Dark Continent: Europe's Twentieth Century (49 page)

THE MIRACLE OF GROWTH

It was not easy, at first, to foresee the extended economic upswing that would transform the West in the two decades after 1950. Mindful of the experience of the years immediately after the First World War, most experts anticipated a post-war boom followed by some kind of slump. The slowdown in industrial production in western Europe from 12 per cent per annum in 1947–8 to 5 per cent in 1949–50 apparently confirmed their caution. In 1951 the
Economist
observed gloomily: “In the third year of the Marshall Plan, which has succeeded beyond expectation, in conditions of prosperity and restored standards of living—in short in what ought to be a good year—a quarter of both the French and Italian electorates voted communist … There is almost nowhere a positive faith in the possibilities of progress, such as the Russians and the Americans both have.”

Gloom at the long-term outlook was evident. The Dutch government encouraged emigration on the grounds that the country was unlikely to be able to solve its unemployment problem by internal growth; in less than a decade, the country would be a net importer of labour. In West Germany, many economists predicted that the loss of the agrarian lands of East Prussia and Silesia would lead to permanent food shortage, and unemployed men wandered the streets as they had done before the war carrying placards or signs indicating their desire to find work. The stifling impact of the Cold War on business confidence was reflected in the caution of a French farmer, Lucien Bourdin, who told an American scholar: “Plant an apricot orchard so the Russians and Americans can use it as a battlefield? Thanks. Not so dumb.”
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As late as 1953, the overall verdict of the UN’s Economic Commission for Europe was distinctly lukewarm: the “general progress of the western European economy has not been entirely encouraging.” Balance-of-payments pressures were acting as a brake on expansion. The ECE was pessimistic about the chances of employment growth
without inflation getting out of control in what it called a “private enterprise economy.” Growth had so far been patchy and based on internal factors, with little sign of international cooperation so that “the historical trend towards national autarky has not been clearly reversed.”
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As it happens, the experience of a few countries in western Europe did bear out just such a gloomy forecast. “National autarky” was exactly the economic strategy followed by the authoritarian fossils of the Iberian peninsula, and by the conservative Catholic government in Eire. The outcome was in every case an unambiguous failure, with sluggish growth and high unemployment or underemployment which looked less and less impressive as the 1950s progressed and the rest of western Europe prospered. Exporting tens of thousands of workers annually—as all three did—to take advantage of the boom was really admitting defeat. In the late 1950s, Eire and Spain changed course dramatically and embraced modernization: Portugal—under its pre-Keynesian economics professor Salazar—remained the odd man out.
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By this point there could be no doubt about the quite exceptional character of the economic upswing across the rest of western Europe. Growth was faster and smoother than ever before. Between 1913 and 1950 per capita growth in the region had averaged 1.0 per cent a year; between 1950 and 1970 this rose to an incredible 4 per cent. For the most part, the swings in the business cycle which had so disrupted businessmen before 1939 gave way to much milder fluctuations. Prewar mass unemployment seemed to have been banished for good: unemployment rates in western Europe fell from an average of 7.5 per cent in the 1930s to just under 3 per cent in 1950–60 and 1.5 per cent in the succeeding decade. “Today having a million unemployed and more is thought of as a disastrous possibility,” wrote a British commentator in 1967. “We should greet it as a decisive mark of national failure.” With astonishing speed, full employment came to be seen, not as a precarious and hard-won achievement, but as a natural part of a modern, scientifically managed capitalist economy.
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There were substantial differences in performance between countries. Austria, West Germany, France, Italy and the Netherlands notched up relatively rapid growth rates; Britain and Belgium somewhat
slower. Some economies did better in the 1950s than in the 1960s; for others, it was the other way round. Yet the really important point is that in all cases growth was well above any levels previously recorded. Even in sluggish Britain—whose poor performance alarmed domestic analysts—growth after 1950 was—at 3.0 per cent per annum—higher than the 1.3 per cent averaged between 1913 and 1950, or even the 1.9 per cent recorded between 1870 and 1913.
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The causes of this unprecedented achievement—the so-called “economic miracle”—remain fiercely disputed. Abundant labour—in the shape of refugees and underemployed peasants—may have kept wages low and encouraged investment. Yet labour was abundant in the Iberian peninsula, but did not by itself lead to growth there, just as it had not by itself brought prosperity in the 1930s. The abundance of labour was basically a permissive factor, contributing to growth where other circumstances were also favourable.

Much the same applied to capital. Wartime destruction of industrial plant was far less than originally believed. In fact, given the tremendous expansion of capacity during the war, there can be little doubt that western Europe’s capital stock after 1945 was greater than in 1939, and growing fast. Tight government control of credit and investment, as well as rationing and other forms of forced saving, kept consumption low and investment ratios high—16.8 per cent of GNP in 1950–70 compared with 9.6 per cent in 1928—38. But this pattern reflected not only the availability of capital but also the willingness of the public authorities to direct its use, as well as the willingness of populations to forgo consumption in the present for the sake of a better future.
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In the mythology of the time, the European recovery is often attributed to the Marshall Plan, the massive American financial contribution which the USA committed itself to providing western Europe following the initiative of Secretary of State George Marshall in the summer of 1947. It is certainly true that the solid economic, political and military commitment which the USA made to western Europe after 1945 was instrumental in making the recovery from the Second World War so much more successful than that from the First. Nevertheless, in purely quantitative terms it is now clear that, except in Greece and perhaps Italy, the Marshall Plan was less important
economically than its propagandists—or their opponents—made out. Most European investment was domestically generated, while growth rates in the West were no higher than in eastern Europe where, far from enjoying Marshall Plan aid, countries were financing their superpower rather than being supported by it. What Marshall Plan funds did do was ease foreign-exchange bottlenecks, providing scarce dollars, and allowing growth to continue.
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Americans helped change European capitalism—just as they had begun to do before the war—transforming industrial relations, preaching the gospel of scientific management and modernizing working practices and equipment. Productivity growth, averaging around 4 per cent per annum, undoubtedly underpinned the boom. The Marshall Planners and other propagandists for the “American way” launched an array of Productivity Councils, exchange programmes for union leaders and managers, publications and exhibitions. In the late 1940s, a time of considerable labour unrest, “productivity” was hymned as an ideological alternative to class war, a means of boosting
both
wages
and
company profits.
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The debate over the Marshall Plan has highlighted the significance of other aspects of American economic influence. These include not merely the new gospel of productivity, but also attitudes to fiscal policy, investment strategy and class harmony. In general, Marshall Planners tried to encourage European policy-makers to boost consumer spending (in order to reduce social discontent and the likely spread of the communist virus), and to break free of the rigid social hierarchies of the past in a kind of European New Deal.

Perhaps most important of all, in the long run, was the broader political impact of the American presence in western Europe. The Cold War—at its height in the early 1950s—induced not only fear and alarm but also a greater degree of cooperation among the nation-states of western Europe than had ever been seen in the past. Washington’s ambitious visions of closely coordinated European planning may have been quickly thwarted by devious Europeans like Bevin and Schuman. But American money and security could not be gained without strings attached, and these—by tying the recipients to some form of inter-state dialogue—changed the international economic environment in western Europe. In particular, they laid the foundations
of the astonishing revival of trade which lay at the heart of the boom in the mid-1950s. France and especially Britain, locked into expensive imperial commitments, were less inclined to take advantage of such opportunities than the Benelux states, West Germany or Italy. But through the European Payments Union and later the European Economic Community—all encouraged by American policy-makers—intra-European trade boomed. Noting how quickly Germans had abandoned the old inter-war obsessions with land and autarky, Elizabeth Wiskemann commented in 1956 that “in a Europe which has plans to prevent sharp recessions in trade and their consequences, in a Europe which is striving after peaceful integration, and whose communications have seemed to melt distances to nothing, the aim of national self-sufficiency seems to have become irrelevant.”
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European governments, though, were not simply the passive recipients of American generosity. They had effectively thwarted a return to isolationism by dragging Washington back into Europe with their scare stories of the menace of communism. If the Americans were now the imperialists, they were there (in Lundestad’s words) “by invitation.” The Europeans too had their priorities and strategies, and the post-war boom needs to be assessed in the light of their domestic policy choices. To be sure, the old concerns about inflation (especially during the Korean War), the balance of payments and the balanced budget had not disappeared: they survived particularly in countries like Italy and Germany which came out of the recent past with a deep mistrust of
étatisme
. But by the 1960s, governments across western Europe were placing demand management, the pursuit of full employment and economic growth above price stability. In other words, they were more willing than ever before to accept a degree of inflation in return for prosperity. “In all European countries,” Postan wrote, “economic growth became a universal creed and a common expectation to which governments were expected to conform. To this extent economic growth was the product of economic growthmanship.”
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We can chart the development of the new creed fairly precisely. In the early 1950s, the annual reports of the new OEEC (the Organization for European Economic Cooperation) spotlighted the need to improve productivity as the key to expansion. In 1956 it used the
phrase “economic growth” for the first time. When the organization was refounded in 1960 as the OECD, article 1 of its founding charter stated that the organization aimed “to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries.” In Walt Rostow’s
The Stages of Economic Growth
(subtitled “a Non-Communist Manifesto”)—which explained “takeoff” into prosperity as a universal, historical process—the growth creed acquired its gospel.
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“Growthmanship” was not only to be found in official circles. In the private sector, too, confidence grew out of the uncertainty of the early 1950s, and private investment soared alongside public. Indeed, the striking feature of the post-war boom was the way public and private sectors seemed to have achieved a mutually acceptable and beneficial symbiosis. As the egalitarian mood of liberation faded, the socialist assault on capitalism failed to materialize; planning gave way to nationalization, and then to “direction” and “guidance.” The planned economy which the CDU had committed itself to in Germany in early 1947 melted before the triumph of Ludwig Erhard’s “social market economy.” In Britain, where Labour seemed initially so hostile to the private sector, employers were treated with a respect which would have startled, say, the more directive Dutch authorities; even in France, “planification” turned out to be a largely hands-off affair, though apparently none the less successful for that. “What was it,” asked Andrew Shonfield, perhaps the most acute analyst of the new European economy, “that converted capitalism from the cataclysmic failure which it appeared to be in the 1930s into the great engine of prosperity of the post-war world?” The answer, according to him, lay in the “changing balance of public and private power.”
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Contrary to the UN Economic Commission for Europe’s 1953 fears, private-enterprise economies achieved high rates of investment and growth rivalling those in eastern Europe. Entrepreneurs benefited from official demand management and full-employment policies, and could invest more confidently in the knowledge that counter-cyclical economic management by the state was smoothing out the trade fluctuations which had bedevilled inter-war economic life. As this management was widely regarded as resting on scientific foundations, it is not surprising that Shonfield should have concluded
confidently that there was “no reason to suppose that the patterns of the past … will reassert themselves in the future.” Wise policy, social solidarity and adaptable institutional cooperation guaranteed for western Europe one of the most remarkable achievements of its history.
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