If we ever doubt that the past is a foreign country, just take a glance at the shape and structure of the Irish economy half a century ago. Fifty years isn’t that long – some of us were even alive back then. But the changes that we have witnessed over five decades were often breathtaking.
Economic historians often complain, with justification, that the teaching of modern finance and economics fails to incorporate the lessons of the past. A nodding acquaintance with history would have helped avert some of the worst excesses of our most recent crises. But an occasional look in the rear-view mirror also serves up other useful lessons, not least of which is that change is the one thing that is constant in economic life, change that is almost always unpredictable. We also need to be reminded from time to time that our sense of history, our belief in how things used to be, often amounts to little more than fairytales.
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Some of the great myths of today are quickly exploded by only a cursory examination of the past: for instance, anyone who looks back in time hoping to observe an era of secure, pensionable employment for life is not going to find it.
Some things do stay the same. The struggle to boost the economy is an obvious constant. But echoes of the past are to be found in surprising – but nevertheless significant – places.
In 1963 we saw the first major overhaul of company law since independence. The 1963 Companies Act was the first in a long series of reforms, culminating in the current Companies Act that is making its way through the Oireachtas, which itself has been described as one of the most significant pieces of legislation in the history of the State.
The 1963 Act gave birth to many of the corporate rules and structures that are familiar to us today. The current Act means businesses will soon have to think about new acronyms like CLS (company limited by shares) or DAC (designated activity company). Advising our offspring to become lawyers seems as good an idea today as it was 50 years ago.
The banks: Anglo begins
The banks were important back then, but were not the pariahs of today. Anglo Irish Bank's birth is not quite as murky as its death: some sources see 1963 as the year of its creation; others date it to 1964 with the emergence of Dublin City Bank. AIB didn't exist – at least the name didn't, just the constituent parts that would later become Allied Irish Banks.
The Irish banking scene had been relatively tranquil for a long period until the 1960s when a burst of merger and acquisition activity gave shape to the modern banking era. In 1965, for example, Bank of Ireland bought The National Bank, originally founded by Daniel O'Connell.
The success story of the modern era – the growth of inward foreign direct investment – distorts a lot of basic statistics. Foreign companies in Ireland do send a lot of their profits home. So, GNP today is a lot lower than GDP. Back in 1963 it was the other way around: when we add up things like profits and rents, we earned more from the rest of the world than they did from us.
There wasn’t much of a multinational sector in 1963. Indeed, laws restricting foreign investment in Ireland, introduced in the 1930s, had only been repealed as recently as 1957. We may be a small open economy today; back then we were just small – by choice.
Agriculture: exporting cattle
We didn't really trade much with the rest of the world apart from the UK. And our biggest export was cows: nearly a third of all our exports. Live cattle comprised 22 per cent of total exports; dead cows accounted for another 8 per cent.
Some 72 per cent of all exports went to the UK, 51 per cent of our imports came from there. Two-thirds of Ireland’s total land mass was given over to farming. Today it still isn’t much less than that.
But there were hints of things to come. At the time the OECD noted “...a new element of considerable importance for the future has been the growth of direct investment in Ireland by foreign firms”. It was around this time that the activities of foreign-owned businesses began to be seen in the Irish export statistics.
Over one-third of the workforce was employed in agriculture with just over one quarter in industry and construction. But farming had been on a gently declining trend, as a proportion of the total economy, for quite some time.
Tax breaks: 1960s-style
At the time it was estimated around an average of 18,000 people a year emigrated over the years 1962-64. This was actually quite a bit lower than in earlier periods, helped by the relatively buoyant economy and was accompanied by a small increase in the overall population: small but very significant. Economic data from the period exists but is less extensive than the numbers we are used to today and is of variable quality. The economy grew in 1963 by around 4 per cent in real terms.
The year 1963 was the last year of something called the First Programme for Economic Expansion which began in 1959. Those five years marked the fastest period of economic growth since the inception of the State (and were, in fact, until then at least, the best growth rates seen in the 20th century). It is tempting to ask what took the authorities so long. Growth was badly needed: 1955-58 were recession years born out of a balance of payments problem.
Tax breaks for industrial exports were a significant feature of that first programme, making a contribution to foreign direct investment. It seems that corporate taxation policies of one kind or another have always been important. But the shift in the composition of exports was the start of a transformation of the Irish economy from one that was still essentially agrarian to the one that we are familiar with today.
Confidence and growth
At the time the OECD remarked that the spurt in growth had many sources but the most important was a "change in attitude" of the Irish people. That point about "attitudes" is fascinating. As well as all of the usual things like capital spending, education and the like, the one ingredient that is necessary to build the future is confidence in that future.
If the 1960s were reasonably good for growth, there was corresponding buoyancy to the stock exchange: Irish equities returned close to an annual average of 10 per cent in real terms (after inflation) during the decade. In 1963 the stock market grew by nearly one third in a year when inflation (depending on which measure we use) was around 4.5 per cent.
What we call today “social partnership” was around in a different form in 1963.
In February of that year the government published a White Paper that bemoaned the fact that wage incomes had risen faster than productivity since the last “wage round” in 1961.
The next “wage round” (which included private and public sectors) did not start until 1964 when a maximum 12 per cent wage rise was agreed, or 20 shillings, whichever was greater (average weekly wages were 180 shillings a week – younger readers can Google “shilling” if interested).
Children of today would regard their 1963 counterparts as absolutely impoverished: there were 61 telephones per 1,000 people. And radios per 1,000 people were also measured (148) but, at least as far as I could find, not televisions.
The prosperity we enjoy today is fabulous – yes, really – compared to the past. That’s the moral of this story: there is nothing pre-ordained about our economic future.
It’s all about the choices we make today, for good or ill.
