Vienna, 8th district

Europe’s long post-war boom had its counterpart in other parts of the world economy, especially in Japan. The Japanese boom was longer and stronger from the late 1940s until the early 1970s, when the growth rate of GNP was more than 10% annually. Reasons for this stunning performance were the technological catch-up because in the 1930s and 1940s Japan had been isolated, and now many technological innovations could be borrowed at minimal cost. The high level of human capital contributed to the success and after catching up it became a leader in introducing new technology, especially in electronics and robotics. Japan could draw on high levels of savings and investment of the Japanese people and a sophistication of Japanese management with high payoffs of industrial research and innovation and the collective and cooperative spirit of the Japanese people. Also South Korea and Taiwan had very high growth rates for similar reasons with the special position of Singapore and Hong Kong, which was until 1997 under British rule. The Pacific Basin area together with Australia and New Zealand became a major actor in world economy, too.

During the late 19th century and the beginning of the 20th century Latin America was an important participant in the international division of labour with a comparative advantage in primary products. In the middle of the 20th century the countries of the “southern cone”, Argentina, Uruguay and Chile, enjoyed per capita incomes comparable to Western Europe. Then they started programmes on import substitution and industrialisation, all of which failed due to the fact that domestic markets were too small and there was a lack of international cooperation in the region and a lack of human capital to adopt and develop the new technology. So the increase of per capita income was below that of the rest of the world and the region’s share of total world trade declined. Unfavourable trade balances, especially in Argentina, Brazil and Mexico, resulted in alarming levels of international indebtedness in the 1980s. The economic conditions in Africa were even more deplorable. The new nations lacked natural and human resources and political circumstances hindered economic development, further exacerbated by ethnic enmities. Several African nations actually endured negative rates of growth of income.

The Middle East has acquired economic importance in the 20th century because of its oil resources, which were discovered in the first decade of 20th century in Persia and then in several Arab states. Until the 1950s the region accounted for as little as 15% of the world production; in comparison the USA accounted for 50% at that time. In 1960 the OPEC (Organisation of Petroleum Exporting Countries) was formed and by 1970 the OPEC comprised 1/3 of the world crude oil production. In 1973, time of 4th Arab-Israeli war, they acted in cartel fashion to increase sharply the price of crude petroleum; an action they repeated a decade later with the result that the world price rose 10 times. High dependency on petroleum at that time had a devastating effect on the highly industrialised and developing economies. Developing countries suddenly faced much larger deficits in their balance of payments, which forced them more deeply into debt. Industrial nations faced “stagflation”, meaning a stagnation of output and employment together with inflationary price rises. The situation persisted from the 1970s to the 1990s and produced the highest levels of unemployment since the 1930s. Meanwhile political and religious changes in the region altered the balance of power. In 1979 an Islamic republic was established in Iran and Iraq’s dictator Saddam Hussein invaded the country in order to annex oil-producing regions. Nine years of war with millions of casualties followed. After a truce Saddam invaded Kuwait, which resulted in the Gulf War of 1990.


Vienna, 7th district

The “Thirty Glorious Years” after World War II were an exceptional phase in European history. For the USA, which dominated the world economy after World War II, the era was not all that revolutionary; it merely continued the expansion of the war years. The USA had suffered no damage, had increased its GNP by two thirds and ended the war with almost two thirds of the world’s industrial production. Because of the size and advance of the US economy its performance during the “Golden Years” was not as impressive as the growth rates of other countries which started from a much smaller base. Its economy grew more slowly than in any other industrial country except Britain. The gap in productivity per man-hour between the USA and other industrial countries diminished; also in respect to national wealth in terms of GDP the other countries were fast catching up. For the European countries and Japan the overwhelming priority after 1945 was recovering from the war. For non-communist states this also meant putting the fear of social revolution and communist advance, the heritage of war and resistance, behind them. Most countries were back to their pre-war levels by 1950. The material benefits of growth took some time to make themselves felt, even in a so spectacularly prosperous region as Italy’s Emilia-Romagna. The benefits of an affluent society did not become general until the 1960s in Europe; also full employment did not become general until the 1960s, when the average of Western Europe unemployment stood at 1.5%. By then observers began to assume that somehow everything in the economy would go onwards and upwards forever. In the 1950s the economic upsurge seemed quite world-wideand independent of economic regimes. The growth rate in the USSR in the 1950s was even higher than in Western Europe, but in the 1960s it became clear that capitalism was forging ahead. Nevertheless the “Golden Age” was a world-wide phenomenon, even though general affluence never came within sight of the majority of the world’s population.

In the 1970s the disparities between different parts of the poor world had grown tremendously. In the 1980s the poor world’s food production per capita did not grow at all outside South East Asia, in some regions it even continued to fall. Meanwhile the problem of the developed world was that it produced so much surplus food that in the 1980s the European Economic Community decided to grow substantially less or to dump its butter mountains and milk lakes below cost, thus undercutting producers in the poor countries. It became cheaper to buy Dutch cheese on Caribbean islands than in the Netherlands. The growing divergence between the rich and the poor world became increasingly evident in the 1960s. The industrial world was of course expanding everywhere. Dramatic examples of industrial revolution were Spain and Finland and even purely agrarian countries like Bulgaria and Romania acquired massive industrial sectors. The world economy was growing at an explosive rate, e.g. world trade grew tenfold between the early 1950s and the early 1970s. One by-product of this extraordinary explosion was pollution and ecological deterioration, which attracted little attention in the Golden Years. The dominant ideology of progress took it for granted that the growing domination of nature by man was the very measure of human advance. Industrialisation in the socialist countries was for this reason especially blind to the ecological consequences of its massive construction of a rather archaic industrial system based on iron and smoke. Even in the West the old 19th century businessman’s motto, “Where there is muck, there is brass” (pollution means money), was still convincing, especially for road-builders and real-estate developers.  The impact of human activities on nature increased steeply from the middle of the century, largely due to the enormous increase in the use of fossil fuels. The total energy consumption tripled in the USA between 1950 and 1973. One of the reasons why the Golden Age was golden was that a barrel of Saudi oil cost less than 2$ on average in the entire period of 1950-1973, thus making energy ridiculously cheap. Ironically, it was only after 1973, when the oil-producers’ cartel finally decided to charge what the traffic would bear, that ecology-watchers took serious note of the consequences of the explosion of petrol-driven traffic. The rich Western countries naturally generated the lion’s share of this pollution, though the unusually filthy industrialisation of the USSR produced almost as much carbon dioxide as the USA. To some extent this astonishing economic explosion was a gigantic version of the continuing globalisation of the state of the pre-war USA, taking that country as the model of a capitalist industrial society. For instance the age of the automobile had long arrived in the USA, but after the war it came to Europe, e.g. Italy’s private cars counted in 1938 469 000 and in 1975 15 million. Cheap fuel made the truck and the bus the major means of transport over most of the globe’s land-mass. Much of the great world boom was thus a catching up, or in the USA a continuation of old trends. The model of Henry Ford’s mass production spread across the oceans to new auto industries. In the USA the Fordist principle was extended to new kinds of production, from house-building to junk food, e.g. McDonald’s was a post-war success story. Goods and services previously confined to minorities were now produced for a mass market, as in the field of mass travel to sunny beaches. Before the war never had more than 150,000 North Americans travelled to Central America or the Caribbean in any year, but between 1950 and 1970 their numbers grew to 7 million. The European figures were even more spectacular; Spain which had virtually no mass tourism before the late 1950s welcomed 54 million foreign visitors per year in the 1980s and Italy 55 million. What had once been a luxury became the expected standard of comfort in Western countries: the refrigerator, the washing machine, the telephone. It was now possible for the average citizen to live as only the wealthy had lived in their parents’ days, except of course that mechanisation had now replaced personal servants.


Vienna, Zentralfriedhof, Jewish cemetery

It was by far the most destructive of all wars, often showing an intensification of features manifested in World War I, such as an increasing reliance on science as the basis of military technology, an extraordinary degree of regimentation and planning of the economy and society, a refined and sophisticated use of propaganda at home and abroad. But in other aspects World War II differed from all previous wars. It was a truly global war and directly or indirectly involved the population of almost every country in the world. World War I had primarily been a war of position; World War II was a war of movement on land, at sea and in the air, such as air warfare and naval operations, especially carrier-based aircraft. Science-based technology accounted for many of the special new weapons like the atomic bomb. Economic and industrial capacities of belligerents became decisive, as mere numbers of soldiers counted less than ever: the production line became as important as the firing line. The ultimate secret weapon of the victors was the enormous productive capacity of the American economy. The pecuniary costs involved the direct military expenditure of 1 trillion US$ contemporary purchasing power. This does not include the value of property damage which was certainly much larger, interest on war-induced national debt, pensions and so on. The war related deaths are estimated at approximately 15 million in Western Europe – 6 million military, 8 million civilian, around 6 million Jews murdered in the Holocaust. Russia accounted for 15 million deaths, half of them civilians, China for 2 million military and untold millions of civilian deaths, Japan for 1.5 million military and again untold millions of civilian deaths.

The property damage was far more extensive than in World War I. The US Airforce prided itself on strategic bombing of military and industrial targets, but the post-war strategic bombing survey showed that only 10 % of industrial plants had been permanently destroyed, but 40% of civilian dwellings. Some cities were virtually levelled by German and Allied bombers leaving unknown numbers of casualties, for example Hamburg, Dresden, Coventry, Rotterdam, Leningrad and many more. Transportation facilities were special targets; at the end of the war every bridge over the Loire was destroyed and all but one over the Rhine (Remagen bridgehead). All combatants resorted to economic warfare. Great Britain imposed a blockade like during the Napoleonic wars and World War I and Germany retaliated by unrestricted submarine warfare. Germany introduced so-called “ersatz commodities” such as gasoline from coal and took command over resources of occupied territories. In 1943 Germany extracted more than 36% of French national income and in 1944 30% of German industrial labour was non-German slave labour.

At the end of the war the economic outlook in Europe was extremely bleak; the industrial and agricultural outlook was half that of 1938, millions of people were uprooted, there was the danger of starvation and the institutional framework of the economy was severely damaged. Before the war Europe had imported more than it exported in foodstuffs and raw materials. It paid for the difference with the earnings of its foreign investments and shipping and financial services. After the war Europe’s merchant marines were destroyed, foreign investments liquidated and financial markets in disarray. Europe’s overseas markets had been captured by Americans, Canadians and firms in formerly underdeveloped countries. Europe faced the threat of starvation, disease, lack of clothing and shelter, victors and vanquished alike. There was urgent need for emergency relief and reconstruction. Two main channels of relief came from the US. As the Allied armies advanced across Western Europe in 1944/45 they distributed emergency rations and medical supplies to the population, enemy as well as liberated. The distribution of emergency rations for the defeated German population continued after the end of the war. Furthermore UNRRA (United Nations Relief and Rehabilitation Administration) distributed food, clothing, medical supplies, whereby the US bore 2/3 of the costs. The US made available about 4 billion $ to Europe and 3 billion $ to the rest of the world for relief.

In contrast to Europe the USA emerged from the war stronger than before, to a lesser extent Canada, the other Commonwealth nations and some Latin American countries. They were spared from direct damage and profited from the high wartime demand which permitted full use of capacity, technological modernisation and expansion. Many economists feared a depression after the war in the USA, but when wartime rationing and price controls, which held prices at artificially low levels, were removed, consumer demand for war-scarce commodities created a post-war inflation and kept the wheels of the US industry turning, which enabled the US to extend needed economic aid to Europe.


Vienna, 19th century housing

The 19th century was characterised by the triumph of industrialism, especially in western Europe. Modern industry spread from Great Britain to Belgium, France, Germany and to the USA and later to other areas of the world. It greatly transformed the conditions of life and work, differently in different regions.

Population, Resources and Technology

In 1800 the European population counted around 200 million, the world’s around 900 million. In the 19th century growth accelerated to around 400 million in Europe in 1900; 1.6 billion in the world. Such high rates of growth were unprecedented. The two most industrial nations in Europe in the 19th century, Great Britain and Germany,  had growth rates in excess of 1% per year, which would result in a doubling of the population within 70 years. The least industrialised nation, Russia, even boasted 2% population growth, which shows that there is not necessarily an intrinsic correlation between population growth and industrialisation.

The agricultural production increased enormously: First, because the amount of land under cultivation was extended, fallow was abolished and former waste land was cultivated. Second, new and more scientific techniques, fertiliser, natural and later artificial, were introduced and more efficient tools and instruments could be used because of the price reduction of iron. Later in the century steam-driven threshers and mechanical reapers were invented.

Cheap transportation facilitated internal and international migration: 60 million left Europe in the 19th century; 35 million to the USA, 5 million to Canada, 12-15 million to Latin America, Australia, New Zealand and South Africa. The British Isles sent the largest number of emigrants, namely 18 million, then Germany and Scandinavia. After 1890 most emigrants left Italy, Austro-Hungary and Russia including Poland. Also substantial migration within Europe took place; sometimes only temporary. A majority of people moved in response to economic pressure at home and hopefully better opportunities elsewhere. After the Great Famine of 1845 1.2 million Irish left for the USA and many more for Great Britain. A steady stream of European immigrants to nearly empty areas overseas characterised the 19th century.

The growth of the urban population in Europe was extraordinary. Historically the chief limitation on the growth of cities had been economic, namely it was impossible to supply large urban populations. Technological innovations and transport improvements relaxed these limitations. The factory system furthermore made the concentration of the work force necessary. Some of the largest centres arose near the sites of coal, for instance the Black Country of England, the Ruhr area in Germany and the region around Lille in France.

The importance of resources was enormous in modern economic growth. Resources, which were formerly unknown or of little value, acquired enormous importance, especially coal. Plentiful coal deposits became primary sites of heavy industry, the others had to import it. In the late 19th century hydroelectricity was introduced, a new source of energy, which created an advantage for regions with lots of water power. Europe was relatively well endowed with conventional mineral resources, some of which had been exploited since antiquity, but modern industry intensified pressure. The search for new sources, better exploitation, and the search for raw materials in the colonies led the Europeans to extend political control over poorly organised areas of Africa and Asia.

Development and diffusion of technology: Until 1870 many continental industrialists, often supported by their governments, were devoted to acquiring and naturalising the technological gains of the British industry. The pace of technological change accelerated and new technologies spread to many industries not previously affected by science-influenced technology. New industries were created as a result of scientific discoveries. In the first phase of industrialisation on the continent many English and Scottish experts and workers were encouraged to come over and apply their skills and knowledge to the newly established industries; they were often even encouraged by continental governments.

The institutional framework:Some legal and social environment was more conducive to economic growth than others. The institutional setting for economic activity that produced the first industrial societies gave wide scope to individual initiative and enterprise, freedom of occupational choice, geographical and social mobility and relied on private property and the rule of law. It further emphasised the use of rationality and science. Some of these elements were wholly new in the 19th century and included in the European Law systems. In Great Britain the common law prevailed since the time of the Norman Conquest in 1066. It relied on custom and precedent as written down in legal decisions and was of an evolutionary character. The protection of private property and interest had priority, but also public interest was protected and it incorporated the customs of merchants. The common law was spread to the British colonies and forms the basis of the US and many other legal systems.


Vienna, part of an 18th century innovative public hospital complex

Proto-industrial Economies

At the beginning of the 18th century several regions in western Europe had acquired sizable concentrations of rural industry, especially textile industry, e.g. the linen industry in Flanders: rural, cottage-based, organised by entrepreneurs in Ghent and other market towns which exported their output. The workers – family units – usually cultivated small plots of ground and bought additional supplies. The entrepreneurs supplied the workers with raw material and disposed of their output: similar to the putting-out system, but the difference were the distant markets.

Other large-scale, highly capitalised industries producing capital or even consumer goods were the French royal manufactures: large factory-like structures, where skilled artisans worked under supervision but without mechanical power. Similar proto-factories were built by noble landowner-entrepreneurs in the Austrian Empire; they were also involved in the coal and mining industry. Iron works, lead, copper and glass works, shipyards often had large-scale organisations with hundreds or thousands of workers, e.g. the state-owned Arsenale of Venice. During the 18th century new forms of industrial enterprise developed.

Characteristics of Modern Industry

The difference between pre-industrial and modern industrial societies is the greatly diminished relative role of agriculture. The greatly improved productivity of modern agriculture was able to feed large non-agricultural populations. During the period of industrialisation, starting in the 18th century in Great Britain till the first half of the 20th century, the characteristic feature of transformation was the rise of the secondary sector (today the tertiary and quaternary sector) – mining, manufacturing and construction – according to the proportion of labour force employed and output.

Great Britain was the first industrial nation. But the term “Industrial Revolution” is misleading, as it was a gradual transformation characteristic of economic processes. The term overlooks the essential fact of continuity; also changes were not merely industrial, but social and intellectual, too. Capitalism had its origins long before 1760 and fully developed long after 1830 (end of the first phase of industrialisation).

Certain characteristics distinguish modern from pre-modern industry:

  • Extensive use of mechanically powered machinery
  • Introduction of new sources of power for energy production, especially fossil fuels
  • Widespread use of materials that do not normally occur in nature
  • Larger scale of enterprise in most industries

The most significant improvements were the use of machinery and mechanical power for tasks formerly done much more slowly and laboriously by humans or animals or were not done at all. Developments in the application of energy were the substitution of coal for wood and charcoal as fuel and the introduction of the steam engine for mining, manufacturing and transportation. The use of coal and coke in the smelting process reduced the cost of metals and multiplied their uses. The application of chemical science created a large amount of new artificial or synthetic materials.


“Brunnenmarkt”, street market in Vienna’s 16th district

After the disasters of the first half of the 20th century, First World War, Great Depression, Second World War, disintegration of the Austro-Hungarian Empire, Austro-Fascism and Nazi regime, holocaust and ethnic cleansing, Vienna, the former 2-million multi-ethnic capital of a 50-million peoples’ empire, had turned into a provincial town, capital of a 7-million country, with a decreasing, rather homogenous population. Since the middle of the 1960s the lack of much needed workforce at the times of the economic boom years led to a change of attitude towards labour migration in Austria. The census of 1961 registered 7,074,000 inhabitants in Austria; 102,000 of them foreigners, most of them German citizens, the lowest number ever.

In 1961 the first recruitments abroad for the construction industry took place. Of the agreed 7,300 persons only 1,800 arrived, mostly from Italy. In 1962 a recruitment agreement with Spain under the fascist regime of Franco was unsuccessful. Between 1962 and 1964 37,000 “guest workers” were invited annually, but those numbers of migratory workers never arrived in Austria. Austria did not seem to be an attractive destination at that time. Finally in 1964 a recruitment agreement was signed with Turkey and an official Austrian recruitment office was opened in Istanbul, which was closed nearly 30 years later in 1993. In 1966 such a recruitment agreement was signed with Yugoslavia, too, together with a social agreement that regulated the claims of the workers with respect to health, accident and pension insurance. An official Austrian recruitment office was opened in Belgrade. In 1969 a similar social agreement was negotiated with Turkey. In general, recruitment offices were of minor importance because most migrants entered Austria via tourist visa and their stay was later legalised after they had worked here for some time. The status of these migratory workers was precarious, as the two following examples show: In 1965 Yugoslav workers at the company Iso-Span in Obertrum, Salzburg, went on strike because they received lower wages than agreed. As a consequence the strikers were taken in custody pending deportation. The same happened in 1966, when Yugoslav workers in a construction company in Admont, Styria, went on strike.

Political crises in neighbouring countries also had an effect on migratory movements in Austria. When the dissatisfaction of the Hungarian population with the Soviet domination culminated in the Hungarian revolution of 1956, approximately 180,000 Hungarians fled to Austria and took residence here temporarily. In 1968 160,000 Czech and Slovak refugees settled in Austria for some time due to the revolution in Prague that was crushed by the Soviets as well. After the military coup-d’état In Turkey in 1980 – one of several coup-d’ètats there – the Turkish refugees in Austria received “guest worker” status and that’s why their exact number is not known. When in 1980 martial law was imposed on Poland, more than 35,000 Polish refugees came to Austria, most of which remained here permanently. When in 1991 the war in Yugoslavia started Austria welcomed approximately 90,000 refugees from ex-Yugoslavia over the next four years.


Eger, Hungary

In 1942 William Beveridge, a British academic and civil servant, published his blueprint of a welfare state for Great Britain in his account of the “Five Giants”: disease, idleness, ignorance, squalor and want. He proposed new benefits for the retired, disabled and unemployed, a universal allowance for children and a nationwide health service. Polls found that majorities of all social classes backed these proposals. The blueprint was translated into 22 languages and the Royal Air Force dropped summaries on Allied troops and behind enemy lines. Such zeal for the welfare state is rare nowadays. Liberals such as Beveridge believed that people should take more responsibility for their own lives, but that government should support them. They did not see it as industrialised charity, but as a complement to free-market capitalism. In the second half of the 19th century the rise of unfettered markets brought demands for protection against its effects. Charity and churches were seen as failing to cope with poverty, as mass urbanisation weakened traditional bonds. Pressure came from socialists, but liberals responded, too. “New liberals” such as John Stuart Mill and Leonard Hobhouse argued that freedom meant ensuring that people had the health, education and security to lead the life they wanted. The development of welfare states was then hastened by the Great Depression and World War II. The war fostered a sense of unity and as middle classes shared the risks, their demands for support meant the welfare state became about more than just looking after the poor. The post-war government in Britain implemented most of Beveridge’s plan and similar reforms soon followed elsewhere in Europe. Welfare states have always differed from country to country, but from the 1970s on approaches diverged further. In the 1990s the Danish sociologist Esping-Anderson distinguished three varieties of “welfare capitalism”. First were the “social democratic” versions in Scandinavian countries with high public spending, strong trade unions, universal benefits and support for women to stay in the workplace. Second, “conservative” welfare states, such as Germany’s were built around the traditional family and had a strong contributory principle. Third, the “Anglo-American” welfare states, which put greater emphasis on guaranteed minimums than on universal benefits as in Britain.

Perhaps the most common charge against European mature welfare states is that they have created a culture of dependency. So policy makers have made programmes more “conditional”, forcing recipients to look for work, for example; and to help them, many countries expanded “active labour market policies”, such as retraining. The wide-spread notion that the welfare state is mainly about redistribution from rich to poor is a myth. Nowadays its role is more to allow people to smooth consumption over their lifetimes, in effect shifting money from their younger selves to their older selves. As countries become wealthier, public spending increases as a share of GDP. Spending on social protection, like pensions, health care and benefits, in OECD countries has increased from 5 per cent in 1960 to 15 per cent in 1980 to 21 per cent in 2016. Nevertheless, since 2000, some Scandinavian countries, for example, have combined high levels of public spending with high rates of economic growth. The effects of welfare depend not just on how much is spent, but how. Subsidised child care, which helps mostly women stay in the labour market, is more growth-friendly than pensions. The difficulties welfare states in rich European countries face are about more than just their size. The three main difficulties relate to demography, migration and changing labour markets. The fact of the ageing European population means that welfare spending is increasingly shifted towards the elderly. This threatens the implicit contract between generations. Meanwhile Denmark and Finland have linked state retirement ages to life expectancy, so will the Netherlands. In Germany, Portugal and Sweden pension levels are adjusted according to the ratios of workers to non-workers.

Immigration poses another challenge to the welfare state. In 1978 Milton Friedman argued that you could have open borders or generous welfare states open to all, but not both, without swamping the welfare system. Moreover, taxpayers are more tolerant of benefits that are seen to look after “people like them”. A study published in 2017 using survey data from 114 European regions found a correlation between areas with higher shares of migrants and a lack of support for a generous welfare state. Another survey of changing attitudes in European countries between 2002 and 2012 found both rising support for redistribution for “natives” and sharp opposition to migration and automatic access to benefits for new arrivals. Such popular views form a core part of the appeal of populists in Europe such as the Front National in France, the Sweden Democrats or the Danish People’s Party. The nature of the benefits influences attitudes as well. Immediate access to health care and public education for immigrants is widely supported by European populations, but benefits should not extend to unemployment or child benefit. Moreover, attitudes towards immigrants are volatile and swayed by the political climate. In 2011, for example, 40 per cent of Britons said immigrants “undermined” the country’s cultural life, and just 26 per cent believed they enriched it. By 2017, in the wake of the Brexit vote, only 23 per cent believed immigrants undermined British culture, compared to 44 per cent who believed they enriched British culture. Immigration might offer a partial solution to the first problem of ageing because since at least 2002 EU migrants have contributed much more in taxes than they have cost in public services, as economic research in Britain and Denmark has found out.

The third issue is adapting to changing labour markets. The welfare state developed at a time of powerful government, powerful companies and powerful trade unions. The economic aim after World War II was full male employment. Recent research by the OECD in seven of its member countries estimated that 60 per cent of the working-age population had stable full-time work. Of the other 40 per cent, no more than a quarter met the typical definition of unemployed, namely out of a job, but looking for one. Most had dropped out of the labour market completely or worked volatile hours. The causes are complex and overlapping, but hey include the incentives and disincentives to work that complex benefits systems produce. Universal basic income (UBI) may be one way to avoid such problems. It may take many different forms, but basically replaces a wide range of means-tested benefits with a single unconditional one, paid to everyone. Scotland and the Netherlands are running experiments involving UBI, but in no country is it yet the foundation of the benefits system of working-age adults. The OECD recently modelled two forms of basic income. Under the first one, a country’s spending in benefits is divided equally among everyone – a revenue-neutral form. Under the second one, everyone would receive benefits equal to the current minimum-income guarantee, and taxes would rise to pay for it, if necessary.


Trieste, Italy

Britain’s current decline is relative rather than absolute. The average citizen of today’s Britain is far richer than was the average citizen at the time of the British Empire. Other advanced economies have suffered from years of slow growth while Britain’s science and medical research boom. But the evidence of decline is too evident to ignore. Britain’s core political institutions are in a state of decay. In the past, big crises have produced great leaders, such as Lloyd George during World War I and Winston Churchill during World War II, but today’s politicians range among the mediocre. In a recent survey a quarter of Britons say they would vote for a far-right party because the mainstream parties have let them down. Economic growth has been slow since 2015 despite low interest rates and a fall in the value of the pound. Productivity growth has been marginal and real wages have been falling for a decade. A growing proportion of the population is trapped in a cut-throat economy, in which the young fear to be much worse off in future than their baby-boomer parents.

This is not the first time Britons have been gripped by fears about decline. In the 1890s they worried that America and Germany were replacing Britain as the workshop of the world. In the 1950s they worried that an old-fashioned establishment was strangling the forces of progress. The 1970s saw a particularly fierce debate, as the country was plagued by strikes and three-day weeks. But three aspects make today’s worries especially troublesome. The first is disappointment. For the past 40 years Britain felt that it had put decline behind it. Margret Thatcher, John Major, Tony Blair and David Cameron cemented the new consensus that economic growth, deregulation and privatisation were the key to permanent wealth increase. This was a huge benefit to the new elite that could pride itself that it was more progressive than the old one while stuffing its pockets with gold. But this new consensus also suffered from mounting problems. There was the problem of one-off windfalls: selling off council houses was wonderful for the tenants and the Treasury, but left Britain short of social housing. There was the problem of regional imbalance. The boom in financial services poured money into the south-east while the north remained in economic trouble. This Thatcher-Blair consensus finally ended with the financial crisis of 2008 and the Brexit vote of 2016.

The second problem Britain is facing is the lack of collective agreement in deciding to leave the European Union. Brexit was driven by a particular combination of despair about the way the old consensus had left so many people behind and of optimism that by freeing itself from the EU Britain would be able to reignite its growth engine. The despair was probably justified, but the optimism definitely not because most of Britain’s problems are internally generated. There is nothing about membership in the EU that prevents British entrepreneurs from trading with the rest of the world. Indeed the EU has just signed a trade deal with Japan and is negotiating with the USA about lowering trade barriers. Most economists predict that any version of Brexit – hard or soft – will depress Britain’s growth rate. If Britain leaves without a deal, the consequences will be dramatic. The Brexit secretariat is already drawing up contingency plans to stockpile medicine and food and put electricity generators on barges in the Irish Sea. The third problem is that of compounded error. Irresponsible politicians may well feed the people’s appetites for populist and nationalistic decisions. The Brexit debacle has already injected the poisonous charge of betrayal into the heart of politics. Tony Blair said that politics at the moment is about either riding the anger of finding the answer. The trouble is that fresh answers are hard to find and the anger is mounting daily.


Debrecen, Hungary, University

In 2018 Jaguar Land Rover ((JLR) opened a new plant with 640 robots on a former farmland in Nitra in western Slovakia. The robots together with 2,800 workers can assemble a Land Rover Discovery every two minutes. JLR was just another carmaker to come to Slovakia. VW arrived in 1991, followed by Kia and PSA. These firms together turn out over one million cars annually; more per head of population than any other country. Nitra is close to the motorway and Slovakia has an impressive supply chain with more than 300 factories making car parts. This spoke for Slovakia. The JLR factory gives a fair picture of Slovakia’s, and more broadly Central Europe’s model of economic development. First, it was built with foreign capital and largely by foreign contractors. Membership in the EU has facilitated the flow of capital from the western members to the eastern ones. Second, the economy of Central Europe depends on customers in economies to the west purchasing goods made relatively cheaply in the hinterland. Third, government support was essential for this economic take off. Government subsidies luring foreign companies into the country are common in Central Europe. Investors flock to special economic zones across the region, attracted by tax advantages. Furthermore EU funds have boosted investment in infrastructure that appeals to foreign investors like, road and rail. Even in Poland, the region’s biggest and most diversified economy, these EU funds matter: by 2022 they will make up 22 per cent of public spending each year.

This foreign-led development model has had much success. Countries from the Baltic states in the north to littoral Black Sea states have become considerably richer over the last two decades. GDP per person in the Czech Republic is now close to Spain. Bulgaria and Romania are much poorer in terms of GDP, but managing to win investment and to grow, too. The European Commission tracks the progress of five EU members immediately east of Germany and Austria, namely the Czech Republic, Hungary, Poland, Slovakia and Slovenia, compared with a group of four western frontier EU countries, namely Austria, Denmark, the Netherlands and Sweden. In 1995 the average GDP per person at purchasing power parity was around 55 per cent lower in the five Central European countries than in the western frontier countries. By 2016 the difference had shrunk to 39 per cent. Average incomes in the five countries are now equal to those in Portugal and far above those in Greece, of course also due to the financial crisis and sovereign debt crisis since 2008. Of all the Central European countries Slovakia saw the most dramatic gains.

But the challenge for these countries, as for any hinterland reliant on supplying labour to produce goods for richer neighbours, is to keep closing the income gap. The next step of economic development is going to be harder, requiring more productive firms, more private capital and more skilled labour. The region was not that hit by the financial crisis and is growing strongly once again. The IMF expects these countries to expand nearly twice as fast as Western Europe and this expansion looks more sustainable than the one that ended with the financial crisis in 2008. Back then cheap foreign loans, including Swiss franc mortgages taken out by individual households had boosted consumption but became hard to pay back. Nowadays banks are in better shape and consumption is less supported by debt and more by rising incomes. Despite nationalistic policies by populist governments in some countries foreign companies are not retreating. Corruption and some political instability seem not to deter investors as long as other economic conditions are beneficial. Building firms are doing particularly well. Construction activity in the region has typically grown twice as fast as GDP in recent years. Central Europe accounts for a fifth of Strabag’s – Austria’s biggest construction company – business. Business in Poland has gone so well that Strabag is branching out from EU-funded infrastructure into hotels, shopping centres and office blocks. Wienerberger, an Austrian building-materials supplier, has 64 plants across Central and Eastern Europe (CEE), including the ones in Austria and Turkey. 30 per cent in the region are not connected to a sewer system, compared with 5 per cent in Western Europe, which means big business for the firm. Subsidies for better housing, for instance in Hungary, have meant a boom in brick sales.

Services are playing a bigger part in this expansion in Central Europe than in the pre-crisis boom. This means that also white-collar work is doing well. Western banks are moving back-office jobs east to pleasant and affordable spots such as Krakow. McKinsey has 1,000 analysts in Poznan in central Poland, serving clients world-wide. Brexit is moving some mid-level finance jobs away from London as well. Erste Bank, an Austrian bank with 16 million customers in Poland, the Czech Republic, Slovakia, Croatia, Serbia, Romania and Turkey, expects banking in the region to grow faster than in Western Europe for many years to come. Central Europe has also transformed Vienna Insurance Group, a nearly 200-year old Austrian institution. Its 21 companies across CEE now provide half of all VIG’s premiums and profits because as income rises, spending on insurance increases, too. So it seems that Central European economies are well set for sustainable economic growth. Yet there are still three reasons for worries, namely a lack of innovation in local firms, a coming demographic squeeze and an over-dependence on foreigners, especially Germans, to drive development.


Brno, Czech Republic

In the last years researchers of Central and Eastern Europe have revised the widespread assumptions of the Austro-Hungarian Empire that comprised a large part of this area and ended in 1918. They no longer see it as an economically inefficient multi-national anachronism to the late 19th century nation states of Europe. New studies focus on the vibrant political cultures and the interesting attempts at interpreting local and regional phenomena in this multi-ethnic and multi-religious empire. General studies of Europe and modern history tend to treat the region of Central Europe as an exceptional corner of Europe due to the presence of several ethnic and religious groups in its societies, but also because of its economic development, often – unjustly – characterised as “backward”. Historians of self-styled nation states might have to think more creatively about cultural differences that may lurk just below the surface of assertions of national homogeneity. This is especially necessary at the time when the European Union is again facing new outbreaks of nationalism and even regions in the established nation states of Western Europe show serious tendencies of separation, e.g. Catalonia or Scotland.

Even some books written recently on the topic of World War I continued the tradition of portraying the Habsburg Empire as a state on the verge of collapse even before the outbreak of the war due to nationalist conflicts. Since the collapse of the empire narratives of nationhood have dominated its history. This interpretation ignores the fact that the Austro-Hungarian Empire was very similar to the other European states of the time, but at the same time pioneered new ideas of nationhood and new practices of governance thanks to its multi-ethnic population of 50 million. Some of the character, the developments and the enduring legacies of this Habsburg Empire are still visible in Central Europe. Therefore it is essential for once to abandon traditional presumptions about the primacy of nationhood in the region and to focus on the Austro-Hungarian institutions such as schools, the judicial system or the Austrian census that managed practical issues surrounding linguistic and ethnic diversity. This research undermines the notion that the existence of language differences dominated social relationships and institutional developments in Central Europe. On the contrary, imperial institutions and administrative practices helped shape nationalist efforts. Furthermore the surviving presumptions of economic backwardness or unbridgeable difference that allegedly made Central Europe different from the rest of Europe were revised in recent decades and historians have pointed out the remarkable creativity and innovation of the empire’s institutions in tackling diversity. Looking at the last decades of the Habsburg Empire might offer different views at subjects like nationhood, multilingualism and indifference to nationhood, especially at times of crisis of solidarity in the European Union.