From Economic Development
From Economic Development
Economic Development was the personal initiative of T. K. Whitaker, the secretary of the Department of Finance, as a response to the economic crisis facing Ireland in the 1950s, a crisis that led to a record level of emigration and a loss of morale. His report prompted the Irish government to draw up a program for economic expansion, which set modest targets for economic growth and outlined measures designed to transform the Irish economy from protectionism toward free trade and attracting foreign investment.
1. . . . It is well to reiterate here that the aim is not to draw up a detailed five or ten-year plan of national development. For a small country so exposed to the perpetual flux of world economic forces there would be little sense in trying to establish a rigid pattern of development. The aim is rather (a) to highlight the main deficiencies and potentialities of the economy and (b) to suggest the principles to be followed to correct the deficiencies and realise the opportunities, indicating a number of specific forms of productive development which appear to offer good long-term prospects. One must be prepared at all times to fluctuations and upsets. A readiness to adapt to changing conditions is a sine qua non of material progress. Nevertheless, one may reasonably hope to find some guiding principles which it would be advantageous to follow through thick and thin.
2. While planning in rigid sense is not useful in our circumstances, there can be no doubt about the wisdom of looking ahead and trying to direct national policy along the most productive lines. A year is too restricted a frame of reference for policy decisions. Their effects overflow such arbitrary boundaries. It is, of course, necessary to see parliamentary approval year by year for financial policy as indicated in the annual budget. But this yearly process, if it is to be fully effective in contributing to national development, must be set in a much broader framework. An attempt should be made to secure a more general coordination of financial and economic policy with a view to the maximum progress being made in the years immediately ahead. Otherwise, unintended but damaging inconsistencies and conflicts can only too easily arise. . . .
4. Apart from its obvious value in making policy more long-term and logical, forward thinking is particularly urgent and necessary for other reasons. It is apparent that we have come to a critical and decisive point in our economic affairs. The policies hitherto followed, though given a fair trial, have not resulted in a viable economy. We have power, transport facilities, public services, houses, hospitals and a general "infrastructure" on a scale which is reasonable by western European standards, yet large-scale emigration and unemployment still persist. The population is falling, the national income rising more slowly than in the rest of Europe. A great and sustained effort to increase production, employment and living standards is necessary to avert economic decadence.
5. The possibility of freer trade in Europe carries disquieting implications for some Irish industries and raises special problems of adaptation and adjustment. It necessitates also a re-appraisal of future industrial and agricultural prospects. It seems clear that, sooner or later, protection will have to go and the challenge of free trade be accepted. There is really no other choice for a country wishing to keep pace materially with the rest of Europe. It would be a policy of despair to accept that our costs of production must permanently be higher than those of other European countries, either in industry or in agriculture. Our level of real incomes depends on our competitive efficiency. If that must be lower than in the rest of Europe we should have to be content with relatively low living standards. With the alternative of emigration available we are unlikely, either as a community or as individuals, to accept such a situation for long unless it is seen as an essential part of a programme of national regeneration. The effect of any policy entailing relatively low living standards here for all time would be to sustain and stimulate the outflow of emigrants and in the end jeopardise our economic independence. Any little benefit obtained in terms of employment in protected non-competitive industries would be outweighed by losses through emigration and general economic impoverishment. If we do not expand production on a competitive basis, we shall fail to provide the basis necessary for the economic independence and material progress of the community. Even a spectacular increase in efficiency and output will still leave us for a long time at a relative disadvantage to Britain and many other countries in respect of real income per head of the population. Indeed, if we are to catch up at all, our annual rate of improvement must exceed theirs.
6. Our economic progress requires that more resources be devoted to productive purposes. But there is as yet no agreement on a systematic programme of development. There is need for urgent determination of the productive purposes to which resources should be applied and of the unproductive, or relatively unproductive, activities which can, with the minimum social disadvantage, be curtailed to set free resources for productive development.
7. It is well to state that by "productive investment" in this study is meant investment yielding an adequate return to the national economy as a whole. Private investment is not normally undertaken unless there appears to be a fair prospect of financial success, that is, of the investment producing commodities saleable at competitive prices. In the case of public investment, the term "productive" cannot be limited to investments yielding an adequate direct return to the exchequer. It extends also to investment which enlarges the national income by creating a flow of goods and services which are saleable without the aid of subsidies; for this will result indirectly in revenue to pay debt charges. Whether the first test is satisfied is easy to establish, but the second is often a matter of doubt. It is clear that, where neither test is satisfied and part, if not all, of the cost of servicing the capital must be met by a levy on the taxpayer, the investment results in a redistribution rather an increase in national income. Progress in the building up of real national income depends on capital and labour being devoted to industrial and agricultural development, particularly for export, rather than to the provision of welfare services for home consumption. In an expanding economy, where real incomes are rising and the demand for goods and services is growing, opportunities for useful and continuing employment will arise automatically and, as has been shown in Germany since the war, a progressive improvement in social amenities will be possible without undue strain on the economy.
8. It should be added that there is no conflict between what are termed "socially desirable" and "economic" objectives. "Socially desirable" objectives will not be permanently realised merely by increasing "social" investment. The erection of houses, schools and hospitals—socially desirable in themselves—will, of course, provide employment but the employment ceases once the period of construction is over and the unemployed man is then left with an amenity which, if he remains unemployed, will contribute but little to his standard of living. Investment which is not productive may provide employment but it does so only for a time and at the cost of weakening the capacity of the economy as a whole to provide lasting and self-sustaining employment. For these reasons the emphasis must be on productive investment, though not, of course, to the exclusion of all social investment. The permanent increase in employment associated with an expansion of real national output is to be preferred to the purely temporary increase which is all that nonproductive investment, entailing a mere redistribution of existing incomes, can bring about.
9. Without positive action by the government, a slowing down in housing and certain other forms of social investment will occur from now on because needs are virtually satisfied over wide areas of the state. This decline in building will cause a reduction in employment. The continuance of large-scale investment in housing or other forms of social building would not, however, be justified merely to create artificial employment opportunities. If the objective of an expanding economy is not to be jeopardised, the right course is to replace social investment by productive investment which will provide self-sustaining and permanent employment. This means that no time can be lost in devising a realistic long-term programme of productive investment.
10. In the context of a programme of economic development extending over five years or longer, it would be easier not only to avoid inconsistencies between individual decisions but also to secure acceptance of decisions which, presented in isolation, might arouse strong opposition. It would be more apparent to all sections of the community that certain adjustments of present policy were necessary and it would be less difficult to have efforts made and sacrifices borne if they were seen to be a necessary contribution to national welfare and were not in danger of being nullified by neglect or extravagance elsewhere.
11. A further reason for careful mapping of future economic policy is that we have no longer the surplus resources with which to meet deficits in external payments. Our wartime accumulation of sterling reserves has been run down. Our postwar dollar borrowings have been spent. But our balance of payments remains unstable. The present state of balance is exceptional—the year 1957 being the first year since 1946 in which a deficit was not recorded—and it is insecure. The equilibrium attained is at a depressed level of domestic economic activity and is due in part to the using up of stocks. A reduction in supplies of cattle, a fall in their export price, and rising money incomes and expenditures, due to wage and salary increases, are only some of the factors capable of disturbing this precarious balance and causing renewed loss of national capital. In fact, the import excess has been tending to increase since August 1957. It is, therefore, of the greatest importance that policy be concentrated henceforth on the development of productive capacity, so as to sustain and strengthen our economic position and external purchasing power. To allow social services or non-productive forms of expenditure priority over productive projects would cause a misdirection of resources and increase the difficulties of development by raising our production costs, artificially stimulating our imports and putting us in deficit again with the rest of the world.
12. There is also a sound psychological reason for having an integrated development programme. The absence of such a programme tends to deepen the all-too-prevalent mood of despondency about the country's future. A sense of anxiety is, indeed, justified. But it can too easily degenerate into feelings of frustration and despair. After 35 years of native government people are asking whether we can achieve an acceptable degree of economic progress. The common talk amongst parents in the towns, as in rural Ireland, is of their children having to emigrate as soon as their education is completed in order to be sure of a reasonable livelihood. To the children themselves and to many already in employment the jobs available at home look unattractive by comparison with those obtainable in such variety and so readily elsewhere. All this seems to be setting up a vicious circle—of increasing emigration, resulting in a smaller domestic market depleted of initiative and skill, and a reduced incentive, whether for Irishmen or foreigners, to undertake and organise the productive enterprises which alone can provide increased employment opportunities and higher living standards. There is, therefore, a real need at present to buttress confidence in the country's future and to stimulate the interest and enthusiasm of the young in particular. A general resurgence of will may be helped by setting up targets of national endeavour which appear to be reasonably attainable and mutually consistent. This is an aspect of good leadership. But there is nothing to be gained by setting up fanciful targets. Failure to reach such targets would merely produce disillusionment and renew the mood of national despondency. Realism also demands an awareness that, at present, and for a long time ahead, the material reward for work here may be less than that obtainable elsewhere but that there are many countervailing advantages in living in Ireland. No programme of development can be effective unless it generates increased effort, enterprise and saving on the part of a multitude of individuals. Its eventual success or failure will depend primarily on the individual reactions of the Irish people. If they have not the will to develop, even the best possible programme is useless.
13. A concerted and comprehensive programme aimed at a steady progress in material welfare, even though supported by the churches and other leaders of opinion, could only be successful if the individual members of the community were realistic and patriotic enough to accept the standard of living produced by their own exertions here, even if it should continue for some time to be lower than the standard available abroad. Otherwise the possibility of economic progress scarcely exists.
14. For all these reasons the importance of the next five to ten years for the economic and political future of Ireland cannot be overstressed. Policies should be reexamined without regard to past views or commitments. It is desirable to remind ourselves that at all times in a nation's history decisions have to be taken; that there is no guarantee when they are taken that they will prove right; and that the greatest fault lies in pursuing a policy after it has proved to be unsuitable or ineffective. What matters above all is to understand the present position and find the best and quickest ways of improving it.
15. This study is intended to help in the preparation of a programme of economic development. Information which may be useful in this connection is assembled for ease of reference. . . . No programme of development can be regarded as realistic which is not founded on a reasonable assessment of the resources likely to be available to finance it. The closer analysis of agriculture, fisheries, industry and tourism is intended to indicate the general lines of development which can most effectively be followed over the next five years or so. . . .
16. It may, perhaps, be said here that problems of economic development are exercising the minds of statesmen, economists, scientists, and administrators all over the world. It is clear that development can be accelerated by government policy but how this can best be done is by no means obvious. It is reasonable to suppose that the solution must vary according to the circumstances of individual countries. Economists have not so far developed any general theory of economic development. . . .
18. . . . A dynamic has to be found and released and it is not necessarily increased capital investment, though this may be called for to support a higher rate of development once it is set in motion. It would, indeed, be a mistake to think that a faster rate of increase in output is a matter simply of stepping up the volume of home investment. It is true that there is a close relationship between output per head and the amount of capital per head but there are other conditions of economic progress no less important than increased capitalisation. The first of these is the development of a better appreciation of the dependence of material progress on individual output. Others are a raising of the general level of education, health and skill, the loosening of restrictive practices, whether of employers or employees, the practical encouragement of initiative and enterprise, the adoption of improved methods, techniques and principles of organisation and management both in agriculture and industry, and a greater readiness to apply scientific advances. Attention to matters such as these may yield even greater increases in production than direct capitalisation in the form of new plant and machinery though this does not, of course, imply that increased capitalisation is not also required. It is essential for sustained and balanced progress that an increase in productive capital should be supported not only by advances in education and technical training but also—though these are not short in Ireland—by the provision of basic utilities and amenities, including power supplies, good housing and transport services. Harmonious development calls also for suitable fiscal and monetary policies designed to increase the supply of savings and the incentive to invest in productive enterprises. As between countries, differences in climate, political institutions, educational and technical facilities, individual attitudes to work, trade union outlook and policy can be as important as differences in natural resources or in the volume of investment in causing divergent rates of development. Economic growth is, in fact, a complex process depending on social, psychological and political as well as economic and technical factors. In Ireland, the trend of population is an important factor inasmuch as dynamism and flexibility are rarely associated with a declining home population, whereas even a stable population would have good prospects of economic advance if its exports were competitive.
19. This study suggests that, given favourable public policies and private dispositions, a dynamic of progress awaits release in agriculture, fisheries, industry and tourism. It is hoped that it will be possible to set this force to work simultaneously in these major branches of the Irish economy. The opportunities of development may not be great enough to give all who are born in Ireland a standard of living they would accept—though there are advantages of living here not to be reckoned in money terms—but such as they are they should be exploited. It is not unreasonable to hope that sufficient advance can be made in the next decade not merely to consolidate our economic independence but to enable us to provide higher material standards for a rising population. . . .
21. In pressing on with this study, despite the claims of ordinary office work, it has been an inspiration to turn to the following words of the Bishop of Clonfert, Most Rev. Dr. Philbin:—
Our version of history has tended to make us think of freedom as an end in itself and of independent government—like marriage in a fairy story—as the solution of all ills. Freedom is useful in proportion to the use we make of it. We seem to have relaxed our patriotic energies just at the time when there was most need to mobilise them. Although our enterprise in purely spiritual fields has never been greater, we have shown little initiative or organisational ability in agriculture and industry and commerce. There is here the widest and most varied field for the play of the vital force that our religion contains.
This study is a contribution, in the spirit advocated by the Bishop of Clonfert, towards the working out of the national good in the economic sphere. It is hoped that, supplemented by productive ideas from other sources, it will help to dispel despondency about the country's future. We can afford our present standard living, which is so much higher than most of the inhabitants of this world enjoy. Possibilities of improvement are there, if we wish to realise them. It would be well to shut the door on the past and to move forward, energetically, intelligently and with the will to succeed, but without expecting miracles of progress in a short time.
Department of Finance, Economic Development, November 1958, pp. 1, 2–6, 7–8, 9.