The Golden Age of Capitalism (Post-WW2)
1. The Golden Age in Long-term Perspective
- Rapid GDP per capita growth post-1945
- “Golden Age” characterized by convergence
- Poorer countries growing faster by adopting tech/organizational practices of richer ones like the US
- Catch-up growth observed notably in Western Europe and Japan
2. Postwar Recovery and Convergence on the US
- Massive growth due to postwar recovery
- High pre-war investments, intact productive capacity
- Fast recovery despite wartime destruction
- West Germany and Austria: significant GDP per capita growth
- Convergence indicator: Western Europe and Japan saw fast GDP increases relative to the US
3. Why Was Post-WW2 Recovery Different?
a. Institutional and Social Factors
- Unlike post-WW1, Germany not punished with reparations
- Western Europe = cooperation + welfare state
- ECSC, OECD to promote European integration
- Marshall Plan aid conditioned on joint recovery efforts
- Enhanced labor-capital cooperation
- Stronger trade unions and state role in economy
b. Bretton Woods System
- Fixed exchange rate system; US dollar pegged to gold
- Created macro stability
- Restricted capital mobility
- Allowed domestic monetary autonomy
- Focus: avoid capital flow-induced depressions as seen in the 1930s
c. Growth Accounting Framework
- Increased productivity:
- Tech transfers, increased capital stock
- Enhanced labor quality (human capital)
- Structural changes: from agriculture to industry
- Boone from American mass production techniques, management styles
4. The End of the Golden Age
- 1973: End marked by first Oil Crisis and collapse of Bretton Woods
- Key reasons:
- Almost completed convergence with US
- Slowed structural transformation
- “Eurosclerosis” limits European integration + trade growth
- Inflation and US budget deficits under strain
Associated Key Ideas
- Post-WW2 growth differently managed compared to post-WWI
- Bretton Woods → monetary stability vs gold standard’s rigidity
- Long-term capital mobility restricted; emphasis on trade stability
- Convergence driven by tech transfer, organizational practices, and structural change