Reconstruction after WWII and Golden Age
Europe in International Economy 2017


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•Reconstruction after WII
•
•US to avoid mistakes after WWI – new goal:
•high output and full employment on world scale; trade specialization and reliable world currency
system;
•Europe as crucial participant;
•
•US organizations brought aid directly to Europe early on (UNRRA, GARIOA, MP);
•WE states readily joined IMF 1945, IBRD 1945, UN 1946;
•
•US and Canada even more ahead than in 1939 – active role;
•US further developed consumer goods (sophisticated, mass consumption);
•until 1948 danger of communist takeover in Europe;
•growing problem 1947 – not enough USD to pay for US goods and services – total trade deficit of WE
7,4 bil. USD;
•Solution: secretary of state George C. Marshall – massive aid; goal: economies without USD
deficits;
•
•OEEC 1947 – incorporation of West Germany as full member – contrast with reparation atmosphere
after WWI (and Morgenthau plan);
•US looking for the day West Germany would become the leader of WE;
•GB and FRA less so – FRA even looking forward to absorb its occupation zone into FRA;
•
•USD world economy spreading further to Japan and Australia, Taiwan;
•Growth of large business organizations  (EoS) - boosted efficiency;

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•East-West split
•
•1946 W. Churchill‘s speech at Fulton, Missouri – coming division of Europe by Iron Curtain;
•1948 division confirmed by Berlin airlift;
•Soviet refusal of Marshall plan;
•creation of fortified barrier to the movement of people and goods;
•
•Stalin: industrialization and collectivization policy (since 1928 in USSR) applied were
appropriate:
•EE spared full collectivization (recognition that agriculture there is more productive);
•industrialization in all EE;
•heavy industry stressed -> unbalanced economies partly dependent on USSR;
•
•1949 Stalin founded COMECON – little or no planning or coordination;
•East did little trade with West and until late 1960s no investments from west;
•E->W migration virtually eliminated since 1948;
•
•Rates of growth were high in Soviet system: 5%GDP during 1950-73;
•however - begun from very low level;
•massive use of natural resources;
•labor could be directed easily;




•Cooperation, integration and planning in WE
•
•With no markets in the east:
•GER turning on SE + together with GB (Commonwealth) drew WE into world exporting;
•
•1970 many products competitive on both price and quality;
•Post-war technology gap – „advantage“ for WE – US encouragement – WE could adopt perfected US
processes, marketing, information;
•consumer goods: refrigerators, vacuum cleaners, washing machines; TV; canned goods, frozen foods;
•
•Growth of WE economy from early 1950s -> E overcame USD shortage - aims of MP achieved;
•
•End of MP 1952 – WE on the way to full employment;
•GB and Nordic even able to combine full employ with generous welfare policies;
•GER on the way becoming E leading exporter;
•
•Until oil shocks WE produced and traded within stable world system set up by the US…
•WE benefited more than any other region;

Growing productivity and employment
•GB, GER, FRA – fully industrialized, with similar living standard and strong export sector –>
convergence;
•Fluctuations of the business cycle still detectable but no absolute contractions – growth at rates
unknown;
•
•Biggest shock Korean war 1950 - less disturbing than feared – WE exported military goods to US;
•
•Participation in the Cold War helped secure full employment and encouraged technology
(electronics, jet engines…):
•WE NATO members spent between ½ and 2/3 of US military expenditures (peace dividend);
•
•France 1960: nuclear weapons; withdrew from NATO 1966 – different path, expanding its exports of
arms on basis independent on US technology; valued by third world countries – international
respect:
•Anti US character something new – suggesting E might develop as an independent political force;
By mid1950s fears of depression dispelled – confidence had grown in the economic control policies
linked to Keynes macro policies – promoted by the US
(Publ. <-> Priv. demand + Infl. <-> Growth/Empl.);
•

•Germany
•German refugees flooded allied zones (10+ mill. 1945):
•not much jobs in cities, lived on farms – labor for lodging;
•enhanced labor force; when moved into factories proved hard-working and easy to train;
•
•Existing industrial workers equally cooperative - long hours, low wages;
•New industry-wide unions reinforced this attitude – encouraging cooperation between employers and
the workers;
•
•Industrial structure leaned since 1900 towards producer goods:
•historicaly exported largely to EE;
•supplies of coal, iron, steel – Ruhr basin– fitted to produce cheap producer goods – most of
Europe in need;
•large exports – railway engines, transport equipment, machine tools;
•imported consumer goods especially form SE;
•
•High quality – created secure markets in Europe, from 1950 exporting outside Europe – growing
reserves of sterling and USD;
•maintained the value of DM with low inflation – GER increased exports when GB beginning to
struggle with uncompetitive export prices;
•1950-1973 export increased annualy 12,4% – highest between AIC;
•living standards overtooking GB 1960;
•
•GER unique product of the war – new housing (urbanism, infrastrucute).

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•France
•
•Defense of strong Franc between wars on expense of industrial growth –> national perception that
France was economically weak and backward;
•
•Modernization strategy (Germany still feared);
–Modernization pushed forward by civil servants in cooperation with number of big firms (indicative
planing);
•
•Monnet plan since 1946:
•to control German coal-producing areas (Saarland, Ruhr): to redirect the production away from GER
industry and into FRA;
•sought to coordinate basic production and infrastructural investment – business+ government +
labor representatives in committees;
•5 years targets (investment and workforce training - confidence);
•
•Growth proceeded rapidly –> improvements in transport and power networks –> extended scope for
industrialization to remote areas;
•Big surplus of labor - high birth rate, transfered from agriculture;
•Colonial empire with big French population: market + export of lifestyle;
•In North Africa oil reserves developed 1950s to compensate lack of coal + nuclear power programe;
•
•1960 third industrial power in WE…

•Great Britain
•Less damaged than GER – leading European economy;
•In 1945 still more military bases worldwide than US + nuclear capacity;
•For US major European foothold;
•
•Problems:
•BoP: industrial export have to be maximized to secure USD and domestic production expanded to
limit imports;
•At the same time – people were seen to need reward for wartime efforts (welfare state);
•
•1960 GB loosing competiveness, investment held back, firms struggled with old equipment;
•Government still aiming at full employment, wages much higher than on continent:
•trade unions able to prevent substitution of labor by technology and new capital goods (neither
lower wages nor shorter hours);
•
•Very low growth – only 2,9% 1950-55; 2,5% to 1955-1960;
•
•First industrializer -> moving on to a stage of maturity:
•hard manual work no longer optimal;
•most best careers seen in tertiary sector, industry did no attract people of advanced education;
•workers not as grateful for job as in GER;
•
•With large home market producers did not need to secure foreign markets -> many products not
competitive abroad (Commonwealth – easy and conservative market; vs. EEC+GATT);
•Few fully aware – till 1960 living standards still highest in E + consumer boom and leisure
culture;
•These years of relative decline – reduced role and influence of GB.

•Italy
•Partial modernization affecting north;
•US main modernizing force (danger of Communism);
•Inability to develop mass markets and exports even in traditional cotton textiles;
•State intervention in industry retained in the interest of directing effort into dollar earning
export – cotton first (US designed policies);
•Eventually low production costs and emphasis on consumer goods – methods and equipment derived
from US; Marshall plan bigger impact than elsevere;
•Promotion of education, especially in rural areas;
•Election 1948 –> centrist government –> GOV reduced price controls and regulations form fascist
age;
•Transition from Mare Nostra to European integration – outstanding formula for progress – example
for the modernization of SE;
•GOV encouraged home market products at the same time as boosted exports (fridge, scooters –
competitive in SE);
•
•Spain, Port, Greece
•POR – colonial empire, conservative colonial policy;
•SPA – still under facist – big national companies – most economy held down by small-scale
unproductive agriculture;
•GRE paralyzed by civil war 1947-1949.







•Interpretation of European succes (Eichengreen)
•
•Catch-up was facilitated by solidaristic trade unions, cohesive employers associations,
growth-minded governments working together to mobilize savings, finance investment, and stabilize
wages at levels consistent with full employment;
•
•Coordination problem in industrial sector was solved by extra market mechanisms – government
planning agencies, state holding companies, industrial conglomerates, nationalization;
•
•Financed by patient banks in long-standing relationships with their industrial clients;
•
•This codified set of norms + understandings (institutions) – inherited from the past
(corporativism);
•
–Challenges of this period resembled those that had E confronted earlier – modern industry had
developed later on the continent than in GB and US;
•
•Prominent role of the state: late-industrializing economies –> initial growth spurt depended as
much on assimilating and adapting existing technologies as on pioneering new ones;
•
•Naturally developed systems of human capital formation emphasizing apprenticeship training and
vocational skills as much as university education;







•Decolonization and immigration
•
•US advised to liberate colonies; apart of FRA (and POR) progress quick;
•Powers found that can maintain economic links - reluctance weakened;
•
•FRA - colonies as a cultural extension of homeland – defeat by Germany made case for overseas
territories - young residents form colonies encouraged to study in France;
•French empire decolonized 1958 (war in Indochina lost 1954; war in Algeria which gained
independence 1962);
•Influx of arab immigrants– hostility among indigenous French;
•
•Decolonizaiton – ex-col. people allowed to live in their home country in Europe;
•Few Europeans crossing iron curtain – composition of industrial population towards
non-white/non-Europeans by the 60s.
•
•GER – sources of labor in EE blocked off - began import labor;
•First drew on SE – workers (returning home) – few problems of cultural assimilation;
•1960s started to draw heavily on Turkey and Iran;
•
•Moslem workers difficult to absorb – third world transplant;
•Most uneducated, unskilled –> low pay limited them to degraded housing;
•Europe - new racial structure – low paid industrial workers helped sustain E growth, but remained
isolated social force.




•Deceleration
•
•Late 60s  inflation increased – partially function of investment cycle – but long term factors
were at work;
•
•As US and GB experienced slow growth after war owing to the completion of their industrialization
process – WE industrialization approaching completion by 1970;
•Land developed, infrastructure completed - workers moving form low to industrial wages;
•Agriculture – formerly subsidized, now overproduction + further productivity gains hard to
achieve;
•
•WE labor shortage cannot be solved by inexperienced non-Europeans;
•Growing demands by organized labor – discouraging investment;
•Political pressure form left – FRA, ITA, GER ;
•Students: aspirations boosted by post-war boom - turned against capitalism and liberal democracy
late 1960s;
•
•Opposition to US intervention in Vietnam – threatened European confidence in US;
•Student riots in Paris 1968; post war WE consensus under serious threat;
•(OPEC dragged WE towards international cooperation in the energy field…)
•
•Irony – US now too weak to revive WE;

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Oil shocks
•Resource shock 1973-74 exacerbated already inflationary environment;
•Cheapness of crude oil major factor of the boom – 1966 oil supplanted coal as most significant
energy resource (except in GB);
•
•Increasingly from Middle East:
•Insignificant producer 1939; lions share after WWII – Kuwait, SA, Iran, Iraq;
•Risks of overdependence from region driven by antagonisms Arabs vs. Jews;
•Prolonged enclosure of Suez 1967-1975, rise of OPEC since 1960;
•
•Dependence grew: 1972 2/3 WE energy consumption (France 72,5% primary resources of energy
petroleum based, Italy 78,6%):
•Bargain prices and abundant supplies - development of energy intensive sectors – cars, consumer
durables and chemical products, fuel and heating in industry;
•6.10 1973 war Israel and Arabs – OPEC doubled crude oil prices and imposed an oil embargo (Oil
Decade 1973-82);
•Foreign companies – exclusive rights through concessions dating from 1920s replaced by national
companies;
•Vienna summit 6.11.1973: EEC backed Arab demand on Israel to withdraw to its pre 1967 boarders;
•OPEC ministers: further increase 11,65 USD/barel (400% increase compared pre crisis 2,59USD);
•1970s oil prices increased 10x, EEC inflation 17,5% and remained 13,5% between 1975-78, further up
with second oil shock 1979;
•Energy conservation and efficiency became key themes (North Sea, Alaska, North Africa, USSR);




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