Bulletin • of the Conference of Socialist Ec s nomists • June 75 Vol. TY 2(11) ISSN 0385 - 8247 For contents see back cover SP & CD 1 CAPITALISM IN IRELAND Stephen Parker and Ciargn Driver INTRODUCTION Despite eight centuries of continuing colonial rule less has been written by British socialists about the Irish economy than almost any other object of British imperial- ism. The reason is obvious: an analysis can only be fully objective when it pursues its conclusions into the practical political sphere. The Irish question is uncomfort- ably close to the British left, compared, say, with that of Latin America. At a time when the tendencies at work in Ireland are coming to a head, the necessity for a clear and rigorous analysis cannot be underestimated. The two papers on Ireland printed below are based upon working papers prepared for, and discussed by the Revolutionary Communist Group's workgroup on the Irish question. The British left, where it has not ignored the Irish question, has too frequently proceeded from political generalities, without making a concrete analysis of the Irish situation. As a result politidal prognoses have been empirically deduced with- out reference to the underlying economic tendencies. The consequences of such a method are disastrous. As Lukgcs remarks: "The more conscientiously the facts are explored - in their isolation, ie in their unmediated relations - the less compellingly will they point in any one direction. It is self-evident that a merely subjective decision will be shattered by the press- ure of uncomprehended facts acting automatically 'according to laws'." 1 . This reflects itself in relation to the Irish question either in an uncritical fat- alism about the successful development of the Irish revolution, or in the attempt to impose utterly utopian solutions which have no connection with reality. These papers are not academic. They were written to help clarify the tasks facing socialists in Britain. 2 The central points which they establish are that civil rights cannot be achieved within the confines of the northern state, because their denial is a central prop to the accumulation process there; and that the incorporation of the north into a united capitalist Ireland cannot furnish a long term solution be- cause the southern bourgeoisie has proved incapable of providing the independent dev- elopment of the productive forces necessary for this. References 1 Lukgcs History and Class-Consciousness (Merlin 1971) p23 2 See 'Britain and the Irish Revolution', Revolutionary Communist, 2 (May 1975) 5 SOUTHERN IRELAND AND FOREIGN CAPITAL In most of this paper, I intend to concentrate on the period since the late 50s, partly because events earlier than this have been adequately described in a recent issue of the CSE Bulletin 1 and partly because a correct analysis of the economic for- ces at work since the 50s is indispensible for an understanding of the current pol- itical situation in Ireland*which I turn to later in the paper. The following quote from a recent issue of the OECD Observer 2 sets the scene: "Some 50 years of Irish independence have been marked by war, depressions, shortages of capital and entrepreneurial skills as well as key raw materials, and by heavy emig- ration of its most vigorous and brainy workers. In the wake of the stagnation of the early 50s Ireland gave priority to export oriented growth and instituted a *For the sake of convenience and unless the context indicates otherwise, 'Ireland' will be used in this paper as a shorthand for the 26 county state in the south. SP & CD 2 capital formation programme whose central content has been the provision of consid- erable incentives to private industry." During the early 50s Irish GNP grew by only 0.7% p.a. Wage rates and profit rates alike were extremely low by European standards. In 1956 for instance, profit before tax in the manufacturing sector, expressed as a percentage of turnover, stood at only 5%. Imperialism manifested itself in the drawing off of labour and capital mainly to Britain; in the 10 years up to 1958, over 10% of the population and a higher percen- tage of the work force emigrated. The ease with which this emigration occurred was a product of the close ties such as common language that had been forged during British rdle, and its implication was that wage levels could not be driven down far enough to compensate for the low level of industrial productivity. The only way to overcome this dilemma within a capitalist framework was for the state to subsidise capital out of loans and hope that relative surplus value could be increased suff- iciently to allow for a period of rapid accumulation. Between '58 and '68 GNP rose by over 4% p.a. Capital formation as a percentage of GNP rose from 13% to 22% over the same period. Yet with the development of the pro- ductive forces came the intensification of the antagonisms inherent in capital as a social relation. During the 60s the number of employees as a percentage of total at work grew from 60% to 70%. Coincident with the number of workers involved in struggle grew enormously and Ireland twice topped the world strike league for the number of days lost per employee. Unemployment also grew steadily and today stands at over 9% while Ireland jockeys with Japan for the second highest inflation rate in the OECD group. The key to underganding these developments lies in the role played by the state in the economy. State involvement both in terms of direct grants to foreign capital and in terms of providing an infrastructure of communication, training, advisory services etc. increased dramatically in the 60s. - The ratio of state expenditure (current and capital) to GNP rose from 27% in 58/9 to 42% in 72/3. - To finance this and service the rising national debt necessitated massive taxation increases and further borrowing. - By the late 60s Ireland had the second highest ratio of interest on public debt to GNP in all the EEC countries. If the ratio of interest plus government subsidies (which are mainly to industry and agriculture) is taken Ireland has the highest ratio. The growth of taxation and borrowing since 1965 is shown below. 1965 1973 % increase GNP 1020.0 2674.0 162 Borrowing 87.6 237.4 170 Indirect Tax 134.7 431.3 220 Direct Tax 68.6 258.4 278 Indirect taxation as a percentage of GNP is higher in Ireland than in another EEC country and its rate of change is no lower than the average. Direct taxation as a percentage of GNP is not among the highest but this is only because farmers have been up to now excluded from paying income tax. The rate of increase of personal income tax is the highest of the OECD group, ]dsing for those workers under the PAYE scheme from 8.1p per E in 1958/9 to 14.2p per E in 1971/72. During this period also the number of employees paying income tax rose from 25% of the total to over 90% Throughout this period, gross real earnings grew in line with national income, but take home pay grew more slowly as is indicated in the diagram overleaf. State involvement in the economy necessitated extracting forced savings from wor- kers. This got under way in earnest in 1964 with the introduction of a 21% turnover tax, later raised to 5%. In 1966 a wholesale tax was introduced forcing up prices SP & CD 3 BROWN-HART DIAGRAM: IRELAND 1959-71 o Gross Employee Remuneration as a percentage of Domestic Income x Employee Reumeration net of tax and social insurance as a percentage of domestic income 71 7 . 0 • 70 6. 5. 66 69 4. 67 Employee 68 3. remuner- 65 2. 64 ation as 1. 63 0 a percent- 60. age of 62 0 9. Domestic 8. 61 Income 60 66 7. o 190 x 6. x o x 70 x X 64 x x 5. 63 x X 65 67X 71 62 69 4. 60 x x 68 3. 1959 61 2. 1. 50. - • ° • • • • • 60 1 2 3 4 5 6 7 8 9 70 1 2 3 No of Employees as a percentage of total at work 0 Note: A 45 line indicates that employee income is rising in line with domestic income. The figures are necessarily estimates. Employee remuneration includes some pensions. The social insurance netted out is overestimated but this should not affect the trend. when direct taxation and increased social insurance contributions were eating into pay packets. Working class reaction may be summarised as follows. ANNUAL AVERAGES 1954-61 1964-71 No. of days lost 131(000) 586(000) No. of strikes etc. 68 112 No. of workers involved 10.3(000) 39.0(000) Although the unions broke the national wage agreement in 1966, they were demoral- ised by rising inflation and negotiated two-year threshold settlements from 1968 onwards. SP & CD 4 To summarise, then, the situation was one of rapidly rising productivity where high gross increases could be won, but where net wages had to grow much slower than domestic income to allow for the increase in state involvement. This is the central contradiction involved in capitalist attempts to industrialize the South of Ireland. Another feature of the Irish economy is that very little of the growth of indust- rial output has been directed towards the home market. In 1966 for instance, the grant aided sector supplied only 11% of all industrial output, but supplied 42% of all exports and this development has since become more pronounced. Put another way, grant aided industry exports over three quarters of its gross output.