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.
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Davneet Singh

Davneet Singh has done his B.Tech from Indian Institute of Technology, Kanpur. He has been teaching from the past 14 years. He provides courses for Maths, Science, Social Science, Physics, Chemistry, Computer Science at Teachoo.