Complete policy reversal taken on civil service advice

TK Whitaker: Economic overview – Whitaker felt de Valera and Lemass benefitted in ascribing new economic plan to others

2014: TK Whitaker during a gathering organised by the SDLP to honour his life. Photograph: Brenda Fitzsimons

2014: TK Whitaker during a gathering organised by the SDLP to honour his life. Photograph: Brenda Fitzsimons

 

Many years after he left the Department of Finance, TK Whitaker spoke of a “paradise lost” moment in the early 1960s when Ireland’s stunted, insular economy finally began to expand after decades in the doldrums.

Although there was a pronounced swing from outright despondency to confidence as the economy turned, Whitaker found that the “glamour” of it all wore off as people began to take miraculous growth rates for granted. “They felt this would continue indefinitely without any help from themselves,” he said in a 1987 interview with Ivor Kenny.

Whitaker, who has died aged 100, saw rampant selfishness in this mentality. Yet the very expectation that good times would roll on was a mark of the distance travelled since he put in place a programme to tear down the barriers of protectionism and open Ireland to the trading world outside. The decisive turn away from blinkered self-sufficiency was a radical policy shift, but it worked.

“It was a sort of magical moment, when Lemass was there, and I was in finance sharing a sense of duty with so many willing collaborators, and when the world scene was improving, all at the same time,” Whitaker told Kenny.

Such remarks reflect his personal sense of mission as secretary of the department, and the help he received from colleagues. Equally important were support at the apex of government and buoyant external conditions.

It was all very different, of course, when Whitaker took charge of the department in 1956, under the second inter-party government. Racked by stagnation even as Europe recovered from the second World War, the nascent but impoverished State had no salve for high unemployment and record emigration.

“Ireland had been left behind,” said Antoin Murphy, retired economics professor of Trinity College Dublin.

“The policies that de Valera had introduced in the 1930s had been disastrous. Foreign investment had been cut off from the country. The banks for the most part were investing their deposits in Britain rather than in Ireland, and the emigration figure said it all. There seemed to be no hope.”

In an outstanding public service career, Whitaker’s achievements were legion. As an economist, however, he will always be seen as the originator of the plan which led the State to throw off the shackles of tariffs and protectionism and embrace free trade. This set in motion policies still pursued by Ireland in the hyper-globalised 21st century economy.

Nucleus of innovation

Debate had been under way since the late 1940s about the best way forward for the economy, but progress was elusive. Still, political imperatives were shifting quite rapidly by the time Whitaker took command of the department. He was 39. The minister who chose him was Gerard Sweetman of Fine Gael, who himself was credited with taking key steps on the road to modernisation.

A nucleus of innovation – and not the only one – was to be seen in 1956 when Sweetman introduced a tax rebate on export profits. Fianna Fáil doubled the rebate when it returned to power in 1957.

At that point, Whitaker was already working quietly with colleagues on a fundamental review of policy. This led to the landmark Economic Development document of 1958. Known as the “Grey Book”, it opened with a clarion call for new thinking and change. “After 35 years of native government people are asking whether we can achieve an acceptable degree of economic progress,” it said.

“The policies hitherto followed, though given a fair trial, have not resulted in a viable economy . . . The population is falling, the national income is rising more slowly than in the rest of Europe. A great and sustained effort to increase production, employment and living standards is necessary to avert economic decadence.”

At the centre of the new approach was the rejection of protectionism, the acceptance of trade liberalisation and the encouragement of export-oriented industry and services, even under foreign ownership. A core objective was to transform uncompetitive Irish industries. Another was to focus on public capital investment to boost the productive capacity of the economy.

“It was the seminal growth-oriented document arising out of a reasoned analysis from the centre of Ireland’s political and administrative system,” wrote Dr Michael Mulreany of the Institute of Public Administration (IPA) in an essay to mark its 50th anniversary.

The paper itself was not flawless, Mulreany noted. One third of the chapters were directly devoted to agriculture, or “almost half” when including associated activities such as forestry. The importance of education was recognised yet this was “overly focused” on agricultural education. “But to dwell on these points is to miss the key issue, which is that Economic Development redirected economic debate and policy towards achieving efficiency, competing in foreign markets and attracting foreign capital.”

Old protectionist ways

When it came to political execution the key figure was Seán Lemass, who succeeded Eamon de Valera as taoiseach in 1959. Lemass was once seen as the chief protagonist of protectionism, but historian Ronan Fanning has noted how he had already pivoted Fianna Fáil from its old protectionist ways.

Whitaker’s own assessment was that de Valera and Lemass saw advantage in ascribing a total policy reversal to independent civil service advice.

“The Opposition mounted no attack, conscious perhaps that change was necessary and urgent,” he wrote in 2008. Half a century later, Whitaker recounted how an annual growth rate of 4 per cent brought Ireland’s gross national product per capita to 72 per cent of the UK level in 1971 from 55 per cent in 1951.

Charlie Haughey was finance minister when Whitaker left the department in 1969 to become governor of the Central Bank, then a lesser post than now. He was 53 at the time, leading observers to conclude that it was much too early for him to leave Merrion Street. “I think it was regrettable that he left at a period when he was at the height of his powers and this appears, of course, to have been linked to the minister for finance at the time,” said Murphy.

Whitaker’s contemporary put it another way: “I think it was accepted as, obviously, a departure that no-one really had been expecting, except in the sense of being accepted without reservation that it happened.”

Extraordinary growth

“They are concerned with a confluence of unfavourable developments, including excessive public expenditure and borrowing, excessive credit creation and excessive income increases. The bank pointed in vain to the errors in fiscal, monetary and incomes policies over the period.”

Whitaker lived long enough to see the “bleak passage” of the 1980s followed by the extraordinary growth of the 1990s and early 2000s. The subsequent crash presented a historic challenge no lesser than the one he took on in the 1950s.