In the immediate period after V. E Day there was a realization by all sides of the conflict that the Versailles Peace Treaty of 1919 had itself been one of the main catalysts to the Second World War. This meant that a new approach would need to be taken to reconstruct Europe and it would need to do so with a broader view of Europe as a whole. The Second World War inflicted appalling loses on resources, infrastructure, and, above all human lives. The war cost anything up to fifty million lives and displaced millions more.
However although conditions were anything but propitious for economic growth a dramatic transformation took place over the next “30 glorious years”. Both Eastern and Western Europe”s economies were massively distorted by the demands of war; normal production ground to a halt and trade decreased further weakening Europe”s position in the world economy. The subsequent result of the unprecedented destruction was starvation and inflation together with a legacy of conflict that left Europeans mentally and emotionally exhausted.
The fact that the war was the first to be directly targeted at civilians, both through ethnic genocide and warfare in urban areas (most destructively from the air), meant that economics would need to be at the core of any peacetime solutions. There were three elements to the economic impact that affected Europe, and the measures that were introduced to solve these crises paved the way for the turn-around that Europe experienced between the late 1940″s and early 1970″s.
The first factor was the disruption to Europe”s productive assets, a rise in military production had exhausted capital stocks and many factories were themselves destroyed by the conflict. Industrial capitals such as transport and communication infrastructures were also debilitated. The second effect was of Capital loss, the colonial powers had been forced to dispose of foreign assets and had simultaneously accumulated huge debts. A drop in domestic consumption and investment also left their economies depleted.
Thirdly European states (especially France and Britain) were under the obligations of the Lend-Lease agreements which sponsors like the U. S. A and other lending states had supplied to boost their war effort. Despite these extreme difficulties rehabilitation followed surprisingly quickly. In the west in particular there was rapid reconstruction and recovery, meaning the first phase of economic development lasted no more than ten years.
In the east, where the scale of devastation and loss of life had been far greater, the process needed to go beyond mere rebuilding and the imposition of Soviet communist control meant that transformation would take significantly longer. The ‘super-boom” that began in post-war Europe can therefore be seen as somewhat of an economic miracle, with many of it”s features being the only positive repercussions of the war. In the west priority was given to rebuilding the infrastructure rather than to satisfying consumption needs (except food).
At the same time the economic methods of John Maynard Keynes were being used to squeeze out inflation through financial controls, higher taxes and currency reform. Since controlling inflation added to unemployment and shortages in essential products, new social services were introduced to minimise these negative affects on the population, who after all were still recovering from the hardships of war. The Welfare States that were created also helped in getting the economies moving quickly.
The other crucial benefit that the western states had over the communist east was the financial help they received from the U. S. A through Marshal Aid. Between 1947 and 1952 $23 billion was made available to Europe, this hard currency enabled Western economies to ensure their recovery by buying the goods they needed to reconstruct and modernise. So, while in 1946 West European production was only 8% of the world”s total, by 1950 it accounted for almost 20%. In the east, where the starting situation was far worse than in the west due to ferociously destructive battles and Nazi depredations, reconstruction was unimportant compared to the more immediate concerns of feeding and housing the vastly displaced population.
In fact in the USSR more people died after the war had finished of starvation, than had during the actual conflict. The period was also witnessing huge social and political changes with Stalin consolidating his firm grip on power, the effect this had on the East”s economic recovery was negative compared to that of the West. Land was distributed to the poor and most industrial property was nationalised.
However most importantly there was no support given to Eastern Block states by the U. S. A as Marshal himself distrusted Stalin and thought that he was planning to seize more of Europe. However, Stalin was only utilising the satellite states to help rebuild the soviet economy, yet these factors ensured there was no ‘boom” in the east for at least a decade. In the west when reconstruction was achieved growth was barely interrupted for the next thirty years until the oil crisis of 1973. The technological advances and new production methods during this period were another of the positive after effects of the war.
New consumer goods such as televisions were the visible side of the booming economies and by the 1960″s Western Europe was once again the largest trading block in the world with Gross Domestic Products up to eight times that of the first half of the century. All this was achieved without massive inflation because productivity rose enormously and capacity was fully used. However, to economic historians this economic revival can be seen as surprising and somewhat unexplainable.
Technical factors played a part, with new sources of energy, more modern communications, new styles of management and new production practices all helping to streamline the economies. Most of these were derived from the war or the more advanced America, who”s economy was unscathed by war. Another factor was the more ‘hands on” approach taken by western governments in managing their economies. In this way they were able to stimulate a ‘mixed economy” which had elements of private finance and nationalised industries. Keynes ideal was to have no sector of the economy that did not have a government presence.
He saw that the mistake of forgetting economics at Versailles led to the boom and bust that enabled nationalism to influence Europe. One other reason for these changes was to attempt to catch up the more advanced economies, most notably the U. S. A. The high levels of capital investment and the move of resources from agricultural to more productive sectors all benefited this goal. The actual stimulus to employment and trade that reconstruction created also kick-started the boom. Social elements also affected the economies of Western states.
The ‘baby-boom” of the war years produced a younger and better-educated work force, who also reflected the impact of the new welfare provisions that had been constructed. As demographics changed the population was also modernised in other ways. Urbanisation began at a greater level to compliment the new industries that were developing. Also women, who had entered the work place during the war, meant that the work force was diversifying as well as specialising. Family structures were therefore changing, with the ‘nuclear family” being more mobile and functional.
All of these factors helped ensure that the population was becoming more affluent and adapted to the new economy. This population was also becoming more at ease with buying consumer products as the burdens of the thirties and forties gave way to a more positive looking future. More money was also being spent in new industries such as tourism and leisure. This new wealth also meant that class structures were being eroded as a new economically independent middle class emerged. The West was also experiencing political stability, better labour relations and, by utilising the new attitudes in economy management, ensuring low unemployment.
These factors all contributed vastly to the boom. Externally the protection that Western Europe was experiencing from the U. S. A helped growth. The Bretton Woods system that ensured exchange rate stability across the Atlantic until the 1960″s was one part of this. Perhaps none of these factors can explain the surge in economic growth on their own. It was probably a fact that so many things came right at the same time and that the mistakes that had been made after the First World War were heeded.
By 1970 the Western European economies had transformed beyond recognition, not only in size but also in organisation and geographical terms. One negative effect of this was the greater divergence from Eastern Europe that the new society exacerbated. It is easy to ask why this ‘economic miracle” was so surprising as the scale of destruction the Second World War wrought was so huge. However this was not the first time that Europe had needed to rebuild itself and governments had come to realise that they should forsake economics at their own peril.