THE BARD OF ERIN.....A MAN OF MANY PARTS

I remember, as a child, playing over and over again the 78 records, which had been the property of my late grand uncle and namesake, of John McCormack’s songs. Many of the songs in the great Irish tenor’s repertoire had been written over 100 years previously, by another Irishman, the poet and author, Thomas Moore. They were widely known as “Moore’s Melodies”.

I knew little or nothing else about Moore, although I remember I had a stamp, in my now long lost stamp collection, which had been issued in his honour in 1952. So it was with only mild interest, that I picked up a copy, of the biography of Moore by Ronan Kelly, first published in 2008 by Penguin in a Dublin bookshop. I am glad I did.

The Moore that emerges from these pages is much more than a mere sentimental and patriotic balladeer.

In fact, the melodies themselves were not Moore’s work at all, but had been collected by Edward Bunting from traditional local sources. But Moore composed the words to accompany, and give life, and meaning, to the melodies. From these compositions came his celebrity, and much of his badly needed income. 

As well as the author of popular songs, Moore was a substantial poet, and friend of other poets, like Byron, Shelley, Rogers and Wordsworth. He was also an active political satirist, supporting the Whig party against the Tories. 

He was a biographer and historian. He wrote biographies of Lord Byron, and of Richard Brinsley Sheridan. He was so close to Byron that Byron entrusted him with his own auto biography, a work that was destroyed, unpublished, after Byron’s untimely death, because of a dispute with some of other friends. 

Moore wrote a substantial history of Ireland, and his poetry was accompanied by substantial explanatory footnotes that were the fruit of extensive historical research.

Moore was born in Aungier Street in Dublin in 1779, to a Catholic merchant family. His mother’s people, the Codds, were from Wexford, and the Moores were from  Kerry.

He was privately educated, and went to Trinity College, Dublin at the age of only 15. In order to pursue his literary career, he went to England after finishing college and never returned permanently to Ireland.

In England, his literary fame enabled him to become friends with many members of the Whig aristocracy, including Lord Lansdowne and the future Prime Minister, Lord John Russell. He was the recipient of political patronage from the Whigs, notably a sinecure in Bermuda adjudicating on the ownership captured cargoes. 

Although he cultivated an English accent, and married a Protestant, he remained an active critic of British rule in Ireland, and supporter of Catholic Emancipation. He considered himself “English” when visiting America or France, but “Irish” when he was living in England.

Because Moore wrote so much, for publication and in private letters and diaries, Ronan Kelly’s book  presents a deep insight into the attitudes and lifestyle of a generation of Irish people who  experienced the  1798 rebellion, the Act of Union, and the struggle for Catholic Emancipation, but had yet to absorb the full horror and bitter political fruits of the Famine.

THE CHALLENGES FACING ECONOMICS IN IRELAND

Keynote Speech at the Trinity Economics Forum ,  in the Long Room Hub, in Trinity College, Dublin on Saturday 15 February at 4.15pm

I propose to speak here today in a personal capacity, and not on behalf of any organisation with which I am privileged to be associated.

The recent economic crisis has been good for economists. They are in demand as members of panels of all kinds, to explain what went wrong. 

But it has not been so good for the science of economics, in the sense that so few people with economic training foresaw either the scale, or the timing, of the collapse.

WHY DID THE SCIENCE OF ECONOMICS NOT FORESEE THE CRISIS, AND OFFER PREVENTATIVE SUGGESTIONS?

It is possible to argue that foreseeing the timing of the collapse was a lot to ask. Sometimes a  random event can occur, which  will set off a chain of events that will topple an economic set up that was already unstable,  and it is difficult to know which random event will be the one to have that effect, or to predict when it will happen. Obviously the sooner   it happens the better, because a lesser adjustment will then be necessary.

But it is less easy to understand why the bulk of the economics profession worldwide, did not grasp the fact that the scale of the imbalances in the world had grown so great, that the  gradual “soft landing” , that most  seemed to have assumed would happen, was inherently unlikely. Virtually all the major international bodies expected a soft landing.

Given that everyone knew that paper money itself is based on confidence and trust (the paper itself is worth nothing), and that most money in use is actually bank credit, and that few banks anywhere are strong enough to resist a sustained bank run, it is hard to see how so many economists could have assumed that unsustainable positions could be unwound slowly, over a long period, without somebody panicking at some stage, and thereby precipitating a bank run.

 Yet, that seems to have been the general assumption.

WHY WERE BALANCE OF PAYMENTS, AND HOUSE PRICE, DATA IGNORED?

In Ireland’s case, there was published data which showed   clearly to all who could read that, although we were part of a single currency which we had no power to devalue, we were running a large balance of payments deficit. In other words we were spending more abroad than we were selling. Ireland had a very large balance of payments deficit in 2005, 5690m euros, and been running a deficit in every year since 2000. Meanwhile, new house prices had risen by 64% since 2000, whereas consumer prices (excluding mortgages) had only risen by 18%. These figures were known at the time. Economists and others believed, mistakenly, that the balance of payments did not matter in a currency union, and the potential danger of private sector imbalances was ignored 

Some Irish economists, and non economists, may have sensed that there was something radically wrong here, but the consensus remained that the position would unwind slowly and relatively painlessly. 

But HOW was it supposed to unwind?

How were exports supposed to accelerate and catch up with imports, which was the only way the balance of payments could correct itself without a domestic recession being used to curb imports? 

How were incomes of households in Ireland   supposed to catch up with house prices, without a fall in house prices which would undermine the basis on which people were contracting mortgages, and without thereby creating a banking crisis(which is what happened)?

What economic strategy or projection was there for such a major increase in incomes in Ireland?  What economic strategy was there for an increase in exports sufficient to overtake imports and eliminate the balance of payments gap? Given that we were buying the imports on credit, surely this raised questions about our banking system?

I have no doubt that some economists were asking these questions, but they were not being heard. 

Why is this?

BUSY OPTIMISTS HAD NEITHER THE TIME, NOR INCLINATION, TO HEED THE WARNING SIGNS

One reason is that people did not take the time to listen. They were too busy,  busy making money, meeting their quarterly targets, winning votes, or doing all the other things that make up a modern crowded life. Most people did not have, or did not make, the time to think things out.

Furthermore, I believe any economist who sounded a warning was not being heard, because of a good trait of human nature, which serves us well in normal times, namely optimism. If humans were not optimists, they would not have taken the risks which, after much trial and error, brought about advances in technology from the earliest times, from the domestication of wild animals to the invention of the world wide web. 

But lack of time, and optimism, were also present in other countries which did not have property bubbles, countries like Canada, and Germany.

There may thus be other factors to look at, principally the recent economic history of Ireland.

BLINDED BY RECENT SUCCESS, THE SOURCE OF WHICH WAS NOT FULLY UNDERSTOOD

We had been blinded by success, a success we did not fully understand.

In Ireland’s case, we had had, from 1994 to 2000, a surge in economic growth, which was based on solid technological advance, and improved cost competitiveness and productivity. 

In fact this surge was the result of improvements that had been made long before, but that was not widely understood, and we thus drew the wrong conclusions from our growth performance in the 1994 to 2000 period. Our growth in the 1994 to 2000 period was, in good measure, a one off harvesting of the fruits of previous investment, a harvest that had been artificially delayed by extraneous events. 

Ireland had been held back relative to the rest of Europe in the post war decades, by poor education, by protectionism, by over dependence on one market and a few products, and by a neglect of technology. Up to 1970, we were a long distance from the “productivity frontier”, which could be assumed to be the levels of productivity being achieved in the United States.

In the 1966 to 1973 period, these defects were put right.  And in a sense, the Celtic Tiger should have happened in the mid 1970s, rather than in the mid 1990’s. Remember there was a big return of emigrants to Ireland in the 1970’s, many of whom were children, which was a good sign for the future.

But the Celtic tiger was then postponed by external developments.

In1974, we were hit by the oil crisis, which dramatically worsened our balance of payments and public finances.

In the 1980s, we were hit by the huge hike in interest rates, initiated by Paul Volcker of the Federal Reserve, to squeeze inflation out of the system. This rise in interest rates caused a crisis in the public finances of Ireland in 1981, because we had exposed ourselves needlessly, by unwise government borrowing  in the late 1970’s.

Then, in the early 1990’s, when we should have been recovering quickly, we were hit by renewed higher interest rates.  This arose from currency exchange rate instability in Europe. 

There was another factor at work, demography.

Ireland’s birth rate had been very high in the 1970’s and peaked in 1980. So we had a disproportionately large number of children in the country in the 1980’s. These children were too young to earn anything, and had to be provided for by a relatively small working population.

By the mid 1990s, some of these young people were entering the workforce, and furthermore women were taking up paid work much more than before, where previously they had worked outside the paid economy, at home. As a result of the combination of these two changes, the workforce in Ireland in the 1990s, was almost twice, what it had been in the 1980’s. 

THE GROWTH RATES OF THE 1994-2000 PERIOD WERE A ONE OFF

So the exceptional growth rates, in the 1994-2000 period, were a form of one off, catching up. 

Once external constraints, like artificially high oil prices and interest rates, were removed, and the working population increased, all was set for a surge forward in economic activity. But this also meant that we came much closer to the global “productivity frontier”, beyond which further advance is only possible through profound technological advances. 

Looking at how we responded to the crisis, in the period from 2008 to date, it is important to stress that the fundamental structural advantages of the Irish economy, the base of high tech industry and services, and the flexibility of our work force, were preserved. 

Indeed competitiveness was improved quickly, and the success in negotiating pay reductions and economies in the public sector was remarkable. Some progress was made in reducing private debt , which had reached around 220% of gross disposable income in 2010. 

On the other hand, Government debt rose from 40% of GDP in 2008 to 125% today. While some of this was due to the cost of recapitalising banks, the bulk of the increase in debt was due to borrowing to bridge the gap that had suddenly grown between previously inflated spending levels, and presently depleted revenues.

ESCAPING THE DEBT TRAP..WHEN NOMINAL GROWTH RATES EXCEED THE RATE OF INTEREST 

Responsible finance is neither a left wing nor a right wing idea. It is common sense.

To escape from the debt situation we are in, we need to reach a point where our nominal GDP is rising faster than the rate of interest we are paying. 

The Department of Finance says that our nominal GDP growth rate this year is 2.8%, whereas our interest rate is 4 %, and our deficit to be met by Government borrowing will be at 4.8% of GDP. 

But by 2018, they expect our nominal GDP growth rate will be in 5.4%, as against an interest rate of 4.4%, and that we will have a budget surplus of 0.5% of GDP. Thus, we should, in 2018, be in a position where our Debt/GDP ratio will be falling, rather than rising. 

Obviously, if the Department has over estimated our like nominal growth rate, or if we fail to meet the targets for reduced borrowing, that happy outcome will not happen. We are not in complete control of any of these variables.

The one we have most control over is our gap between spending and revenue, but even that can be affected by international trade and interest rate conditions, which can increase spending or reduce revenues.

Interest rates could be raised above the expected level, as they were in the early 1980’s, if either Central Bankers start worrying about rising inflationary expectations, or if lenders are hit by a sovereign default somewhere else, either in the euro zone or otherwise.  This could become a problem when we have to roll over existing fixed rate borrowings. Conversely, if deflation sets in, the real value of our debts would start to rise, even though we had not increased them in nominal terms.

Nominal growth can be raised in two ways, by inflation, or by real increases in output.

Inflation, which would also reduce the real value of our debts, seems unlikely.

So we will have to rely on real output increases, which we can either sell abroad as exports, or sell to ourselves.

Some see a boost to domestic demand as part of the solution, but that would be counterproductive if it meant that we stopped reducing our very high household debts, or increased salaries and wages in a way that diminished our ability to compete on export markets. We rely on export performance to bring in the money that will enable us to get our debts under control. Much of any “stimulus” to domestic demand would seep away into imports very quickly. We would be stimulating someone else’s economy. 

In the longer term, we are also bound by a Treaty, approved in a referendum by the Irish people, to reduce our debt/GDP ratio at a steady pace, down to 60% of GDP, from its present level of 124%. 

COMMITTED BY TREATY TO HAVING BUDGET SURPLUSES, WHILE ALSO COPING WITH UPWARD SPENDING PRESSURES

This will mean running primary budget surpluses year after year. A primary surplus is a surplus of revenue over all expenditure, except debt service. This will not be an easy sell in an ageing society, where demands for more spending, especially on health, will be very strong. 

It is important to reflect on the present inbuilt tendency of Government spending to rise, even when no policy decision to raise it, is taken.

As Brendan Howlin TD, Minister for Public Expenditure , pointed out in his budget speech recently, with no policy change since 2008, the number of  people of pensionable age  increased by 13.5%,the number of medical card holders by 40%, and the numbers in schools and universities by 8%. 

This year alone, Social Welfare pension costs will increase by 190m euros and public service pension costs by 77 million. Meanwhile next year, some of the Haddington road pay savings will expire, when the agreement itself expires.

So even if there are no tax cuts, and no new spending ideas, keeping spending down to the level required to meet the deficit targets will be hard work.

Indeed it will be important that election manifestos are compatible with the Treaty obligations we have undertaken.  One suggestion is that Election Manifestoes should be costed in advance by the Fiscal Advisory Council.

IN IRELAND’S INTEREST TO ENSURE ALL EURO STATES RESPECT THE TREATY

Matching the pressures of national politics, with mutual Treaty obligations to control debt for the sake of our shared currency, will be a challenge in every democracy in euro zone, including in countries like Germany, France and Italy, which have a lower long term growth potential than we do. 

Indeed it will be in our interest that others are seen to respect their Treaty obligations too, because doubts about the viability of sovereign borrowing in any euro zone country could have an immediate knock on effect on the interest we would pay on our sovereign borrowing, and that could throw our plans off course.

Our future is, of course, inextricably linked up with the future of the euro, and thus of the European Union. Worries about the future of the euro have diminished, but have not disappeared. 

The fragility of the EU lies in the extent to which, as new items have  come on the agenda, for which inadequate provision has been made in existing Treaties ,  power has gravitated back to the big member states at the expense of the common EU interest, as expressed through the  Commission, Council of Ministers, and Parliament. Power has been renationalised, and that suits big states, not small ones. 

Ireland’s rejection of previous EU Treaties has, entirely unintentionally and indirectly, contributed to this process, by making EU leaders reluctant to propose Treaty amendments that might restore more initiative to the traditional EU decision making process, which works better for small countries. . 

THE NEED FOR INTEGRATED DEMOCRACY IN EUROPE

Economists understand the power of incentives.

In the European Council, where the real power now lies, no member has a strong political incentive to put the collective interests of Europe, before the interests of his/her own country.

Even the Commission, because of its method of appointment, has an incentive to consult  the interests of the big states first. 

That is why I believe, if the EU is to succeed, it needs some form of supranational democracy, that will create a political mandate, derived from all the people of Europe, that will be large enough to take precedence over even the biggest state. Improving scrutiny of EU policies in 28 national parliaments is not enough.

I believe that either the President of the Commission, or the President of the European Council, should be directly elected by the people of Europe. 

If something radical like that is not done, I fear that the EU and the euro will continue to be blamed for the consequences of failures of national policies, failures that will have only a slight connection with the euro. If that happens, the permissive consent of citizens, which allows the EU to exist and grow, will disappear.

That would be an economic and political disaster, for the EU and its neighbours, far greater than the crash of 2008.

UNDUE INCREASES IN THE GAP BETWEEN WINNERS AND LOSERS CAN UNDERMINE THE SYSTEM

The issue of growing inequality in some western economies is different from the issue of whether or not we should live within our means.  Yet they are often confused in public debate by people who want to be popular, and dodge the true implications what they are demanding. 

We need to look at the factors that are driving inequality, because if the outcomes of economic policy create unduly wide divergences between winners and losers, the whole system will be undermined. 

Taxation is one factor that can aggravate inequality, but in Ireland we already have a relatively progressive tax system. We are also beginning to tax property, which is only fair.  We have to remember that people can move residence to avoid unduly progressive taxes. Some high earners, coming here from abroad, bring jobs for others into the country, and we would like them to stay here.

It is arguable that quantitative easing, by boosting share prices, has added to inequality, because only the better off tend to have a lot of shares and financial instruments and are thus in a position to benefit from the increase in their nominal value 

It is also arguable that systems of executive compensation, which reward short term gains in share prices, encourage business managements to favour the buying back of shares over investment, add to inequality, and depress long term growth.  Pay systems that reward short term results are particularly noxious in the financial sector. 

The celebrity factor has also added to income inequality, because all sorts of businesses, like football clubs, recognise the importance of holding on the celebrity managers or players, as a means of boosting stock prices, match attendances, or TV revenues.

Given that we live in a globalised world, it is difficult for one country to deal with these issues on its own, without provoking a flight of capital and talent to other countries. Imagine what would happen to the success rate of football clubs in a country that decided unilaterally to cap the pay rates of players in the interests of equality!

To address some of the causes of the growth of inequality, international understandings will be necessary. The OECD and the EU are the venues in which some of the causes can be tackled, but it will not be easy.

STRUCTURING THE ECONOMY TO PROMOTE GROWTH

I will turn, finally, to the things we might do to boost economic growth. 

As far as I can see, this is not an area in which economists have reached a final consensus. 

The prevailing view is that the best way to promote growth is to encourage labour and capital to move freely from one activity to another, so as to find the activities with the highest rate of return.  High legal costs, restrictions on entry to professions, state monopolies of particular activities, and big barriers to redundancy of workers, all work against freedom to allocate resources efficiently, and thereby inhibit growth. In Ireland’s case we still have high legal costs, and a problem of monopoly pricing in the energy sector.

But it is also possible that markets can be TOO efficient, at least in a short term sense. For example, banks were too efficient in lending money here during the boom!

Returns to pension funds have declined, notwithstanding the additional sophistication of the independent fund managers used by the funds. UK pension funds earned a 5% return on capital between 1963 and 1999. But between 2000 and 2009, they earned only 1.1% return. That’s not financially sustainable. Why did this happen? Low interest rates promoted by Central Banks are part of the problem.

Incentives to unduly rapid turnover of investments are blamed by some for this decline in the return on investments by pension funds. To remedy this, suggestions for reform of the incentive structure of fund managers have been made. Worries have been expressed about bonuses earned from artificially rapid turnover in shares held on behalf of pension funds, and about “momentum trading,” where an attempt is made to make gains by anticipating the momentum of the market, rather than by focussing on underlying returns.

I do not feel able to judge these matters, or to say what, if anything, we should do about them in this jurisdiction, but the fundamental point I would make is that capitalism works best when it is subject to good, clear and simple rules, which strike the right balance between promoting lively competition in the here and now, the taking a long term view of investments that will yield the best returns over time. 

The international financial service sector is part of Ireland’s export success story. Exports of services now make up 52% of all Irish exports, with financial services, software and business services making up the bulk of this. Opportunities are enormous.

The global middle class, the class that saves for a private pension, is set to treble by 2040. This is a major market opportunity for the Irish Funds Industry.

The urban population of the world is set to increase by 75% by 2050. This will require huge infrastructural investment in roads, water treatment, electricity, and other forms on infrastructure. As a centre of excellence in both finance, and sustainable technology, this is also an opportunity for Ireland, and particularly for the Green IFSC.

The International Financial Services industry needs to make a big investment in IT and social media. For example, Ireland is getting a leading position in IT through the design, by Intel in Ireland, of the Quark X 1000 chip. 

If a country is able to host the designers of big technological breakthroughs like this, it is breaking through the “productivity frontier”, to which I referred earlier. Again this is an opportunity for Ireland to connect its financial service expertise with its IT expertise, and it’s hosting of firms like Google, Facebook, and Paypal.

This is, I believe, the key to promoting economic growth....making new connections. Economic growth is about a state of mind, in individuals and in society. About failing, and still trying again.

Freedom to achieve Freedom, The Irish Free State 1922-1932

This book is a political and administrative history of the Irish Free State from its inception in 1922 to 1932. One of its many strengths is that its author, as an accountant, is able and interested enough to explore the day to day executive challenges that faced the young Ministers who took over the state from the British Administration in April 1922. 

This is refreshing because many historians and polemicists, dealing with this period, tend to focus on the high politics of constitutional status and sovereignty, to the neglect of the practical matters that affect people’s daily lives. 

Donal Corcoran does deal with the issue over which the Civil War was fought, the oath TDs had to take, of “allegiance to the constitution” and of being faithful to the King “in virtue of the common citizenship of Ireland with Great Britain”.

He also covers the debacle of the Boundary Commission, of which there were so many unreal expectations. He concludes that, prior to independence, Sinn Fein had “made little effort to understand Unionists, believing them to be puppets of the British”. That is the besetting problem of Irish nationalism to this day, as we see with the flags dispute in Belfast.

Corcoran deals with each area of government in turn, military security, law and order, the civil service, finance, agriculture, fisheries, trade, education and health. He enlivens what might otherwise be a dry account, with biographies of the various Ministers, and, equally importantly, tells readers about the varied group of senior civil servants who took charge of setting up the state, in the midst of  civil war and global economic recession. 

Many new states came into being all over Europe at this time.  In the aftermath of the First World War, Poland, Latvia, Lithuania, Estonia, Yugoslavia, Hungary, Czechoslovakia, Austria, and the Irish Free State all came into being as separate states.

All started out, like the Irish Free State, as democracies.  But, by the 1930’s, most of them, except Czechoslovakia, had become authoritarian states of one kind or another. By 1940, none of them had the luxury, which the Irish Free state enjoyed, of being able to decide for itself whether it wished to remain neutral or not.

If the State had not remained a democracy, and had become instead, as some wished in 1922 and again in 1931, a nationalistic military dictatorship, I doubt if Britain and America would have respected Irish neutrality. 

That the Irish Free State would survive to become one of the oldest continuing democracies in Europe, was not inevitable and was a huge achievement.

Three examples illustrate what could have gone wrong, but did not.

Firstly, the early versions of the Collins /de Valera pact of mid 1922, negotiated just before the Civil War finally broke out, would have excluded all but Sinn Fein candidates from standing in the election to the new Dail. This Dail was to draft the Free State constitution in accordance with the Treaty.  That version of the pact did not go ahead.  Labour and Farmers Party candidates stood, and did unexpectedly well, notwithstanding some intimidation.

It is interesting to speculate as to why de Valera or Collins could have even contemplated such an undemocratic proposal, but both were possibly anxious to try anything to avoid a Civil War.

Secondly, as Corcoran puts it,  Liam Mellowes, Rory O Connor and others who occupied the Four Courts in April 1922, “had no time for politicians” and obviously not for parliamentary majority decisions. They were defying a clear Dail vote in favour of the Treaty. They did not prevail. Had they done so, the country would have been governed by an Army Executive, rather than by Dail Eireann.

And , thirdly, undemocratic urges were not confined to the Anti Treaty side. In 1931, disgruntled Army officers, led by Eoin O Duffy and Hugo McNeill, wanted to stage a coup to prevent de Valera taking office. This was squashed by General Mulcahy and by the Chief of Staff, Michael Brennan. 

Maintaining a democracy in a deeply divided, impoverished, and disappointed society was the signal achievement of the Free State Governments.

Disappointment was, in a sense, inevitable.

All the effort of the years prior to independence had been devoted to ending the connection with Britain, which was represented as being the source of all ills.  Corcoran says “there had been no national debate on the implications of independence” within Sinn Fein prior to 1918. They had, he says,” few ideas on public administration, other than to replace Dublin Castle”. 

Sinn Fein had fought the December 1918 Election on a platform of separation from Britain. They defeated the Irish Parliamentary Party, led by John Dillon, who had campaigned for Dominion Status (as then enjoyed by Canada, Australia, Newfoundland, and New Zealand). Yet, following the trauma of the war of 1919 to 1921 and the Treaty, this was exactly what the new state found itself with, Dominion Status.

After all the bloodshed, they now had to prove that the policy of their defeated Parliamentary Party opponents could be made to work after all.

Few realised, at the time, how much potential for peaceful evolution Dominion status actually involved, and successive Free State governments were to exploit that potential skilfully, and to the full, in conjunction with the other Dominions.

The economic conditions with which the new Government had to cope were far from ideal.

The author calculates that the extra cost of the Civil War was two full years normal Government spending. At one point, 55,000 soldiers were on the state payroll, 12,000 anti Treaty forces were being maintained in prison, and 485 police stations, numerous bridges and other infrastructure had been destroyed. All had to be paid for.

Old Age Pensions, introduced by the British in 1908, also had to be paid, and Ireland had a per capita tax base only half that of Britain, and proportionately more pensioners because of emigration. 43% of the people, born in Ireland, were living and paying taxes abroad, as emigrants, as against only 14% of Scots. Without emigrant’s remittances, the situation would have been much worse.

Education was poor. 49% of students failed to pass a single subject in the recently introduced Leaving Certificate, when the exam took place in 1919. Illiteracy was around 10%, as against 2% in Britain, and half of the schools had only one teacher.

Agricultural output had fallen in value from £108 million in 1918/9 to only £69 million in 1924/5. Ireland had only one market for its produce, Britain, and, with the end of the war and the opening up of sea routes, that market became much more competitive. Irish Free State manufacturing industry was confined to brewing, distilling, bacon curing and the Ford Motor plant in Cork.

Apart from the physical and financial damage caused by the choice to use of violence from 1916 to 1923, the new government also had to cope with the damage to the country’s human and psychological resources.

 A recent Civil War is not attractive to potential overseas investors.

It also encourages domestic savers to put their money safely overseas. By the mid 1920’s, residents of the Irish Free State had  almost three times as much invested abroad, as people from abroad had invested in the State.

Many former Southern Unionists, some of whose homes had been burned during the “truce”, left, and took their money with them. When one considers that these were  people with   resources, and networks, which could have been used to set up new businesses in Ireland, their going was a real loss.

It is noteworthy that one of the few civil servants of the new state who promoted the idea of attracting foreign direct investment, was a 37 year old Southern Unionist, Gordon Campbell, the son of Lord Glenavy, who served the Free State as Secretary of the Department of Industry and Commerce. He got nowhere, because his Ministers, having got rid of the British, wanted to minimise foreign influences of all kinds, including financial ones. For similar reasons, the 1924 suggestion, of Sir James Dunn to Governor General Tim Healy, that Ireland become an international financial services centre had to wait 60 years to be realised.

The Civil War divide created a legacy of distrust that also inhibited native entrepreneurialism, and cross party support for good ideas. Even the pioneering work of promoting the generation of renewable electricity by harnessing the Shannon at Ardnacrusha attracted criticism from the opposition. 

Given the scale of these problems, the government did a good job in objective terms, but a less good one politically.

For example, rather than use the Eucharistic Congress of 1932 to associate himself and his party with a high profile and popular even prior to an election,  WT Cosgrave called the 1932 election early, and it was Eamon de Valera who welcomed the Papal Legate.

And as if  to  ensure that that was what would happen, Cosgrave put 4 pence per gallon on petrol, increased income tax by 6pence in the £, and cut Guards and teachers salaries, just before the election!

In a book written in 1937, the academic, TK Hancock, described the Cosgrave led State as 

“the objective, unemotional, scientific state. Throughout Europe, and not least in Ireland, people are beginning to tire of this kind of state. They want more emotion and more drama. The political artists are pushing aside the political scientists.... In Ireland, people were getting weary of their Governments very virtues”

Hancock concluded.

This is why Cosgrave never got an overall majority in any election. He had to rely on independents, and in his last term, on a coalition with the Farmers Party. He was a non political politician.

But when one looks at where political artistry led the country in more recent times, one can see his “non political” virtues in a more sympathetic light.

He was determined that the Government would balance its budget. He did not want to give the British an excuse to come back in on the basis that the new Government was not paying its debts. This was no fanciful or remote possibility. It was exactly what happened to another dominion, Newfoundland, the year after Cosgrave left office, in 1933.

Even as the Civil war raged, the Government introduced the Civil Service Commission to ensure that appointments to the service were made on merit, and it is noteworthy that de Valera had no difficulty working with most of the appointees of his predecessor’s administration.

The top appointees in the new civil service were recruited from the old Dublin Castle administration and from Irish people with administrative experience abroad. Newer recruits came straight from secondary school, which meant that few of them were people with outside professional or business experience.  It would appear from Donal Corcoran’s account, that government policy was determined mostly by a small circle of senior civil servants and Ministers. The former were administrators, and the latter were mostly lawyers. This may explain why there was no real development focus, of the kind observed in other small countries like Denmark at the time.

The Government relied on agriculture to lift the economy. This was understandable, when one considers that, for the previous fifty years, so much of the political energies had been devoted to the simple goal of transferring the ownership of the agricultural land of Ireland from landlords to the people who were actually working it. By the time the State came into being, that goal had been achieved as to 70%, and the Cosgrave administration completed the job.

But, to reach its potential, Irish land needed  investment in farm buildings, drainage and fertilisers. Money was not there for that. Farmers needed education in scientific methods, and the academically dominated schools system did not provide that either. In any event, many holdings were too small to be efficient, and the trend towards mechanisation was already reducing the number of jobs a given amount of land could support, on the farm or in downstream food processing. The Government did much to improve the quality of farm produce and to merge creameries, but it was not enough to meet the unreal expectations generated by the victory in the “Land War”.

There was another unreal expectation to which the Government devoted huge energy, the replacement of English as the spoken language by Irish. The assumption was that a nation without its own widely spoken language is not really a nation.

The use of state power was the preferred method. Oral tests were required for new civil servants, turning many away from a public service career.

The number of school days, already very few, was reduced, so teachers, most of whom had no Irish, could go off and learn it. Science was eliminated from the curriculum of the only school most attended, primary school, to make way for Irish. Eoin O Duffy, the first Commissioner of the Guards, even instructed his force to organise Irish classes in each locality. Meanwhile, other aspects of education suffered. Of 488 children sitting the Leaving Certificate in 1925, only 70 took mathematics.

Inevitably, once the state took up the task, voluntary efforts withered.

Gaelic League membership, which had had a cross sectarian character, declined. 

The project of restoring the language by the exercise of state power failed, but, because it had become so entangled in self perceived national identity, it could never be abandoned, or its failure even acknowledged.

In contrast, Corcoran argues that Irish traditional music was saved from extinction, without any compulsion, by the national radio service, 2RN, simply by it’s being played frequently on the airwaves and reaching a wider public for it than it ever had had before.

This excellent book also explores the early development of the health services. Improvement in this field had begun, under the British Administration during the Great War, partly because the state of physical health of many army recruits brought home to shocked policy makers the cost of malnutrition and of the neglect of chronic diseases among large sections of the population in both Britain and Ireland.

State hospitals dealt with infectious diseases and the mentally ill, while voluntary hospitals, financed mainly by lotteries, dealt with acute illnesses and maternity services. The new Government facilitated the establishment of the Hospitals Sweepstakes, which provided a reliable source of funds for the voluntary hospitals, but it did not undertake a fundamental reform of a service which, then as now, was characterised by a complex web of vested and ethical interests.

This work shows the value of people from other disciplines turning their hand to the writing of history. One feels that Donal Corcoran has a deep interest in how things actually work in public administration, and also in how time and resources can be wasted, with the best of intentions. This book is a audit of the first ten years of self government.

Corcoran feels the Free State Government could have been more activist in the field of economic development, and he is probably right. But they had very limited human and financial resources on which to draw, and their advisors were bound by the orthodoxies of the time. As he says, they did better than any of the other states formed in the immediate aftermath of World War One. This book deserves a wide readership. It is thus a pity it is priced so expensively

THE FOUNDING OF THE IRISH STATE, 1922 to 1932.....a book I recommend to all visitors to this website!

...................................................................................................................................................................BOOK REVIEW BY JOHN BRUTON FOR THE DUBLIN REVIEW OF BOOKS

AUTHOR;         Donal P Corcoran