The Reluctant Taoiseach

by David McCullagh

  One of the key tasks facing Costello was to defend the record of the Inter-party Government. As his close friend Senator James Douglas wrote in early August, Fianna Fáil, “especially MacEntee, is trying to put over the idea that the Inter-party was reckless and irresponsible in its financial policy … it seems to me that the game is to create a general impression that the country has been left in a serious financial position, and then to claim later that it was saved from financial ruin by Fianna Fáil”.12

  Costello tackled these suggestions head on in a speech to his constituency executive later in the month. He claimed the Inter-party Government’s policy of capital development had led to an unprecedented expansion in agriculture and industry. “It is still our policy and one which we believe should, in spite of the difficulties of the times, and particularly because of the uncertainties of the future, be pressed forward with all reasonable speed.” He defended his government’s record on inflation, pointing out that it had refused to sanction increased milk prices, despite the political advantages of doing so. “We left the finances of the State in a sound and healthy condition, and the continuance of the bold and courageous policy of capital expenditure to develop the resources of the State … will best secure the maintenance of employment, financial stability and economic security.”13

  This speech, which was fully reported in the newspapers, was seen by The Leader as the start of “real controversy” on the question of whether a financial crisis was looming. Costello’s emphatic denial of such a disaster was to dominate his political activity in the coming months.14 At this time, and throughout this period in opposition, he was heavily reliant on his son-in-law, Alexis FitzGerald, who acted “as a kind of one-man research centre and as speech writer”.15 FitzGerald’s ideas on economics, particularly on capital investment and the repatriation of sterling assets, dovetailed with Costello’s own views. They were also politically useful—there was a need to respond to Fianna Fáil’s policy of austerity.

  The Costello family had their summer holiday in Italy,16 as they were to do for several years around this time. On his return to the political frontline, he told his friend Tom Bodkin that reports from the country “indicate dissatisfaction with the present government and a general expectation of an early election”. He was particularly critical of Lemass for making speeches full of “gloomy prophecy and indications of bad times ahead. He has cast himself for the role of the politician who will tell the people the facts no matter what the political consequences. The fact, of course, is that he has found himself enmeshed in his own promises which he can’t fulfil.”17 He told Dillon that he would “deal with some of Lemass’s major misrepresentations” in a speech in his constituency.18

  This speech, delivered at the opening of Fine Gael rooms in Rathmines in October 1951, made fun of Lemass for his “Dunkirk manner”. Costello pointed out that the Tánaiste “only dons his mantle of heavy statesmanship when the burdens of Government press upon and dismay him. The perception which he now displays of the problems of Irish economics did not after all come to our assistance during the trials of last winter.” He apologised for “striking a disharmonious note of cheerfulness”, but said, “I don’t think that things are so bad and I doubt if the Tánaiste does either. After all, this is a technique that has been used before—prophesying the arrival of evil days and claiming credit if they do not come … the only reason they talk as they do, is to injure at the cost of the nation the reputation of their predecessors …”19

  This reputation was about to suffer another injury, this time from the Central Bank, which issued its report for the 1950/51 financial year in October. With some understatement, the Irish Times described it as a “gloomy review of financial tendencies”.20 The Central Bank complained that Marshall Aid “was expended largely on consumer or near-consumer goods”; that “the constantly increasing scale” of State spending had pushed up costs; and that the public works programme was “disproportionate”. The economic position, it complained, “is one of high consumption, high investment (with insufficient early output of the character most needed) and low savings”.21

  A few days after the report’s publication, Dillon sent a memorandum to Costello, criticising the Central Bank’s views as “crazy, damnable doctrine”. He summed up the report as saying that “it is economically criminal to spend money on building houses or hospitals for our own people in Lifford or Monaghan, but economic virtue and vision to lend the money to the British Government at 1.25% to build houses and hospitals 100 yards down the road in Strabane and South Armagh … If this report is accepted, the wisest thing young people could do would be to fly this country as quickly as possible.”22

  Costello didn’t need any encouragement from Dillon to reject the report. He had evidently criticised the Governor of the Central Bank, Joseph Brennan, to his friend Tom Bodkin. The latter said that, in the light of their earlier conversation, he was “not surprised to read what I can only describe as Poor Joe’s diabosterous report. He seems to have ossified, though even when we were boys together at Clongowes he showed signs of a reactionary temperament despite his academic brilliancy.”23

  MacEntee added to the controversy by publishing a White Paper on the country’s external trade and payments on 29 October. This claimed Ireland was unique in Europe, with only Greece among the OEEC nations approaching its lack of balance in international trade. The White Paper forecast an adverse trade balance of £70 million, prescribing reduced spending on consumer goods and cuts in imports as the only solution.24

  In a speech in Cork at the start of November, Costello attacked the Central Bank’s economic diagnosis, “which has since been supported by the tendentious and misleading White Paper … An atmosphere of crisis has been created and maintained to the point where real damage may be done to our people and our economy unless immediate steps are taken to restore public confidence …” He recalled his forecast in his speech to the Institute of Bankers in 1949 of a “temporary disequilibrium in the Balance of Payments” caused by the repatriation of sterling assets to pay for capital investment. “What I foretold has happened, but it is not ‘crisis’ …” He also noted that neither the Central Bank report nor the White Paper had mentioned that the monthly figure for the adverse balance of trade had been declining since June.25

  In fact, while the balance of trade for 1951 turned out to be the largest ever recorded, it was lower than MacEntee forecast, at £61.6 million.26 The Minister claimed the lower figure was due to the corrective measures taken by the Government.27 Others weren’t so sure. A series of articles in The Leader in August and September 1952 strongly supported Costello’s argument that imports reached their peak in April 1951, and that the problem was caused by increased import prices rather than volumes. In other words, it wasn’t extravagant consumption that caused the problem, but international price inflation due to the Korean War. Not surprisingly, perhaps, Costello preserved the series in his private papers, underlining the conclusion that the White Paper had used “selected statistics to support a preconceived thesis”.28

  When the Dáil resumed in November, the dispute over the two documents was centre stage, and Costello led the fight for the Opposition. He said that “when a lie is started it is very difficult to catch up on it. I doubt if we will ever be able to get it out of the heads of the people that this gap in the balance of payments … has been brought about by some sort of profligacy and unnecessary spending on luxury goods by the last Government.” This, naturally, he denied, adding that “the suggestions and tendentious information, or misinformation I should call it, contained in this White Paper are utterly without foundation”.29

  In his contribution, Lemass said that there was a problem, but not a crisis—a remark which became the headline for the following day’s Irish Times.30 As Costello pointed out, this description had been “borrowed” from his own speech in Cork.31 He was later to claim that by winning the argument over whether there was a crisis, the Opposition had headed off the threat of an
autumn supplementary budget.32 However, while Lemass may have down-played the seriousness of the situation in the Dáil, MacEntee was sticking to his guns within government, and in the long run was to win the argument in favour of austerity. The divisions within Cabinet were highlighted by Costello, who contrasted the expansionist policy of Lemass with the restrictive policy of MacEntee. The Minister for Finance was, according to Costello, “suckled in a creed outworn since the day when Gladstone died”.33

  In his Ard Fheis speech in February, he noted that MacEntee “has recently resurrected the crisis … from the Limbo of Governmental errors to which it was consigned” by Lemass. While the Tánaiste had described the situation as a problem rather than a crisis, MacEntee was now claiming it was “difficult almost to the verge of desperation”. Costello accused his constituency rival of “striving for dramatic effect” but achieving only melodrama. “We decline to accept the view that the country is on the verge of economic disaster.”34

  The Budget built on MacEntee’s gloomy view of the economy was presented to the Dáil on 2 April 1952. It removed subsidies from tea, butter and sugar, and reduced subsidies for bread and flour, while increasing welfare payments in partial compensation. The subsidy cuts saved £6.67 million, while the welfare increases cost £2.75 million. Other measures included a one-shilling increase in income tax, and a swingeing £10 million increase in excise duties on tobacco, beer, spirits and petrol.35 It was massively unpopular, and “contributed significantly to both the reality and the atmosphere of depression”.36

  In criticism which he would repeat frequently in the coming years, Costello claimed the Budget was cruel, unnecessary and unjust. Lemass appeared to agree, at least in part: “It is an easy matter to describe the Budget as brutal and cruel; we are dealing with a brutal and cruel situation; there is no easy way out of it.”37 Later, when the Finance Bill introducing the Budget measures came before the Dáil, Costello claimed he would not be a party to such measures in government. “I would not stay one second in office, nor would I be associated with anybody in office who would be responsible for a Budget or a Finance Bill of this kind.”38 This promise was to be forgotten in the crisis year of 1956.

  One of MacEntee’s economy measures was the withdrawal of Costello’s State car. The bad news was broken by de Valera, who must have wondered when he went into opposition in 1954 if the favour would be returned.39 In fact, not only did Costello not try to withdraw de Valera’s car when their roles were reversed, he insisted that his predecessor should keep his Packard as “he was accustomed to it and found it comfortable”. Later, in response to a query from de Valera about insurance, Costello said the car should be available to him on exactly the same terms as when he was Taoiseach.40 Deprived of his car in 1952, Costello wrote to the Garda Commissioner to thank him for the four years of “devoted service” he had received from his drivers.41 He reverted to driving his own car, a Humber, which he did with care but considerable speed—he claimed to never look at his speedometer, so if anything ever happened he could honestly say he didn’t know what speed he was travelling at.42

  MacEntee’s biographer has argued that the 1952 Budget was not quite as severe as is commonly thought, as current and capital expenditure both rose slightly in real terms compared to the previous year, and the capital investment plans of the Inter-party Government remained largely intact. In fact, the Government rejected MacEntee’s proposals to cut capital investment, opting to raise taxation instead.43 This contradiction was noted at the time by Costello, who pointed out that the Government’s planned capital programme was “as great if not greater than the capital programme we had”. He accused MacEntee of secretly planning a Budget surplus, through unnecessary increased taxation, in order to pay for this programme. This was being done, he alleged, because Fianna Fáil had criticised Inter-party Government borrowing, and so could not follow a similar policy.44

  In any event, the result of MacEntee’s policy was deflation, which led to increased unemployment. Ken Whitaker, then a rising star within the Department of Finance, later rejected the view that there was an alternative policy of expanding demand through fiscal action. He argued that while the 1952 Budget may have been too severe, there was no way of pursing an expansionary policy when there were virtually no sources of foreign borrowing available.45 Whitaker insisted that in the absence of Marshall Aid, the Inter-party Government would have had to pursue a similar course if it was still in power.46

  Whitaker may well have been right, but it would have been too much to expect the Opposition leaders to admit this. Costello in particular kept contrasting his government’s “system of productive capital expenditure based on the system of the double budget” with Fianna Fáil’s “adoption of a system of taxation”.47 Rising prices and taxes would particularly hit “those sections of the community for whom … Fine Gael as a party has always been concerned … the sections described for want of a better terms as the ‘white collared workers’ …”48

  Costello claimed he wasn’t opposing for opposition’s sake; rather he was setting forth a realistic alternative, the policy of capital investment followed by his government, “which, if continued, would have saved the country from the spectre of increased unemployment and emigration which is now haunting the land”. He said this programme would have been funded by national loans (rather than foreign borrowing, which as we have seen was virtually unobtainable at the time). Instead, he said, the Fianna Fáil government introduced a Budget “which is not merely calculated but deliberately designed to depress the standard of living of the Irish people … what is being attempted is tantamount to a fiscal revolution or rather counter-revolution, calculated to assault and deflate the incomes of the people and their standard of living”.49

  These attacks, allied to the evident unpopularity of the Budget measures, had their effect within Fianna Fáil. Senator Michael Yeats (a former candidate in Dublin South-East) put down a parliamentary party motion criticising the Government’s economic policy, which attracted 35 signatures. De Valera and MacEntee made it clear there would be no change; but after the leadership won the vote, Lemass said in Yeats’s ear, “Never mind, Senator, you were 98 per cent right.”50

  As the Dáil limped towards its summer recess, tempers were evidently stretched beyond breaking point, with a number of physical altercations between Deputies. Fine Gael TD Seán Collins so enraged Fianna Fáil’s Mark Killilea that the latter crossed the Dáil chamber in an effort to strike him; the following day, Collins was in fact struck, by Education Minister Seán Moylan. Moylan having admitted the assault, de Valera conceded that a “simple apology” was not enough to close the incident. But he suggested the cause had been the personal remarks made within the Chamber. His proposed solution was a committee to draw up rules to deal with “this whole question of privilege, abusive personal remarks and personal imputations” so that the targets of such invective would not have to take “the law into their own hands”. Not surprisingly, Costello wasn’t happy; de Valera’s proposed solution completely ignored Moylan’s assault, which he characterised as “one of the gravest which has occurred in the history of this Parliament”. The Taoiseach responded by saying that if someone insulted him, “and I have no redress other than to knock him down, and I am fit to knock him, I will do so”.51

  Within hours of this exchange, another altercation took place, when Dillon was jostled on the stairs leading from the Dáil chamber by Fianna Fáil’s William Quirke, the Leader of the Seanad, who knocked the cigarette from his mouth.52 In the course of a debate that evening on the Moylan incident, Costello claimed that such assaults were occurring “all too frequently”, pointing out that in each case a member of Fianna Fáil had assaulted a member of Fine Gael.53 Moylan apologised in the Dáil, while Quirke did so in the Seanad. Dillon remained unmollified, claiming there was “a careful Fianna Fáil organised conspiracy” and calling for extra gardaí to be deployed in Leinster House “to restrain Senators or others who go rambling through our corridors loo
king for drink and fight”.54

  By October 1952, Costello was able to point to improving balance of trade figures. These, he claimed, showed the Government’s diagnosis of the situation was wrong—as was the “cure which it so roughly administered … the cure of gloomy talk, pessimistic outlook, credit restrictions, severe taxation, high interest rates and progressively increased unemployment … Because the Government took an incorrect view … every section of the community has been made to suffer.”55

  In his February 1953 Ard Fheis speech, Costello set out what The Leader described as “the most complete and detailed statement of policy which has been heard from any Irish political leader within living memory … it was a programme prepared by a party confident of being concerned with responsibility for government in the near future and staking its claim to office on positive proposals rather than on generalised bromides or pious aspirations”. It was, the journal said, part of a process Costello had engaged in since becoming leader of the Opposition. “He has consistently dedicated himself to the difficult task of laying down … a new economic policy for Fine Gael … He has succeeded in persuading the public that Fine Gael have no intention of being a party of the past.”56

  The speech, which was later published by Fine Gael as a pamphlet, Blueprint for Prosperity, again criticised the Government’s deflationary policy. Costello argued that it must be replaced by “a policy of financial easement and economic expansion … We cannot be content with mere exhortations to harder work and increased production, but must instead take steps to change the conditions of production in such a way as to lead to that greater creation of wealth which alone can bring a greater measure of prosperity.”