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The Princeton Economic History of the Western World #23
The European Economy since 1945: Coordinated Capitalism and Beyond
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 1945 is 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.
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.
520 pages, Paperback
First published January 1, 2006
15 people are currently reading
464 people want to read
About the author
Barry Eichengreen
107 books133 followersBarry Eichengreen* is the George C. Pardee and Helen N. Pardee Professor of Economics and Professor of Political Science at the University of California, Berkeley, where he has taught since 1987. He is a Research Associate of the National Bureau of Economic Research (Cambridge, Massachusetts) and Research Fellow of the Centre for Economic Policy Research (London, England). In 1997-98 he was Senior Policy Advisor at the International Monetary Fund. He is a fellow of the American Academy of Arts and Sciences (class of 1997).
Professor Eichengreen is the convener of the Bellagio Group of academics and economic officials and chair of the Academic Advisory Committee of the Peterson Institute of International Economics. He has held Guggenheim and Fulbright Fellowships and has been a fellow of the Center for Advanced Study in the Behavioral Sciences (Palo Alto) and the Institute for Advanced Study (Berlin). He is a regular monthly columnist for Project Syndicate.
His most recent books are Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System (January 2011)(shortlisted for the Financial Times and Goldman Sachs Business Book of the Year Award in 2011), Emerging Giants: China and India in the World Economy, co-edited with Poonam Gupta and Ranjiv Kumar (2010), Labor in the Era of Globalization, co-edited with Clair Brown and Michael Reich (2009), Institutions for Regionalism: Enhancing Asia's Economic Cooperation and Integration, coedited with Jong-Wha Lee (2009), and Fostering Monetary & Financial Cooperation in East Asia, co-edited with Duck-Koo Chung (2009). Other books include Globalizing Capital: A History of the International Monetary System, Second Edition (2008), The European Economy since 1945: Coordinated Capitalism and Beyond (updated paperback edition, 2008), Bond Markets in Latin America: On the Verge of a Big Bang?, co-edited with Eduardo Borensztein, Kevin Cowan, and Ugo Panizza (2008), and China, Asia, and the New World Economy, co-edited with Charles Wyplosz and Yung Chul Park (2008).
Professor Eichengreen was awarded the Economic History Association's Jonathan R.T. Hughes Prize for Excellence in Teaching in 2002 and the University of California at Berkeley Social Science Division's Distinguished Teaching Award in 2004. He is the recipient of a doctor honoris causa from the American University in Paris, and the 2010 recipient of the Schumpeter Prize from the International Schumpeter Society. He was named one of Foreign Policy Magazine 's 100 Leading Global Thinkers in 2011. He is Immediate Past President of the Economic History Association (2010-11 academic year).
* This is the biosketch available at his faculty page.
Professor Eichengreen is the convener of the Bellagio Group of academics and economic officials and chair of the Academic Advisory Committee of the Peterson Institute of International Economics. He has held Guggenheim and Fulbright Fellowships and has been a fellow of the Center for Advanced Study in the Behavioral Sciences (Palo Alto) and the Institute for Advanced Study (Berlin). He is a regular monthly columnist for Project Syndicate.
His most recent books are Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System (January 2011)(shortlisted for the Financial Times and Goldman Sachs Business Book of the Year Award in 2011), Emerging Giants: China and India in the World Economy, co-edited with Poonam Gupta and Ranjiv Kumar (2010), Labor in the Era of Globalization, co-edited with Clair Brown and Michael Reich (2009), Institutions for Regionalism: Enhancing Asia's Economic Cooperation and Integration, coedited with Jong-Wha Lee (2009), and Fostering Monetary & Financial Cooperation in East Asia, co-edited with Duck-Koo Chung (2009). Other books include Globalizing Capital: A History of the International Monetary System, Second Edition (2008), The European Economy since 1945: Coordinated Capitalism and Beyond (updated paperback edition, 2008), Bond Markets in Latin America: On the Verge of a Big Bang?, co-edited with Eduardo Borensztein, Kevin Cowan, and Ugo Panizza (2008), and China, Asia, and the New World Economy, co-edited with Charles Wyplosz and Yung Chul Park (2008).
Professor Eichengreen was awarded the Economic History Association's Jonathan R.T. Hughes Prize for Excellence in Teaching in 2002 and the University of California at Berkeley Social Science Division's Distinguished Teaching Award in 2004. He is the recipient of a doctor honoris causa from the American University in Paris, and the 2010 recipient of the Schumpeter Prize from the International Schumpeter Society. He was named one of Foreign Policy Magazine 's 100 Leading Global Thinkers in 2011. He is Immediate Past President of the Economic History Association (2010-11 academic year).
* This is the biosketch available at his faculty page.
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Displaying 1 - 8 of 8 reviews
May 21, 2019
Very educational, but for someone like me it's a bit complicated.
August 31, 2023
This book is less coherent than some of Eichengreen’s other works. Of course, any book which deals with dozens of countries over a period of over 50 years is going to have a lot of cross-cutting evidence. Also, the book is somewhat divided between a look at the macroeconomic statistics and policies of Europe in this period and a detailed narrative of the negotiations over the growth of the European Union. Nonetheless, one is unlikely to find a better overview of the period.
Insofar as the book has an overarching theme, it tries to argue that in the postwar period Europe’s corporatist institutions were well-suited for “extensive” growth, meaning growth in capital investment based on restrained wages and coordinated investment strategies. Yet beginning in the 1970s, when European countries approached the technological frontier, their corporatist institutions provided a barrier to innovation and dynamic growth, which explains why almost all countries in the West (except Portugal and Ireland, both of which had barely grown before) experienced no further growth miracles and stalled at a GDP per capita far below that of the US. The gradual expansion of the power of the European Union was first a way to ensure that coordinated investment and trade could allow for extensive growth, but in the post-1986 “Single Market” period it has tried to break down anti-competitive national structures.
All of this has some plausibility, but the most controversial claim, that corporatism was a pro-growth strategy in the 1950s and ‘60s, still seems questionable to me. The fact that a country like Austria tried to corral their unions into a single negotiating organization, and that, after 1958, a government Parity Commission helped set wages and prices, did seem to restrain wage growth there, as similar arrangements did elsewhere. It helps explain why European unemployment rates were kept around 2% up to the 1960s. But the idea that the Commissariat general du Plan in France and the four big nationalized banks and government approval of all floated corporate bonds somehow helped recovery there seems a stretch.
The post-1970s slowdown in Europe is examined in detail, especially the decline in labor force participation and the increase in unemployment (suddenly up to 8% in the 1970s and soon up to 10%). The breakdown of sectoral and national bargaining and a rise in militant unions and wildcat strikes led to real wages suddenly outpacing productivity increases, and led to decreased export competitiveness as well as increased unemployment. (Although, as Eichengreen points out, the productivity per hour worked continued increasing up to US levels.) Only beginning in the 1980s and onwards were national governments able to restrain wages. In 1982 the Netherlands Wassenaar Agreement meant frozen minimum wages and eliminated indexation and reduced public sector compensation and soon cut unemployment insurance replacement rates and time from 30 to 6 months. In 1988 Ireland created a Program for National Recovery which had trade unions agree to limit annual wages increases to 2.5% per year for three years, and caused cuts in income and social security taxes for low-wage workers to encourage more participation. The 1988 EU move to end capital controls also ensured that unions had to deal with competitive movement of industry, and the opening of the East after the Fall of Communism further cemented that competition.
On the whole, this book will give the reader the narrative and the facts about economic growth in a continent that endured extraordinary hardship and created a booming economy, albeit one whose reality fell far short of the dreams of its earlier proponents.
Insofar as the book has an overarching theme, it tries to argue that in the postwar period Europe’s corporatist institutions were well-suited for “extensive” growth, meaning growth in capital investment based on restrained wages and coordinated investment strategies. Yet beginning in the 1970s, when European countries approached the technological frontier, their corporatist institutions provided a barrier to innovation and dynamic growth, which explains why almost all countries in the West (except Portugal and Ireland, both of which had barely grown before) experienced no further growth miracles and stalled at a GDP per capita far below that of the US. The gradual expansion of the power of the European Union was first a way to ensure that coordinated investment and trade could allow for extensive growth, but in the post-1986 “Single Market” period it has tried to break down anti-competitive national structures.
All of this has some plausibility, but the most controversial claim, that corporatism was a pro-growth strategy in the 1950s and ‘60s, still seems questionable to me. The fact that a country like Austria tried to corral their unions into a single negotiating organization, and that, after 1958, a government Parity Commission helped set wages and prices, did seem to restrain wage growth there, as similar arrangements did elsewhere. It helps explain why European unemployment rates were kept around 2% up to the 1960s. But the idea that the Commissariat general du Plan in France and the four big nationalized banks and government approval of all floated corporate bonds somehow helped recovery there seems a stretch.
The post-1970s slowdown in Europe is examined in detail, especially the decline in labor force participation and the increase in unemployment (suddenly up to 8% in the 1970s and soon up to 10%). The breakdown of sectoral and national bargaining and a rise in militant unions and wildcat strikes led to real wages suddenly outpacing productivity increases, and led to decreased export competitiveness as well as increased unemployment. (Although, as Eichengreen points out, the productivity per hour worked continued increasing up to US levels.) Only beginning in the 1980s and onwards were national governments able to restrain wages. In 1982 the Netherlands Wassenaar Agreement meant frozen minimum wages and eliminated indexation and reduced public sector compensation and soon cut unemployment insurance replacement rates and time from 30 to 6 months. In 1988 Ireland created a Program for National Recovery which had trade unions agree to limit annual wages increases to 2.5% per year for three years, and caused cuts in income and social security taxes for low-wage workers to encourage more participation. The 1988 EU move to end capital controls also ensured that unions had to deal with competitive movement of industry, and the opening of the East after the Fall of Communism further cemented that competition.
On the whole, this book will give the reader the narrative and the facts about economic growth in a continent that endured extraordinary hardship and created a booming economy, albeit one whose reality fell far short of the dreams of its earlier proponents.
January 19, 2025
"Popular accounts portray Europe as either an economic phoenix or a basket case. The phoenix view observes that output per hour worked has risen from barely 50 percent of U.S. levels after World War II and two-thirds of those levels in 1970 to nearly 95 percent today and that labor productivity so measured is actually running above U.S. levels in a substantial number of Western European countries. Since the turn of the twenty-first century, the euro zone has created more new jobs than either the United States or the United Kingdom. Its exports have grown faster than those of the United States. It provides more of its citizens with health insurance, efficient public transportation, and protection from violent crime.
The basket-case view observes that the growth of aggregate output and output per hour have slowed relative to the United States since the mid-1990s. Between 1999, when EMU began, and 2005, euro-zone growth averaged just 1.8 percent, less than two-thirds the 3.1 percent recorded by the United States. Productivity growth has trended downward since the early 1990s, owing to labor-, product-, and capital-market rigidities, inadequate R&D spending, and high tax rates - in contrast to the United States, where productivity growth has been rising. The growth of the working-age population has fallen to zero and is projected to turn significantly negative in coming years. High old-age dependency ratios imply large increases in the share of national income devoted to health care, lower savings rates, potentially heavier fiscal burdens, and an aversion to risk taking. All these are reasons to worry about Europe's competitiveness and economic performance.
One way of reconciling these views is to distinguish the distant from the recent past and the past from the future. Comparing the European economy at the midpoint and the end of the twentieth century, there is no disputing the phoenix view. Economic performance over this half century was a shining success both absolutely and relative to the United States. More recently, however, Europe has tended to lag. Although this does nothing to put the past in a less positive light, it creates doubts about the future.
One way of understanding these changing fortunes is in terms of the transition from extensive to intensive growth. Europe could grow quickly for a quarter century after World War II and continue doing well relative to the United States for some additional years because the institutions it inherited and developed after World War II were well suited for importing technology, maintaining high levels of investment, and transferring large amounts of labor from agriculture to industry. Eventually, however, the scope for further growth on this basis was exhausted. Once the challenge was to develop new technologies, and once growth came to depend more on entrepreneurial initiative than on brute-force capital accumulation, the low rates of R&D spending, high taxes, conservative finance, and emphasis on vocational education delivered by those same institutions became more of a handicap than a spur to growth. Consistent with this view is the fact that Europe's economic difficulties seem to have coincided with the ICT revolution and the opportunities it affords to economies with a comparative advantage in pioneering innovation, as well as with globalization and growing competition from developing countries such as China that are moving into the production of the quality manufacturing goods that have been a traditional European stronghold.
The question is what to do about it. Is it necessary for Europe to remake its institutions along American lines? Or is there still a future for the European model?"
The basket-case view observes that the growth of aggregate output and output per hour have slowed relative to the United States since the mid-1990s. Between 1999, when EMU began, and 2005, euro-zone growth averaged just 1.8 percent, less than two-thirds the 3.1 percent recorded by the United States. Productivity growth has trended downward since the early 1990s, owing to labor-, product-, and capital-market rigidities, inadequate R&D spending, and high tax rates - in contrast to the United States, where productivity growth has been rising. The growth of the working-age population has fallen to zero and is projected to turn significantly negative in coming years. High old-age dependency ratios imply large increases in the share of national income devoted to health care, lower savings rates, potentially heavier fiscal burdens, and an aversion to risk taking. All these are reasons to worry about Europe's competitiveness and economic performance.
One way of reconciling these views is to distinguish the distant from the recent past and the past from the future. Comparing the European economy at the midpoint and the end of the twentieth century, there is no disputing the phoenix view. Economic performance over this half century was a shining success both absolutely and relative to the United States. More recently, however, Europe has tended to lag. Although this does nothing to put the past in a less positive light, it creates doubts about the future.
One way of understanding these changing fortunes is in terms of the transition from extensive to intensive growth. Europe could grow quickly for a quarter century after World War II and continue doing well relative to the United States for some additional years because the institutions it inherited and developed after World War II were well suited for importing technology, maintaining high levels of investment, and transferring large amounts of labor from agriculture to industry. Eventually, however, the scope for further growth on this basis was exhausted. Once the challenge was to develop new technologies, and once growth came to depend more on entrepreneurial initiative than on brute-force capital accumulation, the low rates of R&D spending, high taxes, conservative finance, and emphasis on vocational education delivered by those same institutions became more of a handicap than a spur to growth. Consistent with this view is the fact that Europe's economic difficulties seem to have coincided with the ICT revolution and the opportunities it affords to economies with a comparative advantage in pioneering innovation, as well as with globalization and growing competition from developing countries such as China that are moving into the production of the quality manufacturing goods that have been a traditional European stronghold.
The question is what to do about it. Is it necessary for Europe to remake its institutions along American lines? Or is there still a future for the European model?"
July 29, 2024
Ένα αρκετά πυκνό βιβλίο, το οποίο διάλεξα να διαβάσω λόγω ενδιαφέροντος για τη μεταπολεμική ανάπτυξη της Ευρώπης. Προσωπικά βρήκα δύο μειονέκτηματα για το βιβλίο αυτό, που για ορισμένους, ειδικά ερευνητές, μπορεί να είναι πλεονεκτήματα. Πρώτον, ο συγγραφέας σε 450 σελίδες απομονώνει την πολιτική και επικεντρώνεται μόνο στην οικονομία, με αποτέλεσμα αν κάποιος δεν γνωρίζει το πολιτικό πλαίσιο των εποχών μετά τον Β παγκόσμιο πόλεμο, ακολουθεί δύσκολα την αφήγηση. Δεύτερον, το βιβλίο έχει πολλές υποσημειώσεις, οι οποίες αποτελούν από μόνες τους ένα ξεχωριστό βιβλίο, οπότε ένας ανεξάρτητος αναγνώστης, ίσως να πανικοβληθεί από την πληθώρα πηγών και παραπομπών. Στα πλεονεκτήματα είναι το γεγονός, πως για κάποιον που έχει έχει μελετήσει την πολιτική σκοπιά του θέματος, η αμιγώς οικονομική συμπληρώνει πολλά εξειδικευμένα κενά.
November 27, 2025
a well structured book that brings together historical conditions, political constraints and need with economic decisions (tools and knowledge) in a essential reading for a deeper development plans/ polices to be taken/ proposed to any underdeveloped country (think also that be applicable for poor regions in any country)
December 23, 2025
An overview of the postwar European economy with lots of information and good small frameworks to help understand aspects of it. It has been of great use, though I should probably skim it through to remind myself of everything.
July 27, 2024
Read my review for FEE https://fee.org/articles/book-reviews...
June 22, 2012
As Sergent Joe Friday used to say on the TV series Dragnet, "Just the facts, mam. Just the facts."
Displaying 1 - 8 of 8 reviews