Transcript Economic Growth in the Long 20th Century by Nicholas Crafts

Economic Growth in the
th
Long 20 Century
Nicholas Crafts
Table 1. Real GDP/Head (UK = 100 in each year)
USA
West
Germany
France
1870
1913
1950
1964
76.6
107.8
137.7
133.5
61.7
101.3
58.8
70.8
74.7
92.2
1979
142.7
115.9
111.1
1997
133.7
100.9
95.4
2007
124.9
88.9
86.8
Sources: The Conference Board (2014) and West Germany in 2007 calculated from Statistiches Bundesamt Deutschland.
Table 5. Contributions to Growth in Market Sector, 1873-2007 (% per year).
Education
K/HW
TFP
Y/HW
UK
1873-1913
0.3
0.4
0.2
0.9
1924-1937
0.3
0.1
0.3
0.7
1950-1973
0.5
1.5
1.4
3.4
1973-1995
0.4
1.2
1.3
2.6
1995-2007
0.4
1.0
1.0
2.6
1950-1973
0.4
2.3
2.5
5.2
1973-1995
0.3
1.1
1.3
2.7
1995-2007
0.0
1.0
0.7
1.7
1871-1890
0.0
0.8
1.0
1.8
1890-1905
0.1
0.5
1.3
1.9
1905-1927
0.2
0.5
1.4
2.1
1929-1948
0.4
0.1
1.5
2.0
1950-1973
0.3
0.9
1.5
2.7
1973-1995
0.3
0.5
0.4
1.2
1995-2007
0.3
1.2
1.1
2.6
Germany
United States
Did Victorian Britain Fail?
• New Economic History said NO!; subsequent
research says this is a bit too strong
• Competition in a very open economy was
central to the NEH argument (McCloskey & Sandberg,
1971); if correct, implies Golden-Age UK much
more susceptible to failure
• But examples skewed to tradeables; look at a
sector (railways) where competition and
shareholders are both weak and productivity
performance is much more questionable
The ‘Managed Economy’
Strategy of the 1930s
• Post-1932 dirty floating, cartels, tariffs understandably
seen as damage limitation and a way to restore
profitability
• This implied a major reduction in competition which
lasted well into the post-war period
• The reduction in competition reduced productivity growth
both before and after WWII (Broadberry & Crafts, 1992, 1996)
• No evidence that imposing tariffs was good for
productivity growth (Broadberry & Crafts, 2011)
• The claim that the 1930s represents an antidote to
Victorian failure is seriously misleading
Relative Economic Decline
in the Golden Age
• The UK growth failure in 1950-73 was about
0.75 pp per year
• Supply-side policy was badly designed and
undermined incentives to invest and to innovate
• Policy was seriously constrained by accepting
the ‘trade union veto’ in seeking to maintain full
employment
• Competition was much weaker than pre-WWI
Traditional Criticisms of PostWWII British Industry
• Weak and incompetent management
• Difficult industrial relations
• Seriously inefficient use of inputs
• NB: these were all nurtured by inadequate
competition in product markets interacting
with the historical legacy
Institutional Legacies (1)
• By the later 20th century, the UK was characterized by
an unusual degree of separation of ownership and
control (Cheffins, 2008)
• Relatively few large firms had a dominant external
shareholder; principal-agent problems a big concern,
especially when competition was weak
• UK followed a path from 19th-century origins to ‘AngloAmerican’ (rather than German) capitalism promoted by
revisions to company law, taxation, transition from
personal to institutional investors
Institutional Legacies (2)
• The early start produced a distinctive and persistent
‘British system of industrial relations’
• Characteristics include craft control, legal immunities,
multi-unionism, TUC rather than LO, effort bargains that
influenced technical choice
• E.g., the ‘British system of mass production’ (Lewchuk,
1987)
• 19th-century organizational structures became
dysfunctional but employers did not find it worthwhile to
pay the price/take the risk to abolish them
Competition and Productivity Growth
• Competition is strongly positive for productivity
outcomes in UK firms without dominant
shareholder (Nickell et al., 1997)
• Competition promotes better management
practices (Bloom & van Reenen, 2007)
• 1956 Act led to significant improvement in
productivity performance in formerly-cartelized
sectors (Symeonidis, 2008)
Impact of Increased Competition (1)
• Increases in competition correlated with 1980s
productivity growth at sectoral level (Haskel, 1991)
• Openness promoted TFP growth in catch-up model for
manufacturing sectors post-1970 (Proudman & Redding, 1998)
• Single Market shock improved TFP performance in
plants exposed to agency problems (Griffith, 2001), raised
patenting in close-to-frontier industries (Aghion et al., 2009)
• Post-1980, competition for corporate control meant
restructuring and divestment in large firms (Toms & Wright,
2002); management buyouts raised TFP (Harris et al., 2005)
Impact of Increased Competition (2)
• During the 1980s and 1990s, increased
competition reduced union membership, union
wage mark-ups and union effects on productivity
(Brown et al., 2008; Metcalf, 2002)
• Surge of productivity growth in unionized firms in
1980s as organizational change took place
under pressure of competition (Machin & Wadhwani, 1989)
• De-recognition of unions in face of increased
foreign competition had strong effect on
productivity growth in late 1980s (Gregg et al., 1993)
UK in the ICT Age
• Invests relatively large amount in ICT
capital with positive productivity effects
• This requires reorganization and is
supported by light regulation
• This would not have happened with
1970s-style industrial relations and weak
competition
Table 11. Sources of labour productivity
growth in the market sector, 1995-2007 (% per
year)
Labour
Quality
ICTK
/HW
Non-ICT
K/HW
TFP
Growth
Y/L
Growth
France
0.3
0.3
0.4
0.9
1.9
Germany
0.0
0.5
0.5
0.7
1.7
UK
0.4
0.8
0.4
1.0
2.6
USA
0.3
0.9
0.3
1.2
2.6
Source: van Ark (2011)