Philipp Fink, De-industrialisation in:

Philipp Fink

Late Development in Hungary and Ireland, page 37 - 43

From Rags to Riches?

1. Edition 2009, ISBN print: 978-3-8329-4173-4, ISBN online: 978-3-8452-1720-8

Series: Nomos Universitätsschriften - Politik, vol. 168

Bibliographic information
37 Shipping routes were extended on the Danube and the Tisza rivers. Railway construction was also greatly expanded not only in view of security and administrative considerations, but also in line with economic policies. These foresaw Hungary together with the other eastern imperial provinces fulfilling the role of the agricultural hinterland of the imperial core districts. Following the completion of the Vienna-Pest rail line, the Hungarian and Austrian capitals were linked with the agricultural provincial centres and the countries’ main mining areas. The railway network expanded more than tenfold between 1848 and 1866 and created the densest rail network in central Europe (Berend/Ránki 1974: 35). Agricultural production grew by an annual average of 2% between 1800 and 1850, having benefited greatly from the development of transport and the abolition of feudal institutions. However, the Habsburg policies preserved the latifundia system of production. More than 25% of arable land was owned by 600 aristocratic families. A total of 50% of agricultural land remained in the hands of three great aristocratic dynasties (Esterhazy, Prince Schwarzenberg and Prince Lichtenstein). The large estates received vast financial compensations for the liberation of serfs and land concessions, large landowners received more than 17 millions Ft in compensation between 1848 and 1858. These sums together with the eventual development of a modern capital system allowed extensive investments in technology and farming techniques. The role of Hungary as the producer of staple foodstuffs and processed food for the imperial core ensured continued ample incomes and secure markets for the landed nobility, providing demand for 98% of Hungarian agricultural “exports” (Berend 2003: 109-110, 167). Despite these elements of progress, Hungary under direct rule retained its distinct agricultural bias. Agriculture still employed 80% of the population and accounted for 80% of the national income in 1870. In contrast, less than nine percent of the population were employed in industry and almost three percent in transport and trade with only 18% of national income stemming from the industrial sector (Berend/Ránki 1974: 76). It was only towards the end of the 19th Century and the beginning of the 20th Century that Hungary recorded real progress in its quest for modernisation. 1.2 Factors of Irish Underdevelopment In the case of Ireland, industrial development was blocked by two main impediments: deindustrialisation and emigration. Their mutual interaction and their reinforcing effects resulted in a contraction of internal demand and a dependency on agricultural exports. As a result, a specific socioeconomic set-up evolved. Similar to Hungarian experiences, total insertion of Ireland into the British Empire through the Act of the Union (1801) is an important factor in defining the constraints to Irish development. However, imperial insertion is only one of a variety of reinforcing factors influencing the peripheralisation of Ireland and the later Irish Republic. 38 1.2.1 De-industrialisation During the 18th Century, Ireland had, in comparison to other small European countries, such as Denmark, Switzerland and Sweden, reached a successful level of proto-industrialisation in the form of cottage industries (Mjøset 1992: 219). Dynamic small-scale indigenous wool, linen and cotton industries supplied domestic and external demand, prompting an unprecedented economic expansion during the 18th Century. The rising amount of imported goods, previously classified as luxuries, such as tea, sugar and tobacco, towards the end of the 18th Century served as an indication of growing Irish affluence (O’Malley 1989: 34). However, a combination of external and internal constraints capped the further development of indigenous industrial capabilities. Irish Proto-Industrialisation The initial framework for Irish industrial development was favourable. The population had doubled between 1700 and 1800, growing from 2.5 million to over 5 million, despite the severe 1740-1741 famine, which cost an estimated 300,000 lives (Elvert 1996: 276). As a result of the demise of trade with the overseas colonies during the War of American Independence, Irish exports were increasingly linked to British demand. Accordingly, the proportion of exports destined for rapidly industrialising Britain grew from 44% in 1720 to 88% in 1800. The main exports were textiles (linen and cotton), grain and provisions (O’Malley 1989: 39).7 Irish proto-industrialisation relied on traditional capabilities. The production of coarse linen was an old Irish rural handcraft. Linen flax was domestically grown, spun and woven, proving a suitable supplementary income for tenant farming households. However, its manufacture followed an increasing division of labour in the 18th Century. Between 1770 and 1784, 80% of the final cloth production was situated in the north-eastern province of Ulster. The relative concentration of weaving in Ulster, especially in Belfast, was the result of an influx of immigrants with weaving and cloth-making skills (O’Malley 1989: 36). Ulster weavers were capable of producing fine linen products preferred by British demand from yarn spun in the other Irish provinces. Increased demand from Britain spurred mechanisation in weaving and spinning in Ulster. This locational skill asset was to prove to be an important advantage with the later rise of the cotton industry. Following the slump in linen prices in the 1770s, increased mechanisation through the introduction of the power loom took place only in Ulster and to a small extent in Dublin. Linen production remained a decentralised and small-scale cottage industry in the rest of Ireland. Due to its locational skills, Ulster became a centre for cotton 7 Between 1784 and 1786, industrial exports from Ireland to Great Britain grew to twice as high as British imports to Ireland (Barry 1999b: 26). 39 weaving in the 1780s, producing finer cotton cloth for British markets. In contrast, cotton production in the other Irish provinces was directed towards the smaller home market demand, which favoured coarser cotton products and thus supported the disaggregated industrial structure (O’Malley 1989: 35-36; Foster 1989: 212). The lack of centralisation and mechanisation outside of Ulster is linked to a combination of weak pre-industrial revolution economies of scale and high transport costs. This linked industrial production to the distribution of land. As a result, Irish cottage industries were relatively evenly dispersed throughout the country, due to the necessity of suppliers of goods and services to locate in the vicinity of their agricultural markets. A centralisation of production in form of textile factories was not common outside of Ulster due to the dominance of the putting-out system. Rural cotton weavers were contracted to produce cloth, which was transported elsewhere for further processing and were delivered cotton garn, spun in Belfast or in Britain (O’Malley 1989: 36). External and Internal Factors of Deindustrialisation Crude estimations, such as the census results in 1841, reported that almost 20% of the working population was employed in industry. However, during the 19th Century, Ireland experienced a distinct industrial decline. On the eve of southern Irish independence in 1920, only 8% of the workforce outside of Ulster was employed in industry (O’Malley 1989: 40). Observers are quick to make trade liberalisation after the Act of the Union in 1801 and the ensuing competition with advanced British industry responsible for the demise of the Irish industrial base.8 However, as opposed to the argument that trade liberalisation was responsible of for Irish industrial demise a culmination of mutually reinforcing external and internal constraints are seen have led to de-industrialisation in Ireland. External constraints on Irish industrial development were imposed by British mercantilist trade policies. Westminster repeatedly protected English markets through the initiation of protectionist policies against low wage Irish competition. Consequently, Britain controlled the spread of new production technologies and constrained the evolution of respective markets, skills and demand in Ireland. The Navigation Acts (1660, 1663, 1671) hindered direct Irish access to raw materials and overseas markets. All overseas goods were imported or exported via British ports and transported via British vessels. The Cattle Bills (1665, 1680) protected the English markets from live imports of cheaper Irish cattle, leading to the production of provisions and the increased sheep holding. The Woollen Act (1699) banned cheaper imports of Irish wool and woollen products into England (O’Hearn 2001: 61-65). 8 See, O’Hearn (2000: 88), Crotty (1986: 56) and Bairoch (1997: 560). An overview on different interpretations is given by O’Malley (1981: 23-28; 1989: 9-40). 40 However, despite these restrictions, declining imports from Britain show that the production of woollen cloth grew due to rising internal demand resulting from the increase in population and incomes (O’Malley 1989: 39). Nevertheless, British protectionist policies narrowed the path for Irish industrialisation. British protectionism inhibited the further development of Irish industry, as demand was only based on the small internal Irish market, hindering the development of economies of scale. Consequently, productive capacities developed in those fields not affected by British protectionism: linen and cotton production (O’Hearn 2001: 65). The internal constraints were defined by the high level of socioeconomic inequality following sectarian and income divides, limiting the growth of internal demand. The introduction of the Penal Laws (1695) following the Catholic Stuart uprisings had virtually eradicated the Catholic landowning classes.9 The Protestant landed aristocracy constituted the predominant political and economic class of the country: the Ascendancy. However, this originally colonial settler class was heavily influenced by events in the American colonies. Adhering to colonial nationalism, the socalled “Irish Patriots” increasingly strived for more legislative autonomy for Irish affairs within the British Empire, causing repeated constitutional crises (Foster 1989: 248). Led by Henry Grattan, members of the Irish parliament were successful in attaining their demands for increased legislative autonomy from Westminster and ending the British trade discrimination against Irish goods at a time when British forces were extremely stretched between the American War of Independence and growing hostilities on the European mainland. Concessions made by Westminster included the repeals of the Navigation Acts (1780) and Declaratory Act (1782), reforms to Poying’s Law (1782), which established the era of Irish parliamentary autonomy known as “Grattan’s Parliament” (1782-1800), and the repeal of trade discrimination against Irish products (Elvert 1996: 288-289). Although the Irish Parliament did introduce subsidies and supports for the development of Irish industry through, for instance, the establishment of the Linen Board, economic interests remained exclusively agrarian. Political power was based on property. Hence, economic and industrial development was increasingly the result of emigrants (especially of Huguenots, Quakers and Scottish Presbyterians in Ulster), but also to a large degree the result of the small but growing Catholic middleclass. Increasing Catholic engagement in commerce was ironically the result of the Penal Laws, which prohibited Catholic landowning, thus banishing them from Irish political life. The First Catholic Relief Act (1778) began the process of Catholic socioeconomic rehabilitation by loosening pervious restrictions regarding the ownership of land, the duration of leases and access to capital (Elvert 1996: 292-293; Foster 1989: 205, 210). The role of the Catholic middleclass was however limited to only the urban areas of the country. The situation of the rural population of largely Catholic tenant farm- 9 Although Catholics represented 70% to 75% of the population, they only owned 5% of the land in 1776 compared to 22% in 1688 (Elvert 1996: 273). 41 ers and agricultural labourers was dire. The enforcement of the Penal Laws mentioned above, expressed a fundamental difference between Irish and English agricultural development on the issue of property rights. Agricultural capitalism in England was built upon the granting of property rights to tenant farmers with the system of enclosures (Elsenhans 1987: 27-32; Brenner 1976: 63-65). In contrast, the property rights in Ireland were bestowed only upon Protestant colonial settlers. Catholic farmers became their tenants; however the relationship between landlord and tenant had a semi-feudal touch to it, as the Catholic tenants were placed in a lawless void (Crotty 1986: 45-47). Moreover, the Penal Laws as well as the traditional rules of partible inheritance in combination with the strong growth of the population supported the division of Catholic lands into ever smaller plots, allowing at the most subsistence farming. The limitation of land leases to only a maximum of 31 years and with many leases being renewed within shorter time frames (Foster 1989: 332, 342).10 These factors together with restricted access of tenant farmers to capital blocked the incentive for technological innovations in farming. The degree of exploitation (e.g. rent racking) depended strongly on the landlord and was often a cause for rural unrest. In contrast, Protestant tenant farmers in Ulster were protected from extraeconomic exploitation through the so-called “Ulster Custom”. This is seen as one of the main reasons explaining the divergent development of the province compared to the rest of the country. However, the dispersal of cottage industries through the whole country is a sign that extra-economic exploitation was not a general rule (Foster 1989: 212-14). It was the marginalised group of agricultural labourers, representing 40% of the population, which suffered most from the bouts of famine, poor harvests and low prices. Hence, demand for industrial and consumer goods effectively rested upon less than 2/3 of the population. Of which the higher income echelons, encompassing the property holders and economic elites, were renowned for their indulgence in luxury consumption and absenteeism. This constrained the size of the internal market and consequently hindered the development of economies of scale and technological innovation (Foster 1989: 199; Elvert 1996: 276). Furthermore, although capital was abundant, risk capital for entrepreneurial investment was scarce. However, the Irish banking system was not rudimentary and belongs to the oldest in the world. Irish banks were specialised in transferring savings to Britain as financial sources for industrial investment. Capital flight therefore serves as an indication for the lack of profitable entrepreneurial opportunities in Ireland in contrast to Britain (Crotty 1986: 48; O’Malley 1989: 51; Jacobsen 1994: 47). Additionally, low wages, a result of the strong growth of the population, hindered the introduction of new technology. As a consequence, the centralisation of production and increased mechanisation and subsequently the development of the factory 10 So-called Conacre Leases, affecting the majority of cottiers in the west of Ireland, were granted only for one year (Foster 1989: 332). 42 system outside of Ulster only slowly evolved. This in turn contributed to a later lack in indigenous industrial engineering skills. As a result, Irish industrialisation was increasingly dependent on imports of technology from Britain (O’Hearn 2001: 96). The Act of the Union (1801) The incorporation of Ireland into the United Kingdom of Great Britain and Ireland with the Act of the Union in 1801 established free trade between the isles and opened Irish markets to manufactured goods from Great Britain, thereby subjecting small scale Irish industry to increased competition with British goods (Bairoch 1997: 560-561). The effects of trade liberalisation were twofold and have been aptly modelled in economic geography literature (Krugman 1991, 1994a). Small scale Irish industry had to compete with British goods produced in the factory system. Factories in Britain had developed as a result of transport innovations, wage pressure and rising demand. Consequently, the introduction of economies of scale through the implementation of new technologies was made possible by and contributed further to the industrial revolution (Elsenhans 1987: 28). As the development of the industrial centre in Belfast illustrates, the evolution of the cotton industry was of pivotal importance in this regard. Increasing mechanisation, especially in spinning, led to follow-up innovations and new products (O’Hearn 2001: 100).11 With the development of the railway system, transport costs were sufficiently reduced, breaking the tie of production to the distribution of land and leading to the supply of goods across long distances. This procedure was biased towards the centralisation of production in regions with a concentration of manufacturing, a large non-rural supply of labour, large local markets and sufficient supplies of goods and services. This process led to the development of agglomeration economies as well as increasing returns. The result was the evolution of large industrial centres, which supplied the peripheral regions with goods and services at prices that were cheaper than locally produced goods. This led to the de-industrialisation of the rest of the economy and their transformation to the rural hinterland of these core regions (Krugman 1991: 485-487, Krugman 1994a: 22). In the Irish case, this led to the closure of an increasing number of cottage industries. This was a consequence of their lack of competitiveness and the concentration of remaining Irish industry to a greater extent in the Northeast in Belfast and to a lesser extent in the Dublin area. By 1838, Irish textiles only had a home market share of 14% Furthermore, the workforce employed in manufacturing declined from 27% in 1841 to 16% in 1881. Subsequently, rising unemployment led to declining wages resulting in a depression of Irish demand and adding to the malaise of Irish industry. Manufacturing imports grew and capital gained a larger share of exports owing to the better profitability of investments in the UK (Mjøset 1992: 220-221). 11 An estimated 157 subsidiary industrial sectors supplied or were supplied by the English cotton industry in 1870 with various technologies and products. (O’Hearn 2001: 100). 43 1.2.2 Emigration A further factor in explaining the lack of indigenous industrial capacity is the unprecedented high level of emigration. Emigration reaped the country of consumers, entrepreneurs and workers, thus reducing demand and inhibiting the growth of the home market. The Great Famine is commonly seen as the starting point of the great Irish exodus. Although the loss of life and the numbers of the population leaving the country during the famine were tragically unique, emigration had begun earlier. Propelled by the Great Famine, it became a fact of Irish life well into the 20th Century. Nevertheless, the decline in the population was not the result of the Great Famine. This unprecedented disaster served to accelerate the process of emigration.12 The underlying reasons for the exodus of the population lie in the socioeconomic structure of rural Irish society briefly mentioned above. British subjugation of Irish society led to a highly unequal rural society. Within this context, settlement patterns were also of importance. The Tudor and the Cromwellian campaigns forced Irish Catholics to settle in the less fertile west of the country (Elvert 1996: 227). Subsequently, the west of Ireland had the highest levels of poverty and social unrest leading to a pronounced east-west divide. The west was characterised by the Cottiers und coolie classes. These encompassed landless labourers and smallholders, living off unviable plots, working as day labourers and receiving their wages in land. They constituted an agricultural proletariat. In contrast, agricultural production was more diversified on the more fertile soils of the east and the midlands leading to the rise of the middleclass tenant farmer. Nevertheless, the numbers of cottiers doubled the more affluent rural and urban middleclass (Foster 1989: 332). The Transformation of Agriculture The transformation of agricultural production coupled with the ongoing deindustrialisation exacerbated the socioeconomic situation in 19th Century rural Ireland. This process beckoned the rise of the middleclass tenant farmer and the demise of the agricultural labouring classes. Following the end of the Napoleonic Wars in 1815 prices for previously profitable tillage farming fell. Furthermore, the rise in incomes in rapidly industrialising Britain caused an increased demand for beef. As a result of declining transport costs, the prices for labour-intensive products, such as 12 Between 1815 and 1845, an estimated 1.5 million people had already left the country prior to the Great Famine (1845-1849), which cost over 1 million lives and caused 1.5 million Irish men and women to leave the country. Between 1849 and 1870, a further 1.5 million people emigrated. By 1910, the Irish population was only 54% of its size in 1840 (Foster 1989: 337; Mjøset 1992: 221).

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Irland und Ungarn verfolgen eine Entwicklungsstrategie, die in bewusster Abhängigkeit von Globalisierungsprozessen in Form von ausländischen Direktinvestitionen steht und sich als Paradigma in der Peripherie durchgesetzt hat. Doch dieser Entwicklungspfad hat zu einer ungleichen und abhängigen Entwicklung geführt. Dies ist laut dem Autor das Resultat des mangelnden Gestaltungswillens beider Staaten, für einen gleichgewichtigen Wachstumsprozess zu sorgen. Die historische Analyse zeigt, dass eine auf ausländische Firmen fußende Entwicklungsstrategie nicht ausreicht, um traditionelle Peripheralität zu überwinden. Der Autor fordert eine Reform des Entwicklungsparadigmas, um eine gleichgewichtige Entwicklung zu ermöglichen.