CAPITALISM.

During the twentieth century, Western Europe's gross domestic product (GDP) grew at the annual average rate of 2.5 percent. Put another way, it increased more than ninefold in real terms between 1914 and 2004. Measured per capita, income levels increased nearly fivefold during the same period, at an annual rate of 1.7 percent. This general trend, however, conceals major differences between periods (table 1) and between countries, with Britain on the whole lagging behind its main competitors though starting from a higher level of income.

The rhythm of economic change is a reflection of the dynamics of European capitalism, of the interplay of economic, social, and political factors—war and peace, international cooperation and competition, monetary regimes, technological innovation, levels of industrialization, corporate structures, social relations of production, state intervention, and regulation. This entry will examine how these various factors have influenced Western Europe's economic development in the course of the twentieth century. One recurring theme will be the convergence and divergence between European economies and societies, and the extent to which various types of capitalism have coexisted in Europe. Although most countries will be referred to at some point or another, the discussion will be primarily concerned with Europe's three leading economies: Britain, France, and Germany.

EUROPE ON THE EVE OF THE FIRST WORLD WAR

When war broke out in August 1914, European capitalism had been partly reshaped by the effects of a profound economic and social transformation, usually known as the second industrial revolution. A deepening of the industrialization process and a number of technological innovations led to the emergence of new industries, which were to form Europe's industrial base for most of the twentieth century—steel, electricity, chemicals, motor cars, oil, rubber, aerospace, and synthetic fibers, as well as consumer durables in food, drink, and tobacco. These industries were characterized by a more systematic application of science to industry, greater capital requirements, and the rise of large firms.

Big business, which had hitherto been mostly confined to railway companies, thus became one of the major institutions of European capitalism in the twentieth century—without, however, ever reaching the same proportions as in the United States. Large firms came to dominate the new industries because of the economies of scale or of scope made possible by significant progress in production techniques, in particular continuous-process production (in the refining and distilling industries, as well as in the chemical and metallurgical industries) and the assembly of interchangeable parts (more characteristic of the machine industry, including electrical engineering); and because of their increasing need for backward (mostly into raw materials) and forward (semifinished products or distribution) integration.

Big business in Europe displayed both common features and national specificities, reflecting in large measure national patterns of capitalist

organization. Truly large firms (with say a workforce of five thousand people or more and market capitalization of $20 million or more) were hardly to be found outside Europe's three largest economies (Britain, France, and Germany), even though the perception of big business, in terms of political as much as economic power, existed in all countries. Similarly, family ownership and control persisted everywhere, including in Europe's largest companies, such as Krupp and Siemens in Germany, Schneider and de Wendel in France, and Vickers and Barclays Bank in Britain, to give but a few examples. State ownership was still limited, though not insignificant with, for example, the nationalization of the Prussian railway network in 1879, the British government share in the Suez Canal Company and the Anglo-Persian Oil Company and, everywhere, the public ownership of the newly established telephone companies.

Even though the frontiers of big business tended to be limited to the unit of the firm, alternative forms of organization included business groups, mostly found in France and based on crossed ownerships and interlocking directorships; and cartels were present everywhere but particularly popular in Germany, a form of horizontal concentration where firms retained their independence while agreeing on prices and quotas of production.

In the financial sector, British, French, and German commercial banks had become giant firms. Moreover, huge financial transactions were also undertaken by family partnerships in the city of London, the world's financial center in the age of the first globalization—a type of big business organization different from its traditional embodiment in a large or giant firm and more typical of the British economy, where markets played a more important role than in Continental Europe.

Finance was indeed triumphant in Britain, even though the concept of "finance capital," coined in 1911 by the German statesman Rudolf Hilferding, has been used to describe a German phenomenon, the "merger" between banking and industrial capital under the leadership of the big banks. Europe was the world's banker in 1914, above all Britain, with some $18 billion invested abroad in 1914, representing 42 percent of the world's total, well ahead of France (20 percent), Germany (13 percent), Belgium, the Netherlands, and Switzerland (together 12 percent), and the United States (8 percent), which was also the largest importer of capital. Nevertheless, capital mainly flowed toward less developed countries, leading to heated debates between both contemporaries and generations of historians about the links between capital exports and imperialism, characterized by Vladimir Lenin (Vladimir Ilyich Ulyanov; 1870–1924) as the "highest stage of capitalism"—though such analyses have lost a great deal of their impact since the mid-1980s or so.

To what extent had different types of capitalism emerged in Europe at the eve of World War I? The issue has been widely debated, from different perspectives. The notions of "personal capitalism" (for Britain) and "managerial cooperative capitalism" (for Germany) have been applied by the economic and business historian Alfred Chandler (b. 1918) and his followers, mainly on the basis of big business organizational structures and forms of ownership—though no real differences existed in this respect between the two countries, even allowing for the prevalence of cartels in Germany. The same could be said of the concept of "organized capitalism," often applied to Germany past and present. Projecting contemporary analyses to the pre-1914 period, early forms of a "bank oriented capitalism" have been detected in Germany, and of a "market oriented capitalism" in Britain—a contrast that points to the longer-term commitment of German banks to industry, and to the greater development of the British capital market, but overestimates the effective differences between the two countries.

Similarly, any talk of "winners" and "losers" of the second industrial revolution seems misplaced. The winners are commonly assumed to be the United States and Germany, the losers Britain and France. As far as Europe is concerned, economic growth was indeed faster in Germany than in Britain and France during the Belle Epoque, the years spanning from turn of the twentieth century to World War I. Real GDP grew at the annual average rate of 3 percent in Germany, 1.5 percent in Britain, and 1.7 percent in France, and GDP per head at respectively 1.2 percent, 0.7 percent and 1.0 percent—prompting talk of a relative economic decline in Britain, while the gap between France and Germany was narrower when measured per capita, because of France's weaker demographic growth.

These differences have often been attributed to the greater success of Germany in the new industries. The assumption might seem right when considering electrical engineering, where American and German firms established an early dominance. On the other hand, Germany had a near monopoly, with Switzerland, in dyestuffs, where the United States did not do much better than Britain and France. Things look different again when looking at motor cars, where France was the world's number one until 1904 and only second to the United States thereafter; while in oil, synthetic fibers, and consumer durables, British firms were far more competitive than their European rivals. The dynamism of German capitalism should not be questioned when accounting for the country's economic performance before World War I. However, the fact that Germany was catching up with Britain, the leading economy of the day, goes a long way to explain the difference in the growth rates between the two countries.

In the end, differences rather than divergence best describe the diversity in European capitalism on the eve of World War I. Differences between predominantly "industrial" societies—the proportion of the workforce employed in the secondary sector (50 percent in Britain, 41 percent in Germany, 34 percent in France) was higher in Western Europe in 1910 than anywhere else in the world, including the United States (30 percent). Differences between welfare states, which had emerged in all European countries—a politically motivated early start in the 1880s under the German chancellor Otto von Bismarck (1815–1898), with social insurances mainly targeted toward skilled workers; and a more universal and redistributive system in Britain (and in the Scandinavian countries) following the Liberal reforms of 1906–1911. Different strategies, besides a common paternalism, were followed by employers facing a rising and more militant union-ism—early recognition of trade unions by British employers, with increasing determination to preserve the "right to manage" compared to an authoritative stance and refusal of collective bargaining by German and French employers, especially in the heavy industries.

WARS AND DEPRESSION

The period described by Eric Hobsbawm as the "age of catastrophe," marked by two world wars and the most severe depression of the twentieth century, had profound repercussions on capitalism in Europe. At the international level, the balance of power shifted with the transfer of world leadership from Britain to the United States; while in Continental Europe, Germany's rise was temporarily halted, whereas France was initially given a boost before having its momentum slowed by the Great Depression and then the rout of 1940 and the occupation.

Economic growth slowed down dramatically, with real GDP and GDP per head increasing at an average annual rate of respectively 1.4 percent and 1 percent, well below the secular trend (table 1). There were, however, differences, between periods—the 1920s were on the whole more dynamic than the 1930s—and between countries—which fared unevenly and responded more or less adequately to changing economic conditions.

World War I brought about two major developments, which were to mark in varying degrees the functioning of European capitalism for the rest of the twentieth century: one was the greater involvement of the state in economic affairs, the other was recurring monetary instability, in particular inflationary pressures.

State intervention in the economy was a logical consequence of the constraints of a total war fought during four years between highly industrialized countries, with the home front playing a decisive role in the eventual outcome. The supply of raw materials and the production of armaments, in particular, required government coordination and control. In all countries, these tasks were often entrusted to businessmen who, as experts, were called to fulfill senior administrative and sometimes ministerial functions—Walther Rathenau in Germany (in charge of the raw materials department in 1914) and Louis Loucheur in France (as minister of armaments in 1917) are two of the best-known cases.

State intervention receded after World War I, as a result of both the gradual return to normal economic conditions and the wishes of political and economic leaders. Nevertheless, in all countries, a number of measures had to be taken in the field of industrial organization, not only to face the disruptions caused by the war, but also to answer the calls for nationalizations voiced by a politically more powerful labor movement. Hardly any nationalization took place in the interwar years. But industry and public services became more regulated—in Britain, for example, the Railways Act of 1921 reorganized the country's network into four large regional companies, while the Electricity Act of 1926 established a national grid to connect all generating stations, which were overseen by a newly created Central Electricity Board.

Economic policy also became more active, in particular in monetary matters. The gold standard, which had underpinned the international monetary system since the 1880s, stopped functioning at the beginning of World War I. Restoring it, however, came up against numerous obstacles. The United States was the first to reestablish the convertibility of the dollar from 1919, but a widespread return to prewar parities seemed difficult. Inflation was rampant in all the belligerent countries as well as in the neutral countries, but the scale of price increases varied considerably from one country to another. And the differences became more pronounced in subsequent years among the countries that managed to bring inflation under control (the United States, Britain, and the former neutrals), the more inflationist victorious countries (France, Belgium) and the defeated countries ravaged by hyperinflation (Germany, Austria).

The gold standard was finally restored between 1924 and 1926 in conditions that affected economic performance during the whole decade. Britain suffered from an overvalued currency following the pound's return to gold at its prewar

parity in April 1925, a decision deemed necessary to restore the country's position in the world economy. France, by contrast, was helped by an undervalued currency after the de facto stabilization of the franc in December 1926—and de jure in June 1928—at only a fifth of its prewar parity after two crises (in January 1924 and July 1926) had taken it to a much lower level. The contrast is clearly visible in the two countries' level of industrial production in the 1920s (table 2). Britain was further handicapped by the structural crisis of its old export industries (coal, iron and steel, textiles, shipbuilding) coming up against competition from newly industrialized countries, while France's industrial expansion, which had been interrupted during the war (not least because of the loss of the northern and northeastern frontier areas) resumed with renewed vigor. Like France, Belgium also benefited from an ever more devalued currency; while the Netherlands, which like Switzerland and the Scandinavian countries had restored its currency at its prewar parity in 1924, took full advantage of its neutrality during the war, in particular in terms of industrial capacity and export markets. In Germany, where the Reichsmark replaced the mark at a trillionth of its prewar value, a number of constraints held down industrial growth, including the ravages of hyperinflation and the loss of territories and industrial capacity, as well as structural imbalances in the economy.

Reorganizing capitalism was envisaged and debated in the 1920s. This was the heyday of the "rationalization" movement, whose basic principle revolved around producing more efficiently, and hence generating more profits, a portion of which could be redistributed to employees in order to improve industrial relations. The notion of rationalization was fairly vague, with both a microeconomic (primarily scientific management) and a macroeconomic (improving economic conditions) meaning—though the two went hand in hand in modernizing circles, as the benefits gained by individual firms by the introduction of advanced methods of production, most often inspired by the American model, should in turn extend to the economy as a whole.

Mergers and acquisitions were seen as one of the best ways of modernizing equipment—by eliminating excessive capacity, closing down inefficient units, and increasing financial capacity to undertake new investment. A number of wide-ranging amalgamations did indeed take place in the 1920s, the most notable being the formation of IG Farben (in chemicals) in 1924, of the Vereinigte Stahlwerke (United Steel) in 1926 in Germany, and of Imperial Chemical Industries (ICI) in 1926 in Britain. However, large-scale operations and the rationalization of production could also be achieved through internal growth, as happened most spectacularly in motor cars, one of the fastest growing industries of the period and a potent symbol of modern capitalism. The French manufacturer AndréCitroën, for example, increased his production from 2,500 cars in 1919—the year he started applying American methods of mass production, in particular with the introduction of assembly lines—to nearly 100,000 ten years later.

The rationalization movement was not an outright success, at least in the short term. Investment in new machinery often resulted in overcapacity, while the rigidities of new organizational structures could prove to be a handicap rather than an advantage. Citroën went into liquidation in 1934, three years after deciding to entirely rebuild his Javel plant; while the Vereinigte Stahlwerke had to be saved from bankruptcy by the German government in 1932, as its integrated vertical structure lacked flexibility in a dramatically changing business environment. Moreover, at the national level, rationalization had created overcapacity in the old industries in Germany, in particular in textiles and the heavy industries.

Success was also limited in the timid attempts at altering the social relations of production. In France, trade unions were not recognized as negotiating partners until 1936. In Germany, war and, especially, demobilization amid a revolutionary climate led to significant changes: the recognition of trade unions by employers, collective bargaining, and the eight-hour day were the main outcomes of the Stinnes-Legien agreement of 15 November 1918, together with the establishment of a "working community" to implement the agreement. However, relationships between capital and labor soon became very strained, with employers eager to put an end to the labor legislation of the Weimar Republic. In Britain, a number of initiatives were taken to bring together employers and unions, culminating in the Mond-Turner talks of 1928, which however fell short of achieving long-term consultation and cooperation.

In any case, any hopes of modernization that might have been entertained in the 1920s were swept aside by the depression of the 1930s, which shook the very foundations of capitalism. Industrial production in Europe slumped by 28 percent between 1929 and 1932 (and by as much as 39 percent in Germany) and exports by 40 percent, while unemployment soared to between 15 percent (France) and 44 percent (Germany) of the working industrial population in 1932.

The crisis was at first met by deflationary policies (as no other options were available within the constraints of the gold standard if exchange parity was to be maintained), with little success and sometimes devastating effects, as in Germany under Heinrich Brüning, the Reich's chancellor from March 1930 to May 1932. Brüning's drastic measures, including budgetary cuts and tax increases, intended to lower German prices in order to boost exports, only made matters worse.

Reflationary measures were first taken in Britain after the pound left, somewhat unwillingly, the gold standard in September 1931 and was devalued by some 30 percent, thus making British exports more competitive. With a floating currency, though maintained at a competitive rate by the Bank of England through the Exchange Equalization Account, interest rates could be substantially lowered. This policy of cheap money was a the root of the economic recovery of the 1930s, stimulated by the boom in the building industry and the growth of the consumer goods industry, mainly based in London and the southeast of the country, in contrast to the countries that remained in the gold standard, the so-called "gold bloc,"

which included France, Belgium, the Netherlands, and Switzerland (table 3).

Recovery in Germany took place within a different economic and political context. The economic policy of the Nazi regime, in power since January 1933, was mainly based on autarky (a policy of establishing a self-sufficient and independent national economy); the growth of capital goods industries, in the first place armaments; and the state's authoritarian and direct intervention in economic affairs (45 percent of gross investment in industry between 1933 and 1938).

France's attempts at reflating its economy came much later, with the electoral victory of the Popular Front in May 1936. The new left-wing coalition did not seek to alter the structure of French capitalism (only the armament industries came into public ownership, while the state took a 51 percent stake in the newly created SNCF, the national railway company), but tried to stimulate demand by increasing purchasing power. Salaries were increased by 7 percent to 15 percent (amid of a wave of sit-down strikes), together with the introduction of paid holidays and the forty-hour week, at the Matignon Accords of June 1936, and the franc was finally devalued in September. These measures, however, failed to revive the French economy.

World War II at first boosted the economies of the belligerent countries (especially Britain, which engaged in a total war effort from an early stage and, unlike Germany and Italy, did not end up defeated and in a state of total devastation), as well as the neutral countries (in particular Sweden and Switzerland); while the occupied countries (in particular France, Belgium, and the Netherlands)

suffered from systematic economic exploitation (table 4). By the end of World War II, the gap between Europe and America had reached an all time high: in 1950 Western Europe's per capita GDP was just over half that of the United States, whereas it had never fallen below two-thirds in previous decades. Even more than the World War I, World War II intensified state intervention in the economy. This time, the effects were to be longer lasting.

GROWTH AND REGULATION

The thirty years following World War II were the golden age of economic growth in Europe. Following postwar reconstruction, real GNP and GNP per head increased at an average annual rate of respectively 4.6 percent and 3.8 percent between 1950 and 1973, twice as fast as the secular trend. In the words of Andrew Shonfield, "capitalism converted from the cataclysmic failure which it appeared to be in the 1930s into the great engine of prosperity of the postwar Western world" (Shonfield, p. 3).

Several explanations have been given for this outstanding postwar expansion. In the first place, it took place in a far more stable and collaborative international context, despite the Cold War, with the founding of the United Nations in 1945 and the setting up of a series of multilateral organizations; the opening up of borders, especially in the field of international trade once the General Agreement on Tariffs and Trade (GATT) had come into force in 1947; and by introducing a more flexible fixed exchange rate system and international monetary cooperation with the foundation of the International Monetary Fund at the Bretton Woods Conference in July 1944.

European integration was another favorable factor, starting with the formation of the Organisation for European Economic Cooperation (OEEC) in 1948 to organize the distribution of the American aid through the Marshall Plan; then with the setting up of the European Coal and Steel Community (ECSC) in 1952 between France, Germany, Italy, Belgium, the Netherlands, and Luxembourg; and finally, and especially, with the creation of the European Economic Community (EEC) through the signing of the Treaty of Rome by the same six countries in March 1957. Greater European openness provided a competitive business and economic environment, while the establishment of an enlarged common market offered further incentive for investment, one of the main determinants of economic growth during the period.

Yet in the final analysis, the golden age of economic growth can best be explained by the dilapidated state in which Europe found itself after the war, which gave it a huge potential for catching up with the world leader, namely the United States. Catch-up and convergence theories also help to explain the differences between European countries, in particular between Britain and Continental Europe, as countries with levels of income and productivity closer to those of the United States grew at a slower rate, leading to a far greater degree of convergence between European countries by the early 1970s (table 5).

Catching up with the United States was mainly done through technology transfers, starting with the Marshall Plan, which provided not only for the delivery of machinery, but also for the visit of "productivity missions" to the United States, in order to enable groups of business executives, civil servants, trade unionists, and others to observe on the spot American production and management techniques. More generally, European capitalism embraced during the 1950s and 1960s the type of society that had developed in the United States since the 1920s, based on mass production and mass consumption, as witnessed, for example, by the growth of the automobile industry (the United States produced eight times as many cars as Britain, France, Germany, and Italy together in 1929, but only twice as many in 1957), household appliances, and other consumer durables. European businesses also adopted American managerial practices. They grew larger, became more diversified, and, in order to face up to new challenges, increasingly turned to

the multidivisional structure (a decentralized form of organization consisting of autonomous divisions, each of them corresponding to the firm's main product lines), often on the advice of the American consulting firm McKinsey. To be sure, this "Americanization" was a complex and in many respects hybrid process, with specific forms of adaptation depending on countries and industries, but it undoubtedly played a role in Europe's post-war revival.

Changes in the structure of employment were both a cause and a reflection of economic growth and European convergence in the postwar years. The share of agriculture in total employment fell drastically, not only in Italy and France, but also in Germany; the share of industry grew closer between European countries; while the highest increase was that of the tertiary sector (table 6). Interestingly, the major gains in productivity vis-à-vis the United States, which in the last analysis are at the root of Europe's faster economic growth, appear to have been made not so much in industry, as on the one hand in services, and on the other hand through the massive transfer of labor from agriculture to industry.

European capitalism was far more state oriented during the third quarter of the twentieth century than ever before (except in wartime) or after. In 1945, unlike 1918, there was no wish to return to the prewar order: laissez-faire and deflationary policies had proved unable to solve the Depression, especially mass unemployment. Moreover, a theoretical framework for a new approach was provided by John Maynard Keynes's General Theory of Employment, Interest, and Money, published in 1936. For Keynes, governments should intervene, through a contracyclical policy, in order to make up for the failure of market mechanisms, raising aggregate demand during the recession phase of the business cycle, and decreasing it during the expansion phase, using fiscal policy and monetary policy as its main instruments for intervention. Budgetary deficit, public investment, and social policy (with the development of the welfare state) were also part of a set of economic policies that came to be known as Keynesianism.

Beyond contracyclical policies, a system of "mixed-economy" was set up in European countries, combining government intervention with state ownership of a significant chunk of business activities and enterprises. A series of nationalizations took place after the war, in particular in Britain and France. The move was essentially political, with the Labour Party coming to power in 1945 in Britain, and a more general consensus toward state control in France, reinforced by the weight of the Communist Party and more generally the Resistance in French politics. In 1945 and 1946, in both countries, coal mining, electricity, gas, air transport, railway companies (already nationalized in 1936 in France), and the central bank were transferred to state ownership, in addition to the iron and steel industry in Britain, and the main commercial banks and insurance companies, as well as the car manufacturer Renault in France.

State ownership was even greater in Italy, with the formation of the Instituto per la Ricostruzione Industriale (IRI) in 1933, which controlled most of iron and steel, mechanical and electrical engineering, and shipbuilding as well as the country's three largest banks. And it should not be underestimated in Germany, where part of the manufacturing industry, besides public utilities, transport, and communication, was already in state hands, with 50 percent of the automobile industry (through Volkswagen direct ownership) and 20 percent of coal, iron and steel, shipbuilding, and chemicals (through state holding companies such as VEBA or VIAG).

A degree of economic planning was another characteristic of European capitalism in the postwar years. This was particularly the case in France, where the quadrennial economic plan, starting with the Monnet Plan in 1946, became the principal

tool of government intervention. Based on a wide consultation of the various economic interests, the plans established a series of indicative industrial priorities, which the government was nonetheless able to implement through a combination of budgetary measures and fiscal incentives. In Britain, attempts at emulating French economic planning in order to improve economic growth in the early 1960s remained elusive. In Germany, the heritage of organized capitalism survived in the social market economy that developed after the war, based on the long-term relationship between banks and industry and, unlike Britain and France, an independent central bank and codetermination (Mitbestimmung) in enterprises, in other words the representation of labor on the supervisory board of large enterprises.

Though a German institution, codetermination points to the greater integration of labor into European capitalism that occurred during the period. The social relations of production came to be organized, at the firm level through a works council, established, in most European countries, in large and medium-sized enterprises; and at the industry or national level, through collective bargaining. Industrial conflicts, however, in particular strikes, differed both quantitatively and qualitatively between countries, being less numerous but longer in northern and central Europe, and more frequent and often politically motivated, though shorter, in southern Europe (France and Italy).

Did the European economies converge during the golden age? There is no clear-cut answer to the question. There was a clear convergence in levels of income and productivity, in the structure of employment, and in the overall influence of the state in economic affairs. On the other hand, the movement was less evident as far as socioeconomic structures are concerned. Business organization is a case in point. Corporate structures, for example, retained their national characteristics despite the widespread adoption of American management techniques with, for example, a dual board of directors (executive board and supervisory board) in Germany and a single one in Britain and France. Small and middle-sized companies played a greater role in Germany (the Mittelstand) and Italy (industrial districts) and are often considered to have contributed more significantly to the two countries' economic performance than large corporations. Differences were also strong in the recruitment of business executives (mostly from the corporate sector in Britain and Germany, and from the state administration in France); and more generally in business cultures and value systems (internal hierarchy, sociability, and so on) within corporations.

GLOBALIZATION AND DEREGULATION

Economic growth slowed down after 1973, returning to its secular trend (table 1), mainly as a result of the weakening of Europe's catch-up potential, whatever the role played at the same time by other factors, including the two oil crises of 1973 and 1978. At the same time the end of the fixed exchange rate system in 1973 gave a new impetus to international capital flows—the first clear signs of a globalization of the world economy, which picked up in the 1980s and especially the 1990s.

As during the period prior to 1914, it was international capital flows that formed the heart of globalization, though other phenomena, such as enhanced transport facilities, faster communications, and increased trade should not be discounted. Recent estimates put the supply of capital invested abroad at some $29,000 billion in 2000, a tenfold increase in twenty years. This upsurge in capital exports was directly linked to the progressive liberalization of the financial markets, which was part of a much broader trend: the growing influence, firstly in the Anglo-Saxon countries, and then elsewhere in the world, of a neoliberal view of the economy and of society.

In this respect, at least symbolically, the coming to power of Margaret Thatcher (b. 1925) in the UnitedKingdomin1979andRonaldReagan (1911–2004) in the United States in 1981 marked the beginning of this new vogue. Some resistance has certainly been encountered, attitudes have shifted and policies have changed over the following decades; but the fundamental economic dispensation—the smaller state and the strengthening of market mechanisms—has not really been challenged.

Market liberalization meant first of all the free movement of capital: exchange controls and other measures aimed at curbing both capital outflows (in Britain, France, and the United States) and capital inflows (Germany, Switzerland, Japan) were mostly dismantled during the 1980s. It also meant the deregulation of the financial markets, with increased internationalization and competition, epitomized in the "Big Bang" that took place in the city of London in October 1986.

The 1980s were also the years when corporate finance, that is to say all of the activities relating to organizing and financing mergers and acquisitions, really took off. Underlying this trend was the conviction, widespread in the United States by the late 1970s, that the interests of company shareholders were not always well served by their salaried managers. From this viewpoint, a takeover bid, if necessary unfriendly and addressed directly to shareholders, seemed to be the best penalty for poor management and the threat of such an action the best way of compelling management to remain vigilant. A wave of buying and selling businesses and of mergers and demergers followed, first in the United States, then in Britain, thus giving rise to the term "Anglo-Saxon capitalism," meaning dominated by market forces.

But it was the Thatcher government's privatizations that more than anything characterized the 1980s in England. Assets in excess of 40 billion pounds (75 billion dollars) were put on the market between 1981 and 1991, more than half of which belonged to public utilities (telephone, gas, water, and electricity), ushering in a new form of popular capitalism—by the end of the process, Great Britain had more than 8.5 million individual investors, that is to say one fifth of the adult population. Privatizations were more limited in France (they brought the state some 70 billion francs [approximately 13 billion dollars] between 1986 and 1988) and affected enterprises in the competitive sector, mostly nationalized in 1982, and over which the authorities continued to exert a degree of control.

The wave of mergers became even more intense during the 1990s, with hostile takeovers and stockmarket battles beginning to hit continental Europe, as exemplified by the takeover in 2000 of Mannesmann, Germany's second industrial group, by the British mobile telephone operator Vodafone after a battle that shook the very foundations of the Rhineland model of capitalism , distinguished by the dominating role of the banks and the preeminence of management over shareholders.

At the turn of the twenty-first century, European capitalism was facing a number of new challenges. Firstly, while firmly engaged in the third industrial revolution (information technologies, biotechnologies), Europe was still lagging behind the United States both in terms of innovative capacities and the development of large and competitive business enterprises. Interestingly, there were no significant differences between European countries even though, and contrary to the second industrial revolution, Britain appeared somewhat more in the vanguard than Germany. Secondly, while still one of the richest regions of the world, and in some respects the most pleasant one in which to live, Europe appeared to be struggling to combine international competitiveness and social welfare. The contradiction might have been more apparent than real and the outcome still uncertain, yet the process of globalization, competition from newly industrialized or industrializing countries, with delocalization and high unemployment in several countries as its most obvious effects, strained the welfare state in Europe. Thirdly, though European economies had been brought closer together by further integration (and a common currency for those that adopted the euro in 1999), a European model of capitalism, combining the competitiveness of a knowledge-based economy with a socially inclusive society, seemed elusive, not only because of the effects of globalization, but also because diverging types of capitalism—Anglo-Saxon and Germanic—appeared to be at loggerheads. In 2004 uncertainty remained as to which type would, and should, prevail. The outcome is not for the historian to predict, though it is unlikely that the fate of European capitalism in the twenty-first century will lie so much in overcoming this tension as in solving new and unexpected problems with which it will undoubtedly be confronted.

See alsoAutomobiles; Economic Miracle; European Coal and Steel Community (ECSC); European Free Trade Association.

BIBLIOGRAPHY

Albert, Michel. Capitalism against Capitalism. Translated by Paul Haviland. London, 1993.

Broadberry, Stephen. The Productivity Race: British Manufacturing in International Perspective, 1850–1990. Cambridge, U.K., 1997.

Cassis, Youssef. Big Business: The European Experience in the Twentieth Century. Oxford, U.K., 1997.

Chandler, Alfred D., Jr. Scale and Scope: The Dynamics of Industrial Capitalism. Cambridge, Mass., 1990.

Chandler, Alfred D., Jr., Franco Amatori, and Takashi Hikino. Big Business and the Wealth of Nations. Cambridge, U.K., 1997.

Crafts, Nicholas, and Gianni Toniolo, eds. Economic Growth in Europe since 1945. Cambridge, U.K., 1996.

Eichengreen, Barry. Golden Fetters: The Gold Standard and the Great Depression, 1919–1939. New York, 1996.

Feinstein, Charles H., Peter Termin, and Gianni Toniolo. The European Economy between the Wars. Oxford, U.K., 1997.

Hall, Peter A., and David Soskice, eds. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford, U.K., 2001.

Hardach, Gerd. The First World War, 1914–1918. Berkeley, Calif., 1977.

Kaelble, Hartmut. A Social History of Western Europe, 1880–1980. Dublin, 1989.

Kindleberger, Charles Poor. The World in Depression, 1929–1939. Berkeley, Calif., 1973.

Maddison, Angus. Dynamic Forces in Capitalist Development: A Long-Run Comparative View. Oxford, U.K., 1991.

——. Monitoring the World Economy, 1820–1992. Paris, 1995.

Milward, Alan S. War, Economy, and Society: 1939–1945. Berkeley, Calif., 1977.

——. The Reconstruction of Western Europe, 1945–51. Berkeley, Calif., 1984.

Pollard, Sidney. Britain's Prime and Britain's Decline. The British Economy, 1870–1914. London, 1989.

Shonfield, Andrew. Modern Capitalism. London and New York, 1966.

Van der Wee, Herman. The World Economy, 1945–1980. Harmondsworth, U.K., and New York, 1986.

Zeitlin, Jonathan, and Gary Herrigel, eds. Americanization and Its Limits: Reworking US Technology and Management in Post-War Europe and Japan. Oxford, U.K., 2000.

Youssef Cassis