The Early Post – War Years

The Early Post – War Years

• The Bretton Wood system inaugurated an era of unprecedented growth of trade and incomes for the Western industrial nations and Japan.
• World trade grew annually at over 8 per cent between 1950 and 1970 and incomes at nearly 5 per cent. The growth was also mostly stable, without large fluctuations.
• Developing countries were in a hurry to catch up with the advanced industrial countries. Therefore, they invested vast amounts of capital, importing industrial plant and equipment featuring modern technology.

DECOLONISATION AND INDEPENDENCE:

(i) Over the next two decades of the Second World War, most colonies in Asia and Africa emerged as free, independent nations, overburdened by poverty and a lack of resources, and their economies and societies were handicapped by long periods of colonial rule. From the late 1950s the Bretton Woods institutions began to shift their attention more towards developing countries. As newly independent countries came under the guidance of international agencies dominated by the former colonial powers, the former colonial powers controlled vital resources such as minerals and land in many of their former colonies. Large corporations of other powerful countries often managed to secure rights to exploit developing countries' natural resource very cheaply.

(ii) Most developing countries did not benefit from the fast growth the Western economies experienced in the 1950s and 1960s. Therefore they organized themselves as a group - the Group of 77 (or G-77) to demand a new international economic order (NIEO). NIEO meant a system that would give them real control over their natural resources, more development assistance, fairer prices for raw materials, and better access for their manufactured goods in developed countries' markets.

END OF BRETTON WOODS AND THE BEGINNING OF ‘GLOBALISATION’:

Despite years of stable and rapid growth, not all was well in this post-war world. From the 1960s the rising costs of its overseas involvements weakened the US’s finances and competitive strength. The US dollar now no longer commanded confidence as the world’s principal currency. It could not maintain its value in relation to gold. This eventually led to the collapse of the system of fixed exchange rates and the introduction of a system of floating exchange rates.

From the mid-1970s the international financial system also changed in important ways. Earlier, developing countries could turn to international institutions for loans and development assistance. But now they were forced to borrow from Western commercial banks and private lending institutions. This led to periodic debt crises in the developing world, and lower incomes and increased poverty, especially in Africa and Latin America.

The industrial world was also hit by unemployment that began rising from the mid-1970s and remained high until the early 1990s. From the late 1970s MNCs also began to shift production operations to low-wage Asian countries. China had been cut off from the post-war world economy since its revolution in 1949. But new economic policies in China and the collapse of the Soviet Union and Soviet-style communism in Eastern Europe brought many countries back into the fold of the world economy. Wages were relatively low in countries like China. Thus they became attractive destinations for investment by foreign MNCs competing to capture world markets.

The relocation of industry to low-wage countries stimulated world trade and capital flows. In the last two decades the world’s economic geography has been transformed as countries such as India, China and Brazil have undergone rapid economic transformation.