kevin o’rourke, all souls college, oxford and university
TRANSCRIPT
UCD CENTRE FOR ECONOMIC RESEARCH
WORKING PAPER SERIES
2016
Independent Ireland in Comparative Perspective
Kevin O’Rourke, All Souls College, Oxford and University College Dublin
WP16/20
December 2016
UCD SCHOOL OF ECONOMICS UNIVERSITY COLLEGE DUBLIN
BELFIELD DUBLIN 4
IndependentIrelandInComparativePerspective
KevinHjortshøjO'Rourke
Chichele Professor of Economic History, All Souls College, OxfordVisiting Professor, School of Economics, University College Dublin
Abstract
ThispapersurveysindependentIreland’seconomicpoliciesandperformance.Ithasthreemainmessages.First,theeconomichistoryofpost-independenceIrelandwasnotparticularlyunusual.Veryoften,thingsthatwerehappeninginIrelandwerehappeningelsewhereaswell.Second,foralongtimewewerehamperedbyanexcessivedependenceonapoorlyperformingUKeconomy.Andthird,ECmembershipin1973,andtheSingleMarketprogrammeofthelate1980sandearly1990s,wereabsolutelycrucialforus.IrishindependenceandEUmembershiphavecomplementedeachother,ratherthanbeinginconflict:eachwasrequiredtogivefulleffecttotheother.IrishindependencewouldnothaveworkedaswellforusasitdidwithouttheEU;andtheEUwouldnothaveworkedaswellforusasitdidwithoutpoliticalindependence.
ThisisarevisedversionofalecturedeliveredonNovember11,2016,attheNUIGNationalConferenceentitled1916-2016:ThePromiseandChallengeofNationalSovereignty.IamextremelygratefultoNicholasCannyforhavinginvitedme;toeveryoneatNUIGfortheirhospitality;toJohnMcHaleforchairingthesessionsoexpertly,andtothediscussantsfortheirexcellentcomments.IamalsogratefultoBrianAshcroft,FrankBarry,JasonBegley,GeorgeBoyer,AlandeBromhead,GrahamBrownlow,DianeCoyle,RichardDorsett,AlanFernihough,JamesForeman-Peck,FrankGeary,StefanieHaller,DavidJordan,AidanKane,MichaelKeating,MorganKelly,DaveMadden,MauriceMulcahy,CormacÓGráda,EunanO’Halpin,AndyO’Rourke,MartinSandbu,andRebeccaStuart,formanyhelpfulcomments,advice,data,andtechnicalassistance.Theusualdisclaimerapplies.
1
1.Introduction
Somebodyclever,I'mnotsurewho,issupposedtohaveoncesaidthat"hewhoonlytriesto
understandIrelandwillnotevenunderstandIreland".Therecanattimesbeanattention-
seekingparticularismaboutIrishwriting–lookatus,weliketosay,mostlytoourselves,but
ifpossibletoanyforeignerswhomightbelisteningaswell–lookatus,andathowunique,
andathowveryinterestingweare.
WhenIwasayoungboyinprimaryschool,weweretaughtthatpost-independenceIreland
waspoorbutuniquelyvirtuous.Today,wearetaughtthatitwaspooranduniquelywicked.
Bothpositionsaremisguided:wewereneverasdifferentaspeoplehavemadeout.Those
traditionalruralvaluesthatweoncecorrectlycelebratedcanstillbefoundinagricultural
communitiesaroundtheworld;meithealisnotauniquelyIrishphenomenon.Andthe
MagdaleneLaundriesthatwenowcorrectlycondemnhavetheircounterpartselsewhereas
well.1Thepast,itturnsout,isaforeigncountryeverywhere.
AndwhatistrueofIrishsocialhistoryturnsouttobetrueofIrisheconomichistoryaswell.
Veryoften,thethingsthatwerehappeninginIrelandataparticulartimewereinfactpart
ofabigger,European,orevenglobalstory.
IusedtothinkthatthequotationwithwhichIstartedthislecturewasduetoNicholas
Canny,whoseownworkhaslargelybeenconcernedwithplacingthehistoryofearly
modernIrelandintothecontextofthewiderworld–buthedeniesit.
Ontheotherhand,IamquitecertainthatitwasRudyardKiplingwhoonceasked"whatdo
theyknowofEnglandwhoonlyEnglandknow?"Itseemsasthoughthetemptationtofocus
onone'sowncountry,andtoignorewhatwasgoingonaroundit,isnotjustanIrish
phenomenon–whichofcoursemerelyreinforcesthepointthatwearenotasuniqueaswe
sometimesthinkweare.
1OnDenmark,seeAdler-Olsen(2014).
2
MymainpurposeinthislectureisthereforetoplaceIreland'spost-independenceeconomic
historyintosomesortofcomparativecontext,andtotrytoconvinceyouthatinfactour
economichistoryisinmanyrespectsnotallthatunusual.
Thecircumstancesofourstate'sbirthwereofcoursedramatic,andforawhileweheldthe
world'sattention;butthenwesettleddowntobecomewhatwehadchosentobecome:a
small,ratherpoorcountryontheperipheryofEurope.Inmanyways,I'mgoingtoargue,
oursubsequenteconomichistoryispreciselywhatyouwouldhavepredicted,giventheturn
that20thcenturyEuropeanhistorywasabouttotake.Oureconomicpolicieswerenotthat
unusualinthecontextofthetime;andoverthelongrunoureconomicperformancewas
justaboutexactlywhatyouwouldhavepredictedaswell.
ButthisconferenceisofcoursetakingplaceundertheshadowofBrexit,andthequestion
whicharisesis:willBorisandhismerrybandofBrexiteerssucceedinfinishingthejobwhich
wasbegunin1916,andcompletetheeconomicandpoliticalseparationbetweenourisland
andGreatBritain?WilltheireffortsleadtoIrelandbecomingmorefullyindependentof
Britainthanithasbeentodate,andperhapsuncomfortablyso?Willwehavetostandmore
squarelyonourowntwofeetthanwemightperhapswant?
AndsoasecondmajorthemeinmytalkwillbeIreland'seconomicrelationshipsoverthe
courseofthelastcenturywithbothBritainandcontinentalEurope.Ifthereisonewayin
whichourpost-independenceeconomichistorywasindeedunusualformanydecades,and
unhelpfullyso,itwasourexcessivedependenceonapoorlyperformingBritisheconomy.
MembershipoftheEuropeanCommunitiesin1973,andtheEuropeansinglemarket
programmeofthelate1980sandearly1990s,wereabsolutelycrucialintransformingIrish
fortunes.
2.The19thcenturybackstory
Itdoesn'tmakesensetodiscussIreland'spost-independenceeconomicperformance
withoutspendingatleastsometimeonthecolonialbackstory.Irisheconomicperformance
underBritishrulewasdisappointing,andoccasionallytragic.TheFamineofthe1840swas
3
genuinelyunusual–thelastmasssubsistencecrisisinpeacetimeWesternEurope,withthe
exceptionoftheFinnishfamineofthe1860s.Asweallknow,itusheredinawaveofmass
emigrationwhichpersistedintothe20thcentury,andwhichledtothequiteunique
spectacleofacontinuouslydecliningpopulationthroughoutthelate19thcentury,atime
whenEuropeasawholewasexperiencingapopulationexplosion.
Figure1.Grossdecadalemigrationrates,per1000Source:HattonandWilliamson(1994,p.536).
Evenhere,however,wehavetobecarefulnottooverdothepeculiarityoftheIrish
experience.Bytheendoftheperiod,Italywasexperiencingemigrationrateswellinexcess
ofourown,withNorwayalsoexperiencingheavyoutflows(Figure1).Furthermore,the
sameunderlyingforcesweredrivingemigrationthroughoutEuropeduringthisperiod.
Emigrationratesweresystematicallyhigherin:countrieswithhigherbirthrates;countries
thatwerepoorer;andcountrieswithapriorhistoryofemigration(HattonandWilliamson,
1998).Ireland’smaritalfertilityratewashigh;thecountrywasverypoor;andthefamine
hadresultedinanextremelyhighstockofIrishpeoplelivingoverseas,andparticularlyin
NorthAmerica.Highemigrationratesareexactlywhatyouwouldhaveexpectedinthe
circumstances;thereisnoneedtoappealtoanysupposedpeculiaritiesoftheIrishpsyche
inordertoexplainourhighpropensitytoleavethecountryduringtheperiod.2
2Guinnane(1997)providesanexcellentdiscussionof19thcenturyIrishdemography.
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1850s 1860s 1870s 1880s 1890s 1900s
Ireland Italy Norway Sweden
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This19thcenturyeconomichistoryhadimportantconsequencesforthe20thcentury.Iwant
tohighlightthreelegaciesinparticular.
First:Sinceahistoryofpreviousemigrationleadstoahighertendencytoemigrateinthe
future,Irishpeopleremainedextremelymobileafterindependence.Indeed,thepopulation
ofthe26countiescontinuedtodeclineuntil1961.Emigrationcouldbebothbeneficialand
harmfultotheeconomy,inwaysthatgenerationsofIrisheconomists,politiciansand
historianshavediscussedovertheyears.
Oneconsequencewasthatbyloweringthedomesticsupplyoflabour,Irishemigration
raisedIrishwages,pullingthemuptowardsthelevelsavailableonlabourmarketsoverseas.
SomethingverysimilarhappenedinbothNorwayandItaly(O'RourkeandWilliamson,1999,
Chapter8).Ontheonehand,thishelpedsustainlivingstandardsthatwouldotherwisenot
havebeenattainable;butontheother,itdeprivedtheeconomytoatleastsomeextentof
oneofthemainadvantageswhichpoorcountriesgenerallypossess,namelycheaplabour.
OntheeveofWorldWarI,Irelandwasstillpoor,butitwasclearlymuchricherthanithad
beeninthe1870s,letalonethe1840s.Butgrowthinpercapitalivingstandardsthatwas
largelyduetoadecliningpopulationwashardlyanythingtoshoutabout.SouthernIreland's
prosperityin1913,suchasitwas,wasbasedonverydifferentfoundationsthanprosperity
elsewhere.Thekeytoeconomicgrowthduringthelate19thcenturywastypically
industrialisation.Andthekeytoindustrialisation,inGermany,Italy,France,theUnited
States,andelsewhere,wasprotectionism.
Duringthelate20thandearly21stcenturies,globalisationandgrowthhavegonehandin
hand,buttariffsprotectingindustrywerestronglyandpositivelycorrelatedwithgrowth
beforetheFirstWorldWar(LehmannandO'Rourke,2010).Asaregionofthefreetrading
UnitedKingdom,anindependenttariffpolicywasobviouslyunavailabletoIreland.Thedata
plottedinFigure2showthatnationalistswerenotmad,inthecontextofthetime,to
believethatthiswasaserioushandicap.Andsoasecondlegacyofthe19thcentury,which
becameimportantinthe20th,wasanideologicalcommitmenttoprotectionismamonga
certainstratumofIrishnationalistthinkers.Onceagain,therewasnothingunusualabout
5
this;itwasrathertheUnitedKingdom,withitsstrongcommitmenttomoreorless
unilateralfree-tradeevenasitsrivalsgainedmarketshareatitsexpense,whichwasthe
exceptionduringthisperiod.
Figure2.Manufacturingtariffsversusgrowth,1875-1913Source:basedondatainLehmannandO'Rourke(2010).Butthisintellectualcommitmenttoprotectionismwouldeventuallyrunupagainstathird
legacyofIreland'shistory,whichwastheextenttowhichtheIrishandBritisheconomies
wereintertwined.ThesouthofIrelandwasoverwhelminglyspecialisedinagricultural
activities,anditsagriculturalexportswentoverwhelminglytotheUnitedKingdom.TheIrish
andBritishlabourmarketswereverytightlyintegratedwitheachother.TheIrishFreeState,
andlatertheIrishRepublic,wouldshareacommonlegalsystemwithBritain,aswellasa
commoncurrency,andmanyotherinstitutions.Formuchofthe20thcenturyitmakessense
toregardIrelandasonesmallregionalcomponentofabroaderBritishandIrisheconomy.
AndtheproblemwasthatthisbroaderBritishandIrisheconomy,withinwhichtheBritish
componentwasobviouslyoverwhelminglydominant,wasapoorperformerwithinthe
broaderEuropeancontext.Onlywhenweemancipatedourselvesfromexcessiverelianceon
Canada
Denmark
France
Germany Italy
Norway
Sweden
United Kingdom
United States
11.
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2.5
Aver
age
grow
th p
er a
nnum
.05 .1 .15 .2 .25Average manufacturing tariffs
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ournearestneighbourwereweabletofinallygrowasrapidlyasotherpoorcountries
aroundtheEuropeanperiphery.
3.AssessingIrishperformance
InordertoassessIreland'seconomicperformance,weneedabenchmark.3Becauseofour
history,anaturaltendencyistousetheUK,butthatisanimportantmistake.TheUK
performedpoorlyrelativetomostEuropeaneconomies:byusingitasabenchmark,weare
settingthebarmuchtoolow.
AsecondalternativeistocompareIrelandwithsimilarregionsinsidetheUK–Northern
Irelandmostobviously,butperhapsalsoScotlandandWales.Aswewillsee,doingso
providesuswithseveralusefulinsights,butagain,bycomparingourselveswithregions
locatedwithintheslowlygrowingUKeconomy,wearesettingthebartoolow.
Athirdalternative,whichmakesalotmoresense,istocompareourselveswithother
relativelypooreconomiesaroundtheEuropeanperiphery.Greece,PortugalandSpainwere
allaspoorasIrelandatthestartofthe20thcentury,ifnotpoorer.Theythereforefaced
manyofthesameobstaclesthatwedid,buttheyalsosharedthesamepotentialforrapid
growthbasedoncatchingupontheindustrialcore.Howdidwedocomparedwiththese
economies?Indeed,howdidwedocomparedwithEuropeaneconomiesmoregenerally?
3Forasimilardiscussion,seeÓGráda(1997,pp.2-4).
7
Figure3.Initialincomeandsubsequentgrowth,1926-2001Source:BroadberryandKlein(2012).GNPratherthanGDPisusedforIreland,usingadjustmentratioskindlyprovidedbyRebeccaStuart.Herdatagobackto1944soIhavesimplyassumedthatGNPwasthesameproportionofGDPinpreviousyears.
ItisamatterofstatisticalfactthatwithinWesternEurope,countriesthatwereinitially
poorerhavegrownmorerapidlythancountriesthatwereinitiallyricherduringthe20th
century.Inotherwords,poorereconomieshavetendedtoconvergeonricherones,mostly
asaresultofimportingbestpracticetechnologiesalreadyadoptedelsewhere.Wedon't
havereliablenationalincomeevidenceforIrelandbefore1926,soFigure3plotsinitial
incomelevels,percapita,in1926,againstaveragegrowthperannumoverthecourseofthe
subsequent75years.IhavedonethisforthebroadestavailablesampleofEuropean
countriesthatmanagedtoavoidbecomingCommunistlaterinthecentury,aswellasthe
UnitedStates.Ascanbeseen,thereisaveryclearnegativerelationshipbetweenthesetwo
variables.Initiallypoorcountries,suchasPortugal,grewmuchmorerapidlythaninitially
richcountriessuchasSwitzerland.Theaveragestatisticalrelationshipbetweenthesetwo
variables(whateconomistscall"theregressionline")isgivenbythestraightlineinthe
figure.Ascanbeseen,the"statisticalfit"ofthisrelationshipisremarkablytight,inthat
countriesareverycloselyclusteredaroundthisline.
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)
0 2000 4000 6000 80001926 GDP per capita, 1990 dollars
8
Strikingly,Ireland'seconomicperformanceduringthe75yearsfollowing1926wasexactly
whatitshouldhavebeen,givenIreland'sinitialincomelevel.Therewasnothingunusual
aboutIrishgrowthduringthisperiod.ItwasanentirelytypicalEuropeaneconomy.
4.TheinterwarperiodandWorldWarII:1922-1950
IfthereisonethingthatisunusualaboutIrisheconomicpolicy-makingafterindependence,
itisthatittooksolongfortheIrishFreeStatetomoveinaprotectionistdirection.The
successorstatesoftheAustro-HungarianEmpire,forexample,immediatelyimplementeda
widerangeofprotectionistmeasures.Bycontrast,duringthefirst10yearsofIrish
independenceourtradepolicywas,comparativelyspeaking,remarkablyliberal.
Asweallknow,theelectionofFiannaFáilin1932coincidedwithadramaticshifttowards
protection.Buttherearethreequestionsaboutthispolicyshiftthatwecanusefullyask.
First:areitscausesreallytobefoundinIrishpartypoliticsalone?Second,wasIreland
unusuallyprotectionist?Andthird,wasIrishprotectionismunusuallycostly?
Regardingthefirstquestion:itwouldbeamistaketoviewtheswitchtoprotectionas
havinghadcausesthatwerefundamentallyidiosyncraticandIrish.Everybodyswitched
towardsprotectionfollowingtheonsetoftheGreatDepressionin1929.Eventhe
traditionallyfree-tradingBritishmoveddecisivelytowardsprotectioninNovember1931
andFebruary1932–thatistosay,beforeIreland.
Thiscommontrendrequiresacommonexplanation,whichisprovidedbytheGreat
Depression.TheGreatDepressionarosefromacatastrophicmacroeconomicpolicyfailure,
largelyassociatedwiththegoldstandardoftheperiod.Thisruledoutthesortsofloose
moneypoliciesthathavebeenusedinmanyeconomiesduringourownGreatRecession,
andwasassociatedwithanextremelyconservativemindsetwhenitcametofiscalpolicyas
well.Governmentsthusfoundthemselvesunabletocombatfallingoutputandrising
unemploymentusingthesortsofmeasuresthatKeyneswasadvocatingatthetime;with
theirhandsthustiedbehindtheirbacks,theyresortedtotheonlypolicyleveravailableto
9
them,namelyprotection(EichengreenandIrwin,2010).Thehopewasthatthiswould
createdomesticjobsbyshieldingthelocaleconomyfromimportcompetition,andinfactin
manycases,includingourown,itdidso.Onaverage,highertariffswereassociatedwith
bettereconomicperformanceduringtheinterwarperiod,otherthingsbeingequal
(ClemensandWilliamson,2004).Fromacollectivepointofviewofcourse,itwouldhave
beenfarpreferableforeveryonetohaveadoptedcoordinatedandexpansionary
macroeconomicpolicies,aswasdonein2009,andforthemtohavemaintainedrelatively
freeinternationaltradingconditions.Butthisisnotwhathappened,anditwouldbewrong
tosingleoutIrelandforspecialcriticisminthisregard.
Figure4.WasIrelandunusuallyprotectionist?Averagetariffs1922-38Source:ClemensandWilliamson(2004)andwww.duanaire.ieatNUIGalway.
WasIrelandunusuallyprotectionistduringthe1930s?Theanswerisno.Irishaveragetariffs
weretowardsthehigherendofthespectruminthesampleofEuropeancountriesforwhich
wehavedata,buttheyweresimilartothoseinGermany,Italy,Portugal,Spain,andtheUK
(Figure4).Butfocusingontariffsaloneismisleading,sincethesewerenottherealproblem
duringthe1930s.Rather,countriesduringthisperiodadoptedawidevarietyofquantitative
restrictionsontrade,uptoandincludingexchangecontrolswhichinsomecaseseffectively
0.1
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1920 1925 1930 1935 1940 1920 1925 1930 1935 1940 1920 1925 1930 1935 1940 1920 1925 1930 1935 1940
Austria Denmark France Germany
Greece Ireland Italy Norway
Portugal Spain Sweden UK
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YearGraphs by country
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nationalisedtheinternationaltradingactivitiesofparticularcountries.Irelanddidn’tdo
anythingnearlyasdrastic.AndascanbeseenfromFigure5,itwastowardsthemoreliberal
endofthespectrumwhenitcametotheadoptionofquotasaswell.
Figure5.HowunusualwasIrishtradepolicy?Percentageofimportscoveredbyquantitativerestrictions,1937Source:LeagueofNations(1943),Whittlesey(1937).
Anotherwell-knownfeatureofIrisheconomicpolicyduringthisperiodwasitsattemptsto
restricttheforeignownershipofIrish-basedfirms.Buttheimportanceanduniquenessof
the1932and1934ControlofManufacturersActscanbeoverdone.First,asworkbyMary
Daly,FrankBarryandothershasrevealed,theseformalrestrictionswereoftenevadedby
meansoffancylegalfootwork,asindeedwasthecaseinothercountriesduringthisperiod
(Daly,1984;Daly,1992;Barryetal.,2016).4Second,Irelandwasbynomeansalonein
4Forexample,theItaliantyrecompanyPirelliregistereditsforeign-ownedoperationsas
belongingtoalegalentitybasedfirstinBelgium,andlaterinSwitzerland,whichwould
proveconvenientwhendoingbusinesswiththeAlliesduringWorldWarII.Cf.Jones(2013,
pp.197-8).
020
4060
Per c
ent
Belgium
France
Irelan
d
Netherl
ands
Norway
Sweden
Switzerla
nd UK USA
11
adoptingsuchrestrictions.Spainrestrictedtheforeignownershipandmanagementofall
firmstoamaximumof25%in1939(Lieberman,2006,p.131).Inthesameyear,Finland
tighteneditsexistingrestrictionsoninwardforeigninvestment,prohibitingtheacquisition
ofrealestatebyforeignindividuals,organisations,andFinnishcompanieswhichdidnot
restrictforeignownershiptoamaximumof20%oftheoutstandingshares(Hjerppe,2004,
pp.4-5).Portugalrestrictedinwardinvestmentin1943(dasNeves,1996,p.331).Other
examplescouldbefound.
Figure6.Initialincomeandsubsequentgrowth,1926-1938Source:asforFigure3.
WeretheeconomiceffectsofprotectionismuniquelydestructiveinIreland?Again,the
answerisno.AsFigure6shows,notonlywereIreland'seconomicpoliciestypicalduringthis
period,sowasitseconomicperformance.Between1926and1938,Irelandgrewatexactly
theratethatitshouldhavedone,givenitsinitialstartingpoint.
BelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgium
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GermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermany
HungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryHungaryIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIreland
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-4-2
02
4Av
erag
e an
nual
gro
wth
(%)
0 2000 4000 6000 80001926 GDP per capita, 1990 dollars
12
Importantly,protectionismprobablyhelpedmaintainemploymentatatimewhenjobs
werescarceeverywhere.ItistruethattheeconomicwarwithBritain,whichlastedfrom
1932to1938,wassomewhatunusual–althoughIrelandwashardlyaloneindefaultingon
itsdebtsduringthisperiod.Butitisalsotruethatthedisputewassettledontermshighly
favourabletotheIrish.Acapitalised£100millionliabilitywassettledwitha£10million
lumpsumpayment,andIrelandgainedtheTreatyPortsintothebargain.Thissurelyhelped
thecountrytoremainneutralduringWorldWarII.NeutralitycertainlysavedmanyIrish
lives,anditisentirelypossiblethatitavoidedmuchdestructiontoIrishproperty.Even
takingtheundoubtedcostsoftheEconomicWarintoaccount,itisentirelyplausiblethatits
neteconomicimpactwasactuallybeneficial(NearyandÓGráda,1991;O'Rourke,1991).
ThewaritselfwasaverydifficultperiodfortheIrisheconomy,eventhoughwewerespared
thehorrorsofthefighting.Importsofenergyandotheressentialrequirementswerevery
scarce;domesticindustrysufferedaccordingly.Asapredominantlyagriculturaleconomy,
withnoheavyindustrytospeakof,theIrishFreeStatedidnotbenefitfromthedemandfor
war-relatedmatérielinthewaythatScotlandorNorthernIrelanddid.Evenworse,itfound
itselfsellingitsagriculturaloutputtoahard-pressedBritishcustomer,whichquite
understandablyuseditsmonopolypositiontolowerthepricesitpaidforIrishagricultural
produce.Evenstill,Irishfarmersweretheonlysectionofthecommunitytoseetheirliving
standardsrisebetween1939and1943(ÓGráda,1997,pp.7-21).
IncommonwithalmostallofWesternEurope,Irelandexperiencedastrongboombetween
1945and1950.Informerlybelligerentpowers,especiallyonthecontinent,theboom
largelytooktheformofreconstruction.IntheIrishcase,itwasfarmoreconsumption-
driven,asconsumersmadeupforlosttimeandboughtAmericanandotherimported
goods.Constructionalsoboomed,asdidindustry(ibid.,pp.21-25).Suchaconsumption-
drivenboomwasprobablylesssustainablethanthemoreinvestment-basedbooms
experiencedincontinentalEuropeatthetime.Nevertheless,theoverallimpressionthat
onegetswhenplacingIrisheconomicpoliciesbetween1922and1950intoacomparative
perspectiveisthattherewasnothingunusuallyperverseorself-destructiveaboutIrish
policychoicesduringthisperiod.Irishpoliticianswererelativelyliberalduringthe1920s,
andwereprotectionistlikeeverybodyelsefrom1932onwards.Theywerehardlytoblame
13
forthedeprivationsofWorldWarII,norcouldtheybepraisedfortheinevitablerecovery
whichfollowed.Andthecountry'seconomicperformanceduringthefirst30yearsof
independencewasalsoprettytypicalforthetime.
5.Irelandfallsbehind:1950-1973
Figure7.Initialincomeandsubsequentgrowth,1950-60&1960-73Source:asforFigure3.
Incontrast,Ireland'sperformanceduringthesubsequent25yearswasdisappointing.
WhereasIrelandhadbeenanaverageperformerduringthedismalinterwarperiod,it
performedwellbelowaverageduringEurope's"GoldenAge".The1950swereasweall
knowparticularlybad,andtheGNPdataplottedforIrelandinPanelAofFigure7
understatethecase,ifitisthelivingstandardsofordinarypeoplethatweareconcerned
with.Throughoutpost-warEurope,governmentserectedmodernwelfarestates,but
Irelandlaggedfarbehind.IfindependentIrelandcanbesaidtohave"failed"duringany
period,itdidsomostobviouslyduringthisdecade.
AustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustria
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IrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIreland
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USAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSA
23
45
6Av
erag
e an
nual
gro
wth
(%)
2000 4000 6000 8000 100001950 GDP per capita, 1990 dollars
Panel A. 1950-60
AustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaAustriaBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgiumBelgium
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FranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFrance
GermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermany
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IrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIreland
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UKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUK
USAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSA
24
68
Aver
age
annu
al g
row
th (%
)
2000 4000 6000 8000 10000 120001960 GDP per capita, 1990 dollars
Panel B. 1960-73
14
WhatmaycomeasmoreofasurpriseisthefactthatIrishunderperformancecontinued
duringthe1960s.AscanbeseenfromPanelBofFigure7,thiswasthedecadeduringwhich
Greece,Portugal,andSpainexperiencedtheireconomicmiracles.Ireland,bycontrast,was
stillanunderperformer.Importantly,acomparisonwithBritainalonewouldmissthis:from
1960onwardstheIrisheconomygrewmorerapidlythantheBritishone.Butgrowingmore
rapidlythananeconomywhichwasitselfanunderperformerwasnotenoughtoprevent
IrelandfromfallingevenfurtherbehindmainstreamEurope.
WhywasIreland'sperformancesopoorduringthesetwocrucialdecades?Iwantto
highlightthreereasons.Thefirsthastodowithrecurrentbalanceofpaymentscrises;the
secondhastodowithdelayedliberalisation;andthethirdhastodowithourexcessive
dependenceonthepoorlyperformingBritisheconomy.
ThefirstfeatureoftheIrisheconomyduringthe1950sandearly1960swhichwasobvious
topeopleatthetime,butislessoftencommentedupontoday,wasthesuccessionof
boomsandbusts.5Thepost-warboomendedasaresultofabalanceofpaymentscrisis
whichemergedin1950,andgotworsein1951.Thisultimatelyledtothehighlydeflationary
budgetofApril1952,whichcausedadeeprecession.By1955theeconomywasrecovering,
consumptionwasbooming,andimportswererisingrapidly.Onceagain,theeventual
responsewasnotone,buttwoausteritybudgetsin1956,leadingtoadeeprecessionlasting
severalyears.10yearslater,arisingtradedeficitin1965wasfollowedbyyetanother
deflationarybudgetin1966.Thissuccessionofboomsandbustswashighlydestructive.It
alsoposesthequestionofwhetherIrishpolicymakerswereuniquelyincompetent.
Asithappens,theywerenot.Thissequenceoflooseningfiscalpolicy,leadingtorising
incomes,risingimports,balanceofpaymentscrises,andthencetotighteningfiscalpolicy,
fallingincomes,fallingimports,andimprovementsinthebalanceofpayments,waswell-
knownintheUnitedKingdomandothercountriesatthistime.TheUK,forexample
experiencedmajorcrisesin1957,1961,and1966.Thetermthatweusetodescribethis
sequenceofeventsis"stop-gopolicies",andthefundamentalreasonsforsuchpolicies5ÓGráda(1997)isonenotableexception,andIdrawextensivelyonhimintheaccountbelow.
15
wereanalysedbyanAustralianeconomist,TrevorSwan,inafamousandinfluential
contributiontothemacroeconomicliterature.6Theessentialproblem,Swanpointedout,
wasthatgovernmentsofthetimeweretryingtohittwotargetssimultaneously,afull
employmenttargetandatradebalancetarget.Tohittwotargets,youneedatleasttwo
policyinstruments;theproblemwasthatduringthisperiodpolicymakersonlyhadone,
namelyfiscalpolicy.Thepost-warBrettonWoodssystemwasbasedonfixedexchange
rates.Theseweresupposedtobeadjustable,andindeedtheywereoccasionallyadjusted,
buttodevalueyourcurrencywasseenasfailurebypoliticians,andgenerallyonlyhappened
underduress,inthecontextofmajorcrisessuchastheonein1967whichforcedHarold
WilsontodevaluetheBritish,andthustheIrish,pound.
Thisimpliedamajordilemmaforcountrieswhosecurrencieswereovervalued.Sincetheir
goodswereoverpricedoninternationalmarkets,theyfacedpersistentbalanceoftrade
problems.Thesecouldbeovercomebytighteningfiscalpolicy,whichwouldlower
expenditureandhenceimports,butthatcameatthecostofhigherunemployment.When
unemploymentbecametooburdensome,fiscalpolicycouldbeloosenedagain,butthis
wouldimplyrisingtradedeficits.Theultimatesolutionwastodevaluethecurrency;until
thishappened,stop-gopolicieswouldbeinevitable.Andwhereasdevaluationwasan
optionfortheUnitedKingdom,itwasnotsomethingthatIrishpolicymakerscoulddo
unilaterally–solongastheywereunwillingtobreaktheIrishcurrency'slinkwithsterling.
Untilthen,boomsandbustsrelatedtobalanceofpaymentscriseswereunsurprising–and
indeed,BritishandIrishboomsandbustswerehighlycorrelatedwitheachotherduringthis
period.7
AsecondexplanationforpoorIrishperformanceduringtheEuropeanGoldenAge,and
particularlyduringthe1950s,isthedelayinreversinginterwarprotectionistpolicies.Ihave
arguedthatthesepolicieswereappropriateinthecontextofthe1930s,atimewhen
everyonewasprotectingtheirdomesticmarkets;whenanexport-orientedgrowthstrategy
wasthereforenotfeasible;andwhenjobswerescarceeverywhere.Butbythe1950s
6Arndt(1976)providesadetailedaccountofthegenesisoftheidea.7Thecorrelationbetweenbusinesscyclesinthetwocountriesfrom1950to1972inclusiveis0.74,wherethebusinesscycleseriesaresimplycalculatedasdeviationsfromlogtrend.
16
protectionismwasclearlynolongerappropriate.AttheurgentbehestoftheUnitedStates,
Europeancountriesweregraduallyremovingbarrierstotradeandintegratingtheir
economieswitheachother–firstwithinthecontextoftheOEEC,theforerunneroftoday's
OECD,andlaterwithinthecontextoftheEECandEFTA.Thismeantthatexport-oriented
growthstrategiescouldnowbe,andwereinfact,adoptedthroughoutWesternEurope,
whiletherapidgrowthoftheperiodimpliedthatprotectionwasnotneededinorderto
createjobs.ThereisnodoubtthatIrelandwasslowertojumpontheliberalisation
bandwagonthanmanyothercountries,andthatthiswasacostlymistake.
However,thetraditionalpictureofanIrelandthatwascompletelyresistanttochange
before1958isover-simplistic.IrelandwasafoundermemberoftheOEECandEuropean
PaymentsUnion,thetwoorganizationsattheforefrontofEuropeantradeliberalization
duringtheearly1950s.Whenitcametoquantitativebarrierstotradesuchasquotas,which
aremoredamagingthantariffs,Irelandwasthesecondleastprotectionisteconomyinthe
OEECin1950,behindonlySwitzerland(Eichengreen,1996,p.59).Itsubsequently
liberalizedlessrapidlythandidothercountries,butthiswaspartlybecauseithadless
quota-relatedliberalizationtodointhefirstplace.Overall,Irelandemergesasanentirely
averageEuropeancountryonthisdimensionoftradepolicy.Itwashoweverslowertolower
itstariffbarriersthancoreEuropeaneconomies.Itbehaved,rather,likeotherperipheral
Europeaneconomies,suchasFinland,Greece,orSpain,andthisrelativelyslowreductionin
tariffspersistedintothe1960s,afterthefamous1958movetowardsgreateropenness
(Figure8).
17
Figure8.WasIrelandunusuallyprotectionist?Averagetariffs1950-72Source:asforFigure4.
Ontheotherhand,Irelandwasrelativelyprecociousinseekingtoattractforeigndirect
investment.TheIndustrialDevelopmentAuthoritywasestablishedasearlyas1949,and
soonstartedtryingtoattractinwardmultinationalinvestment.TheIrishExportBoard,soon
rechristenedCórasTráchtala,wasestablishedin1950.Taxreliefonexportprofitswas
introducedin1956.8
Irelandwasthereforenotasuniquelyprotectionistandinward-lookingduringthe1950sas
issometimesclaimed.Neitherwasthetimingofitsliberalisationparticularlyunusual.Itis
truethattheoriginalsixmembersoftheEEChadbeguntheirmovetowardsgreater
8Inlightofrecentcontroversiesitisinterestingtonotethatthissoonappearedasa
potentialconcernontheradarscreensofforeigngovernments,appearingtobepotentially
inbreachoftheOEECbanonartificialaidstoexporters.TheOEECapprovedtheinitiative
however,sinceitseemedtosignalagrowingoutwardorientationonthepartoftheIrish
government(BarryandO'Mahony,2016).
0.1
.2.3
0.1
.2.3
0.1
.2.3
1950 1955 1960 1965 1970 1950 1955 1960 1965 1970 1950 1955 1960 1965 1970 1950 1955 1960 1965 1970
Austria Cyprus Finland Germany
Greece Ireland Norway Spain
Sweden Switzerland Turkey UK
Aver
age
tarif
f rat
e (p
er c
ent)
Year
18
economicintegrationasearlyas1950,withthefoundationoftheEuropeanCoalandSteel
Community.Theyagreedin1955todrawupplansforacustomsunion,andtheTreatyof
Romewassignedin1957.
Butthetimingofliberalisationelsewheretoalargeextentreflectedtheimpactofthis
initiativeonothercountries,andnotablyontheUnitedKingdom.TheUKfirsttriedto
sabotagetheEECnegotiations.Whenthisfailed,theyattemptedtonegotiateanOEEC-wide
industrialfreetradearea,butcompletelymisjudgedtheinterestsofotherEuropean
countries.Whenthisattemptalsofailed,therefore,theBritishandsixothercountries
signedtheStockholmConventionin1960,establishingtheEuropeanFreeTradeArea.This
aimedtoestablishanindustrialfreetradeareabetweenitsmemberstates,andultimately
tonegotiateanagreementwiththeEECaswell.NoWesternEuropeancountry,nomatter
howperipheraloreconomicallybackward,couldavoidrespondingtothisdisruptionofthe
prevailingEuropeantraderegime.
Spainabandoneditslong-standingautarkictradepolicyregimein1959,joiningtheOEECin
thatyearandembarkingonaprocessoftradeliberalisation.In1960itabolished
quantitativerestrictionson90%ofitsimports,tariffsweregraduallyreducedoverthe
succeedingyears,andthecountryopeneditselfup,atleasttosomeextent,toinward
foreigninvestment(delaEscosuraandSanz,1996,pp.369-70).Portugalbecameafounder
memberoftheEFTA,althoughitmanagedtonegotiateatransitionaldealallowingitto
delaytariffreductionsonsectorsrepresentingabouthalfofitsimports(Costaetal.,2016,
pp.308-9).Finlandstartedloweringtariffsfrom1957onwards,andsignedatrade
agreementwiththeEFTAin1961(Paavonen,2004).GreecesignedanAssociation
AgreementwiththeEECin1961.Thisgrantedita22-yeartransitionalperiodleadingto
eventualfullmembership;GreecewasallowedtoloweritstariffsvisàvistheEECgradually,
butbenefitedfromanimmediatereductionofEECtariffsonGreekexports(Freris,1986,pp.
201-2).
AndsoitisnosurprisethatIrelandalsotooktheplunge,atmoreorlessexactlythesame
time,andappliedforEECmembershipin1961alongwithBritain.Norisitsurprisingthat
whenthatbidwasvetoedbyCharlesdeGaullein1963–somethingforwhichIrishpolicy
19
makerscanhardlybeblamed--Irelandunilaterallycutitstariffs.Itdidsoagaininthe
followingyear,andin1965signedtheAngloIrishFree-TradeAgreement.Atthisstage
IrelandwasfullycommittedtoeventualEECmembership,whichwasfinallyachievedin
1973.
WhatwasunusualaboutIrishtradeliberalisationwastheextenttowhichitremained
focusedontheeconomicrelationshipwithBritain.Tobesure,theAIFTAwasseenasa
steppingstonetowardseventualEECmembership,butdespitethisEuropeanmotivation,
therealitywasthatIrelandwasnotyetwellintegratedwiththeEuropeaneconomyasa
whole.Andthiswasaproblem,sinceaccesstotheBritishmarketalonewasafarless
appealingcarrottodangleinfrontofpotentialmultinationalinvestorsthanaccesstothe
muchlargerandmoredynamicEECmarket.
ThisleadsustothethirdexplanationforIreland'srelativelypoorperformanceduring
Europe'sGoldenAge.Ifthepoorperformanceinthe1950swasduetoprotectionism,andif,
astheconventionalwisdomhasit,Irelandliberalisedinarushfrom1958onwards,then
whywasitsperformancesodisappointingbetween1960and1973?Thecomparisonwith
otherperipheralEuropeaneconomies,inparticularGreeceandPortugal,isilluminating.As
wehaveseeninFigure7,GreeceandPortugalgrewextremelyrapidlyduringthisperiod,
whileIrelandremainedanunderperformer.Andaswehavealsoseen,inFigure8,Greek
tariffswereevenhigherthanIrishonesduringthe1960s.Whatcanexplainthesuperior
performancesofGreeceandPortugal?WhydidIrelandnotkeeppace?
AkeyfactorintheGreeksuccessstorywasthecountry'sAssociationagreementwiththe
EEC.Foreigninvestmenthadbeenencouragedsincetheearly1950s,whenaseriesofFDI-
friendlypolicieswereintroduced(Freris,1986,pp.171-2),buttariff-freeaccesstoEEC
marketsprovidedanessentialadditionalstimulustoinwardinvestment.Between1962and
1964,morethanthreefifthsofallmanufacturinginvestmentwasforeign;Kopsidisand
Ivanov(2017,p.108)arguethatFDIduringthisperiod"diversifiedandmodernisedGreek
industry".Continent-widemarketsforcheapconsumergoodsproducedinGreecealso
benefitedtraditionalGreeklightindustry.
20
InPortugaltoo,EFTAmembershipisseenashavingbeencrucialinpromotingamore
outward-lookinganddynamiceconomy.Accordingtooneestimate,annualinflowsof
foreigndirectinvestmentweremorethan30timeshigherduringthe1960sthantheyhad
beenbetween1943and1960(FerreiradaSilva,2016).9PortugueseaccessiontotheEECin
the1980swouldleadtoafurtherstepincreaseininwardforeigninvestment,ashappened
alsoinSpain(BarryandBradley,1997,p.1809).
Akeydifference,therefore,betweentheIrishcase,ontheonehand,andthePortuguese
andGreekcasesontheother,wasthatIrelandhadneitheranAssociationagreementwith
theEEC,normembershipoftheEFTA.10WetendtoassumethatonceIrelandhadsigned
theAIFTA,itwastoallintentsandpurposesafreetrader,andthereissomethingtothis.
LocalfirmshadtoadjusttoBritishcompetition,andthiswasgoodforefficiency.Butthereis
abigdifferencebetweenacceptingfreetradebetweenoneselfandjustonecountry,and
becomingpartofacontinent-widecustomsunion.UntilEECaccession,theIDAhadtotryto
sellIrelandasanexportplatformintotheUKandCommonwealth,butthiswasneveras
effectiveasalespitchastheonewhichwewereabletomakeafter1973.Fromthenon,
IrelandwassellingintotheEECasawhole,andthatmadeallthedifference.
Oneverystrikingfeatureofthedatabetween195411and1973isthatIreland'sgrowth
performancewasverysimilartothegrowthperformancesofbothNorthernIrelandand
Wales.Allthreeeconomiesseemtobeunderperforminginaverysimilarway,growingless
rapidlythantheyshouldhavebeengiventheirinitialincomelevels(Figure9).Thissuggests
thatallthreeeconomieswerefacingacommonproblemorsetofproblems.Someofthese
mayhavebeeninstitutionalinnature,suchasafragmentedtradeunionstructurewhich
madethecorporatistarrangementstheninvogueontheContinentdifficulttoachieve(Ó
GrádaandO'Rourke,1996).ButanexcessiverelianceonthesluggishBritisheconomyis
anotherplausiblecandidate.
9Accordingtothesameauthor,theinflowin1961wasashighasthetotalinflowexperiencedduringtheentire1950s.dasNeves(1996),ontheotherhand,downplaystheroleofFDIduringthe1960s.10RecallthatEFTAaimednotonlytodismantleindustrialtariffsbetweenitsownmemberstates,buteventuallytonegotiatetariffreductionsvis-à-vistheEECaswell.11WhichiswhenreliableGDPestimatesforWalesandNorthernIrelandbecomeavailable.
21
Figure9.Initialincomeandsubsequentgrowth,1954-73Source:asforFigure3.WalesandNorthernIreland:dataunderlyingDorsett(2013),graciouslyprovidedbyauthor.Scotland:datagraciouslyprovidedbyBrianAshcroft.
Figure10.IrishGNPpercapitaaspercentageofUKandFrenchGDPpercapitaSource:asforFigure3.Note:theverticallinedenotes1973.
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FranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermany
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IrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIreland
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NetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlands
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PortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugal
ScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotland
SpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpain
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UKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUK USAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWales
23
45
67
Aver
age
annu
al g
row
th (%
)
2000 4000 6000 8000 100001954 GDP per capita, 1990 dollars
4060
8010
012
0Pe
r cen
t
1920 1940 1960 1980 2000 2020Year
World War II As share of UK As share of France
22
Inconsequence,whileGDPpercapitagrewmorerapidlyinIrelandthanintheUKduringthe
1960s(Figure10),thiswasnotsufficienttopreventIrelandfallingevenfurtherbehinda
majorcontinentaleconomylikeFrance.Thiswouldchangein1973.
Figure11.Initialincomeandsubsequentgrowth,1973-1990Source:asforFigure3.
6.IrelandinEurope
AsFigure10shows,IrelandimmediatelystoppedfallingfurtherbehindFranceonceit
enteredtheEECin1973:Camposetal.(2014)estimatethatmembershipboostedIreland’s
percapitagrowthratebyalmost2percentagepoints.Ofcourse,manyothereventswere
shakinguptheinternationaleconomiclandscapeatthistime,mostobviouslytheoilcrises
of1973and1979.Theseledtoadecadeormoreofhighunemployment,highinflation,and
evenhigherunemploymentasgovernmentsattemptedtolowertheinflationrate.Allof
thesedevelopmentshurtIreland.Andyet,evenbeforetheIrisheconomicmiracleofthe
1990s,Irelandwasonceagaingrowingjustaboutasrapidlyaswouldhavebeenpredicted
withinaconvergenceframework(Figure11).Foreigndirectinvestment,basedonselling
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DenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmark
FinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinland
FranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFrance
GermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermany
GreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreeceGreece
IrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIreland
ItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItaly
NININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININININI NetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlands
NorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorway
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ScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotlandScotland
SpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpain
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SwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerland
UKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSAUSA
WalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWalesWales
11.
52
2.5
3Av
erag
e an
nual
gro
wth
(%)
5000 10000 15000 200001973 GDP per capita, 1990 dollars
23
intotheEEC,wasthemajorfactorimprovingIrishperformancefrom1973onwards,
althoughtheCommonAgriculturalPolicyclearlyalsohelped.Wewouldcertainlyhavedone
evenbetterhaditnotbeenforthebudgetarymistakesofthelate1970s,andtheir
inevitableconsequencesinthesucceedingdecade.
Figure12.Initialincomeandsubsequentgrowth,1990-2001Source:asforFigure3.
ThesecondmajorturningpointinIreland'seconomicfortuneswasofcoursetheshort
periodbetween1987and1990.Duringthe1990s,Irelandwas,asweallknow,an
extraordinaryoverperformer(Figure12).AcomparisonbetweenIreland,ontheonehand,
andNorthernIreland,ScotlandandWalesontheother,isinformative(Figure13).Ireland
hadbeengaininggroundontheseUKregionsfrom1960onwards,aswehavealreadyseen,
whichmightrepresentagradualprocessofconvergenceoccurringwithintheBritishand
Irishregionaleconomy.Theaccelerationfrom1990onwards,however,represents
somethingentirelydifferent.Itseemsclear,notonlythattheEuropeanUnionwas
fundamentalintransformingtheIrisheconomy,butthatIrishindependencewasessential
inexploitingtheopportunitieswhichtheEuropeanUnionafforded.Asthefiguresuggests,
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FinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFrance
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46
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row
th (%
)
10000 15000 20000 250001990 GDP per capita, 1990 dollars
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wewouldneverhavedoneanywherenearaswellasweinfactdid,hadweremaineda
mereregionoftheUnitedKingdom.
Figure13.IncomesrelativetoUK,1924-2001Source:asforFigure9.Policyflexibilityatatimeofrapidchangewasessential,andthatiswhatindependencegave
us.It’simportanttonotethatIrelandisnottheonlysmallEuropeancountrytohave
performedwellinthecontextofaglobalisingeconomy.Thereisawell-establishedpolitical
scienceliteraturethatshowshowothersmallEuropeancountries,inScandinaviaand
elsewhere,havebeenabletorespondnimblyandflexiblytochanginginternationalmarket
conditions,inwaysthatlargercountrieshavefoundmoredifficult(Katzenstein,1985).But
EUmembership,andthesinglemarketprogrammeofthelate1980sandearly1990s,were
essentialinallowingIrelandtofinallyreapthefulleconomicrewardsofitsindependence.
Thepolicymixthatweadoptediswellknown:alowcorporationtaxandotherincentives
forinwardinvestment,includinginvestmentineducationandinfrastructure.CormacÓ
GrádaandIhavealsoarguedthatsocialpartnershipwasimportant,moderatingwage
growthandprovidingastableindustrialrelationsenvironment(ÓGrádaandO'Rourke,
4060
8010
012
0Pe
r cen
t
1920 1940 1960 1980 2000 2020Year
World War II Ireland (GNP) Northern Ireland Scotland Wales
25
2000).12Underpinningeverythingwastwocrucialfactors:ourpoliticalindependence,
whichallowedustoadoptapolicymixwellsuitedtoourowncircumstances;andour
membershipoftheEuropeansinglemarket,withoutwhichnoneofthiswouldhaveworked.
PoliticalindependenceandEUmembershipwhereneverfundamentallyatoddswitheach
otherinIreland;bothwererequiredtogivefulleffecttotheother.Ourindependence
wouldnothaveworkedaswellasitdidwithouttheEU;ourEUmembershipwouldnothave
workedaswellasitdidwithoutindependence.
Figure14.OECDandperipheralEuropeanGDPvolatility,1960-2014Source:asforFigure3.
Since1973,andevenmoresosince1990,Irelandhasbecomeahyper-globalizedcountry
whosesubsequenteconomichistoryhasmirroredtheebbsandflowsoftheglobal
economy,inhighlyexaggeratedfashion.Therecessionoftheearly1980s,asinflationwas
squeezedoutoftheWesterneconomicsystem;theClinton/GreenspanITboomofthe
1990s;thecreditandhousingbubblesoftheGreatModeration;theeconomiccollapseof
2008,andthesubsequentrecovery:Irelandexperiencedallofthem,inspades.This
12JustasithaddoneonthecontinentduringtheEuropeanGoldenAge(Eichengreen,1996).
.01
.02
.03
.04
.05
.06
1960 1980 2000 2020Year
Ireland Greece Portugal Spain OECD
10 year standard deviation of log change in GDP
26
heightenedsensitivitytointernationaleconomicconditionsinpartreflectsthecountry’s
extraordinaryopenness,butitalsoreflectsanIrishtendencytospendwhentimesaregood,
andtoborrowwhentheyarenot.IntheOECDasawhole,GDPvolatilitydeclinedafterthe
turmoilofthe1970s;inIreland,ifanythingitincreased–evenbeforetheextraordinary
bubbleandbustoftheearly21stcentury(Figure14).Itseemsasthoughthisvolatilityisto
someextentacommonfeatureoftheperipheralEuropeaneconomiesIhavebeen
comparingustothroughoutthistalk;butnotingthisdoesnothingtodiminishtheproblem,
andmoderatingthisvolatilityneedstobeamajorpolicypriorityforthecountrygoing
forward.
7.ThechallengesofBrexit
TheothermajorpriorityisadjustingtoBrexit,and,perhaps,totheeconomicconsequences
ofaTrumpPresidency.ExactlywhatchallengesBrexitwillimplyisunclear,andwillremain
sountiltheBritishgovernmentfinallydecideswhatitwants.Thereisnodoubtbutthata
HardBrexitwouldbedamagingtoIreland.Itwouldbeanunfriendlyact,notinthesense
thattheBritishwouldbetryingtohurtIreland--ofcoursetheywouldnotbe--butinthe
sensethatthedamageaHardBrexitwouldcauseuswouldbeofnogreatconcerntothem
eitherway.Itwaseverthus:Englandisabigcountry,andcan'treasonablybeexpectedto
doanythingotherthantopursueitsownbestinterestasitseesit,withouttakingtoomuch
accountoftheinterestsofthesmallercountriesontheseislands.Thatiswhyinmyview
Irishindependencewasalwaysbothinevitableanddesirable,butthatisanothermatter.
BecauseaHardBrexitwoulddamageIrishinterests,it'slogicalthatweshoulddesirethat
ournearestneighboursnotproceedwithit.Butit'simportantthatthisdesirenotleadusto
engageinwishfulthinking.OnceBritainhaslefttheEU,theEUwillbeobligedunderWTO
rulestoimposetariffsonimportscomingfromtheUK.ThisisnotsomethingthattheEUcan
avoid:ifitwerenottodothis,itwouldbediscriminatingagainstitsothertradingpartners,
andthatisillegal.TheonlycircumstanceinwhichtheEUwouldbeallowedtonotimpose
tariffsonBritishgoodsisiftherewerealegallyregisteredfreetradeagreementofonesort
oranotherinplaceatthemomentthatBrexitoccurs.Andtherearetwomajorproblems
here.First,itisfarfromclearthatitwillbelegallypossibletonegotiateafreetrade
27
agreementwiththeUKwhileitremainsamemberoftheEU.Butevenifitislegally
possible,whichseemsdoubtful,thereisasecond,practicalconsideration,whichisthatit
takesyearsfortradedealstobenegotiatedandratified.Thechancesofacomprehensive
dealbetweentheEUandUKbeingironedoutwithintwoyearsarezero.
Soifwearetoavoidtariffbarriers,eitherbetweentheRepublicofIrelandandtheNorth,
or,preferably,betweenIrelandandBritain,wearegoingtoneedatransitionalarrangement
ofsomesortthatcanbeeasilyagreedwithinthetwo-yearframework,withouttoomuch
substantivenegotiatingbeinginvolved.Adetailedbespoketransitionalagreementseems
impossible–itwillbejustasdifficulttonegotiateasapermanentagreement,inpart
becausetransitionalagreementsoftenlastaverylongtime.Andsoitwillhavetobeanoff-
the-shelfarrangement–temporarymembershipoftheEuropeanEconomicAreafor
example,ortemporarymembershipoftheEUcustomsunion.IftheBritishdecidethatthey
don'twanteitheroftheseoptions,orsomeothereasilyavailablealternative,onevena
transitionalbasis,thenHardBrexitwillbecomeinevitable.Anditisimportanttobeclear
thatitwillbeBritishchoices,andnotanyoneelse's,thatwillhavecausedthisoutcome.
Figure15.ThedestinationofIrishexports,2015Source:CSO
01.
0e+0
72.
0e+0
73.
0e+0
74.
0e+0
75.
0e+0
7Th
ousa
nds
of e
uros
Agricultural Forestry and Fishing IndustrialOther Other EU UK Other Other EU UK Other Other EU UK
28
TheproblemforIrelandisthat,althoughourprosperityisbasedonourmembershipofthe
EUsinglemarket,acomparativelyhighshareofIrishexportsstillgoestoBritain.It's
importanttobeclear:otherEuropeanmarketsarefarmoreimportanttous(Figure15).
Theyare,asIhaveemphasised,thebasisofourprosperity.NosaneIrishpoliticianwould
choosetheBritishmarketoverthefarlargerEuropeanone.ButBritainisstillourmajor
agriculturalmarket,andmanyofoursmaller,morelabour-intensiveindigenousindustries
stillsellalotthere.Thismatters,sincefoodandagriculturaltariffsareparticularlyhigh,and
sincethesesectorsaremoreemployment-intensivethansomeofthehigher-profile
multinationalsectors.
Figure16.Merchandisetrade,goodsforwarded(absolutetonnage)Source:CSO
AnotherpotentialconcernistheveryhighshareofIrishmerchandiseexportsbeingshipped
to,andinsomecasesthrough,theUnitedKingdom(Figure16).Especiallyworryingisthe
largeshareofroll-onroll-offtrafficgoingtotheUK;itseemslikelythatthosesmaller,
labour-intensivefirmsexportingfoodandotherproducts,whorisklosingsalestotheUK,
arepredominantlyexportingtheirproductsinthisfashion.Towhatextentmightcustoms
02,
000
4,00
06,
000
8,00
0Th
ousa
nds
of to
nnes
All Break bulk & all other Dry bulk Lift-on/lift-off Liquid bulk Roll-on/roll-off
Oth
er
Oth
er E
U UK
Oth
er
Oth
er E
U UK
Oth
er
Oth
er E
U UK
Oth
er
Oth
er E
U UK
Oth
er
Oth
er E
U UK
Oth
er
Oth
er E
U UK
29
delaysatDoverandCalaisimposeextracostsonthemwhentheyexporttotheContinent?
Wedon'tknowyet,butitseemstomethatthisisalsoapotentialconcern.
WhatisclearisthatBrexitisgoingtorequirethatweadjust.Howwellweadjustwilldefine
ourfutureprosperityoverthecourseofthenextcoupleofdecades.Butwe’regoingtohave
toadjustanyway,probably,sincethekindofhyper-globalizationthatwehavebeensogood
atexploitingisbecomingpoliticallyunsustainablethroughoutthewesternworld.Wedon’t
wanttofindourselvesonthewrongsideofhistory.
Wearehardlythefirstcountrytohavefacedthissortofexternaltradeshock.Finland's
problemsin1991,whenitfounditselfhavingtocopewiththeconsequencesofthebreakup
oftheSovietUnion,withwhomahugeshareofitstradehadpreviouslybeenconducted,
wereprobablymoreseriousthanthosethatwearelikelytoface;itsadjustmentwas
exemplary.Late19thcenturyDenmarkfounditselffacinghighertariffbarriersinits
traditionalGermanmarketafter1879,aswellasprohibitionsonlivecattleexportswhich
lastedseveralyears.Italsosuccessfullyadjusted,switchingintodairyingandotheractivities
targetingtheBritish,ratherthantheGerman,market.Irelanditselfhadtoadjustduringthe
1960s,asthemanufacturingindustriesthathadbeenbuiltupduringtheprotectionistera
becameexposedtointernationalcompetition.Wewillhavetodosoagain.
Itistimetoconclude.IhavearguedthatIrishprosperityinrecentdecadeshasdepended
bothonourmembershipoftheEuropeanUnion,andonourpoliticalindependencewhich
allowedustomakethemostofthatmembership,bygivingusthefreedomtomakepolicy
choicesthatweresuitedtoourowncircumstances.Muchthesamehasbeentruefor
severalothersmallEuropeancountries:onceagain,ourownnationalstoryispartofa
largerpicture.Wearenotsodifferentaswesometimesthinkweare.
Ofcoursewehavemademistakes–itwouldhavebeenoddhadwenotdoneso,especially
inthecontextofthe20thcentury.Butourmistakeswerenotparticularlyunusual,or
especiallyegregious;andtheywereeventuallyremedied.Andisn’titthecase,whetherwe
aredealingwithindividualhumanbeings,orwithentirenations,thathavingthefreedomto
30
makeyourownmistakes,andlearnfromthem,ratherthanbeingpermanentlysubjectedto
theconsequencesofotherpeoples’mistakes,iswhatfreedomisallabout?
31
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UCD CENTRE FOR ECONOMIC RESEARCH – RECENT WORKING PAPERS WP15/28 Ronald B Davies and Arman Mazhikeyev: 'The Impact of Special Economic Zones on Exporting Behavior' November 2015 WP15/29 Cormac Ó Gráda: 'On Plague in a Time of Ebola' November 2015 WP15/30 Kevin Denny: 'Are the Effects of Height on Well-being a Tall Tale?' December 2015 WP15/31 David Madden: 'Do Schooling Reforms Also Improve Long-Run Health?' December 2015 WP16/01 Ronald B Davies, Michael J Lamla and Marc Schiffbauer: 'Learning or Leaning: Persistent and Transitory Spillovers from FDI' February 2016 WP16/02 Alice Albonico, Alessia Paccagnini and Patrizio Tirelli: 'Great Recession, Slow Recovery and Muted Fiscal Policies in the US' March 2016 WP16/03 Cormac Ó Gráda: '"The Last, the Most Dreadful Resource of Nature": Economic-historical Reflections on Famine' March 2016 WP16/04 Kevin Denny and Cormac Ó Gráda: 'Immigration, Asylum, and Gender: Ireland and Beyond' June 2016 WP16/05 Cormac Ó Gráda: 'What’s in an Irish Surname? - Connollys and Others a Century Ago' June 2016 WP16/06 David Madden: 'Child and Adolescent Obesity in Ireland: A Longitudinal Perspective' August 2016 WP16/07 Kevin Denny and Patricia Franken: 'Self-reported health in good times and in bad: Ireland in the 21st century' August 2016 WP16/08 Ronald B Davies, Iulia Siedschlag and Zuzanna Studnicka: 'The Impact of Taxes on the Extensive and Intensive Margins of FDI' August 2016 WP16/09 Karl Whelan: 'Banking Union and the ECB as Lender of Last Resort' August 2016 WP16/10 David Madden: 'The Base of Party Political Support in Ireland: A New Approach' August 2016 WP16/11 Stelios Bekiros, Roberta Cardani, Alessia Paccagnini and Stefania Villa: 'Dealing with Financial Instability under a DSGE modeling approach with Banking Intermediation: a predictability analysis versus TVP-VARs' August 2016 WP16/12 Alice Albonico, Alessia Paccagnini and Patrizio Tirelli: 'In search of the Euro area fiscal stance' August 2016 WP16/13 Ivan Pastine: 'On Nash Equilibria in Speculative Attack Models' September 2016 WP16/14 Ronald B Davies and Rodolphe Desbordes: 'The Impact of Everything But Arms on EU Relative Labour Demand' September 2016 WP16/15 Ronald B Davies, T Huw Edwards and Arman Mazhikeyev: 'The Impact of Special Economic Zones on Electricity Intensity of Firms' October 2016 WP16/16 David Madden: 'Childhood Obesity and Maternal Education in Ireland' November 2016 WP16/17 Stijn van Weezel: 'Communal violence in the Horn of Africa following the 1998 El Niño' December 2016 WP16/18 Stijn van Weezel: 'Short term effects of drought on communal conflict in Nigeria' December 2016 WP16/19 Sarah La Monaca and Lisa Ryan: 'Solar PV where the sun doesn’t shine: Estimating the economic impacts of support schemes for residential PV with detailed net demand profiling' December 2016
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