Essay — Role of the US in Growth (28/30)

To what extent was the global economic growth between1945and1973mainlyaresultof theroleof theUnitedStates? The Golden Age between 1945 and 1973 sawrapid andsustainedglobal economicgrowth,characterised by increasingmanufacturingoutput, tradeandinternational cooperation. Whilethe US in the earlier years kickstarted growth directly by providing aid for post-warreconstructionandindirectlybypromotingglobal economiccooperation, it wasthepoliciesofdomesticgovernmentsthat ultimatelytranslatedaidandcooperationintosustainedgrowthinthe long term. Further, fromthe late 1960s, not onlydidWesternEuropeandJapanpartiallyreplace the US as sources of foreign aid and investment, the US itself undertookself-interested actions that hurt rather than helped the global economy. Ultimately, whiletheUSlaid the foundations for growth, particularlyinthe1940sand1950s, it cannot becreditedfor continuedgrowththroughout theentireGoldenAge. In the 1940s and 1950s, the USwas indispensable in directly stimulating economic growthby offering economic and military aid to war-torn economies, enabling them to rebuildinfrastructure and increase industrial output. TheUSsuppliedWesternEuropewith$13bninaidfrom1948-52under theMarshall Plan, includingover $3.4bninrawmaterialsand$1.9bnin machinery that could be used to rebuild transport networks and modernise the industrialsector. Further, the UScommitted $1.4bn to support Western Europeandefencesunder the1949 Mutual Defence Assistance Programme, enabling European governments to redirectspending towards reconstructing their industrial bases. Consequently, Western Europeexperienced GNPincreases of between 15-25%from1948-52, with industrial output nearlydouble that of pre-war levels by 1955. Similarly, the US disbursed $2.3bn in aid to Japan,with 15% and 12% of this aid in the form of industrial materials and transport equipmentrespectively to enable industrial rebuilding. Additionally, America committed itself todefending Japan inthe1951Treatyof Mutual CooperationandSecurity. ThisenabledJapanto divert government expenditure towards its economy, evinced by the 20% decline indefence spending as a share of GDP from 1958-60. With US aid, Japan has seenexceptional growth, with pre-war industrial output restored bythemid-1950sandannual percapita GDP growth averaging 7.1% from 1945-56. In this manner, US aid providedmuch-needed capital and resources for post-war reconstruction, allowing countries to buildinfrastructure, modernisetheir industrial sectorsandgrowrapidlyintheprocess. In the long term, the US’s role shifted to an increasingly indirect one of maintaining globaleconomic cooperation achieved through the Bretton Woods system and multilateral

institutions, enabling economic stability and liberalisation that increasedtradeandsustainedgrowth. Not only did the US spearhead the creation of the Bretton Woods institutions in1944, but it was also their principal sponsor into the 1950s and 1960s, contributing morethan $10bn annually and holding the largest vote share on their boards. Hence, theInternational Monetary Fund (IMF) and International Bank for Reconstruction andDevelopment (IBRD) operated under USleadership and with USmoney, offeringloanswithconditionalities that prevented governments from adopting protectionist policies. Thismaintained global economic liberalisation, resulting in merchandise export volumesballooning 290% from 1948-68 as free trade boomed. The US further bolstered globaleconomic cooperation with the Bretton Woods system, taking on the responsibility ofmaintaining gold-dollar convertibility to allowother currenciestobepeggedtotheUSD. Thissystem of fixed exchange rates minimised exchange rate fluctuation, ensuring globalfinancial stability that incentivised cross-border trade. As such, after the system becamefunctional in 1958, annual growth rates of export volumes exceeded 8%in the 1960s. Withthe US promoting a new order of global economic cooperation, liberalisation and stability,this indirectly allowed countries to sustain growth by participating in free trade andexpandingtheir export sectors. However, the US’s role cannot be overstated: USefforts were supplemented by the soundeconomic policies of individual governments that maintained the growth the USstimulated.In France, the Monnet Plan nationalised the coal, electricity and railroad industries, withproper government management resulting in much greater productivity increases in thesesectors. Additionally, thegovernment financedthemodernisationof industrial equipment andcreated a social service system in 1945 to boost consumer spending. These soundeconomic measures led to high annual GDP growth rates of 4.6%and 5.8%in the 1950sand 1960s respectively, outcomes that cannot be entirely creditedtotheUS. Similarly, goodeconomic management by the Japanese government contributedsignificantlytogrowth: theMinistry of Trade and Industry introduced the “Inclined Production Mode” in 1949,emphasising the production of commodities like steel and cotton to capitalise on itscomparative advantage. Further, the 1960 Ikeda Income Doubling Plan used a combinationof tax breaks, targeted investment, and anexpandedsocial safetynet toincreaseconsumerspending and industrial development. Thesegovernment effortsledtogrowththat exceededall targets: Japan’s economy doubled in size from1960-67 three years ahead of schedule,with GDPgrowth averaging 10%fromthe1950s-60s. Assuch, whiletheUSmight havelaidthefoundationsfor growth, it wasthesoundpoliciesof individual governmentsthat ultimatelyturnedthesefoundationsintoactual, sustainedgrowth, makingtheUS’srolelimited.

Further, fromthe late 1960s, Western Europe and Japan partially replaced the US’s formerrole as a source of investment fromMNCs and loans for industrial development, extendinggrowth to more nations globally. In the 1960s, many newly-industrialising countries (NICs)received aid and investment from Western Europe and Japan rather than the US. Japanjoined the OECD’s Development Assistance Committee (DAC) in 1960, with Japanese aidreaching $5.8bn in 1973. Alongside over $800m in aid to Korea in 1965, Japanese aidenabled its recipients to modernise their industries and increase production, creatingeconomic growth. Further, the Japanese government liberalised rules for foreign directinvestment (FDI) in the early 1970s, with FDI fromJapanese multinationals averaging$2bnfrom1970-73. Similarly, Western Europe partiallytookover theroleof theUSasasourceofloans: the 15 EUmembers in the DACcontributed nearly half of total developmental aid in1972, compared to the US’s 30%. Additionally, European MNCs began to invest heavilyabroad, with British multinationals alone contributing $15.8bn in FDI in 1967. Such FDIfacilitated technology transfer and boosted employment in NICs worldwide, reducing globaldependence on American capital. As such, while the US was instrumental in financinggrowth from the 1940s-50s, particularly in Western Europe and Japan, its role declined inimportanceinthe1960s-70sastherest of theglobedeveloped. Additionally, by the early 1970s, the USbegan to prioritise its own economic welfare at theexpense of global growth, pursuingpoliciesthat hinderedrather thanbenefittedglobal trade.In 1971, the US imposed a 10% import tariff to combat domestic inflation, not onlyundermining global economic cooperation but also hurting the export-competitiveness of itstrading partners who were dependent on the US as the world’s largest importer,detrimentally impacting growth worldwide. For instance, the resultant decline in demand forforeign exports led to Japan’s GDP growth halving from 12%in the late 1960s to 5%in1971. Further, Nixon unilaterally ended gold-dollar convertibility in 1971, effectivelycollapsing the Bretton Woods system and resulting in greater exchange rate fluctuation asthe values of currencies were increasingly allowed to float. Thisincreasedvolatilitydeterredinternational trade, leadingtothegrowthof worldtradeslowingto6%in1971, well belowth