Globalization & Economic History: Europe-US Productivity Gap (1914-1945), Sintesi del corso di Storia Economica

Scarica Globalization & Economic History: Europe-US Productivity Gap (1914-1945) e più Sintesi del corso in PDF di Storia Economica solo su Docsity! ECONOMIC HISTORY EXTRACTS SUMMARY II Total extracts: 7 (6.1, 6.2 ,7.1, 7.2, 8.1, 8.2, 9.2) The world economy after the Great War 1. The interwar economy in a secular perspective 6.1 Interwar Period: (1918-1939) Modern Economic Growth: Its main features include an acceleration in the growth of population and consumption, a rise in savings and investment ratios, and a shift in the composition of GDP away from agriculture. Aggregate product derives increasingly from the manufacturing and service sectors, with a similar change in the pattern of consumption. International movements of goods, services and factors of production. First Globalization (1860-1913): labor (immigration), goods & services, means of production (industrializing process of the world) Divergence process: More advanced economies have increasing productivity rates (GDP per capita) with respect to less developed countries. Japan is an exception. Was able to catch up in productivity with UK, US, continental Europe etc.. Globalization Backlash (1914-1945) Decreasing productivity (1913-50) with respect to previous periods (Belle Epoque) and future periods (Golden Age) Decrease in international trade and cross border movement of factors of production (labor l and capital k) Aggregate quantitative changes during Globalization Backlash: 1. Different effects in individual areas 2. Satisfactory rates in 1920s and depressed performance in 1930s 3. Decline in international trade 4. High unemployment 5. Increase in labor productivity, particularly in 1920s Great Depression: 29/10/1929 → stock market crash Crisis in multiple sectors: Banking, Real Estate, Agriculture (overproduction) Deflation → lack of investments Rise in unemployment Policy response: 1. Smoot Tariff act + constant high rates from the Federal Reserve to maintain external impression of financial solidity → depressed the economy (Hoover) 2. F. D. Roosevelt New Deal → stimulate economy and aggregate demand through state intervention in the economy Total recovery only with WWII productive boost Lack of international trade and cooperation →productivity of USSR outpaced inefficient market economies. WWI + WWII combat on European soil → destroy infrastructure, economy and social structure → US profits from increase in production during war periods and expands its productive gap with Europe 2. The legacy of the first World War 6.2 WWI → watershed of 18th and 19th century Primary goods producers (colonies)→ affected by fall in prices Industrial output in Europe fall by 30% → particularly Poland, Germany, Austria and Belgium suffered fall of prod. US Banking crisis of 1930 → 3 years of crisis until US abandons Gold Standard in 1933 1930 → Bank of United States fails → overexposed on NY real estate → fall in house prices due to the crisis depleted BoUS assets Depositors fear bank solvency and shift their preference from deposits to cash which decreases the total money supply → less credit. DEMAND SHOCK Some banks fail and people are more suspicious of other banks → less banks with higher cost for credit intermediation SUPPLY SHOCK Currency crises in Austria and Germany: Vienna 1929 → fails Bodencreditanstalt (second largest Austrian Bank) Vienna 1931 → crisis Credit-Anstalt → Bank runs from depositors to exchange Austrian schilling with £ or $ → Schilling depletes in value Germany 1931 → German Banks in similar position → collapse of banks and Deutsche Marc August 1931 → Germany leaves the Gold Standard September 1931 → Britain leaves the Gold Standard Bank of England sharply reduces interest rates in 1932 to stimulate investments Expansive monetary policy + devaluation → stimulate investment and exports The $ under pressure October 1931 → Financial panic spreads from England to US → bank failure rises Federal Reserve raises interest rates to protect the dollar → depress economy - International stability > Domestic prosperity - Deflation 1933 US exits the GS Sterling Area: US, UK, Argentina, Commonwealth, Northern countries Germany, Austria, Hungary… substantially made the GS ineffective France, Italy, Belgium, Netherlands kept the GS (Gold Bloc) → damage to the economy Italy → direct intervention and management of the government in the financial sector + secrecy (fascist regime) → maintain stability but experience deflation and falling production The end of the contraction: US: F.D. Roosevelt elected in 1933 → change in policy - Stop effort to settle war debts - Raise commodity prices - Devaluate the $ - Increases prices and economic activity 4. The fragmented world of the 1930s 7.2 Sterling Area vs Gold Bloc Stimulate economy and demand through elastic monetary and fiscal policy vs Maintain stable currency and adjust prices with natural deflation and decrease Y Y = Output The sterling bloc was able to exit the crisis faster and start to recover by 1935 The gold bloc suffered way more and could not exit the crisis spiral until it started devaluating (Fr) or WWII demand boost occurred Politics stand in the way of economic cooperation → late decision and action to solve the global crisis → Treaty of Versailles & Autarchy experiments 1932 → Lausanne Conference → official end to war reparations (De vs Fr) 1933 → World economic conference → 1934 US legislation end to war debt Roosevelt → priority to domestic economic well-being rather than price of the $ The Sterling Area Britain devaluation 1931→ low rates → economic expansion → improve trade balance (+export) Britain trading partners follow the UK strategy and get off the GS Growth and production increase + reduce unemployment Commonwealth conference 1932 → trading within the Sterling area →common policies 1933-38 stable exchange rate £/$ Better performance of Sterling area vs Gold Bloc Gold Bloc Two different approaches: 1. German approach → intense regulation and limits on exchange Mark/Gold + high state intervention = CURRENCY CONTROLS→ partial success to stimulate economy 6. Mainsprings of growth 8.2 Golden Age (1950-73) GDP growth Western Europe 4.5% Peripheral Europe 6.0% Eastern Europe 4.7% World 4.8% Acceleration in growth was > in Europe than in the US → closing the GAP by 40% from WWII Increase in: o Capital stock o Average levels of Human Capital (immigration + education) o Technical change o Investments (excluding residential) Gross Fixed Investments as a share of GDP rise (Fr 12%, 14%, 17%) (De 11%, 17%, 18%) o Employment Convergence: additional growth in Europe achieved by closing the efficiency gap opened from the end of 19th century to 1945 with the US. Code of Liberalization of the Organization for European Economic Cooperation (OEEC 1948), the General Agreement on Tariffs and Trade (GATT 1947) → WTO, and the Common Market were powerful motors for the expansion of Europe's trade Elastic labor supply → reallocation from agriculture to industrial and service sectors What stopped the European Golden Age? Early 1970s o Collapse of Bretton Woods system (pegged but adjustable exchange rates) 1971 o Oil shock (Organization of Petroleum Exporting Countries) 1973 → Commodity prices inflation o Vietnam War → expansionary fiscal policy in US 1955-75 Was Europe only lucky during the Golden Age because there were no major economic shocks and growth was therefore extraordinary or high investments, rapid export growth and wage moderation were the consequence of a successful number of economic, fiscal and monetary policies and institutions? Institutional Foundations of the Golden Age Neocorporatist bargain → mediation of the state in bargaining between capital holders (firms) and Trade unions → keep low wages in exchange for social security, welfare and representation in Board of Directors for employees → incentivize investments Rewards and penalties system (Austria) → firms that agreed to follow reinvestment policy of profits and dividend payment regulation would access raw material from the state at below market price or had tax benefits on income tax (Germany) European Payment Union (EPU 1950) → coordinate response to the need of current account convertibility (exchange domestic currency with foreign currency i.e. $ to promote international trade) → promoted by US funds (Marshall plan) European Coal and Steel Community (ECSC 1951) → IT, DE, BENELUX, FR. (Anticipated Eu council, Eu commission, ECJ →1958) European Economic Community 1957 treaty of Rome → further liberalization of trade and international commerce driven growth → Export-led Growth → undervalued currency and not rising interest rates The End of the Golden Age End of 1960s output and productivity growth begin to slow down. Why? o Rise of capital to labor ratio (k/l). Europe success to build up its own capital and decreasing labor elasticity due to efficient allocation of workers o Change in technological circumstances. Closed the gap in technology with US → decrease in profitability of implementing foreign machinery and technology → need to invest in European R&D → institutions become an obstacle to innovation, not a catalyst like before o Strikes, wage inflation, declining profits in national income. → brought to lower investment rates after 1973 o Collapse of Bretton Woods system → rise in expected inflation (i) → rise in required wages o Post war neocorporatist bargains are less attractive → if monetary policy demand stimulus result in inflation rather than increase in Y growth Trade unions demand for higher wages, rather than promise to improve social welfare. o Increase in state expense for social security, healthcare etc… to maintain low wages → diminishing returns Solutions: →less state intervention (Thatcher etc…) Single market program 1986 (increase competition) Plans for monetary unification 1989 (€) Productivity Growth Post 1995 productivity growth in Europe slowed down to ¾ compared to US (before it was almost 2x of US prod. Rate) The role of Information and Communication Technologies (ICT) → increasing returns on investment R&D spending is key for development of ICT continues to lag behind in Europe o 2003 →US expense in R&D = 2.3% of GDP vs 1.9% of GDP in Europe o Complex European regulations for start-ups o In Europe workers are liabilities vs in US easy to employ and lay off o Less securitized and risk-taking financial sector → less Venture Capital and complex securities market ICT investments account only for 30% of US faster rate of growth Total Factor Productivity (TFP) → part of growth not accounted by the growth of capital and labor inputs 70% of US VS EU differential is accounted by TFP ICT may have an impact on TFP because it makes logistics, manufacturing etc.. more efficient → labor saving technologies EU difficulty to reorganize labor according to new technologies → higher costs and barriers to entry 8. Industrializing late 9.2 Amsden (pp 1-23) 20th century emerging economies The Rest = (China, Indonesia, S Korea, Malaysia, Taiwan and Thailand, Argentina, Brazil, Chile and Mexico, Turkey) 1965 → The Rest supplied less than 5% of World total manufacturing output 1995 → The Rest supplied almost 20% of manufacturing products Late industrialization was a pure learning case → adopt foreign technology without prior proprietary knowledge Knowledge-based Assets Mission of industrializing countries → attract labor and capital from assets based on primary products to assets based on knowledge → shift from unskilled labor to skilled labor by attracting capital (human and physical) Set of skills to produce and be competitive in the market Set of capabilities: - Production (transform inputs into outputs) - Execution (expand capacity) - Innovation (design new products) Information is factual → invest and on paper acquire perfect information Knowledge is conceptual: - Firm/individual specific - Kept secret from competition - Tacit, Intangible, Invisible Emerging economies faced two policy options: 1. Wait for market process → cut wages and wait until firms reinvest profits in knowledge-based assets 2. Intervene → actively invest in knowledge through subsidies Japan case study: 1st industrialization end of 19th century → exploited cheap labor to adopted labor saving American/European technologies 2nd industrialization post WWII → had to intervene and reorganize industrial organization to be competitive Countries in the rest set up control mechanisms to compensate for delay in industrialization (second part of 20th century) → Allocate subsidies to make manufacturing profitable + control performance of recipients of subsidies o Sensor (detect the recipients to be monitored) o Assessor (compare results vs Expected results) o Effector (help correcting behaviors) o Communication Network (exchange useful information) RECIPROCITY: Tie subsidy to performance Golden Age of The Rest → second half of 20th century Integrationists: open to foreign investments Independents: create their own skilled based production → causes of different approaches are previous manufacturing experience and distribution of primary resources