Kevin O’Rourke, All Souls College, Oxford and University ...

UCD CENTRE FOR ECONOMIC RESEARCH

WORKING PAPER SERIES

2016

Independent Ireland in Comparative Perspective

Kevin O’Rourke, All Souls College, Oxford and University College Dublin

WP16/20

December 2016

UCD SCHOOL OF ECONOMICS UNIVERSITY COLLEGE DUBLIN

BELFIELD DUBLIN 4

IndependentIrelandInComparativePerspective

KevinHjortshøjO'Rourke

Chichele Professor of Economic History, All Souls College, OxfordVisiting Professor, School of Economics, University College Dublin

Abstract

ThispapersurveysindependentIreland’seconomicpoliciesandperformance.Ithasthreemainmessages.First,theeconomichistoryofpost-independenceIrelandwasnotparticularlyunusual.Veryoften,thingsthatwerehappeninginIrelandwerehappeningelsewhereaswell.Second,foralongtimewewerehamperedbyanexcessivedependenceonapoorlyperformingUKeconomy.Andthird,ECmembershipin1973,andtheSingleMarketprogrammeofthelate1980sandearly1990s,wereabsolutelycrucialforus.IrishindependenceandEUmembershiphavecomplementedeachother,ratherthanbeinginconflict:eachwasrequiredtogivefulleffecttotheother.IrishindependencewouldnothaveworkedaswellforusasitdidwithouttheEU;andtheEUwouldnothaveworkedaswellforusasitdidwithoutpoliticalindependence.

ThisisarevisedversionofalecturedeliveredonNovember11,2016,attheNUIGNationalConferenceentitled1916-2016:ThePromiseandChallengeofNationalSovereignty.IamextremelygratefultoNicholasCannyforhavinginvitedme;toeveryoneatNUIGfortheirhospitality;toJohnMcHaleforchairingthesessionsoexpertly,andtothediscussantsfortheirexcellentcomments.IamalsogratefultoBrianAshcroft,FrankBarry,JasonBegley,GeorgeBoyer,AlandeBromhead,GrahamBrownlow,DianeCoyle,RichardDorsett,AlanFernihough,JamesForeman-Peck,FrankGeary,StefanieHaller,DavidJordan,AidanKane,MichaelKeating,MorganKelly,DaveMadden,MauriceMulcahy,CormacÓGráda,EunanO’Halpin,AndyO’Rourke,MartinSandbu,andRebeccaStuart,formanyhelpfulcomments,advice,data,andtechnicalassistance.Theusualdisclaimerapplies.

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1.Introduction

Somebodyclever,I'mnotsurewho,issupposedtohaveoncesaidthat"hewhoonlytriesto

understandIrelandwillnotevenunderstandIreland".Therecanattimesbeanattention-

seekingparticularismaboutIrishwriting–lookatus,weliketosay,mostlytoourselves,but

ifpossibletoanyforeignerswhomightbelisteningaswell–lookatus,andathowunique,

andathowveryinterestingweare.

WhenIwasayoungboyinprimaryschool,weweretaughtthatpost-independenceIreland

waspoorbutuniquelyvirtuous.Today,wearetaughtthatitwaspooranduniquelywicked.

Bothpositionsaremisguided:wewereneverasdifferentaspeoplehavemadeout.Those

traditionalruralvaluesthatweoncecorrectlycelebratedcanstillbefoundinagricultural

communitiesaroundtheworld;meithealisnotauniquelyIrishphenomenon.Andthe

MagdaleneLaundriesthatwenowcorrectlycondemnhavetheircounterpartselsewhereas

well.1Thepast,itturnsout,isaforeigncountryeverywhere.

AndwhatistrueofIrishsocialhistoryturnsouttobetrueofIrisheconomichistoryaswell.

Veryoften,thethingsthatwerehappeninginIrelandataparticulartimewereinfactpart

ofabigger,European,orevenglobalstory.

IusedtothinkthatthequotationwithwhichIstartedthislecturewasduetoNicholas

Canny,whoseownworkhaslargelybeenconcernedwithplacingthehistoryofearly

modernIrelandintothecontextofthewiderworld–buthedeniesit.

Ontheotherhand,IamquitecertainthatitwasRudyardKiplingwhoonceasked"whatdo

theyknowofEnglandwhoonlyEnglandknow?"Itseemsasthoughthetemptationtofocus

onone'sowncountry,andtoignorewhatwasgoingonaroundit,isnotjustanIrish

phenomenon–whichofcoursemerelyreinforcesthepointthatwearenotasuniqueaswe

sometimesthinkweare.

1OnDenmark,seeAdler-Olsen(2014).

2

MymainpurposeinthislectureisthereforetoplaceIreland'spost-independenceeconomic

historyintosomesortofcomparativecontext,andtotrytoconvinceyouthatinfactour

economichistoryisinmanyrespectsnotallthatunusual.

Thecircumstancesofourstate'sbirthwereofcoursedramatic,andforawhileweheldthe

world'sattention;butthenwesettleddowntobecomewhatwehadchosentobecome:a

small,ratherpoorcountryontheperipheryofEurope.Inmanyways,I'mgoingtoargue,

oursubsequenteconomichistoryispreciselywhatyouwouldhavepredicted,giventheturn

that20thcenturyEuropeanhistorywasabouttotake.Oureconomicpolicieswerenotthat

unusualinthecontextofthetime;andoverthelongrunoureconomicperformancewas

justaboutexactlywhatyouwouldhavepredictedaswell.

ButthisconferenceisofcoursetakingplaceundertheshadowofBrexit,andthequestion

whicharisesis:willBorisandhismerrybandofBrexiteerssucceedinfinishingthejobwhich

wasbegunin1916,andcompletetheeconomicandpoliticalseparationbetweenourisland

andGreatBritain?WilltheireffortsleadtoIrelandbecomingmorefullyindependentof

Britainthanithasbeentodate,andperhapsuncomfortablyso?Willwehavetostandmore

squarelyonourowntwofeetthanwemightperhapswant?

AndsoasecondmajorthemeinmytalkwillbeIreland'seconomicrelationshipsoverthe

courseofthelastcenturywithbothBritainandcontinentalEurope.Ifthereisonewayin

whichourpost-independenceeconomichistorywasindeedunusualformanydecades,and

unhelpfullyso,itwasourexcessivedependenceonapoorlyperformingBritisheconomy.

MembershipoftheEuropeanCommunitiesin1973,andtheEuropeansinglemarket

programmeofthelate1980sandearly1990s,wereabsolutelycrucialintransformingIrish

fortunes.

2.The19thcenturybackstory

Itdoesn'tmakesensetodiscussIreland'spost-independenceeconomicperformance

withoutspendingatleastsometimeonthecolonialbackstory.Irisheconomicperformance

underBritishrulewasdisappointing,andoccasionallytragic.TheFamineofthe1840swas

3

genuinelyunusual–thelastmasssubsistencecrisisinpeacetimeWesternEurope,withthe

exceptionoftheFinnishfamineofthe1860s.Asweallknow,itusheredinawaveofmass

emigrationwhichpersistedintothe20thcentury,andwhichledtothequiteunique

spectacleofacontinuouslydecliningpopulationthroughoutthelate19thcentury,atime

whenEuropeasawholewasexperiencingapopulationexplosion.

Figure1.Grossdecadalemigrationrates,per1000Source:HattonandWilliamson(1994,p.536).

Evenhere,however,wehavetobecarefulnottooverdothepeculiarityoftheIrish

experience.Bytheendoftheperiod,Italywasexperiencingemigrationrateswellinexcess

ofourown,withNorwayalsoexperiencingheavyoutflows(Figure1).Furthermore,the

sameunderlyingforcesweredrivingemigrationthroughoutEuropeduringthisperiod.

Emigrationratesweresystematicallyhigherin:countrieswithhigherbirthrates;countries

thatwerepoorer;andcountrieswithapriorhistoryofemigration(HattonandWilliamson,

1998).Ireland’smaritalfertilityratewashigh;thecountrywasverypoor;andthefamine

hadresultedinanextremelyhighstockofIrishpeoplelivingoverseas,andparticularlyin

NorthAmerica.Highemigrationratesareexactlywhatyouwouldhaveexpectedinthe

circumstances;thereisnoneedtoappealtoanysupposedpeculiaritiesoftheIrishpsyche

inordertoexplainourhighpropensitytoleavethecountryduringtheperiod.2

2Guinnane(1997)providesanexcellentdiscussionof19thcenturyIrishdemography.

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1850s 1860s 1870s 1880s 1890s 1900s

Ireland Italy Norway Sweden

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This19thcenturyeconomichistoryhadimportantconsequencesforthe20thcentury.Iwant

tohighlightthreelegaciesinparticular.

First:Sinceahistoryofpreviousemigrationleadstoahighertendencytoemigrateinthe

future,Irishpeopleremainedextremelymobileafterindependence.Indeed,thepopulation

ofthe26countiescontinuedtodeclineuntil1961.Emigrationcouldbebothbeneficialand

harmfultotheeconomy,inwaysthatgenerationsofIrisheconomists,politiciansand

historianshavediscussedovertheyears.

Oneconsequencewasthatbyloweringthedomesticsupplyoflabour,Irishemigration

raisedIrishwages,pullingthemuptowardsthelevelsavailableonlabourmarketsoverseas.

SomethingverysimilarhappenedinbothNorwayandItaly(O'RourkeandWilliamson,1999,

Chapter8).Ontheonehand,thishelpedsustainlivingstandardsthatwouldotherwisenot

havebeenattainable;butontheother,itdeprivedtheeconomytoatleastsomeextentof

oneofthemainadvantageswhichpoorcountriesgenerallypossess,namelycheaplabour.

OntheeveofWorldWarI,Irelandwasstillpoor,butitwasclearlymuchricherthanithad

beeninthe1870s,letalonethe1840s.Butgrowthinpercapitalivingstandardsthatwas

largelyduetoadecliningpopulationwashardlyanythingtoshoutabout.SouthernIreland's

prosperityin1913,suchasitwas,wasbasedonverydifferentfoundationsthanprosperity

elsewhere.Thekeytoeconomicgrowthduringthelate19thcenturywastypically

industrialisation.Andthekeytoindustrialisation,inGermany,Italy,France,theUnited

States,andelsewhere,wasprotectionism.

Duringthelate20thandearly21stcenturies,globalisationandgrowthhavegonehandin

hand,buttariffsprotectingindustrywerestronglyandpositivelycorrelatedwithgrowth

beforetheFirstWorldWar(LehmannandO'Rourke,2010).Asaregionofthefreetrading

UnitedKingdom,anindependenttariffpolicywasobviouslyunavailabletoIreland.Thedata

plottedinFigure2showthatnationalistswerenotmad,inthecontextofthetime,to

believethatthiswasaserioushandicap.Andsoasecondlegacyofthe19thcentury,which

becameimportantinthe20th,wasanideologicalcommitmenttoprotectionismamonga

certainstratumofIrishnationalistthinkers.Onceagain,therewasnothingunusualabout

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this;itwasrathertheUnitedKingdom,withitsstrongcommitmenttomoreorless

unilateralfree-tradeevenasitsrivalsgainedmarketshareatitsexpense,whichwasthe

exceptionduringthisperiod.

Figure2.Manufacturingtariffsversusgrowth,1875-1913Source:basedondatainLehmannandO'Rourke(2010).Butthisintellectualcommitmenttoprotectionismwouldeventuallyrunupagainstathird

legacyofIreland'shistory,whichwastheextenttowhichtheIrishandBritisheconomies

wereintertwined.ThesouthofIrelandwasoverwhelminglyspecialisedinagricultural

activities,anditsagriculturalexportswentoverwhelminglytotheUnitedKingdom.TheIrish

andBritishlabourmarketswereverytightlyintegratedwitheachother.TheIrishFreeState,

andlatertheIrishRepublic,wouldshareacommonlegalsystemwithBritain,aswellasa

commoncurrency,andmanyotherinstitutions.Formuchofthe20thcenturyitmakessense

toregardIrelandasonesmallregionalcomponentofabroaderBritishandIrisheconomy.

AndtheproblemwasthatthisbroaderBritishandIrisheconomy,withinwhichtheBritish

componentwasobviouslyoverwhelminglydominant,wasapoorperformerwithinthe

broaderEuropeancontext.Onlywhenweemancipatedourselvesfromexcessiverelianceon

Canada

Denmark

France

Germany Italy

Norway

Sweden

United Kingdom

United States

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.05 .1 .15 .2 .25Average manufacturing tariffs

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ournearestneighbourwereweabletofinallygrowasrapidlyasotherpoorcountries

aroundtheEuropeanperiphery.

3.AssessingIrishperformance

InordertoassessIreland'seconomicperformance,weneedabenchmark.3Becauseofour

history,anaturaltendencyistousetheUK,butthatisanimportantmistake.TheUK

performedpoorlyrelativetomostEuropeaneconomies:byusingitasabenchmark,weare

settingthebarmuchtoolow.

AsecondalternativeistocompareIrelandwithsimilarregionsinsidetheUK–Northern

Irelandmostobviously,butperhapsalsoScotlandandWales.Aswewillsee,doingso

providesuswithseveralusefulinsights,butagain,bycomparingourselveswithregions

locatedwithintheslowlygrowingUKeconomy,wearesettingthebartoolow.

Athirdalternative,whichmakesalotmoresense,istocompareourselveswithother

relativelypooreconomiesaroundtheEuropeanperiphery.Greece,PortugalandSpainwere

allaspoorasIrelandatthestartofthe20thcentury,ifnotpoorer.Theythereforefaced

manyofthesameobstaclesthatwedid,buttheyalsosharedthesamepotentialforrapid

growthbasedoncatchingupontheindustrialcore.Howdidwedocomparedwiththese

economies?Indeed,howdidwedocomparedwithEuropeaneconomiesmoregenerally?

3Forasimilardiscussion,seeÓGráda(1997,pp.2-4).

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Figure3.Initialincomeandsubsequentgrowth,1926-2001Source:BroadberryandKlein(2012).GNPratherthanGDPisusedforIreland,usingadjustmentratioskindlyprovidedbyRebeccaStuart.Herdatagobackto1944soIhavesimplyassumedthatGNPwasthesameproportionofGDPinpreviousyears.

ItisamatterofstatisticalfactthatwithinWesternEurope,countriesthatwereinitially

poorerhavegrownmorerapidlythancountriesthatwereinitiallyricherduringthe20th

century.Inotherwords,poorereconomieshavetendedtoconvergeonricherones,mostly

asaresultofimportingbestpracticetechnologiesalreadyadoptedelsewhere.Wedon't

havereliablenationalincomeevidenceforIrelandbefore1926,soFigure3plotsinitial

incomelevels,percapita,in1926,againstaveragegrowthperannumoverthecourseofthe

subsequent75years.IhavedonethisforthebroadestavailablesampleofEuropean

countriesthatmanagedtoavoidbecomingCommunistlaterinthecentury,aswellasthe

UnitedStates.Ascanbeseen,thereisaveryclearnegativerelationshipbetweenthesetwo

variables.Initiallypoorcountries,suchasPortugal,grewmuchmorerapidlythaninitially

richcountriessuchasSwitzerland.Theaveragestatisticalrelationshipbetweenthesetwo

variables(whateconomistscall"theregressionline")isgivenbythestraightlineinthe

figure.Ascanbeseen,the"statisticalfit"ofthisrelationshipisremarkablytight,inthat

countriesareverycloselyclusteredaroundthisline.

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0 2000 4000 6000 80001926 GDP per capita, 1990 dollars

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Strikingly,Ireland'seconomicperformanceduringthe75yearsfollowing1926wasexactly

whatitshouldhavebeen,givenIreland'sinitialincomelevel.Therewasnothingunusual

aboutIrishgrowthduringthisperiod.ItwasanentirelytypicalEuropeaneconomy.

4.TheinterwarperiodandWorldWarII:1922-1950

IfthereisonethingthatisunusualaboutIrisheconomicpolicy-makingafterindependence,

itisthatittooksolongfortheIrishFreeStatetomoveinaprotectionistdirection.The

successorstatesoftheAustro-HungarianEmpire,forexample,immediatelyimplementeda

widerangeofprotectionistmeasures.Bycontrast,duringthefirst10yearsofIrish

independenceourtradepolicywas,comparativelyspeaking,remarkablyliberal.

Asweallknow,theelectionofFiannaFáilin1932coincidedwithadramaticshifttowards

protection.Buttherearethreequestionsaboutthispolicyshiftthatwecanusefullyask.

First:areitscausesreallytobefoundinIrishpartypoliticsalone?Second,wasIreland

unusuallyprotectionist?Andthird,wasIrishprotectionismunusuallycostly?

Regardingthefirstquestion:itwouldbeamistaketoviewtheswitchtoprotectionas

havinghadcausesthatwerefundamentallyidiosyncraticandIrish.Everybodyswitched

towardsprotectionfollowingtheonsetoftheGreatDepressionin1929.Eventhe

traditionallyfree-tradingBritishmoveddecisivelytowardsprotectioninNovember1931

andFebruary1932–thatistosay,beforeIreland.

Thiscommontrendrequiresacommonexplanation,whichisprovidedbytheGreat

Depression.TheGreatDepressionarosefromacatastrophicmacroeconomicpolicyfailure,

largelyassociatedwiththegoldstandardoftheperiod.Thisruledoutthesortsofloose

moneypoliciesthathavebeenusedinmanyeconomiesduringourownGreatRecession,

andwasassociatedwithanextremelyconservativemindsetwhenitcametofiscalpolicyas

well.Governmentsthusfoundthemselvesunabletocombatfallingoutputandrising

unemploymentusingthesortsofmeasuresthatKeyneswasadvocatingatthetime;with

theirhandsthustiedbehindtheirbacks,theyresortedtotheonlypolicyleveravailableto

9

them,namelyprotection(EichengreenandIrwin,2010).Thehopewasthatthiswould

createdomesticjobsbyshieldingthelocaleconomyfromimportcompetition,andinfactin

manycases,includingourown,itdidso.Onaverage,highertariffswereassociatedwith

bettereconomicperformanceduringtheinterwarperiod,otherthingsbeingequal

(ClemensandWilliamson,2004).Fromacollectivepointofviewofcourse,itwouldhave

beenfarpreferableforeveryonetohaveadoptedcoordinatedandexpansionary

macroeconomicpolicies,aswasdonein2009,andforthemtohavemaintainedrelatively

freeinternationaltradingconditions.Butthisisnotwhathappened,anditwouldbewrong

tosingleoutIrelandforspecialcriticisminthisregard.

Figure4.WasIrelandunusuallyprotectionist?Averagetariffs1922-38Source:ClemensandWilliamson(2004)andwww.duanaire.ieatNUIGalway.

WasIrelandunusuallyprotectionistduringthe1930s?Theanswerisno.Irishaveragetariffs

weretowardsthehigherendofthespectruminthesampleofEuropeancountriesforwhich

wehavedata,buttheyweresimilartothoseinGermany,Italy,Portugal,Spain,andtheUK

(Figure4).Butfocusingontariffsaloneismisleading,sincethesewerenottherealproblem

duringthe1930s.Rather,countriesduringthisperiodadoptedawidevarietyofquantitative

restrictionsontrade,uptoandincludingexchangecontrolswhichinsomecaseseffectively

0.1

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1920 1925 1930 1935 1940 1920 1925 1930 1935 1940 1920 1925 1930 1935 1940 1920 1925 1930 1935 1940

Austria Denmark France Germany

Greece Ireland Italy Norway

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nationalisedtheinternationaltradingactivitiesofparticularcountries.Irelanddidn’tdo

anythingnearlyasdrastic.AndascanbeseenfromFigure5,itwastowardsthemoreliberal

endofthespectrumwhenitcametotheadoptionofquotasaswell.

Figure5.HowunusualwasIrishtradepolicy?Percentageofimportscoveredbyquantitativerestrictions,1937Source:LeagueofNations(1943),Whittlesey(1937).

Anotherwell-knownfeatureofIrisheconomicpolicyduringthisperiodwasitsattemptsto

restricttheforeignownershipofIrish-basedfirms.Buttheimportanceanduniquenessof

the1932and1934ControlofManufacturersActscanbeoverdone.First,asworkbyMary

Daly,FrankBarryandothershasrevealed,theseformalrestrictionswereoftenevadedby

meansoffancylegalfootwork,asindeedwasthecaseinothercountriesduringthisperiod

(Daly,1984;Daly,1992;Barryetal.,2016).4Second,Irelandwasbynomeansalonein

4Forexample,theItaliantyrecompanyPirelliregistereditsforeign-ownedoperationsas

belongingtoalegalentitybasedfirstinBelgium,andlaterinSwitzerland,whichwould

proveconvenientwhendoingbusinesswiththeAlliesduringWorldWarII.Cf.Jones(2013,

pp.197-8).

020

4060

Per c

ent

Belgium

France

Irelan

d

Netherl

ands

Norway

Sweden

Switzerla

nd UK USA

11

adoptingsuchrestrictions.Spainrestrictedtheforeignownershipandmanagementofall

firmstoamaximumof25%in1939(Lieberman,2006,p.131).Inthesameyear,Finland

tighteneditsexistingrestrictionsoninwardforeigninvestment,prohibitingtheacquisition

ofrealestatebyforeignindividuals,organisations,andFinnishcompanieswhichdidnot

restrictforeignownershiptoamaximumof20%oftheoutstandingshares(Hjerppe,2004,

pp.4-5).Portugalrestrictedinwardinvestmentin1943(dasNeves,1996,p.331).Other

examplescouldbefound.

Figure6.Initialincomeandsubsequentgrowth,1926-1938Source:asforFigure3.

WeretheeconomiceffectsofprotectionismuniquelydestructiveinIreland?Again,the

answerisno.AsFigure6shows,notonlywereIreland'seconomicpoliciestypicalduringthis

period,sowasitseconomicperformance.Between1926and1938,Irelandgrewatexactly

theratethatitshouldhavedone,givenitsinitialstartingpoint.


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-4-2

02

4Av

erag

e an

nual

gro

wth

(%)


12

Importantly,protectionismprobablyhelpedmaintainemploymentatatimewhenjobs

werescarceeverywhere.ItistruethattheeconomicwarwithBritain,whichlastedfrom

1932to1938,wassomewhatunusual–althoughIrelandwashardlyaloneindefaultingon

itsdebtsduringthisperiod.Butitisalsotruethatthedisputewassettledontermshighly

favourabletotheIrish.Acapitalised£100millionliabilitywassettledwitha£10million

lumpsumpayment,andIrelandgainedtheTreatyPortsintothebargain.Thissurelyhelped

thecountrytoremainneutralduringWorldWarII.NeutralitycertainlysavedmanyIrish

lives,anditisentirelypossiblethatitavoidedmuchdestructiontoIrishproperty.Even

takingtheundoubtedcostsoftheEconomicWarintoaccount,itisentirelyplausiblethatits

neteconomicimpactwasactuallybeneficial(NearyandÓGráda,1991;O'Rourke,1991).

ThewaritselfwasaverydifficultperiodfortheIrisheconomy,eventhoughwewerespared

thehorrorsofthefighting.Importsofenergyandotheressentialrequirementswerevery

scarce;domesticindustrysufferedaccordingly.Asapredominantlyagriculturaleconomy,

withnoheavyindustrytospeakof,theIrishFreeStatedidnotbenefitfromthedemandfor

war-relatedmatérielinthewaythatScotlandorNorthernIrelanddid.Evenworse,itfound

itselfsellingitsagriculturaloutputtoahard-pressedBritishcustomer,whichquite

understandablyuseditsmonopolypositiontolowerthepricesitpaidforIrishagricultural

produce.Evenstill,Irishfarmersweretheonlysectionofthecommunitytoseetheirliving

standardsrisebetween1939and1943(ÓGráda,1997,pp.7-21).

IncommonwithalmostallofWesternEurope,Irelandexperiencedastrongboombetween

1945and1950.Informerlybelligerentpowers,especiallyonthecontinent,theboom

largelytooktheformofreconstruction.IntheIrishcase,itwasfarmoreconsumption-

driven,asconsumersmadeupforlosttimeandboughtAmericanandotherimported

goods.Constructionalsoboomed,asdidindustry(ibid.,pp.21-25).Suchaconsumption-

drivenboomwasprobablylesssustainablethanthemoreinvestment-basedbooms

experiencedincontinentalEuropeatthetime.Nevertheless,theoverallimpressionthat

onegetswhenplacingIrisheconomicpoliciesbetween1922and1950intoacomparative

perspectiveisthattherewasnothingunusuallyperverseorself-destructiveaboutIrish

policychoicesduringthisperiod.Irishpoliticianswererelativelyliberalduringthe1920s,

andwereprotectionistlikeeverybodyelsefrom1932onwards.Theywerehardlytoblame

13

forthedeprivationsofWorldWarII,norcouldtheybepraisedfortheinevitablerecovery

whichfollowed.Andthecountry'seconomicperformanceduringthefirst30yearsof

independencewasalsoprettytypicalforthetime.

5.Irelandfallsbehind:1950-1973

Figure7.Initialincomeandsubsequentgrowth,1950-60&1960-73Source:asforFigure3.

Incontrast,Ireland'sperformanceduringthesubsequent25yearswasdisappointing.

WhereasIrelandhadbeenanaverageperformerduringthedismalinterwarperiod,it

performedwellbelowaverageduringEurope's"GoldenAge".The1950swereasweall

knowparticularlybad,andtheGNPdataplottedforIrelandinPanelAofFigure7

understatethecase,ifitisthelivingstandardsofordinarypeoplethatweareconcerned

with.Throughoutpost-warEurope,governmentserectedmodernwelfarestates,but

Irelandlaggedfarbehind.IfindependentIrelandcanbesaidtohave"failed"duringany

period,itdidsomostobviouslyduringthisdecade.




FinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFrance


GreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreece












23

45

6Av

erag

e an

nual

gro

wth

(%)


Panel A. 1950-60

AustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgium

DenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinland















24

68

Aver

age

annu

al g

row

th (%

)

2000 4000 6000 8000 10000 120001960 GDP per capita, 1990 dollars

Panel B. 1960-73

14

WhatmaycomeasmoreofasurpriseisthefactthatIrishunderperformancecontinued

duringthe1960s.AscanbeseenfromPanelBofFigure7,thiswasthedecadeduringwhich

Greece,Portugal,andSpainexperiencedtheireconomicmiracles.Ireland,bycontrast,was

stillanunderperformer.Importantly,acomparisonwithBritainalonewouldmissthis:from

1960onwardstheIrisheconomygrewmorerapidlythantheBritishone.Butgrowingmore

rapidlythananeconomywhichwasitselfanunderperformerwasnotenoughtoprevent

IrelandfromfallingevenfurtherbehindmainstreamEurope.

WhywasIreland'sperformancesopoorduringthesetwocrucialdecades?Iwantto

highlightthreereasons.Thefirsthastodowithrecurrentbalanceofpaymentscrises;the

secondhastodowithdelayedliberalisation;andthethirdhastodowithourexcessive

dependenceonthepoorlyperformingBritisheconomy.

ThefirstfeatureoftheIrisheconomyduringthe1950sandearly1960swhichwasobvious

topeopleatthetime,butislessoftencommentedupontoday,wasthesuccessionof

boomsandbusts.5Thepost-warboomendedasaresultofabalanceofpaymentscrisis

whichemergedin1950,andgotworsein1951.Thisultimatelyledtothehighlydeflationary

budgetofApril1952,whichcausedadeeprecession.By1955theeconomywasrecovering,

consumptionwasbooming,andimportswererisingrapidly.Onceagain,theeventual

responsewasnotone,buttwoausteritybudgetsin1956,leadingtoadeeprecessionlasting

severalyears.10yearslater,arisingtradedeficitin1965wasfollowedbyyetanother

deflationarybudgetin1966.Thissuccessionofboomsandbustswashighlydestructive.It

alsoposesthequestionofwhetherIrishpolicymakerswereuniquelyincompetent.

Asithappens,theywerenot.Thissequenceoflooseningfiscalpolicy,leadingtorising

incomes,risingimports,balanceofpaymentscrises,andthencetotighteningfiscalpolicy,

fallingincomes,fallingimports,andimprovementsinthebalanceofpayments,waswell-

knownintheUnitedKingdomandothercountriesatthistime.TheUK,forexample

experiencedmajorcrisesin1957,1961,and1966.Thetermthatweusetodescribethis

sequenceofeventsis"stop-gopolicies",andthefundamentalreasonsforsuchpolicies5ÓGráda(1997)isonenotableexception,andIdrawextensivelyonhimintheaccountbelow.

15

wereanalysedbyanAustralianeconomist,TrevorSwan,inafamousandinfluential

contributiontothemacroeconomicliterature.6Theessentialproblem,Swanpointedout,

wasthatgovernmentsofthetimeweretryingtohittwotargetssimultaneously,afull

employmenttargetandatradebalancetarget.Tohittwotargets,youneedatleasttwo

policyinstruments;theproblemwasthatduringthisperiodpolicymakersonlyhadone,

namelyfiscalpolicy.Thepost-warBrettonWoodssystemwasbasedonfixedexchange

rates.Theseweresupposedtobeadjustable,andindeedtheywereoccasionallyadjusted,

buttodevalueyourcurrencywasseenasfailurebypoliticians,andgenerallyonlyhappened

underduress,inthecontextofmajorcrisessuchastheonein1967whichforcedHarold

WilsontodevaluetheBritish,andthustheIrish,pound.

Thisimpliedamajordilemmaforcountrieswhosecurrencieswereovervalued.Sincetheir

goodswereoverpricedoninternationalmarkets,theyfacedpersistentbalanceoftrade

problems.Thesecouldbeovercomebytighteningfiscalpolicy,whichwouldlower

expenditureandhenceimports,butthatcameatthecostofhigherunemployment.When

unemploymentbecametooburdensome,fiscalpolicycouldbeloosenedagain,butthis

wouldimplyrisingtradedeficits.Theultimatesolutionwastodevaluethecurrency;until

thishappened,stop-gopolicieswouldbeinevitable.Andwhereasdevaluationwasan

optionfortheUnitedKingdom,itwasnotsomethingthatIrishpolicymakerscoulddo

unilaterally–solongastheywereunwillingtobreaktheIrishcurrency'slinkwithsterling.

Untilthen,boomsandbustsrelatedtobalanceofpaymentscriseswereunsurprising–and

indeed,BritishandIrishboomsandbustswerehighlycorrelatedwitheachotherduringthis

period.7

AsecondexplanationforpoorIrishperformanceduringtheEuropeanGoldenAge,and

particularlyduringthe1950s,isthedelayinreversinginterwarprotectionistpolicies.Ihave

arguedthatthesepolicieswereappropriateinthecontextofthe1930s,atimewhen

everyonewasprotectingtheirdomesticmarkets;whenanexport-orientedgrowthstrategy

wasthereforenotfeasible;andwhenjobswerescarceeverywhere.Butbythe1950s

6Arndt(1976)providesadetailedaccountofthegenesisoftheidea.7Thecorrelationbetweenbusinesscyclesinthetwocountriesfrom1950to1972inclusiveis0.74,wherethebusinesscycleseriesaresimplycalculatedasdeviationsfromlogtrend.

16

protectionismwasclearlynolongerappropriate.AttheurgentbehestoftheUnitedStates,

Europeancountriesweregraduallyremovingbarrierstotradeandintegratingtheir

economieswitheachother–firstwithinthecontextoftheOEEC,theforerunneroftoday's

OECD,andlaterwithinthecontextoftheEECandEFTA.Thismeantthatexport-oriented

growthstrategiescouldnowbe,andwereinfact,adoptedthroughoutWesternEurope,

whiletherapidgrowthoftheperiodimpliedthatprotectionwasnotneededinorderto

createjobs.ThereisnodoubtthatIrelandwasslowertojumpontheliberalisation

bandwagonthanmanyothercountries,andthatthiswasacostlymistake.

However,thetraditionalpictureofanIrelandthatwascompletelyresistanttochange

before1958isover-simplistic.IrelandwasafoundermemberoftheOEECandEuropean

PaymentsUnion,thetwoorganizationsattheforefrontofEuropeantradeliberalization

duringtheearly1950s.Whenitcametoquantitativebarrierstotradesuchasquotas,which

aremoredamagingthantariffs,Irelandwasthesecondleastprotectionisteconomyinthe

OEECin1950,behindonlySwitzerland(Eichengreen,1996,p.59).Itsubsequently

liberalizedlessrapidlythandidothercountries,butthiswaspartlybecauseithadless

quota-relatedliberalizationtodointhefirstplace.Overall,Irelandemergesasanentirely

averageEuropeancountryonthisdimensionoftradepolicy.Itwashoweverslowertolower

itstariffbarriersthancoreEuropeaneconomies.Itbehaved,rather,likeotherperipheral

Europeaneconomies,suchasFinland,Greece,orSpain,andthisrelativelyslowreductionin

tariffspersistedintothe1960s,afterthefamous1958movetowardsgreateropenness

(Figure8).

17

Figure8.WasIrelandunusuallyprotectionist?Averagetariffs1950-72Source:asforFigure4.

Ontheotherhand,Irelandwasrelativelyprecociousinseekingtoattractforeigndirect

investment.TheIndustrialDevelopmentAuthoritywasestablishedasearlyas1949,and

soonstartedtryingtoattractinwardmultinationalinvestment.TheIrishExportBoard,soon

rechristenedCórasTráchtala,wasestablishedin1950.Taxreliefonexportprofitswas

introducedin1956.8

Irelandwasthereforenotasuniquelyprotectionistandinward-lookingduringthe1950sas

issometimesclaimed.Neitherwasthetimingofitsliberalisationparticularlyunusual.Itis

truethattheoriginalsixmembersoftheEEChadbeguntheirmovetowardsgreater

8Inlightofrecentcontroversiesitisinterestingtonotethatthissoonappearedasa

potentialconcernontheradarscreensofforeigngovernments,appearingtobepotentially

inbreachoftheOEECbanonartificialaidstoexporters.TheOEECapprovedtheinitiative

however,sinceitseemedtosignalagrowingoutwardorientationonthepartoftheIrish

government(BarryandO'Mahony,2016).

0.1

.2.3

0.1

.2.3

0.1

.2.3

1950 1955 1960 1965 1970 1950 1955 1960 1965 1970 1950 1955 1960 1965 1970 1950 1955 1960 1965 1970

Austria Cyprus Finland Germany

Greece Ireland Norway Spain

Sweden Switzerland Turkey UK

Aver

age

tarif

f rat

e (p

er c

ent)

Year

18

economicintegrationasearlyas1950,withthefoundationoftheEuropeanCoalandSteel

Community.Theyagreedin1955todrawupplansforacustomsunion,andtheTreatyof

Romewassignedin1957.

Butthetimingofliberalisationelsewheretoalargeextentreflectedtheimpactofthis

initiativeonothercountries,andnotablyontheUnitedKingdom.TheUKfirsttriedto

sabotagetheEECnegotiations.Whenthisfailed,theyattemptedtonegotiateanOEEC-wide

industrialfreetradearea,butcompletelymisjudgedtheinterestsofotherEuropean

countries.Whenthisattemptalsofailed,therefore,theBritishandsixothercountries

signedtheStockholmConventionin1960,establishingtheEuropeanFreeTradeArea.This

aimedtoestablishanindustrialfreetradeareabetweenitsmemberstates,andultimately

tonegotiateanagreementwiththeEECaswell.NoWesternEuropeancountry,nomatter

howperipheraloreconomicallybackward,couldavoidrespondingtothisdisruptionofthe

prevailingEuropeantraderegime.

Spainabandoneditslong-standingautarkictradepolicyregimein1959,joiningtheOEECin

thatyearandembarkingonaprocessoftradeliberalisation.In1960itabolished

quantitativerestrictionson90%ofitsimports,tariffsweregraduallyreducedoverthe

succeedingyears,andthecountryopeneditselfup,atleasttosomeextent,toinward

foreigninvestment(delaEscosuraandSanz,1996,pp.369-70).Portugalbecameafounder

memberoftheEFTA,althoughitmanagedtonegotiateatransitionaldealallowingitto

delaytariffreductionsonsectorsrepresentingabouthalfofitsimports(Costaetal.,2016,

pp.308-9).Finlandstartedloweringtariffsfrom1957onwards,andsignedatrade

agreementwiththeEFTAin1961(Paavonen,2004).GreecesignedanAssociation

AgreementwiththeEECin1961.Thisgrantedita22-yeartransitionalperiodleadingto

eventualfullmembership;GreecewasallowedtoloweritstariffsvisàvistheEECgradually,

butbenefitedfromanimmediatereductionofEECtariffsonGreekexports(Freris,1986,pp.

201-2).

AndsoitisnosurprisethatIrelandalsotooktheplunge,atmoreorlessexactlythesame

time,andappliedforEECmembershipin1961alongwithBritain.Norisitsurprisingthat

whenthatbidwasvetoedbyCharlesdeGaullein1963–somethingforwhichIrishpolicy

19

makerscanhardlybeblamed--Irelandunilaterallycutitstariffs.Itdidsoagaininthe

followingyear,andin1965signedtheAngloIrishFree-TradeAgreement.Atthisstage

IrelandwasfullycommittedtoeventualEECmembership,whichwasfinallyachievedin

1973.

WhatwasunusualaboutIrishtradeliberalisationwastheextenttowhichitremained

focusedontheeconomicrelationshipwithBritain.Tobesure,theAIFTAwasseenasa

steppingstonetowardseventualEECmembership,butdespitethisEuropeanmotivation,

therealitywasthatIrelandwasnotyetwellintegratedwiththeEuropeaneconomyasa

whole.Andthiswasaproblem,sinceaccesstotheBritishmarketalonewasafarless

appealingcarrottodangleinfrontofpotentialmultinationalinvestorsthanaccesstothe

muchlargerandmoredynamicEECmarket.

ThisleadsustothethirdexplanationforIreland'srelativelypoorperformanceduring

Europe'sGoldenAge.Ifthepoorperformanceinthe1950swasduetoprotectionism,andif,

astheconventionalwisdomhasit,Irelandliberalisedinarushfrom1958onwards,then

whywasitsperformancesodisappointingbetween1960and1973?Thecomparisonwith

otherperipheralEuropeaneconomies,inparticularGreeceandPortugal,isilluminating.As

wehaveseeninFigure7,GreeceandPortugalgrewextremelyrapidlyduringthisperiod,

whileIrelandremainedanunderperformer.Andaswehavealsoseen,inFigure8,Greek

tariffswereevenhigherthanIrishonesduringthe1960s.Whatcanexplainthesuperior

performancesofGreeceandPortugal?WhydidIrelandnotkeeppace?

AkeyfactorintheGreeksuccessstorywasthecountry'sAssociationagreementwiththe

EEC.Foreigninvestmenthadbeenencouragedsincetheearly1950s,whenaseriesofFDI-

friendlypolicieswereintroduced(Freris,1986,pp.171-2),buttariff-freeaccesstoEEC

marketsprovidedanessentialadditionalstimulustoinwardinvestment.Between1962and

1964,morethanthreefifthsofallmanufacturinginvestmentwasforeign;Kopsidisand

Ivanov(2017,p.108)arguethatFDIduringthisperiod"diversifiedandmodernisedGreek

industry".Continent-widemarketsforcheapconsumergoodsproducedinGreecealso

benefitedtraditionalGreeklightindustry.

20

InPortugaltoo,EFTAmembershipisseenashavingbeencrucialinpromotingamore

outward-lookinganddynamiceconomy.Accordingtooneestimate,annualinflowsof

foreigndirectinvestmentweremorethan30timeshigherduringthe1960sthantheyhad

beenbetween1943and1960(FerreiradaSilva,2016).9PortugueseaccessiontotheEECin

the1980swouldleadtoafurtherstepincreaseininwardforeigninvestment,ashappened

alsoinSpain(BarryandBradley,1997,p.1809).

Akeydifference,therefore,betweentheIrishcase,ontheonehand,andthePortuguese

andGreekcasesontheother,wasthatIrelandhadneitheranAssociationagreementwith

theEEC,normembershipoftheEFTA.10WetendtoassumethatonceIrelandhadsigned

theAIFTA,itwastoallintentsandpurposesafreetrader,andthereissomethingtothis.

LocalfirmshadtoadjusttoBritishcompetition,andthiswasgoodforefficiency.Butthereis

abigdifferencebetweenacceptingfreetradebetweenoneselfandjustonecountry,and

becomingpartofacontinent-widecustomsunion.UntilEECaccession,theIDAhadtotryto

sellIrelandasanexportplatformintotheUKandCommonwealth,butthiswasneveras

effectiveasalespitchastheonewhichwewereabletomakeafter1973.Fromthenon,

IrelandwassellingintotheEECasawhole,andthatmadeallthedifference.

Oneverystrikingfeatureofthedatabetween195411and1973isthatIreland'sgrowth

performancewasverysimilartothegrowthperformancesofbothNorthernIrelandand

Wales.Allthreeeconomiesseemtobeunderperforminginaverysimilarway,growingless

rapidlythantheyshouldhavebeengiventheirinitialincomelevels(Figure9).Thissuggests

thatallthreeeconomieswerefacingacommonproblemorsetofproblems.Someofthese

mayhavebeeninstitutionalinnature,suchasafragmentedtradeunionstructurewhich

madethecorporatistarrangementstheninvogueontheContinentdifficulttoachieve(Ó

GrádaandO'Rourke,1996).ButanexcessiverelianceonthesluggishBritisheconomyis

anotherplausiblecandidate.

9Accordingtothesameauthor,theinflowin1961wasashighasthetotalinflowexperiencedduringtheentire1950s.dasNeves(1996),ontheotherhand,downplaystheroleofFDIduringthe1960s.10RecallthatEFTAaimednotonlytodismantleindustrialtariffsbetweenitsownmemberstates,buteventuallytonegotiatetariffreductionsvis-à-vistheEECaswell.11WhichiswhenreliableGDPestimatesforWalesandNorthernIrelandbecomeavailable.

21

Figure9.Initialincomeandsubsequentgrowth,1954-73Source:asforFigure3.WalesandNorthernIreland:dataunderlyingDorsett(2013),graciouslyprovidedbyauthor.Scotland:datagraciouslyprovidedbyBrianAshcroft.

Figure10.IrishGNPpercapitaaspercentageofUKandFrenchGDPpercapitaSource:asforFigure3.Note:theverticallinedenotes1973.


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UKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUK USAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWales

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World War II As share of UK As share of France

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Inconsequence,whileGDPpercapitagrewmorerapidlyinIrelandthanintheUKduringthe

1960s(Figure10),thiswasnotsufficienttopreventIrelandfallingevenfurtherbehinda

majorcontinentaleconomylikeFrance.Thiswouldchangein1973.


6.IrelandinEurope

AsFigure10shows,IrelandimmediatelystoppedfallingfurtherbehindFranceonceit

enteredtheEECin1973:Camposetal.(2014)estimatethatmembershipboostedIreland’s

percapitagrowthratebyalmost2percentagepoints.Ofcourse,manyothereventswere

shakinguptheinternationaleconomiclandscapeatthistime,mostobviouslytheoilcrises

of1973and1979.Theseledtoadecadeormoreofhighunemployment,highinflation,and

evenhigherunemploymentasgovernmentsattemptedtolowertheinflationrate.Allof

thesedevelopmentshurtIreland.Andyet,evenbeforetheIrisheconomicmiracleofthe

1990s,Irelandwasonceagaingrowingjustaboutasrapidlyaswouldhavebeenpredicted

withinaconvergenceframework(Figure11).Foreigndirectinvestment,basedonselling










NININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININI NetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlands







UKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSA

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23

intotheEEC,wasthemajorfactorimprovingIrishperformancefrom1973onwards,

althoughtheCommonAgriculturalPolicyclearlyalsohelped.Wewouldcertainlyhavedone

evenbetterhaditnotbeenforthebudgetarymistakesofthelate1970s,andtheir

inevitableconsequencesinthesucceedingdecade.


ThesecondmajorturningpointinIreland'seconomicfortuneswasofcoursetheshort

periodbetween1987and1990.Duringthe1990s,Irelandwas,asweallknow,an

extraordinaryoverperformer(Figure12).AcomparisonbetweenIreland,ontheonehand,

andNorthernIreland,ScotlandandWalesontheother,isinformative(Figure13).Ireland

hadbeengaininggroundontheseUKregionsfrom1960onwards,aswehavealreadyseen,

whichmightrepresentagradualprocessofconvergenceoccurringwithintheBritishand

Irishregionaleconomy.Theaccelerationfrom1990onwards,however,represents

somethingentirelydifferent.Itseemsclear,notonlythattheEuropeanUnionwas

fundamentalintransformingtheIrisheconomy,butthatIrishindependencewasessential

inexploitingtheopportunitieswhichtheEuropeanUnionafforded.Asthefiguresuggests,

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UKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSA

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02

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10000 15000 20000 250001990 GDP per capita, 1990 dollars

24

wewouldneverhavedoneanywherenearaswellasweinfactdid,hadweremaineda

mereregionoftheUnitedKingdom.

Figure13.IncomesrelativetoUK,1924-2001Source:asforFigure9.Policyflexibilityatatimeofrapidchangewasessential,andthatiswhatindependencegave

us.It’simportanttonotethatIrelandisnottheonlysmallEuropeancountrytohave

performedwellinthecontextofaglobalisingeconomy.Thereisawell-establishedpolitical

scienceliteraturethatshowshowothersmallEuropeancountries,inScandinaviaand

elsewhere,havebeenabletorespondnimblyandflexiblytochanginginternationalmarket

conditions,inwaysthatlargercountrieshavefoundmoredifficult(Katzenstein,1985).But

EUmembership,andthesinglemarketprogrammeofthelate1980sandearly1990s,were

essentialinallowingIrelandtofinallyreapthefulleconomicrewardsofitsindependence.

Thepolicymixthatweadoptediswellknown:alowcorporationtaxandotherincentives

forinwardinvestment,includinginvestmentineducationandinfrastructure.CormacÓ

GrádaandIhavealsoarguedthatsocialpartnershipwasimportant,moderatingwage

growthandprovidingastableindustrialrelationsenvironment(ÓGrádaandO'Rourke,

4060

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1920 1940 1960 1980 2000 2020Year

World War II Ireland (GNP) Northern Ireland Scotland Wales

25

2000).12Underpinningeverythingwastwocrucialfactors:ourpoliticalindependence,

whichallowedustoadoptapolicymixwellsuitedtoourowncircumstances;andour

membershipoftheEuropeansinglemarket,withoutwhichnoneofthiswouldhaveworked.

PoliticalindependenceandEUmembershipwhereneverfundamentallyatoddswitheach

otherinIreland;bothwererequiredtogivefulleffecttotheother.Ourindependence

wouldnothaveworkedaswellasitdidwithouttheEU;ourEUmembershipwouldnothave

workedaswellasitdidwithoutindependence.

Figure14.OECDandperipheralEuropeanGDPvolatility,1960-2014Source:asforFigure3.

Since1973,andevenmoresosince1990,Irelandhasbecomeahyper-globalizedcountry

whosesubsequenteconomichistoryhasmirroredtheebbsandflowsoftheglobal

economy,inhighlyexaggeratedfashion.Therecessionoftheearly1980s,asinflationwas

squeezedoutoftheWesterneconomicsystem;theClinton/GreenspanITboomofthe

1990s;thecreditandhousingbubblesoftheGreatModeration;theeconomiccollapseof

2008,andthesubsequentrecovery:Irelandexperiencedallofthem,inspades.This

12JustasithaddoneonthecontinentduringtheEuropeanGoldenAge(Eichengreen,1996).

.01

.02

.03

.04

.05

.06

1960 1980 2000 2020Year

Ireland Greece Portugal Spain OECD

10 year standard deviation of log change in GDP

26

heightenedsensitivitytointernationaleconomicconditionsinpartreflectsthecountry’s

extraordinaryopenness,butitalsoreflectsanIrishtendencytospendwhentimesaregood,

andtoborrowwhentheyarenot.IntheOECDasawhole,GDPvolatilitydeclinedafterthe

turmoilofthe1970s;inIreland,ifanythingitincreased–evenbeforetheextraordinary

bubbleandbustoftheearly21stcentury(Figure14).Itseemsasthoughthisvolatilityisto

someextentacommonfeatureoftheperipheralEuropeaneconomiesIhavebeen

comparingustothroughoutthistalk;butnotingthisdoesnothingtodiminishtheproblem,

andmoderatingthisvolatilityneedstobeamajorpolicypriorityforthecountrygoing

forward.

7.ThechallengesofBrexit

TheothermajorpriorityisadjustingtoBrexit,and,perhaps,totheeconomicconsequences

ofaTrumpPresidency.ExactlywhatchallengesBrexitwillimplyisunclear,andwillremain

sountiltheBritishgovernmentfinallydecideswhatitwants.Thereisnodoubtbutthata

HardBrexitwouldbedamagingtoIreland.Itwouldbeanunfriendlyact,notinthesense

thattheBritishwouldbetryingtohurtIreland--ofcoursetheywouldnotbe--butinthe

sensethatthedamageaHardBrexitwouldcauseuswouldbeofnogreatconcerntothem

eitherway.Itwaseverthus:Englandisabigcountry,andcan'treasonablybeexpectedto

doanythingotherthantopursueitsownbestinterestasitseesit,withouttakingtoomuch

accountoftheinterestsofthesmallercountriesontheseislands.Thatiswhyinmyview

Irishindependencewasalwaysbothinevitableanddesirable,butthatisanothermatter.

BecauseaHardBrexitwoulddamageIrishinterests,it'slogicalthatweshoulddesirethat

ournearestneighboursnotproceedwithit.Butit'simportantthatthisdesirenotleadusto

engageinwishfulthinking.OnceBritainhaslefttheEU,theEUwillbeobligedunderWTO

rulestoimposetariffsonimportscomingfromtheUK.ThisisnotsomethingthattheEUcan

avoid:ifitwerenottodothis,itwouldbediscriminatingagainstitsothertradingpartners,

andthatisillegal.TheonlycircumstanceinwhichtheEUwouldbeallowedtonotimpose

tariffsonBritishgoodsisiftherewerealegallyregisteredfreetradeagreementofonesort

oranotherinplaceatthemomentthatBrexitoccurs.Andtherearetwomajorproblems

here.First,itisfarfromclearthatitwillbelegallypossibletonegotiateafreetrade

27

agreementwiththeUKwhileitremainsamemberoftheEU.Butevenifitislegally

possible,whichseemsdoubtful,thereisasecond,practicalconsideration,whichisthatit

takesyearsfortradedealstobenegotiatedandratified.Thechancesofacomprehensive

dealbetweentheEUandUKbeingironedoutwithintwoyearsarezero.

Soifwearetoavoidtariffbarriers,eitherbetweentheRepublicofIrelandandtheNorth,

or,preferably,betweenIrelandandBritain,wearegoingtoneedatransitionalarrangement

ofsomesortthatcanbeeasilyagreedwithinthetwo-yearframework,withouttoomuch

substantivenegotiatingbeinginvolved.Adetailedbespoketransitionalagreementseems

impossible–itwillbejustasdifficulttonegotiateasapermanentagreement,inpart

becausetransitionalagreementsoftenlastaverylongtime.Andsoitwillhavetobeanoff-

the-shelfarrangement–temporarymembershipoftheEuropeanEconomicAreafor

example,ortemporarymembershipoftheEUcustomsunion.IftheBritishdecidethatthey

don'twanteitheroftheseoptions,orsomeothereasilyavailablealternative,onevena

transitionalbasis,thenHardBrexitwillbecomeinevitable.Anditisimportanttobeclear

thatitwillbeBritishchoices,andnotanyoneelse's,thatwillhavecausedthisoutcome.

Figure15.ThedestinationofIrishexports,2015Source:CSO

01.

0e+0

72.

0e+0

73.

0e+0

74.

0e+0

75.

0e+0

7Th

ousa

nds

of e

uros

Agricultural Forestry and Fishing IndustrialOther Other EU UK Other Other EU UK Other Other EU UK

28

TheproblemforIrelandisthat,althoughourprosperityisbasedonourmembershipofthe

EUsinglemarket,acomparativelyhighshareofIrishexportsstillgoestoBritain.It's

importanttobeclear:otherEuropeanmarketsarefarmoreimportanttous(Figure15).

Theyare,asIhaveemphasised,thebasisofourprosperity.NosaneIrishpoliticianwould

choosetheBritishmarketoverthefarlargerEuropeanone.ButBritainisstillourmajor

agriculturalmarket,andmanyofoursmaller,morelabour-intensiveindigenousindustries

stillsellalotthere.Thismatters,sincefoodandagriculturaltariffsareparticularlyhigh,and

sincethesesectorsaremoreemployment-intensivethansomeofthehigher-profile

multinationalsectors.

Figure16.Merchandisetrade,goodsforwarded(absolutetonnage)Source:CSO

AnotherpotentialconcernistheveryhighshareofIrishmerchandiseexportsbeingshipped

to,andinsomecasesthrough,theUnitedKingdom(Figure16).Especiallyworryingisthe

largeshareofroll-onroll-offtrafficgoingtotheUK;itseemslikelythatthosesmaller,

labour-intensivefirmsexportingfoodandotherproducts,whorisklosingsalestotheUK,

arepredominantlyexportingtheirproductsinthisfashion.Towhatextentmightcustoms

02,

000

4,00

06,

000

8,00

0Th

ousa

nds

of to

nnes

All Break bulk & all other Dry bulk Lift-on/lift-off Liquid bulk Roll-on/roll-off

Oth

er

Oth

er E

U UK

Oth

er

Oth

er E

U UK

Oth

er

Oth

er E

U UK

Oth

er

Oth

er E

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Oth

er

Oth

er E

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29

delaysatDoverandCalaisimposeextracostsonthemwhentheyexporttotheContinent?

Wedon'tknowyet,butitseemstomethatthisisalsoapotentialconcern.

WhatisclearisthatBrexitisgoingtorequirethatweadjust.Howwellweadjustwilldefine

ourfutureprosperityoverthecourseofthenextcoupleofdecades.Butwe’regoingtohave

toadjustanyway,probably,sincethekindofhyper-globalizationthatwehavebeensogood

atexploitingisbecomingpoliticallyunsustainablethroughoutthewesternworld.Wedon’t

wanttofindourselvesonthewrongsideofhistory.

Wearehardlythefirstcountrytohavefacedthissortofexternaltradeshock.Finland's

problemsin1991,whenitfounditselfhavingtocopewiththeconsequencesofthebreakup

oftheSovietUnion,withwhomahugeshareofitstradehadpreviouslybeenconducted,

wereprobablymoreseriousthanthosethatwearelikelytoface;itsadjustmentwas

exemplary.Late19thcenturyDenmarkfounditselffacinghighertariffbarriersinits

traditionalGermanmarketafter1879,aswellasprohibitionsonlivecattleexportswhich

lastedseveralyears.Italsosuccessfullyadjusted,switchingintodairyingandotheractivities

targetingtheBritish,ratherthantheGerman,market.Irelanditselfhadtoadjustduringthe

1960s,asthemanufacturingindustriesthathadbeenbuiltupduringtheprotectionistera

becameexposedtointernationalcompetition.Wewillhavetodosoagain.

Itistimetoconclude.IhavearguedthatIrishprosperityinrecentdecadeshasdepended

bothonourmembershipoftheEuropeanUnion,andonourpoliticalindependencewhich

allowedustomakethemostofthatmembership,bygivingusthefreedomtomakepolicy

choicesthatweresuitedtoourowncircumstances.Muchthesamehasbeentruefor

severalothersmallEuropeancountries:onceagain,ourownnationalstoryispartofa

largerpicture.Wearenotsodifferentaswesometimesthinkweare.

Ofcoursewehavemademistakes–itwouldhavebeenoddhadwenotdoneso,especially

inthecontextofthe20thcentury.Butourmistakeswerenotparticularlyunusual,or

especiallyegregious;andtheywereeventuallyremedied.Andisn’titthecase,whetherwe

aredealingwithindividualhumanbeings,orwithentirenations,thathavingthefreedomto

30

makeyourownmistakes,andlearnfromthem,ratherthanbeingpermanentlysubjectedto

theconsequencesofotherpeoples’mistakes,iswhatfreedomisallabout?

31

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