To this present time, the live of the Europeans have been transformed to an extent that is beyond recognition after the World War II. As at of 1950 many of the continent’s residents heated their homes with coal, cooled their food with ice, and lacked even rudimentary forms of indoor plumbing. Nevertheless, in his present time, their mode of living have been eased and enriched by natural-gas furnaces, electric refrigerators, and an array of electronic gadgets that boggles the mind.
Studies show that, from the rate of income what an average European will buy due to Gross domestic product per capita had tripled in the second half of the twentieth century. The quality of life has improved to more than the suggested features that were imagined. A lot have improved that bettered that bettered the live of the Europeans. Some of the improvements are the increasing of life expectancy due to improved nutrition and advances in medical science.
The working rate has decreased by one third, giving a lot of time for leisure and entertainment. Still, we will not only look at the sweet side of the story. Other negative things that happened were a fast rise in the rate of unemployment, Tax burdens soared. Environmental degradation, political repression, and limits on consumer sovereignty were pervasive under the authoritarian regimes that dominated Eastern Europe for four decades after World War II.
Nevertheless, looking at the present situation from a basic standard, the last half century has left Europeans today enormously better off than their grandparents were fifty years ago. Other issues are that, it is not all part of the European regions that shared equally in this prosperity, of course, and not all portions of the last half century were characterized by equally rapid growth. The southern part of Europe grew faster than the northern part and the western part grew faster than the eastern side.
The growth was termed slower as of 1973. This was noticed because of the pronouncement of Eastern Europe, where it culminated in a crisis of central planning that brought down not just the command economy but also its authoritarian political superstructure as well. These qualifications are of great importance and nevertheless, do not change the fact that the post– World War II period, and specifically the quarter century from 1948 to 1973, was a period of extraordinarily rapid change and a veritable golden age of economic growth.
Now, let us look at questions and matters arising. What made possible the rapid economic growth of a continent that was devastated by World War II? Formerly, the Europeans could grow rapidly simply by repairing wartime damage, rebuilding its capital stock, and redeploying men drafted into the wartime task of destroying output and productive capacity to the normal peacetime job of creating them. The term “catch-up growth. ” can be referred to as the process were the rapid economic expansion of the early postwar years largely reflected.
The sustenance of the rapid growth of the economy could be because of exploiting the backlog of new technologies developed between the two world wars but not yet put to commercial use. Instability and crisis could be the term accompanied to the decades of 1920s and 1930s, however, they were also a periods of rapid technical change. Among other things, they saw the development of Lucite, Teflon, and nylon, improvements in the design of the internal combustion engine, and organizational changes such as the spread of assembly-line methods and modern personnel management practices.
Most of these innovations were developed in the United States. But a depressed investment climate and then the disruptions of war made the 1930s and 1940s less than propitious times for Europe to emulate America’s example. Consequently, by the end of World War II, the United States had opened up a huge lead in levels of output and productivity. However, this also meant that there existed an extraordinary backlog of technological and organizational knowledge ready for Europe’s commercial use.
By licensing American technology, capitalizing on American producers’ knowledge of mass-production methods, and adopting American personnel-management practices, Europe could close the gap. This aspect of growth in the second half of the twentieth century is known as “convergence,” the tendency for levels of per capita income and productivity to converge toward those prevailing in the United States. Due to all these reasons, 1945 was a favorable jumping-off point for the European economy. When we look back to the extraordinary economic progress of the subsequent fifty years, there is a tendency to regard what followed as preordained.
In fact, many things had to go right, and there was considerable uncertainty about whether they would. Catch-up, which entailed capital formation, the reallocation of labor, and the efficient use of these factors of production, required Europe to mobilize savings, finance investment, and maintain wages consistent with full employment and respectable profit rates. It required getting a range of complementary industries, each of which was necessary for the viability of the others, up and running simultaneously.
Convergence required mechanisms for transferring to Europe and adapting to its circumstances the backlog of technological and organizational knowledge developed in the United States. In a nutshell, then, opportunities for catch-up and convergence were realized because of the conformance, or more colloquially the “fit,” between the structure of the Western European economy and the economic and technological imperatives of the day. The result was a period of exceptionally rapid growth from the end of World War II through the 1960s.
Now looking at Europe, which had relied on extensive growth in the 1950s and 1960s, had no choice but to switch to intensive growth from the 1970s on. The problem was that institutions tailored to the needs of extensive growth were less suited to the challenges of intensive growth. Bank-based financial systems had been singularly effective at mobilizing resources for investment by existing enterprises using known technologies, but they were less conducive to growth in a period of heightened technological uncertainty.
Now the role of finance was to take bets on competing technologies, something for which financial markets were better adapted. This codified set of norms and understandings—what economists mean when they refer to institutions—did not materialize overnight. To a large extent, it was inherited from the past. It is not surprising that inherited institutions could be adapted to the needs of post–World War II growth, since the challenges of this period resembled those that had confronted Europe in earlier years.
Modern industry had developed later on the continent than in Britain and the United States, at a time when the capital intensity of industrial technology was greater. These more demanding capital needs were met by great banks capable of mobilizing resources on a large scale. As industrial production grew more complex and industrial sectors grew increasingly interdependent, it became more pressing to get a range of industries up and running simultaneously; hence the more prominent role of the state.
Late-industrializing economies whose initial growth spurt depended as much on assimilating and adapting existing technologies as on pioneering new ones naturally developed systems of human capital formation emphasizing apprenticeship training and vocational skills as much as university education. Thus, it was no coincidence that Europe had in place following World War II a set of institutions useful for relaxing the constraints on growth. It was also fortuitous that the inheritance was favorable, since these kinds of deeply embedded social institutions are slow to change.
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