The Postwar Scene of Western Political Economy (1945-)

게시 날짜: 7월 9, 2010, 카테고리: Modern Western History

From the immediate post-war years to the present, the US and major Western European countries such as Britain and France have successfully maintained parliamentary democracy, while even Federal Republic of Germany and later the reunified Germany (hereafter, simply Germany) and Italy, previously a Fascist or a Nazi country, have established parliamentary democracy too as their political system. It could be argued that this phenomenon would have been impossible without the economic prosperity and social stability they achieved in the era, though they experienced sporadic economic recession and social turmoils. It could also be argued that this achievement was attained by their conscious efforts in which they shifted the role of the state in their economic, social, and industrial policies in so flexible a way that they might successfully respond to the changing economic and other circumstances.

On the premise that these arguments are true, answer the following 4 questions a~d for each of the 3 eras below. If either any 1 item or more within each question (a~d), or any question(s) itself is not applicable to your answer, you may skip it/them. 

<3 eras>

1. the era of the 1950s and 1960s, a.k.a. ‘the silver ’50s and the golden ’60s’

2. the era from the late 1960s or the early 1970s to the turn of the 1990s

3. the era from the 1990s to the present

<4 questions>

a. major general trend/features of the economic, social, and industrial policies of the Western countries

b. new economic and other circumstances which resulted in such policies.

c. theoretical background(s), intellectual(s), and/or reports which influenced on the formation and the execution of such policies.

d. such policies which were carried out by major political parties and political figures of Britain, France, Germany, and the US (Explain them as much detailed as possible.), and, if any, effects such policies brought about (both) in the West in general and/or in each country of the West


1. The Era of 1950s and 1960s, a.k.a. “The Silver ‘50s and the Golden ‘60s”

It was an era of Post-WWII reconstruction and economic recovery, and also an era of politically mounting Cold War tensions. Hegemonic Stability Theory, proclaimed by Charles P. Kindleberger, who served at the US State Department from 1945 to 1947, provided a theoretical background behind the Marshall Plan. He argued that a liberal international economy requires a strong and positive leadership that has capability of capital lending. The Plan created economic opportunities that enabled many West European industrial countries (especially West Germany) to experience an “economic miracle”. The prosperity of Western Europe derived from a competitive, free-market economy, but it was accompanied by varying degrees of extensive economic planning, systematic government intervention, and a network of social services to help cope with the instability of capitalism and the business cycle. John Maynard Keynes’s theory, which encouraged governments to use fiscal and monetary (i.e. macroeconomic) policies actively to promote investment, production, and employment and to control inflation, gained a theoretical momentum in the postwar era.

The welfare state idea persisted in a more pragmatic sense than an ideological one. Full employment was accepted as a goal. When the sustained economic growth led to a labor shortage, West Germany and other countries invited foreign “guest workers” to join their labor force. The postwar governments gave a high priority to social objectives with universal coverage: the right to a suitable job, government compensation in the event of unemployment or disability, social security in old age, free or subsidized health care, and the redistribution of wealth and income through progressive taxation. It was possible because of a salutary interplay of government, management, and labor, all sharing a consensus about investment and growth—in other words, “corporatism.”

In Britain, the Labour government of postwar period (1945-1951) led by Clement Attlee and the returned Conservatives (1951-1964) followed the big picture of welfare state policies. Drawing on the Beveridge Report of 1942 which proposed to guarantee “full employment in a free society” and social security for all, the Labour government greatly extended social insurance programs, inaugurated a comprehensive National Health Service, and increased income and inheritance taxes. In France, despite its record of political instability and overall ineffectiveness, the Fourth Republic also succeeded in following the line of universal welfare state system. The mixed economy emerged by nationalization of several key industries and the existing social security legislation was expanded. Through a flexible form of economic planning inspired by Jean Monnet, in which government, management, and labor played mutually reinforcing roles, the country’s economic base was modernized and industrially expanded. Later years in the Fifth Republic of Charles de Gaulle, the political instability issues were somewhat resolved, but demonstrations against his governing style affected the French economy badly. In West Germany, with the process of denazification, private industry and a capitalist, competitive economy was encouraged; but the government also shaped overall economic policies and provided broad social services, resulting in “social market economy.” West Germany also pioneered in bringing labor and capital together. The labor unions accepted a role as social partners in the expanding economy, moderating wage demands to avoid inflation. A “codetermination” law gave workers seats on the boards of directors of larger firms. The Christian Democratic Union led by Konrad Adenauer, governed uninterruptedly for 20 years between 1949 and 1969. Adenauer successfully integrated West Germany into the emerging political, economic, and military structures of Western Europe.

2. The Era from the late 1960s or the early 1970s to the turn of the 1990s

The recession that began in 1974 was severe combined with oil shocks, accompanied the irrational inflation of double digit annual figures, and aggravated problems of structural unemployment. “Stagflation”, a combination of stagnation and inflation, which is theoretically impossible in the eyes of Keynesian “demand-side” economics, created unprecedented problems for governments. Each government had to choose between curbing inflation and reducing unemployment, and the world looked upon West Germany to provide initiatives. Germany, mindful of the hyperinflation of the 1920s, set its priority on controlling inflation; other countries followed. By the early 1980s inflation was brought under control in the US and in Western Europe, but in Europe unemployment continued at high levels. The high unemployment put new pressures on government budgets, which had risen steadily in all the “welfare state” societies of the industrial world.

In this change of climate, the virtue of free market and liberal economy asserted by Friedrich von Hayek was building a consensus. The British Conservative party leader Margaret Thatcher led the campaign against the welfare state and was soon joined by the US Republican president Ronald Reagan. Both leaders attacked the welfare state as costly and bureaucratic and blamed it for eroding individual initiative and responsibility. Although conservative governments continued heavy expenditures for national defense, they curbed government spending on social measures by privatizing many of nationalized industries, and stimulating production through incentives for private enterprises including tax reductions, deregulation, and restraints on labor unions. “Supply side” economics, as these ideas were labeled, emphasized increased production rather than the hitherto prevailing notion of increased consumer demand as most important for economic growth.

In France, Francois Mitterrand revitalized the Socialist party and reached out to many who were frustrated with the social insensitivities of the Gaullists and Conservatives, winning the presidency in 1981. At first he pursued socialist measures, including labor reforms and nationalization, but when the economic growth slowed down he began implementing seemingly conservative policies. His new policies encouraged economic growth, but contributed little to reducing unemployment, costing the Socialist party their popular support. It lost parliamentary majority in 1986 and Mitterrand was forced to govern with a Conservative prime minister for the first time in the history, coining the term “cohabitation” for us politics majors. In West Germany Helmut Schmidt’s Social Democratic government moved to control inflation through policies of retrenchment and fiscal conservatism, but the industrial slowdown of the late 1970s brought unemployment to a country which for years had known only labor scarcity. The doors once open to guest workers began to close. In 1982 the Christian Democrats returned to office with Helmut Kohl as chancellor. Economic growth resumed but heavy labor costs, resulting from high wages and generous social benefits, burdened the economy and reduced its competitiveness in world markets.

The gradual return of prosperity restored faith in the free-market economy. Conservative economic theories and policies appeared to be confirmed by a worldwide movement toward market economies and away from centralized planning, which in its rigidly Marxist form had manifestly failed in the USSR and Eastern Europe. However the US suffered from the “double deficit” as a legacy of Reagan administration during these years: one was a trade deficit caused by the strong dollar and thus reduced export, and the other was a budget deficit caused by drastic increase of national defense budget.

3. The Era from the 1990s to the Present

It can be broadly defined as the post-Cold War era. By the mid-1980s the European democracies had recovered, although with lower growth rates than in the past and with discomfiting levels of unemployment, which was not temporary or limited to the business cycle, but was deep-seated and structural. High labor costs that included generous welfare-state benefits undercut Western Europe’s ability to compete globally. Combined with xenophobic hostility towards ethnic immigrants, unemployment and troubled economy created social tensions. Western Europe seemed to be settling into an era of persistent gloom, pessimism, and political frustration during the early 1990s. The end of the Cold War had not automatically ushered in peace, prosperity, and harmony.

The political leaders from four nations of our attention, who were all from Left or Left-Center parties of their respective political scene, advocated a “middle” or “third” way between conservatism and welfare-state socialism, and continued to promote a moderate reform. Pragmatism and moderation seemed to be triumphant over older socialist views and the welfare-state ideology that had prevailed in the years after the WWII. In the 1990s the American President Bill Clinton promoted a program that favored economic growth and productivity but combined it with social issues such as health care and education and concern for the disadvantaged and minorities. (Actually, he was favored by an upturn in the business cycle and economies were soaring, with unemployment dropping to an all-time low.) The British Labour Party (which won the election in 1997) leader Tony Blair proclaimed “New Labour”, neutralizing the party’s older trade union and left-wing bastions along with its earlier socialist and welfare-state platform. He pursued pro-business policies to encourage economic growth and prosperity, but without satisfying “pure selfish individualism” or neglecting social needs. The Labour party also took steps toward devolution of power to defuse strong separatist movements in Scotland and Wales.

In Germany the economic situation after 1989 was worsened by the reunification with East Germany, and the German economy remained sluggish long after political unification was completed. The Social Democratic Chancellor, Gerhard Schroder (who also spoke of his program as a “middle way”) replaced Helmut Kohl in 1998, and was committed to curbing the generous provisions of the postwar welfare state, which had driven up labor costs and made it difficult to hire new workers. In France, Daniel Jospin, a moderate Socialist leader, became prime minister in 1997 under the cohabitation with Gaullist president Jacque Chirac. Jospin, though still committed to a large role for government on social issues, believed in moderation and pragmatism, favored a market economy and moved forward with the privatization of state-owned industries.

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