turn to the IMF for help. As in the British case its leaders could then blame ‘international forces’ for the unpopular domestic policy measures that ensued.
In Keynesian thinking, budget shortfalls and payments deficits—like inflation itself—were not inherently evil. In the Thirties they had represented a plausible prescription for ‘spending your way’ out of recession. But in the Seventies all Western European governments
There was a further complicating element in the choices facing policymakers in the 1970s. The economic crisis, however circumstantial and conjunctural its triggers, coincided with a far-reaching transformation which governments could do little to arrest. In the course of a generation, Western Europe had undergone a third ‘industrial revolution’; the smokestack industries that had been so much a part of daily life just a few years before were on their way out. If steelworkers, miners, car workers and mill hands were losing jobs, it wasn’t just because of a cyclical downturn in the local economy, or even a by-product of the oil crisis. The venerable manufacturing economy of Western Europe was disappearing.
The evidence was incontrovertible, though policymakers had for some years been trying hard to ignore its implications. The number of miners had been slipping steadily ever since West European coal output peaked in the 1950s: the great Sambre-Meuse mining basin of southern Belgium, which generated 20.5 million tonnes of coal in 1955, produced just six million tonnes by 1968 and negligible amounts ten years later. Between 1955 and 1985 100,000 mining jobs disappeared in Belgium; ancillary trades of various kinds suffered accordingly. Even greater losses were experienced in British mining, though spread across a longer period. In 1947 the UK boasted 958 coal mines; forty-five years later just fifty of them remained. The mining workforce was to fall from 718,000 to 43,000: most of those jobs were lost in the course of the decade 1975-85.
Steel, the other staple industry of industrial Europe, suffered a similar fate. It was not that demand for steel had fallen so very dramatically—unlike coal, it could not so readily be replaced. But as more non-European countries entered the industrial ranks, competition increased, the price fell and the market for expensively produced European steel collapsed. Between 1974 and 1986 British steelworkers lost 166,000 jobs (though in the latter year the UK’s major manufacturer, the British Steel Corporation, made a profit for the first time in over a decade). Shipbuilding declined for similar reasons; motor car manufacturing and textiles likewise. Courtaulds, the UK’s leading textile and chemical combine, reduced its workforce by 50 percent in the years 1977-83.
The recession of the Seventies saw an acceleration of job losses in virtually every traditional industry. Before 1973 the transformation was already under way in coal, iron, steel, engineering; thereafter it spread to chemicals, textiles, paper and consumer goods. Whole regions were traumatized: between 1973 and 1981 the British West Midlands, home of small engineering firms and car plants, lost one in four of its workforce. The industrial zone of Lorraine, in north-east France, lost 28 percent of its manufacturing jobs. The industrial workforce in Luneburg, West Germany, fell by 42 percent in the same years. When FIAT of Turin began its switch to robotization at the end of the 1970s, 65,000 jobs (out of a total of 165,000) were lost in just three years. In the city of Amsterdam, 40 percent of the workforce was employed in industry in the 1950s; a quarter of a century later the figure was just one employee in seven.
In the past, the social cost of economic change on this scale, and at this pace, would have been traumatic, with unpredictable political consequences. Thanks to the institutions of the welfare state—and perhaps the diminished political enthusiasms of the time—protest was contained. But it was far from absent. In the years 1969 -1975 there were angry marches, sit-ins, strikes and petitions all across industrial Western Europe, from Spain (where 1.5 million days were lost to industrial strikes in the years 1973-75) to Britain, where two major strikes by coalminers—in 1972 and 1974—persuaded a nervous Conservative government that it might be the better part of valor to postpone major mine closures for a few more years, even at the cost of further subsidies charged to the population at large.
The miners and steelworkers were the best-known and perhaps the most desperate of the organized protesters of the time, but they were not the most militant. The decline in the number of workers in old industries had shifted the balance of strength in trade union movements to the service-sector unions, whose constituency was rapidly growing. In Italy, even as the older, Communist-led industrial organizations lost members, teachers and civil service unions grew in size and militancy. The old unions evinced scant sympathy for the unemployed: most were anxious above all to preserve jobs (and their own influence) and shied away from open confrontations. It was the combative service-sector unions—
Faced with an unprecedented raft of demands for job security and wage protection, European leaders initially resorted to proven past practice. Inflationary wage settlements were negotiated with powerful unions in Britain and France; in Italy a flat-rate indexing system linking wages to prices, the
What remained of the domestic textile industries of France and Britain was preserved, for the sake of the jobs it offered in depressed regions, by substantial direct job subsidies (paying employers to keep on workers they didn’t need) and protective measures against third-world imports. In the Federal Republic the Bonn government undertook to cover 80 percent of the wage costs of industrial employees put on part-time work. The Swedish government poured cash into its unprofitable but politically sensitive shipyards.
There were national variations in these responses to economic downturn. The French authorities pursued a practice of micro-economic intervention, identifying ‘national champions’ by sector and favoring them with contracts, cash and guarantees; whereas the UK Treasury continued its venerable tradition of macro-economic manipulation through taxes, interest rates and blanket subsidies. But what is striking is how little variation there was along
But over the course of the seventies a growing number of politicians came to the conviction that inflation now posed greater risks than high levels of unemployment—especially since the human and political costs of joblessness were institutionally alleviated. Inflation could not be addressed without some sort of international arrangements for the regulation of currencies and exchange rates, to replace the Bretton Woods system precipitately overthrown by Washington. The six original member states of the European Economic Community had responded by agreeing in 1972 to establish the ‘snake in a tunnel’: an accord to maintain semi-fixed ratios between their currencies, allowing a margin of 2.25 percent movement either side of the approved rates. Initially joined by Britain, Ireland and the Scandinavian countries, this compromise lasted just two years: the British, Irish and Italian governments—unable or unwilling to withstand domestic pressures to devalue beyond the established bands—were all forced to withdraw from the arrangement and let their currencies fall. Even the French were twice forced out of the ‘snake’, in 1974 and again in 1976. Clearly, something more was needed.
In 1978 the West German Chancellor Helmut Schmidt proposed recasting the snake into something altogether more rigorous: a European Monetary System (EMS). A grid of fixed bilateral exchange rates would be set up, linked by a purely notional unit of measure, the European Currency Unit (the
