By Ingdahl, Waldemar
Freeman , Vol. 58, No. 3
The European Economy Since 1945: Coordinated Capitalism and Beyond by Barry Eichengreen Princeton University Press * 2006 * 504 pages * $35.00
Reviewed by Waldemar Ingdahl
Some topics might prove too daunting to write about even in tomes. Barry Eichengreen, professor of economics at the University of California, Berkeley, has undertaken a difficult task in this book-an economic history of the whole of Europe, a comparison with the United States, and some considerations for the future. The result is a clear and concise book that shakes up some preconceptions.
Recovering from World War II was not as problematic as many think. Eichengreen contradicts Mancur Olson's view that Europe had to start from scratch and free itself from its historical institutions. He argues that it was precisely this historical continuity that enabled the recovery; just a few years after the war, Europe's production capacity was back at prewar levels, even considering Germany's devastation.
It was not a time of technological breakthroughs, but rather of steady recovery, mobilizing the resources unused during the war and implementing some innovations from the United States. This was possible through the political consensus found in the corporativist collaboration among government, industry, and unions, with banks ready to provide the corporations that had survived the war with investments from small-time savers.
The lessons learned from the 1930s were that unions had to agree to hold back demands for wage increases and that governments needed to eliminate trade barriers. The European Economic Community (EEC) was born because it was clear that Europe had been falling behind the United States even before the war. The balkanized and closed economies were unable to exploit economies of scale and scope, and were slow to develop mass-production methods. The EEC provided a regional market appropriate to make best use of the new technologies. With the financial assistance and the export markets of the United States, this proved to be a successful strategy.
But corporativist policies started to founder in the 1970s. The OPEC oil crisis was part of the problem, but the main issue, Eichengreen writes, was that the postwar generations had forgotten the lessons of the past. Unions demanded ever-higher wages and militant strikes pressured corporate profits and investments. Governments tried to calm the economy by expanding the already-extensive welfare state, thereby worsening the high rate of inflation.
Meanwhile, most of Eastern Europe, which had been agricultural, was pushed by the Soviet Union into rapid industrialization. But that region was poorly endowed with energy and industrial raw materials, and its industrial output poorly tailored to the needs of the downstream users. …