In the second half of the twentieth century, the lives of Europeans were transformed almost beyond recognition.


In 1950, many of the continent’s residents heated their homes with coal, cooled their food with ice, and lacked even rudimentary forms of indoor plumbing. Today, their lives are eased and enriched by natural-gas furnaces, electric refrigerators, and an array of electronic gadgets that boggles the mind. Gross domestic product per capital, what the income of a typical resident of Europe will buy, tripled in the second half of the twentieth century. The quality of life improved even more than suggested by this...
If trade was one of the engines of Europe’s growth in the 1950s, investment was the other. New technology, to be commercialized, had to be embodied in plant and equipment, which in turn required investment. Investment rates, including housing and infrastructure, ran more than one-quarter above those of the interwar years. Governments kept interest rates low and regulated the financial system to channel resources toward capital formation.

But countries varied enormously in the efficiency with which they deployed this additional capital. In Belgium the efficiency of investment was depressed by government programs that channeled resources into declining industries.

Although World War II was immensely destructive, its impact on productive capacity was surprisingly limited. To be sure, there was substantial destruction of transportation infrastructure, housing, power-generating capacity, and industrial equipment. But where roads and bridges had been damaged, they could be repaired quickly. The same was true of industrial capacity and power generation. The speed with which physical damage could be repaired was a lesson of the Allied experience with strategic bombing, the impact of which on enemy war production had been less than anticipated. The aggregate numbers suggest that Europe’s productive capital stock was roughly the same.

Growth accelerated again in the 1960s. Output per employed person rose at more than 4 percent per year in Western Europe, up from 3.6 percent in the 1950s. The growth of exports was sustained by the advent of the Common Market and the Kennedy Round of GATT negotiations. Investment rates also rose further. Although Europe’s investment was more than fully financed by its own savings, the continent was also on the receiving end of foreign direct investment (FDI) from the United States. This FDI was a conduit for the transfer of advanced technology to sectors such as chemicals, computers, and Machines.

Writing the history of the future is harder than writing the history of the past. One manifestation of this is the familiar tendency of futurists to extrapolate trends. Output and productivity growth in the United States having surpassed that in Europe for the last decade, there is a tendency to assume that this gap will persist, leaving the European economy still further behind and creating a crisis for the European model that will ultimately force the continent to remake its institutions along Anglo-Saxon lines.