The Third Pillar: How Markets and the State Leave the Community Behind

by Raghuram G. Rajan

Western Europe, the first beneficiary of this new order, became much more productive. Output grew not just from new investment in machinery, but also from the increased use of motor vehicles and the spread of electrification, the resumption of the interrupted rollout of the Second Industrial Revolution. These developments created a variety of virtuous circles. For instance, as farmers started using tractors, labour left agriculture and moved to work in new factories (that were being set up to utilize the cheap labour), and to live in the growing cities. Manufacturing required more educated workers, and average education attainments improved substantially across Western Europe. An increasing number of graduates filled the huge demand for skilled workers in the industrialising economies. Growing worker incomes then led to greater demand for consumer goods, completing the virtuous circle. As one example of the tremendous growth in manufacturing, in 1951 Italian factories made just 18,500 refrigerators, two decades later they were producing over five million a year.6 The explosion in supply was absorbed by a matching increase in demand. In 1957, fewer than 2 per cent of Italian households had a fridge, in large part because few owned cars with which to shop in sufficiently large quantities to stock fridges. Indeed, Italy had just 7 cars per thousand people in the early 1950s.7 Today, such a low level of car ownership would rank it at 172 out of 191 countries, putting Italy at ...

Car & fridge ownership in western europe