World Economy – Explanations of Europe’s Economic Age
MARSHALL PLAN
De Long and Eichengreen (1993)
• $13 billion in US reconstruction aid 1948-51
• It was too small to create any significant change. MP was less that 1/5 of gross investment.
Only 17% spent on machinery.
• Europe’s transport network largely restored before MP.
Then what?
• MP mattered in the sense that it pushed European political economy towards mixed
economies, with more ‘market’ and less ‘control’
Restoration of price stability:
• Price controls used to keep budget deficits down. Encouraged farmers and manufacturers to
hoard.
Free play of market forces
• MP administrators pursued ‘salvation by exports’ and trade integration: culmination in the
EPU in 1950.
Social contract and LR growth
• Inflation resistant labour markets produced business cycle stability. Labour peace was a
‘potential’ precondition for MP aid.
CONDITIONAL CONVERGENCE
Abramovitz (1990)
At least 5 reasons poor countries should grow faster than rich ones;
• They can import equipment without innovating
• Can add to capital stock
• Rapidly expand/ improve education
• Move redundant workers out of farming and petty trade
Above methods can create markets and create economies of scale. BUT they need ‘social capability’
to do this:
• Political institutions and integration and consensus in favour of development
• Technical competence
STRUCTURE OF DOMESTIC INSTITUTIONS
Eichengreen (1996)
Nature of the bargain:
• 1950’s Germany, Norway and Belgium combined wage restraint with investment-friendly
policies.
• Called ‘productivity agreements’ in Belgium. In Norway these were combined with price,
profit and dividend controls.
• In the UK, Ireland and France wage pressures remained intense, and wage ratios and growth
rates were lower.
EVOLUTION OF DOMESTIC INSTITUTIONS
• Most countries saw an increase in centralisation 1945-65 as employers’ associations were
rebuilt and union membership expanded.
• Prevented unions from responding to investment by their own employer with wage
demands – danger mounted as u/e fell.
MARSHALL PLAN
De Long and Eichengreen (1993)
• $13 billion in US reconstruction aid 1948-51
• It was too small to create any significant change. MP was less that 1/5 of gross investment.
Only 17% spent on machinery.
• Europe’s transport network largely restored before MP.
Then what?
• MP mattered in the sense that it pushed European political economy towards mixed
economies, with more ‘market’ and less ‘control’
Restoration of price stability:
• Price controls used to keep budget deficits down. Encouraged farmers and manufacturers to
hoard.
Free play of market forces
• MP administrators pursued ‘salvation by exports’ and trade integration: culmination in the
EPU in 1950.
Social contract and LR growth
• Inflation resistant labour markets produced business cycle stability. Labour peace was a
‘potential’ precondition for MP aid.
CONDITIONAL CONVERGENCE
Abramovitz (1990)
At least 5 reasons poor countries should grow faster than rich ones;
• They can import equipment without innovating
• Can add to capital stock
• Rapidly expand/ improve education
• Move redundant workers out of farming and petty trade
Above methods can create markets and create economies of scale. BUT they need ‘social capability’
to do this:
• Political institutions and integration and consensus in favour of development
• Technical competence
STRUCTURE OF DOMESTIC INSTITUTIONS
Eichengreen (1996)
Nature of the bargain:
• 1950’s Germany, Norway and Belgium combined wage restraint with investment-friendly
policies.
• Called ‘productivity agreements’ in Belgium. In Norway these were combined with price,
profit and dividend controls.
• In the UK, Ireland and France wage pressures remained intense, and wage ratios and growth
rates were lower.
EVOLUTION OF DOMESTIC INSTITUTIONS
• Most countries saw an increase in centralisation 1945-65 as employers’ associations were
rebuilt and union membership expanded.
• Prevented unions from responding to investment by their own employer with wage
demands – danger mounted as u/e fell.
