One year, several economies
It is tempting to remember 1967 as an extension of the long postwar boom, and in some places that fits. But the year was better described by contrast: growth varied sharply by country. The United States slowed after a very strong 1966, West Germany went through its first serious postwar recession, Britain struggled with its trade and currency problems, and Japan kept growing at a pace most other rich countries could only envy. Exact growth figures differ between sources and have been revised since, so this article gives the direction of change rather than precise percentages.
The United States: a pause, not a slump
The American economy entered 1967 after several years of rapid expansion, heavy defence spending and falling unemployment. During 1966 the Federal Reserve had tightened credit to hold down inflation, and by early 1967 parts of the economy, notably housing and some manufacturing, were softening. Output continued to grow, but more slowly than in 1966, and some commentators spoke of a “growth recession”. The Fed eased policy in the course of the year, and activity picked up again towards its end.
Unemployment stayed low by later standards, and prices crept upward. The bigger concern was the federal budget, where the Vietnam War and Great Society programmes were pushing spending up while tax revenue slowed. President Johnson asked Congress early in 1967 for a tax surcharge. Congress delayed, and a surcharge was not enacted until 1968. For the American economy as a whole, the mild slowdown of 1967 is best seen as a pause in a long expansion, not a collapse.
West Germany: the first postwar recession
West Germany’s recession of 1966-67 was a real shock because the country had become used to uninterrupted growth since the “economic miracle” of the 1950s. Credit was tight, investment fell, and industrial orders weakened. Output in 1967 was roughly flat or slightly down, and unemployment, which had been negligible, rose to a few hundred thousand people, a small number by modern standards but alarming at the time.
The recession had political consequences. Chancellor Ludwig Erhard’s coalition collapsed in late 1966, and a “grand coalition” of the two big parties under Kurt Georg Kiesinger took office in December. Its economics minister, Karl Schiller, pursued a more active management of demand. A stability and growth law was passed in 1967, and public spending was used to support recovery. By the end of 1967 the West German economy was starting to expand again, and 1968 was a strong year. The West German recession is a reminder that even the strongest economies of the 1960s had cycles.
Britain: growth held back
Britain’s problems were of a different kind. Growth was weak by the standards of its continental neighbours, and the country repeatedly ran into balance-of-payments difficulties. Each time exports or reserves weakened, the government tightened policy to defend the exchange rate of sterling, which in turn held back growth. A package of emergency measures in July 1966 had already imposed a wage and price freeze and spending cuts.
In 1967 the strain continued. The closure of the Suez Canal after the June war added to shipping costs, a dock strike in the autumn disrupted trade, and confidence in the pound was fragile. In November the government devalued sterling, and the pound devaluation is the clearest sign of how the year ended for Britain. The Common Market veto announced by President de Gaulle later that month, his second block on British entry, added to the sense that the country’s economic strategy was in difficulty.
Japan: a different pace
Japan was the clearest example of strong growth. Its economy was in the middle of a long boom, often called the Izanagi boom, driven by heavy investment, exports of steel, ships, machinery and electronics, and rising household incomes. Growth rates were typically near double figures in real terms, far above those of Europe or North America. Infrastructure built for the 1964 Olympics, including the Tokaido Shinkansen, had already shown the country’s technical ambitions. Japan passed West Germany in total output in the late 1960s, a milestone that is usually dated to 1968.
France, Italy and the wider picture
Elsewhere in Western Europe, growth continued at moderate rates. France and Italy both expanded, though more slowly than in the early 1960s, and wage pressures were beginning to build. Many developing countries depended on commodity prices that moved in different directions, and the Middle East war affected oil shipping and trade routes for a time.
What the contrasts show
The varied results of 1967 matter because they shaped what came next. West Germany’s quick recovery supported its strong export position. Britain’s weaknesses fed the monetary tensions that eventually undermined the Bretton Woods system of fixed exchange rates. Japan’s rise changed the balance of the world economy over the following decade. The year was therefore not one of simple growth or simple trouble, but of a global economy beginning to pull in different directions.