Download Globalization & World Wars: Historical Analysis of Powers & Economic Systems, 1860s-1950s and more Study notes International Business in PDF only on Docsity! Globalization, Interim: Depression, War, Reconstruction, 1910s to 1950s Three Rival Powers: 1860s to 1910 • German- unification in 1870s, industrialization in 1880s and 1890s. War with France in 1870s. Seeks African and Pacific colonies in 1870s to 1890s. • United States- Industrialization on British model, 1840s. Sectional conflict resolved after Civil War and South and West integrated into Northern industrial economy. Begins to seek Pacific and Caribbean colonies in 1850s to 1890s WWI • Germany backs Austria-Hungary, Russia backs Serbia, the nations fall into war like dominoes. • USA remains “isolationist.” Huge Irish- American and German- American populations do not support alliance with Britain. Many fear the war is fought by Britain to secure colonial holdings- not USA’s fight. Many see advantage of letting Europe knock itself out so USA can pick up pieces. WWI • USA, after provocations by Germany, and fearing loss of trade with Britain, entered war in 1917. War over in 1918. • Industrialized war of machines, airplanes, submarines, machine guns, hand grenades, tanks, etc. • Disillusionment follows WWI. Skepticism and cynicism over “international” networks of trade or diplomacy, an “inward” turn. The Gold Standard • Operated in England and Empire from 1717 to 1931, abandoned in the Great Depression. • Other industrial nations follow suit in 1870s. • Interchangeability of currency facilitates trade, international comity/friendship, etc. • Price-specie flow: compulsive wage and price restraint is central feature of gold standard. Nations that import too much must restrain domestic spending to compensate for loss of gold. • Consequence: Governments incapable of responding to financial crises through economic stimulus. John Maynard Keynes Keynes • Bloomsbury intellectual • Critic of WWI treaty and economic order of 1910s and 1920s. • Economic Consequences of the Peace, 1919. • Devised economic rationale for government intervention in the economy via – Monetary policy – Fiscal policy • Governments can and SHOULD use these policies to “even” out booms and busts according to Keynes. “Beggar Thy Neighbor” • Nations sought to protect domestic industry and agriculture • 1930 USA’s Smoot-Hawley Tariff Act- US protectionism • 1931 Europe and Latin America retaliate with own protective tariffs • 1931 Bank Panics- Eastern Europe, Germany, France, UK, Mexico, USA • 1931: Germany, then Britain, abandon Gold. • Off gold standard? Currencies “float”, international trade risk increased while economy in turmoil, trade contracted and collapsed. • 1933 US abandoned Gold Standard. “Beggar Thy Neighbor” • Major US Bank Crises – 4 in 1924 to 1929 – 33 in 1929 to 1933 • 1933 FDR and USA abandon Gold Standard. • FDR Closed banks with temporary “holiday”. • US capitalists such as J.P. Morgan prop up US economy briefly with lending to banks. Keynes Proposal • Active Government Stewardship of Economy • Fiscal Policy- Governments can influence economy by their spending and taxing decisions. • Monetary Policy- Governments can influence economy by their control of the money supply. • In times of recession, the state should supply the demand to correct for downward market forces. • In times of boom, the state should restrain and reverse itself. • Widely criticized as unreliable because of economists’ fallibility. Also, governments tend NOT to draw down and shrink or end programs which were intended to be temporary. Critics point out this is the radical increase of government size and power. Bretton Woods, 1944 • 700+ delegates from 45 Nations meet at Mt Washington Hotel in Bretton Woods, New Hampshire in 1944. • Planning post-war world economy before the war ends. • Four Cornerstone Agreements: – IMF – IBRD/World Bank – GATT/WTO – Gold Standard International Monetary Fund • Initially 45 nations, now 187 • Goal: Stabilize exchange rates • Method: Nations contribute to pool (and USA is largest contributor) from which they may borrow in times of crisis. • Used to ease difficulties of return to Gold Standard via Keynes active government spending. • Today, USA has 17% control, with Germany and Japan 2nd and 3rd with 6% each. Other nations represented with a mix of their economic size and pool contribution, 180+ nations share the remaining 70%. USA dominance is assured in IMF decisions. • Past 10 IMF Presidents, however, have been Europeans. • Christine Legarde, President, July 2011- World Bank • Originally the International Bank for Reconstruction and Development. • Goal: To lend to war-devastated economies. • After Marshall Plan (1947), WB shifts lending to “developing” nations, especially in Asia and Latin America. • 20 Years of low level lending, often targeted to promote anti- communism in non-western nations in 1950s and 1960s. • Since 1968- Primary mission: End Poverty. Much larger levels of lending in 1970s to 1990s. • Jim Yong Kim, President, July 2012- Marshall Plan • Passed by Congress at President Truman and Secretary of State Marshall’s request, 1947. • $13 Billion in loans to Allies from 1947 to 1952 to rebuild UK, France, Allied-occupation Germany, etc. Soviets refuse aid. • Specifically to pump money into European economy so they could purchase American manufactures. • Indirectly intended to increase standards of living in war ravaged Europe to prevent appeal of Soviet ideology. • Successful on both. International Keynesianism.
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Cold War Keynesianism • Truman Doctrine: US aid will be available to save “free people” from communist aggression. – Greece – Turkey • Containment: US foreign policy will revolve around preventing the expansion of Soviet influence. • NSC 68: National Security Council document drafted by Truman administration in 1950 and circulated among military and economic leaders in cabinet. US will use military spending and foreign aid to continue WW2 levels of government activity to prevent Great Depression from recurring.