Economic Performance

Thirty years ago or less, students of Britain’s economic performance were offered as their centrepiece question one that was highly flattering to their own country: how did Britain achieve the miracle of the Industrial Revolution and provide the world with leadership and a deeply-envied model. Even in the Fifties and Sixties there continued to be a veiled self-satisfaction in economic history courses. Today the self-congratulation has gone. The question that has dramatised and well-nigh traumatised our approach over the past decade is the negative one: how have we come undone?

Inevitably, the new way of thinking has affected our interpretation of the past. And this has political repercussions, as the parties look for a way out of present national difficulties, and seek intellectual and historical justification for their programmes. Was the British achievement so great after all? It shrinks if expressed in terms of the post-1945 growth rates of other countries, or indeed of Britain herself. If we tone down our estimation of past glories, the recent declension does not appear so humiliating; a wry balm may thus be found by deprecating our past. Moreover, if the 19th-century economic achievement is downgraded, so, too, must be the liberal economic philosophy to which so much credit for economic success used to be given. Such an argument suggests that in the 1880s, with industrialisation, urbanisation and dependence on foreign trade far advanced, Britain’s government should have seized hold of the economy as Joseph Chamberlain urged – controlling imports, using tariff proceeds to finance welfare and sustain home employment and incomes. In short, there is a case for economic management, as then espoused by an element of the Conservative Party and now by Labour.

There is also a long-term determinism in the air. The party in power exempts itself from responsibility for the immediate present by arguing that Britain’s relative decline is now at least a century old, the outcome of long-term forces that were inconsistent with her continued economic predominance, and against which governments were largely impotent. The weakness of this approach lies, of course, in the astonishing escalation of the rate at which relative decline has taken place over the past decade.

All of this adds to the responsibilities of economic historians concerned with growth, and, alas, to their confusions and sense of inadequacy. But that is not the end of the challenge. Parallel to what is, in effect, a debate on the long-term performance of the economy and the policy decisions which have affected it, there is a challenge to amplify the study of the economy far beyond present conventional frames.

The economists’ approach, in terms both of theory and measurement, is indeed much called in question. Economists (on whom non-Marxian economic historians rely for their conceptual framework, some more than others) have sought to be scientific. This has led to attempts at quantification, and at integrated thought systems which formalise the relationships between the phenomena measured. Such abstraction and quantification makes its own demands and imposes its own exclusions. These are carefully pointed out and demonstrated by Matthews, Feinstein and Odling-Smee, and by Solow and Temin in the Cambridge volume. Immeasurables tend to become residuals (and hence very difficult to relate to anything real). Solow and Temin are frank: ‘The usual routine, in the absence of anything better, is to treat technology as the ultimate residual ... This is particularly unsatisfying to the historian.’ So it is that many historians, while finding the national income aggregative approach useful, even inescapable, have regarded it with a measure of distrust: they are fearful of what it may mask. And yet there is a compelling need to try to encompass the system of relationships in its entirety.

Misgiving goes further: is a system of thought that relies so heavily on assumptions derived from market behaviour intrinsically false, given that it excludes consideration of essential aspects of reality? Prominent among the circumstances that escape the net of the neoclassical economists are the motivational patterns of the groups which comprise society, the workings of the labour market, the nature of business leadership, the wealth and power structure, and the sub-worlds of technological and demographic change. According to this line of criticism, all these elements must be given their due place, even though this may make attempts at systematic overall explanation much more difficult. In this way a plea for holism, for a loosening of the frame, may become a plea for nihilism at the theoretical level. The Annales school of history, with its elaborate organicism serving in place of an articulated system of reasoning, does not construe economies in analytical/quantitative terms. To compound all this there are scholars like Albert Hirschman who insist on seeking new ‘connections’ between phenomena, and indeed ‘connections between connections’ (as Jon Elster described it, LRB, Vol. 4, No 17). These bridging speculations perform their magic either by deliberately leaving to others the challenge of overall integration on a national scale, or by denying its necessity. Moreover the desire to ‘connect’ may generate categories in a somewhat casual fashion, leading those who have proposed them to become addicted to them even when they have proved non-operational (e.g. cannot be subjected to measurement).

There is yet another intrusion into settled complacencies. Preoccupation with the economic system seen principally as a mechanism promoting growth and stability has been increasingly threatened over the past decade by a concern with equity and welfare, two residuals in the book of Gladstonian liberals and their latterday heirs. If you start from this end, concerning yourself with fairness and the quality of social life, an analytical inversion takes place: conditions of growth and stability, when they are made to yield to these imperatives of moral judgment, come to be treated as residuals. Students and teachers of recent years have responded to the left-wing historians’ call for more social interpretation: indeed economic history courses are in danger of being swamped by courses in social history. This has occurred in spite of the ‘taint’ of sociology, and the distrust for the subject shown by the present government and by a good many university authorities. It is even the case that many practitioners of the other social sciences consider sociology a heavy cross to bear in a hostile environment.

Little comfort comes from historians of the more general kind: modern history and economic history continue to see each other as alien cultures, and the advent of the computer has made the divide more acute. The modern historian may perhaps indulge in a little schadenfreude at the expense of those who, by making their thought processes explicit, make them vulnerable. To the economic historian it often appears that the modern historian, in seeking explanations that rely on personality or structure (or on combinations of the two), leaves too much to contingency. To approach the German role in the coming of the First World War through the character of William II may have a good deal to be said for it, but the formation of that curious personality, like any other, was a short-term phenomenon. Even to inspect the structure of the German constitution as a source of the calamity is to deal largely in semi-accident. On the other hand, any attempt to understand Germany’s approach to war by means of a generalised model of the economy is severely eschewed by most modern historians.

All of this produces a situation in which British economic and social history is a battlefield of controversies. As Crouzet remarks: ‘unlike in France, the conclusions of the most eminent writers do not become dogmas and are soon challenged.’ But it may be that even the British debate, for all its vigour and its taste for ‘criticism, not to say hypercriticism’, consists of ad hoc dispute within a governing paradigm.

The three books under review are all ‘nationalistic’, in the sense of seeing the nation state and the society it contains as realities, at least for certain purposes, which include study, measurement and exposition. They suggest that, as the source both of policies and of much of the available data, the nation state is a useful conceptual unit. The Cambridge volume also suggests that differences in national cultures are highly significant in terms of economic performance and potential. Crouzet in his treatment of Britain gives an appropriate place to the state, while recognising the paradox that in the Victorian age of which he writes the object of British economic policy was to minimise policy. Matthews et al. fit government into their picture in an incidental way: the main thrust of their argument is that growth and total factor productivity are primarily determined outside the field of government. In the Cambridge case, the discussion of public policy is reserved for Volume VIII.

François Crouzet’s study of Victorian Britain epitomises the one-country approach. But it is someone else’s country: he is an honorary Englishman at the Sorbonne and, as Professor of Northern European History, an honorary European. He does not regard the British record as merely fortuitous or as resting upon exploitation alone: ‘At her zenith as a super-power,’ he writes, ‘Britain was lacking neither in greatness nor in human virtues.’ Like his countryman Elie Halévy, he has always been fascinated by the British performance in the 19th century and by its implications for the 20th. It may be, however, that his book represents the ending of a grand tradition in the subject, for what he does is to combine Sir John Clapham’s concern with what was happening in the leading sectors of economic activity with the fairly recent techniques and insights of national accounting and demographic inquiry.

Crouzet approaches the Victorian economy of Britain initially in macrocosmic terms, looking at performance in the round; he then moves through demography and structural changes, focusing on the problems of growth. Much of his Part Two is by way of Clapham-type disaggregation: agriculture, transport, the leading industrial sectors and finance are considered, and the respective supply responses and the conditions that lay behind these are outlined. His perceptive epilogue is concerned with the vigorous debate around the question of the seeds of British economic decline from the later 19th century.

François Crouzet was determined that his students in Paris to whom this presentation was first made should receive a full diet of quantified fact, even though he would undoubtedly agree with Matthews and colleagues that the aggregative data before the late 1850s are inadequate, and that the figures for the later Victorian age are still too frail to bear the weight of elaborate theory, except where it is expressed with the greatest tentativeness. For all its difficulties, however, Crouzet’s book provides one answer, and an impressive one, to the question: how in the present state of knowledge is the economic performance of a nation to be viewed over time? In Anthony Forster’s translation, it is a brave attempt at comprehension.

Matthews, Feinstein and Odling-Smee offer their work as a component of a series of parallel historical studies of growth in seven industrial countries, sponsored by the American and British Social Science Research Councils. Theirs is primarily an exercise in measurement, based on the belief that, in spite of the need for careful caveats, reasoning about the performance of the economy should start from correctly-informed observations, i.e. statistics: only when these have been established is it possible to go on to causes, consequences and policy options. The emphasis here is frankly on understanding the present rather than the past. This means that the perspective is set by contemporary requirements.

Two curves dramatise the British growth performance of modern times and they both clarify and complicate the matter. Britain’s performance relative to that of rival nations has been one of almost continuous decline since the 1850s, though she has remained among the leaders. In terms of her own performance, the rate of growth fell before the First World War, but recovered during it: thereafter, though real GDP was set back in 1919-21 more seriously than at any time since the industrial revolution, this was followed by more than fifty years of increase in the rate of growth of productivity. But because the interwar years had focused on unemployment and the archaic structure of British industry, and because national income accounting had yet to be born, the main preoccupation then was not with growth, so that it was not realised that real income per head was increasing a good deal faster than in the years before the war. After World War Two came unparalleled growth. There are important implications in seeing the two wars as major turning points: to do so is to stress seemingly arbitrary discontinuities that are incapable of being reduced to trend.

Part Five contains the essence of the book: readers who are concerned with the general picture rather than how it was arrived at statistically are directed to this concluding section. There is a brief but useful bridging epilogue linking 1973 to the present. The book is a major contribution in what it provides as data and perspective, but also in terms of the manner in which such problems should be approached. It will be hard on the easy generalisers (and the teachers of introductory courses whose jobs require this sin of them), and very remote from the ordinary people whose views are now so eagerly sought by pollsters and media programme-makers. But it will be indispensable.

In contrast to the Matthews volume the one from Cambridge, now appearing in welcome paperback, is multinational and has its centre of gravity firmly in the 19th century. It is a historian’s book, and it is couched in comparative terms in the belief that nations can usefully be laid side by side. In order to set the terms of such a comparison, the editors have felt obliged to borrow the economists’ idiom – namely, that of the production function – treating each country under three heads: capital formation, labour supply and entrepreneurship. Each country thus has three chapters, all by different hands. This was the remit set by the late M.M. Postan and his pupil Peter Mathias. Postan, who creatively dominated British economic history for so long, loved debate about the kind of framework or historical idiom one should employ for different purposes. The present volume, the penultimate one in the Cambridge Economic History of Europe, represents a culmination of the interests of a marvellous man who urgently desired to synthesise, to delineate patterns, but whose own insights were for ever upsetting tidiness of thought.

For the editors ‘European’ means ‘modern’ or ‘developed’, which makes it possible, indeed necessary, to include the United States and Japan. This is right and proper, given the comparative aim of the book. But it has been done at the last moment at which it could be done: any future venture of this kind would have to depart from Eurocentricity, leaving behind the last traces of the Cambridge history school which, at the dawn of the teaching of modern history saw Europe as the context within which Britain (England?) could best be understood, and the rest of the world as an expansion of Europe. Each country is discussed by its own nationals, except that, of the four contributors on Japan, three hold American university posts, and Russia is shared between America and Britain.

The task awarded to contributors has generated a certain eclecticism: the volume is in some ways closer to what the late C.R. Fay would have described as a ‘magazine’ rather than a book. Robert Solow and Peter Temin provide a useful introductory economists’ essay for historians on growth and the inputs that govern it. This stands at the threshold, a necessary exposition of methodology that all economic historians require, but which all but the most austere are likely to pass by. Solow and Temin stress the limitations of what they are saying, especially the tenuousness of the link between industrialisation and welfare.

The chapters on capital formation in the various countries make the most difficult reading. For whereas labour and entrepreneurship drag even the most detached essayist back to the human element, capital formation can dwell for a long time in the realm of abstraction, a kind of historical ectoplasm generated at different rates in different economies. This is especially so if the writer has prominent in his mind the search for theorems that will link capital formation with other variables. The older the industrialisation process in a given country the more austere is the treatment of capital formation.

The editors make no attempt to pull their contributors’ essays together: they had enough difficulty in extracting them, it seems – which accounts for the long delay in publication. So it is that in spite of the production function framework there is no standard pattern. The book will be very useful to those seeking enlightenment on particular countries: only the most comprehensive of minds or the most jejune will respond to the challenge of synthesis.

These three works exemplify the dilemma now confronting the economic historian. Should the emphasis be on formalisation of thought, together with the improvement of the statistical base that provides the building blocks, or should this endeavour be given reduced priority. Should the economic historians draw closer to the economists, or should they move in the direction of the modern historians who eschew highly articulated reasoning, who distrust aggregates, and who in any case are concerned with power rather than with market behaviour? The judgment of this reviewer is that the economic historian should press on in the company of the economists, but in so doing should avoid so far as possible the blinkers which so easily impose themselves on any effort to arrive at overall conceptual manageability. Moreover economic history should not consist exclusively of such attempts at order. The need will be greater than ever for that other kind of mind which skirmishes on the flank of orthodoxy, probing for errors of omission or commission, for self-reinforcing delusion and for the compounding of error that over-rigorous specialists in interaction can produce.