The relentless revolution: a history of capitalism (47 page)

The Committee of European Economic Cooperation metamorphosed into the Organization for Economic Cooperation and Development, which extended membership to the United States and Canada and later to Japan and Australia. With its European Payment Union working effectively, world trade grew at an average annual rate of 8 percent. World manufacturing output grew threefold between 1950 and 1973.
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Not only had productivity taken a huge jump, but governments took advantage of increased revenue to provide extensive public services.

New Initiatives in International Cooperation

It is said that it’s an ill wind that doesn’t blow some good. The eruption of two devastating world wars within twenty years of each other would certainly test that proposition. The shortness of the interval of peace explains one good wind. The adult years of men like Jean Monet and Robert Schuman covered both wars. By the end of the second catastrophic conflict, these leaders were determined to do things differently this time around. Monet had learned about British, American, and European commerce representing his family’s brandy firm before becoming a diplomat serving in the League of Nations. Schuman, who had gone from being a German to a French citizen when Alsace-Lorraine was returned to France after World War I, made a career in French politics.

The two men proposed a dramatic plan: link the steel and iron industries of Western Europe under a single authority. This was definitely an idea whose time had come. In 1951, France, Germany, Italy, the Netherlands, Belgium, and Luxembourg formed the European Coal and Steel Community. With one market for coal and steel products, the members hoped to assure a steady supply. They encouraged profit making in order to pay for the constant pace of modernization. What a difference a second bloodbath made! How unlike the vengeful spirit of Georges Clemenceau at the Versailles treaty negotiations was that of Monet and Schuman and the others who helped them succeed.

While the actual results were more inspirational than practical, the ECSC succeeded in bringing Germany back into the European fold.
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This accomplishment kept the powerful concept of transnational union alive. Six years later the Treaty of Rome created the Common Market, formally known as the European Economic Community. The Maastricht Treaty of 1992 went one step further with the establishment of the European Union and a European citizenship for the people of the initial dozen member states. During the thirty-one years it took to be ratified, Maastricht’s original economic and monetary union expanded to include policies for justice, foreign relations, and security. Capitalism triumphed over nationalism.

There’s a crucial point about capitalism to be made here. The economic integration of Europe, while no panacea for all market woes, has been fundamental to the peace and prosperity of its participants. Yet nothing in the behavior patterns promoted by free enterprise points to such a cooperative effort. The replacement of competition with cooperation and a nationalist spirit with an international one came from individuals like Monet and Schuman, not from any economic laws. These men and others imagined a different world from the one whose horrors they had witnessed. And here is where the critical importance of the Marshall Plan came in. The United States used its gifts to leverage the war-wracked countries to move toward free market institutions. At the same time, the shower of money mitigated the sacrifices demanded by such breathtaking acts of conciliation.
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The shape and direction of capitalism are always set by its participants and never by any inexorable laws. Experts’ generalizations contain the unstated premise of ceteris paribus—this will happen if all else remains the same—but all else rarely stays the same with human beings, especially when successive generations imbibe different lessons.

Unlike American efforts to level the playing field through antitrust litigation, European countries tended to foster a front-runner in its industrial sectors, thinking more in terms of national growth than internal competition. The role of government in the economy was far larger than it had been before the war, but its investment never exceeded one-third of a nation’s total. There was in fact a nice division of responsibility: The government offered help to its citizens who needed it and relied on the private sector to produce goods and services.
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In Europe, many business leaders believed that the social democratic welfare state mitigated public unhappiness during economic downturns and tempered labor agitation for higher wages. With access to the technology generated in the United States and without its military expenditures, it might be said that Western Europe had a good deal.

European countries did exceedingly well in steel production, automobile manufacturing, pharmaceuticals, and electronics. Germany also played a big part in the development of automaking in the postwar era. Karl Benz and Nikolaus Otto had pioneered commercial cars. It took the slowdown in the 1920s for American automakers to get a foothold there. General Motors took over Opel, and Ford established a successful subsidiary. The Depression reduced Germany’s 150 auto companies to a dozen, including Opel and Ford, but the ones that remained were strong.

Automobile Makers and the War

With the coming to power of the Nazis in 1933, car manufacturing had acquired a political cast. Hitler wanted to imitate Ford with a mass-produced car.
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At this point the Austrian automotive wizard Ferdinand Porsche entered the picture. Daimler Motors brought him to Germany but, after its merger with Benz, Porsche failed to please with his ideas for a Mercedes-Benz. He fared better with Hitler, who chose his design for his Strength through Joy automobile. Hitler planned a new factory, a kind of German River Rouge. Its work force was composed of German military prisoners, concentration camp inmates, captured Poles, and Russian POWs; the town that grew up around the plant resembled concentration camps with their accompanying abuses.
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The people’s car never got beyond the prototype. The plant turned out a kind of German jeep during the war until the British army took possession of it in 1945. Renaming the car Volkswagen, the army ordered ten thousand of them. Then it offered the factory to British automakers, who laughed at the VW’s ridiculous shape. Ford wasn’t interested either, nor were French automakers. The plant reverted to the German government.

Meanwhile Ferdinand Porsche was detained for twenty months as a war criminal. The French government arrested another leading auto manufacturer, Louis Renault, for collaborating with the Nazi Vichy government. He died in prison. The complicity of these automobile makers was too egregious to be ignored by Germany or its conquerors. Porsche’s son Ferry was apolitical but, like Ferdinand, a superb designer. Eager to get the money to secure his father’s release, Ferry made a sports car. The Porsche 356 became the first car to carry the Porsche name, soon to be associated with a succession of upscale models.

The government invited the Porsche firm to work on the VW design and gave it a royalty on all future sales of what now was called the Beetle in recognition of the VW’s unique profile. In the ensuing years, Porsche produced close to one hundred thousand 356s while twenty million VW Beetles rolled off the production line and onto the streets of every country. In the 1990s yet another Porsche, Ferdinand’s grandson Ferdinand Piech, brought Volkswagen out of the financial doldrums, making it one of the world’s top four automobile companies. Germany’s postwar rebound owes much to these successes, for one out of every seven jobs in the country depended on automaking with VW, Daimler-Benz, and BMW dominating the market.

The rate of growth in Western Europe after 1950 could not have been sustained without an influx of immigrants, even though European agriculture continued to shed workers as European farmers mechanized. Political instability and economic hardship produced freshets of refugees who were lured to Western European countries by their abundant jobs. Labor shortage became so acute in the 1960s that Germany, France, Switzerland, and Belgium invited in “guest workers” from Portugal, Spain, Italy, Greece, Yugoslavia, Turkey, and North Africa.
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England received immigrants from the Caribbean Commonwealth countries while in a reverse migration some English and Scots moved to New Zealand and Australia. Jewish survivors of Hitler’s concentration camps found new homes in Western Europe, the United States, and the new state of Israel, created from former Palestinian lands in 1948. Emigration to the United States continued strong after World War II, but more people came from the countries of Asia and Central America than from Europe.

With economic growth so strong, immigrants in Western Europe found employment, but not a comfortable place in their chosen society. Not considering themselves “lands of immigrants,” as the United States did, European countries resisted incorporating the newcomers into their fabric. The guest workers tended to be residentially segregated as Latinos and African Americans were in the United States. When growth slowed, as it did in the late 1970s, calls came for sending the “guests” back to their homes.
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Their presence strengthened xenophobic political parties. Still, long-term labor shortages loomed as the baby boom of 1946–1960 passed into retirement and the decline of European birthrates accelerated. By the 1960s countries throughout Europe had passed below the 2.1 replacement rate. Prosperity and a widening ambit of possible careers for women changed the mores of millennia. The individual decision making at the center of capitalism has infected whole societies.
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The American Economy in High Gear

The first two years after the war in the United States saw the swiftest peacetime conversion on record. Government control boards disappeared as fast as the military demobilized its soldiers, sailors, nurses, and merchant mariners. The more than 12 million men and women in uniform dropped to 1.5 million. (In 1939, at the start of European hostilities, the U.S. Army numbered 120,000 officers and soldiers!) Just as quickly as the military shed personnel, the labyrinth of prohibitions, priorities, quotas, limitations, set asides, price controls, subsidies, rationing, and interest rate pegging that had characterized war production disappeared.
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While taking a backseat in economic decisions, Congress greased the wheels of the transition. The top income tax rates remained at 87 percent until 1981, but corporate tax rates came down. Withholding income taxes from wages and salaries had begun during the war and continued. By 1959 the Internal Revenue Service had the world’s largest collection of personal data.

As an expression of gratitude to its veterans, the government dispensed favors that had a salubrious effect on the economic climate. Almost a million veterans took advantage of the GI Bill, which paid the costs of a college or technical education along with a stipend to live on. At the peak year of 1947, nearly half of America’s college students were vets, the majority of them the first in their families to go to college. Quite incidentally this investment in education yielded a talent dividend for years as skilled labor became more and more important in the work force. (So important was it that economists added “human capital” to their discussions of the labor-land-capital component of production.)

Another nine hundred thousand unemployed veterans, almost half of those in the work force without jobs, drew upon the fifty-two weeks of unemployment benefits that Congress voted them. Several programs enabled veterans to get cheap mortgages. This promoted a construction boom. A developer named William Levitt built seventeen thousand houses within a stone’s throw of a large U.S. Steel Company plant on Long Island, New York. Levittown was the first of a number of instant communities. Developers across the land began building tracts of houses on level land within commuting distance of America’s cities. They mass-produced houses from similar blueprints with many items like cabinets trucked in. True to the prejudices of the day, blacks were usually excluded.

Investing as though good times were going to last forever, American firms expanded. They financed conversions and improvements with earnings, wartime savings, and new issues of company stocks and bonds. When unemployment rose above 5 percent, President Dwight D. Eisenhower pushed Congress to pass the Federal Highway Acts of 1954, 1956, and 1958. In Keynesian fashion, government funds poured into building an interstate highway system with ribbons of four-lane roads tying the country together as it generated hundreds of thousands of jobs. As a young lieutenant colonel Eisenhower had participated a generation earlier in the caravan of army vehicles sent across the country to see how easily troops could be moved from the East to the West Coast. “Not very easy” was the answer. The trip took sixty-two days and sometimes required oxen to pull the trucks out of the mud. The new interstate highway system followed the same route, the old Lincoln Highway, as the army convoy of 1919.
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Organized labor became a force in the American economy after passage of the Wagner Act, formally known as the National Labor Relations Act of 1935. This Magna Carta for labor gave statutory protection to organizing workers. Public opinion, as well as court decisions, had begun to turn in labor’s favor, first in the twenties for the right to assemble and then during the Depression for the right to organize. Congress restricted the use of injunctions to stop labor meetings; in successive decisions in 1938 and 1939 the Supreme Court interpreted the First Amendment as making streets and parks a “public forum” that protected peaceful picketing.

A bitter rivalry marred labor’s coming into its own when eight unions in the AFL withdrew to protest its indifference to organizing unskilled workers in mass production industries. Their exploratory committee turned into the Congress of Industrial Organizations in 1938. The CIO was much more welcoming to immigrants as well as to African Americans. Under the banner of “Negro and White: Unite and Fight,” the CIO added half a million black workers during World War II. Racism among American unions was just as strong as it was among white-collar workers, but the CIO, led by the fiery mining workers’ leader John L. Lewis, was pushing hard against those destructive attitudes. The CIO also successfully recruited immigrants and their second-generation progeny. Here it acted as a democratic force, showing these outsiders how to claim power at the work site and take up their place in a culturally diverse citizenry.
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