In Search of the Promised Land

by Gary Murphy

  We can no longer rely for industrial development on extensive tariff and quota protection. Foreign industrialists will bring skills and techniques we need, and continuous and widespread publicity abroad is essential to attract them. If foreign industrial investment does not rapidly increase, a more radical removal of statutory restrictions on such investments should take place.69

  The main theme of both documents, as was pointed out at the time, was that an increase in investment and an expansion in demand – coming from agriculture – would set in motion a general expansion in the national product.70In conjunction with this was the aim of attracting foreign industry. Whitaker outlined two ways of attracting foreign corporations: removing restrictions and giving incentives for foreign firms to establish bases in Ireland. The Control of Manufactures Acts were amended, and a series of proposals intended to attract outside investors to Ireland were recommended. He proposed that the IDA should expand its staff, particularly in North America, in an intensification of its efforts to attract foreign capital. He further proposed increasing the capital available for outright industrial grants. This was a point echoed by Todd Andrews:

  I cannot see any quick way, or indeed any way of providing these 20,000 jobs out of our own resources; the capital must be brought in from outside … I do not think that we have enough trained people technically and commercially to enable us to spend £100 million per annum. We must try to induce established industries to set themselves up in the country.71

  Andrews had in mind such novel proposals as setting up casinos in the country. He was particularly worried about the poor state of Irish tourism, and stated that only one new hotel had been opened since the foundation of the state. Moreover, some commentators were insisting that:

  The need to maintain some margin of tax advantage over more developed countries in north-western Europe seems evident, if we are to attract foreign investment and foreign enterprise, for even if it can be argued with some reason that the level of taxation may not, perhaps, have such a significant effect upon domestic investment as is sometimes suggested, it is clearly of paramount importance where foreign investors are concerned.72

  An essential element in this new approach to economic policy was a redressing of the balance between economic and social investment in the public-capital programme. This programme gained support from a rising level of domestic savings based on steady growth in real national income, and domestic savings could be supplemented by reasonable recourse to foreign borrowing to promote productive home investment. Thus, a decision was taken to accelerate Ireland’s economic progress through an inflow of external capital directed to types of development that would increase the country’s productive capacity, and which would bring with it new techniques and methods. Economic policy thus became more expansionary – an appropriate Keynesian response, according to Whitaker, at a time when Irish costs were competitive and world trade was buoyant.73

  While there were some significant differences between Economic Development and the Programme for Economic Expansion – which arose out of their different parentage – such differences were for the most part cosmetic, as the main thrust of both documents was the same. Where Whitaker had argued for intensive cattle production as the foundation of agricultural prosperity, the White Paper did not want to abandon completely Fianna Fáil’s traditional preference for tillage. Whitaker’s proposal to locate new factories in large urban centres was omitted from the White Paper owing to Fianna Fáil’s policy of decentralisation of industry, despite Lemass’ own doubts about the party line. While the political document did advance a firm commitment to a 2 per-cent annual growth in GNP over each of the ensuing five years, Economic Development – in time-honoured civil-service fashion – was suitably vague about targets. Yet on the whole the two documents were remarkably similar.

  Economic Development remains probably the most seminal document in the independent Irish state. A recent popular history of Irish documents notes that for a rather dry policy document, it has now taken on an iconic status.74Bryan Fanning has argued that, as ‘a post-independence cultural event, the nativity of Economic Development was rivalled in the telling only by the story of the conflict surrounding the ‘mother and child scheme’ in 1951’.75Yet Economic Development did not impinge on the consciousness of the body politic immediately. The major newspapers gave it only cursory treatment, while the political parties showed a similar lack of interest. The Fianna Fáil parliamentary party minutes of the period are fascinating for its discussion – or, rather, lack of it – of Economic Development. In its first discussion of the document, it was recorded that ‘the Party be given a directive on the implications of the recent White Paper on Economic Expansion’. Ryan gave this meeting, at which Lemass was not present, a general résumé of the contents of the paper, which was then followed by the rather bizarre spectacle of a discussion ‘in which arterial drainage and of certain very necessary drainage schemes was stressed by several members’.76A planned session devoted to the White Paper on 6 January was deferred until 28 January, when Lemass ‘explained that the proposals in the White Paper were to be regarded as an outline of minimum requirements for the future and do not exclude further proposals’.77The agricultural effects of Economic Development were not discussed until March. While this seems to have occupied the party somewhat more as the debate ran into April, the minutes of these discussions are even more sparse than usual, although they state that the debate continued with contributions from various deputies.78It would appear that few politicians – whether in Fianna Fáil, as the evidence indicates, or elsewhere – were greatly struck by the attempt to revolutionise national economic policy-making.

  One of the major problems faced by Lemass in his attempts to develop the Irish economy lay in the visible unwillingness of the Department of Industry and Commerce to embrace the new agenda for industrial expansion based on the active development of export markets coupled with a reduction in tariffs. Associated with this was the need to push Irish industry into a less complacent frame of mind, and to attack inefficiencies and the lack of competitiveness that had come to characterise an industrial base for so long sheltered behind tariff walls. Adding to this was the country’s chronic dependence on the UK market for industrial as well as agricultural goods. A report from the Department of Industry and Commerce in February 1957 predicted that in the event of protection disappearing, a significant section of Irish industry would simply cease to exist. It estimated that up to 60 per cent of industrial employment would be lost if unrestricted entry of foreign goods were permitted: ‘whatever the outcome, we must face the disemployment [sic] of from 80,000 to 100,000 persons, to say nothing about consequential disemployment that may be expected in other directions’.79Yet emigration between 1946 and 1956 was in the region of 300,000, while employment in manufacturing industry in the period increased by only 34,000. For Industry and Commerce, the question of protection was in many ways linked to the loyalty that the department showed to those industrialists who had set up businesses under the protective shelter. As one former senior civil servant who was highly involved throughout this period has surmised:

  Industry and Commerce would have felt an obligation to a lot of those people who had set up Irish industry and did so on encouragement and word of Industry and Commerce and also because they got protection. I don’t think there’s any question that they were obstructing the advent of free trade, but they definitely felt an obligation to those already in industry. Thus they argued their views strongly.80

  The main impetus for changing the way manufacturing industry operated emanated from the Department of Finance. The formation of the EEC in 1957 and the reaction of non-OECD (Organisation for Economic Co-operation and Development) members to this important development was one of the major factors giving rise to Economic Development.

  ‘More Catholic than the Pope’

  After the publication of Economic Development and the First Programme for Economic Expansion, Whitaker went on the off
ensive against protectionism and its supporters within the civil service. In December 1959 he issued a memorandum entitled ‘Reasons for reducing protection’.81Its first line came straight to the point: ‘The inadequacy of a policy of protection as a remedy for the problems of unemployment and emigration has become obvious in recent years with the increasing saturation of the limited home market.’ The average number engaged in manufacturing industry had increased by only 2,000 between 1951 and 1958. The Department of Finance thus argued that it was only through enlarging its sales on export markets that Irish industry could in future provide jobs in increasing numbers for those who sought a livelihood in Ireland. For this to happen, a steady increase in exports would be needed to support greater internal activity and the higher expenditure on imports that would have to coincide with a general improvement in employment and living standards.

  It was recognised by all sides that external purchasers would not turn increasingly towards Irish products unless these products were fully competitive in price and quality. By the end of the 1950s only a few Irish industrial products would have passed this test.82By contrast, most of the other countries of Western Europe already had large and efficient industrial sectors. Furthermore, between 1949 and 1958 the volume of Irish industrial production went up by only 23 per cent, whereas in OEEC countries taken as a whole, the increase was 73 per cent. Thus, to Finance it was obvious that the country could not hope to share in the economic advance of Europe if it were merely to try to safeguard the industrial status quo. Finance therefore argued for a determined drive to increase efficiency and lower unit costs to enlarge sales in export markets against the growing competition. The non-competitiveness of many Irish industries was related to the small size of the home market, the inadequate utilisation of productive capacity, and the lack of opportunities for economies of scale and specialisation. The only remedy for these deficiencies was to bring about an expansion of effective demand for the products of Irish industry. Finance saw two ways in which this could be achieved: firstly, by attracting external purchasers through the offer of high-quality goods at competitive prices, and, secondly, by raising real incomes and purchasing power in the non-industrial sector of the economy, as was the aim of policy in relation to agricultural exports and tourism. In essence, progress under the first option depended on raising productivity. This, however, would be greatly increased by success under the second.

  The need for urgent action to bring down the cost and improve the quality of Irish-manufactured goods was made all the greater by the emergence of two distinct trading blocs in Europe. Competition in export markets would undoubtedly grow as the major countries of Europe – through tariff reductions and freer trade – achieved greater specialisation, higher output and lower costs. Ultimately, the high protective tariffs associated with Irish industry reinforced the non-competitiveness of Irish goods. In the case of the vast bulk of protected industries, exports formed only a small proportion of output:

  The scale of protection is such that in many industries there is no effective competition at present. There are over 400 protective tariff references and of these over 100 provide for tariffs of more than 50 per cent ad valorem (full) or 33⅓ per cent (preferential). A gradually increasing element of competition on the home market would be a much more general and effective spur to improvements in efficiency than special aids and incentives to which only the progressive undertakings will respond. As long as high protection is maintained there will be no compulsion to get into shape for export markets. Sheltered against the normal consequences of inertia, unprogressive managements can use the high protection they enjoy to make inefficiency profitable.83

  So said Whitaker. The aim of the Department of Finance was to gradually lower protection in the context of an agricultural-exports arrangement that would increase purchasing power on the home market. Tariffs, Whitaker claimed, were justifiable economically only as a temporary help for ‘infant industries’, while he maintained that a growing number of countries were formally recognising, by their participation in common markets and free trade areas, the mutual benefits to be derived from freer trade. Whitaker argued that with the support of the Federation of Irish Industries (FII), state aid in the transitional period – when the ‘sheltering screen’ of protection was being gradually lowered – could take the form of loan capital on reasonable terms, technical-assistance grants and other such incentives. This would be made available to assist in the process of adaptation and modernisation of industry. Ultimately, Finance wanted to be associated with some form of economic trading group that would enable the country to share more certainly in the economic advance of countries more favoured than Ireland:

  A closer degree of association with the international economy, through reduced protection and participation in a free trade arrangement, would help to compensate for the narrowness of the domestic market, more especially if it also promised a surer and better market for agricultural exports. It is only by gearing ourselves for a growing trade with the rest of the world that we can tackle, with real prospect of success, the problems of unemployment and emigration.84

  Whitaker’s memorandum sent a shock wave through some sections of the civil service, with Industry and Commerce particularly aghast. J.C.B. MacCarthy, its secretary, replied tersely that he could not accept the views set out in the memorandum as anything other than a somewhat idealistic approach that was not backed by anything more than faith in the operation of the economic laws that were expounded – namely, free trade:

  The harsh realities of the situation are that we have our industries, with many thousands of people employed in them, and we cannot really afford to use them as guinea-pigs. You say protectionism is only for ‘infant’ industries but ours are not yet out of their teens and still need a measure of paternalism. It is well to remember that if the war years and their immediate aftermath are excluded, as they ought to be, our industries have not had much more than a decade of protection. Even the adult industries of the great industrial nations need and get protection.85

  In essence, Industry and Commerce was warning about the dangers of Irish industries being involuntarily led from Whitaker’s advocacy of the discipline of tariff reductions to advocacy of complete free trade. MacCarthy claimed that this might be an easy transition to make in the abstract, but would be entirely different in practice. He conceded that industries could be subjected to well-thought-out, prudent cuts in protection as an incentive to efficiency, but these would have to be made very carefully and ‘on a basis that would not leave us without the power speedily to reverse engines as and when experience dictated’. He concluded by saying that he hoped Whitaker would have a chance of ‘tempering economic theory to the facts of our industrial life’ before they next met, while adding that he hoped that Whitaker’s memorandum was intended to be ‘provocative rather than doctrinaire’.86

  Whitaker was enraged. He accused MacCarthy of forcing him to accept either one of two denigratory epithets: provocative or doctrinaire. He claimed that his original document contained the essence of realism, and was not, as MacCarthy had insinuated, an advocacy of complete free trade. Whitaker’s paper basically advocated a progressive discipline of tariff reductions with the right to arrest the process where any major industry came under dangerous stress. Clearly stung by MacCarthy’s riposte, Whitaker responded with his own denigratory epithet:

  We both of us know people who are more Catholic than the Pope; should Industry and Commerce not guard against becoming more protectionist than the Federation of Irish Industries … I am personally convinced that the issue is not one of economic theory but one that bears directly on our hopes of future economic development.87

  The FII had always been the most protectionist of organisations, and by comparing Industry and Commerce to it, Whitaker was undoubtedly giving the impression that the department was some sort of administrative dinosaur harking for a bygone age. MacCarthy swiftly responded. In what can be seen perhaps as a softening of the hard-edged to
ne evident in the correspondence of both men, he began with ‘Dear Ken’ rather than the customary ‘Dear Whitaker’. This may have been because it was Christmas Eve, but in any event there can be little doubt that Whitaker’s jibe about the FII had annoyed MacCarthy. He asserted that it was his duty to point out the pitfalls that lay ahead in free trade conditions for industry, and said that there was a tendency to underestimate these risks, whilst adding:

  I am sure that you would not wish to be unfair in any comment but I do think that the third paragraph of your letter of the 23rd December hits a little below the belt. After all, it is the Government and not the Federation of Irish Industries that has to take the decision.88

  While this may, indeed, have been true, MacCarthy went on to reiterate the old Industry and Commerce mantra that protectionism had served Ireland well. Ultimately, the debate came down to the future direction of the Irish economy. While Whitaker stressed that industrialisation, under protection, had not solved the unemployment problem, and that the continuation of the policy of industrialisation under protection would not provide the expansion the country required, MacCarthy preferred to take the view that:

  As far as employment is concerned, if we had not had the protective policy and, even if it is not a cure for all our ills, is it logical to toss it overboard, unless it is clear that something better can be substituted which will not only maintain employment at the existing level but give the scope for expansion which is desired? All I am seeking is to get the alternatives clearly stated so that a considered choice can be recommended.89