THE YEARS 1927–1932 WERE MARKED by a growing polarization on economic issues within Dail Eireann, played out against a backdrop of international depression from 1929. Emigration reached its highest level in forty years, and allegations of distress and unemployment were rife, though difficult to prove because of inadequate statistics. On the whole Cumann na nGaedheal clung to economic orthodoxy and the party’s economic and social policies were characterized by procrastination. The only new social program undertaken was the reform of the Poor Law, though political pressure forced an improved housing program in 1931. By 1927 there had been three consecutive years of budgetary surplus; per capita national debt amounted to $39.54 and debt servicing took 5.18% of revenue (S5563). Both taxes and expenditure fell marginally from 1926 to 1931 though public debt rose from £14.1 million in 1926 to £29.3 million in 1931. (Meenan 1970, 254). The government remained committed to a free-trading agriculture and took measures to assist it, but agricultural output at its 1929/30 peak remained 4% below the prewar level, and net output was 5% below the 1924/25 level (Kennedy, Giblin, and McHugh 1988, 37).
Intervention in agriculture brought undesired results. Hopes of establishing a cooperative agricultural credit agency and of turning the restructured creameries over to cooperative ownership proved fruitless and the government was left, somewhat unwillingly, with two state enterprises, while a ten-year subsidy and tax concessions to a Belgian firm to process beet sugar resulted in company profits of £200,000 for 1927–29 on £400,000 share capital and dividends of 10–15%—giving rise to considerable criticism as the annual burden on the consumer was approximately £900,000 (S4128). While demands for agricultural protection brought a relaxation of the official position on tariffs and eased the path for industry, the lesson that intervention could result in long-term government involvement or excessive profits increased the reluctance to intervene in industry.
The Impact of Fianna Fail
From 1927 the government faced powerful opposition from the Fianna Fail party. In its founding constitution Fianna Fail showed its continuity with traditional Sinn Fein thinking, reiterating the belief that Ireland could flourish under independence and calling for industrial development behind protective tariffs, programs of reforestation, transport, land distribution, and a state development bank. While initial commitments were vague (Rumpf and Hepburn, 1977, 100–102) the program was gradually refined. The party argued that Ireland could support a substantially higher population by abandoning international living standards and by defying conventional economic maxims (PDDE 13 July 1928). It favored self-sufficiency, exploitation of native resources, and increased government intervention to be funded through administrative economies and through an end to the payment of land annuities to the British Exchequer.
This program was honed in a series of confrontations that emphasized the gulf between government and opposition. The divisions encompassed attitudes towards the 1921 treaty, relations with Britain, and the broad thrust of Irish independence. The economic divisions were of a piece with those on the national question: between continuity and change; between retaining close links with Britain and asserting independence; between introspective isolation—even breaking with economic conventions—and a more international outlook. The contrasting positions may have served to entrench each party in its particular ideological camp.
Protection: The Tariff Commission
Initially the Tariff Commission achieved its unstated purpose of slowing protectionist momentum, though several decisions were ill advised and may have been politically determined. Despite lengthy deliberations its tariffs proved less effective in stimulating domestic output than the less-considered efforts of earlier years. Disproportionate attention was devoted to trivial industries, from the first report on rosary beads to the final report on prayer books, with fish barrels and down quilts, an industry employing sixty workers, among those also considered.
The first two reports, granting protection to rosary beads and margarine, were issued promptly, causing the Economist to speculate that they had been deliberately engineered to upstage Fianna Fail (26 Nov. 1927); thereafter procrastination ruled. By the autumn of 1930 when the commission was reconstituted only eight reports had been completed. In addition to rosary beads and margarine, tariffs were granted to down quilts and to manufacturers of certain grades of woolen cloth but were refused for fish barrels, motor bodies, flour, and paper products (TC 1927–1930, R 36/1–8). Whether the delays were deliberate or an inevitable consequence of the commission’s composition (three senior civil servants with other demanding duties) is unclear. An application for a tariff on motor vehicles in January 1927 was not completed until November 1930 when it was rejected, though the government granted protection to cars and motor parts in 1928; a report on paper and packaging took three years; one on leather, four. Such delays seem at variance with the statement accompanying the commission’s establishment in 1926, which emphasized that some industries could not wait until tariff policy was determined by a general election. Yet by 1930 Blythe stated that he did not regard eighteen months as an excessive delay (PDDE 19 Feb. 1930), though one applicant for a tariff on leather ceased trading before the report was complete and the Clondalkin paper mill closed while protection for paper was being considered.
Our knowledge of the Tariff Commission is severely handicapped by the nonavailability of its working files, and many relevant Finance files are missing or were destroyed during the emergency of 1939–1945 when paper was recycled. Lists of missing files indicate that the number of applications for protection was considerably in excess of the fifteen examined. In 1926 requests came for protection of cooked foods, wooden wheelbarrows, animal feeds, maize, agricultural produce, and salt; in 1927, cycles, smoking requisites, leather, and laces.1 In cases formally investigated the commissioners collected evidence, presented in a quasi-judicial manner from proponents and opponents of each tariff; information on the industry, comparative wage costs and productivity; the impact of proposed tariffs on employment, investment, the Exchequer, prices and other industries. The procedure was similar to the British Safeguarding of Industry Act. Questions as to the nature of Irish industrial development were beyond their remit (Ferguson 1944, 40), and they were precluded from recommending any remedy other than a tariff, such as subsidies or industrial restructuring. Tariffs were generally requested to enable an industry to recapture the market share held in the recent past, frequently that held at the end of World War I. Leather output by 1926 was approximately one-eighth of its 1918 level (TC 1931, R 36/11 par. 59) and output of woolen fabrics was little more than 50% of its prewar level and only 40% of 1918 output (TC 1927, R 36/4 par. 33).
With the possible exception of the report on motor cars, the development of new industries did not arise, and even this application had a defensive purpose, as small coachbuilders sought to defend themselves against large manufacturers. At least two proposals were received for the establishment of a cement plant. One application lodged by Dr. Thomas McLaughlin, who masterminded the Shannon scheme, on behalf of a German cement manufacturer stopped short of a formal hearing because the promoters balked at having to disclose their intentions in public. A second, from a London firm of Porn and Dunwoody, representing a German firm who installed cement factory equipment, was dismissed on the grounds that the applicants were not “substantially representative of persons engaged in or proposing to engage in the production of cement in Saorstat Eireann” (F21/32/28). The need (publicly) to reveal detailed data on capital and costs acted as a disincentive to applicants wishing to establish new industries, while the requirement that applicants be representative of the industry was interpreted by Finance in a restrictive manner. An application by Dublin jewelry manufacturers for a tariff on jewelry, which had resulted from a joint employer-labor conference, led to detailed queries as to their representative nature before being referred to the commission, where it lay dormant (F21/21/28). The firms not associated with the application who received scrupulous consideration from Finance were retail jewelers whose interests lay in preventing protection. Fianna Fail T.D. Sean Lemass alleged that this clause was used to block applications from industries such as cycle manufacture and woodworking. In a letter written on Fianna Fail party notepaper, typed in a virulent shade of green, Lemass pointed out that many so-called manufacturers who opposed tariffs were primarily importers, and he urged that all applications from manufacturers be considered (F21/35/28).
The cautious attitude towards extending tariffs was reinforced by the opposition of industries, often beneficiaries of protection, that would be adversely affected. Opposition to tariffs was substantially more vocal during the twenties than after 1932 despite the greater volume of protection in the later period, possibly because the quasi-judicial nature of the Tariff Commission gave it full vent. The application for a tariff on leather was restricted to harness leather because of opposition from (protected) shoe manufacturers (TC 1931, R 36/11). An application for a tariff on woolens led to protests from the Irish Merchant Tailors Association and the Irish Women Workers Union (F21/24/28) and hostile evidence from clothing manufacturers. Yet the judicial weighing of evidence did not prevent difficulties. A recommendation of a tariff on woolen and worsted fabrics priced in excess of 1s. 6d. per square yard faced early revision when clothing manufacturers, who were protected, complained that domestic producers could not provide an adequate supply of cheap cloth (TC 1929, R 36/44).
Protected Industry: The Balance Sheet
By 1929 the government claimed that 60% of nonagricultural imports were subject to tariffs, creating an extra 15,000 jobs; extending tariffs to remaining imports would produce a mere 10,000 extra jobs, “less than the number of emigrants in a single year” (Economist, 29 June 1929). The quoted figures were somewhat optimistic. Unpublished statistics for March 1929 (F21/31/30) indicate that employment in protected industries had increased from 8,695 full-time and 2,139 part-time workers to 20,643 workers; it peaked at 21,811 in March 1930 and then declined. The files document new firms manufacturing shoes, clothing, bedsteads, and corsetry; shirt factories established by Northern Irish suppliers; a “note of optimism” among manufacturers of sugar confectionery; and less short-time working. However, there was little growth in employment in soap factories because the Lever combine absorbed the duty and continued to supply most of the market from imports; few British shoe manufacturers opened Irish plants because they could still compete despite protection; while virtually all women’s clothing save corsets was imported.
An unpublished 1931 report showed that tariffs on margarine, tobacco, soap, shirts, ties, blankets, and lower grade confectionery were deemed an unqualified success. Imports had fallen sharply, employment had increased, and competition, or, in the case of margarine, manufacturers’ price guarantees, ensured that wholesale prices remained at British levels. The tobacco tariff, the result of Irish fiscal independence in 1923, proved the most successful. Employment rose from 500 to more than 2,300 by 1931, though employment might have increased irrespective of tariffs. The least effective duties were imposed by the commission. Rosary beads employment, which had expanded briefly from 53 to 160 (mainly women outworkers), stood at 93; imports were dominant and the consumer bore most of the duty. The tariff on down quilts yielded 5 extra jobs. Of the tariffs granted by the commission only margarine and woolens showed substantial employment gains, with margarine employment rising from 40 to 169 and employment in woolen textiles from 1,409 pretariff to a March 1930 peak of 1,883. Duties on motor cars and women’s clothing were regarded as revenue tariffs. Cars were not manufactured in Ireland save in Cork, which was not dependent on protection, while five-sixths of footwear was still imported.
Tariffs proved less inflationary than had been feared because recession forced importers to absorb duties and because several protected industries, such as furniture, had sufficient internal competition. British and Irish boots sold at identical wholesale prices, though retailers apparently raised margins on Irish boots. In other industries the consumer bore part of the tariff, as did the exporter in the form of reduced profits. In the case of furniture, tariffed by the budget, domestic producers met 75% of the home market at a price somewhat higher than would have prevailed, while those buying imported furniture bore the full tariff. Imports of men’s and boys’ suits and coats amounted to £300,000 in a market of £1.3 million, but prices of Irish-produced suits were at U.K. levels, while importers such as Burtons absorbed part of the duty. One-half of the total supply of woolen piece goods was imported duty free, one-quarter was produced in Ireland at British wholesale prices, and the final quarter absorbed most of the duty. Protection brought modest but not insignificant gains in employment—overwhelmingly resulting from pre-1926 budgetary decisions rather than from the commission. The inflationary effect was limited because of depressed market conditions and because tariff levels never permitted domestic producers to gain a monopoly (McG Papers P36/b/28).
While the performance of the Tariff Commission aroused frustration among manufacturers, they appear to have been incapable of influencing the government. Their impotence was partly the result of organizational weaknesses: the Federation of Saorstat Industries collapsed, and efforts by the DID A to become a national protectionist lobby by changing its name to the National Agricultural and Industrial Development Association (NAIDA) in 1929 proved ineffective. Its new constitution committed the organization to making the Irish economy “as self-contained as possible” “by means of representations to or co-operation with the Free State Government” (NAIDA 1905–1935, 30,33). However the similarity between the NAIDA’s aims and the Fianna Fail program weakened its potential leverage and caused some members to fear that it had become “the shuttlecock of a political party” (NAIDA minutes 2 June 1930). The antitariff stance of Guinness, Jacobs and the Dublin Chamber of Commerce further weakened any protariff lobby, and despite resolutions demanding the abolition of the Tariff Commission, no sustained campaign for industrial protection can be identified. Agricultural interests proved considerably more influential.
Agriculture and Self-sufficiency
The agricultural debate was revived by the publication of a Tariff Commission report on protection for flour, which had been prompted by the dumping of British flour imports. Irish mills, which had supplied seven-ninths of the market in 1923—overwhelmingly from imported wheat—supplied four-ninths by 1927, and the number of mills had fallen from 80 in 1917 to 49 by 1920 and 32 by 1927, many working part-time. The request for protection was rejected in April 1928 on the grounds that the increased employment would not justify higher costs and that such a move would be a threat to biscuit exports. While this decision was unanimous, an addendum by the Industry and Commerce representative, Professor J. B. Whelehan, argued the merits of maintaining a domestic flour supply produced from native wheat and suggested that a tariff or a bounty on native wheat be considered in that context (TC 1928, R 36/3, add. par. xv). This was similar to the argument put by the Irish Farmers Protectionist Union, which represented farmers from mixed tillage areas. The publication of the report on flour sparked a series of resolutions urging assistance for Irish grain growing (Cork Examiner 23 May 1928; Nation 26 May 1928), and W. T. Cosgrave, who represented Cork, an area containing small mills and numerous tillage farmers, appears to have been responsive. The cabinet agreed that the ministers for finance, industry and commerce, and agriculture should consider Professor Whelehan’s addendum, adding that “it may be anticipated that Deputy de Valera will return to the question again and will establish what progress has been made, the President would like therefore that the matter receive attention” (S2502). The cabinet also noted a Senate resolution favoring Irish wheat growing and the publication by the millers of a brochure arguing the case for protection. In July 1928, almost two months after they were requested to examine the matter, the ministers for finance, industry and commerce, and agriculture were again asked to report, but there is no evidence that they did so (Cab. C. 27 July 1928)—a common response by Cumann na nGaedheal to controversy.
The proposal to subsidize grain growing was resurrected by Fianna Fail under the umbrella of the Economic Committee, an all-party committee of the Dail established to consider economic prospects that was forced on Cosgrave in December 1928 during a debate on unemployment. At Fianna Fail insistence, the first topic considered was domestic wheat growing and protection for Irish flour. By April 1929 the committee had produced two polarized reports, with the government majority rejecting any subsidy or tariff (Economic Committee, report 1, 1929, par. 68) and the minority advocating measures to stimulate the supply of up to 50% of wheat from native sources. The opinions proved so irreconcilable that the committee was wound up in July 1929 (S5768).
Protectionist interests returned to the fray in the autumn of 1929 with an application from the Irish Grain Growers Association for an inquiry into the possibility of mixing home grown grain with imported maize for use in animal feed. The proposal was outside the remit of the Tariff Commission but the cabinet deemed them a tribunal with authority to consider the matter (Cab. C 4/109, 23 Oct. 1929). This decision gave rise to an arrogant response from McElligott, the commission’s chairman, who undertook to serve on condition that the government realized that the commission’s ordinary work would be delayed and that it could give no commitment on a completion date. Cosgrave replied, hoping for a report by the spring (S5439). However, the report rejecting the application did not appear until July 1931, and by that time the agricultural protection lobby had gained further momentum (Grain Inq. Tribunal, 1931, R. 44, 129). In October 1930 a conference of the Irish Grain Growers Association, attended by county councillors and Dail deputies passed resolutions favoring comprehensive agricultural protection. Their demands, forwarded to the cabinet in a letter signed by three deputies, representing Cumann na nGaedheal, Labour, and Fianna Fail, included a ban on the import of oats; a tribunal to determine the appropriate level of barley and malt imports for brewing, with a view to banning all other imports; duties on bacon and pork, with a total ban on imports within eighteen months; a ban on imports of eggs and dairy produce (S6081); and a butter tariff to finance the storage of summer butter (TC 1931, R 36/9).
Reform of the Tariff Commission
The proposal for a tariff on butter coupled with delays in obtaining a report from the Grain Inquiry Tribunal prompted Hogan in October 1930 to propose the establishment of a permanent Tariff Commission with full-time officials, a decision approved by the cabinet two weeks later (S6081). Whether the new commission was envisaged as more amenable to protectionist demands or simply as operating more speedily is unclear. Chaired by Henry O’Friel of the Department of Justice, the commission downgraded Finance and excluded Industry and Commerce (Cabinet Conclusions C5/24, 5/25; Cabinet Paper S4 950/2). This reorganization appears surprising until it is realized that the commission was constituted to deal with agriculture, a point emphasized by the minister for finance when he moved the legislation in the Dail (PDDE 27 Nov. 1930).
It is difficult to decide whether this move marks a fundamental change in government policy. Reports were issued within months rather than years, though not sufficiently promptly to meet changing economic conditions, and all five reports granted protection to butte:, oats, bacon, linen piece goods, and some categories of leather (TC 1930, R 36/13, 1931, R 36/9–12). The report on linen piece goods (TC 1930, R 36/13) was described by McElligott, the previous chairman, as “the least valuable that has been made so far,” and he suggested that the reports “should be examined before adoption and should certainly not be adopted as a matter of course” (Blythe Papers, P24/414), advice which was ignored. While the commission had been reconstituted to deal with a tariff on butter, the government argued that the application would lead to such a volume of forestalling imports that it was necessary to introduce an emergency tariff in anticipation of the report. This was done in November 1930, within two days of the application being lodged, which made the publication of a report in January 1931 recommending a tariff somewhat superfluous. However, the cabinet was not totally converted to the merits of wider protection. A recommendation that the duty-free threshold for imports of woolen cloths be lowered to compensate for falling textile prices (TC 1931, R 36/10) was initially approved by the cabinet; then second thoughts prevailed in the person of Patrick Hogan, who was absent from the meeting. It was the sole item discussed at a special cabinet meeting attended by Hogan and senior officials of Industry and Commerce at which it was decided that “no action should be taken on the matter pending further consideration.” Although the tariff was approved (Cabinet Conclusions, 5/49, 24 Feb., C 5/50, 25 Feb., C. 5/51, 2 Mar. 1931), the delays suggest greater willingness to concede protection for agriculture than for industry.
By the autumn of 1931 a protectionist national government in Britain had introduced the Abnormal Importation (Custom Duties) Act, an antidumping measure permitting the imposition of temporary duties by executive order, that is, without recourse to the parliament. Weeks later in November 1931, the Cosgrave government passed virtually identical legislation, giving the executive power for a nine-month period to impose such duties as were deemed “immediately necessary to prevent an expected dumping of goods or other threatened industrial injury” (Ryan 1949, 54-56). Cumann na nGaedheal’s willingness to embrace protection appears to have been a reaction to changing British policy and to the perceived impact of international depression on Irish agriculture. Irish national income estimates suggest a fall of 7% from 1929 to 1931, small by international standards though agriculture fell by over 12%. While allowing for price changes, real incomes rose by 2% between 1929 and 1931 (CBC 1938, 77–78), many Irish farmers experienced declining living standards. Exports fell by 10% in volume in 1931; agricultural prices fell more rapidly than other prices, while payments of land annuities or bank debts remained constant, and poorer farmers suffered from the decline in emigrants’ remittances. The impact was intensified because it followed several years of poor agricultural performance. The Abnormal Importation Act offered little relief. A comparison of imports for the first five months of 1929, 1930, 1931, and 1932 suggests that “no actual dumping took place” (Ryan 1949, 61), though the quantity of agricultural imports rose marginally and prices fell. The problems of Irish agriculture lay not in dumping but in falling prices. Agriculture showed growing enthusiasm for protection, partly in imitation of British demands and as a device to boost prices and create new product options. While Cumann na nGaedheal responded to the pressure for agricultural tariffs, the government party was being forced to adopt positions similar to those long held by Fianna Fail.
Cumann na nGaedheal Policy Towards Industry
Cumann na nGaedheal’s reluctance to embrace industrial protection was more deep-rooted than a mere distaste for tariffs and raised issues more complex than agricultural protection. The party saw the role of the state as furthering competition and market interests. When it intervened in establishing a state broadcasting system and a state electricity service it did so because it feared the alternative of a private monopoly (Manning and McDowell 1984, 65–67). This fear of monopolies or cartels and their power to control prices, coupled with a reluctance to become directly involved in industry, is a dominant feature of Cumann na nGaedheal and increased over time.
The 1920s were characterized by major shifts in industrial structure necessitating rationalization if some industries were to survive. In 1925 the government assisted the restructuring of the Dublin glass bottle industry by means of a tariff and finance from the trade loan guarantee scheme, which was used to refloat the Irish Glass Bottle Company. However, Brennan, as secretary of finance, referred the arrangements to the comptroller and auditor-general, and the initiative was not repeated (Daly 1984a, 81). The Dublin paper industry suffered major recession in the twenties that was intensified by a tariff on Irish exports to Britain and Northern Ireland.
Demands for protection in 1925 and 1926 were rejected by the interdepartmental committee, and on 19 October 1927 an application by a terminally ill industry was referred to the Tariff Commission. The Clondalkin mill closed shortly afterwards, and its reopening was dependent on protection. The mill was bought in 1928 by Dublin businessman David Frame, who attempted to resell it to Scottish-based paper consortia. Efforts to reopen it failed because interested parties claimed that protection was essential in order to raise working capital. The Tariff Commission resisted such threats and blandishments. Banner headlines in the Irish Times, a newspaper not accustomed to such a style, described Clondalkin as “The Village of Gloom”; deputations to the government from the Clondalkin Development Committee led by the parish priest and representations to W. T. Cosgrave from his former colleague J. J. Walsh were ineffectual. No report was forthcoming until October 1930–over three years after it was commissioned—and the application was rejected (TC 1930, R 36/7). The commission viewed the bargaining process involved in the sale of the mill with distaste, in particular the unwillingness of prospective purchasers to invest without an assurance of tariffs. Commissioners feared that a syndicate would purchase the mill, and having obtained protection, cash in their investment by floating a public company. They pointed out that no Irish mill was equipped to meet modern conditions and that considerable capital investment was required; however, they failed to recognize that such investment was unlikely without protection (F21/7/31).
Both ministers and officials appear uneasy in their dealings with industrialists and unwilling, even incapable, of taking a decision seen to favor one company over another or to bring financial benefits in its train. This reluctance to bargain with industry grew over time, reflecting an awareness of the financial implications of government decisions. In February 1922 Arthur Griffith, head of the provisional government, apparently gave the Ford company an assurance that free trade in motor cars and parts would continue between Britain and Ireland; Irish excise duties were altered in 1922 and again in 1926 to favor Ford vehicles (Jacobson 1977, 51–54). However, this agreement may have engendered a distaste for further dealings with foreign manufacturers, particularly as Ford was totally insensitive to Irish sovereignty, while the appearance of excessive profits being made by the firm who held the beet sugar monopoly acted as a deterrent against special arrangements of that nature. Such inhibitions may have influenced the fate of Irish flour milling.
Overcapacity in milling, which prompted the application for a tariff on flour, led to negotiations on reorganizing the industry between the Irish Flour Millers Association and Industry and Commerce, which offered assistance in the form of government intervention and credit. Government assistance was apparently predicated on a high level of efficiency and on price controls. McGilligan told the Senate “that in such a thing as breadstuffs we were not going to allow people to exploit the people’s necessities” (PDSE 3 Dec. 1930). The precise details of the government’s offer and the reasons for the failure of negotiations are unknown. Following the collapse of talks, Ranks, the British milling consortium, bought control of Irish flour milling and in 1931 reached a market-sharing agreement with the English Mutual Millers Association that divided the Irish market between British and Irish millers in the proportions that prevailed in the years 1926–1927, giving Irish producers a higher market share than they held in 1930. Producers were allocated a quota equal to their 1926–1927 output, and output was set at this level. While the agreement appears favorable to Irish milling, much of the quota was controlled by Ranks (Flour Milling 1965, A53/5 pars. 20–21), and public opinion held the government responsible for ceding control of a key industry. Official reluctance to countenance a flour-milling cartel led to the creation of a more powerful British-controlled cartel.
Fear of cartels or monopoly also delayed the establishment of a modern cement industry. The last small Irish producer closed in 1925 when the British Portland Cement Company bought and closed the plant at Drinagh County Wexford (CVO minutes, qs. 14004–5). While the major cement markets were dominated by cartels by the 1920s, Ireland because of its small size remained a free market, and imported cement from Britain and Belgium could be purchased for less than half the price charged in the country of manufacture. The industry was capital intensive, which would mean a monopoly producer, probably foreign owned, serving the Irish market. However, Irish cement consumption was rising rapidly from 95,000 tons in 1924 to 226,000 tons by 1931, the raw materials were readily available, and it seemed probable that the low prices would disappear when the British and Belgian cartels reached an agreement. Such considerations, plus pressure from Industry and Commerce officials and a battery of proposals from native and foreign interests, prompted McGilligan to circularize European cement manufacturers asking them to specify the conditions on which they would establish an Irish plant. The most promising proposal, from a Belgian concern, sought either a monopoly of domestic cement manufacture plus a tariff that would be virtually prohibitive, or a prohibitive tariff without monopoly powers, but offered price guarantees and undertook to provide capital. While officials in both Industry and Commerce and in Finance were enthusiastic, McGilligan feared that an agreement would be used by a cement combine to negotiate a market-sharing arrangement (TIM 91B Feb. 1931). His reluctance was decisive; a decision was deferred and then referred to a special commission. This move may have been an evasive tactic—Fianna Fail enquiries on taking office revealed that the commission never met.
Cumann na nGaedheal industrial and commercial policy is characterized by an unwillingness to make decisions during the government’s latter years. When the party left office, in addition to cement, the restructuring of the insolvent Irish insurance industry—under investigation since 1926 (S4989, S2349)—a possible extension of the beet sugar industry, and a state scheme for industrial credit were also unresolved. Inactivity also extended to the Industrial Trust Company.
The Industrial Trust Company
Two of the most sensitive economic issues concerned industrial finance and foreign investment in Ireland. The former brought the state into contact with the banking system; the latter involved difficult policy decisions. The 1926 Banking Commission, which accepted the need for a cooperative agricultural credit system, believed that there was no significant unsatisfied demand for long-term industrial credit, an opinion shared by the Department of Finance but not by Industry and Commerce officials (BC 1926, 3rd interim report; McG Papers P35/b/10). However, commissioners conceded that, owing to strains resulting from independence, there existed “for a brief period to come” a need for special credit facilities “for new or struggling industries which otherwise would not succeed in attaining a firm basis of operation,” though they argued that such facilities should be provided not by government but by the Industrial Trust Company.
This body had been established with funds raised from the government, from Irish-American investors, and from the commercial banks—each providing £50,000—plus £13,000 from private Irish investors, to provide long-term finance for industry and to take over the funding of the trade loan guarantees in the face of a boycott by the banks. The volume of trade loans proved slight—only fifteen loans amounting to approximately £275,000 were approved between Jan. 1926 and August 1929; remaining resources were invested in British and foreign shares—”a temporary measure,” it was claimed, until sufficient debentures became available under the Trade Loans Act “or other fully secured and profitable opportunities for investment in Irish industrial enterprise present themselves.” The company’s report of December 1927 revealed £214,254 in advances in the Irish Free State and more than £250,000 invested outside the country. In November 1926 the company arranged to borrow up to £250,000 from the banks, securing the loan by trade loan guarantees. In practice the company financed trade loans by bank borrowings and devoted its capital to speculation on the London Stock Exchange. Applications for loans from Irish firms not in possession of a government guarantee were invariably refused (B Papers 26290).
Such practices aroused misgivings on the part of U.S. shareholders. One Boston investor, Sen. James J. Phelan, complained that the company was engaged in speculation rather than in pursuing the purpose for which it was founded, aiding Irish industrial development. In defense the chairman, Sen. James G. Douglas, argued that the company was inadequately capitalized and that stock market investment offered a means of generating funds. He also noted that loans to Irish industry not guaranteed by government carried excessive risks and that there were few profitable lending opportunities in Irish industry (Blythe Papers P24/475). Senator Phelan’s concern was justified. A surviving list of investments suggests that many were highly speculative, and the company became insolvent following the 1929 stock market crash. When wound up in the early 30s 87% of its investments were in British or foreign securities, and only 13% in Ireland (B Papers 26290).
The collapse of the Industrial Trust Company had adverse consequences for Irish industrial banking. Senator Phelan noted the damage done to “the interests of the Irish Free State businessmen looking for additional capital support in this country in the future” (Blythe Papers P24/475). Phelan gave his correspondence with the Irish board to Defense Minister Desmond Fitzgerald who forwarded it to Blythe who ignored the matter, despite having nominated two of the company’s five directors. While the demand for long-term capital for industry in the late twenties was slight, the government must be faulted for not exercising greater control over the company’s reckless investment policy, if only to protect the long-term confidence of investors. The commercial banks were equally inactive; it was in their interests that the concept of state-funded industrial banking fail.
The expansion of foreign-owned industry in the twenties resulted from changing market demand, in particular the growing importance of advertising, which led to the emergence of large conglomerates in consumer industries. Depressed market conditions led to foreign takeovers and rationalization in industries such as flour milling. While the Ford plant in Cork was the most prominent foreign investment, most conglomerates resulted from the takeover of established firms, though some tariffs such as that on margarine led foreign companies to build Irish plants to protect market shares. In unprotected industries such as cement, foreign control meant closure of Irish plants and the transfer of production overseas; in protected industries takeover meant continued manufacture in Ireland but the eclipse of Irish firms. By 1928 foreign tobacco firms (including those from Northern Ireland) employed 1,400 workers compared with 450 in native concerns; soap manufacture was dominated by the giant Lever Brothers, while 50% of confectionery output was controlled by outsiders such as Crosse and Blackwell, Clarnico Murray, and Rowntree Mackintosh.
In 1925, Major Crean, a Dublin soap manufacturer, made a vain attempt to have a resolution against foreign takeovers passed by the Dublin Industrial Development Association (DIDA minutes 11 Feb. 1925) By 1928, however, a special committee of the DIDA “put on record … that the unrestricted influx of foreign capital is by no means desirable.” It noted “numerous instances” of “old-fashioned Irish industries” being “crushed” by foreign combines. The statement listed virtually every objection subsequently raised against foreign industry: foreign key executives, lack of commitment to exports, a tendency to sacrifice the Irish factory, and minimum taxes paid in Ireland and maximum profits to the parent company. It demanded preferential tax treatment for Irish-owned investments and suggested government restructuring similar to that carried out in the dairy industry to avert foreign takeovers. In 1929 the presidential address of Sean Milroy, T.D., Dublin sweet manufacturer, condemned the unrestricted takeover of Irish industry by foreigners as “nothing short of filching away the inheritance of the people, or national suicide” (DIDA/NAIDA minutes Dec. 1927, Dec. 1928, Sept. 1929).
Attitudes towards foreign investment among officials and ministers also appear to have become more hostile. In 1926 Industry and Commerce noted with apparent regret the failure of some British shoe manufacturers to open factories in Ireland in response to tariffs because they were able to compete successfully from Britain (F21/3/30). Two years later McElligott objected to overtures from British sugar manufacturers Tate and Lyle, who wished to set up an Irish operation, on the grounds that it would be giving a monopoly to outside interests, though his minister was noncommittal and decided to meet the company (F22/19/28).
In 1928 Barrington of Industry and Commerce listed the controls that other countries imposed on foreign business and documented the extent of foreign industrial investment in the Free State. He noted that there had been little new foreign investment in the previous twelve months and that this pattern would continue if no further tariffs were imposed, though in that event there was a danger that many new firms would pass into foreign control. While industrial development by outsiders would be “more satisfactory” than no industrial development, he argued that development by native firms should be “the ideal to strive for.” Given the lack of an Irish industrial tradition he felt that well-managed foreign firms could transmit industrial skills to Irish workers, though many gave few management opportunties to the Irish. Barrington recommended intervention in cases where firms in protected industries were taken over by foreign concerns. In the case of the confectionery firm of Williams and Woods, taken over by the British firm Crosse and Blackwell, he claimed that the value of the firm had been doubled “by the simple fact of imposing protection.” “By selling the concern the owners turned into cash for their own pockets the concession which they, in common with other firms in the industry were given by the State on national grounds.” He recommended that such mergers be subject to ministerial approval, which would be given, “if at all,” when a refund had been made amounting to the increase in the company’s value attributable to protection. Barrington saw merit in requiring all new firms, native and foreign, to be licensed, though he admitted that this would present problems. This report, like others originating in Industry and Commerce, was never brought to the cabinet.
Failing the extension of protection, measures for controlling foreign industry lacked urgency, though the Ranks takeover of flour milling proved a sensitive issue. A memorandum from Industry and Commerce dated Nov. 1931 outlining a proposed extension of beet sugar manufacture assumed that any expansion would take place under “an Irish company financed from Irish sources and controlled accordingly from within the country” (McG Papers, P35/b/25a), though this would have required special legislation and perhaps the establishment of a state enterprise, strategies unwelcome to this government.
The apparent inertia of Cumann na nGaedheal in its later years reflects a certain equilibrium. Any extension of protection would involve the state in issues such as controlling foreign investment, investing in industry, or providing for industrial finance, all involving departures from the free-market policy that the government favored, though this was increasingly out of step with modern economic realities.
The drift to greater protection in the years 1929–1932 was in response to changing external circumstances and growing internal pressures from an aggressive opposition and increasingly vociferous interest groups. The governments responsiveness to pressures from agriculture shows the dominance of that sector. The reconstitution of the Tariff Commission, that body’s later reports, and the emergency legislation of 1931 were all prompted by the needs of agriculture rather than those of industry, though these events had a major impact on industrial policy. In the early years of the state the dominant agricultural voice was that of the cattle farmer committed to free trade. By December 1931 protection of butter, bacon, and oats meant that agriculture’s veto on tariffs was weakened, and the industrial lobby for protection had been augmented by agricultural interests. Lobbyists for industrial protection were aware of the value of agricultural support: the DIDA emphasized the common interests of agriculture and industry and urged that both be jointly developed by means of tariffs (DIDA minutes Dec. 1928), and this is reflected in the organization’s change of name in 1929 to the National Agricultural and Industrial Development Association.
The small but powerful free-trade industrial sector that had been vocal in the early twenties became mute. Both Ford and Guinness decided to serve the British market from England. Ford began to build a large plant at Dagenham in Essex in 1928 (Jacobson 1977, 55), while Guinness decided to build a brewery near London; Jacobs already had a British plant at Aintree. External conditions, notably the emergence of a protectionist government in Britain, provided further impetus towards change, as did the virtual cessation of emigration in consequence of mass unemployment in Britain and the United States.
By 1931 agricultural and industrial interests were largely in harmony as Gordon Campbell had wished some years earlier, though bastions of free trade remained in both sectors. The existence of Fianna Fail, an alternative government, gave protectionists a focus lacking in earlier years. Their electoral victory in 1932 marked the transition from the free-trading beer, biscuits, cars, and cattle lobby of the early Irish state towards an attempted realignment based on smaller protected industries in alliance with protected, more tillage-oriented agriculture.
The economic policy of Cumann na nGaedheal during this decade shows remarkable fidelity to British practices. The vacillations in their tariff policy are similar to those of Baldwin’s government in Britain. Both avoided commitment on a general tariff, both occasionally gave way to protectionist interests, both were strongly influenced by agricultural interests (Capie 1983; McGuire 1938). The quasi-judicial procedure under the British Safeguarding of Industries Act is similar to the Tariff Commission, as is the disappointment of industrialists with the outcome (Lowe 1942, 79). Most economic innovations—trade loans guarantees, sugar beet, state-assisted agricultural credit, and improved marketing schemes—are identical to measures introduced with greater or lesser success in Britain (J. Brown 1987, 111; Whetham 1978, 165). While it is easy to criticize Cumann na nGaedheal’s performance, the achievement of solvency and fiscal stability in a difficult economic period, given the costs of civil war and repayments to Britain amounting to over 12% of the total budget, remains impressive. The volume of Irish exports in 1929 was not surpassed until 1960 (Kennedy, Giblin, and McHugh 1988, 178–81).
The darker side of the story is less quantifiable. The unemployment register declined as depression intensified because the numbers eligible for benefit fell as insured workers lost their entitlement after six months unemployment. Those never insured whose expectations of emigration were thwarted because of international depression remain uncounted. No serious effort was made until 1931 to tackle Dublin housing conditions, which were among the worst in Europe. Parsimony in public spending and lack of provision for the poor and unemployed were inevitable given parity with sterling and a relatively free trading relationship that condemned Ireland, along with Britain and Scandinavia, to a depressed 1920s (Broadberry 1984, 159–67).
Tariffs offered relief from depression and deflation while demonstrating the reality of independence. This is not to argue that they offered the ideal solution to Irish economic inadequacies. Surviving papers by Industry and Commerce officials such as Barrington and Campbell suggest an alternative program of currency devaluation that would have eased deflationary pressures and made Irish produce more competitive on both home and export markets, coupled with selective assistance in restructuring and marketing, plus aid for agriculture. The program outlined by Campbell was characterized by pragmatism and flexibility, close relations between the public service and economic interests, and a lack of dogmatism on the relative merits of protection and free trade. Such an approach, though with a greater commitment to free trade, has been regarded as the key factor in the post—World War II success of smaller European economies (Conybeare 1983, 449; Katzenstein, 1985). While this plan would have required the creation of new institutions, people of talent in both the public and private sectors, and a government prepared to withstand the pressures of conservative economic interests such as banks and possible opposition from Britain, had it been attempted, it might have preserved the Cumann na nGaedheal government while easing the political polarization of the period.
1. Based on an analysis of indexes in Finance.