In Search of the Promised Land
Page 27
The ‘measurable time’ the Government had in mind was twenty-five years, within which Ireland would be prepared to submit to independent examination its economic position at suitable intervals. Once Ireland’s economy had attained a satisfactory relationship with the economies of other member countries, the Government would assume obligations of membership to the extent justified by such an improvement.
The presentation of the Irish case for special treatment is noteworthy in two respects: primarily, it marks some softening of the hard-line attitude previously adopted by Industry and Commerce in that it was accepted that there must be a time limit to protection; secondly, the proposal was silent on the treatment of agriculture in the free trade area.25The Government was prepared to accept the Department of Agriculture’s view that the best option for Irish agriculture lay in exploiting bilateral arrangements with Britain. In April 1957, as we have seen, Agriculture had maintained that as Britain would continue to be the predominant market for Irish agriculture generally, the policy with regard to the free trade area and any common market should be co-ordinated with a policy of ensuring that any special advantage Ireland had in the British market should be preserved and developed, and that any trading difficulties should be alleviated.26
The Irish case was considered at a meeting of the working party in Paris on 28 May 1957, at which supplementary information in support of the submission was presented orally by J.C.B. MacCarthy. The majority of the various delegations of OEEC countries took a sympathetic attitude to Ireland’s submission, although some nations felt that the Irish case was unduly pessimistic.27Accepting that the Irish presentation was very much an outline one, the working party sent a delegation to Dublin in June. Its principal objective was to gain further information on the issues of tariffs, agriculture and capital. In the first instance, the delegation wanted to know whether tariffs would be taken off during the twenty-five-year period mentioned in the Irish memorandum, and, if so, would this be on a global or a selective basis.
Before the Government formally replied, MacCarthy had informed Fay, the ambassador, that Ireland could not guarantee in advance to have removed all quotas after a twenty-five-year period, although that was its aim:
I did not say that the Government would undertake not to reduce existing quotas. What I did say was that they would not impose new quotas … I do not want you to think from what I have said that in practice we will reduce existing quotas.28
While this made MacCarthy’s position clear, the report of a meeting of the committee of secretaries on 12 June noted:
The Government would wish that the discussions with the working party delegation and negotiations generally with the OEEC should proceed on the assumption that Ireland will go into the Free Trade Area if at all possible.
It was with this approach in mind that the response dealt comprehen-sively with the tariff question, where it argued that Ireland should be exempt from any obligation to effect automatic tariff reductions, and advanced several supplementary proposals.29The Government concluded its case for special treatment with an assurance that more than adequate measures were being taken to obtain increased investment. Included with this communication was an extract from James Ryan’s budget speech of 8 May 1957, which spelled out the economic objectives of the Government and its commitment to attaining them:
The examination of our affairs which we have been pursuing in connection with the European Free Trade Area (EFTA) proposals will undoubtedly show up defects in our economy and should guide us in making the improvements so urgently needed. The direction and rate of our future advance will depend on the decisions we take now. There are no easy expedients by which our difficulties can be solved.30
This speech also claimed that the Government had full confidence in the inherent soundness of the economy and its ability to provide higher living standards for an expanding population on the firm basis of an increase in production and exports. Ryan – who had considerable business experience in his native Wexford – believed that the relaxation of restrictions and the assurance of new reliefs, together with the maintenance of the state capital programme at a high level and the prospects of a continuing improvement in exports, would strengthen business confidence and stimulate production. He asserted that the resultant growth of opportunities for work should effect a marked improvement in the unemployment situation, and check the outflow of people from the country.31In reality, 60,000 more people emigrated in 1957.
‘A fair-minded, unprejudiced man’
This was a crucial time for Lemass, who recognised that existing investment and output were not sufficient to maintain the level of demand he considered necessary to attaining full employment. He believed that the promotion of industrial exports was the best way to achieve export-led growth. The evidence available to him suggested that indigenous industry could not fulfil this objective; he therefore proposed to amend the Control of Manufactures Acts, and use other institutional devices to attract foreign investment to Ireland, noting that export-led growth could only be achieved if foreign investment contributed capital, technology and experience to Irish industry. The Control of Manufactures Acts of 1932 and 1934 were subsequently amended, and a series of proposals was initiated with a view to attracting outside investors to Ireland. As Tom Garvin has pointed out, many local manufacturers would have opposed such a move reflexively. Thus, Lemass – aware that many of these manufacturers had been in operation since protectionism was introduced in 1932 – rescinded in 1958 only the acts for industries that exported the bulk of their produce. He then changed the title of the new act from a ‘Repeal of the Control of Manufactures Act’ to an ‘Act for the encouragement of exports’. Those selling on a small scale to the local market would not be concerned, and would remain quiescent.32In many ways, this summed up Lemass’ problem. He was trying to reorient economic policy but could not afford to leave his political base behind. As Tadhg Ó Cearbhaill has pointed out of Lemass:
He was a fair-minded, unprejudiced man. I mean that if you could show that schemes brought up were useful, or that old schemes and ideas were redundant, he would go with the new. To some extent that was the case with the Control of Manufactures Acts.33
Lemass was careful to point out, however, that the key fulcrum for change would remain indigenous industry.34This may well have been to satisfy those within Fianna Fáil who viewed the attraction of foreign investment as a betrayal of the policy of self-sufficiency that the party had fostered in the 1930s. How Lemass proposed to resolve this conundrum between indigenous industry and foreign investment is unclear. Indigenous Irish industry was – as the Government itself had made clear – extremely weak and suffered from both a lack of entrepreneurship and adequate risk capital. Furthermore, protectionism had given industrialists a particular mindset that was proving extremely difficult to change. Colm Barnes, one of the more dynamic industrialists of the period, has talked of the difficulties Lemass experienced with industry:
Looking at it from the vantage point of our company, Glen Abbey, for example, we had predictable, secure markets. Sometimes we were even short of workers at particular times. What Lemass was trying to change in many ways was that state of mind of being comfortable. Companies had great security and quite acceptable profit. But it wasn’t a large enough economy … and Lemass knew that well.35
Thus, while Industry and Commerce in mid-1957 was advocating strong protection for Irish industry and a bleak future, Lemass – once more minister – was contemplating new strategies, with Europe to the forefront. He was prepared to remove all restrictions on inward investment if companies exported most of their production. Yet most companies were not thinking along the same lines. Theoretically, Lemass might have wanted to bring industry with him in his efforts to attract outside industry and encourage indigenous industry to export; in practice, it was an undertaking of colossal proportions as, in effect, it was an attempt to completely overhaul industrial policy in place since the beginning of the state.
Fi
ne Gael, now in opposition, also had strong views on EFTA, and circulated a private memorandum on Ireland’s prospects within any European trading bloc.36This noted that the creation of a common customs barrier would profoundly affect the whole pattern of Irish external trade. Like other commentators, it foresaw the transition from a highly protected industrial framework to an open one as having a considerable effect on Irish industrial production and employment. While the immediate danger to Irish industry could not be exaggerated, Fine Gael estimated that any drop in employment in one sector could be compensated for by increases in others. The effects of thirty years of protection had been to increase the numbers employed in manufacturing industry by less than 60,000. Furthermore, this figure included industries not affected by protectionism, such as grain milling, baking, construction engineering, electrical construction and newspaper production. Thus, the labour increases in industries manufacturing some protected goods could be put at no more that 50,000 – 4 per cent of the working population. Fine Gael interpreted this as evidence that the advent of free trade would certainly not lead to large-scale unemployment in the country. It was necessary, however, to have a free period in which protected industries could prepare themselves to meet fair competition from abroad. It had been conclusively proved, the party argued, that the way to full employment was not to be found in protectionism, as it was increasingly recognised that the small size of the Irish market had hindered Irish manufacturers from obtaining the benefits of the economies of large-scale production. Expansion of productivity and employment could be obtained only if a larger market was secured. Such a market would be available in a free trade area, which should prove a means of expansion for many Irish industries:
The onus of proof must be on those who argue that we should not join EFTA or be associated in some way with the EEC. With chronic un-employment, large-scale emigration and a sluggish rate of industrial and agricultural expansion, nobody can be satisfied with the present framework of our economy. The prospect of increased exports bringing with them higher agricultural earnings and production and greater supplies of foreign exchange to help finance domestic development is one not lightly to be turned down. The Free Trade Area may not contain a magic formula to heal all her economic ills. But for a country so economically sick as Ireland is, it may easily point the way to a remedy, and should certainly not make our situation any worse.37
It is doubtful if all in Fine Gael approved of such a policy, which in essence mirrored the policy of Lemass. But it demonstrates that Fianna Fáil did not have a monopoly in pursuing the European option.
At a meeting with the British in November 1957, Lemass noted that as far as industry was concerned, the Government realised that ‘in the Free Trade Area protection would ultimately have to go’.38The Government was hopeful that improved standards of living in Europe would in time lead to an expansion of demand for manufactured goods, which would be a stimulus to economic activity ‘even in fringe countries like Ireland’. He intimated that such a ‘spill-over’ process would not materialise until the more highly developed centres in Europe ‘where activity was already concentrated were further developed to the point at which factors like labour shortages made it necessary for industrial promoters to consider outlying areas’. It was with this in mind that the Government was asking for time to consolidate existing home industry before asking it to stand up to tariff cuts. Basically, the Government was looking to achieve a number of objectives in its negotiations with the British. Its principal position was:
The British should be asked to support, in the negotiations concerning the Free Trade Area, the proposition that there should be a recognition of a special economic relationship between this country and Britain – particularly as far as trade in agricultural products – that such relationships must continue in the Free Trade Area and that any bilateral arrangements made by virtue of it should not be regarded as being incompatible with the rules of the Area.39
The result of these negotiations with the British was a visit to Dublin in January 1958 by British Paymaster General and Minister without Portfolio, Reginald Maudling, to whom the Government spelled out the above objective. Of paramount importance was winning the support of Britain – as yet not forthcoming – for Ireland’s case for special treatment as a country in the process of economic development.40
Put your backs into it
On the industrial front, a substantial proportion of capital formation in Ireland had consisted of basic infrastructure, and this seemed likely to continue for the immediate future. The Government’s argument was that the availability of external funds for infrastructural projects would release funds for the financing of competitive industries, thus providing further and wider opportunities for employment. These proposals were underwritten by a Government strategy to attract investment into the country. The IDA had embarked on an active campaign to secure the establishment in Ireland of factories based on external financial and technical participation. A delegation had been sent to the US and to a number of European countries, and the Government spoke of its taxation and other incentives towards industrial expansion that had been recently introduced and which were available to foreign industrialists who established industries in Ireland. Thus, the Government strongly supported the Greek proposal that facilities and incentives should be provided in the advanced countries for the purpose of positively encouraging business enterprises towards countries in the process of development.
Some officials involved in the OEEC had doubts about the wisdom of Ireland categorising itself with Greece and Turkey. J.F. Cahan, secretary-general of the OEEC, told an audience at UCD in May 1958 that Ireland was not underdeveloped in the sense that Greece and Turkey were. He went on to castigate the pessimistic mindset that prevailed in Ireland:
I have heard a certain amount of rather pessimistic comment since I arrived. People who say that Ireland can never develop; that there is no hope. I think that it is desirable, from time to time, that one should sit down and count one’s blessings before abandoning oneself to this kind of black despair.41
For Cahan, the free trade area offered a challenge to the less developed countries. Ireland, he argued was not underdeveloped but less developed. He contended that Ireland should draw up a programme ‘of what it is that you think you ought to achieve in the way of development, in the next five or next ten years’. Cahan explicitly proclaimed that Irish policy-makers should attempt to foresee progress, set themselves targets, judge as time advanced how near these targets were to being achieved, and not leave it to the ‘Good God or the whim of the moment’ in deciding how development was to take place. He went on to argue that the Irish Government should look to Europe in its search for economic progress, within which the OEEC would do all in its power to help. This help, however, would have to be linked with indigenous growth:
You will get nowhere if you merely rely upon the help of others. The foundation of your development must be produced here by you, yourselves. We, who are outsiders, can give you help, but it will be useless unless you put your own backs into it as well.42
Moreover, some British policy-makers were asking if it was worth including such underdeveloped countries as Ireland at all, with R.W. Clarke – later, Sir Otto Clarke – of the Treasury maintaining that they ‘would be more trouble than they were worth’.43Indeed, the placing of Ireland, Greece and Turkey into a single working party could well be taken as a sign that the OEEC considered them of little importance.
Irish ambitions to enter such the free trade area received a knock from a different source when, in late 1958, events took a dramatic turn as the negotiations for a free trade area were suspended following a French veto. Almost immediately, seven members of the OEEC commenced secret negotiations to form a free trade area among themselves. In June 1959 these talks came into the open, and six months later the Stockholm Convention establishing EFTA was ready for signing. The Irish Government was not invited to the preliminary discussions in February 1959 probably because
the seven nations did not want to be encumbered with the kind of problems identified with Ireland during the OEEC negotiations.
In Ireland, the prospect of isolation gave cause for concern in some official circles, particularly within Finance. Economic Development had proclaimed in its first chapter that ‘Sooner or later, protection will have to go and the challenge of free trade be accepted. There is really no other choice for a country wishing to keep pace materially with the rest of Europe.’44Now the European offer upon which, in many respects, free trade hinged seemed less attainable than ever. Nonetheless, for Lemass, the European dimension to economic policy remained at the hub of Government thinking. This was noted by the US embassy in Dublin in August 1959:
Although Ireland has demonstrated in the UN that it has a wide interest in foreign affairs that do not directly affect the interests of Ireland, the country has failed to show a realistic interest in foreign affairs that do have a direct bearing on its progress. In this regard the opposition … have been most critical of the Taoiseach’s failure to cope with Ireland’s interest in European markets … it appears that the necessity of foreign co-operation is being brought home to Lemass and that he now realises that he must deviate from his Government’s policy of indifferent isolation and take an active role in establishing a place for Ireland in the European trade pattern.45
This was also true at an administrative level. Finance’s emphasis was on the dismantling of protection and the evolution of an external economic policy that would be export-led; thus, the notion of being outside any of the major European trading blocs was anathema to the department.