Cold War Era: Economic Systems & Global Impact (1945-1989)
The Cold War Era: 1945-1989
The US-Led Western Political Economy
After World War II, the USA and its allies established a new international system to ensure security and economic growth for the Western capitalist alliance.
- Monetary and Financial System: A dollar-gold standard was established, and the IMF and the World Bank were created. The USA also implemented the Marshall Plan for Europe.
- Increasing Trade Liberalization: The GATT was created, which, despite initial limitations, served as a framework for gradually liberalizing trade.
- Regional Economic Institutions: Under the security umbrella of the USA and NATO, European states created the European Coal and Steel Community, and later the EEC.
The USA, Western Europe, Japan, and other allies pursued economic growth policies in the post-war era. Government policies focused on income redistribution, supporting industry, maintaining full employment, and expanding public services. This system enabled Western governments to establish the Welfare State from the 1950s to the early 1970s.
In the early 1970s, Northern states shifted from welfare provision to preparing citizens for global economic competition due to the 1973 oil crisis and subsequent stagflation.
The Communist Political Economy
Following Russia’s defeat of the Nazis, the Soviet form of communism spread to Eastern Europe and Asia.
This communist political economy was characterized by:
- Abolition of private property and resource allocation through state planning.
- Industrialization and collectivization of the rural economy, which led to starvation.
- Early advances in industrial technology but limited application of innovation.
- Success in heavy industry and public goods but failure to develop a consumer goods industry.
- Progress in literacy, healthcare, and gender equality, but with destructive economic distortions.
This model reached its limit in the early 1980s in the Soviet Union, which collapsed in 1989-91 with the revolutions in Eastern Europe and the opening to capitalist economies. The Chinese communist model had less success than its Russian counterpart. By 1979, Chinese leadership concluded that economic development required a gradual opening to Western economies.
In the following decades, Russia evolved into a fully capitalist state, while China experienced rapid economic transformation in some areas.
The Southern Political Economy
Decolonization significantly impacted the international economy. New decolonized countries addressed development and growth in diverse ways:
- Japan: Rebuilt its economy and experienced intense technological innovation.
- Asian Tigers (South Korea, Taiwan, Hong Kong, and Singapore): Achieved remarkable progress in growth rates, education levels, and advanced economic sectors.
- Oil Producer States: Gained increasing international influence and financial power.
- Latin America: Progressed in industrialization to substitute imports but remained specialized in natural resource exploitation.
- Sub-Saharan Africa: Focused on producing goods whose value declined over time.
This relative success led to the need to find a niche in the globalized world, resulting in an external debt crisis in the 1980s and 1990s.