to name a previously un-named “50-yard stretch of roadway” [going nowhere? – Ed] “Gerry Adams Way”.  The SF Gate report tells us that Ciaran Scally “emigrated here from Northern Ireland 15 years ago” [1984].  According to the report

Scally, an electrician by trade, also felt as if he has some say because he is developing a plot of land just across the street that would be named for Adams.

The Sinn Féin president visited Oakland in 2002 for an unveiling of the street sign.

Ciaran Scally is listed on CorporationWiki as being associated with two companies, according to public records – Scally Electric Inc. and Rathlin Properties LLC.

It’s Ciaran Scally’s property development business, Rathlin Properties LLC, that shares the same business address as the Knights of the Red Branch, Inc.

Ciaran Scally, of Scally Electric Inc, Piedmont California, appears in the list of donors to Friends of Sinn Féin that the Irish Times compiled [xlsx file].  Between 1997 and 2011 over $14,000 was donated in his name.  Included in that is around $7000 in various amounts in just one month, April 2003.

It won’t be a surprise to learn that in December 2008 Sinn Féin’s Representative in the USA, Rita O’Hare, was quoting the San Francisco “head of FOSF [Friends of Sinn Féin] support group, Ciaran Scally”, in An Phoblacht – “Sinn Féin’s Friends in America“.

In the aftermath of Gerry’s World Tour for Irish Unity in 2009, and the setting up of the Knights of the Red Branch Inc. in 2010, Ciaran Scally appears in the Irish American Unity Conference National Newsletter for the summer of 2011 [pdf file].

In that newsletter Ciaran Scally is reported speaking at the April 24, 2011 San Francisco Easter Rising Commemoration, where the then Sinn Féin MEP Bairbre De Brún also addressed the audience.   He’s also pictured in July, 2011, along with other members of the “Campaign for a United Ireland”, with Senator Leland Yee at the San Francisco Mayoral Debate “to thank him for authoring and steering a resolution through the California State Senate calling for the re-unification of Ireland.”

His name also appears in the 2013 Ancient Order of Hibernians request for help in the US Campaign for a United Ireland.  Under Section “II Strategy” “some general principles” is noted

• Targets:  Limitless.  Obviously target legislative units from the largest to the most local, but also organizations like political parties, colleges, churches, clubs, labor unions, editorial boards and charities.  Also target individuals like political, religious, and educational leaders and notable actors, writers and people in the news.   Have a local meeting to brainstorm ideas.  You may be surprised who knows whom or who is connected to what organizations.  Ciaran Scally, of the United Ireland campaign on the west coast, put together a sample letter that can be sent by an individual or group to a target person or group.  Use it as a general guide of you wish, but follow up with a call and set up a meeting [see sect III]. [added emphasis]

More interestingly, perhaps, is the detail in Friends of Sinn Féin’s official declarations to the US Department of Justice under the Foreign Agents Registration Act.

In the submission for 2011, the itinerary for Sean Crowe, then recently elected TD, during his September visit to San Francisco notes [pdf file, scroll down]

Staying at the home of Ciaran Scally

The submission for 2013 contains two references of note.  Among the itineraries at the end of the document is a reference to a Sinn Féin representative, it isn’t entirely clear who, flying from San Diego to San Francisco on 30th March to be “Met by Ciaran Scally”.

Perhaps most significant of all, the other reference of note doesn’t directly mention Ciaran Scally.

In the itinerary for Des Mackin, Sinn Féin Director of Finance, a meeting is noted for Saturday 2nd March 2013.

Met with Board of Knights of the Red Branch
At Hilton San Francisco 333 O’Farrel St.

I’m sure it was money well spent…