Reconstruction after WWII and Golden Age Europe in International Economy 2017 D:\23120\Desktop\Dresden.jpg •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; D:\23120\Desktop\ShoppersWorld_1000.jpg D:\23120\Desktop\Plan.jpg https://upload.wikimedia.org/wikipedia/commons/a/a4/Germany_1949_Status.PNG •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). File:Bundesarchiv Bild 183-B0527-0001-753, Krefeld, Hungerwinter, Demonstration.jpg D:\23120\Desktop\WIK_De-Gaulle+Adenauer.jpg •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; D:\23120\Desktop\GRR-085_Paris-police-storming-student-barricades_1968.jpg 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); http://akorra.com/blog/wp-content/uploads/2009/03/the-oil-crisis-of-1973.jpg