Charles Haughey and the Fracturing of Fianna Fáil
The strong passions that Haughey aroused in his opponents and allies have tended to result in a version of the political history of the South in the 1980s that pays too much attention to the role of individuals and not enough to the profound economic problems that the Republic faced. If one individual has to be singled out as responsible for the crisis years of the early 1980s, then it would have to be Jack Lynch. One Irish historian's comment that Lynch ‘stood for nothing in particular except a kind of affable consensus’ has been criticized by J. J. Lee for not recognizing that such a consensus was an achievement if the alternative was the ‘breakdown of civilized discourse or government by the elect instead of the elected’.40 Yet Lynch had displayed severe hesitancy during the Arms Crisis and an unwillingness to confront Haughey and his fellow conspirators until forced to do so by Liam Cosgrave.41 The consensus he prioritized was that which was within Fianna Fáil, and in 1977 he showed a marked inclination to sustain it with an electoral triumph whatever the ultimate economic cost.
This was apparent to some leading members of the party at the time, with Haughey's ally Brian Lenihan commenting on the manifesto, ‘Blessed are the young for they shall inherit the national debt.’42 Martin O'Donoghue was now in the cabinet heading a new Department of Economic Planning and Development. He set out the government's economic strategy in a White Paper, National Development 1977–1980. It was, he admitted, a gamble, relying on a vigorous pump-priming exercise by the state that would create the expansionist environment in which private enterprise would take over, allowing for a reduction in the role of the state and in the level of public expenditure. Two of the basic assumptions underpinning the strategy were dangerously optimistic. One was that the oil price shock of 1973 was a once-and-for-all event and that international economic conditions would continue to recover. The other was that the trade union movement would be prepared to exchange ‘responsible’ wage demands for job creation.
The second large increase in oil prices at the end of 1978 and the consequent deep international recession dealt a severe blow. Growth of GDP, which had averaged 6 per cent in 1977 and 1978, dropped to 1.5 per cent in 1979 and unemployment and redundancies began to increase sharply. Lynch had said that he would resign if the number of unemployed could not be brought below 100,000 – it was 106,000 when the coali-tion left office. In the first two years of the new administration over 60,000 new jobs were created and the number of unemployed had fallen to 90,000 by 1979. It then began to rise and reached 100,000 in 1980. By 1983 it would soar to 200,000, or 16 per cent of the workforce, the highest rate in the EEC.43 The jobs that were created were mostly in a fast-growing public sector and were paid for by a sharp rise in public expenditure financed by government borrowing. By the time Haughey succeeded Lynch as Taoiseach in December 1979, the Exchequer borrowing requirement had doubled and the national debt was more than two thirds higher than when the coalition had left office.44
To imported inflation was added the inflationary effect of trade union wage demands. The 1970s had seen a shift towards more centralized collective bargaining between the ICTU and the employers' organizations through a series of national wage agreements. In the second half of the decade the government began to play a formal role in these negotiations. This culminated in the National Understanding for Economic and Social Development in 1979, aimed at eliciting union restraint on wages in return for government action on a wide range of issues that included health, education, taxation and employment.45 However, the fragmentation of the Republic's trade union movement made it difficult for the ICTU leadership to deliver its members' compliance in wage restraint. In 1978 a plea from the Minister for Finance, George Colley, for a national wage settlement of 5 per cent had little effect as average industrial earnings rose by 17 per cent.46
Wage discipline was made less likely because of an eruption of urban/rural conflict over taxation. The EEC's Common Agricultural Policy (CAP) had provided Irish farmers with a golden harvest. Guaranteed prices and highly favourable price increases caused by substantial devaluations of sterling had brought Irish farmers unprecedented prosperity. By 1978 real incomes in agriculture had doubled compared with 1970.47 The fact that farmers were not subject to income tax seemed increasingly intolerable as more and more urban workers were brought into higher tax brackets because of inflation. The exclusion of farmers from the income tax base of the state, together with a very favourable tax regime for companies, meant that during the 1970s there was a considerable increase in the tax burden for those subject to income tax.48 George Colley had attempted to deal with growing criticism of his government's inaction on farm incomes with a proposal for a 2 per cent levy on farmers’ turnover in his 1979 budget. However, by this time the CAP-induced boom had come to an end. Ireland's decision to join the European Monetary System when it was created in 1978 meant the end of favourable currency movements as the link with sterling was broken. EEC concern with over-production under the CAP led to a reduction in the rapid rate of increase in agricultural prices and ushered in a slump in agriculture. A strong reaction from farmers’ organizations led to the proposed farm levy being dropped. The result was an explosion of protest from trade unionists, who took to the streets in marches and demonstrations for tax equity, culminating in a one-day national strike on 20 March 1979 with 150,000 protesters in Dublin and another 40,000 in Cork. George Colley, who had criticized the strike as ‘unproductive’ on the day before it took place, probably sealed his fate in the forthcoming battle for the leadership of the party.
With unemployment and inflation rising, tax protesters on the streets, and a prolonged and bitter strike by postal workers, 1979 was the year in which the direction of economic policy by a small ‘inner cabinet’ of Lynch's closest supporters sparked off a revolt in the parliamentary party. Some of those involved were new TDs with a background in business and accountancy, including Albert Reynolds and Charlie McCreevy. Others were aghast at the party's poor electoral performance. In the first elections for the European Parliament in June, Fianna Fáil's vote slumped to 34 per cent, and it won only five of the Republic's fifteen seats. Most galling for Lynch was the election of one of his most virulent republican critics, Neil Blaney, as an Independent in the Connacht/Ulster constituency.49 Then in November the party lost disastrously in two by-elections in Cork, one of them in Lynch's own constituency.
To the economic reverses and electoral rebuffs were added the legacy of the Arms Crisis and Lynch's unpopularity with the unreconstructed republicans in the party. On 27 August 1979 the IRA blew up a yacht belonging to the Queen's cousin, Lord Mountbatten, who was holidaying in County Sligo. Mountbatten and three others of the party were killed. At Narrow Water in County Down on the same day another IRA attack killed eighteen soldiers. Lynch agreed to requests from Thatcher to allow British military aircraft brief incursions into the Republic's airspace in pursuit of terrorists. When news of the ‘air corridor’ agreement appeared in the press, it produced a paroxysm of traditionalist rage against such ‘collaboration’ with a Tory government. An attempt to discipline a TD who had claimed that Lynch had lied about the agreement backfired badly, and then Síle de Valera, a granddaughter of de Valera, made an only slightly veiled attack on Lynch's northern policy in an address to a Fianna Fail commemoration. Lynch, shocked by the extent and bitterness of the backbench revolt, announced that he would resign. It is unlikely that the government's failures on the economy and the election reverses would-in themselves have led to Lynch's decision. His administration had another two years to run and previous governments had recovered from similar reversals. It was the extra dimension of bitterness that came from the legacy of the Arms Crisis, the ‘sulphurous’ atmosphere that a journalist detected in the parliamentary party,50 that propelled Lynch, a leader who had prided himself in his ability to bring together the different wings of the party, out of politics. In the contest for the leadership that followed, Haughey defeated Colley by for
ty-four votes to thirty-eight.
Haughey's victory has been depicted by one of his numerous critics as the opening up of ‘the most sordid and diseased chapter in Irish political life since the end of the civil war’.51 One of a number of tribunals of inquiry established at the end of the 1990s to investigate corruption in Irish politics since the 1960s established that Haughey had run up a debt of £1.14 million with the Allied Irish Bank during the 1970s and that he had used his position as Taoiseach to persuade the bank to settle for £750,000.52 At the time rumours about how he had acquired his fortune in the 1960s abounded, as did those about his current financial problems. It was to these that Garret FitzGerald alluded in his speech on Haughey's nomination as Taoiseach when he referred to a ‘flawed pedigree’ and a man who, while his abilities were undeniable, should be disqualified from high office as he wanted ‘not simply to dominate the state but to own it’.53
With a self-image that seemed to blend the Renaissance prince and the Gaelic chieftain, Charles Haughey did not regard himself as bound by the conventional values that applied to ordinary mortals. In the late 1970s bank officials were threatened with his displeasure if they dared to apply the same standards to him as to other debtors. In 1987 Ben Dunne, one of Ireland's leading businessmen and an admirer of the Taoiseach, was approached to bail him out of an even deeper hole of indebtedness and provided him with payments in excess of £1 million over the next few years.54 The many rumours about how Haughey financed such a lavish lifestyle did not damage his immense popularity with a substantial section of the party and the electorate. Like the ‘whiff of cordite’ associated with the Arms Trial, such rumours made him seem appealingly dangerous. As the Irish political journalist Stephen Collins has noted, Haughey's popularity revealed the continuing influence of ‘deep ambivalence to politics and law, coupled with the atavistic anti-English strain in Irish nationalism’ amongst many Irish people.55
Haughey had always been dismissive of Lynch's consensual and relaxed leadership style, and his own was characterized by the encouragement of a deferential and at times fearful loyalty amongst his supporters, who called him ‘Boss’, and the implacable desire to marginalize his opponents. Although some of these, including Colley, who refused to offer Haughey loyalty as leader of the party and demanded a veto on the appointment of the Ministers for Justice and for Defence, were resolute in opposition, others, including Des O'Malley, were open to persuasion.56 Instead, Haughey looked towards a victory in the next general election as the prerequisite for a final purge of his most irreconcilable critics.
The fixation on obtaining a Fianna Fáil majority was in part responsible for his rapid volte-face on the economy. In his first televised address to the nation on 9 January 1980, he had sounded a stern note: ‘as a community we have been living beyond our means… we have been living at a rate which is simply not justified by the amount of goods and services we are producing.’57 Having sacked Martin O'Donoghue and abolished his department, Haughey now proposed cuts in government expenditure and a reduction in borrowing. A large part of the business and financial community, virtually all of the media and most professional economists were enthused at the prospect of a Celtic Thatcherism. It was not to be, at least not yet. A right-wing turn in economic policy made good economic sense but was politically perilous for a party whose recovery from the post-war doldrums had been based on Lemass's mixture of economic expansion and cooperation with the unions. Working-class resentment on the taxation issue had been manifest two weeks after Haughey's television address, in what the BBC referred to as ‘the largest peaceful protest in postwar Europe’.58 An ICTU-organized national strike for tax reform was supported by 700,000 workers, with a mass demonstration of 300,000 in Dublin. For many of those TDs who had supported Haughey, fiscal rectitude seemed a recipe for political suicide.
Haughey's own lavish and debt-financed lifestyle may have made him uncomfortable with demands that the largely working-class electorate of his North Dublin constituency put on hair shirts while his own wardrobe was tailor-made in Paris.59 His political career and personal fortune had been built in the expansionary 1960s, when the building industry had begun to have an increasingly powerful influence on Fianna Fáil.60 This was a major sector of the economy that stood to lose badly from neo-liberal policies. Big cuts in public expenditure might be seen as necessary to get the economic fundamentals right by those sections of Irish industry that had successfully made the transition to free trade and selling abroad. However, there remained many Irish manufacturers who were uncompetitive, relied on the domestic market and were directly threatened by the shrinkage in demand that deflationary policies would inevitably produce. Together with the trade union movement, they forced Haughey to backtrack. Within months the government had agreed another National Understanding with the unions, which involved an increase in welfare benefits and job-creation targets along with a promise of more investment in infrastructure and a continuation of high levels of government borrowing. Haughey's former business allies despaired as the budget deficit rose from £522 million in 1979 to £802 million in 1981 and the Exchequer borrowing requirement from 13.8 per cent of GNP to 16.8 per cent,61 with the Department of Finance forecasting that it would reach 21 per cent by 1982.62
With all the main economic indicators deteriorating, Haughey attempted to maintain popular support by a robustly nationalist line on Northern Ireland. Describing it as a ‘failed political entity’, he announced that he wanted to raise the issue to a ‘higher plane’ by seeking a solution through direct negotiations with the British government.63 Despite his public disdain for Thatcher's neo-liberal economic policies, he was obviously attracted by her imperious mode of government and her impatience with the inherited policy of power-sharing devolution. There were hints of a willingness to consider a defence deal with the UK and, more immediately, after his first meeting with Thatcher when he presented her with a silver Georgian teapot, it was announced that there would be a meeting between the Chief Constable of the RUC and the Garda Commissioner.64 The British hoped that Haughey's solid republican credentials would allow him to act decisively against the IRA. As a result, Haughey did remarkably well in the major Anglo-Irish summit held in Dublin on 8 December 1980. In their joint communiqué after the talks, Thatcher acknowledged Britain's ‘unique relationship’ with Ireland and permitted the establishment of joint study groups to find ways of expressing this uniqueness in ‘new institutional relations’. The two Prime Ministers agreed to devote their next meeting to considering ‘the totality of relations within these islands’. Haughey's subsequent demagogic exploitation of this phrase infuriated Thatcher, and differences over the IRA hunger strikes and the Falklands War further soured relations between the two. However, the logic of Haughey's approach that the two governments should act over the heads of the northern parties, particularly the Unionists would come to partial fruition in the Anglo-Irish Agreement.
In the short term the credibility of Haughey's approach to the North was damaged by the hunger strikes and his failure to have an influence on Thatcher's handling of them. Nevertheless, unsure of the electorate's verdict on his economic stewardship, he dissolved the Dáil on 21 May 1981, claiming that he was calling the election ‘because of the grave and tragic situation in Northern Ireland’.65 This was the first time Northern Ireland had been proclaimed the central issue in a southern election. Although Bobby Sands had died on 5 May and other hunger strikers were nearing death, the bulk of the electorate continued to focus doggedly on the domestic issues of taxation, inflation and unemployment. Haughey, who was about equal in popularity with FitzGerald when the election was called, paid a hefty price for such a clumsy diversionary tactic. By giving a high profile to Northern Ireland he provided Sinn Féin with the best opportunity for advance in southern politics since the 1950s. Nine republican prisoners were nominated for the election and the two that were successful took seats that would otherwise have gone to Fianna Fáil.
Any vestigial claim to economic comp
etence or responsibility that his government might have made was undermined by his descent into crude vote-buying in key constituencies, with a commitment to an international airport in a remote part of County Mayo to bring pilgrims to the Marian shrine at Knock and a deal with workers in the Talbot car assembly plant in his constituency that guaranteed them state salaries for life when the plant closed. Both commitments were made without any consultation with his colleagues or the Department of Finance.66
The result of the 1981 election was a substantial victory for Fine Gael, whose percentage of the vote increased from 30.5 to 36.5 and seats from forty-three to sixty-five, its best ever result, even considering that the overall number of Dáil seats had increased from 147 to 166. Under Garret FitzGerald's leadership since 1977, Fine Gael had modernized its archaic structure and transformed its culture of genteel amateurism. Youth and women's wings were established, and it was the first of the major parties actively to promote women candidates, becoming home to some of those who had played a prominent role in the development of the Irish women's movement in the early 1970s.67 The party had waged a professional and aggressive campaign, and its promise of large cuts in income tax had allowed it to make inroads into working-class support for Fianna Fáil. FitzGerald's public persona – that of an amiable and loquacious academic – contrasted sharply with Haughey's tight-lipped and imperious aura.
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