Economic Shifts in Europe and Latin America: 1917-1928
Post-War Economic Transformations: Europe and Latin America
The Disintegration of Central and Eastern Europe
Import Substitution Industries: After the war, most countries (many newly formed by peace treaties) adopted a national strategy to justify their political and economic independence from an economic standpoint. This was financed by the public sector, equipping the country with high tariffs that kept out products to compete with domestic ones. Sectors such as textiles and arms intensified their production.
Agriculture: Anti-oligarchic reform policies were carried out in agriculture, targeting large landowners. Expropriated lands were divided among the peasants. Besides reducing the power of the landowners, the goal was to increase exports to earn more income. This economic model did not work, and the great program of industrialization was left incomplete.
Demographics: There was an abandonment of land, influenced by vegetative growth. Although the government aimed to encourage population growth, this created a disaster during the crisis, as happened earlier in the grain crisis. Inhabitants of these countries intended to migrate from the Atlantic to overcome the crisis and unemployment, but they failed, running head-on into the job market collapse caused by the crisis.
Expansion and Crisis of the Overseas Economy
Foreign Capital and Production: During the interwar period, foreign capital increased, having a greater influence on the Latin American economy. Until World War I, capital invested in Latin America was European. However, as the war progressed, the US broke the covenant and entered the productive sector, especially in agriculture and finance, standing in exports. The US began to occupy land, producing bananas and other plants, becoming a landowner. This was caused by the heavy debt these countries were in, which made them incapable of continuing their economic development. US capital financed this debt, ruining local landowners. Land partitioning gave American companies enough capital to sell below cost, leading the oligarchy to sell their land. Additionally, this led to the dismantling of industrial economic protection to facilitate the arrival of US products, which also set up production surpluses due to European recovery.
The Soviet Expansion
War Communism: From 1917, the socialist economic system emerged in Russia. Its economy suffered from strong dualism: Russian capitalist industry, modern and at the height of industrialized countries, and Russia’s feudal, extensive-cost agriculture. This dualism was questioned in World War I because it was unable to provide food, and the army would unleash the Russian Revolution of 1917. The October Revolution was preceded by another in February, where a bourgeois republic was established but could not end the war and made no profound social reforms. In 1917 (October), an orthodox government put everything into state power, led by the Bolsheviks. This government applied communism to all economic areas, with plans to assess the full financial outlay for the civil war, controlling the productive sector to win that war.
New Economic Policy: In 1921, after the civil war ended, the country was desolate, with a shattered economy. A program called the NEP (New Economic Policy) was designed to fix it. The NEP was a combined program where private retail trade, small industry, and agriculture were allowed through a vast program of agricultural reforms. This led to the rise of the kulaks, independent farmers with better land who bought land from other farmers with less luck, forming a new bourgeoisie. The state was responsible for the financial system, foreign trade, etc., and carried out reforms in the financial apparatus to attract foreign investment. The NEP resulted in recovering pre-war levels and even surpassing them with high growth rates.
Central Planning: In 1928, a significant shift occurred in the country. After Lenin’s death, Stalin came to power, resulting in a conflict between those who wanted to continue with Lenin’s NEP and those who wanted a change. Stalin’s orthodox theory of communism triumphed. Imposing the nationality of any economic activity, he designed a centralized program with five-year plans. The state distributed resources among sectors and imposed a level of production that had to be completed within five years. In the agricultural sector, state conflicts were created, forcing all farmers to join:
- Kolkhozes: Cooperatives where farmers sold primary products to a store, charging prices set in advance by the state for those five years.
- Sovkhozes: State farms that distributed resources and factors required to work for the group.
For economic and financial activities in the industry (steel mills, power, national defense, etc.), there were benefits from the agreements of purchase prices with farmers and selling the rest in national markets. In economic terms, this allowed for a spectacular, nearly vertical takeoff, with increases in production levels. Due to its isolationist policy, the Soviet Union was not affected by the crisis of 1929.