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Economic Growth in the Long 20 th Century

Economic Growth in the Long 20 th Century. Nicholas Crafts. Table 1. Real GDP/Head (UK = 100 in each year). Sources : The Conference Board (2014) and West Germany in 2007 calculated from Statistiches Bundesamt Deutschland.

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Economic Growth in the Long 20 th Century

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  1. Economic Growth in the Long 20th Century Nicholas Crafts

  2. Table 1. Real GDP/Head (UK = 100 in each year) Sources: The Conference Board (2014) and West Germany in 2007 calculated from Statistiches Bundesamt Deutschland.

  3. Table 5. Contributions to Growth in Market Sector, 1873-2007 (% per year).

  4. Did Victorian Britain Fail? • New Economic History said NO!; subsequent research says this is a bit too strong • Competition in a very open economy was central to the NEH argument (McCloskey & Sandberg, 1971); if correct, implies Golden-Age UK much more susceptible to failure • But examples skewed to tradeables; look at a sector (railways) where competition and shareholders are both weak and productivity performance is much more questionable

  5. The ‘Managed Economy’ Strategy of the 1930s • Post-1932 dirty floating, cartels, tariffs understandably seen as damage limitation and a way to restore profitability • This implied a major reduction in competition which lasted well into the post-war period • The reduction in competition reducedproductivity growth both before and after WWII (Broadberry & Crafts, 1992, 1996) • No evidence that imposing tariffs was good for productivity growth (Broadberry & Crafts, 2011) • The claim that the 1930s represents an antidote to Victorian failure is seriously misleading

  6. Relative Economic Decline in the Golden Age • The UK growth failure in 1950-73 was about 0.75 pp per year • Supply-side policy was badly designed and undermined incentives to invest and to innovate • Policy was seriously constrained by accepting the ‘trade union veto’ in seeking to maintain full employment • Competition was much weaker than pre-WWI

  7. Traditional Criticisms of Post-WWII British Industry • Weak and incompetent management • Difficult industrial relations • Seriously inefficient use of inputs • NB: these were all nurtured by inadequate competition in product markets interacting with the historical legacy

  8. Institutional Legacies (1) • By the later 20th century, the UK was characterized by an unusual degree of separation of ownership and control(Cheffins, 2008) • Relatively few large firms had a dominant external shareholder; principal-agent problems a big concern, especially when competition was weak • UK followed a path from 19th-century origins to ‘Anglo-American’ (rather than German) capitalism promoted by revisions to company law, taxation, transition from personal to institutional investors

  9. Institutional Legacies (2) • The early start produced a distinctive and persistent ‘British system of industrial relations’ • Characteristics include craft control, legal immunities, multi-unionism, TUC rather than LO, effort bargains that influenced technical choice • E.g., the ‘British system of mass production’ (Lewchuk, 1987) • 19th-century organizational structures became dysfunctional but employers did not find it worthwhile to pay the price/take the risk to abolish them

  10. Competition and Productivity Growth • Competition is strongly positive for productivity outcomes in UK firms without dominant shareholder(Nickell et al., 1997) • Competition promotes better management practices(Bloom & van Reenen, 2007) • 1956 Act led to significant improvement in productivity performance in formerly-cartelized sectors(Symeonidis, 2008)

  11. Impact of Increased Competition (1) • Increases in competition correlated with 1980s productivity growth at sectoral level (Haskel, 1991) • Openness promoted TFP growth in catch-up model for manufacturing sectors post-1970 (Proudman & Redding, 1998) • Single Market shock improved TFP performance in plants exposed to agency problems (Griffith,2001), raised patenting in close-to-frontier industries (Aghion et al., 2009) • Post-1980, competition for corporate control meant restructuring and divestment in large firms (Toms & Wright, 2002); managementbuyouts raised TFP (Harris et al., 2005)

  12. Impact of Increased Competition (2) • During the 1980s and 1990s, increased competition reduced union membership, union wage mark-ups and union effects on productivity(Brown et al., 2008; Metcalf, 2002) • Surge of productivity growth in unionized firms in 1980s as organizational change took place under pressure of competition(Machin & Wadhwani, 1989) • De-recognition of unions in face of increased foreign competition had strong effect on productivity growth in late 1980s(Gregg et al., 1993)

  13. UK in the ICT Age • Invests relatively large amount in ICT capital with positive productivity effects • This requires reorganization and is supported by light regulation • This would not have happened with 1970s-style industrial relations and weak competition

  14. Table 11. Sources of labour productivity growth in the market sector, 1995-2007 (% per year) Source: van Ark (2011)

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