Introduction

The postwar period of the economic history of the capitalist societies of the West is at an end. In the course of the 1970s, it became apparent that the standards of economic performance achieved by these societies over the previous twenty-five years were no longer being maintained and, furthermore, that there was no assurance – and indeed little prospect – of any rapid return to these standards. An observer of Western economies around 1965 might well have concluded that steady and sustained growth, at a high level of capacity utilization and with no more than modest inflation, had in effect become institutionalized. The progressive acceptance of Keynesian economic theory and associated techniques of economic management, together with the growing control exercised by public authorities over the functioning of the economic system, seemed to have inaugurated a new era of capitalism in which stability and dynamism were reconciled and guaranteed. However, ten years later these same economies were for the most part characterized by greatly reduced growth rates and moreover, by a tendency for unemployment and general price levels to rise simultaneously. In other words, it emerged not only that the business cycle was not after all obsolete; but further, and much more disturbing, that recession and inflation could now be complementary rather than alternative expressions of economic disorder. A “discomfort index,” created by summing the rate of unemployment and the rate of inflation in seven major Organization for Economic Cooperation and Development (OECD) countries, rose from around 5.5 percentage points for the decade 1959–69 to 17 percentage points for 1974–75.