The Development of Economics in Western Europe Since 1945

A. W. (Bob) Coats, A. W. (Bob) Coats

• Publisher: Routledge
• Year: 2005
• ISBN:
  9781134631223
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Are there distinct European traditions in economics? Is modern economics homogenous and American?
The volume includes case studies of the UK, Sweden, the Netherlands, Belgium, Germany, France, Italy, Portugal, Spain and Greece. Each of these examines the conditions relating to the supply of, and demand for, economists. These include: the growth of higher education, the development of postgraduate training in economics, international linkages, both within Europe and outside it, economic ideas and professionalization, and involvement in economic policy-making and public affairs.
Whilst each chapter is attentive to particular national features, they also place the development of economics in the context of the postwar movement towards European integration.

1: Introduction

A.W.Bob Coats

This international comparative study of the post-World War II development of economics in Western Europe forms part of a long-term effort to go beyond the conventional treatment of the history of economics in terms of the history of ideas, theory, analysis, doctrines and so on (useful and important though that is). It includes consideration of the relevant features of the historical and institutional context, economic policy, and the development of economics as a profession.¹ Another objective is to transcend the limits of the Anglo-Saxon historiographical tradition, which has hitherto dominated the subject.

Although the history of European economic ideas has not been entirely neglected by scholars, most of the relevant literature has been written from the standpoint of a particular country or region. Those scholars bold or foolhardy enough to treat Europe as a whole encounter formidable difficulties owing to the continent’s diversity: the number of countries involved, each with its distinctive language and culture, historical experiences, political, administrative and educational system, level of economic development, and methods of economic management. These difficulties can be at least partly overcome, as in the present case, by enlisting the expertise of a team of authors each writing on certain common themes from a particular national perspective. This enterprise is more feasible than it might otherwise appear since it is confined to the post-1945 period, during which time there has been remarkable and unprecedented progress towards European economic and political interdependence, cooperation and integration,² perhaps eventually leading to unification. This historical situation has given economists unprecedented opportunities to make intellectual and technical contributions to the European movement, and to shape (and be shaped by) the course of events.

The historical context of post-1945 economics in Europe: a brief outline

During the past half-century there has been a remarkable growth and widening range of employment opportunities for trained economists throughout the world, not only in the rapidly expanding higher education sector, but also in a bewildering array of public and private institutions, including national and local governments; parastatal and quasi-public bodies; private businesses—banking industrial and commercial; and international agencies such as the IMF, World Bank, and other United Nations bodies.³ In early postwar Europe economists became directly involved in the reconstruction and recovery processes, and in subsequent years the development of the mixed economy, the welfare state and other forms of state intervention ensured the continuing public demand for their services. Of particular interest to the present study is the growth of the European Community economic, social and political institutions, a complex process which can only be briefly sketched here.⁴

The antecedents of the European integration movement can be traced back well before World War II, but the postwar phase dates from the later 1940s with the United Nations Economic Commission for Europe (1946), the Marshall Plan (1947; i.e. the European Recovery Programme), the creation of the Organization for European Economic Cooperation (OEEC, 1948), the Council of Europe (1949), and-of crucial importance to subsequent economic affairs—the European Coal and Steel Community (ECSC, 1951). Later developments were distinctly uneven, and the process is usually considered to fall into four broad phases:

1. the so-called Euro-optimism phase, 1958–72, based on the Treaty of Rome (1957) and the European Community institutions—the ECSC, the European Economic Community (EEC, 1958) and the European Atomic Energy Commission (EAEC, 1958);
2. a period of stagnation or Euro-pessimism, 1972–84, influenced (among other factors) by the external shocks of the first and second oil crises, the breakdown of the Bretton Woods system and, internally, the bitter budgetary crisis (in which Britain was especially intransigent), and problems associated with the enlargement of the Community’s membership;
3. a phase of renewed dynamism and relevance from 1984 to the early 1990s, centering on the Single European Act (1986), further Community enlargement, the Maastricht Treaty (1991), and the movement towards a common currency and monetary system —deriving from the Economic and Monetary Union (EMU, 1969) and the Economic and Monetary System (EMS, 1979).
4. The 1990s to the present when attention has focused on the movement towards monetary union, the discussion of common fiscal measures, and the addition of new member states both from inside and outside Western Europe.

This ‘rich tapestry of organizations’⁵ and agreements is far too intricate to be unravelled here, but its evolution is directly relevant to this project, since the Community organizations provided abundant opportunities for economists to utilize their skills and exert their influence, domestically, transnationally and even internationally.

Politics has undoubtedly played a major, indeed predominant, role in determining the pace and extent of post–1945 European integration, and it will therefore be helpful to recall briefly the highly divergent experiences of the countries included in this project. Sweden and Britain have obviously enjoyed the greatest measure of political continuity over the pre- and post-war periods, for Sweden was neutral during World War II and the British did not suffer under Nazi (or Fascist) rule—unlike Belgium, France, Greece, Italy, the Netherlands, Portugal and Spain. Germany is of course a special case given her comprehensive defeat in 1945, the Nazi legacy, and the subsequent division into the territories of the West and East, each with its own government. Moreover, the influence of Nazism did not disappear in 1945 in West Germany.

The variety of dates on which the various countries joined or were admitted to the EEC (later the European Union; EU) further illustrates the heterogeneity of European political conditions. The timing of these moves was in no way directly correlated with the political experiences referred to in the preceding paragraph. For example, France and Germany, opponents in three major nineteenth- and twentieth-century conflicts, combined in taking the initiative in establishing the Coal and Steel Community which led, six years later, in 1957, to the Treaty of Rome. From the start of this process they were joined by Belgium, Italy, Luxembourg and the Netherlands to form what became known as ‘the inner six’. Britain refused to participate on the grounds that membership would entail a loss of national sovereignty. However, subsequently, after two unsuccessful applications for entry, in 1961 and 1967, both of which were vetoed by de Gaulle, Britain was finally admitted in 1973, together with Denmark and Eire. Before that, however, as a counterweight to the EEC Common Market, Britain had joined with other non-EEC members (Austria, Denmark, Norway, Portugal, Sweden and Switzerland) to form the European Free Trade Area (EFTA), in 1960. This group of nations became known as ‘the outer seven’.

Acceptance as a full member of the EC has become dependent on the establishment (or restoration) of democratic government. Thus Greece, having experienced totalitarian rule under the Colonels’ military regime from 1967 to 1974, did not obtain entry until 1981, despite a long period of preparation. Both Portugal and Spain, having emerged from long periods of dictatorship in 1974 and 1975 respectively, applied for full membership in 1977 and were admitted in 1986. In this piecemeal fashion the European Union has comprised a changing and discontinuously expanding complement of member states, and it will undoubtedly continue to do so in the future, for some time probably at an increasing pace. (At the time of writing the present number of members is fifteen, and eleven further countries are seeking membership in an enlarged EU.)

The demand for economists

How have these developments affected the demand for economists? Four diverse but striking examples from the process of European integration must suffice.⁶ First, in 1948, when the OEEC was established to distribute resources under the European Recovery Programme (Marshall Plan) prospective recipient countries were required to submit detailed estimates of how the Marshall funds were to be spent, as well as projections of economic growth, the national budget and foreign trade. These calculations necessarily created an urgent demand for economists, and it is said that the shortage of economic expertise in the Italian government was so great that most of the work had to be farmed out to universities or to private research institutions.⁷ This may be viewed, roughly speaking, as the beginning of a demand for economists that has continued to grow as the tapestry of European institutions has become larger and more intricate.

Second, when a non-member country applies to join the European Community a tremendous amount of time and effort must necessarily be expended, both in the applicant country and in the Community’s institutions, in the preparation of a persuasive case, examining its compatibility with existing laws, treaties and practices, and in negotiating the terms of entry. In some instances this has proved to be a very prolonged process—for example, twenty two years in the case of Greece, and twenty-five years in the Spanish case—starting with an application for ‘association’ and eventually leading to final acceptance.⁸ The demands of the Community’s mechanisms and bureaucracy have been described as ‘awesome’, for although a remarkably small number of persons may be directly involved in the actual negotiations there is a vast amount of necessary background preparation involving groups of experts—for example, lawyers, economists and statisticians. In a small country this can put a heavy strain on the available supply of trained personnel. A considerable number of overlapping issues are involved, which are often being negotiated at different speeds and times,⁹ and proposals initially based on strictly economic criteria may often be subsequently modified in compromises involving ad hoc solutions. Although political considerations generally take priority over economic considerations, it is often the economic and technical issues that dominate the actual negotiations. In these circumstances economists can play a significant role, although they are necessarily subordinate to the politicians and diplomats, and of course the ministers, involved.¹⁰

Third, consideration of possible membership in the European institutions can obviously generate a demand for economists, even if the idea is rejected. Thus in the Swedish case the proposal to join the European Monetary Union led to the appointment of a government commission to examine the pros and cons. The commission consisted of seven leading Swedish economists and political scientists; and twenty-six Swedish and international social scientists, most of them economists, contributed twenty-one separately published appendices to the main report. The commission’s conclusion was that despite political arguments in favour of joining, the economic case was inadequate. Hence on balance the report opposed participation, at least not before 1999.¹¹ No doubt the proposal will be reconsidered in the future.

Fourth, the role of economists within the various European institutions has so far attracted little scholarly attention, a state of affairs that enhances the value of Ivo Maes’s careful study of their position and activities in the European Commission (in Coats 1997). Maes has examined in detail the respective functions of the Secretariat-General and the twenty-two Directorates-General, with special reference to DGII, Economic and Financial Affairs, which is essentially the Commission’s research department. He has also examined the nationality and academic background of the ‘professional economists’ employed in the Commission, and concludes that in terms of methodology and world-view, they seem more heterogeneous than those employed in the IMF or the World Bank. This heterogeneity reflects the diversity among European universities, so that as a general rule, British economists are more free market orientated and Frenchmen more activist; Germans are typically more concerned with questions of economic order and policies necessary for the functioning of a free market (e.g. competition policy). Belgian economists are especially well represented in the Commission partly because of its location in Brussels; but there is also a sizeable number from Italy, Spain and Greece, possibly because of the comparative lack of good positions for well-qualified persons with advanced economics education in these countries.¹²

Economists in the European Community institutions have been primarily concerned with problems of economic organization and integration of the various member countries’ economies and policies. This can be a delicate and controversial matter, as for example, in dealing with tax harmonization. The differences between the various countries’ objectives concern not only the liberalization of economic policy, but also such sensitive issues as the transfer of sovereignty. Maes denies that the interdependence of economic and political considerations was such that the Commission’s economists are essentially functioning as technicians, trying to persuade people or countries to adopt policies that are set up for them for political reasons. They are engaged in genuine economic analysis; but it was said, jokingly, that to identify oneself as an economist in the organization could entail a loss of political influence.¹³

In the discussions within the Commission of the path towards European monetary integration there have been two basic approaches: that of the ‘monetarist’ and the ‘economist’—terms used in the organization in an unusual way. According to the monetarists, monetary integration would stimulate the integration process generally and contribute to a convergence of the various countries’ economic policies and performance via the stabilization of exchange rates. These views were held particularly in France, Belgium, Luxembourg and Italy, as well as in the Commission, whose officials on monetary matters were usually French or Italian. The ‘economists’,¹⁴ on the other hand, emphasized the country differences in inflation, productivity and government finances, arguing that a convergence of economic performances and economic policy was a necessary precondition of monetary integration. Without sufficient convergence the fixing of the exchange rate could break down or lead to major-regional problems. These ideas were most prominent in Germany, especially at the Bundesbank, and to a lesser extent in the Netherlands.

The supply of economists

Turning to the supply side, the remarkable post-1945 world-wide expansion in the number of trained economists is by now so familiar a phenomenon that it is usually taken for granted, and has therefore not been studied systematically. For the present purpose it is convenient to view European developments under five headings, which will provide a framework for the country studies that follow. They are:

1. the post-World War II growth of higher education;
2. the development of postgraduate education in economics;
3. international linkages;
4. economic ideas in Europe; and
5. professionalization and involvement in economic policy-making and public affairs

The postwar growth of higher education

The pace, extent and timing of this process has, of course, varied between countries, and there have been marked discontinuities. The state’s willingness to fund institutions has been the determining factor, as private provision has been comparatively insignificant— although in rare cases the state has subsidized certain private institutions. Until recently the British situation was unique in Western Europe since the universities were public institutions, almost entirely financed by the state, yet enjoying effective autonomy in academic affairs. Lately, however, there has been a dramatic growth of government intervention and control.

The net effect of these developments has been to increase the heterogeneity of European higher educational institutions and, on balance, to reduce academic standards— e.g. via increased student/staff ratios, overstraining library and research facilities, and heavier reliance on textbooks and other simplifying and time-saving teaching aids. On the other hand, the changes have provided opportunities for innovative pedagogical and organizational methods, especially where state control has been relaxed.¹⁵ Inevitably there has been resistance to change, and generation conflicts, but the general effect has been to undermine the influence of the older universities and the hegemony of the national elite intellectual, cultural and occupational establishment. In economics, for example, the newer or reformed Continental universities have flatly rejected the traditional Continental European system—in which political economy constituted an integral part of a broad law-school curriculum—and facilitated the spread of an Anglo-American type of specialization (see infra, p. 7, on graduate education).

Expansion has been achieved in one or more of the following ways:

1. increasing the size of existing universities;
2. creating new universities, ostensibly of comparable standards and usually, but not invariably, of similar organization and structure;
3. conferring university status on existing high-quality non-university institutions—for example, in the case of economics, transforming vocationally orientated business schools into economics departments or faculties;
4. deliberate upgrading of institutions recognized as being initially of lower academic quality than the older-established universities;
5. reducing the length of the undergraduate degree course—however, proposals of this kind were controversial and were implemented, if at all, only after considerable delay.

Of course, the growth of higher educ...