WIDER Set in Deslopment Eemors ey be up eee the Wor ne fr Deep coors asec {SHIDER which endl by he Usted Neos Uner 95 fs erch md ing cen 984 and sed work el 1985 The pep prs ofthe ae ope an me the "ed for pol oe xe eco each on resi a sm {capnent probly, awl a common Seni eben he The Golden Age of Capitalism Reinterpreting the Postwar Experience Edited by Stephen A. Marglin and Juliet B. Schor Clarendon Press - Oxford A990ae The Rise and Fall of the Golden Age ANDREW GLYN, ALAN HUGHES, ALAIN LIPIETZ, AND AJIT SINGH. 1. INTRODUCTION In 1972 afer wo decades of what has been termed 2 olden age of covomie performance i ould be confide wet th hee 9 spel eon © doubt ta the undering wend of som inthe ety tnd mile 197 wl comin much athe 1960 the (romth obsess the cpu of sneer Boalt ace them, [Enea akered agian nd no spect inflenee uo tow be fore Sion wish wuld a dusty Cane the external sor ie ropes ecnnmies (United tone 1972p 129 ‘Similar optimism could be found in forcast and comments abot the prospects for te OECD a whole st that ne. Whereas inthe ‘iy 1960s OECD real GNP gros otc as forecast fo gro by 4 per cent pa. i the meium tem, As had been Tevet upwards 104.6 per cot bythe mid 1960s and 05.1 per cea by dhe ‘ety 1970 (McCracken 197, 8). Now ater a decade and shall of stagnation and pelcy confusion the growth objectives of goverment: td their capcity t ahve them Me viewed in» tly mn cecmapect way. In conta (0 ‘lie fal growth ates of around § percent OBCD output growth in he medium scarcely forecast wo grow ates thaa 3 per ‘ant pa mith no sigicat change in employment ates bythe fend of the decade A. key quertion fing policy makers in the dranced and developing economies is wheiber this represents tment or longterm dine inthe prowch prospects a Oe Sasa countries, for on thee ets of progres Mage prospects for the wort ecoamy as 2 whole ‘We atlemp inthis chapter to throw sme fight on this vy ‘nporent question by adeping historical approach othe pater of postwar development sss the advanced capitals countes1A. Giym, A, Hugh, A. Lip, and A. Singh (ACCS. This approach is designed to examine te factors which ay behind the emergence ofthe period of rapid and nine post wat Advance in econ performance in these counties, a wel a the factors hat ny behind the erosion ofthe ‘golden age end which account forthe uneven an eratic progres since the exly 1970s. We Ipe to isolate owe factors which may be expected fo pert a + Fermanentinfiaence on progress in he longer frm 8 compared howe which ate more ranatry, as well as to eval de fundamental uracteriica of the golden age Sue ‘Our anata ends in 1979. The sppinunent of Paul Volker as ‘Chairman of the Feder Resere ip that yar symbolized the {cumph of manta policies and Ushered in 2 period of dlberste ent detion, widely tated abrondespecaly i the UK. This Mfcively pot pid 10 prospect of overcoming he second ol ‘rice incene by conventional demand anagem Iially ended ‘tempts to rene le back nt the golden age ecopomicfepe. “Fhe chapter begins with short eatline of the peep maco- sonomic characteristics ofthe golden age inthe bigest sit ACCS, (Ghe US, dhe UR, Jape, Germany, Taly, and France) The gt, Steadnes, speed, and spread f She postwar Boom ae reveled to te a exceptional i the Bory of calm ato sugaet that an lertin frie cecureoce mus be found i + ualque enone ‘apie thes than in a ance se of partclcy favourable economic ‘afcumstnces. We hive ths ornized ov ease of he fenetion- lng aod emergence of he oldee age i Secuon IL in terms of @ furl dvsion ofthe principal characteristics ofthis pate "We dacoss fst the maesenonie suc, which ummsries the macroeconomic rekone which ensure the perpetuation ofthe town path Under this heading come the relations between wages fe productivity berween profits ad capital employed, and between invexizent and consumption In this connection we pce special ea ‘has onthe pris nvesaneat-produciily-wages-protts chain. "The hey eelaionship between ivesiment aod proguciny growth rest om fr more then teciclreatinsip between machines tnd output. Tis impertant to late the ps of Fredton, oF eae Prince governing the technayes of production and the ps fenton of work, most typi af prtlr pend. Such an exe Sion beyond whats conventionally regarded as eso ato the Spheres of indus cganzain and soccogy we Gece, ese {al ea rounded account of patens of growth The Rite and Fall of the Galen Age “ ‘Our thi ce of sayin if the sof cordon wich odor compat between ills hehe od the mae Sonomic aterm. Th aloes the stone of nope sting ad brig whch generat the pth of dst hewen ge ad roi the ste fc and eit pols which garnet ‘insin dem snd so Fay, inion countnes combine 10 forms an ntecnaion system, wih spar conursion of nde sad cpl ows ‘eect htc of comgctivncny nd encton sending 1 Cerin impli o et ues. Ths the Gur mente aterm of event the totale. eeleve tht» feria ster of dovspment hast exibit a cobeence ot st th thes sphere, bs betwen hes el ‘The macroeconomic arcu of doa cou duro he sen age was ould on and eroded by sparse of Frodution, war elt ya sto sosadzn ue, fan {foned win» prise intial dr, Sasa ed te undermined by problems rgoating in one of ure of hese spheres whch then thr the ober out syshronttan, The mo Sn wich hs ocurred in Sst IN, wich del wt the eon ofthe goin age Th flowed by» Hl sero i ‘ic we preset our pep concn "Wet hr the account othe pln ge dis oon that we sive inthe course othe chopter tl denensne ht ou ppronch bie way of stale, fllmbployten wowdh path Il. THE GOLDEN AGE IN HISTORICAL, PERSPECTIVE ‘There is ile doubt thatthe quarter century fllowing pos Word ‘War Il feconsrution was apa of unprececeated propery and expansion forthe world economy. Between 1950 and 1975 income et persea in dhe developing coumuies incase on evecae by 3 Pet ent pa aceclerating fom perce in the 1950 to 3 pet Cent the 1960. This rate of growth was hstrclly onpreedented fo tse countries and in exer ofthat achieved by the developed ountres in ter peviod of induration (World Back 1978) aA.C A. Haphs, A. Lip, ond A. Singh Tat 21 Goth dance of et a 10-199 ‘area nde eomt) ete of Too ier ois 25 33 niga 19 to Wins 25 aa the developed counties themselves Table 2.1 shows that GDP and [GDP per ad grew almost twice as fst a in ay previous period ‘ince TaD0. Labour peoducity grew ewe as fst as ever Before, Sod thre was masive acceleration inthe rte of growth ofthe ‘ial stock, The increase epi stock represented a invests boom of historically unprecedented length abd vigour, Rapid though the exe ofgronth of ODP was tat outstripped bythe row io the volume of trade which was eight times ster ‘han nthe prod 1913-50 and twice as peat es inte cemury fom 120 (Table 2.1). Trade aswoog the Western indo econowies teas the tnt dyoamic clement in this" with trade and output roth especialy marked in manufacturer. For he wold a whole fuaput of manufacturer more tan quadrupled berween the ealy 1950e andthe early 1970s, and weeld wade in manuactures grew ipnold (Gatcheot eal. 1980; United Nason 1972). The mor tial countries Sega tbe gokden ae wih an instance frome the ner wat Depestion of «historically lw proportion of mantic: tures exported ands low tvel of trade im manvfactars (Table? 20) ‘They ended it wih the postion radially wansormed. “There were ao ear structural changes in the sectoral compos tion of tora opt and in the sectoral titan ofthe bout fore. These repreceted the contnuntin of the longterm struct The Rise ond Fall of th Geen Age o “Table 2.2. Expr sac of GDP 1950-184 a propre of prataton Mimeactre apne, 199-989 (Bipasha : isa FD Tat Grrapeee, 02S Gomen’preet ‘S098 OECD Bnpe Gemmpene 23 m9 UE NO 4 mI 17 3 Comanwics 7 8 143 86 3 ho Jone Gree pease WOT OH WS 100 Gooaantooss (4 'S5 S88 St ra Commies 43a ag Ges pa 0p i TH ln (@ Prperton of manfred 4) Tis Swe Boe ah OF & re ee Ss ese es transformation in employment away fom agriculture tovass indus try and then services (Romthorm and Well 1987; Singh 1977, 1987) speed the prislpal employment shit was tomards sere, with the industrial share pedking ad then ling betreen 1960 and T9BL (Table 2) Since producti zromth nity was ta tilly higher than in services between 1950 and 197, the cut Stare ofindusey did ot silt ro de same extent as employment.Abn, A, Hah A. Lip, and A. Sih The Rie and Fall of the Galen Age 6 “Totke24, Gla chris sa9-1997 | (Gmc songs ff ‘esas Hise Toe fen eat fone a =m e Ser ‘i aa = Tea ee 3 cin “3 oa ions oe 150.73 “04 a 1 Be Gay or Od US {Se tat Gam, 81 | ‘The years 1980-73 were also characterized byw macke improve: ment in sabi. Table 2.4 shows that station fn GDP and ‘apot growth were substantially lorer than ever before, with nee ‘loyment rates one-third lower than in the ped [8701913 spd less than one half of those ding 1928-30. Consumer prices, omer, eifed upon at an avenge of & pee cent pa fr than In the prevnue pers alae, ‘Air 1973 Where was 8 deteeion ia the peformance ofthe work economy andthe asia coustses within, Whit ven ‘ent in caeal sack bed up reasonably well 1999 (Tables 21 and 2.4), opt, productivity, aod expert growth al al karly, ia ‘ily in export volumes and GDP ierested, and uncspoycn aod inaon both rose. Eves so peformancedring the period 1973-73 Sl looks comparatively good in lonpterm historical perspective “The postion deteriorated radially ater 1979 i ‘Whi all be msjoe indus couse shared in this pri of i spe and ably to sme dee, there were ignient ifr: | ences between them (Table 26) Thus the US experienced a mee age aoe Ree blag Imodest acceleration in output and cept stk growth hans Principal industrial competitors and experienced lees of Unemplay: iment quite comparable wih longterm hired expeience (cept {og the worst Deprstion yeas). qu masked was the fale of nt SonesA. A Has Ai, nt A, Sich | a Hl - i — ¢ 3 | I oe Man TH the rate of productivity growth inthe US so match the aceleation ‘apeinced cee. The growth f output pet hour worked in the US remained around 2.5 percent from the con ofthe century tthe 190s (before ellaping derail he pid 1973-81) (Madd son 982), This was sack conirast (the experience ofthe ober Ihajr industrial counties, and has Been constenly related by ‘commentators to the technological leadership role ofthe US in the {olden age (Maddnon 1982; Freeman tf, 1982). As Table 25 Shows, tetmeen 1870 and 1913 technical kadenip, as proxied by Felve levels of outpat er hour mocked, passed from the UK tothe {US In 1950 only the UK of the major industrial countries had a roduc level ove ball that of the US. By 1973 productiviny Ibrets raged between one half and three-quarters of te US level fd the gap continved 0 arr’ tera “These differential pracy pelormances were, as Table 26 sowed ae wd eras ‘och growth, the tte at which eapialimensity changed nd inflaton and unemployment. Again this backgroud ofthe Jong-term sta ecord we can 0 tue the at of cur ky ‘st count of the genet of the golden ape and the nature ofthe ‘conomis tegime on which i was bad I, THE GOLDEN AGE AND HOW IT EMERGED In this section we olin dhe main features ofthe golden og and Inte riely how they emerge rom pos-vae reconstruction ILA The Macroeconomic Structure “The cei etre ofthe macroeconomic partera during the gon fue were”) rapid and para growth of prodactvy and capital “Tebe 24 Foutmar economic pounce ax mr ind eontien Tete: tonal poco poet$A. A, Haga A Lia, ond A, Sigh stock per worker; and (i) parallel growth f ral wages and pradue- The nignifcance a hee tw laons tat they parce ‘bath roughly constant poft rate and roughly equal growth ats of sieumpin and rouson, ho peering he il ate of ‘Of course such golden age growth ook pce very ferent rts in diferent counties (astet in Jap, slowest inthe US and UK with continental European counisissomewire between). Growth ra mainly centred on the domestic make Although inerationl ‘rade grew rapily it began from 4 vey low bate 20 that fo nd ‘sual countries other than he wry small ones) the domesie market ominsted he overall growsh of demand. Moreover, am iacressing ‘ropotton of interouinal ade took place Between the advanced ‘oamtier Ths asthe internal market of the adniced cou tries a+ group that provided the demand aecesay oat the As ast cophaized te glen gt sa a unpecdei arowth rte of tue producti long with a siary high ate of| ‘eit accumalaion (growin rte of the epi stock) (Pig. 21). ‘Based on the generation of mas-producton sytem (se Section TIED blow) as ths Bigh ate of capital sccumlstin per werkt employed that permitted the sclerton sf productivity prowth st onmpared to previous periok. Sinple econometric estimates bused fon the expctence of capitalist counts over the ast 100 years ‘ggst that foe every 1 percent growth of capt tok per worker ployed, hourly labour productiviy increases by 0.75 perce. ‘Given that on avecage capa pe worker grew around 2.8 per cent ‘a. faster over the peiod 1950-73 than during 1870-1913, this trou account for about oid of the 3 perentage pont ia crease (fom about 1.5 percent. to almost 4.5 percent ps.) in Dreductivity growth swally observed. Tis pont deserves emphasis ecaue ofthe cntined popularity of nocasical growth acrount- ing which ypielyacibutes mich ker wet fo capital stack wows” “The rough pain between the gromth rate of capital per sroker and productivity growth ia turn ensured thatthe outpuld Choa ati Fmsiod roughly constant. This kan ovrsimpia ‘on fssmich aster factors such a hours of work and relive ‘ats of productivity growth in coosumpton and capil good sx vers are lvoe nevertbeles, taking the everage ofthe NOCS, the The Rie and Fall ofthe Galen Age ° Fo, 11 ACC producto, capil sky erodes, and enployment, {53-inch OB : ‘ato of net ouput to nt business capital sack hardly vasid be ‘heen the early 180s ad the Inte IDs Cg 2.2) “The profit rate depends on prot shae* This in arn depends on the, growth rate of produc wages (that i, measured in tem of ‘busines product rather than worker" contami) ing ne ‘withthe owt eae of ibour productivity, Fig. 2.3 shows that ‘hese consents ofthe pro sre grew in parallel Together with 4 sable captalouput rato this combed tothe rough connany inthe prot ete (ig. 2. ‘The balance between the growth of real wages and producvgy oes ot simply ensure tat the proft rate maintained to alls consumption to grow roughlt in ine with prcuctin. Ber ‘ween 1952 and 1970 the private contagion ofthe ACCS tse hy 42 per cet pas, whist production rose by 45 pet ent, A fan. amentaly new developsient of the postwar pod atthe the massive growth ia production war countertolenced by at eal srowthofconsimpscn growth of consumption which srt of the nsutoal end poy ianovatons ewe below SeconSA. Glyn A, Huphs, A. Hip, ond A, Singh 10. 12 AOC business mechaiaton and utp rin, 1985-80 Sat! Arming a5 Gy (1980) 2) came to be more ot les sively frecst and anticipated, tending wo all sectors of the populadon but fit and foremost te regrets “The sigifcance ofthe groth of contamption ly not onl inthe imoact on rns ving standards bat on the siurace pve hose taking investment decane of a seadily growing rarer, ‘Ths Togetber with tbe maimenance of what was requenty ap alteady ey high pf ate, in eltively tranquil polite endian, prox ‘ded the went condion forthe perpetuation of the very igh ‘cumulation rates Which had seemed likely to fade withthe com Dlshrent of she asks of post-nar reconstruction ‘These high ae of accumulation were cea als bolstered by ‘he rapid growth of intertonl trade which permitted the mort ‘ces invidual companies wo inves trates whch could nat ave been justfed simply by the growth of their watinal mares ‘The ratio of exports to GDP at constant pose increased from 9 por ‘cen to 124 per cem between 1980 abd 1965 and then acclerted to reach 168 pe cents 1973, Papo of manufacture aso gre faster Tha Rie and Fal ofthe Galen Age 3 10,2. ACC bnew roc nd prods wags, 198-88, See ‘tn nd i 0” i vole ters than production, though for cots other than Germany this tend did ot emerge stony unt the 1960s, and in par the overall figures rected the elatvely cap grovth of Europe and Japan where much Igerpeoportne of manctred ‘output were exported. Despite this stoag growth of the valine of ‘export, te proportion of eocresdevaed ta exports (ested by the curren ree rato of exports to GDP) actualy declined i Europe and Japan up 10 the mid 1960 at productinty growth in the export setors was relatively fat ee Table 2.23). Moreover, ‘his he proportions of imports in suppie of manufactures rose Sted in the Europes couse, bythe early 196 they ere sl teow te levels of 1913 (Mazel 1965; Bachar cal 980). So che ‘eres paced on the growth of tade mast be aan one; wt zany important for div sectr ic wat nota the end of ‘he 19605 tha production for international de abated an incre ig peoparon of labour within te advanced euntses—in ta sese the gollen age growth cou be regarded primarily domestealy tse52 Ahm A, Hughes, A. Lie, and A. Sih Fra, 2.4 AOE pre, 1955-8 Seace: Arto end Gl (196) ‘Under the soden age ptr of development he nfition rate mas ot detrmied por he gro procs an a pepe could {She on ang of yen Fhe acl aerated the te acr- moni pte of prodacinty and come dab derma thm, Uaike an (ese) gold andar, where the determination {Tie pec ev ec ete poy gro pig ts coupued to peuducion a0 whole, the pot wat sre tasers tons cd ve len place pine at ‘enon este tee, Te act te eft the 0 esting, cei eet, td loa ernie rare etned a cco IV a ILA be fave Hee we rte hint was morte sound $ DX cnt Du between 1957 and IBGE inthe advanced coun, swe in Sor where pracy growth we prc "apd (xp ‘mente. “Our dein of the macroeconomic structure ofthe golden age et eth qson of how ws sable wih the us count lesion ot be armed at emerge eae he Rise and Fall f te Golden Age 3 ‘unproblemavly oa the exigencies of posnarreowery que ‘Spl and diflereotaa process was inal In ihe US the busines capt! sok grew a sound 4p ea pa from the endo the ma op tothe ad 1980s (he wat double the sterage lta ate Ba highs than before 1918). The etd of ‘he war saw exceptionally high frois, even afer ax the profit rte ‘rina in 1943 to he 1929 pk. aman was hth nally br pentup postive demand (casing net exports Yo comics, ‘Reontruting after War daage) and then by Kerean War spending find eurmament, Indeed a the later bart of pending fll 099, 30 ‘ithe sccumalstion rte, Ie ello 25 percent a the cod ofthe 1850 wl wa eve bythe Keone Johneon Eecal enpension, ‘ssocated wth soil programes and hen Vietnam War spending Post-war iitonal and pelcy development did ot generate te level of investor confidence regird to push up the corporate op ‘may t0 invest to 2 level slfcent v0 drive demmodup t fall tiation of opel (od thus ene the pci ulerployest ‘profit rat). The US only experienced a bef penod of exesional Sccumulatin (growth ate af the expt stock of nearly 3 pe ea in the ter part of the 1960s. To alae Joan Robissn's eau phrase, the US experience ofthe golden age was rather liming one (Giving rise co underconsumpiinist analyses of the US of Which [Baran aod Swcezy’s (1968) was the ros farous). Tn theater maior cots, by contrast the ate of secamition edged up mre oles stn Yo reach peak rates inthe ey 1960. (ed 1950s in Germany). The 1980s, therefore, saw an enoEmous ‘avesiment bona. In Euope the rat of accumulation doubled afer, the late 1940s ro each me 5.5 pr cent in cheery 1960 in pan the aeclraon as even more spectacle, 2 qudrupling of the frowth rte of the capita stack to 12 per ent. Ths levered up pro {tctviy gromth and allowed output to continue to grow capdhy after the eserves pare expat and unemployed labour had een ‘sed up. The othe se of is ivextment Room eas that Dosinest Iovesiment war aio the mont dye clement of demand. As pereentage of GDP i rove fom 10 per eet fo 13 per ent m Eee ‘etven 1952 and 1961 and from 13 pe ent 24 per cet in Japan fore the same period. Over th sume pend taal verament spend {ng on goods, services, and transers( crtem prices stajed rather steady a around 2 per cet of GDP in Europe and 16 per cea in Tian CArmstrona aad lyn 1986SA. Gym A. Hughes, A Lipit, and A. Sih ‘What oe di igh or rising profit play i tht proce of secler sted ascamltion? After the ma tbe alane between prodaciy tel wages slowed the polit ahare 1 be a lest t comparable ves to preset (ven in Germany snd Ia where prewar meant the {eet syrem). Thee high rates of prof were peerly maintained ‘ntl the end of the 19S, before the slow downorard rend et ta ace Section 1V.). Japan asthe exception where pata erat set of intentional monetary, fanaa trading range ‘ents under whi economfe trchange, parculy betwee the induialcpitalt countries, coud ake pice hn a ote ondecy ard ‘uty beneficial manner than im the invert period The Even o th Poe Wr Inerntonl Econom Order “The ‘new iteroationa exami order which ame ito bing afer the war wat ot spontaneous developmeat. I wast am ‘mainly bythe government ofthe US and the UK, while Word The Rise and Fall of the Golden Age 6 ‘War If was sil in ogres. I rsted on the view that a expesson in the vame of iterations rae Would be exe ote ata ment af fal erplyaent i the US and elewhre, othe preserve. tin of private eneprise, and to the development of an iteraasaal secur system Moreorey, the international economic sytem would need efecive lexirship by the US ifa ber itermatona!ccoomic order along these lines were to be established (Pearse 1953; Garner 196%, Mate 1978) Scunme! 1983) Action regued would include the falowing 1. An iatematona oezaniation {oF the maintenance of exchange buiy apd to deal wih blanc of gusments problems [An itraatioal organization to desl wih ang-ta aternatirl ‘An international agreement on primary-commaity price cont Inernatonl measures forthe reducton of tae bases, ‘The international organization of ke and recone Inernationl mewutes 9 maintain fl employe. ‘This comprehensive programme of international eoacmis ples- bing was te bas of merous initves folowing the end ofthe tear (Scaume! 1983 Niwa 1988). Inthe event he etic pla wa ‘eve fled. I particule tems (3) ad (6) were ot embed in rough suse efor in hese dreions were made ‘The ist two points of the programme were inplemented by the ‘ctabisment of the International Monctary Fud (ME) and the Inecnational Rank for Resnsiracton and Development (IBRD). "There i vluminss Mersture on the ncepintion ad onsets: ions leading tothe Breton Wonds agreement and the setingap of ‘he IME (see Gaer 1969; Van Deel 1978; Horst 1993; Harrod 1951; Milward 1964. As i well knowa, there were basil ‘wo plane for the propo sew monetary authority the mae ‘xpuioniet Keyes plan pt formed bythe Bist side andthe Imoceonthodox, White plan submited bythe United Sta. Tn the ody the US plan cried the day and the esl ea inertia ‘movelary authority which Is inherent iy t= deflationary Bia that ie imposed must ofthe Burden of adusment onthe del ‘counies ad elairely Tite ot none othe surpls cout. The ‘gna Keynes pan eaviaged a more equate shugo the burden of adjustment between the Surpis aad deft counties;Aion A, Mage A, Lit, and A. Si ‘Keynes's conception of the IMF also involved an automatic mechan Fan for tctenng,froatinal gity im acorns wh Treas oc word rae and world economic growth. These sorcom Tio the actual instuiosl arrangements of the TMF became Tei egitca inthe 196s ad 1970s a5 we sal ec er Tie isutuoon ofan stration ede organization proved much rmofe dificult The Hlarane Charter apd the Tnternatiocal Tee ‘Grzaizaon, egodated in 1947, were tlbon- nstead, a less rious General Agreement on Tails and Teade (GATT) became the central vebile forthe prometion of fee tage, The central mncpie of GATT was not-dierimiation, a embodied in the hace ofthe most vue ation. This stipulated that any dan: tage sour pvlege or imaity granted by any contacting party (thnny prod origi in or dened for any other county ball te wcorded immediatly and onconditnaly 10 the Uke product inane in or destined fr the tetas ofall other contracting pace ‘Over the years, the GAT has provided the main foram for mullaeal negontons reduce tide bares and rifs betwen “The inicrnatonal regultory feamework which emerged from the ‘Ango-US plans was the reat of the imeraction of domestic and foreign ply in both the e=onanve and plies! sphere. I this foces fe US held the upper had, Te had emerged fom the war ‘This rene economic power greatly anced, The US aloo ‘med nesey 6 per cent ofthe world's gld reserves and the other ‘tan vl economic pomet (be UR) wa eatin ts Set 1946, the Barorean countries had 2 blance-ofpymnent efit of 85.66, (rit be esto the words in 1947, the det rose $7.60 part (Bra elt of sng US pres inthe afterma of te aolton of Brice consels (Fedor 1986). West aropean eserves io 1948 mounted oon $6.7 bof contrast, the US surplus on goods and ‘See wor tore than STH. ia 1946 apd §1Tbn. in 1997. These ‘Mer the yeas ofthe dllar shortages, ‘The Della Shoo ond che Markl! Pan Rom the point of view of counties oter than the United States 2 UUS meplor on curent account and an accompanying dalla shortage ecame a srius problem when imped either a esricion oftheir ports unemployment is ordee to oi a continual fon of rearves "he Rise al Fal fhe Golden Age o sage pn roe et a eo Sreceesa ty eaten cca Smeteece eeaniat emer ates Sey eee See ane meg sara seas Sera wives 1 gd Mc He ear aioe ee ane Seine rants ares eas feceet ce plas ote ea veers Gas cea ae oes eee een Soe are acral Saeco a cacunene ee ‘the US Congress. “ fe ane a ina at aes oat rrr mane or renin So eed ate oa ea eae oa re ee reno neces aed parr nae tea eee ee eee reece Soe reste nt eee coe ese eer tee ae eee oer eae 2k Sechuale ir Goma Neate sree pans eee atl6A. Giom, A. Hh, A, Lip, and A. Singh sien September 1949, string was devaled hy nearly 30 percent sion the US calla, Tht was followed by sar changes ithe ‘rchange atin thy other countries These evens were combined nih deanary pols bween 1947 and 49 in Tray Fran, ‘Germany, and ther eoustres. Wage increases were tobe prevemted ftom citing into profs and expenditure on wail servis to be Cried in onder ( promote industrial invent. The psn in ‘conic terms inthe inmate period of Marsal aid was to allow {he continuation of the domestic programmes of recovery it the europea econaniee with so income diswibuson led towards ‘fie and invesamen (Armstrong el. 1984) nthe event the ricer pare of a satone recovery pro exam in indie! contri (elf fctated by Marshall) bd the feeign policy biectves of Brin and France thwarted fapid- movement towards = wey based sopex ational, Wester) European vive. loceaed lntegetion of 2 dlferent kind did however emerge aftr 1980 via the European Payments Union and the European Coal an Stel Cozmnity (ECSC). The formation of the later wa strongly supported bythe United States and served the purpor of banging abou cour tlations between West Germany lint France by resolving the tol cone over the Sat. 1 aio Provided an answer ¢o the polially emotive sue of German Fearmament Block 1977; Camps 1966; Milward 1984). In the ci fumsances US ambitions for a greaet European union were ul ‘mae agformed int sppor fora Tile” Europe of the si which thus seen at more racial alteratve (Camps 1960) The US iteres i Lie Erope’s unity consied with the ais ‘ofthe Christian Democratic Pars in the ening European coun trier swell at those of erin European technocrats and alc fens who had in vatious fons long parsed these objecives. The EEC wat esabshed with the signing of the Treaty of Rome on 24 March 1957. ‘The Irrational Economy ander US Leadosip 195-1968 In const othe post Word Wa I period a coberent insicuinat ffeinework for laerationl trade fence, and payments came ato beng waes US leadership afer 194. By the en ofthe 1980s, ost Eurgpenn countries had made their curencies convertible snd the Breton Wondr system had come ino is ova. The European Com ‘muiy bad bee eae. Under the auspices of GATT but with The Rue and Fall ofthe Galen Age o sctive US leadership, + number of willed "ound mutter ‘anf reductions tak place i the 1950s ar TOs By the mad 1960s afer the Keately Round redton, tails on dts non the US, 2.6 percent inthe sx EBC cruntnen, 108 po contin the TUK, an 10.) per cet in Japan. The eaablshrent this ost mar Intertinal trading aad franca sys guarated the enor Increase in word trade which we unerine! a Seton I “The crucial eaerhip function ofthe US in guiding the cpt Sernational economy and in anagig the mbalances inthe stn Inthe two decades following the wae cannot be overestimated. Apatt ftom prontingexrrencyTclgameats ani moneaty stabi ad ter meatier noted eater, the US took trea pe fo faite ‘djuntment (nthe shortest, frig ad and mitary expenditures ped t offset the Mage tade surpluses with Esrope tod Japa the Breton Wonds gal sf convert was abandoned; ant tee discimisaon ‘by Europe and. Japan aginst the Unted Stet accepted. The US supported the Euopeas Payments Union which to discriminated agus the dolar In the longer term, id 1 Europe and Japan, apd the abliion of cceuptin cons i the defeated Aas ounces, were aimed st rebuldng protive and ‘export capacity inthe expectation that Cs would ‘rma widen {he market for American expats. (Spero 1977, p, 37) ‘Asa consequence of thee measure, and ef the European and Japanese econo resoveri,abd so impart set of goer ‘en pending overseas expecally on the Kecean Wat alter 1950 te US eurplus oa goods and erie el starpy and the cutry sored to ran overll deci, The US balance on goods and vies fl fom an average of over Bb, i IS48-9 to 4 average of ss tha ‘tba. per annum inthe four yeas 1982 101955. The US overall Teance excluding me miliary expenditure but ncading government grants and copia teamsacons owl ot peat copa eno ‘ons was 51 Db. i 1948, $0.2b0, in 1943, $2. fbp. in 1953 and ~ $15. 1954. (See Argy (981) for al dea te US balance of payments drag this pad.) European gorerments were eo ouraged to use thie corresponding supine to bul up reer ‘The resuing redsuribution was comisered tobe highly Uesitble Farther, te US deficits ware faanced almost ety by the cent faiabies agaist esl: As Arg) (1981) moves, between 1980 and 1958 he foreign exchange component of world reserves incensed70 A. Gly, A. Haghs, A. Lips, and A. Singh seaty $7 ll of hit tok the form af US dollars. Thus during ths eto he dolar atthe werd rezre eurteny andthe US tea the work's exntal bank The overall otcome was 2 intern: tional tae and payments sytem tht facie an unprecedented tom inthe growth of trade and of rational output and produc For the grater part of the period, the US auhoies fllowed Conservative sso polices, apd the US, and hence the wor te of inlation—gien realy sable commodity prices—remained te Iauvely low by ner sandals, "onever as cry a the binning ofthe 1960, the weskaesies of this iteruional ecnonmic sytem were becoming manifest. The Toot caver of thee dificult asthe conning deterioration ofthe US belinewa-pnyments potion. The USied international oan system was not ly muta nd wes not therefore capable of dling with he imbalances caused y the US sell. By the 1960s the Enroean counres were 80 loge’ wlio acept this station trthou appropriate constant on US economic oly. Thus the ‘stem of ineratonl order which complemented Ue aol s¥- tems of production, macroconomic siacture, and rules of dination was put unde stress bythe pacers of relative national formance to which they ave Comment onthe Lop of be Whole “The interdependence ofthe system of production, the macroecon0- smi stucure, ce rules of o-odination, and the international oder ake it very ail to identify be dving-orce behind growth. Explanation focusing on one apet of the fate af development tach ar exported growth (Beckerman 1962), dean economies of Sele (Kaldor 1967, eres of surpsIbour (Kindlebeget 1967), fr Keynesin demand manigement (Bato 1982) ted to neglect ‘hee imerretonbipe. The sje of production and rls of co ‘rdation underpins 4 certain macteeonomic sretre. This tm term jsiies the extenson of the stem of pecton and reinforce tment ofthe istutional mechan. fie the igh balance Tere these thee facts and, ore especially, x sil comers ‘onthe value ‘of this pattern of development 9 ts various Forms Stich aceon forts ccs, “Thus isthe golden ape pater of development the extension of ‘Tayloit sstems of working sxpanicton, combi th reply deepening mechanization, generted enormous product gsi The Rise nd Fal ofthe Calder Aas ” “These wete putea enportat ithe mast production consumer sods ndses, capellyraber Prien neon $Uumpionsn’ or imdegustedcmaad were avoided hy the petite increase in cel wages, fst enough to provde» market bt nt fst ‘ough (© lcopardiae the probe share Te eatnnan of callectve teaaning ad of wef sate spending enired this growth of demand aod in turn rtkctal« degice of sca conenets and ‘uted the secrsry dgre of nfm invevement of workers st ‘wath. Anticipation of igh profits and expanded markets ji the ‘igh rate of tnvetment- The syem appeared o operate in 4 table fashion aguas the background of coherent world tae aod Py ‘ments sytem and with rltvely marginal domescc regulation in ters of wages and credit poly” Tair stablity however could ‘obvious be threstened by dificult in the sytem of produto, the rls of coardinaton, the macrocconomie Rractre, of fnteroa, ‘nal order. For instance 1. If producity growth falters because of problems inthe system of production, ad isnt siciently matched bya eeespoing ‘moderation of real wage growin or afr by revised sptems of ‘management an production, then presees on pli margins fc output capital ais may hresten the macrosooome ise 2. Simar pressures arising from changed baring eng or aspirations may threaten the cul ofthe co-ordination frework. within which the existing margins and dntbution of ince ate scceped, These pressures could arse bth fom tightening labour Imarkets 2 well fom icteasng recognition By employes of Internationa iferenecs i ving standard, 3, Raw material eos pressures inthe itrrationa stem (which for sos of the gon age were sgh Because of sable or improving terms of wade with primary prsucers) coud three fell wage front unless eet by higher prosuctivty growth o sqocred Ing, thas ereaiog dlheshier in the macrostnomic svc 4. A weakening of US economic performance—higher ination and cos oc production prablems—cnupled with linge in ‘ter indus counts to seept a US deficit ted partis, ould undermine the iserrationa od, 5. Mistoaleosrbused markup pricing bebaviur, aed ioeA Gh, A. Hugh, A Lips, ond A. Singh ‘sicipton othe pace and magaitide of wage inseases incon ns of inrensing inflationary peesure,* may lead to suze ‘om margins, and threaten the macroconcmie pater. 'As we stall ie element ofeach thse poles appeae i the pei of eum ofthe golden age WV, THE EROSION OF THE GOLDEN AGE 1968-1979 1s dea ia sewonpct dat 1973 gushed the watershed between the uiden age yeas a api groweh ad the sagnaion which flowed ‘What ir more somentous i whether the goen age Tttern of ‘opment wos undermined y its ow itera tensions or alter tively war derailed by rebatielyenogeno factor sac a the OPEC fl pie creases, We seck in thi secon ofa the former view. Nineteen singy-eight masa symbolic starting point for the eo som ofthe golden age bth internally, beng for instance the year of the May evens in France, at nteaationlly a marked the bee ‘up of ihe god pol. Although the major decline in growth ates can ‘be date fom 1973, we must catry the story on int We Bt 19705, ore wasduting tbe years after 1973 that t bec obviows tha the basis for cet fo rapid growth Would ot be restored bY 4 vempoetry reson and at the instutionl abd bdavoual framework of the golden age proved incapable of containing the presures deriving ffom deteriorating economic performance. The epeintment of Volcker as Chairman of the US Federal Reserve {ndeated commitment to preWorkd War Il nancal ethodory ‘Thus 1979 ean be taken a smbolie ofa much Broder resaenion hat the postwar economic regime had Come to a ea I. The Macroeconomic Structure “The fret part ofthis ection seeks to demonstrat that there was = rather geerel and wideypresd deterioration in key macroesoomic Felts por to 1974 which maker quite impaunbe to abate { OPEC 1 the mai responsiblity forthe subsequent stagnation. We ‘Becue the growth of Iaboor prot ft, both sn abeste {ezms and in Flin tothe ineeae in capil inns (he rode tity low-down’ Then me incur the restonshp between the fromthe of real wages, rel materials conte, and labour pred: ‘iy (the “pote squeze), These wo relins in turn dternine The Rise ond Fall ofthe Golden Age 2» ‘he tend fo the profi ate and we ates the implications of the ectine inthe pelt rate for apt eocumulaon The Product Sowden Soavemina wim dts the productivy slow: down fren 1973.7 ‘This isan oversimplifcation there te sig of about producti: iy pales m ste ptt exanties well lee 1978. Ad gal seine, thre widespread evidence of eterna of the wend of the eutplennal ti ndkating a tendency towards decreasing electives of investment in maining predorhy rom ‘Tale 2.7 shows that in the three moet important cepitst ‘ountiee—the US, Germany, and Jepcr—there war slippage ie ‘goth rae of hourly labour produiviy in sins av awl in the ate 196050 ely 1970. The same pater shove in mab facturing, excep that ia the USA productivity growth rebounded ih {he ety 1970 ater sharp decline inthe ste 1960s, The sow down pot universal—in the UR product growth ats wete at their peak in the early 19703. Neverlese te fat tat produtity srowth ates ad lipped back a both the lade” county and it fro hey followers, mu be regarded of signcasee “The pater for the outpueepal aio Tbe 2.) implements ‘hese conclusion in a8 important way. In one of te the alot counties (and reach maaufacuring) where the tread of about bradcivity deteriora in he ite 196s, of cary 1970, wa tis offer by an improvement inthe wend ofthe oapaeapial fai (och a would Be implied by a neocesicl eaptnation of deci, productivity growth refecing 2 slowing of cipal infensfesin Inded, the tend ofthe ouipulepial rato ma at best mattsned (Germia busines), rypiallydetererted (US, Japaneses and Ger ‘man manolctring), and semcimesdetrosted to record ve Sprecedented in postwar experience (Japanese hounes, reach Imanufsctring) It ie staking tat in beth Geenany napa ‘utpuveaptl rade were fling by 2-3 per ceat pin the enly 1970s, A similar paren of, at best sintenance ofthe te ofthe ‘outpace rato is observable inthe other Eurpean coats, ‘bu a most cases (UK, French buses, Iain mancfactarng) an deeriration was atleast party counterbalanced by sme inpone- ‘ment in bnur prodectity growth (se Sargent (1982) ors ne lesa interpetation ‘A way of strumarzng thee coments isto compare the expe