West German growth and institutions, 1945–90

Abstract

Introduction Popular perceptions of West German economic growth are polarized: either it is the miracle economy of the postwar era, the ‘strong-man’ of Europe, or it is a sclerotic economy, typifying Europe's inflexibility in labour and capital markets relative to the United States. One way of reconciling these apparently contradictory views is to depict West Germany as ‘the fading miracle’, as Giersch et al. (1992) have done. From this perspective, the miracle has long since gone and memories have lingered far behind the reality. But in Michel Albert's recent popular account of postwar capitalism (1993), Germany's reputation for dynamism and adaptability remains untarnished. One aim of this chapter is to put these contrasting interpretations into a longer-term and explicitly comparative perspective. Throughout, Germany's performance will be compared with that of the other three large European economies, the UK, France and Italy. It is useful to begin by looking at attempts to identify a common OECD pattern of growth over the long run, and then at the extent to which West Germany fits this pattern. As a starting point, two such studies are used to provide a benchmark for the assessment of German growth. First is an endogenous growth model based on Scott (1989) and estimated by van de Klundert and van Shaik (1993; henceforth, KS) for a group of eight OECD economies from 1870, extended to sixteen for the postwar period. The second study is that of Dowrick and Nguyen (1989; henceforth, DN) which is a Solow-type model with exogenous technical progress, augmented with catch-up estimated for a group of twenty-four OECD countries for the postwar period.

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