It is widely recognized that economic policy in the advanced capitalist countries shifted profoundly in the 1980s. Employment levels were abandoned to market processes, government deficits would be eliminated to squeeze inflation and release resources for private initiative, profitability had to be restored to improve the climate for investment previously ‘crowded out’, and the egalitarian trends in government intervention had to be reversed in the name of incentives. Fundamentally this lurch represented an attempt to claw back from workers some of the economic gains that the long period of high employment had brought, full employment and growing wages and welfare spending being blamed for the deterioration of economic performance of the later 1960s and the 1970s.

The purpose of this article is to throw some light on the fundamental question: did the change in policy stance represent a viable new pattern of development? Judged by output growth the 1980s were hardly spectacular. Even between the recession in the early 1980s and the stagnation of 1991–92, output growth was markedly slower (outside the usa) than in the ‘golden age’ of 1960–73 (see Table i). Over the 1980s as a whole, output grew a little faster in Japan than during the ‘intershock period’ of 1973–79, but rather slower in Europe.

But such continuity of output growth between the intershock period and the 1980s conceals very significant changes in other facets of economic performance. This article begins by charting, necessarily briefly, the extent to which the most obvious indicators of heightened conflict in the seventies (inflation, industrial unrest, profit squeezes and government deficits) were reversed in the 1980s. Inflation declined, profits recovered, government finances improved and strikes were fewer. Judged by these indicators at least, substantial success in restoring domestic economic stability was achieved. Partly as a result of pursuing this objective, but also to sharpen market incentives, there was a conscious shift away from egalitarian policies. Section 2 contrasts the abandonment of full employment in the countries of the European core with the much more favourable employment record both of ‘corporatist’ countries in Northern Europe and some of the more laissez faire economies, notably the usa. Compared to the diverse employment record, cuts in expenditure on social welfare and reductions in the progressiveness of the tax system represented a very widespread reversal, or at least halting, of the egalitarian thrust of policies typical of the golden age. The policy shift towards the free market was not, however, without its problematic elements even for the owners of capital. Section 3 outlines the troubling indicators at the end of the 1980s of financial instability in both the domestic and international spheres. So capital accumulation in the 1980s took place against this backdrop of reduced domestic conflict, a pronounced policy shift towards inegalitarianism and increasing financial strains. Section 4 shows that the investment recovery of the 1980s left rates of accumulation well below those of the golden age, especially in Europe. Moreover, the pattern of investment was twisted away from manufacturing and towards service sectors mostly closely linked to domestic consumption booms and insulated from international competition. Section 5 places the further stumbling in growth in 1991 and 1992 in the context of the patterns of development emerging in the 1980s and reports on the continued adherence of international organizations such as the oecd and imf to the policy prescriptions they had zealously pursued over the previous decade.footnote¹ Whilst an attempt is made to sketch in some of the very substantial variation in performance as between countries (or groups of countries), space precludes discussion of international economic relations between the blocs.footnote²

Throughout the later 1960s and the 1970s the advanced capitalist countries (accs) experienced a period of heightened conflict over distribution. Periods of accelerating inflation reflected the reluctance of workers to accept the rise in living standards implied by productivity growth and terms-of-trade movements, combined with pressure on governments to preserve high employment by accommodating the expansion of credit. Profit squeezes took place when employers were constrained, by competitive conditions or demand, from passing on the resultant high wage increases as price rises. Budget deficits reflected, in part, reluctance by governments to impose higher taxation to finance the growing weight of social expenditure, fearing that distributional conflict would be exacerbated as workers sought to offload the tax burden through wage negotiations. Strikes signalled the often fraught relations between employers and workers.footnote³

Although clearly there are country-specific features at work, these indicators are nevertheless helpful in underlining the turbulence of the seventies and the degree of stabilization achieved in the eighties. For conciseness, the tables in this and the following section show averaged data for the oecd as a whole, the usa, Japan, a group of seven European ‘core’ countries, and a group of five ‘corporatist’ countries (Scandinavia plus Austria).footnote⁴ The data shown are for the ‘intershock period’ 1974–79 as a whole, the eighties as a whole, and the final year; the intention being to signal trends within the 1980s.

(a) Inflation

Inflation was lower after 1979 (averaging 5.2 per cent per annum) than before (8.8 per cent per annum) and this was true in almost every country, with a rather similar fall in the usa, Japan and Europe.