Post-WWII Global Economy: Institutions, Welfare, and Cold War Impact

Posted on Feb 5, 2025 in History

The New Global Economic Institutions

The Global Background

  • The prevalence of the U.S. and the economic problems in Europe after World War II.
  • Rise in the efficiency of mass production and improvement in product quality.
  • Capitalism vs. Communism: The Cold War between the U.S. and the U.S.S.R.

The Creation of a New International Financial System

  • Bretton Woods Conference (1944)
  • International Monetary Fund (IMF)
    • It regulates the exchange rates between currencies, proposing monetary policies and lending hard currencies.
  • International Bank for Reconstruction and Development (IBRD), better known as the World Bank
    • It provides long-term loans granted for the reconstruction of countries affected by war and subsequently to poor countries.
  • The restoration of fixed currency rates in relation to the dollar (and indirectly, to gold).
  • General Agreement on Tariffs and Trade (GATT, 1947), replaced in 1994 by the World Trade Organization (WTO)
    • Extension of the most favored nation clause and tariff reductions.
  • The Marshall Plan (1947)
    • U.S. aid to Europe in the context of the Cold War.
    • A formula to contain communism.
    • All democratic countries were aided (Spain was excluded, but it received U.S. funds after 1953).
    • It promoted a coordination of policies through the OEEC (Organisation for European Economic Cooperation) that eventually led toward an European common market.
    • In 1961 the OEEC became the OECD (Organization for Economic Cooperation and Development) by integrating the U.S., Canada, Japan and Australia and focused on coordinating aid to underdeveloped countries and the achievement of macroeconomic policy agreements.
    • The purchasing power gained by Europe was largely spent in the U.S.

The Welfare State

State intervention in the market economy (mixed economy): the Welfare State based on Keynesian economic policies (1945-1970)

  • Nationalization of key sectors though private enterprise predominated
    • Transport, energy, banking
  • Social security and social services
    • Pension systems and retirement plans; family support; health system; public education
  • Period of fastest growth in history
  • The overvaluation of the dollar encouraged European exports until 1971
  • In the OEEC countries, U.S., Canada and Japan, the average GDP growth per worker was 4.5% annual
  • The growth of the demand after the war in U.S.
  • Technological change: The beginnings of automatization and its problems (substitution of human labour from 1970s)
  • New industries (tourism, electrical appliances)
  • The Capital-Labour Accord
    • Important role of the unions
    • Agreements to link productivity and wages
    • Separation of management and ownership in big corporations

The Cold War and the Third World

  • World War II marked the beginning of the end of European imperialism
  • Japanese invasion of the Asian territories
  • Abandonment of colonial control on the part of France and United Kingdom
  • Wars of independence in some countries
  • Contradictions between Western ideals and the reality of colonialism
  • The legacy of chronic poverty
  • Colonial exploitation
  • Lack of social and economic foundations for democracy
  • The corruption of governments
  • Germany is split in 1949 as a result of the rivalry between the communist USSR and the US
    • Federal Republic of Germany (a capitalist-liberal-democratic regime) and German Democratic Republic (a communist regime under the influence of USSR) were created
    • Berlin was also affected (construction of the wall in 1961)
  • Truman Doctrine (1945-1953) as a containment strategy against communism
    • Response to Soviet initiatives to avoid conflicts
    • Combined with economic aid to Western Europe (Marshall Plan)
  • Atlantic Pact (NATO, 1949): entry of the FRG in 1955 and creation of the Warsaw pact as a response
  • Economic importance of the Cold War
    • Economic policies were designed with the aim of maintaining strong alliances with other countries in opposition to the other superpower
    • Research and production of nuclear weapons
    • Technological improvement and eventual civil applications (computers, radar, aircraft design, Internet, etc.)
    • The space race
  • The most tense and hostile situations
    • Construction of the Berlin Wall (1961)
    • Cuban missile crisis (1962): Kennedy (1961-63) ordered the economic blockade
    • The Euromissiles crisis (1979)
    • The Star Wars (1983-84)