In This Review

The European Economy Since 1945: Coordinated Capitalism and Beyond
The European Economy Since 1945: Coordinated Capitalism and Beyond
By Barry Eichengreen
Princeton University Press, 2006, 504 pp

Like much modern history writing, this book is as much interpretive essay as it is descriptive and narrative history, and its interpretive tools are those of the economist. Eichengreen's key thesis is that in the postwar era, most European countries had a workable corporatist system of social bargaining among government, business, and organized labor. That system assured enough business investment for "extensive" growth, providing increasingly skilled labor to close the productivity gap with the United States, and was very successful for a quarter century; it is too often forgotten how poor much of Europe was in 1950. But as the productivity gap narrowed, further growth depended on innovation rather than simply installing high-quality physical capacity. European values, customs, and institutions were less suited than those in the more decentralized and flexible U.S. economy to the uncertainties, risk taking, and volatility required for "intensive" growth through innovation. This thesis is used to explain not only the relative slowdown in European growth but also the rise in European unemployment in the subsequent quarter century. Europeans are now struggling to adapt their incentives to foster innovation -- the Lisbon agenda of 2000 -- without jettisoning their greater commitment to equality and stability. All in all, this is a superb overview of a half century of European economic development.