A number of different paths out of the European malaise seemed possible. European-wide co-operation of large high-technology enterprises, often with government support, brought some results. In electronics, French and Dutch and German firms cooperated to make high-capacity chips. The most striking co-operative project was the four nation (French, German, Spanish, and British) Airbus project, which began in 1970 and by the early 1990s had captured some 30 per cent of the world’s market of commercial aircraft. Even in older industries such as automobiles, the creation of cross-national corporations through mergers and cross-holdings (the most significant being Volkswa-gen-SEAT-Skoda) repeated the process of reaping economies of scale that had already taken place within the setting of national economies.
Secondly, new impulses could be expected from a renewed liberalization, and an extension of the European Community (known after 1992 as the European Union). The long-run effects of the transformation and liberalization of central European economies after 1989 are likely to generate a considerable growth impulse. The east European revolutions of 1989 were not primarily economic in inspiration, but they were a reaction to severe economic failure. Attempts at reform and partial mar-ketization had been particularly developed in Hungary and Poland, but in both cases they ran into constraints.
The first and most obvious was an international one. Reforms in the centrally planned economies in the 1970s were accompanied by heavy borrowing on international capital markets, and the borrowers became, like Mexico and Brazil, victims of the international debt crisis of the early 1980s. The build-up of debt made further new borrowing impossible, and its service would have required an additional export effort. This, however, involved running into the second constraint: the powerful domestic obstacles to further liberalization, including effective competition and the restoration of property rights. Any change involving increases in previously subsidized prices, or rents, or rising unemployment as low-productivity plants were shut down, would incur immediate unpopularity, and the rather weak regimes were unwilling to take the risk of large-scale unrest. By 1989 the reforming countries had reached the point where further steps to ‘market socialism’ were no longer possible. The alternatives were retreat, or a complete liberalization accompanied by the creation of representative political institutions.
The consequences of these reforms were analogous to the past efforts and transformations of other European societies: Germany and Italy in the late 1940s, Spain at the end of the 1950s. After an initial shock, growth began. In the last decade of the century, central Europe bore witness to the effectiveness of a traditional European recipe: the combination of political and legal security as a setting for entrepreneurial initiative and a means of engendering greater prosperity for wide social groups.
Growth cannot be neatly planned and directed, any more than can society. Attempts to do either produce greater and greater problems, until the whole project breaks down in chaos. The most planned attempts in the twentieth century disintegrated most spectacularly. Because the much more moderate and limited attempt to control developments in western Europe in the 1960s and 1970s was not as totalizing, its disintegration was not as complete and its vision of neatly managed change left a substantial nostalgic appeal.
The European experience shows the importance of situating economic change within an appropriate institutional framework. It also demonstrates consistently the importance of interactions with the rest of the world: whether in permitting flows of capital, goods, or people. Development always involves change: the challenge lies in finding ways of accepting and managing change so that the consequences are not unbearably painful. After the First World War, Europe failed to meet that challenge, with terrible consequences. The European story after the Second World War was much more successful, in large part because problems of adaptation could be overcome in the context of a rapidly expanding world economy. The problems of the later period of slower growth, after 1973, are also problems of securing the continued openness of the global economic framework.
World History
