Sins of the Father
Page 11
When faced with the criticism that the IDA was ‘bringing to Ireland industries using imported materials’, the head of the authority, Mr J.J. Walsh, said that ‘this was not entirely correct. Over £4 million had been given in grants to fifty projects based on home raw materials, mostly agricultural.’ He went on to say that ‘among the advantages of foreign investment were the benefits obtained from the research of the big foreign companies and the very high level of managerial expertise’.30 This became a common response to criticisms levelled against IDA policy. The whole point of encouraging exports was to develop indigenous industry and help correct the balance of payments. Very quickly, within five years, the public stance was that foreign enterprise would develop managerial skills. Mr Walsh told The Irish Times in 1966 that ‘given competitive costs, expanding international trade and an absence of serious restrictions on foreign investment in Ireland, our industrial growth could be stepped up to reach a situation where we would have full employment and emigration would be voluntary’.31 The structural problems which came with that approach, however, were quite clear. In 1971, the New Scientist wrote that Ireland’s ‘industrial role is largely one of adding value to imported raw materials’.32 The chances of anything but short-term growth under such an export model were minor.
By 1980, manufacturing accounted for 243,000 jobs – nearly a quarter of the working population. It was, in the words of New Scientist, ‘Irish industry’s finest hour’, but at the same time the sector was still ‘employing proportionally fewer people than any other comparable small country at industrial peak’.33 ‘We should have around another 100,000 engaged in industry if we were to have an industrial sector of the relative size of other small countries,’ said Pádraig O hUiginn of the National Economic and Social Council in 1987. ‘We will be unable to generate employment, growth and higher standards of living unless we develop an indigenous industrial sector comparable with … other small economies.’34 No matter how many times this was pointed out, the government and the IDA continued on with its splatter-gun approach to foreign investment, financing multinationals who opened factories of sorts in Ireland, but who had relatively little engagement with the wider economy. Why was such a short-term approach to industrial development able to continue for so long? Why were Irish government policy-makers obsessed with foreign investment regardless of whether that investment enhanced the medium to long-term objectives of sustained economic growth?
The responsibility for Irish merchandise exports had shifted decisively to multinationals, that was certain. However, the responsibility for servicing those multinationals was in the hands of Irish business interests. The State’s role, in terms of economic policy, was not only to ensure the smooth interplay between these two dominant interests in Ireland, but to make sure the multinationals kept on coming. Servicing foreign-owned and import-heavy exporters, rather than developing an indigenous export sector, had become the economic and legislative focus of government. Pádraig O hUiginn, in his 1987 review of Irish industrial policy, noted that ‘for nearly three decades, politicians of all parties have carried out similar policies of offering grants and tax reliefs to encourage manufacturing companies’, with severely limited results for the growth of indigenous manufacture. He called for a review of the generous government grants, and ‘suggested spending less on capital grants (worth £400 million a year) and tax relief (£800 million) and more on developing new products and managers’ marketing skills to encourage indigenous industry’.35 O hUiginn didn’t seem to realise that the tax reliefs and capital grants were what Ireland’s industrial policy was all about.
COMMERCIAL AND INDUSTRIAL PROPERTY
The influx of foreign capital in the late 1950s quickly had an effect on land and property prices. By 1960, there was a significant increase in demand for investment properties, ‘particularly those secured by well-situated business premises’.36 The Irish Times reported that ‘there is … a lot of money coming into the country for such properties from Continentals, mostly Germans, who have purchased a considerable amount of city business premises and, in addition, are keenly interested in acquiring good agricultural holdings and residential country properties, particularly near the sea’. The 352 IDA-grant-aided establishments which were operating in Ireland in 1973 occupied a total of 15.191 million square feet of industrial floor space, all of which had been built during the previous decade. It was a boon for Irish construction, alongside the residential property market, and saw employment in the sector increase by 42 per cent. By the end of the 1960s, the largest Irish company quoted on the Stock Exchange was Irish Cement. It was closely followed by Roadstone, which specialised in sand, gravel and quarrying. In 1970, the two companies merged to become Cement-Roadstone Holdings, under the chairmanship of former Taoiseach Seán Lemass. One of the directors was Desmond Traynor.
Whereas the demand for factory and office space was satisfied by the IDA and government incentives, the parallel influx of foreign capital into Ireland gave a huge boost to speculative building, which was a comparatively new phenomenon in Irish commercial property, ‘The 1960s witnessed a rising scale of net capital inflows into the Irish economy, marking an expansion of foreign investment in industrial production, property and the national debt.’37 Commercial property was seen as a safe bet. ‘Property in general is accepted by an investor of either private or institutional funds as a first-class security’, wrote The Irish Times in 1968. ‘It has been always a hedge against inflation and it gives a certain status and a feeling of security to the small or individual investor.’38 An unnamed auctioneer, given full and liberal space in its pages, told The Irish Times that ‘there is not only £1 million, but several millions waiting to be put into good commercial property. If any of the office blocks was put on the market, it would be bought in a flash.’39
The 1960s saw a worldwide move towards intensive property speculation as investment, and Ireland was part of this trend. ‘We became aware of the need for urban renewal in Dublin, following the pattern of other countries,’ said Montague Kavanagh, managing director of the Irish property investment company, Hardwicke Ltd, in 1968, ‘and we felt that were this to happen we, as an Irish company, should participate.’40 Urban renewal for Dublin in the 1960s essentially meant the destruction of its Georgian heritage and the depopulation of the city area between the canals, to be replaced with office blocks, car parks and hotels – the Holy Trinity of Irish speculative building. And, as always with speculation, especially when government is providing grants and tax incentives to fuel it, there was an assumption that there were clients for the offices and buildings, and that the risk was in who would secure the business – that there was an actual supply and demand dynamic at play. The idea that the office tenants might not be there in the first place, and that government incentives rather than actual potential tenants and purchases might be fuelling the demand, was rarely entertained. ‘Dublin, with an estimated 5 million square feet of obsolete or semi-obsolete office space, is a long way off letting saturation-point,’ enthused one report, ‘and surveyors, consultants, auctioneers and estate agents are confident of the long-term prospects’.41 Within a year, there were reports of a ‘slowdown’ in the property market, and by 1974 the Irish commercial property market had recorded its first significant slump.
In 1969, despite all that had been said and written about property development in Dublin, ‘only 12 new office buildings have been completed, offered on the market, and successfully let over [the previous] five-year period’. This moderate demand for office space did little to dampen speculation. The newspaper noted that around 1.5 million square feet of office space was planned for the foreseeable future, of which, 467,200 square feet was already under construction.42 Into this breach came the government, and public money was used to absorb the speculative adventures of private investors. ‘It is an acknowledged fact that the government has played a significant role in the office-letting market to date’, wrote The Irish Times. ‘In fact, lettings to the government or
semi-state bodies make up roughly half of the new accommodation now occupied. If they withdraw from the market, the effect must be most significant.’43 Government policy was both fuelling speculation and soaking up the result. It was promoting a phantom, using millions of pounds of public money to do so, almost all of which was ending up in the hands of private speculators, builders and investors. This was the unabashed transfer of public funds to private hands, with rent as the conduit.
The leader of the Labour Party, Brendan Corish, asked the Minister for Finance in 1969 for a breakdown of ‘The location, the square-footage, the rent, the rates and the landlord of the individual office lots rented by each Department of State in Dublin and throughout the country’. The Minister replied that while individual rents were subject to commercial confidentiality, the total amount was €387,000 a year, on 207 properties, with an accumulated floor space of approximately 712,011 square feet.44 The Irish government had spent millions of pounds via capital grants and tax breaks on stimulating commercial property ventures, not so that it could become a landlord, or even an owner-occupier, but a tenant. It did not buy these properties; instead it paid rent for them. The State had somehow decided that its interests were best served by being a lodger in its own country, and paying private landlords handsomely for the privilege. By the early 1980s, the public sector was ‘a major source of the economic returns drawn by property interests associated with office development, [and] government and public bodies … together occupy 60 per cent of the stock of rented space in office developments in Dublin’.45
The Fine Gael TD Gerald L’Estrange asked the Minister for Finance in 1969 why it was that his department could not reveal the actual individual property rents the government was paying for the use of these offices and buildings. ‘Is there anything to hide?’ he asked. ‘Are they [the landlords] foreign speculators or members of Taca? What is the particular reason for not giving this House the information?’ The Minister replied that he was shocked at the implication of impropriety. ‘It is the business of the government, since we are spending the taxpayers’ money, to get the best possible value for that money,’ he told the Dáil. The confidentiality on rents was put forward ‘for no other purpose than that’.46
LAND AND SPECULATION
‘… the pawgreasers and the Taca men are running one section of our country.’
Fintan Coogan, TD, 20 February 1968.
In early 1962, it was reported that land in County Dublin was selling for up to £800 per statute acre, with farms in big demand; even ‘poor land along the coast was selling at very high prices’.47 Two years previously, the Parliamentary Secretary to the Minister for Justice, Charles J. Haughey, had bought Grangemore House in Raheny, County Dublin. It consisted of forty-five acres, and was sold in 1969 for a reported £204,000.48 Land speculation, both within the city as well the surrounding green belt, was soon synonymous with the political culture of the ‘Lemass era’ and the ‘Whitaker revolution’.
In February 1967, a group was formed in Dublin which set out to raise funds for the Fianna Fáil party. It called itself Taca, and its main focus was builders, speculators, surveyors, architects and businessmen. The main organiser of Taca was Charles Haughey. Its offices were on Amiens Street, at the same address as Haughey Boland, an accountancy firm run by Haughey and his friend Harry Boland. They were later joined by Desmond Traynor. It was an open secret that Taca was more than a fundraising organisation: it was about access to the corridors of political power. Kevin Boland, who was Minister for Local Government from 1965 to 1970, and responsible for local authority housing, recalled a 1960s Taca meeting where contributors to the Taca fund got to meet Fianna Fáil cabinet ministers, ‘We [the cabinet] were all organised by Haughey and sent to different tables around the room. The extraordinary thing about my table was that everybody at it was in some way or other connected with the construction industry.’49
Writing in 1972, the journalist Rosita Sweetman summed up Taca in her book On Our Knees:
You may wonder why the Fianna Fáil government doesn’t do something about controlling the price of land, the building of houses and general accommodation problems in a city bursting at the seams … If you’re still sceptical, you might take a trip around the newer, posher estates being built on the outskirts of Dublin. The names ‘Gallagher’, ‘McInerny’ and ‘Silk’ will re-occur constantly on the billboards.
Now if you dig a bit deeper you will discover that Mr Matt Gallagher and his brother are two of the biggest building/contractors in Dublin. And they’re among the biggest contributors to Taca. And Taca is the fundraising section of the Fianna Fáil party.
Without Taca, Fianna Fáil would go bankrupt in the morning. The eventual outcome of the situation whereby the government party derives a lot of its finances from such organisations as Taca, which in turn derives its finances from the capitalists, the speculators, means the government is in debt to such people.50
The level of speculation was such that in January 1971 the then Minister for Local Government, Bobby Molloy, set up a special committee to look into the price of building land. It was headed by Justice John Kenny and it presented its findings three years later, in January 1974. It became known as the Kenny Report, and its recommendations, to help curb the economic and social damages caused by land speculation, have never been implemented. In 2007, the Irish Green Party made the recommendations of the Kenny Report a key part of its election manifesto. This was shelved as soon as the party entered government. In this, the Greens were following Irish political precedent, as every party has made the same promise, and each one has dropped it on entering government. Nothing so became Irish politics and the Kenny Report, it can be said, as the manner of their leaving it to one side.
The Committee on the Price of Building Land was established under the following terms of reference:
… to consider, in the interests of the common good, possible measures for controlling the price of land required for housing and other forms of development; ensuring that all or a substantial part of the increase in the value of land attributable to the decisions and operations of public authorities (including, in particular, decisions and operations relating to the provision of sewerage and water schemes by local authorities) shall be secured for the benefit of the community.51
The committee found that from 1963 to 1971, the average price of ‘serviced land [i.e. undeveloped land with water, sewerage and drainage services near it] in County Dublin increased by 530 per cent. In the same period the consumer price index increased by about 64 percent.’ In one example of the type of profit to be made from speculation, the committee highlighted the case of sixty acres of land in Castleknock, County Dublin, which were sold for £67,000 in October 1964. ‘In March 1965, the purchaser sold them to a finance company for £160,000 and so made a profit of about 140 per cent in a few months. Planning permission to develop the lands was granted to the finance company on 6 September 1968.’ After five pages of similar examples, the committee pointed out that:
These large increases in the prices of serviced and potential building land would not have taken place if the services (water, sewerage and drainage) had not been or were not intended to be provided by the local authority. If these were not available or were not likely to be provided in the near future, the price of the land would have been that for agricultural land.
Therefore, the provision of the services by the local authority is largely responsible for the difference in price between agricultural land and serviced and potential building land and so, it is said, the community which provided the services has a legitimate claim to all the profit.52
This was a crucial point. Land speculators were able to make large profits not because of any improvements they made themselves to the land they had bought, but because of consequent public investment in the necessary infrastructure to turn agricultural land into building land – namely, the provision of water, sewerage, and drainage – all of which was paid for with taxpayers’ money. The spe
culator need only sit and wait until the land was rezoned for development. The committee argued that this practice of ‘betterment’ of land by local authorities gave the taxpayer rights with regard to the rezoned land – they, after all, had paid for the ‘betterment’, not the speculators – and that remuneration through capped prices of land or increased taxation on land speculation was justified as a result.
The committee also found that large tracts of land surrounding various cities had been bought up by ‘a number of large firms in the building industry’. In Dublin alone, ‘they have acquired about 4,000 acres which they will presumably hold until services are provided’. It noted that local authorities had bought a pool of land surrounding the capital in order to release it for development once the price of land became too high. However, this policy was only undertaken after 1966, by which time the majority of speculative purchases had already taken place. In March 1967 the Dublin City and County manager, Mr Macken, wrote a report for the local authorities of Dublin City, County Dublin, and Dún Laoghaire, in which he outlined the problems caused by land speculation:
The competition for land, even remotely available for development, has been so keen that even the public authorities (in cases where they have reached agreement for the purchase of land at high prices) find that builders and other speculators come in and offer a still higher price and in some cases have succeeded in prevailing upon the owner to sell to them rather than the local authorities.