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April 30, 2008


Ernie Tedeschi

Economic historians are, expectedly, fascinated by periods of growth or decline. No other cycle commands the level of academic interest that the Industrial Revolution does, but deep enclaves of literature have nevertheless grown around several economic events and periods. Usually, this is because a satisfactory narrative is elusive and the true causes of boom or bust are nuanced in each particular case. So it is an interesting change to consider the research into the "Glorious Thirty Years" in post-World War II Europe, where a simple, "unified" explanation evolved quickly that satisfied many, but clearly not all. The detractors then set about to add layers of analysis to a period of history that did not cry out for more.

Neat, tidy historical or economic narratives are suspect, and academics have no purpose if not to approach such assumptions with skepticism. Thus the efforts of Eichengreen and Olson to paint an institutional explanation alongside the familiar canvases of convergence and delayed growth are not categorically wasted paper (or pixels). But William of Occam's treatise not to multiply entities beyond necessity is convincing too, especially when the alternative views are, at the end of the day, not convincing. That's where I find myself after reading Olson and Eichengreen.

To summarize: Temin lays out an explanation for post-WWII European growth that is built upon disequilibrium and convergence. The war itself and the preceding thirty years of World War I and the Great Depression had pushed factor markets into disequilibrium, arresting industrialization and causing countries to over-allocate resources into agriculture. He provides evidence that the more-agricultural countries before WWII were the ones who saw the most robust growth in the thirty years following 1945. While an ex post test for disequilibrium is not terra firma -- Temin does not convince me that, say, Spain would not have been just as agricultural in a non-WWI counterfactual -- I think the pre-post growth correlation is a significant find. Olson and Eichengreen, meanwhile, focus on institutional arguments. Olson believes that political stability hindered growth relative to other nations because stability incubates growth-choking narrow interest groups. Thus Great Britain, whose cities bore scars from V-2s but whose political system was hardly shaken, saw stagnant growth from 1945 - 1975, while Germany and Japan adopted fresh institutions and experienced "miraculous" growth during this same period. My problem with her argument is that many of the interest groups and institutions of the pre-war years survived into the post-WWII era. In Germany, for example, the only interest group casualty was the Nazi Party. Other parties -- including the Communist Party -- and labor unions survived. In fact, in a post-war West Germany that was politically and militarily more stable, Olson's villainous narrow interest groups should have been more effective, not less.

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