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To what Extent were Economic Factors Important in the Separation of the South of Ireland from the United Kingdom and what was the Economic Impact?

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The impact of British rule casts a long shadow over Irish history. While nationalist historians tended to blame Union with Britain for all the economic ills of the 19th century (O’Brien, 1921), recent re-evaluations of both historical and recent Irish economic performance have been cause for a reappraisal of the economic relations between Ireland and Britain (Cullen, 1969; Kennedy and Johnson, 1996). The extent to which economic factors were important in Ireland’s withdrawal from the United Kingdom will be examined in this paper. A secondary aim is to assess the economic consequences of independence in the interwar period. There were many economic reasons up to 1913 as to why Ireland should separate. UK policy was determined by majority voting and policies were suited to the needs of industrial workers in Britain, rather than agricultural workers in Ireland. This led to increased spending beyond the means of Ireland which caused transition difficulties on independence. Finally the consequences of separation in the north and south of Ireland are examined. Evidence suggests that separation led to short term economic difficulty. In the longer run the south benefited from independence due to weakness in British institutions and the incentive structures created during the interwar period.
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Cambridge Journal of Economics 2013, 1 of 29
doi:10.1093/cje/bet025
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All rights reserved.
To what extent were economic factors
important in the separation of the south
of Ireland from the United Kingdom and
what was the economic impact?
WilliamHynes*
The impact of British rule casts a long shadow over Irish history. While nationalist
historians tended to blame Union with Britain for all the economic ills of the 19th
century (O’Brien, 1921), recent re-evaluations of both historical and recent Irish
economic performance have been cause for a reappraisal of the economic relations
between Ireland and Britain (Cullen, 1969; Kennedy and Johnson, 1996). The
extent to which economic factors were important in Ireland’s withdrawal from
the United Kingdom will be examined in this paper. A secondary aim is to assess
the economic consequences of independence in the interwar period. There were
many economic reasons up to 1913 as to why Ireland should separate. UK policy
was determined by majority voting and policies were suited to the needs of indus-
trial workers in Britain, rather than agricultural workers in Ireland. This led to
increased spending beyond the means of Ireland which caused transition difcul-
ties on independence. Finally the consequences of separation in the north and
south of Ireland are examined. Evidence suggests that separation led to short term
economic difculty. In the longer run the south beneted from independence due
to weakness in British institutions and the incentive structures created during the
interwar period.
Key words:Ireland--economic conditions, economics of nation break-up, Irish eco-
nomic history, British and Irish history
JEL classications: N1, O0
Manuscript received 16 July 2009; nal version received 26 December 2012.
Address for correspondence: Development Co-operation Directorate, OECD, 2 rue Andre Pascal, Paris,
75775; email: hynesw@tcd.ie.
* Organisation for Economic Co-operation and Development and Institute for International Integration
Studies at Trinity College Dublin. Ithank Kevin O’Rourke and Max-Stephan Schulze at the London School
of Economics for supervision of the project on which this article is based. Cormac O’Grada provided inspi-
rational support as well as useful comments on earlier drafts. I would also like to thank Alan Matthews,
David Stead, Niall Ferguson, Lucie Cerna, John Hancock and Avner Offer for their comments. Research
funding from the Marie Curie Research Training Network “Unifying the European Experience”, the ESRC
and the Centre for the Economics of Globalisation are gratefully acknowledged.
Cambridge Journal of Economics Advance Access published July 19, 2013
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Page 2 of 29 W. Hynes
1. Introduction
I think that Great Britain would be ruined by the separation of Ireland but as there are degrees even
in ruin it would fall the most heavily on Ireland. By such a separation Ireland would be the most
completely undone country in the world; the most wretched, the most distracted and in the end,
the most desolate part of the habitable globe. Little do many people in Ireland consider how much
of its prosperity has been owing, and still depends upon its intimate connection with this Kingdom.
—Edmund Burke (1797)
In 1900 Europe was the world. Through colonisation of much of the tropics and
through its trade of goods, capital and people, Europe dominated the world economi-
cally and politically. Ireland was on the periphery of this, a poor country in the context
of the United Kingdom but a member of the European club nonetheless. Indeed, at
the turn of the century Ireland was among the wealthiest nations. Far from a century
of British rule decimating the Irish economy, Ireland had integrated into the United
Kingdom and was an integral part of the economic unit of the United Kingdom
(Geary and Stark, 2002). By 1900 the major European powers appeared to have set-
tled internal problems which in 1848 had threatened to undermine many of them—
‘each state boasted of its stability and took for granted its strength and permanence’
(Gilbert, 1965, p.1). Yet 20years later the optimism and many of the nations which
proclaimed it were gone. World War Ichanged everything, and neither the victors nor
the vanquished maintained their borders. Even the United Kingdom succumbed to
Irish nationalist demands for greater freedom. To be sure, there were political, cultural
and historical reasons, but economics was consistently brought to the forefront as an
argument in favour of independence—greater sovereignty implied greater economic
freedom that would enable the Irish people to solve their chronic economic problems
of emigration, slow growth and limited opportunities.
Ireland’s status within the British empire has been the subject of much debate.
McDonough’s (2005) edited volume investigated whether Ireland was a colony. It out-
lines the complexity of the relationship and describes how a cultural chasm between
the ruler and the ruled persisted and that even after centuries, British sovereignty never
fully succeeded in establishing hegemony. Yet British inuence dened seven centuries
of Irish history. In 1801 the Act of Union joined Ireland formally with Great Britain
to form the United Kingdom. After a tumultuous 120-year partnership, the south of
Ireland gained independence whilst the north remained part of the United Kingdom.
Despite the assurance of some contemporaries that the partnership beneted Ireland
during the late nineteenth century, nationalists used economic arguments against
the union. Relatively little has been written on the economic forces that shaped this
debate; the role of taxation, spending by the imperial treasury on Irish services, Anglo-
Irish trade and migration ows, the impact of the war and the costs and benets of
independence. This article seeks to redress this. It is not just a matter of history1—this
discussion is timely given that Irish sovereignty over its economic affairs once again
hangs in the balance following the economic crisis of recentyears.
It is also an interesting case in the context of the considerable attention and vibrant
debate in economics, in recent decades, about the importance of nation size for trade
1 The study of history is ‘predominantly the study of nations: their rise and decline, consolidation and
break-up, and their wars of expansion and independence . . . the issues of sovereignty, merger and dissolution
are paramount’ (Wittman, 2000, p.1).
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Economic factors in the separation of south Ireland Page 3 of 29
policy and economic growth and on the determinants of nation break-up (Alesina and
Spolaore, 2003). This was prompted by the emergence of several new states in Europe
after the end of the Cold War. Globalisation has been accompanied by the rise of
regionalisation with separatist movements in Scotland, Lombardy, Catalonia, Quebec
and so on. Alesina and Spolaore (2003) predict that democracy and free trade reduces
the costs of smaller size, leading to an inefcient number of nations. The economic
history of Ireland offers insights into such issues of union, economic integration, dis-
integration, separation and partition. Determining the optimal size of nations involves
numerous and complex interactions between historical, social and political factors.
There is strong empirical evidence to suggest that the relationships between democ-
racy, free trade and size, suggested by Alesina and Spolaore (2003) hold at least in the
latter half of the twentieth century. This article probes these relationships for a case in
the late nineteenth and early twentieth century. This provides a way of assessing the
relevance and explanatory power of the theories of the optimal size of nations.
2. Literaturereview
The economics approach to the size of nations provides several interesting predictions
about the political economy of state size and the incentives for nation break-up. This
section gives details of the theoretical arguments and assesses their relevance and appli-
cation in explaining the separation of the south of Ireland from the United Kingdom
in 1922. The economic growth literature is often criticised for simplistic theory, awed
empirical methods and the lack of an appreciation for history. Alesina and Spolaore
(2003) offer theoretical models backed up by strong empirical associations at least for
1950 onwards. To bridge the gap and demonstrate that their theories can be applied
throughout history, despite the differences in technology, economic linkages and the
basic trade-off of size through time, they provide a chapter explaining their theoretical
results in terms of history and evolution of the size of nations. However, their analysis
is rather incomplete. This article takes a case study approach illuminating the political
and economic factors at work in the disintegration of one of the most powerful coun-
tries in the world in the early twentieth century.
Alesina and Spolaore (2003) show that when public good provision and political
integration are determined through majority voting, then in equilibrium, there tend to
be too many small nations. Ireland had an incentive to form a separate nation to get
public goods closer to its preferences, and the democratic process does not internalise
the negative externalities of separation imposed on other voters (Bolton and Roland,
1997, p.701). The principal nding of this literature is therefore that democratisation
leads to secession (this is examined in Section 3). It is important to determine how
signicant democracy, political representation and reform were in the Irish context.
The literature also offers economic reasons nation break-up occurs and factors that
can help unify or divide a nation. Bolton and Roland (1997) show that accommodat-
ing changes in scal policy in the unied nation may not always prevent separation,
because differences in income distribution across regions mean some regions prefer
more and some less redistribution; linguistic imperialism in the provision of public
goods and perfect factor mobility both reduce the incentives to separate. Section 4
looks at these issues in the context of Irish economic history in the nineteenth and
early twentieth century. Section 5 looks at the differing preferences between Ireland
and other regions of the United Kingdom to assess whether preferences were diverging
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Page 4 of 29 W. Hynes
in the years before secession. As might be expected, the theoretical expectations are not
fully vindicated by the historical case. Yet there are many predictions that seem particu-
larly relevant, and these have been overlooked by the traditional historical literature.
Economists indicate that market size is an advantage of large states, especially in a pro-
tectionist era.2 The size of countries emerges from a trade-off between the benets of econ-
omies of scale and the costs of preference heterogeneity. They suggest that size matters for
security reasons. External threats lead to larger countries. Democratisation also increases
the number of nations because people will vote for public goods closer to their preferences.
Autocrats tend to enlarge and consolidate large countries. The political economy literature
also suggests preference heterogeneity and diversity have a negative impact on growth.
Forced mixture or coexistence of ethnically different populations might be the reason for
the outbreak of nationalistic tendencies that over the years can become so strong that they
are able to destroy a multi-ethnic society. Did the Irish economy benet from economies
of scale in the provision of services? Did the United Kingdom become more homogeneous
in the lead-up to Irish independence? This article investigates these issues.
3. Democratisation and secession
As noted, most models of nation break-up assume the existence of democracy. But how
does the democratic process affect a region’s incentives to separate (Bolton etal., 1996,
p.698)? When the Act of Union was introduced in 1801, it probably didn’t matter much
whether the country was being administered from Dublin or London. Government had a
minor role in the economy at a time when laissez-faire doctrine ruled. Despite ‘legislative
independence’, Ireland’s economy grew more intertwined with that of Britain in the later
part of the eighteenth century. Participation in the electoral process was extremely lim-
ited. This lack of democratic accountability and institutions no doubt played its part in the
unication of Ireland and Great Britain. As Cornwallis remarked, ‘the mass of the people
do not care one farthing about the Union’—the bad harvest of 1799 was of much greater
concern. So the lack of representative government may have made unication that much
easier. Later electoral reform and the enlargement of the franchise through the nineteenth
century, especially in 1918, may have made it more likely that separation wouldoccur.
3.1 Ireland’s representation in the Imperial Parliament
Ireland was represented with 100 seats at Westminster after Union. It therefore had a
third of the population of the United Kingdom but only a sixth of the representation
in the Imperial Parliament.3 The allocation of parliamentary seats to the regions is an
2 But examining the history of a large and complicated nation like Austria-Hungary illustrates that this is
not always the case. Although a large and complementary volume of trade was conducted between the two
partners of the country, Austria-Hungary had a small share in total European and world trade. Unfavourable
geography may have played a role in this. But far from market size being an advantage, Eddie suggests that
a large domestic market ‘insulated Habsburg industry from the competitive impulses owing from Western
Europe’ (Eddie, 1980, p.225). On the other hand, Gilbert (1965) states that the very complexity of the
empire gave it much of its strength. He also credits Austria-Hungary’s last great monarch, Franz Josef,
with keeping Austria and Hungary together. He supported one group until it became too powerful, then he
supported its rivals. With so many conicting interests, no single interest could obtain political mastery. In
the United Kingdom this was also observed with London using scal and social policies to improve Irish
economic conditions in an attempt to reign in nationalist demands.
3 The population of Great Britain was approximately 10.5 million, whilst the Irish population was esti-
mated at about 5 million. Ofce of Population Census and Surveys (1993) 1991 Census Historic Tables—
Great Britain, OPCS, London.
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Economic factors in the separation of south Ireland Page 5 of 29
important consideration. Regional interests may be under-represented, and a separate
legislature might be better at allocating public goods, thus bringing government ‘closer
to the people’. There was an unfair distribution of seats in Westminster with the regions
of Scotland, Wales and Ireland being under-represented. In addition, this inequality
was not just regional; in 1860 half of the United Kingdom’s MPs were elected by 20%
of the voters in England and Wales. Scotland had only 53 out of 658 seats in parliament
(see Figure1). The electoral reforms of 1832, although a step forward, did not take into
account the increasing population in the northern industrial cities. The landed aristoc-
racy of the southern counties of England dominated Parliament. Subsequent reforms
did not re-weight the distribution of electoral seats based on population changes, but
in time this worked to the advantage of the regions.
As Ireland’s population declined during the nineteenth century, in relative terms the
people had higher representation. To make a simple calculation, dividing the number of
seats by the population gives a measure of representation. In 1918 there were 42,574 Irish
people for every Irish seat in Westminster, compared to 76,831 per seat in England and
Wales and 68,211 in Scotland. The English, not the Scottish and certainly not the Irish,
were now relatively under-represented. In the long debates on Irish Home Rule, many
British politicians complained that Irish affairs had taken up too much political time and
distracted Parliament from other important business (Boyce, 1970). Furthermore, the
Irish party often held the balance of power. It is not surprising that Irish issues were so
prominent and so much reform and concessions for Ireland were gained after the late
1890s. Ó Ciosáin (2009) though found that in the pre-famine period, British govern-
ment focus on Irish affairs, through commissions and committees has been exaggerated
by historians and the actual attention was far less than had been supposed.
3.2 Size of the franchise
Whilst Ireland was not under-represented in terms of the number of seats representing
the island at Westminster, the people in all of the United Kingdom had little inuence
Fig.1. Number of people per parliamentary seat
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Page 6 of 29 W. Hynes
over politicians. Electoral reform occurred, but at a very slow pace. The number of reg-
istered voters (i.e., male persons who satised the qualications of property ownership)
amounted to fewer than 440,000 in a British population of around 17 million by 1831.
Beginning with the First Reform Act of 1832, the franchise was gradually extended.
The Second Reform Act decreased the property qualication in boroughs, meaning
all men (with an address) in boroughs could vote. The consequences of this change
were that for the rst time members of the working classcould vote, and MPs had to
take these new constituents into account. Political parties, once tailored to meet the
needs of a limited electorate, become national parties. The secret ballot was introduced
in 1872, replacing open elections, and voting became less susceptible to bribery or
intimidation. Further electoral acts in 1884 and 1885 increased the electorate to over
50% of the adult male population. The franchise expanded further in 1918, to include
women over the age of 30 and all men over the age of 21 with the introduction of the
Representation of the People Act (1918) (see Table1 for the growing electorate as a
proportion of the population). Between 1832 and 1918 the reforms of the franchise,
the change in the distribution of parliamentary seats and the changes in the rules for
the conduct of elections resulted in the system gradually becoming more democratic.
3.3 The 1918 general election
The 1918 election marked a turning point in Irish electoral history and Anglo-Irish rela-
tions. The Irish Nationalist Party (INP), which had long sought a devolved Parliament
within the United Kingdom, was decimated and the Sinn Fein party, which would only
accept full separation, won a decisive victory. The party had a mandate and legitimacy
to establish a separate parliament, which sat in Dublin. Sinn Fein won 73 out of 105
seats in Ireland. The INP slumped to seven, and the Unionist parties claimed the oth-
ers. Irish voters by 1918 had an incentive to form a separate nation to get public goods
closer to their preferences, and the democratic process had evolved to such an extent
that the majority voted for a party advocating separation, whilst not internalising the
negative externalities of separation that would be imposed on other voters (Bolton
etal., 1997, p.701). The political environment was conducive to change as two thirds
of voters were eligible to vote for the rsttime.
Table1. Size of the UK electorate
Electorate Electorate as % of
population Number of votes INP Sinn Fein
1885 5,709,030 15.66 4,374,984 86
1886 5,709,030 15.66 2,758,151 85
1892 6,160,541 16.26 4,317,312 72
1895 6,330,519 16.71 3,575,868 70
1900 6,730,935 16.18 3,262,696 77
1906 7,264,608 16.70 5,246,672 82
1910 7,694,741 16.96 6,234,435 71
1910 7,709,981 16.99 4,876,409 74
1918 21,392,322 45.64 10,434,700 7 73
Source: Data based on Rallings (2000) and Walker (1978).
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Economic factors in the separation of south Ireland Page 7 of 29
Table1 shows the difference between the 1918 and earlier elections in the size of the
UK electorate. In spite of this, the turnout in Ireland was relatively lower than in the
rest of the United Kingdom. In a number of constituencies Sinn Fein candidates did
not face a challenge and were elected unopposed. Democracy was a necessary condi-
tion for the separation of Ireland from the United Kingdom. Although the table hints
at the importance of democratisation for enabling separatism, it does not explain why
these separatist desires emerged. Alesina and Spolaore’s theory that too many nations
may emerge as democracy spreads seems plausible in light of the Irish example. It was
the concession of more freedom with improvements in representation in Parliament
and electoral reform that ironically made full political separation more likely.
4. Economic factors and the separation of Ireland from the United
Kingdom
This section indicates economic factors that should have cemented the Union:
increased spending in Ireland and scal accommodation, increasing homogeneity and
economic integration.
4.1 Fiscal accommodation
Fiscal accommodation in the union reduces the likelihood of secession, but by no
means prevents the break-up of a nation under all circumstances.4 Nationalists fre-
quently complained that Ireland was misruled because of the apathy of the Westminster
Parliament. Ireland was a poor region of the United Kingdom with economic problems
in the nineteenth century. In spite of this, because of the system of taxation which was
mainly composed of indirect taxes such as customs and excise, Ireland paid more than
its ‘fair share’. This situation continued despite the number of scal reforms intro-
duced. Fiscal reforms in Britain had little impact on Ireland as reforms were under-
taken in the interests of British industry. In 1845, 450 items were taken off the British
tariff; all duties on exports were repealed. ‘The largest remissions of taxation in the
United Kingdom were made on the importation of foodstuffs’ (Murray, 1903, p.382).
This was an enormous benet for the people of Great Britain but brought little relief
from taxation to the inhabitants of Ireland, which was largely an agricultural country.
The Financial Relations Committee of 1896 was established to investigate whether
Ireland suffered nancially from the Union (Royal Commission, 1896). The commit-
tee found that Ireland did indeed suffer in her nancial and commercial relationship
with Great Britain and found that Ireland was ‘overtaxed’ by about £2.5 million per
annum, or roughly 2–3% of Irish national income. This report was a watershed event
in British-Irish scal relations. Over the next two decades the imperial government
expanded expenditures relative to taxation (see Section 5). Between 1895–96 and
1912–13, the true revenue from taxation from Ireland increased by 28%, whereas
expenditure on Irish items increased by 91%. This was a signicant change. The over-
taxation issue was constantly brought up as an example of British misrule and as an
argument for separation in spite of the fact that Westminster had successfully addressed
this problem. Leech went further, writing that Great Britain would actually gain from
4 Good (1984) identied that scal policy in Austria-Hungary largely responded to the contending forces
in the nationality struggle as each group tried to use the government as a lever.
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Page 8 of 29 W. Hynes
the dissolution of the partnership with Ireland. ‘No amounts of jiggling with millions,
no striking of averages, no cunning manipulation of gures—in fact, nothing short of
an Act of Parliament can deprive us of this great blessing which we at present enjoy
under British rule’ (Leech, 1886, p.4).
4.2 Greater labour mobility
Greater labour mobility is, in theory a cementing force of the union. The rela-
tionship between Ireland and Britain has been inuenced over the centuries by
the movement of people. As early as 1849 there were 409,000 Irish-born peo-
ple living in Britain, and within two decades this gure had doubled. Over the
next century there was a steady ow of emigration. Ó Gráda (1994, p.148) esti-
mates that between 900,000 and 1 million Irish people emigrated to the United
Kingdom between 1850 and 1911. For Ireland the costs and benets of migration
have tended to be viewed in ideological terms with a nationalist perspective deter-
mining that the costs were likely higher than the benets. Nationalist sentiment
was that the problem of emigration, as well as other difculties, would be alleviated
if Ireland broke the link with Britain. However, emigration continued on a sub-
stantial scale for rst 40years of independence. Drudy (1986) presented this as a
grave injustice with Britain receiving a ‘hidden subsidy’ from her poorer neighbour.
This was based on the idea that Irish society paid for education and the rearing of
children who at working age would join the British labour market. It could also be
argued that migration was an important safety valve and an invaluable source of
remittances.
In fact, remittances were as much as 3–5% of Irish annual national income; they
tended to pave the way for more emigration by eliminating poverty traps. Drudy
also indicates that the association between the level of emigration from Ireland and
the rate of unemployment meant that the two countries represented one labour
market. From an economic point of view this is perfectly understandable and there
is nothing objectionable here. Irish people left to seek better opportunities afforded
in the UK labour market. This ow of people from Ireland was a response to this,
and with no restrictions on entry this movement was part of the normal adjustment
process, whereby surplus labour moved to areas in Britain where it was required.
These workers then remitted monies to people back in Ireland. Nevertheless the
vast emigration was viewed by nationalists as a grievance. Sean Lemass, future
Taoiseach, in 1930 stated that the costs of migration in money terms would amount
to a loss of ve or six times the national debt. Labour mobility can be benecial
for all parts of the Union. Politically, though, ows of labour can drive up nega-
tive sentiments in both sending and receiving regions. Thus politically it need not
cement the Union and probably undermines it further by creating a sense of griev-
ance and loss. The same sentiments are found in modern-day Europe. There might
be an argument to be made about brain drain, that is, draining the poorer region of
its well-educated and most talented people, in response to high-wage differentials.
This does not seem particularly relevant in the Irish case as most labour migration
was made up of unskilled workers. The increasing number of Irish people in Great
Britain probably did not lead to cultural homogeneity due to the weak character of
UK nationalism. Again, this highlights that political perception can run contrary to
the expectations of economic theory.
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Economic factors in the separation of south Ireland Page 9 of 29
4.3 Linguistic imperialism
Linguistic imperialism by one region (imposing its language on the other region) may
actually reduce the likelihood of separation to the extent that it moderates separatist
tendencies of that region. Tilly and Tilly (1973, p.44) cited in Alesina and Spolaore
(2003) state that ‘almost all European governments took steps which homogenised
their populations: the adoption of state religion, expulsion of minorities, and institu-
tion of a national language and eventually the organisation of mass public instruction’.
Stronger states were better able to homogenise their populations. The data in Table2
indicates that the Irish language was in decline prior to independence, with 18–19% of
the population speaking Irish according to census gures. This had declined from 24%
in 1861. Given that Irish speakers would have had difculty emigrating, the decline
against the backdrop of overall population decline is signicant.
The decline of the language and the cultural hegemony of Britain met increasing
opposition from teachers, authors and other professions. This decline was crucial for
the independence movement. Language was an important component of the cultural
revival and at the heart of cultural nationalism. Smaller countries face substantial costs
maintaining their distinctive language and culture. Table 2 shows a signicant fall
in the number of Irish speakers between 1861 and 1911 in Munster and Connacht,
the provinces where the majority of Irish speakers lived. The increase in Leinster in
1911 probably reects the movement of people from the west of Ireland to the Dublin
area. Today in an independent Ireland, the decline of the Irish language is still an
issue in national discourse, but there is little doubt that the English language was a
great advantage that Ireland had over other European countries. Linguistic imperial-
ism did occur and brought signicant opportunities to the Irish, but again a minority
viewed this in a negative light. Contrary to the ndings of the economics literature on
nation break-up, factors that the authors suggest should bind Ireland to the United
Kingdom actually have the effect of driving at least a section of the community against
the Union. Perhaps for this reason economic integration and economic success do not
guarantee that a state will be successful—‘positive economic and social achievements
are not always synonymous with political success’ (Wank, 1997, p.133). The next
section examines whether Ireland was disadvantaged in expenditure relative to other
regions of the United Kingdom and examines differences in taxation and provision of
public goods.
Table2. Linguistic imperialism and the decline of the Irish language: Irish speakers in each Province
1860–1911
Year Population Irish
speakers % Irish
speakers Leinster Munster Connacht Ulster (part of)
1861 4,402,514 1,077,087 24 35,704 545,531 409,482 86,370
1871 4,053,187 804,547 20 16,247 386,494 330,211 71,595
1881 3,870,020 924,781 24 27,452 445,766 366,191 85,372
1891 3,468,694 664,387 19 13,677 307,633 274,783 68,294
1901 3,221,823 619,710 19 26,436 276,268 245,580 71,426
1911 3,139,688 553,717 18 40,225 228,594 217,087 67,711
Source: Central Statistics Ofce (http://www.cso.ie/statistics/irishspeakerssince1861.htm).
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Page 10 of 29 W. Hynes
5. Different preferences between Ireland and the rest of the United
Kingdom
This section looks at revenues and expenditures in Ireland compared to other regions
of the United Kingdom prior to independence. It shows marked differences, which
suggest that taxation mechanisms were ill-suited to Ireland’s circumstances and that
spending on certain services was framed against the needs of the United Kingdom
and led to a scale of expenditure that was beyond the requirements and beyond the
resources generated by Irish taxpayers. Patrick O’Brien has said that looking at the
national nances tells quite a lot about a nation and its people. The United Kingdom
was a composite state; though small in geographical terms, it was ethnically and lin-
guistically diverse. The Irish, the Scots, the Welsh and the English were unied in one
nation after centuries of conict. Its national nances speak to these differences. The
Imperial exchequer collected taxation and authorised expenditures, but did it place
one people’s preference over another? Perisch’s law of peripheral neglect tells us that
the farther away from the seat of national power the less money appropriated to that
region, but was this reected in the public nances? Was Ireland over-taxed and under-
invested in as nationalists have suggested? This section examines expenditures such as
civil government charges and the provision of postal services and pensions as well as
taxation, trade and debt. It nds that Ireland beneted from increasing expenditure
and social spending prior to independence but war debt may have given Ireland an
incentive to secede.
5.1 Expenditures
5.1.1 Civil government charges. As already discussed, the benets of a union stem from
the returns to scale in the provision of public goods. Alarge population of taxpayers
can share the cost of public goods such as roads, a telephone network, defence, civil
servants and education. The UK national nances were broken down by region in
the government white papers so the costs of government and the provision of public
goods between regions can be compared. Table3 shows the per capita charges on the
various different types of government expenditure in 1900–1901 before the increased
expenditure in Ireland during the rst decade of the twentieth century. Ireland is more
expensive to govern in almost every sub-category. Public ofces are twice as expensive
to maintain, whereas law charges and police are up to 10 times more expensive than
in England and Wales (however, this may be a function of the presumptive nationalist-
inspired lawlessness in Ireland at the time). The costs associated with education were
approximately the same. Population decline no doubt was an important factor in
increasing per capita expenditure, given that economies of scale were reduced and the
rural population was proportionately higher than other regions.
Per capita costs of several public goods decrease with population size. As the civil
government charges show, the cost to Ireland independent of the United Kingdom
would be far higher. Between 1895 and 1909 there was a large increase in expendi-
ture. Ireland went from a spending level of £0.93 per capita to £1.29, over two times
the level of England and almost twice that of Scotland (see Table4). Many Scottish
politicians and intellectuals felt quite aggrieved at the level of expenditure in Ireland.
Especially given that Ireland was a poorer country in point of developed wealth, its
administration should cost less than that of Scotland (Crammond, 1912) Crammond
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documented several examples where Ireland received higher expenditure and support
from London compared to theScots.
Some of the imperial spending may not have been of much assistance to a poorer
region. But the fact that the region is poorer and the price level is also lower, the
Imperial Parliament may have an incentive to spend money there on ‘imperial services’.
An example of this is the army. If the number of soldiers stationed in Ireland was based
on Ireland’s resources, there would have been about 4,000 troops; if based on popula-
tion, 12,000. Instead, there were 24,000 troops as a reserve of the imperial army. They
were stationed in Ireland because it was cheaper to do so. Lough (1896) questioned
whether the huge expenditure on ‘Irish services’ reected the reality of what it cost
to administer Ireland. The Royal Irish Constabulary and the standing army cost, with
one soldier for every 257 people, 6s 7d per head of the Irish population. In Scotland
there was one policeman for every 1,000 persons at a cost 2s 3d per head (Lough
1896, p.81). Nationalists felt that Ireland was paying for an army which in turn held
Table3. Civil government charges and costs of revenue departments
England and Wales Scotland Ireland UK
Civil government charges £ per capita, 1900–1901
classI, Palaces and public buildings 0.04 0.03 0.09 0.05
classII, Public ofces 0.03 0.03 0.07 0.06
classIII, Law charges and police 0.04 0.06 0.46 0.09
classIV, Education 0.30 0.31 0.32 0.30
classV, Diplomatic and colonial services 0.00 0.00 0.00 0.05
classVI, Pensions 0.01 0.01 0.02 0.02
classVII, Miscellaneous 0.00 0.00 0.01 0.00
Total civil government charges voted 0.41 0.44 0.98 0.57
Costs of revenue departments £ per capita, 1900–1901
Customs 0.02 0.02 0.01 0.02
Inland revenue 0.05 0.07 0.04 0.05
Total collection of taxes 0.07 0.09 0.05 0.07
Post ofce 0.22 0.21 0.17 0.22
Telegraph service 0.10 0.09 0.06 0.09
Packet service 0.00 0.01 0.01 0.02
Total oost ofce services 0.32 0.30 0.24 0.32
Total revenue departments 0.39 0.39 0.29 0.39
Source: Vol. 66, British Parliamentary Papers ‘Revenue and Expenditure (England, Scotland and Ireland)’.
Table4. Charges per capita and costs of tax collection
Year Civil government charges Tax collection Postal services
England Scotland Ireland England Scotland Ireland England Scotland Ireland
1895 0.37 0.46 0.93 0.07 0.07 0.05 0.26 0.24 0.17
1901 0.42 0.47 1.02 0.07 0.09 0.05 0.32 0.30 0.24
1909 0.56 0.69 1.29 0.07 0.09 0.06 0.40 0.38 0.30
Source: Committee on Irish Finance (1912–13, Table12).
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Page 12 of 29 W. Hynes
the island in subjection, but the stationing of these troops was benecial for the Irish
economy—when British troops pulled out of Ireland in 1922 it had a negative impact
on areas close to army barracks. This was important in the last decade of theUnion.
There were some items of expenditure that were unique to Ireland. These expenses
included the Lord Lieutenant, Royal Irish Constabulary, Dublin Metropolitan Police,
Land Commission and the Department of Agriculture. In the 1890s and especially
following the conclusions of the Financial Relations Committee in 1896, the United
Kingdom increased expenditure in Ireland. The Congested Districts Board has been
described as the most successful board that had ever operated in Ireland. The Irish
Agricultural Organisation and Department of Agriculture and Technical Instruction
were also established. These groups improved the position of the Irish poor by trying
to abolish those causes which hampered their material progress, ‘by developing the
agricultural and home manufacturing industries of Ireland, and by fostering that spirit
of self help which is above all necessary for the improvement of the country’ (Murray,
1903, p.421). The cost of the Civil Service was relatively high. The Local Government
Board, the Board of Works, the Superior Court, Prisons and Law charges—all cost a
great deal considering the resources and population of the country. Figure2 shows the
dramatic changes in the costs of civil government in Ireland relative to Great Britain.
This had dramatic implications when Ireland became independent.
5.1.2 Public good provision. Public goods are provided in a democracy on the basis of the
choice by the majority voter, a region with a small population then will be provided with
public goods not necessarily suited to local conditions—sometimes this worked to the
benet of the Irish people and sometimes at their expense. The Primrose Committee of
1913 presented evidence that a nancial partnership between Ireland and Great Britain
did lead to a scale of expenditure that was ‘beyond the requirements and beyond the
natural resources of the country itself’ (Committee on Irish Finance, 1913). This aw
in the set-up of the United Kingdom was not serious during the nineteenth century
when government played a minor role. But this situation changed in the rst decade
Fig.2. Costs of civil government per capita in Ireland and Great Britain
Source: Committee on Irish Finance (1913).
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Economic factors in the separation of south Ireland Page 13 of 29
of the twentieth century and had signicant implications for the Union. The role and
functions of government and the use of public money had changed. The pension was
the rst example of this new role and that transformed the revenue account. Ultimately
if there is a poor region with a population small in relation to the total population,
schemes will be framed with reference to the needs of the larger group, in this case
the political machinery of the United Kingdom was geared to deal with the needs of
the industrial population. As with taxation, when expenditure policies were applied to
Ireland, a largely agricultural economy, there was an inevitably a waste of public money
(see the post ofce section next). The pension is also an obvious example of this.
5.1.3 The costs of the post office. The Primrose Committee examined the costs of the
post ofce and found that given the decline in the population and with no increase
in the economic activity of the country, the running costs of the post ofce would
have been expected to fall. Instead, in the 15years from 1897 to 1912 costs increased
by 74% (see Figure3), only slightly less than the United Kingdom. The Accountant
General of the Post Ofce attributed this to the fact that enlarged postal facilities—
entailing extra expenses and augmentations of pay, both of which were considered to
be required in Great Britain—had to be extended to Ireland under the unied system
of administration. This despite the circumstances of Ireland, which taken by them-
selves would not have justied such large additions to the cost of the post ofce.
5.1.4 Pensions. Prior to 1914, social legislation enacted by the Liberal government
was highly benecial to many sections of the community in Ireland (Ó Gráda,
2002). The Liberals, in an attempt to reduce poverty of older people, introduced a
signicant pension reform in 1908. If the government had to construct a scheme
of old-age pensions especially for Ireland, they would have devised a less costly and
less comprehensive scheme, compared to the one put into operation, framed to suit
the industrial workers of Great Britain. The charge for old-age pensions to Ireland
Fig.3. Post office charges per capita
Source: Committee on Irish Finance (1913).
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Page 14 of 29 W. Hynes
equalled a third of true revenue, because the population of 4 million contained the
survivors of a population which 70 years earlier was 8 million and because 70%
of the Irish population lived in rural conditions as compared with 20% in Great
Britain (Committee on Irish Finance, 1913). The Old-Age Pensions Act of 1908
had a dramatic impact on Anglo-Irish scal relations. ‘It is not likely that any Home
Rule administration would have dreamt up something so generous or redistributive’
(Ó Gráda, 2002, p.126).
The nancing of the pension was a very important issue in Irish nance prior to and
after independence. Tom Kettle, responding to the Unionist claim that Home Rule
would lead to increased taxation and no old-age pensions, deemed the pension the
‘cost of the partial liquidation of the economic decay and the human wretchedness
induced by the Union’ (Kettle, 1910). The pension as inherited from the British proved
too expensive for the new Free State government. In a memo to the Department of
Finance, the Minister for Local Government argued that the burden was excessive,
particularly ‘when cognizance was taken of the limited funds’. After independence,
pensions were cut by 1 shilling. Regulations surrounding the pension were tightened
up (Ó Gráda, 2002). The changes were probably necessary given the new scal footing
of the Irish Free State and the fact that pensions were articially high. Furthermore,
economist and former Taoiseach Garret FitzGerald has noted that the cut occurred in
a period of deation. Nevertheless, the move created a political backlash against the
Free State government and pensioners continue to exert considerable inuence over
Irish politics.
5.2 Taxation
George Baden Powell, writing about Ireland in 1898, stated that money was the root of
all politics (Powell, 1898). For Ireland the relationship with the United Kingdom was
very much inuenced by money and the nancial arrangements of the Union. Aprom-
inent debate during the nineteenth century was the extent to which Ireland was over-
taxed. The taxation debate was not a product of regional differences—all low-income
labourers and farmers across the United Kingdom were disadvantaged by the system
of indirect taxes on consumption. The scal system of Great Britain may not have been
suited to Ireland. The Select Committee of 1864 investigated the taxation of Ireland,
nding that the distress from which Ireland was suffering was not due to pressure of
taxation. The Royal Commission of 1894 was established to enquire into the past and
present nancial relations between Great Britain and Ireland and their relative tax-
able capacities (Murray, 1903, p.396). The Financial Relations Commission of 1896
and the Primrose Committee, which was set up in preparation for the 1914 Home
Rule Act, adjudged that Ireland had been overtaxed for many years to the extent of
an annual sum of almost £3 million. It was suggested in the Primrose Committee that
restitution should be made for that annual over-taxation of Ireland by giving Ireland
a sum of approximately £3 million a year. The income tax and the death duties had
little impact on the Irish population, but the excise and customs taxes yielded a much
heavier Irish contribution than was equitable.
Most of the tax Ireland paid was in the form of customs and excise, which can be
a regressive form of taxation. Gladstone saw it as a great advantage for the Irish that
most of the tax burden was in the form of indirect taxes, as the Irish had the ability to
‘untax’ themselves. Much of the customs and excise burden was levied on what were
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considered ‘luxury’ goods, such as tea and whiskey, he argued. Irish people consumed
more than the UK average amounts of these goods, resulting in a high tax burden.
Looking at the costs of tax collection reects this. Ireland costs were lower than for
Great Britain where income taxes were higher but more costly to collect. The Irish
paid higher taxes than perhaps would have been fair. This point was conceded by the
Committee on Irish British scal relations in 1896 and in 1912. Ireland was a poorer
region and thus might be expected to pay lower taxes. This is true of progressive taxa-
tion schemes such as income tax (see Table5). Overall Ireland paid less than half of the
income tax per capita of Great Britain.
5.2.1 Cost of taxation. Easterly and Rebelo (1993) found that larger countries meas-
ured by population size rely heavily on efcient forms of taxation (i.e., income tax)
relative to more inefcient forms of taxation (e.g., customs), even after controlling for
different levels of income (Alesina and Spolaore, 1997, p.1029). Given that most taxes
in Ireland were from customs and excise, the costs of collection were relatively low, sig-
nicantly lower than in Great Britain, though the difference in costs did close through
the nineteenth century with only minor differences from 1900 onwards (see Figure4).
5.3 Anglo-Irishtrade
Trade with the United Kingdom was the cornerstone of Irish economic activity for
at least a century and a half after the Act of Union. Adam Smith in the Wealth of
Nations acknowledged the contribution that free trade would make to Ireland. ‘By
a union with Great Britain, Ireland would gain, besides the freedom of trade, other
advantages much more important, and which would much more than compensate any
increase of taxes that might accompany that union’ (Smith, 1776, chapter5, book III).
In the language of economics, Casella and Feinstein (2002) suggest that political inte-
gration provides economic benets by facilitating trade (Bolton et al., 1996, p.701).
Theoretically the dissolution of trade barriers between regions has unambiguous ben-
ets. But the perception of free trade is often negative. In 1801 free trade was seen to
be the boon to Ireland that Union offered. But nationalists viewed it as a sinister plot
by the British to foster the elimination of Irish industry, undermining Irish economic
development. They might have found common cause with Berkeley, who once posed
the query whether the Irish could not live and prosper if their island were surrounded
by a brazen wall (Meenan, 1970).
Free trade did coincide with the decline of Irish industry, and nationalism is some-
what opposed to the concept. Arthur Grifth, who followed the teachings of Frederick
List, believed in independence and self-reliance. Protectionism found favour with
Table5. Income tax per capita
1861 1871 1881 1891 1900
England 0.14 0.18 0.19 0.21 0.21
Scotland 0.10 0.12 0.15 0.16 0.17
Great Britain 0.14 0.17 0.18 0.20 0.20
Ireland 0.04 0.05 0.07 0.07 0.08
United Kingdom 0.12 0.11 0.17 0.18 0.19
Source: Based on data from Giffen (1902, p.67).
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Page 16 of 29 W. Hynes
nationalists in spite of the fact that the Irish economy was almost completely depend-
ent on British markets for its exports. The Northern Irish economy was very much
dependent on intra-Union trade, and Unionists feared that a southern government
would introduce trade restrictions. This was one of the economic factors that prompted
partition. Trade policy is enormously important as a determinant of break-up and par-
tition. In the Irish case, most Irish trade was with Britain, and attempts to nd external
export markets failed. This is another example of how economic factors should have
bound Ireland to the United Kingdom and made independence costly. Even 15years
after independence, and in the midst of an economic war, Ireland still conducted 90%
of its trade with the United Kingdom.
5.4 National debt and other liabilities
Another signicant issue in Anglo-Irish scal relations is debt. Since the merger of the
exchequers in 1817, Ireland had no debt. Under the Union loans for the remedying of
distress were actually remitted and written off from the imperial account (Powell, 1898,
p.162). Ireland itself did not have any liability to the enormous debts built up during
the nineteenth and twentieth centuries. When the Irish state was founded it essentially
started with a clean slate although there was some nancial liability, the annuities for
example, the newly formed Free State had an enormous advantage. Having no crip-
pling national debt was an advantage that few countries combatant in World War Ihad
in the 1920s. The war left the United Kingdom with a war debt of £8 billion. Indeed,
during the Westminster debates on the Anglo-Irish Treaty a disgruntled MP felt that
the treaty was allowing Ireland escape ‘her proper share of taxation’ estimated to be,
proportional to population, £800 million.5
5 Hansard Parliamentary Debate (1921), vol. 149: 85
Fig.4. Costs of collection of taxes (pounds per capita)
Source: Committee on Irish Finance (1913).
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This enormous liability gave Ireland an incentive to separate from the United
Kingdom, thus evading the burden of the war debt. This may be viewed as an advan-
tage of secession. Ireland would avoid liability for the debts of the United Kingdom. It
would be a historic irony if debt was important in the independence decision because
it was the writing off of Scottish debt that was a major reason for the union of Scotland
and England in 1707. Nevertheless, Dail Eireann counter-claimed that they did not
have any liability to the United Kingdom. On the contrary, the Irish government
informed the US Congress that the imperial treasury owed substantial amounts to the
Irish people. The calculation was based on emigration: the loss of ma power, £3.152
billion put down against Britain for everybody who ever emigrated and for the over-
taxation by £2.75 million a year for 120years, a total of £330 million. Finally they
claimed that Ireland was over-taxed in the war to the extent of £102 million. This
amounted to a nal liability of £4.584 billion.
Related to debt are the land annuities. The ownership of land represented a major
grievance of the Irish—from tenant rights to land purchase—but like scal reform
and expenditure, the imperial Parliament did attempt to ameliorate this problem.
Moreover in the 1880s, the UK government was prepared to abandon laissez-faire and
interfere with property rights in Ireland for the benet of the majority, using methods
that would not have been considered in Great Britain. Tenants bought their properties
and made annual repayments to the UK government, which had nanced the pur-
chases. After 1922, the northern and southern Ireland governments introduced their
own systems of land purchase. On independence the issue of how to deal with the
annuities was debated. Under section 26 of the Government of Ireland Act, the North
and South administrations were to have retained their land annuities, but this was held
to have been superseded by the treaty and subsequent instruments. The question of
the land annuities was dealt with in the nancial agreement of 1923, under which it
was agreed that the Irish government would collect the annuities from tenants and pay
them into the Purchase Annuities Fund.6 The retention of these payments in 1932 led
to the economic war.
6. Economic consequences of the separation of Ireland
6.1 The costs of separation and Irish economic performance in the inter-warperiod
Most of the political economy literature on the size of nations is posited against
a backdrop of globalisation with increasing global economic integration through
increasing trade and capital ows. Globalisation is an important factor in the size
distribution of nations and makes smaller states more viable. A major nding of
6 Lloyd George, on introducing the Government of Ireland Act of 1920, boasted of his generosity in
granting the returns of the land annuities to the Irish people. By this act the land annuities collectable in
Ireland were to be paid into the exchequers of southern Ireland and Northern Ireland. This was to be a
‘free gift to the Irish people’. (It was subsequently nullied and annuities continued to be transferred to
the British exchequer after Irish independence.) However, the Primrose Committee felt that Ireland had
been over-taxed and that some form of restitution should be made. Lloyd George chose the land annuities
accordingly as the appropriate way of paying that money back. This of course was a payoff for previous over-
payments made on behalf of the Irish people. Therefore, consideration of the annuities as a gift is somewhat
inaccurate. Under a Home Rule administration, the south would have retained annuities of more than £3
million per year to fund Irish services. The southern government would probably have embarked on another
Land Purchase Act in the early 1920s to further lighten the burden on farmers.
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Page 18 of 29 W. Hynes
Alesina and Spolaore (2003) is that whilst small countries may be viable during an
era of free trade and global markets, they may not be viable in a world of trade bar-
riers and international economic disintegration. The viability of countries increases
with international openness. If this is true, we would expect size to be more impor-
tant in economic performance during the interwar period. It also means that the
calculus on the viability of Irish independence may have shifted in the 1930s as the
world economy disintegrated.
Furthermore, it is doubtful that those who sought independence considered
the direct costs of separation; political separation is rarely costless or peace-
ful. In the tumultuous days of 1922 and 1923, the Irish engaged in a vicious
civil war, which forever stained the achievement of independence. The civil war
imposed significant costs on the new state. Expenditure on the army in 1922–23
amounted to £7.5 million and this increased to £10.6 million in 1923–24. Army
costs stabilised to a steady expenditure of about £1.3 million per year from
1930 onwards. The conflict also caused enormous damage to property, which
the government either had to repair or compensate the citizens who had received
damage to their property or person. There is also anecdotal evidence that inves-
tors pulled out of Ireland because of the political instability. In July 1922, Irish
irregulars wrecked the huge transatlantic station at Clifden. The station was
never rebuilt, and traffic passed to the Caernarvon station in Wales. Many large
country houses, symbols of British rule, were burned to the ground. Horace
Plunkett, a senator in the newly formed Irish Senate had his home destroyed,
prompting the man who had contributed so greatly to Irish society to leave
Ireland. The government had to provide compensation, paying out £15 million
between 1922 and 1924. Civil war related payments were enormous relative to
the total expenditure on supply services, representing 50% in 1922–23 and 62%
in 1923–24 (see Figure5).
£0
£2,000,000
1922-23
1923-24
1924-25
1925-26
1926-27
1927-28
1928-29
£4,000,000
£6,000,000
£8,000,000
£10,000,000
£12,000,000
Army
Property Losses
Compensation
Fig.5. Total army and property loss compensation for the free state government
Source: Data from Statistical Abstracts, 1922-38.
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Economic factors in the separation of south Ireland Page 19 of 29
6.2 The civil ser vice
During the decline of the British empire the strategy of ‘divide and quit’ had enor-
mous implications for the divided countries in India and Palestine as well as Ireland.
Aconsequence of the Government of Ireland Act was the establishment of a bureau-
cracy and administration in both Dublin and Belfast. This is inefcient, leading to
costs in the duplication of administration. But the civil service in Dublin had already
been decentralised before independence. Fanning (1978) details how remarkably lit-
tle change there was in the transfer of administration from British to Irish rule. Some
costs were incurred because those who no longer wished to remain under the Irish
administration had to be compensated. The Irish government was also responsible for
paying the pensions of retiring Royal Irish Constabulary ofcers, judges and civil serv-
ants. But the relative costs in administration terms were small because in many ways
Ireland had been a self-administered region of the United Kingdom for sometime.
Guiomard (1995) described the position inherited by Ireland at independence as
an impoverished government presiding over an elaborate state machine which he lik-
ened to an ‘old banger tted with a Rolls-Royce eight-cylinder engine’. Throughout
history poor institutions have undermined the economic performance of several coun-
tries. ‘If economic history is seen as a struggle between a propensity for growth and
one for rent-seeking, then most of the time the latter prevailed’ (Crafts, 2003, 143).
Institutions can be seen as a black box and are difcult to analyse theoretically, but we
can think of them in terms of property rights, enforceability of contracts and the rule of
law. This was perhaps one benet of British rule: strong state and judicial institutions,
with relatively little corruption. In the long run, these institutions were crucial for Irish
economic performance. The public sector was the innovative driver of the economy for
the rst 40years after independence. However, it is less clear that the British left insti-
tutions that provided incentives to invest and to innovate, and these factors are central
in explaining why growth rates differ across countries (Crafts, 2003).
6.3 Taxation changes
One of the benets of independence ought to have been the design of policies and
schemes better suited to the Irish economic environment. Taxation had been a huge
issue prior to independence, with Ireland deemed to have been over-taxed because
of the high proportion of indirect taxes paid. But in Figure6 we see that the distribu-
tion of tax between direct and indirect sources did not change at all during the inter-
war period. In fact, tax became more regressive during the economic war after 1932
as increased customs and declining incomes increased the share of indirect, regres-
sive taxation. Ireland retained an ‘unsophisticated’ tax system for the rst 40years
after independence. But the fact that this system existed prior to independence and
there was a differentiated tax system between the islands of the United Kingdom
indicate that the two were separate economic units whilst being part of the same
politicalunit.
A larger proportion of Ireland’s tax burden was indirect, consisting mainly of duties
on spirits and tobacco. Victorian Britain believed taxing vices was a moral issue. Duties
on luxuries such as alcohol and tobacco were increased to reduce consumption. Of
course the economic reality is that these goods are taxed everywhere because their elas-
ticity of demand is low and this was a good scheme to raise tax revenue. There was pos-
sibly an Irish grievance in that not all intoxicants were taxed equally in proportion to
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Page 20 of 29 W. Hynes
their strength. Whiskey drinkers all over the United Kingdom had a grievance against
beer drinkers, and the fact that the majority of Irishmen preferred spirits and the
majority of Englishmen preferred beer imposed on the Irish a heavier burden of taxa-
tion (Murray, 1903, p.419). Tea had the best claim for relief. ‘To the Irish peasant
who lives on potatoes or Indian meal, with bread, bacon, and milk only on a few occa-
sions in the year, tea is almost a necessity of existence’. (Murray, 1903, p.418). Upon
independence the tea duty was 8 pence on the pound. The Finance Act 1924 reduced
the customs duty to a rate of 5 pence on the pound. In 1925 the customs duties on tea
were abolished (Finance Act, 1925, section31).
This lowered revenue to the Saorstát exchequer by 200,000–300,000 pounds per
annum. The free state government not only abolished the tea duty but also cut the duty
on sugar to 1d per pound. The reductions on tea and sugar are in part off-set against
the ‘experimental’ protective duties on clothing and furniture. The wisdom of that pro-
tection is disputable, but the revenue was raised with more regard to ability to pay than
by the old sugar and tea duties (Meredith, 1925, p.309). This was a progressive change
in the Irish tax system that greatly assisted the poor. This would not have happened
if Ireland remained in the United Kingdom—where tax policy was inappropriate to
the Irish setting. The same was true of beer and whiskey. The Fianna Fail government
of 1932, although perceived to be more populist in nature, actually brought back the
regressive duty on tea at a rate of 6 pence on the pound (Finance Act, 1932, Section
14). The rate varied through the 1930s, decreasing to 2 pence in the pound in 1938
(Finance Act, 1937, Section10).
This decrease in trade to Britain had a signicant effect on the Irish economy, the
extent of which is debated (see Figure7). Alook at the composition of exports over
this period helps in assessing the distributional consequences of the protectionist poli-
cies. The trends in Figure8 and 9 highlight that agricultural produce was the main
export. Live animal export was the single biggest export industry in 1931, accounting
for almost half of total Irish exports. Given the dependence that Britain had on these
Fig.6. Government revenue as a percent of total in the United Kingdom and Ireland
Source: Mitchell (1988).
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Economic factors in the separation of south Ireland Page 21 of 29
goods and the large share of these goods out of total exports, Ireland should have been
insulated from the worst effects of declining world trade during the 1930s, but Irish
trade collapsed due to the economic war with Britain. After a succession of cattle-
coal pacts commencing in 1936, the situation gradually improved. Tobacco, food and
drink products accounted for the other main exports and they were dependent on
farming.
£0
£10,000,000
£20,000,000
£30,000,000
£40,000,000
£50,000,000
£60,000,000
Total Exports
Exports to UK
Fig.7. Irish exports 1925–45
Source: Data from Statistical Abstract Saorstát Eireann (1930, 1932, 1939, 1940).
£0
£5,000,000
£10,000,000
£15,000,000
£20,000,000
£25,000,000
1925 1927 1929 1931 1933 1935 1937 1939 1941 1943 1945
Live Animals
Raw or Simply
Prepared
Manufactured or
prepared
Fig.8. Composition of Irish exports 1925–45
Source: Data from Statistical Abstract Saorstát Eireann (1930, 1932, 1939, 1940)
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Page 22 of 29 W. Hynes
Fig.9. Livestock and milk for export and domestic markets
Source: Johnston (1934).
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Economic factors in the separation of south Ireland Page 23 of 29
6.4 The impact of independence ontrade
6.4.1 Agriculture and trade. Patrick Hogan, the rst Irish free state Minister for
Agriculture stated that ‘national development was practically synonymous with agri-
cultural development’ (Ó Gráda, 1994, p.391). Agriculture was dependent on the
export market, which as shown was essentially the British market. Live animal produce
in particular was sensitive to export demand. Figures 8 and 9 show the extent to which
individual sectors were dependent on British markets in the 1920s and the decline they
suffered in 1933. The Great Depression was a critical factor in declining trade and
many newly independent countries suffered, but Ireland’s circumstances were wors-
ened by the economic war with the United Kingdom. Figure8 shows that exports fell
sharply after 1929, but continued to decline after1932.
In total 75% of aggregate money receipts of Irish free state farmers came from sales
of livestock, livestock products and crops to export markets (Johnston 1934, p.456).
Given that agriculture was so crucial to the economic development of the state, the
economic war choked off the main source of revenue for Irish farmers. Imports fell
throughout the 1930s. The largest source remained the United Kingdom, but there
was some diversication (see Figures 10 and 11). The costs of the trade war are dif-
cult to measure. O’Rourke (1991, p.366) estimates that only 3% of the gross national
product (GNP) was lost in the seven years between 1932 and 1938—approximately
£4.5 million per annum, or £31.5 million in all. Agricultural output fell in real terms
between 1929–30 and 1938–39, by about 3%. The output of livestock and livestock
products fell by 7.3% (Neary and Ó Gráda, 1991, p.264). Therefore the costs of the
economic war may not have been hugely important, but the timing was somewhat
fortunate—Britain’s declining grasp on inuence and power, diplomatic pressure from
the United States and increasing tensions on the Continent forced the British to com-
promise, mitigating the worst costs of the economic war to Ireland.
6.4.2 Trade and imperial preference. Before World War I, a number of the dominions
requested the United Kingdom to establish some form of preferential tariff treatment
Fig.9. Continued
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Page 24 of 29 W. Hynes
for their products. Britain would have had to permit empire goods to enter duty-free
and tax the imports of non-empire goods, or levy a small tariff on empire goods and a
higher one on goods from non-empire sources. However, the British government held
the line that Britain was a free-trade nation and these requests were refused. However,
more difcult economic circumstances forced the British to relinquish this status. The
Fig.10. Total imports for Ireland 1925–45
Source: Saorstát Eireann Statistical Abstract (1940, p.175).
Fig.11. Breakdown of imports for Ireland 1925–45
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Economic factors in the separation of south Ireland Page 25 of 29
Import Duties Act of 1932 introduced a 10% tariff on imports from all non-Com-
monwealth countries. But subsidies to agriculture in the United Kingdom reduced the
expected prots from dominion exports. As a result of Ireland’s diplomatic posture,
despite several advantages Ireland might otherwise have had (e.g., geography, physical
access), the proportion of Ireland’s exports fell during the 1930s vis-à-vis other domin-
ion countries (see Figures 12 and 13).
6.4.3 Trade between the north and south of Ireland. Exports to the north collapsed during
the economic war, but recovered thereafter. This decline in Figure14 would not have
occurred had the north and south of Ireland been regions of the United Kingdom.
Imports from the north never regained their pre–economic war levels and the 1930s
experience marked a structural break in the all-Ireland economy. Ó Gráda and Walsh
(2006) present evidence that partition adversely affected counties near the border, but
that the aggregate effects weresmall.
Under Section 4 of the Government of Ireland Act, the Parliament of southern Ireland
would have been prohibited from legislating on matters of trade with any place outside
southern Ireland, and likewise prohibited from legislating on any aspect of the monetary
system (Isles and Cuthbert, 1951, p.376). Thus under home rule, the Irish Parliament
would have no power to raise tariffs against Britain. Thus under a north and south sce-
nario, no economic war would have taken place and this would have been an enormous
benet to the south; exports would not have declined to the extent they did. In fact
with imperial preference, the trade of pigs and live animals, important components of
Irish exports, could well have improved on pre-1932 levels. Prices for agricultural prod-
ucts would not have declined and the Irish taxpayer would have been relieved from
the expense of paying for agricultural subsidies. Also, the island economy might have
remained integrated. Isles and Cuthbert (1956) maintained that Northern Ireland was
‘not a separate economy at all, but an undifferentiated part of a single economic system
embracing the whole of the United Kingdom’. However, there is much to suggest that
0
2
4
6
8
10
12
14
1927 1930 1931 1932 1934 1935 1937 1938
Proportion of UK Exports to Empire Countries (%)
Australia
New Zealand
South Africa
Irish Free State
Rest of Empire
Fig.12. Proportion of UK exports to empire countries
Source: Glickman (1947).
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Page 26 of 29 W. Hynes
Ireland was essentially a separate economy prior to independence and that after partition
there was a structural break in the all-Ireland economy. The border was an inefcient
divide. Prices diverged during the 1930s and trade between north and south declined.
7. Conclusions
Democracy and the election of 1918 played a role in the dissolution of the United
Kingdom as they gave legitimacy to the radical separatist party Sinn Fein. Democracy
has important implications for the allocation of resources. In a democracy, regions
have incentives to secede to get spending on public goods closer to their preferences.
Ireland had not gained signicantly from scal reforms during the nineteenth century
0
1
2
3
4
5
6
7
8
9
10
1927 1930 1931 1932 1934 1935 1937 1938
Proportion of UK Imports from Empire Countries (%)
Canada
Australia
New Zealand
South Africa
India
Irish Free State
Rest of Empire
Fig.13. Proportion of UK imports from empire countries
Source: Glickman (1947).
Fig.14. Exports to and imports from Northern Ireland
Source: Statistical Abstracts (1930, 1932, 1940, 1945).
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Economic factors in the separation of south Ireland Page 27 of 29
and was effectively being overtaxed. The imperial administration had acted to improve
the situation, and by the rst decade expenditure had increased signicantly. Repeated
attempts to placate nationalist desires failed. Refusal to grant home rule prevented a
political settlement with Ireland in the United Kingdom. Economic arguments, or
rather the misuses of economic arguments, were at the heart of the debate on sepa-
ration from the United Kingdom. Traditional economic explanations such as scal
accommodation, labour market integration and linguistic imperialism (decline of the
Irish language) fail to explain separation. There is evidence to suggest that given the
income distribution of the United Kingdom, it made sense to separate poorer regions,
so policies could be better designed for local needs. Awealthy country ruling over a
poorer region was inefcient, and policies were not well designed for localneeds.
The costs of separation were not high in terms of administration, but the civil war
and the economic war were costly consequences. Economic nationalist policies were
even more expensive. Ireland became independent during an era of protectionism; this
increased the costs of independence. In addition Ireland conducted most of its trade
with the United Kingdom, and this did not change, mitigating some of the worst effects
of the Great Depression. Ireland still benetted from favourable geography in spite of
inappropriate policy. The decline of Northern Ireland relative to the south suggests that
in the long run the south made the right decision to end the political union with Great
Britain even though the benets of independence did not arrive until later. The estab-
lishment of what essentially was home rule in Northern Ireland suggested that ‘there
really is no halfway house between Union and complete separation’ (Buckwell, 1979,
p.280). Crafts (1995) goes further, maintaining that continued British involvement in
the Northern Ireland economy was doing signicant damage. The weaknesses in the
Northern Ireland economy were ‘sustained by the incentive structures embedded in
British institutions’ (Crafts, 1995). In the longer term, as Europe became more eco-
nomically integrated, preferential access into the British market became less important.
However, foreign direct investment (FDI) played an important role in the economic
performance of the south. Barry (2011) has analysed the politics behind the liberalisa-
tion of the Irish economy and the pivotal role played by the export prots relief tax insti-
tuted in the mid-1950s, which was the genesis of Ireland’s low corporate tax regime.
Here the ability to set tax policy independently mattered a lot. Ireland under home
rule could not have set a different rate of corporate tax to that of the United Kingdom.
So whilst globalisation forces were reducing the costs of independence, the benets of
independence matter more in an FDI-plentiful world. The economic nationalist project
had to fail before the Irish adopted openness and market competition.
The policies that Irish nationalists had rejected before 1922 under British rule were
re-embraced from 1960 onwards. The debate on Irish Independence seemed no longer
to matter during the Celtic Tiger years—it was an Irish success story, and the benets of
freedom were nally evident. Yet it was a success very much based on external economic
relations: membership of the European Union, investment from abroad and trade with
the rest of the world. With the collapse of the property bubble, rising unemployment and
scal crisis, Irish national self-condence once again wavered. The economics of inde-
pendence and the ability of smaller countries to weather an adverse global economic envi-
ronment remain important issues, whereas our interpretation of economic history will
continue to be shaped by current economic issues and performance. Ireland’s sovereignty
is again in doubt as it struggles to deal with the greatest economic challenges in its short
history; discussion on the economics of its sovereignty is not just a matter for history.
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Page 28 of 29 W. Hynes
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