Tuesday, January 11, 2022

Ireland joined the European Economic Community in 1973 as the poorest member

Cover cartoon in the July 1956 edition of the satirical magazine 'Dublin Opinion' — ‘Shortly Available: Underdeveloped Country: Unrivalled Opportunities: Magnificent Views, Political and Otherwise: Owners Going Abroad.’ As the Irish political system remained in a state of stasis, other Western European countries were rebuilding. West Germany recorded a goods trade surplus in 1952 and it has been in the black since. The period 1950-1973 was called the Golden Age of Economic Growth in Western Europe. Real (inflation-adjusted) annual average compound growth rates were unprecedented according to Prof Angus Maddison: Greece grew 6.2% annually; West Germany and Italy expanded by 5% each year; France achieved 4%; Portugal and Spain logged 5.7% and 5.8% respectively. The UK had the lowest rate at 2.5%. Ireland's performance was at 3.1% as was Denmark, Sweden and Switzerland — the latter countries were growing from higher prewar bases. For example, in 1973 Swiss per capita GDP was 138% higher than Ireland's while Denmark's level was 104%.

The Irish Free State (Irish: Saorstát Éireann), a state established in 1922 under the Anglo-Irish Treaty of December 1921, existed from 6 December 1922 – 29 December 1937, when a new constitution became law and the state was called Ireland (Irish: Éire).

The population in 1841 in the area of the island that became the Irish Free State was 6.29m. The devastating Potato Famine of the 1840s followed by huge emigration and a dip in marriage rates, resulted in a population of 3.22m in 1901 and 2.97m in the first census as an independent state in 1926.

The nadir was in 1961 when the population fell to 2.82m.

Angus Maddison (1926-2010), the renowned British economic historian, produced GDP (gross domestic product) per capita data for most world countries. He was on the faculty of the University of Groningen, Netherlands, and the university updates his data. Recent updates use real GDP per capita in 2011$ (constant international dollars).

The Irish Free State in 1922 had a value of $4,141 which was 56% of the highest Western European country — the UK at $7,341. The UK was just ahead of Switzerland at $7,182.

The Free State was ahead of Italy at $3,928; Spain at $3,427; Finland at $3,280; Greece at $3,129 and Portugal at $2,279.

Norway was at $4,570; Sweden at 4,868 and Denmark at $6,641.

Finland and Ireland began life as independent states with civil wars, and in 1922 Greece was defeated by Turkey in a war that was devastating for non-combatants on both sides.


In late 1956 John A. Costello, Irish taoiseach (prime minister), made a bold move by ignoring the conservatism of Gerard Sweetnam, the finance minister, and Kenneth Whitaker, the secretary of the Department of Finance. The Export Profits Tax Relief (EPTR) became law in December 1956 with a 50% remission on export profits. In the following year, the relief was extended to 100% of profits. The EPTR which was first proposed by the Department of Industry and Commerce in 1945 would become the keystone of Ireland's inward direct investment policy — Prof Frank Barry, Trinity College.

William Norton, leader of the Labour Party and tánaiste (deputy prime minister,) in two governments (1948-1951) and (1954-1957) was active in promoting the US and West German foreign direct investment as minister of industry and commerce in the second government, while Seán Lemass, who held the same portfolio as Norton in government, was ambivalent about FDI. De Valera, Leader of the Opposition, criticised the government’s handing over Irish resources to foreigners "festooned with tax reliefs."

Norton had promoted the creation of the Industrial Development Authority (IDA) in 1949 and got the agreement of Dan Morrissey, minister of industry and commerce, to support the measure. The secretary of the Department of Finance, J.J. McElligott, feared the IDA would be a "crackpot socialist planners’ forum." The US authorities, at the request of William Norton, are said to have assisted Ireland in setting up a campaign to attract foreign direct investment in 1955–56.

In 1947 Shannon Airport in Western Ireland had become the world’s first duty-free airport. In 1959 the Shannon Free Zone (SFZ) became the world’s first free trade zone.

Both Lemass and Whitaker have been anointed as the architects of the modern Irish economy. However, the hagiography ignores the significant contributions of other players.

Whitaker was the main author of the First Programme of Economic Expansion in 1958. Dr Mervyn O’Driscoll of University College Cork noted that "There was barely any emphasis on attracting export-oriented foreign firms to invest in Ireland ...Instead it promoted the development of infrastructure, land improvements, and agricultural productivity. Whitaker’s objective was to find capital to make the necessary national investments to launch a take-off. And since Ireland was not a member of the International Monetary Fund or the World Bank he turned his attentions to finding the capital domestically.

His solution in the First Programme was to cut social expenditure (“deferring” expenditure on social spending, health and education) and redirect it towards national infrastructure to enable economic growth."

In January 1963, Ireland, at last, began cutting trade tariffs.

In June of that year, the state visit of President John Fitzgerald Kennedy to his ancestral homeland was a momentous occasion for US-Irish relations.

President John Fitzgerald Kennedy, in Cork City, Ireland, 28 June 1963

Prof Dermot McAleese of Trinity College in a 1972 paper estimated that FDI was over £80m in 1960-1970. The UK accounted for 44% of new industrial enterprises; the US 25% and West Germany 18%.

However, investment in US enterprises was more than double the projects from other countries.

In 1966 Gross National Product (GNP) was valued at over £1bn.

Donogh O’Malley, the Fianna Fáil education minister, made a stunning announcement on education without the knowledge or sanction of the Department of Finance, on Saturday 10 September 1966. Free second-level education, was introduced in September 1967, and it is viewed as a milestone in the modernisation of Ireland.

Kenneth Whitaker, the head of the Department of Finance, demanded a meeting with Seán Lemass, the taoiseach (prime minister), on the issue. However, Whitaker soon realised that Lemass had approved O'Malley's speech.

In 1969 John A. Mulcahy who was a native of Dungarvan, Co. Waterford and had become a successful American entrepreneur, persuaded his fellow directors on the board of Pfizer, to open a chemical plant at Ringaskiddy, adjacent to Cork Harbour.

It was a breakthrough investment, as the Intel plant in Leixlip, Co. Kildare would become from 1989.

Mulcahy also invested in Irish tourist facilities and in 1970 he hosted a visit by President Richard Nixon to Ireland.

In January 1973 Denmark, Ireland and the United Kingdom joined the founding Six Members of the then European Economic Community (EEC).

Denmark was the wealthiest EEC member at $22,228 and Ireland was the poorest at $10,946.

Denmark was the second wealthiest country in Western Europe after Switzerland at $26,004.

Original Six: Germany ($19,074 per capita); France ($20,441); Italy ($16,950); Belgium ($19,399); Netherlands ($20,851); Luxembourg ($23,820 – part of workforce live in other countries).

New members in 1973: Denmark ($22,228); Ireland $10,946) and the UK ($19,168.)

In Western Europe, subsequent members: Greece was at ($12,202); Spain ($11,638); Portugal ($11,258); Sweden ($21,509);  Austria (17,908) and Finland ($17,669).

The European Economic Community was renamed the European Union (EU) in 1993 and EU15 and there were no further changes until 2004 when countries in Eastern Europe joined.


Dr Andy Bielenberg of University College Cork has estimated that in 1911 the six Irish counties in the north-east of the island of Ireland that would become Northern Ireland accounted for two-thirds of industrial activity on the island. Dublin accounted for more than half of the industrial output of the 26 counties that would become the Irish Free State.

In 1967 employment in manufacturing in Ireland was 177,600 while the total in Northern Ireland was 160,000 (Page 3).

In 2020 there were 85,000 employed in industry (excluding construction) in Northern Ireland according to NISRA (Northern Ireland Statistics and Research Agency). In Ireland, there were 298,000 employed in industry according to the CSO (Central Statistics Office).

In the Republic of Ireland's industrial sector, Irish-owned companies in 2020 accounted for 53.0% of full-time employment without much fluctuation in the share over the decade. In Northern Ireland Moy Park, a poultry processor, owned by Brazil-based JBS SA, is the biggest industrial employer at about 6,500, which is 31% of food industry employment.

According to the 1911 census, Protestants accounted for 26% of the population of the island. Dr Bielenberg noted "The areas where Protestants were most over-represented were shipbuilding, engineering and textiles, all of which they accounted for at least 60% of the workforce. Moreover, in the case of shipbuilding, the figure was over 84%. The occupational returns of the 1911 census imply that Protestants accounted for almost 40% of Ireland’s industrial workforce. In Ulster, this figure was obviously higher ...it seems probable that industrial employment and urban settlement resulting from industrialisation in the preceding half-century or more, was a more important structural variable in the formation of the core conflict zones in Belfast and Derry in the twentieth century than generally assumed."

The ratio of the workforce across the island in manufacturing in 1911 was significantly below the level in the United Kingdom as a whole.

According to the UK National Archives, in 1911 the percentage of the workforce employed in the sector was down to 20% from 33% in 1841. This compared with 36% in the UK according to the Office for National Statistics. In 1841 36% of the UK workforce was in manufacturing and by 1901 the rate had increased to 38%.

The population of the City of Belfast rose from 75,308 in 1841 to 386,947 in 1911. The population of the City of Dublin was 305,000 and the rest of County Dublin had a population of 172,000. The area of the City of Dublin was 32.1 km² and beyond the boundary of the city, the better-off lived mainly south of the River Liffey while Belfast had an area of 59.6km². However, 28.5 km² comprised crops and pasture.

The last British census of the whole island of Ireland took place in early April 1911. A month later the "unsinkable" RMS Titanic — then the largest ship in the world — was launched in Belfast from one of the Queen's Island slipways, as about 100,000 people cheered.

At the turn of the 20th century, 75% of Belfast's workforce was employed in the industrial sector while in Dublin, there was a surplus of unskilled workers. The Central Statistics Office (CSO) has noted in recent times that Dublin was a city of extremes in housing in 1911 when 22% of dwellings were large homes (with 10 or more rooms) and 36% were one-room tenements.

In 1916 Ireland benefitted from World War I, reporting a 1916 trade surplus of £1.5m and a fiscal surplus of £11m.

Dr Bielenberg noted that increased regional concentration of industry was common in Europe in the aftermath of the Industrial Revolution.

Linen and shipbuilding "were the major industries, in addition to engineering, distilling, food processing, tobacco and rope making. Industrial development occurred elsewhere in Ulster; a number of industrial villages were built between 1820 and 1870 ...In West Ulster, the shirt making industry emerged in Derry."

It would take 100 years for the next Dublin visit by a British monarch. Photo: National Archives

Brewing, railway engineering, distilling, biscuit making and clothing were well represented in the south and "there was also a host of smaller industries. The textile industry in Dublin had declined significantly since the 1820s, as it had in most of the southern cities. Cork, however, had become the main centre for the mechanised woollen industry, also retaining its position as a centre for brewing and distilling. Dr Bielenberg noted that "the agro-based industries which had emerged in the south were capital intensive, rather than labour intensive. They also yielded extremely low added value. The net benefits of these industries to the economies of the southern cities were therefore much less intense than linen production in Ulster which was labour intensive and yielded a relatively higher added value. Shipbuilding and engineering also yielded high added value, further intensifying the dynamics of industrialisation in the north-east."

Bielenberg said "By 1835, the total balance of all traded goods was running in Ireland's favour. This was because of the growing British demand for Irish foodstuffs, (which if processed, yielded further added value to the Irish industrial sector). But apart from linen and some processed foodstuffs, the bulk of the output of the Irish industrial sector was oriented towards the home market."

The traditional nationalist view was that free trade between Britain and Ireland in the decades after the 1800 Act of Union stunted Irish industrial development. However, Britain was Ireland's main export market and protectionism would not have worked.

Finfacts - Industrial Revolution in Ireland: Fortune and Misfortune

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Finfacts: The shameful stain of an Irish Civil War 100 years ago 


Less than 3 years after the founding of the Irish Free State, the Government contracted Siemens of Germany to begin a massive project that would be the beginning of the national electrification of the country.

"The Scheme was a mammoth undertaking for a country the size of Ireland, especially when the State was barely three years old. The project cost IR£5.2m and an additional IR£600,000 was paid in compensation to landowners. This total represented about 20% of the Government’s revenue budget in 1925."

The scheme was officially opened in 1929 and The Financial Times commented "They have thrown on their shoulders the not easy task of breaking what is, in reality, an enormous inferiority complex and the Shannon Scheme is one – and probably the most vital – of their methods of doing it."

Within 3 years the demand for electricity in Ireland resulted in stage two being initiated.

Henry Ford whose father William had emigrated in 1847 from West Cork, Ireland to Michigan, USA, opened a tractor plant in Cork City in 1919.

It later became an exporter of components to other Ford plants. However, tariffs levied by Britain on exports from the Irish Free State resulted in a 22.22% importation levy.

In February 1930 employment peaked at 6,712 while 2,017 of the total were classified as 'green labour' i.e. lacking training.

As the Depression deepened Ford decided to shut the Cork plant but the new Irish government persuaded the company to retain assembly operations for the local market.

Arthur Guinness, Son & Company Ltd had floated on the London Stock Exchange in 1886 when the brewery employed 1,680. In the early years of the new century, it employed 3,460 people — it was Dublin's biggest employer. In 1932 Guinness moved its headquarters from Dublin to London and in 1933-1936 Guinness built its first brewery outside Dublin, at Park Royal, London.

In 1935 the British Dunlop Rubber Company opened a factory in Cork on the Marina, adjacent to the Ford plant. The Irish government gave it a national monopoly of 80% of the market.

There was no alternative to protectionism. Employment in industry rose by 10,000 by 1936 compared with 118,000 in 1926 and 148,000 in 1946. 

In recent decades the policy of promoting inward foreign direct investment (FDI) has been a spectacular success. However, there are downsides and over-reliance on FDI inevitably means that the country lacks an indigenous innovation base.   

The Irish consumer price index in 2020 was 40% above the EU average. While Denmark had a similar level, it is a globally recognised knowledge economy.

In the 1950s agriculture was important for the Danish economy as it was for the Irish economy. Today indigenous firms account for two-thirds of Danish goods and services exports. Irish indigenous exports are less than 10% of the exports value reported by foreign firms (which includes fake transactions). 

In November 2015, Catherine Mann, the then chief economist of the OECD (Organisation for Economic Cooperation and Development), said in Dublin that Ireland will have to sell itself as more than just a low-tax destination in the new era of global tax transparency. She also highlighted the poor links between the FDI sector and the rest of the economy, with Ireland having one of the lowest levels of EU spending on R&D (research and development), despite housing some of the most innovative firms in the world.

"Global capital has come into Ireland...but somehow it hasn't translated into Irish-owned firms," said Dr Mann. "The patents are here, but they're not being linked into the domestic economy, not being levered up by domestic firms or married to domestic workers."

Individual consumption of public and private goods and services is below the EU average.

In the Irish non-public sector, the provision of an occupational pension is not mandatory. In 2020 51% of the workforce had an occupational pension (the labour force at end of 2020 was 2.445m. The Pension Authority had 1.241m active members — see Appendix of report).

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