Economies and Nations in a Challenging World: How and How Prompt Will They be Able to React to Present Crisis? Some Insights from Contemporary European Economic History.
Edoardo Pizzoli
Please cite the paper as:
Edoardo Pizzoli, (2024), Economies and Nations in a Challenging World: How and How Prompt Will They be Able to React to Present Crisis? Some Insights from Contemporary European Economic History., World Economics Association (WEA) Conferences, No. 1 2024, Capitalism, Socialism and Democracy 80 years later, Looking at capitalism today in light of its past and possible future
Abstract
Introduction
The economies of the European continent are experiencing just the latest in a long wave of crises that puts pressure on the stability of national institutional settings and the modern experiences, after World War II, of democratic societies. European Capitalism, in reality fully globalized from a long time, always seems to survive after crises but following traditional ways-out: social straggle with always the lower classes who pay the costs (Duménil et al, 2006); contemporary control of information with reduction of representative democracy, in turn driven by strong political lobbies well rooted in the real economy (Chomsky, 2023); last but not least, a re-proposed model of war economy that produces alongside immediate growth, destruction in the long-term (Sutton, 1973).
It is quite clear to any development analyst that the current old-style economy is obsolete and inadequate to address these challenges on several aspects: in terms of economic policy tools used by governments, speed of reactions and, above all, type of solutions proposed (Rifkin, 2019). These limits are evident, first of all, with respect of the main issue that humanity finds itself facing in contemporary world history: climate change and global sustainability.
Scientists provide a clear evidence based on data that accelerated human activity, induced by technological leaps and a series of industrial revolutions in European countries and United States, together with population growth, have generated in the recent past and still continue currently producing massive greenhouse gas emissions. The effect is well know: global warming, resulting in sudden weather events and irreversible climate effects affecting vulnerable geographical areas (IPCC, 2018).
The anthropic effect on this natural phenomenon key to biological and human life is measured in the thin slice of earth in which we are able to live in this last Anthropocene era, but the political reaction in our society seems very weak and slow, despite the scientific knowledge and technological means we have at our disposal.
After the Second World War there was hope for a new era of peace, at least in Europe, based on growth and well-being, with the support of the two competing world powers, winners of the war: USA and USSR.
The European history of the last century provides examples of national tested solutions and responses that proved somewhat effective but then (and we should be lucky to understand this today) left long-term negative consequences. The negative examples come from economies inspired by both free markets and socialist planned systems. Degradation of the natural environment and massive consumption of (mostly non-renewable) resources everywhere, instability of financial and commodities markets after several deep crises in capitalist-led economies, dismissal of centrally planned economies in most socialist countries after collapse of the Soviet Union.
Militaristic and resource-destroying competition between the two leading post-war superpowers and previous inherited technology are responsible for such un-sustainable development paths.
The challenge is to learn from previous experiences to understand the reasons for failure, avoid replicating the same mistakes and to explore innovative solutions. National economies need a sufficiently fast transition towards a new system compatible with sustainable development. This is a systemic evolution that requires open minds and courage, as it was for the pioneers of entrepreneurship in market economies and for planners in socialist-led economies.
The attempt at a “green” technological transition in this area of the world constitutes important food for thought on how and with what speed change can be achieved today with just market economies (Pizzoli, 2018).
Economies in Europe After World War II
The national economies that grew in Europe after World War II followed the models proposed by the USA and the URSS, with multiple combinations of free markets and centrally planned economies. In any case, the government played a central role, using economic policy instruments, laws and institutions, but above all by financing investments and growth.
Many studies describe the boom of market based economies such as France or Italy in the 1950s and 1960s, up to the economic success of European Common Market. Much less is known about the development of socialist Comecom economies for competing political reasons but also for lack of data. Today, more careful reflection is possible.
Schumpeter View and Expectation on the Development of Economy
Writing his popular book “Capitalism, Socialism and Democracy”, Schumpeter was influenced by the Great Depression of the 1930s, a period of deep crisis in Western market economies and expansion of the Soviet economy; the latter, the first world experiment of socialist economy, albeit starting from a large gap in terms of original accumulation of real capital and technological knowledge (Schumpeter, 1942). It was an opportunity to focus attention on the dimensional and organizational evolution of factories and large capitalistic companies. The latter, now globalized, are still the main players (with governments) in market economies. Today we can observe the subsequent evolution of multinationals and groups, which led to a resilient capitalist system, not to a smooth evolution in favour of a socialist economy in the form developed in Russia.
Experience of Planned Economies in Central Europe
In Russia, after the 1917 revolution, and subsequently in URSS and the Comecon area, a system of centrally planned economy was experimented with. Soviet “style” plans have been implemented in Russia for nearly 80 years with mixed results of success and failure.
The starting idea was that the national economy could be managed like a huge factory, where specialized technicians (engineers, agronomists, etc.) work according to national plans with nationalised worker-controlled means of production (Bukharin, 1920). It was believed that a simple administrative structure, along with worker participation, motivation and democratic decision- making, was needed at several levels of political organization.
In practice different types of similar realizations have been implemented in different countries with many difficulties: conflicts and inefficiencies, faced with the complexity of society and the limits of planning tools, data and processing capacity (Ellman, 1979). The results obtained would seem to justify Von Mises’ the classical criticism of the impossibility of achieving efficient planning (Von Mises, 1920).
To overcome these difficulties, great theoretical and applicative efforts were made by Nobel prize- winning Russia economists and technicians (Leontief, 1925; Kantorovich, 1939; Glushkov, 1964; Antonov, 1965). Some of the issues highlighted by these authors are of current interest, to understand the limits of the technology underlying Soviet-style central planning.
Challenges and Solutions for the Future in Europe
The challenges for European economies in the current context need to be considered with great attention and some solutions can be learned from some past experiences. A careful study is important to discover which policies and tools of the past could be effective today to re-orient European economy on a different development path, based on full sustainability (D’acunto, 2022; Chomsky, 2023).
References
Antonov, O. K. (1965) Soviet Planning, Russia.
Bukharin, N. eand Preobrazhensky, Y. (1920) The ABC of Communism, Russia.
Chomsky, V. (2023) Illegitimate Authority, Haymarket Books, US.
D’Acunto, M. (2022) Capitalism, Finance, Global Warming, Youcanprint, Italy.
Duménil, G. and Lévy, D. (2006) La Finance Capitalist: Rapports de Production et Rapports de Classe, in La Finance Capitaliste, Presses Universitaires de France, France.
Ellman, M. (1979) Socialist Planning, Cambridge University Press, UK.
Glushkov, V. (1964) Synthesis of Digital Automata, Russia.
Kantorovich, L.V. (1939) Mathematical Methods of Organizing and Planning Production. Management Science. 6 (4): 366–422,
IPCC (2018) Global Warming of 1.5°C, Special Report, Switzerland.
Leontief, W. (1925) The Balance Sheet of the National Economy of the USSR, Russia.
Pizzoli, E. (2018) The Green Economy: a Technological Option Against Economic Crisis?, in The 2008 Crisis Ten Years On: in Retrospect, Context and Prospect Paperback by Hermann, A. and Madi, M. A., 2020, WEA book, UK.
Rifkin, J. (2019) The Green New Deal, First St. Martin’s Griffin Edition, US.
Shumpeter, J. (1942) Capitalism, Socialism, and Democracy, Harper & Brothers, US.
Sutton, A. (1973) National Suicide: Military Aid to the Soviet Union, Arlington House, US.
Von Mises, L. (1922), Socialism: An Economic and Sociological Analysis, Gustav Fischer Verlag, Germany.
It would be interesting to develop an ecological assessment of the dynamics of the ‘centrally planned’ economies of Eastern Europe. My impression is that the overwhelming emphasis on investment and growth (which failed) in these economies led to an even greater tendency to ignore the negative externalities associated with the growth of material production. Nove argued that the Soviet planning model failed to take external effects into account because the emphasis of overwhelmingly on assessing enterprise performance in terms of quantitative output rather than in terms of social value added.
The observation that “centrally planned” economies of Eastern Europe have overwhelmingly focused on the objective of investment and growth is certainly correct. After the Second World War there was a tight competition with western-capitalistic countries and they needed to close the gap with them, starting from a much lower level of development of national productive forces. We have to remember that the centrally planned system was applied to under-developed economies with respect to industrialized Western Europe and US. These countries needed to survive against external pressure (military, technical, commercial,…) from companies and governments and, at the same time, internal pressure (material consumption, standard of leaving,…) from workers and consumers.
In this historical context, these countries followed objectives of economic national interests, concentrating investments and fast growth in specific sectors: in Russia in the ’30s iron, steel and heavy engineering, while in the ’40s weapons; in ’50s again Steel, carbon and oil; in ’60s chemical products and natural gas; in ’70s agriculture and electronics. It is well known that heavy industry is extremely polluting and consumes non-renewable resources.
This means intensive exploitation of natural resources without any care to the environment.
We have to add also a “knowledge” limit. Economic accounts of units (enterprises and associations) to check their efficiency were based only on measuring the quantity of output and added value produced. there was no accounting of “external effects”. Furthermore, at the central level they had to struggle against the scientific capacity of the planning techniques, especially of the data processing (this until the ’80s). Planning effort was concentrated only to the key productive activities and labour-force (industry, agriculture, constructions and goods transportation).
Lastly, but not lease, until recently in the economic culture, Neoclassical-Keynesian in capitalistic countries and Marxist in socialist countries, there was no attention or interest on environmental issues. The first warnings from the late ’60s of MIT reports, the Club of Rome and later the Worldwatch Institute (1974), on the limits of development (limited natural resources and absorption of pollution by the planet) were rejected as irrelevant and as wrong predictions. Meadows et al. reports (’72, ’92 and 2004) demonstrate the “myopia” of economic culture.
Today again, in the UN SNA, adopted by all market economies, there is a huge gap in the measurement of the environmental effects and a struggle to “defend” a value added system based only of economic results. The assessment of “social value added” was far than an utopia in the 70 years experience of centrally planned economy in Eastern-Europe and, unfortunately, this is still the case in today’s capitalistically developed economies.
The objective of pursuing a different development model would require a different measurement system.
It is a very interesting contribution. By the way, what can be learned from the experiences of the former socialist (or state capitalist) countries, in particular Russia and eastern Europe?
This 70-year experience of centrally planned economies, with significant differences between countries, presents alternating periods of rapid growth and slowdown of the economy following the periodicity of the plans: long run (15/20 years), short run (annual operating plan) and the most important five-year plan. These performances were obviously linked to the external world events and the tough competition with market economies (US, Western Europe, Japan south Korea etc.) but in some cases surprising countertrends were observed, such as for example in the 1930s after the Wall Street crash. In summary, with all the limitations and efficiency problems encountered, faced by these socialist countries to implement their plans, they demonstrated that an alternative running of national economies was possible. That was the first attempt in human history traying to implement scientific techniques, with the limits of technology, especially in IT, available at the time: it have to be recall that no one knew how a socialist economy should be practically organized, starting from some simplistic ideas such as, for example, the “gigantic factory” of Bukharin and Preobrazhensky.
Today we have the challenge of the speed of economic conversion to “save our planet”: it would be short-sighted not to make good use of this experience, re-studying it more thoroughly.
Agree that we should examine the successes of central planning carefully. The legacy of this experience is still an open question. I do think there are limits to the amount of information that a centrally planned authority can act upon, no matter the advances in IT technology, but what the limits are still must be determined.
The fundamental limit given by the complexity of the system always remains, I agree. But it makes you smile, thinking about today’s electronic devices, if you look back at the efforts made by the American government and Leontief when in 1949 they tried to process NBER data at Harvard with the first computer. Or if you consider that even in 1947 the 2,300,000 persons engaged in computational work in the Soviet economy no more than 3 or 4% did their work with the aid of electrical computing machinery. The bookkeeper has traditionally done his work with pen and ink, with no machine aids other than Russian abacus or occasionally arithmometer (Campbell, R. W., 1958).
The fundamental limit given by the complexity of the system always remains, I agree. But it makes you smile, thinking about today’s electronic devices, if you look back at the efforts made by the American government and Leontief when in 1949 they tried to process NBER data at Harvard with the first computer. Or if you consider that even in 1947 the 2,300,000 persons engaged in computational work in the Soviet economy no more than 3 or 4% did their work with the aid of electrical computing machinery. The bookkeeper has traditionally done his work with pen and ink, with no machine aids other than Russian abacus or occasionally arithmometer (Campbell, R. W., 1958).