EC104 Topic 9 (2)

amarjotsidhu's version from 2015-06-06 03:57


Question Answer
British performance in the Golden Ageexceptional in its history but poor relative to other European countries e.g. France and West Germany
(Summary) explanations for British poor performanceBritain's early start, poor capital accumulation and low TFP growth in Britain = weakness in policy and institutions
Total factor productivity - UK vs USA, GermanyUS and Germany ahead by 1973
British problems: management and industrial organisationswage bargaining by unions occurred despite postwar pact; unions did not want innovation
British problems: Britain still had limited innovationslack of competition in markets; complacency in innovation; too much focus on low productivity/old industries
British problems: policy issueshigh taxation (required to pay back war debts); protectionism (Britain does not join Europe); interest groups (lobbying power dominated by Labour)
Sources of British institutional and policy problems (summary) institutions and policy set out in victorian era; inter-war legacy; changes in global economy and technology; early start
Sources of British institutional and policy problems: institutions and policy in Britain set out during Victorian erapath dependency issues (full employment targeted, not productivity = Britain tried to maintain low productivity industries)
Sources of British institutional and policy problems: inter-war legacy focus on full employment and not productivity in post-war period; weak market competition (hangover from imperial preference system - colonies can now trade with US, etc. rather than just Britain)
Sources of British institutional and policy problems: changes in global economy and technologyUS methods become appropriate for other European countries via social compatibility and technological congruence but not case for Britain ; Britain still used WWII machines; Britain did not not join WT/GATT = did not have access to factor endowments e.g. resources from US. It also did not join European steel community = poor quality goods produced
Sources of British institutional and policy problems: early startUS overtaking was unavoidable but Europe cannot be considered inevitable = failure here
Evidence of British failure - Broadberry & Craftseven taking Britain's early structural change into account, growth rate is still 0.5% to 0.7% below its potential = Golden Age a missed opportunity for British growth
Slowdown of growth after 1973European growth rates > 2% ; Growth in uK and US ~ 2% ; West Germany and France slowed considerably
Explanation for slowdown after golden ageTFP growth slowed in the US = declining scope for catch up growth; 1970s instability; end of post WWI disequilibria (wartime reconstruction ended); diminished rate of catchup growth; post war pact collapsed = workers wanted to push for higher wages when profits rose, firms wanted to pay shareholders more when profits rose, Nash equilibrium here wass to pay shareholders and higher wages
Instability of the 1970sSupply side shocks = stagflation in UK, union militancy becomes issue once more (demands for higher wages), higher interest rates, oil shocks, low barriers to capital mobility = capital flight from places with low returns. Inability to maintain social pace = wage/investment bargain breaks down
Implications of post WWII settlement (govt.)too much government now seems ineffective; public sector grew large relative to GDP= higher rates of taxation, big increase in social transfers by the 1980s; productivity distortions associated with social pact = evident; slower de-regulation than US (where it was a big driver of 1980s growth)
Effiency vs technology in EuropeAfter 1960s, Europe's TFP gaps were in efficiency not technology; capital deepening not providing Europe with much growth vs Asian catch up growth; in order to achieve further catch up growth, efficiency issues need to be resolved
UK performance post 1979economic decline ended and it has performed well compared to Europe; still not catching up with US till 1990s
Thatcher's supply side policiesshift from industrial to competition policy; reduction of trade union power; privatisation promoted; tax restructured and reduced (promoted capital coming to UK); benefit to wages reduced (previous disincentives to work); deindustrialisation accepted (focus on services) = shift to FREE MARKET
Results of Thatcher;s reformsbetter incentive structures = improved TFP and reduced inefficiencies; regulatory and technological environment favoured UK over Europe; commitment to low inflation; increased competition in product markets
Increased competition under Thatcherweak competition generated economic rents (payment in excess of cost needed to bring that factor into production; rents captured by inions and converted into higher wages and lower effort; lack of competition had previously led to low productivity under postwar pact - lack of incentives
Bean & Crafts - UK competition during Golden Ageestimate unionism reduced TFP in some industries by 0.75% between 1950 and 1970
Brown et al on UK competition under Thatcherduring 1980s and 90s, increased competition in the UK reduced union membership and effects on productivity
ICT eraproductivity growth accelerated in US and UK but not Europe e.g. Silicon Valley . ICT very fast compared to earlier GPTs. Electronic computer originally used in military then research facilities . After 1940s, more general use began to occur in next 30 years. By 1980s, computers present in entire economy.
ICT contribution to productivity growth vs. steam1.84% contribution to labour productivity growth vs. 0.41% annual labour productivity growth (steam only contributed to manufacturing and transport while ICT could contribute to everything)
ICT benefitsvery adaptable = easy to innovate; rapid cost reduction; versatile application; used in services as well as manufacturing; used by producers and consumers
Features in Europe that frustrated ICT eragreater corporatist legacy, more employment protection, higher regulation and state control, UK reforms in 1980s (not evident in rest of Europe) = key for promoting growth in ICT era
Britain's success in ICT erahas reversed golden age failure; good institutions and social compatibility + boost from technological congruency = technologies of ICT era suited to Britain's social compatibility post 1979
Dew-Becker and Gordon on policies to induce employmentlower taxes and looser regulations rise employment growth but reduce productivity growth
Temin on cause of gold agedown to disequilibria; countries at end of WWII to had too much labour in agriculture for their level of development = misallocation of resources
Broadberry on cause of high growthtransferral of resources from low productivity agriculture to high productivity manufacturing
Broadberry on why Britain grew slowly in golden ageas it had industrialised first and had a low share of labour force in agriculture at the start of the golden age
Eichengreen on cause of high growthdown to investment. implicit bargain made between workers and investors. workers would not push for higher wages if investors would make productive investment that would create jobs and raise wages over time. institutions that helped this = national wage bargaining boards + international institutions that ensured that trade would remain free as conditions changed (GATT)
Eichengreen on causes of end of golden agecapture of institutions by firms and unions; oil shocks; end of bretton woods; end of general catch up; reduced incentives to keep original bargain
Bradford et al. on payoff to US from trade liberalisationsince WWII , USA has led the way in negotiating free trade and investment; since WWII, trade liberalisation has added around a $1 trillion to US economy
Crafts and Toniolo on impact of British unionsmultiple unionism served to reduce TFP growth in the UK prior to 1980s; change in relations since has allowed for productivity gains and increased growth potential
Crafts and Toniolo on convergence in EuropeFrance, Italy, Spain and Germany all experienced rapid output and investment growth in the period during which their real exchange rate remained low