How to bury the lede: Nick Crafts on the postwar British productivity failure

27 11 2017

Nick Crafts (born 1948), who is a very senior and respected economic historian at the University of Warwick, has published a new paper on the postwar British productivity failure. It examines why productive grew at a slower rate in the UK than in similar Western European countries in the three decades after 1945, which were, of course, a period when the UK remained, for various reasons, outside of the EEC.

Abstract: British productivity growth disappointed during the early postwar period. This reflected inadequate investment in equipment and skills but also entailed inefficient use of inputs. Weak management, dysfunctional industrial relations, and badly-designed economic policy were all implicated. The policy framework was partly the result of seeking low unemployment through wage restraint by appeasement of organized labour. A key aspect was weak competition. This exacerbated corporategovernance
and industrial-relations problems in the British ‘variety of capitalism’ which sustained
low effort bargains and managerial incompetence. Other varieties of capitalism were better placed to achieve fast growth but were infeasible for Britain given its history.
Keywords: competition; productivity; relative economic decline; varieties of capitalism

In my view, the most interesting and policy-relevant part of this paper appears at the very end. Prof. Crafts has effectively “buried the lede” by tucking this information down near the end, where he writes that the main features of the postwar period of British economic history were


ineffective competition policy, nationalization, and protectionism including remaining outside the EEC. This exacerbated problems of corporate governance and industrial relations inherent in the British ‘variety of capitalism’ as the economic rents that were generated helped to sustain low effort bargains and managerial incompetence.

(Bolding added by AS)

This paper builds on Craft’s earlier estimate (2016) that joining the EEC raised the level of UK GDP by about 8 to 10 per cent through increasing the volume of trade and strengthening competition. You can also read his short piece on what history says about Brexit here.





European Versus American Way of Life

25 08 2009

Bryan Caplan, an economist at George Mason University, has published a blog post entitled:  “Touristic Bias: Why Americans Overrate Europe, and Europeans Underrate America”.

His basic argument is that while a typical European city centre is more picturesque than the average American city, Americans have a better quality of life than people in Europe. Most Europeans, he points out, don’t live in tourist destinations like the Left Bank in Paris. I thought that Caplan’s article was interesting but a little short on statistics, especially when you consider that he is an economist. The absence of really basic stats like life expectancy and the murder rate is really noticeable. Some of the people who commented on his blog replied to Caplan by citing figures that show the American-style suburban car culture that Caplan praises is actually pretty widespread in many European countries. For instance, a reader in Sweden pointed out that some European countries have roughly as many cars per capita as the US (500 per 1000 inhabitants). This fits with my own observations: the UK has massive Tesco supermarkets that are roughly the same size as any Wal-Mart, drive-thrus, and roadside restaurants that are basically the same as the US chains. The cars are bit smaller, but car culture is entrenched. Outside of London and a few other the UK’s other big cities, it would be rare to see a man of working age on a bus during the middle of the day, which would also be the case in the US or any other New World Anglo-Saxon country.

When I read the column, I was left wondering whether Caplan has ever lived and worked in a EU country. I checked his CV and turns out he hasn’t, so I’m not certain why he thinks he is more qualified to write this article than the zillions of academics who have lived and paid mortgages in multiple countries. (I would be interested to hear the Australian perspective on this debate). I have a lot of respect of Caplan and his research, but I think that this particular piece is poorly thought out. Not his best work. A powerful piece of evidence that Caplan could have cited in support of his position but which he did not is that the most EU countries, including the UK, experience net emigration to the USA (i.e., more Britons move to the US each year than Americans came to Britain). I’m perplexed as to why Caplan didn’t cite this data, which could have bolstered his case.

Another big problem with Caplan’s piece is that Europe, unlike the United States, consists of many radically different countries (Sweden versus Moldova). I know that some people like to talk about the EU as a sort of United States of Europe, but it’s not a single country. If you want a fairer comparison, contrast life in the EU with life in the three NAFTA countries: the gap between Manhattan and southern Mexico is probably as great as the different between London and, say, Tirana.

The other flaw with Caplan’s piece, which appears on a pro-free-market or libertarian website is that he appears to suggesting that because life in the market-oriented USA is better than life in the more socialist EU, this somehow proves that deregulation and the free market are the way to go. (He doesn’t say this explicitly, but this appears to be the thrust of his article).

There are several problems with this argument. 1) Caplan hasn’t proven than life for Americans in better than life for (West) Europeans. 2) Life could be better in the US simply because of lower population densities rather than because of differences in how societies organize themselves. New Zealand, Australia, and Canada are essentially more socialist versions of the USA (wide open spaces with a bit more social spending). 3) I’m not convinced that all Europeans countries are less “free” economically than the USA. Some EU countries have policies that American libertarians admire. The USA can be very statist in some areas and some of most prosperous EU countries (e.g., Denmark) are actually quite market-oriented, at least according to the measures used by an international organization of free-market think tanks.

Update: Megan McArdle of the Atlantic Magazine has posted some thoughts on Caplan’s piece. (McArdle’s piece is better thought out than that of Caplan and the resulting discussion thread contains posts of higher average quality, in my opinion).  I liked the fact that she mentioned Toronto in her post for several reasons. First, I’m from there. Second, bringing a third territory, in this case (Canada) into the discussion helps us to clarify our thinking about the differences between the US and “Europe”. It is hard to compare two thing unless you have at least one other thing as reference point – this is true in geometry and true when comparing countries.

Newfoundland and the EU, or, is Canada a Country or a Collection of Semi-Sovereign States?

12 05 2009

CanWest is reporting that Newfoundland (and Labrador) Premier Danny Williams “nearly derailed” the Canada-EU trade agreement. I have two reactions to this story. It’s odd that the province in Canada that is closest to the EU geographically is acting as a barrier to a Canada-EU trade deal. Moreover, this story just reminds us of just how powerful Canada’s provinces are: despite the fact that external affairs are a matter of federal jurisdiction, even a small province can expect to exercise veto power over a major international trade deal. Can US states veto Washington’s agreements? Did Rhode Island have a veto over the Iraq War?

Newfoundland isn’t the only provincial government to try to get involved in the making of Canadian foreign policy.

Canada-EU Trade Pact in Works: Trudeau’s “Third Option” Rises from the Grave

29 04 2009

It appears that Canada and the European Union are ready to begin negotiating a trade pact.

My wife, who knows that I am troubled by Canada’s reliance on the export of unprocessed natural resources, asked me whether free(r) trade with the EU would be helpful in getting Canada to transition from a natural resource based to knowledge-based economy?

I replied that I didn’t think that a Canada-EU trade agreement would encourage Canada to move from natural resources to a knowledge-based economy, but it would reduce our economic dependence on the United States, which is also a very good thing.

I must say that while I heartily approve of the opening of these negotiations, I doubt whether a significant agreement will be concluded, since each of Canada’s provincial governments has a veto over the agreement, as does each EU country. There are too many people at the table to satisfy. I can see the government of Newfoundland torpedoing the agreement over the issue of seal pelt exports or something like that. For more on the seal issue, see here.

I suspect that the outcome of these negotiations will be a very modest agreement that reduces a few trade barriers but which has a minimal impact on Canada’s overall trade pattern. Those Canadians who believe that this pact will somehow lead to Canada becoming part of the Schengen area are dreaming in Technicolor. (I admit it would be nice if Canadians had the right to live and work in the EU, but this isn’t on the table).