An Economic History of Twentieth-century Europe: Economic Regimes from Laissez-faire to Globalization

Published by EH.NET (April 2007)

Ivan Berend, An Economic History of Twentieth-century Europe: Economic Regimes from Laissez-faire to Globalization. New York: Cambridge University Press, 2006. xv + 356 pp. $35 (paperback), ISBN: 0-521-67268-6.

Reviewed for EH.NET by Gianni Toniolo, Department of Economics, Duke University and Universit? di Roma.

Before taking up his current position of Professor of History at UCLA, Ivan Berend spent most of his scholarly life in Hungary where he was, among other things, Rector of the Budapest University of Economics and President of the Hungarian Academy of Sciences. At the edge of Eastern and Western Europe, endowed with a highly educated and cosmopolitan upper middle class, Hungary provides an excellent observation point for European history. It comes as no surprise, therefore, that after writing extensively on central and eastern Europe, Berend felt the time had come for him to offer his overall view of the eventful economic history of twentieth-century Europe. To do so, he chose the textbook format (or rhetoric). The result is a relatively short book, presumably aimed at upper undergraduates but sure to be appreciated by the general public as well.

The six chapters are structured around the prevailing ideologies of the times rather than according to the traditional political or economic partitions of twentieth-century history. Thus, the first chapter deals with the pre-World War I “laissez-faire system,” the second with the decline of laissez-faire and the rise of “regulated market systems,” the third and the fourth with the fascist and socialist regimes, the fifth with the so-called mixed economy and the welfare state. The title of the final chapter is “Globalization: Return to Laissez-faire?” A strong emphasis on ideology, including the final question mark, will have an intellectual appeal to Europeans over forty while it is likely to puzzle not only most American students but also many of their Old Continent counterparts, particularly economics majors. But, indeed, meminisse juvabit (it is useful to remember) and Berend’s book will help to inoculate readers against the current loss of memory of how heavily European history has been burdened by ideology, as well as against the assumption that we are now living in a post-ideological world.

The first pages in the book deal with “the gradual transformation [of Europe] from protectionism cum bimetallism to free-trade cum gold standard” (p.11). As most scholars do, the Cobden-Chevalier Treaty of 1860 and the general adoption of gold convertibility in the 1870s are taken as the watershed between a world still imbued with mercantilist ideology and one identified with “laissez-faire.” Berend then proceeds to touch upon the rise of modern sectors (sometimes called the “second industrial revolution”), the changing position of Europe in the world and of individual countries within Europe. A mix of aggregate statistics and sectoral case studies (some of them aptly encapsulated in useful boxes) describe the rise of German economic power, the beginning of the Scandinavian catching up and the lagging behind of the eastern and southern peripheries. Among the latter, the fairly good performance of Italy is duly depicted. All this factual material is well organized and written: students will find it useful as an introduction to some of the main topics in pre-1913 European economic history. There are, however, two curiosities students are likely to have but remain unanswered. The first is the reasons why Europe’s “western offshoots” grew so much faster than Western Europe (which Berend characterizes as the core of the world economy as late as 1913). If, by the 1880s, the United States already led Western Europe (if not Britain) in aggregate productivity and per capita GDP, why was Europe unable to close the gap? The second question is: how widespread were laissez-faire practices and what impact did they have on growth? Berend acknowledges that the “laissez-faire ideology … became the Zeitgeist in the advanced countries although it remained a shallow practice” (p.13), but the second part of this statement receives little attention in the following pages. One has to wait for the chapters on the interwar period for a brief mention of the “globalization backlash” highlighted by the tariff movement of the 1880s. Little is also said about domestic economic legislation which, in several countries, retained more than just the flavor of mercantilism: regulation and red tape remained quite pervasive. And students may wonder if there is a link between the questions. The United States enjoyed more than their fair share of protectionism but domestic free trade allowed the exploitation of regional comparative advantages within a large country. It is likely that tariffs and other restrictions on international trade made the exploitation of comparative advantages more difficult in the Old Continent and students would possibly be interested in exploring how far Europe’s fragmentation goes in explaining the diverging rates in productivity growth between the two sides of the Atlantic.

A large portion of the book (three chapters) is devoted to the “regulated market system,” fascist economic dirigisme and centrally planned economies. This will possibly turn out to be the most useful and interesting part as far as students and educated laypersons are concerned, if nothing else because I know of no other comparable compact account of how policymaking everywhere, if with very different connotations, became state-centered and inward looking between 1914 and 1950. Chapter 2, dealing with the democratic countries, collapses in less than fifty pages a good standard review of 1914-1950. The “novelty” here is perhaps the emphasis on the Zeitgeist, even though one wonders whether the economy was driven by ideology, as sometimes the author seems inclined to believe, or it was the economy’s failure to shape new economic and political ideas. The chapter on the varieties of European fascisms covers also the Iberian Peninsula into the 1970s, to the fall of Franco and Salazar. The differences between the Fascist and Nazi regimes are excellently outlined. Had the author dealt more in detail with macroeconomic policies, the similarities between the running of the economy by Fascism and most democratic governments would have become more apparent. Chapter 4, on centrally planned economies, also crosses the World War II threshold to cover the period up to the fall of the Berlin wall. This way of arranging the material compacts the narrative on Eastern Europe, if at the expense of a comparison between and interaction with the market economies west of the river Elbe. Berend takes a balanced approach highlighting not only the shortcomings but also the successes of the centrally planned economies in generating rapid growth, in enhancing education and research as well as in creating a comprehensive welfare state. The reasons that eventually produced increasing inefficiency are highlighted together with the too-little-too-late reform attempts.

The last two chapters are devoted to postwar growth in Western Europe and to the apparent recent globalization challenge to Europe’s economic success. In an interesting departure from most of the recent English-language literature in the field [1], Berend strongly emphasizes the positive role played by the state in the phase of rapid catch-up growth. This is not Eichengreen’s argument about the immediate postwar advantages of coordination, drawing on the long-standing debate on the “varieties of capitalism,” but rather the sheer appreciation of the role played by state-owned companies in technology transfer, infrastructure building, and trend setting in industrial relations. Rehabilitation of the state-run enterprise in most contexts during the 1950s and 1960s is worth pursuing by economic historians provided, however, that the explanation of its early success is matched by a consistent account of its most recent failure. The last chapter, covering the 1970s to the 1990s, does not take up the challenge. This chapter is the one I find least convincing. In particular, I have three main disagreements with the treatment of the period. (i) One finds it difficult to agree with Berend that [in 1973] “the seemingly ‘endless’ prosperity [of Europe] came to an abrupt halt” (p. 280). This may possibly be true for the centrally planned economies, but Western Europe continued to catch up with the United States in GDP per capita and in output per hour worked, which around 1990 was about equal on the two sides of the Atlantic. Within-Europe convergence also continued. (ii) World-wide divergence in across-county income distribution became less rather than more polarized from the 1980s onward. (iii) The final section on Europe as a rising superpower neglects the huge debate on the reasons for the post-1995 new divergence between European and American GDP growth. On the other hand, one would definitely agree with Berend on his harsh judgment about international management of the “transition process”. The “third postwar settlement” of the twentieth century that took place after the end of the Cold War resembled more the ill-fated “first postwar settlement” than the virtuous “second” one.

When compacting into a single book such a long and eventful history as that of twentieth-century Europe, an author knows beforehand that he will not satisfy in detail any of his colleagues working in the field. I am sure that Ivan Berend nurtured no illusion in that respect. Yet, for all the things that I would have liked to have seen covered differently, this is a fascinating book commending high admiration for the breadth of the material covered (in several languages), for the clarity of presentation (a flowing prose is coupled with simple graphs, interesting boxes, a good bibliography and index) and, most of all, for the novelty of the approach which, as I said at the beginning, draws from the author’s personal perspective at the edge of Western and Eastern Europe. Nowhere else has history been as rich and contradictory as in the Old Continent during the twentieth century. Wars, depression, rapid growth, ideologies of all kinds, changing social and political regimes, the abyss of human depravation and the creation of the most humane and socially inclusive society ever seen in the history of mankind: all this and more was compacted in twentieth-century Europe. Berend succeeds in offering an engaging perspective into this enormous variety of situations, abrupt changes and reverses. This is precisely the mark of the great historian.

Note:

1. Two freshly-published excellent books are: Barry Eichengreen, The European Economy since 1945 (Princeton University Press, 2007) and Larry Neal, The Economics of Europe and the European Union (Cambridge University Press, 2007).

Gianni Toniolo’s most recent books are The Global Economy in the 1990s: A Long-run Perspective (Cambridge University Press, 2006), which he edited with Paul Rhode; and Central Bank Cooperation at the Bank for International Settlements (Cambridge University Press, 2005).