Prospective Developments and Policy Implications

The country analyses in Chapter 4 indicate that all of the nations surveyed here, except Germany, have been experiencing in different ways and varying degrees the adverse effects of negative-sum welfare/efficiency relations in the course of the 1970s. These have been aggravated by and in turn have magnified the impact of other developments in the international economic system in recent years—notably the tripling of the real price of energy, the slow recovery from the 1974–75 world recession, and the increasing competition from the more advanced developing countries in Asia and Latin America. The combined effects of these interacting developments on employment, real incomes and balances of payments of the West European nations have led since 1975 to two kinds of changes in their national policies. The first include remedial measures for halting or drastically slowing the rise in government expenditures, for reducing the rate of inflation in this way and by restraining the increase in labor costs, for trying to restructure noncompetitive industries and stimulate market-sector investment, and for reinforcing the resulting favorable effects on balances of payments by appropriate exchange-rate adjustments. The second consist of palliatives by which national governments have been endeavoring to ease the difficulties arising from the persistence of substantial unemployment and the continued declining competitiveness of important industries despite the foregoing remedial efforts.