Economy of Ireland

Topics: Inflation, Economics, Gross domestic product Pages: 22 (7520 words) Published: April 24, 2013
A2: In relation to economic events and policy Ireland, comment on the following:

the 1920s and 1930s

The Cumann na nGaedheal government brought into practise the 'Agriculture first' model, based on the whole idea that the country would benefit from good agriculture. Huge reliance was on large farmers by the government , agriculture produced 32% of GDP and contributed to 54% of employment.

The 'Treasury view' policy had key elements; free trade, low taxes and government spending, modest direct state intervention in industry and agriculture, and parity with sterling. With the Tariff Commission of 1926, few tariffs were granted. The budget was balanced but welfare suffered from this as housing for the poor was low.

The government made several changes including; expanding the Department of Agriculture, the Land Commission replaced the Congested District Board, agriculture output was improved from laws being passed and the formation of the Electricity Supply Board. Parity with sterling was seen as essential for development because 97% exports and 76% of imports went to Britain, this became legitimate with the Currency Act of 1927. This gave Ireland greater predictability in trade with Britain.

Finna Fáil came to power in 1932, with an economic policy that differed in two fundamental ways; 1) it was ideologically committed to a policy of greater economic self-sufficiency and 2) it reneged to paying land annuities to Britain.

The case for limiting economic interactions with the rest of the world is more cultural than economic but it attracted more intellectual support. The main instrument used was more and higher tariffs, this led to Ireland having twice as high tariff as the USA and 50% higher than in the UK.

Previous Irish governments had recognised an obligation to pay land annuities to Britain, these came at £5 million annually and 4% of GNP. Éamon de Valera came into power in 1932 and refused to continue the annuities. Britain retaliated by imposing special duties which rose to 40%. The free state continued with tariffs on British goods, the 'war' ended when Ireland agreed to pay a lump sum of £10 million and Britain ceding control of the 'treaty ports'. The effects of protection and economic war were; casing industrial output to rise by 40%, population stabilised, unemployment soared, agriculture stagnated as exports fell, Guinness established a brewery outside of London due to Britain increasing tariffs on beer. Joseph Johnston, writing in 1951, argued that but for the economic war ' our real national income might well have been 25% more in 1939 than it actually was and 25% more today than it actually is....'.

ii) the 1980s

The 1970s boom growth was interrupted in 1979 to 1986, per capita consumption in Ireland actually fell slightly and GDP rose very slowly. The causes for this, was firstly the membership of the EU coincided with a fourfold increase in the price of oil that resulted from the first oil shock. The second cause was the government's response was thoroughly Keynesian. Spending was leaned towards imports because of the increase in oil prices, this therefore had a negative effect on the demand for Irish goods and services. So government current spending was boosted to fix this issue but this led to a rise in the current budget deficit, however this only worked for a short period.

Things then went from bad to worse when a big mistake was made, the source of the failure of the fiscal experiment: successive governments were unwilling to reduce the budget deficit (major policy error), and continued to borrow heavily, this then cause the ratio of government debt to GDP to more than double from 52% in 1973 to 129% in 1987, easily becoming the highest within Europe. By 1986 the cost of servicing this debt took up 94% of all revenue from personal income tax. Change we're made to increase tax revenue but had little impact, for example rising tax rate especially in 1981 and 1983, this...
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