The Reluctant Taoiseach

by David McCullagh

  But Industry and Commerce was having none of it. In September 1954, Norton said his Department did not believe amendment was necessary, while repeal would be “a breach of faith towards those who have set up factories here on the basis of the existence of the Acts”. The memorandum warned that allowing uncontrolled access to foreign capital would lead to “the danger of exploitation for selfish purposes [which] would constitute a grave threat to existing and future industrial development”. Norton suggested instead that the Government should indicate it wanted to encourage external capital with “some form of brochure dealing generally with the opportunities offered by this country to foreign investors”.38

  When, some months later, Costello’s private secretary mentioned that nothing had actually been done about restrictions on foreign capital, “the Taoiseach referred to the evident reluctance of the Department of Industry and Commerce to amend the Acts and stated that, in these circumstances, no further action was called for …”39 It was an extraordinary admission of helplessness by the Taoiseach.40 As with the Capital Investment Board, further moves on foreign capital would be included in Costello’s October 1956 speech, but in the meantime, some progress was made in attracting investment from abroad, even without fundamental changes to existing legislation.

  Norton’s brochure, Window into Ireland, was produced in August 1955. The Tánaiste managed to generate considerable interest among investors in visits to Germany and the United States.41 The Government also accepted an Anglo-American oil company’s proposal to build an oil refinery in Cork. These moves led to criticism from de Valera and other supporters of the traditional policy.42 Costello vigorously defended the attraction of foreign investment in a speech to the Federation of Irish Manufacturers in February 1956. He insisted that foreign industrialists were being encouraged to establish factories to produce goods not already produced in Ireland, or produced in insufficient quantities, and in particular goods for export. The view that complete national control of industry must at all costs be preserved was, he argued, “incompatible with our large scale emigration, our substantial unemployment and our expressed determination to provide a decent livelihood here for our people”. Adequate powers remained to protect the national interest. But it was clear that Ireland was “in danger of missing the tide if we do not press ahead vigorously now with our policy of accelerating industrial development by inducing foreign industrialists to invest in this country”.43

  In the meantime, the economic situation had begun to worsen. In July 1955, Costello told the Dáil that the balance of payments would be kept under review, but he didn’t believe “we need fear any crisis before the end of the present year”. He added that credit restriction and import controls aimed at controlling a deficit tended to “bring other evils in their train”. Prevention, he said, was better than cure.44 However, his optimism proved unfounded, and prevention ineffective. The balance of payments deficit increased from £5.5 million in 1954 to £35.6 million at the end of 1955. A number of factors were blamed—agricultural and other exports to Britain had fallen because of the deflationary policy being followed by the Government there, while consumer spending at home rose after a national wage increase.45

  But there may have been another factor—the Government’s decision in February 1955 not to follow an increase in British interest rates. This was the first time an Irish government had followed such an independent course, and Costello explained that it did so on the basis that “adjustments of this kind should be dictated by our own interest rather than by events and conditions elsewhere”.46 It also helped to keep the cost of living down, and was politically popular.

  But Cormac Ó Gráda and Patrick Honohan have argued convincingly that the decision to hold interest rates down was a major factor in the balance of payments crisis. Of the £50 million deterioration they calculate in net foreign assets in 1955, they estimate that £10 million was due to a fall in exports (largely in cattle), £17 million to extra imports, and no less than £22 million to a turnaround in private non-bank capital flows. This they mainly attribute to firms repaying loans from British banks by borrowing from Irish banks at lower interest rates. The decision to delay interest rates was, they argue, “a policy blunder. The authorities simply failed to observe the implied interest rate discipline of the fixed exchange rate and integrated financial market with Britain.”47

  This connection between interest rate policy and the balance of payments wasn’t fully recognised at the time. For Sweetman, it was 1952 all over again. Like MacEntee, he believed the main problem was consumer spending, and that deflation was the way to choke this off and restore the balance of payments. His colleagues, particularly Norton and Costello, were inclined to follow the policy they had advocated in 1951/52—do nothing, and wait for the imbalance to work itself out. Eventually, though, Sweetman had his way, introducing curbs on consumer spending at the start of 1956, including import levies and new taxes on consumer goods. Predictably, these had the same effect as MacEntee’s Budget of 1952—increased unemployment and emigration—while the balance of payments was already sorting itself out unaided.48 The Government also backtracked on its interest rate policy. Costello announced at the start of 1956 that a “temporary” increase in rates was needed, because the problems in the balance of payments were “no mere self-regulating deficit, but a deficit which if left unchecked might well grow out of hand”.49

  Despite the problems with the balance of payments, there were some grounds for optimism about the economy. As Costello told the February 1956 Fine Gael Ard Fheis, unemployment was just 6.8 per cent, the lowest recorded up to then. Although this may have been due to increased emigration rather than job creation, the Taoiseach could also point to an extra 7,000 people in industrial employment over the 1953 figure, while 1955 had seen a 3.5 per cent increase in manufacturing production over the previous year. “The economy in general is sound. It may be that our people desire the Government to go too quickly towards the achievement of their aims. We have always insisted that we cannot do everything and certainly we cannot do everything at once.”50 Costello and his colleagues seem to have believed that if the balance of payments problem could be resolved, they would be set fair to resume a policy of economic expansion. That view may have been unrealistic, given the underlying problems in the Irish economy and society revealed in the 1956 census. In any case, the Suez Crisis was about to fundamentally change the economic outlook.

  Economic tensions were naturally evident at Cabinet. According to Patrick Lindsay, who joined the Cabinet in late 1956, the three most influential people around the table were the Taoiseach, Attorney General Patrick McGilligan, and Sweetman. Another strong influence was James Dillon. According to Lindsay, if Dillon spotted a potential difficulty, he would begin by saying he wanted to sound a “Three Bell Warning”. “When James sounded the ‘Three Bell Warning’, we all listened with respect and in the majority of cases accepted his judgement.”51 Dillon of course was now a Fine Gael minister, rather than an Independent, and he found the change not to his liking. He complained in his memoir that he had to bring his proposals to the parliamentary party first, “where every jealousy and cross-current could be manifested, and every mischief-maker and pest busied himself to make difficulties. One had to fight one’s way through the party, and then go through the whole procedure again in cabinet. So I did not so much enjoy being a Fine Gael Minister.”52

  The feeling was reciprocated by some of his party colleagues. John O’Donovan told the American Embassy in March 1955 that Dillon might be sacked, as he was proving an embarrassment and had alienated farmers. “He said that when Dillon agreed to receive a farmers’ delegation he would first insult them collectively and before the audience was over would usually insult each member individually.” O’Donovan observed that Dillon would only listen to two members of the Government: “He would do what Mr Costello told him to do, and Mr McGilligan had at times the power of persuasion over him.” O’Donovan believed either Sweetman or Cosgrave mi
ght replace Dillon: “They both were quiet, would listen to delegations and reason with them, and did not ‘blow off steam’ in public.” He also believed he might be considered for the position himself.53 O’Donovan’s comments may have been wishful thinking, but they indicate a certain disquiet about Dillon that is understandable given his contribution to the collapse of the First Inter-party Government.

  The other major figure in Cabinet was Norton, the Tánaiste and Labour leader. Lindsay believed him the best speaker in the Dáil—not excluding Dillon and Costello—saying he was “incisive, sharp and devastating in debate”. He recalled Norton persuading the Cabinet not to lay off turf workers. “Look, the difference between their wages and what you get on the dole is about a pound or thirty shillings. Why cause an upheaval of this kind when it’s not going to cost the country that much?”54 Not that Norton and his colleagues could ever be described as radical. As The Leader dryly noted, the Government was conservative, and while some ministers were described as Labour, a stranger “would be unlikely to pick them out from their colleagues on the strength of their public utterances”. The same piece also asked whether Labour’s main achievement in government, the retention of food subsidies, was really the best way limited public funds could be used to help the less well off, claiming that if the money had been used to boost social welfare payments instead, benefits would have been increased by 60 per cent.55

  However, the retention of food subsidies was vital if wage claims were to be kept under control. In February 1955, the Congress of Irish Unions gave notice to the employers’ body that it was terminating the 1952 wage agreement. Unions claimed wages had fallen behind prices; in fact, according to statistics prepared for the Taoiseach, earnings had gained slightly against prices between 1951 and 1954.56 However, perception is more important than statistical reality, and the perception among workers was that they had fallen behind, which was a problem for the Government, particularly Labour.

  When the Dáil resumed after the 1955 summer break, Fianna Fáil sought to take advantage of this perception. Lemass put down a motion of no confidence in the Government, on the grounds of its “failure to prevent the increase in the cost of living”.57 The Government argued that it had done all it could to control inflation, and that the effect of increases in the cost of living had been mitigated by increased industrial and agricultural earnings, and by the restoration of public confidence in the economy.58 Costello indignantly denied promising to reduce prices during the general election, comparing Fianna Fáil “lies” on this issue to the propaganda techniques of Hitler and Goebbels (how this was not found to be “unparliamentary” language is not clear). He said his government had said it would try to control the cost of living—and, if this proved impossible, to allow incomes to rise. He also claimed that the Government had kept the cost of living down by not following the British interest rate increase. And he pointed out that unemployment in the third quarter of 1955 was the lowest recorded up to then, at 5.4 per cent.59 The Government comfortably won the vote. In a subsequent by-election campaign, Costello claimed the no-confidence motion had had the effect “of demonstrating the unshakeable unity and strength of the present Inter-party Government, and of consolidating the Parties behind the present Government”.60

  Unions and employers were unable to reach agreement on a general wages policy, and in mid-1956, the employers sought Government intervention. When representatives of the two sides met Costello, Norton and Sweetman, they rehearsed their grievances. Costello adopted a hands-off approach, advising them to hold direct negotiations, and “if necessary” come back to the Government. However, it was clear that there was something the Government could do to help keep a lid on inflationary pressure. One of the union representatives made it clear that “any interference with food subsidies would certainly be followed by a demand for wage increases”.61 Despite the parlous economic situation, the Inter-party Government left food subsidies alone, and in October the trade union movement decided not to begin a campaign for a national wage increase.62 However, when the new Fianna Fáil government abolished the subsidies, unions announced they would be seeking higher wages to compensate their members,63 thus sparking another wave of industrial unrest.

  The only change to Costello’s second Cabinet was the appointment of Patrick Lindsay as Minister for the Gaeltacht in October 1956. According to Lindsay, he was approached about the move a year earlier by Costello, who was “clearly worried about the way in which the Government was operating and by a lack of energy in some areas”. Costello told Lindsay that he was to be appointed Parliamentary Secretary to Mulcahy, and that when the new Department was set up, he would take over at Education while Mulcahy became head of the new Department of the Gaeltacht. Whether or not that was the original plan, it didn’t work out that way; Mulcahy remained in Education, and Lindsay was appointed the first Minister for the Gaeltacht.64

  In his second government, as in his first, Costello frequently had to act as referee between feuding ministers. For the obvious reason that he was in charge of the purse strings, Sweetman was frequently one of those involved; Norton was frequently his sparring partner, as the interests of Industry and Commerce and Finance clashed.65 But where did the Taoiseach stand on the conflict between Finance and the other Departments? A very good indication is given by the serious row between Norton and Sweetman in 1956 over the future of the railways. In June of that year, the Board of CIÉ appealed to the Government to take action to “prevent the collapse of public transport” and save the railways. A committee of investigation, chaired by Dr J.P. Beddy, was established to report on the future of public transport.

  A Finance memorandum was sent to the committee, arguing that “railways have outlived their economic utility”; that investment in railways “can no longer be regarded as capital expenditure which could properly be met by borrowing since the railways cannot be made solvent”; and that rail should be replaced by road transport as quickly as possible. Norton was furious, writing to Beddy to assure him the memorandum did not represent Government policy. Separately, he accused Sweetman of “an unpardonable breach of propriety”, saying the more he thought about it, the more appalled he became. He complained to Costello that it was “simply outrageous that one Government Department, irrespective of the Government’s views, should seek to accomplish the abolition of the railways”. Sweetman argued that the committee was supposed to hear the views of all interested parties, and Finance was obviously interested as it would have to come up with whatever funding was needed.

  Getting wind of the memorandum, Seán MacBride wrote a strong protest to Costello, warning that he would publicly oppose any move to destroy the railways, adding that such a policy was “tantamount to political suicide. The Government is already unpopular enough without, on the eve of a by-election in the one ‘railway constituency’ we have [Louth], advocating the scrapping of the railways.” Costello assured him the Government “have not entirely lost all political sense! … You may take it that this … is merely a Finance memorandum. The Government … are not bound by it in any way … The memorandum was sent by the Department as an expression of an extreme orthodox financial view.”66 What is perhaps most significant about this episode is the evident distaste Costello felt for the “extreme orthodox” views of Finance as the Government headed into its final months.

  It also demonstrated that MacBride, unsurprisingly, was not content to silently support the new government. Despite his decision not to take a Cabinet seat, he had an elevated view of his own importance. When a committee was set up to represent backbench members of Fine Gael, Labour, Clann na Talmhan and Clann na Poblachta, he quickly became its leading light, acting as liaison between the committee and Costello. In April 1955 he wrote to the Taoiseach, expressing the hope that the committee “will be able to do useful work. There is a wide field of policy and administration over which there is little or no controversy but which … receives but scant attention.” He attached a list of the matters the committee me
mbers would like to raise with ministers—a very comprehensive list indeed, and one which reflected many of MacBride’s own obsessions, such as forestry.

  His suggestion that the committee should have a chance of discussing these matters directly with the ministers involved was underlined by Costello—he clearly felt MacBride had to be humoured and kept on side. And the Clann leader was not disposed to be trifled with. He asked Costello to ensure that ministers were “as co-operative as possible in their relations with the Committee”. After all, he pointed out, the members had the “task of allaying the criticism of their own organisations and friends … Where a committee of this kind unanimously makes a suggestion which is not contrary to Government policy, it is essential that they should be satisfied.”67 Seán MacEntee suggested that MacBride had acted as “the fixer” for the Government on this committee, the aim of which was “to persuade the doubtful and to silence critics among the rank and file … He had invariably succeeded in securing acceptance of the Government’s programme and it was very largely due to his talent for equivocation that the Coalition had held together.”68

  MacBride also urged new economic thinking on the Government, suggesting to Costello in November 1955 that Italy’s Vanoni Plan “is well worth looking at. Many of Italy’s problems are similar to ours.” MacBride had prepared a report on the Plan as rapporteur to a committee on economic questions of the Council of Europe.69 The Plan proposed the creation of employment through investment in “impulse sectors” such as agriculture, public utilities and public works. It had also attracted the attention of Seán Lemass, who used it as the blueprint for proposals he prepared with the help of Todd Andrews and outlined in a speech to a Fianna Fáil meeting in Clery’s Ballroom in October 1955.70 The Taoiseach dismissed Lemass’s plan, claiming that because it ignored agriculture, it had “no more solid basis than a froth of words”.71