In this NERI blog and its associated Long-Read no. 10, Michael Nevin, author of Edward Nevin: An impression of his life, times and legacy, reviews Edward Nevin’s published research on the Irish economy when he worked as a Senior Research Officer at the Economic Research Institute (ERI) in Dublin between April 1961 and September 1963, and considers its relevance to contemporary issues.
The most important economic question facing the Irish Government during the 1960s was whether to join the European Economic Community (EEC), and dismantle the system of tariffs and import controls that protected Irish agriculture and manufacturing at that time.
In September 1961, Edward Nevin set out the issues that needed to be considered in Ireland and the Common Market: Some Basic Issues. This paper pointed out that an increase in Irish exports to the EEC would not of itself guarantee an improvement in economic welfare, highlighting the restrictive assumptions on which the economic case for free trade is based. To help inform government policy, ERI Research Papers Nos 3 and 9 provided hard data on the impact of Irish tariffs on government revenues and consumer prices, and showed that the removal of tariffs on intra-EEC trade would be expected to result in lower consumer prices at a modest cost in lower tariff revenues, and thus enhance economic welfare.
While Ireland’s application for membership of the EEC was the most pressing issue during the Sixties, many other matters were covered in early ERI Research Papers. These included the impact of Ireland's public debt on her economic development (ERI Paper No 11), Irish wages between 1946 and 1962 (Paper No 12) and the capital stock of Irish industry (Paper No 17).
Sixty years on, the conclusions of Edward Nevin’s research as set out in these early ERI research papers remain relevant to contemporary economic issues.
- The impact of tariffs on the Irish economy. The issue facing Ireland today is the inverse of that faced during the 1960s. Then the question was the likely impact of lower tariffs if Ireland joined the EEC; now it is the potential impact of higher American tariffs on Irish exports. If the results are also the inverse, one would expect higher American tariffs to benefit investors and workers in the protected sectors in the USA (at least in the short term) but cost American consumers more in higher prices and hurt exporters to the US, resulting in a net welfare loss. One advantage Ireland may have, compared to other EU exporters, is that services, and in particular tourism, are major foreign exchange earners, which may not be hit as hard by US tariffs as industrial exports.
- Policies to raise real wage levels in Ireland. Edward Nevin’s research showed that wages per employee were correlated with output per employee (Paper No 12), while output per employee was correlated with capital employed per employee (Paper No 17). From these two findings it follows that an increase in capital stock per worker will tend to increase real wages per worker. Following from this, any government wishing to increase real wages should consider incentives to investment. A Research Institute updating the 1960s research today could examine the comparative cost-effectiveness of different investment incentives in promoting investment, growth and jobs.
- The impact of minimum wage policies. The findings of ERI Paper No 12 suggest that, in a contemporary context, efforts to increase the real wages of the lowest paid workers – for example, through minimum wage policies – may be successful in improving their relative position if trade unions accept a limited narrowing of pay differentials. However, governments need to be careful not to increase minimum wages at rates well in excess of the increase in output per worker, as higher employment costs may cause a rise in unemployment.
- The impact of National Debt levels on economic performance. ERI Paper No 11 suggests that there is nothing to fear from public debt per se – it all depends on the uses to which funds raised by the government are put – nor did that Paper find any evidence of a specific inflexion point at which a higher ratio of National Debt to National Income became more costly to finance.
The ratio of National Debt to GDP is significantly lower in Ireland than in the UK today, at less than 45 per cent and falling compared to close to 100 per cent and rising in the UK. The Irish Government’s borrowing costs are no longer higher than the UK’s, as they were between 1927 and 1962 – at the time of writing, the yield on ten-year Irish Government bonds stands at just over 2½ per cent compared to just over 4½ per cent on ten-year UK gilts. Average real incomes in the Republic, which during the Fifties and Sixties were only two-thirds of those in the UK, are today somewhat higher, with the gap between the two tending to increase (in Ireland’s favour). The important work of Irish research institutes in helping to inform debate on economic policy in the Republic continues; but today it is conducted in a more benign economic environment than sixty years ago.
Blog by Michael Nevin, Director, Nevin Associates Ltd, Edinburgh, January 2025