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Development: Meaning,
Measurement and Strategies - Part Four of
ten
Dr Y Subba Reddy, Faculty, Institute for
Financial Management and Research (IFMR), Chennai.
Policy Shifts
In the following, we examine in depth the policy shifts
that have taken place in different countries and the circumstances that led
to the shift and finally the consequences.
Ascent of Mixed Economy in Western Europe
Several broad forces shaped the mixed economy policy in
the Western Europe. The appalling destruction, misery, and disruption
created by the war meant that something had to be done urgently to thwart the
capture of the entire continent by communism. Further, industrial machinery
was obsolete and worn-out, the labor force in Europe was exhausted,
malnourished, and in disarray, and technical skill had been dissipated.
Extreme climate, culminating in the Siberian winter of 1947, unleashed a
grave crisis. There was no functioning private sector to which to turn to in
order to mobilize the investment, capital goods, and skills necessary for
reconstruction and recovery. International trade and payments had been
disrupted. Under the circumstances, Government would have to fill the vacuum
and organize and champion the recovery. The Great Depression of the 1930s and
the mass unemployment problem discredited the market system. At the end of
the war, in Europe and throughout much of the world, capitalism seemed
infirm, inept, and incapable. It could not be counted upon to delivery
economic growth and a decent life. It was considered morally objectionable,
appealed to greed instead of idealism, promoted inequality. It had failed the
people and to many it had been responsible for the war.
The Labour Party, which came into power in the UK in 1945, nationalized the coal, iron and steel,
railroads, utilities, and international telecommunications. The premise of
nationalization was that as private businesses, these industries had under
invested, been inefficient, and lacked scale. As nationalized firms, they are
expected to mobilize resources and adapt new technologies and there would be
far more efficient and ensure the achievement of national objectives of
economic development and growth, full employment, and justice and equality.
They would be the engines of the overall economy, drawing it toward
modernization and greater redistribution of income.
Through the nationalization acts of 1945 and 1946, the
French state decisively asserted its domain over the commanding heights,
taking control of banking, electricity, gas, and coal, among other
industries. However, due to opposition from the French Communists the
nationalization drive was quickly halted in 1947. Communists perceived the
nationalization as a weapon to prop up capitalist state and to resist the
communist tide. At the end when it was all added up, the state had acquired a
major stake in some of the most critical sectors of the economy, in what was
a very decisive break with the prewar tradition.
Nowhere else in Europe was capitalism so discredited as in
the four occupied zones of postwar Germany, owing to the complicity of a
large part of business with the Nazi. The Nazis had preserved private
property but controlled and subordinated it to their own purposes. The
appalling conditions of postwar life seemed to provide the circumstances for
implementing a socialist vision. Controls and rationing contributed to a
barter economy, with dejected people trooping, by dilapidated trains, to the
countryside to exchange whatever household goods they might still possess for
a couple of eggs or a bag of potatoes. The seminal events took place in June
1948. The American and British executed a massive overnight currency reform,
replacing worthless Reich marks with new deutsche marks, which created a
sound economic foundation. Subsequently it also abolished most of the price
controls. All these steps, despite the Soviet blockade revived the economy in
Germany. The black and gray markets disappeared and goods reappeared in the
shop windows. After the establishment of Federal Republic (as West Germany
was officially known) gradually the social market economy was built and by
1969, the Federal Government owned one fourth or more of the shares of some
650 companies. Public ownership extended to transportation systems,
telephone, telegraph, postal communications, radio and television networks,
and utilities. Partial public ownership extended to coal, iron, steel,
shipbuilding, and other manufacturing activities.
There were crucial differences between the German model
and the French and British models. In Germany, the state created a network of
enterprises and left the market mechanism where the tripartite management of
government, business, and labor play active role in operating the economy.
This unique formulation took Germany from its economic nadir to the heart of
European economic order in under a decade and established as the locomotive
of European economic growth.
Postwar Italy inherited a mixed economy from the Fascist government
of Benito Mussolini. However, the decisive break came with the state
established Ene Nazionale Idrocarburi (ENI), which was a sprawling
conglomerate with business ranged from crude oil and gasoline stations to
hotels, toll highways and soaps. ENI facilitated reconstruction and promised
to deliver natural resources to a resource-poor country. Only a few years
after the war, ENI was already building new gasoline stations along Italy's
roads that were larger, more attractive, and more commodious than those of
its international competitors. It became a model for what state owned
companies could do and for the very rationale of state ownership.
Along with this mixed economy consensus, all the Western
European countries made efforts to solve the German question and face the
threat from Soviet Bloc. All these endeavors led to a path of integrating the
European economy.
The economic record of the Western Europe countries in the
postwar years was extraordinary. The mixed economy delivered a standard of living
and a way of life that could not have been anticipated, or even imagined, at
the end of the World War II. The 1950s and 1960s became known as the golden
age of the welfare state in Britain. By 1955, all the Western European
countries had exceeded their prewar levels of production. The scourge of
unemployment, which discredited the prewar order throughout the industrial
world and which had been the number one stimulus to action was banished. This
record of success in the industrial countries of Europe vindicated the idea
that government must take an active role in overseeing or directing the
economy in order to provide prosperity for all.
[To be continued]
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