Industry since 1920
Industry since 1920
Because conditions in the nineteenth century favored free trade, manufacturing in southern Ireland became concentrated in food and drink, using raw materials from the dominant agricultural sector. Food and drink formed the bulk of exports, and Britain was the prime export market. As independence approached, the only part of Ireland that had experienced anything akin to an industrial revolution was the northeastern corner, where Belfast was the chief linen manufacturing region of the world and its shipyards were among the largest in the world—and both industries depended almost exclusively on foreign demand.
The nationalist perspective of Irish economic history had stressed the need for manufacturing industry and the use of tariffs to achieve that aim. Yet, the new Irish government avoided any radical departures in policy, concluding that prosperity depended on agriculture. While some farsighted steps were taken to develop the infrastructure for industry, such as the Shannon Electricity Scheme, the Cumann na nGaedheal government was reluctant to burden agriculture with higher prices—a likely outcome of industrial protection.
This changed radically with the election of Eamon de Valera's government in 1932. Fianna Fáil was happy to use the adverse impact of the worldwide Great Depression on Irish agricultural exports to launch its avowedly protectionist policy of industrial development. The objective was partly nationalistic—to keep Irish production in Irish hands—but also to provide employment and reduce emigration. Extensive use was made of tariffs, quotas, import licenses, and other protectionist instruments. There was also a wide extension of state-sponsored bodies producing industrial goods and commercial services.
Strong protectionist policies were maintained until the 1960s. Sizeable increases in manufacturing output and employment were achieved in the 1930s, but there was little further progress during and after the Second World War. The speed and scale of protectionism had evoked a plethora of undersized firms that often were engaged only in the assembly of imported parts of products for sale on the small home market. Most of these firms had neither the competence nor the resources to attain an efficient scale of operation by exploiting export markets. Foreign enterprise was frowned on, but because of the scarcity of Irish firms with the ability to run large enterprises, many foreign suppliers were allowed to establish plants to preserve their Irish sales. Such foreign subsidiaries, however, were generally prevented by their parent firms from competing in overseas markets.
The Outward-Looking Strategy
The limits of protectionism became widely recognized during the 1950s. A new outward-looking strategy evolved, though it took some time to reach its full flowering. The main ingredients were the provision of capital grants and tax concessions to encourage export-oriented manufacturing; the establishment of a new state-sponsored body, the Industrial Development Authority, to attract foreign, export-oriented firms to Ireland; and the dismantling of protectionism in return for greater access to foreign markets.
While the outward-looking strategy worked well in the 1960s when world economic conditions were favorable, it ran into problems following the first global oil crisis in 1973. Most of the output growth had come from new foreign enterprises. In the case of indigenous manufacturing, once the dismantling of protectionist policy began in earnest after 1966, there was no further rise in employment until the end of the 1970s, and between 1980 and 1988 indigenous industry shed more than one-quarter of its workforce. Neither was there much improvement in the share of output exported. The adverse situation of industry was exacerbated in the 1980s, when the flow of foreign enterprise fell and nearly 10,000 jobs were lost in such firms.
The Telesis report of 1982, commissioned by the government, documented the fragility of indigenous industry and the excessive dependence on foreign enterprise. It recommended a modification of the outwardlooking strategy to give priority to building up a select number of large Irish companies to serve world markets. These new directions of policy scarcely had time to take effect before a further review was initiated, culminating in the Culliton report published in January 1992. The central message of the Culliton report was that industrial-development strategy goes well beyond industrial policy as traditionally conceived. The report called for reform of the tax system, further improvement in the physical infrastructure, and the adaptation of education and training to meet the needs of industry.
The period since the late 1980s has seen a dramatic improvement in industrial performance, with the volume of manufacturing gross output in the South rising nearly fourfold from 1986 to 2000; by 2000 it was seventy times greater than when the state was founded. Employment was slower to recover, but between 1993 and 2000 total manufacturing employment rose by more than one-quarter—a remarkable achievement at a time when it was falling in most other European countries. A big revival in new foreign enterprise has spearheaded the recovery. At the end of the 1990s foreign firms accounted for three-quarters of manufacturing gross output and for nearly half the employment. Their presence is particularly noticeable in electronics and computing, where all of the world's household names in these industries, including Microsoft, IBM, Hewlett Packard, and Intel, have major production facilities in Ireland.
While foreign enterprises have led the way, there has also been a distinct improvement in the performance of native industry. Particularly encouraging has been the emergence and growth of indigenous electronics firms specializing in sophisticated niche areas of the market. By 1999 native firms were exporting an average of one-third of their output. As recently as the mid-1980s the bulk of their exports went to only one market, the United Kingdom, but at the end of the 1990s three-fifths went further afield. It is too soon to say that indigenous industry is firmly established on a new long-term growth path; nevertheless, the success of the 1990s gives solid ground for hope.
The recent industrial progress in the South contrasts sharply with the economic picture in Northern Ireland. From the 1920s onward, manufacturing employment fell substantially in Northern Ireland owing to the secular decline in the two major industries, linen and shipbuilding, in which the North's initially strong manufacturing base was concentrated. Both industries were adversely affected by the Great Depression. Linen was also subject to long-term negative changes in consumer tastes and habits, so the industry never recovered fully following the Great Depression. The Second World War brought about a revival of activity in the shipyards, but this was not sustained beyond the early postwar years. As with the shipbuilding industry in the United Kingdom generally, competition from low-cost countries and unstable demand led to long-term decline, but the impact of these forces was exacerbated by weak management, shown particularly by an inability to adapt to changing market conditions and changing techniques of production.
Attempts to provide replacement industries in Northern Ireland enjoyed some success in the 1960s, but sufficed only to stabilize the level of employment. Following the outbreak of domestic conflict in 1969, the volatile security situation and political instability deterred foreign investment. Manufacturing employment in the North fell by nearly two-fifths until the mid-1980s, and since then the level has been static.
In his celebrated statement of the case for industrialization written in 1904, the nationalist leader Arthur Griffith argued that a country, like a person, needed two arms—industry as well as agriculture. Grafting on Griffith's second arm in the new Irish state has been a long and difficult operation, but at last it is now in place, but as the experience of Northern Ireland shows, even the strongest industrial base can be eroded unless it is constantly renewed.
SEE ALSO Brewing and Distilling; Economic Relations between Independent Ireland and Britain; Economic Relations between North and South since 1922; Economic Relations between Northern Ireland and Britain; Economies of Ireland, North and South, since 1920; Factory-Based Textile Manufacture; Guinness Brewing Company; Industrialization; Investment and Development Agency (IDA Ireland); Lemass, Seán; Marshall Aid; Overseas Investment; Shipbuilding; Social Change since 1922; Tourism; Transport—Road, Canal, Rail
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Kieran A. Kennedy