Postwar: A History of Europe Since 1945

by Tony Judt

Instead, western Europe began to experience what was inelegantly dubbed ‘stagflation’: wage/price inflation and economic slowdown at the same time. In retrospect this outcome is less surprising than it seemed to contemporaries. By 1970 the great European migration of surplus agricultural labor into productive urban industry was over; there was no more ‘slack’ to be taken up and rates of productivity increase began inexorably to decline. Full employment in Europe’s major industrial and service economies was still the norm—as late as 1971 unemployment in the UK was 3.6 percent, in France just 2.6 percent: but this meant that organized workers who had grown accustomed to bargaining from a position of strength were now facing employers whose generous profit margins were starting to shrink. Pointing in justification to the increased rate of inflation from 1971, workers’ representatives were pressing their case for higher wages and other compensation upon economies that were already showing signs of exhaustion even before the crisis of 1973. Real wages had begun to outstrip productivity growth; profits were declining; new investment fell away. The excess capacity born of enthusiastic post-war investment strategies could only be absorbed by inflation or unemployment. Thanks to the Middle East crisis, Europeans got both.