by Conor McCabe
Twelve months later the Irish banking system was on the verge of collapse, swamped by billions in bad debts. In February 2009, the standardised unemployment rate breached 10 per cent for the first time since 1997. By December of that year, Ireland’s national debt stood at €75.9 billion, or 65.6 per cent of GDP.2 McCoy had gotten one thing right though. While merchandise exports stalled, service exports increased, and by the end of 2009 Ireland was the ninth largest services exporter in the world.3
McCoy’s article was similar to others written in the months leading up to the 2008 crash, which were variations on the theme that exports will save the day. Yet, what is interesting about McCoy’s analysis is not so much the mantra of exports, but the assumption that the exports are ours. A similar view was held by others. In February 2007, the economist and former Taoiseach Dr Garret Fitzgerald wrote, in criticism of Irish output, that ‘during a period in which the volume of world trade has grown by one-third, our exports of goods have remained almost static’.4 In June of that year the Minister for Enterprise, Trade and Employment, Micheál Martin, spoke in positive terms about how Ireland’s two-way trade with China met the need ‘for raw materials, parts and components to feed our own manufacturing facilities’.5 In December, the then Minister for Finance, Brian Cowen, highlighted the fact that ‘almost 40 per cent of our exports are services-based’.6 Two years later, as Taoiseach, he said in relation to the government’s economic strategy that ‘as the world economy recovers and demand for our exports increases, there will be more people in jobs, and our tax revenues will rise’.7
Despite all the words of praise and, indeed, criticism of Irish exports, this sense of ownership was out of step with the facts on the ground. Since the 1970s, the majority of exports emanating from Ireland have been produced by multinationals; in 2008 they accounted for 88 per cent of all merchandise export sales. Yet the amount of people employed by IDA-supported companies in 2008 is only around 7 per cent of total employment.8 These companies paid €2.8 billion in corporation tax in 2009, and direct expenditure in the Irish economy via payroll costs, Irish materials and services amounted to €19.149 billion. However, total sales amounted to €109.64 billion. Around 80 per cent of the money generated by IDA-supported companies completely bypasses the Irish economy. The profits are repatriated to the country of origin. In 2009, chemical products made up 51 per cent of all merchandise exports from Ireland, the bulk of which were made with imported materials. The chemicals come in via containers, and go out via containers. Irish economic policy has developed exporters, but not exports.
Given such a modest effect on the Irish economy – 7 per cent of total employment and approximately €2.8 billion in corporation tax – why is foreign direct investment constantly put forward as the prime objective of the State’s economic policies and strategies? In 2009, employment among IDA-supported companies fell by 10 per cent, yet exports rose by 5.5 per cent.9 Why is the promotion of such a business model, where the profits from 88 per cent of all exports leave the economy alongside the products, the central task of the three main Irish political parties?
The arrival of foreign capital in the 1950s saw not just the eventual development of export-led multinational industries on Irish shores, but also the expansion of Irish financial and commercial services which acted as intermediaries between the Irish State and these new investments. The acquisition of greenfield sites, the construction of factory and office space, road haulage, banking, and insurance – it was through these areas of commercial activity that indigenous non-agricultural business gained its commanding presence in Irish commercial and political life. The exports of multinationals in Ireland are lauded by politicians and bankers not because it is through these exports that Irish people make a living, but because it is by servicing these exporters that banks and commercial property developers make their profits. This is the key to understanding NAMA. The direct foreign investment which arrived in Ireland from the late 1960s onwards ends up sourcing very little of its raw material from Ireland. What they need they import, and what they produce they export. They are like stones skimming off the top of a pond, developing little of sustained substance in the local economy. But while they are based in Ireland, they need buildings and financial services. And for that, they need builders, accountants, bankers and lawyers. Here we see the structural weaknesses in the Irish economy which allowed something like NAMA to occur.
FROM CATTLE TO MERCHANDISE
The post-war Marshall Aid Plan for Europe set out ‘to stabilize finances, liberalize trade, boost production, encourage a consumer society and thwart the extension of communism’.10 From 1947 to 1957, Ireland received £46.7 million under the scheme. It was the first major foreign investment in Ireland since the foundation of the State, and it came mainly in the form of loans. Of Ireland’s total allocation, only £6.1 million consisted of grants.11 There were reasons for this. The perception in Washington was that Ireland had experienced a ‘good’ war. It had been neutral and had suffered relatively minor structural damage. Also, the country had large reserves of sterling, which it could use to offset its balance of trade with the USA. However, the Irish government was persistent and in 1949 received its first grant, which was for $3 million. This was given, in the words of Wayne Jackson, head of the State Department’s British-Irish desk, in order to ‘get the Irish off our backs, financially’.12 The bulk of Ireland’s Marshall Aid allocation was used, not to develop industry, but for land reclamation. Cattle and grazing still had a bind on the economy, but Ireland needed to develop new markets in the USA in order to address its trade deficit, and there was little chance of shipping live exports across the Atlantic. From at least 1949 onwards, ‘increasing pressure was placed on the Irish to develop long-term sources of dollar earnings’.13 The Ibec report of 1952 was part of this process.
Britain’s demands that Ireland eradicate bovine TB, as well as the clear signals that it intended to continue to develop its indigenous livestock industry, were essentially the tipping points in pushing government policy towards industrialisation and export diversification. And while the government recognised that these developments had to take place, it was also clear that it did not want to address monetary policy and financial investment practices in the process. The need for indigenous investment, the breaking of the parity link with sterling, the widening of the tax net to include farmers and ranchers, and the establishment of a genuine central bank were all essential in order for the economy to develop, and all were fiercely resisted. Out of this resistance a ‘new way’ was flagged, which was the expansion of the economy through foreign investment. This became the means of industrialisation for Ireland; one which avoided the need to expand taxes, reform monetary policy, or in any way seriously challenge the status quo.
In January 1956, the Minister for Industry and Commerce, William Norton, undertook a tour of the USA in an effort to secure foreign investment for Ireland. Later that month, the Taoiseach, John A. Costello, said in a speech in Cork that ‘it was the desire to increase investment, more particularly in export industries which prompted the government to send [the Minister] on a number of missions abroad to induce foreign capitalists to invest in such industries’.14 The trip was a cause of some concern in Irish business circles, leading the government to offer reassurances. The Taoiseach told a meeting of the Federation of Irish Manufacturers in February 1956 that ‘foreign industrialists … were to be encouraged to start factories here for the production of goods not already produced in Ireland, or which were being produced in insufficient quantity, and also, and perhaps more especially, for the production of goods for export’.15 In August 1955, Norton had visited West Germany, where he stressed to German officials that ‘Ireland’s existing trade agreement with Britain allowed large varieties of goods to be imported into Britain from Ireland duty free and that Ireland had similar arrangements with Canada, Australia, New Zealand and South Africa.’ ‘Germans industrialists,’ he said, ‘would be able to export to these countries free
of tariff if they set up plants in Ireland.’16
As with the Taoiseach in 1956, William Norton stressed that ‘The object is not to encourage people to come in and compete with existing industries which are supplying the market, but to come in and make commodities which are being imported’. This move towards foreign investment was also pushed by the Organisation for European Economic Co-operation (OEEC), which said in its 1955 report on Ireland and Portugal that ‘greater attention might be directed towards encouraging an increase of foreign direct capital investment in Ireland’.17
In October 1955, the Irish and American governments signed an agreement which allowed Ireland to take part in the United States Investment Guarantee Programme, which was set up to encourage production and trade by means of American foreign investment abroad. In November, the head of the Irish Development Authority (IDA), Dr James Beddy, said in Bonn, Germany, that Ireland ‘was interested in the establishment of any and every industry’. He told a reporter that ‘many towns, particularly in the West of Ireland, were willing to supply new industries with free building sites and grant them 33 per cent exemptions from rates for seven years’.18 At a meeting of the Boston Chamber of Commerce in January 1956, William Norton said that Ireland had ‘an intelligent and adaptable labour supply, an advantageous position for international trade, generous tax and import regulations designed to stimulate industry, easy conversion of Irish earnings into dollars, and stable political and economic conditions’. He added that ‘capital directly invested may be freely repatriated at any time’.19 Foreign investment as the path to economic and industrial growth was firmly at the heart not just of Irish government policy, but also of European and American policies as well.
The election of Fianna Fáil to government in 1957 saw a continuity in the pursuit of foreign investment. One of the first undertakings of the new Tánaiste and Minister for Industry and Commerce, Seán Lemass, was to amend the Control of Manufactures Act of 1932, which required Irish industries to be Irish owned. In July 1957 the Tánaiste said:
Our industrial development has clearly reached the stage when export markets for industrial products must be the main target of future development … We are approaching the end of the process of developing industry for the purpose of supplying home market needs and if we are to get from industry that increase in output and widening of employment opportunities which the country needs, it will be only by means of securing expansion of business into export markets.20
The amendment of the Act had been called for in 1955 by the American Ambassador to Ireland, Mr W.H. Taft, in a speech he made to the Cork Centre of the Association of Certified and Corporate Accountants. He said that the ‘51 per cent ownership and control law’ which meant that Irishmen remained in charge of their own business ‘was understandable … but you are not apt to get capital investment in your own country unless you make concessions to foreigners’.21
Yet there seemed little that the Irish government was unwilling to do to encourage foreign capital. In April 1957, the Lord Mayor of Dublin, Councillor Robert Briscoe, went to New York to try to encourage American interest in Ireland. ‘In the field of tourism, the fact that I, a Jew, am Lord Mayor of the largest city in a predominantly Catholic country’ said Briscoe, ‘has persuaded many to come to Ireland who otherwise would have avoided the country.’ With regard to investment, at a business luncheon with ‘about a dozen of New York’s leading international bankers’, Briscoe was asked about the legal restrictions on the repatriation in dollars of capital investment in Ireland. ‘There were also inquiries about whether Ireland had, or would establish a free port – that is, a port at which goods passing through rather than remaining in the country could be landed free of duty’, he said in an interview with The Irish Times. ‘I explained that such a port was not necessary in Ireland because we permit companies to establish bonded warehouses on their own property for such duty-free merchandise.’22
Alongside the move to encourage foreign capital, the government also lifted export restrictions on Irish industries that produced for the home market. In 1958 it published the ‘First Programme for Economic Expansion’ which placed a primacy on increasing cattle exports and farm incomes. The new road that Ireland would walk was still paved with old assumptions. The expansion of agriculture ‘was the key to future employment’, said the Minister for Lands, Erskine Hamilton Childers. ‘The consumption of meat was likely to rise in the next 20 years,’ he said, and ‘farmers who sold the greatest weight of beef per acre of land at the lowest cost and of best quality would benefit from this market, and employ thousands of extra people by buying more Irish goods.’23 The idea that raising a ranchers’ income would expand the entire economy was at the heart of Cumann na nGaedheal’s 1920s economic policy. Similarly, the idea that grazing, rather than meat processing, would provide jobs for a new Ireland was equally stubborn to the vicissitudes of reality.
The real changes in policy as a result of Whitaker’s plan were the measures to increase government borrowing and expenditure, and to allow indigenous Irish industry to export. In 1963 the government issued the ‘Second Programme for Economic Expansion’. It stated that ‘in the years following 1958 the task of raising productivity was made easier by the existence of under-utilized capacity,’ and while ‘there was little change in total employment … output per worker rose by 5 per cent’.24 This added to a modest increase in Irish GDP, which itself was aided by an increase in demand in the British economy. The government’s decision to restart the housing programme helped to lessen unemployment and expand the construction industry. In terms of foreign capital and industrial expansion, however, it is with the signing of the 1965 Free Trade Agreement with Britain that Ireland became a prime site for foreign capital.
Despite the popular perception of Ireland as a closed, backward economy until the arrival of Whitaker and his economic program, the State had always had a relatively open economy. Even in the 1950s, the value of its imports and exports was between 66 and 70 per cent of GDP. The problem was the nature of those exports, and the destination. Ireland exported, but it exported mainly to Britain, and mainly livestock. The gradual rise in exports became a stampede after 1965, however, and by the early 1970s, merchandise exports exceeded livestock exports for the first time in the State’s history. The Free Trade Agreement gave Irish-based German and American companies tariff-free access to British markets, and generous tax allowances for expenditures and repatriated profits. The idea that exports needed to be linked to the wider Irish economy in order to help expand that economy was slowly, and methodically, pushed to one side.
The change in the composition of exports reflected a change in the type of employment. There were fewer people working in agriculture and more people in services and industry. But the true growth in employment occurred not so much in export-led industry, which in employment terms remained somewhat modest, but in construction, banking, and administration – the indigenous areas of support for the foreign capital which arrived in droves in the lead-up to, and after the implementation of, the 1965 UK and Ireland Free Trade Agreement. Ireland experienced an export boom, but for the most part the jobs which were created were related to the dynamics of the local economy. The lack of a strong relationship between the new industries and Irish-sourced materials all but guaranteed a cap on industrial jobs growth. The main developments in Irish business as a result of foreign investment, took place in construction and services.
According to the census figures, there were 118,072 new jobs created between 1961 and 1971. These were almost completely absorbed by the loss of 115,772 jobs during the same period. During ten years of economic expansion and foreign investment, there were a total of 2,300 more jobs in 1971 than in 1961. Emigration had slowed during the decade, but had not stopped, and an estimated 135,000 people left the country during this period.25 This was one third the rate of emigration in the 1950s, but it was not until the early 1970s that Ireland achieved net immigration. As late as 1965, The Irish Times repor
ted:
Gross National Product is up. Farm incomes are up. But what are these when they are set against an emigration rate still as high as 25,000 and an unemployment figure that one week last month was almost 56,000 and was down less than 400 on the same week in 1964?26
Irish industrial employment as measured by the 1971 census increased by 35,854, or 20 per cent, on the 1961 figure. This was mostly due to increases in the production of machinery, metal, plastics, chemicals, milk and meat products, and concrete. From 1960 to 1973 the IDA helped 418 establishments to set up business, of which 352 were in operation in June 1973, providing employment for 44,822 people.27 It paid out £92.765 million in grants during that time, which represents a cost of £2,069 per job created.28 Overall, 15.8 per cent of manufacturing jobs in 1971 were in grant-aided industries which had been established between 1961 and 1970. The largest increases, though, were in commerce, construction, professional and public service employment, banking and insurance. Growth in these areas accounted for 70 per cent of all new jobs, while manufacturing, the prime objective of government policy, made up the remaining 30 per cent.
The type of manufacturing establishments funded by the IDA were spread across all industries, including clothing, food, chemicals, toys, plastics, and heavy machinery. About 16 per cent of the successful enterprises were in meat, fish, dairy, biscuits and brewing – that is, industries which were based on Irish agricultural produce. The two largest industry groups, clothing/textiles and machinery/metal products, constituted nearly 55 per cent of all IDA-supported businesses, and were heavily reliant on imports for production. The new industries in terms of products and exports were based around chemicals, plastics and pharmaceuticals. These constituted 12.78 per cent of successful IDA-supported businesses, and somewhere around 5,000 jobs, but yet sourced very little of their materials from Ireland and so had little impact on secondary industry, except in the fields of construction and services. Of the 418 establishments which were grant aided during this period, 35 per cent were Irish, 20 per cent British, 18 per cent American, 14 per cent German, and 4 per cent Dutch. The remainder were either joint ventures or from other countries.29 Despite the relatively high number of Irish ventures, the majority of exports came from foreign-owned companies.