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The European Economy since 1945

The European Economy since 1945: Coordinated Capitalism and Beyond

Copyright Date: 2007
Edition: STU - Student edition
Pages: 520
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  • Book Info
    The European Economy since 1945
    Book Description:

    In 1945, many Europeans still heated with coal, cooled their food with ice, and lacked indoor plumbing. Today, things could hardly be more different. Over the second half of the twentieth century, the average European's buying power tripled, while working hours fell by a third.The European Economy since 1945is a broad, accessible, forthright account of the extraordinary development of Europe's economy since the end of World War II. Barry Eichengreen argues that the continent's history has been critical to its economic performance, and that it will continue to be so going forward.

    Challenging standard views that basic economic forces were behind postwar Europe's success, Eichengreen shows how Western Europe in particular inherited a set of institutions singularly well suited to the economic circumstances that reigned for almost three decades. Economic growth was facilitated by solidarity-centered trade unions, cohesive employers' associations, and growth-minded governments--all legacies of Europe's earlier history. For example, these institutions worked together to mobilize savings, finance investment, and stabilize wages.

    However, this inheritance of economic and social institutions that was the solution until around 1973--when Europe had to switch from growth based on brute-force investment and the acquisition of known technologies to growth based on increased efficiency and innovation--then became the problem.

    Thus, the key questions for the future are whether Europe and its constituent nations can now adapt their institutions to the needs of a globalized knowledge economy, and whether in doing so, the continent's distinctive history will be an obstacle or an asset.

    eISBN: 978-1-4008-2954-5
    Subjects: History, Economics, Business

Table of Contents

    (pp. xix-xxii)
  2. ONE Introduction
    (pp. 1-14)

    In the second half of the twentieth century, the lives of Europeans were transformed almost beyond recognition. In 1950, many of the continent’s residents heated their homes with coal, cooled their food with ice, and lacked even rudimentary forms of indoor plumbing. Today, their lives are eased and enriched by natural-gas furnaces, electric refrigerators, and an array of electronic gadgets that boggles the mind. Gross domestic product per capita, what the income of a typical resident of Europe will buy, tripled in the second half of the twentieth century. The quality of life improved even more than suggested by this...

  3. TWO Mainsprings of Growth
    (pp. 15-51)

    This chapter takes a closer look at the facts to be explained. Table 2.1 presents an overview of Europe’s economic growth from 1820 to 2000. Its figures for aggregate gross domestic product (GDP) show that Western Europe grew more than twice as fast from 1950 through 1973 as it did over the whole of the nineteenth and twentieth centuries.¹ The exceptional nature of the golden age is clear. The period 1973 through 2000, in contrast, was not atypical: the rate of growth of GDP in Western Europe, at 2.1 percent per annum, was the same as over the longer period....

  4. THREE The Postwar Situation
    (pp. 52-85)

    Although World War II was immensely destructive, its impact on productive capacity was surprisingly limited. To be sure, there was substantial destruction of transportation infrastructure, housing, power-generating capacity, and industrial equipment. But where roads and bridges had been damaged, they could be repaired quickly. The same was true of industrial capacity and power generation. The speed with which physical damage could be repaired was a lesson of the Allied experience with strategic bombing, the impact of which on enemy war production had been less than anticipated.¹ The aggregate numbers suggest that Europe’s productive capital stock was roughly the same in...

  5. FOUR Dawn of the Golden Age
    (pp. 86-130)

    If trade was one of the engines of Europe’s growth in the 1950s, investment was the other. New technology, to be commercialized, had to be embodied in plant and equipment, which in turn required investment. Investment rates, including housing and infrastructure, ran more than one-quarter above those of the interwar years. Governments kept interest rates low and regulated the financial system to channel resources toward capital formation.

    But countries varied enormously in the efficiency with which they deployed this additional capital. In Belgium the efficiency of investment was depressed by government programs that channeled resources into declining industries.¹ As a...

  6. FIVE Eastern Europe and the Planned Economy
    (pp. 131-162)

    In Eastern Europe, just as in the continent’s West, there was scope for rapid growth by making good the destruction wrought by World War II. Losses of GDP between 1938 and 1946 were even larger than in Western Europe, on the order of 50 percent in Yugoslavia and Poland, 40 percent in Hungary, and 25 percent in Czechoslovakia. But in most of these countries, with the exception of East Germany, national incomes were back up to prewar levels by 1950. Consequently, the scope for boosting output by repairing wartime damage cannot by itself explain the apparently rapid pace of post-1950...

  7. SIX The Integration of Western Europe
    (pp. 163-197)

    The formation of the European Economic Community (EEC) in 1958 and then the completion within a decade of a customs union encompassing France, Germany, Italy, and the Benelux countries were among the most important developments affecting Western Europe in the third quarter of the twentieth century. Moving in fifteen years from a devastating war to the creation of this unprecedented transnational entity surely ranks as one of the most extraordinary political and economic transformations the world has ever seen. The achievement reflected special circumstances, specifically a distinctive intellectual and structural inheritance, but also human agency in the form of key...

  8. SEVEN The Apex of the Golden Age
    (pp. 198-224)

    Growth accelerated again in the 1960s. Output per employed person rose at more than 4 percent per year in Western Europe, up from 3.6 percent in the 1950s. The growth of exports was sustained by the advent of the Common Market and the Kennedy Round of GATT negotiations. Investment rates also rose further. Although Europe’s investment was more than fully financed by its own savings, the continent was also on the receiving end of foreign direct investment (FDI) from the United States.¹ This FDI was a conduit for the transfer of advanced technology to sectors such as chemicals, computers, and...

  9. EIGHT Mounting Payments Problems
    (pp. 225-251)

    In the first half of the 1960s, Western Europe’s current account moved further into surplus.¹ Rising savings meant that the availability of foreign finance no longer constrained domestic investment. The deutschmark in particular remained highly competitive despite its 5 percent revaluation against the dollar in 1961.

    In a few European countries, pressure on wages and rising consumption demands led to a deterioration of the external accounts, and the balance of payments reemerged as a constraint. Two places where the pressure on wages boiled over, creating problems of external balance, were Italy at the beginning of the 1960s and France at...

  10. NINE Declining Growth, Rising Rigidities
    (pp. 252-293)

    By the 1970s, the opportunities for rapid growth through repair of wartime damage had long since vanished. Extensive growth had run its course. The backlog of high-return investments had been exhausted, and the underemployed rural labor that had supported the expansion of urban manufacturing was all but fully utilized. Institutions designed to encourage wage moderation and high investment came under strain as a result of these changes. All this raised questions about Europe’s capacity to maintain its customary rates of growth.

    Further complicating the transition was the collapse of the Smithsonian Agreement and the demise of the Bretton Woods System....

  11. TEN The Collapse of Central Planning
    (pp. 294-334)

    The collapse of the Eastern bloc was the most momentous event affecting Europe in the final decade of the twentieth century. An economic and political system under which more than one-third of Europe’s residents had lived disintegrated abruptly. The eastern half of the continent moved to put in place democratic political systems and the elements of a market economy. The downfall of the old regime in the Soviet Union and then the collapse of the USSR itself followed in short order.

    Certainly, the shortcomings of central planning had long been apparent. These included the impossibility of formulating a plan that...

  12. ELEVEN Integration and Adjustment
    (pp. 335-378)

    The 1980s was not an obvious time for reinvigorating Europe’s integrationist project. The continent was just beginning to emerge from its most serious recession in a half century, a downturn precipitated by intense inflationary pressures and the harsh measures taken to contain them. Even after recovery commenced, Western European unemployment showed little tendency to come down.¹ Countries such as Denmark and Ireland suffered not only chronic unemployment but also severe fiscal imbalances. France experienced an extended bout of fiscal and financial turmoil, and its new socialist government contemplated, however briefly, withdrawing from the European Community.² Europe stagnated while the United...

  13. TWELVE Europe at the Turn of the Twenty-first Century
    (pp. 379-413)

    For more than thirty years, GDP per capita in Europe has been stuck at barely two-thirds of U.S. levels. By this measure, America continues to maintain its technological and organizational lead. At the same time, however, output per hour worked in Europe has risen to the point where it is now within spitting distance of the United States. Measured this way, Europe’s labor productivity is almost 95 percent of U.S. levels. It is actually higher in France, Germany, Ireland, the Netherlands, Norway, Belgium, and Luxembourg than in the United States. Should labor productivity in Europe therefore be regarded as stagnating...

  14. THIRTEEN The Future of the European Model
    (pp. 414-426)

    Writing the history of the future is harder than writing the history of the past. One manifestation of this is the familiar tendency of futurists to extrapolate trends. Output and productivity growth in the United States having surpassed that in Europe for the last decade, there is a tendency to assume that this gap will persist, leaving the European economy still further behind and creating a crisis for the European model that will ultimately force the continent to remake its institutions along Anglo-Saxon lines.

    A longer view gives grounds for questioning whether recent trends will persist. In the 1980s it...

  15. Appendix Sources of Growth
    (pp. 427-432)