A progressive trope, with no small amount of popular buy-in, is that neoliberalism, or Thatcher-Reaganism, in the 1980s killed the post-war economic miracle in Europe (and middle-class prosperity in the United States).
Tony Judt — no one’s neoliberal shill — provides in his well-drawn “History of Europe since 1945,” Postwar, a helpful corrective to the aforementioned chronology. Market liberalization was a response to a stalled Western growth engine, not its cause.
“There was a further complicating element in the choices facing policymakers in the 1970s. The economic crisis, however circumstantial and conjunctural its triggers, coincided with a far-reaching transformation which governments could do little to arrest. In the course of a generation, Western Europe had undergone a third ‘industrial revolution’; the smokestack industries that had been so much a part of daily life just a few years before were on their way out. If steelworkers, miners, car workers and mill hands were losing jobs, it wasn’t just because of a cyclical down turn in the local economy, or even a by-product of the oil crisis. The venerable manufacturing economy of Western Europe was disappearing.
The evidence was incontrovertible, though policymakers had for some years been trying hard to ignore its implications.” Tony Judt, Postwar: A History of Europe Since 1945, 458 (The Penguin Press; 2005)
The reckoning for globally uncompetitive industries — and their workers — was profound.
“But as more non-European countries entered the industrial ranks, competition increased, the price fell and the market for expensively produced European steel collapsed. Between 1974 and 1986 British steelworkers lost 166,000 jobs (though in the latter year the UK’s major manufacturer, the British Steel Corporation, made a profit for the first time in over a decade). Shipbuilding declined for similar reasons; motor car manufacturing and textiles likewise. Courtaulds, the UK’s leading textile and chemical combine, reduced its workforce by 50 percent in the years 1977-83.
The recession of the Seventies saw an acceleration of job losses in virtually every traditional industry. Before 1973 the transformation was already under way in coal, iron, steel, engineering; thereafter it spread to chemicals, textiles, paper and con sumer goods. Whole regions were traumatized: between 1973 and 1981 the British West Midlands, home of small engineering firms and car plants, lost one in four of its workforce. The industrial zone of Lorraine, in north-west France, lost 28 per cent of its manufacturing jobs. The industrial workforce in Lüneburg, West Germany, fell by 42 percent in the same years. When FIAT of Turin began its switch to robotization at the end of the 1970s, 65,000 jobs (out of a total of 165,000) were lost in just three years. In the city of Amsterdam, 40 percent of the workforce was em ployed in industry in the 1950s; a quarter of a century later the figure was just one employee in seven.”Judt, 459
The “neoliberal” medicine would not come before doubling down on traditional remedies. It’s not that propping up ailing industries wasn’t tried. It was. Early and often.
“Faced with an unprecedented raft of demands for job security and wage protection, European leaders initially resorted to proven past practice. Inflationary wage settlements were negotiated with powerful unions in Britain and France; in Italy a flat-rate indexing system linking wages to prices, the Scala Mobile, was inaugurated in 1975. Ailing industries—steel especially—were taken under the wing of the state, much as in the initial round of post-war nationalizations: in the UK the ‘Steel Plan’ of 1977 saved the industry from collapse by cartelizing its price structure and effectively abolishing local price competition; in France the bankrupt steel combines of Lorraine and the industrial center of the country were regrouped into state-regulated conglomerates underwritten from Paris. In West Germany the Federal government, following form, encouraged private consolidation rather than state control, but with similar cartelizing outcomes. By the mid-seventies one hold- ing company, Ruhrkohle AG, was responsible for 95 percent of the mining output of the Ruhr district.
What remained of the domestic textile industries of France and Britain was preserved, for the sake of the jobs it offered in depressed regions, by substantial direct job subsidies (paying employers to keep on workers they didn’t need) and protective measures against third-world imports.”Judt, 460
But denial could not go on forever.
“The post-war welfare states rested upon two implicit assumptions: that economic growth and job creation (and thus government income) would continue at the high levels of the fifties and sixties; and that birth-rates would remain well above replacement level, ensuring a ready supply of new tax-payers to pay for their parents’—and grandparents’— retirement. Both assumptions were now open to question, but the demographic miscalculation was the more dramatic of the two. By the beginning of the 1980s, in Western Europe, the population replacement ratio of 2.1 children per woman was being met or exceeded only in Greece and Ireland.”Judt, 536
Only after the economic crisis of the 1970s took hold and traditional social-democratic efforts to counteract it proved unsustainable would neoliberalism become an ascendant solution. Whether this was the appropriate solution or not is not the point, rather it’s clear that this political shift was a reaction to, not an impetus of the post-war music stopping. Granted, market-liberal ideas predated the 1970s crisis, but they had been decidedly not in vogue since the 1930s. What’s more, they were far from universally successful in Western Europe even after the 1970s, let alone before.
“[C]ritics offered two lines of argument. The first, quite simply, was that the array of social services and provisions to which Western Europeans had become accustomed were not sus tainable. The second argument, offered with particular urgency in Britain—where the national economy had staggered from crisis to crisis for most of the post-war decades—was that, sustainable or not, the interventionist state was an impediment to economic growth.
The state, these critics insisted, should be removed as far as possible from the market for goods and services. It should not own the means of production, it should not allocate resources, it should not exercise or encourage monopolies, and it should not set prices or incomes. In the view of these ‘neo-liberals’, most of the services currently furnished by the state—insurance, housing, pensions, health and education—could be provided more efficiently in the private sector, with citizens paying for them out of income no longer (mis-)directed to public resources. In the view of one leading exponent of free-market liberalism, the Austrian economist Friedrich Hayek, even the best-run states are unable to process data effectively and translate it into good policy: in the very act of eliciting economic information they distort it.
These were not new ideas. They were the staple nostrums of an earlier generation of pre-Keynesian liberals, brought up on the free-market doctrines of neoclassical economics. In more recent times they were familiar to specialists from the work of Hayek and his American disciple Milton Friedman. But with the Depression of the 1930s and the demand-led boom of the Fifties and Sixties, such views had been typically dismissed (in Europe at least) as politically myopic and economically anachronistic. Since 1973, however, free-market theorists had re-emerged, vociferous and confident, to blame endemic economic recession and attendant woes upon ‘big government’ and the dead hand of taxation and planning that it placed upon national energies and initiative. In many places this rhetorical strategy was quite seductive to younger voters with no first-hand experience of the baneful consequences of such views the last time they had gained intellectual ascendancy, half a century before. But only in Britain were the political disciples of Hayek and Friedman able to seize control of public policy and wreak a radical transformation in the country’s political culture.”Judt, 536-37