Econ 210a: February 7: Memo Question: The "International View" of the Great Depression
Thank You for Smoking! (Max Boot/Council on Foreign Relations Edition)

Europe's Post-WWII Coordinated Capitalism in Retrospect

The Economist reviews Barry Eichengreen's new book: A new economic history argues that Europe's institutions must adapt if the continent is to thrive in future: Barry Eichengreen (2007), The European Economy Since 1945: Co-ordinated Capitalism and Beyond (Princeton: Princeton University Press: 0691127107):

THERE are, writes Barry Eichengreen, two popular views of the European economy: it is either a “phoenix” or a “basket case”.... You can perhaps reconcile these two extremes, suggests Mr Eichengreen, if you choose your periods carefully. Compare the end of the last century with the middle of it, “and there is no disputing the phoenix view.” More recently, however, Europe has tended to lag behind America. And that, concludes this sympathetic American observer (a professor at the University of California, Berkeley), gives rise to doubts about the old continent's future economic prowess.

The key to these two facets of the economy lies in Europe's institutions.... Western Europe's rapid post-war growth, he says, stemmed from more than the free play of market forces: cohesive trade unions and employers' associations, often inherited from pre-war times, and growth-minded governments were needed too. Hence the “co-ordinated capitalism” of his subtitle.... Co-ordinated capitalism worked well in those countries that had it. Britain, with its fragmented unions and employers' groups, was a conspicuous exception, and its attempt to mimic French indicative planning in the 1960s was a conspicuous failure. Co-ordination crossed borders too, in the shape of what eventually became the European Union....

Europe's institutions served it less well once it had more or less caught up with America. They were much less good at fostering “intensive growth”—-pushing back the bounds of economic possibility as opposed to merely catching up with them. Even in the 1950s and 1960s, while America put its research and development dollars into aerospace and electronics, Europe went for marginal improvements in chemicals, textiles and machinery—-in Italy, for example, adding numerical controls to existing textile looms....

Mr Eichengreen does his best to sound optimistic.... He sees reform efforts such as the Lisbon agenda, intended to make Europe the world's “most competitive” economy by 2010, as an attempt to overcome institutional inertia....

[N]o single story will fit such a varied continent. Mr Eichengreen has made a decent job of weaving different national shades into his book, while keeping the whole within reasonable bounds. In particular, he does justice to central and eastern Europe in communist times, helped by vivid examples of planning failures and partial reforms—for example, a quarter of all shoes sold in Hungary in 1951 were officially classed as substandard. And he has much to say about communism's collapse and its aftermath, as well as the reintegration of those countries with the west of the continent.... For both Americans who want to understand Europe's successes and failures, and for Europeans who want to know where their continent was right and where it has gone wrong, Mr Eichengreen has provided an excellent summary.