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1925 - 1932: Building the Irish Free State and Northern Ireland Economies
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After the civil war, large parts of the Irish Free State's infrastructure was in turmoil. One of the first tasks of the new Prime Minister, W Cosgrave, (of the moderate Cumann na nGaedheal party) was to reconstruct the bridges and railways which had been damaged or destroyed during the war. Other tasks which were dealt with were (a) to abolish both the British and the Sinn Fein legal systems and replace them with a new judicial system. (b) to create a civil service (c) set up local government and services and to abolish the old workhouses (d) to reduce the numbers of the swollen army and set up a police force (e) to make education compulsory and introduce Irish language lessons to all schools (f) to help the poor farmers who made up 70% of the country's population and (g) to set up an industrial base. The government announced freedom of religion for all citizens and a new flag was adopted for the country to reflect this. The three vertical bands of colour were orange (Protestants) green (Catholics) and white (peace between them). In 1926 Radio Eireann was set up and in 1929 the Shannon Scheme was completed, which harnessed the hydro-electric potential of the river Shannon to supply the new country with much-needed electricity. At the time the Shannon scheme was capable of supplying almost all the country's electricity needs, although demand increased steadily so that more power plants were needed later.

All during this period, the leader of the anti-treaty Republicans, Eammon de Valera was in the sidelines. He was against the way that Irish MPs still swore allegiance to the King of England and that the Free State was part of the British commonwealth. Realising that no party stood for this view-point de Valera led away a delegation of Sinn Feiners who formed a new party, Fianna Fail, who stood in the 1927 election. It won 42 seats in the Dail as opposed to Cumann na nGaedheal's 47. (Fianna Fail was barred from the Dail for a time until it finally agreed to take its oath of allegiance to the King.) However Cosgrave just managed to hold the balance of power with a coalition government. In 1930 the Free State joined with Canada and South Africa, (two other Commonwealth nations), and managed to force Britain into passing a law that permitted them to repeal any law that the UK had passed for them before granting independence. This meant that, in theory, the Free State government could repeal the Anglo-Irish Treaty and become fully independent, although Cosgrave was not ready to do this. Cumann na nGaedheal's final loss of power occurred in 1932. The IRA had regrouped and begun campaigning again for a fully independent Irish republic. Violence within the Free State increased and, by passing special laws to combat the IRA, Cumann na nGaedheal only succeeded in making itself less popular. The path was now clear for Fianna Fail to take over the Free State government.

Meanwhile Northern Ireland had been building up its own economy over this period. It had the advantage that, being part of the UK, there were no tariffs on trade with Britain and the province also got economic aid from Britain. There was a fair amount of trade with the Free State, although this often took the form of smuggling, particularly in agricultural produce. The problems began in the late 1920s when the worldwide recession began after the Wall Street Crash. The Belfast shipbuilder Harland & Wolff, which had once been the largest in the world and had built the "Titanic", was being superseded by yards in other countries and the linen industry was facing competition from new synthetic fabrics. The number of unemployed in Northern Ireland rose steadily and in 1932 there were 72,000 unemployed people in Northern Ireland out of 1,300,000 people. The Stormont government soon found it hard to make ends meet.

At this point the cash-strapped Stormont government decided to cut all public-sector pay by 10%, along with all benefits. To working class people who were already poor, this was scandalous. It brought together both sides of the political divide in the province and mass rallies were held attended by Unionists and Nationalists alike. However, Stormont banned the marches and sent in police to break them up. This resulted in mass rioting, which was worst in west Belfast where the Protestants of Sandy Row and the Catholics of the Lower Falls rioted together against the police. When some people fired live rounds at the police, the police returned fire killing 2 protestors. In the end the government relented and the rioting stopped.

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