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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, Oxford
Visiting Professor, School of Economics, University College Dublin
Abstract
ThispapersurveysindependentIreland’seconomicpoliciesandperformance.Ithasthree
mainmessages.First,theeconomichistoryofpost-independenceIrelandwasnot
particularlyunusual.Veryoften,thingsthatwerehappeninginIrelandwerehappening
elsewhereaswell.Second,foralongtimewewerehamperedbyanexcessivedependence
onapoorlyperformingUKeconomy.Andthird,ECmembershipin1973,andtheSingle
Marketprogrammeofthelate1980sandearly1990s,wereabsolutelycrucialforus.Irish
independenceandEUmembershiphavecomplementedeachother,ratherthanbeingin
conflict:eachwasrequiredtogivefulleffecttotheother.Irishindependencewouldnot
haveworkedaswellforusasitdidwithouttheEU;andtheEUwouldnothaveworkedas
wellforusasitdidwithoutpoliticalindependence.
ThisisarevisedversionofalecturedeliveredonNovember11,2016,attheNUIGNational
Conferenceentitled1916-2016:ThePromiseandChallengeofNationalSovereignty.Iam
extremelygratefultoNicholasCannyforhavinginvitedme;toeveryoneatNUIGfortheir
hospitality;toJohnMcHaleforchairingthesessionsoexpertly,andtothediscussantsfor
theirexcellentcomments.IamalsogratefultoBrianAshcroft,FrankBarry,JasonBegley,
GeorgeBoyer,AlandeBromhead,GrahamBrownlow,DianeCoyle,RichardDorsett,Alan
Fernihough,JamesForeman-Peck,FrankGeary,StefanieHaller,DavidJordan,AidanKane,
MichaelKeating,MorganKelly,DaveMadden,MauriceMulcahy,CormacÓGráda,Eunan
O’Halpin,AndyO’Rourke,MartinSandbu,andRebeccaStuart,formanyhelpfulcomments,
advice,data,andtechnicalassistance.Theusualdisclaimerapplies.
1.Introduction
Somebodyclever,I'mnotsurewho,issupposedtohaveoncesaidthat"hewhoonlytriesto
understandIrelandwillnotevenunderstandIreland".TherecanattimesbeanattentionseekingparticularismaboutIrishwriting–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.
1
OnDenmark,seeAdler-Olsen(2014).
1
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
2
genuinelyunusual–thelastmasssubsistencecrisisinpeacetimeWesternEurope,withthe
exceptionoftheFinnishfamineofthe1860s.Asweallknow,itusheredinawaveofmass
emigrationwhichpersistedintothe20thcentury,andwhichledtothequiteunique
spectacleofacontinuouslydecliningpopulationthroughoutthelate19thcentury,atime
whenEuropeasawholewasexperiencingapopulationexplosion.
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16
14
12
10
8
6
4
2
0
1850s
1860s
1870s
1880s
Ireland
Italy
Norway
1890s
Sweden
1900s
Figure1.Grossdecadalemigrationrates,per1000
Source: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
2
Guinnane(1997)providesanexcellentdiscussionof19thcenturyIrishdemography.
3
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
4
this;itwasrathertheUnitedKingdom,withitsstrongcommitmenttomoreorless
unilateralfree-tradeevenasitsrivalsgainedmarketshareatitsexpense,whichwasthe
exceptionduringthisperiod.
Average growth per annum
1.5
2
2.5
Canada
United States
Denmark
Germany
Italy
Sweden
France
1
Norway
United Kingdom
.05
.1
.15
Average manufacturing tariffs
.2
.25
Figure2.Manufacturingtariffsversusgrowth,1875-1913
Source: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
5
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?
3
Forasimilardiscussion,seeÓGráda(1997,pp.2-4).
6
3
Portugal
Norway
Average annual growth (%)
2
2.5
Finland
Ireland
Spain
Italy
Sweden
Austria
France
Denmark
1.5
Netherlands
Belgium
USA
UK
Scotland
Switzerland
0
2000
4000
6000
1926 GDP per capita, 1990 dollars
8000
Figure3.Initialincomeandsubsequentgrowth,1926-2001
Source:BroadberryandKlein(2012).GNPratherthanGDPisusedforIreland,using
adjustmentratioskindlyprovidedbyRebeccaStuart.Herdatagobackto1944soIhave
simplyassumedthatGNPwasthesameproportionofGDPinpreviousyears.
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.
7
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
8
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.
Denmark
France
Germany
Greece
Ireland
Italy
Norway
Portugal
Spain
Sweden
UK
0
.3
.2
.1
0
.3
0
.1
.2
Average tariff rate (per cent)
.1
.2
.3
Austria
1920 1925 1930 1935 1940 1920 1925 1930 1935 1940 1920 1925 1930 1935 1940 1920 1925 1930 1935 1940
Year
Graphs by country
Figure4.WasIrelandunusuallyprotectionist?Averagetariffs1922-38
Source:ClemensandWilliamson(2004)andwww.duanaire.ieatNUIGalway.
WasIrelandunusuallyprotectionistduringthe1930s?Theanswerisno.Irishaveragetariffs
weretowardsthehigherendofthespectruminthesampleofEuropeancountriesforwhich
wehavedata,buttheyweresimilartothoseinGermany,Italy,Portugal,Spain,andtheUK
(Figure4).Butfocusingontariffsaloneismisleading,sincethesewerenottherealproblem
duringthe1930s.Rather,countriesduringthisperiodadoptedawidevarietyofquantitative
restrictionsontrade,uptoandincludingexchangecontrolswhichinsomecaseseffectively
9
nationalisedtheinternationaltradingactivitiesofparticularcountries.Irelanddidn’tdo
anythingnearlyasdrastic.AndascanbeseenfromFigure5,itwastowardsthemoreliberal
endofthespectrumwhenitcametotheadoptionofquotasaswell.
SA
U
U
K
nd
la
Sw
itz
er
ed
Sw
w
or
N
en
ay
s
N
et
he
rla
nd
nd
la
Ire
e
nc
Fr
a
Be
lg
iu
m
0
20
Per cent
40
60
Figure5.HowunusualwasIrishtradepolicy?Percentageofimportscoveredby
quantitativerestrictions,1937
Source: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
4
Forexample,theItaliantyrecompanyPirelliregistereditsforeign-ownedoperationsas
belongingtoalegalentitybasedfirstinBelgium,andlaterinSwitzerland,whichwould
proveconvenientwhendoingbusinesswiththeAlliesduringWorldWarII.Cf.Jones(2013,
pp.197-8).
10
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.
4
Turkey
Finland
NorwayGermany
Average annual growth (%)
-2
0
2
Bulgaria
Sweden
Portugal Hungary
Ireland
Italy
Yugoslavia
Denmark
UK
Scotland
Switzerland
France
Belgium
Netherlands
Romania
USA
-4
Spain
0
2000
4000
6000
1926 GDP per capita, 1990 dollars
8000
Figure6.Initialincomeandsubsequentgrowth,1926-1938
Source:asforFigure3.
WeretheeconomiceffectsofprotectionismuniquelydestructiveinIreland?Again,the
answerisno.AsFigure6shows,notonlywereIreland'seconomicpoliciestypicalduringthis
period,sowasitseconomicperformance.Between1926and1938,Irelandgrewatexactly
theratethatitshouldhavedone,givenitsinitialstartingpoint.
11
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,itwasfarmoreconsumptiondriven,asconsumersmadeupforlosttimeandboughtAmericanandotherimported
goods.Constructionalsoboomed,asdidindustry(ibid.,pp.21-25).Suchaconsumptiondrivenboomwasprobablylesssustainablethanthemoreinvestment-basedbooms
experiencedincontinentalEuropeatthetime.Nevertheless,theoverallimpressionthat
onegetswhenplacingIrisheconomicpoliciesbetween1922and1950intoacomparative
perspectiveisthattherewasnothingunusuallyperverseorself-destructiveaboutIrish
policychoicesduringthisperiod.Irishpoliticianswererelativelyliberalduringthe1920s,
andwereprotectionistlikeeverybodyelsefrom1932onwards.Theywerehardlytoblame
12
forthedeprivationsofWorldWarII,norcouldtheybepraisedfortheinevitablerecovery
whichfollowed.Andthecountry'seconomicperformanceduringthefirst30yearsof
independencewasalsoprettytypicalforthetime.
5.Irelandfallsbehind:1950-1973
Panel A. 1950-60
Panel B. 1960-73
Greece
6
8
Germany
Portugal
Spain
Finland
France
Netherlands
Spain
Switzerland
Portugal
Average annual growth (%)
4
6
Greece
Italy
France
Belgium
Netherlands
Austria
Finland
Denmark
Ireland
3
Average annual growth (%)
4
5
Austria
Italy
Norway
Sweden
Germany
Norway
Sweden
Denmark
Belgium
Scotland
UK
UK
2
Ireland
2
USA Switzerland
Scotland
USA
2000
4000
6000
8000
10000
1950 GDP per capita, 1990 dollars
2000
4000 6000 8000 10000 12000
1960 GDP per capita, 1990 dollars
Figure7.Initialincomeandsubsequentgrowth,1950-60&1960-73
Source: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.
13
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,waswellknownintheUnitedKingdomandothercountriesatthistime.TheUK,forexample
experiencedmajorcrisesin1957,1961,and1966.Thetermthatweusetodescribethis
sequenceofeventsis"stop-gopolicies",andthefundamentalreasonsforsuchpolicies
5
ÓGráda(1997)isonenotableexception,andIdrawextensivelyonhimintheaccount
below.
14
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
6
Arndt(1976)providesadetailedaccountofthegenesisoftheidea.
7
Thecorrelationbetweenbusinesscyclesinthetwocountriesfrom1950to1972inclusive
is0.74,wherethebusinesscycleseriesaresimplycalculatedasdeviationsfromlogtrend.
15
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).
16
Cyprus
Finland
Germany
Greece
Ireland
Norway
Spain
Sweden
Switzerland
Turkey
UK
0
.3
.2
.1
0
.3
0
.1
.2
Average tariff rate (per cent)
.1
.2
.3
Austria
1950 1955 1960 1965 1970
1950 1955 1960 1965 1970
1950 1955 1960 1965 1970
1950 1955 1960 1965 1970
Year
Figure8.WasIrelandunusuallyprotectionist?Averagetariffs1950-72
Source:asforFigure4.
Ontheotherhand,Irelandwasrelativelyprecociousinseekingtoattractforeigndirect
investment.TheIndustrialDevelopmentAuthoritywasestablishedasearlyas1949,and
soonstartedtryingtoattractinwardmultinationalinvestment.TheIrishExportBoard,soon
rechristenedCórasTráchtala,wasestablishedin1950.Taxreliefonexportprofitswas
introducedin1956.8
Irelandwasthereforenotasuniquelyprotectionistandinward-lookingduringthe1950sas
issometimesclaimed.Neitherwasthetimingofitsliberalisationparticularlyunusual.Itis
truethattheoriginalsixmembersoftheEEChadbeguntheirmovetowardsgreater
8
Inlightofrecentcontroversiesitisinterestingtonotethatthissoonappearedasa
potentialconcernontheradarscreensofforeigngovernments,appearingtobepotentially
inbreachoftheOEECbanonartificialaidstoexporters.TheOEECapprovedtheinitiative
however,sinceitseemedtosignalagrowingoutwardorientationonthepartoftheIrish
government(BarryandO'Mahony,2016).
17
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
18
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,whenaseriesofFDIfriendlypolicieswereintroduced(Freris,1986,pp.171-2),buttariff-freeaccesstoEEC
marketsprovidedanessentialadditionalstimulustoinwardinvestment.Between1962and
1964,morethanthreefifthsofallmanufacturinginvestmentwasforeign;Kopsidisand
Ivanov(2017,p.108)arguethatFDIduringthisperiod"diversifiedandmodernisedGreek
industry".Continent-widemarketsforcheapconsumergoodsproducedinGreecealso
benefitedtraditionalGreeklightindustry.
19
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.
9
Accordingtothesameauthor,theinflowin1961wasashighasthetotalinflow
experiencedduringtheentire1950s.dasNeves(1996),ontheotherhand,downplaysthe
roleofFDIduringthe1960s.
10
RecallthatEFTAaimednotonlytodismantleindustrialtariffsbetweenitsownmember
states,buteventuallytonegotiatetariffreductionsvis-à-vistheEECaswell.
11
WhichiswhenreliableGDPestimatesforWalesandNorthernIrelandbecomeavailable.
20
7
Greece
Average annual growth (%)
3
4
5
6
Portugal
Spain
Italy
Austria
France
Germany
Netherlands
Finland
Belgium Denmark
Norway
Sweden
Switzerland
Ireland
2
Wales
NI
2000
Scotland
UK
USA
4000
6000
8000
1954 GDP per capita, 1990 dollars
10000
40
60
Per cent
80
100
120
Figure9.Initialincomeandsubsequentgrowth,1954-73
Source:asforFigure3.WalesandNorthernIreland:dataunderlyingDorsett(2013),
graciouslyprovidedbyauthor.Scotland:datagraciouslyprovidedbyBrianAshcroft.
1920
1940
1960
Year
World War II
As share of France
1980
2000
2020
As share of UK
Figure10.IrishGNPpercapitaaspercentageofUKandFrenchGDPpercapita
Source:asforFigure3.Note:theverticallinedenotes1973.
21
Inconsequence,whileGDPpercapitagrewmorerapidlyinIrelandthanintheUKduringthe
1960s(Figure10),thiswasnotsufficienttopreventIrelandfallingevenfurtherbehinda
majorcontinentaleconomylikeFrance.Thiswouldchangein1973.
Average annual growth (%)
2
2.5
3
Norway
Spain
Finland
Ireland
Austria
1.5
Portugal
Germany
Scotland
Italy
France
Belgium
UK
Greece
USA
Denmark
Sweden
Netherlands
NIWales
1
Switzerland
5000
10000
15000
1973 GDP per capita, 1990 dollars
20000
Figure11.Initialincomeandsubsequentgrowth,1973-1990
Source:asforFigure3.
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
22
intotheEEC,wasthemajorfactorimprovingIrishperformancefrom1973onwards,
althoughtheCommonAgriculturalPolicyclearlyalsohelped.Wewouldcertainlyhavedone
evenbetterhaditnotbeenforthebudgetarymistakesofthelate1970s,andtheir
inevitableconsequencesinthesucceedingdecade.
6
Average annual growth (%)
2
4
Ireland
NI
Norway
PortugalSpain
Greece
Wales
UK Netherlands
Austria
Scotland
Italy Belgium
Denmark
France
Sweden
Finland
USA
0
Switzerland
10000
15000
20000
1990 GDP per capita, 1990 dollars
25000
Figure12.Initialincomeandsubsequentgrowth,1990-2001
Source:asforFigure3.
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,
23
wewouldneverhavedoneanywherenearaswellasweinfactdid,hadweremaineda
40
60
Per cent
80
100
120
mereregionoftheUnitedKingdom.
1920
1940
1960
Year
World War II
Northern Ireland
Wales
1980
2000
2020
Ireland (GNP)
Scotland
Figure13.IncomesrelativetoUK,1924-2001
Source: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,
24
2000).12Underpinningeverythingwastwocrucialfactors:ourpoliticalindependence,
whichallowedustoadoptapolicymixwellsuitedtoourowncircumstances;andour
membershipoftheEuropeansinglemarket,withoutwhichnoneofthiswouldhaveworked.
PoliticalindependenceandEUmembershipwhereneverfundamentallyatoddswitheach
otherinIreland;bothwererequiredtogivefulleffecttotheother.Ourindependence
wouldnothaveworkedaswellasitdidwithouttheEU;ourEUmembershipwouldnothave
workedaswellasitdidwithoutindependence.
.01
.02
.03
.04
.05
.06
10 year standard deviation of log change in GDP
1960
1980
2000
2020
Year
Ireland
Portugal
OECD
Greece
Spain
Figure14.OECDandperipheralEuropeanGDPvolatility,1960-2014
Source:asforFigure3.
Since1973,andevenmoresosince1990,Irelandhasbecomeahyper-globalizedcountry
whosesubsequenteconomichistoryhasmirroredtheebbsandflowsoftheglobal
economy,inhighlyexaggeratedfashion.Therecessionoftheearly1980s,asinflationwas
squeezedoutoftheWesterneconomicsystem;theClinton/GreenspanITboomofthe
1990s;thecreditandhousingbubblesoftheGreatModeration;theeconomiccollapseof
2008,andthesubsequentrecovery:Irelandexperiencedallofthem,inspades.This
12
JustasithaddoneonthecontinentduringtheEuropeanGoldenAge(Eichengreen,1996).
25
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
26
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.Andsoitwillhavetobeanoffthe-shelfarrangement–temporarymembershipoftheEuropeanEconomicAreafor
example,ortemporarymembershipoftheEUcustomsunion.IftheBritishdecidethatthey
don'twanteitheroftheseoptions,orsomeothereasilyavailablealternative,onevena
transitionalbasis,thenHardBrexitwillbecomeinevitable.Anditisimportanttobeclear
0
Thousands of euros
1.0e+07 2.0e+07 3.0e+07 4.0e+07 5.0e+07
thatitwillbeBritishchoices,andnotanyoneelse's,thatwillhavecausedthisoutcome.
Other Other EU UK
Agricultural
Other Other EU UK
Forestry and Fishing
Other Other EU UK
Industrial
Figure15.ThedestinationofIrishexports,2015
Source:CSO
27
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.
All
Break bulk & all other Dry bulk
Lift-on/lift-off
Liquid bulk
UK
Other EU
Other
UK
Other EU
Other
UK
Other
Other EU
UK
Other
Other EU
UK
Other EU
Other
UK
Other EU
Other
0
Thousands of tonnes
2,000
4,000
6,000
8,000
Roll-on/roll-off
Figure16.Merchandisetrade,goodsforwarded(absolutetonnage)
Source:CSO
AnotherpotentialconcernistheveryhighshareofIrishmerchandiseexportsbeingshipped
to,andinsomecasesthrough,theUnitedKingdom(Figure16).Especiallyworryingisthe
largeshareofroll-onroll-offtrafficgoingtotheUK;itseemslikelythatthosesmaller,
labour-intensivefirmsexportingfoodandotherproducts,whorisklosingsalestotheUK,
arepredominantlyexportingtheirproductsinthisfashion.Towhatextentmightcustoms
28
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
29
makeyourownmistakes,andlearnfromthem,ratherthanbeingpermanentlysubjectedto
theconsequencesofotherpeoples’mistakes,iswhatfreedomisallabout?
30
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UCD CENTRE FOR ECONOMIC RESEARCH – RECENT WORKING PAPERS
WP15/28 Ronald B Davies and Arman Mazhikeyev: 'The Impact of Special
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