Irish Econ History since Independence student slides

TOPIC A: IRISH ECONOMIC HISTORY TO INDEPENDENCE TCD M.SC.(EPS) – RONAN LYONS – EC8001 IRISH ECONOMIC POLICY ISSUES & CONTEXT

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. 2. 3. 4.

1932: From globalization to autarky 1959: From autarky to globalization The 1990s: The 30-year overnight success story 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. 2. 3. 4.

1932: From globalization to autarky 1959: From autarky to globalization The 1990s: The 30-year overnight success story 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

Source of Irish imports

60% 50% 40%

Late 1940s Early 1960s

30% 20%

10% 0% UK

US

EU

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. 2. 3. 4.

1932: From globalization to autarky 1959: From autarky to globalization The 1990s: The 30-year overnight success story The 2000s: Bubble and crash

• More to come next week!