All available sources indicate that the changes observed in Britain, France, and Germany (which together in 1910 and again in 2010 account for more than two-thirds of the GDP of Western Europe and more than half of the GDP of all of Europe) are representative of the entire continent: although interesting variations between countries do exist, the overall pattern is the same. In particular, the capital/income ratio in Italy and Spain has risen quite sharply since 1970, even more sharply than in Britain and France, and the available historical data suggest that it was on the order of six or seven years of national income around the turn of the twentieth century. Available estimates for Belgium, the Netherlands, and Austria indicate a similar pattern. Next, we must insist on the fact that the fall in the capital/income ratio between 1914 and 1945 is explained to only a limited extent by the physical destruction of capital (buildings, factories, infrastructure, etc.) due to the two world wars. In Britain, France, and Germany, the value of national capital was between six and a half and seven years of national income in 1913 and fell to around two and a half years in 1950: a spectacular drop of more than four years of national income (see Figures 4.4 and 4.5). To be sure, there was substantial physical destruction of capital, especially in France during World War I (during which the northeastern part of the country, on the front lines, was severely battered) and in both France and Germany during World War II owing to massive bombing in 1944 -1945 (although the periods of combat were shorter than in World War I, the technology was considerably more destructive). All in all, capital worth nearly a year of national income was destroyed in France (accounting for one-fifth to one-quarter of the total decline in the capital/income ratio), and a year and a half in Germany (or roughly a third of the total decline). Although these losses were quite significant, they clearly explain only a fraction of the total drop, even in the two countries most directly affected by the conflicts. In Britain, physical destruction was less extensive — insignificant in World War I and less than 10 percent of national income owing to German bombing in World War II — yet national capital fell by four years of national income (or more than 40 times the loss due to physical destruction), as much as in France and Germany. In fact, the budgetary and political shocks of two wars proved far more destructive to capital than combat itself. In addition to physical destruction, the main factors that explain the dizzying fall in the capital/income ratio between 1913 and 1950 were on the one hand the collapse of foreign portfolios and the very low savings rate characteristic of the time (together, these two factors, plus physical destruction, explain two-thirds to three-quarters of the drop) and on the other the low asset prices that obtained in the new postwar political context of mixed ownership and regulation (which accounted for one-quarter to one-third of the drop).
Posted on: Sat, 10 May 2014 12:20:59 +0000
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