Abstract
Recent studies in Irish economic history have emphasised the role that accession to the European Economic Community in 1973 has had on transforming the Irish economy. 1 EEC membership enlarged the potential market for Irish exporters, increased competition and enabled cross border capital investments to a much greater extent. While Community membership should have had dramatic consequences for the Irish industry that had developed over the previous century, this aspect of the new regime has been overshadowed in the literature by the subsequent success story of the Irish economy since that watershed event. In his new book, Frank Barry revisits the pre-EEC era, by painstakingly reconstructing the Irish industrial landscape and associated policies, as they had evolved during the first 50 years after independence.
There is arguably no scholar better suited to write this business history than Barry, who has spent almost two decades researching Irish industry in some detail. Among other things, the author has studied the effects of tariffs on foreign owned firms, 2 business attitudes towards Ireland's exit from the United Kingdom, 3 the development of the pioneering Industrial Development Authority, 4 industrial policy, 5 and firm size/labour force during the early Free State. 6 Taken together, these themes are woven together as the foundation narrative of Barry's book. As is evident from the data underpinning the tables, descriptions and anecdotes that form the backbone of the book, the author has dedicated herculean effort into combing through a vast array of primary sources, some very obscure, to piece together the tapestry of each period benchmark. Admirably, instead of starting at the level of the Censuses of Industrial Production as studies typically do, Barry constructs the world of Irish industry from the firm-level up to the aggregate. In this sense, the book is a collection of (micro) business histories that are aggregated to speak to macro debates. The database that accompanies the work provides detailed snapshots of the employee numbers (and the plethora of sources drawn upon to arrive at these numbers) on the firms discussed in the book.
The book is a landmark work in Irish economic history which could be read in parallel with Bielenberg and Ryan's An Economic History of Ireland since Independence. 7 While much of the latter approached the post-independence decades from the perspective of the state's role, Barry's contribution works from the bottom up. In the former publication, the macro data were readily available via official publications. In contrast, Barry had to construct a world of Irish firms that could only be manifested by persistent dedication to data gathering, before he could write the business history of Irish industry. Barry's book has cleared the fog to reveal the details of a major area of Irish economic history that we were unable to previously view.
This work will serve Irish economists, economic and business historians as an invaluable reference to policy developments in the first half century after political independence. However, developing economies experimenting with industrial policy will also find a timely case study within its pages, as the topic has returned to the forefront of international economics. 8 With this in mind, this review is drafted with an eye towards future research directions that Barry's accomplishment has now enabled.
The book may have benefited from presenting key policy changes in a Table (see e.g., Table 1) to enable the unfamiliar reader to follow them more clearly. Similarly, macro contextual aids were somewhat lacking for the international reader. For example, tables may have dated the key changes in political administrations and summarized the flavour each government's industrial policy. While Chapter 1 provides some of this (pp. 2–3), one might have benefited from tracing decadal or benchmark GDP growth rates. While for Irish readers of economic history, the rivalry between the Department of Finance and the Department of Industry and Commerce will be familiar, an international observer would have benefitted from a table outlining the policy leanings (and possible changes) of each.
Timeline of Changes to the Industrial Development Authority and Related Tax Reliefs.
Note: Author's table is based partly on information from Barry, Industry & Policy, Oireachtas legislation (various) and Department of Finance, ‘The historical development and international context of the Irish corporate tax system’ (2014): A report commissioned by the Irish Department of Finance.
As mentioned above, the book could offer analysts in developing economies a relevant case study with which to deliberate on industrial policy decisions. Readers without a background in economics would have benefited from a theoretical framework to equip them to assess the intended policy output versus realised outcomes. One question that came constantly to mind was why foreign ownership was so prevalent in Ireland relative to other economies? Standard growth theory would tell us that developing economies (that tick certain institutional boxes) could import capital and achieve leaps in the standard of living due to the higher marginal product of capital at lower levels of income. China's successful departure from this approach and the so-called Washington consensus towards dual track reform is an appropriate alternative to consider with respect to Ireland, as Barry mentions. However, the two approaches could have been discussed in more detail to better prepare the general reader. It was painfully clear to Irish policy makers in the mid-1950’s that something had to give, as is evident from the comments of the Minister for Finance at the end of 1956: “We must face the fact that one of the causes of the difficulties has been that our savings as a community have never been anything like high enough. It is essential we should all realise that it is only by building on a high savings ratio that we can make real progress. It is unfortunate, as I say, that in relation to our position we have not got here the high savings in relation to national product which we have in other countries. It is also an unfortunate fact that the less developed a country is, the more it is essential that it should set aside a greater proportion of its current income for the purpose of building up for the future”. 9
The book starts out by painting a picture of Irish industry in the decades prior to southern independence. A recurring narrative arc of the book is that it traces the composition, in terms of employees and ownership, of the largest Irish industrial firms (>500 employed) at the end of each chosen era. The pre-independence firms early 1900’s were overwhelmingly “Protestant/Unionist” establishments (pp. 24–5). An interesting force that Barry observed, which acted against politically motivated boycotts, was the fact that a substantial majority of workers employed in these firms were “Catholic/Nationalist” (p. 28). Traditionally, Irish industry was significantly more concentrated than British, 10 and in the early Free State the top twenty employers still accounted for 35 per cent of manufacturing jobs, giving firms more power in local labour markets (p. 29).
Barry has devoted considerable effort in recent years to researching the validity of traditional narratives on Irish economic policy in the first decades of the Free State. The first of these to appear in the book is the convenient classification of Cumann na nGaedhael's administration as one embodying the strictest principles of free trade. Having detailed the major “Firms of Note in 1922” (Chapter 3) under their appropriate sub-categories of the Censuses of Industrial production, the reader is taken to the first decade of independence, where Barry describes and documents the range of “selective protection” experimented with on a subset of industries (Chapter 4). Though the majority of industries at independence did not favour protection (p. 80), tariffs had been introduced on candidate industries at various dates between 1923 and 1926. A Fiscal Inquiry Committee, established in 1923, was tasked with considering the effects of trade restrictions in certain industries (p. 80) and tariffs were later introduced through subsequent Finance Acts (p. 82). Major exporters, the transport, trade and banking sectors all tended to retain free-trade sympathies (p. 80), implying that less prominent sectors would be first to receive special attention.
As anyone who has worked with early Irish National Income estimates can regrettably attest, official statistics on industry are only available from 1926. Barry recognises that “studies that take this [year] as their starting point are likely to understate significantly the expansion that occurred over the first decade of independence” (p. 67), as one would have missed the higher growth of the post-civil war recovery years. The first major contribution of the book is the meticulous construction of employment number benchmarks in various protected industries (p. 85, Table 4.1) at the introduction of the tariff (1923–6), that can be compared with the first official estimates (1926 and 1929). These data, collected from a variety of obscure sources, have already proven crucial as proxies for changes in sectoral output in a recent article that constructs Irish GDP from 1924. 11 For example, a tariff was applied to Manufactured Tobacco in April 1923 when the sector's employees numbered 500, which can be compared to 2,096 (p. 85) in the 1926 Census. Assuming constant labour productivity, the implication is a fourfold increase in production. Employment across all protected industries between the introduction of the various tariffs (1923–6) and the 1926 Census more than doubled from 6,944 to 15,767, though the extent of the change attributable solely to the tariffs is not verifiable.
As the international Great Depression approached at the end of the 1920’s, Barry observed that the extent of “tariff jumping” by British firms- setting up behind the Irish Free State's protection- was already more than anticipated by 1930 (p. 89). Four of the five largest firms by employment in 1929 were foreign owned and Barry estimates that approximately 20 per cent of all manufacturing firms in Ireland were foreign owned (p. 91). Though the regime change to Fianna Fáil in 1932 ushered in an era where protection was imposed across almost all sectors of industry (p. 100), their early attempts to limit foreign ownership (Control of Manufactures Acts 1932, 1934) were pragmatically relaxed, as local law firms assisted foreign companies to navigate past the legislation (pp. 103–4). As a result of these protectionist Acts, Barry describes the effects of quantitative import restrictions on fully built up (FBU) vehicles (p. 108), leading to a scenario where “fully built cars were dismantled, put into crates and shipped to Ireland where they were put back together again.”
While instances like these were extreme cases, Barry and others have recognised that the decline in emigration increased pressure on government to adopt job-creation policies (p. 97). In a context of world depression, “low farm prices and a political imperative to reduce unemployment, this strategy had its logic 12 and up to 40,000 industrial jobs may have been created over the period 1932–6. 13 While Irish industry contracted by 27 per cent between 1939–43 14 , the pronounced, if short-lived, economic recovery that began shortly afterwards was driven by industry and trade. By the late 1940’s, Barry reveals that twice as many firms existed with workforces of 500 + than were extant in 1929 (pp. 116–7). It would be interesting to explore whether the nature of these firms was particularly labour intensive, though, in the absence of suitable capital data, it remains a question for future researchers.
Moving through the years 1949–58, Barry draws upon his previous research to trace the origins and history of the Industrial Development Authority (IDA), the most important economic policy change of the period 1948–61 (p. 122) . This body was a truly novel innovation, established in 1949 by the first Fine Gael led interparty government (p. 121) and effectively pioneered a “dual-track reform” approach to Irish industrial development, which later came to characterize the Chinese move to outward reorientation and economic growth (p. 122). Policy makers of all political parties moved towards an export-orientated foreign direct investment (FDI) strategy, though government departments disagreed on the method. While the Department of Industry and Commerce advocated financial and tax incentives to attract FDI and increase exports, the Department of Finance favoured trade liberalization (p. 132). By the mid 1950’s, the views of Industry and Commerce had triumphed, and the new policy was embodied in the phrase “industrialization by invitation”. While tax relief on export sales and duty-free access to British markets (p. 135) would provide incentives to investors, it would simultaneously create a new source of industrial employment without threatening existing import-substitution interests (p. 122). As Barry summarises, it would establish the preconditions for the later abandonment of protection (p. 122) while potentially attracting US FDI which would export into the dollar area relieving Ireland from the pan-European post-war dollar shortage (p.134). Such logic can be found in Dani Rodrik's summaries of Chinese growth strategies today. 15
Table 1 traces the evolution of the IDA and associated tax reliefs over the decades since its inception. In 1956, the second Inter-Party Government introduced measures that became the basis of Ireland's low corporation tax regime (p. 121) and Taoiseach John A. Costello delivered “one of the most significant economic policy speeches in the history of the state” (p.136). The oft-heard narrative that T.K. Whitaker was the economic visionary behind Ireland's export strategy and subsequent recovery is another that is challenged throughout the pages of Barry's book. These aspects of Whitaker are in line with the findings of other scholars who together suggest that Whitaker and his economic recommendations should be analysed with respect to subsequent policy, rather than merely celebrated as maverick-like prescriptions. 16 At about this time as an example, he wrote a piece for the Journal of the Statistical and Social Inquiry Society of Ireland emphasising supply side policies and rejecting the Keynesian multiplier. 17 The new FDI strategy predated the Lemass-Whitaker era (p. 122), with Whitaker complaining that such tax relief would ignore his preferred emphasis on production (p. 138) and postpone the inclusion of farming profits under the taxation umbrella (p. 137). Indeed, as Barry argues convincingly, the Whitaker Report of 1958 was drafted in the aftermath of the ideological defeat inflicted on Whitaker's Department (Finance) and merely records (export profits tax relief) measures already in place (p. 138).
I have summarized the main tax relief events in Table 1, which I have derived from Barry's (2023) work as well as other official sources. It reveals that further relief was granted through subsequent Fianna Fáil administrations, culminating in 100 per cent tax relief on export profits 1958–60. As Barry notes (p. 178), having navigated the political economy of export-led exemptions at the EEC and OEEC for some time, Ireland's export profits tax exemption would not survive after 1980, when a new 10 per cent rate was introduced.
Another notable offspring of the era is the Shannon Export Processing Zone (SEPZ). In the immediate area surrounding Shannon Airport on Ireland's west coast, from 1958 firms operating within it were granted a 25-year period of export profit exemptions and the zone was a key plank in the “dual track reform” process. Based on early Latin American prototypes, such as those initiated in Panama and Puerto Rico, the area could take advantage of its status as a refuelling station for transatlantic flights and low Irish labour costs, targeting U.S. investors, in particular. While increasing tax relief would attract more companies, Barry noted the pragmatism of a renowned economic commentator Prof. Charles Carter (Queen's University Belfast) who saw the enormous potential for Ireland's developing economy in attracting “good management, technical knowledge and capital” from abroad (p. 140). Indeed, between 1961 and 1971, GDP per head in Co. Clare (where SEPZ is located) expanded by over 25 per cent in the period, far surpassing the next best performer. 18 While Carter was a friend of Whitaker's, his recommendations of further tax reliefs were not shared by the latter. Nonetheless, cross fertilisation of economic ideas between Northern Ireland and the Irish Free State was plainly evident, in view of the duo's friendship with Louden Ryan (Trinity College Dublin) and the fact that Northern Ireland had advance factories and capital grants prior to those tax reforms introduced in the south. 19
The effects of the IDA's policies and developments are not statistically modelled in the book, however we are informed that manufactured exports more than doubled between 1956–60 (p. 143). Similarly, policy and academic institutes agreed in 1974 that new (primarily foreign) industry was “the primary causative force in reducing emigration between 1958 and 1971 (p. 143). In his calculations using data from various reports and previous studies, Barry shows a striking five-fold increase in employment (7,000 to 36,000) in “new foreign industry” between 1962 and 1972 (p. 165). However, there is as yet insufficient data to do a clean test on how much was solely attributable to policy, as one needs to consider the wider context of the Irish economy at the time. There was broader GDP growth in the 1960’s, when the economy grew at 3.9 per cent per annum compared to the equivalent figure of 1.5 per cent during the 1950’s. 20
Another theme that is eloquently described in Barry's study is the buffer, in terms of time, provided the European Economic Community's 1961 rejection of the United Kingdom's membership application: “This gave time for Ireland to get its house in order. Industrial restructuring began, redundancy entitlements were overhauled, education revamped and the Exchequer's dependence on trade taxes reduced. Crucially, the expansion of export-orientated foreign industry would serve as a counterbalance to the job losses experienced as protectionist era industries went into decline” (p. 150). A graph showing the evolving share of employees in both “tracks” might have aided the reader in understanding the magnitude of the political economy problem. This adjustment to freer trade at the firm level was characterised by Brownfield FDI (involving the acquisition and restructuring of existing businesses), as opposed to Greenfield FDI (the IDA and the Shannon Zone). Barry (pp. 170–2) presents detailed tables of a number of major mergers and acquisitions, including employee numbers involved. Again, the dedication to collecting various benchmark numbers from a variety of often unrelated alternative sources, is truly admirable in showing before and after snapshots. As an example, the largest M/A in domestic industry involved the Irish Cement Group which grew from 900 employees in 1962 to 1,843 in 1970. It acquired Roadstone Holdings with a workforce of 3,491 in 1970 and the group was listed with 5,578 workers in 1972.
One theme that might have been further explored in the book is the importance of “depoliticizing” certain institutions like the IDA, which Barry recognizes (p. 133). For example, the Tariff Commission depoliticized the “contentious issue within Cumann na nGaedheal” of protection during the 1920’s, just as the IDA's independence later would prove crucial to the direction it would evolve in over the next decades (p, 133). Similarly, the work of the independent corporatist National Industrial Economic Council 21 influenced Donogh O’Malley's announcement of “free education” (p. 160) and allowed him the intellectual support to bypass the Dept of Finance to instigate effective policy change. What ingredients made these independent policy actors/thinktanks successful in contrast to the examples of failures? Such perspective would be especially beneficial, as these bodies long predate established norms like Central Bank independence and watchdogs such as the Irish Fiscal Advisory Council (IFAC).
During the 1960's, firms were consolidating, streamlining and becoming potentially more competitive, but as Barry notes, respected contemporary commentators misjudged the potential resilience of old protected Irish firms to face the free trade environment (p. 158). Compensation per manufacturing employee grew at one and a half times the UK rate during the decade and with a fragmented industrial relations system, Barry cites Niamh Hardiman's view that “no single bargaining group believed it had to pay any attention to the impact of its activities on the overall state of economic performance” (p. 161). 22 The dual-economy nature of Irish manufacturing also distorted wage setting, as the more productive export-orientated firm drove up wages across the entire manufacturing sector (p. 163). The view laid out in a 1972 Government White Paper on EEC Accession, which foresaw a net increase of 50,000 manufacturing jobs by 1978 (p. 191) seems with hindsight, naive: “there should be no net redundancy in existing industry” (p. 177).
After EEC accession, Ireland was hit with an international economic crisis which strained its leading firms to such an extent that a dozen were in receipt of state support by the mid 1970’s-most had downsized or closed by 1987 (p. 192). As was the case when it gained political independence, EEC accession “had come at a particularly difficult time” (p. 200). While Barry stressed cost competitiveness problems (pp. 160–4), he also draws on the classifications of the National Economic and Social Council of three groups of industries (p. 192). 23 The first was the specialist firms that emerged from the recent decades of FDI flows. The second group benefitted from “natural protection”, exemplified by the comparative advantage enjoyed by those industries that enjoyed close proximity to inputs (e.g., food industries located near meat and dairy products). Industries that did fell under neither category, fared poorly. Large firms such as Ford's in Cork closed in 1984 as safeguard measures agreed at EEC accession approached their expiry data and Irish Steel remained on life support for a decade more (pp. 194–5). The reader would have benefitted from a timeline explaining such supports as these firms entered the EEC market.
On the eve of its entry to the EEC, Barry has traced employment in foreign owned industry in manufacturing firms from 15 per cent in 1922, to 20 per cent by 1929 to approximately 33 per cent by 1972. By the early 2000's, the number had grown to 50 per cent where it remains (p. 202). While the book does have an epilogue, it does not summarise with a conclusion and though the study finishes in 1972, this reviewer was left wanting to know more detail about the aftermath. This itself, is complimentary to the book, due to the interest and knowledge generated from reading this study. By constructing a world that had previously remained invisible, Barry's book has opened up many more valuable questions for future researchers to explore.
