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Ch. 5 of Crafts: "Forging Ahead, Falling Behind and Fighting…
Ch. 5 of Crafts: "Forging Ahead, Falling Behind and Fighting Back" (2018), Cambridge University Press.
1950-1973: 'golden age' of european economic growth
Productivity gap between US and Europe reduced
Argument: how big was UK's growth failure during golden age?
argument: compare to Germany
Invested more in both physical capital and labour force training
rebuttal: did not have higher level of TFP
argument: compare to USA
higher technology and TFP.
better labour-quality
Rebuttal: 1950-1973 saw the largest growth of real GDP per capita in UK.
Argument: TFP growth was high in countries with low initial productivity levels
Reductions in inefficiency
Eichengreen hypothesis
High investment rates helped catch-up with help from social contracts
coordinated market economies were better positioned for rapid catch-up
Argument: Government failure
argument: marginal income rate taxes were too high. Tanzi 1969: least growth friendly
argument: nationalised industries perform poorly due to inefficient use of labour and excessive investment
'industrial policy'
change the distribution of resources across economic sectors and activities
Argument: protectionism was reversed too slowly.
Argument: voters appeasement. it was imperative to have low rate of unemployment and low inflation.
Argument: WAGE RESTRAINT. trade unions not to demand wage increases in the hope of restraining inflation reduced NAIRU
Rebuttal: this came at the cost of inferior productivity performance
argument: weakness of competition
argument: little was done to prevent market power AKA monopolies
Argument: cartelization had a negative effect on productivity growth
increased number of mergers
Argument: joining EEC earlier would have helped
European Economic Community
joining raised GDP by about 8 to 10%.
increased volume of trade and strengthened competition. Crafts, 2016