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TCD M.SC.(EPS) – RONAN LYONS – EC8001 IRISH ECONOMIC POLICY ISSUES & CONTEXT TOPIC A: IRISH ECONOMIC HISTORY TO INDEPENDENCE.

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Presentation on theme: "TCD M.SC.(EPS) – RONAN LYONS – EC8001 IRISH ECONOMIC POLICY ISSUES & CONTEXT TOPIC A: IRISH ECONOMIC HISTORY TO INDEPENDENCE."— Presentation transcript:

1 TCD M.SC.(EPS) – RONAN LYONS – EC8001 IRISH ECONOMIC POLICY ISSUES & CONTEXT TOPIC A: IRISH ECONOMIC HISTORY TO INDEPENDENCE

2 MODULE OUTLINE TopicTitleEoI ChDates AIrish Economic History to Independence1+MT1-2 BIrish Economic History since Independence1+MT3-4 CThe Economy & Economic Growth2, 7MT5-6 DPublic Finances, Debt & Taxation3, 4MT8-9 EThe Labour Market6MT10-11 FSocial Justice & Inequality8HT1-2 GRegulation & Competition5HT3-4 HCompetitiveness & Trade9, 11HT5-6 IHealth & Education12, 13HT8-9 JNatural Resources & Real Estate10, 14*HT10-11

3 TOPIC B. READINGS John O’Hagan & Carol Newman, ‘Economy of Ireland’ (12 th Edition) Chapter 1, Historical Background Further Reading: Andy Bielenberg & Raymond Ryan, ‘An Economic History of Ireland Since Independence’

4 TOPIC B: STRUCTURE Irish Economic History since Independence : From globalization to autarky : From autarky to globalization 3.The 1990s: The 30-year overnight success story 4.The 2000s: Bubble and crash

5 BROAD PERSPECTIVES Two competing conceptualizations of Ireland’s economic performance Delayed convergence Follows from basic growth theory (Topic C) Catch-up natural, hindered by poor policies before the 1990s Regional economy model Can only understand long swings of growth and recession with unusually mobile factors of production (L, K) Out-migration prevents wage lowering, thus dampening attraction of FDI – hence need for government policy Other perspectives exist (e.g. role of interest groups)

6 IRELAND AT INDEPENDENCE Trade policy Tariff Commission set up in 1926 – depoliticize decisions Under Dept of Finance control: conservative, free-trade Muscles were flexed, though: 59 tariffs by 1931 Fiscal policy Active fiscal policy some decades away – indirect taxation on mass consumption goods (broadly regressive) Shannon Scheme exception (DoF failed to block) Monetary policy Caution and continuity: power of Irish Banks Standing Committee Currency Commission 1927 – Irish punt, move towards CB

7 FREE-TRADE VS. PROTECTIONISM Pro-trade bloc led by Departments of Finance & Agriculture Based on pragmatism: agricultural export earnings ‘paid the bills’ Vast bulk of these exports were to UK Context of significant cumulative trade surplus, (£77m) 1920s a time of trade deficits, falling agri prices Protectionist bloc led by Dept of Industry & Commerce Cf. nationalist vision of less dependence on Britain Irony: ‘tariff-jumping’ British investment “Import-substituting industrialization” Tariffs – paid for by consumers – could help generate broader base Mirrored in attraction of FDI later

8 OUTBREAK OF ECONOMIC WAR 1932 election of FF marked decisive break in trade policy Stopping of land annuities sparked economic war Agriculture suffered in both short and long run Aim was shift from pasture to industry (+ tillage) Shift in power to Dept of I&C Self-sufficiency Few changes to fiscal or monetary policy 1934 Commission did not led to Central Bank [until 1942]

9 START OF AGRICULTURE’S DECLINE 1920s Ireland was one of ‘family farms’ specializing in livestock, dairy – 86% of exports agri, food/drink Explains land redistribution, from 1923 (on-going until 1970s) ~0.85m acres (of ~21m) compulsorily acquired [+~0.5m vol] Average size of farms halved Bleak first two decades for sector as exporter Post-1920 collapse in agri prices left borrowers in trouble Economic War with Britain during 1930s meant loss of market share: from 27% in late 1920s to 20% in late 1930s 36% output fall led to slaughter of cattle, until 1936 Coal-Cattle Pact

10 FALSE DAWN FOR INDUSTRY? Partition stripped Irish Free State of most industry Just 10% of employment in 1926 – low relative to Europe Concentrated in food/drink, and in Dublin Major names: Guinness, Ford, Goulding Post-WW1 upheaval did not help Kynoch’s moved from Arklow to Britain – as did Distillers Co Many woollen mills destroyed s saw protection for native industry Hurt export-focused firms like Guinness (had to set up in England) and Ford (switched from tractors to cars) But growth in textile/clothing in particular

11 IRELAND’S SERVICES INHERITANCE Well-developed service sectors in Ireland on independence Transport, communications, retail, banking Domestic service and retail the largest subsectors Roughly 100,000 each in 1920s Early setbacks Withdrawal of British troops associated with fall in local spending (e.g. of garrison towns) Disruption of transport network: wartime control of railways ( ), Civil War target (1/3 inoperative by end-22) Longer-term challenge for rail: ever greater control by state (1924 amalgam, 1933 K write-down…)

12 OUTBREAK OF WORLD WAR Rise in prices (shortages) – but freeze on prices Fall in living standards; coal shortage led to “re-turfing” Dept of Supplies; more formal economic planning Lemass its Minister (moved from Dept of I&C) Cabinet Committee for Economic Planning Central Bank established in 1942 Increasing government control of rail & shipping Once war finished, government maintained interest in shaping economic outcomes Infrastructure spending, ‘Public Capital Programme’ (1950) Rural electrification started in 1946

13 AGRICULTURE & INDUSTRY IN WAR Compulsory tillage orders saw doubling of output 1940: all farms >10 acres had to dedicate 12.5% to tillage 1943: all farms >5 acres had to dedicate 37.5% to tillage Shortages of capital and inputs meant increased use of horses, labour Dependence on British imports (incl petroleum) hit industry hard during war 25% fall in output, House completions fell from 12,300 to 1, Protected industries dependent on home market Missed out on trade-driven growth post-WW2: 23% in Ireland vs. 73% elsewhere in OEEC

14 TOPIC B: STRUCTURE Irish Economic History since Independence : From globalization to autarky : From autarky to globalization 3.The 1990s: The 30-year overnight success story 4.The 2000s: Bubble and crash

15 POST-WAR EARLY INTEGRATION Ireland a founding member of OEEC (later OECD) Aim was distribute ERP (aka Marshall Aid) Ireland’s role was to help feed Britain – postwar shortages : received £41m in cheap loans, £6m in grants OEEC help shape data gathering Requirements of ERP led to establishment of CSO, 1949 Separate current and capital accounts from early 1950s IDA was established in 1949 Shannon Free Zone set up around this time also Anglo-Irish Trade Agreement Not all-in: did not join IMF, GATT (1948) European Coal & Steel Community (later EEC) not relevant

16 POLITICS AND ECONOMICS Ireland had a balance-of-payments (BoP) deficit at this point – ERP helped fund this End of ERP meant a doubling of the BoP deficit to £61m FF’s first budget back in power a deflationary one … In turn contributed to their exit from government in monetary ‘experiment’ IBSC persuaded not to pass on UK interest rate increase – inappropriate given lack of inflationary pressures Current A/C deficit increased to 6.5% - flight of capital… and labour (peak of emigration) Honohan & Ó Gráda: 1956 crisis “defining event” of post-war Irish economic history

17 SWITCH TO EXPORT-LED GROWTH Not an overnight switch to export-led growth : establishment of IDA; Coras Trachtala : removal of restrictions on FDI; Export Profits Tax Relief Scheme (0% CGT until 1980); exemption of exports from Control of Manufactures Nonetheless, landmark seen in T.K. Whitaker’s ‘Economic Development’ paper Reallocate social expenditure into more productive areas Led to “First Programme for Economic Expansion” (Lemass) Joined EFTA with UK (EEC founded 1957) Further pressure on agriculture sector

18 PATTERNS OF TRADE In 1920s, UK accounted for 97% of exports and 80% of imports By WW2, export figure was higher, imports down to ~50% Coras Trachtala helped boost Irish exports to US From 1% to nearly 10% by early 1950s UK markets open to Irish manufacturers from 1965

19 MAKING YOUR OWN LUCK? Bryce Evans: “a national coming of age happened to coincide with Lemass’s coming of age” EEC/EFTA emerged as credible constraint on policy International trade was buoyant, as was British growth First PfEE failed to deliver its objectives Tax burden did not fall, not did spending on housing Perception of success led to Second PfEE Meant to cover period – abandoned Similar fate befell Third PfEE Neo-corporatist institutions set up at this period Trade union and employer participation – although early wage bargaining was not successful

20 FOCUS ON AGRI PRODUCTIVITY By early 1960s, state supports ~20% of output Poor output per worker and per acre Productivity improvements centred around mechanization, in particular tractor From 6,000 in 1947 to 30,000 in 1955 Freed up land used for horses (~10%) Also ‘freed up’ labour: 148k labourers (1929) vs. 26k in s/70s: concentration and specialization Benefited from high EEC prices upon entry – 45% increase in real prices between 1971 and 1978 Seen also in related industries: Kerrygold (1962) and five other creameries

21 LOCAL INDUSTRY’S INDIAN SUMMER As of 1970, ~3/4s of industry output for home mkt ~10% of employment in British firms, vs. ~10% for rest-of-world Growing consumer demand of 1960s gave native industry an ‘Indian summer’ Multinational consortium involved in Irish Refining Co (Whitegate, Cork) in 1957 Importance of energy security reflecting its importance as an input Growth phase for construction from 1950s to 1970s

22 FROM RAIL TO CAR & AIR Rail services still struggling post-war 1948 Milne Report: sheer age of stock – move to diesel 1957 Beddy Report: closure of stations – lack of density 1964: policy acceptance that subsidy required for survival Increase in rail freight from 1950s on Reflecting some economic growth – stopped in 1980s 1952: Bord Failte set up – 20% bedroom grants in 1 st PfEE, other expenses by mid-1960s Over-capacity Retail revolution in 1960s SuperQuinn, Quinnsworth, Musgrave 1,058 “country general shops” in 1951 to 76 in 1988

23 PREPARING TO ENTER EUROPE… Failure to join EEC with UK led to ‘interim liberalization’ – 1965 Anglo-Irish Trade Agreement Increase in butter quota seen as important – but as elsewhere in Europe, agriculture in relative decline Free secondary education from 1967 Perception that Ireland had missed post-war boom 1969 saw changes to regional policy Buchanan Report : focus on major cities + 10 regional and local centres – dropped, as too political IDA achieved autonomy: ended up de facto in charge of regional policy – twin strategy of high-productivity sectors plus lower-skilled manufacturing employment

24 TOPIC B: STRUCTURE Irish Economic History since Independence : From globalization to autarky : From autarky to globalization 3.The 1990s: The 30-year overnight success story 4.The 2000s: Bubble and crash

25 More to come next week!


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