State Capitalism in Action

By KEVIN NOWLAN The State, especially in recent years, has undertaken a large and increasing measure of intervention in.the business sphere, so that at the present time the aggregate of such activities has become a factor of the first importance in relation to the conduct of business in. the Free State. The nature of the intervention varies widely in different cases, from a high degree of control down to merely minor regulations.

SINCE 1938—when these words appeared in the Banking Commission Report—the scope of State intervention has been expanded still fur- ther. Today the Government of the Republic. through its State-owned private companies, statu- tory boards and corporations, manufactures or markets a remarkably wide range of goods, in- cluding sugar, butter, toffee, children's dolls, knitwear and tweeds, steel bars, condensed milk and glucose (from potatoes)—to take a random selection.

Less surprisingly, State-owned bodies -control the production of electricity and peat f uel, and run the railways, canals and a road-transport service. A State shipping company owns virtually the whole of Ireland's deep-sea merchant fleet. The State has a direct interest in the insurance business, and another State company is employed in the task of exploring for minerals.

State institutions, too, provide capital assist- ance for new industrial undertakings and so can, in practice, influence the character and scope of private investment in industry. Only banking as such has largely escaped the State's encroach- ment. The note-issuing Central Bank still remains very much a marginal factor in Irish economic life.

* .* * The reluctance of successive Irish Governments to touch banking, despite occasional and noisy demands for State control of banking and credit, provides a clue to the motives governing State intervention in the Irish economy. The Irish State is not spurred on by Socialist theories. Socialism is frowned on by all Irish political parties, in- cluding the Labour Party; and every Irish Minister for Industry and Commerce finds it necessary from time to time to praise the virtues of free enterprise.

The State owns so much because the rate of private investment is so low and the rewards of private enterprise in large-scale undertakings so limited. If the State did not make sugar from beet, build the turf-fired electric stations and put the ships on the sea, who would?

State enterprises are not necessarily burdens on the Exchequer. In a number of cases they can show a modest profit, though not usually on a scale which would attract the cautious private investor if the undertakings were floated as ordinary public companies. In terms of output the record of many of the State enterprises is a good one. The Electricity Supply Board in the years since it was established in 1927 has increased its sale of electricity from 48,000,000 to 1,352,000,000 units. In 1927 only 2 per cent. of the country's electricity was produced from native fuel. Now the figure is almost 70 per cent.

Again, Irish Shipping Limited and the short- distance air line, Aer Lingus, have a very respect- able record as carriers, Irish Shipping earning profits of £1 million last year in the highly com- petitive world shipping market. Bord na Mona, the peat fuel development authority, has helped to make peat a practical fuel in the production of electricity and it is a tribute to its efficiency that the brewing firm of Arthur. Guinness, one of the few large private undertakings in the country, has recently offered to co-operate with it in financing the board's scheme to increase the production of peat briquettes.

Such records of achievement cannot, however, disguise the fact that this whole complex of State companies and boards in the Republic has created its own problems. The State-owned enterprises have multiplied primarily because of the slow- ness of the Irish investor to take chances. Had the State merely been content to take the place of the private investor and see to -it' that the State companies were conducted strictly as busi- ness enterprises no very serious criticism could be made of them. But there are signs that succes- sive Irish Governments have been tempted to use these organisations to 'serve social and welfare purposes which have no real relevance to the task of running a successful business.

It is now recognised that the post-war plan to increase the output of electricity was over- optimistic in its estimate of the rate of increase in demand. The ESB has wisely curtailed its pro- gramme for building more power stations. It is, however, rather difficult to reconcile this action with the decision to proceed with the building of small turf-burning and hydro-electric stations in the west and north-west of the country if the policy of the board is to keep its production costs as low as possible. The decision to build these marginal stations was presumably taken for social rather than for economic reasons. Succes- sive Governments have been anxious to assure the poorer western counties that they are not being neglected. The building of the power stations is a gesture of good will, the cost of which the con- sumers of electricity, rather than the taxpayers as a whole, may yet have to bear.

The railways are an even more striking illustra- tion of how social and political considerations can become entwined in the costly business of running a railway system which is far too elaborate for Ireland's present-day needs.

Their defects have, long been known, and though the State-owned transport board, CIE, has drawn some £6,319,000 from the Exchequer to meet operating losses alone in the period 1949-56, relatively little has so far been done to rationalise the service by closing uneconomic lines and by reducing the number of stations. Local opposi- tion to the closure of branch lines, with its political implications, and the fear of redundancy among railway employees appear to be the deter- mining factors in slowing down the process of re- organisation. There are, however, signs of a strengthening of the present Government's atti- tude towards reorganisation. In this they may have been influenced by the thorough pruning of the railway system which has been carried out by the Northern Ireland Government in recent years.

Party political programmes, too, can influence the workings of a State-owned corporation. An example of this is provided by the history of the Irish transatlantic airline, Aer Linte Eireann.

In 1947, when Mr. de Valera was in power, Aer Linte was incorporated as a private company owned by the State. Some £1,425,000 was in- vested out of public funds,,, aircraft were pur- chased and staff recruited. Then early in 1948 a new Government took office, the aircraft were sold and Aer Linte remained an airline without aircraft. Now at last in 1958, with Mr. de Valera again in power, planes. on charter from an American line, but in the colours of Aer Linte, are to fly the Atlantic.

The problem of policy-making for State- owned corporations is, of course, not merely an Irish question. Students of modern administrative practice and law can find parallels to the Irish illustrations I have cited in other countries too. But what makes the problem so pressing in the Irish context is the fact that State-owned enter- prises control so large a sector of the national economy and as a result play a considerable part in determining production costs in Irish industry as a whole.

It is obvious that no satisfactory solution has yet been found to the problem of how to give the maximum measure of autonomy in business matters to the State-owned companies while pre- serving some measure of ultimate parliamentary control over them. At present the measure of par- liamentary, as distinct from departmental, control over these enterprises varies enormously. It- is strongest in the case of the statutory corporations and weakest in the case of State-owned private companies. It is, however, a welcome sign of a growing concern about the State companies and their place in the Irish economy that, in a recent parliamentary debate, both the Minister for Finance and his predecessor from the Opposition benches should have been in agreement on the need for a review of the whole problem