Rebuilding a World Economy: The Post-war Era
- Just two decades had passed since the end of the first world war when the second world war began.
- The Allies and the Axis powers engaged in war.
- Again, there were a lot of deaths and destruction.
- In the west , the US emerged as the world's leading economic, political, and military force.
- The Soviet Union also gain its dominance in the world by defeating Nazi Germany and developed from a backward agricultural nation to a superpower.
Post-war Settlement and the Bretton Woods Institutions
- Politicians and economists learned two important lessons from the interwar economy.
- First, an Industrial society based on mass production cannot be sustained without mass consumption .
- The second lesson concerned a nation's economic ties with other nations.
- The goal of full employment could only be achieved if governments had the power to control flows of goods, capital, and labor.
- Maintaining economic stability and full employment was the major goal of post-World War II.
- Bretton Woods Institutions
- The United Nations Monetary and Financial Conference, which took place in July 1944 at Bretton Woods in New Hampshire, USA, established its basic principles.
- The International Monetary Fund (IMF) was established by the Bretton Woods Conference to address the external surpluses and deficits of its member countries.
- To finance post-war reconstruction, the International Bank for Reconstruction and Development was established.
- The IMF and World Bank commenced financial operations in 1947 .
- The post-war international economic system is the Bretton Woods system.
- Western industrial powers dominate decision-making in these institutions.
- The US effectively has the power to veto important IMF and World Bank decisions.
The Early Post-war Years
- For the Western industrial countries and Japan, the Bretton Woods system marked the beginning of an era of extraordinary development in commerce and trade .
- Additionally, during these decades, business and technology spread globally .
- Developing nations were eager to overtake the a dvanced industrial nations .
- They made significant financial investments and imported industrial plants and equipment featuring contemporary technology.
Decolonization and Independence
- Large portions of the world were still governed by European colonial governments after the Second World War.
- Over the next two decades, most colonies in Asia and Africa emerged as free, independent nations
- They were plagued with poverty and a lack of resources ,
- The long periods of colonial administration had a negative impact on their economies and society.
- Europe and Japan , became less reliant on the IMF and the World Bank as their economies quickly recovered.
- Thus, In the late 1950s, the Bretton Woods institutions started to focus more on developing nations.
- Nations like the US succeeded to exploit the natural resources of developing nations .
- Developing nations formed the Group of 77 (also known as the G-77 ) to seek a New International Economic Order (NIEO).
- This system would help to control their natural resources, more aid for development , more equitable prices for raw materials , and better access to the market s for their manufactured goods in richer nations.
End of Bretton Woods and the Beginning of Globalisation
- From the 1960s the rising costs of its overseas involvements weakened the US's finances and competitive strength.
- It was no longer the dominant currency in the world, the US dollar lost its credibility.
- This ultimately caused the fixed exchange rate system to fail and the implementation of a floating exchange rate system.
- Unemployment in the industrialized world also took a toll.
- Since its revolution in 1949, China had been cut off from the post-war global economy.
- New economic policies in China and the collapse of Soviet-style communism in Eastern Europe brought many countries back into the world economy.
- Wages were generally low in places like China.
- They attracted the attention of international MNCs for global market share .
- Industry migration to low-wage nations boosted international trade and capital flows.
- The world's economic geography has changed over the past two decades as a result of the f ast economic transformation of nations like India, China, and Brazil.
