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tural exports were prioritised. The period of state-socialism managed break this
pattern, but created new constraints arose through an antiquated industrialisation
process, resulting in Hungary’s continued backwardness. The level of internal
autonomy was high. The insulation of the state from counter-interests was the result
of the authoritarian structure of the political system, upholding the respective elite’s
interests. The rising contradictions of the respective development regimes caused an
erosion of the internal autonomy in all development regimes.
The capacity of the respective development regimes to implement the developmental goals was repeatedly reduced by international economic repercussions, affecting the respective developmental agent. Hungary did not engage in social and
economic reforms to mould its socioeconomic institutions towards the exigencies of
international markets. Instead, in the event of economic crisis, the respective political elites continuously chose to reduce external economic influences by turning
away from international trade in a bid to secure their socioeconomic predominance.
In each case, the state resorted to increase its intervention into the economy in a bid
to enlarge its developmental capacity. By refuting adjustment and adaptation to
international economic developments, the malfunctioning and backward economic
structure was preserved.
The innate contradictions of preserving the backward economic and socioeconomic structures bred popular dissent. Consent towards the policies of the respective
development regime, which guaranteed its legitimacy, was in all cases built upon
varying degrees of accommodation, cooptation and suppression of dissent. However,
the erosion of the state’s capacity to deliver the required goods of prosperity and
rising living standards caused increasing popular dissatisfaction. This eroded the
internal autonomy of the respective regime. However, popular dissent was crushed
with the exception of the state-socialist development regime.
2.3 Irish Development Regimes
In contrast to Hungary, the Irish development regimes preceding the current FDI-led
export-oriented industrialisation regime are fewer and the time span under review is
shorter. In total two development regimes preceded the current regime. Starting with
the Irish Free State, the period under investigation is concerned with the era following the attainment of Irish statehood after independence from the UK in 1922.
The first development regime was built upon the generation of agricultural export
incomes within a constrained developmental context defined by consolidation and
reconstruction in the aftermath of partition, the War of Independence and the Irish
Civil War as well as the detrimental effects of international economic recessions.
The following developmental period (1932-1958) was characterised by a protectionist regime, which focussed on industrialisation via import-substitution.
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2.3.1 The Free State (1922-1932)
The first phase of the development regime lasted from independence in 1922 until
the change in governments from Cumann na nGaedheal to the Fianna Fáil led coalition in 1932. The Cumann na nGaedheal79 government was faced with a difficult
developmental environment, which was defined by the exigencies of the War of
Independence, the Irish Civil War, partition and international economic repercussions. The government had evolved from those former Sinn Féin members, who
supported the terms of Irish independence as stated in the Anglo-Irish Treaty (1922).
As Lee (1989: 67) shows, the ensuing Civil War between those supporting the
Treaty and its dissenters was over varying degrees of nationalism and the question
of the legitimacy to represent the will of the people.
The dissenters, led by Eamon de Valera, refused to take the Oath of Allegiance to
the British Crown and their subsequent non-recognition of the legitimacy of the Free
State government and parliament, which had ratified the Treaty with a majority vote.
The Civil War, ending in May 1923, had lasted 11 months and caused an estimated
4000 deaths. However, despite its small scale and short duration, its viciousness had
created a far larger psychological effect. The conflict caused a schism in the Sinn
Féin movement, polarising the political landscape until today (Lee 1989: 69).
The Free State Development Regime
Hence, the victorious pro-Treaty government had the arduous task of post-Civil War
reconstruction and simultaneously building an Irish state. The focus was therefore
laid upon consolidation, rather than expansion. The development regime can be
classified as being free trade oriented and non-interventionist (“laissez-faire”) with
only a minimal role of the state, based on the generation of agricultural exports
(Breen et al. 1990: 25). The government followed an economic policy course based
on the static notion of comparative advantage (Barry 1991: 86). This was seen to lie
in the specialisation in agricultural pastoral exports to British markets with agrarian
capital as the key development agent (Foster 1989: 523).
Considering that in 1926 agriculture employed 57% of the workforce, contributed
to 33% of GDP and was responsible for 89% of exports (Jacobsen 1994: 51), the
emphasis on agriculture as the developmental base was not surprising. The Cumann
na nGaedheal government accepted this development path and promoted agricultural
exports in the anticipation that the resulting profits would be reinvested in the economy and lead to industrialisation via spill-over effects.
It was envisaged that these spillover effects would lead to the establishment of a
more substantial processing sector. As the main industrial export sectors at the time,
brewing, distilling and biscuit-making were closely linked to the agrarian sector.
79 Meaning “League of the Gaels”
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Hence, ranchers, commercial classes and financial interests, constituted the developmental agents of the time.
Consequently, the prescribed economic policies favoured those classes, resembling the main electoral base of the ruling Cumann na nGaedheal party. The strict
adherence to free trade was met with approval from agricultural interests, who
feared that tariffs would increase the prices for imports, raising their production
costs (Lee 1989: 113; Breen et al. 1990: 25).
Key elements in this strategy were low income taxes, low state expenditures and
the link of the Irish pound to the Sterling. It was presumed that low income taxes
would attract foreign capital to Ireland and keep Irish capital in the country prompting investment (Lee 1989: 109). Furthermore, the tax rates were 40% lower than
those in Great Britain (Jacobsen 1994: 52), which was seen as a precondition to the
Anglo-Irish financial elites to invest in the Free State. They were also seen as a justification for the low level of state expenditure. Income taxes contributed only to 20%
of the government’s tax take with the remainder stemming from indirect levies,
additionally harming lower income groups (Lee 1989: 111).
This fiscal policy supported financial elites and farmers. Low taxation was seen
as the key instrument to lower agrarian production costs and thereby raising the
competitiveness of pastoral exports (Lee 1989: 113). The linking of the Irish pound
to the Sterling was not only seen as a necessity to secure trade links with Ireland’s
main trade partner the UK, but together with low direct taxes it was also believed to
be an imperative to incite industrial investment. Low taxes were envisaged to guarantee high investment returns (Lee 1989: 109).80
Restrained Capacity and Strong Autonomy
The non-interventionist stance of the Irish state implied following a course of strict
economic and social orthodoxy, restraining the state’s capacity. Fiscal prudence was
strictly adhered to. This was not only the result of the credence of noninterventionism but also, as Lee notes (1989: 109), austerity was “a historic triumph
over the old enemy. Fiscal responsibility and low taxation were supposed to impress
English doubters of the Irish capacity for self-discipline”. Accordingly, the politics
of austerity were painfully followed by the government, leading to under-spending
in the areas of social welfare, education and housing. Social welfare benefits were
exceedingly low and subjected to repeated cuts in a bid to retain stable budgets (Lee
1989: 125, 127).
Lee (1989:125), however, also points to a blatant lack of social conscience on the
side of policy makers. Reminiscent of Malthusian economics, emigration was accepted as a fact of Irish life and integrated into the Free State’s economic policy.
Exit lowered the unemployment rate and, hence, reduced the sum of unemployment
80 In 1926, 97% of exports went to British markets and 76% of imports came from the UK
(Haughton 1995: 28).
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benefits (Breen et al. 1990: 25). Accordingly, the government aimed to have lower
social welfare levels than those available in the UK. Furthermore, the government
relied on non-state actors to bridge the void. Education was the traditional domain of
the Catholic Church, which also had an important role in the provision of health
services. Social welfare and educational policies strictly followed the requirements
of Catholic social teaching (Foster 1989: 534; Breen et al. 1990: 26). Health functions, as far as they were seen to lie within the responsibility of the state, were consolidated in decentralised and multipurpose local authorities in form of county
health boards (Breen et al. 1990: 25).
State action in the few areas requiring intervention was undertaken only after private and public investment schemes had failed. Semi-state bodies were established
not as an explicit part of policy, but through necessity. They performed autonomously mainly in the areas of regulation, promotion, the provision of services and
utilities. 81 A notable exception to the rule was electrification, where the government
funded the hydro-electric Ardnacrusha damn in the River Shannon (Foster 1989:
521). 82
Furthermore, the Ardnacrusha project and the establishment of a sugar refinery
remained the only examples of public investment in industrialisation (Lee 1989:
120). In line with the predominance of agricultural exports as the main developmental input and the state’s non-interventionist stance, industrialisation was given a low
priority (Lee 1989: 119). However, the government did experiment with limited
industrial protectionism in the area of light manufacturing, accounting for a slight
increase of the labour force in these protected sectors (O’Malley 1989: 57).83 Nevertheless, the protectionist experiments remained only dabblings, as priority was given
to the maintenance of the farming structure and any revenues were used to finance
low direct taxes (Foster 1989: 523).
In contrast to restrained capacity, the state’s internal autonomy was great. The
Free State enjoyed a wide scope of internal autonomy in the definition of its developmental goals. The basis of this internal autonomy was the ideological cohesion of
the relevant political actors. The ruling party faced weak opposition. The former
anti-Treaty opponents only entered the Dáil after the 1927 general election as Fianna
Fáil84 under the leadership of Eamon de Valera. The party had previously abstained
from constitutional politics following the end of the Civil War (Foster 1989: 525-
526).
81 The most important state sponsored body to be created was the Electricity Supply Board
(ESB) in 1927, which led to the electrification of the Free State. Further bodies included the
Sugar Company, which extracted sugar from native beet and the Agricultural Credit Corporation (ACC), which supplied credit to framers. These semi-state agencies became role models
for later created bodies (Breen et al. 1990: 26).
82 The Ardnacrusha Damn was built with foreign assistance by the German firm Siemens. For a
detailed account of this project, see McCarthy (2004).
83 The size of the industrial labour force in the protected sectors of light manufacturing grew
from 105,000 in 1926 to 111,000 in 1931 (Lee 1989: 120).
84 Meaning “soldiers of destiny” (Foster 1989: 525).
95
Furthermore, organised labour was paralysed, giving the state apparatus further
room to manoeuvre unchallenged. This was in part the result of the continued marginal role of industry in the Free State’s economy and the rise in unemployment
(Lee 1989: 126).85 In part it was also caused by the issue of nationalism transcending
the socioeconomic labour-capital cleavage, leading to a rift in the union movement.
Socialist aspirations were displaced by conservative nationalist convictions (Foster
1989: 520). Moreover, the Free State government showed a complete disdain not
only in its economic policies for labour issues, additionally contributing to organised
labour’s political irrelevance (Lee 1989: 127).
A further element allowing a strong degree of autonomy was the civil service
based on the completely impartial and highly professional administrative system
inherited from the UK (Lee 1989: 89). However, the policies of fiscal austerity and
non-interventionism were not undisputed within the government. Expansionist factions supporting increased state engagement for industrialisation, FDI attraction and
industrial subsidies were indeed present and their numbers were rising within the
Department of Commerce and Industry (Lee 1989: 120).
However, within the institutional nexus, the Department of Finance soon became
the most influential body within the Government (Foster 1989: 521). It firmly supported the strict deflationist adherence to the liberal industrialisation policies in the
form of a non-interventionist free trade oriented development path. Hence, fiscal
prudence and incumbent conservative beliefs thwarted attempts at expanding the
role of the state in the development process (Lee 1989: 123-124). The autonomy of
the state was further enlarged by a high level of popular consent. The economic
policies benefited the supporters of the ruling party, large landholders and entrepreneurs benefiting from trade with the UK (Breen et al. 1990: 24).
Additionally, popular consent was based on the sympathy of the majority of
population regardless of class, explaining the victory of Cumann na nGaedheal in
the 1927 elections despite its harsh social policies.86 On the one hand, this is linked
to the strong influence of the Catholic Church in a deeply religious and rural society.
Although officially church and state were separated, the Catholic Church presided
over large informal powers of persuasion not only through its role in the provision of
health and welfare services, but also by regular consultations on constitutional and
political matters (Foster 1989: 534).
On the other hand, popular consent resulted from Irish statehood per se. Despite
the Free State being based on the Anglo-Irish Treaty and on its membership in the
Commonwealth, its government was seen to be a factor of stability. After the bloody
turbulences of the War of Independence and the Civil War, the population yearned
for stability and consolidation. Finally, the high level of emigration at the time, resulting from rising unemployment and low social welfare benefits reduced the num-
85 In 1926, only 8% of labour force was employed in industry (Mjøset 1992: 227).
86 An example of these was the decision in 1924 to lower the old age pensions to 10% under the
UK level in an attempt to gain further cost competitiveness in its tradable sectors (Breen et al.
1990: 24).
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ber of opponents willing to “voice” their dissent. In effect, dissent was exported
(Breen et al. 1990: 24; Haughton 1995: 29).
The Results of Laissez-Faire
The results of the development regime were meagre. The restriction of developmental policy on the generation of export revenues via cattle exports to the UK did not
lead to the anticipated effects. On the one hand, international economic events hindered sufficient national development, illustrating the low level of external autonomy. The resulting underperformance of the developmental agent detrimentally
affected the capacity of the state. Between 1922 and 1924, agricultural prices fell by
44% (Haughton 1995: 29) prompting the decline of export earnings.
The reduced export income contributed to further agricultural restructuring to the
detriment of small farmers, as productivity gains and scale economies in pastoral
farming led to a further concentration of farmlands. The disastrous attempt of the
UK to return to the gold standard in 1925 caused a recession further dampening the
demand for Irish products. The ensuing world recession after 1929 and increased
worldwide protectionism further reduced demand for Irish export goods (Haughton
1995: 29).
On the other hand, internal distortions impeded effective development. The noninterventionist free trade strategy did little to foster industrialisation. Employment in
manufacturing grew only by 1.6% and virtually no productivity gains were made
between 1926 and 1931. The unemployment rate averaged officially around six
percent (Jacobsen 1994: 51-52).87 As a result of the continued preference for pastoral exports, the consolidation of farmland continued.
Consequently, the number of displaced agrarian workers was too high compared
to the number of jobs available.88 Surplus labour was forced to emigrate. This not
only reduced fiscal pressure on the state budget, but also enabled the state to avoid a
balance of payments crisis, as emigrant remittances contributed to the financing of
imports (Foster 1989: 522-523).89 The industrialisation strategy was further weakened by high indirect taxes to compensate for low income taxation. Together with
high agricultural prices, this suppressed internal demand (Mjøset 1992: 261).
The policy of low income taxation together with the lack of an effective land tax
on agriculture holdings provoked a rent-seeking mentality. Contrary to the envisaged results of increased investment, the affluent classes behaved as rent-seekers.
The gains from exports were largely invested abroad. Incentives for productive investment in the Irish Free State were largely negligible due to a lack of state invest-
87 Census results reported an average of 11.9% (Lee 1989: 126).
88 Between 1911 and 1936, agricultural labourers declined by 50% (Lee 1989: 159).
89 Even at the peak of export sales, export incomes could only cover for 77% of imports. The
residual was covered by transfers from abroad, which were in the majority emigrant remittances (Foster 1989: 523).
97
ment incentives, which could have mobilised investment capital. Moreover, the
continued high level of British imports and the small size of the Irish home market
constrained profit possibilities for indigenous industry. British imports continued to
resemble barriers of entry to the Irish home market for indigenous firms (O’Malley
1989: 58).
As a result, abundant capital was exported instead of being invested at home.
Hence, the independent Irish state did not suffer under a shortage of capital; rather it
was missing risk capital, due to a lack of entrepreneurship and adequate productive
investment possibilities (Lee 1989: 109).90 The need for productive investment impelled the overtly anti-dirigiste government to create a number of state-sponsored
bodies in order to fill the entrepreneurial investment void in key economic areas
such as infrastructure, services and credit provision (Breen at al. 1990: 26; Lee
1989: 109-110).
The worldwide post-1929 economic depression was responsible for the ensuing
demise of the laissez-faire development regime. In the face of decreasing export
earnings, rising production costs and rising protectionism, the prevailing free trade
orientation was no longer politically and economically feasible. Although the government had tried to counteract the negative effects by raising tariffs bringing the
free trade orientation to an end in 1931, these measures could not sustain its political
power. The post-Civil War ideological consent had fallen apart due to the failure of
the state to fulfil its developmental goals (Breen et al. 1990: 27).
The decline in living standards and the decline in export earnings had worn away
the traditional support base for the Cumann na nGaedheal government. More stringent immigration regulations as well as rising unemployment in the major emigration countries, the US and the UK, had narrowed the “exit” possibilities. As a result,
rising unemployment in the Irish Free State increased public dissent. Consequently,
a transfer of power took place. Fianna Fáil with its charismatic leader Eamon
de Valera won the 1932 general election by capturing the votes of the disgruntled:
small farmers, small businessmen, farm labourers and the urban working class. It
formed a coalition government with Labour as its junior partner (Jacobsen 1994:
53).
As shown, the Free State government presided over a considerable degree of internal autonomy to formulate its economic policies. The state’s capacity however
never matched its range of internal autonomy. This was mainly out of choice and not
circumstance. The forged development regime was based on the developmental
inputs stemming from agricultural exports and therefore was dependent on free
trade. State capacity was voluntarily restrained, as the government followed a stringent ideology of non-intervention and fiscal prudence. The Irish economy malfunctioned due to the over-reliance on export earnings in the face of the Great Depression of 1929, which severely affected Ireland’s export incomes. Hence, the capacity
of the state was reduced to attain the desired developmental goals. The reduced
90 For example, between 1926 and 1927, IR£ 195 million were invested abroad by Free State
residents, whereas IR£ 73 million were invested by non-Free State residents (Lee 1989: 109).
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possibility of emigration then increased popular dissent, leading to the government’s
downfall and the development regime’s replacement.
2.3.2 Protectionism (1932-1958)
The new government quickly began to construct a new ideological consent within
Irish society. The acceptance of Fianna Fáil by the working class through its coalition with Labour worked against the surfacing of class antagonisms such as in other
European countries at the time. By contrast to the preceding development regime,
the Fianna Fáil government centred its policies on nation building. Policies were
developed in order to pursue the creation of an Irish identity defined as Catholic and
self-sufficient, whereby self-sufficiency was defined as economic independence
from the UK (Lee 1989: 184).
De Valera’s aim was to construct “an Irish identity entirely from native cultural
resources” (Breen et al. 1990: 28). Upon returning to constitutional politics and
coming into office, de Valera was faced with the task of transforming his nationalist
agenda into practical policies. This entailed the search for an optimal relationship
with the UK, which could first pacify militant Republicanism; secondly, secure a
stable power base for his government; and, third, steer the country clear of rising
international hostilities (Foster 1989: 546-547; Jacobsen 1994: 57). The chosen path
was self-sufficiency via protectionism. However, as will be shown, in stark contrast
to Hungarian experiences the Irish version of import-substitution did not encompass
an expansionist state.
Protectionist Autonomy and Restrained Capacity
The central economic element of this mission was the implementation of an industrialisation strategy based on import substitution. The goal was to achieve selfsufficiency in agriculture, industry and investment (Barry 1991: 87). As O’Malley
(1989: 58) points out, the Irish aim of self-sufficiency was more than the mere emulation of international models of development. Rather, the chosen path of importsubstitution expressed the nationalist and isolationist view of Irish Republicanism.
Simultaneously, the policies also reflected the interests of Fianna Fáil’s voters
(working class and smallholders), who were perceived to be the losers of the previous development regime based on agricultural exports.
The subsequent development regime sought to reserve the home market for tillage
farming and indigenous industrial goods (Ó Gráda 1997: 5). The latter implied the
creation of a national industrial class, which would be the base of Irish development
through the provision of industrialisation, employment and investment. Thus, the
protectionist development regime was characterised through the alliance of the state
with local industrial capital, thus displacing agrarian capital as the key development
agent (O’Hearn: 1990: 9).
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References
Zusammenfassung
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.