Irish Economic History to Independence: Overview and Perspectives

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TCD M.SC.(EPS) – RONAN LYONS – EC8001
IRISH ECONOMIC POLICY ISSUES & CONTEXT
 
TOPIC A: IRISH
ECONOMIC HISTORY TO
INDEPENDENCE
 
MODULE OUTLINE
 
TOPIC B. READINGS
 
John O’Hagan & Carol Newman, ‘Economy of
Ireland’ (12
th
 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 autarky
2.
1959: From autarky to globalization
3.
The 1990s: The 30-year overnight success story
4.
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 autarky
2.
1959: From autarky to globalization
3.
The 1990s: The 30-year overnight success story
4.
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
 
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 1
st
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 autarky
2.
1959: From autarky to globalization
3.
The 1990s: The 30-year overnight success story
4.
The 2000s: Bubble and crash
 
 
 
More to come next week!
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Explore the economic history of Ireland leading up to independence, including key events, policies, and perspectives on economic performance. Topics cover trade policy, fiscal and monetary policy at independence, readings, and the structure of economic history since independence.


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

  2. MODULE OUTLINE Topic Title A B C D E F G H I J EoI Ch 1+ 1+ 2, 7 3, 4 6 8 5 9, 11 12, 13 10, 14* Dates MT1-2 MT3-4 MT5-6 MT8-9 MT10-11 HT1-2 HT3-4 HT5-6 HT8-9 HT10-11 Irish Economic History to Independence Irish Economic History since Independence The Economy & Economic Growth Public Finances, Debt & Taxation The Labour Market Social Justice & Inequality Regulation & Competition Competitiveness & Trade Health & Education Natural Resources & Real Estate

  3. TOPIC B. READINGS John O Hagan & Carol Newman, Economy of Ireland (12thEdition) Chapter 1, Historical Background Further Reading: Andy Bielenberg & Raymond Ryan, An Economic History of Ireland Since Independence

  4. TOPIC B: STRUCTURE Irish Economic History since Independence 1. 1932: From globalization to autarky 2. 1959: From autarky to globalization 3. The 1990s: The 30-year overnight success story 4. The 2000s: Bubble and crash

  5. 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)

  6. 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

  7. 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

  8. 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]

  9. START OF AGRICULTURES 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

  10. 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

  11. IRELANDS 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 )

  12. 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

  13. 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

  14. TOPIC B: STRUCTURE Irish Economic History since Independence 1. 1932: From globalization to autarky 2. 1959: From autarky to globalization 3. The 1990s: The 30-year overnight success story 4. The 2000s: Bubble and crash

  15. 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

  16. 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 & Gr da: 1956 crisis defining event of post-war Irish economic history

  17. 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

  18. 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

  19. 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

  20. 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

  21. LOCAL INDUSTRYS 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

  22. 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

  23. 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

  24. TOPIC B: STRUCTURE Irish Economic History since Independence 1. 1932: From globalization to autarky 2. 1959: From autarky to globalization 3. The 1990s: The 30-year overnight success story 4. The 2000s: Bubble and crash

  25. More to come next week!

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