European Economies Since the Second World War

The central feature of the early post-war British economy is relative economic decline, that is, the overtaking of British income and productivity levels by other faster growing countries. In the 1980s, many people began to believe that this process had ceased or even been reversed by the dramatic changes of the Thatcher years. In this chapter three specific questions about growth are discussed:

When the post-war era opened, the UK not Germany was Western Europe’s largest economy in terms of both population and gross domestic product. Germany (the Federal Republic of Germany, or West Germany as it was until 1990) overtook the UK in population in 1952, but it was not until the mid-1960s that the economy was larger (Maddison 1991, Tables A.2 and B.4). Reunification between East and West Germany in 1990 took Germany from being about one-tenth larger in population than the UK, Italy or France, to being some 40 per cent larger. But reunification did not increase the size of the economy (GDP) to nearly this extent because of the poor condition of the East German economy.

In the aftermath of the Second World War until the late 1950s, France was perceived as politically unstable and economically fragile. This perception changed sharply in the early 1960s, however, when the effects of rapid economic growth on living standards became apparent and President de Gaulle consolidated the political structures introduced by the Fifth Republic. By the 1990s, France could justifiably claim to be the second most important economy in Western Europe: according to the OECD (Economic Survey of France 1995), only Germany had a bigger GDP and, in purchasing power parity terms, French citizens were the third most affluent in the European Union (see Maddison 1995, Table D-1a).¹

At the end of the war, in common with much of Europe, Italy’s economic infrastructure was seriously crippled. Very little of her merchant marine had survived, roads and railways were severely damaged, and the stock of houses, already badly in need of repair before the war, was severely depleted. Output was at a very low level, because of a lack of raw materials, a shortage of dollars and the general disorganization of the country, after a long period of bloody fighting, German and Allied occupation and civil war.

The Benelux countries — Belgium, the Netherlands and Luxembourg — are surrounded by the great powers of northern Europe, and their population, taken together, has never amounted to more than half that of France, Britain or Germany. Over the centuries the central location and small size of the Benelux countries have created both dangers and opportunities. These countries have been traversed by the armies and buffeted by the economic policies of their large neighbours. But being at the crossroads of Europe, the Belgians, Dutch and Luxemburgers have often been able to profit by acting as commercial and financial intermediaries. These countries have been among the ranks of the most developed economies since the Middle Ages, and at the beginning of the twentieth century, along with Britain, were at the top of the European league table of income per capita.

To the casual observer the economies of the two Iberian neighbours, Spain and Portugal, appear to have followed broadly similar trajectories in the post-war era. Relatively recently they were backward economies isolated from the European mainstream before joining the ranks of the late modernizers during the 1960s. Both countries were governed by authoritarian regimes that traced their origins to the period which witnessed the rise of European fascism. Prompted by the vogue for economic nationalism, the Franco and Salazar dictatorships adopted inward-looking, autarkic economic strategies which they clung to well into the prosperous liberal capitalist era in the non-communist world. Both regimes survived long after fascism’s demise and eventually began to integrate their economies, followed later by their political destinies, into Europe. In both cases economic modernization preceded political transformation. When the long-delayed process of catching up with Western Europe did commence from the late 1950s onward, it was characterized both by high growth rates (rating the epithet ‘economic miracle’ in the Spanish case) and a marked unevenness as agriculture proved to be largely immune to the stimuli that gave such an impulse to the rest of the economy. Growth has not been continuous and has been punctuated with relatively short-lived recessionary troughs. On occasions the slowdown can be attributed to the exhaustion and limitations in the economic model being adopted. A further determining factor is that progress has been intimately related to external growth, especially the stimulus emanating from the European and world markets.

In this chapter we focus upon the three largest Scandinavian economies. As there are deep cultural, economic and political links between Denmark, Norway and Sweden, these countries are sometimes viewed as an entity. There is a long history of political and economic union in Scandinavia: for three and a half centuries, until 1814, Norway was a part of Denmark. Thereafter, for nearly a century, Norway was semi-ruled by Sweden, through a coordinated foreign policy and a mutual king (personal union).¹ The countries also share many religious and ethical roots.

This chapter is, of necessity, different from the others in this volume. First, we must consider not only issues of growth and stagnation, but also failure, decay and final collapse. For the events of 1989 brought to a clear end the socialist experiment, or at least, a particular type of socialist experiment, in Central and Eastern Europe. Second, the role of politics takes on more importance, because, in the case of the countries which we now call the Visegrad Four (Poland, Hungary, the Czech Republic and Slovakia), it was not governments pursuing policies to influence the economy, but rather planners who thought that they could dictate the pattern of output and the path of economic change. Third, because the cycles of growth, stagnation, decay and collapse were dictated primarily by problems encountered in trying to plan and only secondarily by developments in the international economy, the periodization is different (see Table 8.1).