Opinion: while Whitaker's economic ideas were important, analysis suggests much of Ireland's fiscal policy was shaped by earlier economic initiatives
Ireland’s outlook in the 1950s was bleak. At the time, Western Europe experienced an economic resurgence buttressed by American economic largesse. By contrast, Ireland laboured under a stagnant export economy tied inextricably to its former colonial master, Britain, to whom Ireland shipped most of its exports and to whose currency Ireland remained pegged.
With little prospect of sustainable employment for most and meagre standards of living, half a million of its people emigrated over the decade. Thirty years after achieving political independence the question for Ireland’s political and administrative elites was over the economic viability of the independent Irish state.
But this changed dramatically within 10 years. Seeing GDP growth of 3.7% on average and relative external trade stability, the 1960s is considered Ireland's 'golden age’ prior to the Celtic Tiger, while immigration declined significantly.
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From RTÉ Radio 1's Morning Ireland in 2017, Mícheál Lehane and David McCullagh look back over the career of TK Whitaker
These achievements are traditionally credited to T.K. Whitaker's Economic Development, a cross-sectoral study of the Irish economy initiated by then-Secretary of the Department of Finance. The study’s policy prescriptions became the basis for the government’s First Programme for Economic Expansion and helped foster the lifting of Ireland’s protectionist infrastructure, opening the way to Ireland's EEC membership in 1973.
In fiscal policy, it is credited with bringing about an era of increased state intervention through economic planning. This is associated with increased state investment along Keynesian lines, a departure from the orthodox economic views of the older generation of Finance and Central Bank mandarins. All of this, it is often suggested, was brought about by the patronage of Economic Development by a far-sighted new Taoiseach, Seán Lemass, who moved the country forward from an aging Éamon de Valera's ideal of an homely Ireland of agrarian self-sufficiency.
But despite its importance, especially for fostering Ireland's free trade economy, a closer analysis suggests that much of Ireland’s fiscal policy was shaped by other earlier economic initiatives. Moreover, much of Economic Development on a fiscal level was circumvented by Lemass.
From RTÉ Radio 1's The Business, Anne Chambers discusses her book Portrait of a Patriot on TK Whitaker
The point of increased state investment can be traced to the early years of the decade. Marshall Plan funds and the introduction of the capital budget principle, which entailed separating recurring ‘current’ expenditures such as on public service wages, social welfare, pensions etc from once-off ‘capital’ expenditure that had a finite cost lifespan, prompted a two-fold increase in expenditure. This rose from £7.93 million pounds in 1947/1948 to £24.34 million from 1949 on and grew steadily thereafter.
In contrast to the perception of Economic Development as the driver of increased state intervention, the Central Bank and the Department of Finance, as well as Whitaker himself, opposed these developments. Going so far as to seek the abolition of the capital budget principle immediately after its introduction, they cited the ‘productive projects’ criterion, whereby any project approved must yield goods suitable for export, which obviously precluded housing and healthcare infrastructure. Although this continuity of institutional thought is lesser known, this standard carried over in Whitaker’s thinking to become the hallmark of Economic Development less than a decade later.
Instead, the aim of Economic Development on a fiscal level, as Whitaker himself outlined at the time, was to refashion existing public spending commitments rather than precipitate wholly new ones. In particular, its dictum that social investment should be curtailed and those resources diverted to ‘productive’ projects was a modification of the existing spending priorities established by the initiatives of the earlier part of the decade.
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From RTÉ Archives, Brian Farrell talks to economist and public servant TK Whitaker for Seven Days in 1976
Paradoxically, these wider clashes of ideas took place against the backdrop of recurring economic crises stemming from Ireland’s net-importer status and the effect these had on the state’s efforts to maintain the peg with sterling, coupled with economic stagnancy and very high unemployment. Twice in the decade, balance of payments crises prompted stop-start cut backs in expenditure and a wider economic downturn which probably negated any positive impact the public investment might have had.
The perception of Lemass as Economic Development’s patron is also more complex. The new Taoiseach’s preferences diverged from its prescriptions in notable ways. While Economic Development advocated income tax reductions and the curtailment of social investment, both in fact increased during his tenure. Borrowing from international markets, which Whitaker and the financial institutions ruled out as alternatives to continue funding state projects during the 1950s crises, began in earnest under Lemass, the amount growing year-on-year.
Ireland experienced significantly fairer economic fortunes during the 1960s, but Economic Development’s flagship targets, such as those set for agriculture (which Finance considered the stronger sector), were eclipsed by the strong performance of industry. While Economic Development and the First Programme are important documents, initiatives of note which influenced the trajectory of economic policy were spread across the decade. The roles of many influential actors, both individuals and institutions, is also more complex than a single document or point in time.
The author's research on 1950s economic-policy was recently published in Administration
The views expressed here are those of the author and do not represent or reflect the views of RTÉ
