Post–World War II economic expansion

• 1. Introduction

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  Post-World War II economic expansion is the name historians give to a stretch of unusually fast, sustained growth that began as the war ended and ran until the recession of 1973 to 1975. People living through it felt the difference. In 1957 a British prime minister, Harold Macmillan, stood before crowds and told them, "Let us be frank about it: most of our people have never had it so good." He went on: "Go round the country, go to the industrial towns, go to the farms and you will see a state of prosperity such as we have never had in my lifetime." That sense of a tide lifting almost everyone was not confined to Britain. The United States, the Soviet Union, Australia, much of Western Europe, and parts of East Asia all rode the same wave. Even nations that the war had flattened climbed back faster than anyone expected. So why did so many economies grow at once, and so steadily? What held the prosperity together, and what finally broke it? And why do the French still look back on these years with a name that means, simply, the glorious thirty?

• 2. Names For A Golden Age

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  Trente Glorieuses, the "Glorious Thirty," is what the French called the boom, a phrase coined by Jean Fourastie in the title of a book he published in 1979. Across borders, almost every country reached for a label that carried wonder. West Germany and Austria spoke of the Wirtschaftswunder, the economic miracle, and Italy used its own version, the Miracolo economico. Japan had its Japanese economic miracle, South Korea the Miracle on the Han River, Belgium and Greece their own miracles too. Even Sweden, largely spared by the war, had its "Record years." The whole era earned a grander title still, the Golden Age of Capitalism. Behind the names sat a stubborn surprise. Many of the fastest-growing countries were the ones the fighting had wrecked, including Japan, West Germany, and Austria, which defied early predictions that ruined nations would stay ruined. France stretched its glorious period across the thirty years from 1945 to 1975, while in Taiwan the so-called Taiwan Miracle ran on into the late 1990s, long after the global boom had closed.

• 3. Reading The Numbers

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  OECD members posted real GDP growth averaging over 4% a year in the 1950s, then nearly 5% in the 1960s, before slipping to 3% in the 1970s and 2% in the 1980s. The economist Robert Skidelsky set the golden age beside what he called the Washington Consensus period, which he dated from 1980 to 2009, and the gap is stark. Average global growth ran at 4.8% in the golden age against 3.2% afterward. Unemployment told an even sharper story. In France it sat at 1.2% during the boom and rose to 9.5% later; in Germany it climbed from 3.1% to 7.5%, and in Great Britain from 1.6% to 7.4%. Skidelsky also notes that inequality generally fell during these years, then began rising once the later period set in. Financial calm was part of the picture. Martin Wolf reports that between 1945 and 1971, across twenty-seven years, the world saw only 38 financial crises, while the twenty-four years from 1973 to 1997 brought 139. Angus Maddison's later estimates rank the runners: Japan grew fastest at 9.29% between 1950 and 1973, ahead of Spain at 6.60% and Germany at 5.68%.

• 4. Engines Of Growth

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  Automation technologies that had first appeared in the late 1930s, such as feedback controllers, became a fast-growing area of investment once the war ended, and productivity kept climbing into the early 1970s. New highway systems, distribution warehouses, forklifts, and intermodal containers transformed how goods moved through wholesale and retail trade. Oil pushed coal aside in many uses, especially in locomotives and ships. On the farm, the postwar years brought chemical fertilizers, tractors, combine harvesters, high-yielding varieties, and pesticides into wide use. Keynesian economists credit much of the boom to the adoption of Keynesian policies, and Naomi Klein has argued that the strong growth in Europe and America flowed from exactly those choices. In parts of South America, she points instead to developmentalist economics led by Raul Prebisch. Cheap energy underpinned it all. Oil cost about $17 in the 1940s and rose just over $20 during the Korean War of 1951 to 1953, then drifted back under $20, until the Arab oil embargo of 1973 doubled the price.

• 5. The Hand Of The State

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  The Interstate Highway System, authorized by a bill that President Dwight Eisenhower championed and signed in 1956, was sold to the public as a matter of Cold War security. Under the Federal Aid Highway Act of 1956, planners argued that large cities would be wartime targets, so the highways were meant to ease their evacuation and speed military movement. Governments leaned on other levers too. The theory of the permanent war economy holds that heavy military spending steadied the global economy, an idea also called "Military Keynesianism," with retired veterans drawing pensions they could spend. So-called financial repression kept nominal interest rates low and real rates low or negative, which shrank the cost of servicing debt and quietly eroded existing debt through inflation and taxation. Wealth itself was redistributed. Progressive taxation and capital levies introduced during the World Wars, sometimes pushing top rates up tenfold, were described as the "conscription of income" and "conscription of wealth." The American economist Oliver Mitchell Wentworth Sprague argued in the Economic Journal that "conscription of men should logically and equitably be accompanied by something in the nature of conscription of current income above that which is absolutely necessary."

• 6. Stitching The World Back

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  In 1948 the Marshall Plan pumped over $12 billion into rebuilding and modernizing Western Europe, and it is most often credited with reconciliation between former enemies. The major powers were determined not to repeat the errors of the Great Depression, some of which were blamed on policy mistakes after the First World War. The victorious Allies built lasting institutions, founding the United Nations and the Bretton Woods monetary system to promote stability through free trade and Keynesian economics. The European Coal and Steel Community laid the foundation for what would later become the European Union. In the United States, the Employment Act of 1946 set goals of full employment, full production, and stable prices, and it created the Council of Economic Advisers. In its first seven years the Council made five technical advances, among them replacing a "cyclical model" of the economy with a "growth model" and setting quantitative targets. Rationing outlived the fighting; in the United Kingdom it lasted until 1954, while Allied war bonds matured in the postwar years and moved cash from governments to private households.

• 7. Miracles Country By Country

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  Belgium became the first European country to regain its pre-war level of output, reaching it in 1947, helped by light wartime damage to its heavy industry and Europe's hunger for its steel, coal, textiles, and railway infrastructure. Yet thin capital investment left that same industry unable to compete in the 1950s, seeding deindustrialisation in Wallonia. In France, average income rose from 55% of an American's in 1950 to 80% by 1973, and by the 1980s the country was the world's fourth-largest exporter of manufactured products. Italy posted record growth rates, including 6.4% in 1959 and 6.8% in 1961, lifted by new industries and the discovery of hydrocarbons in the Po Valley. Japan, given a boost as a major supplier to the UN force in the Korean War, grew fastest in the world and rose to power in steel, cars, and electronics. West Germany, under Chancellor Konrad Adenauer and economic minister Ludwig Erhard, saw industrial production double from 1950 to 1957, with gross national product growing 9 or 10% a year, aided by the currency reform of June 1948 and $1.4 billion in Marshall Plan gifts. The United States grew from a Gross Domestic Product of $228 billion in 1945 to just under $1.7 trillion in 1975, by which point it held some 35% of world industrial output.

• 8. How The Boom Ended

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  The collapse of the Bretton Woods monetary system in 1971 marked the beginning of the end, as President Richard Nixon closed the gold window in response. A cascade followed: the 1973 oil crisis, the 1973-74 stock market crash, and the 1973-75 recession that historians treat as the boom's close. The era's effects long outlived it. A demographic bulge known as the baby boom reshaped a generation, while consumerism, the welfare state, the space race, decolonisation, the counterculture of the 1960s, and the beginning of second-wave feminism all took shape in these years. In the United States, the middle class swelled and migrated from the cities toward the suburbs, into a world where most people could expect a job for life, a house, and a family. The optimism had a creed, a belief that technocratic and scientific solutions could solve most human problems, a view US President John F. Kennedy advanced in 1962. It found a stage at the 1964 New York World's Fair and in Lyndon B. Johnson's Great Society programs. The reckoning, when it came, fell hardest on steel and mining districts like the North American Rust Belt and the West German Ruhr, as one social marker quietly slipped: the share of Britons calling themselves "very happy" fell from 52% in 1957 to just 36% by 2005.