02 - Economic Development (Germany and Japan)

Hwa Chong Institution (College): History Paper 1 Theme II: Understanding the Global Economy How did the Development of the Global Economy Impact the World? What were the reasons for the growth of the global economy after WWII? Objectives: Students would be able to: • Analyze the role of Europe and Japan’s contribution to the growth of the global economy • Analyze the impact of MNCs and economic events in shaping the growth of the global economy What role did Europe and Japan play? At first economic recovery was slow in Western Europe and Japan due to the destruction of WW2 which incurred substantial human losses, damaged physical infrastructure and caused the physical and mental exhaustion of the people. • In West Germany, the Allied powers initially implemented a policy to place greater emphasis on agriculture and reduce its industrial capacity, thus slowing economic recovery. • Japan’s recovery was fraught with greater problems and was much slower than Germany’s. It lacked Germany’s geographical advantage of being surrounded by rapidly recovering economies (the Western European countries), which provided the sales markets for Germany’s recovery. However, the recovery of Western Europe and Japan was expedited due to Marshall Aid from the USA, which provided the necessary physical and financial capital to jumpstart their devastated economies. Japan was given immense financial aid as USA wanted it to be the Far Eastern key political center of resistance to Communism. • Recent scholarship has found the positive impact of the Marshall Plan not so much in the scale of material assistance, but rather in the political strings attached to it. • Dollar aid enabled recipient nations to eliminate raw material shortages and invest in bottleneck industries, but only in exchange for trade liberalisation. The resources afforded by the counterpart funds allowed governments to finance public investment projects without the need to cut back on welfare spending, but they were compelled to reintroduce free markets and lift wartime controls and rationing, despite fierce opposition from labour unions. Many domestic factors also contributed to the rapid recovery of Western Europe and Japan, such as the high rates of literacy and specialised education, their industrial -social discipline, a competent government, effective markets, home-grown technology and a long tradition of savings and capital creation. • Their remarkable growth rate can be seen from their total share of world trade from the period between 1955-1971. The USA’s share dropped from 16.7% to 11.7%, while Western Europe’s increased from 30% to 41% and Japan’s from 2.1% to 6.4%. • By 1947, industrial production was back at pre-war levels in at least the victorious powers and the non-belligerent economies. Across Western Europe economic recovery was swift and dramatic. By 1952, production levels in the region exceeded pre-war levels.