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Book No. – 52 (History)
Book Name – Modern World History (Norman Lowe)
What’s Inside the Chapter? (After Subscription)
1. CHANGES IN THE WORLD ECONOMY SINCE 1900
2. THE THIRD WORLD AND THE NORTH-SOUTH DIVIDE
3. THE SPLIT IN THE THIRD WORLD ECONOMY
4. THE WORLD ECONOMY AND ITS EFFECTS ON THE ENVIRONMENT
4.1. Exhaustion of the world’s resources
4.2. Pollution of the environment – An ecological disaster?
4.3. Genetically modified (GM) crops
5. GLOBAL WARMING
5.1. Early concerns
5.2. The Kyoto Convention (1997) and after
5.3. What happens next?
6. THE WORLD ECONOMY AT THE TURN OF THE MILLENNIUM
6.1. The American economic model
6.2. The European economic model
6.3. The American system in action
7. CAPITALISM IN CRISIS
7.1. Meltdown – The Great Crash of 2008
7.2. What were the causes of the Great Crash?
7.3. The aftermath of the crash
7.4. The eurozone in crisis
8. THE WORLD ECONOMIES IN 2012
8.1. China
8.2. Brazil
8.3. India
8.4. Russia
8.5. The USA
8.6. The European Union
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LANGUAGE
The Changing World Economy Since 1900
Chapter – 29
Table of Contents
- For much of the nineteenth century, Britain led the world in industrial production and trade.
- In the last quarter of the century, Germany and the USA began to catch up, and by 1914, the USA became the world’s leading industrial nation.
- The First and Second World Wars caused significant changes in the world economy.
- The USA gained the most economically from both wars and became the world’s richest nation, dominating economically.
- Meanwhile, Britain’s economy declined slowly and was not helped by staying outside the European Communityuntil 1973.
- Despite slumps and depressions, wealthier industrialized countries generally became wealthier, while poorer nations in Africa and Asia (the Third World) became even poorer.
- Some Third World countries began to industrialize and get richer, causing a division within the bloc.
- During the last quarter of the twentieth century, new developments emerged.
- Industrial production and some service industries moved from Western nations to countries like China and India, where labor was much cheaper.
- Western economic systems showed signs of faltering, sparking controversy over which was the most successful: the USA model or the European model.
- Global warming, caused by emissions like carbon dioxide, led to climate changes that threatened to harm poorer countries, which were least equipped to cope.
- In the first decade of the twenty-first century, the world faced an unprecedented financial crisis, beginning in the USA in 2008, where the capitalist system teetered on the edge of collapse.
- The USA and various European governments saved the banking system with massive bailouts but could not prevent a global recession.
CHANGES IN THE WORLD ECONOMY SINCE 1900
- In 1900, there was already a single world economy with a few highly industrialized countries (mainly USA, Britain, and Germany) providing manufactured goods, while the rest of the world provided raw materials and food (called primary products).
- The USA treated Latin America, especially Mexico, as an area of influence, similar to how European states treated their colonies.
- European nations determined what should be produced in their colonies and fixed the prices of colonial products as low as possible while fixing the prices of manufactured goods exported to colonies as high as possible.
- This meant that Africans had to sell cheap and buy dear.
- The twentieth century saw significant changes:
- The USA became the dominant industrial power, making the world more dependent on it.
- In 1880, Britain produced roughly twice as much coal and pig iron as the USA, but by 1900, the roles were reversed, and the USA produced more coal, pig iron, and steel.
- By 1945, USA incomes were twice as high as Britain’s and seven times higher than the USSR.
- The USA’s success was primarily due to the First World War and its aftermath.
- During WWI, countries that had bought goods from Europe were forced to buy from the USA and Japan, which led to continued American economic dominance.
- The USA became richer through interest on war loans to Britain and its allies, and it was the only country rich enough to provide loans to help Germany’s recovery in the 1920s.
- The Great Depression (1929–1935) impacted both the USA and the world, with 25 million people unemployed in the USA and 50 million worldwide.
- After WWII, the USA became the world’s greatest industrial and military power.
- The USA entered WWII relatively late but benefited from supplying war materials to Britain and its allies.
- By the end of the war, the USA produced 43% of the world’s iron ore, 45% of crude steel, 60% of railway locomotives, and 74% of motor vehicles.
- After the war, the industrial boom continued, transitioning to consumer goods production.
- The USA helped Western Europe recover with Marshall Aid, motivated by two factors:
- A prosperous Western Europe would continue buying American goods.
- A prosperous Western Europe would be less likely to turn communist.
- After 1945, the world split into capitalist and communist blocs.
- The capitalist bloc included the USA, Canada, Western Europe, Japan, Australia, and New Zealand, believing in private enterprise and minimal state interference.
- The communist bloc included the USSR, Eastern Europe, China, North Korea, Cuba, and North Vietnam, advocating state-controlled economies to eliminate the worst aspects of capitalism.
- The Cold War was the contest between the two systems, with both blocs spending huge amounts on nuclear weapons, armaments, and space programs.
- The 1970s and 1980s saw serious economic problems for the USA, including:
- The Vietnam War draining the economy.
- Budget deficits in the late 1960s.
- The weakening of the dollar by 1971.
- Rising oil prices worsening the balance-of-payments deficit.
- President Nixon devalued the dollar and imposed a 10% duty on most imports in 1971.
- President Reagan (1981–1989) adopted monetarism, focusing on controlling the money supply and interest rates to force businesses to be more efficient, despite the ongoing budget deficit.
- By the late 1980s, the USA borrowed from Japan, whose economy was flourishing, but faced a dramatic fall in share prices (1987), followed by a global recession.
- Japan’s economy became one of the world’s most successful after WWII, with rapid recovery in the 1970s and 1980s, becoming a leading economic power.
THE THIRD WORLD AND THE NORTH–SOUTH DIVIDE
- Third World term used to describe countries not part of the First World (industrialized capitalist nations) or Second World (industrialized communist states).
- Third World states grew in number during the 1950s and 1960s as European empires broke up and new countries emerged.
- By 1970, the Third World included Africa, Asia (except the USSR and China), India, Pakistan, Bangladesh, Latin America, and the Middle East.
- Most Third World countries were once colonies of European powers and were left undeveloped or under-developedafter independence.
- Non-alignment: Third World states didn’t want to align with either the capitalist or communist blocs, were suspicious of both.
- Nehru, Prime Minister of India (1947–64), viewed himself as an unofficial leader of the Third World for world peace.
- Third World countries resented interference from both blocs, examples include USA’s actions in Central and South America (Guatemala 1954, Dominican Republic 1965, Chile 1973) and the USSR, Britain, and France in the Middle East.
- In 1979, 92 nations attended a non-aligned conference in Havana, Cuba, with Third World containing 70% of the world’s population.
- Third World poverty: despite containing 70% of the world’s population, Third World countries only consumed 30% of the world’s food.
- In 1980, the Brandt Report on Third World poverty suggested a divide between the North (developed industrial nations) and the South (Third World).
- Report concluded that the North was getting richer while the South was getting poorer, evidenced by calorie intakeand Gross National Product (GNP) statistics.
- In 1989–90, North GNP averaged 24 times higher than the South.
- 1989: Japan’s GNP = $28,000 per person, Norway = $25,800; Ethiopia‘s GNP = $110 per person.
- The South‘s poverty caused by neo-colonialism: dependency on the North for food, raw materials, and manufactured goods.
- One-product economies: countries like Ghana (cocoa) and Zambia (copper) faced major challenges when world prices for their main products dropped in the 1970s.
- Despite efforts by the UNCTAD for fairer prices, no significant improvement occurred for the South.
- Financial aid from the North was often business-based, with conditions such as paying interest on loans and purchasing goods from the lending countries.
- By 1980, Third World countries owed $500 billion in loans, with interest payments around $50 billion annually.
- Population growth in the South outpaced the North: in 1975, world population was about 4 billion, expected to reach 6 billion by 1997.
- Many Third World countries experienced wars, civil wars, droughts, and global warming issues, particularly in Ethiopia, Nicaragua, Guatemala, Lebanon, Congo/Zaire, Sudan, Somalia, Liberia, Sierra Leone, Mozambique, and Angola.
- Brandt Report (1980): recommended that the North help the South to become more prosperous, which would allow the South to buy more goods from the North.
- Suggested switching military spending to help the South, e.g., for the price of one jet fighter ($20 million), 40,000 village pharmacies could be built.
- Aid recommendations:
- Rich nations should give 0.7% of national income to poorer countries by 1985 and 1.0% by 2000.
- A new World Development Fund to give more equal decision-making power to lenders and borrowers.
- An international energy plan and a campaign to improve agriculture in the South.
- The 1980s: the Third World’s economic situation worsened despite these recommendations.
- By 1985, only a few countries, like Norway, Sweden, Denmark, Netherlands, and France, reached the 0.7% aid target; the USA gave 0.24% and Britain 0.11%.
- 1980s: famine in Ethiopia and Sudan, and worsening crisis in many Third World regions.
- By 2003, 21 Third World countries were in crisis due to a combination of natural disasters, AIDS, global warming, and civil wars.
- Wealth imbalance: The richest 1% of the world’s population earned as much as the poorest 57%.
- Norway: top in human development with high life expectancy (78.7 years), literacy (100%), and annual income(~$30,000).
- Sierra Leone: low life expectancy (35 years), literacy rate (35%), and annual income ($470).
- USA seen as a symbol of this wealth imbalance, contributing to hostility and resentment, especially after the September 11 attacks.
- UN economic advisers recommended removing trade barriers, reducing subsidies, providing debt relief, and doubling aid to $100 billion annually for infrastructure in the South.