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Protection, economic war and structural change: the 1930s in Ireland

Published online by Cambridge University Press:  28 July 2016

J. Peter Neary  and
Cormac Ó Gráda
J. Peter Neary
Affiliation:
Department of Economics, University College, Dublin
Cormac Ó Gráda
Affiliation:
Department of Economics, University College, Dublin
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Extract

If I were an Irishman, I should find much to attract me in the economic outlook of your present government towards greater self-sufficiency. (J.M. Keynes)

The 1930s were years of political turmoil and economic crisis and change in Ireland. Economic activity had peaked in 1929, and the last years of the Cumann na nGaedheal government (in power since the establishment of the Irish Free State in 1922) saw substantial drops in output, trade and employment. The policies pursued after Fianna Fáil’s victory in the election of February 1932 were therefore influenced both by immediate economic pressures and by the party’s ideological commitments. The highly protectionist measures associated with de Valera and Lemass — key men of the new régime — sought both to create jobs quickly and to build more gradually a large indigenous industrial sector, producing primarily for the home market.

Political controversy complicated matters. De Valera was regarded as a headstrong fanatic by the British establishment. His government’s refusal to hand over to Britain the so-called ‘land annuities’ — a disputed item in the Anglo-Irish settlement of 1921 — led to an ‘economic war’, in which the British Treasury sought payment instead through penal ‘emergency’ tariffs on Irish imports. The Irish imposed their own duties, bounties and licensing restrictions in turn. The economic war hurt Irish agriculture badly; the prices of fat and store cattle dropped by almost half between 1932 and mid-1935. Farmers got some relief through export bounties and the coal-cattle pacts (quota exchanges of Irish cattle for British coal) of 1935-7, but Anglo-Irish relations were not normalised again until the finance and trade agreements of the spring of 1938, and the resolution of the annuities dispute did not mean an end to protection. The questions ‘Who won the economic war?’ and ‘What was the impact of protection on the Irish economy?’ are analytically distinct, but they are not that easy to keep apart in practice.

Type
Articles
Information
Irish Historical Studies , Volume 27 , Issue 107 , May 1991 , pp. 250 - 266
Copyright
Copyright © Irish Historical Studies Publications Ltd 1991

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References

1 Keynes, J.M., ‘National self-sufficiency’ in Studies, xx (1933), pp 177–93 Google Scholar.

2 By ‘Ireland’ and ‘Irish’ we mean the Irish Free State throughout. Good introductions to the period discussed here include Hancock, W.K., Survey of British Commonwealth affairs, vol. i (Oxford, 1937), chs 3 and 6Google Scholar; Meenan, James, ‘From free trade to self-sufficiency’ in McManus, Francis (ed.), The years of the great test (Cork, 1967)Google Scholar; Whitaker, T.K., ‘From protection to free trade: the Irish experience’ in Administration, xxi (1973), pp 405-23Google Scholar; Fanning, Ronan, Independent Ireland (Dublin, 1983)Google Scholar; and Johnson, David, The interwar economy in Ireland (Dundalk, 1985)Google Scholar.

3 See Canning, Paul, British policy towards Ireland, 1921-1941 (Oxford, 1985), pp 140-41Google Scholar; McMahon, Deirdre, ’“A transient apparition”: British policy towards the de Valera government, 1932-5’ in I.H.S., xxii no. 88 (Sept. 1981), pp 331-61Google Scholar.

4 Meenan, James F., The Irish economy since 1922 (Liverpool, 1970), pp 321-3Google Scholar; Johnson, David, The interwar economy in Ireland (Dundalk, 1985), pp 19, 30, 43Google Scholar.

5 Round Table, xxix (1938-9), p. 377; Bew, Paul and Patterson, Henry, Sean Lemass and the making of modern Ireland (Dublin, 1982), pp 1–29 Google Scholar.

6 Reports and minutes of evidence of commission of enquiry into banking, currency and credit, P. 2628 (Dublin, 1938); Speeches and statements of Eamon de Valera, 1917-1973, ed. Moynihan, Maurice (Dublin, 1980), pp 379–410 Google Scholar.

7 Round Table, xxix (1938-9), p. 594; Irish Times, 7 July 1932.

8 Meenan, James, ‘Derating as a means of agricultural relief’ in Studies, xxvi (1937), p. 375 Google Scholar.

9 Quoted in Curtis, Maurice, ‘Trade union activity and the boot and shoe industry in Ireland, 1932-52’ (unpublished minor M.A. thesis, University College, Dublin, 1981), p. 46 Google Scholar.

10 De Valera, Speeches, p. 350.

11 See editorial in Irish Times, 9 May 1938.

12 A notable exception is W.J.L. Ryan’s unpublished Ph.D. thesis, ‘The nature and effects of protective policy in Ireland, 1922-1939’ (Trinity College, Dublin, 1949)Google Scholar. Ryan provides estimates of tariff changes and calculates their effect on the cost of living. He also calculates the ‘excess cost’ of protection in 1936 — the sum, over all economic activities, of differences between the prices charged by Irish producers and free trade prices.

13 Dáil Éireann deb., xxxvi, 109 (19 Nov. 1930).

14 Ryan, ‘Nature & effects of protective policy’.

15 O’Brien, George, ‘Patrick Hogan’ in Studies, xxv (1936), pp 353-68Google Scholar; Daniel, T.K., ‘Griffith on his noble head: the determinants of Cumann na nGaedheal economic policy, 1922-32’ in Irish Economic and Social History, iii (1976), pp 55–65 CrossRefGoogle Scholar.

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17 Patrick McGilligan papers (U.C.D., Archives Department, P35b/10).

18 Dáil Éireann deb., xxxvi, 91 (19 Nov. 1930).

19 Ibid., xxxv, 36 (28 May 1930).

20 Meenan, Irish economy, p. 142.

21 Ryan, W.J.L., ‘Measurement of tariff levels for Ireland for 1931, 1936, 1938’ in Journal of the Statistical and Social Inquiry Society of Ireland, xviii (1948-9), pp 109-33Google Scholar.

22 G.A. Duncan, ‘The social income of Éire, 1938-40’ in ibid., xvi (1940-41).

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24 For corroboration, see Kennedy, Kieran A., Giblin, Thomas and McHugh, Deirdre, The economic development of Ireland in the twentieth century (London, 1988), pp 53-4Google Scholar.

25 See Jones, Ronald W. and Neary, J. Peter, ‘The positive theory of international trade’ in Jones, R.W. and Kenen, :P.B. (eds), Handbook of international economics, vol. i (Amsterdam, 1984), pp 1–62 Google Scholar, for a recent review and for further references. Other applications of this model to issues in economic history are presented in Jones, Ronald W., ‘A three-factor model in theory, trade and history’ in Bhagwati, J.N. et al. (eds), Trade, balance of payments and growth: papers in international economics in honor of Charles P. Kindleberger (New York, 1971)Google Scholar, and Hueckel, Glenn, ‘War and the British economy, 1793-1815: a general equilibrium analysis’ in Explorations in Economic History, x (1973), pp 365-96CrossRefGoogle Scholar.

26 Jones, ‘A three-factor model’.

27 As a referee has pointed out, fears of political instability following de Valera’s coming to power also encouraged some capital outflow, most notably the transfer by Guinness of much of their productive capacity to London. (See Kennedy et al., Economic development, p. 47.) However, pending a more detailed quantitative analysis, we assume that capital outflows were insignificant relative to actual and potential capital inflows.

28 The implications of international capital mobility in the Jones specific-factors model were first examined by Caves, Richard E., ‘International corporations: the industrial economics of foreign investment’ in Economica, xxxviii (1971), pp 1–27 CrossRefGoogle Scholar. The same formal model has been applied to the ‘staples’ issue in Canadian economic history by Chambers, E.J. and Gordon, D.F., ‘Primary products and economic growth: an empirical measurement’ in Journal of Political Economy, lxxiv (1966), pp 315-32CrossRefGoogle Scholar. The present analysis draws on Peter, J. Neary, and Ruane, FrancesP., ‘International capital mobility, shadow prices and the cost of protection’ in International Economic Review, xxix (1988), pp 571-85Google Scholar.

29 Haberler, Gottfried von, The theory of international trade (London, 1936)Google Scholar.

30 Daly, ‘An Irish-Ireland for business’, presents substantial documentary and anecdotal evidence to suggest that these restrictions were successfully evaded in many cases.

31 See Neary & Ruane, ‘International capital mobility’, for an elaboration of this argument.

32 An exception is Johnson, The interwar economy, p. 19, although he argues that the employment effect was minimal. However, our data for adult male employment in the appendix suggest that the rate of decline was significantly reduced.

33 In its essential features, this model is similar to that of Gruen, F.H. and Corden, W.M., ‘A tariff that worsens the terms of trade’ in McDougall, I.A. and Snape, R.H. (eds), Studies in international economics: Monash conference papers (Amsterdam, 1970), pp 55-8Google Scholar. For ease of exposition, we present only a simple version of it, although this is strictly speaking inconsistent with our second model. (International capital mobility, by fixing the wage rate, would drive the economy to specialise in either pasture or tillage.) Straightforward extensions of the model (such as heterogeneous land or constraints on the rate of intersectoral factor movements) would avoid this inconsistency while adding more complexity than insight.

34 For an earlier application of this disaggregation of the agricultural sector to Irish economic history, see Gráda, Cormac Ó, ‘Models of post-Famine adjustment’, ch. 4 of ‘Post-Famine adjustment: essays in nineteenth-century Irish economic history’ (Ph.D. thesis, Columbia University, 1973)Google Scholar.

35 Dáil Éireann deb., lxxi, 183 (28 Apr. 1938).

36 Ibid., lix, 850 (13 Nov. 1935).

37 McMahon, Deirdre, Republicans and imperialists: Anglo-Irish relations in the 1930s (New Haven, 1984), pp 226-7Google Scholar; Fanning, Ronan, The Irish Department of Finance, 1922-58 (Dublin, 1978), pp 269-74Google Scholar.

38 Quoted in McKeever, Gerard, ‘Economic policy in the Irish Free State, 1922-38’ (Ph.D. thesis, McGill University, 1979), p. 161 Google Scholar.

39 See, e.g., Irish Times, 4 Jan. 1935; Canning, British policy, pp 155, 158-9.

40 The Irish Free State and Northern Ireland data are those used by Johnson, David S., ‘Cattle smuggling on the Irish border, 1932-38’ in Irish Economic and Social History, vi (1979), pp 41–63 CrossRefGoogle Scholar; the British data refer to second-quality two-year old shorthorn stores as reported in Agricultural Statistics.

41 We are here applying standard techniques of cost-benefit analysis. For a discussion and review in the open economy, see Corden, W.M., ‘The costs and consequences of protection: a survey of empirical work’ in Kenen, P.B. (ed.), International trade and finance: frontiers for research (London, 1975), pp 51–91 Google Scholar.

42 The standard formula for the change in producers’ surplus when prices are given (as here) is (ΔQ. ΔP)/2, where ΔQ and ΔP are the changes in quantity and price respectively. This may alternatively be expressed as εP.Q.(ΔP/P)2/2, where ε is the elasticity of supply. From our data, P.Q equals 10 and (ΔP/P) equals 0.4, implying a loss of 0.8ε.

43 For another interesting example of political preoccupations overriding economic gains and losses, see Frankel, Jeffrey A., ‘The 1807-1809 embargo against Great Britain’ in Journal of Economic History, xlii (1982), pp 291–308 CrossRefGoogle Scholar.

44 These conclusions are broadly confirmed by O’Rourke, Kevin, ‘Burn everything English but their coal: the Anglo-Irish economic war of the 1930s’ (Mimeo, Columbia University, 1990)Google Scholar, which extends our approach using computable general equilibrium techniques.

45 But see also Butt, Isaac, Protection to home industry: some cases of its advantages considered (Dublin, 1846), p. 63 Google Scholar.

46 An earlier version of this paper was circulated as Discussion Paper no. 117 of the Centre for Economic Policy Research, London, in July 1986 and was presented at the World Cliometric Meetings, Evanston, Illinois. We are grateful to participants on that occasion and to Mary E. Daly, David Johnson, Frank Lewis, Dermot McAleese, Marvin McInnis, Brendan Walsh and the referees for helpful suggestions.

47 See Statistical Abstract 1931, pp 28-9 and Statistical Abstract 1939, pp 46-7.

48 O’Connor’ & Guiomard, ‘Agricultural output in the Irish Free State’.

49 Johnson, Interwar economy, pp 29-30.

50 Daly, Mary E., ‘The employment gains from industrial protection in the Irish Free State during the 1930s: a note’ in Irish Economic and Social History, xv (1988), pp 71-5CrossRefGoogle Scholar; Kennedy et al., Economic development, pp 47, 53; Girvin, Brian, Between two worlds: politics and economy in independent Ireland (Dublin, 1989), pp 107-11Google Scholar.

51 See, e.g., Statistical Abstract 1939, pp 111-12, 117-21.

52 The trend of employment and unemployment in the Saorstát, P. 1852 (Dublin, 1935); Hancock, W.K., Survey of British Commonwealth affairs, vol. i (Oxford, 1937), p. 365 Google Scholar.

53 Johnson, David S., ‘The Northern Ireland economy, 1914-1939’ in Kennedy, Liam and Ollerenshaw, Philip (eds), An economic history of Ulster, 1820-1939 (Manchester, 1985), pp 190-91Google Scholar.

54 Statistical Abstract 1931, p. 166; Statistical Abstract 1942, pp 172-3.

54 See, e.g., Round Table, xxviii (1937-8), p. 74.

55 Statistical Abstract 1939, pp 156-7.

57 Duncan, G.A., ‘The national income of the Irish Free State’ in Reports and minutes of evidence of commission of enquiry into banking, currency and credit, P. 2628 (Dublin, 1938)Google Scholar, appendix 7; and idem, ‘The social income of Éire, 1938-40’.

58 Cf. Ryan, ‘Nature & effects of protective policy’, p. 362.