IN 1958, a report on “Economic Development” by the leading Irish civil servant in the Department of Finance, T.K. Whitaker, announced the simple fact that Irish capitalism had come to a dead end. A complete U-turn in its economic development strategy was required. It was necessary to break with the policies of economic nationalism, which had stressed sovereignty, tariff protection and rigid control over foreign capital.
The Fianna Fail government under Sean Lemass took up the advice, and sought to re-integrate the 26 counties of southern Ireland into the world economy by means of grants and tax breaks to attract international capital. Many liberals welcomed the move, believing that the country would get on an escalator of economic, political and social advance. Whitaker, however, took a far more realistic view. With the new turn, he wrote, “the opportunities for development may not be great enough to give all who are born in Ireland a standard of living they would accept-though there are advantages here not to be reckoned with in money terms.” 
During the two decades after 1958 this note of caution seemed misplaced. Between 1963 and 1973 the growth rate of manufacturing employment in the south was exceeded by only four other countries in the world.  By 1980 numbers employed in agriculture had declined to 19 per cent. In the 1970s there was net immigration into Ireland for the first time.
Economic advance also seemed to bring with it the promise of a more open outlook and a decrease in the power of the Catholic church. Liberals pointed to the declining birth rates, the new pattern of early marriages and the increased participation in education as signs of an acceptance of the values of a modern industrial society. A number of legal changes seemed to confirm this trend. In 1972 a referendum led to the deletion of a clause in the Irish Constitution recognising the “special position” of the Catholic church. The European Economic Community (EEC) also functioned as a medium allowing the Irish bourgeoisie to introduce new laws. A series of measures such as the Anti-Discrimination Act (1974), the Unfair Dismissals Act (1977), the Employment Equality Act (1977) and the Adoption Act (1976) all brought the south into line with the EEC and seemed to open the door to a more liberal society.
But the dreams of the modernisers came crashing down in the 1980s. southern Ireland, in common with other countries as diverse as Poland, Mexico and Argentina, found that growth could not be sustained once the world economy entered a new slump after 1979. The huge levels of debt these countries had accumulated were premised on a continual expansion of the world system. When that did not happen these countries were thrown back into a deep crisis. Southern Ireland found itself with a debt burden of £20 billion. The result has been appalling retrenchment in recent years.
Social reaction has followed in the wake of the economic downturn. Even in the boom years, the political elite in Ireland never intended to launch a frontal attack on the Catholic church as many liberals had hoped. They wanted to mark out its more limited sphere of influence in the new conditions. However, with the catastrophic economic crash, far-right fringe groups such as the anti-abortion SPUC and Family Solidarity moved centre stage. Shorn of all promises of economic advance, the Fianna Fail party made a clear and open return to its clerical tradition. In the 1930s, the party had campaigned for the sacking of a Protestant librarian in Mayo on the pretext that she was in a position to dispense anti-Catholic propaganda. In the 1980s, the party at grassroots level linked up with Family Solidarity to defeat a proposal to allow divorce in Ireland. On a variety of fronts the liberal modernisers who had hoped for gradual change in southern society have been forced to give way before the “defenders of traditional values”.
The disillusioned hopes of many liberals and left-wingers has led to a new assessment of the nature of southern society. An odd amalgam of views has come together to claim that southern Ireland belongs to the “Third World” or that it is a neo-colony of Britain. These categories are said to explain its economic dynamic, its conservative social structure and its weak working-class movement. Implicit in this approach is the assumption that abnormal economic development occurs because Irish capitalism is still not master of its own house. Three specific strands of this view may be identified.
First, there is Raymond Crotty’s book Ireland in Crisis: A study in Capitalist Colonial Underdevelopment.  Crotty took the Irish government to court in 1988 to insist on a referendum on the Single European Agreement because he viewed the single market as a grave threat to Irish sovereignty. His campaign for a seat in the European parliament during the elections in 1989 won the backing of many left nationalists. Crotty’s central point was that “the evident failure of Ireland’s economy must be viewed in the context of Third World underdevelopment”  and that “the continuing underdevelopment of Ireland has been the enduring, pathological consequence of British capitalist colonialism.” 
Crotty, however, held an extraordinary view of the nature of this “capitalist colonialism”. He claimed that “the circumstances confronting the Indo-European pastoralists 4,000-5,000 years ago made it both possible and necessary to adopt capitalist production.” Virtually every form of conquest since then, he said, was a form of “capitalist colonialism”. The result of this colonialism was primarily the imposition of an alien cultural framework on indigenous peoples. This in turn led to inefficient use of resources and “incorrect factor prices” in the colony. In Ireland, the major incorrect factor prices that continue to stunt economic development are high land prices, high labour costs, and excessively high interest rates. These, Crotty claims, are evidence of an enduring “capitalist colonialism”.
For Crotty, therefore, there is nothing wrong with capitalism itself. It simply does not work properly in Ireland because the culture of capitalist colonialism was imposed. Despite its left-sounding rhetoric, Crotty’s book had a deeply conservative message. He proposed that the south break away from the world economy for a period. Once it had adjusted its “factor prices”, he claimed, the market would work better. Crotty also proposed the privatisation of the public sector on a vast scale. Each citizen was to receive a “national dividend”. Having dispensed this national dividend, the state “should cease to support higher education”.  Crotty also proposed “greatly reducing the publicly provided health service”.  It was an Irish Thatcherite’s dream.
The second group that argues for the neo-colony approach came from the small strain of academic Marxism. The views of the Greek Marxist Nicos Poulantzas and the Brazilian sociologist F.H. Carduso have been used to argue that the south of Ireland is an example of “dependent capitalism”. This view sees the world divided into a “core” and a “periphery”. Ireland, it is claimed, is exploited by the world’s core countries by means of unequal exchange of its goods or by being forced to rely on technology produced in the core countries. The academic Marxists have also argued that in peripheral countries such as Ireland the working class is invariably weak, since it cannot get access to a state that can control the activities of the multinational corporations.
However, by far the most important political figure arguing for a neo-colonial analysis of southern Ireland is Gerry Adams, and it is on his arguments that this pamphlet will concentrate. In his book The Politics of Irish Freedom, Adams characterised the relationship between the southern economy and the southern state. Britain, he wrote:
developed a neo-colonial relationship in which it was possible to protect their economic and strategic interests without the nuisance of having to occupy, garrison and administer the 26 counties.
The economy of the 26 counties is dominated by foreign capital; massive proportions of the profit generated in Irish industry are exported in particular to Britain. The resources of the state are controlled and exploited by foreign interests and even the ruling class is not based principally on native capitalism but is an agent class, acting as agents of foreign capital.
This ruling class put into power by the British appreciates that its interests lie in the maintenance of partition and feels its interests threatened by popular political struggle. Economic dependence on Britain translates in terms of political interest. 
The essential elements of the analysis are here. The ruling class, says Adams, following the “neo-colony” argument, is not drawn from native capital but functions as an “agent class” for the empire. The political independence of the south since partition in 1920 has meant nothing, because the economic link has remained virtually unchanged. Most important, economic dependence translates directly into political dependence. It is this continued dependence on Britain, he says, which explains the southern rulers’ support for partition.
The characteristics of a neo-colony can be summarised thus:
This characterisation did fit the southern economy at a particular stage. During the 1920s, southern Ireland was locked into a relationship of dependence with its former imperial overlord. A mere 4 per cent of the population was engaged in manufacturing industry. Agricultural products – largely livestock – constituted 76 per cent of its exports, and these were sold overwhelmingly to the British market. In return for these, the south was supplied with British manufactured goods. When de Valera described Ireland at this time as an “out-garden of Britain”, this was perfectly accurate. 
An agent class, representing primarily agrarian interests, held power after the civil war in 1922. Taxation was kept as low as possible to cheapen the costs of Irish agricultural products. Social services were kept to a minimum. The only major state product of the period was the Shannon Scheme to generate electricity, and it was built under near-slave labour conditions. The bias in favour of the livestock producers was reflected in a report of the Fiscal Inquiry Committee in 1924, which advocated an uncompromising free trade policy. As a result there was no attempt to foster native industry despite the arguments to the committee from the clothing, shoe, paper and glass industries.
The economic structures of dependency translated into real political control from Britain. The British armed the Free State and encouraged it to smash the republicans during the civil war. Small farmers were forced to pay £3 million a year to the British treasury in land annuities. No wonder Lionel Curtis, an advisor to Winston Churchill, could write: “The making of the Irish Treaty was one of the greatest achievements of the Empire.” 
The first serious attempt to challenge these neo-colonial structures came with the election of a Fianna Fail government in 1932. Fianna Fail pointed the finger at British imperialism as the main source of the nation’s ills and openly set out to construct an alliance of workers and Irish industrialists. The Irish government refused to transfer land annuities to Britain and pushed tariffs on imports from a nominal 9 per cent to 45 per cent. The result was a major stimulus for Irish capitalism as industrial employment expanded.
The British empire, weakened by the First World War and now facing the threat of German re-armament, made some significant concessions. The land annuities were written off for a total £10 million. The British navy gave up its automatic right to use a number of Irish ports. Later de Valera built on these concessions in order to enforce Irish neutrality in the Second World War.
Nevertheless, there was little change in the overall economic relationship between Ireland and the British empire. In 1935 the south signed a Coal-Cattle Pact with Britain as a means of easing up on these hostilities. Its title succinctly expressed the continued economic relationship between the two countries, based as it was on the exchange between Irish agriculture and British industry. Despite the relative independence achieved by de Valera, British economic dominance persisted. Only the huge decline in British power and influence after the Second World War, coupled with the opening up of the southern economy after 1958, was able to complete the removal of the neo-colonial structures.
The opening up of the southern economy appeared at first as a continuation of British domination. Patrick Lynch, one of the leading economists who argued for the Whitaker programme, claimed that:
Ireland’s economic associations with Britain are already close but they are unplanned and rather haphazard. An attempt to fuse the two economies by means of comprehensive trade and economic agreements would intensify existing trends and be a conscious recognition of realities. 
British capital was also the first to take advantage of the repeal of the Control of Manufacturers Act, which had limited foreign holdings in Irish companies to less than 50 per cent of the shares. Its traditional ties with the south; its involvement in the food-processing and banking sectors; the common currency; the abundance of cheap labour in the south and the decline in the rate of profit in Britain – all made the south an attractive location for the export of capital. Factories were opened to take advantage of Ireland’s home market and to export goods to Britain itself. The Anglo-Irish Free Trade Agreement of 1965, which created a customs union between the two countries, reflected these developments.
At first sight the figures for the 1960s testify to the overwhelming dominance of British interests in the south. In 1967, for example, 67 per cent of Irish exports were sold to Britain. Between 1960 and 1969 there were 350 overseas-funded projects established in the south: 40 per cent were British-owned; 25 per cent were American; 20 per cent German and 5 per cent Dutch. 
These features led many on the left to characterise the south as a neo-colony. The opening to the world economy that gathered pace in the 1960s was interpreted as new evidence that the southern government was complying with the demands of British capital. These views led to a false optimism by 1968. The vast majority of the Irish left believed that the southern state was extremely fragile and prone to be overthrown. The struggle now escalating in the north would “spill over” into a challenge to the neo-colonial structures of the south. Faced with this optimistic scenario, the left adapted itself to the politics of radical nationalism.
In fact it was wrong to interpret the turn towards the world economy as undertaken in order to benefit British capital. Even in the 1960s, British capital was in decline vis-à-vis its competitors. Its investments in the south were concentrated in the traditional sectors, and their level of technology and capital intensity was low. Thus, whereas British capital had invested £29 million in its 150 projects in the south in the 1960s, US capital had invested a similar amount in 80 projects. 
This merely reflected the decline of British imperialism on a world scale. Whatever the subjective intentions of the rulers of Britain and Ireland, this fundamental fact ensured that the old neo-colonial links were not so simply re-created when southern Ireland opened to the world economy. The concentration of world capital has increasingly been in the United States, Japan and West Germany. Britain’s share of world trade – 26 per cent in 1950 declining to 9 per cent in 1975; its levels of productivity – some 40 per cent below those of West Germany; its periodic balance of payments crises; all were clear signs of its decline. 
Despite the world economic boom that followed the end of the Second World War in 1945, Britain’s role in the world – both economically and politically – was declining. In this context, it was inevitable that close-knit neo-colonial links, far from being forged more tightly, would in fact be prised apart in an expanding world system.
This was particularly evident in the Irish case after 1973 when the south joined the EEC. At the time, southern Ireland enjoyed the unenviable privilege of being the EEC’s most underdeveloped member. As a result it became a useful staging post to enable capital, particularly from America and Japan, to get around EEC tariffs. It offered political stability under right-wing government, advantageous tax policies, grants for incoming companies and an abundance of cheap labour – a combination that proved highly attractive. By the mid-1970s US investment in manufacturing in the south totalled $2 billion. This was the highest per capita investment of US capital in Europe. 
The decline of British capital and the modest growth of native Irish capital that accompanied the new industrialisation was to have major ramifications for southern Irish society.
1. T.K. Whitaker, Economic Development, in Economic Development and Planning (Institute of Public Administration: Dublin 1969) vol.1, p.108.
2. K. Kennedy and D. McHugh, Employment, in J W Hagan (editor) The Economy of Ireland (IMI: Dublin 1984), p.246.
3. R. Crotty, Ireland In Crisis: A Study In Capitalist Colonial Development (Brandon: Dingle 1986).
4. Crotty, p.17.
5. Crotty, p.67.
6. Crotty, p.126.
7. Crotty, p.126.
8. G. Adams, The Politics of Irish Freedom (Brandon: Dingle 1986) p.91.
9. P. Baran, The Political Economy of Growth (Penguin Books: Harmondsworth 1973).
10. Dail Debates, vol.25, Col.478.
11. D. McMahon, Republicans and Imperialists: Anglo-Irish Relations In the 1930s (Yale University Press: New Haven 1984), p.1.
12. P. Lynch, The Economics of Independence, in Chubb and Lynch (editors) Economic Development and Planning (IPA: Dublin 1969), p.143.
13. Industrial Development Authority Review 1952-1970 (IDA: Dublin 1970), p.23.
14. Industrial Development Authority Review 1952-1970, p.24.
15. N. Harris, De-Industrialisation, in International Socialism (London) 2:7 (1979).
16. US Department of Commerce, Survey of Current Business 1976.
Last updated on 6.3.2002