Impact of Major Global Economic Developments

1914 to Present

1. Impact of Major Global Economic Developments
   1. The Great Depression
      1. Destroyed Europe and Latin America
         1. Reliant on American loans to recover from war
         2. Wave of bank failures has ripple effect around worlds’ banks
      2. Less effect on Africa and Asia
         1. Japan turns to military government – replaces civilian
         2. Needed natural resources – searches out territories
      3. International trade before WWII
         1. Sparked wave of protectionism
            1. Nations tried to shield industry and farms by imposing high tariffs
               1. Hawley-Smoot Tariff Act – 1930
               2. Spread Depression to Europe, L. America, Asia
               3. Destroyed ability to export to United States
      4. International Trade Before WWII
         1. Trade had existed long before 20th century
         2. Scope of trade grew between WWI and Great Depression
      5. Causes of the global depression
         1. overdependence on American loans and buying
         2. Increase in tariffs and protectionism
         3. Industrial and farming surpluses leading to deflation
         4. Poor banking management
         5. World War I
            1. Expensive - $180 billion on war, $150 billion to rebuild
            2. Capitalism financed war
            3. Financial headquarters shifts from London to New York
               1. US lent Europe tons of money
                  1. France in huge debt
                     1. Bolsheviks refuse to pay off war debts
                     2. Germany owes French tons of money
                  2. Germany in huge debt – war + reparations
                     1. Borrows from US to pay French
               2. Problem…these loans could never be repaid
            4. Stock Market crash, bank failures – no more credit to Europe
      6. Impact
         1. Political extremism
            1. Communist say capitalism is a mess
            2. Fascists want to protect enterprise and promote their nation
   2. Technology
      1. Move toward postindustrial economies
         1. Less on manufacturing, more on service, information, computers
   3. Post World War II Policies – assistance by the superpowers
      1. Rebuilding Europe after WWII
         1. Soviet Bloc – COMECON - Council for Mutual Economic Assistance
            1. Economies nationalized/centrally planned
            2. Collectivization under state control
            3. Massive industrialization
            4. “socialist division of labor” – every nation focuses in a few areas
            5. Soviet welfare systems
               1. education, medical care, pensions
            6. Poor quality consuper goods
            7. Focus on heavy industry/weapons
            8. Maintained through political repression
         2. Western Europe – Marshall Plan – European Recovery Plan
            1. A “miracle” – helped prevent the spread of communism
            2. W. Germany rose from ruins – European economic powerhouse
            3. Technical innovation – move to postindustrial world
            4. Put into place social welfare systems
            5. Created “third way” – blend of capitalism and social-welfare
         3. Free trade key to economic prosperity – and world peace
            1. FD Roosevelt – believed in John Maynard Keynes – Keynsian
            2. Nations that economically interacted less likely to go to war
            3. Met in Bretton Woods, New Hampshire
               1. International Bank for Reconstruction and Development
                  1. World Bank
               2. International Monetary Fund
            4. 1958 General Agreement on Tariffs and Trade
            5. USSR refused to join “Bretton Woods System”
               1. They are cut off from world trade
            6. Currency exchanges fixed on US dollar > based on gold standard
         4. Prosperity, modernization, recovery in Europe/Japan amazing
            1. Western Europe develops economic unions to protect/build Europe
               1. European Coal and Steel Community
               2. European Economic Community
               3. European Union
   4. Pacific Rim
   5. Multinational Corporations
      1. International trade increases
      2. Huge conglomerates though technically “from” a single country
         1. Maintained factories, subsidiaries, distribution networks around the world
         2. Employing foreign workers
         3. Selling directly to foreign markets
      3. Groundwork laid in 1980s and 1990s…but internet/communication/transporation made easier
      4. Criticism
         1. Exploiting regional labor
         2. Harming regional environments
         3. Preventing host economies from producing homegrown industries/mfg goods
   6. Regional diplomatic alliances
      1. European Union
         1. Out with divisive nationalism, support for union
            1. Enables Europe to boost economic strength
            2. Increase its diplomatic clout
            3. Work together to prevent war/political extremism
         2. First steps – economic
            1. 1952 – Six Nations – European Coal and Steel Company
               1. Belgium, Luxembourg, Netherlands, Italy, France, W. Germ
            2. 1957 – Treaty of Rome – European Economic Community
               1. Common Market
               2. Eliminate internal tariffs
                  1. Encourage free movement of money, goods, services, labor
               3. Gradually added Britain, Ireland, Denmark
               4. 15 members by 1990s
               5. Monetary union - Euro
      2. Association of Southeast Asian Nations – ASEAN
         1. Japan, Taiwan, South Korea, Indonesia, Singapore
         2. Mostly diplomatic in nature, but tightened economic ties
      3. 1991 – African Economic Community
         1. Mimics many goals of European Union –see above
      4. Organization of Petroleum Exporting Countries (OPEC)
         1. determines supply/demand
         2. Most successful and influential international coalitions in history
         3. Industrial Revolution huge boon to Middle East – sitting on 2/3 of oil
         4. When they cut prices in 1970s – billions of extra dollars to accounts
            1. Saudi Arabia uses to modernize infrastructure
         5. Since 1970s, tough to keep in line, someone always breaks deal
            1. Individual nations still have huge power
      5. Soviet Union and allies and China remained relatively isolated
   7. Economic Crisis – West in the 1970s
      1. West in the 1970s
         1. Energy shortages
            1. Oil embargo of 1973 damaged economy
         2. Recession
         3. Unemployment
         4. Slowdown of the West
         5. Stagflation – rare combination of inflation and stagnation
      2. Eastern Europe
         1. Difficult transition from communism to capitalism
      3. Devaluing of the U.S. Dollar
         1. Detached money from gold standard > monetary instability
      4. Eastern Bloc not killed by OPEC’s embargo, but…
         1. Inefficiency
         2. Food shortages
         3. Cost of the arms race
         4. Governmental corruption
      5. 1971 – Nixon takes US off the gold standard
   8. Economic Globalization During the 1990s
      1. Causes
         1. Chronologically/causally linked to fall of Soviet Union
         2. Linked to democratization of the developing world
         3. Explosion of computer technology/Internet activity
            1. Electronic transfer of money
      2. Group of Seven – G-7, then G-8
         1. US, Canada, Great Britain, Japan, Germany, France, Italy, Russia
         2. Meet more often
      3. World Trade Organization (WTO) – regulates economic interaction of 100+ nation
      4. Regional economic unions more important
         1. North American Free Trade Agreement – NAFTA
         2. Western Europe – Maastricht Treaty
            1. Common monetary system
            2. Creation of single currency
            3. Establishment of European Central Bank
            4. Common policy making for
               1. Immigration
               2. Environmental protection
               3. Foreign affairs and security issues
      5. Benefits of Globalization
         1. Created great wealth/led to prosperity
         2. Free trade helps to preserve peace
      6. Costs of Globalization
         1. So interconnected – negative trend sin one region adversely affect world
         2. Nations unwilling to turn of economic policies to WTO
         3. Leads to constant state of change/economic instability
            1. Seeking profits, corporations constantly moving to cheap production
               1. Relocating to new city/country
                  1. Best tax benefits
                  2. Most lenient environmental standards
                  3. Cheapest labor
               2. Negative effects
                  1. lowering of wages
                  2. Sudden unemployment
                  3. Social stress
         4. Farmers can’t compete with cheap food from other countries
         5. Homogenizing effects o nculture
            1. Indigenous cultures crushed
            2. Replaced with foreign, American, pop culture and values
      7. Major themes of 20th century economics
         1. active commercial and trade interactions in every region
         2. Great Depression – impact of decline of trade one region on others
            1. National tariffs in US weakened global trade
         3. Price/supply manipulations by oil-producing nations affect globe
         4. After communism, more nations implement free-market economies
         5. Regional trade associations organized to facilitate trade
         6. Mass consumerism created truly global marketplace
      8. Global trade by region
         1. Middle East
            1. 1960 OPEC founded to regulate oil prices, control distribution
            2. Southwest Asia joins international drug trade
         2. Asia
            1. 1920s – Japanese silk exports reduced – US synthetic fibres
            2. Interwar period – China prospered in global drug trade
               1. Southeast Asian rubber exports damaged
               2. Vietnam became one of leading rice exporters
                  1. But…monoculture left them hungry
            3. Japan’s regional empire supplies food/raw materials
            4. 1960s/1970s – Japanese electronics/cars cut into US market
            5. 1970s – Korea produces cheap textiles, steel, automobiles
            6. 1970s – Taiwan joins global textile trade
            7. 1980s – Hong Kong exports clothing/heavy industry
            8. Singapore 4th largest port
            9. Indonesia exports exotic woods
            10. Korea exports automobiles, supertankers, electronics
         3. Africa
            1. After WWI, Africa has no money to purchase industrial goods
            2. South African miners prosper from gold/copper mines
            3. After WWII – rely on sale of minerals/cash crops
               1. Constant fluctuation in prices hurts economic growth
            4. Nigeria – oil-producing country, member of OPEC
            5. Africa exports native art
         4. Europe
            1. During WWI, Europe surrenders export dominance to US/Japan
            2. Eastern Europe remained agricultural, exported to W. Europe
            3. 1958 – European Economic Community (Common Market)
               1. Reduces tariffs between
               2. Common tariff policy for other world nations
               3. Renamed European Union in 1990s
               4. 2002 – member nations accept Euro
                  1. Britain the exception
         5. Latin America
            1. WWI/European trade brought prosperity to L. America
               1. Forced import substitution industrialization
                  1. Have to make up for lack of European imports
            2. Great Depression kills export economy
            3. US Cuba’s leading trade partner till 1959 – fluctuation in world demand altered price
               1. Cuba’s economy tied to USSR after Cuban Revolution
               2. Economy falls apart after USSR dissolved
            4. Colombia major participant in international drug trade
            5. Brazil exports exotic woods
            6. Venezuela – member of OPEC, Mexico produces oil
         6. North America
            1. WWI -= US becomes creditor nation, huge exports
            2. US exports reach the world
               1. Food, wheat, corn, fast foods
            3. NAFTA – 1994 – abolished tariffs between US, Canada, Mexico
            4. 1999 – Seattle – demonstrators protest World Trade Organization
            5. US + advertising led to worldwide diffusion of products/culture