Mastering Modern World History

by Norman Lowe

  SUMMARY OF EVENTS

  For much of the nineteenth century Britain led the rest of 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 was the world’s leading industrial nation. The First and Second World Wars caused important changes in the world economy. The USA gained most, economically, from both wars, and it was the USA which became economically dominant as the world’s richest nation. Meanwhile, Britain’s economy slowly declined, and it was not improved by the fact that Britain stayed outside the European Community until 1973.

  In spite of slumps and depressions, the general trend was for the relatively wealthy industrialized countries to get wealthier, while the poorer nations of Africa and Asia (known as the Third World), most of which were once colonies of the European states, became even poorer. However, some Third World countries began to industrialize and become richer, and this caused a split in the Third World bloc. During the last quarter of the twentieth century, new developments came to the forefront. Industrial production and some service industries began to move from the western nations into countries such as China and India, where labour was much cheaper. Western economic systems showed signs of faltering, and there was controversy about which was the most successful type of economy – the US model or the European model. Global warming, caused by the emission of gases such as carbon dioxide, produced problematic climate changes which threatened to do most harm to the poorer countries, which were least able to cope. During the first decade of the twenty-first century, beginning in the USA in 2008, the world suffered an unprecedented financial crisis in which, for a time, the entire capitalist system teetered on the edge of collapse. The US and various European governments saved the banking system with massive bailouts, but could not prevent the world from plunging into recession.

  27.1 CHANGES IN THE WORLD ECONOMY SINCE 1900

  In one sense, in 1900 there was already a single world economy. A few highly industrialized countries, mainly the USA, Britain and Germany, provided the world’s manufactured goods, while the rest of the world provided raw materials and food (known as ‘primary products’). The USA treated Latin America (especially Mexico) as an area of ‘influence’, in the same way that the European states treated their colonies in Africa and elsewhere. European nations usually decided what should be produced in their colonies: the British made sure that Uganda and the Sudan grew cotton for their textile industry; the Portuguese did the same in Mozambique. They fixed the prices at which colonial products were sold as low as possible, and also fixed the prices of manufactured goods exported to the colonies as high as possible. In other words, as historian Basil Davidson (see Further Reading for Chapters 24 and 25) puts it: ‘the Africans had to sell cheap and buy dear’. The twentieth century brought some important changes:

  (a) The USA became the dominant industrial power and the rest of the world became more dependent on the USA

  In 1880 Britain produced roughly twice as much coal and pig iron as the USA, but by 1900 the roles had been reversed: the USA produced more coal than Britain and about twice as much pig iron and steel. This growing domination continued right through the century: in 1945, for example, incomes in the USA were twice as high as in Britain and seven times higher than in the USSR; during the next 30 years, American production almost doubled again. What were the causes of the American success?

  1 The First World War and after

  The First World War and its aftermath gave a big boost to the American economy (see Section 22.3). Many countries which had bought goods from Europe during the war (such as China and the states of Latin America) were unable to get hold of supplies because the war had disrupted trade. This forced them to buy goods from the USA (and also Japan) instead, and after the war they continued to do so. The USA was the economic winner of the First World War and became even richer thanks to the interest on the war loans it had made to Britain and her allies (see Section 4.5). Only the USA was rich enough to provide loans to encourage German recovery during the 1920s, but this had the unfortunate effect of linking Europe too closely with the USA financially and economically. When the USA suffered its great slump (1929–35) (see Section 22.6), Europe and the rest of the world were also thrown into depression. In 1933, in the depth of the depression, about 25 million people were out of work in the USA and as many as 50 million in the world as a whole.

  2 The Second World War

  The Second World War left the USA the world’s greatest industrial (and military) power. The Americans entered the war relatively late and their industry did well out of supplying war materials for Britain and her allies. At the end of the war, with Europe almost at a standstill economically, the USA was producing 43 per cent of the world’s iron ore, 45 per cent of its crude steel, 60 per cent of its railway locomotives and 74 per cent of its motor vehicles (see also Section 22.7(e)). When the war was over, the industrial boom continued as industry switched to producing consumer goods, which had been in short supply during the war. Once again, only the USA was rich enough to help western Europe, which it did with Marshall Aid (see Section 7.2(e)). It was not simply that the Americans wanted to be kind to Europe: they had at least two other ulterior motives:

  a prosperous western Europe would be able to buy American goods and thus keep the great American wartime boom going;

  a prosperous western Europe would be less likely to go communist.

  (b) After 1945 the world split into capitalist and communist blocs

  The capitalist bloc consisted of the highly developed industrial nations – the USA, Canada, western Europe, Japan, Australia and New Zealand. They believed in private enterprise and private ownership of wealth, with profit as the great motivating influence, and ideally, a minimum of state interference.

  The communist bloc consisted of the USSR, its satellite states in eastern Europe, and later, China, North Korea, Cuba and North Vietnam. They believed in state-controlled, centrally planned economies, which, they argued, would eliminate the worst aspects of capitalism – slumps, unemployment and the unequal distribution of wealth.

  The next forty or so years seemed like a contest to find out which economic system was best. The collapse of communism in eastern Europe at the end of the 1980s (see Sections 10.6 and 18.3) enabled the supporters of capitalism to claim the final victory; however, communism still continued in China, North Korea, Vietnam and Cuba. This big contest between the two rival economic and political systems was known as the Cold War; it had important economic consequences. It meant that both blocs spent enormous amounts of cash on building nuclear weapons and other armaments (see Section 7.4), and on even more expensive space programmes. Many people argued that much of this money could have been better spent helping to solve the problems of the world’s poorer nations.

  (c) The 1970s and 1980s: serious economic problems in the USA

  After many years of continual economic success, the US began to experience problems.

  Defence costs and the war in Vietnam (1961–75) (see Section 8.3) were a constant drain on the economy and the treasury.

  There was a budget deficit every year in the late 1960s. This means that the government was spending more money than it was collecting in taxes, and the difference had to be covered by selling gold reserves. By 1971 the dollar, which was once considered to be as good as gold, was weakening in value.

  President Nixon was forced to devalue the dollar by about 12 per cent and to put a 10 per cent duty on most imports (1971).

  Rising oil prices worsened America’s balance-of-payments deficit, and led to the development of more nuclear power.

  President Reagan (1981–9) refused to cut defence spending and tried new economic policies recommended by the American economist Milton Friedman. He argued that governments should abandon all attempts to plan their economies and concentrate on monetarism: this meant exercising a tight control on the money supply by keeping interest rates high. His theory was that this would force busines
ses to be more efficient. These were policies which Margaret Thatcher was already trying in Britain. At first the new ideas seemed to be working – in the mid-1980s unemployment fell and America was prosperous again. But the basic problem of the US economy – the huge budget deficit – refused to go away, mainly because of high defence spending. The Americans were even reduced to borrowing from Japan, whose economy was extremely successful at that time. The drain on American gold reserves weakened the dollar, and also weakened confidence in the economy. There was a sudden and dramatic fall in share prices (1987), which was followed by similar falls all over the world. In the late 1980s much of the world was suffering from a trade recession.

  (d) Japan’s success

  Japan became economically one of the world’s most successful states. At the end of the Second World War Japan was defeated and her economy was in ruins. She soon began to recover, and during the 1970s and 1980s, Japanese economic expansion was dramatic, as Table 27.1 shows. (For full details see Section 15.2.)

  Table 27.1 Gross National Product per head of the population in 1992

  Year GNP

  1955

  200

  1978

  7 300

  1987

  15 800

  1990

  27 000

  27.2 THE THIRD WORLD AND THE NORTH–SOUTH DIVIDE

  During the 1950s the term Third World began to be used to describe countries which were not part of the First World (the industrialized capitalist nations) or the Second World (the industrialized communist states). The Third World states grew rapidly in number during the 1950s and 1960s as the European empires broke up and newly independent countries emerged. By 1970 the Third World consisted of Africa, Asia (except the USSR and China), India, Pakistan, Bangladesh, Latin America and the Middle East. They were almost all once colonies or mandates of European powers, and were left in an undeveloped or under-developed state when they achieved independence.

  (a) The Third World and non-alignment

  The Third World states were in favour of non-alignment, which means that they did not want to be too closely associated with either the capitalist or the communist bloc, and they were very suspicious of the motives of both. Prime Minister Nehru of India (1947–64) saw himself as a sort of unofficial leader of the Third World, which he thought could be a powerful force for world peace. Third World countries deeply resented the fact that both blocs continued to interfere in their internal affairs (neo-colonialism). The USA, for example, interfered unashamedly in the affairs of Central and South America, helping to overthrow governments which they did not approve of; this happened in Guatemala (1954), the Dominican Republic (1965) and Chile (1973). Britain, France and the USSR interfered in the Middle East. Frequent meetings of Third World leaders were held, and in 1979, 92 nations were represented at a ‘non-aligned’ conference in Havana (Cuba). By this time the Third World contained roughly 70 per cent of the world’s population.

  (b) Third World poverty and the Brandt Report (1980)

  Economically the Third World was extremely poor. For example, although they contained 70 per cent of the world’s population, Third World countries only consumed 30 per cent of the world’s food, while the USA, with perhaps 8 per cent of the world’s population, ate 40 per cent of the world’s food. Third World people were often short of proteins and vitamins, and this caused poor health and a high death-rate. In 1980 an international group of politicians under the chairmanship of Willi Brandt (who had been chancellor of West Germany from 1967 until 1974), and including Edward Heath (prime minister of Britain 1970–4), produced a report (the Brandt Report) on the problems of the Third World. It said that the world could be roughly divided into two parts (see Map 27.1).

  Map 27.1 The dividing line between North and South, rich and poor

  The North – the developed industrial nations of North America, Europe, the USSR and Japan, plus Australia and New Zealand.

  The South – most of the Third World countries.

  Figure 27.1 Calorie intake per person per day

  Table 27.2 Gross National Product per head of the population in 1992 (in US dollars)

  Japan

  28 220

  Taiwan

  10 202

  Hong Kong

  15 380

  Singapore

  15 750

  South Korea

  6 790

  North Korea

  943

  Thailand

  1 840

  Vietnam

  109

  China

  380

  Peru

  950

  Bolivia

  680

  Paraguay

  1 340

  Brazil

  2 770

  Argentina

  2 780

  Colombia

  1 290

  Chile

  2 730

  Venezuela

  2 900

  Uruguay

  3 340

  Germany

  21 000

  France

  22 300

  Britain

  17 760

  Italy

  20 510

  Switzerland

  36 230

  Greece

  7 180

  Spain

  14 020

  Portugal

  7 450

  Norway

  25 800

  Sweden

  26 780

  Belgium

  20 880

  Libya

  5 310

  Uganda

  170

  Rwanda

  250

  Tanzania

  110

  Kenya

  330

  Zaire

  220

  Ethiopia

  110

  Sudan

  400

  Somalia

  150

  Zimbabwe

  570

  Zambia

  290

  Nigeria

  320

  Mozambique

  60

  South Africa

  2 670

  Algeria

  2 020

  India

  310

  Pakistan

  410

  Bangladesh

  220

  Sri Lanka

  540

  Russian Fed.

  2 680

  Poland

  1 960

  Romania

  1 090

  Czechoslovakia

  2 440

  USA

  23 120

  Canada

  20 320

  Australia

  17 070

  Haiti

  380

  Dominican Rep.

  1 040

  Guyana

  330

  Jamaica

  1 340

  Trinidad & Tobago

  3 940

  Source: World Bank statistics, in Europa World Year Book 1995.

  The report came to the conclusion that the North was getting richer and the South was getting poorer. This gap between the North and South is well illustrated by the statistics of calorie intake (Fig. 27.1) and by the comparison of Gross National Products (GNP) of some typical North and South countries, or ‘developed’ and ‘low and middle’ economies (Table 27.2).

  GNP is calculated by taking the total money value of a country’s total output from all units of production, wherever production is situated; and it includes interest, profits and dividends received from abroad. This total value is divided by the population figure, and this gives the amount of wealth produced per head of the population. In 1989–90 the GNP of the North averaged over 24 times that of the South. In 1992 a highly developed and efficient country like Japan could boast a GNP of over $28 000 per head of the population, and Norway $25 800. On the other hand, among poor African countries, Ethiopia could manage only $110 per head, the second lowest GNP in the world.

  (c) Why is the South so p
oor?

  The South was and still is economically dependent on the North because of neocolonialism (see Sections 24.4 and 24.7). The North expected the South to continue providing food and raw materials for them, and expected them to buy manufactured goods from the North. They did not encourage the South to develop their own industries.

  Many states found it difficult to break away from the one-product economies left behind from colonial days, because governments lacked the cash needed to diversify. Ghana (cocoa) and Zambia (copper) found themselves facing this problem. In states like Ghana, which depended for its income on exporting crops, it meant that too little food would be left for the population. Governments then had to spend their scarce money on importing expensive food. A fall in the world price of their main product would be a major disaster. In the 1970s there was a dramatic fall in the world price of such products as cocoa, copper, coffee and cotton. Table 27.3 shows the disastrous effects on the incomes, and therefore the buying power of countries such as Ghana and Cameroon (cocoa), Zambia, Chile and Peru (copper), Mozambique, Egypt and the Sudan (cotton), and Ivory Coast, Zaire and Ethiopia (coffee).

  At the same time, prices of manufactured goods continued to rise. The South had to import from the North. In spite of the efforts of the United Nations Conference on Trade and Development (UNCTAD), which tried to negotiate fairer prices for the Third World, no real improvement was achieved.