This is a Supplies and Services Bill which embodies the principle of extending emergency powers six years after the so-called emergency came to an end. I do not think it would be right to allow this Bill to pass without saying—I do not say registering a protest—that the sooner these emergency powers are brought to an end the better for the country. I think we ought to hold very strongly to the general principle of the rule of law. The Seanad has played a small part in establishing that by setting up a Statutory Orders Committee. At the same time, everybody must admit that the emergency has not passed and that the time is not yet ripe for the complete restoration of the free prices system in the Irish economy. The affairs of this country may be described as an inflation but if it is an inflation it is only one inflation in a world of inflation.
It seems to me that there are three great inflations in the world to-day from which we are suffering. There is the dollar inflation, the sterling inflation and the Irish inflation. Which of these is the greatest influence on our affairs it is very difficult to say, but in so far as we have control over these inflations it is only over the last that we have any control. With regard to the others we have to accommodate ourselves to them in the best and most intelligent manner we can.
I do not make any apology for discussing some of the matters which were discussed in the Dáil at some length because I think it is the duty of the Seanad to contribute something to this debate. Perhaps I might preface my remarks by saying that, as a reader of the debates in the Dáil, I felt that the matter was being discussed at three different levels. Two of these levels struck me as being inappropriate and the third as being appropriate, and therefore the level to which we should confine ourselves. This matter was discussed at some length at a technical level as though it were merely a technical problem. The discussion dealt with how the Government and the Central Bank, with the appropriate measures at their disposal, could restore equilibrium in the balance of payments. I do not for one moment wish to suggest that technical considerations are irrelevant. In fact, they are all-important, and a country which adopts the wrong technical means even to achieve the right ends must pay a serious price if not perish in disaster.
At the same time, I cannot help feeling that to confine ourselves to the technical aspect of the problem is inappropriate in dealing with a problem of this kind. After all, we are dealing with the population of the country; we are dealing with a great many human feelings and the mere restoration of equilibrium in the balance of payments, which is quite easy to achieve as I will mention later by means of the appropriate measures, ignores many matters relevant in a problem of this kind. It is just like the case which Senator Hayes mentioned where you have a successful operation but the patient dies. It is quite easy to envisage the restoration of equilibrium in the balance of payments in this country obtained by various methods but the effects on our economy, deflation, unemployment, emigration, business losses and political discord are too high a price to pay for the immediate benefit conferred. I think that to discuss this matter on a purely technical level is inappropriate.
On the other hand, many speakers in the Dáil seemed to make the opposite mistake and discussed it, if I may say so, on the emotional level. A certain number of words have now acquired a certain emotive content. The phrase "repatriation of capital" suggests that our capital is an exile or refugee from persecution at home. "Dragged at the heels of the Bank of England,""Tied to sterling" are akin to the phrase used by William Jennings Bryan in the United States when he said that America was crucified on a cross of gold. Emotive terms are inappropriate in a debate dealing with very live topical issues and I think that they might be avoided.
I am sorry to say that two words have acquired an emotive significance, not only in this debate but in the world at large to-day. These two words are "inflation" and "deflation". They have become almost terms of abuse. Political Parties describe each other's programmes as inflation or deflation. After a lecture on this subject recently in University College, where I was attempting to explain some of these points, a student came to me and said: "As far as I can make out, the only dilemma in this country is whether we are going to be ruined by inflation or by deflation." I do not think that is the case. I think that there may be some third path by which we may avoid ruin. The words "inflation" and "deflation" are used in Party controversy and I do not propose to use them any more. Except they are used with an exact definition, they have simply become emotive terms which are simply used as counters in a political game.
The third level on which the debate was conducted and on which I think it should be conducted is the political level and by political level I do not mean the Party political level. I agree with Senator Hayes that these matters are so important, so momentous, that we should, if we can, try to constitute ourselves what I might call a grand inquest on the state of the nation rather than score debating Party points. When I say that it should be discussed on a political level, I mean that in politics one cannot always confine oneself merely to technical considerations. As I said already, the restoration of equilibrium in our balance of payments is quite easy, but at the same time it may produce effects on public opinion and on public confidence in which the loss would far outweigh the gain. I think that when we are discussing this matter on a political level we should consider, in the first place, what measures are technically appropriate—that is really the question of means—but also what ends are politically desirable. That is the question of ends. The distinction in this debate between ends and means is very important and one which, I think, in the discussion in the Dáil was not sufficiently observed. I think that the test of the correct solution to our difficulties is a combination of policy which is technically sound, politically feasible and economically defensible.
Politics, after all, is the science of the possible, and by the possible one does not simply mean what can be imposed by a Government on an unwilling population. It means the policy which will be accepted by general consent. Therefore, I think it is too much to expect any Government, especially a democratically elected Government which depends on popular support for office, simply to pursue a policy of drastic rectitude which may achieve for a short period the correction of disequilibrium at the expense of a very long period of sacrifice. I said that politics is the science of the possible. I might also say that politics is the science of the short run. Discussions about very long run effects are inappropriate. As John Maynard Keynes said, "In the long run we are all dead." So in considering policies of this kind, the run we are considering is a matter of extreme importance. We should aim at something between shock treatment for the patient which will administer some sort of temporary cure at a very severe cost and long neglect of his condition which will end by his gradually bleeding to death.
I agree, of course, with Senator Hayes that this is no occasion for the finding of scapegoats and that the Department of Finance and the Central Bank are not here to defend themselves. They have only been doing their duty. They have been doing what they are supposed to do. They are not responsible for the difficulties with which we find ourselves confronted. They are not responsible for the unpleasant nature of the cure which may be necessary for those difficulties. The Department of Finance is the body in charge of the national housekeeping of the country. It is not only entitled but it is its duty to call attention to anything it sees in the way of danger signals in the economic system.
I think it is only right for us to say that the high credit standing of this country at the present moment compared with other countries is largely owing to the record of the Department of Finance in the years since the Treaty, that it never has ceased to urge on successive Governments prudence, caution and orthodoxy, on many occasions making itself unpopular, as it has done on this occasion. I think it is only fair to call attention to this fact, that the Department of Finance always has regard to the interest of the taxpayer. If it is criticised on the ground of being unduly restrictive on spending, that, after all, is in the interests of the taxpayer, and at the present time, when taxation is so high, and when the poor pay so many taxes, safeguarding the interests of the taxpayers as a whole is surely a course which should not be accorded blame, but should be accorded, rather, praise. Therefore, I think that, apart from the general principle that parliamentary representatives should not criticise civil servants, these attacks on the Department of Finance have been singularly wide of the mark.
The Central Bank, again, has been doing just precisely what it was asked and expected to do. The Central Bank is a creature of the Oireachtas. It was set up by the Act of 1942. I distinctly remember the proceedings in the Banking Commission, of which I was a member, on the report of which the Central Bank was set up, and I am quite clear that one of the principal functions which we hoped to achieve by setting up the Central Bank was publicity, research, the education of the Irish public. One of the major recommendations of the Banking Commission was that the Central Bank should conduct research, should publish statistics, should draw attention to any deterioration in the Irish economic condition, and should generally educate the Parliament, the Ministers, and the Irish public.
In publishing this report the Central Bank has been carrying out that duty. We need not necessarily agree with everything in the report but the Central Bank surely is assured independence under the Statute. The very composition, the very non-removability of the members, means that the Oireachtas meant it to be an independent body which could pursue the truth as it saw it without fear, favour or affection. All I can say is this, that, if one of the objects of the Central Bank was to secure publicity, to secure that people would talk about the Irish economic situation, then its report for the last year, which is the subject now of this discussion, has certainly succeeded beyond the expectations of the most sanguine of its founders.
There is one point in regard to the Central Bank Report to which I think I should draw attention. I think it needs clarification. There has been misunderstanding, I think, in the debate in the Dáil and in the Press. The Central Bank calls attention to disequilibrium in the balance of payments, a matter to which I will return. They then proceed to outline a large number of alternative types of policy which may be resorted to in order to restore equilibrium. I emphasise "alternative" because it is quite clear, reading the report of the Central Bank, that the directors did not envisage the simultaneous application of all these policies at the same time. Reading the Report of the Central Bank, there is only one specific recommendation, a categorical specific recommendation about which there is no doubt, and that is that the current Budget should be balanced. The other recommendations of the Central Bank are all stated in the alternative, with this proviso, which is most important, that when they are being applied, if one of them is applied less, the others may have to be applied more.
That is actually in the report. I do not wish to delay the Seanad by quoting but that is in the report. Senators can read it themselves. Therefore, what the Central Bank has done is: it has given to the Government a choice of policies. It has not put forward this great mass of deflationary policies all to be pursued at the same time—and this, I think, also has not been sufficiently appreciated—nor has it stated that the whole of the disequilibrium should be corrected at one blow.
What the Central Bank has done is this: it has called attention to the fact of a disequilibrium—a matter to which I shall return. It has then stated that, if this disequilibrium is to be corrected, one or more of a variety of courses there laid down is the appropriate policy. The question of how much disequilibrium is to be tolerated is a matter of policy for the Government and for the Oireachtas. When the question as to the degree of disequilibrium that can be tolerated has been decided upon, the further question of to what extent the remaining disequilibrium is to be corrected is a matter for the Government and the Oireachtas also. It is we who have the responsibility for taking these decisions, not the Central Bank, and to attempt to make scapegoats of the Department of Finance and the Central Bank is disowning our own responsibility, resigning our own function.
I have used the word "disequilibrium". I do not wish to tire the Seanad with quoting statistics. The statistics are all available for anybody to read. But there is no question at all about it that, however people may disagree regarding the exact magnitude involved, the balance of payments in this country was in disequilibrium in 1950 and it is going to be in greater disequilibrium in 1951. That is agreed on by every speaker—the fact of the disequilibrium.
It is also agreed, although there may be differences of opinion regarding the precise magnitudes involved, that the disequilibrium has been bridged by dollar loans, Marshall Aid loans, by the infusion of a certain amount of new sterling into the Irish economic system by outside investors, and finally by a certain degree of using up of our accumulated sterling reserves. Without going into any figures, there is no question at all that those three forces have operated to bridge this gap.
In other words, the internal savings in this country have not been sufficient in the last two years to finance current consumption and current investment, and that is the central trouble in the whole system to which the Central Bank draws attention—the deficiency in the rate of current savings. That is the central core of our troubles. If that core could be corrected, all our other troubles would tend to disappear. The other troubles, the disequilibrium, and so on, are symptoms of the insufficient savings in the Irish economic system.
I will mention one figure only. The amount of new saving in 1949 is estimated to have been about £30,000,000, and the amount of new saving in 1950 is estimated to have been about £15,000,000 plus about £5,000,000 stockpiling, a total of about £20,000,000. I think, in view of the level of prices, of the volume of consumption and the volume of investment, that savings of that amount are not adequate to the necessities of the situation.
The disequilibrium in the balance of payments has been minimised and explained away to some extent on two grounds, both of which are valid. The first is that a large part of the imports are capital imports and that what we are really doing is repatriating foreign investments. The second is that another large part of the imports consists of stockpiling and, therefore, represents a prudent stocking-up of consumer goods for the future. Without going into exact magnitudes again, it is clear that the total of these two forms of import of capital goods and stockpiles does not account for the whole of the gap between imports and exports.
As regards the capital goods, we had a long debate in the Seanad less than two years ago on the whole question of the repatriation of Irish capital assets. I think there was a very general agreement in the House regarding the desirability of a policy of that kind. It may have been a matter of regret that it was not pursued on a larger scale in earlier years, but that regret would simply be one example of the regret of people who regret that they did not do things they would have done if they could have foreseen the future course of events. This repatriation can only take the form of an import of capital goods. Provided the net yield on the capital produced in Ireland as a result of that importation is at least equal to the net yield of the external investments and assets which have been sacrificed in its favour, a movement of that kind can be regarded as an unmixed good.
To the extent to which the repatriation of external assets is used for the building up of really new productive capital goods inside the country, the disequilibrium of the balance of payments, far from being a matter for alarm, is a matter for congratulation. But the total amount imported in that way is only a fraction of the whole. If you look at the imports of consumer goods you are brought up against the question of stockpiling. It has been stated in the debate in the Dáil—rightly, I think—that a large number of those consumer goods have been the raw materials of export industries and that they have been reexported, having been processed into a higher form. That, I think, is true, though it is difficult to identify the fraction which has been processed in that way. Certain imports of sugar, wheat and vehicles have entered into export production. To that extent the net import is less than it appears.
The second explanation is that the importation of a large volume of these consumer goods is stockpiling and that in a period of rising prices and international uncertainty it is wise and prudent for a country to acquire additional stocks of consumer commodities. That that process has been going on is unquestionable. But, however much people may disagree regarding the details of the figures, the stockpiling, plus the capital goods, do not in themselves bridge the gap between the imports and exports in 1950 or 1951. It is not irrelevant to say that an importation of consumer goods, even for current consumption, could have a considerable justification if they were consumed by people working in the country in capital-producing industries. In that case they would be indirectly building up capital at home. But the amount of new capital formation has been so small relative to current consumption that I think any allowance of that kind is too negligble seriously to affect the figures. Therefore, we are driven to the conclusion that, when full allowance has been made for all capital items in the imports, a disequilibrium of a considerable magnitude still remains.
Most people will agree that a large and prolonged disequilibrium in the balance of payments is something which should not be tolerated indefinitely. A continued disequilibrium leads to a draining away of external reserves, which has bad results, economic and political. The economic results have been hinted at by Senator Hayes, who pointed out that we require a considerable volume of imports to maintain our standard of living and that if, through any period such as the '30's, our exports are temporarily interrupted, we cannot maintain our imports except from our external reserves.
The capacity of this country to survive the interruptions of trade known as the economic war in the '30's depended very largely on the possession of abundant external reserves. Analogies have been drawn in the debate in the Dáil between our circumstances and those of certain European countries who happen also to have taken drastic measures to restore equilibrium in the balance of payments. I think it is right to say, in passing, that these analogies have been partly overdone. The countries which have been selected as examples are not creditor countries. Therefore, they have not had the same freedom in regard to their policy as we have.
The restoration of equilibrium is a matter of urgent necessity rather than of deliberate choice. It is also correct to say that some of those countries had already utilised external reserves on a considerable scale to build up domestic investment. Denmark had been a considerable creditor country in 1870. In the course of 70 or 80 years it deliberately used up its external reserves to build up its internal productive capacity. It did what many people suggest this country should do. Therefore, it was, so to speak, at the end of the process of which we are only at the beginning. I think the analogies between the Scandinavian countries and ours, although useful, have been overdone and are not exact. They are not guides to policy for us, who are lucky enough to posses still abundant external reserves which give us that liberty of action to which I referred a moment ago. The political results of a dissipation of external assets might be extremely serious. Any country which goes to borrow abroad is liable to have strings tied to its loans, and those strings are not necessarily of an economic or financial kind.
Many examples may be found in recent times of countries which have had to make a considerable political payment in order to obtain outside accommodation. I should not like to see this country reduced to that status. It has been said that democracies are improvident—that some of the socialist countries in Europe to-day are throwing away and dissipating the savings of past generations. I would not like that said about this country.
When we got our independence in 1921, we inherited from several generations of thrifty and frugal Irish people considerable holdings abroad and I think that the rapid dissipation of those holdings in high living, keeping up a volume of consumption to which we are not entitled, would be a political betrayal. It would be giving away for a mere present advantage some of the most valuable assets which have been handed on to us by our predecessors. Therefore, both from the economic and political points of view, anything like a wholesale dissipation of external assets is a course of action of which no prudent person could possibly approve.
An argument has been put forward in the course of the debate in the Dáil which should be dealt with. That is, that because the value of sterling has been falling in recent years, it is a wasting asset and therefore should be got rid of as quickly as possible. That would be equally true if we had all our external reserves in dollars or any other currency—since every currency in the world, with the exception of gold, has depreciated in value in recent years. Moreover, it looks, merely to a newspaper reader, rather as if the worst days of sterling are over. The intense and painful deflation which is taking place at the present moment in Great Britain is obviously designed to strengthen sterling, and the best opinion amongst people I can discover is that the great fall in the value of sterling has been arrested. Furthermore, even if sterling were to fall further, that would be no reason for treating it with disrespect. The mere fact that an asset is falling in value is no reason for throwing it away. One only has to look down a list of securities in the newspaper to-day to see that the shares of the most solvent and rich companies are falling in value every day. Is that any reason for the holders throwing them overboard and regarding them as of no value?
Remember that in the 19th century gold itself lost value on several occasions. There were several periods in the 19th century when the value of gold was falling quite substantially. Would anyone have suggested in those days that a gold standard country would have been prudent or wise in dissipating those gold holdings, simply because gold itself deteriorated in value? I say that that is not an unfair analogy. Unless we can look forward to the complete destruction of sterling —of which there is no sign on the financial horizon at the moment—to dissipate sterling simply because sterling is falling in value with all the other currencies in the world, seems to be rather a nonsensical thing to do. In fact, it could be argued the other way, that the less valuable our assets become the more of them we want and it is just because they are declining in purchasing power that we ought to harbour them up, since the same amount of assets now are not worth as much as they were 20 years ago, through no fault of their own. Therefore, perhaps the Seanad will agree that the residual disequilibrium which undoubtedly exists should be corrected —and by that I do not mean abolished at one fell blow, but rather reduced or brought under control.
In was suggested in the course of the debate in the Dáil that action to achieve this end would involve undesirable interference with the liberty of private people, that there was something totalitarian or tyrannical about action by the Government to restore equilibrium in the balance of payments. Even in the heyday of laissez faire, even in the days a hundred years ago when free trade was generally accepted by the prevailing enlightened nations all over the world practically, where you had a universal understanding about it, where people were talking about minimising Government interference and were also talking about leaving money to fructify in private pockets and leaving people without interference with their liberties, a disequilibrium in the balance of payments was regarded as a subject for intervention. In the height of Victorian liberalism, when the Government interfered practically not at all with industry, there was one sector in which it always interfered, that was to arrest an outward flow of gold. The international gold standard and the world monetary system of the 19th century depended upon vigorous action by the central banks to keep equilibrium in the balance of payments. Therefore, to suggest that appropriate Government action to-day to restore equilibrium in the balance of payments is in some measure totalitarian or anti-liberal, shows a certain ignorance of recent economic history.
As regards the extent to which this disequilibrium can be tolerated, the view has been put forward that if it is left alone it will tend to correct itself and that, to that extent, less vigorous action can be taken. Stockpiling, of course, is coming to an end. It may be that the great rise in import prices has also stopped. The world rise in prices seems to have reached something like a plateau at the end. There is also a sign of an expansion in exports, so it does look as if there are certain slight corrective trends. At the same time, in view of the magnitude of the gap, it would be foolish and unreal to expect these corrective trends to do what is necessary. Further action on the part of the Government is imperatively called for. To correct an unbalance, exports must be expanded or imports contracted, or both done simultaneously. Those are the only things that effect the cure. The difference between them is, I think, a matter I have referred to already—the length of the period in which they are applied. The expansion of exports necessarily takes time; it is a long-run policy. A drastic reduction of imports can be quite easily achieved; it is a short-run policy. What we really are seeking to consider in this discussion is what compromise between the two will combine safety and prudence with the minimum inconvenience to the Irish people.
I think it should be stressed that some active measures must be taken, that a policy of mere drift will not be enough. I think it is necessary to say —perhaps I should have said this before—that if the disequilibrium is not corrected by appropriate policy on the part of the Government, it will correct itself in an unpleasant and drastic manner. We are not asking that action be taken against an imaginary or hypothetical danger. We are asking for action against a real and not too distant danger.
One has only to look around the world to-day to see the plight of countries which have neglected to take proper measures. Balance in international payments is being forced on countries against their will, against the will of their inhabitants, involving reductions of consumption and every form of inconvenience. These are the evils which we wish to avoid and which we can avoid.
When I come to deal with the means rather than the ends, we are back to what I described at the beginning as the technical level of the discussion. The Central Bank and the Government together possess abundant weapons to restore equilibrium in the balance of payments, if they care to use them. I mention one or two of them merely to dismiss them as being inappropriate in the Irish situation. The first thing that can be done is a change in the exchange value of the currency. That was done in England in 1949 and has been done in many other countries. On that, I think it only right to say that, when people have been talking in this country about varying the value of the Irish pound, they have always assumed that the Irish pound would be valued up—that it was undervalued— and not valued down. If revaluation of the Irish pound, a change in the exchange rate, is resorted to as a corrective for the disequilibrium, it means a valuation down and not a valuation up. It means doing in respect of sterling what sterling did in respect of the dollar in 1949. I do not think that is either suitable or effective in our circumstances. If it were done, it would not expand exports, I think, because the limiting factor on exports in this country is a certain stagnation in production. It would put up the cost of living; it would put up wages; and it would lead to more rises in prices, which, as we are all agreed here, are to be avoided, if we can possibly avoid them. Furthermore, it would reduce the confidence of investors in the future of the Irish currency and therefore I do not think that is the appropriate measure to take.
Another method, the historical traditional method, of restoring equilibrium is to raise bank rates, to raise interest rates in the country, hoping thereby to induce a fall in prices and deflation. This matter was carefully considered in the Banking Commission Report and it was pointed out that Irish rates, through no fault of our own, tend to vary with English rates, that we have no independent rate structure and that, even if we could impose an independent rate of interest in this country, it would not have much effect on the business situation. Irish borrowers are not sensitive to small changes in bank rates, but, on the other hand, at a time when, as I will say later, considerable investment is required and considerable Government borrowing, raising rates of interest would have adverse effects in other directions, and therefore I do not think that a rise in interest rates, any more than the depreciation of the currency, is the appropriate tool to effect a re-equilibrium in Irish conditions.
Another method is a restriction of bank credit. That is a matter which was discussed in the debate on this Bill in the Dáil and there was a certain amount of difference of opinion as to the extent to which restriction is being imposed; but I cannot help feeling that a certain restriction of bank credit, judiciously and qualitatively applied, might have its part to play in the correction of disequilibrium. The English Capital Issues Committee has recently received new instructions from the Treasury regarding the types of loans which are looked on with favour by the Government to-day and similar instructions have been issued to the English banks. The English banks have been instructed and directed to scrutinise loans on the same standards as the Capital Issues Committee. I need not weary the House with what those standards are —our conditions are slightly different from theirs—but I cannot help feeling that a certain direction of that kind to the Irish banks is not an intolerable interference with the conduct of their business. It is being done in other countries with a very strong tradition of the freedom of the banks, and I really cannot see why it should not be done here.
One may as well face up to this—it is bound to be raised later in the debate—restrictions of credit in certain directions would cause some unemployment and I think that is a matter on which something ought to be said. One must distinguish between a general fall in unemployment, leading to emigration, and a fall in employment in particular industries, which, for some reason or other, are not as prosperous as some of their rivals. In recent years, we, who live very much in the atmosphere of English economic thought, have been obsessed with the idea of full employment as the be-all and end-all of economic policy, and full employment has now come, in certain circles, to mean that every person in employment is wedded to his job for all time, that nobody must ever lose the job he has at the moment. If that were consistently carried out, it would hamper all industrial adjustment, and I think that a certain amount of mobility of labour, a certain amount of shifting around from falling to rising trades, in the national interest, is something which we must be prepared to face. If every job is regarded as something which in no circumstances whatever can ever be terminated the elasticity of the Irish economic system has disappeared, and the correction of the disequilibrium will become almost impossible A certain restriction of bank credit, a certain rationing of bank credit, is, I think, a corrective measure not to be dismissed.
Finally, I come to the major weapon in this battle—the Budget, the financial policy of the Government. The Budget in modern times, in this country as well as in other countries, has become far more than a mere expenditure-revenue account of the Government. It has become a method by which the total volume of employment and investment can be largely controlled and the correction of this disequilibrium, in the long run, will depend on Budget policy, in the broadest sense of the word.
Now, the Budget of last year and this year are not relevant to this debate. I assume that the recommendation of the Central Bank that the current Budget is to be balanced will be followed. I assume that whatever taxation is necessary to produce that result will be imposed, and will have to be reluctantly endured. But before accepting that as the only solution to balancing the Budget, I would suggest to the Government the necessity for an extremely detailed investigation into the possibilities of reducing current expenditure. One type of current expenditure in particular which I only need mention—to indulge in a discussion would delay the House even more —is the food subsidies.
Food subsidies were originally introduced as part of a policy of stabilising wages by a wage peg, but the wage peg has long gone and the food subsidies remain. I think that the question of food subsidies as a possible economy in the Budget is a matter to which public attention should be constantly directed but, as I say, the current Budget is not the subject of this debate. Therefore, I propose to say a little about what can be done in the Budget on the capital side to effect the desired objectives of increasing exports and diminishing imports. The diminution of imports really does not involve any discussion. We have seen certain measures taken in the last few days— drastic measures—which have had the result of reducing imports.
I do not wish to single out any commodity or any trade by name as being a suitable victim of treatment of this kind but I simply say that, looking over a list of imports, there are a certain number of luxury goods of a consumable kind which I really think the country could temporarily do without. There are certain imports which could be slashed without anybody being very much the worse of it, except—and this brings me back to a point I mentioned before—that certain people might be unemployed in the process. If we are not prepared to face unemployment in certain trades, then we may give the whole thing up as insoluble. If we regard the structure of employment and trade as sacrosanct, never to be touched, then we might as well sit down and consider the whole problem as hopeless. The idea that no individual human being is ever to lose his job is not what is meant by maintaining full employment. If the volume of employment as a whole can be maintained, the Government cannot be accused of doing anything anti-social by striking at certain branches of production which are of a kind the country might not be able to afford.
As I said, in the long run, the expansion of exports must be the aim of long-term policy. That, again, involves a great many technical problems of a kind of which I do not pretend to have expert knowledge and which, in any event, could not be discussed in this debate. I will just mention one or two. Everybody is agreed, of course, that agricultural production should be expanded. It has not been, perhaps, sufficiently stressed in the Dáil that the disequilibrium in the balance of payments from which we are suffering is nothing new. Except for the war years, there has been a disequilibrium in the balance of payments in this country ever since the Treaty. It was exhaustively discussed in the Banking Commission Report. There are long period forces at work in this country tending towards disequilibrium in the balance of payments, the rise in the standard of living largely depending on imported goods.
The transition from subsistence to an exchange type of agriculture, the urbanisation of the country, the shift in population from food-producing areas to the towns, the revolution in transport which puts a great strain on the balance of payments, are long-period factors tending towards a disequilibrium in the Irish balance of payments. These things could have been tolerated and could have been safely allowed if there had been a corresponding expansion in agricultural production. It is the curious inelasticity and stagnation in agricultural production which has rendered the Irish balance of payments to tend to be in chronic disequilibrium. The trend was interrupted by the war. The critics of the Banking Commission said: "You are talking nonsense. What you have said is not true. You are piling up assets again." The war accumulation has now been spent. We are now back to 1939 with the difference that our external assets are worth less. Therefore, of course, the central problem is the expansion of agricultural production. I do not pretend to have any expert technical knowledge of this matter, but it must remain obviously the central problem of Irish economic policy.
With regard to the expansion of industrial exports — again technical questions are involved—I would like to say that both employers and men in Irish industry have been working very largely in a protected market, and in order to expand industrial exports some change of mind may be necessary on the part of both industrialists and trade unionists. In a country trying to export to the outside world, high labour costs, not caused by higher wages but by restrictive practices, are definitely anti-social, something to be deprecated, something to be attacked and something, if possible, to be ended.
In a general way, everybody will agree that an expansion of agricultural exports and industrial exports are objectives to be desired. They involve investment and this is the last matter which I wish to discuss. This country is largely under-invested. In the debate we had in the Seanad on the repatriation of capital abroad that was generally agreed. If investment is to take place here, it is desirable that it should take place by private investors if that is at all possible. What the Government can do to encourage Irish investment by Irish investors is to make investment attractive. I do not refer merely to protective tariffs but to make investment attractive by a suitable taxation policy, by a proper depreciation allowance in the income-tax code and by taxation of profits not calculated to deter enterprise. A policy of that kind, energetically pursued, might succeed in tempting certain Irish investors to repatriate their holdings voluntarily and invest them at home instead of abroad. It might also tempt certain outside investors to invest in Ireland.
A number of people think that the Control of Manufactures Act of 1932 and the attitude which it represents have gone out of date, that at a time when we want to expand investment and expand exports foreign investors should be attracted, welcomed and encouraged to invest in Ireland rather than being slightly hampered as they are by the Control of Manufactures Act. That is an important point, I think, to which I would like the Minister to apply his mind. When all the possibilities of private investment have been used up I think we must agree that a considerable field of public investment still remains. That, I think, is the core of this discussion— to what degree our public investment can be continued in view of the disequilibrium in the balance of payments.
On that I want to clear up a misunderstanding. I have tried to clear it up for many years in University College and elsewhere, and I will try again. The Banking Commission Report of 1938 has been misunderstood and misrepresented in its representations with regard to deadweight debt. Deadweight debt is nothing more or less than debt which is not financially self liquidating. Any debt which imposes a charge on the Budget is deadweight debt. The distinction between deadweight debt and non-deadweight debt has nothing to say to the desirability of the investment for which the debt is incurred on either political, social or even economic grounds. If it incurs a charge on the taxpayers it is deadweight debt, however suitable the objective is. If it does not impose a charge on the taxpayers it is not deadweight debt, however undesirable the objective is.
The Banking Commission never recommended a cessation of the housing programme, and the Central Bank has not done so. We are all agreed that the building of houses and hospitals is a desirable objective in this country. I do think, however, that this should be said about it: to a large extent it creates deadweight debt. We have to face that. That deadweight debt must be kept down, first of all by the provision of suitable sinking funds, and I think it is only right to refer to the sinking fund provisions of the late Administration in the capital Budget. The expansion of debt provided in the capital Budget was covered by a quite severe sinking fund calculated to extinguish the debt in 30 years. Secondly, programmes of investments of this kind imposing deadweight debt are only tolerable if the cost of pursuing them is minimised, and again I want to refer to restrictive practices by trade unions to put up the real cost of building. The building of hospitals, houses and all the rest imposes a severe strain on the balance of payments. It is admirable; it must be encouraged; but the cost must be minimised and every individual person who has it in his power to reduce the cost and does not do so is adding to the difficulty of the country.
There is another point which I want to make. The Banking Commission's distinction between deadweight and non-deadweight debt is not the same as the distinction between productive and non-productive debt. There are many objects of investments of a productive character in the long run which impose deadweight debt. An investment that increases the national income of the country, the exports and the taxable capacity may in the short run not be self-liquidating. Such things as education and arterial drainage are productive in the long run but they do not impose deadweight debt.
That brings me back to the point I made before, that in this programme of investment it is very important to choose the right period of investment to mature. We may not be able to afford investment which will mature at too distant a date. It is only rich people who are able to build houses of granite, marble or other enduring materials. Poorer people will have to do with houses that will wear out sooner. Equally, a poor nation may not be able to afford very grandiose long-maturing projects but must concentrate on something that will yield a dividend in a shorter period. That is relevant to programmes of land reclamation. Is it better to get a fairly quick return by a small increase on good land or a very long-delayed return by a bigger increase on bad land? These are the types of priorities and considerations that have to be discussed.
I have used the word "priorities" and that, I think, is the essence of this problem which we are debating to-day. Our resources are scarce and limited; our needs are great. The essence of the economic problem is to adjust those scarce resources to those great needs in such a way as to get the most intelligent and most paying results. I think that the capital Budget to some extent did that because it did enable the Dáil during the Budget debate to discuss these matters in public and educate the public. To that extent I think it was a good innovation apart from anything else. The question arising out of priorities of this kind should be decided. The Banking Commission recommended the establishment of an investment council and that investment council has never been set up. The Taoiseach, in a debate in the Dáil, gave reasons for dissent from that recommendation and I admit that there is a good deal to be said on both sides. I also admit that in the end the Government must be the final arbiter of the investments to go forward and of the investments which are to be postponed.
I may throw out possibly in passing the suggestion that the Industrial Development Authority might add this function to its other functions. But, whether it is an investment council or the Industrial Development Authority or the Central Bank or the Executive Council itself that takes these decisions, there are certain standards that must be kept in mind. If a certain investment is to be made and a certain other investment is not to be made there are certain well-agreed standards which I put forward for the Minister's consideration. One, of course, is the effect on exports. Other things being equal, an investment that leads to exports, invisible or visible such as the tourist trade or agricultural exports, is to be preferred to one that does not. The next best thing to increasing exports is to produce substitutes for imports and there is a wide field there. Looking down the import list one sees a number of things which still can be produced at home. Sugar is one thing and the whole question of the development of turf and the electrification of the country are also relevant as all these things might save coal Afforestation and the development of our building materials would greatly help the housing programme.
In the debate in the Dáil, Deputy McGilligan called attention to the fact that a large number of the imports were of things which are necessary for the new houses. He pointed out that it is no use having a housing programme if the houses have not got lavatory basins and things of that kind. To the extent to which these things could be produced at home, the housing programme would press less heavily on the balance of payments.
Another criterion, I suppose, everyone will say, is the volume of employment. I do think we ought to try to be clear about this, that employment for itself is not really a legitimate end of policy, merely digging holes and filling them up again. The public works in the famine period, some, I am afraid, of the so-called public works of the local authorities to-day, give employment but the employment does not really produce any very useful return. Therefore, I do not think that the mere employment content, giving work for its own sake is a desirable criterion of investment at a time like this when we have to choose our investments with such care.
I would be inclined to say that what is required is not so much a reduction in the quantity of investment as greater discrimination in the quality, that our capital resources should be directed towards the best investments and not merely towards any investments, and that some of those standards which I have mentioned will be relevant to making the choice.
Finally, we come to the matter which perhaps is most relevant to this debate and that is: how is the investment to be financed? That will be the Budget problem which the Minister for Finance will have to face. As I said in the very beginning of my remarks, the Achilles heel of the whole Irish economic situation is the insufficiency of savings and the new investment, whether it is in private hands or whether it is in the Government subscribed from public loans, should be as far as it possibly can financed from new savings.
I think it is only fair to say this, that, if you have a sufficient volume of investment, additional savings will be more easy to get in future. Savings, after all, depend on surplus production and the more production we have the more savings we have. That, again, is a long-run view, and in the short run I suggest that the best way to encourage savings is by offering attractive rates of interest, attractive repayment rates, giving complete confidence regarding future taxation and the value of the currency.
I do think that the possibility of attracting outside capital might now be explored. As I said, I think the Control of Manufactures Act mentality has gone a bit out of date. I make two suggestions—they are only suggestions—I throw them out—one is that loans with the interest paid free of tax might attract outside investors and, secondly, the possibility of something like lottery loans might be considered again. They existed in Ireland in the eighteenth century and there is no compelling reason why they should not be resorted to. The Hospitals' Sweepstake has raised a great deal of money by the lottery principle, and I, for one, do not see any moral objection to the Irish Government getting money by appealing to—I will not say gambling—the slightly speculative elements of investors.
When we have exhausted voluntary subscriptions to loans, we now come to the accumulation of funds in the hands of the Government, of the banks, and of the Central Bank. The last thing I want to say is something about those. The Minister for Industry and Commerce in the Dáil argued, and I think convincingly, that the funds in Government hands were not available for Irish investment; they were very largely related to the Post Office Savings Bank account, and therefore liquidity should rank unusually high in the disposition of those funds. Therefore, I do not suggest that the funds should be employed for home investment.
When we come to the commercial banks, I come back to what I said about the Capital Issues Committee and the directions issued. The English banks at the present moment are receiving elaborate directions regarding the type of loans they should encourage, and the type of loans they should refuse from the Treasury in England. I cannot see why the Irish banks should not receive similar directions from the Irish Government or the Central Bank. These directions are not orders; they are not imperative; they are requests. I really do not see why, when banks in other countries are complying with the requests of Governments to help them in investment programmes, the Irish banks should not comply with similar requests.
Finally, I want to deal with the Legal Tender Note Fund in the Central Bank, about which there has been such a lot of discussion in the Dáil. The present provision of the Legal Tender Note Fund is that all the assets must be held either in gold or sterling. In other words, the Irish currency is backed by 100 per cent. of external reserves. That was recommended by the majority report of the Banking Commission, but it was one of the recommendations about which I, as a member of the commission, was never completely happy. It seemed unduly severe. Central Banks in other countries were not required in those days to hold 100 per cent. of external reserves, and the arguments in favour of that recommendation which were made to the commission were two.
It was stated that since sterling left gold in 1931, and since many other currencies had been devalued, the gold holdings of the Central Banks had not been written up to their bullion value and that, therefore, in fact, many of the Central Banks held gold backing for their issues amounting practically to 100 per cent. It was also pointed out that as the reserves in the Legal Tender Note Fund could be held in British Government securities, they were not confined to a mere sterile non-interest-bearing asset, as they would have been if they were confined to gold. These two considerations, I think, convinced the commission that the 100 per cent. cover did not impose an intolerable burden on the Central Bank.
The Currency Act of 1930, amending the original Act of 1927, envisaged the possibility of the Currency Commission, now the Central Bank, on its own motion, with the consent of the Minister and the Oireachtas, varying the assets in the Legal Tender Note Fund, and those provisions were extended by Section 64 of the Central Bank Act of 1942.
Whether that variation is made or not is entirely a matter for the Board of the Central Bank to initiate. Without expressing an opinion whether that discretion should be exercised or not, which to my mind is properly inside the discretion of the bank, if the bank did opt to exercise that discretion with the consent of the Minister for Finance and the two Houses of the Oireachtas, and if it did elect to put 20 per cent., let us say, of domestic assets into the Legal Tender Note Fund, it would not be doing anything very revolutionary or very unprecedented or very extraordinary.
I want to disabuse the impression that has gone forward from the debate in the Dáil that anything in the nature of the inclusion of domestic assets in the Legal Tender Note Fund would represent something very forward or revolutionary in Irish finance. Other Central Banks have large quantities of domestic assets. At present, the issue department of the Bank of England contains nothing but domestic assets except a very small quantity of gold against the total of the domestic issue. If a decision of that kind were come to, it might not help the country very much but it would not be the end of everything. It would not represent a break with the link with sterling or anything very revolutionary. It may be thought that people who make that proposal have in mind something very new and very revolutionary. All they are suggesting is that we should do in regard to our Central Bank what other Central Banks have already done. It is a proposal of minor importance which has been exaggerated entirely in the course of this discussion.
I have explored all the source of funds of a voluntary lending character —new savings, outside investors, public funds, commercial banks and the Central Bank. Suppose something still remains to be found. It has been suggested in the course of the debate in the Dáil that what remains necessary for the programme of investment could be raised by taxation. That is an extremely bad suggestion. To finance capital development by means of taxation imposes forced savings on the community. There are only two classes of taxes in this country that could be raised—(1) the most productive, those that press on the poor, and (2) those that do not press on the poor. If you attempt to raise taxation on the poor to finance capital investment you are putting the real burden of the saving on the people who are least able to bear it. Therefore, I rule out indirect taxation. That leaves direct taxation—the income tax. An increase in the rate of income tax would probably bring some funds into the Exchequer which could be allocated to investments but the adverse effect on incentive and the effect on the amount available for voluntary saving would probably be at least as great.
I think this is the occasion on which to say that the whole income-tax code in this country is unfair and unsuitable from beginning to end. I think that an increase in the income-tax in this country would strike at a very small part of the population while a very large part of the population escapes scot free. The small section of the population who do pay income-tax have paid more than their proportionate share to finance the running of the country in recent years. To impose an additional burden on that small section of the population, while exempting many of the richer rural sections of the population, would be very unfair.
As regards business people, industrialists, the present depreciation allowances are generally admitted to be too low. Capital investment is being impeded by the inadequate allowance. Therefore, as regards income-tax on industrial profits, what is wanted is not more taxation but less taxation.
Finally, as regards private people, an increase in the rate of income-tax might quite frequently—it has happened in England and it might happen here—cause people to live on capital. To that extent it would cause people to live on savings. Therefore, instead of imposing saving it would have the contrary effect and be directly inflationary. I suggest strongly to the Minister that whatever additional taxation is imposed this year should be used for balancing the Budget, not overbalancing it: that the Central Bank recommendation of a balanced Budget should be followed but that a Budget surplus is inappropriate and would impose too great a burden on the country.
I want, very briefly, to summarise the main points of what, I am afraid, has been a long speech. In the first place, I suggest that the disequilibrium in the balance of payments cannot be allowed to drift along. It must be reduced—not necessarily abolished in one year. It must be controlled. We want some compromise course between panic on the one hand and complacency on the other hand. We want some course which will get this movement into control—which will canalise it and prevent it from getting out of hand and injuring us too much. In the short run it may be necessary to impose a restriction on the import of commodities of a luxurious character and that can quite easily be done. It is the less effective way, but it would have an immediate effect.
In the long run, agricultural and industrial expansion should be the objective of Government policy. This expansion leads to investment. With our small capital accumulation, this investment must be very carefully chosen. The priorities must be very carefully investigated. Everything must be done to stimulate saving in the community. That is the real trouble— the insufficiency of saving. Whatever residual gap remains must be bridged by judicious, deliberate and controlled use of external reserves. Just as I said regarding labour—people in jobs— no particular level of external reserves is sacrosanct or untouchable. External reserves must be used, but they must not be used up. They must be used intelligently. They give us a great advantage. By dissipating them we lose that advantage. By using them intelligently we reap that advantage. I said at the beginning that a lot of difficulties in this country flow in from the outside world. We are living in a world of inflation—dollar inflation, and sterling inflation which have flowed in here. We are suffering from it. To a large extent we are the victim of circumstances over which we have no control.
I should like to end on this note: that even small countries, by judicious policy inside their shores, can help to steady the economy of the world as a whole. Every country that solves its difficulties in a panic manner by simply slashing at imports has the effect of producing deflations elsewhere, causing difficulties and unemployment abroad.
Therefore, as a good European country, we should have regard in the management of our affairs not entirely to our own interests but to those of our neighbours as well. A policy of controlled expansion, a policy of maintained employment, maintaining investment, will do good at home and will not do harm abroad; whereas sudden panic, sudden restriction of imports, will bring a lack of confidence, unemployment and emigration, and will brand us as being selfish members of the European community.
