Growth of the Global Economy

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Growth of the Global Economy by Mind Map: Growth of the Global Economy

1. Consensus (agreement between countries on which way to go)

1.1. Rise of mixed economies; Choice of Keynesian economics

1.1.1. Increase in governmental intervention in the market, social democratic welfare state often formed with generous social programs, cooperation to restrain wages and maintain full employment, and firm commitment to market capitalism and free trade and investment eg. 1945 Monet plan which led to increase in public and government intervention in the market. Monet Plan prioritised, set investment targets and allocated investment funds to basic industries, which high degree of nationalisation

1.1.2. Keynesian always had this idea, but it was the war that created the circumstances of the Bretton Woods which established this consensus

1.1.3. Rise of that state planning from --> USSR --> Fascist regimes like Germany and Italy --> WW2 itself which showed resources to be allocated efficiently and effectively eg. May 1940 Emergency Powers Bill in Britain authorised the government to direct anyone to do anything in the national interest

1.2. Social contract between workers and trade unions. Workers agree to back down on union demands so it doesnt damage productivity.

1.3. Bretton Woods system which led to General Agreement of Trade and Tariffs (GATT), formation of IMF (which put in place system of fixed exchange rate) and World Bank

1.3.1. There was an agreement to not go back to the post-ww1 economic situation of protectionism which seemingly led to the Great Depression and maybe WW2 itself. They wanted to escape from quantitative barriers, high tariffs, preferential agreements, blockages, managed trade and "beggar-thy-neighbour" policies

2. Role of technology (miniaturalisation, portability, availability, novelty, built-in obsolescene)

2.1. WW2 Military applications that have civilian usages

2.1.1. For example, we have computers, spread of telephones promoted by ww2, spread of TVs in the late 50s, transistor radios

2.2. Improved civilian technology which boosted consumption

2.2.1. Increased civilian usage like vinyls, EPs, tape recordings, TV, these all boosted demand and consumption which increased AD

2.3. Research and Development (R&D) led by US

2.3.1. There was a recognition that technological advance gave companies advantage, which reinforced the gap between developed and non-developed countries eg. there're 5 million scientists all over the world in which 1 million were in USA

2.4. Rise of the field of science and technology and the scientist

2.4.1. Previously, scientific achievements did not translate into change. There was now a direct linkage between science and everyday life. There was an immediate translation of scientific innovation into practical technologies. Lasers are an example of this speed. First seen in the laboratory in 1960, they had by the early 1980s reached the consumer in the form of the compact disc.

2.5. Led to rising food production and productivity in agriculture (IRRI, GPS, USAID, HYV)

2.5.1. -->Since 1948, agricultural production has doubled, while total input use, including labour, land and machinery, declined slightly. Between 1948 and 1996, agricultural labour productivity increased more than eightfold. -->While the US Department of Agriculture (USDA) estimates that over one-fourth of all commercial operators use computerized bookkeeping, almost 60% of operators from the largest farms use computers.

2.5.2. Green Revolution impacted the developing countries a lot: The Green Revolution led to sizable increases in returns to land, and hence raised farmers’ incomes. With greater income to spend, new needs for farm inputs, and milling and marketing services, farm families led a general increase in demand for goods and services. Real capita incomes almost doubled in Asia between 1970 and 1995, and poverty declined from nearly 3 out of every 5 Asians in 1975 to less than 1 in 3 by 1995.

3. Stable and low oil prices

3.1. Growth of global economy fuelled demand for energy resource; leads to an upward cycle of spiral eg. US energy demand usage tripled from 1970-73 eg. 1950-1973 demand for energy increased from 2.5bil to 8.7bil

3.2. Oil replaced coal as the primary fuel eg. 1950-70 western Europe's dependence of oil increased from 14 to 56% and that of Japan from 5 to 69% Reasons for shift: a. abundance of oil found in USA and developed further by oil-based technologies b. Facilitated by automobile industry c. Oil is a cleaner energy compared to coal with lesser environmental repercussions d. Oil is also much cheaper compared to coal due to high wages needed to be paid to coal-miners eg. 1950-73, oil prices were less than $2/barrel

3.3. Stable and low oil prices due to: 1. Big discoveries in the Middle Companies eg. Kuwait by BP, Saudi Arabia by Chevron; none of this oil was used until 1946 2. "Seven Sisters" kept prices relatively low As late as 1972, they were still producing 90% of Middle Eastern oil; didnt want to disrupt economic growth by charging too high and they also avoided price war eg. late 1960s, oil prices in US were less than $2/barrel and from 1950-72, demand for oil increased steadily 9% per year 3. US had pricing power 1952, crude-oil production in US still accounted for half of the world's total production. It still continued to intervene until the 1970s.

4. Recovery of Western Europe, especially Germany

4.1. US HELP (through Marshall Aid, or other areas of US dominance)

4.1.1. 1. Marshall aid led to initial boost, though it did not as important to Germany because it did not get a lot out of it anyway only got $2billion from 1948-1954, and at its peak, Marshall Aid was only 5% of Germany's GDP. It also needed to make reparations there were well over $1 billion

4.1.2. 2. Other American help besides Marshall Plan a. Decision to reverse the Morgenthau plan (which was to de-industralise Germany) because US wanted to see Germany geared towards a world system instead b. Military and security reassurance helped o boosted countries' confidence, especially that of Germany. eg. NATO c. US helped to rearm Germany and this stimulated German's economy, and also free German's government budget because it could not divert resources to other more productive usage in the economy without worrying about the military aspect d. Currency deflation in June 1948 which new DM set at 1/10 the value of the old. this boosted domestic consumption as the masses now have a market

4.2. Through local factors

4.2.1. Labour productivity 1. In Germany, the workers are less demanding of wages on trade unions and overall profits are able to be ploughed back into the economy through further investment. 2. The Germans are compliant because of fear of history of inflation (1923) and mass unemployment (1930s) repeating itself. 3. Increased migration which led to cheap, compliant labour. eg. 1949-62 over 3 mil immigrants from East Germany then from poor countries in Europe like Greece, Italy and Turkey For Migration there are three kinds: 1. Internal from rural-urban which occurs during post ww2 eg. in 1930, 3/4 adults were peasants but by 1960, 16% of workers worked on land 2. Internal Europe Migration from poorer European countries (Greece, Italy Yugoslavia) and after cold war from Eastern Europe (due to breaking up of USSR) eg. baby boom generation had yet to enter workforce but demands for labour was peaking, so Bonn government in Germany had no choice but to seek out cheap labour from abroad 3. Migration from ex-colonies to another land eg, Britain and France, almost 4 million in transit For Attitudes of Trade Union, this consensus between the worker and trade union meant increased productivity for the nation. eg. 1955 first productivity agreement in France by company Renault eg. between 1950-80, there was an increase of 3 times the productivity

4.2.2. Rise of European population and the consumer Increase in the Europe population ( Between 1950-70 the population of the UK rose by 13%; that of Italy by 17%; in West Germany by 28%; Sweden, 29%; the Netherlands, 35%) due to: 1. Sense of optimism after the war 2. Incentives given by government 3. Increasing degree of prosperity (due to financial boom) Because of the rise in population, there is a rise in demand for consumer goods, especially these of the following: 1. Baby Products and Services 2. Rise of the teenager in the 50s and early 60s (highest consumption of the population, especially that of music, clothes and teddy boys gang) 3. Increased scale of advertising, now consumption is highly individualised (In France, spending on magazine adverts aimed at adolescents rose by 400% from 1959-62. ) 4. Rise of the mass market- willingness of consumers to buy non-essential items eg. supermarkets, fridges, cars (In the 2 decades after 1953, real wages almost tripled in West Germany and the Benelux countries; by 1965, food and clothing absorbed just 31% of consumer spending in Britain;)

4.2.3. Technology which improved agricultural productivity and consumer choice High technical improvements in US and Western Europe which led to increased yields and productions eg. butter mountains and milk lakes. Green Revolution led to increasing production gains and High Yielding Varieties (HYV), improved fertilisers, chemical inputs and irrigation. It also contributed to better nutrition by raising incomes and reducing prices, which permitted people to consume more calories and a more diversified diet

4.2.4. Personal leadership reasons esp Germany German Chancellor Adenduer was elected into the Budenstag in 1949, and remained an effective leader for the rest of the 14 years. He and his able economic minister Ludwig Erhard (an ordo-liberal) managed to implement policies which led to the German economic miracle. eg. currency reform, decontrol of prices, tax cuts which led to increased worker productivity and industrial production increased by over 50% eg. Erhard, an ordo-liberal also believed in a social market economy i,e Soziale Marktwirtschaft, a "free market economy with a social conscience" with emphasis on free competition Germany was driven by an export-led growth (esp coal) and domestic consumption was kept low, which increased capital formation and boost investment. High German rate of savings coupled with fiscal measures, increased productivity and tight credit policy, helped to peg prices

4.2.5. Only inevitable that recovery will occur: 1. Germany has rich natural resources and raw materials eg. German coal 2. WW2 reconstruction recovery boom ( Historian Abelshauser) said that because level of destruction was so great, there would be momentum to grow. German industrial infrastructure survived and wasn't damaged too badly; it was soon up and running very quickly once the transport networks are put back in place eg. 90% transport destroyed but only 1/10 industrial production destroyed

5. Dominance of the US

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6. Cold War logic

6.1. Cold War provided the precondition for global economic boom to occur because USA wanted to curb Russian expansionism and thus hastened the recovery of Western Europe and Japan --> Importance of Marshall Plan

6.1.1. There were limitation to the Marshall Plan at first: 1. Congress initially didnt approve iof $9000mil budget but Czechoslovakia made it possible (communist coup toppling democratic govt in 1948) and act as a catalyst for the approval of Marshall Plan 2. There were doubts and US was seen as being self-interested 3. Marginalised the IMF in 1950s because of the conditions it imposed, might it undermine Bretton Woods?

6.1.2. Marshall Plan played a supporting role : - The European Recovery Programme provided for the critical margin of support, enabling European government to embark on reforms without much worries : local resources accounted for 80-90% of capital formation due to self help while the Marshall Plan only led to 5% of the GNP of recipient nations - provided initial basis for stability and helped Europe finance essential imports (fuel, food, machines accounting for about 5k millioin), leading to 32% increase in GDP in Europe during the Marshall Plan period, wanted to prevent inflation (1920s Germany hyperinflation) MECHANICS 1. Counterpart funds as joint enterprise 2. USA gave individual European economies autonomy to craft economic policies 3.Economic cooperation seen in OEEC as created in 1948 --> decisions need not apply to dissenters --> Multilateralism and intra-european trade --> Make currencies convertible, share US aid ---> Set up the EPU to improve payment system 4. US shared technology, skills, technical assistance and expertise (by 1951 the ECA had expended nearly $30billion on a dazzling array of technical assistance projects 5. Guide towards integration for European economies, adoption of cooperative approaches -- > However Mp and OEEC only laid foundations, the actual continuation of European integration is due to other factors (Franco-German reconciliation Schuman plan 1950)

6.1.3. Help gave a boost to Korea and Japan themselves: KOREA: Rise of military cooperation with new group of entrepreneurs led to modernisation drive of South Korea becoming one of the 4 Asian Tigers in 1970s JAPAN: used as a manufacturing base for US like textiles, construction, bases (1949-53 manufacturing production doubled)

6.2. Formation of political partners led to greater funding by US and USSR respectively to emerging economies

6.2.1. US and its Cold War allies USA wanted to contain USSR expansion through searching for military and economic allies like NATO; this US aid helped to ignite the country's economy eg. The Rio Pact, ANZUS treaty, SEATO 1954, 1955 Baghdad Pact eg. NATO in 1949, COCOM set up networks with scientists and technical experts to evaluate and compare the military capabilities and applications of items under review

6.2.2. USSR and its Cold War allies Did the same thing as US too by finding political and military alliance. eg. 1953 trade agreement with India eg. 1955-56 Aswan Dam funding in Egypt eg. Castro's Cuba also had trade agreement

6.3. Important for US economy as a whole --> rise of military Keynesianism

6.3.1. Korean war led to continue war boom in America, and the NSC 68 being adopted which transformed US commitment to the Cold War, and accelerated the military industrial complex which became driver in the engine of growth

6.3.2. Increase in technological advancement: 1. Decesion of IBM to enter market for commercial computers SAGE project 2. Semiconductors funded by Army Signal Corps 3. ARPANET late 1960s and time-sharing and packet switching

7. Role of MNCs

7.1. The rise of the MNC and TNC that were initally dominated by USA contributed to global economic growth. A MNC is an enterprise that engages in FDI and control value-added activities in more than one country. It operates in a wide variety of countries, have high proportion of assets, revenues and employees in many different countries FDI, FPI, offshore financing, outsourcing eg. Ford Motor, IBM, Royal Dutch Shell, Volkswagen, Toyota After 1945, it was the MNC of American origin which expanded the fastest and became controversial. TNC also began to look to the third world

7.1.1. ITS EFFECTS on global economy boom: --> Highly efficient and among the technical leaders-innovators. They were responsible for much increase in output, productivity and stimulated growth --> Liberalise trade by enabling to escape barriers to their imports, had easy access to cheap raw materials, labour and lax environmental laws and enlarged overseas markets.