THE GENERAL ELECTION of February 1932 resulted in a minority Fianna Fail government kept in office with Labour party support. Fianna Fail was to remain in office until 1948. The election took place against a backdrop of increasing republican and left-wing violence. In response Cumann na nGaedheal introduced draconian public safety legislation, while deteriorating economic conditions led to a supplementary budget in the autumn of 1931 that increased taxes in an effort to stem a budgetary deficit (Fanning 1978, 212–14). In its election campaign Cumann na nGaedheal portrayed Fianna Fail as sympathetic to republican subversives, rejecting political and economic ties with Britain, favoring state control of agriculture and industry, and threatening individual ownership of land (Keogh 1983, 134–59). Fianna Fail countered by accusing its opponents of doing the behest of unionists and freemasons and by offering both reassurance and an alternative economic strategy. Fianna Fail viewed protest as a consequence of economic deprivation. In October 1931 De Valera told the Dail that “if men are hungry they will not be too particular about the ultimate principles of the organization they would join if that organization promises to give them bread,” but he affirmed that private property remained a fundamental right and invoked catholic church authority (Moynihan 1980, 187).
The party’s electoral appeal combined what Oliver McDonagh described as “a nice amalgam of nationalism and democracy” (1977, 109): (1) removal of the constraints on sovereignty in the 1921 treaty; (2) an end to the payment of land annuities to Britain, “a burden relatively heavier than the burden on Germany from war reparations”—in 1929 German reparations amounted to 12.4% of government spending, Irish to 18% (O’Hagan 1980, 19)—and a barrier to Irish economic recovery; (3) industrial development “to meet the needs of the community in manufactured goods”; (4) tariffs to curb imports, create employment, and maximize economic independence; (5) greater self-sufficiency in food; (6) elimination of waste and high salaries in the public service to provide frugal living and employment for all; and (7) the revival of Irish language and culture (Moynihan 1980, 190). Party policies combined the party’s use of the green card (Fanning, IT 19 May 1976) with populist economic programs favoring the low paid at the expense of the rich, the small farmer rather than the rancher. Such policies, which offered the “nationalist, neo-orthodox” response to depression, were favored to varying degrees by most European countries during the thirties in reaction to the failure of the orthodox internationalist path of deflation (Gourevitch 1984, 126). Fianna Fail aimed at ending emigration, a matter given greater urgency because of mass unemployment in the United States and Britain. As a party it was acutely aware of the potential dangers of unemployment.
In September 1932 De Valera addressed the League of Nations about “impending economic collapse.” He argued that the crisis would not be resolved by reopening “old channels of international trade,” the solution favored by the larger economies, and suggested that the basis of production, distribution, finance, and credit was in need of overhaul (Moynihan 1980, 232). He showed no interest in rebuilding the old economic order, tending rather to distance himself from it. Such an attitude was common to states in the first flush of independence who believed that they could do better than older, wiser nations. In 1932 an editorial in a Turkish journal wrote that “in our opinion Turkey is not part of the world crisis but stands outside it” (Spuler 1959, 239). The apparent collapse of the modern industrial economy suggested that this was not the model for the future and engendered a certain schadenfreude in nineteenth-century economic also-rans such as Ireland.
Fianna Fail abandoned concepts such as comparative advantage in favor of self-sufficiency and a sharing of economic resources. Its manifesto promised to reduce public service salaries “to levels more in keeping with the means of the taxpayers and the frugal living that all sections of the community must be content with until every one who is able and willing to work is given a fair opportunity to earn his daily bread.” De Valera’s League of Nations speech made the provision of adequate food, clothing, and housing the primary objective of economic policy. The agenda was an amalgam of nationalist and quasi-socialist policies often stolen from the manifestos of left-wing republican organizations, tempered by Gaelic antiquarianism and Catholic social teaching as found in papal encyclicals such as Rerum Novarum or Quadragesimo Anno. From the latter the party derived the concept of an ethically based or normative economic model as opposed to the liberal market economy and the belief that an economy should be regulated to meet notions of distributive justice rather than of competitive efficiency (Cahill 1932).
The message of sacrifice and frugality suited the early 1930s, but it predated and transcended the specific problems of that time. It rested on the belief that Irish society valued a traditional frugal lifestyle that rejected the materialism of modern cosmopolitan culture (O Crualaoich 1983, 47–61). This dimension showed continuity with Cumann na nGaedheal, who had introduced film and literary censorship in an effort to exclude the modern world. Fianna Fail extended this Gaelic, Catholic cultural revolution to the economic sphere. Its program had coherence: more intense nationalism would mean reduced ties to Britain, greater self-sufficiency at home, both cultural and economic, and a renewed attachment to traditional values of frugality and sharing. This would provide a logical economic program for depressed times while reaffirming values perceived as both Irish and Catholic. The program would diminish the attractions of left-wing republicanism and socialism, while ensuring Labour party support in the Dail.
The Role of Government
Such policies challenged the parsimony in government spending that had characterized Cumann na nGaedheal. The Department of Finance lost prestige; its minister, Sean MacEntee, was less influential than Sean Lemass, minister for industry and commerce, and was actually excluded from the Economic Committee of the cabinet. Despite commitments to curb government spending, Fianna Fail approved increased spending on roads and housing (Fanning 1978, 218). Government spending jumped from 24% of gross national product (GNP) in 1931 to 30.3% by 1933—the outcome of new programs and of a reduction in GNP—and averaged 30% for the remainder of the decade. Agricultural subsidies took 41.6% of the increase and 23.3% was spent on land redistribution, with the balance divided between increased payments on old age pensions, unemployment relief, housing, and sanitation (O’Hagan 1980, 23–24). Spending was funded by raising income taxes, revenue from tariffs, and withheld annuity payments. Heavy agricultural expenditure went to price supports to encourage tillage and to offset the impact of international depression and the economic war.1 The new measures failed to wean Irish farming from its dependence on cattle. While tillage acreage showed an 11% increase in 1930–1936, it was only 2% above the 1930 level in 1939 (Meenan 1970, 99; Crotty 1966, 137–57). Agricultural employment fell from 648,575 in 1926 to 609,178 in 1936, when the government had hoped for an increase, while a letter in 1935 from a Fianna Fail Cumann in Inchigeela, West Cork, a community of small farmers, detailed the hardships they suffered as a result of paying higher prices for animal feedstuffs, sugar, and flour because of government policies and the poor prices received for young cattle, their staple cash product (S9636).
The 1932 manifesto contained the commitment “to make ourselves as independent of foreign imports as possible” but noted that “the people of Britain and ourselves are each others best customers. Our geographical position and other factors make it unlikely that the close trade relationship will rapidly change” (Moynihan 1980, 189–90). With the imposition of British penal tariffs in July 1932, a policy of minimizing economic contact held sway. The economic war showed that given the choice between economic and nationalist objectives, the latter took priority, at least for De Valera. Whether all who voted for Fianna Fail subscribed to this position is unclear. In 1932 much of Fianna Fail’s attraction lay in its appearing to offer both greater independence and material advancement for the masses. Within the cabinet both MacEntee and Lemass were undoubtedly critical of the economic burden caused by the dispute. In November 1932 Lemass painted an apocalyptic account of impending economic crisis—as grave as in the famine year of 1847—and suggested a series of “revolutionary proposals” requiring “dictatorial powers” to meet it, or, alternatively, “postponing the Economic War until we are in a better position to fight it” (S6274). While the economic outcome proved less disastrous than Lemass had envisaged, imports of British coal, cement, iron and steel, machinery, and electrical goods, vital capital equipment for industry, bore punitive duties, and resources were diverted to alleviating the costs of a trade war.
The economic war was not the sole constraint imposed by noneconomic goals. The intense nationalism and xenophobia common to Ireland, as to many new states, brought restrictions on foreign investment (Kerwin 1959, 237; Spuler 1959, 277). Social objectives required an industrial program designed, however contradictorily, to preserve the rural character of the nation, a concern Ireland shared with fascist Italy (Ricossa 1976, 289, 305). In consequence, industries were directed to remote locations, while efforts were made to reserve employment for male workers. The goal of industrial development was modified by socioeconomic and nationalist criteria, which were occasionally of a contradictory nature. Ireland was not alone in this. Countries such as Italy, Turkey, and former members of the Turkish or Austro-Hungarian empires engaged in similar programs of economic development coupled with autarky, xenophobia, and the preservation of rural society. Economic ends were sacrificed for political objectives (Sarti 1971, 104).
The broad thrust of Fianna Fail’s industrial policy was developed by Sean Lemass, minister for industry and commerce, a man who combined nationalism and pragmatism. In 1929 he noted that a commitment to Irish industrial development and population increase could only be justified by a belief in Irish nationalism: “If we were concerned only for the welfare of the old political unit known as the United Kingdom we would not deplore the decay of industry and loss of population here because they were more than counterbalanced by the growth of population and industry in the other island.” He added that “the agitation for the protection of industries therefore is identical with the struggle for the preservation of our nationality.” His program envisaged increased employment in tillage and industry, the establishment of an Irish capital market and the reinvestment within the state of funds invested abroad, and legislative controls on foreign ownership of industry. He believed that only “drastic methods” such as protection or subsidies would alter existing economic realities (Gallagher Papers MS 18339). Initially Lemass shared the xenophobia common to Fianna Fail, though there is no mention of frugality, while enthusiasm for the life-style of the western peasantry also appears muted, and he differed from his colleagues in the importance he attached to economic issues and in his appreciation of the obstacles to be surmounted. Consequently he sought authority in economic areas, which often conflicted with the practices of cabinet responsibility and parliamentary democracy. Many of his efforts to control industry were thwarted by colleagues, particularly when they involved Irish firms.
Despite these restrictions Lemass possessed an authority in industrial matters equaled only by de Valera’s in foreign affairs. The broad directions of industrial policy were determined by Industry and Commerce, and the department was totally reponsible for tariffs. While schedules of tariffs or quotas were submitted to Finance, the cabinet, and the Dail for approval, they were not altered, and the protectionist aspect took precedence over revenue considerations, despite a plea from Finance in April 1932 that duties be kept “as low as possible” to generate revenue (S8167). Customs receipts rose from £8.257 million in 1931–1932 to £10.223 million in 1935–1936 when increasing use of quotas brought a drop in revenue and marked the triumph of industrial development over revenue requirements. Lemass personally determined all key aspects of industrial policy. Files are covered with his handwriting; memorandums to the cabinet frequently follow the precise line of argument that he outlined. Files were cleared rapidly—his notes generally bear either the date of the initial memorandum or that of the following day.
With Lemass as minister, Industry and Commerce moved from the periphery to the center of government policy. The enhanced status is seen in its move from Lord Edward Street to palatial purpose-built offices in Kildare Street, almost opposite Dail Eireann, the only government-owned offices built since independence. Before 1932 officials had bombarded McGilligan with proposals to little avail. Lemass claimed in later years that when he was appointed “the Department was rotting through inaction” (Farrell 1983, 33). In May 1932 the cabinet established an Industrial Development Branch charged with developing new and existing industries, with full powers over the trade loan guarantees (Fanning 1978, 219). Industry and Commerce Secretary Gordon Campbell had announced his resignation during the closing period of Cumann na nGaedheal’s term of office. (As Lord Glenavy he was to become governor of the Bank of Ireland and a key figure in Irish financial circles). Cosgrave approached a senior Finance official, John Leydon, to replace him, but he declined until the offer was renewed by the incoming government. Leydon did not always agree with Lemass’s policies and reputedly told him so when first offered the position (Farrell 1983, 34); but they proved an effective team, and his Finance experience proved invaluable in overcoming the objections of that department.
Fianna Fail’s industrial program evolved into what is now termed a mixed economy. State-owned companies were established to handle beet sugar, industrial alcohol, peat, and industrial credit where social goals predominated over profitable possibilities. However, most development was carried out by private enterprise attracted by incentives such as tariffs, quotas, and credit facilities. While tariffs were available to all, licenses for duty-free imports or quotas, rights to hire foreign workers, and trade loan guarantees were discretionary and could be awarded or withheld to achieve specific goals, such as directing a factory to a particular town. Policy was implemented by a combination of carrots and sticks. Official control was not as total as Lemass would have wished: while foreign-owned firms could be subjected to ministerial diktat as to location, labor force, size, and type of output, authority over native firms was substantially less. However, R. C. Ferguson, assistant secretary in charge of the Trade and Industries Division, stated “that in fact few factories were set up without prior consultation with it [Industry and Commerce] or against its advice” (CVO evid, MS 940, Doc. 171a).
The number of tariffs rose sharply so that by 1936 over 1,900 were in operation. Whereas most tariffs under Cumann na nGaedheal protected existing industries, they now extended to items not manufactured within the state. Tariffs were now decided in private by Industry and Commerce, and once it became known that they would be readily granted for industrial expansion or development, applications multiplied. The new system offered the advantages of secrecy in the initial stages of negotiation, greater speed in decision making, and a bias in favor of protection. While the Tariff Commission remained in existence until 1938, its sole task was the comic-opera function of deciding whether to protect prayer books, a task completed in 1934. Initially the government operated under the Abnormal Importation (Custom Duties) Act of November 1931, which gave it powers to impose temporary duties without parliamentary approval. The outgoing government used these powers only once, but Fianna Fail imposed a total of nineteen orders between 19 March and 7 July 1932 covering an extensive range of agricultural and industrial products (Ryan 1949, 60), and the budget in May 1932 imposed a further forty-three duties, the majority increasing protection for industries such as textiles and shoes that had been tariffed under Cumann na nGaedheal (PDDE 11 May 1932).
In July 1932, with emergency legislation about to expire, and ostensibly to retaliate against the duties imposed by the British government, the Emergency Imposition of Duties Act extended the power to impose tariffs by order, and this act remained in operation until 1938. These tariffs were generally subjected to Dail ratification or modified in the subsequent finance act. In 1934 the Control of Imports Act gave the executive power to impose quotas in addition to, or in place of, tariffs (Ryan 1949, 77–83). The level of protection was substantially higher than under Cumann na nGaedheal. Ryan has calculated that in 1931 Irish tariffs (excluding revenue tariffs), accounted for an increase of 9% on import prices; by 1936 the figure was 36%, a calculation that excludes the effect of quotas.
By 1937 Irish tariffs were one-third higher than those in Britain and were exceeded only by those of Spain, Turkey, Germany, and Brazil, and there was an increasing tendency to include minimum specific duties on items such as clothing, in addition to ad valorem tariffs. Part of the higher tariff level was attributable to the economic war, though special duties applied to only a limited range of imports (ITJ Sept. 1932); its main impact was the exclusion of British goods from preferential rates, though in cases where virtually all imports originated in Britain, as with shoes, a new general rate was introduced, higher than the previous preferential rate but lower than the old general rate. The abolition of economic war duties in 1938 reduced Irish tariff levels by a mere 0.5% (Ryan 1948–1949, 123). The majority of tariffs were motivated by development, not by political retaliation.
Most tariffs were introduced without detailed examination of the potential impact on consumers or on other industries, action defended by Lemass on the grounds that he “preferred to take the risk of making mistakes in proceeding in the way we are proceeding than to take the risk of producing the same results that the late Government produced by inactivity.” He operated on the assumption that industry needed protection and should get it, unlike the preceding government, which had regarded free trade as the norm (PDDE 8 June 1932). Tariffs were highest on fuel, farm products, and foods and lowest on metal products, which suggests that with the exception of coal, an economic war tariff, account was taken of the country’s resource base. Most new tariffs in 1932 were placed on food, agricultural products, and farm equipment, though it might be argued that the latter tariffs reduced the benefits of incentives for tillage farming. Other tariffs increased protection for shoes, clothing, and fabrics, reflecting the government’s fears, whether based in reality or not, of increased dumping as a result of recession. The duty on shoes was increased from 15% to 37.5% with a preferential rate of 25%. Other tariffs affected consumer items and building materials in an almost random manner. Subsequent years brought smaller numbers of Tariffs and greater precision in their drafting, and they were more likely to affect prospective industries. There was a substantial increase in the descriptive detail concerning items covered or exempt, and licenses allowing duty-free imports were introduced. The first quotas were imposed in 1934.
The tariff and quota schedules submitted to the cabinet as part of the annual finance bill reveal the importance of such incentives to attract industry. The 1934 customs proposals recommended a duty of 40% on imports of boot lasts because a British firm proposed to set up, a manufacturing plant “provided a reasonable margin of protection is afforded.” While they “hoped” to supply their products at “about 10% over the British prices” they sought a higher tariff to avert dumping (S2920). A tariff of 100% on boot and shoe laces was proposed to support the establishment by Messrs. Jordan Ltd. of Leicester of a factory in Ennis expected to employ 200 workers. The grant of a trade loan guarantee was advanced as justification in this case, indicating the use of tariffs to protect government funds. The 1936 schedule proposed a tariff of 75% or a minimum of 2s. per article on imported clocks, clock cases, or wooden parts of clock cases because “a private limited company is about to be registered for the purpose of assembling clocks. Protective duties are essential to the success of this project.” “Considerable employment” was promised (S7757). Tariffs were also crucial to raising capital. The 1938 proposals noted that the promoters of Irish Steel Company were anxious to be granted protection in the 1938 Finance Act in advance of their planned stock market issue (S 9755). The share prospectus for Irish Tanners not untypically quoted a letter from Industry and Commerce listing the tariffs and duty-free import licenses available to the company (IT 26 June 1934).
While employment creation was supposed to be a key consideration there is little evidence that tariffs were evaluated on that basis. Schedules reveal a lack of selectivity and suggest that the wishes of most applicants were granted. Scant consideration was given to whether the item’s importance justified the administrative or human costs. Dentures and second-hand shoes were tariffed in 1934; the duty on horseshoes was increased from 33.3% to 50% because of imports valued at £1,954. Bicycle reflectors were subjected to a duty of 75%—with possible consequences for road safety—to create a maximum often to twelve jobs. In the case of wigs the proposal for a 30% duty announced that “a certain amount of employment is given in their preparation,” which was “capable of expansion.”
The tariff-setting process involved enormous administrative costs for both business and the public service. It was frequently necessary to grant licenses exempting firms from duties to prevent hardship. A total of 7,573 hundredweight of ice blocks valued at £1,234 were imported from Northern Ireland during 1934, resulting in a successful application for protection in 1935. However, licenses permitting duty-free ice imports were introduced “to relieve any hardship that might result.” The Nenagh firm, Irish Aluminium, was granted a 50% tariff on all aluminium items but proved incapable of making the full range, and importers were forced to seek exempting licenses. The code of duties relating to clothing was revised in the 1937 budget because it had become excessively complicated, listing more than 200 separate items. The resulting simplification occupied four-and-one-half detailed pages of typescript and involved an increase in the ad valorem duty or the imposition of a minimum duty level on most items. Such detail could perhaps be justified by the industry’s substantial employment and import substitution potential. However, the 1934 budget addressed the problem that some brush handles were escaping duties by masquerading as duty-free handles for chimney or sewer scrapers, by imposing a duty to cover the latter categories. Rosary beads, the first industry protected by the Tariff Commission, still recorded annual imports of £4,000–£5,000 in 1934, despite a 33.3% duty. A minimum duty of 2 pence per rosary was imposed to halt this deluge; however, in 1938 Dublin manufacturers Messrs. Mitchell alleged that rosaries of fifteen decades were being imported subject to the minimum duty and being subdivided into five-decade beads, while others imported continuous strings of beads duty-free for reassembly. A duty of 37.5% or 3.4 pence per decade, or length often beads, was imposed to meet this threat (S9755). Until the Anglo-Irish trade agreement in 1938 there was an inexorable tendency towards higher protection, with preferential rates removed, tariffs increased, and minimum nominal tariffs and of quotas introduced.
While in theory the government sought to encourage a high level of fabrication many firms did little more than nominal finishing or final processing. This defect is inherent in the structure of protective tariffs. Effective protection, which measures tariff levels in relation to value added, shows that for any given nominal tariff rate, the tariff is least effective when an industry is engaged in high value-added activities (McAleese 1971, 9). It is not possible to calculate effective rates of protection for the 1930s, but McAleese’s calculations for 1964 show high rates in industries with low value added. Examples of low value added behind high tariffs undoubtedly existed during the 1930s. A Tipperary linoleum manufacturer was deemed by Industry and Commerce to be “playing at manufacture” behind a tariff of 40%, earning considerable profits and flouting undertakings on price (Inds. A. Room 303). A demand for higher protection on weighing scales because they were being undercut by imports led to the discovery that Irish scales were built in Britain, tested, adjusted, and then disassembled for shipping to Ireland for remanufacture (TID 1207/144). The 1932 package tax, which imposed a further duty on imported packages, bottles, boxes, cartons, or other containers in addition to duty on the contents, led to the establishment of many packaging operations employing low-paid female labor. This development allegedly benefited foreign manufacturers, as the stamp saying “Packed in the Irish Free State” attracted patriotic consumers (Irish Industry, Oct. 1933, Dec. 1933). One surviving file in Industry and Commerce contains empty packets of custard powder submitted by an aggrieved manufacturer who alleged that his sales to customers intent on buying Irish products had been ruined by an influx of Irish-packaged powders produced by well-known foreign firms (TID 1207). The package tax was singled out for special mention by the British delegation at the 1938 trade talks on the grounds that it gave rise to “considerable irritation in the U.K.” Irish officials defended the tax because it generated substantial employment (BT 11/2833, 21 Jan. 1938).
The structure of tariffs, the package tax, high production costs, and the small size of the Irish market made it difficult to achieve integrated production, as opposed to mere assembly. Tariffs on completed radios were set at 50%, and those on components were increased in an effort to achieve a high level of fabrication. However in 1938 Mr. Digby of Pye (Ireland) Ltd. claimed that the high cost of Irish components meant that companies found it cheaper to import completed sets. Irish-made batteries cost 11s. compared with As. in England, cabinets 21s. as opposed to 9s. 9d. His Electro-Magnetic Industries (EMI) counterpart stated that companies who engaged in full assembly were at a disadvantage as against those who made cabinets and assembled imported parts (TID 1207/348). Pye and EMI may have been guilty of special pleading; larger multinational firms were particularly adept at justifying their cases for tariff increases.
Quotas and Licenses
Tariffs proved a blunt instrument for industrial policy, often failing to contain imports because importers absorbed the tariff or because of the poor quality of native goods. The shoe industry had been among the first beneficiaries of protection in 1924; in 1932 tariffs were raised from 15% to 25% and subsequently to 30%, but domestic output only accounted for 37% of the market in 1933. In 1935, the first full year of quotas, the domestic share increased to 71% and continued to rise (CVO evid. MS 937). Lemass favored quotas because they offered greater control and opened the possibility of bilateral trade agreements. In November 1932 he urged the establishment of a Board of External Trade controlled by his department in consultation with Agriculture, to handle exports and fix import quotas. The board would become the monopoly exporter of agricultural produce, assist in marketing other products, and negotiate bilateral trade agreements (S6274). These ambitious plans never came to fruition because of the opposition of other departments; however, quotas were introduced in 1934, and by 1939 a total of 37 quota orders had been applied.
Quotas provided a more precise instrument of industrial planning and a further opening for ministerial discretion with the establishment of a register of licensed importers who would be granted part of the quota (S2261). While tariffs proved sufficient to attract light industry, capital-intensive industries required more total protection. It is doubtful whether Dunlop would have invested in a rubber plant in the absence of quotas. They permitted the precise gearing of supply to market capacity, which was among the ideals of self-sufficiency and prevented the competition that might drive Irish firms to the wall.
The Control of Manufactures Acts
Quotas provided only a faint shadow of the powers that Lemass sought to exercise over industry. His proposed vehicle was to have been the control of manufactures bill, which was one of the first measures drafted after Fianna Fail came to power. While its ostensible purpose was to restrict foreign ownership of industry, Lemass sought to use it to control all industry, native and foreign. As initially drafted it required the licensing of all manufacturing companies. While those established before a certain date, whether native or foreign, would be automatically entitled to a license, all new firms would be licensed at ministerial discretion, and licenses could be made subject to certain conditions (Control of Manufactures Act temporary file 21 May 1932). While the cabinet supported controls over foreign business, it opposed the licensing of native concerns. The discussion was lengthy, with the cabinet sitting from 6:30 PM until after midnight, and the minutes record that the draft bill “did not meet with the approval of the Cabinet in so far as it applied to the licensing of existing businesses in the Free State, or owned by Companies, a majority of whose share capital is held by citizens of the Free State” (Cab. C 6/29, 23–24 Apr. 1932).
The bill was redrafted to exclude controls on Irish-owned business and was referred to a subcommittee, from which Lemass was pointedly excluded, that included Sen. Joseph Connolly, minister for posts and telegraphs, Lemass’s main cabinet opponent(Farrell 1983, 36), and Education Minister Thomas Derrig, an upholder of Irish-Ireland principles. During the Senate debate on the bill, Connolly explained that the cabinet had considered several drafts until they felt that the measure eliminated any possiblity of injuring existing industries. The second “thorny subject,” according to Connolly, was the “question of possible interference with any of our own nationals embarking upon business.” He confirmed that the cabinet had dismissed the possibility of restricting entry into overcrowded industries (PDSE 22 July 1932), which was Lemass’s main purpose in seeking universal licensing powers.
The 1932 Control of Manufactures Act imposed no restrictions on domestic industry; only companies without majority native shareholding were required to obtain a license which could be made subject to conditions concerning size and composition of output, labor force, and location. Lemass said this was “the barest minimum which any Government starting on a protective policy in a country like this would have to undertake” (PDDE 14 June 1932). He made a further attempt to gain control of key industries in the 1934 Control of Manufactures Act. Lobbyists on behalf of Irish industrialists sought stronger powers, including restrictions on existing foreign companies (Daly 1984b, 255–58).
The 1934 act required that a majority of all shares and two-thirds of ordinary shares be Irish-held and that a majority of directors, including the managing director, be Irish. While the act failed to satisfy the more extreme demands of native industrialists it marked a further attempt by Lemass to control Irish industry, with powers in part 3 to declare any commodity a reserved commodity, a decision that would require a prospective manufacturer, whether native or foreign, to obtain a license. This provision was used only once, in the establishment of Irish Sewing Cotton, a plant for the manufacture of cotton thread at Westport, though several proposals for reserved commodity orders were initiated but not confirmed (S7568, S8826). The failure to grant exclusive licenses, despite requests from prospective industrialists, reflected the hostility of Irish industry and an apparent division of opinion within the cabinet.
Most capital-intensive companies were established, not with the protection of a reserved commodity order, but with a less watertight guarantee of exclusivity. The undertaking, which came to be known as the Dunlop formula, was devised to meet that company’s desire to ensure that its substantial investment would not be jeopardized by a competitor. In a submission to the cabinet, Industry and Commerce stated that the Dunlop license under the Control of Manufactures Act would have attached “certain promises and undertakings not enforceable by law, but to which both parties will formally express their willingness to adhere.” The most crucial was the provision that if Dunlop assented to a ministerial request to manufacture any rubber item within four months, the minister would only favor a competing firm to the extent to which market needs would not be met by Dunlop (S6560). The Salts textile firm received an undertaking that the government would not grant any other firm permission to comb wool without first giving them the option of refusal (S9250). These agreements offered the attraction of confidentiality, hence immunity from criticism. The cotton-spinning firm Gentex, which had a similar undertaking, was informed that “no reference is to be made, in the prospectus (for a share issue) to the Department or to communications from the Department without Departmental consent and no reference to promises to impose duties. Our practice was to confine the circulation of such a letter to the actual promoters or possibly to the underwriters” (Inds. A. Room 303).
Tariffs quotas and licenses could be augmented, when it was deemed desirable, by state-guaranteed loans or by the underwriting resources of the state-owned Industrial Credit Company. For key industries such as cement, further controls were used, and state enterprizes were established to process beet sugar and industrial alcohol. Two key questions arise: to what extent did these measures permit the government to determine the shape of Irish industry in the light of their social and national objectives? What was the response of political and community institutions to these policies? These questions will be examined in subsequent chapters.
1. The economic war is the term given to the dispute that broke out in 1932 between Britain and the Irish Free State as a result of Ireland’s unilateral reneging on certain clauses of the Anglo-Irish Treaty and the Irish refusal to continue making certain financial repayments to Britain. In retaliation the British government imposed punitive tariffs on Irish exports to Britain, and in turn the Irish government imposed further tariffs on some imports from Britain. The dispute was settled in 1938 (see chap. 8).