F. M. Scherer
This article views capitalism as the set of economic relationships that emerged with the rise of the industrial or factory system during the eighteenth century. It focuses on production in privately owned, often capital-intensive facilities embodying ever more advanced technologies during and following the Industrial Revolution. The Industrial Revolution set in motion dynamic forces that will be the primary concern here. Most important among them are technological advances that propelled accelerated economic growth, changes in the structure of enterprise ownership and in the distribution of income among workers and owners, and a tendency toward more or less cyclical fluctuations in economic activity. These are the “dynamics” on which the article focuses.
Devesh Kapur and Manik Suri
This chapter examines the interaction of geopolitics and “geoeconomics” in the Pacific Rim. It discusses the importance of international supply chains, implications of China’s political presence in the region, and the role played by multinational firms. It highlights the divergence between geopolitical objectives pursued by the United States and Australia to contain China and geoeconomic realities that strengthen China’s position. This chapter contends that the Asian Pacific region’s embrace of free markets, free trade, and private enterprise has enabled it to race ahead, epitomized by the case of China.
Nicholas Crafts and Marco Magnani
After the Golden Age, Italy experienced increasing difficulties in adjusting its economy to the changing external context and to the requirements for sustaining catch-up growth at a higher level of economic development. The adjustment issue is common to advanced countries, but the difficulties experienced in Italy look particularly severe. Cushioned by inflation and devaluation, growth remained relatively high in the 1970s. In the subsequent decade, in spite of improved conditions for addressing macroeconomic disequilibria, structural adjustments were neglected. Major supply-side reforms were eventually implemented in the aftermath of the 1992 crisis. Nevertheless, in the second half of the decade, growth fell below the EU average. These necessary reforms fell short of what was required. Participation in EMU did not help as far as the improvement of growth prospects was concerned. In the last section, some of the economic and meta-economic factors explaining the ineffectiveness of the reform process are briefly explored.
This article takes a critical look at the higher education sector in India. It notes that even though the number of institutions and enrollment in higher education continue their rapid growth (in excess of population growth), the quality of this education outside of a handful of institutions is questionable. The number of such graduates remains small relative to the population and demands of India's economy. In general, graduate education continues to remain in an alarming state with respect to both quality and quantity. India's impressive economic performance has made the problem in higher education seem less urgent than it actually is. The article discusses several of the challenges facing higher education: the system's inability to attract the best of the best to lives of teaching and scholarship, the separation of education and research, and a short-term profit motive by private education providers, among others.
Harold James and Kevin H. O’Rourke
The paper presents trade policy as in line with that of other continental European powers, with a move to moderate levels of tariff protection for politically sensitive sectors, such as steel and textiles and clothing, but also in agriculture, with levels of protection falling slightly before the First World War. Monetary policy was similarly driven by the constraints of capital scarcity and by the political priority attached to reducing the cost of funding government debt. The most innovative area was probably in industrial policy, where after the 1880s and again in the 1930s, in response to severe shocks, quite creative institutional policies were adopted. In particular, financial restructuring was used as an opportunity to reshape the structure of industry.
Over the last six decades, economic developments in the three countries that were defeated in World War II look strikingly similar. First came rapid reconstruction. Then followed the economic miracles of the Golden Age. The years that went from the first oil shock to the mid-1990s still saw fairly robust, and relatively similar, economic developments. Finally, during the last 15 years, the three countries held the dubious record of having the lowest output growth rates in the OECD area. The chapter looks primarily at Italy, using the examples of Germany and Japan to search for parallels and contrasts. Among the similarities, the main one lies in overall macroeconomic trends. The main differences are in economic policies (where Germany and Japan followed a much more orthodox stance than Italy), in labor market relations (with much greater conflict in Italy than in the other two countries), and in regional developments (where Italy was handicapped by the Mezzogiorno). Indeed, had Italy's government institutions, labor market relations and regional differentials been less problematic, Italy's growth performance might well have been superior to that of Germany and Japan.
Giovanni Federico and Nikolaus Wolf
The history of Italy since its unification in 1861 was accompanied by a dramatic increase in the country's integration with European and global commodity markets: foreign trade in the long run grew on average faster than the overall economy. Italy's comparative advantage changed fundamentally, from a high concentration of a few trading partners and a handful of rather simple commodities, into a wide diversification of trading partners and more sophisticated commodities. The chapter uses a new long-term database on Italian foreign trade at a high level of disaggregation to document and analyze these changes. The chapter concludes with an assessment of Italy's prospects from a historical perspective.
Thomas K. Duncan and Christopher J. Coyne
This chapter highlights the insights that the Austrian tradition brings to the analysis of foreign intervention. Foreign intervention is the use of the discretionary power of a government in one society to address the perceived problems in foreign societies. As such, the attempt to exercise top-down government authority, even with the most noble of intentions, will ultimately face problems similar to those faced in all types of central planning. The limits of human reason and the planner’s ability to engage in rational constructivism apply as strongly abroad as they do domestically. This chapter lays out those limitations and encourages a note of caution in attempts to intervene abroad.
Virginia Di Nino, Barry Eichengreen, and Massimo Sbracia
What is the relationship between real exchange rate misalignments and economic growth? And what effect, if any, did undervaluations or overvaluations of the lira/euro have on Italy's growth? This chapter addresses these questions by presenting, first, three main facts: (i) there is a positive relationship between undervaluation and growth; (ii) this relationship is strong for developing countries and weak for advanced countries; (iii) these results tend to hold for both the pre- and the post-World War II period. Building a simple analytical model, we explore channels through which undervaluation may exert a positive effect on real GDP. We assume that productivity is higher in the tradable-goods than in the non-tradable-goods sector, and examine the roles of market structure, scale economies, and wage flexibility in channelling resources from the latter to the former sector, increasing exports and real GDP. We then turn to Italy and verify empirically that, as the theory suggests, undervaluation has positively affected its exports. Undervaluation has been helpful, in particular, to increase the exports of high-productivity sectors, such as most manufacturing industries. Finally, we describe the misalignments of the lira/euro since 1861, analyze their determinants and draw the implications for Italy's economic growth.
Brian A’Hearn and Anthony J. Venables
This chapter explores the interactions between external trade and regional disparities in the Italian economy since unification. It argues that the advantage of the North was initially based on natural advantage (in particular the endowment of water, intensive in silk production). From 1880 onwards, the share of exports in GDP stagnated and then declined; domestic market access therefore became a key determinant of industrial location, inducing fast growing new sectors (especially engineering) to locate in regions with a large domestic market, i.e. in the North. From 1945 onwards, trade growth and European integration meant that foreign market access was the decisive factor; the North had the advantage of proximity to these markets