01 - Economic Development Notes (Post War Reconstruction)

Hwa Chong Institution (College): History Paper 1 Theme II: Understanding the Global Economy How did the Development of the Global Economy Impact the World? 1 What were the reasons for the growth of the global economy after WWII? Objectives: Students would be able to: • Analyze the casual relationships that underpinned the growth of the global economy • Evaluate the challenges that affected the growth of the global economy 1. Introduction: “The global economy has always existed…What keeps changing is the nature of the global economy…” - Louis Uchitelle, a journalist, 2002 What is the global economy? The dictionary definition would indicate that the global economy is the economy of the world, as an international exchange of goods and services. • In the context of your study, this would be narrowed down to the 20th century, in light of the growth that had spread to all regions of the world during the century, when world GDP per capita quintupled. Another way of defining the global economy is by examining its characteristics, and the defining characteristic of the post-World War II era has been 1. the dramatic increase in economic integration among the liberal capitalist countries, 2. an increasing number of developing countries, and; 3. during the past two decades, a number of former communist nations that are undertaking a transition to more open markets.1 The highest growth occurred in the 1960s during post-war reconstruction. In particular, shipping containers revolutionized trade in the second half of the century, by making it cheaper to transport goods, especially internationally.2 (For those interested in how shipping containers contribute to global economic growth: https://www.wnyc.org/radio/#/ondemand/346069) 1 Joseph M. Grieco The International Political Economy Since World War II Duke University. Prepared for the CIAO Curriculum Case Study Project. October 2000 2 Marc Levinson The Box: How the Shipping Container Made the World Smaller and The World Economy Bigger Princeton University Press, 7 January 2008

Hwa Chong Institution (College): History Paper 1 Theme II: Understanding the Global Economy How did the Development of the Global Economy Impact the World? 2 What are some basic economic concepts that would be good to know? A. Free Trade • Free trade refers to the unhindered flow of goods and services between countries. • Trade can be hindered by trade barriers such as tariffs (an additional charge imposed on imports) or other policies such as subsidies, taxes and regulations that give domestic firms an advantage over foreign ones. The policy of imposing such barriers to trade is known as protectionism. B. Exchange Rates • There are two types of exchange rates systems that you need to know for this topic à The floating exchange rate system and the fixed exchanged system. • The floating exchange rate system means that the value of a country’s (let’s say Singapore) currency is dependent solely on the foreign demand for that country’s products. Since demand changes daily, the value of the Singapore dollar will keep fluctuating. • The fixed exchange rate system functions such that the government of the country fixes and guarantees the official price of the currency in terms of a foreign currency. Under this system, the government is committed to maintain the fixed exchange rate by using its reserves (gold and foreign exchange) to exactly offset the changes in foreign demand. Why does the story start with 1945 then? The development of the global economy can be divided into three broad stages: 1. Golden Age of Capitalism (1945-1973) 2. Crisis Years (1974-1991) 3. Regional and Globalism (1991-2000)

Hwa Chong Institution (College): History Paper 1 Theme II: Understanding the Global Economy How did the Development of the Global Economy Impact the World? 3 The first two stages were defined by Eric Hobsbawm, while the last stage was coined by Jeffrey R. Freiden. • The Golden Age of Capitalism marks a period that saw unprecedented economic growth. It was the longest period of uninterrupted growth and had the highest growth rates. The Crisis Years saw a period of crises (as the name suggests) that caused great economic instability in the international economy, resulting in very slow growth rates, even negative growth. Regional and Globalism marked the economic recovery of the USA as well as the economic integration of various geographical regions. • The Second World War had caused more destruction, human as well as material, than any previous conflict. Europe suffered the most, together with Japan, but there was massive destruction also in China and Southeast Asia. By the end of the war, the European economy had collapsed with 70% of the industrial infrastructure destroyed.3 The property damage in the Soviet Union consisted of complete or partial destruction of 1,710 cities and towns, 70,000 villages/hamlets, and 31,850 industrial establishments.4 Great Britain had been the world's largest creditor prior to the war, and became the world’s largest debtor by 1945. In order to pay off these debts, many countries resorted to simply printing more money, which caused inflation to skyrocket. In a short period of time, many European currencies, like the French franc, became virtually worthless.5 • There had been much fighting which ravaged North Africa, and all maritime nations had sustained grievous losses at sea. The United States, Canada, Australia and New Zealand, among others, had devoted enormous resources to the war though they had been spared actual warfare on their territory, and together with the colonial dependencies of the European powers, they mourned many killed and injured in the forces. Few areas of the globe outside Latin America were left unaffected.6 • By 1950 colonialism was in an advanced state of disintegration. With one or two exceptions, the exit from empire was more or less complete by the 1960s. The British imperial order was finished, as were those of Belgium, France, the Netherlands and Japan. In the West, the United States had emerged as the hegemonial power competing with the Soviet bloc for leverage in the newly independent countries of Asia and Africa. The world economy grew very much faster from 1950 to 1973 than it had ever done before. It was a golden age of unparalleled prosperity. The French economist Jean Fourastie called it “les trente glorieuses’. The Germans and Italians referred to them as Wirtschaftswunder and miracolo economico respectively. World per capita GDP rose nearly 3 per cent a year (a rate which implies a doubling every 25 years). World GDP rose by nearly 5 per cent a year and world trade by nearly 8 per cent a year. This dynamism affected all regions. 3 Marc Pilisuk, Jennifer Achord Rountree. Who Benefits from Global Violence and War: Uncovering a Destructive System. Greenwood Publishing Group, 2008 4 The New York Times, 9 February 1946, Volume 95, Number 32158. 5 Christopher Sailus. Economic Reconstruction in Europe After WWII: Recovery Programs & Their Effect. 6 Sidney Pollard, The International Economy since 1945. Routledge, 11 Sep 2002. P.1.

Hwa Chong Institution (College): History Paper 1 Theme II: Understanding the Global Economy How did the Development of the Global Economy Impact the World? 4 The acceleration was greatest in Europe and Asia. Real per person GDP of Western Europe increased at an annualized rate of 4.1 percent. Even the USSR grew at 3.4 percent. There was also a degree of convergence between regions, though a good part of this was a narrowing of the gap between the United States and the other advanced capitalist countries (Western Europe and Japan).7 The QR code provides an overview of post-WWII reconstruction programs in Europe. 7 Angus Maddison, The World Economy: Volume 1: A Millennial Perspective and Volume 2: Historical Statistics, OECD Publishing, Paris. P.24.

Hwa Chong Institution (College): History