Transcript Irish Econ History since Independence student slides

TOPIC A: IRISH
ECONOMIC HISTORY TO
INDEPENDENCE
TCD M.SC.(EPS) – RONAN LYONS – EC8001
IRISH ECONOMIC POLICY ISSUES & CONTEXT
MODULE OUTLINE
Topic Title
EoI Ch
Dates
A
Irish Economic History to Independence
1+
MT1-2
B
Irish Economic History since Independence
1+
MT3-4
C
The Economy & Economic Growth
2, 7
MT5-6
D
Public Finances, Debt & Taxation
3, 4
MT8-9
E
The Labour Market
6
MT10-11
F
Social Justice & Inequality
8
HT1-2
G
Regulation & Competition
5
HT3-4
H
Competitiveness & Trade
9, 11
HT5-6
I
Health & Education
12, 13
HT8-9
J
Natural Resources & Real Estate
10, 14*
HT10-11
TOPIC B. READINGS
• John O’Hagan & Carol Newman, ‘Economy of
Ireland’ (12th Edition)
• Chapter 1, Historical Background
• Further Reading:
• Andy Bielenberg & Raymond Ryan, ‘An Economic History of
Ireland Since Independence’
TOPIC B: STRUCTURE
Irish Economic History since Independence
1.
2.
3.
4.
1932: From globalization to autarky
1959: From autarky to globalization
The 1990s: The 30-year overnight success story
The 2000s: Bubble and crash
BROAD PERSPECTIVES
• Two competing conceptualizations of Ireland’s
economic performance 1920-2000
• 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)
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
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,
1914-1921 (£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
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]
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 1900-1960
• 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
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 1918-1923
• 1930s 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
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
(1916-1921), 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…)
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
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, 1939-1942
• House completions fell from 12,300 to 1,300 1939-1945
• Protected industries dependent on home market
• Missed out on trade-driven growth post-WW2: 23% in Ireland
vs. 73% elsewhere in OEEC
TOPIC B: STRUCTURE
Irish Economic History since Independence
1.
2.
3.
4.
1932: From globalization to autarky
1959: From autarky to globalization
The 1990s: The 30-year overnight success story
The 2000s: Bubble and crash
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
• 1948-1952: 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
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 1954
• 1955 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
SWITCH TO EXPORT-LED GROWTH
• Not an overnight switch to export-led growth
• 1949-1952: establishment of IDA; Coras Trachtala
• 1953-1958: 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
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
Source of Irish imports
60%
50%
40%
Late
1940s
Early
1960s
30%
20%
10%
0%
UK
US
EU
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 1964-1970 – 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
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 1979
• 1960s/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
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
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 1st
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
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
TOPIC B: STRUCTURE
Irish Economic History since Independence
1.
2.
3.
4.
1932: From globalization to autarky
1959: From autarky to globalization
The 1990s: The 30-year overnight success story
The 2000s: Bubble and crash
• More to come next week!