Wednesday, April 15, 2009

Book Reviews - Europe and Economics

These come courtesy of H-Net Reviews

Barry Eichengreen. The European Economy since 1945: Coordinated Capitalism and Beyond. The Princeton Economic History of the Western World. Princeton: Princeton University Press, 2007. 504 pp. ISBN 978-0-691-12710-1; $35.00 (cloth), ISBN 978-0-691-12710-1.

Reviewed by Frank B. (Ben) Tipton (Department of International Business, University of Sydney)
Published on H-German (March, 2009)
Commissioned by Susan R. Boettcher
Eichengreen argues that for a very long
period Europe's institutional structures have remained constant. These "corporatist" or "neocorporatist" institutions, according to Eichengreen, have three components: industry associations representing employers, peak organizations representing workers, and national government agencies involved in economic planning. During the period of rapid growth governments channeled capital to industry. Unions moderated their wage demands in return for training and job stability offered by employers and social security programs offered by governments. These institutions worked well during the period of recovery following the war when it was necessary to target a range of interdependent industries simultaneously. They also worked well during the 1950s and 1960s, when Europeans could exploit technologies previously developed by the United States, a process Eichengreen idiosyncratically calls "extensive" growth (p. 6, n. 9). However, they have worked less well since the 1970s when it has become more necessary to apply innovative new technologies, which Eichengreen labels "intensive" growth. In this new period employers' associations have sought protection for declining industries, government bureaucrats have not been able to select among emerging technologies, and labor organizations have become impatient and pushed for higher wages and resisted cuts in welfare programs. European economies, relatively competitive in the 1950s and 1960s, became less competitive after the 1970s and have remained so. Currently, Eichengreen concludes, if there is no change in their corporatist institutions, Europeans face a bleak future: "[T]hese institutions, which were ideally suited to a period of extensive growth, must now be adapted to a new era" (p. 425).

***

Other problems plague Eichengreen's analysis as well. Growth and productivity did slow after 1970 in both western and eastern Europe, of course, but we still need to ask whether specific causes were to be found in European institutions, or whether the slowdown reflected broader trends in the world economy. As it happens, similar measures show a slowdown in both aggregate growth and productivity in both the United States and Japan in the early 1970s, and, as Eichengreen notes, the United States experienced extremely slow increases in productivity in the 1980s and early 1990s. But, if common outcomes have common causes, and if the institutional structures of Europe, Japan, and the United States were very different, then something else besides institutional variations must have caused the shared slowdown. A large literature derived from the work of 1920s Russian economist Nicolai Kondratieff places the upswing of the 1950s and 1960s and the downswing of the 1970s and 1980s in the context of long waves of economic development (for instance: A. Tylecote, The Long Wave and the World Economy: The Current Crisis in Historical Perspective [1993]), but Eichengreen does not cite these works even to refute them. The world economy could now be entering a new upswing based on information and communications technologies, but we do not know as yet. However, we do know that the improvement in United States productivity growth in the late 1990s was largely confined to the computer industry, retailing, and banking, while Europe has done better in telecommunications, and relatively better in automobiles, another set of facts that Eichengreen notes, but which sits uncomfortably with his blanket insistence that Europe's economies must adopt institutional structures more like those of the United States

***

Very few people enter Eichengreen's picture, except for the political leaders of Britain, France, and Germany, and some of the famous advocates of European unity. The only business executive mentioned by name may be Gerrit Wagner of Royal Dutch Shell, but only in his role as chair of a government committee that supported the reform program mentioned above. Eichengreen thinks entrepreneurs play a critical role in development and believes they should receive "lavish U.S.-style rewards" (p. 402), but although Joseph Schumpeter is cited (p. 154), no entrepreneurs appear. As Eichengreen notes, the venture capital industry is more highly developed in the United States than in Europe, and some European countries regulate new businesses quite heavily, but the European Union and individual countries support entrepreneurial small- and medium-sized enterprises with extensive schemes that Eichengreen does not consider. Consideration of the large literature on the definition, emergence, and variations in entrepreneurial behavior would have added depth to this part of the story.


Hans-Werner Sinn. Can Germany Be Saved?: The Malaise of the World's First Welfare State. Boston: MIT Press, 2007. xvi + 338 pp. ISBN 978-0-262-19558-4; $29.95 (cloth), ISBN 978-0-262-19558-4.

Reviewed by Georg Menz (Goldsmiths College, University of London)
Published on H-German (March, 2009)
Commissioned by Susan R. Boettcher


In the fall of 2008, more than thirty-six years after Chilean soldiers stormed the presidential palace in Santiago, sweeping away democratically elected president Salvador Allende and ushering in the status of this remote South American nation as the world's first test tube for an ideology pioneered by Milton Friedman and Friedrich Hayek, the long-cherished wisdom of the supremacy of unregulated market forces was buried at last in the rubble of the disintegrating finance and banking landscape in the financial districts of New York City and London. Implemented, beloved, and even idolized by the Margaret Thatcher and Ronald Reagan governments and by Western and non-Western policymakers around the globe, neoliberalism attracted an extraordinarily loyal following and radically recast the role of the state and the regulation of the market. For more than three decades, this approach had dominated the academic discipline of economics, and in Anglo-American countries it constituted the economic common sense for politicians of all stripes, lately even for those of the center-left parties.

***

It was always naïve to assume that Germany would remain immune to the siren calls of this reactionary doctrine. Hayek spent the final part of his career at the University of Freiburg, an intellectual center of ordeo-liberalism, associated with writers such as Wilhelm Röpke and Walther Eucken. Contrary to popular wisdom, the postwar Federal Republic was much more "market" economy than "social," and the Social Democratic components that created the awe-inspiring Modell Deutschland of the 1970s were added much later and as a result of considerable union pressure. One of the centers of neoliberal thought and policy advocacy has long been the Institute for World Economics at the University of Kiel. And then there is, at the other end of the republic, Hans-Werner Sinn's Ifo Research Institute in Munich. Sinn's advocacy of neoliberal reforms of the German political economy has been nothing short of monumental. He is a prolific publicist and makes frequent appearances on television talk shows. Can Germany still be saved? is the unfortunate translation of his also fairly alarmist Ist Deutschland noch zu retten? (2005), proffered as part of a flurry of popular treatises in the early 2000s that were singularly pessimistic about the future of organized Rhineland-style capitalism.

This book is thus clearly aimed at a mass audience and not the scholarly community. It has to be seen as part and parcel of the vociferous public relations debate which organized business and neoliberal pro-business think tanks such as Ifo or the employer-financed Institut der deutschen Wirtschaft and politicians sympathetic to the cause have engaged in since former president Roman Herzog's infamous "Ruck" speech in 1996. Neoliberal advocacy is big business in Germany. The metal sector employer association Gesamtmetall is underwriting a massive public relations campaign for neoliberal change, coordinated by the Cologne-based Institut Neue Soziale Marktwirtschaft (INSM), which draws on an annual budget of nine million euros.[3] Sinn has made appearances at several INSM-sponsored events. The institute sponsors public events, commissions journalistic reports, places advertisements in newspapers, and coordinates the journalistic activities of its prominent members. The foundation of media conglomerate Bertelsmann is equally active in funding neoliberally tinted "research," such as an annual country ranking in terms of "competitiveness." It has been consulted by both the Gerhard Schröder and Angela Merkel governments and left its fingerprints on the notorious Hartz agenda, the most serious legislative assault on the foundations of the German welfare state.


****

The author's analysis is not compelling; his "solutions" are wrong-headed or even disastrous. The ideological debt to Thatcherism--and, more disturbingly, evidence of lessons clearly not learned from fascism--is clear. He makes no reflection on the obvious fallacies of neoliberalism. Clearly, as last fall's crisis has demonstrated so dramatically, the economy is too important to leave it to economists. Sinn still wants to party like it's 1979. Let us hope no one else cares to join him.

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