to Rapid Growth?

\VORKING

I

PAPERS

Economic Pollcy Intemational Economic Analysis andProspects Division TheWorldBank June1988 WPS 9

Public Disclosure Authorized

Public Disclosure Authorized

Public Disclosure Authorized

Public Disclosure Authorized

PoIl, Pnni,n* nd R_roh

Can We Return to RapidGrowth? Andrea Boltho

Probablynot, for the likelihoodof spontaneousmarket forces favoringprivateinvestmentis slim.A morepromisingroutefor returningto rapid growth in the industrialcountriesis to rely primarilyon a government-ledexpansionto promoteinvestment somethingpossibleonly with an unusual degree of internationalcooperation.

The Policy. Planning and Researh CcmnplexdistnbutesPPk Woking Papers to dissninate the findings of wak in pOress andto enacoutugetheexchangeof ideas mng Bank staff and 1 eother interested in devlopment issues Tbese papes caythenames of the autha. releca only their views, nd should beused and cited accordingly.Te findings, ineprctsatims, and coclusions are the authorneown. They should not be anrbuted to the World Bank. its Board of Ditcors, it management, or any of its manberemutria.

1* 4

Economic Policy

The projections for economic growth in the industiial countries during 1985-95 have been revised steadily downward - to a pessimistic 2.5 k-ercenta year. Can this trend be reversed? The crucial element in achieving high growth rates is a rising rate of investment, itself a reflection of confidence in the economy. The conditions that stimulate higher investment can result from spontaneous market developments or from sharp changes in economic policy. Chances that the former wiL occur, while slim, depend on putting in place policies that favor a surge in investment-led growth. These include reducing government deficits and promoting technological innovatirn and entrepreneurial activities, particularly by small firms. Maintaining low inflation rates and strong demand are equally important. Despite the existence of many of these conditions for some time, growth has slowed even further.

Expansionary government policies may be a more plausible route, although the pace is crucial. Too rapid an advance could propel inflation; a slower strategy could be too diffuse to overcome the present downtum. Opting for bold efforts is probably more promising, although even here policymakers face skepticism that independent government policies can work in today's interdependent global markets. One possible solution is to strive for international policymaking and to regain some degree of exchange-rate stability. This kind of intemational coordination could be the impulse for rapid growth, as it was after the Second World War. This paper is a product of the Intemational Economic Analysis Division, Intemational Economics Department. Copies are available free from the World Bank, 1818 H Street NW, Washington DC 20433. Please contact Joseph Israel, room S12-007, extension 31285.

The PPRWorkingPaperSeriesdisse1innates the findingsof R work nder way in the BanonsPolicy,Plang,

and Research

Complex. An objective of the series is to get these findings out quickldy, even if presentations are leas tha fully polished. 'Me findings, interpretations, and conclusions in these papers do not necessarily represent official policy of the Bank.

Copyright i\ 1988 by the International Bank for Reconstruction and Developinenttl

e World Bank

Table of Contents

Introduction

2

I.

Resolutionof Imbalances

5

II.

Is StagnationInevitable?

11

III. The Conditionsfor Growth

22

IV.

Bottlenecks

43

V.

Issues for the Future

62

References

Andrea Boltho is a consultantto the InternationalEconomicAnalysisand ProspectsDivision,and Fellow of MagdalenCollege,Universityof Oxford. The author would like to thank Claudia Riccardi for very able and unstinting researchassistance.

INTRODUCTION

As part of its ongoing work on prospectsfor the developing economies,the WorldBank regularlypreparesmedium-term forecastsfor the growth of the industrialcountries.Thoughtheseforecastsare limitedto only a few key variablessuch as output, inflationand interestrates, they are a crucialinput into the Bank s assessmentof the outlook for various developingareas and countriesbetweennow and the end of the century.The forecasts are usuallypresentedin the formof variants(e.g. "high" and "low" cases) and use as inputs both projectionsprepared outsidethe Bank by otherinternational or nationalorganizations and Bank expertise. it may be interesting to note that therehave been some step downward adjustments in thesemedium-term growth forecaststhroughtime.Thus, the firstprojection publishedfor the decadeof the 1980s[WorldBank, 1979], foresawan averageannualGNP growthfor the industrialized countriesof 4.2 per cent ("base" case). In the subsequentthree annual reports, however,this rate (averageof "high"and "low"' cases)was put at only 3.2 per cent (the actual rate is unlikely to be above 2.5 per cent). Similarly,the firstprojectionfor the years 1985-95[WorldBank, 19833, put forwardan annualgrowthrate of 3.7 per cent.From 1984onwardn,this was reviseddownwardsto 3.4 per cent (again,averageof the two variants published). Indeed,work internalto the Bankhas, in recentyears,tended to use only the lower(or 2.5 per cent per annum)of thesetwo variants. To some extent,this increasing medium-term pessimism may be mirroringthe increasing pessimism apparent in

short-term forecasts for

the

industrialized countries.In addition,however,it would seem to also

-2-

of the growth prospectsfor the reflecta more underlyingre-assessment world economyon the part of the Bank'seconomists. While for a numberof yearsafter the firstoil shock it v:s stillfelt that an eventualreturn to growth rates of the order of those recordedby the OECD area in the 1950Oand 1960swas feasible,this feelingnow appearsto be receding.Be financialimbalancesthatbeset the world economy it becauseof the rnajor at present,or becauseof more deep-seated doubtsabout growthprospects in general,it is being increasingly thoughtthatthe worldeconomymay be unable,over the coming decade or two, to return to growth rates much abovethosethat havebeen witnessedso far in the 1980s. The presentpaper looks at the issueof whetheran

trationin

economicgrowthis possibleover the mediumterm (heredefinedus the time spanbetweenthe late 1980sand the end of the century).Its aim is not so much that of providinga set of projections, but that of exploringissues and problem areas in the light of both contemporarydebates and the evidencethat can be gleanedfrom economichistory. The paper focuseson the industrialized economies.Over the time horizonhere considered,it would seem highly unlikelythat any other group of countriescould take over from the OECD area its role as the the overwhelming "locomotive" for the world economy.Table 1 illustrates weight of the OECD countriesin the mid-1980sin both world outputand world trade,a weight that has fallenonly littleover the previoustwo decades.The table also shows that even on rather extreme assumptions about growth betweennow and the year 2000 (a furthersharpdeceleration in the industrializedcountriesand a marked, and rather unlikely, accelerationin the developingones), these weights would not change dramatically.

-3-

It has oftenbeen argued,however,that the realgrowthpole of the future will shift away from the North Atlanticarea,where it has been located for the last two or three centuries,and move towards the increasingly dynamicAsian-Pacific region.While it is no doubt true that a numberof countriesin that part of the world have displayedimpressive growthrates for a prolongedperiodof time, and that the importanceof this area in the worldhas risen sharply,it may nonetheless be premature to concentrate one'shopes for a revivalin economicgrowthin the world at largeon the successesof the Asian-Pacific regionalone.More than 75 per cent of the area's output is accountedfor by only two countries (Japanand China).Of these,Japan shares some of the problemsof other OECD economiesand is unlikelyto be able to grow rapidlyindependently of them,while China'sdevelopment path,even if buoyant,is likelyto remain essentiallyautarchik.As for the very dynamicsmallercountriesin the area, most of these have so far enjoyedan export-ledpatternof growth whichhas clearlylimitedtheirpotentialfor stimulating othereconomies. Here too, rapidchangusin the natureof the growthprocessseemunlikely. Inclusionof the Pacific regionsof North Americafurtherenhancesthe area'sweight in world GNP, but not its dynamism- growthover the last twentyyears turnsout to have been no higherthan that of the developing worldas a whole. Even if concentration on the growthprospectsof the OECD area limits the geographical scopeof the paper,it nonetheless raisesa largenumber of issues.A first problemis the presence,at the outset of the period under examination,of significantfinancialimbalancesin the world economy(e.g.the budgetand externaldeficitsof the UnitedStatesor the debt problemsof the developingcountries), which may act as constraints

-4-

on growth. Looking further ahead, and assuming, optimisticallyperhaps, that such imbalanceswill 1, solved within a reasonable time span, there are contrastingviews on lit*ger-run prospects.At one end of the spectrum are those who feel that, be it because of maturity and ageing, or because of resource constrairts, or for other reasons, the future can at best deliver only very slow and possiblydeceleratinggrowth. At the other end, more optimisticobservers have argued that, if only the "right" conditions are restored, be these, for instance, unfettered and deregulated markets or internationallycoordinated policies, an acceleration in the growth tempo is well within the means of the industrializedcountries. The present paper cannot fully tackle all of these issues and must by force select some at the expense of others. Section I briefly looks at the medium-term constraints on growth which arise from the present financial disequilibria,and at possible scenarioswhich may allow at least partial resolution of these imbalances. Assuming (heroically) that some such solution will be forthcoming over the next few years, the rest of the paper then considers whether a resumption of rapid growth thereafter is feasible and likely. Section II surveys a number of views that have been put forward which suggest that the post-1973slowdownwas, for some reason or other, inevitable,so that even a return to a more balanced world will be

insufficient to restore higher growth rates. On the assumption,

however, that such views are unfounded,or, at least, exaggerated,Section III examines the conditions that have made raoid medium-term growth possible in the past, while Section IV looks at the physical and other constraints on potential growth that could 'resent themselves, should a resumptionof higher growth become a policy priority. Section V, finally, briefly considers the future and some implicationsof the analysis.

-5-

I. RESOLUTION OF IMBALANCES It is well knownthatthe worldeconomyis at presentconfronted with a number of large financial 'hsequilibria.These are particularly pronouncedin the UnitedStaces tor which recentestimates[OECD,1987a] suggestthat the twin currentaccountand Federalbudgetdeficitswill, in 1987,be both equivalentto some 3 to 4 per cent of GNP. In addition,the debt situationof the developingcountriesremains precarious.Despite massiveadjustmentefforts,debt-serviceratios are likely to increase furtherthis year as world tradeand many primaryproductprices remain sluggish[WorldBank, 1987].Nor can much encouragement be derived om short-termprospects.The OECD forecastsonly small reductionsin the externalimbalancesof the industrialized countriesfor 1988,while some projections for the US budget[CBO,19871suggestrenewedincreasesin the Fedsral deficic in 1988 and 1989. As for the developingcountries, significant reductionsin debt burdens,let alone a resumptionof rapid outputgrowth,wouldseembeyondreach,at leastfor the timebeing. The major problemwith theseworryingimbalancesis thattheymay not be sustainable over the longerrun. Just as the accumulation of debt in the developingworld led eventuallyto a crisis,it is similarlyfeared thatthe buildingup of bothdomesticand externaldebt on the part of the United States may, over the medium term, generate a not dissimilar outcome.Against this it can be argued that some adjustmenthas been forthcoming. The third world'sdebt problemshave not so far ushiered in financialbreakdown,as had been feared by many, because both policy changesand marketreactionsforestalled the danger (e.g. in the form of widespreaddebt restructuring and debt conversions,or via much higher

-6-

provisionsfor losses in the OECD banking system). Similarly,policy changesand marketbehaviourhave, over the last few years,set in motion forces that are now reducing the imbalancesin the industrialized countries.Thus,the 40 per cent fall in the effectiverate of the dollar againstother OECD currenciesfrom its early 1985 peak is beginningto affect trade flows,while the US Federalbudgetdeficithas been sharply cut in the last year both in absoluteterms and, even more, relativeto CUP. Though thesechangesare welcome,their progressis both slow and uncertain.As was seen above, the debt situationof the developing countriesmay have been stabilized,but remains very fragile, while progresson reducingthe US Federaldeficitis likelyto be interrupted, at least in the short run, if only because of impendingelectoral deadlinesand the timingvagariesof tax reform.OFCD externalimbalances are expectedto diminishin thg cnurseof 1988,aed probablybeyond,but, on presenttrendsand policies,the US currentdeficitwill remain very large for a numberof years,thus implyingcontinuingand rapidadditions to the country'sexternalindebtedness. The slownessof these

-5

cments,in turn,constrainsthe growthof

the world economy.In the Un Wed States,the need for a reductionin the fiscal Federalbudgetdeficitimpliesa need for a relativelyrestrictive of the policy over the medium term. At the same time, the sluggishness currentLalance'sresponseto exchangerate changescreatesthe dangerof furtherfalls in the value of the dollar.Be it to preventthese,or to effects of past depreciationson the domestic offset the inflationary ecovomy, monetary policy may also find itself constrainedinto a posture.Thoughgrowthwould,no doubt,be stimulatedby the restrictive

-7-

externalsector,it is unlikelychatthis couldfullyoffsetthe negative influences comingfrom tighterpolicies. In the rest of the OQCD area, on the other hand, the constrainton growth would come from the effects of currency appreciation(and US sluggishness) on net exportsand on investmentin the tredeablesector. While more expansionary policies could, in

theory, offset such

deflationary impulses,the likelihoodof them being taken is small - on the one hand,many Europeancountries,as well as Japan,feel that public finance consolidationremains a very importantobjectiveof economic policy (evenin thosecasesin whichbudgetdeficitshave been reducedto negligibleproportions); on the other,many of the same countriesalso share a deeply ingrainedmercantilistoutlook that stronglymilitates against them acceptingsharp deteriorations in their currentbalances. Resistanceto such inevitabledeteriorations may well take the form of more restrictive policystances.Givensubdueddomesticgrowthin the OECD area, and hence only slow growth in world trade,continuingweaknessin real primary product prices and, possibly, further increases in protectionism, the developingcountriesare likely to remain heavily constrained by their balanceof paymentssituations, thus furtheradding to the sluggishness of the worldeconomy. Indeed,even this scenarioof a very slowlygrowingand adjusting world may not materialize. The continuation over a number of years of large, if diminishing,imbalancesmay not be tenableand somethingmay "give".The often feared scenariois one in which marketsprecipitatea collapseof the dollar,inflationaccelerates in the UnitedStatesleading to a sharpresponsefrom the monetaryauthorities and a recessionfollows [Harris,1985].A much lowerdollarand much reducedUS demandhave strong

-8-

negativeeffectson the rest of the OECD area,while lowerUS demandand, especially,higher US interest rates have similar,or possibly more dramatic,effectson the developing world. What the foregoingsuggests,is that, barring a timely and coordinated, but highlyunlikely,policyresponseby the major countries, growth in the world economywill, at best, be only modestover the next few years. Given the range of uncertainties(includingpoliticalones, especiallyfor the UnitedStates),puttingforwardpreciseforec:.- may not be a very rewardingexercise.But some rough idea of the range of can be gleanedfrom a number of scenariosfor the coming possibilities five years put forwardby the World Bank. Startingfrom a "reference" scenario,which basicallyextrapolates the policy intentionsand exhange the World Bank rate levelsof early 1987 (andis thoughtto be untenable), goes on to illustratethe effects of a number of differentpolicy and exchangerateassumptions on crucialvariablesbetween1987and 1992. Three of these scenariosare presentedin Table2 - the "reference" scenario,in which exchangerates are frozenat theirend-1986leveland the US Federalbudgetdeficitis forecastto declineto $ 100 bn. by 1992, and two variantswhich explorethe effectsof a more restrictivefiscal policyin the UnitedStatesand a 1- per cent additionaldepreciation of the dollar (thelatteralreadyachievedby end-1987). It will be seen that these more realistic variants p, erate outcomes that can hardly be considered very favourable. Growthin the OECD area,whichhad sloweddown from a 2.7 per cent annualrate in the years 1973-79to one of 2.3 per cent per annum in the years 1979-87,slowsdown even furtherto roughly2 per cent on average.It is true that the US GeneralGovernmentrecordsa budget surpluuby the end of the period (implyingrough bal&ncefor .ie

-9-

Federal budget), bat the current account remains in substantial,if declining, deficit. The samemight not be true if the alternative assumption was made of a US recession.Growth over the next few years would, clearly,be even more subOued,but it is not inconceivable thatat the end of the recession the present disequilibriamay have been, if not solved, at least substantially reduced.Recession,in particular, shouldstrengthenthe US currentaccountby more than suggestedin the scenariospresentedin Table 2, even if it led to a smallerimprovement in the fiscalposition. Both outcomescontaincleardangers.In the recessioncase,the main risk is that the situationof the developingcountrieshas so worsened that a new-debt crisiserupts.Hopefully,policymakersand marketshave learntthe lessonsof the previouscrisisand will be able to avoid the occurrenceof a new one. In the more gradualadjustmentscenariosmodelled by the World Bank,resolution of the US externalimbalanceturnsout to be such a protractedmatter that the world economycould find itself semipermanently lockedinto a low growthtrap.Arguably,however,thismay not be inevitable. In so far as fiscalpolicyrestriction in the UnitedStates will have eliminatedthe Federal deficit by the early 1990s (as the scene,-ios assume),and furtherdollardepreciation will have put the US currentaccounton a firmlyimprovingtrend (by 1992,in both scenarios, the deficitwill representonly 1 1/2 per cent of GNP as againstthe nearly 3 1/2 per cent expectedfor 1987),it may be possibleto envisage some decreasein the degree of market uncertaintyand some return of confidence, from whicha move to highergrowthratesmay then be possible. And a similarreturnof confidencemay followin the wake of the sharper adjustment pathinflictedby recession.

-10-

The precisedate at whichsuch a turnaroundin expectations occursis not absolutelycrucial.What is being assumedis that, some time in the early 1990s, thanks to fiscal stringencyin the United States, some furtherdollar depreciation, and, possibly,recession,there would be a strengthening perceptionthat the worst was now over. In particular,it would be felt that the US budget situationwas either under control,or seen to be improving,that externalimbalanceswere much reduced,and/or being slowly unwound (implyingthe maintenanceof medium-termexchange rate stabilityaroundth

revailing rates),and that both inflationand

interestrate levels were relativelylow. It is readilyadmitted that theremay be a good dose of optimismin such a projection. Persistence of largeexternalimbalancesand mountingdebt levels in some countriesmay pestpetuate unfavourableexpectations and restrictivepolicy stances.A sharp rccession,on the other hand, rather than solvingsome problems t.

ould worsenthem and/orgeneratenew and even more intractable ones. The assumption here made that neither of

these pessimistic outcomes

materializes, is adoptedsolelyfor expositorypurposes.The questionas to whether a resumptionof more rarid growth in the industrialized countries(and in the world at large) is possiblecan only be posed if some return to a more balanced international economy has first been achieved.

-1 1-

II. IS STAGNATION INEVITABLE? The Introduction to this paperhas argued that the resolutionof presentfinancialdisequilibria is a necessaryconditionfor a resumption of fastergrowth.It is, however,far from beinga sufficientcondition. Even a returnto a more balancedworld may not be enough to generatean accelerationin growth rates.This would, in particular, be the case if there were some longer-runconstraintsinhibitingexpansion in the industrialized countries.Stagnationist theories,advancingreasonsfor an eventual

permanent

or near-permanent

economic slowdown, have long been

popular.While a full review is clearlybeyond the scope of the present exercise,someof the betterknownapproaches will brieflybe mentionedin what follows.To orderthe discussion, a broad,three-group, divisionwill be used: i)

Theoriesthat see the economy inevitablysubject to very long swings,with the present slowdownas part of a downwardphase which it will take time to unwind;

ii) Views that see the inevitabledeceleration stemmingfrom purely physicalconstraints; iii)Approachesthat stress socialchanges,and, in particular,the retardingeffectsof maturityand greaterwealth. Kondratieff Cycles but not permanent, deceleration in growthis A view of an inevitable, providedby analysesthat stress the existenceof long-runcycles (of roughly50 years in duration),whichare usuallyassociatedwith the name of Kondratieff. The past decadeor so has seena revivalof literatureon such cycles(e.g.Mandel,1980;Freeman,1983;Van Dujin,19831,with many

-12-

authorsstressingthe appearanceof a new peak in the early 1970s(similar to thosealreadyexperiencedin, for instance,the 1810s, the i860sand the 1920s).If this was accepted,the presentsluggishness wouldrepresent the inevitabledownwardphase of the cycle and little could be done to eithershortenor invert it. On the basis of past historicalpatterns, recoverywould have to wait for, say,the late 1990sor the earlyyearsof the nextcentury. The problem with this fatalisticapproach is that neither the empiricalregularitiesof Kondratieffcycles nor the forces generating them have been clearly established. The dates that have usually been chosento determinepast turningpointsare open to disagreement and rely more on pricethan on outputstatistics. As for causes,thesehave spanned from the influenceof sun spotson agricultural productionto the effects of militaryspendingand wars on investmentand output.One of the more plausibleexplanations uses the conceptof technological waves,but most researchin this area has concludedthat technological progressis very seldom a discontinuousprocess and even when major breaktroughshave occurred, these have been insufficientto initiate general booms [Chesnais, 19821. The whole theory of Kondratieff cycles,in other words, is one of (dubious)regularities of a mechanistic, and largelyunexplained, kind. The OECD countrieshave clearly entered a period of slowdown,but to define this as the downwardphase of an inevitablelong-runcycle would seem to be, at least, premature.A more fruitfulapproachir that of recognizingthe existence of changes in the growth tempo of the industrializedcountries, but

of

attributing these to

specific

disturbancesrather than to regular rhytmic movements:"Major system

-13-

shocks change the momentum of capitalist development at certain points. Sometimes they are more or less accidental in origin; sometimes they occur because some inherently unstable situation can no longer be lived with" [Maddison,1982, p.831. Physical Constraints More radical than a theory of long cycles, in which the possibilityof eventual recovery is implicit, are those stagnationist theories which stress the finiteness of physical resources. These have a long history, which goes back to Ricardo and Malthus and their fears that a fixed supply of land, or too rapid a growth of population,would put an end to economic growth. In a

somewhat different vein, even Keynes feared that an

oversupply of savings would drive the marginal productivityof capital co zero and hence exhaust growth opportunities. The continued and rapid growth of technologyhas put to rest most of these gloomy forecasts,but their place was, temporarilyat least, taken by the forebodings of the Club of Rome on the inevitableexhaustion of certain raw materials. There is an abundant literatureon this issue, whose main conclusionwould seem to be that, as long as prices are allowed to vary in response to threatenedscarcities,such scarcitiesare unlikely to materialize.Rising relative prices for non-renewable resources are bound to encourage substitution in both consumption and production (as suggested by the course of economic history over the last century and amply confirmed by reactionsto the two oil shocks of 1974 and 1979). A somewhat more sophisticatedversion of the resource scarcity idea

has been formulated with particular reference to the oil market. Be it because of the oligopolisticnature of the industry,and/or because of the

-14-

relativelylow short-runpriceelasticities of both demandand supply,any suddengrowth spurtcould generatesharpprice rises of the kind already seen in 1974and 1979.While,in many ways,this wouldseem to be a shortrun constrainton growth of the kind reviewedin SectionIV below, a repetitionof such price shocks each time fastergrcoth was attempted, could have destabilizing effects on longer-runtrends. Indeed, ic the worstc all possiblescenarios,the worldcouldbe constrained to growat a rate dictatedby (slowly)expandingenergysupply,and be, in addition, subject to sharp price fluctuationsconsequentupon OPEC decisions. Experiencesince the early 1980s,when such forecastswere most popular, suggests,however,that, just as for other raw materials,the idea of an "oil ceiling"permanently restricting growthwould seem to be unrealistic. Though the oil market has been subject to regular cycles and can be expectedto remain so [PetroleumFinanceCompany,19871,shocks of the strengthexperienced in the recentpast are unlikely. While not strictlyconcernedwith physicalscarcities, a different stagnationist approachhas stressedthe idea that limitsto growthmay be comingfrom the progressive exhaustionof what have been the main engines of expansionin the past. The gist of the argumentis that growth this century was concentratedin areas of manufacturingthat generated particularly pronouncedeconomiesof scale,as well as strongforwardaud backwardlinkageeffects.Given the saturation of demandfor many of these goods, the scopefor furtherscale economiesmay now have been virtually exhaustedin the OECD area.More importantly, it wouldalsobe arguedthat none of the new productsthat have been discoveredin the last 10 or 15 years have the potentialfor stimulating growth in other parts of the economyas did, for instance,the majordurablesof this century.While it

-15-

is undoubtedlytrue that many of the industriesthat fuelledpost-war growth had powerfuleffectson other sectors,cars being, perhaps,the best example,earliertechnological advanceshad similarimpacts(witness the effects of railways or of electricity), and much recent evidence suggests that the breakthroughsin electronicsand in information technologyare having just as pronounced,if not even more dramatic, consequences on employmentand on activity. Finally,and much more realistically, the view has been expressed that a deceleration in growthwas inevitable, at least in WesternEurope and Japan,as theseareasgraduallyexhaustedthe possibility of catchingup on America'stechnological lead.As productivity levelshave converged, productivity growth in the OECD area as a whole has become increasingly dependenton the slow outward movement of the technological frontier, ratherthan on esay and quickprogresewithinthe frontieritself.Such a view has its limitations, sinceit cannotaccountfor US slowdown(unless the United States itself was benefitingfrom some catch-up on the depressionof the 1930s [Baumol,19861).More importantly, it can hardly explainboth the steadinessof growthuntil 1973 and the suddenessof the decelerations that occurred after 1973 and 1979. Yet, the theory is plausible

as an explanationof longer-runtrends and is backed by a

certain amount of empirical evidence [Marris, 1982]. Before fully acceptingits implicationthat the 19509 and 1960s were, for Western Europeand Japan,unLque,non-repeatable, experiences, it should,however, be rememberedthat other forcesmay exist,or emerge,that could allow a resurgenceof rapid growth. Thus, the technological frontiercould be expectedto move rapidlysincethe stock of human capitalis larger,and R&D and investmentratios are higher, than they were in the 1950. and

-16-

1960s.In addition,the frontieris no longerbeingexpandedsolelyin the United States,but in a large number of countriesand in particularin Japan.Indeed,as the lattercountryincreasingly shareswith the United States the role of technological leader,the pace of advancecould well accelerate. Maturityand Ageing A third categoryof stagnationist theses,stressesinsteadnot so much physicalbut

:ial constraints on growth,and, in particular,the

debilitating effectsover the longerrun of prolongedperiodsof rapidly risingmaterialwealthand prosperity. One, very simple,versionof such approachesfocuseson the idea of the eventualsaturation of needs in the developedmarket economies.At its crudest,the theorysuggeststhat,as economiesget richer,their inhabitants no longer desiremore goods and services with the same intensityas in the past, thus increasingly substituting leisurefov work,with inevitable consequences for the growth of both investment and output.Few econumists, however,would take suchan approach very seriously.Quite apart from overlookingthe power of technologyin devisingnew and attractiveproducts,the idea ignoresthe well known strengthof demonstration effectsin consumption as well as the importanceof relativerather than of absolute income in determining spendingpatterns.It also forgetsthat:"Evenin the richestcountries, a large part of the populationis still far below saturationlevels,and poverty in an absolute sense has not yet disappeared"[Bombach,1985, p.6]. A much more sophisticated approachto longerrun stagnationcomes from the

Schumpeterianvision of

the gradual, but

inevitable,

-17-

transformationof

modern capitalist societies (Schumpeter,19521.

Continuinggrowthbringawith it an inescapable centralization of economic activities, in the wake of risingcartellization on -he one hand and the requirementsof scale economieson the other. And centralizationis accompaniedby the emergenceof huge and ossifiedbureaucratic concerns run by conservative managersincreasingly resistantto changewhile the mythicalfigure of the "entrepreneur" slowlydisappears. Yet, it is the latterwho is at the heart of economicgrowth thanks to his risk-taking and innovatingactivities.In other words, the stccessesof the early stage of capitalismeventuallyunderminethe economicfoundations of the system itself and create the conditionsfor its downfall,a view both similarand differentto that of Marx. That much economicactivityhas been increasingly concentrated over the last century is undoubted,as is the rise of large (privateand public)bureaucracies. Yet socialismhas not becomethe dominantform of society in Western countries(thoughsocial democracyprobablyhas in Europe),and growth,at leastuntilrecently,has not decelerated. Indeed, Schumpeter's gloomy forebodings on the inevitability of declinemay turn out to have been exaggerated on more than one count.Recenttechnological progressand, in particular,the spreadingof electronics,robots and flexiblemanufacturing systems,may well providenew scopefor smallscale (as, in many production and hence revivethe figureof the "entrepreneur" firms in ways, suggestedby the 1970sand 1980ssuccessesof small-scale many countries,and especiallyin two of the most dynamiceconomiesin the OECD area - Japan and Italy).

An alternativeview of inevitabledecline,which is more firmly rootedin historicalevidence,is Olson'sthesisof gradualinstitutional

-18-

sclerosistakinghold of stableand prosperoussocieties[Olson,1982].A characteristic of such societiesis the spreadingand strengthening of what

Olson

calls

"distributionalcoalitions",,in

other words

organizations, such as professional associations, cartels,trade unions, etc., whose main aim is that of pursuing the interestsof their own members at the expenseof those of societyas a whole. The longer the period of stabilityduring which these groups have strengthenedtheir position,the greater their retardingeffects on growth. Conversely, periodsof upheaval,for instancewars, foreigninvasionsor revolutions, tend to sweep away such special interest organizationsand recreate conditionsof greateropennessand competition duringwhich the energies of societyare againdevotedto wealthcreationratherthan solelyto its distribution.The inevitabilityof slowdown arises from the obvious realizationthat wars and revolutions,at least in advanced Western countries,are hardly realisticpolicy optionsto restoregrowth,while even a returnto completefreetradeand a totalabsenceof impediments to firm or factor mobility may, in Olson's view, not be sufficientto outweighthe negativeinfluence of the ubiquitouscartelsand lobbies. The weightof historical materialassembledby Olson to documenthis thesis is impressiveand, no doubt, a correlationcan be found between socialupheavalsof one sort or anotherand growthaccelerations, in some countriesat least. But, whereas defeat in 1945 may well have spurred growth in France,Germany,Italyor Japan,similardefeatsand changesin politicalregimeshad much less of a perceptible effect in the American South after the Civil War, in France in the 1870s,or in Austriain the 1920s. And,

in

the

opposite direction, periods of

increased

cartellization, protectionism and govermentinterference in the economy,

-19-

which Olson would consideras clearlyinimicalto growth,were associated with an improvedgrowthperformancein, for instance,Germanyin the two decadesbeforeWorld War I [Fremdling, 19861, or in Japan in the 19309 [Nakamura,19831. In other words, while Olson may well have shown the importanceof one particularphenomenon, his messianicconcentration on it, at the expenseof all the other conditionsfacilitating or allowing growth,makeshis theoryless thanall-encompassing. What all the views so far surveyedhave in common,is the general idea that prosperity,success, stability,for one reason or another, generatenegativefeedbackson growth,in ways reminiscent of biological life-cycles. Rather than successbreedingfurther success,a view that receiveda good deal of supportfrom the experienceof many countriesin the 1950s and 1960s, the argument is that successful,but ageing, societiesbuild up, not necessarilyinevitablebut likely,tendenciesto slow down the pace of innovation. investmentand economicprogress.The reasons for this may be varied -

clinging to vested interests,the

temporarypursuitof non-material aims,the increasedbureaucratization of economic life, or the Marxist view that since in full-employment conditionsdismissals"ceaseto play theirrole as a disciplinary measure" are reduced. [Kalecki,1971,p.l4 0], ratesof profitand investment Withinthe OECD area, and particularly withinEurope,a symptomof such a malaisecouldwell be the massivepost-warexpansionof the welfare state.Usually,this is seen as an obstacleto growthvia its negative effectson investmentthroughfinancialcrowding-out, or on effortbecause of high taxationand socialsecuritybenefits.Yet, ratherthan via these mechanismswhose directionand empiricalmagnitudesremain open to much controversy, a more subtlegrowth-reducing channelmay have been at work.

-20-

The increasesin incomemaintenance ezpenditure, the mountingprovisionof a varietyof merit goods,the strengthening of employment guarantees, may well trans.;e a desire on the part of societyfor a greaterdegreeof economic security. Indeed, in a pessimisticversion of this view, prosperitymay well diminishpeople'swillingnessto take risks and, at the same time, increase their expectationsof future prosperity,as witnessedby the spread of what have been called "conflicting claims" [McCrackenet al., 1977]. There may be a grain of truthin such views of the effects of "maturity"

and "age", but these effects need not be

inevitableeither. For one thing:"The Welfare State ...

constitutes a

mode of conflictresolutionand a means of mitigatingthe costsof change that would otherwiseinduce resistanceto growth" [Abramovitz,1986, p.4041. For another,rejuvenationis possible,not least if protracted sluggishness,or

outright stagnation, are seen to be

the only

alternatives. Conclusions It has been characteristic of previousperiodsof slowdownthat they generateda gloomy literatureon futuregrowthprospects(as well as on the imminentcollapseof capitalism). Thiswas the caseat the timeof the so-called"Great Depression"of the 1870s,and was even more so in the 19309.Subsequentaccelerations in the growth tempo at the turn of the 19th century, or in the 19509 and 1960s, put to rest many of the stagnationist theoriesof the time.Arguably,the same may turn out to be true in this instance.A cautionary note,however,is in order.Theremay, afterall, be somethingin the generalthesisthat continuedstabilityand prosperitymay have slowed down the pace of economicchange, just as

-21-

prolongedfull employ-entmay have reducedthe rate of profit.A greater quest for securityand a lower propensityto engage in risky activities my

be hallmarksof modern industrialsocietiesthat may temporarily

reduce growth.Yet, that reductionmay, in itself,recreatesome of the necessaryfor a renewedupswing. conditions

-22-

III. THE CONDITIONSFOR GROWTH The precedingsectionhas suggestedthatlow growthratesof the kind experienced since the firstoil shockare not necessarily inevitable. But neitheris a returnto highergrowthrates.Such a returnwouldrequirea set of favourableconditionswhich may not be easily forthcoming. It is the aim of this sectionto explorewhat such conditionsmight be in the light of previous experiencesof rapid growth in the industrialized countries.After a brief surveyof someof the major theoretical views of what determinesthe growthprocess,the text looksat selectedepisodesof the economichistoryof the last centuryor so, and, in particular, at the reasonsfor the remarkableacceleration in growthrecordedafterWorldWar II. The SupplyPotential The standard,textbook,presentation of economicgrowthis based on the neo-classicalparadigm. In this view of the world, the major determinantsof growth are exogenousrates of populationgrowth and technologicalprogress and a given investmentratio. The production functionthen

determinesa "natural"rate of growth of the economy.

Changesin the investmentratiomay affectthis growthrate temporarily, but, in the long run, they are offsetby changesin capital-output ratios. Potentialgrowthl+.asproceedssmoothlyalonga givenpath,even if actual growth may deviate from it temporarilybecause of business cycle fluctuations. This view of the world would seem unable,however,to providea convincing explanation for the "convulsive structural, technological, and socialchanges"[Nordhausand Tobin, 1972, p.21 which have characterized

-23-

the past developmentof the industrialized countriest"Ceneraleconomic growthas we have knownit is not a balanced,steady-state affair;... the historicalprocessof growth...

may best be viewedas part of a sequence

of technologically inducedtraverses,disequilibrium transitions between successive growthpaths"(Abramovitz and David,1973,p.4291.Therewould, indeed, seem to be little "natural"about the sudden changes in trend growth rates that the world has ezperiencedover the last two hundred years, such as the longwavesof acceleration and deceleration in the 19.h century,let alonethe sharpbreaksin trendwitnessedafter1945or 1973. The majordifficulty with neo-classical growththeoryis probablythe idea of an exogenouslygiven "potential"growth rate. This assumes explicitlythat the three main argumentsin the productionfunction (capital,labour and technology)are independentof the growth process itself. Yet, there is strong evidence for the existenceof mutual causation,in which case high growth rates could well have favourable influenceson the suppliesof factorinputs,while low growthratesmight act in the oppositedirection.Such interdependence is most easilyseen in the case of capital.Thoughthereare, no doubt,severalimportantfactors that determinethe rate of privateinvestment at any particulartime,both theoreticalarguments and empirical evidence strongly suggest that expecteddemandgrowth is a major one. If the accelerator matters,then growth affectscapitalaccumulation just as much as capitalaccumulation affectsgrowth. Technological progress,on the otherhand,couldbe autonomousif one were to accepta "science-based" viewof innovation, with new productsand processesgeneratedprimarilyby the advanceof scientific knowledge. Yet, this view seemsmore applicableto the earlierdays of industrialization

-24-

when major technological breakthroughs may well have generatedupward shifts in investment,than to modern times. Nowadays, research is predominantly carriedout in the industriallaboratories of large firms, rather than by individual inventors,and the economic impact of innovationsis often less importantthan are the effects of gradual improvementsin processesmade subsequentto the innovation'sinitial application (Enos,1962].Indeed,the opposite,demand-induced view,which sees "necessityas the motherof invention"(Could,1972],would seem to be backed by strongerevidence.The endogenousnature of much technical progressis suggestedby the close linksbetweeninnovations in a number of industriesand those industries' priorgrowthin sales and investment [Schmookler, 19661.More generally:"A considerable numberof scholarsof technological advancehave well documented the roleof strongdemandfor a particularproduct in stimulatinginnovativeefforts to improve it or improve its productionprocesses,the effectsof shortages ... for a particularinput in stimulatinginnovationto save on the use of that input,and of high expectations for a potentialmarket ... in stimulating exploratorywork to find a satisfactory design or productionprocess" (Nelson,1981,p.168]. An endogenousview of populationgrowth would seem to be more difficultto defent Labourforce and employmentgrowth,however,respond to changesin aggregatedemand,as shownby increases(or decreases)in participationrates through the cycle and in migrationflows through longer phases of accelerationand deceleration.More importantly,if productivity levelsacrosssectorsdiffer,changesin aggregatedemandcan lead to changes in the labour force'ssectoraldispositionand thereby contribute to changesin overallgrowthrates.

-25-

"Engines"of Growth The foregoingsuggeststhat the conceptof an exogenous"natural" rate of growth may not be a very useful tool for an examination of why growthrates changethroughtime.An alternative approachthatmay provide better insights might be one that stressed s me particularcrucial factor

that could be describedas the "engine" of growth. In a short-run Keynesianframework,this couid be representedby an exogenousdemand component,e.g. investment,exports, or governmentexpediture. In an interpretation of longer-rupclassicaltheory,the crucialfactorwould be capitalaccumulation tStreissler, 1980].Finally,in a Schumpeterian view of the world,the spur to growthwouldcome from the bunchingof technical innovationsleading to an upsurge in entrepreneurial activity and investment. The elementcommon to all threeapproaches, as also to the Marxist view of expansionand crisis,is investment. Thereare a numberof reasons for why investmentmay be viewedas a particularly importantcomponentof growth.First, investmentcreates both new supply,via its effects on capacity,and extra demand,via the multiplier. Second,investmentis the essentialvehiclefor the embodimentof technological progress. Third, investmentcan have favourableeffects on disembodiedtechnological progressas well - it is frequently onlythanksto the introduction of new equipment that factory floors or

offices are redesigned, that

organizational improvements are made, that X-inefficiency is diminished. Fourth,it is almost exclusively throughinvestmentthat scaleeconomies can be achieved.Finally,a good deal of "learningby doing"takes place in the wake of higherinvestment flows.

-26-

mightseem to suggesta dangerously The stresshere put on investment it might give the impression monocausaltheoryof growth.In particular, that technologicalprogress,which many would consider "the ultimate constrainton the rate of growthof nationalincome"[Lewis,1978,p.155], was being ignored.Yet this is not so. As arguedabove, technologyand investment are closelylinkedthroughthe demandimpactof high investment onto the pace of innovationitselfand via embodimenteffects:"Without gross investment,improvingtechnology...

simplyrepresentsa potential

for higher productivity:to realise thii potential requires gross [Salter,1966,p.631. Hence,stressingthe role of investment investment" is tantamountto stressingalso the role of technology.Moreover, progressis not, and, partly while technological investmentis measurable, by governmentpolicies.It can be more easilyinfluenced as a consequence, will alwaysbe productive, be is true, of course,thatnot all investment factors,or because of mistaken this because of lack of complementary or governmentdecisions,but such a conclusioncan apply entrepreneurial to any input, includinginnovation,and does not, per se, sufficeto invalidate the

longer-run growth-promotingeffects of

capital

accumulation. the presentapproachwould seemto run counterboth More importantly, to neo-classical theoryand to many of the findingsof growthaccounting exercises.The clash with neo-classicaltheory, however, may be more apparentthan real.Even if that body of theorywere rightin postulating the invarianceof the growth rate with respectto the investmentratio, this resultwould only pertainto the very long run and stillleaveopen that shiftsfromone growthpathto anotherare determined the possibility More damningmay be the by changesin the rate of capitalaccumulation.

-27-

evidence gleaned from growth accounting exercises which, in their quantification of the sourcesof growth,often attributea smallrole to capital.Thus, Denison,in his well-knowninternational investigations, "explains"only 18 per cent of WesternEurope'sgrowthfrom 1950 to 1962 through capital formation,and, even more surprisingly,limits the contribution of investmentin Japan'scase to barely 24 per cent for the years 1953-71 [Denison,1967; Denison and Chung, 1976]. More recent estimates,however,suggestsomewhatlargercontributions from capitalto growth - for the years 1950-73,these lie between 32 and 50 per cent, dependingon the country,with much higherfiguresfor earlierand later periods[Maddison, 19871. Not too much shouldbe read into thesevariousresults,given the well-knownlimitations of the growthaccountingmethodology, particularly as applied to capital [Scott, 19761,and its inabilityto incorporate dynamic interactions.Better evidence can be obtained from economic historianswho have frequentlypointedto the leadingrole of investment in the growth process: "The evidence ...

does not suggest close

correlationbetween rates of growth and levels of capital formation between countries.It is generallytrue, however,that within any one country increasesin the proportionof resourcesdevoted to capital formationtendedto be correlated with increasesin growthrates"[Milward and Saul, 1977, p.519, emphasisadded].And this summary judgmentis broadlyconfirmedby most, if not all, the carefulstudiesof individual countries'experience,containedin the CambridgeEconomicHistory of Europe [Mathiasand Postan,1978] or by separatemonographs(Fua,1965; Matthews,1968;Ohkawa and Rosovsky,1973;Clismannet al., 1978;Minami, 19861.

-28-

If investmentis indeedthe main proximateengineof growth,the next questionis to try and determinewhat are its moving forces.One view would be to attributeits strengthat particulartimes to changes in savingpropensities. The difficultywith this approachis, of course,that causation can run in both directions. Thus, increases in saving propensitiescould be the reason for high investment,just as rising investment, by boostingincome,could generatehigh savings.If savings were the truly exogenousvariable,one might expect,in the presenceof international capitalmobility,that domesticsavingand investment ratios would not necessarilybe correlated. Thus, countrieswhich, becauseof demographic, socialor other reasons,had high savingpropensities, would normally export capital to countriesin which investmenttended to outstripdomestic savings.Yet, researchhas shown that over the last forty years most developedcountries'gross fixed capitalformationhas been closely correlatedwith domestic savings,while current account balanceshave acted as merely "temporaryshock absorbers"(Penatiand Dooley, 1984, p.22 1. This findingprovidesno conclusiveproof of the primacyof investment, since the correlation may stillbe compatiblewith causationrunningfrom risingdomesticsavings,througha fallingcost of capital,to a greaterincentivefor domesticinvestment, but it does make the Keynesianhypothesissomewhatmore plausible. Further indirectevidence suggestingthat savings may be the dependentvariablecan be obtainedfrom the work of economichistorians. Lewis, for instance,puts the case forcefullywhen he argues that for industrialcountries:"The savingsratio ...

dependsendogenously on the

rate of growth:it is low when the growthrate is low, as in contemporary USA, and high when the growth rate is high, as in contemporary Japan"

-29-

[Lewis,1982,p.1053.Broad confirmation of this proposition is contained in all three of the published histories of long-term growth in industrialized countrieslaunchedby Abramovitzand Kuznets(Carreet al., 1972;Ohkawa and Rosovsky,1973;Matthewset al., 19821.The conclusions reached for Japan are particularlystriking:"Savings are

...

an

essentiallydependentprocess whose key determinantsare the rate of growth and the level of income" [Ohkawaand Rosovsky,1973, p.1721. Admittedly,however,the American case is less clear-cut.Some authors suggestthat neither the secularrise in 19th century savings,nor the secular fall in 20th century savings were autonomous(Abramovitzand David, 19731,but othershave arguedthat in the 19th century,at least, it was savingsthatled investment[Davisand Gallman,1978]. An alternative, and possiblymore fruitful,approachwould look at standard theories of investmentdetermination. At the risk of gross simplification, two major and conflicting perspectives standout. The neoclassicalview would stressthe importanceof profits,the Keynesianview the importanceof demand. Yet, the differencesbetween these two approachesare not unsurmountable. First,the empiricalevidencestrongly suggeststhat profitsand demandare, for good reasons,closelycorrelated wich each other.And second,both approaches would,presumably, agreethat

what mattersare not so much actualprofitsor demand(evenif it is these that are almost always used in econometricapplication.), but expected profitsor demand.In otherwords,the major forcedetermining investment may be the presenceof optimisticexpectations aboutthe futurecourseof eitherprofitsand/oractivity. Much more difficultis to answerthe questionas to what determines such optimisticexpectations.In a Schumpeterian interpretation, these

-30-

would be generatedby the disruptiveeffectsof a new wave of innovations and the entrepreneurialresponse to this: "Entrepreneurial supply activitiesrather than demand mechanics(are the) driving forces in economic development"[Giersch,1979, p.630]. Even if the empirical evidencefor the presenceof discontinuous jumps in innovationsis not particularly strong,the Schumpeterian approachcan be modifiedand fitted into a frameworkin which it is still primarilysupplyforcesthat allow investmentgrowth.Technological breakthroughs are now only one condition for dynamic entrepreneurial activity;others are an abundantsupply of factors complementaryto

investment,the absence of institutional

constraintsand rigidities,low interestrates or real wages, and a flexiblepricesystem(ibid.]. while not In contrast,a more Keynesian-oriented interpretation, ignoringthe permissiverole of favourable supplyconditions, would stress the importance of a high and stablepressureof demand,achievedthanksto eitherbuoyantworld marketsor, possibly,the role of domesticpolicies: and of optimisticexpectations, demand is the main determinant "Sufficient this is a necessarythough not sufficientpreconditionfor growth" that a (Bombach,1985,p.71],or again:"It is more or less self-evident sufficiently high and stabledemandpressureis a necessaryconditionfor a high rate of growth"[Lundberg,1981,p.452]. are an elusive This may not be the end of the list. Expectations concept and similarlyelusive are the reasons for the appearanceor disappearance of Keynesian"animalspirits"or of dynamicSchumpeterian entrepreneurs.Many would stress the further need for an orderly international monetarysystem.Otherswould also suggestthat investment is unlikelyto be undertakenin conditionsin whichcorporateindebtedness

-31-

is very high, as indirectlyshownby the favourableeffectson confidence of the destructionof financialdebt that occurred in many countries during and after World War II [Abramovitz,1979]. Further conditions strengthening favourable expectations could

be

technological

breakthroughs, such as the railwaysin the middleof the 19thcentury;the presenceof cheap labour (as in the United States in the late 19th century),or in Europe in the post-warperiod (Kindleberger, 19671);the invigorating impactof free trade(as in Germanywith the creationof the Zollvereinin the 1830s (Henderson, 19715),or of (limited)protectionism (as in the cases of France,Germanyor the UnitedStatesat the beginning of this century(Arrow,19861),etc. To test for the significance of these variousfactorsmay be a virtuallyimpossibletask, if only because the counterfactuals in most instancescannot be constructed. Instead,the followingparagraphswill briefly examine some selected periods of the economichistory of the industrialized countriesand, in particular, episodesof acceleration or relativelyrapid growth to try to see, in a rough and qualitativeway, what made thesepossible.The emphasisis on phasesof some two decadesor more in duration,rather than on shorter-term businesscycle upswings, since the subjectmatter of this paper is the medium-termoutlook.The emphasisis also on the experienceof all the industrialized countries together,sincefor individual countriesrapidgrowthmay alwayshavebeen possiblethanksto an export-led mechanism. Table3 and Figures1 to 3 presenta pictureof the growthof what is now the OECD area for just over one century.Excludingperiodsof war and reconstruction (i.e. the years 1913-22and 1937-52),the data suggestthat there was really only one major phase of very rapid expansionin the

-32-

industrialized world as a whole:1952-73.The Victorianera, tLe interwar years and the post-oilshockperiodwitnessedgrowthrates that were, on average,a good deal lower (andquite close to each other).There is sone evidence,however,of a modest acceleration in the growth tempo towards the end of the 19th century(whichwould almostcertainlybe strongerif GNP data were availablefor Russia),and a much more restricteddata base suggeststhat a similaracceleration may also have occurredin the early 1850s and lasteduntil the early 1870s,at least in some of the major Europeaneconomies,if not in NorthAmerica(Table4). NineteenthCenturyExperience By the standardsof the 20th century,outputgrowthin the Victorian era appears to have been very smooth indeed.Though rapid growth phases can be gleaned from the data, and have often been discussedin the literatureon Kondratieffcycles,there are hardlyany momentousmediumterm accelerations comparableto what was witnessedafter World War II. Hence,any lessonsthat can be drawn from this periodmay be of limited value only. This is the more so, of course,as the structureof the late 19th century economy (and, a fortiori,that of the mid-19th century economy)was very differentfrom that of a today'stypicalOECD country. In general,economichistoriesof this period have focussedon individualcountries'experiencesand/or on the pattern of cyclical fluctations. Surveysor explanations of what determinedaccelerations for the world economy as a whole are less frequent.Two major, and conflicting,interpretations have been put forward by monetaristand marxisteconomists. For the former,of whom a major proponentwas Cassel, the gold discoveries of the early 1850sand of the early 1890s,playeda

-33-

very importantrole,in a monetarysystemthat was stillcloselygearedto gold, in generatingupward pressureson both pricesand output.For the latter,the favourablestimulusto businessexpectations came, instead, from more political shocks -

wars, throughoutthe period, colonial

expansionfrom the 1880s,increasedmilitaryspendingfrom the turnof the century(Mandel,19801. The availablequantitative evidencelends littlesupportto either interpretation. The ratioof the world'sgold stockto international trade fell steadily throughoutthe 19th century, even if at times of new discoveriesthis movementslowed down (Bairoch,1976].More importantly, researchon the 1850s suggestslittlecausal link betweenexpansionand gold discoveries[Rostow,1980],whilework on the threedecadesto World War I shows that the relationship betweenthe quantityof gold and the money supply in both Britainand the United Stateswas highly unstable (Lewis,19781.As for the role of expansionoverseas,it would seem that the rise in the share of Europeanexportsto what would todaybe called the thirdworldwas far too small,even in the years 1890-1913, to provide more than a very minor contribution to growth [Bairoch,1976]:"For the economicgrowthof the core, the peripherywas peripheral" (O'Brien, 1982, p.l8].Wars and risingmilitaryspendingmay have been more importantin stimulatinggrowth in some instances,but the lively debate on the economiceffectsof the AmericanCivil War confirmsthat conclusions on thisissueare far from easy. An alternative set of explanations can be soughtin the foreigntrade area.Thus, it could be arguedthat the spreadof free tradein the 1850s and 1860sstimulatedgrowth,or, alternatively, that the generalization of protectionin Continental Europeand in the UnitedStatesfrom the 1880s

-34-

to WorldWar I had a similareffect.The formerthesishas few adherents, if only becausethe 1870s,duringwhich free trade was still prevalent, were a periodof somewhatlowergrowth.Indeed,it has evenbeen suggested that the most free tradingcountryof all, Britain,actuallysufferedreal incomelosses from its decisionto reducetariffs[McCloskey, 19801.The latter interpretation, on the other hand, has had more support,guarded (at best) in the case of the UnitedStates [Engerman,1971;Williamson, 1974],but very explicitin the case of Europe [Bairoch,19761.Here too, however,it must be rememberedthatEuropeanprotectionism beginsalready in the early 1880s and is mainlydirectedat rescuingagriculture, while the acceleration in (industrial) growth comes only in the early to mid1890s. No final conclusionis possible,despite the existenceof very firmly,indeed dogmatically, held views on this issue. The connections betweengrowthand foreigntradeare not only complex,but also likelyto vary accordingto time and place: "Increasedexports,decreasedexports, increasedimports (perhaps through lower tariffs),decreasedimports (perhapsthroughhigher tariffs),all or any can eitherstimulategrowth or slow it down ...

Not every kick in the pants galvanizes; some merely

hurt" [Kindleberger, 1978,p.410,emphasisadded). A more eclecticexplanation for the accelerations of the mid- and late 19th century, would probably start by stressingnormal cyclical recoveriesfrom the recessionsof the late 1840.and 1880.whichwere then strengthenedand lengthenedby some special factors. In the earlier period,an extremelyimportantand very buoyantcomponentof investment was railway construction,often, but not always, undertaken with governmenthelp; in the latter period, there was no similar leading

-35-

sector,but innovations(e.g. in steel, chemicalsand electricity) may have playedsome role in stimulating capitalformation(VanDuijn, 1983], as may the acceleratedfall in freightrates [Bairoch,19761.To these technologicalfactors can perhaps be added the effects of the gold discoveries and of protectionism. More importantly, militaryexpenditures, particularly in the firstdecade of the 20th century,seem to have had a markedgrowth-promoting effect. A furtherinterpretation relatesto the major actorsof the growth process. Investment in the 1850. and 1860sf though influencedby governmentpoliciesin some countries, was stilloverwhelmingly undertaken by what one could call Schumpeterian entrepreneurs. By the turn of the century,however, the role of governmentin stimulatinginvestmenthad increased.be this directlythroughnationalizedindustriesand military demand, or indirectlyvia protectionism extended to domestic industry [Supple,1973].This was least the case in Britainand the United States (Zhough protectionismin the latter country was widespread),and most obviouslyso in latecomercountries,such as Russiaand Japan,but it was also apparent elsewhere in ContinentalEurope. Differenceswith the to talk earlierperiodwere only moderate,so that it wouldbe exaggerated of a "'regime change", could throw light

but if one were to look for a "systemshock" that

on the late

19thcenturyacceleration,

one might wish to

focus on the increasedrole of what today would be called industrial policies. 1952-1973 growthphase the Westernworld has ever By far the most exceptional experienced(if one excludes the rather special circumstancesof the

-36-

reconstruction years after World War II), was the so-called"goldenage" of the 1950.and 1960s.Duringthe two decadesto the watershedset by the firstoil shock,outputgrowthwas closeto 5 per cent per annum,cyclical fluctuations were extremelymild by the standardsof 0arlierperiodsand unemploymentvirtuallydisappearedin most OECD countries.A further notablefeatureof these yearswas the sharprise in capitalaccumulation. Pre-1950investmentdata are poor, but the availableestimatessuggest that the non-residential investmentto GNP ratio was some 75 per cent higher in Europe in the years 1950-70 than in the interwar period [Maddison,1976],whose ratioswere, in turn, equal. to, or higher than, those of the years to 1913 lKuznets,19661.The same is true for Japan [Ohkawaand Shinohara,1979] (butnet for the UnitedStatesfor whichboth growthratesand investmentratioswere highestin the 19th century). While a number of authors have looked at the reasons for the relativelypronounceddifferences in performance aurosscountriesin this period [Kaldor,1966;Denison,1967;Kindleberger, 19671,few have studied the more generalissue of overallacceleration. Some of the explanations that have been put forward stress the favourableimpact,at least for Europe and Japan, of cheap labourand cheap technology[Maddison,1964; Kindleberger, 1967;Cornwall,1977].The abundanceof underemployed labour resourcesin agriculture or in countriesof emigration, on the one hand, and the presenceof a largetechnological gap vis-a-visthe UnitedStates, on the other,did, in this view, concurin boostingprofitexpectations, profitsthemselves and ultimatelyinvestment. Such an explanation would seem eminentlyplausible.It is well known that the 1950s and 1960s witnesseda massive influx of labour into indus:ryfrom agricultureand, in North-Western Europe,also from other

-37-

countries,and it is highly likelythat this labourforcewas relatively cheap and flexible.Equally, it is well known that Europe and Japan borrowed technologyfrom the United States on a very large scale, as shown,directly,by the lattercountry'slargebalanceof paymentssurplus on patentand royaltiesaccount,and the direct investmentactivitiesof of by the transformation and as suggested,indirectly, its multinationals, European and Japanese industry towards what many would call a US production model. however,has a seriouslimitationsinceit is unable The explanation, to discriminatebetween circumstancesin this period and in earlier periods of the economic historiesof Europe and Japan. Thus, surplus labourwas presentin even greaterquantitiesduringthe 19th agricultural centuryand in the first half of the 20th century,as shownby the very high proportionsof the labour force employedon the land at the time. migrationflows were possible,and indeedoccurredon a large Similarly, scale at the turn of the century from Europe to North America. Yet, despitethe presenceof cheap laboursupplies,neitherEuropenor Japan were able to achieve the growth rates that were recordedin the period underexamination. perhaps,the same argumentcan also be appliedto More surprisingly, true that,afterWorld It is undoubtedly explanation. the technology-based But a lead was overwhelming. War II, the United States' technological gap vis-a-visthe UnitedStateshad also existedwell before technological 1945, even if its size may not have been quite as pronouncedas it-was then,as shownby Table5 whichpresentsdataon GDP per man-hourtakenas Thoughthese very aggregate achievement. a rough proxy for technological findings are clearly tentative,they are confirmedby more careful

-38-

microeconomicresearch which suggests that, dependingon industryand country,US firmswere from 1 1/2 to 4 timesmore productivethan s

ilar

Europeanfirms already at the beginningof the 20th century [Taussig, 19241.It is true that in the post-warperiodthe awarenessof thisgap in knowledgeand the facilitiesfor the disseminationof technclogywere almostcertainlygreaterthan at earlierstages[Abramovitz, 1979],but it remainsnonethelesstrue that a large gap did ezist before World War II and was unisble, even combinedwith abundantand cheap labour,to generate the "supergrowth"of the 1950sand 1960s. The searchfor an explanation thus has to look for factorsthatwere eithernot presentin earlierperiods,or, if present,were able to act more powerfullyon this occasion.One such factor may have been the influenceof the post-WorldWar II reconstruction years on subsequent attitudesand expectations. Growthduring this.periodwas extremelyrapid in ContinentalEurope and in Japan (of the order of 8 1/2 per cent per annum between1946 and 1952), in marked contrast,for instance,to the relativelysluggishperformance that followedWorld War I. Such a tempo, by itself,may have generatedoptimisticexpectations. In addition,the reconstruction years saw the comingto power of new elitesin a numberof countries [Olson, 19821 and, more importantly,the adoption of new policies.While after World War I, the major economicaim of governments had been that of restoringthe conditionsthat had prevaileduntil 1913, such a backward-looking attitudewas, for obvious reasons,out of the questionafter 1945. Instead,policymakersembarkedon reconstruction in a new and more interventionist framework,exemplifiedby the ambitious targetsput forwardby the firstFrenchplan.

-39-

A secondimportantdifference, at leastwith the interwarperiod,is to be found in the international economy.While the 1920s and 1930.had been characterized by mountingprotectionism, massivespeculative capital flows,and floatingexchangerates, the systemcreatedat BrettonWoods and strengthened by the farsightedAmericandecisionsto extendMarshall aid and cancelthe bulk of war debts,usheredin a periodof unprecedented trade liberalization and almost unprecedented exchange rate stability. Both of these may well have buoyed up expectations and growth,despite Keynes'originalfear that the BrettonWoods systemcontainedan implicit deflationary bias. That fear arose probablyfrom the earlier experienceof fixed exchangerates underthe gold standardof the years 1875to 1913,a period in which Britishgrowth,in particular, had beenrelativelylow. But quite apart from other changesin circumstances, one major differencebetween these two eras lay in the role and strengthof the reserve currency country.Unlike Britain,with its relativelysmall gold reserves,the UnitedStates couldaffordto be unconcerned with its balanceof payments for a prolongedperiodof time.Ultimately, this "benignneglect"led to the downfallof the BrettonWoods system,but, while it lasted,it meant that Europeand Japan couldgrow rapidlywithoutbeing forcedto curtail their expansion by the appearanceof external constraints.On the contrary,their reserves went on increasingthanks to US balance of paymentdeficits,while theirgrowthwas beingpulledup by US demand.In other words, both areas benefited,in many ways, from the kind of conditions that favouran export-led growthprocess[Beckerman, 19621. Thirdly, and perhaps most importantly, the post-warperiod was characterized by a furtherand more novel regimechange- the explicitor

-40-

of to the maintenance implicitcommitmentby a largenumberof governments full employmentand/or the achievementof rapid growth. At one level, in capital these commitmentseliciteddirect and indirectintervention The Schumpeterian and basic industries. formationin both infrastructure entrepreneursof

the 1950s "operated in and through government"

may well have had an even 1979, p.25].But the commitments [Abramovitz, more importantand subtlereffect. The war years had given governments much higher levels of taxationand a much greater array of instruments with which to intervenein the economy.The Keynesianrevolutionhad with a new theorywhich showedthat counterprovidedthe same governments cyclical policies could avoid the recurrence of those business fluctuationswhich, until then, had been thought of as inev.table of a market economy. Arguably,therefore,the commitment accompaniments looked credible, thus

boosting entrepreneurialexpectations and

to the high rates of investmentthat were recorded.As long contributing as privateagentsbelievedin the implicitKeynesianmodel that dominated of the period,and also believedin the most economicpolicydiscussions such expectations efficacyof policies,theirbehaviourwould incorporate and turn out to be stabilizingin its own right [Baily,1978; Boltho, 19821. cannot hold, of course, equally for all This interpretation countries. In some, for instance the United States, Britain, or Scandinavia,the Keynesianmessage was receivedmuch earlier and more favourablythan in others, for instanceGermany or Italy. But even in were these countries(and even more so in Franceor Japan),governments more active than before, if not always in attemptingto manage demand, then in trying to stimulatefaster growth and, in particular,higher

-41-

investment: "The mixed economy itself, run on Keynesianeconomic principles, generateddynamicgrowth"[Vander Wee, 1986,p.54]. And this view is able to throw light not only on the reasonsfor acceleration, but also on why the deceleration thatfollowedthe firstoil shock has been so long and pronounced.Governmentsfailed to control recession;indeed,some were even instrumental in initiating or deepening it. Partly in consequence, the confideacethat had sustainedinvestment was replaced by much greater uncertaintyand pervasivepessimism.The earlierattitudesand the subsequentshift are well describedby a Swiss economist:"Right or wrong, economists, politiciansand busin-'smen were convincedthat demand managementis possible,that we are able to avoid slumps and to make full use of the growth potential.This belief was decisiveand produceda climateof optimism.Everyonethoughtin termsof long term developmentand no one was greatly moved by short term unpleasantevents.This has changedfundamentally inbetween. There is now deep pessimismas regardsactiveeconomicpolicy,and long run thinking and planninghas increasingly disappeared" (Bombach,1985,p.72]. Conclusions Importantfor any assessmentof futureprospectsis the issueas to whether past phases of rapid growth were initiatedby some spontaneous development in the privateeconomy,or were sparkedoff by shocksto the system and, in particular,by shocks coming from changes in economic policies.A very summaryview of the historicalexperiencecouldbe that: "Most of the economicgrowth in the nineteenthcenturyoccurredin the formof autonomousdevelopments, whereasin the presentcenturyincreasing reliance is placed upon patternsof (government)induced development" [Hoselitz, 1955,p. 423].

-42-

The evidencepresentedabove supportssuch a view only in part. Britain'sindustrialrevolutionwas undoubtedly a spontaneous occurrence, and so was, probably,the acceleration in growthrecordedin Europein the 1850s, though governmentintervention was alreadypresent at the time, notablyin Franceand Prussia.Similarly,much of America'sgrowthin the 19th centuryseemsthe resultof marketforces,with the role of the Civil War, tariffsand other policiesusuallydeemed to have been only modest (North, 1974]. But, if attentionis shifted to the late 19th century accelerationin Western Europe,Russiaand Japan, the role of exogenous forces seems much greater- accidentssuch as gold discoveries, wars and new technologies play some role; governmentintervention in the form of risingmilitaryexpenditures, encouragement to investmentin key sectors and tariffsare at leastequally,or more, important. The roleof policieswouldseem to have beenevenmore crucialafter WorldWar II. Permissivesupplyconditions were,of course,very important (labour,in particular, was .bundantand labourmarketswere flexible), but such permissivesupply conditionshad been forthcomingin earlier periodsas well. What was differenton this occasionwere the conditions favouringthe realization of the potentialfor growth [Abramovitz, 1979] and,

in

particular, the new

internationaland domestic policy

arrangements.In many ways, the years of Bretton Woods and of the Keynesianconsensusrepresented a "regimechange"for the OECD countries of a kind not witnessed

in the previouscentury.And such a regimechange

was bound to alter the earlierexpectations and behaviourof both firms and householdsand, in particular,their reactionsto the new set governmentpolicies.

of

-43-

IV. BOTTLENECKS

The historicalsurvey of Section III has lookedat a number of conditionsthat have facilitated high growthrates in the past. Some of these cannot be repeated (e.g. the stimulatinginfluencecoming from reconstruction after war). Others, however, could materializein the future,such as a return of more favourableentrepreneurial expectations consequenton lower union power, greaterflexibility, etc. Others still, such as

higher levels of demand, could be achieved via new policy

initiatives.But even if more favourableconditionswere forthcoming, specificproblemscould still imperilthe return to faster growth. In particular, a suddenacceleration, whethergeneratedby policychangesor spontaneousforces,may, in the short run, encountersome obstaclesand bottlenecks. Rapid growth,once set in motion,may well be able to remove many of theseconstraints, but it is preciselytheirprior existencethat couldfrustratethe achievement of the requiredgrowthrates. A numberof physicalbottlenecks have oftenbeen suggested. Most of theseare usuallyraisedin the contextof a policy-led recovery,but some would also face a more spontaneous,supply-induced, upsurge.First and foremost,is the possibility that,despitehigh levelsof unemployment, at least in Europe, other impedimentsmay make a quick reabsorptionof surpluslabourvery difficult.Alternatively, it is possiblethat,because of low investmentlevelsfor more than a decade,capacitymsy now (and a fortioriin the early 1990.),be insufficient to sustainan upward spurt in demand.Similarly,the supplyof some primarycommoditymay be highly inelastic.Finally,it could be held that even if no physicalshortages were to impedea resumptionof more rapid growth,financialconstraints mighthave a similardeterringeffect.

-44-

Labour Therehas been an abundantliteratureon the (European) unemployment problemsince the mid-1970.which it is impossibleto surveyhere in any detail[Reichlin,19871.Assuming,plausibly,that the phenomenondoesnot reflecta protractedvoluntaryshift away from work and towardsleisure, the issuesthat are importantfrom the growth pointof view can best be discussedunderthe followingheadings: i)

Does growthin employmentrequirepriorfallsin realwagesor an expansionin aggregatedemand?

ii) Would an expansion in aggregatedemand risk generatingan accelera' n in inflation? The debate on the first issuehas often been conductedin terms of the textbookdistinctionof "classical" versus "Keynesian" unemployment. The classicalinterpretation would argue that real wage resistanceto the twin shocks of the 1970. (a pronouncedand long-lasting deceleration in the growthof productivity and two sharp deteriorations in the terms of trade)led not only to rapid capital-labour substitution, but also to an unsustainable squeezeon profitsand a reductionin investmentsuch that the capitalstock is now insufficient to fullyemploythe availablelabour force.The solutionto both the unemployment and the growth problemsis clearlythat of reducingreal wages (or, better,the real cost of labour to firms,which includestax wedgeitemswhichhave also increasedrapidly in many countries).By restoringprofitabilityp this would lead to an upsurge of investment and hence to both faster growth and lower unemployment. In the Keynesianinterpretation, high unemployment is blamedinstead on the restrictivefiscal and monetarypoliciesfollowedby most OECD

-45-

countriessince 1974 and, eepecially, since1980.Evenwhen it is admitted that profitsare too low, the classicalremedyof cuttingreal wages is thoughtto be counter-productive for a numberof reasons,First,estimates of the long-runeLasticityof labourdemandwith respectto the real wage suggestvalues below unity (Bean et al., 1986; Hamermesh,19861 thus raisingthe possibilitythat a fall in aggregatedemandwould more than offsetany favourableeffectof higherprofitson investment. Second,this dangerwould be increasedif the improvement in international competitiveness achievedthanks to fallingreal wages were to be pursued by all countriessimultaneously, as has to some extent been the case in the recent past (by the same token rising real wages could hardly have had much impact on unemployment throughthis channelof transmission in the 1970s if all countrieswere experiencingthem simultaneously). Third, a restorationof profits can be achievedmuch more easily via a demandinduced stimulus and its well known favourablecyclical effects on productivity. The empiricalevidenceon what has causedhighunemployment is mixed, if only becauseit is at timesvery difficultto identifywhat forcesare at work. Overall,however,if a consensusthere is, this would be that throughthe late 1970s real wages had indeed risen at an unsustainable rate [Sachs,19791,but that in the 1980s the natureof the problemhas changed.Sinceprofitability has been restoredto levelscloseto, or even above,thoserecordedin the early 1970s,and the growthof realwageshas decelerated, the continuingrise in unemployment can only be explainedby the even greatertightnessof policies[Sachs,1983;Bruno,19861. If this is the case, a return to lower unemployment, higher investment,and faster growth could be achieved by a demand boost,

-46-

somethingthat, in any case, it would seem easierto engineerthan a fall in real wages.Indirectevidenceon the efficacyof sucha strategycan be gleanedfrom historicalparallelsdrawn from the depressionof the 1930s [Bonnell,1981;Sachs,19831.For fourout of the five countriesfor which detaileddata are available(Britain,Germany,Japanand Sweden,the fifth being the United States),real wage costs grew in the years 1929-32, despite the severityof the recession,suggesting,prima facie, that labourwas "pricingitselfout of jobs" (Table6). Yet, the demandboosts that these countriesreceivedfrom 1932-33onwards,thanksto depreciation in Britain,rearmamentin Germany,and expansionary fiscal policiesin Japan and Sweden,rapidlyeliminatedthe real wage gap, as nominalwage growthremainedsluggishand productivity was boostedby recovery.In all four countriesemploymentroseand growthaccelerated. Historicalparallelsmust be treatedwith cautionbecauseof obvious In particular, it is possiblethat the lengthof changesin circumstances. the recent recessionmay have diminishedthe potentialcyclicalboost to productivity shouldfirmshave dishoardedlabourto a greaterextentthan in earlierdownwardphasesof the cycle (Sachs,1983].Similarly,it may to ensurereal wage fallsakin be more difficultin presentcircumstances to those recordedin the 1930s,if only becauseof greaterunionization and strongerreal wage resistance. On the otherhand, "growingout of the problem"need not implyfallingreal wages,but only rises in real wages below those of productivity,combined, ideally, with nominal wage moderation. It is the potentialdifficultyof ensuringthe latterthat raisesa differentdanger -

the possibilitythat, despite very high levels of

any demandboostmay raise the rate of inflation.Available unemployment,

-47-

(NAIRUs) inflationrates of unemployment" estimatesof "non-accelerating suggestthat these have driftedupwards in the 1980s,closelymirroring 19871.If suchestimatesare to be [Reichlin, actualratesof unemployment (unlessit were recoverymay be problematic believed,a non-inflationary by some formor otherof incomespolicy). accompanied While a consensuson the reasonsfor the rise in EuropeanNAIRUshas not yet ben achieved,much of the recent literaturetends to stressthe concept of "hysteresis"or persistence,in other words, the idea that presentunemploymentlevels may be closely linked to past unemployment levels [Blanchardand Summers,19861.In its simplestform,this approach assumes that wage bargaining is determined entirely by so-called who set theirclaimsat a rate justsufficientto ensuretheir "insiders", continuedemployment."Outsiders",i.e. the unemployed,have no effect rises,because whatsoeveron the wage bargainingprocess.If unemployment of adverse shocks, some insiderslose their status, but the new and smallergroup of insiderspursuesits earlierpolicy.As for companies, these may have little incentiveto hire outside their labour force at lower wages, if they can obtain greaterloyalty,a better productivity or a lower incidenceof strikesby grantingpay levelsabove performance, thosewhichwouldhave been determinedby more atomisticmarketforces. just feeds on itself,and any upward In this view,high unemployment The converse,however,should shift in its level is self-perpetuating. also be true, in which case the solutionto the problemwould seem to be that proposed by Solow: "To bring down unemployment,just have low unemploymentfor a while" [Solow,1986, p.5331.Indeed, "enfranchising" additionalworkers may actually reduce wage demands if it raises the policy number of insiders[Blanchardand Summers,1986].The appropriate

-48-

reponsein these circumstances would seem to

one that combineddemand

stimulationand measures designed to raise 1.oour mobility so as to increasejob opportunities to outsiders[OECD,1987b]. Whilethis may seem to reinforcethe case for a demand-led upswing,a note of caution is, nonetheless,required.The initial impact of an increasein demandmay not translateitselfin an increasein employment, particularly if labourhoardingis still widespread. While,as mentioned above, the presence of such labour hoarding would help the cyclical recoveryin productivity and profits,it would do littleto reduce the power of insiders and this, in turn, could generate inflationary pressures.These would be furtherincreasedif, in addition,particular skillswere in short supply,as is often claimedto be the case, or the labourmarket was riddledwith a whole host of rigidities(low mobility, inflexible wage differentials, job securityprovisions, etc.). It is difficultto know how far these fears are justified. Many of the rigiditiesthat are often cited stem more from the recessionitself than from other causes and may well diminish,if not disappear,if recoveryoccurred.Thus, the much publicizeddeclinein labourmobility, for instance,may well reflect,ratherthan be a causeof, declinesin the demand for labour [Flanagan,19871.It also appears that relativewages are less importantas an allocativemechanismthan commonlythought,with job allocationbeing primarilysensitiveto vacanciesratherthan to pay differentials(Reichlin,1987J. As for job security,this does raise labourcosts and thereforereducesemployment, but it also increasesthe flexibilityof internallabourmarkets (as seen in the case of Japan). Skill shortagesmay be more real, at least in some countries,but are unlikelyto have becomemore pronouncedthan earlier.

-49-

At a more aggregatelevel,recentexamplesof accelerations in demand inducedby macroeconomic policies(e.g.the 1978Bonn Summitexperimentin internationally coordinatedexpansion,the 1981-82 Mitteranddash for growth, or the 1986-87Britishand Japanesefiscalboosts),may provide some impressionistic evidence on the risks of re-ignitinginflation through standardKeynesianmechanisms.The usual verdict on the Bonn measures is that their effects were mainly on prices rather than on quantities, particularly in the two majcr expandingeconomies(Germanyand Japan). But this judgementignores the potentialinflationary effects which, during the same period,were coming from massive Bundesbankand Bank of Japan interventionsto prop up the dollar and, even more importantly,the clear upward shift given to prices and inflationary expectations by the secondoil shock.Indeed,the acceleration in consumer pricesrecordedby both Germanyand Japa.. between1978and 1980,givesway to stabilityor decelerationif attentionis shiftedto domesticall r generatedinflation, as represented by the GDP deflator(Table7). The inflationary effects of a demand boost may have been more apparentin the case of France in the early 1980s.To some extent,the persistence of high rates of inflationat a time at which inflationwas decelerating elsewhere,may have been caused by specialmeasuresraising labour costs, and by financial market expectationsof rapid price increasesleading to currency depreciationand a vindicationof the expectationitself.However,it has also been arguedthat France'sNAIRU was a good deal higherthan thoughtso that demandexpansionmay have had a direct inflationaryimpact [Sachsand Wyplosz,19861. In Britain,by contrast,several years of rapid growth have not led to any marked acceleration in wage pressures.It is true that fearsof a returnto high

-50-

rates of inflationhave been expressedin the courseof 1987,in the wake fiscal policies.So far, however,these fears have of more expansionary The same seems despitefallinglevelsof unemployment. not materialized, to be true of Japan, where the 1987 fiscalpackageappears,so far, to have had its main impacton quantitiesratherthan on prices. conclusionto this discussionwould probably A very impressionistic be that neitherphysicalconstraintsin labourmarkets nor too high a levelof realwages are at presentvery seriousobstaclesto the growthof the OECD area. Most of the unemploymentin Europe would seem to be involuntary, many of the rigiditiesthat are claimedto exist have either diminishedbecauseof recession(e.g. trade union strength),or may be expectedto diminishin intensityif demand recovered(e.g. low labour mobility),while the level of real wages, even if too high in the later 1970s,no longerappearstoo high at present.This is indirectlysupported by the resultsof an end-1985EEC survey on labour market flexibility which showed tha the most importantreason preventingan increasein industrialemploymentin Europe was lack of demand (with excessivewage capacitylast, among the ten levels coming only sixth,and insufficient factorssurveyed)[Commission of the EuropeanCommunities, 19863. The upwarddrift in NAIRUs,however,suggeststhat cautionmay have Thoughthe NAIRUs themselves to be used if demandwere to be stimulated. could be expected to decline in the wake of faster growth, initial problemson the wage front cannotbe excluded.To avoidor minimizesuch problems,it may be necessaryto target demand expansionto particular high-unemployment categoriesof workers[Layard,19861and/orto introduce formsof incomespolicies.

-51-

Capital An alternative constraintto expansioncould,however,come from the capitalside in so far as capacitymay be insufficient at present.Be it becauseof the excessivereal wage levelsof the late 19709,or becauseof sluggishdemandso far in the 1980s,investment has been very low for the last 15 years. Since low investmentappears,in addition,to have been accompaniedby acceleratedscrappingconsequentupon either more rapid technological progressand/orsharpershiftsin relativepricesand demand patterns,the OECD economiesmay have been leftwith insufficient capacity for anythingbut presentsluggishgrowthrates.For an individual country this may not be a very severe constraint,given the possibilityof importingcapital equipmentto remedysuch shortages(thoughthe problem would thenmanifestitselfin eithera worseningbalanceof paymentsor in higher inflationvia currencydepreciation). If, on the other hand, the expansionwas generalizedto the whole OECD area, the externalproblem wouldvirtuallydisappear,but the inflationary dangerwouldremain. The evidenceon whethercapacityis, or is not, availablei,iby necessityimperfect.The existingestimatesof capacityutilization in the major countries(Table 8), suggest that, in mid-1987,utilizationwas stillbelowwhat it had been at the time of the 1979-80peak (letalonein 1973), but well above the levels recorded in the trough of 1982-83, despitethe weaknessof the intervening recovery. This picturecould be more worryingshouldthe slow growthrate of investment of recentyears have also beenaccompanied by a deceleration in the growth of technologicalprogress. This may sound surprising. Journalistic observations on the varietyof new technologies and products, as well as theorieswhich argue that recessionseradicateinefficiencies

-52-

and create new waves of innovatingactivity [Van Dujin, 19831, would combinein suggestingthat the oppositeshouldbe the case - the capital stock at present may be small, but it should embody all the latest technologies. Yet, as also argued in SectionIII above,a good deal of empiricalevidence suggests exactly the opposite conclusion.Process innovationsare stimulatedby very high rates of capacityutilization; conversely, prolongedslack has strong innovation-deterring consequences [Nelson,1981]. If both capacityis in short supplyand technological progresshas slowed down, a sharp and generalizedrecovery in demand could well encounterselectedbottlenecks and generateupwardinflationary pressures. This danger, however, should not be exaggerated.First, the available evidenceapplies only to the manufacturing sector of the economywhich accountsfor less than 40 (or, in the United States,less than 30) per cent of value added.Output in the servicesectorcan often be increased with littleneed for additionalcapital.Second,overtimeand shift-work can overcomesome capacityshortages. Third,the lack of capacitymay well be overstatedby entrepreneurial responses: "One can be prettysurethata considerable proportionof the capitalstock not now in use and becoming ripe for scrappingwould again come into use with an accelerationof demand" [Bombach.1985, pp.22-231.Indirect evidence supportingthis statementcomes from estimatesof (gross)ICORsfor the pre- and post-oil shock periods- between1961-73and 1973-85,the ICOR of the OECD area nearly doubled, suggesting the creation of a good deal of spare capacity. Finally,even if all theseargumentswere to be discounLed, it shouldbe rememberedthat stronginflationary pressureshave usually

-53-

started in commodityor in labour markets,rather than in the product marketsfor industrial goods (Marris,19851. The relativeunimportanceof capacityshortfallswould seem to Thus, for from historicalexperience. receivesome indirectconfirmation the United States:"A scrutinyof the 1930'sdepressiondoes not reveal any sharpand prolongedeffectson the rate of growthof potentialoutput. While the level of the growth path clearlywas lowered,after economic recoverythe slope of the growthpath was not less than it was before" period (Nelson,1981, p.169].Nor does evidencefrom the reconstruction that followed on World War II suggest that capital shortageswere a impedimentto growth.In the UnitedStates,the conversionof significant to civilianproductiontookplacevery smoothly, industryfrom war-related despite widespreadexpectationsto the contrary.In Europe and Japan, were, of course, bottlenecks,especiallyin energy and transportation et al., quickly(Armstrong numerous,yet, they were overcomesurprisingly 1984].Finally,in the 1950sand 1960s,very rapiddemandexpansionhardly ever generatedmore than creepinginflation,even thoughmany economies levelsas they had ever as close to fullcapacityutilization were runu1ing been.Investmentratiosjust rose as demandgrewand supplyrespondedwith flexibility. astonishing of course,are never the same - the 1930smay not be Circumstances, if only becausethe presentslowdownhas been more protracted, comparable, the differences betweenthe situationin the late 1940s and now are too obvious to need stressing,and even the 1950s and 1960s belong to a differentera, in view of the change in the climateof expectations. But one general lesson seems valid. Over the cycle, at least, accelerator mechanismsappear to be powerful and periods of demand upswing have

-54-

usually led to increasesin investment.Once recoveryhas started,i1 other words, the capacity shortageproblemmay be self-correcting. The difficultymay arise in the shortrun when investmenthas not yet reacted and added to capacity,while physicalbottlenecks are boostingprices.As the more so if cost-plus argued above, this dangermay be exaggerated, industry. pricingis widelyfollowed,as it seemsto be, in manufacturing To minimizethe inflationary risk it may, nonetheless, be desirabLeto set speed limitson the amountof demand stimulusand to make the latteras "supplyfriendly"as possible(Blanchard et al., 1985;Modiglianiet al., 19861. Commodities inflationary episodesof the last 40 The threemajor,double-digit, years were all triggeredoff by commodityprice explosions,in turn induced, at least on two occasions,by very rapid and synchronized expansionsof demand. Arguably,a repetitionof such expansionscould generate a

repetition of

such price explosions,with predictable

consequences for the stanceof policiesand the rate of growthof output in the majorconsumercountries. This danger would seem to be least acute for food products.At present,the OECD area is, if anything,swampedby food surpluses.And even if reformsin farm policiesin the EEC, the UnitedStatesand Japan were to lead to greater rationalityin agriculturalmarkets in the progress) industrialized economies,changingpolicies(and technological in the developingworld seem to have been increasingly successfulin turning erstwhile food importers into self-sufficientor even net exportingcountries.The world, of course, is never safe from crop fluctuations for tropicalbeveragesor from some major disaster,such as

-55-

the concomitant failuresof wheatharvestsin the SovietUnion,Australia and China in 1972 [McCrackenet al., 1977],but this wouldnot seem to be a sufficient argumentfor ever refraining from more rapidgrowth. The longer-runpriceoutlookfor industrialraw materialsmay not be that dissimilar.To the traditionalarguments for "commodityprice pessimism" (decliningproportionof goods output, substitutionwith artificialproducts,better inventorymanagement,etc. [Nurkse,1959]), can be added the effectsof more recenttechnological progresswhich has both accelerated substitution effects(via, for instance,the development of new materialssuch as fine ceramics)and diminishedthe raw material intensityof many new products.In the past,such trendswouldhave le.:to a shrinkageof supply,as low prices fed back onto mine and plantation closures.Nowadays,however,this effect is somewhatless apparent,at least in the developingworld, as countriestry to maintain foreign currencyearningsat all costs, so as to servicedebt obligations. This is, of course, unlikely to be a permanentphenomenon,but it may be sufficiently lastingfor it not to endangera suddenupsurgein activity. The situationfor oil may well be different.Unlikemarketsfor other commodities, the oil market has never been reallyfree and pricesin it have been heavilyinfluencedby governments and cartel-like arrangements. As was mentionedin Section II above, it is the danger of continued behaviourof thiskind, combinedwith long lags in both supplyand demand responsesto changingprices,thatmay set a ceilingto the growthrate of the OECD area. At present,such dangersare heavilydiscountedand the weakness of oil prices is happily extrapolatedinto the future.This however, is not a new phenomenon- most forecastsof oil prices have tendedto extrapolateshort-runtrends.A recent study,comissionedby

-56-

the World Bank,comes to differentconclusions [Petroleum FinanceCompany, 19871. It finds, first, that the real oil price has been surprisingly stablein a long run (one hundredyears) perspective(withbehaviourin 1973-82as the only major exceptionto this generalrule),and, second, that this same price has been subject to well defined cyclical fluctuations (of which,again, the more recentprice changeshave been a somewhatextrememanifestation) (Fig.4). The studyalso predicts,on the basis of a batteryof leadingindicators, that the industry'scycle will turn from contractionto expansionsome time in Ehe firsr half of the 1990s, but, unfortunately,provides no explicit price forecast (nor projections of the implicitgrowth of world output or of the demand for energy). If, indeed,real oil priceswere to begin to rise rapidlyin the early 1990., this could spell danger for any recovery in the industrializedcountries.Before accepting such a gloomy conclusion, however,it would seem desirableto test more rigorouslythe cyclical regularitypredictedin this one study,as well as establishmore clearly the extentof any upwardpressureon pricesthat couldmaterialize at the time,eitherexogenously or as a resultof an acceleration in the growth of demandin the OECD area. FinancialConstraints Crucialto any short run expansionpath, be this spontaneousor policy-induced, is the rate of growthof investment. A possibleconstraint on an increasein this rate could be a shortageof savings.If, for some reasonor other,savingpropensities in the OECD economieshad come down, then any attempt at stimulus going beyond the new and lower saving capacitiesof the industrialized countriesas a whole would result in

-57-

either sharplyhigher interestrates or in inflation.The major issue, already touchedupon in Section III above, is one of causation.Does a given, and fairly rigid, level of savingsdeterminethe corresponding level of investment,or are savings largelydeterminedby income and, therefore, investment itself? In line with the conclusions reachedon long-runtrends,it is the latterproposition which would seem to be more plausiblefor the shortrun as well. It is well known that investmentexhibitsfairlymarkedcyclical fluctuations.These are usually well explained by both theory and econometric evidenceas arisingfrom changesin aggregatedemand,interest rates or other factorsaffectingthe user cost of capital.Savingsin the economy would clearly seem to be able to adapt to much changes. Indirectly, this would also seem to be confirmedby more recenttrends in both Europe and Japan. Though governmentdissavingshave declinedsince the early 1980s and corporateprofitability has improved,at least in Europe,investment has remainedvery sluggish. The major exceptionto this generaltrend is providedby recentUS experience. While earlierrapid upswingsin investment(e.g.between1962 and 1965,1970and 1973,or even 19.3 and 1978),were wholly,or largely, met by rising domestic savings,in the 1982-85 recoverythe domestic savingsratio did not increaseand massive recoursehad to be made to foreign savings.Dollar depreciationand fiscal restraintshould both reducethe need for externalsourcesof fundsover the mediumterm. Yet, the disappointingperformance of savings

so far in the 1980s raises the

possibility that the UnitedStatesmay now be sufferingfrom a structural savings deficiencyof a kind not seen elsewhere among major OECD countries.If this were the case, an accelerationin the growth of

-58-

productivity investment(necessaryto improvethe economy'sdisappointing record),mightwell call forthrenewedcapitalinflows. It is difficultto know whetherthe rest of the OECD area's savings could cope with an increasein investmentdemandboth at home and in the UnitedStates.A very simplecalculation may, however,throwsome lighton the issue.If one were to assume that US gross savingswere to remainat their 1985 ratio to GNP (16.5 per cent) but that the OECD's fixed investment to GNP ratiowere to returnfrom its 1985 (20.3per cent)level to its 1973 (23.2 per cent) peak, then non-USOECD savingswould have to increasefrom their 1985value of 23.3 per cent of GNP to 27.5 per cent or still below the 28.3 per cent figure they had reached in 1973 (assuming,of course, no changes in stockbuilding or in the external balance).The shift, in other words,might be feasibleeven if far from easy to achieve- the more so as it would again lead to a largecurrent accountdeficitin the UnitedStates. So far, many of the constraintsthat have been discussedapply equally stronglyto any recovery in activity,whether this is led by policyor stimulatedby market forces.A policy-induced upswing,however, that reliedon fiscal measuresto generatehigherdemand,may encounter additional problemsof a crowding-out naturewhichwouldnot be facedby a spontaneous recovery.If crowding-out was significant, pump-priming would obviouslybe, at best, powerlessand, at worst,counter-productive. The empiricalevidence,on balance,indicatesthat fiscalpolicy might have are not as high as standardKeynesianassumptions multipliers however,are not negligibleeither, led one to expect.Thesemultipliers, even in conditionsin which bond finarcingdrivesup interestrates [Chandose of monetary Lee and Kato, 1984J.If inflationis low, a significant

-59-

financingmay, in any case, be perfectlyappropriate. Alternatively, if bond financingwas still preferred,coordinatedinternational expansion should be able to prevent many of the unfavourableconsequenceson activityassociatedwith exchangerate crowding-out. Conclusions The foregoinghas suggestedthatmany of the fearsaboutcapacityand other constraintsnipping in the bud any recovery in activity,but in particulara policy-ledrecovery,may well have been exaggerated. Not all such fears, however, are unfounded.High or rising NAIRUs, possible shortagesof capacityin someareas(and of savingsin the UnitedStates), as well as the incognitaof the oil marketmay all generateinflationary pressureswhich could, in turn, stiflethe recoveryprocess.Two further issues,not treatedin detailso far, complicatethe picture:the nature of the time path during the period in which the world's financial imbalancesare being slowly resolved,and the speed at which recovery thereafter takesplace. The implicitassumption made in SectionI abovewas thatgrowthfor a numberof years would have to be slow, as the major OECD countriesreestablished some order in their public financeand/or externalpayments positions.Such a slow grosuthpath would inevitablyhave important consequences for a numberof the constraints discussedin thissection.On the one hand, the adjustmentperiod could have some favourableeffects strengthening the probability of an autonomousrecovery.Thus,slowgrowth would be

likely to further erode trade union power. Similarly,

continuation of present policiesof deregulationcould increasemarket flexibilitymore generally.And the macroeconomicpolicies that are expectedto be pursued should furtherreduce governmentdeficitswith,

-60-

arguably, favourable effects on private sector expectations.On the other hand, however, continued sluggishness would presumably add not only to actual unemployment,but also to the NAIRU, via the hysteresis mechanism discussed above. Since inv4 stment growth may also turn out to be modest, with inevitable consequencesfor the growth of capacity, the economy could appear, at the end of the adjustment period, even more supply-constrained than it is now. This, in turn, suggests that any expansion from then onwards should be only moderate. A sudden sharp accelerationin growth rates could create temporary excess demand problems in labour, product, commodity and possibly even in capital markets, with serious risks for inflation. Yet, too slow a pick up may not put in motion the indispensableaccelerator mechanism for investment, may not generate the higher tax revenues that would seem necessary to moderate budget deficits (on the assumption that fiscal policy had played a leading role in the expansion), and, most importantly of all,.may not c.eate an upsurge of confidence which would seem to be the sine qua non condition for a more permanent return to higher growth rates. The compromise solution to this speed limit problem is, of course, the one of engineering a recovery which is neither too rapid for inflation to accelerate,nor too slow for growth to falter, with policies, in addition, geared as much as possible to the supply side. The enunciation of this list of requirementsis sufficient to show the great difficultiesof successfullyfollowing such a strategy. Ultimately, however, it may be better to err on the side of rashness rather than of caution. Unless there are shocks to expectations,there may be a tendency for things to continue unchanged. Any rate of growth, if established for some time, may be difficult to alter, and may indeed

-61-

appearas supplyconstrained. The depressionof the 1930.may well be a case in point,as illustrated by the followingquotationby an economist hardly partialto simpleKeynesianmessages:"Experienceshowed that as soon as deflationwas stopped,the huge structuraldistortionsthat had been diagnosedby theoristsduringthe depressionshriveledas quicklyas they had surfacedearlier.Monetarycontraction...

provedto be a much

more importantcause of high unemploymentthan structuraldistortions" (Haberler, 1986,pp.69-701.

-62-

V. ISSUESFOR THE FUTURE The issue of what determineslonger-termaccelerationsand decelerations in the economicgrowth of the industrialized countriesis controversial. This paper has arguedthat crucialfor high growthphases are optimisticbusinessexpectations, seen as a major driving force of capital accumulation.Both theory and past evidence suggestthat such expectations c6n be encouragedor sustainedeither by endogenousmarket forces, or by what have been called exogenous"system shocks'. Any appraisalof future growth prospectsshould thus trw to assesswhether new, favourable,shocksare likelyto occur, or whetherthe mere absence of negative shocks, combined with the restorationof a more marketorientedeconomicsystem,couldgeneratea spontaneous upswing. The historicalexperiencesuggeststhat a numberof conditionsare probablynecessaryfor an autonomous, investment-led, growthacceleration to take place: the reappearance of a "reserve

army of the unemployed",

togetherwith low and stable inflationand inflationary expectations; the accumulation of a backlog of unexploitedinnovations made possibleby a continuousprogressin knowledge;the scrappingof significant segmentsof the capital stock, generatingpotentialdemand for new investment;the eliminationof institutional and other rigiditiesto the free play of market forces; the emergenceof Schumpeterianentrepreneursready to venture into risky projects by seizing the opportunities provided by deregulatedmarkets, on-going technicalprogress,scarce capital and abundantlabour. The simultaneous fulfillment of all these conditionsis clearlyno easy matter.Thus, it may come as no surpriseto find that the last phase

-63-

modelgoes of rapid growththat may have fittedthis so-calledspontaneous back to the middle of the 19th century.It is possible,however;that in the late 1980s and early 19909 may conformto these circumstances is conditionsto a much greaterextentthan for a long time.Unemployment likelyto remainhigh in the foreseablefutureand, barringsupplyshocks or irresponsiblepolicies, inflationshould stay low; technologyis clearly advancing;investmentwill have been relativelydepressedfor nearly two decades, and the present policies tending to increase however,may be the flezibility shouldbear some fruit.More problematic, himself(and Indeed,Schumpeter entrepreneurs. appearanceof Schumpeterian Galbraith with him), would have argued that in today's world of they probablyno longerexist.Yet, their oligopoliesand conglomerates re-emergencecannot be excluded. As argued in Section II above, on the one hand (in particularthe micro chip), innovations technological more diversifieddemand patternson the other, are combiningin making possible a revival of smaller-scaleproduction.Small need not be In the process, beautiful,but it couldbe both feasibleand inexpensive. it couldalso generatefastergrowth. thatmany of these Optimismis tempered,however,by she realization for sometime,yet conditionshave been presentand have been strengthened countrieshas, if anything,decelerated growth in the industrialized further. The only major exceptionto this general rule may be the experienceof the United Kingdomwhich has been at the vanguardin the featuresof the earlierera movementto reversemany of the institutional and which, in the last few years, has witnessedboth steady and rapid however,reflectsalso recovery growth.Britain'sfavourableperformance, oil selffrom a very deep recession,real exchangerate depreciation,

-64-

sufficiency and a clear fiscal boost, factors which may well have been more important

than

the effects of Thatcherisii.

Hope for an eventual acceleratiori in the OECD area as a whole, may thus have to be put in the alternative view of some external disturbance recreatingmore buoyant expectations.Arguably, the "Thatcher revolution" is precisely a shock of this kind, but, quite apart from the unproven verdict, it is not one that has been administeredin many other countries. A favourable external disturbance that affected most of the OECD area was the reverse oil shock of 1986, which many hoped would usher in faster growth. Yet, despite a strong boost to profits and a marked downward effect on prices, confidencedid not surge, in part, no doubt, because of continuingtight policies. One possible favourable shock could arise in the future from political and economic developments in Eastern Europe. A combination of multilateral disarmament and sweeping economic reforms, initiated by a much more dynamic Russian leadership, could generate a new wave of optimism in the West, and particularlyin Europe, in the expectationof a major surge in demand from the East. It would be ironic, by the way, if, following the "rescue" of capitalism by socialism in the late 1940s, when Stalin's choice of the cold war prompted the adoption of the Marshall Plan, capitalismwas agaiiihelped at a time of difficultyby the socialist countries. Yet, such an outcome does not seem very likely. Disarmament should have beneficial effects on the US budget deficit, but its wider economic implications, unfortunately, need not all be favourable to growth. As

for new markets, earlier experience justifies a

certain

scepticism. The gains from colonial expansion in the late 19th century have often been exaggerated.Closer to the present, the growth in demand

-65-

from the centrally planned economies in the 1960s and 1970s quickly found its limits as these countries developed large trade deficits. More realistic may be reliance on changes in government policies which on past occasions (e.g. the late 19th century or the period after World War II), may well have been instrumentalin generating longer-run upswings. There are difficulties in this area too, however. One possible scenario could envisage an

inflationary solution to the

financial

disequilibriaof the 1980s, ushering in a new policy cycle of relatively easy money in the 1990s. It is doubtful, however,whether such a strategy could be successful in a world whose memory of high inflation was still very recert. The alternativeof adoptingKeynesian-inspired,pump-primingpolicies may well encounter speed limits. As argued in Section IV above, either expansion is too slow and unable to overcome the sluggishnessof private sector expectations,or it is too rapid and generates mainly inflation. Boldness rather than caution may be a preferable policy if it is held, plausibly, that supply conditions tend to adapt to demand changes with surprising flexibility, but boldness may encounter a subtler and more pervasive obstacle than a rigid supply potential -

scepticism about the

efficacy of policies themselves. While the 1950. and 1960s were almost certainly an era in which companies and households implicitly accepted a Keynesian model of the economy, perceptionshave changed very fundamentallyin the 1980s. Rightly or wrongly, economic agents are increasingly convinced of the near impotence of government policies in affecting real variables, be this because of

the belief in models of market clearing and rational

expectationsor because of the reaiization that, in an integratedworld,

-66-

independent policy-making is no longerfeasible.This may well condemnan7 reflationaryattempt from the start since, if it is surroundedby scepticism,it will be unable, almost by definition,to galvanize entrepreneurial expectations (the Frenchexperienceof the early1980.may be a case in point). One possiblesolutionto this difficultycould come from a "system shock"that altered this feelingand re-established macroeconomic policy as an effectivetool of governmentaction. In so far as present and foreseable scepticismarises from the correct perceptionthat our economieshave become very interdependent, the solution could be the transferof responsibility for aggregatedemandpoliciesfrom the national to the supranational sphere via a much greaterdegree of international policy coordination.This would be insufficient to allay the fears of those who start with the assumptionthat any governmentmacroeconomic policymust be impotent,but suchbeliefs,if they are held at all outside academia,are more prevalentin financialthan in "real"markets. It is true that even international coordination of policiesmay not be a panacea.Indeed,pioneeringwork on its possibleimpacthas suggested that its effects may be relativelysmall (Oudizand Sachs, 1984]. Such work, however,almost certainlyunderestimates the potentialbenefitsof cooperation if only becausethe multipliers which it uses (and which arobtained from existing econometricmodels) might not be sta;3e if international policy cooperation were to be adopted.In other words,the move towardscoordinatedpoliciesmay be akin to one of those very few regime changes that ju.,tify the "Lucas critique"of econometricmodel blilding(Sims,1982).Just as the adoptionof demand managementat the nationallevel may have fe!-ourably alteredthe responseof the private

-67-

sector to governmentpoliciesin the 1950s and 1960s,a shift to more cooperativeinternational demand managementpoliciesmay have a similar effectin future. A more coordinated approachto policywould presumablyalso tackle the issue of the international monetary system. The last two eras of relativelyrapid growth(at the turn of the last centuryand in the 1950s and 1960s),were both periodsin which exchangerates were fixed,thanks in largemeasure to the presenceof a hegemonicpower. Conversely, both the interwaryears and the more recent period, saw the appearanceof severalkey currenciesand moves to floatingregimes.Arguably,stability of exchange rates strongly diminishesbusiness uncertaintyand thus contributes to a favourable performance. Whilecooperation wouldbe unable to ensurethe returnof a hegemonicpower,it could,at least,attemptto instill much greater stickiness in the process of exchange rate determination. The policy recommendations that stem from the precedingare relativelystraightforward. If hope is to be placed in a spontaneous recovery,then the presentemphasison the removalof rigiditiesand the restorationof flexibilityis clearly to be welcomed.The historical evidencesuggeststhat spontaneous upswingshave not been very frequent, but it does not rule out their possibility. To maximizetheir chanceof occurring,it would seem that policiesdesignedto encouragethe formation and growthof small firms are highlydesirable,as are policiesthat do not reducethe level of aggregatedemand.If, alternatively, it is felt that a pure market responseis too slow and uncertaina mechanismfor fastergrowth,then the policyrecommendation is for an increase,and,

-68-

ideally,a suddenand sharpincrease,in the degreeof policycoordination at the international level. The latter,unfortunately, does not seem very likely,at least in presentcircumstances. If anything,the world appearsto be movingin the directionof a fragmentation into several major trading and currency blocks,and this movementmay be reinforcedby the financialimbalances and the slow growth that can be expectedto prevailover the short to mediumrun. As for the policiesdesignedto removerigidities, thesehave so far takenmore the form of indiscriminate deflationthan of structural reform, hardly a path likely to encourageentrepreneurial expectations. Given the continuingemphasisplaced in so many countrieson the preKeynesianobjectiveof a balancedbudget, this bias seems unlikelyto change in the foreseablefuture. On either count, the prospectsfor longer-run growthlookhardlybuoyant.

-69-

Table 1. Weight of various areas in world GDP and importsa

GDP Industrializedcountries Developingcountries Upper middle-incomeC Lower middle-income Low-income

Actual

Hypothetical

1965 1965-1985 1985 weights weightsb growth (Z) (Z) (Z)

2000 b 1985-2000 growth weights (X) (M)

84.0 16.0 7.9 3.8 4.2

3.3 5.3 5.4 5.1 5.4

78.1 21.9 11.0 5.0 509

2.0 6.0 so

66.7 33.3 es .. ..

6.8 6.0 (5.4)

4.7 19.9 (25.8)

8.0 5.0 so

9.5 26.3 so

68.0 32.0 (17.4) (8.0) (7.2)

6.0 5.1 5.8 4.1 3.6

71.6 28.4 17.7 5.9 4.8

3.0 6.0 .. ..

62.1 37.9 g .. ..

4.5 13.6

7.9 7.6

6.7 19.3

10.0 7.0

15.6 29.6

Hemosandumitems: NICS' 2.6 Asia-Pacificregione 12.8 (includingNorth America)f(18.5) Imports Industrializedcountries Developingcountries Upper middle-incomec Lower middle-income Low-income Memosandumitems: NICs, Asia-Pacificregione

.. ..

..

______________________________________________________________________________

a. b. c. d. e.

ExcludingWorld Bank non-membercountries. At 1985 prices. Includinghigh-incomeoil exporters. Brazil, Hong-Kong,Mexico, Singaporeand South Korea. ASEAN countries,Australia,China, Hong-Kong,Japan, New Zealand and South Korea. f. Same countriesas above, plus tentative estimatesfor the GNP of the US Pacific Region and of British Columbia, based on personal income data for these areas. Sources:World Bank, 1987, and author's estimates.

-70-

Table 2. Scenarios to 1992

_

_

_

_

_

_

_

…__

_

_

_

_

_

_…_

"Reference" scenarioa Average annual percentage changes CNP - OECD area - United States - Japan - Germany Employment- OECD area Consumptiondeflator - OECD area Levels in 1992 Current account ($ bn.) - United States - Japan to of to to - Germany of to General govt. net lending (ZGNP) - U.S. Interestrates (short-term)- U.S.

_

_______________

gcenarios No.1

2.5 2.4 2.8 2.4 0.8 2.9

2.1 1.6 2.5 2.2 0.6 2.7

-168 102 24 -0.6 3.2

-118 88 16 1.1 3.2

No.2c

2.1 -2.1 2.4 2.0 0.7 2.9

-108 92 14 1.1 4.1

a. Eztrapolation of present policy "intents";ezchangerates stable at November 1986 levels. b. Reductionsin US governmentexpenditureand increases in US income tax of $ 70 bn. and $ 50 bn. respectivelyby 1992. c. Same US fiscal policy as in Scenario 1 and further dollar depreciationby 15 per cent in 1988. Source: Model-basedsimulationsdone on the responsibilityof the World Bank.

-71-

Table 3. Growthof totaloutput averageannualpercentage changes

Total OECD

Western Europe

North America

1870-1913 1870-1892 1892-1913

2.7 2.4 2.8

1.9 1.6 2.3

1913-1952 1913-1922 1922-1937 1937-1946 1946-1952

2.3 0.3 2.3 3.1 4.5

1.4 -0.1 2.5 -2.1 6.7

3.1 1.8 2.1 5.0 3.9

1952-1985 1952-1973 1973-1985

3.3 4.6 2.5

3.7 4.8 1.9

3.3 3.7 2.6

Sources:Naddison,1982;OECD, 1987a.

4.1 4.6 3.7

-72-

Table 4. Growth of total output in selectedcountries,1830-1913 average annual percentagechanges

______________________________________________________________________________

France Germany Italy United Kingdom

UnitedStates

1830s and 1840s

1850s and 1860s

1870s and 1880s

1.6 1.8 2.0

1.9 2.6 1.0 2.4

0.9 2.0 0.5 1.9

1.9 3.2 2.8 1.7

..

4.2

4.6

3.6

..

1890s to 1913

Note: Exact periods for each country are: France, 1832-52, 1852-69, 1869-96, 1896-1913;Germany, 1831-57, 1857-74, 1874-93, 1893-1913;Italy, 186175, 1875-96, 1896-1913;United Kingdom, 1831-51, 1851-71, 1871-96,18961913; United States, 1850-73, 1873-92, 1892-1913. Source: Maddison, 1982.

-73-

Table5. The technology gap ratioof GDP per man-hourto UnitedStateslevel

1900 1913 1929 1938 1950 1979 Source:Haddison,1982.

Europe

Japan

68 61 56 61 43 78

22 26 33 14 53

-74-

Table 6. Real wages, productivityand output in the Great Depression average annual percentagechanges

Real wagesa 1929-32 1932-37 Germany JapanC Sweden United Kingdom United States

8.9 5.5 1.2 3.5 -3.6

-4.9 -5.0 0.4 -1.2 4.5

Productivitya 1929-32 1932-37 -2.9 1.8 -2.6 -1.4 -7.6

3.6 3.2 4.9 1.5 4.0

outputb 1929-32 1932-37 -5.6 2.0 -1.4 -1.7 -10.4

a. In the corporate sector. b. Total GDP. c. Manufacturingsector only. Sources:Ohkawa and Shinohara,1979; Donnell, 1981; Maddison, 1982.

8.5 7.8 4.4 4.3 6.5

-75-

Table 7. Selectedmacroeconomicindicators,1977-82 Germany and Japan percentagechanges from previous year

1977

1978

1979

1980

1981

1982

3.0 -2.4 3.7 3.6 7.9 8.1

2.9 -2.4 2.7 4.2 6.3 13.5

4.2 -2.6 4.1 4.0 6.1 7.2

1.4 -2.9 5.4 4.5 1.0 2.4

0.2 -3.7 6.3 4.2 -7.3 0.9

-0.6 -3.3 5.3 4.8 4.1 3.2

5.3 -3.9 8.0 5.7 10.6 7.0

5.1 -5.9 3.8 4.6 23.1 10.8

5.2 -4.3 3.6 2.6 -7.2 9.9

4.4 -3.9 8.0 2.8 -3.8 0.8

3.9 -4.4 4.9 2.7 13.1 3.7

2.8 -3.5 2.6 1.7 -5.7 7.1

Cermany GDP growth Budget balancea Consumer prices GDP deflator Effective exchange rate Honey supply (M1) Japan CDP growth Budget balancea Consumer prices CDP deflator Effective exchange rate Money supply(MU)

a. In percentageof current price GDP. Sources: OECD, HistoricalStatistics,1960-1984;IMF, International Financial Statistics- Yearbook.

-76-

Table 8. Capacityutilizaticnrates in manufacturing,1973-87 percentages

1973 peak

1979-80 peak

1982-83 trough

early 1987

-----------------------------------------

United States Japana France Germany Italy United Kingdom Totalb

87.7 100.0 87.8 88.1 78.8 90.6

87.2 96.6 85.3 86.0 77.3 87.6

69.0 85.6 77.0 74.3 69.1 73.0

80.1 88.2 83.1 84.0 76.9 87.4

89.6

88.0

73.4

82.5

a. Indices, 1973=100. b. Using 1982 GDP weights. Sources: EEC, European Economy, SupplementB; OECD, Monthly Economic Indicators;StatisticsBureau, Managementand Co-ordinationAgency, Monthly Statisticsof Japan; UNCTAD, Trade and DevelopmentReport, 1987.

-

77 -

1870-1985 GDP, ofOECD Fig.1Level 1913=100

1i

1i

ml 1

1113

157

lh SKM

IbN*19200X 117

- 78

-

1870-1985 GDP, of European Fig.2Level 1913=100

O

111

U

U3

1W

U

315

-

79 -

Fig.3Level ofNorth-Am. GDP, 1870-1985 1913=100

_~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

I

* _ii:piii..... ..g.... .fw .... g ....... Ms I

IV

nUH

s-7.sf

n

-

80

*

4

Fig.4OilPrices andthePetroleum Cycle 4"S

REALU.S. CRUDE OILPRICES tUlI EQUALS 100

4*3

asa

421 £73

OT70 So"0

Late

£34 LO

£6

£310

Lose £330

stag

£6

139,

1366

"A" PROJECTION OF THE PETROLEUM CY=

166

34

go

4

*a

so

o

Na ;I b_ a o

s

r008 t

Spimc P**~nF.m.CwMp,1967

-81-

REFERENCES

Abramovitz,M. (1979),"Rapid Growth Potentialand its Realisation:The Experienceof the CapitalistEconomiesin the Postwar Period",in E. Malinvaud (ed.), EconomicGrowth and Resources,Vol.1, MacmillanPress, London 1979. Abramovitz,M. (1986),"CatchingUp, Forging Ahead, and Falling Behind", Journal of Economic History,Vol.XLVI, No.2, June. Abramovitz,M. and P.A.David (1973), "ReinterpretingEconomic Growth: Parables and Realities",AmericanEconomicReview, Vol.63, No.2, May. Armstrong,P., A.Glyn and J.Harrison(1984),Capitalismsince World War II, Fontana Paperbacks,London. Arrow, K.J. (1986), "Incentivesand Growth: An Appraisal",in B.Balassaand H. Giersac (eds.),Economic Incentives,Macmillan Press, London. Baily, M.N. (1978), "StabilizationPolicy and Private EconomicBehavior", BrookingsPapers on EconomicActivity,No.1. Bairoch,P. (1976), Commerceexterieuret developpementeconomiguede 1'Europe au XIXe siecle, Mouton, Paris. Baumol, W.J. (1986), "ProductivityGrowth, Convergenceand Welfare:What the Long-runData Show", AmericanEconomicReview, Vol.76, No.5, December Bean, C.R., P.R.G.Layardand S.J.Nickell(1986), "The Rise in Unemployment:A Multi-CountryStudy", Economica,Vol.53, No.210(S),Supplement. Beckerman,W. (1962), "ProjectingEurope'sG.owth",Economic Journal,Vol. LXXII, No.288, December. Blanchard,O.J. et al. (1985),"Employmentand Growth in Europe: A Two-Handed Approach",CEPS Papers, No.21. Blanchard,O.J. and L.H.Summers(1986),"Hysteresisand the European UnemploymentProblem",NBER Working Paper Series, No.1950. Boltho, A. (1982),"Growth",in A.Boltho (ed.), The European Economy:Growth and Crisis, Oxford UniversityPr ss, Oxford. Bombach,G. (1985),Post-warEconomicGrowth Revisited,North-Holland, Amsterdam. Bonnell, S. (1981), "Real Wages and Employmentin the Great Depression", Economic Record,Vol.57, No.158, September.

-82-

Bruno, M. (1986), "AggregateSupply and Demand Factors in OECD Unemployment: An Update", Economica,Vol.53, No.210(S),Supplement. Carre, J.-J., P.Dubois and E.Malinvaud(1972),La croissancefrancaise,Le Seuil, Paris. Chan-Lee, J.H. and H.Kato (1984), "A Comparisonof SimulationPropertiesof NationalEconometricModels",OECD Economic Studies,No.2, Spring. Chesnais,F. (1982),"SchumpeterianRecovery and the Schumpeterian in H. Perspective- Some Unsettl d Issues and AlternativeInterpretations", Giersch (ed.), EmergingTechnologies,J.C.B.Mohr,Tubingen. Commissionof the EuropeanCommunities(1986), EuropeanEconomy, SupplementB, No.4, April. CBO (1987),The Economicand Budget Outlook:An Update, Congressof the United States, Washington,D.C. Cornwall,J. (1977),Modern Capitalism,St.Martin'sPress, New York, N.Y. Davis, L.E. and R.E.Gallman(1978),"CapitalFormation in the United States during the NineteenthCentury", in P.Mathiasand M.M.Postan(eds.) (1978). Denison,E.F. (1967),Why Growth Rates Differ, Brookings Institution, Washington,D.C. Denison,E.F. and W.K.Chung (1976), "EconomicGrowth and its Sources",in H. Patrick anA H.Rosovsky(eds.),Asia's New Giant, Brookings Institution, Washington,D.C. Engerman, S.L. (1971),"The Economic Impact of the Civil War", in R.W.Fogel of AmericanEconomicHistory, and S.L.Engerman(eds.), The Reinterpretation Harper & Row, New York, N.Y. Enos, J.L. (1962), "Inventionand Innovationin the PetroleumRefining Industry",in NBER, The Rat: indDirection of InventiveActivity,Princeton UniversityPress, Princeton,N.J. Flanagan,R.J. (1987), "Labor Market Behaviorand EuropeanEconomicGrowth", in R.Z.Lawrenceand C.L.Schultie(eds.),Barriers to European Growth, Brookings Institution,Washington,D.C. Freeman,C. (ed.) (1983),Long Waves in the World Economy, Butterworth,London Fremdling,R. (1986), "Comments"in B.Balassaand H.Giersch (eds.),Economic Incentives,MacmillanPress, London. Fu*, G. (1965), Notes on Italian EconomicGrowth, 1861-1964,Giuffr*,Milan.

la

-83-

-8

Giersch, H. (1979), "Aspectsof Growth, StructuralChange, and Employment- A SchumpeterianPerspective",Weltwirtschaftliches Archiv, Vol.CXV,No.4. Glismann, H.H., H.Rodemer and F.Wolter (1978), "Zur Natur der Wachstumsschwache in der BundesrepublikDeutschland",Kiel DiscussionPapers, No.55. Gould, J.D. (1972),EconomicGrowth in History,Methuen & Co., London. Haberler, G. (1986), "The Slowdownof the World Economy and the Problem of Stagflation",in D.Lal and M.Wolf (eds.),Stagflation,Savings,and the State, Oxford UniversityPress, New York, N.Y. Hamermesh,D.S. (1986),"The Demand for Labor in the Long Run", in 0. Ashenfelterand R.Layard (eds.),Handbook of Labor Economics.Vol.I, NorthHolland, Amsterdam. Henderson,W.0. (1975),The Rise of German IndustrialPower, Temple Smith, London.

Hoselitz, B.F. (1955), "Patternsof Econo,micGrowth",CanadianJournal of Economicsand PoliticalScience,Vo'.XXI, No.4, November. Kaldor, N. (1966),Causes of the Slow Rate of Economic Growth of the United Kingdom, CambridgeUniversityPress, Cambridge. Kalecki,N. (1971), SelectedEssays on the Dynamicsof the CapitalistEconomy, Cambridge UniversityPress, Cambridge. Kindleberger,C.P. (1967),Europe'sPostwar Growth, Harvard UniversityPress, Cambridge,Mass. Kindleberger,C.P. (1978),"The Aging Economy",Weltwirtschaftliches Archiv, Vol.CXIV, No.3. Kuznets, S. (1966),Moder.,EconomicGrowth, Yale UniversityPress, New Haven, Conn. Layard, R.G. (1986),How to Beat Unemployment,Oxford UniversityPress, Oxford Lewis, W.A. (1978),Growth and Fluctuations,1870-1913,George Allen & Unwin, London. Lewis, W.A. (1982),"The Growth of Mature Economies",in C.P.Kindleberger and G.di Tella (eds.), Economicsin the Long View, Vol.1, New York University Press, New York, N.Y. Lundberg, E. (1981),"The Contributionsof the Economics of Growth to Economic Policies",in H.Giersch (ed.), Towards an Explanationof EconomicGrowth, J.C.B.Mohr.Tubingen.

-844

4

McCloskey,D.N. (1980), "Magnanimouxs Albion: Free Trade a.ndBritish National Income, 1841-1881",Explorationsin EconomicHistory,Vol.17. McCracken, P. et al. (1977),Towards Full Employmentand Price Stability, OECD, Paris. Maddison, A. (1976),"EconomicPolicy and Performancein Europe, 1913-1970", in C.M.Cipolla(ed.), The Fontana EconomicHistory of Europe - The Twentieth Century,Pt.2, Collins/Fontana,Glasgow. Maddison,A. (1982), Phases of CapitalistDevelopment,Oxford University Press, Oxford. Maddison, A. (1987),"Growth and Slowdownin Advanced CapitalistEconomies: Techniquesof QuantitativeAssessment",Journal of Economic Literature, Vol.XXV, No.2, June. Mandel, E. (1980),Long Waves of CapitalistDevelopment,CambridgeUniversity Press, Cambridge. Marris, R. (1982),"How Much of the Slowdownwas Catch-up?",in R.C.O.Matthews (ed.), Slower Growth in the Western World, Heinemann,London. Marris, S. (1985),Deficitsand the Dollar: The World Economy at Risk, Institutefor InternationalEconomics,Washington,D.C. Mathias, P. and H.M.Postan(eds.) (1978),The CambridgeEc3nomicHistory of Europe - The IndustrialEconomies,Vol.VII,Cambridge UniversityPress, Cambridge. Matthews, R.C.O. (1968), "Why has Britain had Full Employmentsince the War?" EconomicJournal,Vol.LXXVIII,No.311, September. Matthews, R.C.O., C.H.Feinsteinand J.C.Odling-Smee(1982),British Economic Growth, StanfordUniversityPress, Stanford,Cal. Milward, A.S. and S.B.Saul(1977),The Developmentof the Economies of ContinentalEurope, 1850-1914,Harvard UniversityPress, Cambridge,Mass. Minami, R. (1986),The EconomicDevelopmentof Japan, MacmillanPress, London. Modigliani,F. et al. (1986),"ReducingUnemploymentin Europe: The Role of Capital Formation",CEE Economic Papers, No.47. Nakamura,T. (1983),EconomicGrowth in Prewar Japan, Yale UniversityPress, New Haven, Conn. Nelson, R.R. (1981), "Competition,Innovation,ProductivityGrowth, and Public Policy",in H.Giersch (ed.), Towards an Explanationof EconomicGrowth, J.C.B.Mohr,Tubingen.

-85-

Nordhaus,W.D. and J.Tobin (1972), "Is Growth Obsolete?",in NBER, Economic Research:Retrospectand Prospect- EconomicGrowth, FiftiethAnniversary ColloquiumV, ColumbiaUniversityPress, New York, N.Y. North, D.C. (1974), Growth and Welfare in the American Past, (2nd ed.), Prentice-Hall,EnglewoodCliffs, N.J. Nurkse, R. (1959),Patternsof Trade and Development,Almqvistand Wiksell, Stockholm. O'Brien, P. (1982),"EuropeanEconomicDevelopment:The Contributionof the Periphery",EconomicHistory Review, Vol.XXXV, No.1, February. Ohkawa, K. and H.Rosovsky(1973), JapaneseEconomic Growth, Stanford UniversityPress, Stanford,Cal. Ohkawa, K. and M.Shinohara(1979), Patternsof JapaneseEconomicDevelopment, Yale UniversityPress, New Haven, Conn. OECD (1987a),EconomicOutlook,No.41, June. OhECD(1987b),"The Medium-TermEconomic StrategyRevisited",CPE/WPl/A(87)2. Olson, M. (1982),The Rise and Decline of Nations,Yale UniversityPress, New Haven, Conn. Oudiz, G. and J.Sachs (1984),"MacroeconomicPolicy Coordinationamong the IndustrialEconomies",Brookings Papers on Economic Activity,No.l. Penati, A. and M.Dooley (1984),"CurrentAccount Imbalancesand Capital Formationin IndustrialCountrtes,1949-81",IMF Staff Papers, Vol.31, No. 1, March, PetroleumFinance Company (1987), "World PetroleumMarkets", Report prepared for the World Bank Energy Department,mimeo. Reichlin,L. (1987), "The Causes of EuropeanUnemployment:RelativePrices or AggregateDemand ?", Report prepared for the World Bank, mimeo. Rostow, W.W. (1980),Why the Poor Get Richer and the Rich Slow Down, Universityof Texas Press, Austin, Tex. Sachs, J.D. (1979), "Wages,Profits and MacroeconomicAdjustment:A ComparativeStudy", BrookingsPapers on EconomicActivity,No.2. Sachs, J.D. (1983),"Real Wages and Unemploymentin the OECD Countries", BrookingsPapers on EconomicActivity,No.l. Sachs, J. and C.Wyplosz (1986),"The EconomicConsequencesof President Mitterand",EconomicPolicy, Vol.l, No.2, April.

-86-

Salter,W.E.G. (1966),Productivityand Technical Change, CambridgeUniversity Press, Cambridge. Schmookler,J. (1966),Inventionand Economic Growth, Harvard University Press, Cambridge,Mass. Schumpeter.J.A. (1952),Capitalism,Socialismand Democracy,(4th ed.), Allen & Unwin, London. Scott, M.FG. (1976), "Investmentand Growth",Oxford Economic Papers, Vol.28, No.3, November. Sims, C.A. (1982), "PolicyAnalysiswith EconometricModels", BrookingsPapers on EconomicActivity, No.1. Solow, R.M. (1986),"Unemployment:Getting the QuestionsRight", Economica, Vol.53, No.210(S),Supplement. Streissler,E. (1980),"Models of Investment-Dependent EconomicGrowth Revisited",in R.C.O.Matthews(ed.), EconomicGrowth and Resources,Vol.2, Macmillan Press, London. Supple, B. (1973), "The State and the IndustrialRevolution,1700-1914",in C.M.Cipolla(ed.), The Fontana EconomicHistory of Europe - The Industrial Revolution,Collins/Fontana, Glasgow. Taussig,F.W. (1924),"Labor Costs in the United States Comparedwith Costs Elsewhere",QuarterlyJournal of Economics,Vol.XXXIX,No.1, November. Van der Wee, H. (1986),Prosperityand Upheaval- The World Economy, 1945-1980 Universityof CaliforniaPress, Berkeley,Cal. Van Duijn, J.J. (1983),The Long Wave in Economic Life, George Allen & Unwin, London. Williamson,J.G. (1974),"Watershedsand Turning Points: Conjectureson the Long-TermImpact of Civil War Financing",Journal of EconomicHistory,Vol. XXXIV, No.3, September. World Bank (1979),World DevelopmentReport, Oxford UniversityPress, New York World Bank (1983),World DevelopmentReport, Oxford UniversityPress, New York World Bank (1987),World DevelopmentReport, Oxford UniversityPress, New York

PPR Working Paper Series

Title

Author

Date

Contact

WPSI

ImportsUnder a ForeignExchange Conctraint

CristianMoran

March 1988

C. Hambidge 61539

WPS2

Issues in AdjustmentLending

Vinod Thomas

March 1988

C. Hambidge 61539

WPS3

OGE Models for the Analysisof Trade Policy In DevelopingCountries

Jaime de Melo

March 1988

C. Hambidge 61539

Miguel A. Kiguel Nissan Llviatan

April 1988

M. Kiguel 61761

Angus Maddison Bart van Ark

April 1988

E. Zamora 33706

Steven Haggblade Peter B. Hazell James Brown

April 1988

C. Spooner 37570

AvishayBraverman J. Luis Guasch

April 1988

C. Spooner 37570

Steven Haggblade Peter 8. Hazell

April 1988

C. Spooner 37570

Andrea Boltho

June 1988

J. Israel 31285

Mudassar lmran Ron Duncan

June 1988

A. Kitson-Wa e 33712

BernhardLiese Norman Gratz

June 1988

C. Knorr 33611

WPS4

WPS5

WPS6

.PS7

:PS8

InflationaryRigiditiesand StabilizationPolicies

Comparisonsof Real Output in Manufacturing

Farm-NonfarmLinkagesin Rural SubSaharanAfrica

Institutional Analysisof Credit Cooperatives

Prospectsfor EquitableGrowth in Rural Sub-SaharanAfrica

WPS9

Can We Return to Rapid Growth?

WPS1O

OptimalExport Taxes for Exporters of PerennialCrops

WPS11

The Selectionand Use of Pesticides in Bank FinancedPublic Health Projects

A