On 5 October, Costello delivered his speech to a meeting of inter-party TDS and senators at the Engineers’ Hall in Dawson Street (the text had been approved by Government the day before).62 The overall tone was optimistic, suggesting trade figures had “taken a turn for the better and there is good ground for hope that the immediate measures found necessary by the Government are proving effective”. Now it was time to introduce a programme for economic expansion. “These decisions are calculated to expand our production, both for home use and for export, and enable the country to balance its international payments even without any need to call on our external assets. They are also calculated to increase savings, and increase investment at home so that we may develop this under-developed country.”
He stressed the importance of agriculture, saying that increased agricultural exports would pay for the imports of capital goods and material needed for industrial development. In the previous year, the export of cattle and beef was worth £42.5 million, or 40 per cent of Ireland’s total export trade. Given that Britain was to ban the import of cattle which were not certified to be tuberculosis free, he committed the Government to spending up to £1 million a year on a scheme to eradicate bovine tuberculosis. But while there was an emphasis on agriculture, Costello said, “Government encouragement of industrial development will continue to be given as vigorously as ever.” There would be a 50 per cent tax remission on profits from extra exports; grants for new factory buildings and tax relief for hotels; a campaign to encourage savings; and a Capital Investment Committee. Significantly, he stressed that Ireland would continue to welcome foreign capital investment.
The Taoiseach concluded on an upbeat note. “The Balance of Payments problem is a short term problem which can be and is on the way to being solved … Pessimism is not warranted and is not helpful. Faint hearts will contribute nothing either to the solution of our immediate problems or to planning the measures required to ensure future prosperity. We are justified in pointing with pride to what has hitherto been achieved, and, in contemplating those achievements, we may well take courage and face the future with calm resolve, with confidence and with hope.”63 His 2-hour speech was greeted with an ovation, and was “reckoned to have restored inter-party unity, which seemed to be in jeopardy in recent weeks”. James Larkin and Seán MacBride, described in the media as the two chief critics of the Government, both welcomed the programme. Larkin praised the “new positive constructive programme” and urged early implementation to reduce unemployment. MacBride’s main complaint was that the programme had been delayed so long, but he said it was better late than never, and it gave some evidence of “positive, constructive planning”. A vote of confidence in the inter-party leadership was proposed by Labour’s Tom Kyne, seconded by Dan Morrissey of Fine Gael, with MacBride and Thomas O’Hara of Clann na Talmhan speaking in support.64
The British Embassy found it difficult to judge the probable effectiveness of the plan, given the lack of detail, but reported that “moderate opinion seems to be that, although it has been left very late, the plan may prove reasonably effective, if it is implemented with speed and energy”.65 Press reaction was mixed. The Irish Independent felt Costello was over-optimistic about the economic situation, and that his proposals were long-term, when “what the country needs at the moment is an immediate short-term policy to meet the present grave crisis”. The Irish Press found little to disagree with in what the Taoiseach said. “The statement would be reasonable and even brave were it not so threadbare, not to mention the woeful record of Mr Costello’s Government since it took office … No promises can hide the failure of the Government … more than fine words and promises based on past failures are needed.” The Irish Times was more positive. “The plan Mr Costello announced yesterday is the one that ought to have been put before the country thirty years ago. The pity is that we have had to wait for it until a moment of ‘crisis’.”66
But it was precisely because of the desperate economic situation that Costello had been able to secure agreement to his proposals. As we have seen, the Capital Investment Committee and changes to the Control of Manufactures Acts had been resisted by Finance and Industry and Commerce respectively for more than two years. As Tom Garvin noted, “it took the crisis of 1956 to finally unblock residual resistance to wide-ranging policy shifts”.67
Arguably the most important development was the tax break for exports. Similar measures had been suggested twice before—in the Foreign Trade (Development) Bill of 1945, and on the recommendation of the Dollar Exports Advisory Committee in 1950—but had been blocked by the Revenue Commissioners.68 Tax relief for exports, as well as for industrial buildings and coal mining, was introduced in the Financial (Miscellaneous Provisions) Act in December.69 It was, according to Patrick Lynch, the first significant departure from the system of company taxation introduced in 1842. While it took some years to become effective, he wrote in 1967, “it is now the most important single spur towards improving efficiency in Irish industry and extending our trade abroad”.70 Lynch was hardly a neutral observer, but he was right to stress the importance of export tax relief. If nothing else, it was an important step on the road towards an outward looking, export driven economy—and one which is rarely credited to Costello and his government.
Another area where change was signalled in Costello’s speech was on the Control of Manufactures Acts. As we saw in Chapter 11, the Taoiseach had been trying unsuccessfully to reduce restrictions on foreign investment. In his 5 October speech, he noted the number of developments “made possible by the personal and financial impetus and the technical help of industrialists from other countries”. He said he was sure the public would welcome Norton’s campaign to attract more foreign investment. Norton later told the Taoiseach that the IDA was to follow up all American industrial contacts “vigorously and without delay, and that no opportunity will be lost of opening up new contacts with a view to the possibility of industrial development here”. The Minister was also keen on “special tax concessions to industry so as to enable this country to compete with other countries which are also trying to attract foreign industrialists”.71 It was to be left to the new Fianna Fáil government to actually amend the legislation, a move signalled by Lemass in May 1957.72 It is certainly arguable that Costello had prepared the ground for this change, as well as others. However, the amount of credit he could take in this case was limited by the failure to actually take action.
The Capital Investment Advisory Committee was also an important development, although perhaps not in the way Costello would have expected. The terms of reference outlined in his policy speech gave the Committee the brief to advise government “on the volume of public investment from time to time desirable, the general order of priority appropriate for the various investment projects, and the manner in which such projects should be financed”. It was chaired by John Leydon, former Secretary of the Department of Industry and Commerce, and included Lieutenant General M.J. Costello of Irish Sugar, Kevin McCourt of the IDA, economists Patrick Lynch and Louden Ryan, and Ruairí Roberts of the Irish Congress of Trade Unions.73
Despite Sweetman’s opposition to the Committee (see Chapter 11), he managed to set its agenda, asking it to concentrate first on the expected deficit of around £12 million in the capital budget. Its first report, published at the end of January 1957, ruled out a cut in capital spending, as this would cause an unacceptable increase in unemployment. Borrowing was not feasible, so “the sole remaining method of finance is by way of reductions in current Exchequer expenditure”. The Committee recommended abolishing the subsidies on butter and flour, saving £2.4 million and £6.4 million respectively, and ending the agricultural rate relief grants to local authorities, which would save £5.6 million. It also warned against allowing wages to rise to compensate for higher prices when the subsidies were abolished. The report argued that “the elimination of these subsidies would establish an indispensable condition of economic expansion by bringing prices and costs into a
more realistic relationship”. Not surprisingly, Ruairí Roberts of ICTU signed a minority report disagreeing with this line.74
In later years, Costello himself was critical of the Committee, accusing it of having “a bland unconcern for political practicalities”.75 Even at the time, it was clear that its proposals would have been unacceptable to Labour, while John O’Donovan claimed in a 1973 interview that when Sweetman told Fine Gael colleagues on 25 January 1957 that he intended to abolish food subsidies, four of them threatened resignation—Liam Cosgrave, Tom O’Higgins, Patrick McGilligan and O’Donovan himself.76 The only surviving member of the group mentioned, Liam Cosgrave, has no memory of any such meeting, or of a threat to resign.77 He does, however, confirm the depth of feeling on the issue of food subsidies at the time, so there may be some basis for O’Donovan’s story. In any case, the general election meant it was no longer a problem the Inter-party Government would have to deal with. Not alone did the new Fianna Fáil government cut the subsidies, they also directed capital spending away from “social” to “productive” investment.78 This was also to be a theme of the First Programme for Economic Expansion, an example of how decisions taken by the Inter-party Government informed the sea-change in economic policy spearheaded by Lemass and Ken Whitaker.
Another such decision was the appointment of Whitaker as Secretary of the Department of Finance. His promotion “contravened the hitherto sacrosanct principle of seniority”, as he got the job ahead of the longer-serving Sarsfield Hogan. In his history of the Department, Ronan Fanning suggests that the decisive proponent of Whitaker’s appointment was McGilligan.79 Some believed Hogan was passed over because of his son’s involvement in the (temporary) theft of one of the Lane paintings, mentioned in Chapter 7, others to the fact that his “undisguised passion for rugby had contributed to a somewhat distant relationship with the worlds of economics and high finance”.80 Whatever the reasons for not appointing Hogan, there were compelling ones for Whitaker’s promotion. He was immensely capable, and more in tune with modern ideas about economics than many of his contemporaries. This is not, of course, to suggest that he lacked an appreciation of the economic perils facing the State. Three and a half months after his appointment, he wrote to Sweetman, saying he was “the only Minister who fully understands how narrowly we have avoided failure in recent months”.81
The use of the word failure is significant. As Tom Garvin noted when quoting the above letter, “the rhetoric of the Republic as a failed state was quite noticeable at the time”.82 It’s easy to see why. Between 1951 and 1958, GDP rose by less than 1 per cent per annum, and Irish GDP per head fell from 75 per cent of the western European average to just 60 per cent. As Gary Murphy has observed, “it was during the 1950s that Ireland went into relative decline against similar states in Western Europe”.83 Whitaker remembered the 1950s as “a very grim time—we were in the slough of despond, a time when people were asking if we had a future”.84 There is plenty of reason to see the 1950s as the dismal decade, the nadir of Irish independence. For this, political leaders on all sides must take much of the blame.
On the other hand, the 1950s were also the time when important decisions were taken which paved the way for the growth of the 1960s. The change in Irish fortunes is usually attributed to the First Programme for Economic Expansion, to the work of Ken Whitaker and to the leadership of Lemass. But it is wrong to ignore the important role of Costello and of the second Inter-party Government in broadening public debate and preparing the way for important initiatives on foreign investment and export led growth. As Whitaker wrote in 2006, “the foundations of new policies for economic growth were being laid and the appropriate institutions established” at this time.85 Unfortunately for Costello’s reputation, although he had sketched out an economic reform agenda in 1953, he only began making progress on it after his government had presided over an economic crisis; and he was removed from power before his ideas could be implemented. This is why Lemass and Whitaker get the credit for the Irish economic transformation.
The impact of Costello’s October speech on Lemass’s thinking was obvious even at the time. As we saw in Chapter 11, his Clery’s Ballroom speech had signalled a new direction for Fianna Fáil, although Costello had dismissed it because it failed to even mention agriculture. In January 1957 he made another policy speech, which according to his biographer John Horgan was “calculated to mend his hand in relation to certain elements of the plans recently announced by Costello’s Government, which had been accompanied by specific proposals for both industry and agriculture. His recommendations for the improvement of the agricultural sector addressed an issue that had been conspicuous by its absence from his Clery’s Ballroom speech, and his espousal of tax-free profits for exports, while it echoed speeches he had made as far back as 1948, was also an attempt to trump Costello’s proposals.”86 The Leader commented favourably on Lemass’s “thoughtful and painstaking proposals”, which it said were sound and realistic, although they did not “differ all that much from the outline of policy made by the Taoiseach last October”.87
As well as promoting a positive policy, Costello also made efforts to ensure his ministers didn’t unnecessarily antagonise the public. In August, Alexis FitzGerald had suggested that he might tell ministers “to be particularly careful not to have rows with any groups for the moment and to turn away wrath with soft words in every instance”.88 It was a good idea, and Costello acted on it, telling ministers at a Cabinet meeting “to see that none of their Departments caused any further irritation among sections of the community which would do us political damage”.89 One minister who took this injunction to heart was James Everett, who ordered Garda drivers of State cars to stop parking illegally, as this was “simply inviting adverse criticism from members of the public”.90
A more serious matter was corporal punishment in schools, an issue which had become controversial after Owen Sheehy Skeffington raised it in the Seanad.91 Mulcahy decided he should meet this “attack … on our Clerical management and on nuns and brothers as teachers” by clarifying exactly what was permitted. Up to then, the only instruments officially allowed for corporal punishment were a light rod or cane. In view of the “existing and traditional position”, Mulcahy added the strap (a heavy leather article) to this list. This was done “to remove doubt on the part of those traditionally using it and on the part of the public”. Not surprisingly, though, the circular was interpreted by the newspapers as the Minister approving the use of the strap.92 Sheehy Skeffington denounced Mulcahy’s action as “cowardly and callous”, claiming that instead of taking firm action against those who broke the rules, he had changed the rules to suit them.93 Seán MacBride put down a Dáil motion calling for the regulation to be withdrawn.94
After the issue was raised at the inter-party meeting on 5 October, Costello reminded Mulcahy of the need to avoid controversy. The Taoiseach said he was “writing you this personally as I would not wish you to think that it is a direction to you in your own Department, but I think it is not a matter that we should allow to be the subject of public discussion which would divert attention from our constructive proposals”. While he assumed the Department “has a good case for it nevertheless I urge you to withdraw the regulation”. He added that he had heard an unconfirmed rumour that there was “almost something in the nature of a riot” at one Christian Brothers school “because of the undue use of corporal punishment”.95
Mulcahy agreed to withdraw the offending circular. But he also made it clear that he felt he had no role in school discipline. Unless a teacher did something that could lead to criminal charges, there was no sanction available to the Minister against “a Clerical Manager or a Clerical teacher unrepudiated by his or her Religious Superior”.96 Like his predecessors and successors, Mulcahy was not inclined to interfere in how the Church ran educational facilities—a failure which contributed to the climate of secrecy surrounding serious abuses, particularly in residential institutions.
Of course,
the immediate reason for avoiding public controversy, and for the 5 October policy speech, was the pending by-elections in Carlow-Kilkenny and Dublin South-West. In a speech in Mooncoin in Kilkenny, Costello said his government, after taking remedial action, was now putting forward constructive proposals, unlike the Opposition. He said the reason Fianna Fáil was not offering any precise policy was because “they cannot agree on one … Nobody knows whether it is Mr Lemass’s policy of free spending of money, to be got from nobody knows where, or Mr MacEntee’s policy of heavy taxation even for Capital purposes that is to prevail.”97
The Taoiseach stressed that Fianna Fáil had not said the Government’s actions in trying to control the balance of payments deficit were wrong. Therefore, he suggested optimistically, “if the electors show now in a striking manner their approval … the results will provide a salutary lesson for the future leaders of our democracy, and an encouragement to public men generally to act in a responsible manner”.98 Just in case this call for an endorsement of austerity didn’t work, he also had an inducement for voters, in the shape of an extra £1 million for job creation in “productive employment”.99 He told a meeting in Dublin South-West that the “only thing we have to fear in these by-elections is apathy on the part of the electorate”.100 But he was clearly well aware that they had a lot more to fear than that.
The Reluctant Taoiseach Page 54