Analysis and Critical Review of Article 12: Golden Age Economics

This report analyzes an article by N.F.R. Crafts on the Golden Age of economic growth in Western Europe (1950-1973). The article explores the reasons behind this period of rapid economic development, contrasting the new growth theory with the neoclassical growth model, and emphasizing the roles of technological advancement, social competence, and favorable economic conditions. The report summarizes the article's methodology, which includes accounting, the Solow model, the Levine-Renelt model, and new growth models, and highlights the factors contributing to economic growth, such as rising investment levels, increased school enrollment, and labor productivity. A critical review of the article is provided, with the student either agreeing or disagreeing with the author’s sentiments on human capital, productivity, investment, and the impact of taxation and institutional arrangements. The review also examines the UK's economic performance during this period, aligning the analysis with the article's arguments and offering alternative perspectives on the relationship between investment, taxation, and economic growth.

Global Political Economy
Students Name
Institution

Article 1
Article Summary
Basically, the article seeks to explain why post second World war period is
considered the “golden age “ in economic development .The author refers to the period 1950-
1973 as the golden age phase characterized by the rapid economic development of Western
European countries. To explain the growth in economic activity, the article explores the new
growth theory to the neoclassical growth model. According to the Crafts, the new growth model
emphasizes the part played by taxes in promoting investment the neoclassical growth model
stresses on the role of institutional reforms as the basis of the rapid economic growth.
Specifically, the reason for the golden age rapid rate of economic growth includes technological,
social competence and favorable economic conditions.
The author’s sentiments are importance because it seeks to explain past
developments as a lesson for future generations. Also, the author helps the readers have a better
understanding of the golden age and why the title is befitting. Among the methodology used by
Crafts in this article include accounting, Solow model, Leisner –Renet model and the New
Growth models. According to the article, the reason for the rapid economic growth in France and
Germany was due to rising investment levels and increased school enrolment levels as compared
to Britain. Further, the rise in labor productivity was responsible for the rapid expansion of
economic activities in Western Europe. Moreover, the article explains the reasons behind the
increased rate of investment and the catch up growth rate phase of the Golden Age economic
performances.

Article 2
During the Catch up phase, the article identifies the rapid rate of
technological transfer, social capability and market size ,trade liberalization and the war as
responsible factors as explaining the different phases of economic growth. Also, Capital
accumulation played a key role in the expansion of economic activity. However, during the
Golden phase, the British economy was not doing as well as other countries due to weak
institutional frameworks and low productivity levels in terms of labor. New growth in
Economics. The author credited new growth economies to the declining performance of the
United Kingdom. Overall, the article seeks to explain the reasons behind the golden Age in
Western Europe countries and the declining performance of the United Kingdom through
economic models and microeconomic concepts.

Article 3
A critical review of the article
According to Craft, human capital represented by education contributed very
little to the golden age economic growth rate1.To this end I strongly disagree, this is
because economies with high levels of skilled labor have high levels of income per capita
in the long run equilibrium hence the assertion that skilled labor plays a bigger role in the
rate of economic development2.In the long-run, countries with less skilled labor have less
per capita income as compared to those with a large percentage of skilled labor.
Undoubtedly, income per capita directly affects the rate of economic growth. Usually, an
increase in per capita income is an increase in the gross domestic product of a country
which is interpreted as economic growth. In this case, I hold the view that skilled labor
leads to a faster rate of economic progress as compared to unskilled labor. Typically,
underemployment slows down the rate of economic activity due to skill mismatch hence
my agreement to the article’s sentiments that skilled labor is a precursor to economic
growth.
Regarding productivity, Craft makes the assertion that the high productivity rates
experienced in France, West Germany during the golden age largely contributed to the
1 Crafts,”The Golden Age of Growth in Western Europe.” The Economic History Review, New series,
Vol .48, P P 429-447
2 M. Mello,” Skilled labor, unskilled labor, and Economic Growth’, Epge.fgv.Com,
https://epge.fgv.br/files/2054.pdf

Article 4
rapid growth of economic activity during the golden age phase. I do concur with the
article's sentiments to the extent that labor productivity enhances the rate of economic
growth3 .Simply, productivity implies output per hour. Productivity is key to the rate of
economic development. There is energy productivity and labor productivity .Typically,
higher productivity levels imply a higher rate of economic growth as compared to lower
productivity levels. According to a global review by the International labor organization,
productivity in labor is a major driver of the growth of economic activity4 .This goes to
show the large role productivity in labor has on the expansion of economic activity. I
concur with the author’s linking of high productivity levels to a high rate of economic
activity.
According to the Craft’s assertions under Table 4 on the Levine-Renelt
Approach, the rapid economic rate was influenced by rising levels of school enrolment
and investment. Essentially, education and training are the backborne of a trained
workforce. Knowledge and skills are essential to firm performance and industry
performance which impact the rate of growth of economic activities. Specifically, the
investment rate in the years 1923-38 stood at 1.42 to 2.06 as between the years 1973 -
89.Also, the school enrolment for the same period of time stood at 0.16 to 0.79
respectively for secondary school enrolment. Typically, skilled labor is a result of
education and training. It is not in doubt that the skilled labor force promotes economic
activity growth rate. Through the training of laborers, countries enjoy competitive
3 K, Nakamura,S.Kaihatsu & Tt.Yagi,T.”Productivity improvement and Economic growth”.
Boj.OR.,2018,https://www.boj.or.jp/en/research/wps_rev/wps_2018/data/wp18e10.pdf(Accessed 9 OCT
2019)
4 International Labor Organization ,” Global Employment Trends”,ilo.Org,
2013.http://ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/
wcms_202326.pdf(Accessed 9 OCT 2019)

Article 5
advantages over countries with largescale unskilled labor. Worth noting, a skilled labor
force is a positive externality on the economy5.Through a skilled labour-force, the
economy could benefit from skills and knowledge of a skilled labor force. Skilled labor
fulfill market needs hence economic growth.
Usually, a skilled labor force leads to better labor outcomes hence promoting
the rate of economic activity6. In this regard I consider the article's argument relevant and
accurate to the extent that the increased rate of education played a role in the economic
growth rate of golden Age. Education directly impacts on human capital which is
necessary to propel economic activity. A skilled human capital is ideal for the rapid
expansion of economic activities .It is important that a labor force be skilled in the market
employment opportunities hence an investment in education facilitates that. Through a
skilled labor force, there will be no underemployment or structural unemployment due to
a mismatch of skills with employment opportunities .Further, the availability of human
capital is key to the growth of economic activity hence I do agree with the author’s
remarks that there was increased economic activity in Western European countries due to
increased secondary school enrolment. Through education, workers get the relevant skills
for relevant employment opportunities hence an increased rate of employment thus
increased income.
Additionally, Craft attributes the rapid economic activity growth rate to the
increased rate of investment recorded between the years 1923 and 1989 .I hold the view
of the view that investment directly affects that rate of economic development. This is
5 B. Radcliffe,” How education and training affect the economy ”Investopedia,
https://www.investopedia.com/articles/economics/09/education-training-advantages
6 A.E Hanushek ‘,.Education quality and economic growth”. Standford.Edu,2012,
http://hanushek.stanford.edu/publications/education-quality-and-economic-growth-02012

Article 6
because investment affects the aggregate demand for goods and services thus casting an
effect on the economy’s capacity7.Notably, investment implies capital expenditure which
affects the demand side of the economy. Typically, I do agree that an increase in the
investment levels between the years1923-89 created a boost on the aggregate demand of
Western European countries hence the short –run rise in the region’s economic growth
rate. Further, increased domestic investment is responsible for economic growth8This is
because investment leads to low unit costs, increased employment hence increased per
capita income for the laborers and the economy. Usually,low rates of unemployment are
a good indicator of economic growth .
Based on the article, capital accumulation as illustrated by figure 4 of the article
contributed to the Golden Age economic expansion. The article denotes the Golden Age
as a big investment boom to which I concur. Growing economic activity is a result of
demand side factors such as investment. To which investment is a loose term for capital
accumulation. Personally, I consider the Golden Age a phase of economic boom due to
the increased rate of investment .Usually, an increase in investment impacts the gross
domestic product of a country which is considered an economic measure of value in a
given period of time. Personally, I feel there is a relationship between investment and
economic activity. Specifically, there is a linked relationship between public investment
and Gross domestic product of a country. A rise in the gross domestic product of a
country leads to an increase in the rate of public investment 9.Through increased
7 T. Pettinger,”.Investment and economic growth. Economicshelp.Org,2017,
https://www.economicshelp.org/blog/495/economics/investment-and-economic-growth(Accessed 9 Oct
2019
8 B, Sayef, B.”The impact of domestic investment on economic growth: New Evidence from Malaysia.”
Mpra.edu.,2015,from https://mpra.ub.uni-muenchen.de/79436/1/MPRA_paper_79436.pdf
9 Amber & Sohail, “ Impact of public investment on Economic Growth”. MPRA Paper 70377, 2015,
Munich University Library

Article 7
investment rates, there is increased human capital, demand for goods and services hence
increased aggregate demand in an economy thus an increase in the rate of economic
activity. Through increased aggregate demand for goods and services, economies grow.
According to new growth economics, as articulated by the article, taxation is
considered a hindrance to investment. I disagree with the article’s sentiments. Recently,
President Donald Trump introduced the Tax Cuts and Jobs Act in the United States.
Subsequently, the corporate tax fell from thirty five percent to twenty-one percent10. The
significant reduction in the corporate taxation system is an incentive for more
corporations to set up due to the reduction in the taxation burden for corporate entities in
the United States in America. This illustration asserts my claim that tax cuts are an
incentive rather than a deterrent to investment. My argument is that taxation goes both
ways. Higher taxation can discourage investment but lower taxation tariffs encourage
investment .I do hold the view that the article’s view was a bit one sided in the sense that
it looked at taxes as a deterrent yet taxes can be used as an incentive through cuts and
breaks. The author ought to have investigated the effects of tax breaks on investment and
not just an increase in the tax rates being levied on investment ventures exclusively.
In addition to the abovementioned issues, the Golden Phase was enabled by
institutional arrangements that promoted investment in return for wage rate restraints. My
view is that investment is affected by the minimum wage. An increase in minimum
wages triggers a reduction in the total investment hence in this scenario, the author’s
sentiments are similar to mine. Personally, an increase in investment is an increase in
employment hence there is an increase in economic activity. However, a decrease in
10 Aneubach 2018 .Measuring the effects of corporate tax cuts. Journal of Economic perspectives, Vol 32,
No .4, PP 97-120

Article 8
wages triggers a decrease in investment hence it makes sense that the post war European
countries increased investment levels contributed to the low wage growth rate at the
time11.I do hold the view that institutional factors play a key role in economic progress.
Weak and unreformed institutional framework slow down the rate of economic
development. Typically, a weak competitive environment is less likely to inspire
economic growth this is because there will be less consumption of goods and services due
to low demand for goods and services.
The article makes a revelation to the effect that the United Kingdom's
economic welfare was not at its best during the Golden Phase period. The article
interprets the declining UK economic performance in terms of a new growth model.
Based on the New Growth model, the Levine Renelt model deductions, the slow rate of
development in the United Kingdom is due to a low rate of investment during the Golden
phase. I do concur with the assertion that low levels of investment slow down the rate of
economic growth. Usually, low levels of investment mean that the demand for goods and
services has gone down hence a reduction in the rate of economic activity thus slow rate
of economic progress. Also, low level of investment implies that there are low
employment levels hence low rate of economic activity. Through investment, there is
increased rate of economic activity because investment creates employment, encourages
expenditure and production of goods and services hence enhanced thus there is increased
rate of economic activities. Also, investment affects the gross domestic product of a
country hence affecting growth.
11 C. Bircan ,2016,’ Foreign direct investment and wages: does the level of ownership matter’,

Article 9
Further, I do concur with the article's assertion that human capital impacts the
rate of economic activity. Through an expansion of skills and knowledge, the economy
benefits from productivity. Evidentially, there is an increase in productivity outcomes due
to increased educational investment. With an increased education investment, there was
an increase in the gross national product in European Union member states12I do agree
with the sentiments that education and training provide an efficient and productive human
capital which is instrumental in economic activity. According to the article’s finding,
Table 7, the level of vocational training in the United Kingdom during the Golden Age
was lower as contrasted to the vocational training figures in France, Netherlands and
Switzerland hence could explain the low pace of economic growth in the United
Kingdom. However, am disappointed that the other did not go ahead and substantiate the
assertions. The fact that the article did not substantiate the claims makes the assertions in
the article uncertain makes the author’s claim a bit shaky.
The article raises the question as to whether there are positive externalities to
human capital formation. According to the article, human capital is capable of positive
externalities. To which I fully agree. Notably, economies with a large human capital
capacity are likely to grow faster as contrasted with an economy with low human capital
capacities. Also, through human capital accumulation, productivity is an eminent
possibility which is essential to the rate of economic development. Further, am
disappointed with the article's undecidedness as to whether the low capital formation in
the United Kingdom was partly responsible for the declining economic performance.
Despite this uncertainty, the article attributes the declining economic activity of the
12A.RWilson & G.Briscoe, “Impact of human capital on economic growth: A Review” Cedefop.eu..
https://www.cedefop.europa.eu/files/BgR3_Wilson.pdf,Accesed 9 OCT 2019

Article 10
United Kingdom to inefficient investment and failure to invest in broad capital
formations as supported by Table 8. Personally, I hold the view that investment should be
invested broadly and efficiently to boost the rate of growth in economic activities.
The success of France and Germany was a reduction in the manufacturing gap and
labor productivity. During the Golden phase, the United Kingdom was batting labor
productivity challenges. Typically, low labor and energy productivity levels mean that
there will be higher unit prices in production hence there will be a slowed rate of
economic activity. The author blames the low levels of labor productivity to the
weakening of the British economy. Productivity enhances the rate of economic activity.
In relation to the article’s claims it makes sense to the effect that with high levels of labor
productivity lead to low unit costs13Through low costs, demand for goods and services is
increased thus an increase in employment. Usually, an increase in the employment rate
means an increase in disposable income thus increased expenditure raising the demand
for goods and services hence an increase in the rate of economic activity. A reduction in
unemployment rates contributes to the rate of economic activity thus the assertion that the
article’s sentiments are on point in this scenario 14
Additionally, the declining United Kingdom performance is linked to institutional
factors such as weak competition, unreformed industrial relations and weak economic
conditions that could not sustain the moderation of wages or higher levels of investment
Essentially, competition is key to economic development15.Weak competition slows
13 A.C.Cabrales,”.Human Capital externalities “,Scielo.org,2011 http://www.scielo.org.co/scielo.php?
script=sci_arttext&pid=S0120-44832011000300002(Accessed 9 Oct 2019)
14 C,Bullard ,2016 ,Higher GDP growth in the Long run requires higher productivity Growth,
15 UNCTAD secretariat, ”The role of competition policy in promoting Economic development: The appropriate
design and effectiveness of competition law and
policy,Unctad.Org,2010https://unctad.org/en/Docs/tdrbpconf7d3_en.pdf(Accessed 9 Oct 2019)

Article 11
down the pace of economic development hence the article’s assertions of the same
coincide with my thoughts. Usually, competition stimulates demand which is good for
promoting economic activity16.In addition to a weak competition environment, the United
Kingdom battled low labor productivity levels and a distorted industrial relation
framework. I do agree with the author’s explanation of the declining United Kingdom
performance during the Golden Age. The author provides an insight into countries that
were performing well and those that did not. This move shows objectivity of the author’s
mindset in this context.
Overall, the article recognizes the events and reasons behind the Golden Age. For
countries such as West Germany, Switzerland and France, there was rapid economic
growth with caught up with the United States. However, the United Kingdom
experienced a declining performance due to the weak labor productivity and weak
institutional framework. According to Craft, the Golden phase is important in that it is a
reflection of history and provides lessons for the future .Generally, the article’s assertions
were substantiated through accounting methodology, Solow model, Leisner-Renelt model
and new growth model .The article recognized investment, education, labor productivity
as part of the major reasons for the rapid expansion of economic activity during the
Golden Angelo do concur with the authors sentiments to this extent. However, i disagree
that taxes are a deterrent to investment. There are two sides of taxation. Further, the
article failed to substantiate claims of positive externalities to physical capital formation
16 Mihaela 2016, Competitiveness and Economic Growth in Romanian Regions. Journal of competitiveness
Vol .8, Issue 4, PP 46-60

Article 12
Bibliography
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70377, Munich University Library,
Auerbach, A, J. Measuring the effects of corporate tax cuts. Journal of Economic perspectives,
Vol 32, No .4, PP 97-120
Bircan, C. .Foreign direct investment and wages: does the level of ownership matter? [Website],
https://www.ebrd.com/downloads/research/economics/workingpapers/wp0157.pdf,
(Accessed 9 Oct 2019)
Bullard, J. .Higher GDP growth in the Long run requires higher productivity Growth..,
[Website], https://www.stlouisfed.org/publications/regional-economist/october-2016/
higher-gdp-growth-in-the-long-run-requires-higher-productivity-growth,(Accessed 9 Oct
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script=sci_arttext&pid=S0120-44832011000300002,(Accessed 9 Oct 2019)
Crafts, R .F. R (1995).The Golden Age of Growth in Western Europe. The Economic History
Review, New series, Vol .48, P P 429-447
Hanushek, A.E, Education quality and economic
growth.[Website],http://hanushek.stanford.edu/publications/education-quality-and-
economic-growth-0,(Accessed 9 Oct 2019).

Article 13
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publication/wcms_202326.pdf,(Accessed 9 Oct 2019).
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https://epge.fgv.br/files/2054.pdf (Accessed 9 Oct 2019)
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competitiveness Vol .8, Issue 4, PP 46-60
Nakamura , K, Kaihatsu, S & Yagi, T. .Productivity improvement and Economic growth,
[Website],https://www.boj.or.jp/en/research/wps_rev/wps_2018/data/wp18e10.pdf,
(Accessed 9 Oct 2019).
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growth,[Website],https://www.economicshelp.org/blog/495/economics/investment-and-
economic-growth/,(Accessed 9 Oct 2019).
Radcliffe, B. (2019).How education and training affect the economy.,[Website],
https://www.investopedia.com/articles/economics/09/education-training-advantages.asp,
(Accessed 9 Oct 2019)
Sayef, B. The impact of domestic investment on economic growth: New Evidence from Malaysia,
[Website], https://mpra.ub.uni-muenchen.de/79436/1/MPRA_paper_79436.pdf(Accessed
9 Oct 2019)

Article 14
UNCTAD Secretariat. (2010).The role of competition policy in promoting Economic
development: The appropriate design and effectiveness of competition law and
policy .Retrieved from https://unctad.org/en/Docs/tdrbpconf7d3_en.pdf
Wilson, A.R. & Brisicoe, G. (N. d).Impact of human capital on economic growth: A Review.
Retrieved from https://www.cedefop.europa.eu/files/BgR3_Wilson.pdf