------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (May 2007)

Barry Eichengreen, _The European Economy since 1945: Coordinated 
Capitalism and Beyond_. Princeton: Princeton University Press, 2006. 
xx + 495 pp. $35 (cloth), ISBN: 978-0-691-12710-1.

Reviewed for EH.NET by Stephen Broadberry, Department of Economics, 
University of Warwick.


In 1996, Barry Eichengreen published an influential article in a book 
edited by Nick Crafts and Gianni Toniolo, _Economic Growth in Europe 
since 1945_, (Cambridge University Press). Eichengreen argued that 
the same institutions which facilitated postwar recovery in western 
Europe during the 1950s and 1960s, also exerted a drag on growth from 
the 1970s. The high growth of the 1950s and 1960s was seen as a 
result of the particular suitability of western Europe's institutions 
of co-ordinated capitalism to catching-up on the United States 
through capital investment and the absorption of technology and 
organizational forms from abroad. However, as the frontier was 
approached, the unsuitability of those same institutions for 
innovation was seen as creating a crisis of adjustment. This 
excellent volume can be seen as expanding on the ideas first 
developed there, updating them to take account of the experience of 
the last decade, and bringing the centrally planned economies of 
eastern Europe into the picture. The picture is now much more nuanced 
than the earlier article, and the author has become more ambivalent 
about Europe's economic prospects.

The links to the earlier article are still very visible in chapter 2 
on the mainsprings of growth, which sets out the basic analytical 
framework. A great deal of emphasis is still placed on the 
"neocorporatist bargain" or postwar settlement between employers, 
trade unions and governments, which is seen as underpinning high 
levels of investment. Workers agree to wage restraint so long as 
employers commit to high levels of investment, and employers commit 
to high levels of investment so long as workers agree to wage 
restraint, with the whole bargain being overseen by an 
interventionist state committed to maintaining full employment 
through Keynesian policies. The establishment and more or less 
successful functioning of these neocorporatist bargains in individual 
west European countries is analyzed in chapters 3, 4 and 7 on the 
1940s, 1950s and 1960s respectively. Chapters 7 and 9 focus on the 
difficulties which these institutions faced in the 1970s and 1980s. 
The problem can be seen as the breakdown of wage restraint as growth 
slowed down with the exhaustion of the potential for rapid catch-up 
growth, and as memories of the mass unemployment of the interwar 
years began to fade.

Superimposed on this general framework are a number of sub-themes 
which amplify the central argument of the importance of institutions. 
First, the author is able to draw on his unrivalled expertise in the 
area of international monetary systems to show in chapter 3 how 
Europe's neocorporatist bargains were facilitated by the Marshall 
Plan, German economic and monetary reform, the 1949 devaluations and 
the European Payments Union. Then in chapter 8, he argues that the 
institutions of the international monetary system exacerbated the 
breakdown of the neocorporatist bargains as payments problems mounted 
and the Bretton Woods system collapsed.

A second sub-theme concerns the role of economic and political 
integration in western Europe, with the initial impetus to 
co-operation to avoid a return to the conflict of the previous 
half-century seen in chapter 6 as bolstering the institutions of 
coordinated capitalism in western Europe. In chapter 11, the further 
integration pursued since the 1980s is seen as identified with 
liberalization, and thus helping to overcome the crisis of adjustment 
by undermining the institutions of coordinated capitalism.

A third sub-theme is the application of the basic approach to eastern 
Europe, the most extreme case of coordinated capitalism, where the 
market economy was all but eliminated. Here, of course, the specifics 
need some modification, but even eastern Europe conformed to the 
pattern of rapid growth during the 1950s and 1960s, followed by 
slow-down from the 1970s. Large firms and unions were organs of the 
state, so there can be no equivalent of the neocorporatist bargain. 
However, in discussing western Europe, Eichengreen counters criticism 
that his earlier work was too focused on the highly unionized 
manufacturing sector by noting that the 1970s saw not just a 
breakdown of the neocorporatist bargain on wages and investment, but 
a major technological shift associated with the decline in the cost 
of information processing, with radical implications for the 
organization of services as well as industry. This shift towards 
information and communications intensive technologies, allowing much 
greater customization of output to individual consumer tastes, can be 
seen as creating difficulties for the institutions of organized 
capitalism in western Europe, geared towards large-scale production 
of standardized products and provision of standardized services in 
regulated markets. But for eastern Europe, where governments relied 
for their survival on limiting the free flow of information, it 
proved fatal. The experiences of the centrally planned economies are 
discussed in chapter 5, covering the rapid growth of the early 
postwar period, and chapter 10 on the collapse at the end of the 
1980s and the subsequent transition.

The book ends with the author hedging his bets about Europe's 
economic future, depending on whether the most appropriate indicator 
of economic performance is GDP per capita or GDP per hour worked. 
Although GDP per capita in Europe is only around two-thirds of the 
U.S. level, GDP per hour worked is about equal to, and in some 
countries higher than in the US. The MIT view of this is that 
Europeans simply enjoy their leisure more than Americans, who are 
caught in a rat race. However, the Minnesotan view is that Europe is 
being held back by the institutions of coordinated capitalism, with 
high tax rates and regulations stopping people from working as much 
as they would like. If you accept the Minnesotan view, Europe is in 
for a tough period of liberalization or relative decline, but if you 
accept the MIT view, Europe can continue to enjoy its chosen 
combination of high productivity and leisure.

My main criticism of the earlier article was its bias towards 
manufacturing, and that has been dealt with to some extent here by 
the discussion of technology and its application to services. 
However, this has the effect of giving a much more central role to 
changes in technology, which are never really explained in any 
detail. Also, a place has been found for the importance of the shift 
of labor out of agriculture, but again agriculture is never really 
covered in sufficient depth. However, any shortcomings in the 
treatment of the major sectors should certainly not weigh heavily in 
the balance against the overwhelming list of positive features about 
this book, which is clearly structured and well-written, concise and 
clear. Above all, it strikes a masterly balance between a clear 
theoretical structure and sufficient attention to historical detail.


Stephen Broadberry is Professor of Economic History in the Department 
of Economics, University of Warwick, and co-organizer of the CEPR 
Economic History Initiative. His most recent book is _Market Services 
and the Productivity Race, 1850-2000: British Performance in 
International Perspective_ (Cambridge University Press, 2006). He is 
currently co-editing (with Kevin O'Rourke) a 2-volume economic 
history of modern Europe.

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