In Search of the Promised Land

by Gary Murphy

  The abolition of food subsidies offered numerous advantages, according to the committee. In the first instance, the difficulty of financing exchequer commitments would be greatly eased by relief from ‘the enormous burden of food subsidies’. It would also restore more normal trading conditions, would foster efficiency, and help to ‘remove economic rigidity’. By allowing real costs of production and distribution to be reflected by prices to the consumer, a more normal price structure and pattern of consumption would be created. The committee further argued that the abolition of food subsidies would help to counteract the inflationary effects of any wage increases granted in the public and private sectors. MacEntee subsequently used the committee’s recommendations in a New Year’s Eve memorandum to the Government, which he concluded by stating that:

  It is essential that the budgetary problems of 1952, already grave enough on the basis of existing expenditure, should not be further aggravated by allowing new commitments to develop. The Minister is very conscious of the difficult problems which he will be called upon to face … and he desires that every possible step should be taken to lighten his task in advance.33

  Brennan, however, was not convinced that the Government was taking the financial position seriously enough, and contemplated retirement. After seeing MacEntee early in March, he wrote that:

  [The minister] seemed to imply no intention on the part of the Govern-ment to arrest budgetary expansion of purchasing power. He said his budget would throw fresh light on the estimates which were meant to give the public a shock. When leaving I told him that I thought it would be far better to have someone else at the Central Bank … Met de Valera at 5.15 who talked about the political difficulties of handling of economic situation and about need of avoiding unemployment. I said inflation would not cure unemployment but make it worse.34

  There is no record in Brennan’s personal papers of a specific response to the budget, but there can be little doubt that he approved of most of MacEntee’s final budgetary package, as did the official principally involved in the drafting of the budget – T.K. Whitaker – who wrote to MacEntee, at a time when MacEntee was ill, stating:

  I could not let this opportunity pass without expressing my great admiration for the courage behind the 1952 budget and for your unsparing devotion to public duty when everyone would have had you executed.35

  Tom Feeney – in his very fine biography of MacEntee (2009) – notes that the relationship between MacEntee and his officials in Finance was particularly strong, and makes the case that the quality of advice proffered to him ‘does not bear an overtly dissimilar philosophy to that underpinning the much lauded Economic Development six years later’.36Feeney also quotes Whitaker as noting that while MacEntee intended the budget of 1952 to be severe, ‘he did take on board the draft prepared for him’.37The final draft, however, met with almost unanimous disapproval from across the political spectrum, newspaper commentary and interest groups, all of whom held MacEntee very much responsible. The Leader initially saw it as ‘a bombshell’, and predicted that its after-effects would continue to dominate policy for the months ahead. Even more importantly, it saw Lemass as having been ‘sidelined’ in the economic policy debate that was being fought out within the party at the time.38Some months later, The Leader expressed its disenchantment with Government policy:

  An economy with such a history of defeat as ours needs the stimulus for enterprise of material progress, and private capital investment suffers if this is not given while measures adopted to reduce the standard of living incidentally tend to frighten away external capital.39

  The Statist was also unhappy with the budget, but claimed that all was not doom and gloom, noting that there was great scope for industrial advancement, especially in the field of light secondary industries based on agriculture. Agricultural output, it asserted, was far from its potential maximum, and, furthermore, the manpower was available to run profitable industries. There was a sting in the tail for the Government, however, when The Statist proclaimed that:

  For British industrialists, with the capital to sink in new enterprises and the technical knowledge to run them, there would appear to be great opportunities for establishing themselves in Ireland to the mutual benefit of both countries.40

  This was hardly a ringing endorsement of state policy in setting up indigenous industry.

  A spanner in the machine

  The budget enraged both the employers and the unions. Senator E.A. McGuire – president of the FUE – complained that though nobody liked food subsidies, the point was that they should only be abolished when it was possible to do so with the least possible upset to the social and economic life of the country. While the object of the removal of food subsidies was to lift a weight from the exchequer, he argued that it should be done in such a way that the burden was passed on to the consumer at a time when consumers were earning more wages or receiving direct reliefs from the exchequer approximating to what they had lost by the removal of the subsidies. While the budget was likely to go some way to solving the financial woes of the country, he said, it was socially undesirable, and he argued that the economy could be improved by an increase in wages that raised the purchasing power of workers:

  Instead of siphoning purchasing power and drying it up, we should try to maintain and, if possible, increase purchasing power, I mean purchasing power on the part of the public. It is necessary to retain as much money as possible in circulation so as to develop and expand business, so as to create employment and keep our economy strong.41

  MacEntee’s reasoning was that curtailing domestic demand – leading to a possible reduction in prices – would boost exports. He was acting on the assumption that earnings had outstripped the cost of living; consequently, it was believed, there would be no demand for wage increases as a result of the removal of food subsidies. This most definitely was not the case. McGuire believed that the Government had failed to get its economic policy right, and had left the employers to pick up the pieces of its failed policies:

  What has happened is that the whole problem of the Budget has been thrown to the employers and into the arena of industrial relations generally at a time when we are already occupied with bad trade, unemployment, rising costs and higher prices … This is the problem that has been thrown to industry. It represents a very big spanner in the economic and industrial machine at the moment when employers are … preoccupied with keeping the business and trade of the country going.42

  The trade unions were equally embittered by the budget. They claimed that there had been a 10.5 per cent rise in the cost of living in the past year, from 102 to 114 on the consumer price index. With the removal of food subsidies, the total rise would be 18 per cent. The ITUC calculated that if the rise in the cost of tobacco, alcohol and other commodities were included, the figure would be 25 per cent. It argued that since there was already a definite trend towards deflationary fiscal policy, it was essential that the budget should not accentuate this trend but, on the contrary, attempt to counteract and reverse it. MacEntee’s budget did, however, slash purchasing power, and followed almost religiously the policy advocated by the Central Bank in its 1951–52 report. Inevitably, the reduction in purchasing power hit the working classes hardest. The mirroring of the Central Bank report by MacEntee was noted by the opposition: James Larkin of the Labour Party declared ‘it was no unfair criticism to say that if the board of the Central Bank had … presented the budget, instead of the present Minister of Finance, there would hardly have been a comma changed’.43The ITUC was more vitriolic in its assessment:

  A policy that results in increased unemployment is nationally suicidal and socially criminal. Yet this is precisely what will follow from the budget proposals. It may be that the Minister of Finance considers this preferable to running a deficit in our Balance of Payments and using up our external assets. If so we might remind him that all that needs to be done to wipe out the deficit entirely is to proceed to slash living standards still more savagely, it
is as simple as that.44

  The ITUC further argued that there was no reason why a Government budget deficit should have been completely ruled out, notwithstanding MacEntee’s assumption that it was ‘common ground’ that the current budget must be balanced. The running of a budget deficit was justifiable in a deflationary situation such as existed in this period, particularly when there was a threat of more serious deflation and given that the Irish economy was susceptible to external economic movements and trends. Ultimately, it was the contention of the unions that the greater part of the additional taxation required to rectify the balance-of-payments difficulties could have been raised in other ways. They proposed, for example, a combination of tax on profits, higher rates of surtax and estate duties, and a purchase tax on luxuries. These, they maintained, would have spread the burden of taxation more equitably. Dismissing MacEntee’s arguments, they insisted that:

  Deflation, far from solving our problems, will aggravate them. Experience has taught us that a policy of deflation once initiated is self perpetuating being uncontrollable by politicians and bankers, and leading to slump and depression and endless misery.45

  Finance rejected the ITUC’s arguments, stating that its case ignored the special benefits wage-earners derived from the Government’s policy in regard to social services, subsidies and housing. It did acknowledge ‘that even when a fall in the national standard of living is inevitable, certain classes in the community may be able to protect their own position or even better it at the expense of other classes’.46

  Finance was extremely worried at any proposed wage increase, which it reckoned would add millions to personal expenditure, including expenditure on imports, thus making it impossible to check inflationary pressures, and which in the long run could only lead to a rise in unemployment. While this may have been true, this policy of deflation undoubtedly led to stagnation in the economy because the concern with maintaining external reserves took precedence over concern about unemployment and development.

  The Central Bank maintained that the Government was on the correct financial track, and endorsed – albeit grudgingly – MacEntee’s actions, and urged him to continue in the same vein.47This brought the bank some unwanted and trenchant criticism. The Standard, in an editorial entitled ‘The Central Bank (mis) reports to you’, accused the bank of going beyond its remit:

  It is difficult to avoid the view that the commentary has been given an emphasis which renders it largely political. Perhaps the most disquieting feature … is its political trend. The political party has come to be the supreme unit for consideration in the state, not excluding the family, and the Central Bank has insured its own continued overlordship in the state’s economy by the success it has achieved in setting off one political party against the other – divide and rule.48

  There can be no doubt that Brennan was apolitical, and that his support of MacEntee’s deflationary budgetary was based on economic consider-ations. Denis Gwynn, writing in the Cork Examiner after Brennan’s retirement, offered what is surely the most perceptive interpretation: that Brennan and McElligott together ‘have presided with shrewd judgement and highly trained experience over the management of Irish public finance without regard to party politics’.49The Leader, in a profile of Brennan, aptly summed up his relationship with politicians:

  He conceived it to be the special function of the civil servant to guard the professional politician against himself and his friends and, at the same time, to protect the interests of the people against both … Brennan is one who has served his country more than usually well.50

  In the Central Bank report, Brennan stated that the views expressed in the previous year’s report had ‘lost none of their appositeness and indeed have been reinforced in urgency by the heavy deficit in the balance of payments’.51The fact that the report for 1950–51 had criticised so outspokenly the Inter-Party Government’s budgetary strategy while that for 1951–52 had supported Fianna Fáil policy does not reinforce The Standard’s position. No political party would ever have Brennan’s unqualified support, as he distrusted them all. The report, however, came in for criticism from newspapers around the country. The Cork Examiner noted that the report ‘seems to have been drawn up by or under the inspiration of a pessimist’, and argued that the ‘note of alarm in the report will not excite the Community, and not a few will hold that it has been overdone’, while the Evening Herald commented that even though there was a mild recession in the autumn and winter of 1951, ‘the industrial and commercial parts of the economy required careful nursing. Instead of which they have received very drastic treatment.’52In a political sense, de Valera during the 1954 general election campaign felt a need to publicly defend the aims of the 1952 budget, declaring that ‘our aim … was the simple one of making ends meet – of balancing current expenditure by current revenue, as any prudent person would do in his own private affairs’.53

  By March 1953 Brennan patently had enough of all Governments – Inter-Party or Fianna Fáil – and decided to resign. He wrote to E.C. Fussell of the Reserve Bank of New Zealand, with whom he was in regular correspondence, outlining his position:

  I have been in fundamental disagreement with our Governments for some time past on matters of monetary and financial policy and as there has been no sign of improvement but rather the contrary, I felt … reluctantly to go out at the end of the financial year. My board has consistently supported my views and both the board and the Finance minister pressed me to stay on but I felt unable to retain any responsibility in the circumstances.54

  There is little doubt that Brennan’s resignation was felt deeply by his board. James Meenan, appointed in February 1949, considered Brennan’s retirement ‘a great loss to the public service, which, just now, has very few standards to judge policy by. But it is traditionally an ungrateful task to provide such standards’.55Brennan had intimated to the board and the Government in early 1953 that he wanted to step down. He told de Valera about his desire to resign. Both MacEntee and de Valera attempted to change his mind. MacEntee wrote to Brennan on the latter’s meeting with de Valera telling him the prospect of resignation was ‘as unwelcome to him [de Valera] as it is to me’.56

  Brennan’s resignation was a watershed. The Central Bank had become indelibly associated with him. Those on the conservative side of the economic fence saw his departure as inflicting a mortal blow against their own side. Lord Glenavy pleaded with him not to go:

  Even now I beg you to reconsider … to try to persuade you against what the members of the board consider will be a disastrous blow to the cause of monetary wisdom … The Central Bank is your creation. I do not think it would survive your going under present conditions. It may survive but it would have a long and maybe hopeless task in trying to recover from the blow of your departure. Two more years under you as Governor would make all the difference – knowing as well as you do what is involved can you not make the sacrifice of those years?57

  Brennan, however, could not be dissuaded from his intended course of action. Once he perceived that his advice to Government was being disregarded, he felt he had no choice but to exit the public arena, and duly resigned on 31 March 1953. He was replaced by McElligott, with Owen Redmond becoming secretary of the Department of Finance.

  Notwithstanding Brennan’s departure, economic policy remained conservative in orientation. McElligott and MacEntee were kindred spirits. McElligott paid him the highest compliment a senior civil servant could possibly accord an active politician when he wrote to MacEntee, then recovering from illness, in 1954:

  You carry now as always my respect for your ingenuity and courage and my admiration for the single-minded manner in which you have served your country ever since I came to know you, nigh forty years ago and in different circumstances. If all Ireland’s sons were so devoted to her service how different would be her recent history.58

  ‘The glories of Puerto Rico’

  While MacEntee may have earned the plaudits of similar-minded conserv
atives, Lemass took a somewhat different route. After the 1950–51 Central Bank report, he had attempted to distance himself and the Government from the bank.59MacEntee supported the thrust of Central Bank policy, as it was in accord with his own economic sympathies, and he managed to isolate Lemass. Prior to the budget, Lemass cautioned the Dáil about the possible dangers of pursuing deflationary policies, claiming that all developed countries were worried about the possibility of deflation:

  Almost every country in the world which, like ourselves, was concerned at the beginning of this year or towards the end of last year, at the danger of the inflationary forces, which were then active, are now no longer worried, any more than we are, about the danger of runaway inflation. They are beginning to get much more worried about the possibility of deflation, of the downward spiral beginning to move.60

  The dominance of MacEntee’s restrictive economic policy marginalised Lemass. This affected his role with the unions, as they and his urban constituents had to face a disproportionate burden of the belt-tightening impact of the budget. During the Fianna Fáil Government of 1951–54, Lemass and MacEntee fought out a battle within Cabinet to direct Government economic policy. There was a fundamental difference in their economic philosophies: MacEntee was an ardent conservative preoccupied with the idea of sound money; Lemass was an expansionist who believed in using the power of the state to encourage demand and investment. In September 1952 they argued about the possibility of raising a national loan to be used to encourage investment in the country. In reply to Lemass’ promptings on the necessity for such a loan, MacEntee asserted that his thesis lacked a sound basis: its premise was that Irish resources would support a much greater capital investment in Ireland if only the banks and other Irish institutions desisted from channelling them into British investments: