Irish Capitalism: A history of failure

In this first of a two part series, Cian Prendiville looks at the history of the southern Irish economy from ‘independence’ to the Celtic Tiger.

The main stream media and politicians often seek to portray the current economic crisis as a ‘blip’, and the task is therefore to return Ireland to ‘normality’, usually through brutal austerity measures. This notion is even reflected outside of the mainstream, by some on the broad left, who propose stimulus measures instead of austerity to ‘shock’ the economy back to normality. This two-part series will attempt to refute that false history of the southern Irish economy, bringing together information from various books by authors such as Conor McCabe, Peadar Kirby and others, to argue that in fact economic uncertainty, mass unemployment and emigration are the ‘normality’ for capitalism in Ireland.

Firstly, I will look at two of the most consistent features of the pre-Tiger economy: mass unemployment and emigration. The inability of capitalism in Ireland to shake these twin diseases stands as one of the most visible symptoms of a consistent problem in the economy. Having established that there is an underlying problem, I will then look at the two key weaknesses at the heart of that problem, namely: the failure of indigenous capitalism to develop, and the sporadic and shallow nature of Multinational-led export-oriented growth. In the second part, I will go on to look at the rise and fall of the Celtic Tiger, and argue that, despite temporary appearances, these fundamental weaknesses were not overcome.

1922 – 1992: Job stagnation, unemployment and emigration

Unemployment and emigration were near constant features in southern Ireland from so-called independence right up to the ‘Celtic Tiger’. At its heart, this was down to an inability of capitalism to create jobs, and develop industry (for reasons I will come on to later).  In fact, overall the number of jobs declined – with slightly less employed in 1992 than 1922, a shocking indictment of capitalism1. Whilst the number of jobs did fluctuate slightly, it remained largely stagnant around the one million mark.

This is not to say there were not new jobs being created, but that those created were really just replacing jobs lost elsewhere in the economy. So, for instance, in the 1960’s over 118k new jobs were creatred, but there was a corresponding loss of 116k jobs, meaning only a net job creation of 2k .2 And whilst there was slight net growth in the number of jobs in the 60’s, and the 70’s, this was countered by net job loss in the 50’s and 80’s.

The result of this job stagnation was that a huge amount of young people were ‘surplus to requirement’ for Irish capitalism, which was unable to provide them with work. This meant that mass unemployment was an “outstanding feature” of the Irish economy, according to the famous government paper by TK Whitaker in 1958, and it’s twin – mass emigration. Consistently from 1922 to 1992 Ireland’s rate of unemployment was one of the worst in Europe, and in that period 1.7m people emigrated.3

Again, this is not to say there was no let up, or the entirety of this period was the same. At times, one or other of these features was less prominent. However, the underlying stagnation in jobs meant that when one receded it was usually accompanied by a rise in the other. So, for instance, in the 1970’s emigration fell to 10k a year, and there was in fact net immigration for the first time in the history of the state.4 However, at the same time, unemployment was on the rise. During the most serious crises, both emigration and unemployment rose hand in hand, such as in the 1980’s when unempolyment reached almost one in five, and 1% were emigrating every year.5

In the same way that being unable to overcome a flu over a long time is symptomatic of an underlying weak immune system or other more serious illness, the inability of the Irish capitalist economy to shake off the twin problems of unemployment and emigration in this period begs the question: why? What problems were preventing a development of the economy and real growth in the number of jobs that could cure these ills?

1) Weak indigenous capitalism

“Manufacturers are content to concentrate upon a limited field which will give them the best return with the minimum effort” (Department of Industry Report 1949)

Key to understanding the economic stagnation of Ireland is understanding the backward, weak nature of indigenous Irish capitalism, in particular its inability to develop an indigenous industrial base. Explaining the reasons for this is a job for another article, which would look at the imperialist and monopolitic nature of world capitalism, and in particular Trotsky’s theory of ‘permanent revolution’. Here, I merely want to demonstrate the weakness in practice.

At the time of the setting up of the Free State, the Irish economy was a largely, agricultural economy, dependent on Britain. In many ways it ways it was more like the so-called ‘third-world’ economies in Latin America than Europe. Britain accounted for 98% of Irish exports, and this was almost exclusively agricultural goods, in particular unprocessed raw materials, such as live cattle.6

The industry that did exist in Ireland at the time was very undeveloped and small-scale, and primarily based around the food and drinks industry. The majority of industrial workers worked in companies with fewer than 10 workers, with very few companies employing more than 100 people.7 Levels of technology used were very low. Southern Irish capitalism was therefore very much behind the curve internationally at the time of Independence.

After an initial period of simply maintaining the status-quo, Irish capitalism adopted a more protectionist policy from the thirties on, in an attempt to develop indigenous industry. This policy had some success, with a 50 to 60% increase in employment in manufacturing and industry. However, this development of Irish industry under protection from international competition was still quite weak, with productivity actually declining.8 Irish industry remained technologically backward, inefficient and uncompetitive, and so was primarily based on selling to the protected domestic market, with exports actually declining.

The Irish state complained of risk-averse Irish capitalists, and that “manufacturers are content to concentrate upon a limited field which will give them the best return with the minimum effort” rather than reinvesting profits to improve productivity 9. In fact, from 1938 to 1944, investment in the Irish economy collapsed from 6.3% of GDP to 0.7% whilst deposits in banks rose by 67% 10. There was a strong tradition of investing abroad among the Irish Capitalist class, and profits made under protection in Ireland often ended up being invested not in the Irish economy, but in British financial markets. Irish industry therefore remained infantile and Ireland still found itself economically  “largely at the mercy of… the United Kingdom” and the economy maintained a “peasant character” according to two government documents written just before and just after World War 2 respectively.11

The turn away from protectionism from the 50’s on revealed just how weak domestic industry was, with a  rapid decline in many of the Irish owned businesses. Half of all jobs in the large indigenous companies (employing 500 workers or more) were lost, especially in industries like clothing, textiles, footwear and chemicals which faced competition from goods of better value and quality produced more efficiently abroad. By 1986 only 15 large domestic companies remained, and these were predominantly in areas of the economy which  remained sheltered from competition due to geographical reasons, such as construction, cement and processing of local food products, whilst Irish owned export-oriented industries in particular cut jobs.12

In this way, we see that the problems of small-scale production, lack of investment in research and development and poor quality still remained. Despite first protectionism, and then a turn to the international market, indigenous Irish capitalism still remained backward, uncompetitive and risk averse.

2) International Capitalism provides only sporadic and shallow growth

With the turn away from protectionism in the 1950’s came a new focus on attracting foreign direct investment, to act as a motor for the economy where domestic investment had failed. This was moderately successful for a period, but highlighted another key problem that the Irish economy has faced: the inability of reliance on FDI to provide sustainable growth.

The years 1960 to 1979 was the initial ‘golden age’ of this policy, during which time there was a rapid rise in manufacturing output, and a re-balancing of Irish exports from primary goods to secondary, with foreign direct investment the driving force. Between 1958 and ’73 manufacturing output grew by 6.7% a year, with the numbers employed in the sector growing at 2.4% a year too. By the 1970’s multinationals employed 68,500 working in manufacturing, the proportion of national production being exported had doubled to over 40%, with merchandise exports finally exceeding livestock.13

This FDI-led growth, however, proved to be sporadic, and weak. For one, much of the investment was reliant on heavy subsidisation, grants and tax incentives. It was also unstable, so whilst there was growth in FDI in the 60s, and much of the 70s, it stalled from 70 to 73 and declined throughout the 80s.14 On each occasion, international events played the key role, as export oriented FDI depended not just on the situation in the country the company is from, but where they are hoping to export to. The Irish economy also found itself lagging behind countries, for instance, even during this ‘golden age’, Irish growth rates were far below the rest of Europe.

The growth that did take place, was also quite shallow, both in terms of the type of investment and in terms of its impact on the domestic economy. Much of the companies that invested were in so-called footloose industries such as chemicals and computers, which don’t require intensive investment locally outside of construction costs. Instead the main costs were materials, so the companies were relatively free to move on as they saw fit. Linked to this, once companies set up in Ireland, there was very little re-investment or expansion from them, meaning that in order to keep up investment levels there was a need for a constant flow of new companies in. For this reason, the industrialisation that did take place has been described as ‘dependent industrialisation’.15

Most importantly, the impact of this rapid expansion in exports and level of manufacturing output on the domestic economy itself was actually very shallow. Almost all the materials used in production were imported, and almost all the products were exported, most starkly demonstrated by US pharmaceutical companies who imported 97% of materials and exported 98% of their outputs16. Other than things such as legal and financial services therefore, there was actually very few ‘linkages’ with the rest of the economy. The profits that were made were minimally taxed, and 98.5% were repatriated out of the country. And whilst jobs were created, multinationals only employed a third of the manufacturing workforce, but accounted for the majority of output and exports, and the vast majority of the profits.17

Lessons

From ‘independence’ to the ‘Celtic Tiger’; both reliance on domestic and international capitalism proved incapable of providing a stable basis for a strong economy. Domestic capitalism – under both protectionism and free market competition – failed to develop viable, competitive industry. And the reliance on export oriented multi nationals, with very few linkages to the domestic economy, resulted in only shallow and unstable development. Throughout it all, the Irish economy remained generally weak and backwards suffering from mass unemployment and emigration.

In the next part of this series, I shall look at the so-called ‘Celtic Tiger’, which appeared on the surface to overturn these weaknesses. However, if we scratch the surface, we will see that the underlying weaknesses remained, which have now so forcefully reasserted themselves in this crisis.

This article is based on research Cian Prendiville is doing for an ongoing project at the University of Limerick. The author welcomes any enquiries or feedback on cian@socialistparty.net

References:
[1] Paul Sweeney 2000 The Celtic Tiger: Ireland’s Continuing Economic Miracle pg 10

[2] Conor McCabe 2011 Sins of the Father: Tracing the Decisions that Shaped the Irish Economy pg 95

[3] Unemployment figures: Cormac O’Grada 1997 Rocky Road: The Irish Economy Since the 1920s pg 95, Emigration figures: Sweeney pg 10

[4] Kieran Kennedy, Thomas Giblin & Deirdre MacHugh The economic development of Ireland in the Twentieth Century pg 144

[5] Unemployment figures: Denis O’Hearn 1998 Inside the Celtic Tiger pg 92, Emigration figures: Peadar Kirby 2010 Celtic Tiger in Collapse pg 22

[6] McCabe pg 58

[7] O’Hearn pg 35

[8] O’Hearn pg 35, Sweeney pg 33

[9] Sweeney pg 35

[10] O’Grada pg 13

[11] Quoted in O’Grada pg 4 and in McCabe pg 82 respectively

[12] Half all jobs in large industries lost: Sweeney pg 40. Only 15 large domestic companies remained: O’Hearn pg 12. Export-oriented induestries cut jobs: Telesis report, referenced in McCabe pg 122.

[13] Output, employment growth and 68,500 figure: O’Malley, referenced in Kirby pg 20.

[14] O’Hearn pg 40

[15] ‘Dependent Industrialisation’ used by O’Hearn pg 40

[16] Figures for imports & exports: O’Hearn pg 46-8

[17] Profits repatriated: O’Hearn pg 45. Multinational emploment & output: Sweeney pg 42, Kirby pg 2