Economic Growth in Europe Since 1945

Abstract

Economic Growth in Europe since 1945, edited by Nicholas Crafts and Gianni Toniolo.

Economic Growth in Europe Since 1945. Edited by Nicholas Crafts and Gianni Toniolo * Cambridge, U.K.: Cambridge University Press, 1995. xiii + 600 pp. Figures, tables, and index. Cloth, $80.00. ISBN 0521496276; paper, $29.95. ISBN 052149964X.

This lengthy study is a well-executed, multi-author analysis of West European economic growth since 1945. Its organizing principals are several. First, the book comes close to being geographically comprehensive. Chapter length studies are devoted to Britain (C. Bean & N. Crafts), Belgium (I. Cassiers, P. DeVille & P. M. Solar), France (P Sicsic & C. Wyplosz), Sweden (M. Henrekson, L. Jonung & J. Stynne), Netherlands (B. van Ark, J. de Hann & H. J. de Jong), Portugal (J. L. Cesar das Neves), Spain (L. Prados de la Escosura & J. C. Sanz), Ireland (C. O'Grada & K. O'Rourke), Italy (N. Rossi & G. Toniolo), West Germany (W Carlin), East Germany (A. 0. Ritschl), and Denmark (P. J. Pedersen).

Second, recent innovations in growth economics, often termed endogenous growth theory, organize the methodology of nearly all the chapters. Along with explicit discussions of convergence and catch-up mechanisms, most chapters treat the secular rate of growth of GDP per capita as significantly affected by variations in four factors: the rate of augmented (physical plus human) capital formation, thus accepting that augmented capital has an output elasticity greater than the one implied by their factor share, perhaps even unity; the institutions of education and R&D; scale economies (usually mixed in the measured total factor productivity [TFP] residual); and imperfect competition in industrial output markets.

Third, most chapters analyze aggregate growth patterns through the major divisions of aggregate demand and the major productive sectors. Importantly, an introductory chapter by A. Boltho and many country chapters divide aggregate national output into the sectors exposed to international trade and the sectors sheltered from it, separately analyzing their growth performance. In discussing the exposed sector, standard measures of international competitiveness are fairly consistently utilized.

Fourth, introductory chapters by B. Eichengreen, M. Olson, and K. H. Paque present and discuss models that link the European growth process to the evolution of national economic and social institutions. Much of the institutional discussion in the country chapters is chronological, but many country chapters also explore the usefulness of Olson's and other models against their national evidence.

The aggregate growth economics employed by the authors of this volume produce a far more nuanced picture of Western European economic growth than the older Solow-Denison types of growth accounting. Quite significantly, virtually every important conclusion in the introductory and country chapters is tested with comparative national data. Space limitations make it impossible to convey the many important insights of this volume or do justice to its very high level of analysis. A few examples must suffice.

A major conundrum that every author in this volume addresses is what were the important causes of the exceptionally high growth years from the early 1950s to the early 1970s. Technological and institutional catch-up and convergence are often cited. Eichengreen's contribution is to argue that most European nations in this golden age had a unique social bargain between labor, capital, and the government. The social bargain combined moderate wage demands and silence on the importation of guest workers from organized labor, even in the face of full employment, high rates of investment and high rates of reinvested profits by private corporations, and significantly broadened welfare benefits provided by central governments. Bringing to bear his interwar studies, Eichengreen spots the problems with the bargain that European nations faced starting in the mid-- 1960s and which were revealed in the slow growth rates of the 1970s.

The chapter on the Italian growth experience by N. Rossi and G. Toniolo is the only one which presents an empirical growth model which explicitly estimates the portions of GDP per capita growth due to pure-Solow production function shifts, scale economies, market-power shifts, and varying utilization of inputs. What emerges from this model is that pure-Solow shifts, scale economics, and varying utilization of inputs were all important before 1973, but after 1973 Italy's growth rates were largely due to scale economies and varying utilization of inputs; pure-Solow shifts become minuscule post-1973. The task for Italian economic and business historians will be to examine firm and industry evidence to confirm and flesh out the existence of this dramatic hypothesis.

A chapter on West Germany's growth experience by W. Carlin is particularly demanding. West Germany's speed of recovery from World War II was dramatic and, in examining the 1950s, scholars have found that West Germany's growth of GDP per capita substantially exceeded that implied by investment and labor force growth, as well as by catch-up and cyclical bias. Since then, German growth has been more or less in line with the European averages. Carlin brings a very rich understanding of West Germany's institutions to bear. Like Eichengreen, she argues for the importance of Germany's uniquely quiet and productive social contract between labor, capital, and government. She is particularly insightful on the ways in which West Germany's apprenticeship programs were imbedded in the contract, yielding higher productivity on the production line, as well as in the cooperative processes of shop floor technical change.

Nothing in this volume would lead the reader to suppose that important variations in Europe's growth experience might emerge from studying the patterns of cost reduction and innovation at the level of the firm or industry rather than those that are national in character. The growth processes which are analyzed concern economic forces which affect national, traded/non-traded, or very highly aggregated industrial or demand phenomena. Sooner or later, systematic data will exist to explore and test firmlevel measures of total factor productivity. When that happens, it should be possible to integrate the insights of business history and aggregate growth economics. Until such date, readers of this journal who specialize in modern European economic and business history will find this book an essential resource for understanding the aggregate economics of postWWII Western European growth.