Development Programs in Ireland
Author: Patrick Perry

Ireland embarked upon its Second Program for Economic Expansion at the beginning of 1964,1 against a background of rising output and employment and over-all balance of payments equilibrium. The Program has as its foundation the solid achievements of the Irish economy under the First Program for Economic Expansion, which covered the years 1959–63. The measures taken in that Program had been expected to yield a real growth rate of 2 per cent per annum in national output, about twice the rate achieved, on average, in previous years; actually, gross national product (GNP) rose at an annual average rate of nearly 4½ per cent in real terms (Table 1).

Abstract

Ireland embarked upon its Second Program for Economic Expansion at the beginning of 1964,1 against a background of rising output and employment and over-all balance of payments equilibrium. The Program has as its foundation the solid achievements of the Irish economy under the First Program for Economic Expansion, which covered the years 1959–63. The measures taken in that Program had been expected to yield a real growth rate of 2 per cent per annum in national output, about twice the rate achieved, on average, in previous years; actually, gross national product (GNP) rose at an annual average rate of nearly 4½ per cent in real terms (Table 1).

Ireland embarked upon its Second Program for Economic Expansion at the beginning of 1964,1 against a background of rising output and employment and over-all balance of payments equilibrium. The Program has as its foundation the solid achievements of the Irish economy under the First Program for Economic Expansion, which covered the years 1959–63. The measures taken in that Program had been expected to yield a real growth rate of 2 per cent per annum in national output, about twice the rate achieved, on average, in previous years; actually, gross national product (GNP) rose at an annual average rate of nearly 4½ per cent in real terms (Table 1).

Table 1.

Ireland: Selected Series, Average Annual Percentage Changes in Volume, 1952–631

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Data supplied by Central Statistics Office.

First Program for Economic Expansion

During the period of the First Program, industry was the fastest growing sector of the economy. The share of industry in the net national product at factor cost rose from 27 per cent in 1958 to 31 per cent in 1963, while that of agriculture declined. Fixed investment was the component of expenditure that grew the fastest; its share of GNP (at current prices) rose from just over 13 per cent in 1958 to 16½ per cent in 1963. The share of personal consumption fell from about 76 per cent to 73 per cent. Exports of goods and services rose from 37 per cent to 39 per cent of GNP, but imports rose somewhat more rapidly, being equivalent to 41½ per cent of GNP in 1963, compared with 37 per cent in 1958; the excess of imports of goods and services over exports increased to £13 million ($36.4 million) in 1962 and £22 million in 1963 (at current prices). There was a sizable inflow of capital from abroad between 1958 and 1963.

Incentives and Fiscal and Monetary Policies

The major features outlined in the First Program, published in November 1958, were measures to encourage the growth and improve the efficiency of agricultural output, and policies designed to support private industry in attaining an expansion of output and exports and in lowering costs of production. Government capital expenditure on social infrastructure was expected to decline, while expenditure on “productive” industries, such as agriculture, manufacturing, transport, and communications, was expected to increase.

Expenditure under the Public Capital Program, which includes capital expenditure by local authorities and state-sponsored bodies, more than doubled, at current prices, between 1958/59 and 1963/64. This increase was considerably greater than had been anticipated, even when allowance is made for the effect of price changes.

Total state aid to agriculture, some of which is included in the Public Capital Program, rose from £21 million in 1958/59 to £39 million in 1963/64. The major items included in these totals are shown in Table 2. This aid contributed to a substantial increase in agricultural output and productivity. Bovine tuberculosis was virtually eliminated, which was necessary if the export of store cattle to the United Kingdom (i.e., live animals exported for fattening in the United Kingdom) was to continue. Other important measures were fertilizer subsidies (much land in Ireland suffers from serious deficiencies because of underfertilization in the past); expenditure on research, advisory, and technical services, as the quality of farm methods and management is central to the achievement of higher agricultural production, productivity, and incomes; and special attention to credit and marketing requirements of farmers.

Table 2.

Ireland: Government Aid to Agriculture, Fiscal Years 1958/59 and 1963/64

(In millions of Irish pounds)

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Source: Financial Statement by Minister for Finance, Budget 1964.

Considerable incentives were introduced for the establishment of industries in Ireland, whether by Irish or foreign firms. Cash grants were offered equivalent to up to half the cost of fixed assets or, if the industry was set up in the development areas (roughly the western half of the country), to two thirds of the cost. Grants were also made available for training workers. Profits earned on new exports were completely exempted from income or corporation profits tax for ten years and partially exempted for a further five years. Depreciation allowances were liberalized, and initial allowances of 40 per cent for new plant and machinery and 20 per cent for new buildings were introduced; typically, from 75 per cent to 80 per cent of the cost of investment could be written off in the first three years. Local government taxes on new buildings were reduced by two thirds for the first seven years after construction. Companies licensed to operate in the Shannon Customs-Free Airport were given complete exemption from income and profits taxes until 1983. These incentives have had a considerable influence in attracting foreign investment, which has been an important stimulus to growth. A considerable number of companies—continental European, British, U.S., and Japanese—have set up subsidiaries or joint ventures in Ireland. Most of these ventures are export orientated, which is an important factor in the sustained growth of manufactured exports; also, they have introduced techniques and products not previously available in Ireland. Interest in Ireland as a possible base of operations appears to be continuing.

Private investment has benefited greatly from the sustained growth of the economy, the atmosphere of confidence and enterprise, and the fiscal and other incentives offered. Private gross investment in 1962/63 was more than twice that in 1958/59, and as a proportion of total gross investment it increased from 39 per cent in 1958/59 to 47 per cent in 1962/63.

In addition to the specific incentives outlined above, which were introduced to stimulate the growth of production, investment, and productivity, there was a major reduction in the incidence of direct taxation during the period of the First Program. The standard rate of income tax was reduced in two stages—in 1959 and 1961, respectively—from 7s. 6d. in the pound (37½ per cent) to 6s. 4d. in the pound (31.7 per cent); earned income relief was increased; the starting point for liability to surtax was raised from £1,500 per annum to £2,500 per annum; and personal allowances for income tax were made applicable to surtax. The corporation profits tax was increased in 1963/64 from 10 per cent to 15 per cent, because of the need to raise more revenue (see below, p. 140).

The budgetary policy of the Government during this period continued to aim at meeting all current expenditure from current revenue. However, there were small surpluses on current account in 1958/59 and 1959/60, and small deficits in succeeding years; in 1963/64, when total current expenditure was £186.6 million, there was a deficit of £2.2 million on current account. Current government expenditure (including transfer payments, etc.) rose by 48 per cent during this period and as a proportion of GNP increased from 21.0 per cent in 1958 to 22.7 per cent in 1963. Expenditure on agriculture, industry, transport, etc., rose by more than 73 per cent during this period; expenditure on education by 54 per cent; and the cost of debt service by 55 per cent.

The total capital requirements of the Central Government rose from about £25 million in 1958/59 to £57.9 million in 1963/64, a much faster rate of increase than that of current government expenditure. The policy was to meet capital outgoings as far as possible from long-term borrowing. Of the Central Government’s total capital requirements of some £273 million in the period 1958/59–1963/64, £25 million (9 per cent) was available from repayments of capital previously advanced by the Exchequer; £42 million (15 per cent) was raised from small savings and Prize Bonds; £61 million (22 per cent) from the investment income of, and sales of securities by, the Departmental Funds; £99 million (36 per cent) through issues of long-term bonds to the public (including insurance companies, etc.); £9 million (3 per cent) through sales of Exchequer bills to the public; and the remainder, some £37 million, from various other sources, including the banking system.

During the period of the First Program, banking policy was geared to support the growth of the economy, although in fact the monetary situation did not require that the authorities take any measures to develop a more active credit policy. The monetary system is closely linked with that of the United Kingdom; most of the Irish banks transact extensive business in the United Kingdom, and several have their head offices there. The movement of funds between Ireland and the United Kingdom is unrestricted, and most of the liquid assets of the banks are held in sterling. During 1963, the Associated Banks agreed to transfer to the Central Bank some of their funds normally held in London. As a result, the proportion of the banks’ liquid assets held within Ireland increased. At the same time, the ratio of net external assets and funds held with the Central Bank to deposit liabilities declined—from 33.9 per cent in December 1958 to 26.8 per cent in December 1963 (see below, p. 146). The banks also hold Irish Exchequer bills; during 1961, a redisposition of the foreign exchange assets of the Central Bank took place, the effect being an increased ability on the part of the Bank to rediscount Exchequer bills for sterling, and thus an enhancement of the liquidity of these bills.

The banks provided substantial amounts of finance to facilitate the development of the economy. Bills, loans, and advances to customers (excluding the Government) within the country were £84 million higher in December 1963 than in December 1958, an increase of 52 per cent. Advances to farmers and agricultural undertakings more than doubled in this period, and advances to mining and manufacturing industries rose by nearly 70 per cent. Holdings of Irish Government securities rose by some £10 million, to £37 million. Bank deposits, both in current and deposit accounts, also grew substantially between 1958 and 1963. Current account liabilities of the commercial banks were £65 million higher in December 1963 than in December 1958, an increase of 44 per cent, while deposit accounts rose by £44 million (22 per cent). In total, the money supply was 39 per cent higher at the end of 1963 than at the end of 1958; during the same period, GNP at current prices increased by some 38 per cent.

Freer Trade, Reorganization of Industry, and Costs and Prices

Despite the suspension early in 1963 of negotiations between the European Economic Community (EEC) and the United Kingdom, it remains the Irish Government’s policy to seek membership in the EEC; indeed, the Second Program assumes that Ireland will be a member by 1970. The prospect of membership has given an important stimulus to the Irish economy.

Before the suspension of the U.K.-EEC negotiations, the Irish Government had embarked on policies to adapt industry to more competitive conditions, and these efforts have been continued. Irish industry has grown up in an atmosphere of protection, and the Government has recognized that considerable efforts have to be made not only to ensure that the transition to freer trade is achieved with the minimum of dislocation of production and employment, but also to facilitate the best use of opportunities to expand export sales. As a spur to efficiency, the Government lowered protective tariffs on manufactured goods by 10 per cent at the beginning of 1963 and by a further 10 per cent in January 1964; in addition, a program for the elimination of quota restrictions and the substitution of tariff protection was initiated. As part of this program, most quotas were enlarged, one was removed, and another was modified to admit imports from certain countries without restriction. Some special tariff concessions were extended to industries based in Northern Ireland. Surveys were instituted, most of which are now complete, to determine the potentialities and problems of particular industries under freer trade conditions, and special loans and grants were made available to assist industries to adapt to those conditions through re-equipment and redeployment. These loans and grants were made available only if there was a definite prospect that the projected expenditure would make the enterprise in question fully competitive under freer trading conditions. In addition, grants were made available for part of the cost of hiring specialist consultants, and of training courses for managerial and supervisory personnel of manufacturing firms. Industries were encouraged to set up councils to oversee the process of adaptation and to assist in amalgamation and reorganization.

The question of costs, particularly labor costs, is of critical importance to the healthy growth of the economy. In these circumstances, the Government has attempted to bring management and trade unions into agreement on methods of ensuring that wage earnings do not increase at a faster rate than production per capita. In the first two years or so of the First Program, wage earnings increased at about the same rate as per capita output, and costs and prices were stable. However, the eighth round of wage increases since World War II, which got under way toward the end of 1961, was far larger than was compatible with continued cost stability. In the third quarter of 1962, weekly earnings per capita in industry were 12 per cent higher than they had been a year earlier, while per capita output was less than 1 per cent higher (Table 3). Prices began to rise toward the end of 1961. In February 1963, the Government published a White Paper on this problem, in which it stated that it proposed to invite the National Employer/Labor Conference to discuss how an assessment of the economic situation might be made at intervals to help the private sector establish a more orderly relationship between the growth of money incomes and production. The White Paper called for an acceleration of the rate of increase in productivity, and pointed out that, for a variety of reasons, output per worker in many industries in Ireland was below the level prevailing in industries in countries with which Ireland had to compete. The urgent national need was for a greater rise in productivity than was occurring in other countries. At the same time, the White Paper stated that government departments and government-sponsored organizations “should not accede for the present to any claims for increases in wages and salaries, or for changes in conditions of work having the same effect, which would arouse expectations of similar increases in other employments.” It was not envisaged that conciliation and arbitration procedures should be suspended, but rather that any findings resulting from these procedures for particular industries should be considered in relation to their possible reaction on other sectors and, if necessary, not applied until this could be done without damage to the national economic interest. During the second half of 1963, earnings rose less quickly than output per capita, and in November 1963 the Government indicated to the trade union and employer organizations that the gap to which attention had been called in the White Paper had virtually been closed and that an upward revision of wages and salaries might safely be envisaged. The matter was examined by representatives of the national employer and employee organizations, and on January 1, 1964 agreement was reached on an increase of 12 per cent, the agreement to be effective for 2½ years (see below, p. 138).

Table 3.

Ireland: Transportable Goods Industries,11961-First Quarter 1964

(Percentage increases from corresponding quarter in preceding year)

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Source: Based on data from Central Statistics Office, Irish Trade Journal and Statistical Bulletin.

Manufacturing, mining, quarrying, and turf.

Salaried employees plus wage earners.

Per person engaged.

Provisional.

Workers move freely between Ireland and the United Kingdom, and the labor markets and wage movements and levels in the two countries are therefore linked. Average hourly earnings in manufacturing industry in Ireland were about 35 per cent higher in 1963 than in 1958, while in the United Kingdom they were about 30 per cent higher. However, production per man-hour rose by about 24 per cent in Ireland during this period, compared with 20 per cent in the United Kingdom. Thus, in spite of the fact that earnings rose rather faster in Ireland, Ireland’s competitive position, vis-à-vis its main market, did not deteriorate. The consumer price index rose rather more slowly between 1958 and 1963 in Ireland (10 per cent) than in the United Kingdom (12 per cent).

Progress by Industry and Agriculture

The major advance achieved by the Irish economy during the period 1959–63 was due in part to the measures outlined above, and in part to a broadly favorable external environment. The acceleration of the growth of output was chiefly in industry: in 1963, the volume of production in the transportable goods industries (manufacturing, mining, quarrying, and turf) was about 45 per cent more than in 1958 (Table 4). At the same time, the structure of industry underwent a considerable change: the metal and engineering, chemical, textile, and “other manufacturing” industries grew faster than average, while the food, drink, and tobacco, and wood, furniture, etc., industries expanded relatively slowly. Increasing exports of manufactured goods were an important factor stimulating the growth of industrial output; exports of manufactures rose by over 90 per cent between 1958 and 1963. Employment in industry increased during this period, the number of people employed in the transportable goods industries in June 1963 being 24,000 (16 per cent) higher than in June 1958. Production per capita rose markedly.

Table 4.

Ireland: Index of Production, Annually, 1958–63, and Quarterly,1961–63

(1953 = 100)

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Source: Central Statistics Office, Economic Statistics, 1964.

Mining, quarrying, and turf.

Provisional.

In agriculture also, production and productivity increased during the period of the Program, although the rate of increase for production was slower than that for industry. Between 1958 and 1963, there was a decline of some 47,000 (11½ per cent) in the number of persons engaged in agriculture, forestry, and fishing, but net agricultural production (including livestock changes and hand-won turf) in 1963 exceeded the 1957–58 average by 7 per cent. About half the total value of agricultural production consists of cattle and calf production and milk and butter, and most of the growth of output in recent years has come from this sector in spite of the effect of the slaughter of more than half a million head of cattle with tuberculosis.2 Partly as a result of the program to eliminate tuberculosis, the target for the build-up in the cow herd envisaged in the first Program was not achieved. Cattle production is closely interconnected with dairy production. The cattle trade depends fundamentally on the milch cows in the southern dairying districts, as these are the breeding stock which produce the cattle later sold as stores or fat beasts abroad. Exports of cattle, which are equivalent to about 80 per cent of total production,3 have expanded markedly in the past five years as the volume of slaughtering for domestic consumption has increased relatively slowly (Table 5). Imports have fluctuated considerably from year to year.

Table 5.

Ireland: Cattle Output, Exports, and Imports, Annually, 1958–63

(In thousands)

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Source: Central Statistics Office, Irish Trade Journal and Statistical Bulletin.

Including changes in stocks of meat.

Although the acreages under main grain crops have varied in recent years, there was a marked downward trend over the period 1958–63 as a whole in the acreage under wheat and oats, and a steady upward trend in the acreage under barley. The rise in the barley acreage was not large enough to offset the fall in the wheat and oats acreage, so that the total area under grain crops declined. The total area under root and green crops declined at about the same rate as that under grain crops, although the sugar beet acreage rose sharply between 1962 and 1963, to a level slightly higher than that in 1958.

At the same time, there was an upward trend in the yield per acre of the majority of crops. As a result, the output of most crops has not changed greatly in the past few years, with the important exception of barley, output of which in 1963 was nearly double the 1957/58 average.

The relative importance of agriculture in the economy declined during the period of the Program. Agriculture, forestry, and fishing accounted for 25 per cent of the net national product at factor cost in 1958 and some 21 per cent in 1963. However, agriculture still maintains its dominant share in commodity exports, despite the considerable increase in exports of manufactured goods noted above. Exports of agricultural products represented nearly 60 per cent of total domestic exports in 1963. It is therefore clear that, despite its declining share in the national product, agriculture remains of fundamental importance to the Irish economy.

The restrictiveness of the various agricultural policies of some countries has been partly responsible for the slow growth of Irish agricultural exports (apart from live animals). Membership in the EEC would offer substantial market opportunities to Irish agriculture, which is competitive as far as costs of production are concerned. Without these or similar opportunities, it is unlikely that sales, and therefore output, of agricultural produce can expand very fast in the coming years. In these circumstances, a further contraction of the agricultural work force would be necessary to enable agricultural incomes per capita to rise at a satisfactory rate.

Effect of Program on Unemployment and Emigration

The outflow of labor from agriculture has in the past been persistently larger than the numbers absorbed in the rest of the economy. Thus, chiefly because of lack of suitable employment opportunities, emigration has been substantial and the population has declined. The successes of recent years, however, have reduced both unemployment and emigration. In the three years 1960–63, the average annual figure for unemployment was about 5¾ per cent of the labor force, compared with 8½ per cent in 1958; all categories of unemployed showed significant declines. Emigration, which was at a rate of over 40,000 per annum in 1960, declined markedly in the next three years and in 1963 was about 22,000, a figure well below the estimated natural increase in the population; as a result, the total population began to rise again. It would seem that, in recent years, the stabilization of total employment was accompanied by a reduction in the outflow of emigrants, while the level of unemployment remained largely unchanged.

Balance of Payments Developments

The expansion of the economy caused an increase in imports of consumption goods, capital goods, and raw materials. The rate of increase was rather irregular, but imports, which were about 54 per cent higher in 1963 than in 1958, grew, on average, faster than GNP. The fastest growing category of imports during this period was capital goods, which in 1963 were more than twice the 1958 value. Imports of raw materials and also of consumer goods rose by 48 per cent. Exports (including re-exports) were about 49 per cent higher in 1963 than in 1958. The trade deficit (imports on a c.i.f. basis) increased from £68 million in 1958 to some £110 million in 1963; at the same time, there was a substantial increase in net receipts from invisibles, notably from tourism, so that the increase (from £1 million to about £22 million) in the deficit on current account was relatively moderate. It was more than covered by a net inflow of capital; reserves rose slightly during 1963; and at the end of the year, they were substantially higher than at the end of 1958.

Domestic Economy in 1963

Gross national product in 1963, valued at £823 million at current prices, was 6 per cent more than in 1962; at constant 1953 prices, it rose by just over 4 per cent (Table 6). The population increased slightly in 1963, so that the percentage rise in per capita GNP was a little less than the increase in the total. The increase in real terms was larger than that achieved between 1961 and 1962, and the acceleration of growth continued throughout 1963; at the end of that year, output was more than 4 per cent higher than a year earlier. For 1963 as a whole, total domestic expenditure was £33 million (5 per cent) higher, at constant prices, than in 1962. Personal consumption expenditure, rising by 3½ per cent, accounted for £16 million of the increase; gross fixed investment rose by £13 million, or more than 13 per cent; and public authorities’ consumption expenditure by £ 3 million, a little over 4 per cent. The value of additions to stocks, at £10 million, was £ 1 million more than in 1962. Imports of goods and services increased by more than 9 per cent at constant prices, while exports of goods and services rose by a little more than 7 per cent. The increase in imports, at £26 million, was equivalent to half of the increase in total expenditure, while the rise of £19 million in exports was equivalent to just under three fourths of the increase in GNP. The higher national product was due entirely to increased production in the transportable goods industries, building and construction, and services; agricultural production showed little change. While unemployment and emigration were about the same as in 1962, total employment rose slightly; the decline in numbers engaged in agriculture was more than offset by increases in employment in other sectors. Retail prices, which had risen by more than 4 per cent in 1962, increased more slowly in 1963, being on average 2½ per cent higher than in 1962. Prices of the output of industry were, on average, a little over 1 per cent higher in 1963 than in 1962.

Table 6.

Ireland: Use and Supply of Resources, Annually, 1958–63

(In millions of Irish pounds)

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Sources: Central Statistics Office, National Income and Expenditure 1962, and Economic Statistics, 1964.

Consumption

Income from wages and salaries increased by 6½ per cent in 1963, considerably less than the increase of 10½ per cent in 1962. Earnings per capita in industry rose at a much slower pace than in the earlier year. Since personal consumption expenditure increased by 6 per cent at market prices, the proportion of incomes saved over 1963 as a whole changed little. However, retail sales data indicate that the rate of increase in personal consumption expenditure quickened during 1963, probably because of advance buying before the turnover tax came into effect, while the rate of increase in weekly earnings slowed down (see Table 3, p. 125).

Investment

Gross fixed investment was 14 per cent higher in value, and 13 per cent higher in volume, in 1963 than in 1962. Gross fixed investment has risen considerably faster than GNP in the last few years, and as a proportion of GNP at current prices it increased from 13 per cent in 1960 (the same proportion as in 1958) to 16½ per cent in 1963. Between 1958 and 1963, investment in industrial machinery and equipment accounted for about half of the total increase, while investment in all forms of building and construction accounted for practically all the remainder.

More than half of total gross fixed investment is associated with the Public Capital Program; total expenditure under the Program was 21 per cent higher in 1963/64 than in 1962/63, a considerably faster rate of increase than that between 1961/62 and 1962/63 (11 per cent). The results for 1963/64 show substantial increases in all categories except agriculture and industrial credit (Table 7). Particularly marked increases occurred in expenditure on fuel and power—chiefly investment in electricity generation and distribution—telephones, transport, and industry. Expenditure on fuel and power is expected to decline in 1964/65, but expenditure on telephones, transport, and industry is expected to continue to increase rapidly. The major part of expenditure on transport in 1964/65 consists of new aircraft for the Irish airlines. The total Public Capital Program for 1964/65 involves an expenditure of £96 million, £17.6 million (22 per cent) more than in 1963/64. Apart from the increases already mentioned, substantial increases are estimated for housing and industrial credit of £4.5 million and £2.4 million, respectively.

Table 7.

Ireland: Public Capital Program, Fiscal Years, 1959/60–1963/64

(In millions of Irish pounds)

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Source: Financial Statement by Minister for Finance, Budget 1964.

Nonagricultural stocks rose at a slightly faster rate in 1963 than in 1962, and, chiefly because of an increase in cattle numbers, agricultural stocks also increased.

Industrial production

Production in the transportable goods industries was about 5 per cent higher in 1962 than in 1961, and this rate of increase continued in the first half of 1963. In the second half of 1963, however, there was a marked acceleration, and output for the year as a whole was some 6½ per cent higher than in 1962. This acceleration was due in part to a resurgence of growth in the United Kingdom, which was reflected in a rapid expansion of exports of manufactured goods from Ireland in the second half of 1963. The rate of expansion in production was fastest in the textile, clothing and footwear, and metal and engineering industries; the food, drink, and tobacco industries showed little change from 1962. During the second half of 1962 and the early months of 1963, there was a substantial decline in the output of the mining, quarrying, and turf group of industries, partly because of the closing of a copper mine; but production then recovered, and for the year as a whole it was 6½ per cent higher than in 1962 and 4½ per cent higher than in 1961. In 1963, 34 new industrial enterprises with foreign participation commenced production. The aggregate capital investment in these enterprises is estimated at £7 million, and their full employment potential at 4,000. At the end of December 1963, 24 new factories with foreign participation were in the course of construction, involving an estimated capital expenditure of £12.5 million and a full employment potential of 7,500. These figures are higher than in previous years; it appears, therefore, that the flow of direct investment from abroad, most of which goes into industries producing for the export market, is continuing.

Production of electricity was 9½ per cent higher in 1963 than in 1962, a slightly lower rate of growth than between 1961 and 1962. On average, output in the building and construction industry was 10 per cent higher than in the preceding year. The rate of increase, however, accelerated markedly during the course of 1963. Activity in the first quarter of the year was hampered by bad weather conditions and was less than 3 per cent higher than in the first quarter of 1962; but by the fourth quarter of 1963, output was 15 per cent higher than in the fourth quarter of 1962.

Agricultural production

Net agricultural output (excluding livestock changes and hand-won turf) showed little change between 1962 and 1963. The output of livestock and livestock products rose by about 3 per cent, but this was offset by a fall of over 8 per cent in production of crops and hand-won turf.

There was an increase of 2.5 per cent in cattle numbers between June 1962 and June 1963 (Table 8). The number of heifers in calf rose by 12.9 per cent and that of cattle under three years old by 3.2 per cent. These two increases should imply favorable developments in cattle production and exports, as an expansion of the breeding stock depends principally upon expanding the number of heifers kept for that purpose, while exports of store cattle come largely from two-year-old, or younger, cattle. Late in 1963 it was announced that a payment of £15 would be made to farmers for every heifer kept in the herd which was in excess of the number in the herd in the previous year. The object of this payment is to encourage the expansion of the breeding stock to about 1,700,000 by 1968, and thus assist in the attainment of the target for the size of herds and output of cattle set in the Second Program.

Table 8.

Ireland: Numbers of Livestock, at June 1, 1960–63

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Source: Central Statistics Office, Irish Trade Journal and Statistical Bulletin, September issues.

By September 1963, bovine tuberculosis had been eradicated in 20 counties, containing 3 million of the 4.9 million cattle in Ireland. In the remaining 6 southern dairying counties, the second round of clearance tests began in April 1963. Herd owners are required to clear their herds of all animals that give evidence of tuberculosis following the second clearance test. The rate of reactor removal had reached over 2,000 a week by the end of September 1963 and 6,000 a week by December 1963. Gross expenditure on the eradication program from the time it was introduced in 1954 to the end of September 1963 was some £38 million and, after deducting the salvage value of reactors, the net cost was over £24 million. The authorities are now turning their attention to bovine brucellosis (contagious abortion). The eradication of this disease would help to increase calving rates and therefore increase the volume of cattle production that could be expected from a given breeding herd.

Employment, earnings, and costs

The total labor force (including those out of work) in April 1963 was some 6,000 (½ per cent) higher than in April 1962; this was the first time that the total labor force had risen for many years. Employment in agriculture declined by some 8,000 (2.2 per cent) in the 12 months to April 1963; but since there were increases of 4,000 (2.2 per cent) in employment in manufacturing, 4,000 (6.3 per cent) in building and construction, and 1,000 in other nonagricultural sectors, the total number at work rose by 1,000 (Table 9).

Table 9.

Ireland: Labor Force in April of Each Year, 1951 and 1959–63

(In thousands)

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Source: Central Statistics Office, Economic Statistics, 1964.

During 1963, there was a substantial acceleration in the growth of employment in the transportable goods industries. Each quarterly period showed a successively larger increase over the corresponding period a year earlier (Table 3, p. 125). The improvement continued into 1964, when employment in this group of industries in the first quarter was 4.9 per cent higher than a year earlier. Figures for building and construction output indicate similar developments in employment in that sector. Thus it appears that the decline in agricultural employment continued to be more than offset by increases in nonagricultural employment in the 12 months to April 1964.

Net passenger movement by sea and air out of the Republic was slightly higher in 1963 than in 1962 (Table 10). It is probable that the slight increase was due in part to greater demand for labor in the United Kingdom. Nonetheless, emigration in 1963 continued, as it did in 1962, at a rate lower than the estimated natural increase in the population of 27,000 and substantially below the high figures of the period prior to 1961.

Table 10.

Ireland: Net Passenger Movement, Annually, 1960–63

(In thousands)

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Source: Central Statistics Office, Irish Trade Journal and Statistical Bulletin.

Unemployment in the first half of 1963 was higher than in the first half of 1962, but this was to some extent due to the exceptionally bad winter. In the fourth quarter of 1963 the rate of unemployment (as a percentage of insured persons) averaged 5.5 per cent, practically the same as a year earlier. Agricultural workers and laborers continue to form a substantial majority of persons unemployed.

Productivity in the transportable goods industries was nearly 3 per cent higher in 1962 than in 1961 (Table 3, p. 125), but the rate of increase appeared to slacken in the first half of 1963; during the second half of that year, however, the rate of growth rose, and productivity was about 5 per cent higher than in the second half of 1962. On average, production per capita in 1963 was somewhat more than 3 per cent higher than in 1962.4

Weekly wage earnings in 1963 rose considerably less rapidly than in 1962. The rate of increase was lower than the expansion in productivity in the second half of 1963, and unit labor costs declined over 1963 as a whole. Toward the end of the year, considerable pressure built up for further wage increases, particularly in the building and electricity industries. As stated above (p. 126), this led to an examination of the position by the National Employer/Labor Conference, and on January 1, 1964 a joint recommendation was agreed.

The main features were as follows: a general increase of 12 per cent in basic rates, with a minimum increase of 20s. a week for full-time adult male wage earners; no further increase for two and one-half years; normal negotiating procedure to be followed in case of disagreement. If very exceptional circumstances should arise during the period covered by the agreement, these circumstances would be considered by the National Employer/Labor Conference. In any case, discussions would be opened after two years, to consider a further recommendation to take effect six months later. It was also stated that the agreement had been made in the context of existing weekly working hours and annual leave entitlement and had taken into account changes in the cost of living and national production. The parties to the agreement recommended that all interests should cooperate to achieve the maximum utilization of available resources and an improvement in efficiency and output.

Following the agreement, a large number of claims for wage increases of 12 per cent were made and granted, in both the public and the private sectors.

Prices

Changes in consumer, wholesale, industrial, agricultural, export, and import prices are shown in Table 11. The consumer price index rose steadily from the latter part of 1961 until the beginning of 1963, but was then stable until the closing months of the year, when it rose by some 3 per cent. The greater part of this increase was due to the introduction of a turnover tax of 2½ per cent on most goods and services in November 1963. Between November 1962 and November 1963, the largest increase in the items making up the consumer price index was one of more than 7½ per cent in the cost of fuel and light. Food prices rose by 4 per cent, clothing prices by just under 4 per cent, the cost of housing by 4½ per cent, and the cost of other items by 4½ per cent. The consumer price index rose by a further ½ per cent between November 1963 and February 1964, when it was 3.3 per cent higher than in February 1963. Wholesale prices were nearly 2 per cent higher in December 1963 than in December 1962. Prices of goods produced by industry rose in this period by slightly more than 1 per cent; prices of materials for use in industry increased somewhat more, while the cost of capital goods also rose to some extent. The prices of agricultural output were slightly lower in March 1963 than in the corresponding month in 1962, but in June prices were marginally above those ruling in the same month a year earlier; and in September and December 1963, they were, respectively, 1.5 per cent and 3.0 per cent higher than in the corresponding month in 1962. Prices of imports (including customs duties) were about 2.9 per cent higher in December 1963 than in December 1962, and this may have accounted for some of the increase in domestic prices.

Table 11.

Ireland: Index Numbers of Prices, 1959–March 1964

(1953=:100)

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Sources: Central Statistics Office, Irish Trade Journal and Statistical Bulletin; Central Bank of Ireland, Quarterly Bulletin.

Apart from the inclusion or exclusion of customs duties, these series differ both in coverage and method of compilation.

These indices are for a month earlier than the one stated.

Government finance

Current budget for 1963/64

Current expenditure in 1963/64 was £18.3 million (11 per cent) more than in 1962/63 (Table 12). The greater part of the increase reflected policy commitments in earlier years. In addition, the price paid to farmers for milk was increased, and various pensions, allowances, etc., were raised, in part to alleviate the effects of the new turnover tax.

Table 12.

Ireland: Exchequer Accounts, Fiscal Years, 1960/61–1964/65

(In millions of Irish pounds)

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Sources: Annual Budget Statements.

Including £2 million from revenue balances.

Investment income and proceeds from sale of departmental holdings of securities.

Receipts from an issue of £9.7 million of Exchequer Stock 1968 less decrease in banks’ Exchequer bill holdings.

Including £4.9 million Exchequer Stock 1968 taken up by departmental funds.

In the budget for 1963/64, the profits tax was increased from 10 per cent to 15 per cent on all profits arising after January 1, 1962; a turnover tax of 2½ per cent on retail sales of goods and services was introduced, to operate from November 1, 1963; and various minor measures were taken. Current revenue rose by £20.9 million (13 per cent), and the deficit fell to £2.2 million, from £4.9 million in 1962/63.

Current budget for 1964/65

In presenting the budget for 1964/65, the Minister for Finance said that there were grounds for believing that the rate of growth of GNP in 1964 would exceed the 4 per cent rate achieved in 1963. However, there were risks involved for the economy in the implementation of the 12 per cent wage increase: if the increase were spent mainly on personal consumption goods, involving heavier imports, the result, combined with a weakening in the capacity to expand exports, could lead to balance of payments difficulties. The budget, while being framed so as to maintain development, should not itself give a fillip to consumption; a balance on the current budget had to be the objective. In particular, it was important not to run any serious risk of a current budget deficit in 1964/65 in view of a substantial increase in expenditure planned through the capital budget. Further taxation was, therefore, necessary.

It was estimated that current expenditure resulting from previous policy commitments would increase by £23.3 million (12.5 per cent). About £4 million of this was for debt service, some £8.7 million for health, education, and welfare, £4.1 million for agriculture, industry, transport, etc., £1.8 million for defense, and £4.7 million for various other items. A substantial part of the increase was due to the wage and salary agreement (mentioned above). About 30 per cent of current government expenditure comprises direct wage and salary payments, and a substantial portion of the remainder is indirectly affected by rising wages and salaries. New policy decisions caused an increase of £5.4 million in estimated expenditure; £4.5 million consisted of increased payments to farmers for milk and pigs and additional relief of agricultural rates, and £0.9 million consisted of increased social welfare and public service pensions. The grant to the road fund was reduced by £0.2 million. Thus, the total increase in expenditure was estimated at £28.5 million (15.3 per cent). In contrast to previous years, no deduction was made for possible overestimation.

On the basis of existing rates of taxation, revenue was expected to be £23.9 million (13 per cent) higher in 1964/65 than in 1963/64, which would have resulted in a deficit of £6.8 million. Therefore, the duty on gasoline and diesel fuel for road vehicles was increased to yield £1.5 million; tobacco duty to yield £2 million; the duty on beer, to yield £1.1 million; and the duty on imported spirits, to yield £0.4 million. Various minor tax reliefs reduced estimated revenue by £0.2 million. All the tax changes were estimated to yield an extra £4.8 million in 1964/65. The Minister stated that the policy had always been that the Post Office should pay its way, one year with another, as a commercial service. He expected that higher postal charges, which had been announced previously as necessary to meet the additional cost of Post Office services owing chiefly to pay increases, would yield £2 million in 1964/65. When this amount was included, it was estimated that the current budget would be in balance.

Capital budget for 1963/64 and estimates for 1964/65

Central government capital expenditure, as shown in the Exchequer accounts, was £55.7 million in 1963/64, an increase of £2.9 million over that in 1962/63. Expenditure on the Public Capital Program, at £52.4 million, was £3.7 million higher than in 1962/63, but other capital expenditure was almost £1 million lower. In addition, it was necessary to cover the current account deficit of £2.2 million, so that total capital requirements were £57.9 million, an increase of only £0.2 million over 1962/63.

An increase of £16 million (28.7 per cent) in central government capital expenditure was estimated for 1964/65. This was associated entirely with the rapidly growing Public Capital Program (see above, p. 133). Total financing needs of £71.7 million in 1964/65 (£57.9 million in 1963/64) were expected to be met in much the same fashion as in 1963/64; small savings, etc., were expected to provide £10 million (£3 million more than in 1963/64), departmental funds £16 million (£3.5 million more), and loan repayments to the Exchequer, £4.7 million. The remainder of some £41 million was to be met chiefly from the proceeds of a National Loan, borrowing from the banking system, etc.

Capital account of public authorities

The capital account of public authorities on a national income basis is summarized in Table 13 for the period 1958/59–1962/63.5 Throughout this period the public authorities acted as a substantial financial intermediary, channeling funds to private enterprises and government-sponsored bodies (enterprises wholly or partially owned by the Government). Of the total financing requirement of £60.4 million in 1962/63, £26.7 million, or less than half, was required to finance gross fixed investment,6 £27.4 million was required for capital grants to enterprises, other capital transfer payments, and loans to private and public enterprises, while £6.0 million was for loan redemptions. The proportion of total gross capital payments spent on fixed investment was about the same in 1962/63 as in 1958/59.

Table 13.

Ireland: Capital Account of Public Authorities, Fiscal Years, 1958/59–1962/63

(In millions of Irish pounds)

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Source: Central Statistics Office, National Income and Expenditure 1962.

Includes semigovernment bodies.

The main sources of finance during the period were the gross current account surplus of public authorities and borrowing. There was a considerable change, however, in the relative importance of these sources between 1958/59 and 1962/63. The gross current account surplus provided over 40 per cent of total requirements in 1958/59, but only a little more than 16 per cent in 1962/63. In 1962/63, 77 per cent of requirements was met by borrowing, in contrast to 52 per cent in 1958/59. To judge from the data in Table 13 (see item G), the extent to which public authorities called upon the savings of the private sector, including state-sponsored bodies, to finance their capital expenditure more than doubled between 1958/59 and 1962/63.

Money and banking

The money supply rose by 11 per cent (£27.3 million) in the calendar year 1963, considerably faster than in either 1961 or 1962, when the rise was at an annual rate of about 7 per cent. Credit to the private sector expanded slightly less than in 1962, and the increase in net external assets in 1963 was also smaller than in 1962 (Table 14). However, the commercial banks’ holdings of government securities and Exchequer bills were some £12 million higher in December 1963 than in December 1962, whereas these holdings did not change in 1962. Substantial increases in time deposits in 1961 and 1962 offset to a considerable extent the effects on the money supply of the expansionary factors mentioned above; in 1963, however, time deposits did not change.

Table 14.

Ireland: Changes in Internal Supply of Money, Annually, 1959–63

(In millions of Irish pounds)

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Source: Central Bank of Ireland, Report for the Year Ended March 31, 1964, pp. 80–81.
Bank liquidity

The ratio of net external assets of the commercial banks (i.e., the excess of their total foreign assets over their total foreign liabilities) to deposits has in the past been in the region of 30 per cent (Table 15). But in 1963 the banks’ net external assets fell by some £13 million, while deposits continued to increase, so that the ratio of these assets to deposits at the end of December 1963 was just over 24 per cent, in contrast to a ratio of nearly 29 per cent at the end of December 1962. However, during 1963 and the first few months of 1964, the commercial banks transferred some of their assets normally held in London to the Central Bank. The size of these deposits was agreed between the Central Bank and the commercial banks; they amounted to £14.5 million on January 21, 1964, compared with £4.6 million on January 15, 1963.

Table 15.

Ireland: Bank Liquidity at December 31, 1958–63

(Cols. 1–4 in millions of Irish pounds)

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Source: Central Bank of Ireland, Report for the Year Ended March 31, 1964, p. 46.

These deposits should be included in any assessment of the liquidity position of the commercial banks. Assessed in this way, the liquidity ratio was 27.3 per cent in January 1964, compared with 31.4 per cent in January 1963. In addition, the banks’ holdings of Irish Exchequer bills may be used to supplement their net external assets by rediscounting for sterling at the Central Bank. The banks’ holdings of these bills rose from £6.2 million in December 1962 to £9.8 million (2.3 per cent of deposits) in December 1963. The banks’ holdings of longer-term Irish Government securities amounted to £27 million (6.4 per cent of deposits) in December 1963, some £8 million more than a year earlier.

Bank lending to private sector

Commercial bank lending to the private sector rose by some £19.5 million (8 per cent) in 1963, a slightly smaller increase than in 1962. Advances to farmers and agriculture and to mining and manufacturing rose by about the same amount and at roughly the same rate (10–12 per cent); together, they accounted for somewhat more than one third of the over-all increase in lending to the private sector. Advances to personal and professional borrowers and advances to miscellaneous businesses, industry, and trade rose faster, but other categories showed more moderate increases.

Capital and financial markets

Total hire-purchase debt in December 1963 amounted to £34.7 million, £2.8 million more than in December 1962; the rate of increase was slightly more than that between December 1961 and December 1962. Of the amount outstanding in December 1963, £13 million (37 per cent) was financed by external capital and £3.6 million by Irish banks. The proportion financed by external capital was higher than in December 1962.

The year 1963 was an exceptionally active one in the capital market. New money raised totaled £37.4 million, an increase of £9.3 million over 1962. Of the 1963 total, £5.5 million was raised by rights issues, unit trusts, etc., compared with £1.5 million in 1962. The rest of the new money raised went into the National Loan and fixed-interest issues of the Electricity Supply Board.

While the Government and government-sponsored bodies have dominated the issue market in past years, the increase in issues by the private sector in 1963, together with the buoyancy of the equity market (equity prices rose some 27 per cent) and the formation of unit trusts with interests in Irish equities, suggests that the capital market may in future become a more important source of finance for the private sector. From the figures on investment income (see below, p. 151), it appears that Irish residents have substantial investments in overseas assets. Development of the domestic capital market, together with sustained growth in the economy, could perhaps induce some of these funds to move back to Ireland and thus provide a further source of finance for development.

Interest rates

In view of the freedom in the movement of funds from Ireland to the United Kingdom, Irish commercial banks adjust their interest rates broadly in line with changes in rates in the United Kingdom. The key rate is that for deposits of £25,000 and over, as these deposits are considered relatively volatile. This rate normally moves in sympathy with U.K. commercial bank deposit rates, which themselves change with the U.K. bank rate; the rate on deposits of £25,000 and over in the Republic of Ireland is normally a little lower than the comparable U.K. rate. The Irish banks’ ordinary overdraft rate moves in the same direction as the deposit rate and is normally about 3¾ per cent higher than the rate on deposits of £25,000 and over (Table 16). The current policy of the Central Bank is to fix and publish its rediscount rate, usually at monthly intervals. This rate follows the domestic interest rate structure rather than attempting to lead it. Thus, the Central Bank rediscount rate is indirectly determined to a large extent by conditions in overseas, mainly London, money markets. During 1963, the Central Bank rediscount rate fluctuated between 35/8 per cent and just over 4 per cent. Following the increase in the U.K. bank rate from 4 per cent to 5 per cent at the end of February 1964, the Central Bank rediscount rate was fixed at 4½ per cent at the beginning of March 1964, compared with 315/16 per cent in February, and increased to 435/64 per cent at March 31,1964.

Table 16.

Ireland: Bank Interest Rates, Selected Dates, 1962, 1963,1964

(In per cent)

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Source: Central Bank of Ireland, Report for the Year Ended March 31, 1964, p. 44.

Balance of Payments

In the first three years (1959–61) of the First Program for Economic Expansion, both exports and imports of goods and services grew rapidly and the current account remained approximately in balance (Table 17); there was a substantial inflow of capital so that reserves rose by more than £20 million, to £225 million, in this period. In 1962, however, exports declined, mainly because exports of cattle and beef fell as herds in Ireland were built up after the slaughtering of tuberculosis reactors. At the same time, imports continued to increase; as a result, the deficit on merchandise trade, at about £ 100 million, was £18.4 million larger in 1962 than in 1961. This was offset to some extent by a continued increase in net earnings on invisibles, but nonetheless the current account moved into deficit. The inflow of capital also increased, however, and reserves rose by £9 million.

Table 17.

Ireland: Balance of Payments, 1959–63

(In millions of Irish pounds)

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Source: International Monetary Fund, Balance of Payments Division.

In 1963, exports resumed their upward trend, being some 13 per cent higher than in 1962 and over 9 per cent higher than in 1961. Imports were nearly 12 per cent higher than in 1962 and nearly 18 per cent higher than in 1961. Imports were, as is normal, very much larger than exports, so that the deficit on merchandise trade rose by some £ 10 million, to £110.5 million, in spite of the fact that exports grew at a slightly faster rate than imports. Net earnings on invisibles also rose in 1963, but not sufficiently to offset the increased import surplus, so that the current account deficit, at £21.5 million, was some £9 million greater than in 1962. The apparent inflow of capital (£25 million) was £3 million larger than in 1962, and reserves rose by £2.9 million.

In addition, £0.6 million was repurchased from the IMF in August 1963, reducing the Fund’s holdings of Irish pounds to about 76 per cent of the quota of £45 million.

Exports7

Total domestic exports in 1963 were £22.4 million (13.3 per cent) higher than in 1962. Exports of live animals accounted for £5.2 million of this increase; exports of store cattle were actually £8.7 million (33 per cent) higher, but exports of fat cattle decreased. Exports of dairy products and eggs rose by £3.3 million (41 per cent), most of the increase being due to higher exports of butter, cheese, and dried and powdered milk. Exports of wheat and barley rose by £1.8 million. In all, exports of live animals, food, and food preparations rose by £13.8 million (13.4 per cent) and accounted for nearly two thirds of the increase in total domestic exports.

The increase in cattle exports in 1963 appears to be soundly based: cattle production has risen fairly steadily over the past few years, and cattle numbers in June 1963 were 2.5 per cent higher than in June 1962. The increases in the number of heifers in calf, which supply the additions to the breeding stock, and in the number of cattle less than three years old, from which store cattle for export are drawn, were even more marked. While the new subsidy, with effect from January 1, 1964, for extra heifers kept in the herd (see above, p. 134) may reduce temporarily the supply of cattle for export, it should in the longer run increase the productive capacity of the cattle industry. The increase in exports of wheat and barley, on the other hand, may be more temporary in nature. Wheat exports increased because of the poor quality of some of the crop, which was exported as animal feed; this increase had its counterpart in a large increase in imports of wheat for flour milling. The export market for barley may be rather uncertain.

Manufactured exports have expanded rapidly in recent years, although the rate of increase slowed down considerably in 1961 and 1962. The leveling off in the growth rate in these years was due chiefly to declines in exports of vehicles and of fuels, oils, and fats (chiefly petroleum products). The rate of growth accelerated again in 1963, when manufactured exports were about 19 per cent higher than in 1962, compared with an increase of 7 per cent between 1961 and 1962. The growth in 1963 was widely spread, being particularly rapid in machinery and transport equipment.

The slowing down in the growth of Irish manufactured exports in 1961 and 1962 coincided with a period of stagnation in the United Kingdom; and the faster growth subsequently was connected with renewed economic expansion in that country. Manufactured exports in 1965 are likely to be affected by the imposition in November 1964 of a 15 per cent surcharge on all U.K. imports except food and raw materials. If this surcharge continues in force for an extended period, its effect might be severe.

Imports

Total imports in 1963 were £32.7 million (12 per cent) higher than in 1962. Imports of live animals, food, and food preparations rose by £6.4 million (14 per cent); raw materials (except fuels) by £3 million (14 per cent); chemicals by £3.6 million (17 per cent); and machinery and transport equipment by £8.4 million (13 per cent). Most other categories showed smaller increases. The rate of increase for the total was considerably greater than the 1962 rate of 5 per cent. The increase in food imports may have been due, to some extent, to special factors; otherwise, the increase in imports was associated with the continued increase in investment and the faster growth of production and consumption in Ireland. The reduction of 10 per cent in industrial tariffs in January 1963 and the enlargement of quotas may also have had some effect.

In both 1962 and 1963, the terms of trade improved slightly.

Other current transactions

Transactions in invisibles are of great importance to Ireland. The substantial surplus on account of invisibles normally offsets most of the trade deficit. This surplus rose from £67.6 million in 1958 to £89 million8 in 1963. Receipts from tourists in Ireland, the most important item among invisibles, increased from £32.3 million in 1958 to £49.5 million in 1963; although expenditure abroad by Irish residents also rose, net earnings increased from £18.5 million in 1958 to £27.1 million in 1963. During the last few years, expenditure by Irish residents abroad has been rising at a faster rate than expenditure by tourists in Ireland; however, as earnings have been more than twice as large as expenditure, net earnings have continued to increase. There has also been a substantial net surplus on investment income; this surplus increased from £12.5 million in 1958 to £15.8 million in 1963. All other known invisibles earned a surplus of £29.3 million in 1958 and £36.6 million in 1963. Emigrants’ remittances are significant in this last item, and these may show little growth in the future as emigration declines.

Capital and external assets

The net inflow of capital rose to £25 million in 1963. Purchases by nonresidents of Irish Government securities accounted for £5.6 million of this inflow. Direct investment by U.K. companies in branches and subsidiaries provided some £4 million. External deposits in Irish banks rose by £3 million, and external capital deposited with Irish building societies, the net change in loans by foreign insurance companies, and external capital for hire-purchase finance, taken together, increased by some £3 million. In addition, there was an inflow from purchases of land and buildings by nonresidents, expenditure on takeovers, and an inflow of share capital to Irish companies. Details of some transactions, e.g., stock exchange business via external brokers, are not known. Transactions in foreign securities via Irish brokers are of the order of £16 million, both buying and selling, but in most years the net movement has been small. Official capital transactions in 1963 included repayments on loans from the U.S. International Cooperation Administration, Irish pound disbursements by the International Bank for Reconstruction and Development, and government transfer payments.

The inflow of capital in 1963 was more than sufficient to offset the current account deficit, and reserves rose by £2.9 million. In addition, a repurchase of £0.6 million was made from the International Monetary Fund. At the end of 1963, the net external assets of the banking system and departmental funds (Table 18) were equal to imports for between nine and ten months.

Table 18.

Ireland: External Assets of the Banking System and Departmental Funds, End ofYear, 1958–63

(In millions of Irish pounds)

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Source: Central Bank of Ireland, Quarterly Bulletin.

Second Program for Economic Expansion

The target of the Second Program for Economic Expansion is a GNP in 1970 that in real terms is 51 per cent higher than the GNP in 1960. The years 1960–63 were in fact covered by the First Program, published in 1958, so that the Second Program is, in effect, an outline of policies and objectives applicable to the years 1964–70. As a result of developments in 1960–63, the target involves an average rate of growth in GNP of 4.3 per cent in the period 1964–70.

General Policies

One of the most important decisions of policy taken in connection with this Program is that, because of the relatively small size of the Irish market, the necessary economic expansion must be achieved mainly through exports. Therefore, domestic policies and practices must be such as to keep output adjusted in price and quality to the need to secure a progressive increase in exports of both goods and services. This, it is stated, is the essential condition of growth in Ireland and must govern the whole approach to programing.

The Government will use the means open to it to maintain adequate—while avoiding excessive—demand as a basis for maximum economic advance. It is considered desirable that total spending by the community should be sufficient to keep productive activity at the highest rate consistent with a competitive level of prices and costs and a reasonable degree of external balance. If the occasion to stimulate demand should arise, the method used would have to be consistent with the achievement of the necessary growth of exports. On the other hand, corrective measures would be required if the pressure of internal demand should become so great as to cause unmanageable deficits in the external accounts or a damaging increase in domestic costs and prices. In order to encourage enterprise and saving, reliance will continue to be placed chiefly on indirect rather than on direct taxation.

It is also possible that rising costs and prices might jeopardize the attainment of the targets even if demand were not excessive. There is therefore a need to adopt an incomes policy which would establish an orderly relationship between the development of money incomes and output. The National Industrial Economic Council—comprising representatives of the Government, employers, and the unions—will have an important role in the evolution of incomes policy. In advising on measures for the development of the economy, the Council is expected to have regard to the trend in the general level of incomes, with a view to including in its reports, where relevant, policy recommendations in this connection.

The ninth round of postwar wage increases was agreed by national representatives of trade unions and employers at the beginning of 1964 (see above, p. 138). In the central negotiations, the Government’s assessment of the wage developments compatible with the economic situation was put before the two parties so that their deliberations could have regard to the public interest. The agreement finally reached provided for an increase in basic wages of 12 per cent during the period of two and one-half years covered by the agreement. Expressed as an annual average, this increase—approximately 5 per cent—exceeds the annual average increase in productivity contemplated throughout the period of the Program. If rising costs are not to threaten the growth targets of the Program, in particular the export targets, it is essential that, during the currency of the agreement, productivity should rise at a faster rate than is contemplated throughout the Program as a whole.

Public capital expenditure also will be geared to the development of the economy. Priority will continue to be given to productive capital expenditure “which increases the national output of competitive goods and services and thus produces, directly or indirectly, the revenue needed to pay the interest and sinking fund on the debt incurred to finance it.” 9 This does not, of course, preclude adequate provision for social capital. The aim is to ensure that the public capital program as a whole will include “a sufficient proportion of ‘productive’ expenditure to avoid a situation arising in which debt charges not covered by increased revenue would entail taxation so heavy as to impede economic growth.” 10 Estimates for public capital expenditure in 1969/70 show that it will be about the same as the estimate for 1964/65, in contrast to the rapid growth between 1958/59 and 1964/65 (see above, p. 133). There will, however, be significant shifts in expenditure in particular sectors. There has been some bunching of expenditure recently on fuel and power, transport, and industry, and expenditure on these items is expected to be lower in 1969/70 than in 1964/65. On the other hand, expenditure on building and construction, telephones, and agriculture, forestry, and fishing is expected to grow steadily.

Growth Targets

The main contribution to growth in 1964–70 is to come from industry, which is expected to grow at an average annual rate of 7.1 per cent; agriculture, forestry, and fishing is expected to expand at an average rate of 3.8 per cent a year; and other domestic production at 3.6 per cent (Table 19). Net foreign income is expected to decline. Productivity in agriculture, on the other hand, is expected to rise by 5.3 per cent a year, in contrast to an estimated rate of 4.1 per cent for industry and 1.8 per cent for other domestic production. Employment in agriculture, forestry, and fishing is expected to decline from 360,000 in 1963 to 324,000 in 1970, thus continuing the trend of the past decade. The increase in industrial and other domestic employment, however, is expected to be more than sufficient to offset the decline in the agricultural work force, so that total employment will increase by 1.1 per cent a year, or by 81,000 in the entire period. A basic aim of the Program is to reduce both unemployment and emigration substantially below their present levels.

Table 19.

Ireland: Prospective Changes in Employment and Productivity, 1964–70

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Source: Second Program for Economic Expansion, Part II (Dublin, 1964).

The expenditure estimates consistent with these output targets are currently being revised. Discussions on detailed figures with major industries have suggested that the import and export projections originally made may have been too low; the growth of investment may also have been underestimated. Any revisions needed, however, are not expected to alter materially the trends of expenditure. Investment, and current expenditure on goods and services by public authorities, are both expected to grow rather faster than GNP, so that saving and taxation are expected to increase as a proportion of GNP. Personal consumption expenditure must therefore grow relatively slowly. Both exports and imports of goods and services are also projected to grow more quickly than GNP. While a substantial contribution will be made by agricultural exports, industrial exports are expected to form the major part of the required increase in visible exports; by 1970, the volume of industrial exports is expected to be three times the 1963 total.

A small deficit, of the order of £15–20 million (at 1960 prices) is expected in the balance of payments on current account in 1970. The deficit in the intervening period should not, on the average, exceed this level. It is considered that a deficit of this order, provided it does not become permanent but represents the careful use of available external resources to generate a continuing increase in domestic productive capacity, need not have adverse repercussions and might be financed by reasonable recourse to external reserves or by external borrowing, e.g., in the form of direct foreign investment in Ireland.

Agricultural Policy

The fundamental problem which faces Irish agriculture is that, while the capacity exists to expand production substantially, current international trading conditions favor the profitable disposal of only certain forms of additional output. Entry into the EEC would make a major contribution to the solution of the problem of finding outlets for Irish agricultural products; in the meantime, improved and stable access on reasonable terms to export markets will be sought through trade agreements with other countries. An agricultural counterpart to the freeing of trade in industrial products is stated to be necessary and equitable. Ireland would support any arrangement to this end which would contribute toward more efficient utilization of international agricultural productive resources and would afford better opportunity for realizing its agricultural potential pending eventual participation in the European Common Market.

Government assistance to agriculture will be directed primarily toward achieving more rapid improvement in productive efficiency. Measures put into effect during the years of the first Program will be continued and, where necessary, amplified. Additional aid to agriculture will include the expansion of educational services, for training both future farmers and farm workers and for keeping existing farmers up to date with developments in agricultural techniques. The advisory service, which assists farmers with management and technical problems, will be improved and expanded, and the main emphasis of the agricultural research program will be in the applied field. The quality of the animal herds will be improved by selective breeding, and additional programs will be started to eliminate various livestock diseases. Marketing and credit facilities will be improved, and grants to encourage the use of fertilizers and capital investment will be continued, and in some cases extended. Policy will be directed toward strengthening the farming structure through improvements in the skill and efficiency of the farmer, increased cooperative effort, more intensive use of land, and the creation of viable family farm units with minimum disturbance of the population. Plans will be introduced to make idle and underworked land, and the lands of retired farmers, available in order to strengthen the positions of those who are at present underemployed on inadequate acreage. The Land Commission has been directed to aim, where practicable, toward the achievement of a farm unit of 40–45 acres of good land. At the same time, it is accepted that the policy of price support for certain products must be continued as long as the present disorganized conditions in international markets persist (conditions which, in the absence of intervention by the Government, would cause a very serious imbalance between Irish agricultural and nonagricultural incomes).

The major part of the increased agricultural output in 1964–70 will come from livestock products, i.e., cattle, dairy products, sheep, and wool. World market prospects are better for meat than for most other agricultural products; in addition, Irish cattle and sheep have a favored position in the U.K. market (see footnote 2, p. 127). Market prospects for dairy products are not so favorable, but increased production will inevitably accompany the expansion of the breeding herd. In order to encourage this expansion, the Government has introduced payments of £15 for each heifer kept in the herd above the number of the previous year. A major aim of the Second Program is to raise the output of cattle to 1,500,000 in 1970: almost all of this increase will be for export. Efforts will also be made to develop forestry and fishing. It is estimated that by 1970, agriculture, forestry, and fishing will provide employment for nearly 29 per cent of the working population and will contribute 21½ per cent of the gross domestic product (GDP).

Industrial Policy

The expansion of industry, it is stated in the Program, will have to be achieved in a world that is moving toward freer trade in manufactured products and in which competition is growing more intense. Existing industries must so adapt themselves that their products will achieve the highest standards of competitiveness; only by winning sufficient export orders against growing competition from other countries can the expansion of production and employment envisaged in the program be realized. Therefore, emphasis will be placed on obtaining the widest and most effective use of the inducements offered by the Government to firms to increase their efficiency. In order to encourage efficiency and adaptation, cuts of 10 per cent in protective tariffs were made in January 1963 and January 1964, and the general aim was to achieve a reduction of the order of one third by January 1965.11 The process of reducing protection was to be continued with due regard to developments in trading relations and to the conditions affecting particular industries. More selective action might be needed to quicken the pace of change in any industry in which costs were high because effective steps toward modernization had not been taken.

In order to facilitate the process of adaptation, grants, special loans, and accelerated depreciation allowances are being offered to firms as encouragement to switch to new lines of production. In addition, industrial grants will be applied to attract suitable new enterprises to the areas that are adversely affected. The Second Program will also attempt to strengthen the industrial structure by attracting to Ireland, where economically feasible, major industries that the country now lacks. The question of promoting the growth of major industrial centers is being given special attention. Also, power, transport, and communications facilities are to be improved and expanded, in order to supply the needs of the growing economy.

The extra assistance to industry during the Second Program will be concentrated on management and worker training, research and design, and marketing, with special reference to the requirements of exporters. The Irish Management Institute and the Irish National Productivity Committee have been given increased grants to enable them to expand their work. The Institute for Industrial Research and Standards has increased the scope of its activities, and a Council of Design has been set up to coordinate the activities of various bodies in that field.

The Program reiterates the following general guidelines for government commercial enterprises that were set out in the first Program: the State will not enter any industrial field except one in which development is required in the national interest and private enterprise has not taken the initiative. Since no fund of experience or ability can be allowed to lie dormant, existing government-sponsored concerns will be encouraged to extend their main spheres of operation and to explore new lines and new markets. These guidelines, it is stated, will ensure that private enterprise, while continuing to be the mainspring of economic advancement, will be stimulated, encouraged, and, where necessary, complemented by public enterprise, so that all productive resources are fully employed.

The importance of the government trading and commercial bodies in the economy can be gauged from the fact that they were responsible for about 22 per cent of total gross capital formation in 1963. Government-sponsored bodies will be encouraged to make use of independent consultants to undertake periodic reviews of efficiency. Capital provided by the Government will generally take the form of loans on which interest will be payable. This procedure will ensure that capital costs will be taken into account in assessing proposals, will contribute toward moderating the growth of the cost of servicing the national debt, and will encourage these bodies to look to non-Exchequer sources of finance. The Government accepts, in principle, the fact that the public should be afforded further opportunities of participating in the share capital of these bodies whenever it is established that such participation would be feasible on terms, and to an extent, not disadvantageous to the Exchequer or contrary to the general interest.

Manpower Policy

As unemployment and emigration fall with the progressive attainment of the Program’s targets, there will be greater scope and need for such aspects of manpower policy as the compilation of more detailed information on the availability of labor; preparation of forecasts of the labor supply; provision of improved placement services and vocational guidance; promotion of vocational and geographical mobility, including retraining and resettlement; and measures to deal with cyclical, seasonal, regional, and rehabilitation problems.

The question of retraining and resettling unemployed workers has been considered by an interdepartmental committee, which recommended the setting up of special centers at which courses up to fully skilled levels should be given—using accelerated vocational training methods—and the payment of grants to employers for “on the job” training. Mobility would be encouraged by the payment of resettlement expenses (traveling, removal, and settling-in) if a change of residence were necessary to enable redundant or unemployed workers to take up new employment. These and other recommendations have been under consideration in consultation with interested bodies. Steps have been taken to ensure that adequate housing is available at or near the various centers of industrial growth.

* * *

It is not possible, in the space available, to do more than summarize the main policies and objectives of the Second Program. The Program also contains proposals for the coordination of economic and physical planning and the development of education, the services sector, and the capital market. In addition, there will be a continuous review of targets in the light of developments and of progress achieved.

The Program states that, while the Government has the primary responsibility for creating conditions conducive to the achievement of the Program, all sections of the community have an obligation to ensure that their policies, attitudes, and actions are consistent with the national objectives. The community’s outlook on such factors as productivity, incomes policy, and savings will largely determine whether the 51 per cent growth target is achieved.

Les programmes de développement en Irlande

Résumé

Pendant son premier Programme d’expansion économique (1959–63), l’Irlande a réussi à porter le taux d’accroissement du P.N.B. (produit national brut) de 1 pour cent à plus de 4 pour cent par an. Cette expansion reposait sur l’augmentation des exportations, et en particulier des produits manufacturés. Les réserves en devises se sont accrues et les prix sont restés assez stables.

L’industrie a été incitée à se développer, à moderniser son outillage et à accroître ses exportations par un large programme d’encouragements, et notamment par la remise des impôts sur les bénéfices des nouvelles exportations, l’octroi de subventions destinées à couvrir une partie du coût des investissements fixes et de la formation des cadres et des ouvriers, et la réduction du protectionnisme. L’agriculture a bénéficié de programmes visant à lutter contre les maladies coûteuses du bétail, à accroître la compétence de la gestion et à augmenter les investissements de capitaux. Les investissements de l’Etat ont été orientés vers les secteurs “productifs” tels que transports, énergie et communications. Les impôts directs ont été réduits.

Ces mesures ont réussi à insuffler un certain dynamisme à l’économie. Elles ont également contribué à attirer les investisseurs étrangers qui ont joué un rôle important dans le développement des exportations de produits manufacturés. Le chômage et l’émigration ont été réduits, et le chiffre de la population augmente maintenant, après une longue période de baisse.

Le second Programme fixe à 4,3 pour cent le taux moyen annuel d’expansion du P.N.B. pour la période 1964–70. L’expansion continuera à se fonder sur l’accroissement des exportations, et une importance considérable est donc donnée aux mesures destinées à augmenter l’efficacité et la productivité et à réduire les coûts. En particulier, certaines mesures doivent être prises pour assurer que les revenus nominaux n’augmentent pas plus rapidement que la production par habitant. On prévoit que l’emploi agricole continuera à diminuer, mais que l’emploi total ira en augmentant, et que le chômage et l’émigration diminueront encore davantage. La politique du Gouvernement reste d’obtenir l’entrée de l’Irlande dans la Communauté économique européenne, et de larges mesures sont en cours pour faciliter l’adaptation de la structure de l’économie à un régime commercial moins protectionniste et plus concurrentiel.

Programas de desarrollo en Irlanda

Resumen

Con su primer Programa de Expansión Económica (1959–63), Irlanda logró elevar la tasa de crecimiento de su Producto Nacional Bruto (PNB) del 1 por ciento hasta más del 4 por ciento anual. Esta expansión se basó en un aumento de las exportaciones, particularmente las de artículos manufacturados. Las reservas en divisas extranjeras aumentaron, y los precios se mantuvieron razonablemente estables.

Se estimuló la expansión de la industria, la modernización de sus instalaciones, y el aumento de sus exportaciones, mediante un programa general de incentivos entre los cuales se encontraban la suspensión del impuesto sobre utilidades derivadas de nuevas exportaciones, el otorgamiento de subsidios para cubrir parte del costo de las inversiones fijas, así como de la capacitación de dirigentes y trabajadores, y la reducción del proteccionismo. La agricultura resultó favorecida por los programas para acabar con las costosas enfermedades de la ganadería, aumentar la eficiencia administrativa, e incrementar la inversión de capital. Las inversiones gubernamentales se encauzaron hacia los sectores “productivos” tales como los transportes, energía, y comunicaciones. Asimismo, se redujeron los impuestos directos.

Estas medidas lograron imprimir dinamismo en la economía y resultaron atrayentes para los inversionistas extranjeros, quienes han sido importantes para la expansión de las exportaciones de artículos manufacturados. El desempleo y la emigración se redujeron y ahora la población va en aumento después de un largo período de disminución.

El segundo Programa requiere que en el período 1964–70 la tasa media anual de crecimiento del PNB alcance un 4,3 por ciento. La expansión económica continuará teniendo como base el incremento de las exportaciones, de manera que se atribuye gran importancia a las medidas destinadas a mejorar la eficiencia y la productividad y para reducir los costos. En particular, se tomarán providencias para asegurar que los ingresos monetarios no aumenten con mayor rapidez que el producto per capita. Se supone que el empleo en el sector agrícola seguirá declinando, pero que, en cambio, el empleo total aumentará y la desocupación y la emigración continuarán disminuyendo. Sigue siendo la política del Gobierno lograr la entrada de Irlanda a la Comunidad Económica Europea, y se han emprendido amplias medidas para facilitar la adaptación de la estructura económica a un intercambio más libre y condiciones más competitivas.

In the tables throughout this issue, and in the English text of the papers

Dots (…) indicate that data are not available;

A dash (—) indicates that the figure is zero or less than half the final digit shown, or that the item does not exist;

A single dot (.) indicates decimals;

A comma (,) separates thousands and millions;

“Billion” means a thousand million;

A hyphen (-) is used between years or months (e.g., 1955–58 or January-October) to indicate a total of the years or months inclusive of the beginning and ending years or months;

A stroke (/) is used between years (e.g., 1962/63) to indicate a fiscal year or a crop year.

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*

Mr. Perry, a graduate of Oxford University, is now employed by a private bank in London. He was formerly economist in the British Commonwealth Division of the International Monetary Fund.

1

For some details of this Program, see below, p. 153.

2

Under the trade agreement with the United Kingdom, attested cattle (cattle free of bovine tuberculosis) imported from Ireland and fattened in the United Kingdom for not less than three months qualify for payments under the fatstock guarantee at the same rate as cattle bred in the United Kingdom. This explains the importance of the trade in store cattle and of the eradication of bovine tuberculosis.

3

In assessing the trend of the cattle trade, the year 1961 should be omitted: exports in 1961 exceeded production, as imports rose sharply and herd numbers were reduced (see Table 5).

4

A White Paper on incomes and productivity is noted on page 124.

5

This account includes local authorities, but excludes semigovernment bodies, so that it is not directly comparable with either the Exchequer Accounts or the Public Capital Program.

6

Major items included in public authority fixed investment are Post Office investment, local authority housing and sanitary services, road building and improvement, forest development (including acquisition of land), and new works, additions, etc., by the Office of Public Works.

7

Figures in the sections on exports and imports were derived from trade returns and are not precisely comparable with the figures in Table 17.

8

These figures include errors and omissions, which are invariably positive in sign and which ranged from £3 million to £10 million in the period 1958–63.

9

Second Program for Economic Expansion, Part II, p. 269.

10

Ibid.

11

However, in the new situation brought about by the U.K. surcharge on manufactured imports, the Irish Government decided to postpone this cut and any further reductions of protection.

IMF Staff papers: Volume 12 No. 1
Author: International Monetary Fund. Research Dept.