Samuel Rosenberg, American Economic Development Since 1945: Growth, Decline and Rejuvenation. New York: Palgrave Macmillan, 2003. xii + 339 pp. $23.95 (paper), ISBN 0-333-34534-7.

Reviewed for EH.Net and H-Business by Gene Smiley, Marquette University.

The second half of the twentieth century is now history regardless of how recent the events may seem in many of our memories. New college students often know nothing about the gasoline shortages and price increases of the 1970s, the agricultural depression of the early 1980s, or even the rise of the personal computer in the 1970s and 1980s. Thus, we are beginning to see books that provide a survey of the American economy since the Second World War. In 1997, Michael French published US Economic History Since 1945 and in 2003 Wyatt Wells contributed American Capitalism, 1945-2000: Continuity and Change from Mass Production to the Information Society. Samuel Rosenberg, who is a Professor of Economics and Director of the Honors Program at Roosevelt University, has recently added American Economic Development Since 1945: Growth, Decline and Rejuvenation (2003) to this list.

In this book, Professor Rosenberg's interests lie in the areas of macroeconomic trends and the macroeconomic policies that have both shaped and responded to those trends, business and labor relations, essentially business and labor union relations, the development of the federal government's social and labor policies, and the effects of changing world trade and finance on the American economy and the United States government's role in shaping these changes. This is an ambitious agenda.

Professor Rosenberg sets the stage for his analysis by surveying the economic mobilization in the United States during the Second World War. He then breaks up the postwar era into periods. The first period, 1945-1960, he labels, "The Making of an Institutional Framework." He calls the second period, 1960-1971, "Strains Developing Within the Institutional Framework." The final period, 1971-2000, is titled, "The Unmaking of an Institutional Framework and the Recreation of Another."

In Chapter 1, Professor Rosenberg argues that World War II decisions affected the economy for many years after the war's end. The labor force was permanently changed with the rising entry of women workers and the movement of blacks out of rural areas and into manufacturing jobs. Union growth, in his opinion, solidified the place of unions in the American economy, and, the federal government did not shrink back to its prewar size with the ending of the war. This then set the stage for the "central elements of the postwar institutional framework upon which economic prosperity from 1945 to 1960 was based." (p. 17)

Not surprisingly, in Chapter 2 Prof. Rosenberg argues that macroeconomic policy was much more important in the immediate postwar era than in the prewar era when macroeconomic policy was almost entirely monetary policy. However, the business community effectively "scuttled" the full-employment bill in 1946 because some were worried that "it would eliminate the unemployed willing to work at low wages." (p. 45) This left just the Employment Act of 1946 as guidelines to federal policy. Fiscal policies of both the Truman and Eisenhower administrations were similar even though Truman's administration emphasized fostering economic growth while Eisenhower's emphasized controlling the business cycle. Led by the ideas advanced by the Committee for Economic Development (CED), the liberal wing of the business community, some federal government direction of the economy was accepted, but primarily through monetary policy, not fiscal policy. The consequence was that "Keynesian demand management policies were not systematically applied toward economic stimulation" (p. 63) and economic growth slowed down and recessions continued by the late 1950s.

Professor Rosenberg calls the development of business-labor relations between 1945 and 1960, "Conflict Amidst Stability." Labor unions' role in influencing management decision-making was reduced during the 1945-1960 period. A major factor in this, according to Professor Rosenberg, was the passage of the Taft-Hartley Act of 1947. He argues that the conservative business community spent heavily on advertising and publicity to promote its propaganda of slogans, half-truths, and misrepresentations to help get the legislation passed. Unions had neither the financial resources nor the sophistication to effectively counter this campaign initiated by the business community. (p. 71) As a result, though some stability was brought to management-union interactions, unions' ability to organize new workers, and to protect the gains they had achieved since the Second World War, were circumscribed. By the end of the 1950s unions were on the defensive.

The third leg of this new institutional framework was the re-establishment of international trade and capital flows through the creation of a new international financial structure, the Bretton Woods System. The United States, worried about inadequate domestic demand, worked to be certain that the new system was directed to reducing trade barriers so that American firms could increase their exports. The Marshall Plan then ensured that foreign purchasers would have the funds to purchase the American exports. However, the pressure this would bring on the system of fixed exchange rates was not fully considered at the time.

This institutional framework created by macroeconomic policies, the development of union-business management relations, and the creation of an international structure favorable to American business, began to unravel in the 1960s. The Kennedy administration's reliance on Keynesian demand management policies, often described as the triumph of the "new economics," was, in fact, supplemented by wage-price guideposts in an attempt to control the creeping inflation. Monetary policy was largely relegated to supporting fiscal policy. By the late 1960s this arrangement was unraveling as the Fed's attempts to control inflation led to credit crunches and fiscal policy required temporary tax increases. Professor Rosenberg argues that by the early 1970s these policies had created "stagflation" and brought on President' Nixon's experiment with explicit wage and price controls and the ending of convertibility between the dollar and gold. Professor Rosenberg argues that it was understood that, "Monetary and fiscal policy alone were unable to deal with the simultaneous occurrence of high rates of inflation, high rates of unemployment and balance of payments deficits." (pp. 122-123)

The second part of this institutional framework, union-business management relations, was also deteriorating in the 1960-1971 period. Management had adopted "hard-line" policies by the late 1950s designed to limit union influence on business decision-making and slow down union growth. The booming 1960s reduced the ability of management to hold the line on wage and salary growth due to the growing demand for labor. However, employers increasingly used legal and illegal tactics to delay and influence union organizing efforts. These tactics met with success as union organizing declined and private sector union membership fell. In addition to delaying tactics, firms moved production to non-union areas or out of the United States. This was occurring at the same time the union bargaining was gaining larger increases in wages and salaries and benefits. Seeing their profits squeezed, Professor Rosenberg argues that employers appealed to the federal government for assistance and, on August 15, 1971, President Nixon responded by freezing wages and prices. (p. 140)

Unions as well as employers also had a role in the persistence of inequality and discrimination in this period. Though collective bargaining had increased the living standards of many union members, discrimination by unions and employers had left out some union members as well as those who were not union members. The liberal policies of the Kennedy and Johnson administrations attacked inequality and discrimination through new programs, but much remained to be accomplished by 1971.

The final part of the institutional framework developed to ensure the dominance of the United States was the Bretton Woods agreements that set up the United States at the center of international transactions by virtue of the fixed exchange rate between the dollar and gold and thus between other currencies and the dollar. As this began to deteriorate in the early 1960s the Kennedy and Johnson administrations took steps that were inconsistent with the tenets of the Bretton Woods system. As price inflation in the United States rose faster than in other countries, the ability of the United States to support this system diminished and in 1971 President Nixon completed the destruction of the Bretton Woods system because it no longer filled the needs of the United States.

Professor Rosenberg argues that the 1970s marked the final unraveling of the institutional framework developed in the 1950s and brought on the trials of searching for a new framework. The stagflation of the 1970s was "the outward manifestation of a more fundamental problem, the decline of the US dominance in the world economy." (p. 183) The competing claims of domestic groups and the growing claims of the rest of the world on United States output could not all be satisfied. As "monetary growth validated the claims," inflation and high rates of unemployment occurred. (p. 183) President Nixon first tried explicit wage and price controls to control stagflation. When this failed he switched to an austerity program, one that President Ford continued with little better results. President Carter relaxed the austerity program but as price inflation increased he tried voluntary wage-price guidelines, again with little success. Even Paul Volcker's high-interest rate policy, justified as the employment of monetarist policies, did not initially end the stagflation. Under the new floating exchange rate standard the dollar became the de facto international reserve currency. The Nixon administration pursued policies to promote food exports and reduce domestic food consumption as a solution to the international trade deficit problem, while the decline in "US hegemony" led to rising oil prices. (p. 199)

The 1970s were also a time of "economic and political stalemate" according to Professor Rosenberg. Unions made gains in achieving higher wages leading to a growing gap between union and non-union wages. However, increasing legal and illegal efforts by employers led to declining union membership. Attempts at reforming the rules of labor-management relations, guaranteeing family incomes, and having government ensure that everyone who wanted to work had employment by having government become the employer of last resort were met by the strong opposition of business interests and were defeated or watered down. There was a stalemate in welfare reform and equal employment opportunity and affirmative action were turned into zero-sum games. Professor Rosenberg argues that the 1970s showed that the only way out of the stagflation morass was to promote economic growth and reduce the competing claims on economic production.

That was the platform that brought Ronald Reagan and the market-based conservative strategy to power in 1981. They vowed to reinvigorate the American economy and restore profitability for corporations by promoting markets and reducing government. Taxes were cut and business regulations reduced. Anti-union regulations were promoted at the same time that the social safety net was cut. Professor Rosenberg argues that this agenda did not promote growth, but let the stagflation continue as the budget and trade deficits grew. The movement toward greater equality that had faltered in the 1970s was reversed as inequality in income and opportunities grew and unions became even weaker under Reagan and George H. W. Bush -- the "guardian" of the Reagan legacy. Unions were forced to engage in "concession" bargaining rather than bargaining to improve the welfare of union members. Professor Rosenberg concludes that this decade from 1981 through 1991 was one of "growing inequality and, at best, stagnating living standards for many. This legacy, along with the recession that followed under the Bush administration, made many Americans angry. They would want a relief from the Republican-led, business-dominated restructuring of the economy." (p. 278)

Bill Clinton's presidential campaign was built around a new economic program that "put people first" to benefit the entire population rather than create greater inequality while the economy stagnated as happened under the Reagan and Bush administrations. Though Clinton's policies were largely conventional ones, he allowed for a more activist government in order to spur the economy. He also advocated raising taxes on the wealthy to force them to "pay their fair share of taxes." (p. 279) However, Professor Rosenberg argues that relatively little of the more liberal agenda was completed and Clinton proved to be "the least pro-union Democratic President in the post Second World War period." ( p. 280)

The economic expansion of the 1990s allowed Clinton to meet his goal of reducing the federal budget deficit and raising taxes on the wealthy. But the broader social agenda, including significant health care reform, was not achieved. In addition, Clinton pushed hard for free trade policies, including NAFTA, in the face of vehement opposition from the AFL-CIO. Many people were left behind in the 1990s expansion while racial and sexual discrimination in the workplace continued. By the end of the 1990s the United States had emerged as the strongest economy in the world and the dollar continued to be the main international reserve currency. The United States' economy was now the model for other countries to follow.

There are a number of things to like about this book. Professor Rosenberg is widely read and draws on this in his writing. The book is full of details on the topics discussed, but it is easy to read and follow because Professor Rosenberg is an excellent writer. Having said this, I must confess that this book has, in my opinion, several serious problems. The book is ostensibly about American economic development since 1945, or so says the title. However, it quickly becomes clear when reading that book that this is not the case. Professor Rosenberg's interests lie in macroeconomic policy, international trade and finance policies, and unions. There is nothing about different types of markets and industries. Farming either does not exist or has no role in the overall economy and its development. Neither do housing construction, retail sales and distribution, manufacturing, and service industries. The communications developments of the postwar period must also be unimportant as is the rise of the computer. I find it hard to understand how one can write about the economic development of the entire American economy since 1945 without any discussion of these markets. And, for Professor Rosenberg it appears that the analysis of the labor market is contained in the analysis of unions and union-business relations. There is no significant discussion of the rise of female labor market participation and the fall of male labor market participation; no discussion of the rise of benefits relative to money wages, or other important changes in American labor markets. The topics that are left out are, in my opinion, very important in understanding American economic development since 1945.

The other reservation that I have about this book is its strong liberal, or anti-market bias. In Part IV of his book, "The Unmaking of an Institutional Framework and the Recreation of Another, 1971-2000," Professor Rosenberg's strong opposition to Republicans and their policies comes clearly through in many statements. For example on page 235 he contends that Reagan's supply-side policies lent themselves to growing economic inequality and growing economic deprivation. On page 236 he contends that the recessions of 1980 and 1981 were caused by restrictive monetary policies of the Fed. There is no indication that he understands that the policies of the late 1970s were creating severe problems in the economy and that the monetary policies that had brought the United States to that point could not continue. In many places he implies, or states, that the Republican administrations were a "tool" of business interests. On page 140 he states that in 1970 and 1971 businesses saw their profits being "squeezed" and requested assistance from the Nixon Administration. In response President Nixon froze wages and prices to assist businesses. On pages 244 and 245 he discusses cutbacks in unemployment insurance, Professor Rosenberg says, "By redefining the conditions under which EB [unemployment benefits] were to be paid, fewer workers were able to qualify for the program. To the extent that workers reacted as the administration wished, the effective supply of labor for low-wage jobs would increase, serving to keep wages down." On page 71 he argues that business "propaganda" consisted of slogans, half-truths, and misrepresentations to promote their anti-union interests while "unions had neither the financial resources nor the sophistication to effectively counter this campaign." On page 246 he argues that the elimination of public service employment would push the workers who had been so employed back onto the labor market "thereby providing low-wage employers with an increased supply of labor." On page 247 he argues that welfare reforms likely helped to increase the supply of labor to low-wage jobs. In the 1980s it was aggressive anti-union behavior that lay behind the "shrinking perimeter of unionism." On page 273 he says, "The Reagan and Bush administrations created an overall political and economic climate that was not favorable to African-Americans" and "The social spending cuts during the Reagan era were popular because they appeared to be (and were) hurting minorities more than whites." On page 276 the assertion is that "Government macroeconomic employment and social policy was designed to 'knock the props' out from under workers, serving to weaken the bargaining power of union and nonunion workers alike."

It is understandable and expected that authors will bring their perspective and their viewpoint to books. But this book -- especially the final section -- is filled with inflammatory statements. It appears that in Professor Rosenberg's opinion there were no redeeming features or actions of the Reagan and Bush administrations, and even the Clinton administration was lacking because it failed to really follow a liberal agenda. I am afraid that I cannot recommend a book that has such a strident bias as this one.

References:

French, Michael, US Economic History Since 1945 (New York: Manchester University Press, 1997).

Wells, Wyatt, American Capitalism, 1945-2000: Continuity and Change from Mass Production to the Information Society (Chicago: Ivan R. Dee, 2003).

W. Gene Smiley is Professor of Economics at Marquette University. His current research focuses on the New Deal of the 1930s. He has published The American Economy in the Twentieth Century (South-Western, 1994) and Rethinking the Great Depression (Ivan R. Dee, 2002).