Q: How did modern economic growth spread throughout North West Europe?
Chapter 1: "North-Western Europe" by Jan Luiten van Zanden
Early developers in the Low Countries and latecomers in the Nordic countries and Ireland
with the UK in between the two.
The urban, dynamic core of the region was in Flanders in the late Middle Ages, then moves
to Holland in the 17th century, and then moved to England when it started its growth spurt
that would result in the IR. After 1800 the techniques and institutions of the IR began to
spread from the UK to Belgium at first, but within a few decades to almost all parts of NW
Europe.
20th century you saw the process of convergence within NW Europe – catching up of the
northern countries where they became the best examples of welfare states with strong
economies based on high levels of human capital formation and innovativeness.
Early growth and modernisation: It was low countries and Great Britain that in the long run
profited the most from the expansion of the Atlantic economy and the growth of trade with
Asia, in spite of the fact that in both regions they were latecomers by about one century,
after the pioneering efforts by Portugal and Spain. Why?
Most convincing answer is probably that in the North Sea area a set of institutions had
emerged that was very conducive to growth. State offered encouragement but the private
sector was in charge.
Late middle ages saw the rise of the European marriage pattern (EMP), in which marriage
was based on consensus (the boy and girl selected each other voluntarily). This resulted in
high ages of marriage. This new demographic pattern can be seen as a first step in the
switch from “quantity” to “quality” of offspring.
Growth between 1350 and 1800 was partly driven by endogenous changes such as the rise
of literacy and other forms of human capital formation, capital accumulation and
technological change – culminating in the wave of ‘gadgets’ that resulted in the IR after
1750. But the expansion of commercial empires and the growth of trade also contributed
significantly. The highest incomes were earned in international services and the cities that
managed to become the central hubs in these networks, (Antwerp, Amsterdam and London)
prospered greatly.
Dynamic development of the Atlantic economy that contributed much to the rise of England
as the new core of the world economy after 1850. Political institutions – growing state
capabilities to wage war, create a mighty navy, raise taxes – enhanced these commercial
developments, an alliance symbolised by Cromwell’s Navigation Acts. That the North Sea
area in the long run profited the most of the expansion of international trade, and not
Portugal and Spain that had pioneered the new trade routes, points to its strong
competitive position in this field.
While income gaps grew, literacy and numeracy were growing rapidly, probably following
the expansion of secondary and tertiary activities – first in the Low counties, followed by
England, northern Germany, northern France and Scandinavia.
The spread of the Industrial Revolution in the 19th century: 1820 – markets in Western
Europe became more integrated, pointing to declining transaction costs. Then steam trains
were able to reduce transport costs considerably. The telegraph revolutionised information
, costs and had even more dramatic effects on market integration. The liberalisation of
international trade in the 1850s and 1860s, following the abolishment of the British Corn
Laws completed the process.
During the 19th century France modernised its institutions and also invested heavily in
schooling, making it one of the global leaders in school enrolment. Towards the end of the
century and during the early 20th century, France converged in GDP per capita with GB.
Scandinavian countries also “caught up” due to their relative high levels of human capital
formation and relatively democratic institutions.
Cheap imported food and rapid industrial growth resulted in sharp increases in the standard
of living in the whole region. Before 1970, workers had hardly profited from the economic
growth that occurred, as prices of foodstuffs had increased more rapidly than most other
prices.
The twentieth century rollercoaster: 1914-45: Exogenous shock of WW1. Scandinavia and
Netherlands however, remained neutral and profited from the new circumstances – such as
a booming demand for raw materials and foodstuffs and the disappearance of international
competition for its exports.
Labour productivity grew during this time due to the 2nd IR – such as the creation of the
electric engine. Social and political transformations to – full establishment of democracy.
The 1910s and 20s saw a sharp reduction in income inequality in large parts of the region,
and an extension of welfare services supplied by the state. Growth of the trade union
movement. These years therefore created the basis for rapid growth of the welfare state
after 1945.
Peace and welfare: 1945 – 2010: The region as a whole profited from the return of political
and economic stability, and the process of European integration that came to symbolise
this. Growth of the welfare state. Creation of trade zones in Europe.
These policies of international cooperation and national reform were successful: rapid
growth was until the mid-1970s combined with the rapid expansion of welfare services paid
for by progressive taxes, resulting in a dramatic decline of income inequality.
Rising wages caused wage price spirals as to maintain profits firms had to increase their
prices. In the Netherlands these symptoms of economic illness were accompanied by an
overvalued exchange rate, made possible by the large reserves of natural gas discovered in
the 1960s – it gave rise to the Dutch disease, which implied that manufacturing exports
were crowded out by the easy gains from natural gas exports.
The 1970s to 90s saw a transformation of the economic structures of the region. Away from
industry towards services. The financial crisis that began in that year, ended the thirty year
period of growth according to the neo liberal recipe.
