In Search of the Promised Land

by Gary Murphy

  34 Ibid., MS 26 040(1), untitled file dated 3 Mar. 1952.

  35 UCDA, MacEntee papers, P67/227, Whitaker to MacEntee, 2 June 1954.

  36 Feeney, MacEntee, pp. 179–80.

  37 Ibid., p. 180.

  38 The Leader, 12 Apr. 1952.

  39 The Leader, 2 Aug. 1952.

  40 The Statist, 19 Apr. 1952.

  41 Seanad Debates, vol. 40, col. 1628, 19 June 1952.

  42 Dáil Debates, vol. 130, col. 1315, 3 Apr. 1952.

  43 Ibid.

  44 NAI, Irish Congress of Trade Unions Archive, box 33 (part 1) 7222, statement on budget issued by National Executive, 21 Apr. 1952.

  45 Ibid.

  46 Quoted in Fanning, Department of Finance, p. 485.

  47 NLI, Brennan papers, MS 26 435, annual report of the Central Bank, 1951–52.

  48 The Standard, 28 Nov. 1952.

  49 Cork Examiner, 3 Apr. 1953.

  50 The Leader, 5 July 1952.

  51 NLI, Brennan papers, MS 26 435, annual report of the Central Bank, 1951–52.

  52 Cork Examiner, 20 Nov. 1952; Evening Herald, 20 Nov. 1952.

  53 Eamon de Valera, ‘An election broadcast’ (14 May 1954) in Maurice Moynihan (ed.), Speeches and Statements of Eamon de Valera (Dublin, 1980), p. 567.

  54 NLI, Brennan papers, MS 26 041, Brennan to Fussell, 22 Mar. 1953.

  55 Ibid., Meenan to Brennan, 21 Apr. 1953.

  56 Ibid., MacEntee to Brennan, 6 Jan. 1953.

  57 Ibid., Glenavy to Brennan, 7 Jan. 1953.

  58 UCDA, MacEntee papers, P67/224, McElligott to MacEntee, 11 Mar. 1954.

  59 See his speech to the Dáil on the report: Dáil Debates, vol. 127, cols. 298–316, 7 Nov. 1951.

  60 Dáil Debates, vol. 130, cols. 241–2, 21 Mar. 1952.

  61 NLI, Brennan papers, MS 26 040 (2), MacEntee to Lemass, 27 Sept. 1952. Feeney, MacEntee, p. 191 states that the Stacy May reported was submitted to the Government in 1952, but judging by this letter in late September, there is the possibility that the Government may have seen some sight of it earlier than that.

  62 IBEC Technical Services Corporation, An Appraisal of Ireland’s Industrial Potential (Dublin and New York, 1952).

  63 Confidential source.

  64 Economist, 6 Dec. 1952.

  65 NAI, DT, S.15389, Finance to Industry and Commerce, 27 Oct. 1952.

  66 De Valera is quoted in Diarmaid Ferriter, Judging Dev: A Reassessment of the Life and Legacy of Eamon de Valera (Dublin, 2007), p. 285.

  67 UCDA, MacEntee papers, P67/221, Department of Finance observations on establishment of a National Development Fund, 25 Aug. 1953.

  68 UCDA, MacEntee papers P67/221(3), observations of Central Bank on National Development Fund, 24 Aug. 1953.

  69 Ibid.

  70 UCDA, P167, Fianna Fáil parliamentary-party minutes, 441/A, 26 Nov. 1952.

  71 Ibid., 14 Jan. 1953.

  72 Ibid., 22 July 1953.

  73 Ibid., 27 Jan. 1954.

  74 NAI, DT, S.13101C/1, report of meeting between ITUC, the Labour Party and the Taoiseach and Tanaiste, 4 July 1953.

  75 O’Rahilly interview.

  76 The TID 2600 file series of the department shows manufacturers of a wide range of products inundating the department with applications for increases in tariffs on imported opposition. The TID 1207 ‘Control of Manufactures Acts’ files has in its index over sixty pages of files on questions from various manufacturers on how any removal of duties would affect their businesses.

  77 Girvin, Between Two Worlds, p. 180.

  78 The Control of Manufactures Acts, 1932–34 attempted to ensure that companies established behind the increasing tariff barriers of the 1930s and the numerous quota and licensing restrictions would remain under Irish control by requiring that more than half the equity of new firms should be Irish-owned. For a detailed analysis of the Acts, see Mary Daly, ‘An Irish Ireland for business? The Control of Manufactures Acts, 1932 and 1934’, Irish Historical Studies, vol. xxiv, no. 94, Nov. 1984.

  79 Cromien interview.

  80 E.A. McGuire, ‘Private enterprise or socialism?’, Irish Monthly, Oct. 1951, pp. 424–5.

  3. Opening Out

  In January 1954 Lemass asked the IDA to review the policy of protectionism. He had by then become convinced that foreign capital could undoubtedly fill a much-required need. The evidence Lemass had gathered in his years in power suggested to him that indigenous Irish industry could not fulfil the objectives of economic and industrial growth. From as early as 1938, he was searching actively – if somewhat quietly – for new policy instruments to replace those of protectionism and restrictions on foreign investment that had characterised Fianna Fáil policy since it had first come to power in 1932. War and the difficulties it brought impeded any advance in the economic sphere, while Fianna Fáil’s election defeat in 1948 was strangely interpreted by the party at large as being unrelated to the Government’s policy inadequacies.1

  Lemass had been persuaded to retain the IDA when he returned to office in 1951, and that body was adamant that the Control of Manufactures Acts would have to be amended, as they were a restriction on foreign capital entering the country.2Fianna Fáil’s defeat in the 1954 election left Lemass in a position to do much thinking on this issue. While realising the shortcomings of protectionism, and the advantages that foreign capital offered, he was still reluctant to tamper with the Control of Manufactures Acts, as they had been the cornerstone of Fianna Fáil industrial policy since 1932. He was urged by some within the party to grasp the opportunity that foreign enterprise would give to the economy.3Nevertheless, if he was to amend the Control of Manufactures Acts, he would be turning Fianna Fáil industrial policy on its head.

  The fundamental problem remained protectionism. As T. Desmond Williams perceptively noted:

  Fianna Fáil introduced it, Fine Gael continued it. Most people, however, including leading spokesmen in both administration and opposition, question the success of that policy … But if protection were to be reduced many of these infant industries would collapse. Certain social consequences would then follow, involving damage to the interests of the worker and the employer. These interests in different ways cannot be ignored by the politician … As representative of city and town they control the marginal vote which makes all the difference to the parties concerned. When a recent crisis threatened the textile industry, the immediate reaction on the part of the Minister was to impose a flat tariff of from 50 to 75 per cent on imports. This may have protected to some degree … but it favoured the least efficient as much as the most efficient firms in the industries concerned; it also provided no genuine solution over a long term.4

  This was the fulcrum of the problem for Lemass. As his economic philosophy on protection was developing, he had to balance how its removal would affect his urban constituents.

  In any event, MacEntee’s policies of economic orthodoxy were repudiated by the electorate. Fianna Fáil’s share of the vote fell from 46.3 per cent in 1951 to 43.4 per cent in 1954, and it lost seven seats to fall to sixty-five. Fine Gael was the main winner in the election, gaining ten seats to bring its total to fifty, and increasing its vote by nearly 7 per cent, to 32 per cent. More worrying for Lemass was the slippage of the Fianna Fáil vote in Dublin to 39.3 per cent – down from 46.4 per cent in 1951. Fine Gael, Labour and Clann na Poblachta had all gained ground in Dublin at Fianna Fáil’s expense. It would be essential for Lemass to stop this slippage from Fianna Fáil in urban areas if he was to gain a stranglehold on economic and industrial policy once Fianna Fáil returned to office. Patrick Lynch has spoken of Lemass remarking on how his interests stretched only to industrial development in Dublin, ‘and as far as agricultural development in the west is concerned, the west is the wild west’.5In essence, what was important for Lemass was that he develop an economic programme whilst in opposition that he could put into operation once back in office, and – more importantly – that it would be a programme that would deliver results. In 1954 it was not clear
if he would be able to do either.

  Missed opportunity

  It was the second Inter-Party Government that had the first opport-unity to develop a programme for economic expansion. It failed to take it. Fiscal policy continued to be restrictive under the new Minister for Finance, Gerard Sweetman – a man reported to be so conservative ‘that if present at the creation of the world, he would have voted against it’, and as having ‘one of the keenest minds of the nineteenth century’.6He endorsed his department’s orthodoxy, as had all his predecessors. While McGilligan had, to an extent, departed from these orthodoxies – most noticeably with the capital budget of 1950 – Sweetman took a conscious decision to revert to tradition. Yet the description of Sweetman as an arch conservative is somewhat misleading, as he would take a number of innovative steps in efforts to develop the country’s industrial infrastructure. In fact, one of the second Inter-Party Government’s principal aims on taking power was to increase industrial production:

  The Government believes that private enterprise should provide the country with the industrial development it requires. It recognises, however, that private enterprise may not be able alone adequately to develop the nation’s resources, and that accordingly state encouragements and stimulation will be necessary. The State Capital Development Programme will be supplemental to and not in substitution for private investment, which it will be the Government’s policy to safeguard as the mainspring of economic activity.7

  Yet in the first two years of the Government’s term of office, nothing was done in this regard.

  After two grim economic years, Sweetman imposed in March 1956 special import levies and additional taxes. He followed these with further measures in May and July, thereby greatly widening the range of import levies and increasing the rates on items that had been subjected to an increase in March. The gravity of the economic situation is graphically illustrated by an episode early in 1956. Frederick Boland – who had moved from External Affairs in 1950 to be ambassador to Britain – commented on how he was summoned from London early in 1956 for a meeting with the Taoiseach, John A. Costello, the Tanaiste, William Norton, and the Minister for Finance, Gerard Sweetman:

  They told me that the state of the finances – the balance of payments – was bad, very bad and drastic measures would have to be taken to put it right, and that these measures would hit British exports to Ireland very severely. So I had to explain this as best I could to the British Government, so I said ‘What are they going to do?’ ‘We’re going to put a duty of 60 per cent on all durables, machinery and so on, coming into the country.’ Well I said, ‘the British won’t like that. Listen would you not make 60 per cent and 40 per cent preferential in favour of British and Commonwealth?’ So Norton said, ‘Yes we could do that, if you think it will make it any easier.’ So they gave me a list of things they were going to put duty on and I set off.8

  Boland discussed the issue with both the Chancellor of the Exchequer, Harold Macmillan, and the president of the Board of Trade, Peter Thorneycroft, and ultimately the British swallowed the unpalatable Irish duties without a ‘ruffle of disagreement between the two Governments’.

  The episode is indicative of the drastic state of the Irish economy, and also suggests a rather haphazard approach to trade-policy formulation. By 1956, four years of deflationary policies had taken their toll. In that year, industrial production fell by 3 per cent, agriculture by 7 per cent, GNP by 1.3 per cent, and employment by almost 2 per cent. Sweetman was insistent, however, that the measures he took were correct. He declared that ‘what is at stake is our economic independence. If we should lose this the political independence we have achieved would be a mere facade. The Government are determined that both will be preserved’.9

  Sweetman’s economic policy was vigorously backed by the Depart-ment of Finance and the Central Bank, yet within the Govern-ment there was deep division. Costello himself had grave doubts as to the wisdom of such stringent economic measures, and there was serious dissatisfaction in the Labour Party. The Provisional United Trade Union Organisation (PUTUO) held two special conferences on the twin problems of unemployment and emigration, and actively criticised Labour for hurting its own supporters. In industrial policy, the Inter-Party Government remained committed to a private-enterprise economy, but was willing to increase state involvement when private enterprises were unable to pursue various projects that might be viable:

  It has been accepted policy in this country that the state should not engage in industrial and commercial activity unless it was clear that private industries were either unwilling or did not possess the necessary resources to carry out a particular project. It might in fact be said that it was only as a last resort that the state entered any field of industry or commercial activity.10

  If Muhammad won’t go to the mountain …

  The Government did, however, set out to attract foreign investment to Ireland. If Irish enterprise was unwilling to take the risk of establishing native industries, William Norton – leader of the Labour Party and the new Minister for Industry and Commerce – was intent on the Government attracting foreign enterprise. Initially, the Government accepted the proposal of an Anglo-American oil combine to construct an oil refinery in Cork harbour. The deal – worth £12 million – was the largest sum invested in a single private enterprise in Ireland.11Following on from this success, Norton embarked on a European tour in spring 1955 in an attempt to persuade foreign investors to come to Ireland. Accompanied by the chairman of the IDA, J.P. Beddy, and Luke Duffy, a member of the IDA board, Norton extolled the virtues of Ireland for those who might be willing to invest foreign capital. In Sweden, for example, he claimed that Ireland was singularly free from trade disputes, and – curiously for the leader of the Labour Party – that ‘our wage levels are very much lower than yours’. Beddy, for his part, reiterated that industry in the country was protected, but added that it would not have been feasible to set up native industries without such a policy. His primary argument was that indigenous firms would have had to face the competition of long-established manufacturers in Britain whose names and products would be very well known in Ireland. Without protection, it would not be possible to establish such new industries and face this competition. Beddy put particular stress on Ireland’s advantages:

  We maintain absolute parity with sterling and there is no difficulty whatever in our arrangements with Britain. There is no credit restriction exercised by the Government through banks in Ireland in relation to industry … almost all industrial goods produced in Ireland enjoy the right to free entry to Great Britain … The Irish Government favours private enterprise and does not itself engage in industry unless in special circumstances.12

  Ireland’s close links with Britain were being put forward as one of the main reasons why foreign capital should invest in Ireland. Yet it should be recalled that Finance was following the British line in fiscal policy to the obvious detriment of any Irish industrial development, in that there was chronic under-investment in the Irish economy by the time the second Inter-Party Government assumed office.

  Norton travelled to the US early in 1956, again with Beddy, in his continued attempts to attract foreign industry. He explained his motives for such visits:

  The steps now being taken to attract external investment to Ireland should not in any way deter our existing manufacturers from proceeding as rapidly as possible with their own plans for development. The whole purpose of stimulating external investment in Irish industry is to promote the establishment of new types of industries and to secure an expansion that would not otherwise take place. Irish manufacturers, who are catering efficiently for the needs of the market, may, therefore, rest assured that their interests will be fully guarded.13

  The problem with this was that it was bound to create quite an element of doubt amongst those industries catering only for the home market and not overly interested in finding new markets. These industries were not looking to share in the harvest of expansion, and
were obviously worried as to how an influx of foreign capital would affect them. The more vibrant industrialists, however, had no doubt but that foreign investment was good for industry, and would help it expand and develop; as Aodogan O’Rahilly commented:

  As a country we needed more dynamism in an economic sense, whether we got it from at home or abroad was immaterial, we needed it or else we were not going to advance much further industrially or in any other sense either.14

  Fianna Fáil opposed Norton’s initiatives. It is tempting to see this as merely opposition for opposition’s sake, particularly in the case of Lemass, who undoubtedly was in favour of bringing foreign capital into the country. In late 1955 and early 1956 Lemass was actively advocating large-scale schemes of expansion, but continued to insist that the Control of Manufactures Acts should not be repealed, though he admitted that they should be reviewed. De Valera and MacEntee, by contrast, still believed in the pre-eminence of agriculture over industry. While they realised that the Irish economy needed a vibrant industrial arm, there can be little doubt that they considered the future well-being of the Irish economy residing in its having a strong agricultural-export base. As the Irish economy was about to enter its worst depression since independence, there was as yet no likelihood that indigenous industry would lead the country out of its black trough and into a bright new dawn.