In Search of the Promised Land

by Gary Murphy

  This is a misconception, beloved of propagandists to which the Stacy May Report has given spurious respectability. It is absolutely absurd as a basis for policy. First it is not true that Irish resources, in the form of current savings, are adequate to support present levels of investment in Ireland. The fact that we have had to draw so heavily on external resources for years is proof of that.61

  The Stacy May report to which MacEntee referred was produced by the IBEC Technical Services Corporation, which was favourable to Irish industrial policy and to the setting up of the IDA in particular, but which was also very hostile towards agricultural and especially fiscal policy.62It advocated that policies to attract foreign industry and build up native industry should be pursued, notwithstanding costing criticisms by Finance and the Central Bank. As to the former, the report suggested that the Government should attempt to attract US capital in particular, and drew specific attention to the approach adopted by Puerto Rico. The impact of this report on subsequent industrial policy has been criticised by some who were involved in the Department of Industry and Commerce:

  While the report put forward phrases like rifle selectivity rather than shotgun diffusiveness and held out the glories of Puerto Rico, where is Puerto Rico now? But everyone went for it. All you had to do was set up a suitable tax regime and foreign industries would come flooding in.63

  While the expansion of native industry was stressed, in reality this aspect took a back seat to attracting foreign industry within the department. The attitude of ‘get the foreigners in to give us the jobs, while protecting our own’ became widespread. Stacy May, as the Economist pointed out in an article entitled ‘The Irish troubles’, noted:

  … the astonishing degree of state control in the economy … this is due as much to the failure of private enterprise as to ministerial ambitions. A review of the principal groups of Irish industries allows them in general a greater degree of efficiency than they usually get credit for though the yardstick of comparison with the United States hardly seems helpful.64

  Whilst the Economist might have thought that Irish industry was somewhat hard done by in the Stacy May report, the Department of Finance was appalled at the whole thrust of the document:

  Although the report contains some helpful comments on financial matters it also contains quite a number of statements based on misconceptions and misinterpretations. In particular, the allegation is repeated several times in the report that the Irish banking systems (and the Government) are channelling Irish savings into the British Capital market in preference to retaining them in Ireland for domestic investment. It is obviously undesirable that this fallacy should be given a spurious respectability and a renewed currency by publication of the Stacy May report.65

  The Department of Finance demanded that the report not be published, but de Valera overruled its objections. It was a rare example of the ‘Chief’ allowing what amounted to hostile criticism of something indigenously Irish. He did not have to look into his heart to see that the industrial fabric of the country was not in a healthy state. De Valera famously wished that his people could live off the land, and lead happy, frugal lives – something he still seemed to believe was possible in the Ireland of the early 1950s. In 1951 he was adamant that:

  Work is available at home, and in conditions infinitely better from the point of view of both health and morals … There is no doubt that many of those who emigrate could find better employment at home at as good, or better, wages – and with living conditions far better – than they find it Britain.66

  Yet he must have realised that industrial development was a necessity if his country was to have any chance of keeping its place among the nations of the earth. That is the only possible explanation for his willingness to have the report issued. IBEC had drawn attention to the low productivity of Irish industry, and attributed this to the low level of investment in plant and machinery. The mandarins in Finance and their acerbic minister were not convinced.

  This lack of conviction when it came to any type of capital spending was vividly on show in 1953 when Lemass put proposals before the Government to pursue an expanded capital programme by means of a national development fund of £5 million, to be replenished in each financial year. Finance was horrified. MacEntee’s response shows him to have been in typical balanced-budget mode. As guardian of the nation’s money, he was not willing to fund industrial development if it meant that his achievements of stability in prices and money values were to be sacrificed at the altar of capital investment:

  There is reason to fear that the decision of the cabinet committee in the field of expenditure have given rise to the belief that the ‘lid is off’ and that the economy is no longer to be seriously thought of in connection with existing services or with proposals for new ones. Such an attitude can only encourage avoidable spending. In the absence of increased tax, the additions of the current items in the £5 million, together with the interest charges for borrowing, makes it virtually certain that the 1953 budget will be in deficit. In any event, if next year’s budget is to be balanced, additional taxation will be inevitable for the current items and to service the borrowing, including the carry over of temporary borrowing from this year. For all these reasons, the Minister for Finance views with the utmost anxiety the proposal to add £5 million to the borrowing programme.67

  The Central Bank was equally upset by the proposals: ‘is not the whole situation being approached from the wrong angle?’ it asked. ‘Government expenditure is no cure for unemployment. The lesson of past history is that the private sector of the economy is depressed by high rates and taxes.’ The bank insisted that there was already evidence of inflation in the economy, and that the new proposals would add to inflationary pressures: ‘the effect of new expenditure on employment is transitory but a dead weight debt and taxation are added too for a long time’.68

  Lemass saw the national development fund operating within the protective sphere for Irish industry. As the architect of the Irish protective system set up in the 1930s, he was not yet willing to commit himself fully to completely abandoning it in favour of a policy of free trade. While he did realise the need for export-led growth, for the immediate future it would have to be within a protectionist framework. Furthermore, there was nobody in the Department of Industry and Commerce who was willing to question the very essence of protection. MacEntee, however, objected to the commitment to protection on the grounds that it prevented Irish industry from seeking export markets, and he believed that Lemass was mistaken in his view that Ireland could generate growth to absorb the unemployed. As we have seen, however, Irish industry in the early 1950s was not exactly excited by the option of aggressively pursuing export markets. Moreover, MacEntee did not put forward an alternative strategy for providing employment other than to call for low inflation, low taxation and low public spending in order to foster an enterprise culture. An injection of new money, he argued, would not be the cure for the country’s economic ills. Ultimately, the Department of Finance and the Central Bank still saw agricultural exports as the mainstay of the Irish economy. What was needed, they argued, was an expansion of real production, particularly of agricultural produce that could be exported at competitive prices. The development fund, they protested, would only defeat the very purpose it was designed to serve.69The growth of capital expenditure, they believed, would have serious implications for the stability of the agricultural sector. Despite these strenuous objections, de Valera and the Government sided with Lemass and accepted the need for such a fund. It came into operation in December 1953, and lasted until March 1957.

  The disagreement over the development fund was just one of a number of disputes over economic policy in the lifetime of the Fianna Fáil Government. In late 1952 Deputy Michael Moran urged that a ‘special meeting be held in the near future for a full discussion of Government policy’.70A meeting of the full Fianna Fáil parliamentary party in January 1953 was consequently devoted entirely to economic policy. During the cours
e of the discussion, de Valera explained that the policy of the Government was ‘to pay its way and that any additional services called for by the people could only be paid for by taxation’, and he stressed that ‘increased production – principally from the land – was the remedy for most of our problems’.71While this was quintessential Fianna Fáil policy, it did not satisfy all within the party, and within six months a motion sponsored by twenty deputies was put before the parliamentary party; it declared:

  The party is of the opinion that in present circumstances a policy of financial austerity is no longer justified, and requests the Government to frame a progressive policy suited to the altered situation, with a view especially to putting an end to the undue restriction of credit by the banks, and making low interest loans available for farmers and house purchasers.72

  The debate that followed this motion lasted through July, and – no decision having been reached – was postponed until after the summer recess. The topic, however, was not discussed again until January 1954. The minutes of this particular meeting are brief, simply declaring that:

  After a number of teachtaí had contributed to the debate, the acting Minister for Finance, Proinsias Mac Aogain, replied and An Taoiseach made a comprehensive statement on the party’s general financial and economic policy, Deputy Carter withdrew the motion on behalf of the teachtaí who signed it.73

  The minutes do not indicate whether Lemass was involved in backing the motion. What is clear, however, is that it echoed what he had been arguing since Fianna Fáil regained power in 1951. The development fund was a rare victory for Lemass during this period.

  There is no record in the Fianna Fáil parliamentary party minutes of further discussion regarding economic policy until January 1957, by which time the second Inter-Party Government had almost run its course. The attempts by some deputies to place Government economic policy on an expansive footing did not succeed, as financial policy continued to be restrictive, notwithstanding the launching of the development fund.

  Recession? What recession?

  As Lemass attempted to regain some of the policy initiative within Fianna Fáil – through the fund – he also set about rebuilding his relationship with the unions, which had taken a beating of sorts following MacEntee’s 1952 budget. In July 1953 he and de Valera held a meeting with the ITUC and the Labour Party at which Lemass denied that Ireland faced a recession. He did, however, use the occasion to recommend to the Government the need for significantly increased public expenditure. His policy objectives in employment were strikingly similar to those of both the ITUC and the CIU, as was his preferred means of achieving them: massive state intervention.74For the next four years, Lemass – in opposition for most of them – was to retain his commitment to state-led economic intervention. Calling for a new expansionist programme that would challenge the Irish banking system to play a greater role in the economy, he offered a critique of restrictive practices and protectionism, and – most significantly – urged foreign capital to invest in Ireland. The latter was something that both the unions and the employers were calling for. Aodogan O’Rahilly, a major industrialist of the time, maintains that the aim of economic policy in the 1950s should have been to encourage all manufacturing enterprise, both Irish and foreign, and contends that Lemass-type inducements to outside investments could have been started earlier.75While some investment incentives had been put in place, at the domestic level Irish businessmen were still very reluctant to attempt anything new in either production or marketing terms. The files of the Department of Industry and Commerce are full of applications for more state protection and higher tariffs on imported goods up to the early 1960s.76Between 1952 and 1957, An Foras Tionscal received only 249 applications, of which seventy-five were approved and thirty-nine fully realised. It has been estimated that 1,700 jobs were created at an estimated cost of £460 per head.77

  Throughout the 1950s, the IDA encountered considerable difficulty in encouraging foreign companies to locate in Ireland. Most of these companies had not considered the possibility of setting up in Ireland, while those who had were frequently discouraged by the Control of Manufactures Acts.78The IDA did, however, see that export-led growth in an increasingly competitive world was the only way to expand and develop the Irish economy. Lemass in opposition had, as we have seen, recognised this, but he also acknowledged the constraints that were placed on those trying to develop Irish industry; thus, he began to reformulate his ideas once back in Government in 1951. As Seán Cromien points out:

  Irish industrialists of the 1950s really were not very dynamic. They had low taxation, and at the slightest hint of competition they came back looking for a higher tariff. So there was a worry that these were not the type of people who were going to revitalise the Irish economy. That is why there was such an emphasis on bringing in investment from outside. There was quite a change of heart on the part of Lemass, who had been the architect of protection but who had quickly come to realise that it was necessary to allow foreign industry in to participate in and own Irish industry.79

  Yet state-led enterprise was not something the employers viewed with any great enthusiasm. It was valid that efforts be made to attract industry, but any infringement on private enterprise was to be avoided. As E.A. McGuire, writing in 1951, asserted:

  All efforts of Government should be directed to a widespread distribution of private ownership, and nothing should be done by the state that will unnecessarily penalise or discourage the ideal of large numbers of persons being engaged in small business, or individual enterprises of any kind … it is essential that state control and interference be limited to the minimum, and that the fullest encouragement should be given to the formation of vocational groups in the community which will be urged to take an active part in the carrying on of the life of the nation.80

  Whether any Government – be it Fianna Fáil or Inter-Party – would involve the various groups remained to be seen, yet it is noticeable that an economic realignment of sorts was being encouraged by industrialists such as McGuire. It would take some time for this idea to find its way into the mainstream of Irish political discourse, but it would have its day towards the end of the 1950s, when the Irish body politic grappled with yet another economic crisis.

  1 Dáil Debates, vol. 120, col. 1629, 3 May 1950.

  2 Lynch interview.

  3 Lynch interview. Keynes’ Finlay lecture is reprinted as John Maynard Keynes, ‘National self-sufficiency’, Studies, vol. xxii, no. 86 (June 1933), pp. 177–93.

  4 Fanning, Department of Finance, pp. 457–8; also Lynch interview.

  5 Lynch, ‘Irish economy’, p. 187.

  6 NLI, Brennan papers, MS 26 383, McGilligan to Brennan, n.d., but by context c. mid-1950.

  7 J.J. Lee, Ireland 1912–1985, pp. 312–13.

  8 NLI, Brennan papers, MS 26 240, annual report of the Central Bank, 1949–50.

  9 NLI, Brennan papers, MS 26 240, annual report of the Central Bank, 1950–51.

  10 For a vivid account of both views, see Moynihan, Currency and Central Banking, pp. 374–85.

  11 Irish Press, 24 Oct. 1951.

  12 NLI, Brennan papers, MS 26 240, trend of external trade and payments 1951, 23 Oct. 1951. MacEntee maintained that the Government paper showed the correctness of the Central Bank’s position.

  13 Dáil Debates, vol. 127, col. 300, 7 Nov. 1951.

  14 MacBride went public with his protest, writing to the Irish Independent on the folly of the Government’s position; see his letter of 25 Oct. 1951.

  15 Dillon is quoted in the Sunday Independent, 28 Oct. 1951.

  16 The ITUC’s response is given in Moynihan, Currency and Central Banking in Ireland, pp. 379–80.

  17 NLI, Brennan papers, MS 26 241, McElligott to McGilligan, 17 Feb. 1951.

  18 Ibid.

  19 Ibid., memorandum for the Government, third report of the OEEC, 15 Mar. 1951.

  20 Noël Browne, Against the Tide (Dublin, 1986), p. 200.

  21 Cromien interview
.

  22 Browne, Against the Tide, p. 200.

  23 John Horgan, Noël Browne: Passionate Outsider (Dublin, 2000), p. 285.

  24 T.K. Whitaker, quoted in Fanning, Department of Finance, p. 458.

  25 Ibid., p. 459.

  26 NLI, Brennan papers, MS 26 241, memorandum for the Government, financial policy, 16 Oct. 1951.

  27 Moynihan, Currency and Central Banking in Ireland, p. 390. Moynihan was a director of the Central Bank from 1953 to 1960, and governor from 1961 to 1969. From 1937 to 1960 he was secretary to the Government, and is historically regarded as a fiscal and social conservative.

  28 Dáil Debates, vol. 130, col. 1123, 2 Apr. 1952.

  29 Seanad Debates, vol. 40, col. 1648, 19 June 1952.

  30 Tom Feeney, Seán MacEntee: A Political Life (Dublin, 2009), p. 186; Dáil Debates, vol. 130, col. 1155, 2 Apr. 1952.

  31 http://www.budget.gov.ie/2009/en/financialstatement.html

  32 Interdepartmental committee on food subsidies to Minister for Industry and Commerce, n.d., but by context early 1952, NLI, Brennan papers, MS 26 428. This committee consisted of chairman J. Williams (Industry and Commerce), T.J. Barrington (Local Government), P.J. Keady (Social Welfare), M.D. McCarthy (Central Statistics Office), J.C. Nagle (Agriculture), T.K. Whitaker (Finance) and secretary to the committee, M. Morton.

  33 NLI, Brennan papers, MS 26 428, memorandum for the Government, food subsidies, 1952–53, 31 Dec. 1951.