REDS – Die Roten  >  Ireland | Irland  >  Neo-Colony

Kieran Allen

Is southern Ireland a neo-colony?

3. Does Britain dominate the south?

THE DECLINE in British influence over the economy of the south is evident in several areas. Those who argue that the south is a neo-colony of Britain have normally cited the pattern of trade, the level of British investment in industry, and the dominance of British capital in the banking sector.

Trade: A neo-colonial pattern often involves the underdeveloped country supplying primary goods to the metropolitan power in return for manufactured goods. This relationship is established because the imperialist power has won control over the direction of trade. In the Irish case, the British market remains important but the general pattern of trade is completely different from that supposed by a neo-colonial link. This is shown in two ways. First, the composition of Irish trade has switched dramatically from agricultural to industrial products:

This table shows that until 1955 more than three-quarters of Irish exports were primary goods. De Valera’s charge that the country was still an “out-garden” for Britain was still fundamentally true. But with the industrialisation programme that began in the early 1960s this shifted dramatically. The dominance of foreign-owned industry in the export drive is shown in the growth of chemicals and machinery, where foreign capital is strongest. However, the growth of other industrial and services exports shows that the shift away from primary goods is wider.

There has also been a dramatic shift in where Irish exports go:

From the foundation of the Irish state until the mid-1950s, nine-tenths of Irish exports went to Britain. Since the 1960s this has changed, and exports to Britain have stabilised at about one-third of all Irish exports. There has been a dramatic growth in exports to the EEC and to the United States. Imports from Britain have also shown a decline. In 1955 these accounted for 53 per cent of all imports. Today they have declined to 42 per cent. [3]

In terms of the pattern of trade, therefore, there has been a loosening in the close, neo-colonial ties between Britain and Ireland.

British capital in Irish industry: In the 1960s, British capital was the most dominant form of foreign capital that entered the south. Since then there has been a major shift in the source of foreign capital. British capital as a proportion of all foreign capital being invested annually in manufacturing industry has declined to very small proportions. After 1976, Britain has provided less than one-tenth of the foreign capital coming into Ireland. Since 1978 German investment has been consistently higher. The largest proportion of foreign capital now comes from the US.

Table 3 sets out the Industrial Development Authority figures on planned annual investment of foreign capital in Ireland. Naturally, there is often a gap between the plans and their realisation. The amount of investment that then remains in Ireland long-term may be even less. Nevertheless, the table illustrates the general trend, particularly as there are indications that British investment tends to be more unproductive than other sources.

Even these figures do not fully indicate the dramatic decline in British investment. In the early 1960s, it has been estimated, two-thirds of the major British companies had subsidiaries in southern Ireland. These included such household names as Dunlop, Rowntree, Cadbury and Clarkes. Yet it has been precisely such firms that have borne the brunt of the closures and redundancies in recent recessions. These companies looked to the Irish domestic market and have often shown the same patterns of closure as the larger Irish firms. Of the British firms operating in manufacturing in 1973, 43 per cent had closed down by 1981.

Today the number of workers in the manufacturing subsidiaries of British companies is 16,754. [5] This figure presents real difficulties for those who wish to argue that Ireland is Britain’s neo-colony. Some of the larger Irish state companies employ more than all the British-owned companies combined.

British involvement in banking: Faced with these simple facts, left nationalists base their case for characterising southern Ireland as a neo-colony on the features of the financial system. It is claimed that British finance capital dominates the banking network and that this in turn gives it control of the economy as a whole. Thus the former leadership of the small revolutionary group People’s Democracy argued that “The Irish banks are completely integrated into and dependent on the financial institutions of the city of London.” [6]

Exact figures on share ownership of the banking network are difficult to obtain. What is available indicates that British capital may be represented more in the banking sector than elsewhere in the Irish economy, but it is by no means dominant. There are 22 licensed foreign-owned banks operating in Ireland at the moment. They control 21 per cent of the total assets of the banking sector. There is no indication that British banks make up the bulk of these foreign banks.

Most of the bank assets are in the hands of the “associated banks”. The consolidated assets of all licensed banks grew fourfold in the ten years to 1986, but the biggest expansion was by the two major “associated” banks, the Allied Irish Bank and the Bank of Ireland. These claim that 87 per cent and 83 per cent respectively of their shares are owned by Irish residents. Since many of these may be nominees, holding their shares on behalf of others, it is difficult to assess their true ownership. However, light was thrown on the ownership pattern of the Allied Irish Bank when it attempted a new share issue in connection with its take-over bid for the First Maryland Bank in America. A prospectus sheet showed that its shares were held in the following manner:

These figures are only for the large shareholders and disclose the holders of only 50 per cent of the total shares. Nevertheless they are revealing. Ulster Bank is the only recognisably British company – it is a subsidiary of National Westminster. IBI is the holding company of the Bank of Ireland and owned the shares on behalf of unknown others. Irish Life Insurance is 90 per cent owned by the Irish state.

A more important issue than ownership is whether it can be argued, as nationalists traditionally have, that the banks function to channel funds from Ireland to Britain. This seems highly unlikely. For one thing Ireland itself provides a declining share of the profits made by the major Irish banks. Approximately half of the profits of the two major Irish banks are generated outside Ireland.

There is evidence that increased Central Bank control over the banks since 1971 has coincided with a move away from an orientation on the British economy. In the 1940s the nationalists could correctly point to the vast sums of money invested by Irish banks in British government bonds. The former republican leader Sean McBride complained about this pattern several times as a government minister in 1951 but could do little about it. However the changing structure of the Irish economy since the 1960s has led to a break in the close financial relationship with Britain.

Table 4 shows the shift in holdings in Irish government bonds. In 1945 the vast majority of these were held by foreign banks; today the vast majority are held by Irish banks. The simple reason is that the Irish state, in its drive towards industrialisation, has provided ample opportunity for Irish bankers to make profits.

There has also been a shift in the external currency holdings of the banks. Up to 1967, the external assets of the major banks were held in sterling. Thus £300 million out of their total external assets of £340 million – 88 per cent-were held in sterling. However by 1987 the proportion of sterling in the foreign reserves had fallen to 19 per cent. T K Whitaker, in his autobiography Interests, expressed the new-found confidence of Irish capitalism. The diversification of Ireland’s external reserves was undertaken, he claims, “for the preservation of freedom and discretion in economic policy”. [8]

The culmination of these policies was the break with sterling in 1979 when southern Ireland joined the European Monetary System (EMS). Ten years later the British ruling class are still split on the issue of whether they too should join the EMS. Proponents of the neo-colony theory who argue that Britain’s financial control is the key factor in the relationship between Britain and southern Ireland have no way to explain these developments.

Start of the page

Notes

1. National Economic and Social Council, Ireland in the European Community.

2. Ireland in the European Community.

3. Ireland in the European Community, p.79.

4. Figures from Industrial Development Authority annual reports.

5. Industrial Development Authority Information.

6. People’s Democracy, Ireland for Sale (Dublin: no date or publisher) p.5.

7. Figures from Davy Kellegher McCarthy, The Control of Banking in the Republic of Ireland.

8. T.K. Whitaker, Interests (Institute of Public Administration: Dublin 1983), p.141.

Start of the page

Last updated on 17.7.2001