TC D M . S C . ( E P S ) – R O N A N LYO N S – E C 8 0 0 1 I R I S H E C O N O M I C P O L I CY I S S U E S &

C O N T E XT

TOPIC A: IRISH ECONOMIC HISTORY TO

INDEPENDENCE

MODULE OUTLINE

Topic

Title EoI Ch Dates

A Irish Economic History to Independence 1+ MT1-2

B Irish Economic History since Independence 1+ MT3-4

C The Economy & Economic Growth 2, 7 MT5-6

D Public Finances, Debt & Taxation 3, 4 MT8-9

E The Labour Market 6 MT10-11

F Social Justice & Inequality 8 HT1-2

G Regulation & Competition 5 HT3-4

H Competitiveness & Trade 9, 11 HT5-6

I Health & Education 12, 13 HT8-9

J Natural Resources & Real Estate 10, 14* HT10-11

TOPIC B. READINGS

• John O’Hagan & Carol Newman, ‘Economy of Ireland’ (12th Edition)• Chapter 1, Historical Background

• Further Reading:• Andy Bielenberg & Raymond Ryan, ‘An Economic History

of Ireland Since Independence’

TOPIC B: STRUCTURE

Irish Economic History since Independence

1. 1932: From globalization to autarky2. 1959: From autarky to globalization3. The 1990s: The 30-year overnight success story4. The 2000s: Bubble and crash

BROAD PERSPECTIVES

• Two competing conceptualizations of Ireland’s economic performance 1920-2000• Delayed convergence• Follows from basic growth theory (Topic C)• Catch-up natural, hindered by poor policies before the

1990s

• Regional economy model• Can only understand long swings of growth and recession

with unusually mobile factors of production (L, K)• Out-migration prevents wage lowering, thus dampening

attraction of FDI – hence need for government policy

• Other perspectives exist (e.g. role of interest groups)

IRELAND AT INDEPENDENCE

• Trade policy• Tariff Commission set up in 1926 – depoliticize decisions• Under Dept of Finance control: conservative, free-trade• Muscles were flexed, though: 59 tariffs by 1931

• Fiscal policy• Active fiscal policy some decades away – indirect taxation

on mass consumption goods (broadly regressive)• Shannon Scheme exception (DoF failed to block)

• Monetary policy • Caution and continuity: power of Irish Banks Standing

Committee• Currency Commission 1927 – Irish punt, move towards

CB

FREE-TRADE VS. PROTECTIONISM

• Pro-trade bloc led by Departments of Finance & Agriculture• Based on pragmatism:

agricultural export earnings ‘paid the bills’

• Vast bulk of these exports were to UK

• Context of significant cumulative trade surplus, 1914-1921 (£77m)• 1920s a time of trade

deficits, falling agri prices

• Protectionist bloc led by Dept of Industry & Commerce• Cf. nationalist vision of

less dependence on Britain

• Irony: ‘tariff-jumping’ British investment

• “Import-substituting industrialization”• Tariffs – paid for by

consumers – could help generate broader base

• Mirrored in attraction of FDI later

OUTBREAK OF ECONOMIC WAR

• 1932 election of FF marked decisive break in trade policy• Stopping of land annuities

sparked economic war• Agriculture suffered in both

short and long run

• Aim was shift from pasture to industry (+ tillage)• Shift in power to Dept of I&C• Self-sufficiency

• Few changes to fiscal or monetary policy• 1934 Commission did not led

to Central Bank [until 1942]

START OF AGRICULTURE’S DECLINE

• 1920s Ireland was one of ‘family farms’ specializing in livestock, dairy – 86% of exports agri, food/drink• Explains land redistribution, from 1923 (on-going until

1970s)• ~0.85m acres (of ~21m) compulsorily acquired [+~0.5m

vol]

• Average size of farms halved 1900-1960• Bleak first two decades for sector as exporter• Post-1920 collapse in agri prices left borrowers in trouble• Economic War with Britain during 1930s meant loss of

market share: from 27% in late 1920s to 20% in late 1930s

• 36% output fall led to slaughter of cattle, until 1936 Coal-Cattle Pact

FALSE DAWN FOR INDUSTRY?

• Partition stripped Irish Free State of most industry• Just 10% of employment in 1926 – low relative to Europe• Concentrated in food/drink, and in Dublin• Major names: Guinness, Ford, Goulding

• Post-WW1 upheaval did not help• Kynoch’s moved from Arklow to Britain – as did Distillers

Co• Many woollen mills destroyed 1918-1923

• 1930s saw protection for native industry• Hurt export-focused firms like Guinness (had to set up in

England) and Ford (switched from tractors to cars)• But growth in textile/clothing in particular

IRELAND’S SERVICES INHERITANCE

• Well-developed service sectors in Ireland on independence• Transport, communications, retail, banking

• Domestic service and retail the largest subsectors• Roughly 100,000 each in 1920s

• Early setbacks• Withdrawal of British troops associated with fall in local

spending (e.g. of garrison towns)• Disruption of transport network: wartime control of

railways (1916-1921), Civil War target (1/3 inoperative by end-22)

• Longer-term challenge for rail: ever greater control by state (1924 amalgam, 1933 K write-down…)

OUTBREAK OF WORLD WAR

• Rise in prices (shortages) – but freeze on prices• Fall in living standards; coal shortage led to “re-turfing”

• Dept of Supplies; more formal economic planning• Lemass its Minister (moved from Dept of I&C)• Cabinet Committee for Economic Planning• Central Bank established in 1942

• Increasing government control of rail & shipping• Once war finished, government maintained

interest in shaping economic outcomes• Infrastructure spending, ‘Public Capital Programme’

(1950)• Rural electrification started in 1946

AGRICULTURE & INDUSTRY IN WAR

• Compulsory tillage orders saw doubling of output• 1940: all farms >10 acres had to dedicate 12.5% to

tillage• 1943: all farms >5 acres had to dedicate 37.5% to tillage

• Shortages of capital and inputs meant increased use of horses, labour• Dependence on British imports (incl petroleum)

hit industry hard during war• 25% fall in output, 1939-1942• House completions fell from 12,300 to 1,300 1939-1945

• Protected industries dependent on home market• Missed out on trade-driven growth post-WW2: 23% in

Ireland vs. 73% elsewhere in OEEC

TOPIC B: STRUCTURE

Irish Economic History since Independence

1. 1932: From globalization to autarky2. 1959: From autarky to globalization3. The 1990s: The 30-year overnight success story4. The 2000s: Bubble and crash

POST-WAR EARLY INTEGRATION

• Ireland a founding member of OEEC (later OECD)• Aim was distribute ERP (aka Marshall Aid)• Ireland’s role was to help feed Britain – postwar

shortages• 1948-1952: received £41m in cheap loans, £6m in grants

• OEEC help shape data gathering• Requirements of ERP led to establishment of CSO, 1949• Separate current and capital accounts from early 1950s

• IDA was established in 1949• Shannon Free Zone set up around this time also• Anglo-Irish Trade Agreement

• Not all-in: did not join IMF, GATT (1948)• European Coal & Steel Community (later EEC) not

relevant

POLITICS AND ECONOMICS

• Ireland had a balance-of-payments (BoP) deficit at this point – ERP helped fund this• End of ERP meant a doubling of the BoP deficit to £61m

• FF’s first budget back in power a deflationary one• … In turn contributed to their exit from government in

1954

• 1955 monetary ‘experiment’• IBSC persuaded not to pass on UK interest rate increase –

inappropriate given lack of inflationary pressures• Current A/C deficit increased to 6.5% - flight of capital…

and labour (peak of emigration)

• Honohan & Ó Gráda: 1956 crisis “defining event” of post-war Irish economic history

SWITCH TO EXPORT-LED GROWTH

• Not an overnight switch to export-led growth• 1949-1952: establishment of IDA; Coras Trachtala• 1953-1958: removal of restrictions on FDI; Export Profits

Tax Relief Scheme (0% CGT until 1980); exemption of exports from Control of Manufactures

• Nonetheless, landmark seen in T.K. Whitaker’s ‘Economic Development’ paper• Reallocate social expenditure into more productive areas• Led to “First Programme for Economic Expansion”

(Lemass)

• Joined EFTA with UK (EEC founded 1957)• Further pressure on agriculture sector

PATTERNS OF TRADE

• In 1920s, UK accounted for 97% of exports and 80% of imports• By WW2, export figure

was higher, imports down to ~50%

• Coras Trachtala helped boost Irish exports to US• From 1% to nearly 10%

by early 1950s

• UK markets open to Irish manufacturers from 1965 UK US EU

0%

10%

20%

30%

40%

50%

60%

Source of Irish imports

Late 1940sEarly 1960s

MAKING YOUR OWN LUCK?

• Bryce Evans: “a national coming of age happened to coincide with Lemass’s coming of age”• EEC/EFTA emerged as credible constraint on policy• International trade was buoyant, as was British growth

• First PfEE failed to deliver its objectives• Tax burden did not fall, not did spending on housing

• Perception of success led to Second PfEE• Meant to cover period 1964-1970 – abandoned• Similar fate befell Third PfEE

• Neo-corporatist institutions set up at this period• Trade union and employer participation – although early

wage bargaining was not successful

FOCUS ON AGRI PRODUCTIVITY

• By early 1960s, state supports ~20% of output• Poor output per worker and per acre

• Productivity improvements centred around mechanization, in particular tractor• From 6,000 in 1947 to 30,000 in 1955• Freed up land used for horses (~10%) • Also ‘freed up’ labour: 148k labourers (1929) vs. 26k in

1979

• 1960s/70s: concentration and specialization• Benefited from high EEC prices upon entry – 45%

increase in real prices between 1971 and 1978• Seen also in related industries: Kerrygold (1962) and five

other creameries

LOCAL INDUSTRY’S INDIAN SUMMER

• As of 1970, ~3/4s of industry output for home mkt• ~10% of employment in British firms, vs. ~10% for rest-

of-world• Growing consumer demand of 1960s gave native

industry an ‘Indian summer’

• Multinational consortium involved in Irish Refining Co (Whitegate, Cork) in 1957• Importance of energy security reflecting its importance

as an input

• Growth phase for construction from 1950s to 1970s

FROM RAIL TO CAR & AIR

• Rail services still struggling post-war• 1948 Milne Report: sheer age of stock – move to diesel• 1957 Beddy Report: closure of stations – lack of density• 1964: policy acceptance that subsidy required for

survival

• Increase in rail freight from 1950s on• Reflecting some economic growth – stopped in 1980s

• 1952: Bord Failte set up – 20% bedroom grants in 1st PfEE, other expenses by mid-1960s• Over-capacity

• Retail revolution in 1960s• SuperQuinn, Quinnsworth, Musgrave• 1,058 “country general shops” in 1951 to 76 in 1988

PREPARING TO ENTER EUROPE…

• Failure to join EEC with UK led to ‘interim liberalization’ – 1965 Anglo-Irish Trade Agreement• Increase in butter quota seen as important – but as

elsewhere in Europe, agriculture in relative decline

• Free secondary education from 1967• Perception that Ireland had missed post-war boom

• 1969 saw changes to regional policy• Buchanan Report : focus on major cities + 10 regional

and local centres – dropped, as too political• IDA achieved autonomy: ended up de facto in charge of

regional policy – twin strategy of high-productivity sectors plus lower-skilled manufacturing employment

TOPIC B: STRUCTURE

Irish Economic History since Independence

1. 1932: From globalization to autarky2. 1959: From autarky to globalization3. The 1990s: The 30-year overnight success

story4. The 2000s: Bubble and crash

• More to come next week!