MANCHlSTik UNl\'ERSln· Pl.lSS

L1 ruc;Ky ruuu

The Irish economy since the 1920s

Cormac 6 Grada

MANCHESTER UNIVERSITY PRESS

MANCHESTER AND NEW YORK

distributed exclusively in the USA by St. Martin's Prtss

Copyright Cl Connac 6 Gri.da 1997

Published by Manchester Untverslty Press Oxford Road, Manchester Ml 3 9NR.. UK and Room 400. 175 Plft:h Avenue. New York. NY 10010, USA

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BrJUsh Ubrary Catalogulng-ln-PubllcdUon Data A catalogue record for thls book is available from the Brl.tlsh Ubrary

Library of Congress Catalo9Jn9-ln-Publlcation Data 6 Gr&da, Connac

A rocky road: the Irish economy since the 1920s I Cormac 6 Gr&da.

p. cm. ISBN 0-7190-4583-5 (cloth) - ISBN 0-7190-4584-3 (pbk.) 1. lreland--Economic conditlons---1918-1949. 2. lre\and-Bconomlc

condltlons-1949-. 3. Ireland-Economic policy. I. Tltle. HC260.5.0436 1997 330.9415'082-<lc21 97-12986

ISBN 0 7190 4583 5•hardback ISBN 0 7190 4584 l•P"l"rback

Flnit published 1997

010099 98 97 10 9 8 7 6 5 4 3 2 l

Typeset by Carnegie Publishing. Preston Printed in Great Britain by Redwood Books. Trowbridge

Contents

Llst of illustrations vii

List of figures and tables ix List of abbreviations xiii Preface xv

Chronology Introduction Prom partition to the Emergency 4 Post-war recovery, 1945-50 21 Gloom and doom. 19 50-58 25 Ireland's 'golden age', 1960-79 29 More gloom and doom. 19 79-8 5 31 The only way is up? 1985-2000 32 Ireland in a comparative setting 34

2 Irish economic policy since the 19 20s 41 Introduction 41 Investment 42 Public expenditure 45 Protection amtfree trade 46 Money and prices 55 Fiscal policy 67 Economic planning 73 North and South 79

Poverty, employment and institutions 86 Poverty and inequality 86 Labour force and employment 94 Institutional constraints and rent-seeking 98

4 Industry and industrial policy 108 Import substitution 108 The shift to the multinationals 113

Contents

Some second thoughts 117

Winners and losers 128

Northern Ireland 130

The semi-state sector 1 lh

Agriculture 144

Before the Common Market 144

Farming in a Common Market 152

The farm lobby and Europe 158

6 The Service sector 167

Introduction 167 Tourism 172 Banking and ftnance 175 Transport. communications and peripherality 178 Electricity and telecommunications 184

Demographic trends 192 Introduction 192 Marriage and fertility 193 Mortality 205 Northern Ireland 209 Emigration 212 Fertility and human capital 220

Reprise 224

Select bibliography 235

Index 243

List of illustrations

O(f to the Front in the economic war. Dublin Opinion, July 1933

2 ·-and that's the cheque-book your rather fought with in the economic war!' Dublin Opinion. 19 34

'She's a whole-hearted supporter of Fianna Fail .. .' Dublin Opinion, August 1936

4 'Would you ask Mr Lemass if he'd mind tastin' this?'. Dublin Opinion. May 1941 10

Car park-1941. Dublin Opinion, February 1941 10

6 'All clear, john! The gas inspector's gone.' Dublin Opinion. June 1942 11

7 The turf drive. Dublin Opinion. July 1941 13

Out of our census. Dublin Opinion. July 19 5 6 26

9 'Ah, son, son, for Ireland's sake .. .' Dublin Opinion, May 1956 26

10 The lady's not for burning. Dublin Opinion, April 1950 61

11 'It's easy seein' there's a more cheerful air about them this year!' Dublin Opinion. January 1955 62

12 'Stop worrying. child.' Dublin Opinion, c. 1950 63

13 Mr Lemass opens a new factory. Dublin Opinion. October 1935 113

14 'There must be no government interference in business . Dublin Opinion, December 1940 114

15 Chrysler advertisement. Irish Industrial Yearbook. 1939 115

16 One-time prosperous grazier. Dublin Opinion. 1934 147

17 First Co. Meath Bullock. Dublin Opinion. 19 34 148

vii

List of illustrations

18 £500 an acre. Dublin Opinion, February 19 34 148

19 'If this is a Grade A hotel .. .' Dublin Opinion, September 1950 174

20 'I brought Siobhan as a last resort.' Dublin Opinion, October 19 54 18\

21 Modern industry. Irish Industrial Yearbook, 1930 180

22 Here's to a brighter future! Irish Industrial Yearbook, 19 51 187

23 St Valentine's Day and Leap Year. Dublin Opinion, February 1940 197

24 'Here it is then. gentlemen.' Dublin Opinion. December 1949 21 J

25 'I hope, Ellen, there's truth in the rumour .. .' Dublin Opinion, March 19 29 214

26 'Wisha, Michilin Pat .. .' Dublin Opinion, December 19 54 215

List of figures and tables

Figures

1.1 Electricity output. 19 3 3-50 12

1.2 Passenger traffic by rail. 19 34-50 14

1.3 Freight traffic by rail. 19 34-50 15

1.4 Trends in earnings. 1938-49 19

1.5 Trends in infant and TB mortality, 1936-49 20

1.6 Houses built and reconstructed under state-aided schemes. 1931-49 24

1.7 Ratio of lrish to British share prices. 1946-94 28

2.1 Balance of payments. 194 7-6 5 59

2.2 Capital flows. 194 7-6 5 60

4.1 Manufacturing"s share of GDP. 1952-93 123

4.2 Comparative growth in industrial production. 1958-92 124

5.1 Evolution of Southern farm size. 1931-63 153

5.2 Evolution of farm size in Connacht. 19 31-63 154

7.1 Percentage never married. Southern males at different ages. 1936-91 198

7.2 Percentage never married, Northern males at different ages. 1936-91 199

7.3 Percentage never married. Southern females at different ages. 1936-91 200

7.4 Percentage never married, Northern females at different ages. 19 36-91 201

7.5 Net emigration rates since the 19 20s 219

List ortlgures and tables

Tables

1.1 The public sector In Ireland and in Europe l2

1.2 Televisions and telephones per 1.000 population li

1.3 Ireland in the European convergence stakes lh

1.4 Irish net output per head as percentage of UK levels. 1935-90 37

2.1 Gross investment rate 44

2.2 Government expenditure as a percentage of GDP. 19 50--8 8 4h

2.3 Import substitution in the 1930s 47

2.4 (X + M)/GDP in Ireland and in Europe, 19 50-88 47

2.5 Kennedy's trade ratio. 1929-91 48

2.6 Footwear imports and output in the 19 30s 52

2.7 Imports and exports as shares of gross output 53

2.8 Ratio of merchandise exports to GDP in EU economies 54

2.9 Assets of the associated banks. 1945-92 58

2.10 Plan and outcome. 19 79-81 70

2.11 The annual change in share values 76

2.12 Agricultural output in the two Irelands: sectoral shares 80

2.13 Output and trade. North and South, 196 3-71 81

3.1 Coefficient of variation of income per head across planning regions, 1960-84 87

3.2 Private cars per 1.000 population, 1939-91 88 3.3 Income distribution in Ireland, 19 3 8-4 3 89 3.4 Regional inequalily in Northern Ireland 92 3.5 The labour force and unemployment. 19 51-9 3 95 3.6 Irish unemployment in comparative perspective 97 3.7 Calmfors-Driffil indicators of economic performance 102 3.8 Workdays lost to Industrial disputes. 19 32-9 5 1()3 4.1 Employment in 1932-47 protected industries 'which

expanded considerably' since 1932 109

List of figures and tables

4.2 Inter-industry linkages 118

4.3 Output and employment in 'traditional' and 'modem' industry 121

4.4 The share of wages and salaries in value added in certain industries. 1984 and 1990 122

4.5 Revealed comparative advantage estimates for selected industries. 1969/71-1980/82 125

4.6 Non-manual employees as a percentage of all employees in selected industries: NI and the UK ( 19 8 3) and Ireland (1983 and 1990) 127

4.7 The output of the Belfast shipbuilding industry, I 906-84 132

4.8 Manufacturing productivity in Ireland, North and South I 35

4.9 Irish productivity in manufacturing relative to the United Kingdom. 1985-87 135

5.1 Meat and live animal exports, l 920s-1990s 15 I

5.2 Labour force requirements and farm size in the 1940s 155

5.3 Fann incomes in the 19 50s 161

6.1 Sectoral distribution of employment in Europe and Ireland. c. 19 30-90 168

6.2 Employment by sector in Ireland. 1946-86 168

6.3 Employment by sector. 1946-93 I 70

6.4 Employment in the tertiary sector, 1971-86 170

6.5 Public sector employment. 1970--9 3 171

7.1 Population North and South. I 841-1 996 193

7.2 Marital fertility in Western Europe, 1930--80 I 94

7.3 Number of children per 100 women by marriage duration. 1961-8 I 195

7.4 Age of mothers at maternity. 19 59-9 3 196

7.5 Legitimate births per 1.000 married women 202

7.6 Total births. and births within marriage, 1964-94 204

7.7 Infant mortality in Ireland and in the United Kingdom 205

List offigures and tables

7.8 Expectation of life in selected countries 208

7.9 Dependency rates in selected European countries 21()

7.10 Household structure, 1961 and 1991 211

7.11 Births per l,000 women aged 15-44 years 2211

7.12 Marital fertility and economic convergence 221

All tables, unless indicated otherwise, are derived from data in the Irish Statistical Abstract, published annually by the Central Statistics Office

AIB ATM AWU CAP CER CEPR cili CIO CSE cso EEC EFC EFTA EMS ERM ESB ESRI ESU EU EU9 EU12 FAS Fii GATT GDP GNP GPA GSR !BOA !CI I CMS A IDA

List of abbreviations

Allied Irish Banks Autnmated Teller Machine Annual \Vork Units Common Agricultural Policy Centre for Economic Research (UCD} Centre for Economic Policy Research (London) C6ras Iompair Eireann Committee on Industrial Organisation ComhJucht Sillicre fureann Central Statistics Oftlce European Economic Community Expansionary Fiscal Contraction European Free Trade Area European Monetary System Exchange Rate Mechanism Electricity Supply Board Economic and Social Research Institute Economic Standard Unit European Union European Union 9 European Union 12 Paras Aiseanna Saothair Federation of Irish Industries General Agreement on Tariffs and Trade Gross Domestic Product Gross National Product Guinness Peat Aviation Great Southern Railway Co. Irish Bank Officials Association Insurance Corporation of Ireland Irish Creamery Milk Suppliers Association Industrial Development Authority

xiii

IDB IEA lllPA lFSC ILO IPA ISMC ITGWU NAD NBER NESC NPA NIEC OECD PFSP PNR PRON! PSBR QUB RCA TD TCD TDB TFP TFR uco UCDA UK Us

UstofebbrC"\"'ll•'""

Industrial Dcve\optnenl Board lrlBh Econom.\cS Assoda\101\ Irish Family p\ann\ng Af;llOCla\i.on Irish \llnanc\al Set'V\ce& cenue lntematlona\ t.abor Qrpn\zat\on lnstltute ol" Pub\\c A.dm\n\s\rat\on Irish Sugar Manu(acturtng Company Irish Transport and Genera\ Wm~n ~\'\\tm National Arch\ves Du'o\\n National Bureau tor 'Oconom\.c \\esearcb. National Economic and Soc\a\ Counc.\\ National Farmers i\ssoc\at\cm. National lndustr\a\ and l!.conom\c Counc\\ Organization [or 'Economic ~a\\on a:m\ Ue~e\o"Qmen\ Programme lor 'E.conomic and Soc.\a\ ?to~C"Mt. Programme [or Nat\ona\ \\etOVet'! Public Record 01\\ce, Northern. \re\and Public Sector Borrow\D.'i. \l.t<\,ulrem.en\ Queens University lle\ias\ Revealed Comparative M.vanlaie Teachta Da\a \membet o\ \m.b. ~at\\alll.etl\) Trinity College. Dublin Turf Development p,o:U:~ Total Factor Product\\J\~

'l't" Rate Total Ferll I J uub\\n University co\\e~e. UCO Archi\les

11 • adoOI United ~1n1:1

teS United St3

Preface

It was the late Francis Brooke of Manchester University Press who persuaded me a few years ago to write a short introduction to the history of the Irish economy since the 1920s. This is the result. It is based in

large part on material tried out on undergraduate economics students at University College. Dublin over the past few years and it is aimed both at people like them and the interested general reader. While the main focus is on the Republic of Ireland. I have also included a good deal of material on the Northern Ireland economy. The discussion is non-technical and I have tried to keep the references to people and places clear. The bibliography contains only items accessible in book­shops or libraries. The more eager will troll through the notes for further references.

While most of the information comes from what I have culled from published sources. some is based on archival work. I am grateful to the custodians of the archives in question for allowing me to consult them. In particular. I am obliged to the Deputy Keeper. National Archives of Ireland. for permission to quote some material from the public record in his custody. I am very grateful to Bill Ambrose and Belenos Publica­tions for allowing me to use the cartoons from Dublin Opinion reproduced here. I also wish to thank the staff of the National Library of Ireland. the National Archives. and of the official publications section of UCD's library for their unfailing courtesy.

I am very grateful to Frank Barry. Kevin Denny. Joe Durkan. Tom Garvin. Moore MacDowell. Kevin O'Rourke and Brendan Walsh for loans of books. hints about sources. helpful comments on earlier drafts. and generally for being great colleagues. My thanks to an ever-obliging Gavan Conlon for drawing the diagrams. Nick Crafts also read through a drall: for me and offered some very useful feedback. I am also obliged to Mary Daly, David Dickson. Liam Kennedy. and Peter Solar for being good critics over the years. My thanks likewise to Sean Bar6id and Fionn 6 Grcida for their help. Go n-iiri leo.

Cormac 6 Grcida

Do Mhaire

1

Chronology

Introduction

Few Irish historians would deny that the Southern Irish economy per­formed poorly between the 1920s and the late 1950s. Indeed. output and incomes grew so little during those decades that for most people in Ireland the economic benefits or political independence must have re­mained far from obvious. Output on the farm hardly rose. Tariff protection. aimed at reviving lrish manufacturing, produced instead a stagnant, inefficient and largely inward-looking industrial sector. As a result, the South's total labour force was no bigger in the late 1950s than at the foundation of the state. During this period. almost one million young people left the country for good. and the living standards enjoyed by those who remained were not that much higher in the end than at the outset. True. some things. notably housing and public health. had improved: but stop-go fiscal policy, massive emigration and a sluggish private sector left Little room for economic optimism before the late 19 SOs. The performance of the Northern Ireland economy over these decades was much more impressive: during the 19 SOs. while the Southern economy slept. average real income in the North rose by well over a quarter. 1

There is less consensus about economic performance since the 19 SOs. Yet the ability of the Southern economy in the 1960s and 1970s to sustain a significant population increase for the first time since the Great Famine surely meant success of a kind. Besides. living standards took a decided turn upwards in those decades. From the 1960s on. for the first time since independence. the Republic gained on Northern lreland in terms of population, industrial output and employment. and Living standards. In the early 1960s the North had the edge over the South in terms of output per capita: by the mid-l 990s the advantage had passed to the South. Again, while in the South industrial employment was somewhat higher in the rnid-l 990s than it had been in the early 1960s, in Northern Ireland it fell back from 22 5.000 in 1960 to

A rocky road

154.000 in 1994. Admittedly. for Northern Ireland. faced with a dedin ing industrial sector dominated by linen. shipbuilding and cngineerin\\ and, since the late 1960s. the Troubles. these were difficult times. While new foreign-owned firms were a key factor in Lhe Republic's prugre~' in the North they failed to make good the job losses that followed the collapse of the region's traditional industrial base. and manufacturini giants such as Harland & Wolff and Short Brothers survived on!\ because of huge government handouts.

The global economic crisis of the 1970s was bound to have a seriou~ impact on a small open economy like Ireland. but most commentarie~ argue that the impact was exaggerated by misguided economic policy Retrospective assessments based on Irish economic performance up to the mid-1980s put Ireland at the bottom - or very near the bottom -of the European growth league. Most accounts have concentrated on explaining 'the Irish disease' .2 Plauslble reasons for that poor perform­ance - tariff protection. misguided fiscal policies, a bloated public sector. the power of sectional interests, a poorly-functioning labour market. the wrong investment mix. the lack of competition. emigration and the brain drain, an anti-success cultural ethos - were not hard to find. However. the success of the Southern economy over the past decade or so risks making the 'why Ireland failed' approach seem rather dated. Some economists now seek explanations instead for Ireland's exception­ally high growth rate. Pessimists and sceptics may wish to regard the very recent past as an atypical interlude. Either way, the need for a longer-term perspective seems clear.

In this book we outline and reassess some of the main features of Irish economic history over the last six decades or so. Where possible. we adopt a comparative perspective. There is little point in telling the story of the Irish economy ~ or the Irish economies _ in isolation. Economic performance must be 'good' or 'bad' by some standard. Ire­land's historical and geographical links W\th the much larger British economy make the United Kingdom an obvious yardstick. Until recently the UK accounted for the lion's share oflrish foreign trade. Irish mone­tary policy was constrained by London's, and Irish unemployment and migration depended land still depend) very much on conditions in Brit­ain. The UK or Great Britain. then. is an obvious point of comparison. However. one problem with using Britain as a yardstick is that it is widely held that the British economy has performed rather poorly since 1'945. 1 Moreover. Britain was much richer than Ireland to begin with:

Chronology

allowing for a presumption of economic convergence implies that Ire­land should have been growing faster than the more 'mature' Britain. What alternative yardsticks are there?

The experiences of regions such as the impoverished Brazilian north­east or the Italian Mezzogiorno are good reminders that there is nothing inevitable about poorer regions or countries catching up with richer ones. Still, both neoclassical economic growth theory and the integra­tion of commodity and factor markets imply a narrowing or convergence in living standards over time. Market-oriented European economies since the 1940s have conformed to such a convergence pattern. This suggests another approach to assessing Irish performance: to examine how Ireland has performed in the European convergence stakes. A co­rollary is to compare aspects of the Irish economy with other European economies at a similar stage in their development. For instance real Irish gross domestic product (GDP) per capita in 1950 was about the same as Italy's in 1950. Spain's in 1956. Greece's in 1964. or Portugal's in 1968. It may be worth asking. then. whether Irish investment or public expenditure in 1950 were higher or lower than a 'European norm' defined by such countries. In making such comparisons. by 'Ireland' we mean the Irish Republic. Comparisons between the Northern and Southern economies otfer another comparative perspective.

For all their well-known pitfalls. an economy's national accounts offer one of the best ways of tracking its welfare over time. Official national accounting in Ireland dates from 1938. Ireland's national accounts are usually deemed to be of good quality. especially since 1960 or so. Over the last few years. however. several commentators have expressed doubts about the reliability of some of the data. The suspicion is that transfer pricing by multinational corporations with plants in Ireland has inflated both merchandise exports and GDP (though not gross na­tional product (GNP)) statistics. The incentives for the multinationals were obvious: by allocating an articifially high share of their value added to their Irish plants. they were making the most of Ireland's benign tax regime. The point was made originally about levels of exports and out­put, but if the practice has been growing in recent years. growth rates would be affected too. In mitigation. the criticism applies less to GNP data. and indeed transfer pricing and consequent profit repatriation by multinationals have been responsible for much of the growing gap between Irish GNP and GDP levels.

Angus Maddison's well-known estimates of GDP per head. adjusted

A rocky road

for purchasing power parity, suggest that the ratio of Irish to British GDP per head fell from about 58 per cent of the UK's in 19 30 to I J per

cent In 1960, rising thereafter to over four-fifths in the mid-l 990s. It is not quite that simple: the gap between Irish GNP and GDP has been rising since the 1960s, with the result that convergence in terms of Lhe ratio of Irish to British GNP per head has been a good deal less: from

about 58 per cent in 1930 to perhaps three-quarters today. As wc show towards the end of this chapter. Ireland's performance relative to other poorer and equally small European economies over the same period has been less impressive, though It has Indeed been making up for lost ground over the last decade or so.

The rest of this chapter often a brief chronological survey of Irish economic history since the 1920s. Chaplen 4-7 offer analyses of sec­toral performance and demographic trends. The remaining chapters are concerned with policy issues.

From partition to the I!mergency

If Britain completely cuts oft' coal and gasoline, this place would be a disorganised and howling wilderness Jn three months ... It probably would be a wise thing lo do to explode this nationalistic dream of 'self-sufficiency'. (David Gray, US Ambassador In Dublin, 19341

We are very largely at the mercy or other countries, and particularly of the United Kingdom. In respect of our external trade, and the economic activities of this country could lo such clrcwnstances be completely par­alysed. (Internal governmental memorandum, April 19391

The economic policies punued by those who ruled the Irish Free State between 1922 and 19 32 made virtues of continuity and caution. In what even some of their own supporters deemed a series or U-tums for economic nationalists, the Cumann na nGaedheal government led by William T.Cosgrave (1880-19651 rejected industrtalbation through import substitution and monetary experimentation, and placed its main hopes on a dynamic agricultural sector specializing in livestock and dairying. Partly because of its determination to minimize! the_ debt b d r done by the clv1 war, It ran

ur en o repairing the physical damage · e reducln th . h also regresS1v , g e a very tig t fiscal ship. Fiscal policy W~ . 8 (l5pl In the £1 to three standard rate of income tax from five shdhnB

4

Chronology

shillings (15p) in the £1in1927/28 in favour of greater reliance on regressive indirect taxes, and reductions in the old age pension. In another era such conservative policies might have yielded dividends in

due course; indeed, economic historian T. K. Daniel 4 detected some signs of improvement between the mid-1920s and 1929. However, at a time of rising unemployment and economic nationalism Cumann na nGaed­heal's policies were sure to lose votes. By the early 19 30s the party was viewed by more and more voters as the party of complacency and privilege, and Eamon de Valera's Fianna Fciil as the representatives of the 'plain people'. In March 1932 Cumann na nGaedheal peacefully ceded power to Fianna Fail. The enigmatic de Valera (1882-1975) would remain for sixteen years. a record for any Irish leader.

Fianna Fciil. which routinely commanded well over two-fifths of all votes in these years and won more than half the total votes cast in the general election of 1938. owed its early mandates to a nationalist and radical populism. In economic policy Fianna Fail aimed at greater self­sufficiency through the creation of an indigenous manufacturing sector and the switch of agricultural output from livestock towards tillage. For the followers of 'Dev' there was no conflict between economic national­ism and job creation: tariff protection would generate much-needed factory jobs and encouraging tillage would tilt the balance away from the 'grazier' and towards the smaller farmer and the farm labourer. In the context of the wholesale destruction of international trade dur­ing the 1930s. we must note that such policies would not have seemed so exceptional. and that their cost would have been blurred. Elsewhere in Europe in these years. tariff and non-tariff barriers to trade were the norm. Besides. the initial effect of its tariffs was indeed to boost industrial employment. Thirdly. though many of the new factories were not geared to face the challenges brought by the Second World War. even the rickety industrial base built up since 19 32 would prove a help in the new circumstances. Sean Lemass (1899-19 71 ), a Dubliner and probably the ablest of de Valera's cabinet colleagues. was Minister of Industry and Commerce; from 19 32 on, he presided over the industrialization drive.

The Anglo-Irish economic war of 1932-38 added to the trade dis­ruption. This post-colonial wrangle about land annuity payments due under the land legislation of the 1890s and 1900s produced its own share of retaliatory tariffs and quotas. The pre-1932 regime had sent the annuities to Westminster without protest. but when Fianna Fail withheld payment in July 1932, Westminster imposed revenue duties

A rocky road

geared at raising the money by another means. At the end or I 9 3::; th~ tariffs on butter, bacon and eggs were 40 per cent ad valon'm: Lhat un prime cattle was f.6 per beast. To make matters worse. quotas intro. duced in January 1934 meant no Irish exports of beef lo Bril<1in and severe restrictions on fat and store cattle.~

Some in Ireland may have hoped that the tariffs would rchouml on British consumers, but that was not to be. In the 1920s. it is true. lmh farmers supplied the bulk of live cattle imported into Britain. and tht') were important to British slaughterhouses. But the price of fat ralt\e and stores was largely dependent on the trends in frozen and chilled beef prices on the British market. As a result. any supposed monopo!) power of ltish farmers turned out to be a mirage. and the economic ~~ar turned the terms of trade against lreland and hurt Irish farmers. I be last of a long line of County Waterford blacksmiths has left a vivid impression or those days:

Money was scarce with the farmers and this had its effect on business in general. For peoDle like my father it had a very direct effect. as he had to give credit for long periods even though he could ill afford to do so. One man had his horse shod for the ploughing and other spring work. When that was done. he brought the horse to the forge to have the shoes taken oil until harvest time. Some big farmers were short of cash too. One was paying half·a·crown a week off or a bill or nve pounds. fl

Some of the sling was taken out of this 'phony war' by a series of agreements lo swap British coal for Irish cattle. In addition, the Irish government paid bounties on farm exports, introduced a free beef scheme for the poor. and counselled farmers to engage in a new 'slaughter or the innocents' by killing their calves. The dispute was brought lo an end by the Anglo-Irish Agreement of 1938. The threat of a real war with a more formidable enemy soltened the bargaining stance of the British negotiators. allowing some of Fianna Fail's spokes­men to gloat that they had won the economic war. Strictly speaking. an unwilling Hitler had helped win it for them. From an Irish point of view the settlement was a generous one - the disputed annuity pay­ments were set aside in return for a one-off payment of ( 10 million -and subsequent calculations by economic historians confirm that the aggregate cost of the war in terms of real output foregone was small relative to the savings under the Agreement.;

Though reliable national accounts are lacking. other evidence

Chronology

ggests that the economy grew slowly during the 19 30s. However. all ·ailable data point to economic stagnation or decline during the nergency. as the period of the Second World War (1939-4'5) came be known in neutral Ireland. The energy crisis that United States

nbassador Grny yearned for materialized. Coal imports had fallen to

Off to the Front in the economic war.

'-and that's the cheque-book your father fought with in lhe et:onomk

3 'She's a whole­hearted supporler or Fianna Fciil .. · she's put half her window-box

O:::...I..."--------_:_i under wheat!'

one-third or their l 9 38-39 lcvel by 1944-45. and oil imports dropped to a trickle. Though offered some breathing space by the 'phony' war of 19 39-40. Lhe South was unprepared for the cris\s, and as a result the governmenl was rorced into introduclng some increasingly drastic con­trols on both consumption and production. Sein lmlass, as de Valera's right-hand man and chid architect of Fianna Fall's lmport-subsUtuting industrialization drive. took charge of the new Department of Supplies, with responsibility for the supply and allocation of'essential' raw mater­ials and foodstuffs.

Before the war Ireland relied mainly on foreign shipping for il~ over­seas trade. At the outbreak of war in September 1939 lrish-rcgistered gross tonnage totalled only 41.105 tons. The slate-owned Irish Shipping

Chronology

Company was established in 1941 to give the country a Ji[eline to foreign supplies. The new company quickly purchased eight ships and leased five more, renaming them a LI after tree varieties. The first of these, the Vassilios Destounis, had been abandoned by its Greek crew off Spain. after it had been attacked by German aircraft: salvaged by local fisher­men, everything portable had been removed from it before it was bought by the Irish government in March 1941 and renamed the Irish Poplar. The company's two best ships. the Irish Oak and the Irish Pine, and many other Irish ships were sunk by German U-boats and aircraft. Such was the shortage of vessels that even some old schooners were pressed back into service. s In these years the small fleet of the Wexford Steam­ship Company also performed the useful and dangerous service of [errying home supplies off-loaded in Portugal by larger [rish Shipping Company vessels.

The Scientific Research Bureau was another creature of the Emer­gency years. The brainchild of Defence Minister Frank Aiken and satirized by Irish Times columnist Fiann O'Brien as the 'Central Research Bureau'. the bureau produced some sensible schemes. but it had to be repeatedly warned about the costs of its activities.9 In its first year { 1941) it experimented with potato flour. phosphate deposits in Clare, and gas made from bog peat: it sought to extract pesticide from tobacco offal. and sulphur from the spent oxide of gas works. It engaged in a costly experiment with peat charcoal on Turraun Bog in the midlands, a project finally brought to a close in 1944. In 1941 it also set up a plant to produce formalin from methyl alcohol. The plant was taken over by Irish Alcohol Factories Ltd after the initial experimentation period. •o

Both producers and consumers tried to substitute bog peat for im­ported coal. The tonnage of turf drawn from the bogs by farmers rose significantly during the war years. and fell off thereafter. In County Wexford this involved opening up a ten-hectare bog near the summit of Mount Leinster. which had not been used since 1890. Mist prevented work before May and 'often in the afternoon at the best of times'.11 Many city people resorted to cutting their own turf. and inevitably there was some turf-stealing. The Emergency also gave a boost to the semi­state Turf Development Board. Fortunately for turf supplies, the weather during the Emergency was relatively kind.

Lemass's officials ordered the abandonment of many race meetings and other sports fixtures in the interest of fuel conservation. No sugar was available for home jam-making: there were severe shortages of

~ . 9

Chronology

6 'All clear, John! The gas inspector's gone.'

newsprint: rertili7.ers and copper sulphate were also in very short supply. Only doctors and clergymen were exempt rrom the prohibition on the use or private cars. The number or new private cars licensed for use dropped from 7.480 in 1939 to 240 in 1941. The decline in road accidents was less spectacular. but still hefty - a drop of two-thirds between 19 39 and 1942. The output of gas plummeted. too. Its use for domestic heating was prohibited. and a special 'Emergency Powers Or­der' ln 1944 made it an offence to use gas in the 'off' hours or to refuse admission to the gas company inspector (the ramous 'glimmennan'). Some small-town gas companies closed down for good, while a few tried to substitute turf and charcoal for coal. The shortage of coal in tum limited the output of electricity. The annual output of generating stations (in thousand kW hours) is described in Figure 1.1.

The statistics of freight tonnage and passengers carried by the Great Southern Railway (which would become part of a new national

11

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7 The turf drive. Mr Paul Henry rushes to paint a bit of bogland while there's some of it left. Paul HennJ (1876-1958) was a noted Irish landscape painter.

Chronology

transport network. COras Iompair E.ireann. in 1944) tell a similar story. though with a twist. The virtual absence of motor fuel meant that some freight switched back to the railways in 19 39-45. while passenger services were drastically curtailed (Figures 1.2 and 1.3). Train speeds also dropped. as trains tried both to conserve and substitute fuel; the journey from Dublin to Cork (160 miles) might take ten hours. On the Grand Canal there was a return to horse-drawn barges.

The drop in real personal expenditure between 19 38 and 1944 -8.6 per cent- was slight compared to that in investment. If the national accounts are to be believed. net investment fell by over four-fifths. or from 6.3 to 0. 7 per cent of national income. The trends in bank deposits and advances tell the same story in another way. They show deposits rising from £116.4 million in 1939 to £19-1.7 million in 19-1:;. while bills. loans and advances fell from ( 54.6 million tu (-19. 7 million. The

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A rocky road

rise in savings was 'forced' by the lack of consumer goods. whi\~ 0 [

the drop in lending refiected a decline in demand, not supply. Agv,rc. gate employment declined. and would have fallen further bul fnr 'job sharing'.

Moral suasion and compulsory tillage orders were used lo prod farmers into greater efforts. The acreage under tillage did indeed rise and domestically-produced seed was substituted for imports. Agricul­tural machinery and spare parts were scarce. prompting a rise in lhc number of horses working on fanns from 326.391in1939 to 3'i7.1Ull:J

in 1945. Net agricultural output rose somewhat during the war. while gross output declined: this was mainly due to the reduction in fertili7.cr inputs. Indeed so serious was the shortage of artificial fertilizer that farmers were advised to try farmyard manure. seaweed and compost. and. more drastically. to use up the stored fertility in lea land for cereal production. These were tough times: to make matters worse for rural workers. in 1942 farm labourers and farmers' sons living outside the old congested districts were prevented from emigrating.

During the Emergency (19 39-45) the economy was virtually closed olf from world markets. Detailed trade statlstlcs were not released for secur­ity reasons, but between 19 3 8 and 1944 the ratio of imports to national income fell by more than half. and Imported producer goods were in particularly short supply. It is tempting to relate the decline in output to the decline in the trade ratio: this issue Is discussed further below.

It was inevitable that living standards should [all back. Though the supplies of !oodstulTs such as potatoes, eggs, sugar and meat were ade­quate. olher staples such as tea and margartne were very scarce. Butter supplies were barely adequate. though exporis had virtually ceased: the combination of low prices and low milk yields drove down the supply of milk to creameries. The Emergency was an era of brown bread. damp turf. weak tea. and of unpleasant coffee substitutes such as Co!T-o-era. Ire! and Cafe. Inner-city Dubliners tried substituting carrot tea for the real thing and used prams lo ferry turf from official depots. The Erinox cube produced by Clover Meats o[ Waterford as Ireland's substitute for Oxo now doubled up as another substitute !or tea. Newspapers were forced lo cut back their size and their circulation. Imported fruit of all kinds - fresh. dried or tinned - was almost unobtainable. For car and cycle parts such as brake blocks and ball bearlngs it was the same story: some cyclists improvised with timber blocks !or pedals. Bicycle tyres and tubes were notoriously scarce: even some o[ the stalT

16 " JI

Chronology

of the Emergency Scientific Research Bureau pleaded in vain for new ones. 12

The government imposed a 'standstill' on wages between May 1941 and April 1942. and outlawed strikes in support of wage increases. Less drastic controls continued until late 1946. The result was a drop of 30 per cent in real wages between 19 39 and 1943. and a very slight rise thereafter (Figure 1.4). The controls, coupled with a bitterly divided labour movement. may also account for the significant drops in the share of wages and salaries in net manufacturing output (from an average of 48.9 percent in 1936-40 to 46.0 percent in 1941-43) and in labour's share of domestically-generated national income (from 51 per cent in 1938 to 44.3 per cent in 1944). Pre-war real wage levels were not achieved again until 1949. The effectiveness of labour resist­ance was reduced by anti-union legislation and by severe divisions within the trade union movement.

An inter-departmental committee report offers more precision about the trend in living standards for the 1939-43 period. It suggests that farmers had gained significantly. while all other categories or workers and welfare recipients (with the exceptions or widows on non­contributory pensions) had fallen behind. 11 There was some social justice in this. since farmers had suffered most during the 19 30s. However. because of the UK's position as virtual monopsonist (single buyer) in the market for Irish fann produce. the Emergency constituted no golden age for farmers, like 1914-18 had done.

Infant mortality. often invoked both by historians and development experts as a guide to living standards. rose significantly in the South during the Second World War. as did the death rate from tuberculosis. The trends are outlined in Figure 1. 5. The rise in infant mortality, mainly due to gastroenteritis. was particularly marked in Dublin. 14 The plight of tuberculosis victims dying in bleak. congested sanatoria pro­voked considerable controversy, which would lead to remedial action in the post-war years. 'To visit some of these places and see long lines of people. mainly young men and women. in bed in old-fashioned wards. under miserable conditions. without even a hot-water bottle in winter. hopeless and helpless, most of them slowly dying. was heart-breaking.· 1' The victory, or near-victory, over tuberculosis and other infectious dis­eases curable by antibiotics came late to Ireland. and the result was a very dramatic fall in mortality from tuberculosis in a short space or time.

tJl:--~"'e mid-19 50s the death rate from TB had fallen to less than twenty

A rocky road

per hundred thousand population. The Mother-and-Child scheme pro­posed by the Minister for Health. Noel Browne. in 19sn-51 and rejected by the government under pressure from the Catholic Church reflected an increased concern with public health, a concern echoed le.ss con­troversially in postage-stamp slogan cancellations of the time such a.~

'Are You Sure Your Food ls Clean?' and 'Cosain Do Leanbh ar <in Difteir.' in

The Southern economy remained open in one important sense during 1939-45: the emigrant outflow during the war years was very high. a reflection of both depressed conditions at home and the buoyant demand for labour in Britain. Between 1940 and 1945 136,000 travel permiL< or passports were issued to men and 62.000 to women. Those seeking them were people. mainly young and unskilled or semi-skilled. about to look for work in Britain. Since each trip required a permit these numbers exaggerate the true emigration rate,17 but the net figure was perhaps two-thirds of the total. The real wage gcip between the two islands rose considerably during the war years; while, as we have seen. real wages plummeted in Ireland, in Britain they rose by 20 per cent between 1941and1945. afterasmalldeclinein 1939-41. Employment opportunities were also much better across the water. The low propor­tion of females among emigrants and the small number of emigration permits issued in 1944 reflected the severe controls imposed at the time; the female proportion rose again after 1945. The Emigration Com­mission later put a panglossian interpretation on the youthfulness of the emigrants - particularly of the women- viewing it as evidence that emigration to Britain was 'not looked upon as involving a permanent or complete break which results from emigration overseas'.111 The rate of emigration was highest in the west and in the border counties of Cavan and Monaghan.

Black-marketeering and petty fraud were common during the Emer­gency. Virtual autarky increased the profits of manufacturers and traders. and thousands were prosecuted for flouting price controls. Shopkeepers exaggerated their demands for kerosene to such an extent that 'the number of householders alleged to be registered for kerosene supplies would far exceed the total number of such householders in the country'.19

The contrast with Northern (reland was marked, and indeed under­lined by the significant migration of skilled workers from South to North during the war. Economically, the Northern economy was made for the

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Chronology

war. Its staple industries all boomed. For the troubled linen industry, buoyant government demand produced an unexpected Indian summer. and the scarcity or flax was partially met by a hefty rise in home pro­duction. There was great demand also for ships and engineering output. Belfast's other strong cards. A construction boom led to a tenfold in­crease In the output of quarried stone. The high demand for manpower in the shipyards and in munitions and engineering works meant that fewer Ulsterrnen enlisted in 1939-45 than in 1914-18. Unemployment fell from one-fifth of the workforce in mid-19 3 9 to virtually nil by summer 1944, and the ratio of Northern Irish to UK incomes grew impressively, from 55 per cent in 1938 to 67 per cent in 1945.io The war also brought the introduction of a degree of Beveridgism in the North, though Unionist politicians anguished about Ulster 'slavishly following' the rest of the UK. Some objected to the higher taxation and greater control by Westminster that this entailed, but sectarianism was part of the story. When Stormont Minister Maynard Sinclair objected to family allowances on the basis of cost in 1946, "he did not think this was due to the Unionist population. He rather thought there was another reason'. The welfare state's allowances did not discriminate by creed, but the associated patronage in jobs and contracts were reserved for government supporters.11

Though Northern Ireland suffered less from German bombing than the industrial regions of Britain. in April-May 1940 bombs caused about one thousand deaths and considerable damage to buildings and plant in Belfast. Economic activity was not badly disrupted; the war brought big rises in employment in engineering. shipbuilding and construction. Northern Ireland's role as a base for tens of thousands of US troops before D-Day also boosted the local economy.

Post-war recovecy, 1945-50

The two decades or so between independence and 194 5 yielded little worthwhile improvement in the living standards of most Irish people. During the Second World War, Irish wage levels fell considerably behind those in Britain. Comparing industry-wide levels in 19 38 and 1946 suggests that the gap between Irish and British men's wages rose from ~fl to 32 per cent. while that in women's from 8 to 31 per cent.ii In

would become the Republic of Ireland in 1948, the immediate

21

A rocky road

post-war years brought some respite. Personal expenditure rose bi· almost a quarter between 1945 and 1950. All sectors shared in th~ recovery. Investment recovered, doubling in real terms between 1944 and 1946, and doubling again by 19 50. Following a decade or so o! virtual stagnation. industrial output rose by about two-thirds betwe('n 1946 and 1951. The increased output was destined mainly for 1h~

domestic market. The census of 1951 offered another sign of hope: It

was the first since 1841 to register an increase in population. The proportion unemployed of those insured fell from 10.6 per cent in l 94fi to 7 .5 per cent in 1950.

But the main boom was in consumption, as people tried to make up for time lost during the Emergency. The number of motor cars rcgisten~<l for the first time rose from 2,848 in 1946 to 17.524 in 1950. ImporL<> of nylon stockings rocketed from a rew thousand a year during the war to an average of over 230,000 pairs in 1946-51. Still, tea and sugar continued to be rationed: in Late 1947 the government subsidized necessities at the cost of increasing duties on the old reliables, doubling the duty on fur and cosmetics, and enacting huge increases in cinema seat prices. Royal Baking Powder offered a way of 'how to make light puddings in spite of dark flour'. On the eve of one of the worst cold spells on record. Fuel Importers (Eire) Ltd improvised by offering Dubliners a hundred tons of firewood clippings, which were 'not regarded as rationed fuel'. Eggs continued to do their vanishing act in late autumn in the towns; consumers could not understand 'why eggs should dis­appear as soon as prices are pegged'. There was a rash of strikes beginning in 1 946 with a strike by teachers in Dublin. The Labour Court was set up to improve industrlal relations in August J 946, but the strikes continued. On the night be£ore the end of a two-month bus and tram strike in November 1947, passers-by in the streets cheered trams making trial trips. The late winter and spring of 194 7 were particularly severe. producing as much hardship as the worst months of the Emergency.

In his clinical report for 1948 the master of Dublin's famous Rotunda hospital noted that 'one of the most heartening features this year has been the number of families housed in the new Corporation Housing Estates'. This time it was a non-Fianna Fiiil government that made the commitment to public housing.n In Dublin new estates were built in Kimmage, Ballyfermot and Finglas; Cork's Gurranabraher and Lime­rick's Southill were also built in the late 1940s. The construction sector,

22

Chronology

which had shrunk during the Emergency, now recovered. though with less rellance on state funding than before (Figure 1.6).

The industrial sector recovered quickly after the war; by 1946 both output and employment were higher than they had been in 1938. Industry continued to rely on the home market. however. Typically. new firms created in the 19 30s were given protection through a tariff or quota and - as long as they were serving the home market- a promise that no other outside fllllls would be given licences to set up. Irish fll11ls also continued to operate subject to the protection of the Control of Manufactures Acts (1932-34). Fianna Fall's attempt to ensure that the industries gaining from tariff protection were not merely foreign.-owned 'tariff factories'. The Control of Manufactures Acts were very restrictive on paper. In practice. however, when no Irish entrepreneur was forth­coming the Department of Industry and Commerce was willing to issue a licence to a foreign company.z.f

In the late 1940s the lack of foreign import licences and currency facilities temporarily ruled out the export of certain Irish commodities 'of which a surplus is available for export'. These commodities included tweed and other woollen goods. poplin ties. feathers. footwear and sta­tionery. The list was unimpressive. a reminder that apart from drink and confectionery Irish industry exported very little.

The impact of the war on the British economy was such that the demands of Irish consumers could be met only with difficulty. Mainly as a result of this. in 1947 imports from the United States accounted for well over one-fifth of all Irish merchandise imports (£29 million out of £131 million). They included a significant proportion of consumer goods: textile and woven piece goods made up 30 per cent of the total. Pressure on sterling and urgent requests from the UK forced dollar economies. and in 1948 Irish imports from the USA were forced down to £11.4 million. The Anglo-Irish trade agreement of that year was partly about economizing on dollars. As a result of the Marshall Plan. dollars became more plentiful. and the value of Irish imports from the United States rose to £18.5 million in 1949 and £20.8 million in 1950. US imports had represented less than 5 per cent of the aggregate in 1932-37, but in 1949-51 they accounted for over 13 per cent. These dollars were not frivolously spent: imports of wheat. maize, petrol and tobacco accounted for two-thirds of the total.

The Marshall Plan provided European Recovery Programme credits only alter the production of a document outlining the recipient country's

23

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Chronology

growth strategies. In Ireland the ensuing 'plan' has been alternatively interpreted as 'lreland's first exercise in economic planning' and 'a cosmetic exercise for the Americans'. Demands for dollars were strictly scrutinized by the Department of Finance. and Ireland's allocations were not fully utilized. The 'counterpart funds' provided by the Marshall Plan (£40 million) financed nearly half of state investment in 1949-52. Suggestions from the Department of Finance and the Central Bank that the funds be sterilized to repay outstanding land annuities were not heeded. Though the pet projects of Ministers Seiin McBride (afforest­ation) and James Dillon (land reclamation) received due attention. the Electricity Supply Board. bogland development. and construction absorbed the bulk of the capital programme in those years. 25

Gloom and doom, 1950-58

A sense of anxiety is. indeed. justified ... After 3 5 years of native govern­ment people are asking whether we can achieve an acceptable degree of economic progress. (Economic Dt\•elopment. 1958)

Would the purple-and-gold cohorts of Wexford come down 'like a wolf on the fold' on the stalwarts of Cork. the rebel county? In those days there wasn't a livelier question a national daily could ask. Economically. politi~ cally, and every other way the country was dozing on the sideline. (George O'Brien, The Village of Longing)

Those who believed that economic growth would last were living in a \ rool's paradise. Perhaps part or the problem was that the recovery or

,I the late 1940s concealed for some years the fotility or the protectionist · strategy adopted in 19 32. The 19 50s. a miserable decade for the Irish

economy. were ushered in by a balance or payments crisis. A big deficit in 19 50 was followed by one of £61.6 million in 19 51. the biggest on record. relatively speaking. A massive deterioration in the terms or trade due to the sterling devaluation or 1948 and the escalation of the Korean War ln 19 50 was mainly responsible for the adverse balance. The combination of large private capital inflows and Marshall aid meant no drop in Ireland's external reserves. Yet the authorities saw the deficit as a structural problem requiring drastic surgery and so they adopted a series of panic fiscal measures. including increases in both income taxes and indirect taxes and the removal of subsidies on some basic

A rocky road

8 Out census. or our

Chronology

foodstuffs. The budget of April 19 52. which introduced several years of economic near-stagnation. was unduly deflationary and damaging for economic morale. 26 ·

During the 1950s. brief outbursts of optimism (as in early 1955. for example) were replaced by long bouts of gloom. Fianna Fail"s Sean McEntee had been responsible for the budget of 1952. In 1956 it was the tum or Fine Gael's Gerard Sweetman. who needed two deflationary budgets in that year. The first imposed special import levies on a wide variety of luxury items. The second increased most of these levies to a preferential 40 per cent on imports from the UK and 60 per cent on Imports from most other countries. and imposed rates of 25 and 37.5 per cent on a range of other goods including zip fasteners. electric fires and typewriters. Excise duties on the old reliables were increased by unprecedented levels. The maximum foreign currency travel allowance was cut by 2 5 per cent. The ensuing decline in consumption was drastic enough to restore the balance of payments. However. both McEntee and Sweetman underestimated the ability of the macroeconomy and the balance of payments to self-correct.

The national accounts tell a bleak tale in both absolute and relative terms. Real national income virtually stagnated between 19 50 and 1958. The industrial sector continued to rely almost exclusively on a stagnant domestic market. Net agricultural output (including turO rose by only 7 per cent between 1950/52 and 1958/60. Britain"s policy of keeping food prices low by using deficiency payments to boost rarm incomes reduced the 'leading sector' potential or Irish agriculture. A corrosive pessimism took over. The July 1956 issue of the satirical monthly. Dublin Opinion. bore a cartoon on its cover showing a map of Ireland. with the caption "Shortly Available Underdeveloped Country ... Owners Going Abroad". At the end of 19 58. the Irish Banking Re­view declared that "Ireland [had] been suffering from a mood of pesslmisim in recent years. Expressions or despair about the future of the country are heard on all sides'. There was an awareness that Irish economic growth was slower than anywhere else in Western Europe.

The trend in the ratio of Irish to British share prices over the period (Figure 1. 7) reflects the main phases of Irish nattonal development quite well. It captures the disastrous phase before the late 1950s. when the ratio registered a big fall. That period was followed by other phases discussed below: a "golden age which lasted until the early 1970s. a

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Chronology

period of economic gloom in the early 1980s, and the more confident outlook of more recent years.

In the late 19 50s something changed, and Ireland entered a period of sustained economic growth. There is no consensus as to why this happened. Some, like the historian Leland Lyons, claimed that it was the publication in 1958 of Economic Development. a frank assessment of the problems and some policy options facing the economy. and the ensuing Programme for Economic Expansion. which augured a new era: 'it Is hardly too much to say ... that even today it can be seen as a watershed In the modem economic history of the country', 2; The claim for these documents. ghost-written for the most part by T. K. Whitaker. secretary of the Department of Finance. is not easy to test: equally plausible is the hypothesis that it was Sean Lernass's replacing de Valera as Taoiseach on 23 June 1959 that boosted confidence in the economy. Though no longer a young man. Lemass 11899-1969) exuded energy on taking office, determined to overturn the very policies with which he had been so identified since the 19 30s. Economist Kieran Kennedy has suggested another reason for the turnaround: it may have taken time for the substantial investments made in social overhead capital during the 1950s to bear fruit. Yet another hypothesis is that it was the rapid growth of Ireland· s trading parmers and a commitment to trade liberalization that gave the fillip to growth at home. But perhaps all of these changes helped.

Ireland's 'golden age', 1960-79

Every time I take up an Irish paper I read of banquets where self-satisfied tycoons assure their overfed companions that 'Ireland never had it so good'. (An Irish emigrant. 196218 )

The Irish Republic's economy grew at an unprecedented rate during the 1960s. In his 1962 budget speech the Finance Minister Jim Ryan forecast a rise in population. which 'could have a stimulating effect from the psychological and social. as well as from the economic. points of view'. By December 1962 a delighted Sean LelllllSS might crow in the Dall that 'in many industrial occupations [there was) a scarcity of workers and in many areas full employment had been realised'. The Lemass era would last only from June 1959 to November 1966, but it

A rocky road

established some patterns that would prove enduring: a commitment to outward-looking policies, a less restrictive fiscal stance. a willingness to experiment. an economic growth that would make Ireland a largely urban society and would erode the importance of the agricultural scrtor and the farming lobby. By the early 1980s. amid renewed cronomll' gloom. the 1960s would seem like a glorious interlude. And yd by European standards growth in the 1960s was not that fast. and the target set for the decade in the government's Second Programme for Economic Expansion - an average annual output growth rate or 4 rcr cent - was not quite met.19

The 'golden age' was not to last. though the economy and employ­ment would continue to grow until the late 1970s. In February I 97 ~ a coalition government or Fine Gael and Labour replaced Fianna F<iil ror the first time since 1958. The new administration. led by Liam Cosgrave (son or William T.). met the oil crisis or 1973 with a rise in public spending. By 1975 the economy was recovering once more. and there was little need for rurther pump-priming from Finance Minister Richie Ryan. Some new taxes were introduced, yet deficit spending continued. Some or Ryan's efforts at spreading the tax burden more evenly earned him nicknames such as 'Red Richie' and 'Richie Ruin'. but his fiscal stance was tame compared to that on offer in Fianna Filil's extravagant and irresponsible 1977 election programme. The electorate opted for that programme in record numbers - even Eamon de Valera in his prime never matched ex-hurler Jack Lynch's vote-pulling power in 1977. What is more. Fianna Ftiil immediately set about delivering on their commitments. Within a fow years it was plain to all that the rising national debt produced by tax reductions and big increases in public spending failed to produce the growth and revenue that would sustain it. To make things worse, soaring real interest rates risked sink~ ing the economy.

The attempt at dragging out the 'golden age' in the 19 ?Os thus exacted a high cost. Ireland was not unusual among European countries in reacting to the oil crisis by increases in both the national debt and the size or the public sector. However, the increases in Ireland were matched only by those in two other 'peripheral' European countries, Greece and Portugal. and in Italy. Moreover, public indebtedness in Ireland continued to increase in the late 1970s. arter other countries had already learned the lesson.

JO

Chronology

More gloom and doom, 19 79-8 5

Soon several economic commentators began to urge drastic cutbacks in public spending. The so-called "Doheny & Nesbitt's School of Economics" (named after a pub) had its origins in criticisms of rising government spending and debt. The 'School' never amounted to more than a few economists occasionally berating government fiscal policy over pints. but it quickly became the stuff of oral culture, and its brand of 'heartless monetarism' the butt of populist barbs. Foremost among the critics of fiscal abandon were UCO academic Brendan Walsh. economic consult­ant Calm McCarthy and financial journalist Paul Tansey. Ironically. one of their main targets was another well-known economist. Professor Martin O'Donoghue of Trinity College Dublin. It was O'Donoghue. more than anybody else. who masterminded Fianna Ftl.il's economic pro­gramme. Walsh and McCarthy put the case starkly in the Irish Times in 1980: 'there are simply no macroeconomic policies that can be implemented in our current predicament that would move the country painlessly towards financial balance. Time should not be wasted search­ing ror means to avoid the una\·oidable'. 1° From quite a different perspective. the late Raymond Crotty. one or Ireland's few radical econ­omists. demanded repudiation of the national debt. There was a kind of perverse logic to this. since it would mean that future would-be irresponsible governments would be unable to borrow abroad. Rather late in the day. in 1985. the corporatist r\ational Economic and Social Council (NESC) 'had become extremely concerned at the scale of thf economic and social problems facing the country and was worried about the consequences of continuing present policies·.11

The near-apocalyptic tone of the criticisms had an effect. The necess­ary deflationary medicine was first applied by Fine Gael Finance Minister Alan Dukes in early 1983. The ratio of public debt to GDP was gradually cut back. mainly through taxation increases. However. there were cut­backs in government spending too. particularly in health. and the public capital programme was also trimmed. The effect on economic activity was very serious. Between 1979 and 1985 private consumption barely rose. and the unemployment rate rose from 7.8 per cent to 18.2 per cent.

A rocky road

The only way is up11985-2000

A palpable sense of prosperity is creeping over the country. Ireland has its ftrst generation ofhome·grown millionaires. (Time Magazine, 11 December 1995)

The economy will stay in the fast lane ... Real growth should reach lwlcc the EU average. (The World in 1997 12 )

A huge drop in Fine Gael's vote in the election of February I 98 7. coupled with Labour's determination to go it alone. opened the way ror a mi­

nority Fianna Fail administration under Charles Haughey ( 1987-891. Haughey and Co. continued the treatment applied by Fine Caci and Labour. with conditional Fine Gael support through what came to be known. rather grandly, as 'the Tallaght strategy' (after a speech by Fine Gael's Alan Dukes in the Dublin suburb of Tallaght). After only two days on the job new Finance Minister Ray McSharry ('Mac the Knife'! cancelled a planned pay-rise for senior civil servants. a foretaste of further austertty to come. Public spending's share of GDP began to fall: by the early 1990s it would be less than It had been in the late 1970s (Table 1.1 ). More quickly than anticipated, the cure seemed to work. and economists began to talk and theorize about 'expansionary fiscal contraction'. The bipartisan commitment to putting the public finances in order had apparently restored the confidence of both consumers and private investors.

Table 1.1: The public sector In Ireland and In Bu rope (% of GDP) (AJ To!al gowrnmf'nl r.xptndllurf' (B) Public r1ms11mpt1011

1975- 1980- 1985- 1990- 1975-79 84 89 92 79

Ireland 45.9 52.6 50.l 44.0 17.8 UK 42.6 44.4 40.9 40.0 20.7 Denmark 49.7 59.8 58.0 57.3 24.4 Portugal 44.6(") 43.4 44.9 14.l EU9 44.6 48.8 48.4 48.4

EUil 48.2(") 47.7 48.0 16.l (-)the percenlages ror Portugal and Elll 2 rerer lo 1981-84.

SouITT: European F...conomy. No. 50. Tables 18 and 55.

1980- 1985- 1990-84 89 92

19.5 17.5 16.8

21.6 20.2 20.7

27.2 25.0 24.4

14.9 15.6 17.l

17.3 17.0 16.7

In the mid-l 980s a gloomy assessment of Ireland's economic pros­pects seemed warranted. But since then, official data suggest that lrtsh

32

Chronology

economic growth has far outpaced the rest of Europe. They show Irish GDP rising by 3 6.6 per cent. and GNP by 33. l per cent. between I 98 7 and 1993. This compares with an increase of 13.3 per cent in the European Union (EU) as a whole. In the mid-I 990s the Irish economy was among the fastest growing in the Organization for Economic Co­operation and Development (OECD). much faster than either Northern Ireland or the UK as a whole. Favourable supply-side factors- increased help from the EU, increasing labour force participation by women. the rationalization of parts of the public sector, large injections of capital by multinational corporations - and buoyant demand for Irish exports combined to produce an economic 'greyhound'. As a result. gloom has given way to self-confidence bordering on euphoria. as commentators and forecasters expect more to come. In 1994 the Economic and Social Research Institute (E'.SRI) Medium-Tenn Review predicted an average GDP growth rate of 4. 9 per cent between 1995 and 2000. The numbers for 1995 and 1996 made the forecast seem eminently achievable. By this reckoning Ireland's 'golden age' had simply arrived late.

The cheer is slightly tempered by doubts about the Irish data under­lying the comparisons. Transfer pricing by multinational corporations with plants in Ireland has undoubtedly inflated the value oflrish manu­facturing exports. and therefore the balance of trade and GDP as well. Huge repatriated profits are the other side of the coin. The publication or the trade statistics for 1993 prompted economic commentator Jim O'Leary to quip that they had ·about the same empirical status as moving statues. Dying saucers and the statue-of-Elvis-round-on-Mars stories', while the national accounts for I 990-93 deserved to be filed under 'childrens' rairytales. science-fiction or horror stories'. Another critic of official data. economist Antoin Murphy of Trinity College Dub­lin, pointed to the failure or consumption or employment to rise in tandem with national income. So seriously did journalist Paul Tansey take the distortions arising from transfer pricing that he suggested a second profile of the economy. excluding all the activities of the high technology foreign sector. primarily office and data processing machin­ery, electrical engineering and chemicals. Murphy alliteratively dubbed the most affected products as 'computers. chemicals. and cola concen­trates' or 'the three Cs'. 11

An incorrect interpretation of the national accounts could have two doleful results in the coming years. First. by artificially inflating GDP they could deprive Ireland of entitlements to certain EU funds. Second.

33

A rocky road

they may produce complacency about the level of public borrowing and debt. In the circumstances GNP seems a more appropriate measure of Irish economic performance than GDP. These cautions temper the cur. rent (late 1996) euphoria. But only a little: a recent 'minimal estimate of GNP. which includes only the labour costs of foreign linns in thr sectors most often accused of transfer pricing. implies an annual gn1w1h

rate of 3.5 per cent between 1987 and 1994. only a shade less lh<1n the published rate of 3.9 per cent. 1.f Moreover. employment has l1nall_1'

begun to rise: it jumped from 1.146 million in April 199 3 to m·cirly l. ~ million - or one-ninth - three years later. and with the prospccl of further big increases in store.

One largely overlooked implication of recent national accounts data is the likelihood that the South's economy has now overtaken that of Northern Ireland's in terms of output per head. if not yet in terms of personal consumption. Eurostat data suggest that the South already had the edge in terms of GDP in the early 1990s. By 1996 even CNP in the 'backward' South had outstripped Northern GDP. If sustained. this achievement represents quite a remarkable historic reversal. The huge exchequer transfer from London means that living standards were still significantly higher in Northern Ireland than in the Repub­lic (and in much of Wales. England and Scotland too). Nor has the South been gaining only on Northern Ireland: in late November 1996

Tcinaiste (deputy prime minister) Dick Spring could brag that Ireland was set to overtake Great Britain for the first time in terms of per capita income. This claim echoed a forcecast that if current growth rates per­sist Irish GDP per capita. adjusted for purchasing power parity. will exceed that of the United Kingdom as a whole by the end of the millennium. l'i

Ireland in a comparative setting

The Irish economy has achieved the fastest growth in the European Union over the past three years (and] seems set to continue its recent rapid growth. (OECD Eco11omic S11n•ey.'>: Ireland 199.5)

For centuries Irish economic fortunes have been closely bound up with those of the United Kingdom. Geography and politics determined both fluctuations and trends. British economic performance was therefore

14

Chronology

the most obvious yardstick or Irish performance. However. given Ire­land's relative backwardness. surely there was also some presumption that technology transfers, as well as commodity and factor movements. would allow its economy catch up? Certainly, the gap between Irish and British incomes narrowed between the mid-nineteenth century and 1914. Political independence in the 1920s and the gradual loosening of economic ties with the United Kingdom since then means that com­parisons with trends in Great Britain are no longer enough. Hence the recent vogue for comparing the Irish economy with other smaller Eu­ropean economies such as Austria or Denmark.

Eurostat data on TV and telephones per household (Table 1.2) con­firm both Irish backwardness in the early 1960s and a degree of convergence in living standards since then. Broader 'league-table' com­parisons of output change can also be made. Two widely-used inremational data sets. the Penn World Mark V and Angus Maddison's data set for OECD countries. offer scope for more broadly-based assess­ments of Irish economic performance over the past half-century or so. Until the mid-19 70s both of these data sets tell much the same story for Ireland. However. alter the mid-19 IDs. the Irish economy performed markedly better on the Maddison scale than on the Penn World Mark V. Nonetheless. when Irish growth is evaluated in the context of a presumption in favour of economic convergence, both data sets reveal a perlonnance that is unspectacular at best for most of the period since the 1940s. This has held true until the late 1980s. whether GDP per capita or GDP per worker is used as a measure of economic perfor­mance.16 Only in the late 19 80s and 1990s. as we have seen. has the lrish economy shown any strong signs of catch-up, though this is slightly marred by doubts about the quality of the underlying data.

Table 1.2: Televisions and telephones per 1.000 population

Tele\•isim1s Telephm1rs Year 1t111u /relaml Dmnuirk UK lwly lrrlmrd Dmmark VK 1%2 72 33 181 230 81 H 241 !hi

1968 14h 74 l+-l lfd IH •• 292 218 1970 170 l'i3 210 284 !hU 98 128 2B

1972 191 lh6 283 298 188 to• 31fi 289

1983 253 208 3fi2 333 406 2Jh ~18 ill

1992 429 JOO 'i3i 43.:; 418 Hl9 182 4'i2

Sourrr: Eurostat. In 1992 the telephone numbers rder to main lint:S.

35

A rocky road

Table 1.3 reports the results of a simple assessment of Irish perfor. mance, based on Maddison's data for ten European economics bclwcen the 1930s and the early 1990s. Regressing annual percentage growth rates of GDP per capita on initial GDP per capita I Y below I rcproduw the convergence pattern widely reported elsewhere. Including a dlimm·. !or Ireland !or the period 1938-92 (IRL) suggests that Ireland's"""""' growth rate was about 0.5 per cent slower than its initial c;JJP per capll<1

level would predict.Ji An examination of .sub-periods implin th11t

relative performance was weak during the 19 50s and. mon.· .~urrm· ingly. the 1960s. In 1950-73 Ireland's growth rate was 1.8 per'''" slower than might have been expected in these particular n111vcrgc11n· stakes. but since then Ireland has been on trend.

Table 1.3: Ireland in the European co11verge11a stakes

Period Y /RL H2.7J_

1918-60 -0.00003 -0.20 1.74

(-l.55) (-2.07)

19'.i0-60 --0.0004 -2.13 J.96

l-Lh3) (-1.4'5)

1960-71 --0.0006 -2.12 68.67

(-11.56) (-5.82)

19'>0-71 --0.0006 -L7t1 i2.i'i'

(-9.70) (-i.45) 1971-88 -0.00002 0.21 0.28

(--0.27) (0.4il 1971-92 --0.00009 O.'itl 4.91

(-1.71) (1.32)

J 918-92 --0.0003 --0.48 51.12 (-10.07) (-3.23)

191/HIX --0.0003 --0.74 41.84 (-8.74) (-4.tlfi)

Sourer: Maddison IO-t.-conomy sample (1994). T-stalisllcs in parentheses.

Three mitigating qualifications apply. First. Irish performance has been so good over the last two or three years that including data up to 1997 would probably drive the coemcient on the Irish dummy to zero in regressions covering the last two or three decades. Second. the im­pression conveyed by comparing post-war Irish and foreign wage data is much more favourable to Ireland; in this instance. Harvard economic historian Jeffrey Williamson has found strong and persistent evidence

36

Chronology

of convergence. However, it should be noted that skilled wages in Ire­land have long been as high as. or higher than, in Britain. Williamson's 'convergence' refers mainly to unskilled wages.18 Third, Brendan Walsh's recent estimates of total factor productivity (TFP) in Ireland between 1960 and 1985 imply rapid growth: non-agricultural TFP grew by an annual 1.85 per cent over the period, faster than the OECD average over the same period, and on a par with growth in the ·Asian miracle' economy of Hong Kong.19

Recent detailed comparisons of labour productivity change by sector imply uneven convergence between Ireland and the United Kingdom. The Implied convergence in agriculture is genuine, but the perfonnance of the manufacturing sector since the 1960s is obscured somewhat by transfer pricing. Table 1.4. based on Belfast economist Esmond Bimie's painstaking research. suggests that convergence in most of the non­traded sector has been modest or absent. however. Perhaps the contrast between the performance of the construction industry and the other non-traded sectors suggests that the monopoly power of state enter­prises had something to do with this.

Table 1.4: Irish net output per head as percentage of UK levels, 1935-90

Sertor 1915 1968 1985 1990

Manufacturing 88 82 118 1;1 Agriculture fil ;; 77 80

Construction 66 91 96

Mining/quarrying 6; 132 ;; ;4 Ulllilies ;4 ., 27 39

Transport 6' ;4

Communications ;4 Postal services 62

Sourre: Birnie (1994).40

Notes

1 From £285.4 million in 1950 to £365.7 million in 1960 at 1958 factor cost. See Thomas Wilson. 'The report or the economic consultant'. in Econ­omic Development in Northern Ireland, Cmd. 479 (Belfast. 1965), 144.

2 E.g. J.J, Lee. Ireland 1912-1985: Politics and Socltty (Cambridge. 1989): K. A. Kennedy. Thomas Giblin and Deirdre McHugh. The Economic Dtvtlop­mtnt of Ireland in the Twentieth Century (London. 1988): C. Johns. 'Last in

37

A rocky road

the class?', Studies. 82(325) (199 3). 9-23; David Johnson. 'The economic performance of the inde~ndent Irish state'. Irish Ecoriomic aml .\'od11/ Hi51i1r!i

18 (1991). 48-53: C. 0 Griida and K. O'Rourke. 'Irish economic growth 1945-88', in N. Crafts and G. Toniolo (eds). Europnm Hnmm11ir c;row111

(Cambridge. 1996). 388-426. 3 See. for example, the symposium on 'De-industri<:1lisaticm and Britam\

industrial performance', Economic /011mal. 106 (January 1996). and t'harle1 Bean and Nicholas Crafts. 'British economic growth since 19..J 1: rrl;i11w economic decline ... and renaissance?'. in Crafts and Toniolo. fairop1'1111

Economic Growtli, ch. 6. 4 T. K. Daniel. 'Griffith on his noble head: the determinants of Cuni<inn 11<1

nGaedheal economic policy', Irish Economic a11d Sociul History. 2 (I 1l71ii

65. 5 On this and the economic war in general see Deirdre McMahon. R1·1111li/irnns

and Imperialists: Anglo-lrisli Relations in the 19 30s (New Haven. 1982) 6 Paddy Vaughan. Tlte I.Ast Forge in Lismore (Dublin. 1994). b. 7 f. P. Neary and C. 6 Gr;ida. 'Protection. economic war and str~cllir~I

change: Ireland in the 1930s', lrisl1 Historical Studies. 27 (J 991 ). 2 .,cJ-fJ,. Mary E. Daly. Industrial Development and Irish National lder1Wy (Syracuse

1992). ch. 8. br 8 Basil Peterson, Turn of the Tide: An Outline of Irish Maritime History (Du in.

1962). ch. 4. 9 National Archives. Dublin (NAO). S12821.

10 Parliamentary Debates Dail Eireann (PODE). 88. 519ff. 1 11 Jim Parle, 'Solving a wartime fuel crisis in Co. Wexford'. journal 01 111'

Wexford Historical Society. 15 (1994-95). 24. 12 Kevin C. Kearns. Dublin Tenement Life: A11 Oral History (Dublin. J 994). 1 68~

John M. Hearne. 'Industry in Waterford city. 1932-1962'. in W. Nolan an T. Power (eds). Waterford: History arid Society (Dublin. 1992). 689.

13 NAD. SJ 3.665. 14 James Deeny. Tiie End of an Epidemic: Essays in Irish Public Heallli 19 35-6:;

(Dublin. 1995). 60-72. 15 J. Deeny. To Cure and to Care (Dublin. 1989). 127. See too idem. End of a11

Epidemic. 16 'Protect your child against diphtheria'. l 7 Commission on Emigration. Report. 128. 18 Ibid .. 130. 19 lris/1 Press. 2 7 October l 941. 20 K. S. Isles and N. Cuthbert (eds), A11 Eco11omic Survey of Nortlrern Ireland.

(Belfast. 1957). 457. 21 Paul Bew. Peter Gibbon and Henry Patterson. Norll1ern Ireland 1921-1994:

Political Forces and Social Classes (London. 1995). 100; David Kennedy. 'Ulster during the war and after'. in K. Nowlan and T. D. Williams (eds). Ireland in the War Years and After (Dublin, 1969), 66.

38

Chronology

22 International Labour Review, 58(5) (November 1948). 699-700. 23 Compare C. 6 Gnida. Ireland 1780-19 39: A New Economic HistonJ (Oxford.

1994) 439-40. 24 Mary E. Daly, 'An Irish-Ireland [or business? The Control of Manufactures

Acts, 1932 and 1934'. Irish Historical Studies. 24 (1984). 246--72. 25 Bernadette Whelan, 'Ireland and the Marshall Plan'. Irish Economic and

Social History. 19 (1992). 65: Lee. Ireland 1912-1985. 303-6. The total acreage under state rorestry rose from 116.23 5 acres in 1948 to 168.200 In 19 5 3; impressive enough. but falling far short of the target of 20.000 acres a year forced on Lands Minister Joe Blowick in 1948.

26 K. A. Kennedy and B. R. Dowling. Economic Growth in Ireland: The Experience since 1947. (Dublin. 1975>. 211. 215-18.

27 F. S. L. Lyons. Ireland Since the Famine I London. 1973). 628. 28 Cited in The Kerryman. 22 December 1962. 29 For a comparative European perspective on this period see Crafts and

Tonlolo. 'Postwar growth: an overview". in Crafts and Toniolo. European Economic Growth.1-37.

JO JO September 1980. 31 Raymond D. Crotty. Ireland in Crisis !Dingle. 1986). 130-35: JamesL. Wiles

and Richard D. Finnegan. Aspirations and Realities: .1. DocumentanJ History of Economic Development Policy in lrl:'lo.nd Sincl:' 1922 ~Westport Conn .. 199 31.

185. 32 The F.conomist Publicatioos. The \\-orld in 199i ~London. 1996). 84. 33 Davy Weekly Market Monitor. 8 and 11 July 1994: Antoin E. Murphy. Tire

Irish Economy: Celtic Tiger or Tortoise? 1Dublin. 199 5): Paul Tansey (in Sun­day Triburt£. JI July 199~1.

34 Bill Keating. 'Measuring grov.1.h'. paper presented to the CSO/IEA Con­ference on Measuring Grov.1.h. Dublin. 9 ~ovember 199 5.

35 Northern Ireland Annual Abstract of Statistics 1996. 148; Statistical Abstract 1995, 287: 'TB.naiste says lrisb per capita income to exceed Britain·s·. Irish Times, 25 November 1996: letter from Robert Twigger (House of Commons Llbrary) to Alex Salmond MP. 23 September 1996. I am grateful to Jotm FttzGerald for showing me a copy of this letter. The adjustments for pur­chasing power parity are generous. since they make no allowance for the hedonlc element in Northern Ireland's low house prices.

36 6 Gnida and O'Rourke. 'lrish economic growth'. 3 7 The coefficient of variation of GDP per capita in the ten economies fell

considerably over the period. from 0. 34 in 19 38 to 0.1 in 1992. 38 J. G. Williamson. 'Economic convergence: placing post-famine Ireland in

comparative perspective'. lrisl1 Economic and Sodal History. 11 (1994): 8. M. Walsh. 'Wage convergence and integrated labour markets: Ireland and Britain, 1841-1991 ". UC'D CER Working Paper 94/6\1994).

39 B. M. Walsh. 'The contribution of education to Irish economic growth: a survey', mlmeo, Dublin. January 1996.

39

~O ! £Birnie. ~dash-Irish productivity differences 19 30s-1990s: Roi ano 1:K

labour producffvity levels in the industrial sectors', QUB Working Paper, Jn .Gconomics 4 7. March 1994, Table 11.

2

Irish economic policy since the 1920s

Introduction

The Irish economy has shared many of the trends and shocks affecting other Western European economies over the last half-century or so. It suffered from. and was part of. the worldwide trade destruction associ­ated with the Great Depression of the 19 30s. Though not a participant. it was badly affected by the Second World War. After 1945, it took part in the European Recovery Programme (the Marshall Plan) and later followed the dictates of Bretton Woods. It experimented with Keynesian macroeconomic policy and economic planning from the 19 50s on­wards. It switched from decentralized bargaining to more corporatist industrial relations. and from protection to outward-looking policies in the 1960s. It shared. though somewhat belatedly. the benefits of the 'golden age preceding 1973 and. like many other economies. sought comfort in inllation and deficit spending against the oil crisis of 1973. Government debt and taxation rose. as elsewhere. With EEC member­ship from 1973. participation in the European Monetary System between 1979 and 1993. and a current commitment to the Maastricht guidelines. the Irish economy bas lost much or what little real inde­pendence it had.

And yet some things were different. For example, agriculture was, and remains, more important to Ireland than to any other economy in north-western Europe. Ireland's demography also set it apart. It was the only European economy to lose population between the 19 20s and the 1960s. and its high marital fertility and high emigration rates have been much studied. Ireland's rather remote island location. far from the European core, also stands out. But above all. it is Ireland's lack.lustre economic performance for much of this period which sets it apart. Many observers of the Irish scene have commented on this. olfering a range of explanations. Such explanations of Irish economic retardation risk.

41

A rocky road

being confounded, however, by the remarkable recovery staged by the Irish economy since the mid-l 980s.

In Northern Ireland. the story has been rather di!Tcrent. Between 1938 and 1985 its total real product grew faster than the Kepubl1C (2.9 per cent versus 2.3 per cent. or 2.5 per cent and 1.9 per rc111

per head). In the recent past, however. the Republic has outperformed Northern Ireland - and the rest of Europe - in the growth slakes. ll is natural to blame the North's relative decline on the posL-1%9

Troubles. The Troubles did not help. to be sure. but the causes lie deeper Northern Ireland's economic problems were already obvious in the 1950s. and much commented on. A recent estimate of the anmrnl

cost of the Troubles to the Northern Ireland economy since 198 3 put it at £339 million, or about 3 per cent of regional income. 1 This surprisingly small figure allows for lost tourist earnings but docs not take account of industrial jobs diverted elsewhere because of the Troubles.

Investment

Ireland's low rate of 'productive' investment was a constant preoccu­pation of policy-makers and commentators in the 19 50s and early 1960s. An inquiry into the public capital programme chaired by civil servant J.P. Beddy stressed the need to switch from social overhead capital to 'productive' investment. The inquiry was less specific about which kind of public investment was likely to yield greatest dividends. though it placed most emphasis on the agricultural sector. The need to switch the focus of state investment was also an important theme in T. K. Whitaker's Economic Development and The First Programme for Econ· omic Expansion (see below, p. 74). This focus on productive investment is easily rationalized in terms of the growth models of Roy Harrod and W.W. Rostow. The role of the investment rate in standard neoclassical growth theory is rather passive. however: the poorer an economy, the higher the rate of return to capital and, therefore, the higher the rate of accumulation. Moreover. in the neoclassical model steady state growth is not affected by the investment rate. The 'new growth theory' of the 1980s and 1990s, it is true. restores investment's active role. attributing both level and growth effects to it. That theory posits that in­vestment. broadly defined to include the accumulation of both physical

42

Economic policy since the I 9 20s

and human capital, can generate a growth that is not subject to dim­inishing returns.

The empirical literature, on the whole. also suggests a positive corre­lation between the investment rate and the growth rate. The presumption is that it is the investment that causes the growth. even if investment is also an endogenous variable related to. among other things, Initial income levels. There is some empirical support, too, lor the suggestion in traditional growth models that in poorer counbies returns to capital. and hence investment shares. should be higher than in rich countries.2

Both theory and international experience thus suggest that Ireland should have had high investment shares during our period; if it did not. this might help explain its failure to grow laster than the rest al Europe. Irish policy-makers were traditionally concerned about a lack or invest­ment in the Irish economy. The 1958 White Paper highlighted 'the insufficiency of our current savings as a basis for national capital for­mation on the scale which would be necessary to enable us even to follow at some distance the rising standards in the rest olEurope'.1 (Of

course. a small open economy like Ireland can import capital. leading to investment rates greater than savings rates: but capital was not as mobile internationally in the 19 50s as it has since become.) Were these official fears justified?

Since 1960 Irish investment rates have been consistently above UK levels. and have exceeded. average EW'Dpean Community/European Union (EC/EU) levels only since 1970. But Ireland was a poor country: theory and cross-country evidence suggest that. for that reason. it should have been investing more than other EC/EU members. who were on average richer. Let us define a 'European norm' investment rate based on the average for OECD EW'Dpean economies with a GDP per capita similar to Ireland's at some reference date. For example. OBCD data suggest that Irish real GDP per capita in 19 50 was about the same as that ol Greece in 1964. Italy in 1950. Portugal in 1968 and Spain in 1956. Our 1950 norm is therefore an unweighted average of invest· ment rates in those four countries in those years. 'Norm' does not imply 'optin1.al'; some of the ·economies contributing to the norm were not particularly successful. Table 2 .1 suggests that Ireland's rate al physical capital accumulation was low by our Europeaa norm during most of the period surveyed here.

43

A rocky road

Table 2.1: Gross investment rate %

Yrt1r lrl'lmrd E11mpea1111t1rm (11) SI)

19=;0 17.3 22.3 141 H 1960 16.4 22.0 171 1.2 1970 22.7 22.l 1151 4.IJ

1980 28.2 24.0 (14) I.I

1988 16.2 24.01141 I.I

So11rce: derived rrom OECD National Accounts. 'SD' Is slandan.I dcvi;iliun.

Furthermore, it may be that the quality of Irish investment was pour and its composition wrong. Analysing the trends in the shares of dillcr­ent kinds of investment shows. for example. that agricuhurnl machinery's share of the total has dropped steadily since the 19 iOs. while that of 'other machinery' has not risen much (2 3 per cent in 1958. 28 per cent in 1972. back down to 24 per cent in 19931. 11

noteworthy feature is the consistently high proportion spent on trans­port equipment (18 per centln 1958, lOpercentin 1972 and J4per cent in 1993). Was this 'unproductive' investment. or was communi· cations a relatively important industry in Ireland ror geographical or other reasons( The output or the Irish transport and communications sector- about 6 per cent or GDP. proportionately no greater in Ireland than in other European countries in the period under review - casts some doubt on the last explanation. A more plausible explanation for the high share or transport may be the loss-making capital grants to concerns such as the national air, rail and sea carriers. Dividing the output or the transport sector by the sum invested in it in a selection of European economies indicates that the return on investment in trans­port equipment was lower in Ireland than in any or the other European economies examined." A more hoperul sign ror the ruture is that road improvements have accounted ror an increasing share or the public money spent on the road system. Until the mid-1980s maintenance costs matched or exceeded spending on improvement. but in the early 1990s twice as much was being spent on improvements as on upkeep.

It is also sometimes alleged that too much Irish capital formation has been in the form or public sector investment. The argument is that the public sector feels less pressure and incentive to allocate £unds to the most profitable uses. Defining public capital rormation as public capital expenditure minus redemption of securities and payments to the rest or the world (usually a small item), the public share in total gross fixed

44

Economic policy since the 1920s

capital formation in Ireland has indeed been high. usually ranging between 30 and 40 per cent between the 19 50s and the 1980s. and falling below 20 per cent only in 1990 and 1991. Eurostat provides a comparative perspective: it suggests that the public share in gross f1Xed capital formation was not particularly high in Ireland in 1970. but that by the mld-l 980s it was the highest in the EU.

This brief comparative perspective suggests that Ireland's investment rate was consistently lower than investment rates in other countries at a slmllar stage of development. Moreover. such investment as did take place was not necessarily allocated appropriately. The combination may help explain Ireland's relatively slow growth in the past.

Public expenditure

Surveying the evolution of the welfare state in Western Europe since the 1930s, the eminent Swedish sociologist Walter Korpi found that 'Ireland [In the 1990s] would not appear to be in the most dangerous risk zone, so to speak. when it comes to leakage of economic resources via an overdeveloped welfare state·. Since the 19 30s Irish old age pen­sion and sickness insurance schemes have been much less generous than the West European average. Yet Frances Cairncross in The Econ~ omist claimed that such comparisons are beside the point: Ireland's public services. 'while modest compared with its rich neighbours of north Europe. [were] lavish for a country at its stage of development'. She referred to the rehousing of the rural population. the rise in the number of patients treated in hospitals. and to the 8 per cent of GNP spent on health care by the early 1980s. Ireland's student-sta!T ratio in secondacy schools was low. and there was a generous network of social security payments. 5 Why this should have mattered is that. traditionally at least. sectors such as health and education were regarded as low productivity sectors. and ones in which productivity growth was also slow. Table 2.2 offers another comparative perspective based on OECD data. It confirms that government expenditure was rather higher in Ireland than In other countries when they had the same income per head. However, as just noted. modem macroeconomic analysis is more supportive oflnvestment in education or human capl.tal than Cairncross allowed. In Ireland much or the increase in government spending in recent decades is accounted for by rising spending on education. Current

45

A rocky road

spending on education as a percentage of GDP rose from 3. l per ccni

in 1962 to 6.8 per cent in 1987. A more serious concern for the l 98111

at \east is that the emigration of tens of thousands of highly edurntcd graduates entailed a misallocation of public funds.''

'fable 2.2: Government expenditure as a perce11ta,qc o/' (;/!!', I 'I 11! X8

\'1•nr lrl'/m1d E11ro1wm1 1101?~-~ \/J

19\0 12.1 11. s (~) !.'l

1%0 12. ~ 12.4 (/) u.;

1970 14.8 12.9 (Vi) 2.1>

1980 19.9 13.=i(J-I.) 2. l

1988 16.7 13.S(J..IJ '·' Source: derived from Ol~l'D National Accounts.

Protection and free trade

~·

During the 1920s the new economy of the Irish Free Stale remained an open one. While consumers were encouraged in a low-key way to

'Buy lrish'. tariffs were imposed mainly to raise revenue and not out of l

any strong protectionist intent. The 1930s brought a radical swilch. After 19 32 almost complete import substitution was achieved in many sectors (Table 2. 3). The high tariffs or the 19 30s were followed by lhc enforced near-autarky of the Second World War period. Industry min­ister Sean Lemass made some noises about switching to more outward-looking policies in 1945. but these came to nothing. The intcr­party government of 1948-S 1 turned out to be just as keen on tariff protection as its Fianna Fil.ii precedessors: in their useful documcnl­based history of policy James Wiles and Richard Finnegan 7 have pointed I

to the 'grim similarity' in trade policy. Trade liberalization was slow in coming. When it came, in the J 960s.

it was accompanied by a big increase in the ratio of exports lo (;IJp and by markedly improved economic performance (Table 2.4). His templillf: to see these shifL<> as cause and effect. However. economists have /i:>und

~~~a~~"~!::~~~fr::ti~r~~~c~~;~~ ~~~:lc~~:~:a~~ ~nci:;~~1~i:i~~;r:~;~~~:

~;;:E:~:~~::~~~~~~~,~r:~:~~:~~~~~~-~:~.~~~:7:I~~~~~'.,~~~;

(/<d

II•

Economic policy since the 1920s

Table 2.3: Import substitution in the 1930s (£1,000s)

Om11nadil!J Yrar Gross oulp111 Imports Explirts

Sugar. etc. 1929 1.179 l .9R l 0.0\fi

1938 3.431 0.42fi 0.000

Llothlng 1929 1.389 l.222 0.14fi

1918 2.977 O.'ifil O.Olfi

Hosiery 1929 0.270 l.094 0.037

IY3R I.IOI 0.278 0.001

Suap/candlcs 1Y2Y 0.518 0.131 0.012

1918 0.528 0.010 0.003

Roots/shoes 1929 0.339 J.74fi 0.001

1918 1.743 U.110 0.000

losses from trade restriction are typically small.8 A further problem is that even how to measure trade liberalization is not so clear. The ratio or customs receipts to merchandise imports offers a fallible. first cut index of protection. In Ireland that ratio rose from 12 per cent in 1929 to 24 per cent in 1939.' In 1960 it was still 20 per cent. but by 1970 it had fallen to 13 per cent. and by 1990 to 0. 9 per cent. The propor­tionate fall in the effective rate of protection was greater stiU. However. such a measure takes no account of non-tariff barriers to trade. and is sensitive to the demand for the tariffed goods.

Table 2.4: (X + M)IGDP in Ireland and in Europe, 1950-88

Yrnr lrl'la11d Erm•/)fan nimn (11) SD

19'i0 74.fi 19.7 141 14.9

1960 h7.9 33.0 ti'l 11.4

1970 81.9 '51.fi (1 )) 10.fi

1980 111.fi fil.8!Hl ]J.7

1988 117.7 fil.8 (\4) 33.7

Sourrl': OECD National ACl'ounls.

The Second World War period. when the Irish economy was virtually closed off from world markets and many items virtually unobtainable. would seem to offer a nice case study in the costs of autarky. Between 19 38 and 1944 the ratio of merchandise imports to national income fell from 26 per cent to 11 per cent. and that of exports to national income from 15 per cent to 12 per cent. What happened to output? Deflating national income estimates for 19 38 and 1944- the first official estimates - by the wholesale price index implies a fall of 19 per cent

47

A rocky road

between those two dates. Did 1944-45 represent a new autarky cqu;1i. brium, or would output have fallen further had the war continued; Th, census of industrial production seems to suggest that industry had reached a kind of steady state in 1943-44: the impm·t on output'" different sectors was very uneven, but most industries seem Lo h<L\'t

adjusted to the new situation by then. On the other hand. very linlt investment in new plant or equipment was taking place. and the result of that might have been even greater reductions in outpul in lime

Agricultural output, too. would have been difficult to sustain: the pol­itical cost of compulsory tillage could not have been borne indcOnitcl). and the lack of chemical fertilizers would have led to lower yields in time. Thus the aggregate one-fifth reduction in national output. far greater than the standard partial equilibrium analysis would predKI. nevertheless provides a truer measure of the loss from access Lo foreign

markets. The many quotas imposed in the 19 30s were first relaxed and then

abolished in the 1960s. The ratio of merchandise trade (imports pl~~ exports) to GDP rose in tandem. from about 25 per cent in 1945 to" per cent in the 19 50s. to 69 per cent in 19 69-7 3. and 106 per cent t 1974-89. A small but Indeterminate part of the rise was due to trans er ' pricing (see chapter 3 ).

A comparison with Northern Ireland. which traded freely with Great Britain throughout, is oi interest. The trade ratio suggested by Kieran Kennedy and his co-authors rn (defined here as (X - M)/(X + M) for manufactured goods) effectively captures the contrast (Table 2.5). The home market orientation of the new Southern industrial sector after 19 32 caused the value of the ratio to drop, while the more recent rise in its value captures the transition to a more outward-looking industrial sector. For the North. however. the two-way trade In manufactures was broadly in balance throughout.

Yror Soulh

North

Table 2.5: Kennedy's trade ratio. 1929-91 1929 -41

+3

1918

-47 -11

1951

-68 -8

1970

-43

+1

1980 -31

1991 -13

The resulting industrial structure- a large number of widely dispersed firms and a low degree of horizontal integration - reDected both the powers of local pressure groups to win factories for their towns and the

48

Economic policy since the 1920s

small size or the industrial market. 11 Such a structure was unlikely to support the innovation necessary for sustained economic growth. It was also bound to deprive Irish industry or precisely the sort or external economies or scale (skilled local labour forces. [or example) that have been used to justif'y industrial protection. Why then did Ireland take so long to liberalize?

Although the protectionist policies pursued by successive Irish ad­ministrations since the early 19 30s had their critics, evidence of the damage caused was elusive before the 19 50s. As mentioned. the tariffs imposed in the early 19 30s had initially produced a sharp rise in in­dustrial employment. and employment rose [urther in the late 1940s arter a hiatus during the war years. However. the message that import substitution could not have produced sustained economic growth was blurred by the enforced autarky or 19 39-45. and the post-war recovery produced the illusion that protection was doing no harm. Indeed 1946-51 was the first five-year period since the Famine to experience population growth. Industrial employment and industrial profits rose. and the rate or economic growth was respectable by European stand­ards." It was only when the rest of Europe lert the Irish economy standing in the 19 50s that the bankruptcy or the old policies became clear to policy-makers.

Policy-makers and most opinion-makers in the late 1940s and early 1950s took protection for granted. Ireland's programme under the Mar­shall Plan envisaged protection in order "to enable industries to gain a sound foothold in countries underdeveloped industrially'. The Majority Report of the Commission on Emigration and Other Population Prob­lems defended tariffs by noting that without them 'it would be difficult to conceive of industry on any wide scale maintaining itself or develop­ing further', and insisted that future commitments to international agreements should not compromise 'our freedom to develop our indus­tries as we think fit' .1 J To those economists who continued to support free trade, In the mid-1950s it was still 'an unlikely utopia'." Even Dr Whitaker's landmark Economic Development (1958). the government report which paved the way for the new economic policies of the 1960s. was circumspect about free trade. Noting that 'the coming of free trade in Europe in one form or another must be faced ill due course·. its main emphasis was on the need to allow in foreign capital rather than on abolishing tariffs. Indeed. the new Industrial Development Authority (IDA). created in 19 50. sanctioned some tariff increases in it.Iii early

49

A rocky road

years. 15 and neither the Central Bank (which dates rrom 19-t- 31 northt Department of Finance proposed freer trade as a panacea in the carh

19 50s. Policy-makers emphasized instead the need li:ir slate 1rn1h1li1

ation of investment funds and demand management. It took Lime fur

the argument for freer trade to sink in. Still. C6ras Trclrht1'1lc1 Hill' \liill export-promotion agency) was founded in 19'i2, and exporl t<1x rl'i1l'f,

date from 1956. By the late 1950s. with increasing Lalk of' l"rcl' lrad1

areas and customs unions in Europe, the writing was on I Ill' v~ndl. an1I

a few optimists believed foreign companies might set. up .'iuhsidiarn'' 111

an Ireland associated with some such trading bloc. As government policy on industrial protection showed signs of'dum~·

ing in the late 1950s. businessmen wanted to know the 'blunt truth about protection. The Federation of Irish Industries (Fil) worried a~ou'. 'the very real danger of serious damage' resulting from any 'rndi~al change of policy. The president of the Fil thought that ·.the cxr~1;~1;:'.'. of the industrial arm had been very successful for a penod of t · seven years under a policy of protection·, and the talk of free trnde ur~a-~ unsettled him. In reply Lemass advised industrialists to proceed t1s 1

trade liberalization was on the cards. On the other hand. he told a delegation from the Fil that he was against joining the European Free Trade Area because lreland already had access to the all-important British market and 'the probable extent of our trade with other countri~S would not compensate us for the loss that would result from the abo i­tion of the protective tarilTs'.U•

Irish tariff rates were still very high in the early 1960s. and quotas were also widespread. 1; The tariff regime was largely a product of the 19 30s. but that decade saw its share of new quotas too: by the end ~( 1937 thirty-seven commodity groups were subject to quotas. In anuo­pation of Common Market membership ministers decided early in 196 3

to replace quotas by tariITs. That decision was rescinded. against strenu-. ous opposition rrom the Department of Finance, after the breakdown ol negotiations. However. a few quotas were abolished (those on cycle lyres. rubber footwear and rubber-proofed clothing). and most were increased by 10 per cent. The quotas on motor cars and vehicle com­ponenLS. leather footwear. and woollen and worsted piece goods remained unchanged. however. giving those sectors virtually complete protection. The decision to replace the embargo on bread imports by a 4 5 per cent tariIT was revoked after protests from master bakers in Donegal: 'no duty would be high enough to afford adequate protection

50

Economic policy since the 1920s

- people are prepared to pay for quality and the price of bread is not a significant factor'. ts

The creation of the Committee on Industrial Organisation (CID), a tripartite body comprising employers. workers' representatives, and in­dependent experts (both civil servants and outside experts), was the first preparation for freer trade. Between 1962 and 1965 the CID issued detailed surveys of twenty-five industries employing over 87.000 people; only that on brushmaking was never published. The best of them make instructive reading for the economic historian. That on the Men's and Boy's Outerwear Clothing Industry ( 1964) highlights the problems faced by industry. Most or the industry's sixty-four firms were based mainly in the Dublin area. and only nine did any exporting at all. They had the home market virtually to themselves: as the Report remarked, 'the slo­gan "Buy Irish" implies that there is the alternative of buying non-Irish'. In this sector. tariffs amounted to a 'virtual prohibition' on imports. Though firms, mostly Irish-owned. competed keenly for the home mar­ket. they showed little imagination or ambition. lronically. in the mid-nineteenth century Ireland had been a world pioneer in this indus­try; Peter Tait used the recently-invented Singer sewing machine to produce ready-made clothes in Limerick. mainly for the military. For a time his Limerick clothing factory was the biggest such concern in the world. and in 1941 it claimed to be 'the largest and best equipped factory in Eire'.19 Llmerick's dominance did not last. however. and in the mid-1920s the sector employed only 800 in the Irish Free State. Protection increased that to 4. 500 by 19 36. Duties were briefly suspended in 1946 because ready-made clothing was in short supply, but they were rein­stated and increased thereafter. The special levies imposed in 1956-60 to right the balance of payments applied to the industry like all others. and in 1962 minimum ad mlorem taritTs were introduced to thwart the import of cheap continental overcoats.

Another industry transformed by protection was footwear. Et had already been granted a 15 per cent ad valorem tariff by Cumann na nGaedheal in 1924. Fianna Fail introduced a heftier tariff almost im­mediately alter assuming power in April 1932. and followed on with a prohibition of imports except under licence in 19 34. The result was the virtual elimination of footwear imports (Table 2.6).

The new boot and shoe factories were 'fairly well decentralized': towns to obtain plants included Dundalk, Drogheda. Clonmel. Birr. Tralee. Bailieborough. Sligo. Ballinasloe. Naas and &lenderry. Much of the

fl- 51

A rocky road

Table 2.6: Footwear imports and output in tl1r 1 9 Ws

D111r lml'orl.~ ()llf/!111

(mi/lim1pair)

1929- 31 4.0 (J.h

19l2-l4 2.7 I.')

1915-}9 0.6 l.'J

Sourer:). Press. 'Protedlonism and thl· Irish footwear induslry'. /ri.\11 Fromimi, u11i! Soria/ Hislor!J. 13 (1980). 77.

increased output was in British-owned plants. They provided Lile man· agers. the expertise and the machinery. British firms may have found the restrictions or the Control of Manufactures Acts ( 19 32-34J an irri­tant, but relations between them and the Department of industry and Commerce were good. The main intermediate input. leather. wa.~ also protected. Plants remained small. but this was less the problem Lhan the range of output produced. Many Irish-owned firms specia!i:ted 111

producing foreign brands under licence. Hilliard and Palmer were still producing men's best kip boots in Killarney for 56s. a pair in 1959. though they had only one man left who could make them; they weighed six to seven lbs a pair.2° Until severe quota restrictions were lifted in mid-1970, imports were a trickle, but rose rapidly thereafter.

What happened with trade liberalization? Penetration of the domestic market by imports was significant for product lines such as apparel and clothing. soap and detergents, footwear, carpets and leather handbags. On accession to the EEC. domestic producers were still holding their own in several sectors (e.g. notably vehicle assembly) which would suffer during the 1970s and 1980s. Table 2.7 describes the effect of trade liberalization and direct investment on the highly protected cloth-. ing and footwear industries. The numbers suggest the development 01 a two-way trade in both sectors. The high ratio of imports to gross. output in clothing in 19 50 was partly due to substantial imports ol nylon stockings; domestically-produced nylons substituted for imports thereafter for a time. Of the network of small shoemaking factories created under protection in the 1930s only Dubarry in Ballinasloe (es­tablished in 1937) was left in the mid-1990s.

There were unilateral across-the-board tariff reductions of 1 O per cent in 1963 and 1964. The Anglo-Irish Free Trade Agreement, which en­visaged the removal of all tariffs by 1975. was negotiated in 1965. In the 19 50s businessmen had viewed the prospect of freer trade with

52

Economic policy since the 1920s

Table 2.7: Imports (M) and exports (X) as shares of gross output (GO)

Clothing Follr\\'l'ar

Yr11r MIGO X/GO ,\,f/GO .'(/(;()

1950 J0.4 J.4 3.8 30

1%0 8.7 21.0 .+.1 I i.9

1970 30.2 46.8 l'i.l 2'i. :-;

1980 'Jfi.8 48.4 I 38.0 'i0.2

1990 125.FI 69.0 5fi0.8 83.0

alarm. On the whole. however. businessmen welcomed the 1965 agree­ment: by then. they must have been convinced that freer trade was inevitable. 21 Ireland's application to join the EEC was withdrawn when the British application was turned down. Both applications were ac­cepted on the second attempt in 1972.

Free trade changed the composition or Irish output. and appears to have helped boost total factor prcxluctivity and economic growth. On the other hand. the hish economy still continued to underperfonn even after 1960. and especially alter 19 7 3 I see chapter 1 ). There are at least two interpretations or this subsequent underperfonnance. The first in­terpretation would be that this experience was perfectly consistent with the traditions or neoclassical economic growth theory. Free trade gave a fillip to aggregate incomes: this implied higher levels or savings and a higher steady state income le\•el. As a result. the economy grew faster than before during the 19 60s. until income per capita attained its new steady state level. The lower growth both before 1960 and after 1973 represented the 'norm·. which might be put down to a slower rate or technical progress in Ireland. itself the product of institutional. cultural or political factors.

An alternative interpretation would be that free trade did not bring an end to government distortions. For example. it was surely no accident that the new tax incentives and grants introduced to attract foreign investment in export-oriented industries were geared to complement. rather than substitute. existing inward-looking Irish-owned indus­tries.2z To this extent the Irish campaign to attract roreign investment was constrained from the start by the protectionist legacy.

Table 2.8 places the opening up or the Irish economy in comparative perspective. Protection largely accounted for halving the ratio of exports to GDP in Ireland from about 28 per cent in the mid-l 920s to about f -'ent in both the late 19 30s and late 1940s. The ratio was back

53

A rocky road

Lo about one-quarter a decade in the late 1 Y50s. and ha~ ri_<.en dramot1-cally since then. By this criterion Ireland may well be lht: mo<.,\ ()[X'n

economy in Europe in the 1990s - subject lo a ca veal ;:-ihout Jn..,h lradt slalislics discussed below.

Table 2.8: Ratio of merchandise exports lo GDP ;11 1~· L' 1·co1101w1·.~

1929

(;ermany 17.0

l.'ram.:c 11.0

Italy 9.0

Netherlands 30.9

Hcl-1.ux 47.9"

IJK 14.7

Ireland 29.1

Denmark

Spain

(")Belgium only.

29.l

8.4

/9() J

1=;,=;

10.1

11.1

H..4

H.=;

14.1

2=;. I

13.';

=;_7

/WW /'!'!;

1 L'; ]'!'I

17.1 IC I

llJ.8 I 7.(1

-1--1-.0 4'i_()

=; 3. ~ 'i'l.O

21.8 l'J.I

47. 3 (,()_]

1=;_=; 17. \

Y.R 1 ~. I

Soum•: H. R. Milchcll. l::urapt'Clll Hi.~111rirnl Swri . .,tk.~ (London. J 97';); Euroslill. The J9fl3 dcita rder to GNP.

Commercial policy has shifted from being biased against exports to being biased in their favour. In effect, as staled above. one form of distortion (capital subsidies. tax relief on exports) replaced another (pro· tection). The shift to 'free trade' in Ireland in the 1960s was matched by a significant increase in non-tariff distortions in the form of aids to industry. Certainly. high-profile companies such as Guinness Peat Avi­ation and Pfizer would not have chosen Ireland as a base but for its uniquely generous combination of grants and tax reliefs. In its heyday in the early 1980s the IDA accounted for 12 per cent of all public investment and absorbed 2 per cent of GDP.11 A decade later ( 1990-92) these shares had dropped to 8 per cent and 0.6 per cent. respectively·

The ratio of!DA grant aid to net industrial output provides one indica­tion of the grants' effect. That ratio dropped from 4.4 percent in ] 976-8 3 to 1.9 per cent in 1984-90. However. this represenLo;; only a fraction of total state aid to the sector. which EU calculalions put at 6.4 per cent of GDP in 1 986-88 and 4. 9 per cent in 1988-90. Tax deductions. due in large part lo the imputed value of the special IO per cent corporation tax applied to manufacturing accounted for half of this aid. An alter­native calculation by two US economists found that in the mid- l 980s assistance covered 1 3 per cent of manufacturing GDP factor cost.i-•

54

Economic policy since the 1920s

Despite the drawbacks. most economists supported the IDA 's strategy. An exception was radical economist Raymond Crotty. who charac­ter!7.cd the industries attracted by the IDA as 'dirty'. prone to transfer pricing, and capital intensive and labour extensive. The 'dirty' ones include Aughinish Alumina's plant in the Shannon estuary and the chemical factories which have polluted Cork harbour. For Crotty Aug­hinlsh was a notorious transfer pricing enclave. with labour accounting for only 5 per cent of gross output.z;

To describe Ireland's transition as one from protection to free trade is to oversimplify. In theory those government distortions which fall under the general rubric of 'industrial policy' could lead to a misallo­cation of capital (and labourJ just as would outright protection. Under­or overvaluation of the prices or capital goods could in theocy also slow down economic growth. as claimed by Robert Barro.i& Moreover. direct government subsidies might be even more 'capturable' by interest groups than across-the-board protection: rent-seeking might be as much or more of a problem. with all that that can imply for growth.

However. distortions in the direction or too much openness are prefer­able to too much protection. It is tempting to link the better growth perfonnance of the Irish economy since the 1960s - setting aside the consequences of fiscal irresponsibilit)• in the late 19 70s - to trade liberalization. Economists since Adam Smith have posited a once-otT rise in output from freer trade. but thev lack a fmn theoretical basis for linking tariff and quota reductions- to long-run equilibrium growth. Recently. several models positing a dynamic contribution have been proposed, and recent research by US economists Jeffrey Sachs and Andrew Warner provide strong empirical supporV 7

Money and prices

Overestimation or the value in Irish conditions of the technical methods or central banking in use elsewhere tends to distract attention from the basic defects in Irish economic policy and to encourage the dangerous -and profoundly mistaken - belier that prosperity can be attained by finan­cial devices. (Central Bank Annual Report. 1957)

Irish monetary history was not very exciting before the 1970s. The leaders of the new Irish Free State set much store by continuity and .c. ·.,economic policy: link~n5g the new Irish currency to sterling

A rocky road

and not meddling with the banking system was leaving well enough alone. In practice Fianna PB.ii administrations were also caulious. though some party thinkers were in favour of experimentation: in I ':117 Per Jacobsson felt it necessary to tell de Valera that 'anyhow no mlnptinn of social credit measures would materially improve employml·111 fig. ures'.21 Similarly. in 1948-51 individual members of the inler·party coalition, notably Foreign MinisterSeBn McBride ofChmn 1111 Pohlarhta. had been prepared to consider other options. bul a more orthodox majority always held out. Against opposition from the lkpartnll'nl of Finance and the Currency Commission (the statutory body created in 1927 to issue and manage the new Irish currency). Fianna Ftiil had sci up an official inquiry into banking and credit in 19 34. In the end. this proved somewhat of an own goal. because instead of suggesting the populist policies favoured by members of the new administration. the Commission rounded on the government's fiscal policies. IL also cau­tiously recommended a central bank. 29

The period of the second coalition administration (1954-57) saw the most radical experiment thus far in monetary policy. When British interest rates rose following the rise of 1 per cent in bank rate on 23 February 1955, the Irish Government decided, for the first time. not t~ let Irish rates follow suit. By the end of the year this 'gallant experiment had failed. and Irish rates were adjusted upward. But when British rates rose further in February 19 56, the government again forced the Irish banks to hold their rates. However. the 'cheap money' experiment of 1955-56 was a temporary aberration. The lesson learnt, that a small player like Ireland cannot hold against the financial markets. was nol lost again until the EMS crisis of 1992.

Though the experiment seems to have failed, 10 the period brought the first application of the rediscounting functions envisaged in the Central Bank Act of 1942. In effect the commercial banks sought out the Central Bank to replenish their sterling holdings. Finance Minister Gerard Sweet· man (1908-70) proudly claimed to his party's ardfueis (annual conference) 11 that the Central Bank had 'in this way contributed sub­stantially not only to the financing of imports of essential commodities such as tea but also, indirectly. towards the provision of short-term credil for Exchequer requirements'. A little later, in October 1958. the associ­ated banks deposited agreed sums with the Central Bank, meaning that clearances could henceforth take place in Dublin. Then in May 19 59 the Central Bank chose. for the first Lime. to include lrlsh securities in

56

Economic policy since the 1920s

the Legal Tender Note Fund. The First Programme also reflected the shift in pollcy. ltstipulated that 'If there should be any scarcity of home capital For productive development. it would be in accordance with this policy that future issues of legal tender notes should not involve an addition to the external reserves of the Central Bank'.

The economic crisis of 195 6 was worse than even the forebodings of the Department of Finance had allowed for. Sweetman introduced a special import levy in March 19 56. and his budget proper two months later brought further tax increases. A few months later there followed elTcctively a third budget. further increase in levies and cuts in spending. What was at stake. he claimed. was 'our economic independence'. 12

The period also saw the use of the US dollar securities as backing of the Irish currency for the first time. In October 1958 the commercial banks deposited agreed sums with the Central Bank. and bank clear­ances henceforth could take place in Dublin rather than London. From May 1959 Irish secUrities were included in the Legal Tender Note Fund. Official data reveal a considerable outflow of private capital in 19 5 5, something quite exceptional for the period. "The pursuit of cheap money in the end would have led. Without doubt. to acutely scarce money', commented the Central Bank in October 19 5 7." While the ratio ofloans and advances to accounts held ";thin the state rose in the 19 50s and 1960s, a decline in current and deposit accounts and a rise in advances caused it to rise sharply in 1955-57 (Figures 2.1and2.2).

In 1945 Irish bank lending was still heavily concentrated in the City of London. Table 2. 9 shows the huge drop in the share of foreign I mainly UK) government securities and a corresponding rise in that or domestic advances and Irish government paper. Another important change is the rise in the share or non-government lending Within the state: from 16.9 per cent in 1945 and 38.1 per cent in 1955 to 47.7 per cent in 1992. The numbers also reflect the growth of Dublin as a fmancial centre.

The Central Bank was founded in 1943 to take over the duties of the Currency Commission. and to promote 'in what pertains to the control of credit ... the welfare of the people as a whole'. That monetary policy was constrained by the link with sterling limiting the role or the Bank· but under Governors Joseph Brennan (1943-53) and].]. McElligot; (19 5 3-60) the Bank relished its limited role. Its growth as a bureau­cracy would come later. symbolized by the massive pile on Dublin's Dame Street. which became the Bank's headquarters in 1978.

-- 57

j 1. 11 I II

~

A rocky road

Table 2.9: Assets oft/re associated banks (L'm). /9·-Vi-92.

1945 1955 1965 /<J;'I } '182 / 'J·1~1 · Liquid ilSS<.'IS 70.4 <i I .1 108.1 1-:.J.7.X l-022. I :-•1:-•1 ~

Held wilhin !he 12 18 H " 2: stale ('lid

(iovernmenl paper 171.2 144.0 181.8 (l 14.'' lfitl."i_;" :111

Held within the 2-1 ll ......... .,, stale(%)

Other lending 81.8 218.9 4-16.9 l'il<J.7 ; ;-;,o.,;_,'\ 111;-r,'i ',

Held within the 69 7-1 hlJ .,,

state(%)

Total assets Hl.7 44-2.9 7 Vi.O ~I 28.2 J 2 l!Hl.2 2lll'i'i I

Held within the 2 l SJ .:;7 h-1 q

slate (%1

(•t relating to within the stall' ollkcs only. Smirn·: derived from IJKM ! 1984). 7: Ccnlral Bank Annual lkporl. J<J<J2. T;ihk Cl I

In the 1940s and 19 50s the Central Bank was thus far from fullllling the common image of bureaucracies as bloated and lop-heavy. On the contrary. it remained small. relishing its passive role and arguing th'. 1 ~ there was no role in Ireland for independent monetary policy. ll (~tc nothing to influence interest rates or the reserves of the commercial banks, focusing the ire in its annual reports on fiscal policy instead. The 19 5 5-57 episode led to a liquidity standard being imposed on the com­mercial banks. The Central Bank began to issue recommendations about credit expansion. but its guidelines were not closely followed. i-1 It wa,<; not until after another balance of payments crisis in 1965 that the Central Bank began to take responsibility for credit control. Even then it would be difficult to talk of an Irish monetary policy. In J 969 the Associated Banks exchanged their external assets with the Central Bank in return for an equivalent sum in domestic assets.'"'

A few years ago, the then governor of the Central Bank. Maurice Doyle. claimed that it was at least the second mosl independent central bank in Europe: 'Even if the government said: "Let's get rid of Doyle". it would take at least ten years and two governments'. H. But the Bank has never been independent in the modern textbook sense. That all seven c;ovemors have been ex-civil servants appointed by the govern­ment hardly suggests a hands-off relationship between ministers and the Bank. Yet during the late 1940s and 19 50s the Bank was noted for iL'i cautious stance on the rise in public :;;pending and for its capacity to

58

~ SUDUUWJ

--·-·---;-~~~~~~s

.. llllllf!l-\1]"

Economic policy since the 1920s

irritate government ministers. Its annual reports always caused quite a stir, and prompted manv comments in the Dail. After McBride referred in 19 52. to ·a conclave ~r bankers in Foster Place very often under the directions of the British Treasury'. McEntee prevailed on de Valera to defend the Bank's directors. The inter-party government tried to mulZle the 1948/49 Report. which was critical of the rise in public spending and indebtedness. but to little effect. Brennan considered resigning. but relented." The l 949/50 Report implicitly criticized the Keynesian drill of fiscal policy. with the separation into current and capital budget. The 19 50/ 5 l Report was so strident in its fulminations that it promptOO resolutions from municipal councils decrying iL~ 'reactionary proposals' and claiming that it would lead to 'financial pank'. Lemass felt obliged

1>1

A rocky road

to state that 'it was not a statement of the govl'n1me11t'" \'k\\'s or

intentions'. Two years later Lemass reiterated that 'till' Cm'crn1m·n1 is held responsible for the Central Bank Report. The { :o\'l'rnmrnl had nothing to do with the Central Bank Report - nothing wll;itcvcr'.

In the 1940s and 1950s. decades when inLk-'pl'JHient cxpt·rt rnmnwn

tary on economic policy was scarce. the Central Bank's report:-. Ii.id llll'ir usc. 1K Their relentlessly gloomy and sometimes c;1t1stit· J(Hlt' \\'<l\ the

work of Governors Brennan and McElligotl. These m11111al 1t·n·1ni<id\

were widely read. In 19 51 the picture was 'one of high co11sump1 i!lll.

high investment (with insufficient carlv output or the d1<1J"ilt'[('I" tnml needed) and low savings'. In 1955 the Bank underlined the dcingcrsof

62

11 '!l's easy seein' lherc's a more cheerful air <1hout them this year! This time last year I got nothin · hut a ledger in the eye!'

12 ·stoP child. worrY111!~eY iS as Yolli' ttl as if it safe h.'~he Baok - - lained about •"' 10 k cornP · ofEll~aod.' . e )'ear after year the Ban ents. and the nse . ;og public expend1turds .the adverse balance of payrnpulist clairnS that

os e deman · - A ainst po · 19 56 ·1nllatioo. wag d'ture and taxauon. g k stated in

nt expen J d' the Ban iO governrne k. duced shortage of ere it. . rts at an unsus-

ban -m . · 1rnpo · mere was a ad been ·freely arnilable . fmancmg . n of Lord Keynes ihal credit h I rtticil.ed the ·one-sided interpretatlD h t the level of taioable rate. t c nomic theorv [which] postulates t a t' Claims

"bution to eco - d ploymen . :on:ing deterrnines the level of production an·v:,°'were ·manifestly a

pe I d's external assets were unproduct1 ·gned in mat Ire an . . . Brennan res1 crude distortion of easily ascertamable facts . Central Bank had March l 9 5 l because ·on every occaSion ... when the . ted. usually

. w to put up to the Government. the view had been reiec d f . d av1e . . · h h's ol nen without consultation or explanation . and broke wit 1 . h McElligott for not supporting him. However. McElligott continued t e tradition until 1960. For McElligott. large-scale expenditure by state and local authorities were no remedy for unemployment and entig­ration: they created only a 'simulacrum· of progress. \'l In alluding to the statement in the first Programme. that future issues of legal tender notes should not involve an addition to the external reserves of the Central Bank. the 19 58/ 59 Report noted that 'if occasion arises ... the suggestion will be considered'. archly adding that ·it is. a basic long-term ~rinciple ~~at increases in the money supply should be accompanied bv some oddttlons to external monetary reservcs·.~u -

tr

A rocky ro<1d

The lone of('cntral Bank pnHl(JUJJCcrner1js nHid<·r·;i11·<l "''llH'\' 11; 11 ;din

J\;fauricc J\;foynihan bccan1c ( ;ovcrnor. '/'he /\nnua/ Ht•pnrl f(n I <J 'i'J'fi(I

exuded oplin1ism co1nparcd to its prcdcn_•ssors. T/11· i\lini.-;lt·r- !i>r 1'111.inn· thought 'the Central Bank would he 1norc useful. llJcll"t• J1...,lt'11t·d lo. h1

being more moderate in its prai.-.;c and condcn111<tlio11 of tliin~!...,·. 11 .\11 nual reports continued to 1nenlion the dangers ol"l·st·aL1ri11g d,·hl 1111lw

/ate J 9 70s. but the old bite was missing. One of the duties of a central bank is to rcgula!t• 1/w ha11kn1).'. ...,, ...,1t·111

H could be argued that the new Irish Centroil Ba11k \'\""-" nol ;111 tdt·;il

regulator of the commercial bank,-.;. given the i111porta11n· of h;111kn~ and their supporters on the board. Three of the original ciglir-111;111 lm;1nl

represented the banks directly (]. F. Punch of the J\lunstcr 8.: l.c111o.;l('I Lord Gienavy of the Bank of Ireland. Cabricl Brock of the l'nn·incr;ili

on the first board. while others (including Brennan and i\-lcl-:lligott) \\'t'tT

well disposed towards them.H The Central Hank did not conL'l'rn i1-;dt with bank colJusion or bank profits. which were much higher than t!il' banks' released net profit figures suggested: a confidential I 9 .::;.+ menHl

revealed gross profits twice as high as published net profits. Nor did the Central Bank promote the rationalization of the banking system. Ireland had already been over-branched before 19 39 and the number of bank branches had risen since then." 1

Nol until the mid-1950s did the Central Bank begin to exercise some of the powers vested in it by the Act of 1942. Jn 1950 it rcdiscounlcd bills for the associated banks for the first time; it also began to divcrsil)' its reserves away from sterling. However. as Jong as the Irish pound continued to exchange at par for sterling there was little scope for an

independent monetary policy. Only once was the Bank called on to

exercise a lender of last resort function. In March 1 984 it became

known lhal the London manager of the Insurance Corporation of

Ireland (/CJ}. a fully-owned subsidiary of Allied Irish Banks (AIB). had incurred huge liabWtes on the London insurance 1narket. The govern­ment was informed that unless it bailed AIB out of its !Cl /iahililies.

AFB might go under and that this might aficcl the Bank of Ireland. With only two banking groups in the country. AIB was 'loo big to foil'.

The government therefore organized a rescue package costing [ J 6 5 million. with the Central Bank footing the bill in the short run. but with AFB refunding Lhe lcmporary assistance later. Soon afterwards

AFB announced lhaL ils results and ils dividend paymenL' for the year would be una/Tccted by the crisis. Though the Central Bank eventually

64

Economic policy since the 1920s

negotiated reimbursement terms, the belief that AIB was bailed out

persisted." . . _ . In a useful survey oflrish monetary policy pubhshed m 1917. Umver-

sily of Ulster economist Norman Gibson wrote:

To let Lhe Irish pound float freely against all other currencies would mean. if taken literally. that its exchange rate with each other currency would be detcnnined by the forces of supply and demand. It seems likely that this would make for considerable instability in the exchange rates unless a highly sophisticated mark.et emerged and operated in such a way as to stabilise or smooth f1uctuatioru in the rates. This would require entry to the market of professional dealers. which seems an unlikely eventuality. at least in the short run. for a currency such as the lrish pound which is not widely used in international transactions.-l~

Gibson's reOections underline the importance of the decision. taken in December 19 78. to have the lrtsh pound (or punt) join the European Monetary System (EMS). The decision was a landmark in Irish economic history, since it brought to an end the monetary union between Ireland and Great Britain that had lasted since 1826. The aim of EMS member­ship was a monetary discipline which would win Ireland investor credibility. low inflation and low interest rates. At first. the inconsistent stance of the Irish fiscal policy and repeated. realignments of the value o[the punt within the system's E.xchange Rate Mechanism (ERM) sapped investor confidence in the Irish currency. and interest rates remained high. Such realignments ceased in 1986. and by the early 1990s the Irish interest rate yield curve was usually downward-sloping and the gap between Irish and German interest rates minimal. By 1992 it could be said that the goals of price stability and low interest rates had been reached. This cut the cost of servicing the national debt and thus reduced the fiscal burden facing the economy. The professional dealers foreseen by Gibson. epitomizing yuppiedom in the 1980s. were in place. The victory was costly. however. in terms of output and employment for­gone: it took the real exchange rate a long time to adjust. Some economists now argue that the exchange rate regime pursued by Ireland under the EMS was unduly deflationary.46

Membership of the EMS had aimed to 'free' the punt fro~ th~ ~ha~kles of sterling. With a stable punt-Drutschmarkexchange rateol C 1--.0-,DM

since mid-1986. that goal seemed to have been met b?" the.ea~!~ l qqos. The crisis caused by sterling's departure from the ERM m .. t:ptember

A rocky road

1992 had therefore not been widely anticipatcd. 1\lorco\'Cr. nm~t

commentators initially believed that Ireland would rl'shl till' pn·,,ure

to devalue in order to maintain the credibility that had ht·t·11 \() d1·arly

won. As late as 9 January 199 3 the Irish 'f'i111es cdilorializl'd tll.11 ·11 \\'a>

the duty of a sovereign government to defend its n11Tc1H'\' "" 11 1\·nuld its national territory'. Three weeks later the govcrn11H·11l i--;.i\·t· 11L l\H'

futile battle to 'save' the p1mt against the speculators lci...;IL'd !'our 111 1111 111>

The cost has been estimated at about L 3 :;o million h.\' t'co11n11ll'-l l';itntl

Honohan:17

In January 1993 the punt was devalued by 8 per n·i!l \\'i.1li.1 11 .tlw

EMS's exchange rate mechanism. Vv'ith the virtual dl'misc o! I·.\\\ 111

mid-1993. the lrish currency has become a mirnw\\' oHnong 111 dc pendent currencies. Since then the punt has lloatcd. but polky Iii!" kt·pl one eye on the EMS wide band and another on the stcrling-prmr r;i_lL'

The view that Irish banking wi:ls failing Irish business goes hack '. 0

the nineteenth century. It lay behind the creation of the Agriculturdl Credit Corporation (l 927) and the Industrial Credit Corporation 1 J LJ) )I

and Fianna P8.il's decision Lo establish a Commission of [nquiry inW

Banking and Credit (1934-38). In the post-war period much of the criticism centred on the assets held by the bank in British government paper. Why could not the banks invest this money in creating Joh~ 111

Ireland instead? In 19 5 3 economist Patrick Lynch claimed that 'fc\i· economists would deny that there is a prima facic case for bringin~ credit under effective public control'. A memorandum from John O'Donovan. economist and Fine Gael politician. suggested that '\IT

should not be pushed into an action that would have the effect 01

nullifying our efforts in other directions Lo create something approc1ch­ing full employment here'. He denied the claim that capital market" were integrated. asserting that 'there is cogent evidence that much ol Lhc deposits in the Irish banks will not even cross the strec:L in a lO\<\'Jl to the local post office. much less cross to England'.~~ lfDonovan exag­gerated. yet the fact remains that the banks operated with wider margins lhan their UK countcrparls. The banks were often accused of preferring the safe but low returns available on the London monev markel to tlic higher returns av<1ilable from investment ventures in -Ireland. Jt w<tS

the pcrceplion of a credit 'gap· left unfilled by the birnks that prompted the creation of the Industrial Credit Corporation in 1933. But perhaps Lhc problem was less one of supply than of demand? Against the impli­c~tlion that they were depriving Irish business nf' capital. the banks L"ould

Economic policy since the 1920s

reply that the business community rarely ac.c~sed th~m of re~usi.ng accommodation. The transition from the trad1t10nally cautious Insh bank manager to the current model. touting for business from bill­boards. is consistent with the banks' ability to adjust to changing opportunities. But it could also have been a response to the threat of increased competition from other financial institutions. Only detailed research into the banks' archives can decide the issue.

Fiscal policy

The budgetary stances of both Cumann na nGaedheal and Fianna Fail administrations in the 1920s and 1930s had been rather conservative. Ernest Blythe. first finance minister of the new state. came very close to delivering on his early promise to run the country on £20 million a year. Blythe is best remembered nowadays for having cut both the rate of. and entitlement to. the old age pension in 1924: the pension. intro­duced by a reforming Liberal administration in 1909. had proved a boon to the elderly Irish poor. Birt.hes was an understandable ploy. perhaps, in the sense that this item alone absorbed one-tenth of all public expenditure. but mean-minded and regressive too. Fianna Fail never let Blythe forget it. Yet Fianna Fail were no prodigals when it came to the public purse. and they paid no heed to Keynes's call in 1933 for deficit spending on urban renewal and other worthwhile pro­jects." At the end of the 19 30s Ireland's national debt was still relatively small by contemporary European standards and the bulk of it domestic­ally held.

Nonetheless. since the 19 30s some economic commentators had Pointed to the impact of excessive and rising public expenditure on the balance of payments. Between 1 941 and 1946 there had been trade surpluses. reaching a peak of over £~0 million in 1944. However. the Central Bank deemed the emergence or a substantial deficit in 1947 ·an event or which the most serious notice should be taken'. The Bank would return to the topic repeatedly thereafter. By 19 52 it was explaining that the question was not one of achieving a 'mathematical equilibrium'. but the methods applied in achieving equilibrium. The balance of pay~ ments on current account (i.e. net foreign disinvestment) would continue to be the fiscal bogeyman until the 1960s. On 21March1956 UCD economist George O'Brien offered a cogent statement in the Seanad:

A rocky road

The trend since 1947 has been disquieting. It is the same I rend which was noticed by the. at the time. much-despised Banking Commission of 19 H-38. The growing deficit in our balance of payments ... has n·appt'<ircd again in the 19 50s. It was arrested by the war in 19 \9 whl'n external assets were piled up ... therefore the situ a Lion is extre111dy st·rinu:-. It is not self-corrective. It does not contain the seeds of ils own l·orrt·diun. JI l~ part of a long-period trend which has been going on since the carl_v rh1r­

ties ... the result of excessive consumption.

During this time the story is or only three years of halancc of payrncnls current account surplus between 1947 and 1968 ( 19 c:; I. I 9h I· l tJh7). However, this was also a period of net capital inflows. with tllc result

that external reserves were hardly affected. ;;:o Total public spending as defined by economist John o·l-lagan ~ 1 rose

from about 30 per cent or GNP in the early 19 50s to 48 per cent in ~he mid-l 970s. Deducting transfer payments and subsidies and thus dchn­ing public spending more narrowly as net spending on goods ond services plus gross investment. its share of GNP rose less. from about one-sixth to nearly a quarter over the same period. However. by cith~r definition the rise was minimal before the early 1960s. Big leaps ~n transfer payments (particularly in social security and welfare) and 1.0

goods and services therearter explain most or the increases in public spending: the share of public capital formation in GNP rose little before the mid-19 70s.

Irish fiscal policy, like much else in economic policy, was largely derivative. In Britain Keynesian influences on public policy maY be traced back to the 1941 budget of Chancellor Kingsley Wood. Seven years later Irish Finance Minister Patrick McGilligan followed suit. intro­ducing the innovation of separating capital from current items in the budget. McGilligan did not propose to run a current budget deficit. but insisted that a deficit could be run on the capital side, since capital spending would produce dividends in terms of higher long-run growth. 'Keynes had come to Kinnegad'. ~i However, the conversion was hardly thoroughgoing. for official policy continued to worry far too much about year-to-year nuctuations in the balance of trade and balance of pay­ments. Thus the particularly harsh budget of 19 52 was aimed at rectifying a huge adverse balance in 19 51, prompting economist john O'Donovan to point out that 'the subject of economics [was/ not arith­metic'. and that 'the theory of economics fsicl would have led to the conclusion that imports would have gradually fallen off without any

nR

Economic policy since the 1920s

measures being taken to reduce them' .51 O'Donovan's belief in the self­correcting character of balance of payments disequilibria was lost on Minister Gerard Sweetman, who would repeat the 'mistake' of 19 52. with more serious consequences. in 1956. Thereafter, until the early J 970s, modest deficits and rising expenditure on public capital projects would be the order of the day.

The 1952 budget was J. J. McElligott's last as Secretary of the Depart­ment of Finance. McElligott (1893-1974), who had no time for Keynesian fine tuning. had developed a low opinion of politicians gener­ally. When a senior US official came to discuss Marshall aid provisions. he was collared by McElligott before he could meet any ministers and advised to proffer loans instead of outright grants: only in that way might the money be sensibly spent. Both McElligott's caution and man­ner were highly irritating. but against the fiscal abandon of the late 1970s and early 1980s his kind of orthodoxy has won some new friends. In 19 5 3 McElligott was succeeded by Kenneth Whitaker. The shift in economic policy associated \\ith Whitaker's headship of the Department of Finance is sometimes seen as a rejection of the old fiscal orthodoxies. This is misleading. In June 19 5-1 Whitaker had 'expressed his great admiration' to Sean McEntee 'for the courage behind the 19 52 budget'." While it is true that in Economic De1•elopment (1958) he en­visaged that external resen·es to the rnlue of £3.5 million might be applied to step up domestic capital formation. Whitaker never swayed far from fiscal rectitude.

George Calley's budget of 1972 was the first to plan for a current account budget deficit on Keynesian grounds. though Jack Lynch had admitted the possibility in another budget speech six years earlier. as had Colley in the supplementary budget of October 1970. In 1972 Colley opted for· growth rather than stability'. His successor Richie Ryan also ran a current budget deficit in 19 7 3 in order to honour the govern­ment's social commitments and because this was 'in line with advice' from a number of organizations. including the OECD and the corporatist National Economic and Social Council (NF.SC). Ireland's main policy response to the oil crisis of 1972-73 was a succession of large budget deficits. In A National Partnership. launched in November 1974. the Fine Gael-Labour coalition government argued as follows:

So rar as Ireland is concerned. a balance or payments deficit of the order of f.300 million. representing 10 per cent of our national production. and

A rocky road

a rate of inOation of 17-18 per cent, would. in normal world cnndilions.

call for urgent action to reduce internal demand to a level Iha! would lower substantially the rate of domestic inflation and the balmH·l' of payrncms deficit. The reality of any significant reduction in internal dl'mand. how­ever. would be to reduce the home market for lrish-nmdt.· guods aml 10 ml

back on employment. personal incomes. profits of imlustry and l'uml~ for investment ... The Government are not prepared to conh•mplah· pohq·

measures of this nature. They are determined instead lo gi\'t' priori!}' lo

the maintenance of employment and the preservation llf li\'ing slaml;ird~ This will be the cornerstone of the Government's rcsponsr lo !Ill' prcsl'nl

economic situation.

Given that private consumption had risen by two-fiflhs since thl' mid-1960s and that the unemployment rate was less than 6 per ccnl. s<.'~c belt-tightening at that stage of the crisis might have been bearable. 1 h~ public sector borrowing requirement (PSBR) rose rrom 8.6 per cc~~ 0

GNP in 1972-73 to 12.9 per cent in 1976-77. Still. Ryan"s coahl~~·" government was showing some signs of reversing the rise in pu ic

. . the debl was indebtedness. and low interest rates meant that serv1cmg . back. still costlng only 8.2 per cent in 1976-77. Instead of cutting . Fianna F&il's National Development 1977-1980 promised further nse~ in public spending and substantial tax cuts. Order would be restor~. to the public finances through 'revenue buoyancy, control of expen 1~ ture and an enhanced private sector contribution lo the process (~ development'. The plan was low inflation. low unemployment an rapid economic growth, but the outcome was something else (Table 2.10)."

Table 2.10: Plan and outcome. 1979-81 (%)

Prt1jff'ff'd ()11!1'0/llf'

1971) l'JHO 19Hl 1979 1980 I'JXI

llncmployment 7.:; 7.0 :;.n K.7 7.0 J(l.0

lnRalion :;.o ::;.o 5.0 11.8 IH.l 20.~

PSRR 10.:; 8.0 7.0 lJ.2 11.:; 15.9 c;NP growth 7.0 7.0 H> J.S 2.2 0.6

Never before or since has an Irish government got it so wrong. The slow growth - the economy would contract by 0.5 per cent in 1982 -

put paid to 'revenue buoyancy' and high interest rates added to the public debt burden. At the time. both the deficit and the rise In PSBR were rationalized in Keynesian terms. But budget dcficiL~ continued to

70

Economic policy since the 1920s

accumulate in the following few years, shielding the Irish consumer for a time from the effects of the crisis. but raising the PSBR and the national debt to clearly unsustainable levels. Honohan's variant of Sargent's ·unpleasant monetarist arithmetic' dates Ireland's fiscal crisis from the mid-J 970s, when the national debt rose above 60 per cent or so of GDP. The record suggests that domestic lenders could sustain such a level without too much trouble. but that anything above it required recourse to foreign borrowing.

The huge rise in public spending - the PSBR reached 17.3 per cent in 1980 and 20.3 per cent of GDP in 1981 - failed to generate much productive capital: indeed. despite gross investment rates or over nearly 30 percent of GDP in 1978-81. the economy grew at an average rate of only 2.5 per centin the first half of the 1980s. Economists soon began to crttici1.e the fiscal expansion of those years;sr:. indeed. the tone of some critics soon turned apocalyptic! In the strict sense. they were right. since the trend was unsustainable. Politicians were slow to heed the stream of warnings from economists. and as a result much of the 1980s were wasted undoing the damage of earlier fiscal recklessness. perhaps ac­counting for Ireland's relatively pcx>r growth record during those years. However the 'delusion' that Ireland could sustain living standards by borrowing in the wake of the oil price disruptions of the I 9 70s had dissipated by l 9 8 3.

The evolving rhetoric of budget-day speeches reflected lessons dearly learned. In 1976 Finance Minister Richie Ryan set a borrowing target equivalent to 4.5 per cent of estimated GNP. while conceding that borrowing to meet current deficits was not 'justifiable'. By 1978 Fianna Fiiil's George Colley was back in office again. and introduced a landmark budget that sought "to give an impetus to economic activity' that would increase the annual growth rate in GDP to an unprecedented 7 per cent. as stipulated in National De\•elopment 1977-80. This would require an exchequer borrowing requirement of 1 3 per cent of GNP. The combi­nation of tax cuts and spending would. it was hoped. pave the way for expansion in the private sector. Faced with a choice between 'immediate action to restore balance to the public finances· and 'tackllingl unem­ployment and inflation boldly as a fu-st priority'. the government opted for the latter. By 1980. in the wake of the second oil crisis. there was no more talk of growth rates of 6-7 per cent and the 'urgent need· to reduce exchequer borrowing was conceded. The budget speel·h of l 98 l derided 'loose comment about so-called disorder in the public finances'.

A rocky roHd

claiming that 'n1orc responsible co1nn1c11IHl.or.-: n·t·og11isl•/dl 1lrn1 apprn ..

priate action should be enCctcd over Lilnc'. The..· /(,Jlowing Y<'ar· ~aw" change of government c1nd attitudes: the new 111ir1isll'r. t•c1111m11is1 1\l;u1 LJukes. noted that 'our problems in rcb1lio11 lo lht• pub/it" li111111ct·s were

fOrmidable. but not insurmounh1ble'. Hy J 9H .J lht•r·r was a dc•ar n•1'0!;:­

nitlon that the cost of servicing the dchl had "pn•t•n1pll'd n•s11111..-1'" for

the future·. In the following year Dukes rd<.·rred to Ilic '1111susrainahlc

excesses of previous years'. and ren1indi11g the eleclon1h' llial '\\'I' arc now picking up the bills which our predecessors lricd lo push off into

the future'. It was a lesson dearly earned. Soon I hl' kss1111 had lwcn

learnt by all. and in l 99 3 a Fianna Filil Finm1cc Min isle..·~·. Bl'rlil~ ~\I:~~~:~ \ ruled out "populist quick fixes'. By now ( 1 996) the I SHH. hc1. . . reduced to below 3 per cent of GDP. The pcrv.asivc gJoorn ol c..·corwmic commentary in the early and mid-I 980s. rcn1inisccnt of 1hc I Y =i(ls. has

given way to mild confidence about the future. . . olic\' mld The combination of fiscal retrenchment. exchange rc1_lc Pof o~lsidc

economic recovery in the 1980s has attracted the attcnum.1 , others. experL-;, evoking the admiration of some and confounc!~ngrccovcry Prancesco Giavazzi and Marco Pagano have proposed the. ln~h WC). An as a classic example of an ·expansionary fiscal contractw'": "-demand EFC occurs when the negative effects of deflation on aggregate t

are outweighed by positive effects on private expectations. invcstmcn and con.sumption. An alternative interpretation of recent Irish n1•K.r~:~ economic history has buoyant world market conditions and capih inflows outweighing the deflationary effects of fiscal contraction . .:;:;

As noted earlier. Lhe Irish public sector in the 1960s and 1970s grc>'; big relative Lo the economy's level of development. The growth ha',

.earlier origins. The ~umber of civ~I servants had grown from 2 .1 ·."(~~ m 1934 to 33.800 m 1953; pub/re expenditure had already crashc

through Colin Clark's famous 25 per cent barrier by the late J 940s. and peaked at 54--55 per cent of GDP in the early 1980s. The latter

percentage was exceeded in a few other economies (e.g. Denmark. Bene-lux). but n was more difficult lo sustain in Ireland because of its

notoriously narrower tax base. Ireland boasted a low profits lax. a small wealth tax and low taxes on the .•elf-employed. As Cairncross quipped.

'some ingenuity would be needed to devise a tax system with more weaknesses than the one the Irish have acquired'.'"

A succession of ministers have sought. without much success. to 1iinplify the lax system and broaden the tax base. In J 974 the coalition

72

Economic policy since the 192 Os

introduced a reformed wealth tax ( 1 per cent on wealth of £100.000 and above. coupled with the abolition of estate duties) against fierce opposition from the Department of Finance. 59 The tax was abolished by Fianna Pail in 1977. and the next Pine Gael-Labour coalition failed to restore it. In the late 1990s Ireland still lacks a proper wealth or property tax. but the m!ddle-class outrage generated by an increase in the residential property tax in 1994 indicates the political constraints.

Monetary experimentation was also rejected out of hand. and the Irish Free State's currency always readily exchanged into sterling at par. The sterling ltnk was not without its tensions. particularly in the wake oftbe devaluations of 19 31 and 1949. Sean McBride sought to diversify the country's external assets. lamenting alleged capital losses due to the past depreciation of sterling. but the point was largely academic in the late 1940s. given the tnconvertibility of sterling at the time. Advised by ex-revolutionary Bulmer Hobson. he repeatedly warned of the likely losses from a further devaluation of sterling. Nothing was done. and when sterltng devalued on 2 3 June 1949 his government followed im­mediately.60 In June 1953 McEntee urged the Central Bank to 'faciliate the fmancing of national development projects' by 'monetising ... Irish Government securities'. This 'would allay criticism that the banking system was standing aloof because of a preference for sterling invest­ments. and would ease the problem of unemployment' .•1

But the link with sterling probably boosted investor confidence and ensured the acceptance of the Irish pound. The Irish banking sector. dominated by a cartel of joint-stock banks. may have lacked dynamism, but it proved very stable. The banks vehemently opposed the creation of an Irish central bank. and the Free State survived without one until 1943. when the Central Bank of Ireland was set up. Ireland stands out as one of the few economies free of banking panics or failures during the 1930s."'

Economic planning

ln the First Programme for Economic Expansion Whitaker and Lemass pressed the right buttons and the economy took oIT. (Michael Fogarty~ 1 1

A Bank of England official who spent his hol~day~ in Ireland in August 19 5 7 took the opportunity to consult officials m the Department of

A rocky road

Finance on Ireland's economic woes. His rcporl suggl·sts 1ha1 lw w<1s

made privy to some of the ongoing dchalc in Merrion SlnTI:

The fundamcnlal weaknesses rcrnain. ncuncly. lhal loo 11111d1 li;1~ h1·1·11

spenl on unproduclive capital schcn1cs. parlicularl.v h11ildi11J~. Inn li111l· devoted lo increasing the productivity ofagricul111n·. 11nd lhl"n' rs !no 11111 ' h nalionaJisrn as regards the introduction ofinduslry frorn ahroml · · · l'on·1~n industries are welcomed in theory. bul arc hmnprn·d hy !ht• t'o111ml "' Manufactures Act which pres<.•ribes Iha I lhc 111.ajorily inlrn•sl slionltl I~·· 111

J.ti.o;h hands and tends to locate new business in cn11lmuli.-./1 par·t~ nl llw

country to reduce unemploymenl. fl is impossible 10 1nainlo1i11 lo\\'l'f ,~-a~t· rates than the United Kingdom owing lo lhc dcnu1nd for lahuur in t ,n•;il Britain: good skiHed labour tends to emigrate at once. Thl' n·su/1 i~ ll_w• the country gives the impression of being an cconornil" slum from w/udi there is a constant outflow of cmigranL"' who ha\'C any iniliati\'l' und any

de.sire to better themselves.''"

These conclusions. if not quite in the same forthright style. were .cm~~,~ died in an official 'grey' paper. Economic Developml'llf. and Ill l ProgrammejOr Economic Expansion. both documents emanating from l~:~ Department of Finance in late 1958. The Programme marked Jrel.an' ~ cautious conversion to indicative economic planning. The success 0

the French economy in the J 9 50s had raised the profile of such plar~­ning; two years earlier the Irish TimesM had backed Selln McBride s call for a long-term plan. claiming that 'it is only by the establishment of "targets" and a determined attempt to attain them that a revolution­ary increase in output can be attained'. The First Progra..mm.e outlined the strengths and weaknesses of the economy. emphasized the import­ance of farm investment and held out hopes for some economic growth. In Lemass's words. all planning implied was 'estimating what is fee1sible and then endeavouring to create the economic climate that will make this possible'.'•'• In retrospect what is most striking is the modest scope of the targets set out in the First Programme and the vagueness as to the mechanisms for achieving them. An annual growth rate of 2 per

cent over a live-year period was anticipated. While the First Programme indicaled a commitmenl to trade liberalization and the reorientation of

industry lowards foreign markets. in its emphasis on agriculture as the engine of growth it was strictly traditional.'"

The economy soon picked up. and the growth achieved in 1959-6 1 wa.< double the Programme's target. Historians have generally tended

tcJ give the First Programme the credit. Bui when the Second Programme

Economic policy since the 1920s

attrtbuted the success of the previous few years to its predecessor. the Central Bank demurred. It mentioned the availability of unused capacity al the beginning of the period and the improvement in the terms of trade. and claimed that the expansion in 19 59 was 'to a considerable extent in the nature of a recovery from the previous recession·. This alternative view that the economy, which was emerging from recession in any case. would have performed just as well in the absence of the Programme has never been systematically tested. by the Central Bank or anybody else.•• Yet it must be admitted that had the First Pro­gramme's targets been followed to the letter economic growth would have been different and less impressive than the actual achievement.

A recent paean to Whitaker's achievements in the 1950s asserts that 'psychological recovery might have been more elusive without Economic Development' .'-9 One plausible proxy for investor and consumer confid­ence is the monthly data on new vehicle registrations. These suggest widespread despondency between early 1956 and mid-1957; car sales then began to rise. being two-fifths higher in 1960 than in 1959. and annual sales would continue to rise for many years thereafter. That is but one indicator: comparing the percentage change in the value or ordinary shares in Ireland and in the CK between 19 5 5 and 1962 lends less emphatic support (Table 2.111. Both series troughed in February 1958. but it was not until early 1960 that Irish investors began to show clear signs of greater "bullishness' than their British counterparts. One might just as well link the change to the accession to power of Sean Lemass in June 19 59 as to the launch of the First Programme. Yet Whitaker maintained:

Perhaps the best indication of whtH {planning} can achieve is the performance of the economy between I 958 and I 963 [my emphasis]. when we had a steady growth rate. a fairly stable price level. rising employment and area­sonable balance in our external payments. It is no coincidence that this was the period when the psychological stimulus of planning was at its strongest: arter years of sluggish and erratic growth. the community was encouraged by having a national guideline to progress. Critics will say that these developments might have taken place without planning. But objec­tive students of our past philosophy and performance will find it hard to

accept this. 70

The First Programme was succeeded by the Second l 1964-701 and Third Programmes (1969-72). The Second Programme for Economic

A rocky road

Table 2.11: The annual change in share values(%)

Year lr1•/n11cl f'/.;

1955 +O.J \.:;

195h -16.8

\95i -4.2

1958 +18.2

1959 +ll.O

1%0 +1h.1

l)..j

+\fl.I)

+·lh. I

·I..:!

~1. I

+4.IJ 1%1 +16.0

1962 +13.3

Soum~: lrish Trade Bulletin: Economlc Trends (selling Ike. J lJS7 111111. Thl' 11urnlwr' are perccnlagc changes from January lo December.

Expansion was 'to all intents and purposes' the work of Professor Louden Ryan o[Trinity College Dublin. then a lull-time consultant to the llcp•'.rt· ment o[ Finance. Ryan. dubbed the 'most powerful man in Ireland ·: 1

was a\so the leading light behind the neo-corporatist National EconomK and Social Council. Both the Second and Third Programmes were far more detailed. than the first. and contained specific sectoral projectioi;~ In neither case was even the overall aggregate growth rate target 0

per cent met, and both were abandoned before their 'due date'. 'd to The Second Programme, rormally abandoned in 196 7. was lai

rest because or the widening gap between the projections for employ~ ment growth and the year-by-year out-turns. The Third Programme called for a growth rate of 4 per cent in output in 1969-72. and an~; rise of 16.000 in employment. These targets too were soon to pn)\_. unrealistic. The failures explain Richie Ryan's announcement in hi~ 1975 budget speech that 'of all the tasks which could engage in)' attention. the leasl realistic would be the publication of a medium or long-term economic plan based on irrelevancies in the past. hunchc:-; as to the present and clairvoyance as to the future' .n

The Second and Third Programmes were flawed mcthodologi­cally.H The models underlying the exercises were never made full}' explicit. so it was hardly surprising when commentators deemed thcin "generalised, vague. and unsubstanliatcd'. The manner In which Jasl· minute changes were made to the Second Programme may now be checked in the National Archives. and it supports the critics. Por in· stance. the June 1963 drafi stipulated a rise in the share ofimporL"I from 3'8.2 to 50. 7 per cent of GDP and a quadrupling of Industrial exports.

76 ~-

Economic policy since the 1920s

The targeted share was reduced to a 'more reasonable' 46 per cent in the July draft without. however, any change in the overall output growth rate target. The Department of Industry and Commerce judged the target for industrial exports so formidable that it might reduce the overall credibility of the Programme. The target was revised down to 170 per cent (or 10 per cent per annum). In the event this target was not even nearly met. 'In the model on which the programme is based'. Whitaker explained. 'exports are detennined residually. The revision of the import and export figures does not therefore affect the forecast of the external deficit in l 970'J• Whitaker was stung by the comments of critics such as Garret FitzGerald. and a statement issued at the end of August 196 3 protested:

It is not correct to suggest that the targets proposed for the major sectors or the economy are simply an arithmetical consequence of having chosen a Particular growth rate for the economy as a whole. The different growth rates suggested for agriculture. industry, and other sectors are based on a consideration or actual achie\·ements in the past. of likely conditions in the future. and or the potentialities capable or being realised in these con­ditions.75

Predictably. the Central Bank was highly critical of the Second Pro­gramme. Governor Moynihan complained that 'the dangerously unrealistic assumptions and targets remain: it is still proposed to in­crease public expenditure at a rate e\·en higher than the postulated. and probably unattainable. rate of economic growth'. The whole exercise could do 'irreparable harm'. The Bank's warnings were completely ig­nored. however. to Moynihan's chagrin. Ministers were irritated at newspaper comments that the Second Programme had simply adopted the OECD growth target of 50 per cent for the 19 60s without much thought. and that the sectoral growth targets were 'merely arithmetical consequences' of that target. However. both the somewhat cavalier way in which some targets were amended at the last minute and evidence of some misgivings within the government about the OECD target show the criticisms were apt. In mid-July 1963 the astute James Ryan. Min­ister for Finance. drew Lemass's attention to what he deemed •the optimistic nature of the figure for the annual growth rate'. adding that it was for the cabinet to judge ·whether. on political or psychological grounds. this target should be adhered to or a less ambitious one sub­stituted'. However. Lemass seems to have been very keen on the

A rocky road

challenge offered by an ambitious target. He even canvassed ror a 'popu­

lar' title for the Programme. The Departmcnl or Finance rejected his own first proposal 'Ahead to 1970', and he rejected theirs of 'Targclfor 1970' as smacking too much of 'live horse and gel grass' J,t•111;1ss's ncx1

suggestions ('Operation Speed Up' and 'Target: One Billion l:oing Lp'I

were less inspired. In the end the plan came lo be known <1s thl' St•rond

Programme.76

By 1967 it was obvious that the main Largcls of thc Sccond l'ro· gramme, and particularly the employment target, wen· hev1111tl n·•.·~·h. and that seven years was too long for medium-term plannm~. !hr government decided to cut its losses. and embark on a Third I'm· gramme. While that was being put together. 'interim plannin~· would have to do. The targets or the Third Programme ( 1969-7 lJ were not

meteither. , . 1 19681•

By the time Garret FitzGerald published his Plarmmg m lrelmu (. ~ the enthusiasm for planning had peaked. FitzGerald. an cnLhusi~is\ .0~ planning himself. claimed several achievements for planning -eittiti::~. altered the economic atmosphere. it had helped improve co~~ccss of ness by gearing people for free trade. il had spurred ~n the .P ilic~· !Or public sector reform. it promised moves towards settmg prior · . public sector investment and establishing an incomes policy_;; Bui 1~ retrospect the connection between those achievements or goals an economic planning seem much looser than he posited. Given the failu~~: of the Second and Third Programmes to meet their targets. it was har' : surprising that economic planning went out of favour for a fow year~. However. George Colley described his 1978 budget as 'the first in_ i:I

number of years to be set in the context of a formal and positive comJTlll· ment' to medium-term planning. and 19 77 saw the creation of the Department of Economic Planning and Development and l 978 the launch of National Development 1977-80. The trouble was that that plan's projections. built around an annual CDP growth target of 7 per cent in 19 77-80. proved to be wildly and dangerously unrealistic.

The Wa11 Forward (1982). Proposals for Plarr 1984-87 (1984) and B11ildi11gon RealiC!J 1985-87 (1984) followed. all emphasizing budgetary rather than economic growth targets. These documenL"', better charac­terized as stabilization programmes than exercises in French-style indicative planning. marked the end of Ireland's experiment with such economic planning. That experiment is a reminder that selling and rrieeling detailed medium-term growth targels for a small open economy

78

Economic policy since the 1920s

is a difficult. if not pointless. exercise. Indeed. in the wake of the unhappy experience of the previous few years, Proposals for Plan warned against the dangers of setting 'targets which err on the side of optimism'. A looser. milder form of planning has survived to the present. in the guise o[trlpartite (government, trade union and the private sector) agreements about incomes and social welfare policy. The experience of the last few years suggests that such agreements may have contributed something to solving Ireland's most serious social and economic problem. its high rate of unemployment - though it is probably too soon to say .'11

North and South

Comparing the economic perfonnance of the two Irelands since inde­pendence offers the prospect of nice case studies in the effects of policy. While the differences between :\orth and South are often highlighted, 11 15 the broad similarity in tenns of resource endowments. climate. popuJation and area. that offer the controls necessary for comparative analysis. In this section two studies of the impact of policy on relative performance are described. The first compares the two agricultural sectors. Analysis or output and productivity trends suggests that North­ern farmers easily outperformed. Sou them farmers between the 19 30s and the 19 60s. but that the South has virtually closed the gap since ~hen. Why? The most plausible explanation is that the combination of ~ncreased protection in the L1nited Kingdom and policy-induced distort­ions at home shirted Southern farmers away from their comparative advantage after the early l 9 30s. but that the EEC restored to Irish farmers the incentives required to promote productivity.

Geographer Desmond Gillmor's comparative analysis focuses on the increasing divergence in the pattern of farm output in the two lrelands after 19 32 and proposes an 'index of dissimilarity' to measure it. The index is computed as follows. Output is divided into the six sectors given in Table 2.12. The percentage differences in each sector's output share are then added. and their sum divided by two. The resulting number could range from zero (when there is complete correspondence l to 100 (complete divergence). Given the differences in climate and topography facing Northern and Southern farmers. some divergence is inevitable even under free trade conditions. History mattered too: their smaller size meant that Northern farms would specialize more in tillage and

79

A rocky road

poultry throughout. In 1926, when both sets of formers faced similar input and output prices, the value ofGilhnor's index was l 3. 3. llalmosl doubled between then and 1938, rising to 24.3. and rising further Lo

27.9 in 1960. The conditions facing North and South converged there­after. and the index's value accordingly fell back to I 3..t hy l lJl-Fi mul

14.8 in 1992.

Table 2.12: Agricultural output in tlu• two ln•Jmuls: sl'cloral slwn·s

.\'or!/1

't'1·11r 1926 19JS /')()() /'IS~ /'!').!

Tillage 11.fl 12.0 9.1 (1.fl ;.s

Milk 19.4 17.J 17.0 27.8 .!;.h

Cattle l3.1 14.9 21.1 40.S 1-/..h

4.3 3.'> ').8 -!.I 'J..l Sheep

9.3 19.9 18.3 ]{),') <J.=:i Pigs

11.3 21.4 18.i' 10.2 JI.I Poultry

So111/J /'J'Jl

Year 1926 19J/ 1960 198'!

Tillage 14.h 19.0 20.4 11.3 ]4.0

Milk 24.1 2..J..0 23.1 3h.'i ~2.(1

Callie 24.3 22.4 30.3 38.8 HU

Sheep '>.0 h,h 7.0 4.0 ... 8

Pigs 16.0 13.'i 11.4 'i.7 (J.{1

Poultry 15.9 14.h 7.7 3.7 J.lJ

S11um•: D. c:illmor. 'The political factor in agriculture history: trends in lri~~ agric~i!_- ·r turc 1922-85', Agrlru/luml Hist11ry RevirlV. 37(2111989). 166-79': S1<1tbw11/ :\/J.~nm 1919. 70.

Now. from a strictly theoretical standpoint. there is no presumption that the price shifts generated by one set of policies under one regime (the Southern) should do more harm than the shifts generated by differ­ent policies under another (the British). But the disastrous performance of Southern agriculture suggests that Northern prices produced Jess distortion and therefore better productivity growth. More recently. both agricultures have moved out of pigs and poultry and into milk and cattle.

The focus of the second case study is manufacturing. In an analysis published in the wake of the Republic's conversion to outward-looking economic policies. Dermot McAleese tested the proposition 'do tarilf.<.; matter?' by comparing the structure of manufacturing in Lhc two Ire-

RO

Economic policy since the 1920s

lands before and after trade liberalization. He noted that although the North is commonly thought of as largely industrial and the South as mainly agricultural, in the early 1960s the industrial sectors of both were or roughly equal size. Moreover. in terms of area and population the differences between the two Irelands did not seem that great. It should follow that 'any pronounced divergence in the degree of special­ization found in the two economies can be attributed to the different trading conditions under which their manufacturing sectors operated'. Comparing the ratio or merchandise trade to gross output in the North and South In the early 1960s, just before trade liberalization. and in the South in 1971. by which time trade liberalization had some time to have an impact. seems to support the view that tariffs did indeed 'matter' (Table 2.1 3 ).

The test is not entirely 'clean'. however, because the starting-points of the two industrial sectors in the 1920s were radically different. Before the swing to protection in the South in the early 19 30s, exports there accounted for about one-fifth of gross manufacturing output compared to over four-fifths ofl'iorthem Ireland's."' Still. the 'convergence' implied by McAleese has continued since.

Table 2.13: Output and trade. Xorth and South. 1963-71

GOt!m.1 x.Go 1'\.1 ,\1/(GO x +,\if) North. l 963 -in:; :;9_; 4::;_7 South. 1964 'iH 21.2 16.4 South. 1971 1245 28.3 19.0

Notes

Ernestine Wolger. 'The economic impact of the Northern Ireland conflict'. Irish Banking Review lSummer 1994). 23-32. Harvard economist Robert Barro found this to be the case. once initial levels of human capital had been controlled for. See his 'Economic growth in a cross section of countries', Quarterly Journal of Economics. 106(2) (1991). 407-44.

3 T. K. Whitaker Economic Development (Dublin.1958), 35. 4 C. 6 GrB.da and K. O'Rourke, 'lrtsh economic growth 1945-88', in N. Crafts

and G. Toniolo (eds), European Economic Growth lCambridge. 1990). 5 Walter Korpi. Welfare State Development in Europe Since l 930: Ireland in a

Comparative Perspective lDublin. 1992): F. Cairncross. ·Poorest of the rich'.

81

A rocky road

The Economist. 16 January 1988. Compare J. O'Hagan. 'Social scrurity', in N. Gibson and J. Spencer (eds). Economic Actil•iL.11 i11 lrdmul: :\ St/lfly of Two OpenEconomies(Dublin.1977).104-14.

6 J. Sheehan. 'Education. training, and the Culliton HL'porl'. I:('[) ('cn1rc for Economic Research. 1992; B. M. Walsh. The con!rihulion of t'durnlion to Irish economic growth: a survey', mimco. llni\'crsity l'olkgc. lluhlin.

January 1996. 7 T. K. Whitaker. 'From protection to free trade - 1hc Irish t·xpmt'1Kc' :\d­

ministration. 21(4) (1973). 413-14: Jaml's L. Will's ;ind K1d1ard

D. Finnegan. Aspirations and Realities: A 1Jocwm•11tm·.11 Ilistor,11 o/ f:'i·fln• 111 111

Development Policy in Ireland since 1922 (Westport Conn., I lJlJ n S~ g For example. J.P. Neary and C. 6 Griida. 'Proteclion. ccono111k \\'!IT and

structural change: the 1930s in Ireland', Irisli Historiml ,\'trulil's. 2-: 1i9S.lJI.

2 50-66. Admittedly. allowing for imperfect compclition and inacasing

returns to scale muddies the waters. . 1 9 Compare W. J. L. Ryan. 'Measurement of taritT levels for lrchrnd Jnr 191 i

1936. and 1938', Journal oftl1e Sratistical and Social lnquiry Soci1•1,11 of lri•/am: 18 (1948/49). 109-32: c.6 Gr0da. lrelm1d 1780-1939: A Ni'W [{'OllOlllll

History (Oxford. 1994) ch. 15. 10 In Whitaker. Economic Development. pp. 234. 239. 91 ~ 11 See M. E. Daly. l11d11strial Developmmr and Irish National Iclenlity. J 922-I

(Syracuse. 1992). 108: 6 Gr0.da. Ireland 1780-19 39. ch. 15. -. 12 F. H. Hall. An Inquiry inlo Irish Commercial Profits (Dublin. 19 51 ). ~.,~

P. Lynch. 'The Irish economy since the war. 1946-51 '.in Kevin B. l\'oW 1 ~ and T. D. Williams (eds). Ireland in the War Years and Ajter 19 39-51 (Dub in· 1969). 189.

13 Marshall Plan submission. 1948. para. 43; Commission on Emigration· 161.

14 Commission on Emigration and Other Population Problems. R1'port (Dublin· 1956), 161: Lynch. 'The Irish economy since the war', 185-200.

15 Whitaker. Economic Development. 13. 190: also T. K. Whitaker. 'Capital for­mation. saving and economic progress'. Administration. 4(2) ( 19 .:;<il. ll-40.

16 NAD. Sl6.h66B. (1959). 17 Compare Ryan. 'Measurement of tariff levels for Ireland'. and D. McAlecSt'·

Effecti\•e Tariffs and the Structure of Industrial Protection in Ireland (Dublin. 1971 ).

18 NAD. SI 7122/B/hl. 19 lrisl1 Industrial Yearbook (Dublin.1941). 90. 20 TCD MS. 9828. On the footwear industry generally see Jon Press. The Foot-

wear bidustry in Ireland. 1922-1971 (Dublin. 1989). 21 Business& Finance. 15 December 1965. 22 J. J. Lee. Ireland 1912-1985: Politics and Society (Cambridge. 1989) 482. 23 The dala are given in the OECD reports on lhe Irish economy.

82

Economic policy since the 1920s

24 E.W. Bond and S. E. Guisinger. 'lnvestment incentives as tariff substitutes: a comprehensive measure of protection·, Review of Economics and Statistics. 67(1) (1985). 91-7.

21 R. D. Crotty. Ireland in Crisis (Dingle. 1986). 90-6. 26 Barro. 'F.conomic growth in a cross-section of countries'. 407-43. 27 R. Baldwin. 'The growth effects of 1992'. Economic Policy. 9 I 1989). 248-

81: Sebastian .Edwards. 'Openness. trade liberalization. and growth in developing countries'. Journal of Economic Literature. 31(3) ( 199 3), 13 58-93: A. Young. 'Leaming by doing and the dynamic effects of international trade'. Quarterly Journal of Economics. 106(2) I 1991). 369-405: ). Sachs and A. Warner. 'Economic reform and the process of global integration'. Brookings Papers in Economic Activity (1995).

28 Erin E. jacobsson. A Ufe for Sound Money (Oxford. 1979). 12 7. 29 C.O Gnida. 'Money and banking in the Irish Free State 1922-1939'. in

Charles Feinstein (ed.). BanJdng. Currency and Finance in Europe between rhe Wars(Oxford 1995).

30 This can only be a tentative verdict on what remains an obscure phase in lrish monetary history. The author and Patrick Honohan hope soon to complete their study or this episode.

JI 6 February 1957. 32 R.Fanning. TheDtpanmenl of Finance 1922-58. (Dublin.1978) 501-5. 3 3 On this episode see Kennedy and Dowling. Economic Growth in lreland.

224-5. 34 K. A. Kennedy and Brendan R. Dowling. Economic Growth in lreland: The

Experience since 1947 tDublin. 1975). 191-2. 35 Maurice Moynihan. Currf'ncy and Central Banking in Irdand 1922-1960

(Dublin. 1975): Padraig McGowan. Monf'y and Banking in lrf'land (Dublin. 1990): (J Grada. lrtlnnd. -124--31.

36 Sunday Tribune. 20 June 1993. 37 NAD. Sl 5456: Irish Timf's. 31 January 1955: Leon 6 Broin. No Man's Man:

A Biographical Mmwir of Joseph Brennan lDublln. 1982). 158-9. 38 The foundation in 1960 or the Economic Research Institute (later the Econ­

omic and Social Research Institute) was an important advance in this

respect. 39 Annual Report 195617. 29. 33.

40 Q Broin. No Man's Man. 15811'.

1 Irish Banking Review. (September 1960). 4 2 Since 1989 the Central Bank has had no bank representatives on its board. 4 NAD· SI 53288. 43 G rret Fit.zGerald. All in a Life (Dublin. 1991). 616-17. 44 a ~-.·ibson 'The banking system·. in Gibson and Spencer. Economic 45 Norman u • _

ActivilY in Ireland. 2 '.:19. . f iled d'ger Dornbusch 'Credibility. debt and unemployment: Ireland s a

46 ~L~b~lization'. Econo~1ic Policy. 8 ( 1989). 17 3-101: Anthony J. Leddin and

83

A rocky road

B. M. Walsh. The Macroeconomy of Ireland (Dublin, 1992), J90- J: Lcddin and Jim O'Leary, 'Fiscal. monetary and exchange rate polky'. in J. W. O'Hagan (ed.), Tl1e Economy of Ireland: Policy and Perfom1m1cr of 11 .~mt11/ f)pfn

Economy (Dublin. 1995) 183-8. 47 'Costing the delay in devaluing 1992-3', Irish Ha,,ki11g Rr1•i1•w. !Spring

1994). 3-15. 48 Lynch. 'The economist and public policy'. Studl1•s. 42 I 19'; H: 1'1\ll.

SI 53288. See also Paul Bew and Henry Palterson. S1•ti11 J,1•11111s.,· tmil 1lrt

Making of Modem Ireland (Dublin. 1982). 68. 177 '! l. fln 49 J.M. Keynes. 'National self-sufficiency'. Studies. 22 ( 19 J J J.

Blythe. see 6 Broln. No Man's Man. 123-7. 50 Kennedy and Dowling. Economic Growtl1. Table 15. , / 51 ). O'Hagan. 'An analysis of the growth of the public sector in lrc:~~~r)~m;r;.11

of the Statistical and Social Inquiry Society of Ireland. 24( 2) ( 1 9' · 52 Lynch. 'The Irish economy since the war'. 187. 53 Evening Herald. 27 July 1953.

~~ ~~~~~~~~:~taken from Wiles and Finnegan. Aspirations and Realities.

210. bl" n ces'. Irisll 56 B. Walsh and C. McCarthy. 'The coming crisis in the pu IC man n'eyof

Times. 29-30 September 1980. was an early example. The o.ECDt~~ major May 1978 pointed to 'the very high level of unemployment as ey in problem facing policy-makers. a message echoed by the next ~ut~at the January 1981. However. in August 1982 the survey team deeme 'd rable critical budgetary position 'requires restrictive policies over a consi e period". . 8 ry;

57 F. Glavazzi and M. Pagano, 'Can severe fIScal contractions be expa~Sl~~ru1til Tales of two small European economies', The NBER Macroeconomics 1 But (1991); R. Dornbusch. 'Credibility. debt and unemployment'. 1~3-2.0 ·le?'. see, too. Frank Barry. 'The Irish recovery 1987-90: an economic mirac h Irish Banking Revlew(Wlnter 1991). 23-40: F. Barry and J. Bradley. 'Ont ~ causes of Ireland's unemployment'. Economic and Social Review. 22 ( 199 I · 253-86: P. T. Geary, "Ireland's economy in the 1980s: stagnation and re­covery. a preliminary review of the evidence', Economic and Social RevietV· 23 (1992); Leddin and Walsh. Macroeconomy of Ireland. ch. 13.

58 Frances Caimcross. 'Ireland smvey', The Economist. 16 January 1988. 8. 59 FitzGerald. All in a Life. 300-1. 60 NAD. S14617A. 61 Panning. Finance, 495. 62 J. Pratschke, 'The establishing of the Irish pound: a backward glance', Econ­

omic and Social Review. 1(1) (1969). 51-75: 6 Gnida, 'Banking In Ireland'. in C.H. Feinstein (ed.). Banking in Europe between the Wars (Oxford. 1995).

63 Michael Fogarty, 'The two faces of industrial relations'. in K. A. Kennedy (ed.). Ireland in Transilion (Cork. 1986). 113.

84

Economic policy since the 1920s

64 Bank or England Archives. OV81/2, Memorandum on 'The Irish Republic' by J.M. Stevens (impressions gained during a trip to Ireland in August 1957).

65 9 November 1956. 66 'Sean Lemass looks back', Irish Press. 27 January 1964. 6 7 The ethos of Economic Development. which had set the scene for the First

Programme, was strongly pro-agriculture. In its discussion of agricultural education (p. 115) it could think of 'no good reason ... why the fundamen­tals underlying an industry which provides 30% of the national income and employs nearly 40% of the total working population should not be taught to all children. of whatever background'.

68 See. however. the comments of P. Neary. 'The failure of economic nation­alism', in M. P. Hedennan and R. Kearney (eds). Ireland: Dependence and Independ.nce (Dublin. 1984). 71-2.

69 John P. McCarthy. Planning IrdaruJ's Future: The Legacy of T. K. Whitaker (Dublin. 1990). 63.

70 Cited in B. Chubb and P. Lynch. Economic De\•dopment and Planning (Dublin. 1969). 300.

71 BusJness & Finance. 19 March 1965. 72 Cited in J. Bradley. 'The legacy of Economic Development: the Irish economy

1960--1987'. in McCarthy. Planning Irtland's Future. 134. 73 See D. A.G. Norton. Problfflls in Economic Planning and Policy Formation in

Ireland 1958-1974. Bl"oadsheet Series 12 lDublin. 1975); Bradley. 'The legacy of Economic Development·.

74 NAO. 5174378 •

75 Irish Press. 31August1963. 76 NAO. DIT 517437/A and D/T Sl7·B7/B. 77 G. FitzGerald. Planning in lrt'land lDublin and London. 1968). 206. 78 Durkall, 'Social consensus and incomes policy·. Economic and Social Review.

23(3) (1992) : K. A. Kennedy. Facing the Unemployment Crisis in Ireland (Cork. 1993).

79 O. Gillmor. 'The political factor in agricultural history: trends in Irish agri­culture 1922-85'. .1.griculrural History Review. 37(2) (1989). 166-79: o. McAleese. 'Do tariffs matter? Industrial trade and specialization in a small open economy'. Oxford Economic Papers. 29(1) (1977). 117-27: 6 Gr.ida. 'Did tarilTs matter that much? Ireland since the 1920s'. CEPR Discus.sion Paper 242. June 1988.

3

Poverty, employment and institutions

No man is worth more than a thousand a year. (Fianna F;:iil l'lccl ion slog;in 1932)

I doubt if Lhe annual wealth created in Ireland was shared oul cwnlv between all individuals that it would give one pound a week to everybody (AE (George Russell). February 193 3)

Poverty and inequality

Poverty and inequality have spatial. historical and interpersonal dimen­sions. In Ireland trends in the spatial aspect. long highlighted. are. perhaps the easiest to capture. The Great Irish Famine of the 1840s killed one person in four in parts of the west. while parts of the east and north escaped relatively unscathed. The contrast highlights an casl­west regional problem. which persisted long into the period reviewc~I here. While the famine reduced regional inequality in brutal fashion. 11

by no means eliminated it, and in subsequent decades the Congested Districts Board. the Land Commission. the Underdeveloped Areas Board (empowered to attract foreign industry with generous grants). and Ddaras na Gaeltachta were all created to attenuate regional disadvant­age. In 1968 an important consultant's report on regional strategy (The Buchanan Report) suggested that aid be concentrated on a limited num­ber of larger population centres. but government policy statements remained dispersionist in tone. The rhetoric of public representatives and community organizations in the west continues to be one of undcr­privilege. Campaigners in favour of retaining threatened factories and the Shannon stopover (on which more in chapter 6) have long couched their demands in regional terms. The 'Crusade for Survival' launched by western Catholic bishops in the early 1 990s reOects the same ethos.

Yet if Ireland's regional problem is defined in terms of the gap in

86

Poverty. employment and institutions

standards between those living in advantaged and disadvantaged coun­ties, then it has been virtually eliminated during the decades reviewed here. Though a variety of transfers and subsidies both from Dublin and from the European Community have helped by increasing purchasing power. improving infrastructure. and providing better access to key services such as health care and transport, out-migration from the poorer counties has been mainly responsible for closing the gap. At the outset. the higher emigration from the west was due to relative poverty: that emigration in turn reduced the income gap between counties. Thus in 1936 the poorest of the four provinces. Connacht, contained 17.7 per cent of the South's population. but in 1971 Connacht's share was down to only 1 3 per cent. However. since the I 9 70s the west has almost managed to maintain its share of the population. and in 1991 Con­nacht's share was still 12 per cent. Emigration rates across counties have also converged in striking fashion (see chapter 7 ).

The limited data available on regional incomes suggest significant ~onvergence. The movement in the coefficient of variation of per capita mcomes for the eight planning regions between 1960 and 1984 was as shown in Table 3. l.'

Table 3.1: Coefficient of \•ariation of income per head across planning regions. 1960-8-l

Yet1r l"mwiglH<il ~\.t'ig/Jlt'J

19fill 0.1 ;;;2 0.179 l91i') ll 1 :-1 0.18'; 19fi9 ll.lhfo 0.18fl 1971 ll.!B 0.1-15 1977 0.129 0.14-2 1984 ll.09~ 0.122

Other information confirms this outcome. For instance. as late as 1961 72 per cent or houses in County Leitrim lacked any sanitary facilities. as did over 60 per cent of houses in Clare. Kerry. Longford and Ros­common. Three decades later. Roscommon was worst placed. but its 18.9 per cent marked both a big improvement and relative catch-up. Official data on radio and television licences and oa car ownership also register both improvement and regional convergence. In 1951 Ireland had 11 O radio licences per thousand population. In 1991 radios no longer required licences. but there were 2 3 i; television licences per ~d population. The coem:;nt or variation across counties

A rocky road

fell from 0.38 for radio ownership in 19 51 Lo 0.21 for Lclcvisions in 1991.

The evolution of private car ownership serves us unolher handy. informal index of living standards across countries. It can <1lsc1 provide a rough ranking of the trend in living standards across Irish counties. [n Ireland, the number of cars per thousand population rose from 14 in 1936 to 103 in 1966 and 237 in 1991. The cocffic:icnl ofvarmllnn in ownership across counties has plummeted: from 0.42 in 19 \6. lo

0.32 In 1951. 0.15 in 1966 and 0.06 in 1991. The corrclalion acrnss counties in 19 36. 19 51. and 1966 was high. but dropped rnnsidcrahly thereafter. County rankings also changed dramatically. as Table U shows. Between 1966 and 1991. new registrations of bigger cars cvc~cd out even more (with the coefficient of variation per 1,000 population

dropping from 0.46 to 0.19).

Table 3.2: Private cars per 1,000 population. 1936-91

J 9~6 1951 1966 1991

Top 1:-'ive:

Dublin Dublin Meath Cork

Meath Meath Tipperary Tipperary

Kildare Kildare Wicklow Kilkenny

Wicklow Carlow Kildare Westmeath

Carlow Tipperary Dublin Meath

Bollom Pil>r:

Roscommon Roscommon Sligo Monaghan

Donegal Leitrim Galway Mayo

Kerry Kerry Donegal Offaly

Mayo Donegal Leitrim Louth

Leitrim Mayo Mayo Donegal

The strong correlation across counties between the rate of population change. on the one hand, and the rise in the number of cars or radios/TVs per head. on the other. also suggests the role played by emigration in convergence. There was a strong correlation across coun~ ties between population decline and improvements in housing conditions. Unemployment and emigration, two other correlates of poverty. are also much more evenly spread across the country now than they were two or Ove decades ago. In the Ireland in the mid-1990s poverty and deprivation were much more serious in some of the

88

Poverty, employment and institutions

sprawling working-class suburbs of Dublin and Cork than in the rural west. There much remained to be done.

Because the regional convergence in living standards has come about mainly through emigration, it has affected the viability of many parish and village communities in the west. Emigration (and partition) has left the Irish Republic with a rather lopsided population distribution. with Dublin city and its hinterland accounting for nearly one-third of the total. But it could hardly have been otherwise without further sacrifices ln average living standards. There was little that policy could achieve ln the face of an average fann size in the poorest counties that was too small to allow the requisite productivity change. And. on the manufacturing front. decades of spending on short-lived industrial projects through the Underdeveloped Areas Act of 1952. the IDA. and Odaras na Caeltachta and continued subsidization of communi­cations proved that the much of the west was a basketcase in that respect.

The White Paper on !\ational lncome and Expenditure 19 3 8-1944 contains the first detailed estimate of income distribution in Ireland. Its data on personal incomes ti.e. aggregate income less undistributed profits and the income of charities I in 1938 and 1943 are incomplete. but they are still useful. Though the revelation that the top three thous­and or so took 5 per cent of all income in 194 3 must have made UCD

economist George O'Brien's assertion that 'the distribution of income in Eire is not marked by any high degree of inequality' hard to swallow. O'Brien was probably not far from the truth in comparative terms. 2 The data showed farm incomes rising from 2 6 per cent of the total in 19 3 8 to 37 per cent in 1943. E.xcluding the majority making an annual income of £150 or less, whose total number was not given. the estimates suggest little change in inequality over the period (Table 3.3).

Table 3.3: Income distribution in Ireland, 1938-43

Rat11lf t1I it1nmu· (%J 1Y JS 19·H 1918 1941

/Pasons) fhinime)

c 150-(100 28.8 2h.9 13.S 12.')

cz00-(100 18.0 19.'i 25. l 25.0

19.2 18.:; l':I.;- 18.4 C 300-L~OO

lll.2 10.=-i 18.4 IS.h csoo-t woo

J.8 4.h 11.1 2'>.5 ewer t: woo

100.0 IUO.O IUU.U ltlO.U '('ol<ll ,. 89

A rocky road

'fhere is a consistency to economic analysis of the issue since 1hcn. Patrick Geary's study of inequalities in income and weallh in Ireland and in the United Kingdom in the early 19 70s stressed illl' p1111r quality of the underlying data. Yet the numbers rnuld supporl a rlaim that the former was not 'exceptionally high' and the lallcr a lilll<· lu~hrr in the Republic than in Northern lreland. 1 The availahk dala "'~~rsl \\tt\e change in economic inequality since the I 9 70s. (;(·an· rcportt·d the wealth shares of the top 1 and 4 per cent in I %6 al 11 and iX per cent. respectively. Analysis of Irish wealth distrihulion by hmN'­holds in the late 1980s found the top 10 per Cl'llt of housdiolil' holding about half the total household wealth. and the top I per rent about 20-25 per cent.~ Given the data biases charactcrislir ol surh surveys, the results are 'highly speculative and tcntati\'c·. hut comparable research in the USA shows numbers or 6:; per cent and 30 per cent !or the top 10 and l per cent of households in the lauer period. As for incomes. estimates by economists Tim Callan an~ Bna~ Nolan or the Gini coefficient for lrish income distribution in 1 9 I ~ a1,1

1987 revealed little change (36.7 per cent and 35.2 per ccntl. In .l •~ UK the coefficient rose from 2 5.5 to 30.2 per cent over the same pcno' · but elsewhere in Europe it registered little change. However. co~· parison o{ income distribution levels by families and individuals 111

seven countries including Ireland in the late 1980s revealed Ireland as the second most unequal country. Ireland's relatively high Gini co· etlkients stemmed from the particularly high share of the top quintile and the relalively low shares of the second and third quintile. ln another survey o{ income distribution in European countries in LhC 1980s. based on a sample of founeen. Ireland emerged as the mosl unequal or the lot. This result held regardless of whether incqualitr was measured by the income of its top decile as a percentage of the median. or by the bottom decile's share of total income (in Ireland. a measly 2. 5 per cent).

. This looks bad. but what or the argument that Ireland's income \ ·~: distribution was not unduly unequal. given its stage of economic

development? In the recent past relative poverty rates were a good deal higher in Ireland than in more developed EU countries. but they were not unlike those found In Spain. Greece and Portugal. Thal defence ignores the fact that average Irish incomes were. at least until recently. much higher than that or these countries. and that in the 1980s all three had only recently emerged from fascism. Besides. its rather

90

Poverty, employment and institutions

disheartening implication that reformist politics cannot reduce income or wealth inequality. since they are tightly constrained by a country's degree or development. is not corroborated by other studies.; An ob­vious target. now being addressed to some extent. is the highly unequal access to education in Ireland and the significant variability or even primary school quality across socio-economic groups. n

As noted earlier. the policies of Cumann na nGaedheal in the 1920s, are likely to have increased the gap between rich and poor. True, they were fiscally constrained by the needs to repair civil war damage and to establish an economic reputation. But there was a hard edge too to the pronouncements of government spokesmen such as Ernest Blythe. Kevin O'Higgins and Patrick McGilligan. Social Welfare Minister P. J. Burke supported the cut in the old age pension in 1924 with the claim that 'one or the most serious defects or the Irish character is this tendency to dependence of one kind or another'. 'The number or people who lead a parasitic existence'. he continued. including the unrortunate old age pensioners. '[was] increasing relative to the num­ber or people who are striving to make an honest living'. But that was mild stuff compared y.;th ~kGilligan · s announcement in the 08.il a rew months later that "people may ha\·e to die in this country and die or starvation' .7 Cumann na nGaedheal abolished assistance to the un­insured unemployed - the dole - at the end of 1924.

In so far as economic and social policy was concerned, the young Fianna F8..il was a coalition of radicals and moderates. Overall. Eamon de Valera's party was far more indulgent and populist in its attitude to welfare than its predecessor. ~or was it merely a matter of rhetoric: soon after gaining power. it extended unemployment assistance (or the 'dole') to small farmers. and it increased the old age pension and un­employment benefits. In I 944. against strenuous objections from the Department of Finance. it introduced a system of family aUowances to rarnilies with three children or more. Though neither as generous nor as rair as the old age pension. it proved a boon to many hard-pressed ~ milies.H The first inter-party government that succeeded Fianna Fail .8 1948 was also more liberal than pre-1932 Cumann na nGaedheal. m d tematic ideological differences between subsequent administra­~n 5~5 this sphere are difficult to detect. uons ~orthern Ireland the regional gap in living standards has also

In owed over the last half-cent~ry. The chan~e in administrative oarrndHrics in 1971 rules out contmuous compansons over the whole

bOU ~ 91

A rocky road

period, but the data on housing amcnilics in l 9 71 and l lJlJ l tell an important part of the story.

Table 3.4 shows that the gap between the best- and worsl-nff dislricl~

was still considerable in 1971. but had almost vanished two dl'radcs later. In Northern Ireland, too, out-migration and transfers \Vl'rl' mainly responsible for the reduction in regional inequality. Fl'rma1rnµh, Lhc poorest region. contained 4.3 per cent of the North's populcttion in 1937; today it contains only 3.4 per cenl.

Table 3.4: Regional inequality in Northan lrt'lm11/ /'!{,)

Dislricl

Hm1s!'lw/1h ll'irlim1•11 /l1111\d1••/,1'11·11/1,•11·11

jb:i•d slro\\'t'r or /mt/1 in\i,/r 1''1frr

1971 1991 /<JI/ /'i'i/

Poorrsl: ,,:;_.J Fermanagh 'i0.5 9-1-.6 51.8

Strabane 59.0 90.0 61.6 'J;-_o

59.9 Y7.4 hl.2 9;-,'l Banbridge

Rk/1rst: 9<J.S

Casllcreagh 97.h 99.7 91.7

Newtownabbey 91.5 99.3 92.2 l)l).f,

North Down 94.4 99.l 93.4 ~ Source: Census Reports on Housing. 1971 and 1991.

In Northern Ireland. the inequality between Catholics and Prote~tan~~ has long been more controversial than that between the regions: inlt ~ 19 60s it was this that sparked off what would become the 'Troub es~ The extent of the inequality is less disputed than its causes. In rece~ decades public policy has had considerable success in redressing t c problem. The long-standing higher propensity of Catholics to emigrate. a tell-tale sign. seems to be a thing of the past, and by the 1990S Northern Catholics could hardly complain of unequal access to higher education or public housing. Catholics had made considerable inroads into white-collar and managerial positions. They still stood twice as high a probability of being unemployed as Protestants. though in 199 6 the Northern Ireland Fair Employment Commission concluded that most of the remaining disadvantage stemmed from the under-repre­sentation of Catholics in the security forces.'' More controversial is the relative importance of discrimination and culture in explaining the in­equality. Queen's University geographer Paul Compton has long argued that Catholic privation stems from faster population growth and bigger family size, a claim hotly disputed by others. 111

92

Poverty. employment and institutions

Another controversial 'inequality' is that between those living off the land and the rest of the community. In the South the Emergency or 1939-45 reduced that inequality, due to the gains reaped by the rela­Uvelydlsadvantaged farming class. 11 However. the average farmer was stlll disadvantaged when Ireland joined the European Economic Com­munity in 1973. As a result, until the mid-19 70s all farmers - including a small minority of very rich farmers - were exempt from income and wealth taxes. Farmers played ducks and drakes with early attempts at gelling them to pay their fair share: in 1975 only nine thousand farmers paid tax, and they contributed only £ l. 5 million out of an aggregate income from farming of£ 5 36 million. Against stout resistance from the farm lobby, Finance Minister Richie Ryan introduced an assessment or incomes based on rateable valuation and a tax multiplier. That measure was eventually rejected by the courts. Farmers now pay taxes on the same basis as other self-.,mployed workers: rightly or wrongly. the urban perception that they are under-taxed persists. The disproportionate par­ticipation of farmers' children in higher education in recent decades seems to belie the disadvantaged status or Irish farm families.

Ireland's political structure means that far more attention is devoted to regional inequality than to interpersonal inequality. The electoral system and the relatively small number of votes required to win a seat In the Dail have put a great premium on localism. 12 In Ireland six or eight thousand votes have usually been enough to obtain a seat: in the UK it typically takes forty or rifty thousand votes. Multiple-seat constit­uencies add to the inclination of Irish parliamentarians to worry more about parish pump than national issues. The large number of Irish Parliamentary Questions devoted to obscure local issues is indicative. A nice example is the query in December 1942 from west Cork deputy Timothy Joseph O'Doherty whether the Minister for Finance was aware 'of the bad condition of the passage leading to Mr. T. Kingston's bog at Carrigbawn. Drinagh, Dunman way'. In 1971 a Mayo TD (Teachta Dala - member of Irish parliament) demanded that the Minister of Posts and Telegraphs 'provide an all-night telephone service for Kilkelly. Co. Mayo', and a Louth colleague raised the issue of a proposed swimming pool for Drogheda. In 1987 Jim Mitchell. a 101111-serving Dublin TD. asked whether 'In view of the facts of a case (details supplied) in Dublin 8 ... the unemployment assistance paid to the person concerned. [could be] reviewed and increased'."

The drawbacks of localism are widely recognized. and they are

(i 93

A rocky road

accentuated by an electoral system which produces as much riv<ilrv between candidates o( the same party as between parties. Irish pnhurs

is dynastic and localized. The number of true independenls in llH· \Jail may have !alien in recent years, but \ocalism slill mflllcrs. Nol ,.,,.111\w neo-\iberal Progressive Democrats are immune. '\'hey l'oughl hard 10

retain the costly Shannon airport stopover in the early I 'l'll Is. lor k;ir ol hurting their electoral base in nearby Limerick.

The civil war and the lack o[ a traditional urban induslri;d has<' hclp<·<I

deprive politics in the \r\sh Free State o[the classic \eft-righl di, id<' lo<nHI

elsewhere. However. there was a radical streak to the young Fianna ra\\ ~founded \n 1926), and many o[ the neW induslria\ workl'fS of i!K 1930s supimrted the party. Whether workers fared bctlcr under Fianna ta\\ regimes than under the inter-party governments of J 948-S l an~l 19 54-5 7 remains an unanswered question. Fine Caci veered mildly [ell ID the 1900s. and \n 1977 business interests found Fianna F{1il !11ore congenial than the prospect of another Fine Gael/Labour partncrshIP.·

Gender \nequa\ity takes many (orms. but in Ireland one of the 1~10~~ v\s\b\e has been wage d\scriminaUon. Until the early 19 70s the rall~ ( foma\e to ma\e hour\y earnings in manufacturing hovered around .,(1-

S 7 per cent. lt has risen since then. reaching about 70 per cent in the m\d-l 990s. Most o\'\k\a\ data on the wage gap have referred LO manll­facturing. However, an important ESRI survey analysed by Tim Calla_n and Ann Wren v. showed that \n the labour force as a whole the ral!O was about 80 per cent in 1987. Moreover. when the analysis controls for labour market experience the gap became smaller still - about 7 per cent for workers aged under 35 years. Thus in the late 1980s - and presumab\y sti.\\- mosto{the gender gap stems from the fact that women workers tend to be younger and less experienced.

Labour force and unemployment

\n the mid-1960s when unemployment was under 5 per cent. the National Industrial and Economic Council speciHcd 2 per cenl HS full employment. Expectations fell as the actual rate rose. Recent studies and po\itica\ programmes avoid selling targeL<; for unemployment 1 ·~ Today unemp_loyment is at 12 per cent. down f~om the peak of 20 p., cent rea.ched m the mid-1980s. but still highest Ill the Ell outside SpiJ~r {where ll was 22.:; per ccnl of the labour force in 199 5). 11

94

Poverty. employment and institutions

Trends In the labour force participation and unemployment in the two Irelands over the last half-century or so have been rather similar (Table 3. 5). While unemployment in the Republic has been higher than in almost anywhere else in Western Europe throughout the period. Northern Ireland has long been the United Kingdom's unemployment 'black spol'. The number of men at work has failed to rise either in the North or the South since the 19 50s, but female labour participation has risen in both. The rise has been faster in the North, where women accounted for 42 per cent of the labour force in 1993 (against 34 per cent In the South).

Table 3.5: The labour force ILFJ ( I.OOOs) and unemployment (UE) (%).

l 9;J-9 3 y.,,, .\lall"s Ft'mt1lt's for11f

Lf" CE LF UE LF UP. A. lrrlnrzd

19'il 9..Ji".1 3.:?!i.8 1272:.0 4.1 1961 811.5 .?811.h 1108.1 1971 8.23.'i '·0 .28ft.h J.9 1110.I :;_.:; 1981 91.?.5 11.3 H9.I fd 1271.h 9.9 1993 90f<i.O 1'VJ ·Ui9.0 1.?A 1375.0 lh.7

B. Nnrtl11'm lrPland 1951 -l.W.8 C.l 181.ft 'i.ol fi0].4 •.. 1961 389.0 h.1 183.5 'i.1 'i/2:.'i 5.8 1971 381.l :-.:; 196.U 4.2 577.1 h.4 1981 40.?.h 20.h .?81i.h 11.9 fri9.0 li.1

_!_99 1 -1.?l.'i 18.7 310.9 7.6 iJh.O 14.0

~~1;0:: ~-l:O:l'o~nell and 1-1- Sexton. 'Labour market developments in Ireland. 1971-M l • m S.lan111lun. J. l'unis and I. Fitzgerald (cdsl. Emmmrk Perspt'l'liwsfor lhl'

Nffimt Tm11 tlluhlin. l"l'J-41. 3--Hl: :'\orlhL•m Ireland Digest orStatistk:s: PHI North· em Ireland l\'Ilsus.

Unemployment has been a long-standing preoccupation in the Irish Republic. This is reflected in the long series of White Paper.; and gov­ernment programmes since T. K. Whitaker's Economic Development ll 9 58 ). Whitaker listed unemployment as one of the 'outstanding fea­tures' of the lrish economy. and the main aim of the exercises in economic planning that followed was to reduce It. However. the problem had not been solved by 1974. when A National Partnership rejected the 'urgent action' required to reduce internal demand because it would cut • employment. In the 1980s. another policy document Building

q,

A rocky road

on Reality called for 'special action on unemployment', while the l'r1._

gmmmefor National Recovery noted the need to act on the unemplnymt•nt rate of 18.5 per cent. In the 1990s tripartite agreements hctwet'n lahour. capital and the state sought to keep down wages and prin·s in 11rc\1·rtn

reduce unemployment. Though unemployment rates - and particularly 1011~-tcrm (ov1·r 0111·

year) unemployment rates - in Ireland have long been hii!,hl'r tha111lw West European average, they have tended to move in tmuh·m \\•ilh ralt"•

elsewhere. This has prompted a leading expert Lo muse thal 'if Wl' rnu\il account for the behaviour of European unemployment Wl' would undrr­stand the Irish experience as well'. Yet the gap between uncmp\oynwi_ll in Ireland and in the rest of the EU has long been wide and widenrd 111

the 1980s (Table 3.6), and unemployment continues Lo be the higgest blot on Irish economic performance. Explanations have not been la~·k-. ing. They have included circumstances broadly beyond domestic polif\ control (e.g. economic conditions abroad. demographic p~ttcrnsJ ~:~ the impact of policy variables (interest rates. tax wedges. output gro" f welfare entitlements). In a recent comparative econometric analysis ~ unemployment change between 1969-73 and 1980-8.5 by L~~:.; Nickell and Jackman. the impact of the two oil shocks of the 197C greater in Ireland than in any of the other nineteen economies exam­ined. Most recent studies of unemployment have highlighted factors such as the lack of outlets for employment abroad and inertia or hys­teresis. Where hysteresis is present, a small rise in unemployment todaY can have a big adverse effect on unemployment some years down ~he road. Economists blame hysteresis in turn on 'supply-side' factors. which reduce the ability or wllllngness orthe unemployed to re-enter the labour force. Examples include the costs of relocation or retraining and the welfare regime. In the 1960s and 1970s many economists in Ireland would still have recommended fiscal 'pump-priming' as a cure for un­employment. and policy reDected that. Since the 19 70s. in line with commentary elsewhere. they have stressed the need for supply-side labour market policies. A buoyant economy would also help to reduce unemployment. of course. but given hysteresis, the impact could be small in the short run. In recent years the Southern economy has achieved Brendan Walsh's estimate of the high rate of GDP growth required to avert a rise in unemployment - 4.75 per cent - and the unemployment rate has fallen in consequence (Table 3.6)."

96

Poverty. employment and institutions

Table 3.6: IrlJJh unemployment in comparative perspertive (%)

1960 197! 1985 1995

Ireland 4.7 6.2 18.2 12.2

F.t'IBll 2.5 2.6 10.8 11.2

IJS 5.4 4.9 7.2 ';Ji

UK u 2.2 11.4 8.2

.'ioonr. Europran Emn1Jm.t1. No. 50 C 19911. Table 3: OECD Employment Outlook: CSO ll>ubllnt.

In the 1990s the growing discrepancy between the Republic's tradi­tional monthly Live Register estimates of unemployment and those implied by the annual Labour Force Survey have confounded analysts of the labour market. The Labour Force Survey tells the more encour­aging tale (and for this reason alone will be favoured by the government of the day and criticized by the opposition): in mid- I 9 96 the gap between the two measures was about 75.000. Some of the gap reflects welfare fraud: the sudden drop of 20.000 in the Llve Register (which includes all those receiving unemployment benefit) in the wake of new minis­terial measures to stamp out such fraud tells its own story. In late 1996 the Minister for Social Welfare believed there were 'probably in the region of 10.000 or more' to go.

Since the early 1980s the gap between the Llve Register and the Labour Force Survey has grown very y..;de indeed in the case of female unemployment; by April 199 5 the Llve Register reported twice as many Women seeking a job as the Labour Force Survey. The Central Statistics omce attributes the discrepancies to the workings of the social welfare system and state-sponsored employment schemes. In early 1996 con­sideration was being given to a twice-yearly or quarterly Labour Poree Survey that would give a more reliable up-tCHl.ate picture of the jobs market.' 7 By either yardstick Ireland still has a serious unemployment problem in the mid- I 9 90s. The cost of mass unemployment in terms of demoralization and misery is high. and the association with poor edu­cation and crime well documented. Reducing unemployment is the most promising way of eliminating Irish poverty.

A rocky road

institutional constraints and rl'nt-.'il'l'king

ln The Risr and Decline of Nalio11s ( 1982) l!S ecn11rn11i."il ,\[;Jn( m flb11 11

proposed a model which predicts. in the ahscnn· of dislurh1ng 1 dtl'-l''>

powerful tendencies over time for sectional inlcrcsl grnup" lu lw111n11

entrenched in the economy. These groups (e.g. cmpln\Tr< g1 oiiJ". 11.id1

unions, professional associalions) will tend to rnust· i11s1il1J11n11;il ,cJn osis and economic stagnation. According lti ()lsc111. :-.<J('lt'!i('\ 111111111~111

enough lo have been spared militciry invasion or scriou-.; pnl1111 :ii 111111·q

for a long time. such as the United Kingdom. pay a prin· in 1J1;i1 rlirn very stability gives such interest groups ample scope lo p/;111 t'11ll1·1 11\1·

actions which restrict competition and retard grm\'I h. ( 1111.\' ;111 t'\l1·1·11;il

shock such as defeat in \'Var or economic and political i111cgroilio11 t ;111

destroy the influence of such groups. Aspects of the Irish record invite a reappraisal c1f this /;1st J1~·p1 )[ /1('\I'

Ireland underwent a violent revo\ulion and civil \".'<ir in I 91 S I l/.!_;

but Olson himself has questioned whether independent·c 'destnl.\n! !llL

organization structure of Ireland'. Part of the answer must be tll<1! 111

the l92Us the new regime sought to build up its nedihility and replll· ation through institutional continuity wherever possible. so in the SL'll't'

of Olson the revolution may not have been thoroughgoing enough Fianna F<iil's victory in 1932 constituted a break in that. broadly spc;ik­ing. il replaced an older Catholic elite with people from humbler backgrounds. Figuratively speaking. the Christian Brothers Look on·r

from lhc lcsuiL<.;. As we have seen. the shift di<l no\ bring cconomit succ~ss. However, llCD political scicnlisl Tom Carvin insists l/wr !ht• crn.;.umg Slagnalion had more to do with the rcali;i;ation !() . _. , pcnod..ofthcdrcamsofdcValeraandDublin'sAn:hb·· . r '.' hr1LI

Mc<J.u.'1i~ ( 18:5-1973.l of ·a moral community wh/:1~10~_Jr.il.ll! (_ /i;u-/.c~ ega\it.1rnm. ptous. stal1c and intellectually homogcnco ~.·:: <1ulhe11!1('.

Olson l~as argu~d that interest groups such as .us · p~oducers groups mtlict most damage when ti ·. lr.tdc unio11." ;ind big.enough to ca.use widespread disruption hultc~ il~C cntrl'lll'hcd <Hid so~~(l.1_ cost '.Jr their <Klions lo remain cm cxtcrna~i~·tll enough /iir I/Jc th1:< vie~. either very wc<1k o~ all-powerful lobbies ,;. 10 lhcn1sdvl'.'i_ 111

~::~:\~:r:;·;,~~~~;:~;~1;:~~;:7'.;~f :k'~:i:'.~~j~~;;:~f !?~~~!A~~1~:;~:?;:i~~~.'.:· ll('L'd

1.\'i1gl'

•

Poverty. employment and institutions

dispersion - and therefore. possibly. reduced incentives - worth paying. Jn Ireland, the experience of the Conunittee on Industrial Organisation. which united management, unions and the public service in analysing the shortcomings or protected industries in the early 1960s and in proposing rationalization schemes seems a good case in point.

In an economy with high unemployment such as Ireland, the strong­est case for centralized agreements is that they should produce lower wage Increases than plant-by-plant collective bargaining. However. one recent assessment of the Irish experience concludes that the outcome 'in tenns of pay increase was higher than a decentralized wage bargain­ing situation'. 1"' A less sombre view would be that. given the Crish economy's fast growth rate over the past decade or so, wage increases, particularly net of income tax. have been modest enough.

The history of wage bargaining in Ireland is worth reviewing briefly. ~uge in.creases in union membership in the 191 Os had been followed Y drastic declines in the 19 20s. After 19 32 rival trade unions competed

fa~ the affiliation of those wilh jobs in Sean Lemass's new factories. dnvlng up membership again. Slandstill orders and skilful exploitation on the Part of the government of tensions \\ithin the trade union move­~nt kept down wages during the Emergencv. The Trade Union Act of b 41. Which sought to reorganize the union ~ovement and rationalize argaining structures. had the tacit support of the large Irish Transport ~d General Workers l1nion lITG\VLTl. which stood to benefit from it. twas opposed by James Larkin's \Vorkers Union of Ireland and a large ~Umber of British-based unions. The long-standing acrimony between t e charismatic firebrand Larkin and the more conservative William O'Brien. treasurer of the ITG\VlJ. part ideological and part personal. came to a head in l 94+---45. The union movement and the Irish Labour Party split in two. The split may explain some of the significant drop in the share of wages and salaries in net manufacturing output (from an average o[ 48.9 per cent or 19 36-40 to 46.0 per cent in 1941-43) and Lil labour's share of domestically-generated nalional income (from 51 per cent in 1938 to 44.3 per cent in 1944). The big rise in the gap between Irish and Brilish wages between 19 3 8 and 1946 may also be Partly due to union movement weakened by internal bickering. How­ever. over the longer haul it is the poor performance of the economy. not labour's declining share of the proceeds. that mattered most.

In the 1940s and 19 50s neither trade unions nor employers presented a strong united front. but with lhe merger of two rival trade

~ 99

A rocky road

union congresses into the Irish Congress of Trade l!nions in l91lJ and the strengthening of the Federated Union of Employl'rs jsinn· I lJlJO the Federation of Irish Employers). the scene was set for morl' tT111rnlizcd

bargaining. Union membership doubled between 19-Vi and I lJ)lJ. The gradual reduction in the number of registered trade union~ and lr;ulc

associations (from 101 in 1962 to 73 in 1994 J would llil\T ht•t·n more helpful ifit had altered the traditional mix of g(•nenil unions. oq.,:;i111z111~ across industries and craft unions. A ralionalizatio11 thal prrnh1rc·d

broadly representative industrial unions embracing skillt-d and un..,!..ill('d workers would have been better than mergers of similar union" Tlw reduction in the number of unions was not matcht·d hy tlw fall in the overall unionization rate. Union density peaked al ::; ::; per cent in I lJ;"lJ.

It fell off considerably in the depressed economic climalc of the L'arl~ 1980s: in the mid-l 990s slightly less than half the labour force b.donµl'tl to a trade union. Some of the change is captured by trends in L'IE. where in the mid-1950s the workforce was divided between "thirty-Lwo or thirty-four unions .... depending on by whom or when they were coun­ted'. and an individual grade might be represented by up to ~ou_r ~ 1~~~)11~~ By the 1980s three rival unions represented the great ma1ont) c workers. but labour relations remained cumbersome:

The complexity or labour relations can be gauged from 1he fact thal 0 '.'cr 2.700 meetings took place throughoul the company during 1984 wi.th Union officials or third parties such as Lhe Labour Court. Righls Commis­sioners and Employmenl Tribunals. The number of meetings is a tremendous burden on the staff and is or concern Lo the Board. lll

Before the 1960s. even though employers and unions issued broad guidelines, old-rashioned collective bargaining was still the norm. The first attempt at a centralized agreement. the National Wage Recommen­dation or 19 64-66. occurred against the backdrop of two by-election campaigns in Cork and Kildare. It provoked the resignation of a niral Fianna Fail minister (Paddy Smith of Cavan) and the accusation thal l_,emass had forced too many concessions rrom employers out ofpolitic<1l expediency . .!• In retrospect this seems an odd verdict. since the National Wage Recommendation led to trade union suspicion of incomes policy· and decentralized bargaining followed until 1969. The late J 960s werl' stormy years for industrial relations. A series of strikes affecting elec­tricity supply and public Lransport. dispules about union recognition. and the chaos caused by the 1969 maintenance men's dispute prompted

JOO

Poverty. employment and institutions

there-emergence of centralized bargaining through the National Wage Agreements of 1970-78. But the rationale was better industrial rela­tions. not full employment or low inflation. Subsequent pay agreements sUpulated a national norm. but also allowed for local bargaining to obtain further increases. This combination of centralized and decentral­raed bargaining arguably produced the worst of both worlds. The 'National Understanding for Economic and Social Development' of 19 78 seemed to mark a watershed. in that it explicitly recognized the trade-off l:ietween pay and employment levels. Tax and social welfare concessions now became an explicit part of the package. However. the wage increases which ensued were against a background of rising unemploy­ment. The breakdown of the Second National Understanding in 1982 marked the end of centralized bargaining until 1987. with employers refusing to have any further truck with it. A sharp decline in wage inflation ensued. and there was industrial peace. Centralized bargaining resumed in 1987. through the Programme for National Recovery 0 988-90) and the Programme for Economic and Social Progress 11 991-93). These were 0 tighter: the first I widely referred to in the media as the PNR) excluded ·m·o-tier· bargaining in the private sector. and the need for huge cuts in the public sector deficit were accepted. The second (dubbed the PESPI was more generous. reflecting a more buoy­ant economy and improved public finances. Again tax cuts and social welfare provisions were pan of this more all-encompassing plan.

What is the verdict on wage-bargaining Irish style? UCO economist Joseph Durkan's assessment of lreland's experience is cast in a very Olsonian mould: 'it is no surprise that once lobby groups get together the result is suboptimal. The result of bargaining will suit lobby groups. but how does it suit those excluded from the negotiations?'..?.? Part of the answer to Durkan's question is that in recent times both Fianna Fciil-led and coalition governments. under pressure from the trade Unions. have sought to protect excluded 'outsiders' by maintaining the real value of social welfare provisions. That conunitment was explicit in the PNR and in the PESP.

However. Durkan's real concern is with persistent unemployment. and in that respect his argument accords with that made in Lars Calm­fors and John Driffil's much-cited comparative study of bargaining structure and economic performance in eighteen OECD economies in the 1970s and 1980s. Calmfors and Driffil did not include Ireland. but lreland's industrial relations place it in their 'intermediate' category.

I IOI

A rocky road

and adding it to their sample only adds supporl tu their casl' for <1

hump-shaped relation between the degree of' centrnli:1.;1lio11 in wal{c bargaining and economic performance. In Tnhlc L7 lwlow. rows A. B. and C reproduce Calmfors and DriOH's results for cenlrali;r.l'd. 111l<·rm<•di­

ate and decentralized economics; row B shows I he ell'tYI of mrhuhnl{ Ireland in the intermediate category. The ditnculty with 11was11rm~ tilt' degree of centralization precludes an attempt al measuri11~ tin· import­ance of this effect. However. a related study hy I lar\'1inl's H1rhard Freeman showed lrcland in the uncomfortable position or ha\'1111! moderate wage dispersion coupled with the lowest employ11w111 r;ih· in

a nineteen-country sample.ii

Table 3. 7: Calmfors-Drifill indicators of <'conm11ic 1u·r./11n1w111 ·1·

Ur1l'H1pl11~11111·111 J::mpfoy11w11t ()l.:1111

imf1'X

.\/l•'l'll<lll\'•'

rmkr

c c ,. A l'cntrnli1u:<l 4.0 2.J 71.'i 1.7 IHI 6.1 t..2 '" economic:;

'1.'i 8 Intermediate 6.1 ... flll.9 -].1 1+.'i 8.7 '" cconumil.•s

j(),'i

Ireland ll.O 'i.ll ';4.f'I -'i.9 1J.7 9.H 20.9

H lindud\ng ,,,9 4.9 'i9.9 -J.i" lf'l.O S.9 l).lJ ;'.I

Ireland)

<: Dc..'t.·cn1rnli1.1..J 'di 1.Y '1'i.8 -1.1 I 'i.1 /.7 'i.X LI

cconomil.-s

I.= l.c\'l"ls I 1974-H 'i awragc)

C = Changes 11 lJ74-8'i less I 9fi 3-7 i uvcragc) .\'11!1': the Okun index is the uncmploymcnl ralc plus inllilliun: !he a/wrnilth'l' ir1dex i~ !he uncmploymcnl rnlc plus lhc currem m:cuunl dclk1t ilS a Pl'rCl'nlagc of (;1)1'. t\ll da111 arc pcn."t.·11111gcs.

S1111rn•: Ci1lmrurs mid Drinil. 1988: 1-:uru11l'tm linmilmn. No. 'ill.

Except for a long strike in the construction industry in 193 7 - the biggest strike in terms of days lost in the history of the state - the I 9 3<>s saw few major industrial disputes. The average number of days lost due to industrial disputes was very low during the war. The late 1940s were years of labour militancy, and the number of days lost rose then and in each decade until the 1980s. The relative calm of the 1980s has continued in the 1 990s. Employers credit both PNR and PESP with bringing industrial peace . ..?-1 Landmark periods for industrial disputes included the mid-] 960s. ] 969-70 (maintenance men. cement workers. banks officials and others) and 1979 (postal services). The maintcnam.:c

102 .......__,...,~. ~

Poverty. employment and institutions

men's dispute of 1969-70. accordi.ng to the Dublin Chamber of.Com­merce 'the greatest crisis in industnal relations ever expenenced m the history of the state'. produced a 20 per cent wage rise over eighteen months. The last few decades have also seen greater recourse to non­strike forms of industrial action such as go-slows and bans on flexible working.

Still. in terms of days lost. Ireland seems to have gained on other smaller European economies over the past few decades (Table 3.8). In the 1960s the number of working days lost in Ireland matched the total lost in Norway. Sweden. Austria. the Netherlands and Switzerland com­bined. Between 198 5 and J 99 3 Switzerland and Austria lost hardly any days to industrial disputes. but Ireland's total of days lost was comfortably exceeded by Sweden and Finland." In the recent past Ire­land's troubled semi-state sector has had more than its share of strikes: in the mid-l 990s crippling disputes in T earn Aer Llngus and Irish Steel nearly put paid to those companies.~"

Table 3.8: Workdays lost 10 industrial disputes. 19 32-95

.--\nl'lual awrage 1b.1ys lost (()OOs)

1932-3-l

l93'i-39

11HO---l-l

l9-l'i4'}

l9'i0-'i-l

p}:;.:;_:;q

l 9h0-h-l

l<Jh'i-fi4

19;-o-;-4 \97'i-7'"J

\')8ll--IH

198'i-S9

\ 9(.Hl-92

199+-9=i

t41

';()9

S9

288

12.:;

2h8

'571

942

719

397

117

lhh

77

Analysis of ta riff protection and industrial relations thus yields modest support for the Olson model in an Irish setting. However. that model is notoriously difficult to test satisfactorily. A study by American el·onom­lsts Magee. Brock and Young?• invoked the ratio of lawyers (a rough measure of unproductive lobbying activity in an economy) to physi­cians (representing productive white-collar workers) as an index of

.6 103

A rocky road

rent-seeking. and found that per capita income in countries wilh more lawyers per doctor grew more slowly in Lhe period 19611-811. I ligh-tilri!\"

countries also had more lawyers. Ireland was one of the thirLv-four countries included in their analysis. However. cross-country vc1ri<1lions

in the structure of these professions vitiate the cxerdsc: in Ireland. fnr example. the legal profession has always restricted entry. whilt" 111 tht

United States, the legal profession is relatively open hut the :\1mrk<111

Medical Association is well known for its monopoly powers. Today, as Cathal Guiomard reminds us, Ireland has 'jusl two rnam

retail banks, one very dominant retail newspaper group. om· dominant

beer producer, one beef baron. a dominant spirits manufarturl'r. a domi­nant video retail company. a dominant building materials firm·.:~ Monopoly power is nothing new in Ireland; though the number of nrm~ in most of the sectors listed by Guiomard was much larger half a ccntu~~ ago, even then a cartel in banking and protected domestic markets . 1 ~ cement. brewing and distilling gave producers considerable mark_( s power in those key industries. Indeed. a historical perspective suggc~1·. that competition. threatened or present. from foreign manufacturer~ offers a greater challenge to powerful compa_nies such as Guinncs:s •;;,~. even Independent Newspapers today than 1t would have been a decades ago. Casual empiricism (and Table 1.4 above) suggest that th~ resource loss from monopoly is greater in services. where profcssioil<l and trade associations continue to possess sublantial monopoly P0"1~~­The boon conferred on Dublin's licensed vintners by Edwardian (eg~s­lation. which has virtually capped the number of pubs in the citY tor several decades. is obvious to any casual observer. Until the 1960s the resultant monopoly was constrained by price controls on drink. bUl since then it has meant higher margins and huge rents for the few. Jn Dublin's suburbia the effect has been particularly striking. yielding ~l small number of millionaire owners of huge 'factories for drinking in · Similarly. even casual comparison of taxi fares and service in Oublifl and Belfast provides a good prima facie case for inadequate competition in the Southern capital. Nor has any government or university so far been prepared to tamper much with the monopoly privileges enjoyed by the Irish legal, medical. dental and veterinary professions. privileges which have significantly distorted - and misallocated - human capital in third-level institutions and in the economy at large. We return to these issues in chapter 6.

104

Poverty, employment and institutions

Notes

1 Micheal Ross. Personal Incomes by Region in 1977 (Dublin. 1980). 21. and personal communication. September 1992. . .

2 G. O'Brien. 'The impact or war on the Irish economy . Studies (March 1946).

38. J P. T. Geary. 'Wages. prices. income and wealth', in N. Gibson and J. Spencer

(eds). Bconomlc Activity in lrelo.nd: A Study of Two Open Economies (Dublin. 1977). 172-83; B. Nolan and T. Callan. 'Measuring trends in poverty over time: some robust results for Ireland 1980-87', Economic and Social Review. 20(4) (1989). 309-28.

4 Brian Nolan. The Wealth of Households (Dublin. 1991 ). ; Tim Callan and Brian Solan. 'Income distribution and redistribution: Ire·

land In comparative perspective'. in J. H. Goldthorpe and C. T. Whelan (eds). The Developmmt of Industrial Society in Ireland (Oxford. 1992). 200: idem .. 'Income inequality and poverty in Ireland in the 1970s and 1980s', F.SRl Working Paper 4 3 (Dublin. 199 3 ): A. B. Atkinson. Lee Rainwater and Tim Smeeding, 'Income distribution in European countries'. in A. B. Atkinson. Incomes and the Welfart' Stace: Essays on Britain and Europe (Cambridge. 1995). ch. 2. Compare e.g. J. D. Dre7.e and A. Sen. Poverty and Public Action (Oxford. 1989).

6 DECO Economic Swveys. Ireland 1995 (Parts. 1995). 80-1 (citing P. Clancy. 'Participation or the socially and economically disadvantaged'. report presented ror the Higher Education Authority. 1995).

7 lnD&ilfureann. Parliamentary Dtbaus. ,•ol. 7 (1924). 3054-5: vol. 9 (1924). 562. See too the comments or Labour Party leader. Thomas Johnson {vol. 6 (1924). 1630). The impact or the pension is colourfully described in Micheal 6 Conghaile. Conamara agus A.minn 18 80- I 980: Gnfithe den Stair ShOisialta (lndreabhan. 1988). l 7Q-4.

8 Such was the eagerness to benefit from the allowance that it led to a tem­porary surge in birth registration. See John Coward. 'Birth under-registration in the Republic of Ireland during the twentieth century'. Bconomk and Social Re\•iew. 14 {1982/83). 1-27.

9 Irish Times. 29 March 1996. 10 P.A. Compton. 'Demographic and historical aspects of the unemployment

differential between Protestants and Roman Catholics in Northern Ireland'. in p, A. Compton (ed.), Contemporary Population of Northern Ireland (Belfast. 19 81 ): David J. Smith and Gerald Chambers. Inequality in Northern Ireland (Oxford. 1991 ), 191-3: Vani K. Borooah et al .. 'Catholic·Protestant incor:ie differences in Northern Ireland'. Review of Income and Wealth. 41( 1 l ( 199 ::t ). 4 1-56: Anthony Murphy and David Armstrong, A Picture of the Catholfr

rul protestant Male Ur1employed (Belrast. 1994).

17 'T~e impact of the war'. :::9

A rocky road

12 C. liuiomard. Tl1e lrisll Dist>ase mid How to Curl' it: { 'om1t11111-.'•i1•11.o;1• Ern110111ir§

Jn a Compt>titive World (Dublin. 1995). 99-11)7. I 79-8 I. 13 08.il Eireann. Parliamentary Debates. vol. 89 ( 19-1-2). 9: vol. 2:;h t l 1JilJ,

1349. 13 58; vol. 37 3(b) ( 1987). That Jim Mitchell hrcmm· widl"ly known

as 'Fixer' Mitchell tells it all. 14 Tim Callan and Anne Wren (1994). Mtrll'-Fmw/1• \Vaw IJi//i'n•111111k :\ru1/11'1~

and Polley Issues (Dublin. 1994). 15 B. M. Walsh. 'Unemployment and economic pcrli>nnam·l· i11 ln·lancl: 1h1·

background', Labour Market Revit'W 4(2) t 199 UY-+l. J. . . 16 F. Barry and J. Bradley. 'On the causes of Ireland's um·mploynu·nl · l.rmi­

omic and Social Review. 22 (1991). 253-Hh: K. A. l..:t.·n11rdy. Fm 111.11 r!Jt Unemployment Crisis it1 Ireland. (Cork. 199 3): IJonal Mcl:c11iµan. 'Thl"l"a.l~~c~ of unemployment: a review'. i~ S. Cantillon. J._Curtis and J. Filzµt'r'.• 11~;,~;;;;;:; omic Perspectives for tire Medium Term (Dublin. 199-t-l. 10 I I-+. Layard, Stephen Nickell and Richard Jackman. U11em11loJ11'11'11l~ ;~~'."~~'.:·:;~;:~ omic Perfonnance and the Labour Alfnrket (Oxford. 1994). 408 · 'Unemployment and economic performance in Ireland". 2-1 I.

!~ :s~1!~:esj.,~ ·=~~::;d 1-,!~,~;1e of Nations: Economic Grmvth. Sttl!lflalion "'ul S~cial Ri~ldities (New Haven. 1982): "The rise and decline of nations: wh~rc does Ireland fit in?' (19th Geary Lecture. ESRIJ (Dublin. 1989): T. ~;:~rv~~~ 'Political power and economic development in Ireland: a c~m~ar~t,::.crriml spective'. in Maurice O'Connell (ed.). People Po\Yt>r: Proceedmgs 01 1

Annual Daniel O'Connell Workshop (Dublin. 1993). 32-6. ,· 1 RI'· 19 J.Durkan, 'Social consensus and incomes policy', Economit' and Scuw

view, 23(3) (1992). 349: A. J. Leddin and B. M. Walsh. The Mm·roeconom!I

o/Ireland_(Dublin.1992). 264-7. _ _ , _ blin. 20 Micheal 0 Rialn. On tl1e Move: Cdras lompair Eireann 194 -,-199., (Du

1995). 173. 385. . 21 Ronan Fanning. 'Economists and governments: Ireland 1922-52':.. 10

A. E. Murphy (ed.). Economists& the Irish Economy (Dublin. 198 3). 19 1 ·

22 Durkan. 'Social consensus', 363. For a rather different assessment sec Niamh Hardiman. 'Wage agreements'. in Goldthorpe and Whelan. fmlus· trial Society.

23 L. Calmfors and J. Driffil. 'Bargaining structure. corporatism and macro· economic performance', Economic Policy, 6 (1988). 16-41: R. B. frcemiJn. 'Labour market institutions and economic performance'. Economic Palic".11· 6 (1989). 76. Jn mitigation. it should be noted that. once again. Ireland's performance over the past decade in tenns of both lnOation and unempluy· ment was considerably better than before the mld-1980s.

24 Rona Pitzgerald. 'The first fifty years', In Basil Chubb (ed.), fllU: 1-'eclt!nrliorl oflrislr Employers 1942-1992 (Dublin. 1992). 42.

25 Computed from data in JLO. YearbookofLnbo11rSlntistlcs. 1969 and 199:;, 26 Prank Barry and Joe Durkan. 'TEAM and Irish Slee!: an application of the

Wb

Poverty, employment and institutions

declining high-wage industries literature', UCO Centre for F.conomic Re· search Working Paper 95/10.

li S. P. Magee. W. A. Brock and L. Young. Black Hole Tariffs and Endogenous Polley Theory: Political Economy in General Equilibrium (Cambridge. 1989). ch. 8.

28 Gulomard. 1lre Irish Disease. I 64.

4

Industry and industrial policy

Import substitution

The Irish Free State was born virtually without a manufacturing scrtor. In the mid-l 920s manuracturing provided jobs for only ahoul ont· in ten orits occupied population and. according to the Census of Industrial Production or 1926. employment in transportable goods production was only 55,285, generating a net output of £266 per person engaged. Brewing (mainly of Guinness stout at St James's Gate in Dublinl accounted for almost 30 per cent of net manufacturing output. Only the producers of beer, whiskey. cured bacon. butter. linen piece goods. woollen tissue and shirts exported a significant share of their output.

The rest of Irish industry was made up of branch plants of ~rilis:i companies or producers of high-bulk low value goods such as miner water, animal feed or furniture.

Nationalist rhetoric since the 1830s had blamed Ireland's de-indus­trialization on the free trade that followed the Act of Union (1800). The Cumann na nGaedheal adminlstrations of 1923-32 showed little sto· mach for such rhetoric, 1 however. and placed most of their bets instead on what they deemed to be Ireland's proven comparative advantage in agriculture. Duties were placed, it is true, on a range of items including tobacco, sugar confectionery, glass bottles, soap and candles. moLOr bodies. brushes. margarine and rosary beads. Some of these duties had the intended effect of getting British subsidiaries to locate in Ireland. Nevertheless. it is fair to say that until the onset of the Great Depression. the concessions made to industrial tartfl"protection were few and grudg­ing. Even then many in Cumann na nGaedheal were not keen on protection. The election of Eamon de Valera's Fianna Fail in 19 32 marked the start of a vigorous policy of import-substitution that would last until the early 1960s. The result was an initial spurt in manufac­turing output and employment. Recorded output and employment rose by one-third within a few years. Though some doubts remain about the statistical coverage of the Census of Industrial Produclion in the 19 30s, 1

108

Industry and industrial policy

a slgnlftcant growth In the manufacturing sector is not in question. The huge rise In industrial share issues on the Dublin stock exchange L< symptomatic of the growth In the number of manufacturing firms. Between 19 33 and 1939 the number oflrish industrial concerns quoted trebled and their aggregate capital doubled.

In some Industries (e.g. vehicle assembly. shoemaking. hosiery J the rises after 1932 were spectacular enough. The spurt lasted only as long as II took the newly-founded firms to capture the home market. how­ever. and was already over by the mid-19 30s. Most of the new plan IS

were modest In sl7.e. Data assembled by the Department of Industry and Commerce in 1948 (Table 4.1) show an economy dominated by small plants: excluding the minnows employing twenty or fewer workers. the average plant still employed only about eighty workers.' The more substantial concerns included three semi-state companies - Comhlucht Slulcre Blreann's sugar processing plants. C6ras lompair Eireann·s assembly and repair works. and Mianrai Teoranta. Some others -Clondalkln Paper Mills. Munster Shoes of Clonmel. Rawson's of Dundalk - were tarilf-hopping concerns. while Kennedy's bakery in Dublin and lrlsh Cement Limited produced classic non-traded outputs.

Table 4.1: Employment in 19 32-47 protected industries 'which expand.d considerably" since 1932

1931 1919 19-li

Total .\lalt' Fm1alt for id Malt Ftm11lt fol.ill

Food. drtnk. tobacco i-n:;- 10181 &592 16773 11092 i5h8 18660

Textdes 4092 3030 4263 ;-293 3676 45il 82-19

Apparel 8830 5749 151.?5 10814 6795 17638 2HH

Leather 263 s1; 203 1020 1379 .?% Ib;"'=i

wood ... 661 b061 931 6992 59li 9ll 6868

p..ietal and machinery 11:;2 Hhh 583 2049 l'il4 4;-1, 1988

iron and steel 2398 -l435 366 4801 1767 411 -lliS

vehicles and parts fl85 1305 358 3663 lll87 ];.\ 4().11

che1111Cals. clc. 1189 2480 889 Hfl9 .23Ml 111:- H'f"'

f'llper and printing 4471 3fl18 3406 70H 42]] 4107 HHtl

9u1ldlnB materials 1201 116i 343 19i0 280fl !Ml 3066

~isceHaneous 1228 H96 16fl8 3.!M ltJ.!4 217; 4IOI

I 45348 45365 34727 80091 491;0 4lKJ.!fl 89l~h

~/SPO, 'Bstabllshment or Industries'. S. l 198i8. ~1111rt •

109

A rocky road

Both imports and exports of manufocturcd gc1<id . .., dnlppl·d ;1rtn l 9 11 In a few sectors such as footwear. the transfonrn1l1011 \""" dr.im; 111~ Imports dropped from an annual four million pair:-. in 1 <.J.!. 1L ~o lu \\\'(;

hundred thousand pairs in 19 38/ 39, while homt' prod11d1011 10~(·(·1glit· fold. Yet the impact ofimport-substitutio11 011 1radt' w;1..., J('~"t·rwd Ii\ 1lll'

reliance of most of the new firms on imporll'd part.-. and 1 .11\ 1n<1l!·11.il.,

Many of those firms were mere assembly 1111J1-. Jin· lnrt·1gr1 p111d11•<·d

parts. This was particularly so in vehicle asst·mhly. whn(' tlw 11.1dt 111

·motor vehicle chassis imported as parts' and ·rno!or \·cJ11l I(· l1"d1t·>

imported as parts' loomed large. These were ;dso /,nown .i" 'l 'hi i~ i lur 'completely knocked down vehicles'). Bel ween I lJ U a11d J 1J ;.o.., 1l 1l· ,rg· gregate value of finished manufactured imports fr.·11 hy orn·-sc1 t'ntli hul the value of raw materials and semi-prepared goods imported 1 (l"l' 111

over one-fifth. lhl' Despite the obstacles to investment by non-nationals pos.c~~ 1 ~1 ~lrin'

Control of Manufactures Acts ( 19 32--4) . .i after 1 9 32 ma11y Bnli. . l tarifT-hopped by setting up subsidiaries in frcland to serve the In'- 1

market. Meanwhile, Ireland's main exporting manufacturer. :\nhur

Guinness. safeguarded ils market in Britain by building a bre\~:l'r.\. 1'.'.

London's Park Royal. which began production in 19 3 6. The cns~JIJL~J fall in Irish beer production (about 0. 5 milli,on barrels) closely mall h the drop in exports. ,111 (lll

The shortages of raw materials. energy and spare parts brou~ 1 by the Second World War had a drastic impact on Irish industry. atl.' especially on sectors such as vehicle assembly. engineering and chc11.11 -

cal.s. Near-autarky was worse than protection. In Waterford cit_\" .. 101

example. the lack of raw materials forced McOonnell'." margarine ]<1l'­

tory and (Joodbody's jute mill to suspend production. In July J 94 I thL'

editor of the Irish Industrial Year Book confessed that he was ·1wl

without misgivings as to what future issues of the Ymr Book may lwi·c to record'. Overall. industrial output fell by about onc-f'ifth hct\\'cen 19 39 and I 945; that employment did not fall by a similar a1m1unl w<1:-;

due to widespread recourse to short-lime working. As raw materi;ils and equipment became available once more in the late J 940s. industrial output and employment recovered again for a lime. Between J 9..J-5 1111d

1950 output almost doubled. and employment grew by 11carlv half. However. during the l 9 50s industrial output rose by only onc-fift-h. and

11' employment foiled to grow at all. Nowhere else in Western Europe

Industry and industrial policy

(except. !or different reasons. in Northern Ireland) did industry perform so dismally in these years.

A lew firms transcended the limited opportunities offered by the stag­nant domestic market. One such firm was Waterford Glass. The firm. founded In 194 7 by Czech immigrant Charles Bacik. failed two years later. Fortunately, alter some ministerial prodding, the Irish Glass Bottle Company came to the rescue. Subsequent growth was founded on largely imported skills and further capital injections from the McGrath brothers ol Irish Sweepstakes fame. Bacik and his glass-makers virtually reinvented the Irish tradition of glass-making. The firm was export­oriented from the outset. paying particular attention to the North American market.• For a time in the 1960s Waterford Glass was spec­tacularly successlul. employing up to three thousand workers: now part ol the multinational Waterford-Wedgwood group. Waterford's glass­ware concerns have about two thousand employees spread over five plants. Ironically, in recent years some of its output has consisted ol glass blown in the Czech Republic and cut in Waterford: some now consists of glass which never reaches Ireland at all!

Not many fmns created during the era of protection prospered under freer trade. The cardboard packaging fmn of Jefferson Smurfit is a sen­sational exception (see belowl. Other lirms to adapt to free trade conditions included Hygiea (a Galway chemicals fmn) and Bario (engin­eering and plastics). The state"s main cement and concrete producers adapted through amalgamation into Cement Roadstone. The food processing sector survived. dominated by co-operatives. Many or these (e.g. Kerry. Golden Vale. Waterford Foods. Avonmore) have since moved away from co-op status to being publicly quoted companies. Other firms survived through absorption by. or close collaboration with. giant multi­nationals: examples are Hughes Brothers of Dublin (dairy products) and W. P. McCarter ofBuncrana (underwear). Survival thus might involve a range of strategies: surrendering managerial control. swapping production for agency. focusing on niche products. exporting entrepren­eurial skills through investing abroad.

The government department responsible for industrial policy between the 1930s and 1950s was the Department of Industry and Commerce. The department relied on a combination of tarllfs and the application of the Control of Manufactures Acts to grant virtual monopolies to those producers who undertook to supply the domesti<.· markl·t. While some oflhe new firms were set up by people trained in Britain. inevitably

ff 111

A rocky road

many were created by people with little . . When Swedish banker Per J b . expencnce 111 manufacturing.

aco sson inspected . ·I l' f factories with h' II a sc cc ion " the new 1930 'I IS co eagues on the Banking Commission in the mid-

s ew seemed to him well run. many to have hccn sited with regard to costs'.• no

Spreading the new factories round the country was also p<trl ofthr

department's remit, so that its decisions often owed as much 10 loral political concerns as they did to nationalist ideology. l1H'vitahlv. dem­ands from local interest groups and politicians were an important pitrt

ofthe game. Most businessmen wanted to set up in cities such as Dublin and Cork. Dublin and Cork got a majority of the new plants - h I h 11u1

of 1,072 in a count carried out by the Department in 1948 - hut the pressure from other counties could not go unheeded. For example. in

lune 19 5 3 the chairman of the Fianna Fciil party in Fcrmoy complained in writing to de Valera that Martin Corry. the local TD. wanted a nc\i· factory (which turned out to be the German-owned Fabcr-Caslelll \ocated further south in the constituency. The plea that ·if this happen~ lt wi\\ be to the detriment of our organisation and our people altogether may have been unnecessary. since Fermoy quickly got its pencil factory. Eighteen months later a letter from North Kerry's Fine Gael TD to de Valera's successor. J. A. Costello. claimed that 'the seat will revert· to·

Fianna F8.H unless something is done for the town [Listowel]'. Poh.q created a role for the politician as broker. The creation or new industnal incentives and subsidies in the 19 50s enhanced that role. It is hardly surprising. then. that the failure of Waterrord city to attract new indus­try in the 19 50s was blamed on the inertia or local TDs. The Department. of course. could not force a prospective industrialist to choose a particu­lar location. though arm-twisting was bound to occur. Nor could tl1C Department suggest 'the type of enterprise best adapted to a particular place'. AU it could tell an Ennis (County Clare) wholesaling (inn wishiM to provide capital and a location for a plant was:

l am ... to transmit the attached schedule showing imports of manufa<.:­tured good~ and (where available) home production. A perusal of thi~

~~:::ea:~'r:~~:I ~oa::r~:~~;: ~~ ;~~cect orwhtch there are considerable to be considerable scope. lt would, or co~r~~e~e 7ould. prima fade. appear technical and financial advisors wh h ' e or the promolers and anY

whether having regard to techn\co; :ne: :~~~t ;:~:~:r~~i~~~er~~~~

112

Industry and industrial policy

Would be scope ror the manufacture of am· particular commodity on a commercial basis.; ·

~h~I small size of the new plants and their wide dispersion did not bode e for their future.

The shift to the multinationals

~ean Lemass·s successor as Minister for Industry and Commerce in . 948-S 1. Daniel Morrissey of Fine Gael. was a vigorous supporter of Industrial protectionism. However. Lhe policy of relying (or pretending to rely) on tariffs to protect domestic producers and on the Concrol of Manufactures Acts to keep Irish industry in Irish hands began to b{" relaxed in the 19 50s and was abandoned in the earlv 19 bOs. Once Lemass began to argue in public that '[native! enterpri~c lhasJ had an opportunity over a number or years. and l fed they ha\'e missed that opportunity'. the writing was on the wall for the poliL·y of import sub­stitution. There were complaints from some trade unionists and

11 l

' .~

A rocky road

indigenous industrialists, but it is the lack of protest at the shift towards a more outward-looking policy that is significant.11

At the outset few foresaw the rapid growth of the foreign sector, but direct foreign investment in Irish industry soon hecanw the cornerstone of government policy. By 1964 adverliscrncnts p/<1cl'd h_v llw IDA in Fortune magazine were featuring a small Irish boy scrawling 'Y<tnks please come over' on a brick wall. Foreign investors \.\'l"rl' givl'n the same generous incentives to locate in Ireland as indigenous invl'stors. and hundreds did so. Companies such as Pote.: Aerospace. \"l'rnlmc ~a Dutch shipbuilding company). Westport Textiles and Chipboc1rd Limited were among the first to arrive. amid great publicity. For a lime the results seemed a great success; output. employment. product1vily and exports grew.

The remarkable transformation of the economy between the late 19 50s and the early 19 70s may be largely attributed to the arrival of the multinationals. Not that all of the new firms succeeded: Potcz Aero­space collapsed in 1968 before it had produced a single airplane. despite

14 'There must be no government interference in business. A.II from them is a monopoly and sufficient money to build and equip l~e \.vqt"l factory ... After that let them keep their hands oJT ill' e l

I 14

Industry and industrial policy

s. HORNE Agent for

CHRYSLER CARS CHRYSLER FARGO LORRIES ud VANS

"Only ii Chrysler co1n ti~t Chrttler pertormi!.ncc

24 Oliver Plunket Street .. Cork

Phone-Cork i'"-1

t; Chrysler advertisement. 19 3 c,

injections of t:.l.5 million in :'Ub:<idies. and the \"crolme dockyard in Cork would succumb later amid l'Llntrnn~rsy. Still. by 197 3 overseas firms accounted for almost 1..1ne-1h1rd Lli all ernploymenl in manufaclUr­ing t68.500 out of 219.lHlll•. En?n in the less propitious dimalc of post-1973 the number L,f f1.m:ign-owned linns continued to grow. By 1983 there were alm1.1st one thousand 1.lf them. with a letbour furn"' of Si,600. Foreign 1:orpora1inns had inn·stL'd well on·r [-t billion in Ire­land; half the money was :\mt.•ril..·an. one-eighth British. and about one-tenth Cc-rman." ~kanwhik· l'mploymenl in Irish-owned conl.'.erns conlinucd to dwp. ln lhL' l 9Slls thl' newer. mainly fort'ign. industrial concerns. nnKl'nlrnlcd in rdali\'d\' kw sectors. performed muL·h helter Lhun the- old indigenous l·ompani-l'S. Di\'iding industry into ·modern· lpharn1aL·culil·als. engineering and a l"<.llcgory l'allcd 'other fuods' 1 and ·1rudilimrn\' tthl' resll. il has been shown that the two dilTL·rcd markt:dly in terms of pl·rrormance. judged by criteria llf output growth. L'mplPy­incnt trc-nds and the mo\•cment in unil wage l'OSts. lklWl'l'n J lJ;" ~and 1980 textiles. dnthing and footwear lirms that had hl'l'll cstahli:·dtl'd before l 97 l shed nearly l\\'o-1\fths of thl'ir h1hour l'lirt't•s. a:-. thl'\ 1.·t•dcd mmket share to imports; most of them have t!isappl'i.lred sin1.·l· then.1• 1

11:;

A rocky road

Since the mid-l 980s 'modern' - largely foreign-owned - industry has trebled its output, while 'traditional' - largely indigenous industry has barely held its own. The comparison is not entirely compelling, since the 'traditional' sector would have grown more slowly rcgardkss of who owned or managed it. Still. swapping small. doomed. inward-looking concerns for more capital-intensive, export-oriented plants S('t•med like

a good bargain. However, because the growth of the multinationals had 1101 matched

the collapse of the indigenous sector. in the late 1980s the South's manufacturing sector employed fewer people than in the 19/0s. Thi.~ raised some questions about the drift of government policy tm~«ir<ls direct foreign investment and the kind of industry it was attraclin.g. 11

Admittedly, the underlying numbers were slightly misleading:. if a manufacturing ftrm divested functions such as marketing and dc.h\'cry (as in the case of Dublin liquid milk producers Hughes Brothers '. 11 t~c 1980s), this would probably be captured in the data as a dcrhnc tn

manufacturing employment. Still. the record suggested that few ~ve~­seas ftrms have generated sustained increases in employment in Ire at d and that few had delegated entrepreneurial responsibilities here or re te k largely on lrish raw materials. Only a minority of firms had a trac d record of sustained output and employment growth. 11 Foreign~ovmcd firms tended to be poorly integrated with the rest of the econom~' · a~ indeed did not see the domestic market as the reason for location : Ireland. This is in contrast with much overseas investment. which ten s to be related to main markets. Indeed, even in cases where goods ~·~·~1~ completely produced in Ireland. many multinationals there were geared to supplying the domestic market. In recent years computer products offer a notable exception to this pattern (e.g. Apple. Dell).

Instead, critics alleged that the grants and tax concessions had en­couraged multinationals to concentrate on fixed assets and to use Ireland as a base for transfer pricing. Some of the multinationals them~ selves freely admitted their sensitivity to shifting tax regimes.1 J Another potential problem with branch plants was that the generous incentive packages offered to them, by prompting them to mop up available capital and labour, have 'crowded out' indigenous employment. Ireland's high unemployment rate has probably staved off this Irish version of 'Dutch disease'. but in Northern Ireland some small-town linen manufacturers protested at new firms raising wages. thereby cutting their profit margins.'"

116

Industry and industrial policy

Some second thoughts

Such snags, admittedly, could not have been predicted in the 1960s. industrial policy in the recent past has shown signs of responding to the criUcism. shifting its focus away from attracting ever more overseas firms of the old kind and towards easing the constraints faced by both existing Indigenous and overseas firms. In a series of reforms in the 1988 budget. certain special funding schemes were abolished. accel­erated depreciation allowances were removed and zero rate of tax export sales was phased out. However. leasing options retain many of the distortions of the earlier system. and increasing demands from econo­mists and others that the anomalous tax status of the manufacturing sector be ended have so far not been met. Admittedly. the constraint here is more fiscal than ideological: the budgetary cost of extending the lax con · be cessmns granted to manufacturers to the service sector would

deemed prohibitive .

• 1n.the 1970s and 1980s critics argued that industrial policy had been •••nng fo · · ll reign Investors the '\\Tong kind of incentive package. and that pol cy should have subsicW.ed labour and employment instead of branch P ant capital " Th be

d . · e tax nefits attracted fmns bent on transfer pricing ~•:wally ruled out production for the home market. Moreover. the laho s owed a penchant for picking ventures reliant mainly on unskilled

thlll' and far advanced in their product cycle (such as synthetic textiles orb e GM-owned Packard Electric component plant in Tallaght "). : .ere competition from less developed countries would soon prove C nous or fatal. In an early critique or the new industrial policy. Charles

OOper and Noel Whelan noted that the new firms made little use of. : f~stered links with. Irish science and technology.1; Nor. as Table 4.2

dicates, had hopes that the foreign-owned manufacturing sector Would become more integrated with the rest of the economy over time been borne out up to 1990. More recently. claims the IDA. foreign multinationals have shown stronger signs of expanding existing oper­ations and sourcing components and services locally.

Until the mid-l 980s the IDA gauged its achievements in terms of 'employment potential' or 'jobs which should be created at full produc­tion'. In 1972 it counted 57 .660 ·projected employment' in schemes approved since 1960. Between 1975 and 1979 it won 123.561 such 'jobs', reaching a peak of 34.470 in 1979. Had the IDA realized its 'potential'. Ireland's unemployment problem would have vanished long

117

A rocky road

Table 4.2: inter-industry linkages (%)

Slrnrt' ofmcUt•rinfs in Shem• o/ lri.'i/1 lllC1/••ri11/s .\'l1r1ff1l/(;(I

grnss oulpul in !/ni.~.~ 011111111 l'\"/lllf/1•1/

19R6 199() JlJX6 Jl)I.)() /IJ,'\(1 /'1'111

\r\sh hl.2 62.l 40.'J 4 l.7 ·lh. \ ·I~ ~

Fore\gn 44.9 19.I 11.lJ \.!.l) 8 11 ·I s:-.;·

Ell 45.9 42.l 11. ~ 2.11.X '."O.I r,•111

Non-EU 44.h 18.ll 9.h 8.7 l)'d1 '11(1

Sourrr: Crmms of lnduslrinl Pmdur1i1111.

ago\ 'rhis charade had its political uses for a time: it:-; disl'ontinuancc was prompted by the provocative and controversial report 011 Irish industrta\ policy commissioned by the National Economic and Social Council and published by them in 198 2.

ibis was the so-called Telesis Report. named art.er the US con:mllancy

company which produced it. 's Telesis sparked off a usdul and soml'tirncs heated debate about Irish industrial policy. A famous symposium on industrial policy hosted by the Statistical and Social Inquiry Socictr or \reland attracted that somewhat staid society's biggest audience in sixty years. 'The 'Telesis Report blamed lrish industrial policy for being o\·cr­generous towards multinationals - relative to what was needed lll attract them - and providing the wrong kinds of incentives. It called for a reduction in grant aid, a shift to greater reliance on indigenous indus­try and equity support. lts exaggerated claim that most of the branch plants established by US companies were 'Mickey Mouse'. 'spit-and­po\ish' operations naturally infuriated the IDA.

Nonetheless, some of Telesis's crlticisms struck home. In 1982-Business & Finance was prepared to concede the 'valid point' that mulli­national plants were 'vulnerable as they cannot stand alone from thl' parent comp\any's marketing and R&D £acilities'. And when Polaroid departed in 19 82. four years after being promised £9. ?m. and promisinl! 1.500 jobs in return. the same magazine wondered whether it would have left 'if it was more than simply a manufacturing satcllitc'. 1'' Two years later. in another echo or Telesis. the Second Report of the Com­mission on Taxation criticized the preferential tax rate granlcd tu industry, arguing lhat 'once lhe present special relterror manufocturing pror1ts expires [al lhe end of the year 20001. such prolils should be charged lo tax al the same slnglc rate which upplics to other irn:mnc'.

lndustrlal policy gradually responded lo the crltiqucs that began wilh

""

Industry and industrial policy

Telesis and others like economist Eoin O'Malley. who had criticized the Jack or state intervention towards redressing the competitive disadvant­age faced by latercomers. The Programme for National Recovery (198 7) envisaged 'greater attention to the indigenous sector'. and in l 988 the IDA undertook to increase the proportion of resources devoted to dom­estic Industry from 40 to 50 per cent over the following few years."' It trimmed Its own workforce. and undertook to measure its achievement henceforth by 'actual' rather than 'forecast' jobs. Firms receiving grants were asked to sign a performance clause. In 199 3/94 the IDA was radically restructured: a new body. Forfa .. s. was given charge or two agencies, one responsible for foreign investment (IDA Ireland) and the olher for indigenous enterprise !Forbairt). During the 1980s changes ~ mdustrtal poUcy reflected Telesis's bias towards the indigenous sector. a:w P~ogrammes were instituted. encompassing more than the mere

oc1atlon or grants. In 1988 export sales relief was phased out and ~cce e~ated depreciation allowances removed: now the main remaining lllcentive fo · d . mend . r m ustry IS the 10 per cent corporate tax rate. The recom-so ations of the Industrial Policv Review Group in 1992 contained as:: ecb~s of the Telesis Report of a decade earlier. The Group's focus. w ou~ m the Culliton Report 1 named after Jim Culliton. its chairman) n:o~~m on the indigenous sector. \'inually ignoring existing multi­lll.Ultin . finns. and not holding out much hope from future th ationals. But while Telesis favoured a policy of 'picking winners'. in e Cullition Report argued for an environment favourable to business

ge~eral. This included shifting the emphasis from grants and pref­erential t . fr ax treatment for manufacturing to. for example. more m astructural investment in communications and the environment. l Telesis criticism of their success in attracting foreign investment in

e ~ctronics particularly annoyed the IDA. Their US director hit back With the claim that the branch plants of five US computer companies (Digital. Amdahl. Wang. Prime and Apple) would contribute more to Irish exports in l 982 than the entire food sector. The subsequent record of these companies has been mixed. Digital 'downsized' its operations in Ireland in the early 1990s. shedding nearly eight hundred workers ln Galway when it transferred some of their operations to Scotland. In 1996 Digital had a workforce of five hundred in Ireland. and was ex­panding again. though not in manufacturing. In summer 1994 Amdahl Corporation employed only 170. having shed 2 50 workers at its Swords plant, and was trying to sell off part of its 260.000 sq. rt. plant.!• Other

119

A rocky road

firms arrived in the meantime, however. In late 1996 IBM Ireland followed its earlier promise to base its European customer supporl centre in Ireland with plans to employ nearly three thousand people. while Intel. microprocessor manufacturers. employed another three thousand in Kildare, and announced further expansion. By late 1996 ahoul three hundred computer and electronic firms employed over Len thousand people in Ireland. Most of these were very small but three - lntl'I. Dell and Gateway - employed over a thousand workers each.

Computer hardware and software remain the jewel in the ll>A's crown. The suspicion persists that the most high-tech aspects of pro· duction are not carried on in Ireland. Though Intel were operating on a 'huge profit margin' in Ireland. they continued to ship out their Pentium microprocessors to their test and assembly centres in the IJnitcd States and Malaysia for the final touches.22 Similarly in the mid- 1990s IBM and Compaq branch plants in Scotland's 'silicon glen· were buying about £200 million worth of components in Ireland. Against this. the news in late 1996 that IBM was about to build a major plant in the west Dublin suburb ofBlanchardstown with jobs for nearly three thous­and people. mainly with third-level qualifications, renects a new but growing trend in Ireland.

In the early 1990s. the IDA had taken to comparing the modest losses in manufacturing employment in Ireland - for which it claimed credit -to the huge losses elsewhere in Europe in the 1970s and 1980s (e.g. UK 38.2 per cent. Norway 18 per cent, Denmark 17.4 per cent. France 16.9 per cent). The subtext seemed to be that manufacturing's job­creating potential was weak. Since then, against the apparent odds. employment in manufacturing has been increasing impressively.

Despite recent successes. Ireland's locational disadvantages sti!I raise a question about the logic of Ireland's quest for manufacturing jobs. I.s this where Ireland's economic strength lies? Will the inevitable harmon­ization of grant and tax regimes prompt footloose multinationals to

move on? Or has the policy of promoting foreign investment succeeded in doing what three decades of tariff protection failed to do - nurturing infant industries which have acquired a genuine comparative advant­age? To take the prominent example discussed above, has the £150 million or so spent by the end of 1996 on attracting computer software and hardware firms created the necessary critical mass for further ex­pansion? Only time can tell. One argument on the side of optimism might be that the 'rust-belt' de-industrialization affecting many other

120

Industry and industrial policy

European countries rellects an earlier specialization in quite a differero: kind of manufacturing, particularly in heavy industry.

Direct foreign investment offers no free lunches: profit outllows are an Inevitable by-product. In the recent past in some cases recorded Dows have been quite dramatic; an extreme case is provided by the screening equipment company, Powerscreen, which in the year ending 1990-91 reported pre-tax prollts of t:5.8 million on a turnover of t:6 million. In m:ent yeara repatriated profits have been huge. absorbing about one­quarter of the output of the entire manufacturing sector in the early 1990s. They averaged t:l.540 million in 1990-92. One result is a wldeninggap between GDP and GNP. By the early 1990s profit outflows reached almost 10 per cent of GDP. However. much of this was merely a 'paper' outflow due to transfer pricing. as multinationals "laundered" their proftts through inllated sales data. This presumption is streng­thened by the direct statistical link between sales and repatriation."

Table 4.3: Output and employment in "traditional' and "modem' indusrry

M°"'"' Output per head

Average earnings

Employment

Tradfuonal

Outpu1 per head

Average earnings

1982

11980= 1001

113.3

132.2

11.2.7

106.0

131.l

1986 1992

187.5 3H.2

201.2 2:;0.h

119.3 l :;3_q

133.4 lfi;.4

188.h 2-1:-.0

F.rnployment q 1.4 ;:;.1 7 2.fi

Sourrr. F. Barry. "Pcriphcrali1~· in l"Ct.momic geography and modem gro\\·th 1hn.lry· t"\ 1-

dence rrom Ireland's adjustmenl to free trade'. \\'11rld En1rwm~1- 19(31 ! l 99hl. 3-H-t-~.

The huge contrast in the net output per employee of Irish and foreign­owned manufacturing industries in the Census of Industrial Produ1...·tion oft'ers prima facie evidence of transfer pricing. In 1990 the figures for lrtsh- and foreign-owned concerns were £2 6. 500 and £:69. JOO. respe..·1-lvely; in the case of multinational-owned pharmaceuticals it w;,ts £204.000 and 'other food' (mainly cola concentrate compani~l £427.000. However. this is in part at least a reflection of outpuL.._ anJ technologies - comparing clothing with. say. enatneering or pharma­ceutlcals. A better. though still inconclusive. indication of tht• ~n.1w1h ln transfer pricing ls the enormous drop in the share of wagl'S an"l salaries ln net output of the industrial sector as a whole - from 50--Nl

A rocky road

per cent in the 19 50s and 1960s to 40--45 per cent in the 1970s and less than 30 per cent today. A drop of that size is hardly warranted by technological change or sectoral shifts. The results of compuring the shares of wages and salaries in a few selected industries in Ireland. Northern Ireland. and the UK (see Table 4.4 below) arc also striking.

Table 4.4: The share of wages aud salaries i11 valill' mldt•tl i11 n·rtt1i11

industries, 1984 aud 1990 ('Xi)

llldustm NACE 198--1 J'J<J() /'J8.J /</<// /'J//4

lr1•/m11/ {ii\ \I

Pharmaceuticals 257 8.2 9.'-J 27.'i 2K.2

RTV equipment 34:; 15.7 8A 39. l lK.1

Office machinery JJ 12.4 10.9 29.8 -1-0.2 -Hl.-1

Jnslr. engineering 37 2h.'.i 2h.7 -1-X. l -1-h. l 12.1 -Again, until very recently, the decline in the real value of the JIJA's

exchequer grant might have been interpreted as evidence that the mess­age about the limited success of grant-aided industry had sunk inc~~ some extent. ln the late 1980s and early 1990s even the most ard supporters of branch plant industry would have conceded that the)' were 'second best'. and that industrial policy should concentrate on the development of indigenous industry. 2" There was also the sense ~h~t IDA policy ended up favouring foreign-owned over domestic capita· But renewed success with multinational investors in the mid-1990s would again temper that view.

The extent to which both the comparative record of the Irish indU!-i' trial sector and its impact on the economy have been influenced by tax incentives and transfer pricing is a controversial and important issue. Eurostat data imply that since the 1960s Irish industrial output ha.S grown while in the rest of the EC/EU it has tended barely to hold it.s own. Comparing the contribution of manufacturing in Ireland. on the one hand. and in Northern Ireland and the United Kingdom. on the other, suggests quite contrasting patterns. While manufacturing's share in GDP in the South has risen rrom one-fifth in the late 1 9 50s to one-third today. its share in both Northern Ireland and the UK has dwindled. falling from one-third in the early 1960s to barely one-firth today (Figures 4.1 and 4.2).

As the world economy evolves, the comparative advantage of national economies is bound to shift. The transformation rrom a comparative advantage based on agriculture and natural resources to one based on

122

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~ 5 11, .. ii! 11 .. :::> t 5

1,.· .. • :\

j I ~ ~

-----~-· ~ ~ l:J N ~ !:::

a•a-:t.A.,I

i I

/

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I

/

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•' :~ :, :, ,'I

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·'"·! I',

. f: / :I

~ ... c L_~~~~~~~~~~~~~~~~~~-J ~

Industry and industrial policy

high-tech, human capital-intensive activities is one experienced by many of the world's leading economies in the last half-century. Typi­cally. this has entailed a shift in employment rrom manufacturing to services. In the 1980s industry's share in total employment foll in all twenty-four OECD countries, with the exception of Turkey. Conversely. Nicholas Crafts and Mark Thomas 2s cite the failure of late Victorian and early twentieth-century Britain's move away from a comparative ad­vantage in activities intensive in unskilled labour as an example of weak economic performance. In the more recent past some mature economies specializing In 'rust belt' industrtes (post-war Britain is a good example) found their comparative advantage shifting away from manufacturing. How has Ireland fared in the comparative advantage stakes? ff trade is conducted in a relatively free environment. then a country's com­parative advantage should be revealed in its trading pattern. Thomhill's analysis of Ireland's revealed comparative advantage (RCA) in manu­facturing between the 1960s and 1980s" exploits this fact. It defines a country's RCA in an industry as the share of total world exports in that industry divided by its share in the world's manufacturing trade. A ratio greater than one accordingly ·reveals' Irish comparative advantage. A selection ofThomhill's results is reproduced in Table 4.5.

Table 4.5: Revealed comparative advantage estimates for selected industrirs. 1969171-1980182

lnd11stry (SITC)

Meat. elc. (011-0131

Dairy producls (011-02-ll Fish (032)

Glassware t 66 'i I

1969-11

12.2

s.:-O.'i

4.2

2.9

0.9

O.i

O.'i

1.1

0.1

0.1

O.l

1976--78 1980-82

10.8 8.9

11.l 8.J

0.4 0.2

J.4 J.0

!fl.fl l'i.0

1.7 1.3

1.0 1.4

!.l 1.8

2.1 .2.1

1.1 2.9

4.0 7.i

1.7 1.9

Other food preparations 10991

Rubber materials thl l l

Electricity distr. equipm~nt (;"231

Office. stulioncry supplies 1S9il

Sclentl\k instruml·nts 1Sh 11

Organic chcmlcals (::; 121

Essential oils etc. t :;::; l I

Synthetic llhrcs \lhh)

Med. an irm. roducts t 'i41,!._-- 1·7 l.~ 1.'9 ~ d phi P. . , led comparative advantage of Irish l'Xports ol manu-~~~::~~'j ~:9h~;~~~~: ,;,~;n~~:J~ 111, swlfstlrnl and S1i1·ial lnquir~/ 811('ir1,11 oj lrr/11nd . .! it ii

0987188). Appendix 1.

- 125

\ \

A rocky road

lre\and's comparative advantage in meal and dairy products rnmcs

as no surprise. The outcome also highlights Ireland's failure t11 dt·velop an export-oriented fishing industry. However. the implil'd rnmp«r;itive advantage in sectors such as organic chemicals. essential 11ib. "'H'11t1lii' instruments. and medical and pharmaceutical produ,·ts is nu1n· proh. \ematic. 'fhere is good reason to believe that tra11skr prirn<g ""' distorted estimates o( Ireland's RCA in these sectors. and that 1111111;,r ana\)'s\s would )'ield even greater distortions today. lly thl' l '1'1111

lre\and had become a second home to US pharmacculirnl giants: 1w;ir[\ a\\ the to'\) com'\)anies had processing plants based there. Agai11. lrda11d\ strength \n 'other food preparations' reflects the contributhm tif lhe n 1l<1

concentrate manufacturers. Coca Co\a and Pepsi Cola. ln l 9lJ2/9 ~ tlll'ir four hundred or so employees accounted for an average produr~·d ol over £.l.S million worth of output each.27 Therefore. the more stnkrng resu\ts ln iab\e 4. S surely stem from the package of incentives n!Tcrl'd s\nce the early 19 60s by the IDA and the Revenue Commissioners nit her

than ~enu\ne comparative advantage. :?s A.. recent analysis of revealed comparative advantage in the Ell shm\·~

\reland with a comparative advantage in human capital-intensive a~ we\\ as natura\ resource-intensive sectors. Indeed Ireland's comparalin· advantage i.n human capital-intensive activity is revealed to be strongc~t among EU member-states.2q It would be nice to think that this is a_n accurate re\\ecti.on of the lrish economy's recent progress. However. du:-. exercise assumes that the factor-intensities in every sector are the sanic across member-states. Comparing the share of administrative and tcch­nka\ workers in tota\ employment across a range of industries in the two \re\ands and the UK in 198 3 suggests that this is not a valid as­sumption \see Table 4.6). The proportion of such workers in Southern manufacturing was much lower than in the UK. with Northern lrcl0:tnd in between. in the early 1980s. Perhaps this is simply a reminder that manufacturing is more human-capital al headquarters than in a branch plant.

The pattern found here - with lreland's share lagging badly in indu.~­tr\cs such as NACE 2')-26 and 3 3-34, and others where multinationals have prcdomimned - is consistent wilh the view that lilllc H&D or

~~:~~;.i~' ;~:~~'!~~ri~i::ili=~~::,~: n:t'~\o~c~~<ll t;hk:i:~tu~~~~~ i1~~rc1J~~~; in this respect between l 9K3 and 199(). <1nd that the 1mprove!llcnt w<is biggest in sectors where multinationals were domin<mt.

126

Industry and industrial policy

Table 4.6: Non-manual employees as a percentage of al/ employees in selected lndw;tries: NI and the UK ( 198 3) and Ireland ( 198 3 and 1990)

.\'trlor(NACE) NI UK Ireland

1981 198 J 198 J 1990

Chemicals ll'i-lh) 35.3 43.4 33.0 37.0

Othermelals (31J 17.8 2i.fl 19.7 10.2

Mechanical engineering ( 32) 27.5 38.2 21.7 2U

Ollkc equipment and electr. engineering 24.9 41.6 26.0 30.l !H-J4J

Other transport ( H:i I 37.6 38.J 16.3 17.h

1.ealhcr. dolhing and rootwear j44---4'iJ J:;,9 16.8 10.8 12.0

Paper Industries 1471 311.3 39.0 31.4 32.3

All 24.l 31.7 21.3 30.8

~ur;,;= R. Harris, "Manufacturing industry_·. in R. Harris. c. jelTerson and J. Spenc~r. t or!hrrn Ireland Economy: A Comparat1i•r Study in the Enmvmic Developmmf 11} a

~~~~~traf Region !London. 19901. ";h: Irish Census of Industrial Production 198 3 and

The point remains that the expansion of the Southern industrial sector has by no means all been a mirage caused by transfer pricing. !he multinationals. and industry generally, have also had an important unpact on Ireland's occupational prortle. Between the early 1960s and early 1990s industry's share oftocal civilian employment fell by over a third in Britain and by a quarter in the EU: it rose in Ireland during the 1960s and has held its own since then. Thus one way of interpreting the IDA's efforts is as an attempt to buck a trend that pervades the rest of Western Europe. In almost every economy in Western Europe indus­trial employment has fallen since the 1970s. All countries must have a comparative advantage in something: after hall a century of trying. is Ireland's fmally in manufacturing?

While the presence of transfer pricing exaggerates the contribution of multinationals to industrial output. it has done less harm than some accounts would have it. In mitigation. it must be remembered, first. that a 10 per cent tax has been levied on all profits in lrish manufacturing. even the 'artificial' ones. In 1992/93 firms paying the 10 per cent rate contributed £449 million. and they were mostly multinational corpor­ations. Second. Ireland is not alone in providin& state aids to industry: throughout the 1980s aid as a percentage of value added was far higher in Italy and Greece. u Third. for multinationals transfer pricing is not a blank check: the companies in question run some risk of being audited

127

A rocky road

by US authorities. Fourth. the opportunity cost to Ireland of LranslCr

pricing and resulting profil remittances arc not obvious.

Winners and losers

Reading financial journalist Aileen O'Toolc's 198 7 studv (lf lcr1 'p<1t1·

setter' Irish businesses a decade later is a rcrnimlcr t lwl. dl'~p1t1· !Ill' overall success rate in recent decades. lifo has not ht>l'll t'<l.'>Y tor ln,J1

industry. Her 'pacesetters' were not a random selection of lno.,h t'o11

cerns. but the first ten winners of the prestigious Bownrnker 1\w;ird i(ir Irish Industry. They ranged from a small Clare enterprise employing"

few dozen people to Guin~ess Peat Aviation (GPA) and the l'lonmel­

based M. F. Kent. an engineering business. To judge by O"J'oolc's L'.phl'al account. in 198 7 all seemed to be doing well. Tony Ryan. the chamrnin and chief executive of GPA. for a time the biggest aircraft leasing com­

pany in the world. exuded confidence. his greatest fear for his cornpaiiy being 'laser transport - I wake up at night worrying about it'. 12

Where are these pacesetters now (1997)? Tony Ryan's Sha~nc~i~­based aircraft leasing company, a victim of sluggish demand for aircr~i : and a badly-timed and unsuccessful share flotation. was already on tL~ corporate knees by mid-1992. It was bailed out by an American con­glomerate. General Electronics. The new owners chose to discontinul' one of Ryan's managerial innovations - loading the board with well­connected ex-politicians (including Ireland's own Garret FitzGerald and former UK chancellor Nigel Lawson). In 1994 GPA had total asscl~ valued at $7 billion against commitments to repay debt and buy aircrall by 1998 of over $8 billion. Its future dependent on refinancing. only twenty-four sta!T remained.H Another of O'Toole's success stories. the Ballinasloe subsidiary of American penmakers A. T. Cross. had shed half its workforce a few years later. M. F. Kent, deemed 'a world class com­pany' by O'Toole in 1987. was already in deep trouble five years later. and several Irish firms owed large sums by the Clonmel concern were in danger of collapsing. Mahon & McPhilips. another 'pacesetter'. was one those almost brought down by Kent's failure. Significantly. perhaps. two of the survivors in O'Toole's list. Jurys Hotel Croup pie and Essco Collins operated in the non-traded sector. Lake Electronics in Ta!Jaght developed as a purely Irish concern; however. soon after Q'Toole's sur­vey it was sold to a Swiss company. and later involved in a management

l2R

Industry and industrial policy

buy-out. Another of the Bowmaker winners, the Kerry Group pie, for­merly a farmers' co-operative. continues to thrive. Beginning as a scheme for processing north Kerry's milk, it grew and diversified into food ingredients. After switching from co-operative to public limited corporation in 1986. it became a multinational in 1987. Two more of O'Toole's 'top ten', Magee & Co. (producers of tweed clothing in Donegal) and Lett & Co. (a Wexford food-processing concern), were also in­digenous concerns; the latter later underwent restructuring soon after her appraisal. The record ofO'Toole's 'top ten' is indicative of the risks faced by, and the high turnover of. Irish companies.

There have been other indigenous successes, however. As noted in chapter 5. the Irish beef trade had been overwhelmingly one of live animals since the early nineteenth century. Irish membership of the European Economic Community and the evolution of the Common Agri­cultural Policy in the 1970s and 1980s increased the opportunities for the trade in dead meat. Several meat-processing firms took full advant­age. The most successful of the beef barons. Larry Goodman. owner of the Anglo-Irish Meat Company. was described in 1977 as 'the man who has the largest private stake in the Irish economy'. A decade later Goodman's concerns bad a tum.over of about f. l billion, and he was the largest beef exponer in Europe. In the late 1980s and early 1990s. however, Goodman"s companies would be at the centre of one of the biggest scandals in the state's historv. a scandal that involved shady dealings in contaminated beef. fraud at the expense of the EC (and ultimately the Irish Exchequer). and ministers who were all too ready to wager taxpayers" money on Goodman's high-risk ventures in Saddam Hussein's lraq.H Though Gilbey"s. producers of Bailey's Irish Cream. Were never an indigenous fmn. their famous designer drink was created by Irish scientists in the early 19 70s. It therefore deserves to be treated as another Irish success story. Boosted by a marketing campaign costing f.SO million annually. Bailey's nows outsells Irish whiskey by almost two to one, and one hundred thousand glasses of it are consumed hourly. In 1995 its sales of 3.7 million cases (ofa dozen bottles each) accounted for 1 per cent of total Irish exports. According to The Econo­mist in 1988. the Carlow-based. indigenous firm of Oglesby & Butler. producers of soldering iron. had 'stimulated more interest than any previous IDA triumph'. A little over a year later. however. this success story had turned sour. and the company was reporting 'a very difficult" year. Efforts to develop the US market had flopped. producing losses of

•. 129

A rocky road

£0.6 million on sales of about £ 5 million. Oglesby & Butler rn 11 t1rn 1c lo

operate as a publicly quoted company. though hardly in the lll'ad!ine grabbing way implied by The Economist.

Ireland's two most famous and successful e11trcpn·1H·11rs. Tonv O'lk

illy and Michael Smurfit. now earn most of their n1011t'\' oulsidl' Jn·l;md The story of the Smurfit enterprise is almosl literally otH' of 'lr11111 r;ig\

to riches'. Established in the protectionist era by fclli.Tson Srrnirll1 ;1' .i

private concern specializing in cardboard packaging. Srnurn1 \\'t•nt ruh· lie in 1964 and began to act on the maxim that al!ack (in tlil' f11rrn of foreign acquisitions and take-overs) was the best l(1nn nf dl'll·wt' Founder Jefferson Smurfit's belief that expansion was I he hes\ \\'il\' to ward off sibling rivalry between his sons and daughters added " lll'\\

twist to the dynamics of the family-run firm. From the 1960s on. Smurfit focused most ofits expansion on foreign interests: by I 99 Sonly om•-ftf\h of the output from the company's far-flung packaging. printing. office equipment and other activities originated in Ireland or the UK. In that year Smurfit's 'total gross managed sales' reached IR£7 billion. or nearly

one quarter of Irish GDP. f several A feature or recent industrial history has be.en the take-over 0 ~ those

successful indigenous companies by multinat10nals. By and larg · companies have not suffered as a result. Irish Distillers was bought ou~ by Pernod Ricard in 1988. while Cork's two breweries (Murphy an. Beamish & Crawford) were purchased by Heineken and Carling. rcspeL -tively. The pioneering Ballygowan mineral water company was bo~g~~ by Budweiser and later (J 994) sold on to Cantrell & Cochrane. a su sidiary owned by the Guinness Group and Allied Domecq.

Northern Ireland

The history or manufacturing industry in Northern Ireland has been very different. The Second World War proved a boon to its traditional industries of shipbuilding. engineering and linen. Employment in the first two rose from J 9. 300 in July 19 39 Lo 51.600 in July 1943. Output continued lo expand during the 1950s. a creditable performance. given that the North's industries were concentrated in sectors which were losing workers. The 'handicaps' now suddenly faced by Northern in­dustry - "climate. lack ol' fuel and other raw materials. and the remoteness of the chief British markets' 1 ~ - had long been invoked for

]J()

Industry and industrial policy

th• failure of Irish industry generally. In the 1960s Northern Ireland's ;ndustrial sector underwent radical structural change. enabling it to share In the broader European prosperity. New grant-aided industries. mainly branch plants or multinationals. made good the jobs lost in traditional Industries. Output failed to rise at all during the 19 70s and 1980s. however. due largely to the failures of several foreign-owned (in particular British) firms. The Troubles stemmed the inflow of new foreign-owned manufacturing projects. The net effect was a reduction in manufacturing employment from 183.600 in 1960 to 101.300 thousand in 1985. Noel Farley's comparative perspective on Northern manufacturing in 1988 shows a sector much less dominated by high­tech industries than the Republic. France. Germany or Great Britain. In a context or a generous and interventionist industrial policy. the outcome was a reminder or ·some very particular handicaps' facing Northern Ireland.•• Since the late 1980s. the manufacturing sector has staged a mild recovery. but the sector still employed only 101.940 in 1994. From providing roughly the same number of jobs as its Southern counterpart in the mid-l 960s. manufacturing in Northern Ireland pr<>­vlded only half as many in the mid-l 990s.

Por half a century before the Great Depression. Belfast's shipbuilding industry had been a world leader. The 1930s were a bleak decade for the shipyards. with employment falling from 24.000 in 1923 to 8,000 by 1934. No ships were launched between December 1931 and May 1934: Workman Clark. which had been building ships on the Lagan since 1877. succumbed in 1935. Its more famous rival. Harland & Wolff. attempted to cope by adapting the new diesel technology and entering the market for oil tankers. The Second World War and post-war restocking and repair work provided a respite. with admiralty and mer­chant shipping orders driving tonnages to new heights. The shipyards •till employed 21.000 workers in 19 50. For a time. only a shortage of steel prevented their further expansion. but l"rom the mid-1950s on Harland & WollT raced increasingly stiffer competition from Japanese and European yards. Eight thousand workers were let go in 1961. Output levels were maintained until the 19 70s. and Belfast shipbuilding remained competitive by UK standards. but its share or world output plummeted. and the company returned a profit in only one year between 1964 and the late 1980s (Table 4.7). By 1972 the workforce was down to 10.000 from a 1945 peak of 26.000. Nationalization in 1975 and prdcrential treatment from government cushioned the yard's ftnancial

~ 131

Period

1906-14

1921-29

1930--38

1946-61

1962-79

1979 84

A rocky road

Awrnge output (10001/r. tom)

1')6

103

77

129 190

57

Sl111n·oj UK011t1'ill

('X,J

10.1

8.8

11.4

9.8

17.4

18.6

.\'/111n• o/ \\'ol!/,j,,11rp11/ (",.)

h.2

-J..2

H

2.4

0.4

OA

Sourer: derived from F. Geary and W. Johnson. "Shipbuilding in Belfast J 861 \<;I,'!().

Irish Economic and S'oc/al History. 16 (1989).

Belfast's renowned aerospace firm. Short Brothers. was founded i~ 1937. It prospered during the war. but by 1951 its labour force ha fallen by half to six thousand, and Shorts would certainly not hav: survived thereafter but for the long series of grants from both the UK government and the European Community (through the European Investment Bank in the early 1980s). Between 1963 and 1972 the company received £22 million in grants, and in 1976 a further £1 3

million of public money was invested in it. Like Harland & WolIT. Short Brothers was also privatized in 1989 when it became part of the Born~ hardier Aerospace Group. In 199 5 it still employed about seven thousand workers in the Belfast area. Cts concentration on smaller air~ craft and components seemed to offer brighter prospects. Yet Shorts' luck seemed to run out again in March 1996 with the collapse of Fokker N. V .. since Shorts had been the main supplier of aircraft wings to the Dutch aviation pioneer.

In the 19 50s and 1960s the North's engineering sector also suffered. Employment and output in linen had peaked before 1914, but was still sµbstantial in the 1920s. The industry. which depended largely on

132

Industry and industrial policy

foreign markets. then still employed 75,000 people. most of them women. The Industry was largely non-unionized, with little horizontal or vertical Integration, and wages were low. In the early 19 30s the abandonment of the gold standard gave the industry some breathing space. But already in 1928 a colleague had warned Sir James Craig. 'it Is not competition among ourselves that is the trouble, so much as competition under quite unfair conditions overseas'. 38

Though war meant Rax supplies from Belgium were cut off. the in­dustry nevertheless worked at full stretch. and in the late 1940s consumer demand made up for wartime privation. Linen still accounted for 28.6 per cent of Northern manufacturing output in 1949; its share dropped to 14 per cent ln 1958 and 5.3 per cent in 1975. Employment dropped from 58.300 in 1949 to 25.300 in 1968. The decline was in large part for reasons outside the industry's control; but the organ~ ational structure or the industry. and the dominance or family fll'DlS, did not help. In the mid-19 50s the Northern Ireland linen industry still contained almost three hundred plants employing twenty-five persons or more. There was an obsession ,.;th the 'craft' aspect of the industry, which downplayed the scope for new technology."

The North's industrial sector was beset with a fundamental structural problem: in 1952 flax and conon spinning and doubling accounted for over a quarter of all Northern Ireland manufacturing employment. The average annual loss in employment in linen and cotton between 19 52 and 1960 was 12 per cent. A detailed survey of the Northern economy ln the mid-l 950s put part of the blame on an outmoded industrial structure and poor management:"' In the 1 960s traditional textiles lost about 20.000 jobs. but foreign-owned industry took up the slack. not­ably in synthetic man-made fibres (Courtauld's in Carrickfergus in 1948. Monsanto in 1958. Du Pont in 1960). Between 1958 and 1973 nlne new textile multinationals were set up. bringing seven thousand jobs by 1973. ln that year the industry accounted for 28 per cent of UK synthetic textile output and 20 per cent or employment."'1 The Min· tstry of Commerce was very generous. typically granting a pound for every pound of investment promised. Decline set in thereafter. and was headlong alter 19 79. Employment in man-made llbres had fallen to less than a thousand by 198 5.

Other branch plants also proved successful for a time. A recent anal· sis draws the following lesson. however: it is easy to attract branch

~Iants to the periphery when times are good and incentives generous.

- 133

I

A rocky road

When the econon1ic downturn hib. these p/;111ts are of'tt-11 the nr~! tn

go. Northern Ireland attracted Hs disasters loo. n1os1 11o!oriothh-1lic Ile

Lorean car plant in Twin brook. wesl Belfast. I k J ,on·;111 prnlllL\cd an 'ethical' car which would deliver 29 n1ilcs p(.'r ga/l,111 ir1 1r;1ll1l a11d lw designed so that a driver could 'walk away frmn a11 J-:(J-rndt•-;u1 li<1ur car crash'."2 Whal one MP dubbed the ·higgcsl 1·ipoff -.;inn· !Ill" S11111li

Sea Bubble· provided over two thousand badly lll'('dcd jnfl.., lor ;1 \h11rt

time, but in the end the project cost the Brilish 1axpayc1· LS "i rnill11111

(or a phenomenal £10,000 per car produced) and wcnl i1JI(> rcn'l\'('r\lllp

in February 1982. Throughout the period surveyed here. the stale sought ln ;1,\\J\I

Northern industry. Help became more far-reaching alicr J 94'1 \Vitli till'

New Industries Development Act. which gave financial assista11n· 111•

wards establishing new firms or enlarging existing ones. By I 9::; "i _J -+h schemes implemented under this Act employed 2 1 .000 workers. StrH l' the 1970s a number of different agencies. most recently lhc NorL/1l'rn Ireland Industrial Development Board (IDB). have assumed the rcspo~· sibilities assumed by the IDA in the South. The IDB set out to nw L'

Northern Ireland the biggest magnet for foreign investment in rn<.JJlL,l~ facturing in Europe. IDB non-tax incentives have matched those oJlcrt-'' in the South. but in 1 990 foreign-owned plants employed more di<'. 11

twice as many people in the South as in the North. Employincnl 11 ~ foreign-owned plants in the North dropped by half between 19 7 3 ai~'-1990, while the net decline in the South was miJd. The Troubles pro ably account in part for the contrast. but the attraction of Southern taX

incentives to multinationals intent on transfer pricing seern.s to ha:'c been paramount. The main problem for the North was a decline in employment in British-owned plants specializing in more low-tech in: dustries such as textiles and dothing. None of the North '.s top 2 .., companies is a computer manufacturer.

Production censuses suggest that since 19 50 Northern Ireland's manufacturing output has roughly trebled, while Southern output has risen about tenfold. Moreover. recent comparisons between 1nanufoc­turing productivity in Northern Ireland, the Irish Republic. and the United Kingdom" imply Northern retardation and considerable South­

ern advantage (Tables 4.8 and 4.9). However, the Southern advant<1gc was clearly due in large part to the external sector (including Antoin Murphy's 'the Three Cs'), and the data are problematic there ll>r the reason outlined earlier.

1 34

Industry and industrial policy

Table 4.8: Manufacturing productivity in Ireland, North and South (UK= 100)

1985 1987 l98H

Soulhfalll 132 119 117

Soulh (Indigenous) 81 85 ;q

Suulhfex1emalJ 198 211 210

NotthfallJ 7h 74 ;2

.'iaurrt: D. Hllchen!I, J. f_ Birnie and K. Wagner. "Economic performance in Northern Ireland: a compariallve perspective'. in P. Teague led.). The Enmomu of ,'iorthm1 lrP­llnd: Ptrsptrllvt.• for S1rur1ural Chan~ {London, 199 31. 32.

Table 4.9: Irish productivity In manufacturing relative to the United Kingdom. 1985-87

Sttlm 1985 198i Mineral oil reflnlng 28 53 Non-metallic mineral products 119 IOl Chemicals and man-made 6bres 174 147

Production and preliminary processing or metals 74 ;h Metalartk:les 98 94 Mechanical engineering. offlC'e and data processing. etc. 182 231 Motor vehtcles and other 1ransport ll8 70

Electrical engineering 118 146

Food. drtnk and tobacco I I 7 l .Jf>

Texule Industry 98 100

L'lothlng 79 7 J

Footwear and teather 104 82

Tim.ber and wooden rumlture 81 91 Paper and printing 7 4 69

Rubber and plastics 111 I 07

Instrument engineertng 100 116

Total manuracturtng 118 I J 7

Soutrt: J. E. Birnie. 'Brilish-lrish productivity dilTercnces 19 J0s-199Us', Depar1men1 of Economks. Qu1.-cn's University di!K.·usslon paper tBclfast. 19941. Tables I! and 1 J.

A gloomy assessment of Northern Ireland's elTorts at attracting foreign manufacturing investment in 1989 found 'only 65 finns emplo­ying 16.000 people remain to show for all the elTort of industrial attraction from 1945 to 1973 ... (and I only 44 llnnsemploying 6.000 people remained by 1986 in firms attracted into Northern Ireland after 1973' .«Almost 36,000 jobs had been lost in 1973-86 in branch plants set up ln Northern Ireland in 1945-73. Employment In manufacturing

135

A rocky road

in Northern Ireland has fallen from 184,000 in I %0 to 110.01111 in 199 3. Blaming all this on the 'Troubles' is implausihlc, sim.T i\orLhcrn performance more or less tracked Brilish performance. Owr llH' p;1st

few years there have been signs of a recovery in Norlhl·rn Irish rrnmu­facturing.

The semi-state sector

During its decade in office Cumann na n(:acdhcal l'Stahli:·d1ed a nwnht·r of enduring publicly-owned corporations such as the Elcctricily S'.ipply Board and the Agricultural Credit Corporalion. Though Fia1111<1 F•i.il l~ad no strong ideological commitment to state enterprise - de Valera s Im~ in 1931 was that 'if Fianna F8.il got into power factories wnuld he established, and if they were not established by private enterprise the State would establish them' - the number of state-owned bodies ros~ considerably during its first sixteen years in office. They included B~~~ Fiiilte (the Irish Tourist Board), the Industrial Credit Company. ' d Lingus. the Irish Sugar Company, the Turf Development Board. ai~ l Irish Alcohol Factories Ltd. The enthusiasm for state enterprise wou ' transfer to Fianna F8.il's successors in the 1940s and 1950s. h

Garret FitzGerald's brief 1961 study of semi-state bodies reflected L L'

enthusiasm for state enterprise still general in Ireland at that urnc. Fit.zGerald's later acknowledgement that his analysis was 'naive' reflects a broader shift in attitude towards the achievements and further poten­tial of the semi-state sector:n Yet public enterprise has played a significant role in the South almost since the foundation of the stale. not merely in communications and infrastructure. but also in manufac­turing. In this section we describe a few of the more important examples.

Though sugar cane had been refined in Ireland since the seventeenth century. and several attempts had been made at developing an Irish beet sugar industry in the nineteenth, it was not until 19 3 3 when Industry Minister Sean Lemass decided to take over the ailing Irish Sugar Manufacturing Company USMC) that the industry's future was secured. The JSMC had been set up in Carlow, with foreign capital and govern­ment subsidies, in 1926. As part of the struggle for a 'self-sufficient and self-:oupporting state'. the newly-established Comhlucht SiUicre J~irea11n (CSE; Irish Sugar Company) built three more sugar beet factories ut Mallow, Thurles and Tuam in 1933-34. Imports of sugar had already

136

Industry and industrial policy

fallen by two-thirds by the late 1930s, and would fall further during the Emergency.

The number of sugar beet growers rose quickly to 2 7,000 in 19 36. and reached a peak of 50, 121 in 1943. In the latter year, farmers grew an average of 1.6 acres. Sales of sugar beet softened the impact of the economic war on farmers, though they disproportionately benefited the more substantial farmer. The Emergency brought its own problems because the beet factories relied on German-built machinery, and oil and grease were in short supply. The beet acreage has averaged around 70.(J00-80,000 acres since the 1 9 50s.

By the mid-19 70s CSE was producing twenty kinds of sugar. but it had been seeking economies of scope through diversification into other kinds of processed foods. Cnder its dynamic chief, Michael ). ('Micky Joe') Costello, it created a subsidiary. Erin Foods Ltd. in 1960 that would speciafu.e in Unes such as packaged soups and processed vegetables. Costello resigned in 1966 and his successor. the youthful Tony O'Reilly. set up a trading partnership y,,;th the H.J. Heinz Co. in 1967. For a time Erin was marketing four hundred products. and in 19 7 4 sugar repre­sented less than half the Sugar Company's turnover. The Erin Foods project had its own research v.ing and achieved a few impressive tech­nological breakthroughs: in 1960 it opened the world's first accelerated i'reere-dry;ng plant for vegetables in Mallow. But it continually lost money. Under Costello. the company had seemed for a time to have taken upon itself the responsibility of developing rural Ireland. It became involved in projects all over the country. from Skibbereen to Glencolm­cille and from Pallaskenry to Glenamoy. Some of these projects were rather hare-brained. One of the main problems is that its climate denied Ireland a comparative advantage in vegetable growing on the required scale. Though Erin Foods caused an impressive increase for a time in the acreage under peas and beans. farmers were always more interested in beef and milk, and there were frequent tensions between factory and farm about promised supplies of vegetables that failed to materialize. Erin Foods seemed to be over-extending itself. dabbling in bags. Lime. other vegetables and freeze-drying. Almost immediately after accession to the EEC. CSE: received £2.8 million from the European Investment Bank. But the glory days were over. The company wound down its vegetable processing division and its monopoly of the sugar market was given up in the 1970s in return for a sugar quota of 150.000 tons."'b CSE: was privatized as Greencore in 1990 .

• 137

A rocky road

Another semi-state body, the Turf Development Board (T!>B). \.V<is set up by the government in 19 34 as a private limited company with state funding. Its brief was to develop machine-won turf production. hut during the Second World War its main responsibility lay in producing and distributing handwon turf on a mass scale. since nrnl for domestic use was virtually unavailable from 1941 on. In I Y...J-fl Lh<' TllB was dissolved and replaced by the fully state-owned Boni na Mona. Boi-t pc11l

or turf had served as the main household fuel in rural Ireland since time immemorial. but Bord na M6na faced the challenge of Hndini-t other uses for it. In the 1950s the IDA briefly pursued that will-o'-thc-wisp of nineteenth-centul}' lrish industrial history - converting turr into other marketable produce - and even such a sober document <1s frm.i­

omic Development listed peat wax. peat coke, activated carbon. domcsti.c gas and oil, and 'a fermented soil conditioner called "Humona" as possi­

bilities. 1 From 19 3 6 on it was established policy that the Electricity Su PP~

Board (ESB) must buy such supplies as the Turf Development Boar would produce at a price that would cover the TDB's costs. It is hardly surprising that this arrangement gave rise to some tensions over the years. In the 1950s Bord na M6na's progress was put at risk by th~ sluggish demand for electricity, but the government financed two ne" briquette factories to absorb an annual 0.6 million tons of milled peat. In 1958 Economic Development called for closer co-operation and co­ordination between the ESB and Bord na M6na. But the ESB aJwaY~ mattered more to Bord na M6na than vice versa. Turf sales to the ES have long accounted f~r. half or more of Bord na M6na reven~e. B~~ the proportion of electricity generated by Bord na M6na-supphed LU fell from 33 per cent in 1960 to 23 per cent in 1975 and 17 per cent in 1984. Bord na M6na has survived many vicissitudes over the past half-century. It is gradually exhausting its resource base of bogland. but for the time being it is in reasonably good shape . .f7 Peat moss has been Bord na M6na's main non-turf output, accounting for about one-fifth of revenue.

The importance of nitrogenous fertilizers to agricultural progress Jed to the creation of Nitrigin Eireann Teoranta (N°ET) in 1961. For some years NET's first plant at Arklow produced a variety of chemicals such as ammonia. gypsum and sulphuric acid, as well as fertilizers. A second major plant at Marino Point, completed in 1979. aimed to profit from the discovery of natural gas off the Cork coast. An economic analysis

138

Industry and industrial policy

in 1984 ofNE'I"s operations suggested that Marino Point was not viable but that the Arklow plant was worth keeping open.~14 A few years later. N'Er was reduced to the status of holding company: in a joint venture with ICl it spawned Irish Fertilizers Industries Ltd.

The construction of a steel foundry at Haulbowline in Cork harbour in 1937-39 was deemed by its historian 'a much overdue initiative in 1he manufacturing of a commodity so vital to a developing economy'. Selin l.emass In 1959 referred to it as 'an outstanding example of the successful intervention by the State in industrial operations which it was found impossible to carry on by private enterprise'. and Garret FJtzGerald a few years later as 'one of the most interesting' of the semi­state bodies.n Yet the history of Irish Steel has been mainly marked by crisis and near-coHapse. and its annual reports 'read almost as a cata­logue of adversity'. Its beginnings as a private company founded by a friend of Sean Lemass. Scotsman David Frame, leading member of the Dublin Employers' Federation and chairman of The Hammond Lane Foundry Co. in Dublin. were inauspicious enough. Frame had wanted to bUild in Ark.low. but Lemass persuaded him to accept the less propitious location of Cobh. The new company was granted a protective tariff. a leasehold on state property. and sanction under the Control of Manu­factures Acts. In order to secure a supply of scrap metal for Frame's company. Lemass·s department placed an embargo on its export. Almost immediately. however. the Hammond Lane Foundry found itself cut off from crucial raw materials bv the war. so that it failed to deliver the goods when they were needed most. The flm1 failed twice, in 1942 and 1946. After the fll'St failure. the e\•er-cautious Sean McEntee, then Min­ister for Industry and Commerce. was not at all keen on bailing it out.

After the second failure. the company's assets were bought by the state for£ 125.000 as a 'strategic' investment. and the firm was rein­carnated as Irish Steel Holdings Ltd in 1947. With the elimination of protection it required heavy subsidies to survive in the face of the Euro­pean Coal and Steel Community. In 19 59-60 it received a large injection of public capital to help it diversify and increase its open-hearth capacity. Its output has long consisted mainly of steel beams for the construction industry. Between the mid-1960s and the early 1970s it employed 1.200 workers. The plant was modernized in 1977 with an injection of £60 million of public money. In 1985 a further cash injection of (H

million provided only temporary respite. Despite all the handouts. Irish Steel rarely reported a profit in its half-century of existence. and it lost

(f' 139

A rocky road

over £6 million in 1994/95. By late 199 5 employment ;it llaulhowline was down lo about 3 50. and the mill's future rcm<1i11cd prohlt·rnalic.i•• The government found a 'purchaser' for it in the Indian rm11p<1m. 1,pat International; in mid-1996 the cost to the Exchequer fahoul L :U 1111[.

lion) led some steel firms in some Ell mcmhcr-slatl's to 1lin·;it1·11 111

contest the sale. The history of Ireland's main transport comp;111_\', Cor<is l11111p:11r

Eireann (CJE). illustrates another important clcmcn! in till' li1\l1 1rr uf Ireland's semi-state sector. In 1946 CII~. slill in private hands h11! ;iln·;ul) heavily regulated and losing money. sought sanction to closl' rn;i1i\· 01

its unprofitable railway lines. An official inquiry chaired h.Y Sir /<1rJH'\

Milne ( 1948) countered that 'the paramount considcratitHI i11 i11\-l'' 11 •

gating the question of closing branch lines should he whether tllt'I~ retention is necessary or desirable in the public interest'. i\lilnc pnipost'l that each request to close a branch line should be met by a publit

[ht' inquiry, and that 'any proposal to close branch lines solely ·n;r~ lht'

grounds that they are at pres~nt unprofitable should be rejected · hll'f·

burden placed by Milne on CIB in 1948 was ?1anifestly unfair. But -~nit'-' in different circumstances, a nationalized CIE and other state coinP• ·ik­would transform something like that burden into a defence of Joss-:'.~nil ing on the part of public enterprise. In the 1960s and 1970s se . semi-state bodies often blamed their losses on their social responsibilill::; and a study commissioned by one of them, Bord na M6ni::I. in 19, 11"

rejected 'the narrow concepts of private accounting' as a basis of ju,d~~I; their contribution. A few years later, a spokesman for another. Lo l

lucht Sillicre E.ireann, lamented that the absence of 'a criterion th<'. would look upon the total impact of the company within the comnn111.1:

ty'. Cost-benefit studies were as much the fashion of the day in t!W~l days as calls for privatization would become in the 1980s and carlY 1990s."

Notes

1 T. K. Daniel. 'Griffith on his noble head: the determinants of Cumann na nGaedheal economic policy 1922-32', Irish Ecotwmic cmd Social HistonJ. ->

(1976), 55-65. 2 Mary E. Daly. 'The employment gains from industrial protection in !he Irish

Free Stale during the 19 30s: a note'. Irish Eco11omic and Social History. I 5

140

Industry and industrial policy

(1988), 71-5; Idem, Industrial Development and Irish National Identity (Syra­cuse. 1992), 75-79.

l c.O Grada, Ireland 1780-1939: A New Economic History !Oxford. 1994) 399.

4 On which see Mary E. Daly, 'An Irish-Ireland for business: the control of manufactures acts, 1932-4'. Irish Historical Studies. 24. 94 (1984). 246-72: idem. Industrial Development, 85-89.

5 john M. Hearne. 'Industry in Waterlord City. 1932-1962'. in W. Nolan and T. P. Power (eds), Waterford: History and Society (Dublin, 1992). 691. 694. 699-700.

6 Brin E. )acobsson, A Life for Sound Money (Oxford, 1979). 128. 7 NAO, SI 5293/A: Hearne. 'Industry in Waterlord'. 702. 8 For an lnteresting overview of the political background. see P. Bew and

H. Patterson. Setin LLmass and the Malcin9 of Modem Ireland 1945-66 (Du­blin, 1982). ch. 5.

9 R. B. Finegan. Ireland: 711' Chalknge of Conflict and Change (Boulder. 1983). 152.

10 T. ). Baker. 'Industrial output and wage costs 1980-1987'. ESRI Quarterly Commmtary (October 1988). 33-43: E.O'Malley. 'The problem of late in­dustrialisation and the experience of the Republic of lreland'. Cambridge Journal of Economics. 9119851.141-54.

11 For ell:ample. P. T. Geary. B. M. Walsh and J. C.Opeland. 'The cost of capital to Irish industry'. Economic and SotiaJ Review. 6(3) (1975). 299-311; Eoin O'Malley, Unequal Compttition: The Problnn of Lau Development and Iri.sh Industry (Dublin. 1981 ): F. Ruane and A. McGibney. 'The performance of overseas industry. 1973-1989". in A. Foley and D. McAleese (eds). Overseas Industry in Irtland (Dublin. 1991). 65-91: K.A.Kennedy. T.Giblin and D. McHugb. The Economic Drvtlopment of Ireland in the Twentieth Century (London. 1988). 247-50: Industrial Policy Review Group. A Time for Change: Industrial Policy in rhe 1990s lThe Culliton Report) (Dublin. 1992).

12 Compare Paul f. Bull. 'Employment change in indigenously and extemally­owned manufacturing activity in Northern Ireland. 1970-1980'. in Richard Jenkins led.). Northern Ireland: Studies in Economic and Social Lift (Aldershot, 1989). 85-102.

13 A senior executive of the US pharmaceutical multinational Warner Lambert singled out the extension of lreland's 10 per cent corporation tax rate until 2010 as an important reason for extending operations in Ireland in 1994 (lri.sli Timts. 30 July 1994). On the impact of taxation on multinational strategy see K. Froot and J. Hines. 'Interest allocation ntles. financing pat­terns. and the operations of U.S. multinationals'. NBER Working Paper No. 4924 (1995).

14 Foley and McAleese. 'Introduction' to idem. Overseas Industry; F. Barry and A. Hannan. Multinationals and Indigenous Employmenl: An lri.sh Disease?, mlmeo. VCD (1995): P. Bew, P. Gibbon and H. Patterson. Northern lrrliind

141

A rocky road

1921-1994: Political Forces and Social Classes (London. l 99'i). 172 kilin Northern lreland Development Programme 1970-7'), p. 1 ')f. 8

15 An early example is Geary et al .. 'The cost of capital'. 16 Packard Electric. born out of the demise of car a.s:-;cmbly. clo.~('d in July l lJ%.

17 Charles Cooper and Noel Whelan. Science. Teclmolom1. mu/ /111/mtr.11 m Jrdmid (Dublin. 1973).

18 The company's owner and chief author of the reporl. Ira .l\l:1i.:;1zi11n. 1~ now an adviser to US President Bill Clinton.

19 25 November 1982. 20 E. O'Malley. 'The problem of late industrialisation and the cxpcril'nrc of the

Republic of Ireland·. Cambridge Journal of Eco110111it's. 9 t I lJ."\::; ': 14 ! 14:

idem. Unequal Competitim1; idem 'Industrial structure aml l'coru11111t·.,oL,ralc in the cont.ext of 1992'. in j. Bradley et al. T/11• Rofr 1~(tf1c Strwtuml hmd~ Analysis of Consequences for Ireland in ll1e Conlt•xt of 1992 (Dublin. I (PJ 2L

43. 21 Irish Times. July 1994. 22 Sunday Tribune. 2 3 October 1994. .11 23 Eoin O'Malley and Sue Scott. 'Profit outflows revis_ited·.' in .Sara, ca;;1L 17,'.~~;

John Curtis and John Fitzgerald. Economic Perspectives m the Mufw (Dublin, 1994). 149-56.

;~ ~~·;~ R~~~:~~~s~. ~~e;:::.1.~~~~~~;t~:~ advantage in UK manufactur· ing trade 1910--1935'. Economic Journal. 96 (1986). 629-4'). 1. of

26 D. J. Thornhill. 'The revealed comparative advantage of Irish ~xp~r ~ ,111 manufactures 1969-1982', Journal oftl1e Statistical and Social lnqwry 0' 11 •

of Ireland. 25(5) (1987/88). 91-146. 9 - 1 27 A. E. Murphy. The Irish Economy: Celtic Tiger or Tortoise? (~ublind 1a9bs~[~ite 28 Compare Frank Barry and Aoife Hannan. 'On comparative ~n • •rati(in·.

advantage: POI and the sector and spatial effects of markel mteg

29 g~~i;~R N~~~~~s·i~;cp::!'t:~r~~:~n1 ~=:~rds 1992: some distributional <JS·

peels·. Economic Policy, 10 (1990). 14-62. 30 R. Harris, 'Manufacturing industry', in R. Harris. C. Jefferson. and J. Spene~~

(eds). The Nort11em Ireland Economy: A Comparative Study in the EcmwllW Development of a Peripheral Region (London, 1990), 76.

31 EU Commis.sion. Third Survey of State Aids (Brussels, July 1992). . 32 Aileen O'Toole, The Pace Sellers: Portraits of Ten Irish Companies (Dublin.

1987). 3 3 Sunday Tribune. 31 July 1994. 34 Fintan O'Toole. Meanwhile Back at tire Ranch: The Polillcs of Iris/1 Bl't'.f (Lon­

don, 1995), 33-5. 35 K. S. Isles and N. Cuthbert, 'Ulster's economic struclure', in T. Wilson (ed.).

Ulster under Home Rule (Oxford. 19 5 5). 114. l6 Noel J. J. Farley, 'A comparative analysis of the performance of the

142

I Industry and Industrial policy

manufacturing sectors. north and south: 1960-1991 '. in John Bradley (ed.). The Two Economies of Ireland (Dublin. 1995). 96.

l7 M. Moss and J. R. Hume. Shipbuilders to the World: 125 Years of Harland and Wolff. Belfast, 1861-1986 (Belfast. 1986): F. Geary and W. Johnson. 'Ship­building In Belfast 1861-1986', Irish Economic Social History. 16 (1989). 42-64.

l8 PRONI. 71/67/l. 39 P.Ollerenshaw. 'Textiles and regional economic decline: Northern Ireland

1914-70'. In C. Holmes and A. Booth (eds). Economy and Society. European lndustnalJsaUon and its Social Consequences: Essays Presenud to Sidney Pollard (Ldcesbor. 1991) 58-8 3.

40 Richard Harris. !UgJonal Economic Policy in Northern Ireland I945-1988 (Aldenhot. 1991): K. S. Isles and N. Cuthbert (eds). An Economic Sumy of Northern Ireland !Belfast. 1957). 182-9.

41 Harrts. Rtglonal Economic Policy. 18 3. 42 William Haddad. Hard DrMng: My Ytars with fohn Dtl.orean (London. 1986).

103. 4 3 J. E. Birnie. 'British-Irish productivity differences 19 30s-l 990s'. Depart­

ment of Economics. Queen·s t:ni\•ersity discussion paper (Belfast.1994). 44 Graham Gudgin et al.. Job GentraLion in Manufacturing Industry: A Comparison

of Northern Ireland with the /lq>ub~c of Ireland and the English Midlands (Bel­las~ 1989).

45 G. PltzGerald. AU in a Lift \Dublin. 19911. 54. 46 Michael Foy. Tht Sugar Industry in Ireland \Dublin.1976). 47 J. A. Bristow and C. F. Fell. Bord na Mona: .1 Cose-Bent/It Study (Dublin.

1971). 17-18. 48 John Blackwell. F. Con\·ery. 8. ~I. Walsh and M. Walsh. Natural Rtsource

AUocollon and StJJt< Ent<rprise: :.'Er as a Cast Study (Dublin. 1983). 49 S. Hogan. A Historyo/lrish Sttt'l lDublin. 1980). 1: Lemasscited in P. Lynch.

'Thelrisheconomysincethewar. 1946-51'. in K. B. NowlanandT. D. Wil­liams (eds). l~land in tht War \"tars and After (Dublin. 1969). 183-4: G. FltzGerald. Statt-Sponsored Bodies. 2nd edn (Dublin. 1963). 73.

50 Frank Barry and Joe Durkan. 'TEAM and Irish Steel: an application of the decltning high-wage industries literature'. CER WP95/10. UCO. July 1995.

51 Micheal 6 Riain. On tht Movt: COras lompair E:ireann 1945-1995 (Dublin. 1995). 46-52.

52 Bristow and Fell. Bord na MOna. 18: Foy. Tht Sugar lridustry in Irtland. 89. But see J. Blackwell d al .. NET.

5

Agriculture

The interests of farmers and the nation are. at least prinm focic. idrnlirnl (George O'Brien, 1936) ·

It is hardly too much to say that the stagnation in agrkullurnl prnduclion is the crucial problem of the national economy. QameN Meenan. J 9;6J

Even de Valera had told him that cattle-breeding made people lazy and inefficient: but PJ thought that it was the source of the Irish imaginalion -they would sit and look on the cattle grazing. watch the clouds. and build castles in Spain. (Brin E. Jacobsson. 19 79) 1

Before the Common Markel

Since the mid-1920s the national cattle herd of the Republic has almost doubled and its sheep herd more than trebled. Meanwhile the area under potatoes has fallen from about 150.000 hectares in the 1920s to about 20,000 hectares today, and that under oats from 250,000 hectares then to about one-twelfth of that now. At frrst glance the implied shift from tillage to pasture might seem like a continuation of a long-drawn­out process dating rrom the Great Famine. It is not quite that simple. however. because both the pace and direction or the shift have varied in the interim. This is partly because the areas under the other main grain crops, wheat and barley, have Ouctuated considerably. Farmers are canny businessmen: except during the Emergency or 1939-45. an era of compulsory tillage. their choices of output continued to be dicta led by the markets they raced and the suppports they received. For a shorL time. they operated in a virtually unfettered international market. bu! for most of the period under review. policy-makers both domestic: and abroad played a major inOuence.

In the 1920s farmers in the new Irish Free Stale followed the path of comparative advantage. This entailed a system of mixed fanning that emphasi?.ed livestock and dairying. categories which accounted for

144

Agriculture

uarters of agricultural output and well over half of all exports. ti¢:'1g policy was the responsibility of Patrick Hogan. the Free State's famun . . first MlniSter for Agncu~ture. Hogan. a talented and hard-workmg min-ister. focused his energies on remforcmg estabhshed patterns through im roving the quality of both inputs (e.g. bulls. milk) and outputs 1but­terpeggs. bacon). He was responsible for creating Ireland's farm advisory service and the Agricultural Credit Corporation. a lending institution aimed speclficaUy at farmers. Hogan also established the Land Com­mission. successor to the Landed E.states Commission and the Congested Districts Board. The Land Commission was given the difficult task of redistributing fannJand more evenly and more efficiently without inter­fertng with propeny rights: clearly. the scope for such redistribution was limited. Despite all this. during Hogan's stewardship the acreage under the plough fell back by 17 per cent and the number of cattle by 7 per cent. The ratio of the cost of purchasing land to that of renting it. an Index of farmers' faith in the future. failed to rise.' Nor did another performance index. the Irish Free State's share of the UK produce market. show any improvement between 1924 and 1928. the Irish shares of British butter. egg. and cattle imports share registered no sustained rise. J

Hogan's policies. which bad some successes. were predicated on free trade. However. 'when any country's principal customer moves in the direction or self-sufficiency. that coWltr)' may be forced to move in the same direction'.4 Thus it was \\ith the lrish Free State. From the early 1930s on, a combination of factors - worldwide economic depression. the shift towards agricultural protectionism in the UK. the economic War of 1934-38. Fianna FB.il's pro-tiUage bias. and the Second World War- shunted farmers off the path of comparative advantage. All these factors made life relatively more difficult for the grazier and the cattle farmer. Instead of encouraging the growth of the national cattle herd. Fianna Pei.ii shifted the balance towards tillage by offering a bounty for calf skins. imposing import controls on sugar and tobacco. and offering relief on farm rates in proportion to the amount of non-family farm labour employed. But the net impact on farming prosperity may be inferred from the land market: the average price per acre paid by the Land Commission for farmland fell from £10.7 in 1923/28 and .C9.l in 1928/32 to £7 per acre in 1932/36; conacre rent per acre in the Limerick area fell from £1.75 in 1928/32 to £1.13 in 1933/37. ~More­over, it is far from clear that the small farmer, their alleged target. was the main beneficiary of the Fianna Fciil policies of offering prlce supports

• 14'

A rocky road

for sugar and wheat. In 19 31 more than one-quarter of the sugar crop was grown on farms of over one hundred acres. As Raymond Crony has pointed out,6 price support for potatoes. calves. pigs or p11ultry would have been more equitable, though they would have been mon· difficull to administer.

The agricultural sector remained of paramount importancl' for the

economy of the Irish Free State. In the 1940s it still dinxtly employed almost half the active population. and accounted for the hulk cif l'xpnrts. The Emergency. by cutting ofT the supply of chcmkal ICrtili:r.t·rs <t~d feedstuffs. left it in a bad way. During the Second World War Bril•11"

effectively exploited its monopsonistic position. and Lhc high prices il.nd high prosperity of 1914-18 were not repeated. Even though the in'h exchequer subsidized farm exports. their volume was less than half L~al achieved in the late 1920s. That agricultural output held its own during the Emergency was in itself a paradoxical refleclion of the backwardn~s!i of the industry. Ireland's quandary was plain: in 1946 an official 111•

quiry; pointed out that 'we must export agriculturally before we can develop industrially, and the greater our agricultural exports the greater our capacity for the kind of industrial development which depends 011

imported raw materials'. . r1l This could be seen as a dig at Fianna Fail. but the latter's enthUSl~~ce

for self-sufficiency and smallholders had been gradually waning 51

the mid-1930s. Lemass secretly wished for a way of removing incorn­petent farmers from the land, while Minister for Lands Se&n M?~1.~~ openly declared that it was 'a mistake to give land to landless men · ~ party's rightward drift created an opening for a time for an agraria: party representing western smallholders, Clann na Talmhan. Ciano n Talmhan would be represented in the first inter-party administratiO~ (1948-51 ). which committed itself heavily to promoting agricultur• exports. and Moylan would be succeeded by Mayo farmer. Joe Blowick­In it<s submission for funds from the Marshall Plan the new governme~t stated that 'agriculture is Ireland's basic industry and it is in the agri­cultural sphere that the country can make the most effective contribution to the success of the European Recovery Programme·. Agriculture was still to the fore in the First Programme (19 58). As late as 196 3 government policy through the Second Programme for Econ­omic Expansion allotted 'primary attention' to agriculture. while conceding that the main contribution to extra employment and pro­duction would come from industry. By the Third Programme

146

Agriculture

16 One-time prosperous gra:zier: ·1 use [WO or them for a hat rack!'

(1969-72). however. agriculrure would contribute only 8 per cent of the projected growth in output.

The shifting emphasis reflects the dramatic fall in agriculture's con­tribution to Irish employment and GDP over the last half-century. Numbers at work in farming in the South fell from 643.965 in 1936 (or 48 per cent of the occupied population) to 272.100 in 1971126 per cent) and 1 H.000 in 199 3 t 13 per cent). Today agriculture ac­counts ror only 7 per cent of the South's GDP and 11 per cent of total employment. Nevertheless. the sector remains much more important for Ireland than for any other West European economy. and the in­fluence of the Irish farm lobby is still considerable. For this reason alone. it deserves separate treatment. Another reason is that agriculture also faced an interesting variety of policy regimes in these decades. ranging from neo-mercantilism in the South before 1945 to the Common Agri­cultural Policy from 197 3 on.

Between the onset of worldwide depression in 1929-30 and the out­break of war in 1939 Southern farm output railed to register any worthwhile increase. Between 1929-30 and 1934--35 its value plum­meted from (64.9 million to f.39.9. but most. if not all. of that fall was due to the drop in agricultural prices. The shift in the terms of trade

147

I H l'.~CIO un .,,.,...

'"''"""'''r"""'"'"'"'""·""'"'''

A rocky road

:::;:·~:~ ~~;:;:;,:~·. ::.~'.·;· .. ~::·;::.;·~.~'.::~·;·;::.-:~·~..::.:;~ .. ·:::::::::-..~ -:.:: ';;/'"· ,,,,,,,.,., "

I

Agriculture

againSt farm products was in part the price Ireland paid waging the economic war, but it was also in part a worldwide phenomenon at the time. In the following four years. real output rose marginally. The decade also saw a significant shift to tillage. The contribution oflivestock and livestock products fell from 84 per cent of net value added in 1929-JO ID 75 per cent nine years later; hefty increases in the output of the main grain crops were mainly responsible.

The Plrst World War had been a bonanza for rural Ireland. As noted. In the Pree State at least. the Second World War proved a different story.• Bven though key farm inputs such as artificial fertilizers became virtually unavailable. compulsory tillage almost doubled the acreage under grain between 1938-39 and 1944-45. The result was soil ex­haUStion and sluggish or declining milk yields. Grain yields were ~arcely higher in the 1940s than they had been in the 1900s. while livestock numbers stagnated. The huge drop in intermediate inputs probably explains the failure of Irish agricultural output to rise during the war.• With tillage no longer compulsory. between.1945 and 1950 the area under com fell by over a third. and that under green and root crops by 15 per cent. livestock numbers failed to make up the difference. and so the result was a 10 per cent fall in net output (including turO between 1944/45 and 1949/ 50. The South's agricultural sector con­tinued to underperfonn. A visiting Sew Zealand expert commented on the state of Irish grassland in 1949:

lTJhere is no area of comparable size in the N'orthem Hemisphere which has such man-ellous potentialities for pasture production as Eire un­doubtedly has. The depth ofloam in the plains and valleys. the abnonnally mild Winter, and the reliability and distribution of the summer rainfall combine to make ldeal natural conditions for growing grass and for raising and fattening livestock. ln eight of the twenty six counties I have seen old permanent pastures with a density. colour. composition and grazing ca­Pllclty superior to anything in Western Europe. their quality being proved by the excellence of the cattle being raised on them. But in some of the same counties and in all of the others which l visited.. I saw hundreds of ftelds whlch are growing just as little as it is physically possible to grow under an Irish sky .10

The pro-tillage policies pursued by Fianna Fail since 1932 had a double alm. They were part of the strategy aimed at greater self-reliance. but they also sought to shil\ the balance away from the cattleman and the large farmer and towards the more labour-intensive smallholder (who

6 149

A rocky road

was more likely to vote for Fianna Fciil). The 194h report on agrirnllural policy ignored the political-economic niceties. and concluded that such policies were a dead end. It argued that 'climatic. gcologir;il and i.:ro­graphical conditions indicate that intensive cultivalion of grass and other fodder crops and their conversion into liveslnck and livc\tock products will prove the most economical and pr<>l1tc1blL· 1m•1/1cHI cil' 111ilis­ing the greater part of the land surface of the country' and that in l'uturr policy 'should pay due regard to fostering intcrnatiomd tradl''. 11 Thr message found an official voice in the Irish submission to the I·:uropean Recovery Programme: 'it is in (livestock and live.stock produce I and not in bread grain production. that Ireland has special advantages and can economically produce valuable export surpluses'. The same messa~c would be repeated in the First Programme a decade later. while T. K. Whitaker's mould-breaking Eco11omic Dcvrlopm<'nl would note t.lwL cattle. unlike dairy and crop producL">. 'are produced and exported \\·ith· out State protection or subsidy'. 12

Trade negotiations with the UK after 1945 focused on better a~\~~; and prices for agricultural produce. Ministers set great store b) J Anglo-Irish Trade Agreement of 1948. which removed quotas irnposL' on Irish Livestock imports to the United Kingdom since the mid-19 3os. The Agreement laid down that 90 per cent of the cattle exported 1 ~\~ from Ireland go to Britain. and an annex set out (non-binding). In:.,. Livestock export targets. However. the British system of farm deficicn · payments depressed prices on British markets. and the anticipated wr­gets were never met. In the end the Agreement did not prove the bo~'~ that had been predicted. The trouble was that not only did the [JI'.

discourage dead meat imports; its support of its own rearing and fottcn­ing sectors distorted the Irish livestock trade against the export of JiVC

animals ready for slaughter. Yet the British market remained par(l­mount, and the trend in real farm prices after 1945 suggests sorttc improvement in the fortunes of the farm sector. Irish cattle traders continued to carp about the wedge produced by British farm support policy between prices received by British farmers and those paid to Irish producers, but when the UK first applied to join the European Economic Community in 19 61, the continued importance of the British market for Irish farm exports left Ireland little choice but to apply also.

The introduction of the steamship on Irish sea routes before the Famine transformed the livestock trade from one mainly in dead meat to one dominated by animals on the hoof. The change, aided by the

150

Agriculture

spread or the railway network. intensified the pattern or regional spe­cialization In cattle raising and lattening. The losses in employment and output In processing that followed the shift to trading in live cattle provoked much comment for decades." There had been many failed attempts at changing the trade; 'in one case a large-scale factory abattoir was established and had its own specially-equipped ships for the pur­po<e. It was located at the port of export. It !ailed under two different companles'. 14 Then. unexpectedly, in the late 1940s the rise in bee[ prices elsewhere relative to the price obtainable ror live animals in Britain prompted the development of the Irish meat-processing industry. Exports of frozen meat to the United States began in September 19 50: and by 19 5 3 total exports of fresh. chilled and rrooen beef and veal exceeded 0. 5 million cwt. The most dramatic changes in livestock ex­ports In recent decades have been the shift from live animals to meat exports and the big decline in the share destined for the United Kingdom (Table 5.1).

Table 5.1: Meat and Uvt animal exports. I 920-l 990s (f.l.OOOs)

Uveanimals Meat

1926 1918 17.:; 11.9

4.7 l.l Sourrr: Trade Statistics: l :K shares in brackets .

1968

58.0 (93)

59.0 t731

1991-92

134.J (72J

957.0 (3il

. The lack or phosphates in 1939--45 seriously reduced the quality of Irish pastures. In the picturesque description of Fine Gael's James Dillon It Yielded ·a variety of grass that would fill a cow's stomach and yet let her die of starvation where she stood'. n The extensive grassland rehabilitation programme pursued by successive governments in the 19 SOs aimed at increasing the supply of lime and other nutrients on Irish pastures. Ireland's fertili7.er deficiency backlog. a major policy pre­occupation. would take a long time to eliminate, but the consumption Of fertilizers and lime rose by almost two-fifths between 1957 and 1962. The aim was rising livestock production. but sluggish British demand. sttlT competition rrom other exporters. and Britain's deficiency payments system (which kept prices below world levels ror consumers. but com­pensated ranners accordingly) all militated against exports and production in the 19 50s. The situation did improve somewhat. because between 1949/51and1959/61 net agricultural output (including turf) rose by 17. 7 per cent. Nevertheless, overall agricultural performance

151

A rocky road

since the 1920s justified the bleak evaluation offered in the late llay. mond Crotty's classic work on Irish agriculture. puhlislwd 111 1111;1; "•

Fanning in a Common Markl't

ln recent decades Irish agriculture has been catching up l·::-.111111)(1 l\1r­

nie i; has estimated farm output per worker in itTlurid <il :; :; pn n·111

in 1968 of the UK level and 77 per cent in 1981. The l<1il'sl i!\<11L1hle

data suggest further erosion of Birnie's gap by the mid-1 lJlH h The

contrast in policy regimes and output mixes from the J tJ Hls 011 ll;id given Northern Irish farmers a considerable productivity le<1d o\w thrn Southern brethren by the 1950s. but several studies dairn 1h;1L Slllllh­

ern agricultural output per worker had caught up with that in the \nrth by the 1980s. Admittedly, the latter result is rather scn.siliw Lo dl'lln1-tions of both input and output. and Birnie has shO\vn that using annual work units (AWUs) instead of total employment places the South i11 a poorer \ight. Still, Southern agriculture has proved much more dynamic and resillent in recent decades. Switching to the more comprehcn~ire total factor productivity (TFP) measure. Gerard Boyle has put annual lrish farm TFP growth between 1973 and 1990 at a respectable l .lJ

per cent. while a comparative study ofTFP growth in EU member-stall'~ in 1965-85 placed Ireland third. after Italy and the UK. 1s

lrish agriculture still remains rather backward by British and nonh European standards. Though rigorous analysis is in short supply. re<1-sons for this backwardness are not hard to find. The most ob\'iou~ explanation for Ireland's laggard status remains the number o( small non-viable holdings and. therefore. the policy environment that sup­ported them. Both in the Republic and Northern Ireland. between the 1930s and 1960s the reduction in the number of such farms w;is sluggish. ln the Republic (see below) holdings under thirty acres (about twelve hectares) still accounted for nearly half of the total in J 9 6 L and in Connacht they accounted for over three-fifths (figures 5.1 and S.ll. Such farms were too small to capitalize on the new lechnologit·s in farming. Simple size distributions such as these undercstim<itc the prob­lem. since the best land tended to be concentr.atcd on larger forrns An int~resting table appended lo a draft o~ ~n m.t~rdepartrncntal re. nrt ~st1mated the actual male l~bour f~rce ~~ ~ pc~~~nta,gc of rcquircrn~llls in the four provinces accord mg to farm si:r.c (sec 1 able 5.2). 1'' '!'he overall

I '2

"' '11.w· _______ _J .i

\

Agriculture

percentage (161) implies an 'excess' labour force of well over one hun­dred thousand. It thus seems sensible to link the stronger perfonnance or Irish agriculture in recent decades to the better allocation of labour that followed the disappearance of so many small farms.

Table 5.2: labour force requirements and farm size in the 1940s: actual as a percentage of required

.~lufam.,J Lftnslf'r Munslt'r C01mar11l Ulster(Jnis.I T!1WI IJ.H- llJ2 I IO 225 1 ll 115 I- 198 um 388 lB Hf>

I- 213 218 HU 118 179 Ill- 220 219 31::; 185 lh9 15- 207 197 251 237 llf'i Ill- 182 lhl 207 193 183 ;!}-

145 130 I iO lf>O Hl 100- 12:; 111 141 138 120 150- llh 103 124 I lh Ill 200- 107 100 119 121 105 >Joo I lh IOS 1 ll lli Iii

AU l4"i 137 218 199 lhl

Earlier in the century agrarian reformers like Meathman Laurence GinneU had argued that there was inefficiency at both ends of the farm si1.e distribution. The Land Commission. created in 19 2 3. was given the feSponstbllity of redistributing subdivided large holdings to labourers and smallholders as they became available: in the following decade it dtstrtbuted 450.000 acres. The Land Commission was also responsible for the movement in the 19 30s of some hundreds of smallholders from non-viable holdings in the west of Ireland to vacant lands in Leinster. The transfer was on a modest scale. but it was mainly responsible for the rise in the number of 15- to SO-acre holdings in County Meath from 3,635 In 1930 to 4.663 in 1950. and is reilected in the 1990s in the survival of the small Gaeltacht of Rath Cairn near Athboy.

In Ireland small farms have been predominantly family farms. The rhetoric of successive governments lauded the family fann. and so did the clergy. In an influential minority report to dae Emigration Commis­sioners' report (1956) Blshop Con Lucey of Cork (of rural stock himselO ldeallzed rural life: 'the rural population always has been. and is still. the well-spring of population increase, and the rural home always has

155

A rocky road

been and is still. the best place in which to bring up a family'. 20 Some years later the same outspoken bishop declared that 'he rould noL hul be interested in a section of the population .so conspicuous for .~ound family life and as a source of vocations'. In 19 'i8 another intluenlial

Catholic thinker called for 'rurbanization' - the dcvclopmrnl or six or eight small towns in every county - as a solution to the 'extremely gr;ivc

problem' of rural depopulation.2 1 Support for small farmers c;1mc iri Lhc form of a modest rural dole. Of course, some policies allcgc<lly aimed ;11

helping the smaller man tended to help the stronger former more. All Irish farmers remained exempt from income tax until 1976. The Depart­ment of Agriculture on Dublin's Merrion Street remains very much a 'lobbying conduit' to ministers and to Brussels.n

However, in recent decades there has been a rapid shift toward hig_gcr farms and an associated rise in productivity. By 1991 nearly halfnl all Irish farms measured twenty hectares {fifty acres) or more: even 111

Connacht the proportion was nearly one-third. The change is bcucr measured by the Economic Standard Unit (ESU). devised by Eurostat to

capture both the scale and intensity of production. In Ireland. the p~l'.~ portion of farms of eight ESU or more (deemed 'large' by EU standar s has risen from 13.9 per cent in 1975 to 39.7 per cent by _1991. Jower

A second, related explanation for Irish backwardness 1s the capitalization oflrish agriculture. Until recently, Southern farmers ha~e been slower than Northern Ireland farmers to invest in threshing mac -inery, tractors, milking machines. and so on. Farmers and farm lobb~ists have long blamed the shortage of bank credit for undercapitalizatIOfl· The lack of security might have explained banker reluctance to lend to farmers under the old landlord-tenant regime. But why should the banks not lend to the victors of the Land War? Part of the answer is that they did. Another part is that for a considerable time after the Wyndham Act farmers were reluctant to allow the banks to move in on bad debts. a necessary condition for readily available credit.

Lower human capital inputs may also have counted for something. In the mid-19 70s only 16 per cent of farm managers had completed any post-primary education. while three milk producers in four did not know their own milk yields. Great strides have been made here in recent decades, and farmers today are well aware of the benefits of schooling. Nowadays their children are over-represented in the universities. though it must be said that for most of them this is the route out of agriculture.

I 56

Agriculture

A third factor holding back Irish agriculture was the distortion of output produced by bad policy. An extension of Gillmor's analysis of the composition of agricultural output North and South. discussed above In chapter 2, suggests that the South did indeed lose ground between the 19 30s and the 19 50s. The increasing divergence in the compositlon of output in the two lrelands should not be blamed entirely on Southern policy-makers, however: the support afforded Northern farmers by UK agricultural policy also mattered.

Over the centuries Irish farmers have long been accused of indolence and Ignorance. A century ago Sir Horace Plunkett and his band of rural co-operators berated them for failing to emulate their more industrious Danish and Dutch brethren. Even in the 1990s. in Ireland one may see 'good land going to waste for want of energy on the part of farmers'. Just as noted by a group of visiting Scottish farmers in 1906. or 'the occasional crop smothered in weeds. a field under water from stopped-up drains. sick cattle. broken fences and gates which nev~r swung'. just as described by John Mogey in 194 7. The huge variation in family incomes to be found on fanns of the same si7.e in the same region. documented in successive surveys. is cenainly consistent with such images. In a sample of 2 8 7 medium-sized t 30-50 acres) farms surveyed in the mid­I 950s. family income on the bottom thirty-two was less than £200. while on the top fifteen it exceeded £900. Such variation can hardly all be due to differences in land quality. capital or labour supply. Still. the 'laziness' was sometimes deceptive.

The seasonality of Irish milk supplies was one of Plunkett' s bugbears. In Ireland the bulk of cows· milk was delivered to the creameries between April and September (in the late 19 20s the proportion was 70 per cent. and the ratio of highest to lowest monthly production was 14 to 1 -compared with 1.3 to 1 in Denmark). This is because in lreland cows typically calved in spring, and milk supplies were not maintained during the winter months. Activists like Plunkett urged that the alternative of winter calving would not only have guaranteed a winter supply of milk: it would also have boosted overall yields as the fresh spring grasses prompted the cows to produce a 'second spring' of milk. The result. it was repeatedly claimed, was underutilized faci.l.lties and the loss of Brit­ish markets to foreign competition when prices were highest. 21 "Lazy' farmers who preferred to lie in on cold winter mornings were to blame.

The issue ls still far from dead. In Ireland. the supply of manufacturing milk continues to be highly seasonal. However. the comparative

157

A rocky road

advantage conferred by the Irish climate on lrish dairy formers in opting for spring calving is obviously an important part of the answer. Winter

dairying produces higher milk yields. but it also requires far higher inputs of labour and capital.24 Modern research shows thal milk pro­duction costs in Ireland are very low by world standards and lh<11. for climatic or resource endowment reasons. lreland has a markl'd rnm­parative advantage in the production of primary form produrls .sw·h as

milk and beef.l~ Curiously. production patterns in Ireland offer ;i mirror image of those in New Zealand. a country with very similar rcsourr:.e endowments. Whether Ireland's advantage bodes well for the 1'111urc is another matter. but surely the message for the economic historian is

clear. The dairying system in use in Ireland a century ago mid today owed less to 'irrationality' or laziness than to geography and the

weather. . re nf Sir Horace Plunkett would also probably have rued the fadu

d d . the 19605 farmers to support state-owne Erin Foo s in its attempt_ m , . osc ef-to build linkages between farming and vegetable processing. _1 h ·1\' of forts foundered on unfulfilled contracts and an inadequ_ate supp d . vegetables. Erin's suppliers might be blamed for that but. as note in

chapter 3, the Irish weather was a more fundamental obstacle.

The rann lobby and Europe

In recent years. the decline in numbers dependent on agriculture fo~ ;1 living. and the perception that farmers are no longer disadvantage'· may have slightly reduced the power of the farming interest. However. Irish farmers have a tradition of effective lobbying that dates back LO

the land war of a century ago, and they still constitute a powerful pressure group in the Republic, with many supporters in the Oireachtas from both major parties. Big farmers still tend to identify with Pine Gael. and relations between farm lobbyists and Fianna Fail were particularly fraught in the 19 30s and 1960s. Nonetheless. all governments since the 1930s had sought to protect farmers. This explains why the head of a delegation of farmers meeting Lemass in July 1959 might lament the caution of the First Programme for Economic Expansion on milk. butter and eggs. 'seeming to give the impression that these products could be written off unless they could be produced without state aid'. 1 '•

158

Agriculture

. or anizations in Ireland. like the trade union m~vement. fannm~ltio~ of splits and rivalry. The bigger of the two ma1~ ranner

have:~ons. the National Farmers' Association (later t~e Insh Far­o~~? Association). was formed in 19 5 5. In the early days it was led by :ntiemen-farmers, who had the education. the resources and the fetsure to do the job. Argentine-born Juan Greene. its first presi~ent. was a wealthy tillage farmer. He was succeeded by Oxford-tramed Rickard Deasy. Another major figure. Neville Chance. was a Donegal Presbyterian who had no scruples about invoking papal encyclicals such as Mater et Magistra when it suited. Cavan's Myles Smith. an old Clon­gownian. was a dairy farmer who doubled as a solicitor·. Bindon Blood. County Clare's representative on the NF A's Council. 'a tall. black-haired man, Mth a black patch over one eye·. liked to claim that his ancestors obtained their land for taking the crown jewels from the Tower or IDndon. Many of the leadership had served in the armed forces. The NF A's inaugural meeting on 6 January 19 5 5 was followed by a formal dinner at the Royal Hibernian Hotel - an event far r~moved from the experience of most Irish farmers of the day. The early ethos or the NF A was thus emphatically ·strong farmer'. and ~r A policy would always disproportionately benefit that stratum. Yet by the early 1960s it boasted tens of thousands of members: its relations with the government were not good.2•

In 1961. angered at the gains achieved by public sector workers through centralized bargaining. the ~FA claimed that it would take £83 million for farmers to make up ·1ost ground' since 1953. Much wrangling ensued about the numbers between the NF A. the Central Statistics Office and the government. but Lemass warned of 'the futility of relying on the statistical approach· to the problem. and that ·the confrontation of statistics would not be related to any decision the Government would take in the early future in relation to agricul­ture' .211 The NFA's main rival was the lrish Creamery Milk Suppliers' Association (ICMSA). formed in 1950. and claiming 460 branches by 19 52. Had Plunkett's Irish Agricultural Organisation Society victory in the dairying sector been as thorough as that of its counterpart in Den­mark. there would have been no role for the lCMSA. As its name implies. the ICMSA was strongest in the dairying areas. where it too quickly won a reputation for militancy.

The tension between the NFA and the government reached crisLo;; point in 1965-67. A few farmers were jailed for mounting illegal pickets

~ 159

A rocky road

outside rate offices in Mohill. County Leitrim. and a big NFA march nn Dublin culminated in a month-long picket on the steps of llw Dt•pan­ment or Agriculture in Dublin. Neither Charles llm1ght·y 11nr \cil Blaney. who succeeded him as Minister or AgricL1lturt· i11 I lJ'1'1. 1·c1uld meet the ranners' demands. However. once Ireland hl'rnnw a mt·mhl'r or the EEC in 1973 the antagonistic atmosphere lwlWt't'll J.:Cl\'t'nlllll'Jlt

and interest group would largely dissipate: formers and gn\Trr111wn1 would henceforth be on the same side in thl'ir rl·nt~St't'kini-: raid' on Brussels. The improved performance occurred in lht• rontcxt or 1lw Common Agricultural Policy. which was less concerned with produc­tivity growth than income support. In the 1960s some Irish critir' .of the Common Agricultural Policy referred lo the Agricultural ('0111111 1 ~­sioner Sicco Mansholt as a new Cromwell. Yet the immediate gain.~ 10

farmers were substantial: though the volume of net output fell hct\rcen 1972 and 1978. farm incomes. boosted by 'green pound' devaluations that more than compensated for the effect of currency depreciation 1111

costs rose by 40 per cent in real terms. The price of farmland more than°quadrupled over these years. while the price of agricultura.I ~rn· duce almost trebled. keeping well ahead of the rise in the cost of h\'lllg. Then the combination of membership of the European Monetary System in 1979 and a series of poor harvests meant that in 1986 real incornc~ were only slightly above pre-EEC levels. 29 Since I 986 farm incornc~ have risen impressively again. .

A careful and pioneering survey carried out by the Central StaListJCS Office with the 'wholehearted co-operation' of farmers in the mid-1 9 ::;(JS confirmed the low incomes earned by a majority of farmers at the Linl~· The survey also implied great inequality on the land: applying its ~sU~ mates of family income to official data on the size distribution of hold inf?~ suggests that the 10 per cent of farmers with holdings of one hundred acres or more accounted for nearly one-quarter of farm family incornC· At the same time. the survey implies an average farm family income of nearly £500 per farm family, at a time when Lhe average industrial worker earned £350--£450 a year (Table 5.3).

Nowadays a survey like that inaugurated by the Central Statistics Office is carried out annually by Teagasc. the national farm advisor)' service. Teagasc's Parm Management Surveys show average farm f;:un­ily income growing from £4.860 in 1984-86 to £8.575 In 199 3-94. This represents a rise in real incomes of nearly two-fifths at a time when farm family size was shrinking quite dramatically. Moreover. by the

160

I Agriculture

te ;.J: Farm incomes in the 19 sos 'fllli of farms lnromt Ptr Jann

----,-- f'/~surveY (£1 F""'sf:t(arm~ 209

1-11 265 l32

11-10 2s7 464 J0-10 284 697 ~0-100

un-200 lOO+

1.034

1.425

.Vo. of holdings in roumry ll9SSJ

i9.0fl6

8J.8%

63.080

52.liO

21.930

7.152

I I 74 187.394

;:~ Na£lor111l Fann 5~;5156-19;71;8: Final Rtporl (Pr. 61801. p. 3:

Sl411stlral Abslrart 119 :;81.

mid-l 990s more than one-third of farmers or their spouses were sup­plementing their farm income with an off-farm job.

The Impact of the European Common Agricultural Policy (CAP) on Irish agriculture and aggregate income since the early 1970s has been enonnous. much greater than its effect on any other member state. In the late 1970s and early 1980s transfers averaged about 4 per cent of GDP. But that is not the whole story: the benefits of higher prices through tariff protection were also significant. In 19 7 5-81 the com­bined elTect averaged 8 per cent of GDP. and in 1982-86 it was 7 per cent. The proportion due to the "trade elTect' component has been falling over time. io

A !airer spread of the benefits of the CAP across Irish farmers might have delayed the decline in the farm population. but it would probably also have reduced the productivity of the sector as a whole. But the tension between achieving the efficient allocation of labour on the land. on the one hand. and ·a fair standard of living for the agricultural population', on the other. was not resolved in Article 39 of the Treaty of Rome. Nor did the rarming organizations show any interest in resolv­ing it. As a result. far too much or CAP runding aid went to farmers Who could have managed quite well without it. In 1988-9 3 the top quartile or Irish rarmers ended up with more than hair the available European Union aid, 11 and even schemes such as sheep headage pay­rn.ents benefit bigger rarmers most.

Irish farmers stood to gain rrom the CAP ret"orms engineered by Com­missioner Ray Mcsharry in 1993. with compensation payments and input savings likely to more than compensate ror the planned reduction

161

A rocky road

in gross output. However, the trade liberalization agrcemcnL reached in Geneva in December 199 3 stipulated the replacement of quolas by tariffs, and the reduction of both export subsidies and inlernal support. In 1994 agricultural economist Alan Mallhcws 1.? estimated Lhc impact of the General Agreement on Tariffs and Trade (<;A'rl') agrt'('ITI('Jlt on gross agricultural product at a loss of£173 million on a gross agricul­tural product of £2,464 million and a foll of over lcn thousand in farm employment- an impact mitigated. at least for a time. hy market trends in 1995-6. However. a breakdown of the CATT might have hccn worse for farmers in the long run. The farming lobby also seemed to lose out on the arguments about the allocation of structural funds Ln Ireland under the terms of the Maastricht Agreement of 1992. In the mid- I 990s the leviathan of a European agricultural sector bloated by price suppor~~ and protection was plain to all. Proposals to retrench produced their own paradoxes: in Ireland farmers in marginal areas sought cornP~n­sation for setting aside land which they would not have dreamt of using before the CAP. The difficulty is one stressed by Crotty three decade~ ago in a domestic context: 'state intervention as at present undcrsl00.t

and practised. is subject to a particular version of Parkinson's~~~: 1

expands in order to undo the harm caused by its own existence· The Irish Bovine Tuberculosis Eradication scheme offers a ~ood c~~~

study of the kind of madness posited by Olson. Inaugurated in I 9 the scheme was prompted by worries about continued market ac~ess for Irish store cattle to the UK. Britain had operated a TB eradication scheme since 19 34 and seemed within sight of complete clearance 111

the mid~ 19 50s. In Ireland, County Donegal and all areas west of the Shannon were declared clearance areas in 19 58. and about 120.o00-160,000 reactors were removed annually in 19 59-62; Lhe number then dropped sharply to forty thousand in 1964, and Ireland was de~ dared free of bovine tuberculosis in 1965. However. it soon became clear lhat the disease had not been eradicated. Despite considerable annual outlays. the number of reactors has stalled at an annual average of about thirty thousand. Random testing by a special task force in 1969-72 identified poor testing as the major problem: it found twice as many reactors as the regular veterinary practitioners. Jt turned out that the existing scheme removed just enough infected animals to keep the number of reactors constant from year to year. A more ambitious national survey in 1989 produced similar results. Why the failure to take out all infected animals? Part of the answer is the practice of

162

Agriculture

herdowners being allowed to nominate their own testers. a concession whkh minimized the loss to them and left veterinary surgeons little incentive to 'eradicate' bovine TB. By 199 5 the cost of the scheme to !he taxpayer since 1954 had reached an enormous £1.5 billion in 1995 pnces. That Is not the whole story: cross-infection through wildlife rules out complete eradication. But a range of socio-economic limitations. including Inadequate testing arrangements, excessive cattle movement. and a sheer lack or commitment. have played a part. A key result is :at for four decades Irish veterinary surgeons have been very well paid

adr administering a routine test which could quite as easily have been ministered by I I k' . . In 199 peop e ess s died. and which has yielded sparse results.

duded lh the. au~hor of a major study of the eradication scheme con­necess t at ma1or organisational and attitudinal changes' would be tuberc "( before the costs of the scheme and the incidence of bovine finally':,., oSls could be reduced." Five years later. those changes were

p . guuung to take place.

one ::tng in Northern Ireland still employed one worker in six and less ho e worker in four as recently as I 9 50. but agriculture had been cenmr:.'T'::"'t there than in the South since early in the eighteenth across th ough only one-fifth the area of the South. farming conditions was hi h~ North. vaned considerably half a century ago. That variety earned 80 ghte~ Ill John Mogey's ambitious social survey. which was contr ut dunng the Second World War. Mogey revealed considerable Perm asts between. for example. the impoverished Macken area of south Mack anagh and the relati\•ely prosperous Braid Valley in Antrim. In

1 k en only half the farmers surveyed were married. most houses acd ed a lavatory. 24 per cent of farms were worked by spade alone.

an on another .29 per cent there was only one horse. The result was much cooring (mutual aid) between neighbours. Jn the Braid. though also an area of small farms. 62 per cent of farmers were married. and 60 per cent had two horses."

In a strikingly original and revisionist contribution to the debate on agricultural stagnation in the South published in 1966. the late Ray­mond Crolly blamed peasant proprietorship for Irish agriculture's problems. Under the previous tenurial regime. rent-maximizing land­lords would have been quick to evict lazy and Incompetent tenants. thereby keeping the rest on their toes. But. in Crotty's view. the shift to owner-occupancy In farming had virtually destroyed the market in land. and removed the competitive pressure on efficiency. Crotty's critique of

I 163

A rocky road

agriculture after landlordism was in the tradition of Henry Ccorgc and Michael Davitt. In the l 9.60s it fuelled demands for a land lax. Thal demand was effectively stifled by a still-powerful farm lohhy. hul farmers could not forever escape the taxman.

Crotty's reading of the historical record cxaggcrnlcd lhc rnntrnst between the two tenurial systems: transfers of farms werl' prohahly as infrequent before peasant proprietorship as after. But the implication that too much of the land was in the hands of elderly and in('mnpctcnt farmers who were reluctant to sell out or cede control was ;1 valid one. At the same time. the record suggests that. apart from a rcludanrc on the part of some to exit. over the last half-century or so Irish farmers

have adapted logically to drastic shifts in policy regimes. structunil transformation and technological change. In the South hcfnrc the 1960s the outcome was low productivity growth and low living stand­ards for many. But as the EU gravy train brought the prospect ofhct,tcr incentives and higher incomes. farmers responded with alacrily · 1 hef CAP induced higher milk and crop yields. and more and heavier b~c carcasses; it reintroduced corn into fields which had seen none or decades. and forced sheep on to rough mountain pastures in unpr_c­cedented and unsustainable numbers. By the mid-I 990s income~ in

rural Ireland had reached levels well beyond those enjoyed by th~ u\:; poor, and the perspective of most Irish people on the farmers. hkea de­of most Europeans. shifted from condescension and sympathy to gree of annoyance and envy. There was also a growing. and perhaps exaggerated, sense among consumers that farmers were sacrificing pro­duct quality for even bigger gains.

Notes

George O'Brien. 'Patrick Hogan. minister of agriculture. 1922-32 '· Stud/I'S. 25(3) (1936), 356: James F. Meenan, 'Minority Report'. Report of the Com­mission on Emigration (Dublin. 1956). 375; Erin E. Jacobsson. A LifeforSowul Money (Oxford. 1979), 131. 'PJ' was the Swedish banker Per Jacobsson.

2 Comparing data for the 1923-30 period in Tables 1and2 of Donald Nunan. 'Price trends for agricultural land in Ireland 1901-1986'. Irish ]oumal oj Agricultural Economics and Rural Sociology. 12 (198 7), 51-77.

3 Gerard McKeever, 'Economic policy in the Irish Free State' (unpublished Ph.D. Dissertation, McGUI University. 1979). 76-9.

4 O'Brien. 'Patrick Hogan', 363.

164

Agriculture

; Nunan. 'Price trends for agricultural land'. 6 Raymond D. Crotty, Irish Agricultural Productlon: Its Volume and Structure

(Cork. 1966), 182-3. 7 Ibid .. 190; Report of the Commilke of lnJjuiry on Pose-Emergency Agricu/cural

Polley IP. 7175)(Dublln, 1946). 8 Between 1938 and 1945 agricultural prices rose by 139 per cent in North­

ern Ireland, but only by 91 per cent in the South. 9 K.A.Kennedy, T.GibUn and D. McHugh, The Economic Development of Ire­

land In tht Twmtkth Cen!ury (London, 1988). 5. 10 G. A. Holmes, Kqort on the Present State and Methods for Improvement of Irish

lmid(Dublin, 1949). 11 R<port on llgrtcultural Policy. pp. 50. 51. 12 Cited In J. L. Wiles and R. Finegan. Aspirations and Realities: A Documentary

lllslory of Economic Developmen! Policy in Ireland Since 1922 (Westport, Conn .. 1993,. 50; Programme for Economic Expansion. (1958) 37-8: Ken­ntdy et al .. Economic D<velopmmt. 12.

ll Tboinas Shaw. 'The Irish meat and livestock industry', Studies (1946) 289-302 .

:4 T. A. SIDI~. ·eomment on Shaw·. Studios Cl 946). 303.

15 Cited in Joseph Johnston. Irish Agricultur< in Transition (Dublin, 1951). 156. 16 Crotty. Irish Agricultural Production. 7 J.E. Birnie. 'Comparative labour prod.ucti.\ity in Republic of Ireland and UK

18 1Brlculture', QUB Worlring Papen in F.conomics No. 47. March 1994. G. B.. Boyle. Contribution to ~C.SC. Impact. of Refonn of the Common Agricul­!"ral Policy (Dublin. 1992.t 146: \\.'.Henrichsmeyer and A.Ostermeyer. Prod.uctiVity growth and factor adjustment in European agriculture', Eu-

19 ropean Journal of A.griculrural Economics. 15 tl988). 137-54. NAD. Sl 7032A/62. Howe\"er. neither this table nor a gloomy reservation ~ed by M. D. McCarthy and J. F. Hannan to the draft report were pub­U.bed.

20 Re.,ort of chr Commission on rmigralion, 3 58. 21 lrtsh Indl!'IJt'nden[, 7 June 1962: Jeremiah Newman. 'The future of rural

Ireland", S1udirs. 17 ll958l. 388-401. 22 Damien F. Hannan and Patrick Commins. 'The significance of small-scale

landholders in lreland"s socio-economic transfonnation'. in I. H. Goldthorpe and C. T. Whelan leds). Thr Df'vrlopmrnl of Industrial Society in Inland. (Ox­fonl. 1992) 101: Dennis Coghlan in Irfsh llmes. 29 March 1996.

23 For example Joseph Johnston. ·A plea for winter dalrylng', Journal of thr StaUsrical mid Sodal lnquJry Society of Ireland, 16 (1931).

24 Crotty, lrlsh Agricultural Production, 75. 25 For a succinct overview see Boyle. Contribution to NESC. Impact of Rrform. 26 NAD. S16666A. 27 Louis P. F.Smlth and Sean Healy, Farm OrganisaUons in Ireland: A C~ncury

of EconomJcs and Polities (Dublin. 1996).

165

A rocky road

28 NAD,Sll56Jl'andSll563D. 29 Kennedy et al.. Economic Development. 83. 30 R. O'Connor, C. Guiomard and J. Devereux. A Rt•Pi1•n1 of 1/ri• Conmrm1 r\.qri­

rultural Policy and the Implications of Modified Sustl'ms for /n•/1111r/ (/Juhlin. 1983). 68: Alan Matthews. 'Common Agrkulturnl Policy reliirm and na­tional compensation policies'. Journal of f/11• St11fi$firnf 0111/ .\'on11/ Juquir.11 Society of Ireland. 26(1) (1988/89), 9. For a rumparativt· pl'r.~pt·(·livc'. ~cc

R. W. Ackrill et al .. 'The distributional elTccls of the Common A~rkul!urnl Policy between member states: budget and trade e!Terts'. CHEIJIT Hl'~carch Paper 94/1. University of Nottingham.

31 Fanning Independent. 30 August 1994. 32 Alan Matthews. 'Implications of the GAIT Uruguay Round for lhl' Irish

economy'. in S. Cantillon. J. Curtis and J. Fitzgerald (eds). /;'n1110111ic Pm11rr­tivesfor lhe Medi11m Tenn (Dublin. 1994). 41-62.

33 Crotty. Irish Agricultural Production. 227. 34 Liam Downey, Ireland's TB Problem - Whal Can and Must B1• Adrfr1•1•cl: Dr

Henry Kennedy Memorial Lecture (Dublin, 1990): Bovine TB Progmnmre: What Are lhe Realistic Expectations? (Dublin. 1991 ).

3; John M.Mogey, Rural Life in Northern Ireland (Oxford. 1947). Sec too L. Symon. 'The agricultural industry 1921-62', in idem (ed.). Umd Usr i,1 Northern Ireland (London. 1963). 45-58.

6

The service sector

The labour of a manufacturer adds. generally. to the value of the materials which he works upon ... The labour of a menial servant. on the contrary. adds to the value of nothing. (Adam Smith. Wealth of Nations. 1776)

Introduction

In mainstream economic theory Adam Smith· s distinction between pro­ductive and unproducti\.'C labour was swept away by the marginal revolution of the 1870s. Yet the sense that workers who produced things were more useful somehow than those who did not persists today. Just over a decade ago a select committee of the British House of Lords argued that 'services. imponant as they are. are no substitute for manu­facturing'. The Committee reasoned that services depended on a vibrant Industrial sector for their prosperity and. moreover. that the great bull< of service output could not be traded overseas. Their lordships thus stuck to the conventional wisdom that "the manufacturing base is the prin­cipal means of achieving growth'.1 Two decades earlier. that view had been the foundation for the selective employment tax inspired by econ­omist Nicholas Kaldor. Kaldor"s short-lived tax sought to boost Britain's ailing manufacturers. but it won notoriety for its discrimination against the service sector. Yet in the United Kingdom. as throughout most of the developed world. manufacturing·s share in total employment has been dropping for three decades or more. Meanwhile the share provided by services has risen from less than two-fifths in 19 50 to about two­thirds today.z In Northern Ireland. where total employment rose from 463.700 In 1964 to 555.920 In 1994. the rise in service sector em­ployment over the same period was from 229.800 to 407.490. During the post-war era. that sector has been the major source of new jobs throughout Europe (Table 6.1 ). Is this because capital-deepening has been much greater in manufacturing than in the seni"ice industries that complemented it. or ls it because over time consumption demand has

167

A rocky road

'oeen shilting lrom goods to services? These questions imply another one: can a modem economy like Ireland thrive without a strong indus­tria\ 'oasel

'l:ab\e fl.\: Sectoral distribution oJ e111ploy11u·111 i11 J-:1m•1w ''",/ ,,.,.,,,,,,/.

'" 19 30-90 (%)

A!1ricult11rt' /1)(/Wilr//

19l0 1960 IYYO JlJ)() l<JMI /'!'!(/ /'/)(/ /'ll>fl 1''•'!11

\om.nee lh 22 11 }~ \I \\ '" I,',

S~ai.n ')2l~l l9 12 2\i"l Ill l·I !.">1"1

\IK h .\h .\H \I .\:-; :;; ,, \:.( 2\ -1,S II "ih

\rd a ml 43 l7 " " !.\ 29 l7 '" NI ln \4 II l7 .\\ II IC " \ .. l=VHO. Sourr~: OECD Historirnl Stntislirs. J 9fl0- I ':J':JO. 22. 40- I: Euro..,lat. I.I'S: rl'~ulh l '1·"'1

\ \2--\ ~·. Mi\chd\. Eun•p•''Hl Hiswrirnl Sl!Uistir~. The Northern lrd;iml \~l l d<1!;1 rl'l•T ,,, \q2n. \91'>\ and \99\. l'or \9\0. manufo..:turin~ is Jcthwd ;1s industry. 111i11111i.: and cons\ruc\iun.

lab\e 0.2·. Emplo!:fment by sector in Ireland, J 946-H6 (i11 rlwus,mds. percentages in pare11thes1•s)

f>OO.'> \4f>.2l

"i\':1.0 l'>2.Hl

I'.\.'> \.24.il Manulm:\ur\ng antl cons1ruc\h>n

"\'uta\ 11'.7.t. \\4A)

1'>2.i ( 15.5)

}5.i (\ll.5!

I <J7 J

lh8.5

4<12.\

\\!'>.'>

><11.7

21<7,•)

(lf>. ~ l

(32.31

(8.8)

\ IH.21

(l<J.4,)

,15.0!

(55.'>1

\41-1, \)

(7h.21

\1110.\)I

\ llll).(fl

\lllO,<J\

/'18(1

IS 1.;-

1;-1_--1 (1'1.21

l 2.1 I ' 271. I 1..!l.t• 22·1. l

--17. J !..!.]

IHl.7

l'JH.7 I 5 5 So 112_7

\.'H.N)

l2Nf,,5 llUl_(ll

k'H.2 ' l(Jll\>1

''•2.1 li10_01

The service sector

The long-term trend in employment in the different sectors in the Irish Republic is captured in a rough-and-ready way in Table 6.2. The 'primary' sector includes agriculture, forestry. fishing. and mining. 'Manufacturing and construction' is a measure of the number of people occupied in other sectors producing a physical output. The 'other' ca­tegory ls a residual. catch-all one of service occupations ranging from barber to surgeon. The numbers are given in thousands. with percent­age shares in parentheses.

A [ew [eatures o[Table 6.2 stand out. Note first the [aiJure o[the total labour force to rise between 1946 and 1986. A second feature is the big decline in the relative share of agriculture. from 46 per cent in 1946 to 14 per cent in 1986. Note too that in the mid-l 940s agriculture em­ployed almost one female worker in four. but in the mid-l 980s only one in thirty· A fourth feature is the rise in the share of manufacturing and construction in the total. and the particularly big rise in the 'other' category. Finally. the importance throughout these decades of the 'other' sector for female employment stands out: it accounted for almost two­thirds of occupations in 1946 and nearly five-sixths in 1986. The female share of the total rose from 2 5 .8 per cent in 1946 to 30. 5 per cent four decades later.

In both the Republic and in '-'orthern Ireland, the share of total employment provided by agriculture and industry has dropped from over three-fifths in the 19 30s to not much more than two-fifths today (Table 6.3 ). These trends seem set to continue. The Economic and Social Research Institute in Dublin has predicted that the share of services in total employment will rtse from 60 per cent in 199 3 to 6 3 per cent in 2000. Two-thirds of the rtse of 149 .000 in numbers at work forecast in its mid-1996 Quarterly Economic Commentary for 1993-97 were in the services sector. i

The ·other' category in Table 6.2 is an extremely heterogeneous one. Between 1971 and 1986 a disaggregated comparison is possible (Table 6.4). The fastest growing subcategories were 'administrative. executive. and management' (+ 116 per cent). 'armed forces' (+72 per cent). 'pro­fessional and technical' (+69 per cent). 'clerical' ( +43 per cent). 'service Workers' (+38 per cent). and 'commerce. insurance. and fmance' (+34 Per cent). A complication is that some of these categories are made up of mainly private sector occupations. while others had. and still have. a strong public sector character. Consistent data on public sector

169

\

\ \ \

A rocky road

Table 6.3: Employment by sector, 1946-9 ~ (/Wn•nta!/f' of total)

Ye<~"~~~~~~~~A~g_ri_n_li_t<_<r_<'~~~ North:

192fi

1%1

1991

South:

19lfi 19)1

\%0

Crane. c\c

\'orcmcn

. operators

2(1

14

II

48

40

JI

Transpor\ und communh:alions

Warehousemen. clc. l'.\cr\cal

Commerce. Insurance. fmmicc Service wurkcrs

\.abourcrs and unskUk'd

Adm .. exec. and milnagcmcnl

l'rufossion<i\ "nd tcchrm;al A.rm<.-dforcc,;

l':mployctl. hu1 nnt s\ah:d

Tu\ a\

t.5 7. 5

14.2 I l.O

61.l 57.n 21.5 14.5

103.2 3<>.l 108.7 7U

H0.5 10.1 H!U! 88.1 17.9 17.0

]0}.l 'il.h

4.7 3.7

402.\

111dus1r.11 .\'1'/l'/(1'\

!~ "

41 ,, !I

" \') Ill

3' 11

2lJ Ii

ii

.\I

0.0 11. 'i I 1.4 O.!I

1.1 lh.1 14.'i J.:-

3.7 (>4.7 Ml.I .,, 8.0 22.<J 17.<'l i I

67. l 147. j l7".1 IJ0.2

~ 5.6 146.0 <J'i.H ::;o.s 50.l lll.I 4<J.'i 61.11

0.8 72.2 7 t.2 ).()

O.<J JK6 IH ~ . .+ 50.7 171..::; 10.H /'I:;'_/,

0.0 H.1 " I 0.0 I.I I H.<J I J.h 'i.l

2J'J. J H 11.7 49H_ 7 lll()

employment are available since 1970 (Table 6. 'iJ. and these show <1 hig increase in the 1970s, [allowed by stasis or gradual decline since.

Only in recent years have pronouncemenL.; from Irish government ministers - or indeed econumisL~ - acknowledged the lmporl<incc of lhc service sector in gencraUng ·1ob growth' In lrch1nd.~ In lrc1<

111t1 a:-; in

17()

The service sector

l. sector employment, 1970-9 3 (in thousands) pubIC-_:,_~~~----,c:-:c:------::-:c:::-~:-:--~----::--

ble6'5: 1970 1977 1981 1989 1991

rs 41.8 56.0 37.7 28.6 l0.6

6.5 8.5 10.8 10.5 11.2

9.8 16.6 16.5 14.4 14.0 ,\fl ( cCI 49.9 J0.8 JJ.O 29.4 30.4 i>:fcriccfor rill~

14.6 48.5 64.5 :;?.3 61.8 ·alaull'IO

~;al!h !lt'f"'ICt!I l0.9 48.5 53.2 55.4 h4.l

f)!LICaliCJfl b<JdieS fl5.0 511.9 94.l 73.7 h4.J

semi·~1a1c 218.5 258.4 313.2 269.3 276.5

101al rnini!'ltration Yearbook. various years; CSO. 'Public sector employment'

Sourer. Ad 19941. 1 ~0vcmher

Britain public policy has lon_g suffered from a kind of commodity fetish­ism. alteroating its emphaslS ~t¥oeen agriculture. and manufacturing mdustrY as engines of econorruc growth. The tertiary sector has been the cinderella of both policy-makers and historians.

Why. then. the policy neglect of the service sector? Part of the answer is that its output tended to be considered either virtually non-tractable (e.g. nursing. hairdressing. mail delivery). or merely inputs (e.g. ac­countancy, packaging. marketing I into the produced good sectors. agriculture and industry. Food and manufactured goods in turn had to be relied on to produce foreign exchange or import substitutes. More­over, there was a belief that. for technological reasons. productivity growth in the sen'ice sector tended to be slow: a belief further com­pounded by the ditftculty of measuring output of some service activities. The slow productivity grm·vth is sometimes seen as a symptom of Bau­mol's 'disease'. after the first economist to forcefully spell out some of its implications.~ Secretaries. bureaucrats. health workers and light­house keepers offer examples of workers whose output is not always easy to measure. Thirdly. the service sector was excluded from the economies of scale endowed on manufacturing by Verdoom's Law. A fourth. related point is that to some extent the growth of the service sector has been a function of the growth of government. Critiques of that growth suggest the importance of the distinction between publicly and privately provided services. Finally, there is the belief that all the service sector can offer is low-skilled. poorly-paid employment. a belief well captured by the US comedian who wondered if all jobs created in

171

A rocky road

the United States and in Britain in 199 5 would involve the phrase, 'wou\d you \ike !ries with that?'

Such views have long \ed to the neglect of. or discriminalion against. the service sector. lt is symptomatic that Whitaker's Ef'll110111ic lit•vl'lop·

ment should have devoted a hundred pages lo agrirnlturl'. forl'slry and fishing. and another nfty pages to industry and mining. Bui onll' tourism among the services warranted separate lrcalmcnl -- and ii gol ooly f'ight pages. The Third Programme (1969-72) again slrcsst'd lhl' 11nporl<t11Cc o{ tour\sm as a foreign exchange earner. and also devoted more r1ltcn­

tion to transport. The short-lived National Planning hoiird i11 its Proposals for Plan 1984-7 (1984) produced separate sections"" il~ri­cu\tura\ and industrial policies. but not on services. and urged cc111tinucd sup-port for the \ow tax rate on manufacturing profits. Only with the Cu\\\.ton Report (1992) was the potential of services fully recognized. In lre\and f'lsca\ po\\cy too tended to discriminate against the service sector, actively or passively. The sums spent on tourism and developing trans­-port faci\\ties hardly matched the generous funding of the IDA and the tax incentives given to manufacturing from the 1960s. However. _the award or a 10 per cent corporation tax to the Irish Financial Scn·icl~ Centre tU:SC) development at Dublin's Customs House Quay in l l),S,

marked a signiflcant shift in Irish policy.

\ Whatever the case four or five decades ago. the claim that scr\"in.'s are mainly non-tradab\e no longer makes any sense. Improved corn­muni..cat\ons have made service activities such as tourism. hospital earl'. music. computer programming. financial services. advertising and com­

muni..cations hi.gh\y tradable. Indeed the transport component 1ll

producing computer software or hospital care is less than lhal in. say. exporting fresh agrku\tural produce. Moreover, the contribution of.such services to the Irish balance o{ payments is significant. In 1969/70 Lhc ratio of the trade in tourism and travel to merchandise trade was I I per cent: i.n 1990/91 the ratio of the trade in all services to mcrcha11dise trade was 17 per cent. In other economies these ratios are much higher. and have been growing for several decades.

Tourism

The service sector

at our health and pleasure resorts' .6 Yet despite the current vo~~e for Ireland as a tourist destination. the country has not been a trad1tmnal focus ror mass tourism. Before 1914 foreign tourists in the conven­tional sense were very thin on the ground. though considerable numbers of emigrants made visits home to see relations and friends. In 1919 the chairman of the Munster & Leinster Bank referred to tourism " 'a word Introduced to us by the Cork Examiner'! The potential of tourism as a foreign exchange earner was realized early on - Bord Fciilte. the lr1sh Tourist Board, was established in 19 39 - but little concrete work was done to promote Ireland as a tourist destination for foreigners before the 19 60s. Post-mark slogans such as 'Ireland for Holidays' 11931) or 'Salthill. Galway for Holidays' (1935) focused mainly on the domestic market. and Bord Failte advised the Irish to 'See Ireland First'. Like much else in the economy. the numbers of both domestic and foreign tourtsts stagnated in Ireland during the 19 50s. Between 19 52 and 19 5 7 the number of hotel and guest house bedrooms fell. and the ~umber of new hotel bedrooms added averaged about a hundred a year. conomic Development ( 195 8 l called for greater local and public com-~tment. and for improved amenities and travel facilities, while the First ~am.me eannarked [ 1 million in capital grants for. among other A gs.' motels and for 'simple. clean and above all, cheap facilities'. 'Her Lingus chipped in with tourist films such as 'Irish Holiday' and tr oneyrnoon Island'. C6ras Iompair Eireann (Cl.E). the state-sponsored th ansport company. ran its 0\\'11 tourist promotions and owned some of

e country's few decent hotels. In the following years, a good deal of ~ubUc mon~y was spent on upgrading hotels and trainin_g: Sp~rred on Y a combination of improved facilities at home and nsmg mcomes

abroad. revenue from tourism doubled during the 19 60s. It was still not enough to impress the editors of the 1970 version of Fieldings Travel G~de to Europe. though: Galway's hotels 'would never send the late C6sar Ritz into raptures'. Limerick's were 'mediocre·. and Cork. 'our least favourite lrish centre. bobs up with a meagre fishnet of decent lodgings'. .

Ethnic tourism by returning emigrants and the d~s.c~nda~ts of e[Ill­grants continued to be important: in the 1980s v1s1ung fnends and relatives still accounted for about one-third of tourist visits and _revenue. Ethnic tourists might be considered less sensitive to relative pnce~ th~n others. yet their number rose sharply following airline deregulation m the mid- l 980s. and Bord Fciilte surveys have revealed them to be more

17~

A rocky road

critical of prices and service in Ireland lhan other vi<>itors. fn recent

years tourism statistics (which include all kinds of incoming trn\'l·llcrs1 provide breakdowns of revenue by n1tcgorv of visitor: hu:-.iJH'\s travel­lers. conventional tourists. people visiting. fricnd.s ;ind n'lali\'t's. and others. In 1994 these categories account<"d for I 'i. 'i I. 2·1 <111d 11 per

19 'If this is a Grade A hotel. there ought to be some re-grading.'

174

The service sector

advantage' in tourism. Moreover, overcrowding and congestion even in remote areas such as the Aran Islands and the Burren at the height of the season raised questions about how far a tourism industry feeding off an image of a quiet. traditional Ireland could proceed. Economic development rendered the Irlande imaginaire sought by many of the tourists more remote with every passing year. Yet if the future for touri.,m ls not quite as bright as the sunshine in the posters. tourism's current and past contributions are not to be sneezed at: in 1989 it was estimated that tourist spending. mostly by non-nationals. provided employment. directly or indirectly. for over sixty thousand people. and generated income of (1.239 million."'

Banking and finance

Today Ireland's banks and other financial institutions provide employ­:nt for about thirty thousand people. The banking system has its

8~~~ m Westmins~t<r legislation which permitted the creation of joint [e· anks in 182 ::>. With one important exception (the Munster and be~ter Bank. created in 18861. the main banks operating in Ireland .th ore the creation of Allied lrtsh Banks and the Bank of lreland Group Ill ernid 1 critic· . - 960s had been founded before the Famine. Though often th . ~ lll the past for their undue caution in extending credit and one~ ack of commitment to Irish enterprise. the lrish banks could boast

e lDlP<>rtant characteristic throughout the period reviewed here: they ~~Ver looked like they were going to fail. Between the 1920s and the

50s the banks" business reflected the sluggishness of economic busi­ness generally. but the 19 60s would bring prosperity. innovation and radical reorganization.

For most of the period the lrish banking sector followed the decisions of the Irish Banks Standing Committee. an informal cartel formed by the Irish banks in 1919. Some features of Irish banking were almost cer­tainly due to the cosy relationship between the banks. That. in Professor Cullen's words. the 'character and identity of the banks became rigid' in the 1920s and 1930s. reflected the desire for stability in difficult economic conditions. 'J The Standing Committee reduced competition by Virtually freezing the bank network for a few decades. It also dictated the rates charged and paid by the banks. In the 19 20s the 'lrish banks' rate' - the lowest rate charged by the commercial banks on advances -

l 7'>

A rocky road

exceeded the Bank of England rate by O.S to 1 per cent. and the Irish banks paid their depositors at a rate uniformly 0. 5 per cenl below the British rate. Between independence and the ec-trly 19 50s lhe margin between lending and deposit rates remained at a hefty four percentage points - a margin which gave rise to suspicions of inadcqw1te rmnpetl· tion between the banks. 10 Since then the margin has intTl'<L'ied. though it has become more difficult to measure with precision. given the in· creasing variety in bank services. Were the banking sector rnmpt'litive. the trend in the margin might be regarded as a rough gauge nf produc·

tivity change. However. the competitive model hardly applies in this instance. Criticisms of the banks for some of their other charge.'i have also been persistent. and the revelation in 1984 that Irish ban ks operated the most restrictive opening hours in twenty-two counlri~s 1 ''.~u­lated 11 provided a further indicator of the lack of compctilion. ~he

. . I . h R nk offinals cons1derable clout of the bank staffs umon. the ns_ a 0 Association (IBOA). also stemmed from the banks' cartel. Jn the 198 ~ the countervailing power of the IBOA accounted for the delayed an fitful introduction of 'hole-in-the-wall' cash machines (or ATMsJ in Ire·

land. . mmit-Though long attuned to co-operation through the Standing Co d

tee, the banks served rather different clienteles. The Munster an Leinster's close links with the farming community and the rural c~­operative movement meant that it found it easier to adapt to t. e conditions in the new Free State than banks with a heavily unioni~t ethos such as the Provincial or the Bank of Ireland. while the Ror~ 1 1 ~ clientele earned it the sobriquet of 'home for distressed ProtestanLc; · In 1965-66 Ireland's banks merged into two main banking groups. the Bank of Ireland Group (the Bank of Ireland, National. and Hibernian l. and the Allied Irish Banks Group (the Provincial, Munster & Leinster. and Royal). The need for a 'third banking force' that would increase competition in the sector has been urged by the Irish Labour Party since the 1970s. but so far nothing has come of this. In mitigation. the banks have faced increasing competition at the top end of the market from foreign banks since the 19 70s.

Like many Irish institutions, Irish banks have tended to imitate British practice rather than innovate. Nonetheless. this has entailed radical changes in their business since the 19 30s. Gradually and more or Jes1' simultaneously, Irish and British banks switched from being mainly providers of trade credit to being universal bankers. offering mortgages.

176

The service sector

underwriting Industrial share issues, and providing expert advice and ,..d capital to entrepreneurs. In this the Irish banks were adapting methods practised by their continental confreres since the nineteenth century. If Irish bankers' traditional sense or their calling had been unduly restrictive. then the damage was made good during the decades under review here.

Industrial relations in Irish banking have often been fraught. In early 1955 banking services were restricted for three months; in 1966 and again In I 976 they were forced to suspend all business for two months. But the biggest Industrial dispute was that which closed down all major banks In the Republic for six months in 19 70. This deprived the econ­~llly ol the direct use or over 80 per cent or its normal money supply.

1 llriously, the eft'ect on the economy was minimal; monthly retail sales. ~OOd. proxy ~f short-te~ trends in economic activity. were hardly hank led. DeOation was avmded because undated trade credit replaced Cou notes and money on deposit in the banks as the means of payment. In ld_this have worked only in a face-to-face society such as Ireland, Illa 1Yhich local ret~il shops and. public houses had a good deal ofinfor­hri lion about their customers creditworthiness? Or might the more lar Personal supermarkets and megapubs devise a way or playing a simi­Pto tole, if necessary. in the new millennium? In the event. very few Pu:i-to-pay 'bounced" in 19 70. Of course. confidence that the dis­to Would eventually be resol•·ed was also necessary for informal credit irt einerge, and it is doubtful whether the cost would have been so light

197an era of inflation and unstable exchange rates such as the Os.11

Bel, 1'he allocation of the banks' sterling assets was an abiding issue for b eral decades after independence. Since the nineteenth century the ~nks seemed to prefer investing in bonds on the London money market

tnaktng loans in Ireland. Professor John Busteed of University College. Cork estimated that banks in the Free State employed only 44 per cent of their capital in Ireland: but the higher share of home loans in the llssets of the Belfast banks ( 5 5 per cent) Is a reminder that demand had sornething to do with it. Repatriation of the banks' assets was a nation­alist catchcry. but even Cumann na nGaedheal in the 1920s looked forward to a time when the funds could be repatriated. and every gov­ernment thereall:er felt likewise. The implication seemed to be that the banks could have made more money if only they opened their eyes for investment opportunities ln Ireland.

177

A rocky road

The two Irish banking groups have been crucial to the success of the Irish Financial Services Centre (IFSC), established in 1987 at the Custom House Quay in Dublin's north inner city. One of the legacies ofTaoiscach Charles J. Haughey, the IFSC was granted tax-haven status unlil 2005, a feature that has attracted some important financial institulions. Har­ing Brothers set up a fund management unit in 1992. ;timed al transferring most of its offshore business in tax havens surh as I long Kong, the Bahamas, and Bermuda to Dublin. 1 ~ ln 1991 the <:erman Commernbank joined with Allied Irish Banks to set up a fund 1n;111agc­

ment venture with a target of £500 million within two years. At the outset this joint venture employed only seven people in IJuhlin. This may have created the impression that it was a 'brass plate operation'. but its Dublin manager went to some pains to claim that the Com men· bank was here for the long term. In October 1994. it was announced that the world's largest mutual fund. Fidelity Fund Managers. were to transfer a substantial chunk of their business from the Bahamas t~ Dublin, though 'the number of jobs created is not expected to be large · During 1994 the number of new companies seeking approval from the IFSC was double the 1993 level. and by 1996 more than fifty businesses on the Customs House Quay site were employing about a total of three thousand people. 1 ~ Yet the CFSC remained a minnow compared .to Luxembourg's financial centre, and was only half the size of Jerseys. Its extension hinges on the continuance of its favourable tax regime.

Transport, communications and peripherality

Does economic integration with the outside world boost or reduce growth rates in 'peripheral' regions such as Ireland? In the early nine· teenth century peripherality and a sufficiently big home market maY have shielded certain Irish industrial concerns from foreign competition. but - probably more important for a small economy_ it hindered those reliant on foreign markets for expansion. Today, remoteness and back· wardness are virtual synonyms. The measure of peripherality in the regions of the European Union in the 1970s designed by a team of English geographers led by David Keeble suggests that peripherality was negatively correlated with regional income per head in 1973. though the relation between peripherality in the early 19 70s and subsequent growth is less clear-cut. According to that measure. only Corsica, the

178 •

'!lie

.. II

r !

The service sector

Metzoglomo. Greece, and parts of Spain and Portugal had and have worse locations than Ireland. with Northern Ireland being marginally worse situated than the Republic. Peripherality is partly about transport costs, but it is also about less tangible ractors such as access to inror­matfon and outsiders' perceptions. Peripherality itselr can change. or course: a recalculation of the Keeble index for 1989/90 shows a slight Improvement (or the Republic.Ir. On the other hand. the opening of the Channel Tunnel in 199 5 is bound to have increased Ireland's relative perlpherallty.

History suggests that developments in transport technology have had ~n Important influence on Irish economic rortunes. The invention or

e st.eamshtp early in the nineteenth century gave a great boost to the lrade In live cattle. so long synonomous with Irish fanning. It also made Beasonal migration easier and eased people· s fear of long-distance pas­~ge. Later in the century the railway intensified agricultural ::alization within Ireland. though complaints about overcharging in tr e railway companies were endemic. More recently, improvements hel ansport technology have benefited long-distance tourism and de 1;"' to reonent the Irish beef trade Crom one in live cattle to one in cu a but fresh meat. But worries about transport costs have been re­the n;.nt. One of the very first committees set up by the Irish Free State. Ire! IScal Inquiry Comminee of 1923. found that 'transport charges in . hand are excessive. and ... Irish industry. in nearly all its branches. 18 lllllpered Crom this cause'. In their survey of Northern Ireland's 7nomy in the mid-19 50s Isles and Cuthbert stressed the importance 01 transport costs as a "hindrance to general industrial development',

c aiming that the absence of certain industries was as much due to them as the handicaps faced by those that existed there."

Ireland's peripheral location on the western edge ofEurope still places It at a competitive disadvantage. In 199 5 the Dublin manager of Arthur Guinness defended a rationalization plan that would reduce its work­force at St ]ames's Gate to four hundred with the claim that 'we have to be very conscious of our export markets and our cost structure. Dublin Is not the centre or the world and we have issues such as the transport­ation or beer to deal with'. 111 An efficient transport system is more important lo Ireland than to its competitors. On occasion in the past. however. conOicting policy goals sacrificed tra..o.-:>rt efficiency.

The history of Ireland's transport sector over the last half-century or a=· .. .. -...o<•~·,;~-«- ""''"'

A rocky road

network had enjoyed modest prosperity before 1914. but it operated under the double disadvantage of low population density mul light traffic. features which gave road transport a comparnllve advan1age. Big wage increases and improved road transport tcchnnln~y posed a real challenge to rail after 1918. The new Irish Free Slate adminislration

sought to help by forcing the amalgamation of most ortht• lwt·nh'-d~hl railway companies then operating in Lhe South into the privalt•lv-owncd Great Southern Railway Company (GSR). In further cni1r1s ln prnlcct

the rail network. the GSR was allowed to operate thl'ir own rornl frt'i~hl services. and private hauliers and bus companies were suhjt·c1<·d tu

increasingly restrictive licensing and operating conditions. One rrsult was that in the 1960s Ireland would have a far higher proportion or road freight carried on own account than either Britain or other west European econom.ies.19 Road freight was not fully deregulated until 1988.

Still. during the 1930s the quality of the GSR 's rolling stock deterior­ated. its revenue continued to decline. and it could pay no dividends. Its wish to close its most uneconomical lines was not accepted by a public inquiry in 19 3 8. The Emergency ofl 9 3 9-4 5 offered the railwai· system some respite, but fear that the network could not survive pe~ce­tlme conditions led to the creation in 1944 of the multi-modal C!E '° operate the rail network. urban and provincial buses. and road haulage together. The new company owned 2,500 rail vehicles 'mostly border~ Ing on the antique', 600 buses, 500 trucks and vans. 'about 300 horse~ and perhaps 40 trams', six hotels. the Royal Canal. and also opera_te Rosslare Harbour. 20 It had a workforce of over twenty thousand. making it Ireland's largest employer. From 1947 on losses accumulated. and CIB was nationalized in 1950. In 1953 the new company was granted the capital to replace its antiquated steam engines (average age fift~· years) by diesel engines. Yet the rail network was still badly undercapi~ tali.zed when C. S. 'Todd' Andrews. formerly managing director of Bord na M6na, took over as chairman In 19 58; the engineering works at lnchicore were 'like a scrap yard'. and 'the stores had stacks of materials which had not moved for generations". Under Andrews. CH~ closed several rail routes in the 1950s and 1960s. including the Harcourt Street line to Bray In 1958 and the famous West Clare railway. Ireland's last narrow-gauge line. in 1961. In 1960 CIE barges ceased serving the Grand Canal Company network. But the Irish rail network still could not buck the trend towards road transport dominant everywhere else

180

The service sector

in Europe. Subsidies from the public purse had become an annual event but by the 1980s the government finally rejected the prospect or such subsidies ad infinitum. Road haulage and bus transport outside the cities were deregulated. In 1987 CI.E's provincial bus and rail services were split Into Bus Eireann and larnr6d E.ireann. and began to compete with each other. lamr6d E.ireann was no different from railways anywhere else In Europe in its continued need for state grants: indeed. in the early 1990s Its ratio of grants to revenue - 3 8 per cent - was much lower than Denmark's, Belgium. or Spain. Bus E.ireann embraced the chaJ­~nge from private bus companies with some enthusiasm. [n 1987 Bus At~aCliath (or Dublin Bus) was granted the poisoned chalice or running CIE's operations in Dublin city.ii

. The history or internal transport in Northern Ireland was broadly suru~ar. The rail network faced the same problems, and in 1948 the pubhcly-owned Ulster Transport Authority was formed. An interesting study or freight rates some years later showed little difference between published charges in !'\art.hem Ireland and Great Britain. However. the ~000Parison referred to industries already established in Northern lre-

Ukandl · and al.most by definition their comparative disadvantages were e Y to be less."

A national Irish air service was ruled out in the 1920s in the belier ~t it ~o~ld not be self-supporting. Much discussion ensued. in the (fr uential 1.ournat Scudit's and elsewhere. Fianna Fciil created Aer Llngus T ornaer lomgeas. air transpon) as the sole international carrier in 1936.

he new airline concentrated on flights across the Irish Sea. The war interrupted progress. and all Aer Llngus flights to Britain ceased for five tnonths in 194-l. At the end or the war the airline's inventory consisted of one DC3. two DH86s. a Vickers amphibian. and an old Air Corps Plane. In 1946 it negotiated a monopoly or scheduled passenger flights between Ireland and Britain in exchange for share participation by BRAtBOAC in Aer Llngus. but it lost sole carrier status in 19 56. Aer Lingus was a pioneer in mid-week fare reductions and its 'Dawn-flights and Star-flights' were also innovative in their day. On the whole. how­ever. the Anglo-Irish cartel which ensued resulted in high prices and the continued viability or sea transport. Since 1986 competition has both reduced fares and increased tramc. and the various routes between Ireland and Britain are among the most compdlltlve routes in Europe.

Acr Lingus purchased five Constellations in 194 7. partly with the transatlantic route in mind. However. the new inter-party government

181

A rocky road

cancelled that route in the following year, and the airline was forced Lo sell the Constellations and reduce staffing. After many false slarls Lhe transatlantic route was inaugurated in 19 58, with a Jew leased super­Constellations. The first Boetngs were acquired in I q 60.

In its first half-century, Aer Lingus made a net loss in almost orw ycur

out of two. Profits were never enough to llnancc new plmlt's, sn Lhal by 1984 total state equity in the company had rcacht·d (74 million. After a grim few years marked by huge losses and the m·aM·ollapsc or its aircraft maintenance subsidiary THAM. Acr Lingus in.auguratl"d a restructuring programme involving new work practices and the sale of non-core businesses. The company is now ( 199 7) in much heller slmpc. but still far from long-run sustainable viability.

For most of its life Aer Lingus has faced little domestic competition. A competitor on internal routes. Avair. lasted for only a few yc~rs (1978-84). but when Aer Lingus's monopoly as international ct1rner was relaxed in 1985 to allow in Ryanair. the new airline proved well able to last the pace. Competition on the Dublin-London route be~:~~: intense, and trends in passenger traffic bore the signs. For tw~ d~c had before deregulation the numbers travelling by sea to Great Britain . risen, while those using Aer Lingus had failed to rise: in the following eight years, by comparison, the number travelling by sea rose by 0~~~ fifth while the number of air travellers rose by I 40 per cent. Ryanair !i

reliance on remote airports far from London and its trimmed-dow_n on-board service earned it a 'no frills' image, but its safety record J!i

exemplary, and the competition benefited all air passengers. In 19 36. the choice of a desolate spot at Rineanna on the Shannon

estuary as a base for transatlantic planes reflected the technology of t~c day. Indeed the original idea was for a dual-purpose site for both utr· planes and seaplanes. However, even then the famous aviator Charles Lindbergh was dubious about Ireland's prospects: 'I believe it more probable that most transatlantic planes will not land at all in the fu­ture ... I am inclined to believe that the next decade or two will see at least some schedules taking off from New York and flying non-stop to

England and the Continent' .2 J Prophetic words! The war intervened and the first commercial flight (a Pan Am DC4) did not land in Shannon until October 1945. Between 1947 and 1958 nearly half of all North Atlantic flights were routed through Shannon airport. In 194 7 Shan­non became the fIJ"st customs-free airport in the world. reflecting its entrepOt status. However, the main American airline carriers had been

182

er.

It ~

t

The service sector

urging the development of Dublin as a stopover from the outset. and by the 1950s what may have seemed sensible in the 1930s was (in the words of a president of TWA) 'somewhat akin to suggesting that. be-cause parts of northern New England are economically underdeveloped non-US flag carriers should deposit their passengers at Skowegan, Mai­ne'.i4 With the inauguration of the first transatlantic flights rrom Europe in 1959, Shannon airport was. strictly speaking. already obsolescent. Neither Pan American nor TWA found the stopover viable. but the Shannon lobby naturally fought to maintain it. From this time on. part or the prtce paid by Aer Lingus in return for state largesse was its COmmJtment to regional policy and Shannon. Meanwhile. Dublin lost its chance, however faint. of becoming a major European hub airport.

Govemment sanction in the late 1970s for another western airport near Charlestown in County .\iayo greatly annoyed the authorities at Shannon. The project. the brainchild of the parish priest of Knock. Monsignor James Horan. became a political football. Sanctioned by Fianna Fa.ii. but deemed "ill-advised in the extreme" by Jim Mitchell. Fine Gael Minister for Communications in the early 1980s. the airport was officially opened in 1986 by C. ). Haughey. when his party was in op­PDSition. While Knock. 'far-distant from any sizeable town. high on a foggy and boggy hill"." proved no danger to Shannon. the bleak future forecast for it by economic pundits had not materialized either by the mid-1990s. Unbeholden to the E.xchequer. its owners celebrated its tenth anniversary v.'i.th gusto in 1996. Meanwhile the pressure to end the compulsory Shannon stop mounted. In 1990 economic consultants DKM produced a report for a group of Dublin lobbyists against the stopover. DKM found that it was 'inhibiting the expansion of North American tourist capacity into Ireland .... preventing the development of long-haul Irish aviation and ... diverting traffic to British and other foreign airlines. The benefits of such a policy, such as they are. are purely local'. By then. however. the game was nearly up in any case. Shannon's pleas that it was 'an absolutely key element' in the develop­ment of the west and that the very term 'Shannon Stop' was a 'negative misnomer' were falling on deaf ears. The compulsory stopover was

scrapped in 1994. . . The huge rise in air traffic m recent years. whether measured m term~

rchandise or passengers. reflects the buoyancy of the lrish econ­of rne Between 1988 and 1994 the number of passengers using Irish o~Y· rts rose by 52 per cent. twice the rise recorded in Northern Ireland.

/( "'

A rocky road

However, most Irish merchandise trade still relics on seagoing transport. and the sea routes are also important for passenger and car Lrnffir. t\s noted in chapter 1. at the outset of the Second World Weir Ireland had virtually no merchant navy, and the government lTl'<tll'd Irish Shipping Ltd to plug the gap. Irish Shipping was thus set up ill a lilll!' when national defence mattered more than 'opulence'. I lowcwr. m l'flrly 1959 Lemass, still a minister. claimed that the only ro11stnii11h 101hc

growth oflrish Shipping were those 'dictated by l·o1111mTd<d prudl'nrc·.

The power to pay subsidies in the original act were rl·movL·d. and IH·1irc­

forth Irish Shipping could be provided no protection agclinsl liireign competition. The company operated successfully enough hl'l ween. Lhc 1940s and the early 1980s. However. it then round itself locked ir'.to long-term chartering arrangements at uneconomic rates. Its potential

liabilities were huge (£140 million). and so it was dissolved in late J lJS-l.

It was the first state-sponsored company to suffer that fate. Another shipping concern to run into trouble was the B&I Linc .. a

steampacket company with a history going back to the I 8205. and_!<;~ long British Rail's main competition on the Irish Sea. In the late 19 '( ~ and early 1960s it became increasingly obvious that its then owner: were running down B&I's capital stock and services. The governrnenk accordingly nationalized it in 1965. Lumbered with a crossing that 100

more than twice as long as the Holyhead route and endemic labo~ir relations problems. the company ran into serious difficulties again ~ 1 ~ the 1970s. Even CU na Mara. the jetfoil acquired in mid-1980. cou l

not save the Dublin-Liverpool route: the jetfoil service lasled littl~ '.1~~:~~ than a year. and the route itself a decade more. In 1992 B&I Wd~ ·

to Irish Continental Lines.

Electricity and telecommunications

As every schoolchild used to know, Ireland's lack of natural fuels such as coal and wood placed its industries at a disadvantage. Turf was not a realistic alternative in the 1920s: the higher cost of coal relative to that of landing macerated turf in Dublin - about three to two - for from compensated for turfs lower calorific value. The new government be­lieved that hydroelectric power should substitute for Ireland's Jack ol coal deposits. It established the Electricity Supply Board in 1 9 2 7. and granted it a virtual monopoly of the provision of electricity. At that time

184

The service sector ------

20 ·1 brought Siobhan as a last reson.. She is the only one now who remembers how to hand-milk a cow.

the demand for electricity was limited. In the mid-l 920s the Free State contained only about 36.000 users of electricity. and only one of its six hundred creameries used electric power. In areas where it was available only one possible consumer in four was connected. and only about 1 O per cent of fanners were reckoned to demand electricity when made available. The state-run Shannon scheme ll 92 5-291 - aimed at 'the development of electrical power from the river Shannon and its distribu­tion over the area of the Free State· - represented the heroic phase of electrification. Later. the work of those charged with spreading the message of electric power parish by parish in the 1940s and 19 50s was also mould-breaking. Their efforts produced stories resonant of the back­wardness of rural Ireland at the time - a Monaghan man refusing to drink tea made from electrically boiled water. an elderly batchelor taking a supply into hb• tiny cottage so that he could play cards with his neighbours. a curate accused of preaching rural electrification instead of the gospel by a sceptical parish priest.i" The sale of electricity rose at an average annual rate of about 10 per cent until rural electrilkation was complete: today it rises in line with economic activity. Electridtv output has increased about a hundredfold since the mid-19 30s. .

Irish consumers benefited little from the scale economies reapt.'\l

185

A rocky road

elsewhere in electricity production. The Shannon sdwnH' rt·dun·ll the

price per unit paid in the 1920s. hut price failt'd lo f;1ll '>1~11il\rnnl\y

between then and the early 1Y70s. At ht•l\\'t•t•n tl 7"p and I op per

kilowatt hour. electricity cost ahout twicl' as mud1 in 111'1.1111! .• ., in Britain. Its cost rose rapidly in the Wilke of till' 11il tT•~t~. n·;u l1111g .i \)(';tk

of 7.7p in 1986. It has declined since then to about hp tucl.i\ 111 11!';·8 Irish electricity was cheap hy EEC standards. bu1 1h p1ll'1· 1 1 >~1· r.1111dlI

thereafter. and by 1983 electridty cost mon• 111 Ireland 1li.11 1 ui .m~

other member-state . .?•

MODERN INDUSTRY :~~::":'.· ,~::.,:1': :~·~;~.:::. ":;· ;.::·,~.::·:.: ;;1:,7~··,1·.~hl._'.::::.::~;·l ]'""" o•l""''"h '''""'''•"••.'l•O <''IN•l<1.11•1< '"'"'· '" 1·1 .......... 11 •• :.,, ... ,.,.,., , .. ,,, .... "' ;,,.1 .... 1 ... 1 ,.,., .... 1 •llh '"""·"" ... 1.,.1.1 .. 1 .. ,

,., • ""'· ''" ' ,,, ""'~'"" '""''"'""' l.><l "'"' " , .. , .. ·h"·" '" ·'" .1 ....... "' ,,,., ..... r .. 11. ,1,.,~""' •~ .,,,, ,,,. .,,,1,.,,1.,,1 .,,..,,,,,. ,,,,,1 "' '"" '""""'l'"'"'"''"'"'"l'""'""''"'""' 11111 ... ,.,,.u,, ... ,.,. .. "'''''"""' ,11,.1111.full.,,h.u1 .. , ••. ,r.1 ... 1n11lm'rui. .. 1>1.11""' 1:'1'•"·'"""!1•.1,., .. ,, '"" Ir <'"'"'I ••'1\ • "'""" olllfa"lt•, .,ul IU •d•m•· "'-' I.-'""'"'' •, ,\,!h•1r11' !•·""""' ,.,,1, , ""I'·""'"' <~.,, Tl" ,,..,1,,., ... , ... , "• ,,,,.1., ,.1, ol , .. ,,.1., ""' Th1• ,. '"' '""• '" ""•l«m"' \'111'1< foci"" 1., "'"' 11., •'•• ''""'· ,,,.,1, r11o.,.,. .• ,.,, .. ,_,.,. . .,\\1,""•••"",,"'''1''" r ..... ,, .. ,,. 1 ... ,.1,, ... 1,1., ..

1,1 .. 11'•''' ,,,,.,,,1,., ''' ,.,.,(,.,., •lmr[~"''

USE THE NATIONAL POWER

• ELECTRICITY SUPPLY BOARD &O UPPIR MOUNT ST., DUBLIN

186

21 Modern industry.

1:\\e se-rv\ce sector

HeTe's to a bTighteT futuTe !

'l.l. \:'\Cl::e"s\.o a 'on~\.el:\u\.u:i:e'.

~ -..c:c.a,_-r:p ·=all ~,..~r"!' !OT hgh11n;:r. -!~.~~.o!fu..,.,._.Lndi'n"alC ~--....,.~ ....... ~·.,...~~o=l'J'::>"':! 1':.i.~~ .... c~•""'"',..:.;, • .,,, "Soot-a.,..._.,.._

'!.:I.·-=-... .... ';}#_ ~-t=!I..:.& ~,.,r.: .... ; ..,..~~t....__-,,..._pl.•"l'&"•..-.1 ~--- ·~"l' El,.;._.,...._._,_: p.>0CY

"" - • ~= -~--- ='-<=r.:1""" -==--~,.,..~ ,,._.-_,_.,,,_=-:: .. ~ ,.,,~ ;.,...'=,

Sol.us \.AMPS .,...... ...-.......... "4 ""-~ - ........ _,, -- ..... __ ,..., .,._ . .._, .... _ . .,,,..

\l:e\a:nd.'s \.b.\n\~--::>.prca\..\ r"'-"'fluh\\\nn nnposcd its uVl.·n burden. 4;111d rural e\ec\.1:\.f\Ca.\.\l.'ln \h\.':.'-\\ny. 'h·o....,n'l tho: \ '-)4'll!<o to lhc \ q80sl ,,•,;as 1..·oslly. Pcr­·~•U.ad\.n.% l'.'li!\Uc\..;.\n\. o\dstc'f"s ,,·ho thou\;ht c\c ... ·tr\cii._y "too .J.c..·~'r ~1111..l too ~a:n.¥.e.l:ous· '~"'l.'t'- '-"'"\); the hc<j;\nn\n\;!.. :'n ~u.iJcd cost i.lnpuscd on ltu: ESB Was \.'h.c o\)\\v,.a\.\on \.1..'I pa~· an unc1..·ono1nio.:ul price for the bulk or Bord 'na Mil'\n.u's ou\pu\. o\: nl.\\\c<..\ an<..\ su<..\ \urr £or c1cctri<..·ity gcn<..•rulion. :\.tin­\s\£'("~ 1r.'\T~uc<..\ \.\-'\c.l.\. \n \.he \ <..) =:.ns \h\s save<..\ the .._·uun\ry un 1n1pur\ bill of ~~ 1u\\\\on. ·\'\l.<.l.\. \'I.on.\ ""'-' ?\.\un<l. pruvl.<..\<..·<..1 cun:-<i<..lcrable er11pluy1n<.."ll\ in T<cTn<..'>\.c. tl.rco.l.S Wol.S a \l..c·y {c\<..0 \. .. u. ·\·he ru\c o\" turl" ha:-< '1-r:..u.lually .. l<..·<..·\ined. \lu\. \n \.he co\\"'\"'.!I' \ '")'-ltls aho\.l\. \ =;, per c<..•nt ol" ._•\ectrh.:i\y output "''""'-'="' "till ~'l"oducc<..\ h"'.!I' nl.\\\c<..\ \.Ur{. wh.'u.:h cost <lhuu\ \"11\:icc as nn.u.:h per uni\ u:< \":.uc\ u\\.

\rch'\\l.'-\·s S\TU.\\\ l\\"\o..\ <..\\spcrsc .. \ pupu\;\t'lon has :..l\su ;.ih,,·;.1ys pus .. : .. t pur­\.\.._-,.,\ar t>rnh\cnl.>I. {ur t'>OS\.;,\\ C\\\<.\ t<..·\ct">h.unc <.'Ul\\ll.l\.11\\<.0 <1\i.ons. (.)u\Sl\.I<.• th<.•

A rocky road

towns and cities, maintaining thousands of tiny post o/Ticcs and daily delivery to even the most remote areas has exacted a high prirc, and continues to do so. Proposals to reduce the service and cut rro.~s-sub­sidization have always been politically sensitive. parll_v herause in

Ireland. like almost everywhere else, the postal servirl' has c;irried a public service obligation since the last ccntury.1 11 Sinrc till' I lJ21Js the real cost of posting a letter for delivery in Ireland has /i;irdly ti1llt·ri: the 2d. charged then would be worth about 35p now. Tile rosl of an inferior service in Ireland in 1996 was 32p. 1 '' Postal communic;1tic111'> would therefore seem to offer a good example of Baumol's Dist'ilSl'. the t'ondi­tion diagnosed by US economist William Baumol in his analysis of Lhc fiscal crisis facing American cities in the 1960s. Baumol's point wa~ that the public sector tended to get saddled with the provision of lahour­intensive services subject to slow productivity change. Low density also added to the cost of telephone services in Ireland. but the rclC1livc cost of long-distance calls has fallen considerably: in 1927. for exC1mplc. a phone-call from Dublin to London cost 7s. 9d. (39p) for the first three minutes. After decades of slow technological change. both services sa\\·

considerable progress in the 1980s and 1990s. One result has been Ireland's increasing importance as a location for telemarketing: SC\'cral mail. hotel and airline companies shifted their call centre operations there.

The postal and telecommunications services had been administered by the Department of Posts and Telegraphs since independence. but in 1984 the department was abolished and replaced by two new semi-stale bodies. An Post and Telecom Eireann. Both companies have recently been facing increasing competition. For An Post, competition from other modes and the ability of private companies to 'skim off some of the most lucrative business has already been highlighting the cost of cross­subsidization. For Telecom Eireann. by mid-1996 the prospect of four companies competing to offer long-distance phone service in competi­tion induced it to form a multinational consortium with Dutch and Swedish partners.

Healthcare p~ovides anoth~r exa~ple. In the 19 80s the pressure put on health services by c~ts ~n pubh.c spending and rising insuranct' charges brought economies m hospital management. As a result t , average length of stay fell from over eleven days in the mid-J 9 7 . he about 6.5 days today. The annual number or patients has falle Os lo about 600.000 to 520.000 over the same period. Without n from

188 a~obvious

The service sector

(afk>IT in health. But this is no proof of rising productivity: increased care in convalescent homes and the home may well have been sul>­l!ltuood for longer hospital stays.

However, sections of the Irish non-traded sector which could in principle be competitive have been. and continue to be. highly uncom­pe!IUve. For Instance. the state and the universities have long buttressed artificial barriers to entry in the legal. medical. dental and veterinary professions. Not only have these professions maintained a fmn hold on !Ollle activities - Immunizing animals and humans against certain dis-~·. routine family planning services. or removing teeth. for example - : ich require Uttle skill. In addition. heavy state subsidization or :':; •ntsr to the same professions has produced a considerable misallo­b:c;n ° talent away Crom other careers. Given the well-heeled social si~ound or most who become medics and vets in Ireland. the sub-

So on was land isl doubly wrong: it is both inefficient and unfair. beco:::: :,ate regulations introduced to protect the consumer have also 80od case e b~ of monopoly power. The licenced drinks trade is a ... DI in point. Today though manv Irish villages and towns may

oversup lied . · ber or b . P With small and seldom-open public houses. the num-l"esult ~u he houses in Dublin has hardly changed in this century. The contr as been inflated prices for drink and for licenced premises. The Years ~g trends in the real price of draught and bottled stout in recent due to b ·6 versus-1.8 percent per annum 111 1987-94) maybe partly lll&rke etter amenities in pubs. but greater competition between supe_r­re ts and off-licences in the bottled product is surely the mam Du~n.io Again. strict limitation on the number of licenc_ed taxis ~ rtses ~ has produced a deterioration in the quality of service and big

•n the cost of taxi licences. In 1996 the city corporation reacted to the rising chorus of complaints from the public by allowing a modest lncrease in the number of licences. Such distortions have other predict­able consequences. In the llcenced drinks business. they have given rise in urban and suburban areas to the increasing prevalence or enormous drinking emporia which maximl7.e the rent per licence. while in the taxl trade licences which were intended to support one driver are now used around the clock.

Productivity change In non-marketed services la notoriously difficult to measure. Given the difficulties or measuring the output ora policeman or an administrative officer ln the public service, one may sympathize

~.the decisions of Adam Smith and Karl Marx to declare such workers

•• 189

A rocky road

non-productive. and leave it at that. The convention of Judging lhcir productivity by their salaries has little theoretical jus1 ilkalion. r lowrvcr.

such workers are productive. and over lime tlwir priHl11t-1iv1ty has

clearly benefited from technological advances such ao.; II](' tqwwrilcr.

the telephone and the computer. The computer age n·1wlwd lr('Lrnd m

1958 when the Irish Sugar Company i11s11d!cd om· 1n ii~ (llllc(' in Thurles. Though computers have been in use in till· puhli• o.;t·n·h·1·~inrc 1963. the service was slow to take full advanlagt'. The n·;io.;(111\ lor lhi~ were more managerial than technical. but lhc Ill'\\' tl'cl111ol 11 i-:r IH't om· ing available in the 1980s facilitated dccc11t1·tdizcd dt'ci.<.ifin rn;ihuig.

and the ground lost earlier was recouped in the late f tJSOs '· 1

Notes

Cited in R. floud and D. N. McCloskey. A N1•w En1110111ic His/or.I/ o/ /lrit.im

2nd edn (Cambridge. 1993). \'ol. 3. 330-1. f 1 JWJ!1 2 Angus Maddison. Dynamic Foras ill Capitalist 1Jt'l't'lop111mt (Ox on·

3 ~.3Cantillon. J. Curtis and J. filzgerald. Medium-Tam Rl'l'ii'll' I 9 4-l- .},!Hill

(Dublin. 1994): Quarterly Economic Commrntary. June 1996. 2 -l

4 F'or example Sunday Tribune, 18 December 1994. th· the anatoin! w. J. Baumol. 'The macroeconomi~s of unbalanced grow · 41 - _ l( hll of urban crises·. American Economic Review. -)7(3) (l 96 ~), . ~ ht~~Hlll· Ireland see K. O'Rourke. ·industrial policy. employment polic~ <1n t

Lraded sector'. UCD Centre for Economic .Research ~IJ-'.9411 ~._·and nation;il 6 ~iled.in .B~rbara O"Co~nor, 'Mylhs an~ mirro,r:-;: t~un~<>I :mage, ·.;min Irdmrd

1denl1ty , m Barbara O Connor and Michael lronm (eds). Touri.

7 1n c;~~~l cA:~a~~~i:i!~~~~~~~i~t!)~~:~untcd for only 8 per cent of the tot.ii

spenl by travellers to Northern Ireland. 8 E.W. Henry, 'Estimated employmenl and GNP impacts of 1 989 tourislll 111

Ireland'. ]ourmil of tlie Statistical and Social Inquiry Sol'icty of Irdmul. 2hl ~ 1

(1990/91 ). 3 39-81. Sec too James Deegan and Donal Dineen. 'Irish tounsrn policy: targets. outcomes and environmental considerations·. in O'Connor and Cronin. Tourism in lrrland, 115-37.

9 L. M. Cullen. 'Germination and growth'. in B. Share (ed.). Root awl Hrm1d1: Alli1'd Hanks Yesladay. Today. Tomorrow (Dublin. 1979). 58: see too l'. 0 <>riida, lrelaml 178(}-l919:ANewEconomicHistnry(Oxford. 1994). l6;;;-75.

I 0 In 1945 lris.h bunks were reported to be earning twice as much from deposits as their British counterparts (NAD SJ 3749A. cited in Richard Dunphy. Tlii

190

The service sector

Makin110/Fianna Fdil Power in Ireland (Oxford. 1995). 256). See Padraig McGowan, 'Money. prices. interest rates and exchange rates: an interpre­tation of long-run Irish experience', forthcoming.

11 Davy. Kelleher and McCarthy Ltd .. The Control of Banking in the Republic of lrtl.and (Dublin. 1984). 106-7. See too John Hein. Institutional Aspects of C.Ommerclal and Central Banking in Ireland, Origins. Development and Future (Dublin. 1967): P. McGowan. Money and Banking in Ireland (Dublin. 1990).

12 Colm Tobln. The Best of Decades: Ireland in the I 960s (Dublin. 1984). 12 3. 13 Ant.oln E. Murphy. 0 Money in an economy without banks: the case of [re-

land', Maru:hesur School. 46 11978). 41-50. 14 Buslneu6 Finance. 28 February 1991. 15 Sunday Tribune. 28 August 1994.

16 David Keeble. Peter L Owens and Chris Thompson. The Influence of Peripheral and Central Locations on the R.dative Development of Regions (London. 1981 ): D. Keeble. J. Offord and S. Walker. Peripheral Regions in a Community of Twelve NaUon States CBrussels. 1988): I. Beggs and D. Mayes. The Implications of Peripherality for Northern Ireland. ~IEC Report No. 111 (August 1994).

17 K. S. lsles and N. Cuthbert. 'Transport'. in idem (eds) An Economic Sun•ey of Northern Ireland (Belfast. 1 9 5; 1. 1 5 3.

18 Sunday Tribune. 5 ~ovember 199 5. 19 John Blackwell. Transport in the De\'eloping Economy of Ireland (Dublin.

1969), 40.

io M1 icheaJ 6 Riain. On lhe ~!ow: COras lompajr E:ireann 1945-1995 (Dublin, 995). ch. 4_ g ~· S. Andrews. Man of no Properry tCork. 1982). 246.

23 sles and Cuthbert. Economic Sun·ey o! :-.:orthem Ireland. 152-3. B. Share. Shannon Dtpanures: :\ Sludy m Regional Initiatives (Dublin. 1992). 40,

24 Ibid., 193. 25 Jim Mitchell as quoted in James Horan. Memoirs 1911-1986 (Dingle.

1992), 245. 26 Michael J. Shiel. The Quiel Re,•olution. the Electrification of Rural Ireland

(Dublin. 1984). 122-6. 27 National Planning Board. Proposals for Plan 1984-87 (1984). 162. 28 J.P. Neary, An Econometric Study oflhe Irish Postal Service (Dublin. 1975). 29 In truth. a somewhat inferior service both in terms of reliability and the

number of deliveries. 30 John Fingleton. 'Competition and efficiency in the services sector', in

J. W. O'Hagan (ed.). The Economy of Ireland: Policy and Perfom1ance of a Small Open Economy (Dublin. 1995). 304.

31 Robert Pye. An Overview of Civil Service Compulerisation \Dublin. 199 J ).

191

7

Demographic trends

Introduction

Mrs. D. 's ninth child is called James Patrick Pcdar. 'l'hl' day ht• was horn was the seventeenth birthday of Siobhan. Mrs. D.'s nldcsl child. Siullhan\ future is already settled. She is to take over the posl nffin• ... or hl'r l'ight brothers and sisters only two will be able lo slay. (1-lt•inrich B1ill, /mlr Journal. 19 5 7) '

During the period under review. the Republic of Ireland was one of only two European countries (the other being the former German Dcmocrnlic Republic) to lose population for extended periods. A high propensity to

emigrate and a reluctance to marry are the main reasons usually gi\·cn for this. but Ireland's human fertility and mortality patterns were also unusual. At the outset a deep religiosity underpinned lhe marriage-shy· ness. the large families, and the low illegitimacy rates of the [rish. Until recently the vast majority of marriages. copper-fastened by a conslitu­tional prohibition on divorce, tended to last. Ta.ken individually. none of the features of Irish demographic history - low marriage rates. high fertility. high emigration rates - was unique. But the Irish combi11t1ti1111 was unique. and so it is not surprising that it has attracted Lhe attention of historians and social scientlsts from far and near. However. manr or those features which made Ireland a demographic outlier have been subject to dramatic change in the recent past. 2 Ireland may finally be about to cast off its demographic exceptionalism.

How Irish population has affected. and been affected by. eronmnir factors remain abiding issues for the economic historian. The trends in aggregate population (in thousands, percent.ages South and North in brackets) may be summarized as in Table 7.1.

The greater impact of the Great Famine and subsequent emigration on the population of the South is evident in the decline in its share of the island's population. On the eve of the Famine four out of five Irish people lived in the South, but by 1971 the South's share had dropped

192

Demographic trends

Table 7.1: Population North and South. 1841-1996

---- 1841 J9J6/J7 1951 1971 1996

~ 6529 (80) 2968 1701 2961 (68) 2978 1661 3610 ih9J

1646 (20) 1280 (30) 1371 (32) 1536041 1r,:;01311 Nof'lll

follll 8175 4248 4332 4514 5.?70

ID 1"8 than two-thirds: It has risen marginally since then. The early 1960S marked the beginning of the first sustained rise in the South· s population since the Famine: indeed. during the 1960s and 1970s the South grew faster than anywhere else in Western Europe in this respect. More recently. its growth has been modest. and the prognosis is for stasis or a modest rise in the new millennium. But in both lrelands population rorecasting remains a risky business.

In the area that became !liorthem Ireland in 1921 population has been increasing since the turn of the century. though the rise has been very slight since the 1960s. In :-;;orthern Ireland attention has always locused more on confessional shares and geographic polarization than on aggregate patterns. The data in recent censuses are admittedly im­perfect. but they seem to suggest that the Catholic share had risen from about one-third when the Xorthern state was founded to well over lWo-Dfths by the early 1990s. The rise has been due largely to higher Catholic fertility. though a shill in the confessional composition of emi­gration has also probably played a pan in the recent past. An eventual Catholic ma;ority in Northern Ireland remains a distant prospect. but ltisno longer inconcei\'able. The irony \\;ll not be lost on many in what was envisaged as ·a Protestant state for a Protestant people'. However. SUch an outcome depends on two imponderables: future trends in fer­ttlity and relative emigration rates.'

Marriage and fertility

In so far as il ever existed. the separate identity of the lrish family is no longer recognisable. (Finola Kennedy. 1986"')

Emigration has long been mainly responsible for nuctuations in Irish populatiori. Mortality and. until recently. fertility have tended to evolve more slowly. In the 1930s Irish marital fertility levels were among the

193

A rocky road

highest in Europe.; However, Ireland could not n:main imnH11w indcfi. nitely from social trends elsewhere. and economic d1;ingt· li;I'., also dictated smaller family size. Table 7.2 reports till' 1'<ilu" ol I, .. " well­known index of marital fertility, for a selection nf l·:urop1·1111 1·rn111lries

c. 1930, 1960 and 1980. The numhcrs seem lo supporl till' t 0111ll'l'!1on

between fertility and Catholicity. l'ompming 11vna!I i'1Tlil11r ;l'.,

measured by the total fertility rate (TFHl anoss l-:t1rnpt'<111t"111111t111·.., 111 1960 and 1993 reveals a halving in Ireland's TFH in !ltC' 1111('n1n. though in 1993 Ireland's TFR was slill lhird in J·:uropt· hd111u! 11 ('Lmd and Sweden.b

Table 7.2: 1\ilaritalft'rUlitu (1~1 ) i11 \i\lcslrr11 L11rnp1'. I tJ W so l'unntrJj

France

Ucnmark

8c\g\um

Italy

\Rf.I.AND

Eng.& Wab

St:llll<md

Netherlands

Norway

Ponu~<i\

Spi!in

1'.l<JW

2 ;- ~

JD

2X2

.J-;-1

()\()

292

404

Ho ~82

'iH

/'lf1(!

l2 l

2;-9

21'\'J

l\X

'i-1:-:

2X9

'41

19.J-

322

'"

/'1,\11

~ ] t1'

21H

221

2() \

2 I 'i

l-11

"'

Demographic trends

family planning facilities was probably low in any case before the J950s.'Butthe Catholic hierarchy took no chances: in 1944 it prevailed on the Minister of Health to prevent the sale of sanitary tampons Jest they might 'harmfully stimulate girls at an impressionable age and lead ID the use of contraceptives'." In 1967. in a postscript to an Irish journal which had celebrated Irish innocence in the 19 50s. German author Heinrich BOU predicted with regret that 'His Majesty The Pill will succeed where all the Majesties of Great Britain have failed - in reducing the number of Irish children'. In 1969, with the foundation of the Irish Fertility Guidance Company (later renamed the Irish Family Planning Rights Association and then the Irish Family Planning Association), contraceptives became available in the South. The IFPA got around the 1935 Act by offering its wares free of charge. but charging a fee for 'medical advice". By the mid-l 970s the association's income had 'reached six figures·.• The spatial pattern of diffusion was predictable enough: clinics first in Dublin. then Cork. Galway and Limerick. One of Dublin's main maternity hospitals. the Rotunda on the north side of the Lilfey, set up its own clinic in 1972. In the wake of the Pope Paul Vi's Humanae Vitae ( 19681 the demand for advice from the Catholic Marriage Advisory Council's on ·natural' methods of family planning also rose, but this was just one battle that the Church would lose in the 1970s and 1980s. The fertility gap between Catholics and others in the South, still considerable r. 1960. had almost disappeared by the 1980s (Table 7.3).

Table 7.3: Numbt-r of children pt>r 100 women by marriage d11ralion, 1961-8 I (jor women married between ages 20 and 24)

Dumri.m 'i-9 y1•11rs D1m1tiori I 'i-19 .IJl'llr:S

Ytflr Cmli. (,1(1. OrlirrRt•I. Carli. c,.r1. Ochrr Rt'/. l%I 307 223 2 10 ')10 108 Vi7 1971 28'\ 22fi 221 44K 12-1- H2 1981 237 209 211 -1m1 Hl3 307

No!r: "Other Religion· refeTS to 'Prt.."sbyterian · in 19fi1 . Sc-paratl• dala for Pn:sbyterlans are av1tilablc only for that year. S1111r1·e: Cormac O lirii.da und Brendan Walsh. ·i:crlility and populi.itiun m lrdand. North and South·. P11pul11fi1m Swdies. 49121 I l 'J'J'\I. Table 1.

As the demand for family planning grew. so did the importation of condoms and birth control pills. which were already in widespread USt'

in Ireland before their sale to married couples was legalized in I q 79.

195

A rocky road

By the mid-1980s imports of condoms averaged about ten million 11

year. The restrictions on sale were further relaxed in 19H5 and 1991. Changes in the age-pattern of mothers also reflect the rultural shifts

in Ireland in recent decades. The fertility decline has hccn greatest among women in their forties. The rise ( 1. 5 per Cl'nl in 19.:;9, 5. I per cent in 1993) in the proportion of births. mostly unplanrwd. hornc by teenage mothers receives more attention in the prc:-;s than till' l'qually impressive. but less worrisome. recent rise (from 36 per n·nt in JY79 to 46 per cent in 1993) in the proportion hornc hy womt'n in their thirties (Table 7.4). The latter represents in parl al least a strategy to

delay births. or what US economic historian Paul David has dubbed 'spacing'. By the early 1990s fertility in the South had fallen 10 below replacement level for the first time on record. and had become almost

unexceptional by European standards.

<20

2D-4 15-9

JD-4

35-9

4Q-4

45+

Tolal

Table 7.4: Age of mothers at maternity. 1959-9 ~ (%1 1959 1964 1971.J J~lil ---1.5

12.9

25.9

28.5

21.9 7.7

0.6

I.I

100.0

59,510

1.9 4.8 i. l

15.9

27.5

26.l

19.5

8.1

0.5 0.6

100.0

62.780

22.5

32.7

.24.8 ] 1..2

3.1

0.1

0.6

100.0

72.539

I i.O

JlJ.l

ll.7

145

l.l

0.2

0.8

100.0

41l.·H<i

In the mid-19 30s the Southern Irish were the mosl marriage-shy people in Europe. Thirty-nine per cent of men and 2 7 per cent ofwoin~n had not yet married by the time they reached theJr early forties. Adnut­tedly. there is a sense in which those who remained in Ireland were a residual population. since the emigrants of their generation were more likely to marry abroad. This period represenled a nadir in non-marriage: so worried was Taoiseach Eamon de Valera about Lhe marriage-shyness of the rural young that he proposed a scheme of 'dower houses' lo promote earlier marriages among farmers. De Valera believed Lhal pro~ viding separate accommodation for young couples would ease potenlial lensions between them and the older generation. The scheme provoked

196

.23 St Valentine·s Day and Leap Year- no chances are takt."n in Ballyscunnion.

Demographic Lrends

considerable ridkult•. and dl.' \"alaa rt'\.'l1gnized Lhat this was nul one or his better idt•as. 1" Ttw g\.•ntlt' Duf•lin l l11i11i.•11 cartoon or the marriagc.•­shy countryman "taking llll ~·h,11Kt·s· \\"llh Lhe sha\'d-wearing l~mnc.•r's daughter in Fd,ru.try I (J.Hl capturt•s the pren1iling atmuspht.•n.• well. Since the 19-lcOs tht•rt.• Ii.ts lit'L'll a gradual rise in Lhe prnponions marrying.

As Figurt•s 7'. l. 7'.2.. :-. ; and :-A show. 1mirriagt.•-shy1ll'!'S llt'\"L'r reached till' saml' pwpl1rlions in ~ortht•rn Ireland. Still. there was t"Oll­siderablc \'ilriati<lll within Lht• '.\11rth. and rural areas there had more in common in this rt.•spt.'l"I wilh Soulht.•rn counLit.•s like l'a\'an or \luyo lhm1 the\' had \\"ith nwrt• industriali~.ed anti urban <.m.·as t•ast llf tht.• Bann. n,: tht.· mid-1920.s ntt•m1 agt• cit marri<1ge in thl' South ho:1d rist.·n to 3 '; \'~i.lr.<: for men and 29 years for womt•n. Tht•st.• numhl'rs rl'pn..·­.scntt·d· a cuhnirrnlion of a long pnKt.'SS that reaL"hl·d back Lo thl· prt.•-Famim• cm. M;:irri<1gt.• ages ICll th<.•rcalier. and in thl' mid- I l.J =;os tht•

~:

~ i R ~ ~ ij ~ ~ ~ ;i.a~,u~J

I I I I I I I I I I ~-- +~ § lit Ii R

I

I

I

I

I

I

I

! I

I

5!

I

I

I ;

Iii

I

I

I

I

I ;

!ii ...... -..

I

I

I

·' ·'

I

;;;

~ ~ ~

i c

;

" I

J ~ ~ '6 1il

11 s (

i ~ j

~ I I ' El I ~

i I !ii !'I s

~ !j, .!!

m ii ~ ~

:::!

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J 1, I,

I I I I I I I I I I I I I I I I I I I I I I I I

: I I I I I I I I I I I

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~~~~;:/ : · i ; I

/ ' ,.

'

' ;

,. ' '

' '

' ,.

L--.~--~'--·--· § ~ 2 R ~ ~ ij ~ ~ S

!

I ; / 5. -;

-~

I ... ~~~, \;ii

I . I I I

I ,

I I I ,

!

;;::

~ ~

~ i c ~

t\! '6 ~

..!.! ~ ...

~ 5 .c ~ z Ii

l I IL ....___

-1--- ~ s

~ S? iil ~ 51 Ii! !i 51 Iii s " ~ ~ --d & ... " ~ .!!' ...

1··

A rocky road

median ages at marriage were down to 29.4 years fnr men and 21.8 years for women. By 1974 they had fallen Lo 21. l and 2 l. l years." The accompanying big drop in the gap between malt· and li·malc ages at marriage, particularly in rural areas. is also w<1rth nc1ti11~. ·1·11is mighl be interpreted as reflecting a trend Lowards mon• rompa11io11;tlt• mar­

riage. More recently. as elsewhere in Europe. thl're ha" lwl'n a n·111rn Lo

later marriages in both the North and thl' South. This is t'\1 ttk111 111 thc proportions of men and women in their twcntil's n·mai11i11~ "mKlr in

1991. and in the rise of almost two years in the median nwrri;1~t· ;ige

for women in the South during the 1980s. Traditionally. in Ireland high marital fertility was accompanied hy

low extra-marital fertility (Table 7. 5). Ireland's illegitimacy rall' was lower than in any other \.Vest European country. As a young f)uhlin woman explained c. 19 50. 'Ir a girl got into trouble the hoy who was responsible would always marry her. And ir he didn't. nobody woul~ have anything to do with him. Even his own parents would make it

hard for him. So the boy usually does marry the girl'· 11

Table 7.5: Legitimate births per 1.000 married woml'll <R (~r 11 J;HI

1961 1966 1979 /9X2 1990 /<Jl.J(}ll.\ Agl' '!;,(lj/'Jb/ /'l'JI)

l5-19 fill "'" 'i41 .15; i/O Yl 2:-:-

20--24 478 484 , .. 2% 28fi 60 l•J;"

25-29 192 170 27fi HJ 2}() 60 1:-'>

)l}-34 299 281 1':17 IX I I i8 " ]02

H-)9 202 IHn !OH ]()4 ,. " " 4l~4 77 71 " 2Y " " 4i-49 J } 17

So11rt"'1': 11. Walsh. 'Marria~c in \rclantl in 1hc twcnlicth cculury·. in A l·osi.:rm·t· lt«L l. Murrl«!/f in lrl'/11111/\Duhlln. l98il. 141: t\11111111/ R1•1n11·1 .. 11 \'/111/ Sfllli.~lif., /<JWJ

On the face of it sexual altitudes were as rigid mid-century as Lhcy had been in the 1900s. One indicator is that the illegitimacy rate in Ireland was slighlly lower (2.5 per cent) In 1950 than it had hcen in the early 1920s. Still. sexual mores were changing. Direct evidence on premarital conceptions is lacking. bul lhc census reports for I 9 I I I for the whole island) and 1946 (for the twenty-six counties only), whkh contain special studies of marital ferlllity, olTer some tantalizin clues. They show a marked increase between 19 l l and 1946 in ·th~

202

Demographic trends

proportion of couples with one child or more. who had been married less than one year at the time of the census. Among teenage brides the proportion rose from 12. 7 per cent in 1911 to 30.6 per cent in 1946. Among all brides of less than a year the proportions were less but the rise just as striking - from 6.8 per cent to 15.9 per cent. The spatial pattern holds few surprises: in 1946 the incidence of teenage premarital pregnancies or 'shotgun weddings' was very much less in Connacht and the three counties of Ulster than in the rest of the country .1 1

True, the reported number of births outside marriage was reduced somewhat by the practice of some single mothers having their babies In England. Even so. at the height of the Second World War, when access to Britain was more difficult. the illegitimacy rate averaged only

13. 7 per cent. compared to 3. 3 per cent in 19 31-40 and 3.2 per cent in 946-50 At D bl" ' f

almo . · u m s amous Rotunda maternity hospital. the from ~~r;. reix>rt._ attribu~ the drop in number of illegitimate births betw m 194'.l to 24 3 in 19-16 to the relaxation of travel restrictions ri een lreland and Britain and the introduction of a booking system ~r patients. which tended to restrict the number of beds available to

OSe not attending maternitv clinics.

At that time the vast ma-joritv of single mothers in the Rotunda WB.nted t h · . on! bo 0 ave therr babies adopted out or looked after by relatives: loo~ a ut 2 _per cent were planning to marry the putative father or to re . after therr babies themselves. The percentage of non-marital births ce!~~red in lre!and dropped after the war. troughing at less than 2 per

lil the 19 ::.Os. lt rose thereafter to 6 per cent in the early 1980s and to 20 per cent in 199 5. ln the recent past teenagers have been accounting for a declining proportion of non-marital births - 3 5 per cent in 1984. 28 per cent in 1991. lln the North the percentage was 3 3 Percent in 1983. 26 percent in 1993.) In bothlrelandsbeforethe ~ 9 70s non-marital fertility was kept down by the severe stigma against It. The passage of the Status of Children Act l} 987). giving children horn outside marriage the same rights as the rest. reflects the revolution in moral attitudes in the South since the 1960s.

In the South the annual number of births never ranged far from sixty thousand between the 1940s and the 1960s. During the 1970s. the reduction in emigration and the resultant rise in the number of mar­riages more than compensated for the fall in marital fertility. and births peaked at 74,064 in 1980. The annual total has fallen dramatically since then. dipping below 50.000 in 199 3. The proportion of births

l03

A rocky road

occurring within marriage also plummeted in the 1980s and early 1990s (Table 7.6).

Table 7.6: Total births, and births within 11u11Tiaw. / 96..J- (N

Year 1964 /9,1(() } 'IS;' /'l'J-1

( 1) Wilhin marriage 62780 70141 '>20/ih :'I I~'! (2) Total 64072 7·Hl'1~ '>,'H\I 1:•1."J

(1)/(2) 0.98 o.•J1 (J..'•-i')

Irish fertility trends. though unusual. were nevertheless dt·l<·rr11i11ed

in large part by the same factors used to explain rcrtility trends l'lst·where in Europe. First, urbanization has led to lower rcrtility thn)l1ghc1ut \Ve'i\­em Europe, and within Ireland fertility has long been higher in Lhe towns than in the countryside. But Ireland remains the least urbanized country in Western Europe. Second, the lack of employment oppor­tunities for women at the outset reduced the cost of having children but the labour force participation rate of women has been rising. Tradi­tionally several occupations. notably white-collar occupations in Lhe public service. were barred to married women: today it is not whether a woman is married but whether she has young children which deter­mines her participation in the labour force. Third. emigration has probably had an impact on fertility. High emigration rates, particularly from rural areas, cushioned the effects of large families on household resources. Nineteenth-century America. where economist Francis Wal­ker claimed that 'foreign immigration . , . amounted not to a re-enforcement of our population. but to a replacement of native by foreign stock' 14 offers a parallel. Walker's racism made him exaggerate his point. but it is not unreasonable to suppose that by relieving the pressure on the land, Ireland's emigration produced a reverse '\l\/alker effect'. Fourth, religious belief also delayed the fertility transition: Catholism's bans on extra-marital sex and on contraception did matter. To that extent. part of Ireland's fertility history remains impervious to a purely materialistic interpretation. But how different was Ireland? Which of the factors mentioned mattered most? We do not know vet: European economic and demographic history shows that accounling for variations in fertility change across space and time is not easy.

Ireland's female labour participation rate (the proportion of women aged 1 5-64 years in the labour force) has risen from one-quarter in the 1960s to almost half today. The rise has been attributable almost en-

204

Demographic trends

ttreJy to married women resorting to work outside the home. Indeed. rhetendencyrorwomen to stay at school longer in the 1970s and 1980s reduced the labour force participation of unmarried women in their late ieensand early twenties. Ireland's female participation rate is still rather low by European standards - in the Scandinavian countries it is almost rour·fifths - so it should continue its rise in the new millennium.1; A further influence on total labour force participation rate is the age composltlon of the population. In recent decades the rate has remained fairly steady, but significant change is predicted here too. In l 991 the percentage or the population aged between 1 5 and 64 years was 62 per cent. but researchers at Dublin's Economic and Social Research lnstltute forecast that it Will grow to 68 per cent by 2005.••

Mortality

~er the ~~st half-century or so Irish mortality has fallen more gradually ta:" fertility. Most dramatic. perhaps. has been the fall in infant mor­ty '1.e. the death rate before age one year). In the 19 30s the infant

~Ortal!ty rate in Ireland - almost 7 per cent of births - was high by T Ul'opean sta.ndards. but it has fallen to insignificant levels in the 1990s.

oda.y the Irish infant monalirv rate is less than 1 per cent. about the •atne as in the l!nited Kingdo~ 1Table 7. 7).

The decline in the the perinatal mortality rate (i.e. referring to deaths or children in the first week after delivery I has been partly responsible -it is now only about two per thousand in Dublin's Rotunda. and the unavoidable deaths of small. premature and congenitally defective babies account for most of this.

Table 7. 7: Infant nwriality in Ireland and in the United Kingdom (P'r 1.000 live births)

Ptrfod lrr"lilmi :\.'l F. f., \\.' Scotlcmd

1941-=m hh hO ~' :;;-

1951-hlJ 17 31 2> lO

ltlhl-iO .?'i .?5 19 ! l

}'};"\-MO lh 19 15 lh

1981-90 10 9

The rollowing account from the Rotunda's Social Service Depart-

A rocky road

ment's reporl for 1946 is revealing on condilions faced by the poorest inner-city Dubliners al the lime:

Mrs. N. developed Phlebitis following her disdiarge from lhl' wanl.~ or1 her 7th confinement and was advised to rest in hed at honu·. We \\'t·n· ;1 ... kt·d to arrange for a district nurse to call daily lo dress her lei.: and ,1h11 lo

ensure that she could obtain adequate resl and rwurisl1111t·111 \\"~· ct1 .. -covered that her home consisted of one s11111ll. allil" n1c1111. 'l'lu·11· m·n· lu·h·, in the floor. the outside walls were dripping wilh wl'I whil ... 1 1h1· pla .. 11·r was railing off the inside walls and ceiling und ;.111 wall'r had 111lw1 arrwd up from the ground floor. Mrs. N. was in hl•d: thl' hl·ad nf the lwd wa .. against the damp wall and beside an open window: as a rcsull 1 ht· b,dw had developed a cold. Mrs. N. and her husband and l'in· childrt'n lht· eldest was 61/2 years- lived in this room and slept on thl' only bed. In .. pile of the difficulties the home was reasonably clean. Mr. N .. an 111u·mplo\Td cattle drover. was dependent on l 8s 4d uncmploymcnl assistmKc. 1 2 .. fld rood vouchers and 5s childrens· allowance per week and his rent wa:-. 1 (I:-. Occasionally he obtained a day's work and earned about (I. In addilioi~ the Society of St Vincent de Paul was gi\ring him a food \'ouchcr. \'alue -!~ per week. and the Catholic Social Service Food Centre was giving ~Ir~. N. dinner and milk every day. We applied at once to the Corporation Housing Department for accommodation for this family and se\'cn month:-. later they moved to a four-roomed Corporation house.

Such living conditions provided an ideal breeding-ground for the c~m­tagion of tuberculosis. In the 1900s tuberculosis had claimed more 1 an 11. 500 lives a year in Ireland. and was the single most common cc~u~l; of death among Irish people. In the 1930s it still caused about 3·'0 k deaths annually in the South. or about one death in twelve. The ~hi;~~L' was magnified by the particular vulnerability of men and women 111 . prime of life. The need to provide isolation facilities for tubcn:ulosis patients proved an intractable problem for decades. By the lime this was finally agreed in 1945-46, the technology that would make prolongl'd stays in sanaloria unnecessary had already been discovered. The future lay with screening and BCG, but the new sanatoria were still needed for patients with advanced pulmonary tuberculosis. As the latest chest surgical treatments were made available to the poor. the death rate from tuberculosis fell from 1.2 5 per thousand in 1945 too. 54 in 19 52. By the early 1960s. the number of deaths from tuberculosis hild dropped Lo about four hundred annually. and in the early 1990s they averaged less than fifLy. The decline in another big killer. pneumonia, has been

206

Demographic trends

""dramatic. The proportion of all deaths due to pneumonia fell from 6 per cent In the 19 30s to less than 4 per cent in the 19 60s. but it has rl!en again since, reaching about 6 per cent in the 1 990s.

People have to die of something. The rise in the proportion of Irish deaths caused by cancers (about one in four today) and diseases of the circulatory system (nearly one in two) are common to all West European countries and are a reflection of increasing life expectancy as much as anything else. However. coronary and respiratory diseases have been proponJonately more import.ant in Ireland than in the rest of the Euro­pean Union.

Trends in life expectancy reflect those in mortality. Thus the biggest = have been in the probability of surviving birth and early child-. WhUe the expected lifespan of a new-born infant has risen by

over a quarters· th "d lllties h . mce e m1 -19 30s. the expected gain for those in their one-six: nsen. by a fifth. and for those in their seventies by less than a ft · Despite the unprovements. life expectancy in Ireland remains

ew Years lower than in most European countries. That women t d Ii I . a strikin en t~ v~ anger than men today 1s commonplace. Yet ~ g feature of Irish life expectancy. both North and South. at the OXI>ec Ing of our penod is how small was the female advantage in life to his tancy ~Ver '."ale. Though Irishwomen had been gaining relative Pree hrnen lll thIS respect since the Famine. yet in the 19 30s the Irish ra State was the onlv country in \\'estern Europe where male survival

tes exceeded femal~ at any. age. It is tempting to argue that Irish ~tionalism here may ha\:e been in pan the product of high fertility. E g the 19 30s and 19-lOs the maternal death rate in Dublin"s Ellnous Rotunda Hospital was three per thousand. The high mortality

"Was in Part the product of repeated childbearing. and the associated high blood pressure and anaemia. Smaller families and improved medi­cal care have virtuallv eliminated maternal mortality in the interim: between 198 7 and 199 I only one mother died in the Rotunda. How­e\fer, maternal mortality was too small a fraction of total mortality even half a century ago to account for this gender gap. Their relatively lower life expectancy may also reflect the relatively harsh living conditions faced by Irishwomen in the past. though a study by Brendan Walsh and Dermot Walsh 1; suggests that both the size of. and trend in. the ltfespan gap stem from Ireland's relative econom.lc backwardness. By the 1990s the gap between the genders had still not quite converged to the European 'norm'.

207

A rocky road

Before the Great Famine the average lifespan in Ireland was only about half Its level today. Given Irish poverty then. this was respectable enough; ample supplies of potatoes and turf meant that Ireland was not such a bad place to be poor in. The same could nol be said of life expectancy in Ireland in the 1930s or I 99Ds (Table 7.HJ.

Table 7.8: Expectation of life (e0 ) in selt•l't.rd f't1rmtrit•s

y.,.,, Male 1"1•1md1• 1;1·111kr,/1l/l

Ireland 1925-27 57.4 :;/.9 11.'i

1940-42 59.0 (11.0 2.0

1950-52 64.5 67.I ,!.h

1960-62 68.I 71.9 w

1970-72 68.8 73.5 .J..i"

1980-82 70.l 75.6 :;,:;

1990-92 72.3 77.9 i.h

Northern Ireland

1925-27 55.3 56.l O.H

1935-37 57.8 59.2 1.4

1950-52 65.5 68.8 J.5

1990-92 72.6 78.3 h.7

United Kingdom 7.1

1950-52 66.4 71.5

1963-65 68.3 74.4 6.1

1987-89 72.4 78.0 5.6

Ualy

1930-32 53.8 56.9 J.I

1954-57 65.8 70.0 4.2

1960-62 67.2 72.3 :;.1

1988 73.2 79.7 '1.5

France 1946-49 61.9 67.4 5.'l

1952-56 65.0 71.2 6.2

1964 68.0 75.1 7.1

1990 72.8 80.9 8.1

Sourr'f': UN tnnwgniphk Ytarboak: Ulslt'r Yearlmok: Rl"porl 11fll1t' Cmrr111is,o;lm1 011 Emlgrar/01111956).

208

Demographic trends

Northern Ireland

Now they tell us they'll breed us out. I would say to them Protestants also breed. (Rev. Ian Paisley. 1988)

Northern and Southern Irish population patterns have much in com­mon. Northern Ireland has represented a sort of halfway house between Ireland as outlier and, say. the rest of the United Kingdom. Thus neither the age at maniage nor the proportion of never-marrieds in Northern Ireland In the 1930s could rival the South's, with the resultthat changes In recent decades have been gentler and more gradual there. The same goes for trends In the number of births and fertility.

Alas. Northern Ireland's demography has its own sectarian interest. Long-standing tribal tensions have given academic debates about the Influence of migration and fertility trends on the confessional balance ~ poUttcal edge. Those tensions also make that influence more difficult

Pin down: because the 'Troubles' prompted many people in both CODJ.munities not to declare their religion on census forms. published ~~~data o~ religious affiliation since 1971 are unreliable. Since the of N pro1ections have tended to underestimate both the Catholic share

42 Orthern Ireland's population and its increase. That share reached in ~r 43 per cent in 1991. probably its highest share since sometime

e eighteenth century. It is still rising. h The gap between Catholic and Protestant fertility in Northern Ireland C:S he~n declining. though not as rast as sometimes predicted. and b~th

thobc and Protestant fertilitv have some way to go before reaching the low levels achie\'ed in Britain or in (mainly Catholic!) southern BUrope. Indeed. in recent decades at least. Catholic fertility in the North has exceeded that in the South. Another recent feature is the rise since the 19 70s in Protestant emigration. Non-reporting again rules out pre­cision, but an age-cohort depletion analysis of the 1971-91 data suggests that young Protestants were about as likely to leave Northern Ireland as Catholics in the period in between. That represents a big change since the 1950s and l 960s.1 8

The record of the last century or so shows that Northern Catholics and Protestants have differed in their attitudes to family si7.e. Though the difference is narrowing. controlling for reglon. or socio-economic background still fails to erode the fertility gap between the two groups. But if the reasons for higher Catholic fertility are cultural. it is sometimes --

A rocky road

argued that their consequences are economic. Geographer Paul Comp­ton. who makes no secret of his views on 'the fundamental demographic irritant of high Roman Catholic birth rates', has argued that 'the 'truc­tural imbalances generated by high population growth and large families' are the main reason for the greater poverty and higher unem­ployment rates among Northern Irish Catholics. 1'' Others have hlamcd the higher unemployment rates of young Catholics on another <tspcct of 'culture': the tendency of Catholic schools to shy away from 'hard' subjects such as mathematics and science. but recent econometric work refutes this claim.20

Dependency rates (defined as the population share of those aged under

Table 7.9: Dependency rates in selected European countries ('Yri)

Country Agtd 0-14 Austria 1934 20.I -,--~-----=.::..::._:_; __ _.::Aecge.::d.::6_:_5_:_1'_:':.::'Vt'"-'--- Totfl/

7.8 2:7.1.) Belgium 19 30 23.0 7.6 10.h Denmark 1940 24.0 7.B 31.8 Eng. & Wales 1931 23.8 7.4 3 l.2 Scolland 1931 26.9 7.3 34.2 Ireland 1936 27.6 9.7 37.3 NI 1937

27.l 9.1 Jh.2 Austria 1961

22.6 Belgium 196 I

23.8 Denmark 1960

24.8 Eng. & Wales 196 I

23.0 Scotland 1961 25.9

Ireland 1961 NJ 1961 JI.I

12.5 Vi.I

12.2 36.0 I J.9 3f:i. 7 IJ.9 H.9

J0,6 3f:i.'5

1 ).2 4.2.J

Austria 199} 28.8 10.1 38.1)

Belgturn. 1991 17.5 :~:~ lI.7

~nrn.ark199l 18.2 15.6 lJ.1 ~ng. & Wales 17.0 1n.o l.?.f1

~cotland 19911991 19.0 J 5.1 l5.o rcland 1991 18.8 J 1.4 l l.9

N11991 26.7 12.n ls.1

lrc1 11nd 24.4 17 .() Irelan .2001 11.5 So11 d2026 21.2 _ _cl"-7_.oc;-cc-:c:-~ 1.?.7 o,.,;~f': derived 18.1 I Hlstoricfll s1afl.~tlt'S (London. l 5. I

UtciPhlr y from B. R. MltchcJ/. /iuropfal l q/'): l: l'fltb11ok; CSO (1995). 36. ~ Vty

Demographic trends

Table 7.10: Household structure (R of!) 1961and1991 (percentage by type)

One person

Husband and wire

Husband, wife and children

Hu~band. wife and others

Hu~hand. wire. children and others

One parent with children

One parent with children and others

Two or three family units with or w/o others

Two or more persons but not including family unit

Tolal number

1961 1991

13 20

12

l7 42

10

II

II

676.402 1.029.084

15 and 65 years and above> rose everywhere in Europe between the 19 30s and the 1960s. However. Ireland's high birth and emigration rates have produced a particularly high dependency rate. High fertility IS ~e main influence on young dependency. The falling fertility de­scnbed above has already made a dent in young dependency both North and South in recent decades. but in 1991 Ireland (with 26-7 per cent) ~till had by far the highest population aged 0--14 years in Western

urope (With Portugal next "'ith 20.6 percent). while its share of people aged 65 and over. at 11-4 per cent. was lowest (with the Netherlands next at 13 per centL Recent Cenual Statistics Office projections for the new millennium suggest a huge reduction in the dependency ratio over the next decade or so. followed by a rise due to the increasing share of the over 6Ss {see Table 7.9).

Economic and demographic change also also affected the structure of the household tTable 7.10). Economic historians of early modern BUrope tend to associate increases in mean household si.ze with improve­lllents in living standards. In the twentieth century, at least. the Correlation does not hold. In the Republic oflreland in 1991 the nuclear farnily accounted for 42 per cent of all households. while one household in five consisted of one person. Between 1961and1991. a period of rising incomes. mean household size fell from 4.2 to 3.4 persons. The number of households rose by more than halt and the number of one-person households more than doubled. Such shifts help explain the relentless increase in the demand for housing.

211

A rocky road

Emigration

Emigration from Ireland has fluctuated considerably since lhe !920t

ft reached peaks in the 19 50s and late 1980s. when it acrntmled for about 1 per cent of the population annually. and tunwd 11l'ga1ivc for some years in the 1970s. Net migration has again dwindh·d 10 a few thousand a year since the early 1990s, a pattern cxpcrll'd lo rnnlinue into the new millennium.

Leaders of public opinion in Ireland have long deemed cmigralmn regrettable, if not downright undesirable. The 191 Ci leader l'alrick Pearse went further. believing that the emigrant was 'a traitor to the Irish state, and. if he knew but all, a fool into the bargain'. Bu1 the objections have not been the monopoly of economic nationali.sls. In 1947 a public statement from the Catholic hierarchy viewed 'with greal alarm the excessive degree to which [emigration I has increased in recent years'.21 A resolution for private transmission to An Taoiseach read:

The Bishops view with great alarm the continuous drain on the woman­hood and future motherhood of the country as a result of the present wan' of emigration, and they consider it contrary to the spiritual and temporal welfare of the nation that foreign agents should be allowed lo enter the country to attract girls abroad with promises of lucrative employmenl. the fulftllment of which no one in this country could control.

The resolution prompted de Valera to seek information from the Depart­ment of Social Welfare. The department in turn sought the advice of local departmental officials and the Garda Sfoch8na. The inquiry re· vealed press advertising on a considerable scale for nurses and nursing trainees. and visits by representatives from a number of English com· panies seeking Irish workers. But while the department's representali\'t' agreed that the number of women leaving was a cause for anxiety. he doubted whether such 'agents' played an important role.ii The Catholic hierarchy's worries were echoed in the Department of External Affairs. which in 194 7 proposed restrictions on the emigration of 'young girls· below some unspecified minimum age: in 1953 it pleaded unsuccess­fully for the appointment of a welfare officer at the London Embassy. 21 The emigration of adolescents would continue to worrv lhe hierarchy into the 1960s: in 1964 the bishops sought to prohibi-t the emigration or under-l Ss.24

During the 1970s and 1980s the government played a more import-

•flet'C j[ is z!,,. gcntlcm~n: ~e comm1ss1on ru.rnishe:!l its rePort after having sat for five seconds. The people emigrate f:ieCause they think they will do better elsewhere: they will retum when they think the)' will do better here."'

Demographic trends

ant part in looking after emigranr.s: it allocated grants to voluntary agencies engaged in emigrant welfare. and the employment training agency, Foras :\iseanna Saothair jf:\Sl. has helped arrange training and apprenticeship schemes abroad for young Irish emigrants in other

EU member-states. [n I 9-1::8 the lil"'$t intcr-parcy government nominated a commission

to inquire into ·l~tnigration and other population problems'. The experts offered 110 panacea; fin.• year'$ before publication. one of the commis­sion's members rightly predicted that the value of their report would be 'largelv in the keen analysis and interpretation which it will provide. rather- than in its practical recommendations'. 1 ' The much-delayed re­port _ iL was not published until 1956 - was short on policy recommendations. However. most economists would argue that. at least for most of the period surveyed here. hard evidence that emigration has done real economic damage is lacking. They would maintain that those

2B

A rocky road

who left improved their lot; and because they left. lhose who ~taycd behind fared better loo.

Still, the notion that Ireland has been losing its hest ;111d brightest through emigration is a long-standing one. Eugl'nicisl Hicli;ml l.vnn has made the point in an exaggerated and ofl{•nsivt· wa\'. lik1·11mg 1hc impact of the outflow to 'what would OlTUr if the hcsl sp1·1 mw11~ of a herd of cattle were continually exported and the herd rl'pl1·111.,lwd h~· breeding from the inferior stock that remained'. l'l·nsal da1;1 11·11 a d1f·

ferent story, at least before the 1970s: sincl' the pn·,·inu~ ~ 1·111un.

emigration had 'improved' Ireland's occupational distrihulion. h\ 1;ir·

geting disproportionate numbers of domestic servants and roung nwn from small fanning and farm labouring backgrounds. 21•

The educational standards of emigrants have been higher in n·n·nL

decades. The traditional image of the Irish emigrant has shifted from th~ young unskilled worker with the cardboard suitcase to the 'cin:prcm·ur and to the well-trained young professionals seeking their fortunc~.;; 1

financial and legal centres such as London and New York. The s ·i ~ such people acquired in Ireland have transferred very well to their new

25 'I hope, Ellen. there's truth In the rumour that the country's fast becomln' prosperous. It'll give us a chance of savln' up our passage to America.'

214

Uemo'l,t:at>h\c tt:ends

~n.'i,.. ~'n.l.e.. l.b.e ev\dence o{ a {our thousand sample survey of young ~~ Ctt\.\'%,Tati.n:g, du:r\:ng the \. 980s carried by t.he lrish Episcopal Com­

'1e;:·\ton. on. '£.m.\"g.ra:nts \n. \. qq 1.-9 2 suggests that one-t.hird of them had ~ 'IN\\.b.ou\, t°\.n\sb.\n.g secondary schoo\\ng. just over half had second ~\q,_u,a\\fu:.a:t.\on.s. and \ess than one-tenth h\gher level qualifications . ..1! 7

\.he o\.b.eT band. surveys conduct.ed by the H\gher EducaUon Auth­OT\\."j \n. \.he ")..98\.~ 0 '( ·nrst. dest.\na't.\ons· showed a substantial share of ~T\'f:n.ary un\ve't"S\\:y %Ta.du.at.es \eav'i:ng. The propo'l:t.ion was qulte vu.rt­ab\e. '\")ea\l..\n.g a\. 2b.'\ per cent \n '\988 and dec\\n\ng t.hereafi.er t.o 14:.3

'QcT ..::.en\. \n '\992 and '\4.7 per cent. \n 1.993. Furt.heE" analysis of gr-ad­Ua\.c\lo o't ~ve d.\tte'C'ent. l.r\sh u.n\vers\t.\es showed that 40-50 per cent. or

\..\°'\u>!.C ._nu b.e.d w.""aduat.ed \n. "l._q,83. \_q,84. and l..98b he.d been abr;-oad u"" ._e""e \!lo\.\\\ ab""oad at. \.b.e beg\nn.\n.w, a[ 1990. Tb:e drain u[ gradue.t.es ln 'lTI.e\.\\c\nc. en"&L\nee.""\n'g. and a""ch\\.ec\.uTe. 'Where s\.at.e subsldles were

cu..,,\.\'S' · ""'as. 9a"°\.\C.'"1\e.T\'S' ""'0"°"°\some.:Z.• "'t'he arw,umen\. [oT publlc (undln.g ·-

A rocky road

of third-level education is weakened by such large-scale cmigralion or the highly skilled, but politicians' quest for floating middle-class voles augurs increased governmental commitment in the futurl'. These num­bers leave unresolved a related issue: in recent decades. have lhe brightest of the best-educated been the most prone lo lcawf

Until recently analysis of the 'brain drain' could safely ignore the reverse flow in human capital acquired abroad. Howcvt'r. in tli(' t lJ70s

and in 1991-96 negative net migration wast.he produl"I of rnnsidt'rnhle flows in and out of Ireland every year. The immigrants. wilh f"e"· ex­

ceptions. were not foreign-born workers seeking to heller themsclv('s in Ireland. Comparing censal data reveals that the inllow consisted mainly of Irish-born people in their thirties and forties and their children. The implied trend away from permanent to temporary migration almost certainly entailed some clawing back of the losses from the 'brain drain·.

A second potential source of loss from emigration is the age distrih­ution of the outflow. In the past labour-exporting countries like Ireland have incurred the cost of producing those 'instant adults' who played such an important part in the labour markets of receiving countric~ such as the United States and Britain. How big were such 'life cycle losses? They require some sense of the present value of emigrant con­sumption from birth to time of departure. Estimates can only he approximate, but in the 19 SOs. when lrish emigration was at its peak. the loss may have reached 4 or 5 per cent of GNP. However. when .su~·h losses are weighed against receipts from emigrant tourism and remit­tances, they are significantly reduced.29

Thirdly, others propose a more Boserupian interpretation of the long­run damage inflicted by emigration, arguing that it removed 'pressures to reform a conservative and conformist social structure. the institutions of which were ill-adapted to innovation'.1° However plausible. this hypo­thesis is extremely difficult to test. A rough-and-ready check is suggested by the variation in emigration rates across counties. Counties with high emigration might be expected to have paid a price in slower income growth. The gradual erosion of the gap in living standards between high and low emigration counties in recent decades, already noted in chapter 3. fails to support the hypothesis, though it is hardly conclusive proof against it either.

Finally. the responsiveness or Irish emigration rates throughout the twentieth century to employment prospects at home and abroad may have dampened economic progress in another sense. Easy access to the

216

Demographic trends

British labour market probably means that potential Irish emigrants were more responsive to the wage gap between sending and receiving la­bour markets than workers in other poorer European economies. As a result. cheaper labour could do little to compensate for Ireland's relative backwardness and isolation, or to generate the investment necessary for faster economic growth. Relentless commentaries from politicians and the media about 'competitiveness' amount to asking Irish workers to be less responsive to the gap between domestic and foreign wage­levels. Yet how much economic growth would have been yielded by. say, a doubling or a trebling of the small gap between Irish and British wage levels in the 19 30s or 1960s or 1980s. is an unresolved question.

Irish emigration has long been largely due to economic factors. Econ­omic theory suggests that net migration is a function of the gap in real e~cted future income in sending and receiving countries. Relatively sunple econometric models. using differences between unemployment a~d real wage rates in Ireland and in the United Kingdom, explain most 0 the Year-to-year variation in the net migration rate since the l 920s.H Sue~ tnodels may not capture the reactions of those in permanent and J>ensionable. but dead-end jobs. Again. it is often suggested that econ­~mically-motivated emigration may prompt later movements which are on-economic in motivation: that some go because others have left

earUer. This may be true of some localities but, on the whole. the cross­county evidence shows that as li\'ing standards improve emigration slows down and return migration begins.

Certain features of the outflow have changed little over time. The migrants tend to be young and single. thus maximizing the gain from rnoving. However. the proportion of teenagers among the migrants is srnaller today than it was in the 19 50s. Throughout the period under review, women have been as likely to leave as men. For reasons still not quite understood. they have tended to leave at an earlier age than the men: in 1987-93 60.6 percent were in the 15-24 year age-bracket compared to 52.7 per cent of the men. The destination profile of emig­ranL.;; has been changing. The United Kingdom has been the dominant destination since the 1920s. but in 1987-93 only three in five went to the United Kingdom. and over one in four to the United States. Perhaps the relative decline of the British economy explains the declining share of the Irish outflow going there, but the relaxation of entry restrictions into the United States and the more buoyant US employment market have also undoubtedly played a part. - 217

A rocky road

In th~ cours~ of_ a rather gloomy commcntarv im !ht· results Garret F1tzGerald wrote: - l <Jh I 1 t'IN1~

Every part of the region between lhc border am! a lim· nuuun? ,,1111111 01

Castlebl~ney .. Cavan, Mohill. Casllcrca and Swiufort!. t•>.n·pl fur 11'11 ., ""',1,11

area of Co. Shgo and also Co. Donegal. norlh oJ'IJorwgal lown Ji, 1., np•·ii

enced a decline in populalion more 1h;:111 I:; 1wr cc111 d111111~·. 1Jw f'.J 1

decade - and throughout a large an•a comprising rwrrlu-111Le11 11111 11 11

northern part of Cavan. and the solllhern lip of l>1J11t•gal 1111· dr!•J, l1o1. been in excess of 21 per cent. 12

FitzGerald's remarks underline the regional dinw11sin11 of Irish d«'lll!J·

graphic trends. Figure 7. 5 describes the trend i11 nl'I cmigr;111on rnlc·'

by province since the 1920s. Those rates have ha\'l'l'\'idc11lly n111\1·rgc·d

in recent decades. The convergence reflects the gradual com·l·rw·nrc· 111

living standards between rich and poor provinces. alrl'ady 110ll'd t'l~c·­where. Until recently. the higher emigration rates from Co111rnd11 and Ulster were prompted by their greater poverty: the cmigrnlion in turn narrowed the gap between poor and rich provinces.

Queen's University economic historians David Johnson rind Liam Kennedy have argued that Ireland's particularly high uncmployml'nl and emigration rates are anomalous 'only if one expects incn·asl'S 111

population to translate naturalJy into increases in employment·. 11 But there is no presumption that supply will create its own demand in 1hh sphere: this may have happened in Europe during the 'goldl'll age· nf the 1950s and 1960s. but it did not happen in the inter-war period 11r in the nineteenth century. There is a positive correlation across Euro­pean market economies between unemployment in J 990. on the one hand. and population growth and fertility in preceding decades. rn1 thl' other. On this interpretation, Ireland's record on employment and l'mig­ration only seems 'bad· because fertility. so high by European standards. has not been taken into account. Since the mid-l 980s the ri.o,;l' in pri\ alt' sector non-agricultural employment in the South has been impressin' -from 579.000 in 1986 to 725.000 in 1994. Persistent high lllll'lll­ploymen~ t~us is less a reflection of 'jobless growth' than of (a) lht' substantial mDow of young people into the Irish I· b lines in agricultural and public sectorcmpJoy~ d .our ma~k~·I. fbl dt'c­force particip~lion. However. for reasons given ~~11,~ dnd f.c! nsmg /;:ihour be due a respite from both high unemployment lt w. l~cldrnl nwy soon

nd high emigration.

218

--.,_

I

! !

i ;; J 5

i:; .. ci. ii • s ~u I ! ;o;.!l

,. 'f i I ~

0 0

s 5

1H ! ~ ~ .3:> ~

.s ; ~ c

·~

!l e

:;: •1&1uo11uJ1m31

~ ~ ;!I i "I!!

Ii :i1 ~

...:

i

A rocky road

Fertility and human capital

In underdeveloped economies where human li..Ttilil~' b lui-:h. p;in·nh

must devote much of their income Lo rcproducinv, u11skill1·d labour liir the next generation. In mature economil's llwrr is a shifl l'rnm q11; 111111v

to quality in children; families are much srnalll'r and d1ildn·n oi11· lw11t·r endowed with human capital. Smalll'r families llll'<lll 1101 Jll''I 111on·

education. but better health. Some oflhc implil·a1ic111.'i 11f1l1t· ~w11d1 liir economic growth have been spell out rcn.·nlly hr Nobel l'rizt· \\·11rn111g

economist Gary Becker and others.'" Thl' shift from a liii-:li to " lm1

fertility regime means a rise in living standards: ii l'Onfl'r~ rin .1tl1kd

boon if the rate of return on human capital is an inl'rcasing l'unr11rn1

of the stock of human capital. Lower fertility mighl also mean higltn savings and investment in physical capital.

In Western Europe the fertility transition was already well under \\·a;. by the 19 30s. though its timing and pace varied considerably a~·rn~~ countries (Table 7.11). Moreover. the record shows that diffcrciit 1·.un)-

. . . . f . ·1· I fcrtilit,· and pean countries used different combmat1ons o man a .. - , nf

nuptiality in achieving reductions in overall fertility·. Perhc:~;~:~~1~~~ 111 the variation in economic performance across ~~rop~ m}~c · m~n-1.ikrt decades was due to this? Focusing on the fertility t~ansitmn the. u:-;ua! us to aspects of human capital formation not captured by focus on schooling data.

CoUnllJI

Table 7.11: Births per 1,000 women aged 15-44 years --­J'JW- J'l'lf!

c. 1910 c. 1950 mid-1960:; ,., 191.JO (Jim:i't!/il!/!'1<1/1'

Spain

Italy

Gn.oecc W. Germany

Denmark

Ireland

France

Belgium

120

112

135

83

77

Yl

79

78

119

Bl

81

70

87

108

100 77

97

81

80

87

YO

115

83

77

+1, 4+

" .;2

'j6

70

MJ (J(J

GI Brilain 68 74 88 fl J

------=-(12

"' h2

17

2:-

2'i

2+ -21

N"lf': lhc Spanish ngurc In lhc 1950 column refer!' to 1940. The (;crnwn l 'J 111 li~un· refers to pre-1919 borders.

Nol only was Ireland's fertility decline modest by European slandunls. ils fertility was still relatively high in the 1980s. In most European

220

Demographic trends

countries fertility had dropped by over half its nineteenth-century level by the 1930s, but in Ireland the drop was scarcely a quarter. Besides. Ireland's reduction was achieved in part through 'prudential restraint'. combining relatively high marital fertility with high celibacy rates. Such a transition, with its larger completed family size. was arguably ·Jess efficient' than a transition that relies mainly on reduced marital fertility.

Might not higher fertility have meant not just lower income levels but w1th also slower income growth? Regressing annual average GDP growth in eighteen European countries (including Ireland) over 1950-88 on initial income per capita (Y50), government spending as a share o[GDP fG). the investment rate (INV). and marital fertility in 1960 119 )

produced the rather tantalizing result shown in Table 7.12.

Table 7 .12: Mariuzl fertility and economic convergence Variabl.- C°'ffkienr

Constanr 5.877 5.69 Y5o --0.00048 -10.22 G --0.062 -2.10 [\'V 0.06'5 2.49 1, --0.{)()45 -4.02

Ri (.WJ>= 0.86 Ft4. l 11 = 27.46

The signs on all the coefficients are as expected (compare Table 1.2 in chapter 1 abo\·e). \\'hen an Irish dummy was added. including lg reduced the residual on its coefficient from -1.14 to --0. 3. The outcome is consistent at least '"';th the hypothesis that the mode of [reland's fertility transition delayed its rise in living standards relative to its Eu­ropean neighbours.

Notes

The citation is from the 1967 translation. Irish Journal {New York. 1967).

2 ~~~ 9d~innane. The Vanishing Irish (Princeton. 1997): B. M. Walsh. 'Mar­riage in Ireland in the twentieth century'. in Art Cosgrove led.). Marriagt' in Ireland (Dublin. 1985): C. 6 Gr8da and B. M. Walsh. 'Irish demographic patterns. North and South'. Population Studies, 49(2) 11995). 259-79.

3 Ibid. 4 F. Kennedy. 'The family in transition'. in K. A. Kennedy led.). Ireland in

Tra11sition (Cork. 1986) 100.

221

A rocky road

A. J. Coale and R. Treadway, 'A summary of the changing di~tribulion of overall fertility. marital fertility. and the proportion married in the pro\'ince1

of Europe', in A. J. Coale and S. C. Watkins (eds). Thr !J1•di11i> 11{ frrU/11111n

Europe (Princeton, 1986). 6 lg is the ratio of legitimate births to a weighted sum of all rnarril'd woml'n

aged 15-49 years, where the weights are the fC'rtilily ll'vds ;1d1in·nl hy Hutterite women in different age-groups bet ween I 5 - I tJ yt·ar' ;u1d ,, , 41J

years. The Hutterite weights are deemed the highest t'Vt'r obscrvi:d HK measures the theoretical average number of children horn lo a woman

passing through her childbearing years and conforming to thl' <1gi··'r1·11 fi1

fertility rates for a given year. _ . 1 7 Alexander J. Humphries, New Dubli11ers: Urlumization awl tlw lmh hmu i1

(London, 1966). 211. Significantly. few of the women attcndin~ the \l."r'.t' Stopes clinic in Belfast in the early 1940s were Catholics. See C. 0 ! ;r.,id.t

Ireland Before and After tlie Famine. 2nd end (Man~~es~er. 19: ~ L 1 ~ ~~~:c;~ Jones, 'Marie Stopes in Ireland: the mothers chrnc m Bclfa.~t. Social History of Medicine. 5(2) (1992). 2 5 5-7.7: . 191111- 19;0 Ruth Barrington. Health. Medicine. and Politics m Ireland

(Dublin. 1987). 149. . .. 1 Qu~s1w11 Btill, Irish Journal. 122: Michael Solomons, Pro Life? Tlie Im 1

(Dublin. 1992). 40. 10 NA. D/Taoiseach 13.413. -o 11 Walsh, 'Marriage in Ireland in the twentieth century·. 132-:> ·

~~ ~:rr:p!::·:~~l~u~!:~:~i~~!~e c. 6 Grcida. 'James Larkin in socio-econ-

14 ~~l\~;:i:~"~~s~~~~:n~~ Economics and Statistics (New York. 1899 1.

vol. 2. 424-6. . em-1 5 B. M. Walsh. 'Labour force participation and the growth of women 5

ployment', Economic and Social Review. 24(4) (199 3 ), 3 ~9-400. Medium 16 S. CantiUon. J. Curtis, andj. FitzGerald, Economic Perspectives for Oie

Term, (Dublin, 1994) Table 3. 5. . . 17 B. M. Walsh and Dermot Walsh. 'The male/female differential in lile :xpcl -

tancy in Ireland - a note', Journal of the Jrisli Medical Association. t I ( 1-! l (1978). 475-80.

18 C. 6 Grilda and B. Walsh, 'Fertility and population in Ireland, North and South'. Population Studies, 49(2) (1995), 273--4.

19 P. Compton. 'Demographic and geographical aspeclS of the unemployment differential between Protestants and Roman Catholics in Northern Ireland'. in idem. The Contemporary Populalion of Northern lrelar1d and Populatiori-u­lated Issues (Belfast. 1981). But for a refutation see A. Murphy, A Pict1m• ol Catholic and Protestant Unemployed Men in Northern Ireland (Belfast. 1994).

20 Anthony Murphy and Ian Shuttleworth, 'Education. religion and the "first

222

Demographic trends

destinations" of school-leavers in Northern Ireland'. UCD CER DP 94/ l 9 (1994).

21 Irish Press. 8 October 1947. 22 NAD. SI 5, 398/ A. 21 NAD. S687. 24 Irish Times. 2 January 1996. 21 NAD. S14249/A2. 28 August 1951. 26 R. Lynn. Th• Irish Brain Draln (Dublin. 1968): C. 6 Gnida and B. M. Walsh.

'Irish emigration': patterns. causes. and effects'. in Beth Asch (ed.), Emigra­tion and Its Impact on the Sending Country (Santa Monica, 199 3 ).

27 Compare NESC. Emigration (Dublin. 1991), 86-7: Ian Shuttleworth. 'Irish graduate emigration: The mobility of qualified manpower in the context of perlpherallty". in RusseU King (ed.). Mass Migration In Euro,,.: The Legacy and the Future flondon. 1993): F. P. Forsythe and V. Borooah. 'The nature of migration between Sorthem Ireland and Great Britain: a preliminary analysis ohhe Labour Force Surveys. 1986-88'. Economic and Social Rtvirw. (1992). 105-28: Mary P. Corcoran. 'Emigrants. eirepreneurs. and oppcr­tunists: a social profile of recent immigration in New York City', in Ronald H. Bayer and Timothy ). Meagher !eds). The New York Irish (Baltimore. 1996). 464-8.

28 Shuttlewonb. 'Irish graduate emigration'. 317. 29 C. 6 Gr.ida. 'On two aspects of post-war lrish emigration', CEPR Discussion

Paper.

30 K. Kennedy. The CODtext or economic development". in J. H. Goldthorpe and C. T. Whelan iedsl. Tht l)nylopmmt of Industrial Socrety in Ireland (Oxford. 1992), 28: see too L M;oset. ~Irish Economy tn a Comparative lnsUtutiorml Perspecr.i\'f'. r-..~ Report So. 93 1DubUn. 1992). "Boserupian' refers to the noted Danish economist Ester Boserup"s link between population growth, on the one hand. and increasing work intensity and economic dynamism, ~n the other.

31 0 Gnida and Walsh. "Irish emigration". 97-152: William CoUins. 'Irish emigration 1920-1970" lHarvard College Senior Honours thesis, 1993).

32 'The census figures". Irish nmes. 30 August 1961. 33 D.S. fohnson and L. Kennedy. 'The two Irish economies since 1920'. in

J. R. Hill (ed.). ,-\ Ntw History of lrtland. VU (Oxford. forthcoming). See too G. FitzGerald. lrislr Times . • B Dec. 1994.

34 G. S. Becker. K. Murphy and R. Tamura, 'Human capital. fertility. and econ­omic growth'. Journal of PoliUnd Economy. 98 (1990). 812-37. For the Irish contexl see B. M. Walsh. 'The contribution of human capital to post-war economic growth ln Ireland'. UCO Centre for F.conomic Research working paper. 1993.

223

8

Reprise

Self-confidence is not a quality that Ireland has much of I '/'I . 1·. 16 January 1988) . . '' :w11rm1J\I.

Ireland is surging while the rest of the European Union. whid1 huy~ 70 percent of Irish exports. goes limp. (Tire Ecoriomisl. 27 April llJ%!

Students of economic growth often distinguish bctwccn intensive growth, which means increasing productivity per capita. and cxtcns1rc

growth, which involves simply an increase in aggregate oulpul. or the two forms of growth. intensive growth receives most attention. and rightly so. because it captures the potential for an increase in li\•ing standards. However. in certain contexts extensive growth is also worth analysing. Consider a backward economy with a rapidly growing popu­lation like Ireland before the Great Famine. Such an economy might experience little or even negative intensive growth. but it would require significant extensive growth in order merely to keep the Law or Oimin· ishing Returns in check. Again, substantial intensive growth is a less impressive achievement when (as in post-famine Ireland) it occurs against a background of modest or negative extensive growth. Extensi\'C economic growth is also relevant where, be it for mercantilist or purely cultural reasons. a bigger population is deemed desirable. It was in this latter sense that mid-nineteenth century Irish commentators such a~ Young Irelander Thomas Davis and scientist Robert Kane looked for· ward to the kind of extensive economic growth that would bring Ireland a large and prosperous population.•

Had the rest of Ireland managed to build up an industrial tradition like that of the north-east in the nineteenth or early twentieth centuril'S. it might have been able to achieve their vision. But the Great Faminr intervened almost immediately after Davis and Kane made their prog· noses. After that disaster. unparalleled in nineteenth-century Europl'. Ireland's location and its history seemed to rule out extensive growth. Only two counties of the island's thirty-two. Antrim and Dublin. experi· enced a rise in population between 18 50 and 1914.

224

Reprise

In the new Irish Free State policy-makers sought to make amends. particularly after 1932: first through import-substitution and \ater through a more outward-looking industrial strategy based on direct investment by foreign multinationals. Neither policy succeeded in build­ing up a vibrant, self-reliant manufacturing sector. though the second has been much more successful than the first. The contrast in pre- and post-1960 demographic regimes reflects this: between 1926 and 1961 the population of the South fell from 2. 97 million to 2.82 million; since then It has risen to just over 3.6 million today. In neither period could the rise in manufacturing employment match the flow of labour from the land.

Critics of the policy of import-substituting industrialization such as economists George O'Brien and George Duncan saw agricultural exports as the main engine of economic growth. This may have made textbook economic sense. but it was to deny the possibility of extensive economic growth. because following comparative advantage ip live cattle and dairying entailed continued population decline. The agricultural sector never looked remotely like producing the kind of growth that would combine rising prosperity and rising population. Not even membership of the European Economic Community in 1973. from which farming Was seen as the main bene6ciary. could stem the flight from the land. As noted in chapter -i. numbers working on the land in the South fell from about 650.000 in the mid-l 930s to 270.000 on the eve of joining the Common Market. The total in 1996 was barely half the latter figure. Even in what would have been formerly seen as quintessentially fanning counties, jobs in manufacturing and services now dominated. Sympto­matically. perhaps. only one of the thirty players who contested the 1996 All-Ireland football final replay between Mayo and Meath worked on the land. The other twenty-nine included two joiners. a fitter. eight students. a barrister. an accountant. a foreign exchange dealer. a meat Wholesaler. an 'aluminium fabricator'. an electrician. two bank officials. and several salesmen.

The traditional interpretation of Irish economic history has been a nationalist one. That tradition is reOected in the following comments made in 195 3 by Patrick Lynch. at the time one or Ireland's most important young economists and later Professor of Economics at Univer­sity College. Dublin. chairman of Aer Lingus ani"Yke-chainnan of Allied Trish Banks:

A rocky road

The economic policy imposed by Britain assumed that Jrclcmd had hccn intended by nature to be a purely agricultural country: and so. 1he lri.~h

industrial revolution was delayed by a century and a half until selr-v;ov­emment was achieved . Considerable progress has h~en mad1· in a comparatively short time towards increasing the ind11stri<di.sali1m of Jn­

land and securing a better balance between manufal'lurcs and agri11d!11n·

The country is completely self-sufficient in many kinds of awirul1urdl r;iw

materials and there is immense scope for increased oulput in agnn1l1 1m· Ireland's future prosperity depends. therefore. dirct'lly ;md indm·t"llv 011

the agricultural industry. It can provide raw malt'riab for ma11ufac1urn~ as well as sustain demand ror their products. But the lwrm· nwrkc! ;dmw

will not realise the foll potentialities or Irish induslrial production:

Here we see Lynch blaming Irish industrial undcrdcvclopmenL on econ­omic integration with Great Britain, and offering implicit support fr;r the protectionist policies pursued by Irish administrations since 19 ~: The support is tempered, however. by the concession that Irelan h s comparative advantage lay in agriculture and the insistcnc_c on t13~ rutility or an industrialization dependent on the home market d~Oll~·lh~ the early 1950s Lynch's mild critique of the policies pursued since, 1 19 30s would have commanded near-universal support. Yet the contra~. in tone between those remarks and the same Patrick Lynch's views six years later is striking:

The Sinn Fein myth. which has been a decisive influence on policy (or more than two generations. has assumed that Irish political independenc: implied economic independence. The shadow of this unfound~d d.o,gn~JI which identified political independence with economic self.sufficient) sti remains. Experience should have taught that in Ireland political. geo­graphic and economic boundaries do not coincide. but the lesson has been slowly learnt. l

Those comments were written in the wake ofT. K. Whitaker's Econonw Development and the First Programme for Economic Expansion. The switch straddles what Whitaker called 'a dark night of the soul' in the mid-1950s. But while Lynch's critique of the quest for self-sufficiency has a modern ring to it, his pleas for economic planning. Keynesian macroeconomic policy, and the continued primacy of the agricultural sector do not.

An older generation of Irish economic historians attributed the failure of most of Ireland to industrialize after 1800 to free trade." This does not square well with the limited success oflhe protectionist policies pursued

226

Reprise

after 1932. Import substitution produced a temporary burst of activity but no self-sustaining growth; once enough new plants had been estab­lished to serve the small home market, industrial growth came to a virtual halt. The alternative policy pursued since the 1960s of subsidiz­ing exporters instead of taxing imports is also a form of protectionism. but Its outcome in tenns of output and employment creation has been much better. Learning by doing may have played a part in this. since progress ln the more recent past has been particularly impressive. Against the general trend in OECD countries. manufacturing employ­ment In Ireland is higher in the mid-l 990s than it was in the mid-l 960s or mid-1930s. However. as noted in chapter 6. the service sector has been easily lreland"s most dynamic in terms of employment. Much of the added service output has been for domestic consumption. and much or it non-marketed: however. there has also been a big increase in the trade in invisibles. as captured by balance of payments statistics.

Today's economic orthodoxy is different again. Its greater emphases on the market and competitiveness. on the role of human capital. and on trade liberalization as an engine of growth. have obvious resonances for the history of the Irish economy over the past half-century or more. Superficially at least. the current commitment to fiscal rectitude. the EU Maastncht guideUnes. and a more competitive economy echoes some of the Orthodoxies of the 1920s and the policy critiques of the 19 30s. For example. the warnings of the Banking Commissioners of 19 34-38 that 'heavy loan expenditure of an unproductive character has a tend­ency. while it is being incurred. to weaken the economic and financial stability of the countrv' or that 'the salient feature of the public finance of the Irish Free Stat; is the large and continuous growth which has been taking place for many years in both State and local expenditure both on revenue and loan account. in taxation and in public debt' I§

have a modern ring to them. And the relentless anti-spending negativ­ism or Department of Finance Secretary ). ). McElligott. the "Dr No" of Irish economic policy. and of his steady ally at the Central Bank. Joseph Brennan. arguably emerge in a better light when set against the growth or public spending and debt that followed their departures.

But the parallels should not be exaggerated. Not even the most rigbt­wtng commentator today goes as far as Minister for Social Welfare P. J. Burke did In 1924 when he lent credence lB a Dail speech to those who believed that the state could be run on the sum then being spent on old age pensions alone. And the real situation in the 19 30s was very

227

A rocky road

different from the doomsday scenario drawn by the Doheny mid \c'ihitt School of Economics (see p. 31) in the early 1980s. Though puhlir spending rose after 1932, it was not out of proportion hy i11lt•rnalio11al standards. Moreover. as commentary in Ireland increasinglv po11ited out in the early 19 50s, the content of public spcndi11g wc1s a:-. irnprJrl;1n1 as its size. In the context of their day, the negativism of ,\!t"Ellignll ;111d Brennan suggested mostly a lack of imagination. parlicul;irlv wl11·11 'id against the changes brought in by T. K. \i\!hitakcr in the J lJ-)0-;. Trnlm the resort to a semi-independent exchange rate policy wilhin lhl' l·} .. IS the generous and distortionary support for all manufacl uring and tnidi· services. the CAP. the commitments to a benign social wclf<1rl' regmH'

and to substantial public investment in human capital all radirnlly chl­

ferentiate the 1990s from the 1920s. . . ··I As we have seen. the 1920s were dominated by continuity. fiqt1

retrenchment. minimal governmental interference and near-free trade. . . . ·vc taxes and

Budgetary discussion centred on sluggish revenue.' regrc~si c wake of the challenge of servicing the big National Loan issued m th the civil war. For most people who lived through them. howcvc~. _the 1920s were years of static or declining real incomes and dednu~1~ employment opportunities in ireland. The admittedly partial offici~ statistics of the day reveal few signs of worthwhile progress. Econoin~~ growth seems to have been slower in the lrish Free State in the I 92 ( s than in any of the other newly-emergent nations of Europe. i. Stow growth in the United Kingdom, the Free State's main trading partne~. did not help. In fairness to Ernest Blythe. Patrick Hogan and thc~r colleagues. the reforms and initiatives introduced by Cuma_nn na nCaet~ heal had little time to bear the promised fruit. Yet it surely too considerable political ineptitude on their part to allow an oppositi~n which had scarcely existed a few years earlier to sweep the board~ !ll the general election of 19 32.

lf the emphasis in the' l 920s was on continuity and credibility· tht' 19 30s brought experimentation through tariff protection and trade destruction, confrontation with Ireland's main trading partner. in­creased commitment to industry and the small farmer. and expanded social welfare. These policies commanded political support - Fianna F1.iil would rule without interruption until 1948 - but they were no recipe for continued economic growth or rising living standards. Between the 1920s and the 1950s Ireland lost ground to the OK in terms of both output and productivity.

228

Reprise

Trade liberalization became a purely academic issue during the en­rorced semi-autarky of the Emergency. but in the l 9 ~Os the continuation of protectionism was associated with economic retardation on a grand scale. As one lesson was learnt. another was lost: the appeal or rising government spending in the 1960s led in the 1970s and early 1980s to an unprecedented and damaging degree or fiscal expansion. roUowed by correctionary deflation.

Should the increasing gap between Irish and British - and between Irish and Northern Irish - incomes after 19 32 be put down to the drift away from free trade and small government? We have argued that it should. in part at least. Import substitution may do little harm to a large economy such as the nineteenth-century United States, Bismarckian Germany, or modern japan: seeking greater self-sufficiency in a low-in­come economy of fewer than three million people is another matter. Keynes tempered his support for Fianna Fail economic policy with the rhetorical query whether "Ireland - above all the Free State - is a large enough unit geographically. for more than a very modest measure of self-sufficiency to be feasible y.;thout a disastrous reduction in a stand­ard oflife which is already none too high?'':' Other poor. smaJI economies bent on import substitution in these years. such as Spain and Portugal, also performed badly. On the other hand. given the wider commercial environment of the 1930s. pursuing a sinnfiin version of free trade had little appeal. The economic cost of the near-autarky that followed Irish neutrality during 19 39-45 is in a different category, since it was largely unavoidable. The avoidable costs of import substitution became really serious in the late 19-lOs and 19 50s. when Irish tariffs continued to be high as other European economies liberalized. At no time between the late 19 20s and the late 19 50s would Irish living standards have been lower than thev actually were had Ireland remained a part of the United Kingdom. Less .protectionist and distortionary policies. particularly after 1945, would have reduced the advantage of that lreland-stiU-in-the-UK

counterractual. Newly-independent economies are bound to make policy mistakes;

economic growth may suffer. ln Ireland the process or learning from the mistakes Look a long time. It should have been clear in the Late 1940s that the road to what Mary Daly has called 'an Irish-Leeland for business' was a cul-de-sac. Some. including Se91.emass. seem to have realized as much in their enlightened moments. But it would take until the late 19 SOs for political parties. trade unions and the people to realize

229

A rocky road

that the aphorism 'no man is an island' applied to small economics, even island economies, as well.

As noted in chapter 2, much of Irish economic policy-making has been largely derivative. Under Cumann na nGacdhcal's Ernest Blythe fiscal policy 'continued to be thoroughly Brillsh'. while in a~riculture Patrick Hogan sought to make Ireland 'a second Denmark'. In the 19 l!Js Fianna F8.il seemed to be going it alone by opting for a poliry of self-re­liance that harked back to nationalist programmes of !he Hcpc;1! movement and the Young Irelanders, but it must be remembered that it was also mimicking what many other European economics were domg at the time. Later, the Irish experiment with economic planning was inspired by post-war French experience, and the neo-corporalism of incomes policy, the labour courts, and the National Economic and Social Council also had precedents in neighbouring countries including the UK. Membership of the EEC was forced on Ireland by the UK"s decision to join. The Industrial Development Authority also had its parallels in the UK and rurther afield. Even in tts initial reaction to the oil crisis of 1973. Ireland's policy stance was hardly unique, though from the late 19 70s its ill-fated decision to increase public spending and borrowing to unprecedented levels brought 'vulgar Keynesianism' into a disrepute from which it may never recover.

Irish monetary policy was also highly derivative and orthodox at the outset. Indeed. critics saw the degree of its reliance on sterling and ~n the City or London as slavish. That reliance exacted a cost twice. m 19 31 and in 1948. when sterling devaluations affected the value or all. or nearly all, or Ireland's backing for its note-issue. That is one are.a where a little Independence might have done no harm. Still. Ireland ' first exercise in independent monetary policy, in the mid-19 50s - the decision not to allow the Irish banks to follow an increase in British bank rate - seems to have ended in railure. The record of the second exercise is more complex. In 1979 the Irish currency broke its long­standing link with sterling and the punt became part of the EMS. In 1996 Jreland gives the Impression of pursuing a genuinely independent monetary policy, with the authorities keeping one eye on Frankfurt and another on Threadneedle Street. but keen not to deviate too far from parity with sterling.

One factor preventing extensive growth in Ireland for most of this century may have been the responsiveness of emigration to employment prospects at home and abroad. Pree access to the UK labour market and

230

Reprise

to the US labour market until the 19 30s and the advantage of a common language meant that Irish workers were more sensitive to the wage gap in sending and receiving labour markets than, say, Greek or Portuguese workers. Since most Irishmen and Irishwomen were unwilling to pay a big premium for staying at home. cheap labour could do little to com­pensate for Ireland's relative backwardness and isolation. or to allow for the accumulation that industrialization requires. The banks usually found It more profitable to invest their money in bonds in London than to lend it to Irish businessmen. In the circumstances, economic growth accompanied by population growth may not have been on the cards.

For intensive growth. it is trends in productivity and living standards that count. As we have seen. even by this standard. until recently Ireland's record has not been good either. Both pair-wise and multi­country comparative analyses suggest that Ireland performed poorly in the economic convergence stakes between the 19 30s and the mid­l 980s. However. much of the gloom caused by the performance of the early 1980s had evaporated by the mid-l 990s. when the Irish economy was among the fastest growing in the OECD. Now at the approach of the millennium Ireland·s belated but dramatic fertility transition seems to rule out extensive grov."th of the kind sought by Thomas Davis and Robert Kane. But it also seems set co solve the long-standing problems of high unemployment and high emigration. Ireland"s population in rnid-1996 was 3.6 million: current predictions put it at between 3.65 million and 4.07 million in 2026. If Irish population Fails to grow. a reduction in the number of births is as likely to be responsible as a fall in the demand for labour.

As noted earlier. until recently nearly all analysis of the Irish economy Was couched in terms of 'why Ireland failed' to deliver employment and economic growth. And rightly so. Between 1971 and 1989 total em­ployment rose by a mere 3.6 per cent. A decade ago nobody's economic model predicted that in the 1990s the economic future would look brighter than in any decade since the 1960s. A notable example of the prevalent pessimism is the declaration from the chief economist or the Bank of Ireland in 1993 that 'perhaps Ireland's misfortune is to be a small and peripheral part of a structure that is. historically speaking. pretty useless at creating jobs for its people' .8 The timing could hardly have been worse: aggregate employment has rl8en by 7 per cent be­tween 1989 and 1995, and recent projections by the Central Statistics f :-. "" ·'"~ ',',~' .,.. ~ ... "'-• ""

A rocky road

and 20~6.9 ~g~in ~athal ?~i?~ard's excellent T/Jt• Irish 1Jisrt1sr 11991 emphas.1~s mstitut1onal rig1d1ties and restrictions on rnmpclilion onJ J

~? fam.1har to an~ observer of the Irish scene al a lime when. sudden I}~ 1t IS the economy s fast growth that mosl needs explaining.

It co~es as no surprise that commentators who lrnvl' spl'lll yi·ar..

accounting for the slow growth of the Irish economy arl' less surr of l/w causes for today's fast growth. The removal of sonw of lilt• ri~lthlu·~ described by Guiomard can be only a small part of tlw l'Xpla11a1111u· ihr

economy has boomed despite their persistence. Nor can the privatizaLum of a few semi-state companies such as B&I and Cornhluchl S1(11rrr Eireann account for the change. Other candidates arc not lacking. how ever: they include trade liberalization. the huge increase in expor\\ generated by foreign direct investment. EU structural funds and regional aid, improved industrial relations. and past investmenls in human and social overhead capital. Integration into a more rapidly-growing region than the UK has been must also have made a difference. But the research into the relative importance of such factors has not yet been done. For the casual observer. the consequences of the transition from protection in the 19 50s to outward-looking policies in the 19 60s seem plain enough: the standard gains from freer trade were reinforced by huge capital inRows. followed by learning-by-doing and. perhaps. infant-in­dustry effects. But for the economist. precise evaluation of the gains is much more difficult.

The radical turnaround in performance must imply either ta) that underneath the seeming lethargy and even gridlock of the earlier period the social conditions for higher economic growth were being created. or (b) that the present situation is just a temporary aberration. the result of once-off EU handouts and compensation for years of underperli.>r­mance. The reduced fiscal burden predicted by economic pundits !Or Ireland at a time when it is likely to rise elsewhere is a product of both factors: on the one hand, lower interest rates and a falling public debt burden create the space for tax cut.s. while on the other. the prosper! of European economic union has forced an ideological shift towards lower taxes. Further increases both in living standards and in invest­ment are likely outcomes. Ireland is also fortunate in having made big investments. both public and private, ln human capital since Lhe 19 50s. The Second Programme stressed the role of'human investment' and an official report Investment in Education also reOected the enthusiasm for human capital in the 1960s. But it was not all words. Irish investments

212

Reprise

in schooling increased significantly in the post-war period. and the numbers of both full-time students and teaching staff more than treb\ed between the 19 50s and the 1990s. The proportion of those aged 15-24 years still studying has risen from about one in six in the 1940s to over half today. and the number of full-time students in universities and other accredited third-level institutions has risen from under twenty thousand in 1970 to nearly treble that today. Moreover. in the recent past the performance of Ireland's educational sector in terms of produc­tivity and output mix has compared favourably with that in other OECD economies. In Northern Ireland. the rise was also spectacular. Now. at a time of renewed emphasis on the importance of human capital. past accumulation of that factor in the two lrelands should stand them in good stead.If, But the stress on this factor is also a reminder of some of the problems and inequalities facing Ireland in the 1990s. The variance in the quality of Irish primary and secondary education is very high. and recent research suggests that almost two-fifths of public spending on university education is concentrated on the top fifth of Irish families. while less than one punt in twenty reaches the bottom fifth. The ethos. the commitment and even the locations of Ireland's universities remain resolutely middle-class. The recent abolition of university fees in lre­land, while likely to increase aggregate investment in human capital is also likely to "°;den the gap between the aflluent and the most disadvantaged.

It is not common to end a historical commentary on the Irish economy on a guardedly optimistic note. Until very recently, it would have been fair to argue that political independence had failed the Irish economy. Irish policy-makers in the 1920s and 1930s inherited a backward econ­omy in which O\'er two-fifths of private expenditure was devoted to the basics of food. fuel and light tcompared to less than a quarter today). and in which income per capita was only three-fifths of the British level. There was ample scope for catch-up. But the increase in average incomes had been much faster in Ireland as a whole between the 18 SOs and the 19 l Os. before independence. than it would be in the South between the 19 20s and the 19 SOs. Population continued to decline after inde­pendence. if at a slower rate. Even during the 'golden age' of the 1960s and early 19 70s. when it seemed as if the worst was over and the lrish economy was enjoying extensive growth for the frrst time in over a century. it failed to make up much of the ground lost against the rest or Europe. Then the enforced deflation of the early 1980s entailed 'doom

F" 233

\ \

" \

A rocky road

and i\oom' and iurther retardation. Since then. il is Ireland's fast econ­

om\c irowth that has captured the headlines. though admiucdly a

¥,towth wh\ch was s\ow to create employment at first. On<" rcsuh of 1 lw South's impressive performance has been its sorpasso of No rt hem I rdarnf \n termsolproductivity or output per head in the mid-1 'l'Hls. 'l'lw 7'11rlh sti\\ b.as a considerable edge in living standards, thanks lo ii hug" n chequer transier, some olitdeience-related. from Weslminslcr. 11 11111 an· recent trends in the South simply compensation for all llw spill'<' rnp;u II 1·

created by bad policy in the late l 970sl Arc they the prrnhu·\ 111 llw ~\sea\ medicineoithemid-l 980s. or do they stem inslcml from E\; slnu. tura\ tunds and distort\onary transfers to farmers and industrialis1. ... ; t\n· they the truitotthree decades o[ commitment lo outwanl-oricntcd cnm­omic po\ic\es, a\lecting both commodity and factor movements[ Or do they mark the beginning o{ a new higher-growth steady slate for tht' Southern economy? Only time can tel\.

Notes

l Mhur Grtiflth led..). Thomas Davis. lhe Thinker and Ttachl'r (Dublin. 191 hl. \\..Kane. The Industrial Resources of lrela11d (Dublin. 1845).

2. Patrlck Lynch \n An TOstal. Ireland cu Home; Official Souve11ir Hcmdbook UJu­'o\\n. 1q53). 53. 57-8.

3 Patr\c.k Lynch, "l'he economi.cs o{ i.ndependence', Irish Timi's, 15-2 7 Mm· "~ .

4. ~;~b~~~Y· Colonialism. Religion nnd Nationalism Jri lrl"larid 1Bclfas1.

~ ~~~~~.o~~~~u\ry into Banking Currency and Credit, Reports (Dublin.

& ~~:.7~~::~~~v:c:,:u~ts :.a~ ::;,~~~~1tria, Bulgaria, Hungary, Ju~os-tl.ondon, l.97S), 783-~0. · E 11roptnri Historlcnl Sltlfl.~tics

~ 1C~rt!:~e:·,~~~~~~,~~~:~~~':i~r·studies(Junc 1911,. 189.

9 ~~~!~~~~:l-=~~~~no;:u~~;"m:n~~~,~~~~~ ~1.;-~~··i~lltllPs. U ( 199 ~l. 10~~~1.!~~~h.. "Slab~\laaucm :n and 1..a&our l'<1rc-r P:Uji-,.;iorr.~ J <J<Jh-20..!f>

\ \ ~~~~;41 ~:.:!~~u~~~/i~ :::~~do~~~~1;:~~~:.~,c~ ~~all 01icn Cl"unomy; Northern lruland GDP. led lo C.\.=; rntlllo~. ~~!~ ~.~~,~.~~;,~~~ .,r

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