Kieran Allen


Is southern Ireland a neo-colony?


6. The peculiarities of southern capitalism

OUR ARGUMENT so far has been that southern Ireland must be looked on as part of the world capitalist system. It is not tucked into some corner in a neo-colonial nexus. It should not be seen as part of some mysterious geographical entity called the “periphery”. It is shaped by the way in which it is involved in the booms and slumps of the international capitalist order.

This does not, of course, mean that it joins the world system as an equal member. There is no equality on offer from capitalism. It is a vicious competitive system geared to accumulation for the sake of accumulation. Within the world order there is a hierarchy of states. Britain is still one of the lynchpins of the NATO alliance – the military club of the Western imperialist powers. Despite its protestations of neutrality, southern Ireland accepts the dictates of this club. It grants rights of overflight to US aircraft, allows the CIA secret landing facilities at Shannon, monitors the movement of Russian aircraft and ships. As part of the United Nations, its troops enforce peace on imperialist terms. In Lebanon the UN, with Irish participation, allowed Israel to consolidate a buffer zone around its borders.

Arguing that southern Ireland cannot be viewed as a neo-colony, therefore, by no means implies that it has escaped the chain of imperialist command that still dominates the world. It merely suggests that the principal mechanism by which it is integrated into the world order is the control the bourgeoisie exercises over its own state.

Nor does our argument mean that southern Ireland has broken from the legacy of underdevelopment and backwardness. There seems no good reason to believe that it will develop gradually and peacefully along the tracks made by the more advanced countries. As Trotsky put it: “The development of historically backward nations leads necessarily to a peculiar combination of different stages in the historic process. Their development as a whole acquires a planless, complex, combined character.” [1]

It is necessary to look briefly at the peculiarities of southern Irish capitalism before returning to the political conclusions for revolutionaries in Ireland today. There are four issues to be considered.


1. State subsidy of private capitalism

Underdeveloped countries have adopted different strategies for trying to overcome their backwardness. The “success” of Stalin’s model in Russia in the 1930s led many to look towards a state-capitalist model. Sections of the intelligentsia came to power on the backs of nationalist movements in Asia and Africa. Their left rhetoric was no more than an adaptation of the Stalinist road to development, where the state mobilised huge resources in society and directed the process of capital accumulation.

Direct state ownership of industry was not the only option available. In South Korea, for example, industry was left in private hands but the state directed the process of accumulation through forced mergers and the granting of monopolies in particular sectors.

Neither of these options was used in southern Ireland. Fianna Fail’s base among the small farming class meant the state could not be used to extract a surplus from agriculture with which to begin capital accumulation. The absence of great landowners, due to the partial solution of the land question in the nineteenth century, had removed another channel through which a surplus might be extracted from the countryside.

The only available option was therefore extreme state subsidy of private capital. Scarce capital, both native and foreign, had to be induced into southern Ireland by state subsidies. Southern Ireland spends 5.3 per cent of its GNP on industry, compared to an EEC average of 3 per cent. [2] The Department of Industry and Commerce estimated that 371 million was spent directly by government agencies on industry in 1986. [3]

But that is literally only half the story. Tax rates for the rich are extra low. Tax rates on capital and wealth are among the lowest in Europe. Tax on manufacturing profits in southern Ireland stands at a nominal 10 per cent. This is absurdly low when compared to more advanced countries.

Table 7: Corporation Tax rates in selected countries (percentages)















Every developing capitalist country has to undertake the building of a basic infrastructure if it is to function effectively. In the 1980s the southern state launched a major investment programme to modernise its telecommunications network to suit industry. The low taxes on capital and wealth ensure that the cost of these investments is met almost exclusively by the working class. Taxes on capital make up a mere half of one per cent of total taxation. The wealth tax made a mere 0.00036 per cent. [4]

One estimate of the amount of tax foregone by the Irish state in order to subsidise capital has been an astounding 818 million in a single year. Table 8 shows the Department of Industry and Commerce breakdown of how the rich were let off taxation in 1986 alone:

Table 8: Gross value of tax subsidies to industry ( millions) [5]

Tax based leasing


Section 84 lending


Accelerated depreciation of buildings, plant and machinery


Export sales relief


Shannon relief


10 per cent Manufacturing Tax rate


Reduced rate of corporation tax for small firms


Business Expansion scheme




This high state subsidy accounts for the huge tax burden on the working class. It also explains why southern Ireland is the only country in the world to have produced an anti-tax campaign with a decidedly working-class character.


2. High levels of parasitism in the Irish bourgeoisie

In more developed economies capital flows, under conditions of growth, relatively easily from credit institutions towards industry. Not so in southern Ireland. Its underdevelopment and low capital base mean that profit margins in industry can be lower and less reliable than in other sectors. A number of pointers indicate the high level of parasitic activity among the bourgeoisie.

The Irish stock exchange has an extraordinarily poor record of raising funds for industrial capital. In the period 1969 to 1981 total additional funds in equities (company shares) amounted to only 223 million. By contrast, double that figure was invested in speculation in commercial property. Only 5 million was raised as funds for new manufacturing industry. [6]

The same story applies to funds raised by life-insurance companies and pension institutions. These tend to invest in government stock rather than in industry. Table 9 shows the different patterns in Ireland and Britain:

Table 9: Pension fund investment 1980 (percentages) [7]



Cash and deposits



Government stock



Fixed-interest stock









It will be seen that government stock accounts for 40 per cent of the money invested by the pension funds. Government stock also accounts for 99 per cent of the dealings in the Dublin Stock Exchange. The plain truth is that the Irish rich have a massive interest in the maintenance of the Irish national debt. It provides their life blood.

We have already noted how left nationalists have ignored the amount of public debt held in the hands of Irish residents. The Irish banking network as a whole has invested 2,771 million directly in government paper and a further 983 million with the Central Bank. [8] All of this bears a sizeable rate of interest. This chunk of Irish capitalism has much to fear when any demands are raised to cancel or even postpone the national debt.


3. The internationalism of southern capital

Another feature of southern capitalism is the manner in which it is forced to internationalise very quickly. A number of firms have developed in the south behind protectionist barriers. But as soon as they reach a certain maturity, they are forced to connect with foreign capital and seek foreign markets. This is not peculiar to Irish capitalism – but the speed with which this “outgrowing” of the Irish market takes place is.

The idea that southern capitalism is composed of chipshop owners and second-hand car salesmen is a real joke in this context. A number of small Irish multinationals have developed through their links with foreign capital. The best known is Smurfits, the paper and print company which has tried to break unions in the US and Britain. It currently ranks among the world’s 500 top companies.

Guinness Peat Aviation has won a place on the world market in leasing aircraft; Allied Irish Banks has been heavily involved in lending to Third World countries; Cement Roadstone has operations from Spain to North America; building companies such as McInernies are involved in the Middle East. These companies are small and in many cases weak by international standards – but only the blindest nationalist who wants to deny the class contradictions in Irish society would dispute their relevance.

One of the major problems that such companies face is that the Irish state is in a weak position to operate on the world stage as their protector. Blocks of capital, no matter how large or small, have to relate to particular states for their security. The Irish state machine is not an impressive bet. Increasingly, therefore, these sections of Irish capital favour either a more open espousal of US hegemony or, more likely, the building of an EEC super-state.


4. The emergence of small Irish capital

The other side of the coin of the internationalisation of southern capital has been the emergence of small-scale southern capital. These companies have grown on the coat-tails of the multinationals in Ireland.

According to the Industrial Development Authority there are almost 5,000 companies in the small-business category; they employ more than 39,000 people, equivalent to a fifth of the total manufacturing workforce; and 70 per cent of these companies have received grants from the IDA. [9]

The shift towards building up Irish capital has led to even more attractive hand-outs for those in the small business category. Employers with fewer than 15 workers can get a grant of up to 5,000 a year for each employee. Those that employ more than 15 workers can expect 9,000 a year for every employee. This is in addition to 100 per cent grants for training costs, 90 per cent grants for training management skills, rent subsidies and research grants.

It is precisely from these sections of small native capital that the day-to-day managers of the political system in the south are drawn. Parties like Fianna Fail – at rank-and-file level as well as leadership level – are full of these small-time capitalists and local members of the middle class. They are the ideal representatives for harmonising the interests of native and foreign capital in Ireland. They understand that they have no future beyond a link with the multinationals.

Every time there is a dispute over environmental concerns or strike action at the plant of a multinational, which then threatens to pull out, the local “community” is mobilised in support of the multinationals by these representatives of petty capitalism. None better than Fianna Fail understand these simple truths.

All the peculiarities of southern capitalism draw to one central conclusion: there is an identity of interest between native and foreign capital. Both share in the massive state subsidies of capital; foreign capital does not compete with native capital for control of the domestic market; the structure of southern capitalism in terms of its large and small firms makes for absolute co-operation with the multinationals and for enthusiasm about the EEC.

In the early 1920s Leon Trotsky had to conduct a vigorous campaign against the emergence of the “stages theory” during the Chinese Revolution. Stalin had argued that the Chinese working class should first side with the progressive national bourgeoisie in its fight against foreign capital in China, since bourgeois democracy was a stage that had to be passed through on the road to socialism. Trotsky argued that whatever resentments this bourgeoisie might have about the robbery of China by imperialism, they feared the working class more. Even though China was a direct colony of the various imperial powers, only the working class could complete the fight for national liberation. Trotsky was proved right, for once the bourgeoisie had gained power they turned on their working-class supporters, massacring thousands.

In Ireland in the 1980s, there is no argument on the question. The southern bourgeoisie makes not the slightest gesture towards support for the struggle being waged in Northern Ireland. The claim that they suffer from neo-colonial structures and that their small-time representatives might one day join a broad front for “genuine” national independence would be absolutely laughable if history did not tell us where such political strategies lead.




1. L. Trotsky, The History of the Russian Revolution (Pluto Press: London 1977), p.27.

2. European Commission, First Survey on State Aid in the European Community (1988).

3. Department of Industry and Commerce, Review of Industrial Performance (Dublin: 1986), p.84.

4. National Income and Expenditure 1988.

5. Figures from Review of Industrial Performance.

6. National Economic and Social Council, The Role of the Financial System In Financing the Traded Sector (Dublin 1984), pp.103-6.

7. Figures from The Role of the Financial System in Financing the Traded Sector.

8. Central Bank Quarterly Bulletin, Summer 1989, Table C3.

9. IDA Annual Report 1987, p.19.


Last updated on 6.3.2002