9781422282861

THE MAKING OF THE MODERN WORLD 1 94 5 TO THE P R E S ENT

Trade, Economic Life, and Globalization

John Perritano

Series Advisor: Dr. Ruud van Dijk, Contemporary History and History of International Relations, University of Amsterdam

THE MAKING OF THE MODERN WORLD

1 94 5 TO THE P R E S ENT

Trade, Economic Life, and Globalization

BOOKS IN THE SERIES

Culture and Customs in a Connected World Education, Poverty, and Inequality Food, Population, and the Environment Governance and the Quest for Security Health and Medicine Migration and Refugees Science and Technology Trade, Economic Life, and Globalization Women, Minorities, and Changing Social Structures

THE MAKING OF THE MODERN WORLD

1 94 5 TO THE P R E S ENT

Trade, Economic Life, and Globalization

John Perritano

SERI ES ADVI SOR Ruud van Dijk

Mason Crest

Mason Crest 450 Parkway Drive, Suite D

Broomall, PA 19008 www.masoncrest.com

© 2017 by Mason Crest, an imprint of National Highlights, Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, taping, or any information storage and retrieval system, without permission from the publisher.

Produced and developed by MTM Publishing. www.mtmpublishing.com

President and Project Coordinator: Valerie Tomaselli Designer: Sherry Williams, Oxygen Design Group

Copyeditor: Lee Motteler, GeoMap Corp. Editorial Coordinator: Andrea St. Aubin Proofreader: Peter Jaskowiak

ISBN: 978-1-4222-3642-0 Series ISBN: 978-1-4222-3634-5 Ebook ISBN: 978-1-4222-8286-1

Library of Congress Cataloging-in-Publication Data On file

Printed and bound in the United States of America.

First printing 9 8 7 6 5 4 3 2 1

QR CODES AND LINKS TO THIRD PARTY CONTENT You may gain access to certain third party content (“Third Party Sites”) by scanning and using the QR Codes that appear in this publication (the “QR Codes”). We do not operate or control in any respect any information, products or services on such Third Party Sites linked to by us via the QR Codes included in this publication, and we assume no responsibility for any materi- als you may access using the QR Codes.  Your use of the QR Codes may be subject to terms, limitations, or restrictions set forth in the applicable terms of use or otherwise established by the owners of the Third Party Sites.  Our linking to such Third Party Sites via the QR Codes does not imply an endorsement or sponsorship of such Third Party Sites, or the information, products or services offered on or through the Third Party Sites, nor does it imply an endorse- ment or sponsorship of this publication by the owners of such Third Party Sites.

4

TRADE, ECONOMIC LIFE, AND GLOBALIZATION

Contents Series Introduction 6 CHAPTER 1: A Global Economy 9 CHAPTER 2: Spheres of Influence 17 CHAPTER 3: Consumer Societies Emerge in the West 25 CHAPTER 4: Cold War Wanes, Free Trade Takes Hold 33 CHAPTER 5: Free Markets Rule 41 CHAPTER 6: Globalization in Today’s World 49 Timeline 56 Further Research 59 Index 60 Photo Credits 63 About the Author and Advisor 64

5

CONTENTS

Series Introduction I n 1945, at the end of World War II, the world had to start afresh in many ways. The war had affected the entire world, destroying cities, sometimes entire regions, and killing millions. At the end of the war, millions more were displaced or on the move, while hunger, disease, and poverty threatened survivors everywhere the war had been fought. Politically, the old, European-dominated order had been discredited. Western Euro- pean democracies had failed to stop Hitler, and in Asia they had been powerless against imperial Japan. The autocratic, militaristic Axis powers had been defeated. But their victory was achieved primarily through the efforts of the Soviet Union—a communist dictatorship—and the United States, which was the only democracy powerful enough to aid Great Britain and the other Allied powers in defeating the Axis onslaught. With the European colonial powers weakened, the populations of their respective empires now demanded their independence. The war had truly been a global catastrophe. It underlined the extent to which peoples and countries around the world were interconnected and interdependent. However, the search for shared approaches to major, global challenges in the postwar world—symbol- ized by the founding of the United Nations—was soon overshadowed by the Cold War. The leading powers in this contest, the United States and the Soviet Union, represented mutually exclusive visions for the postwar world. The Soviet Union advocated collec- tivism, centrally planned economies, and a leading role for the Communist Party. The United States sought to promote liberal democracy, symbolized by free markets and open political systems. Each believed fervently in the promise and justice of its vision for the future. And neither thought it could compromise on what it considered vital interests. Both were concerned about whose influence would dominate Europe, for example, and to whom newly independent nations in the non-Western world would pledge their alle- giance. As a result, the postwar world would be far from peaceful. As the Cold War proceeded, peoples living beyond the Western world and outside the control of the Soviet Union began to find their voices. Driven by decolonization, the devel- oping world, or so-called Third World, took on a new importance. In particular, countries in these areas were potential allies on both sides of the Cold War. As the newly independent peoples established their own identities and built viable states, they resisted the sometimes coercive pull of the ColdWar superpowers, while also trying to use them for their own ends. In addition, a new Communist China, established in 1949 and the largest country in the developing world, was deeply entangled within the Cold War contest between communist and capitalist camps. Over the coming decades, however, it would come to act ever more independently from either the United States or the Soviet Union. During the war, governments had made significant strides in developing new tech- nologies in areas such as aviation, radar, missile technology, and, most ominous, nuclear

6

TRADE, ECONOMIC LIFE, AND GLOBALIZATION

energy. Scientific and technological breakthroughs achieved in a military context held promise for civilian applications, and thus were poised to contribute to recovery and, ultimately, prosperity. In other fields, it also seemed time for a fresh start. For example, education could be used to “re-educate” members of aggressor nations and further Cold War agendas, but education could also help more people take advantage of, and contrib- ute to, the possibilities of the new age of science and technology. For several decades after 1945, the Cold War competition seemed to dominate, and indeed define, the postwar world. Driven by ideology, the conflict extended into politics, economics, science and technology, and culture. Geographically, it came to affect virtual- ly the entire world. From our twenty-first-century vantage point, however, it is clear that well before the Cold War’s end in the late 1980s, the world had been moving on from the East-West conflict. Looking back, it appears that, despite divisions—between communist and capitalist camps, or between developed and developing countries—the world after 1945 was grow- ing more and more interconnected. After the Cold War, this increasingly came to be called “globalization.” People in many different places faced shared challenges. And as time went on, an awareness of this interconnectedness grew. One response by people in and outside of governments was to seek common approaches, to think and act globally. Another was to protect national, local, or private autonomy, to keep the outside world at bay. Neither usually existed by itself; reality was generally some combination of the two. Thematically organized, the nine volumes in this series explore how the post–World War II world gradually evolved from the fractured ruins of 1945, through the various crises of the Cold War and the decolonization process, to a world characterized by inter- connectedness and interdependence. The accounts in these volumes reinforce each other, and are best studied together. Taking them as a whole will build a broad understanding of the ways in which “globalization” has become the defining feature of the world in the early twenty-first century. However, the volumes are designed to stand on their own. Tracing the evolution of trade and the global economy, for example, the reader will learn enough about the polit- ical context to get a broader understanding of the times. Of course, studying economic developments will likely lead to curiosity about scientific and technological progress, social and cultural change, poverty and education, and more. In other words, studying one volume should lead to interest in the others. In the end, no element of our globalizing world can be fully understood in isolation. The volumes do not have to be read in a specific order. It is best to be led by one’s own interests in deciding where to start. What we recommend is a curious, critical stance throughout the study of the world’s history since World War II: to keep asking questions about the causes of events, to keep looking for connections to deepen your understand- ing of how we have gotten to where we are today. If students achieve this goal with the help of our volumes, we—and they—will have succeeded. — Ruud van Dijk

7

SERIES INTRODUCTION

The Galesburg Antique Mall, where the last Maytag refrigerator to come off the town’s assembly line can be seen.

WORDS TO UNDERSTAND capitalist: relating to the free-market system based on private ownership of the means of production. communism: political and economic system in which the state controls the means of production. devaluation: lowering of the value of a nation’s currency. infrastructure: large-scale public systems and services, such as roads and water supplies. liberalized: relating to economic competition free from government restraint. tariffs: duties, or fees, levied by a government on imported or exported goods.

8

TRADE, ECONOMIC LIFE, AND GLOBALIZATION

C H A P T E R 1 A Global Economy

T he refrigerator sits at the Galesburg Antiques Mall in downtown Galesburg, Illinois, collecting dust and stares from customers. It’s a nondescript appliance— a white Maytag with the freezer on top. Millions just like it have been sold, and most, one would suspect, are still being used in kitchens around the world. Yet this refrigerator is different from all the others. In September 2004, the Maytag factory here—where this refrigerator was made—closed and moved its opera- tion to Mexico. The fridge was the last one assembled in this city of 32,000. As the appliance made its way down the assembly line, employees took a black marker and signed their names to it. A few months after the shuttering, Barack Obama, then running for the U.S. Senate, blamed globalization for the plant’s demise and the loss of 1,600 jobs. Galesburg, once an example of the promise of globalization, had become a reminder that globalization can go horribly wrong. But across the globe, by the time the Maytag plant closed in Galesburg, a massive Taiwan-based manufacturing company, Foxconn, had opened a new factory in Taiyuan, in the Shanxi Province of mainland China. Foxconn would come to expand into several countries, including Brazil and Japan, and would play a major role in producing parts for Apple’s iPhone and other consumer electronics. Despite nagging controversies surrounding its treatment of workers, Foxconn and other manufacturers in China have been re- sponsible for lifting huge numbers of Chinese peasants out of poverty and into the middle class. Given the trade-offs involved in globalization, it’s not surprising that support for opening economic borders is qualified, to say the least. Néstor Kirchner, president of Argentina from 2003 to 2007, understood the impact that the bipolarization of globalization can have on people. “We must create a kind of globalization that works for everyone . . . not just for a few,” he once said.

9

CHAPTER 1

Connecting the World Whether you are putting on a pair of jeans, texting a friend, pumping gas, traveling in a jetliner, or using a computer at school, globalization is at the very heart of your life. Globalization is the way nations use technology, communication, and transporta- tion to connect with each other culturally, politically, and economically.

Globalization makes it easy to buy and sell goods. It fuels trade and affects the way everyone lives. It brings people together and allows businesses to make products more inexpensively. According to many economists, increased trade and economic activity resulting from globalization have created new economic opportunities for many in the developing world, offering a way of out of poverty and into the middle class. Yet, according to others, globalization widens the gap between rich and poor and exploits the misuse of natural resources. Some even argue that, as countries interact across borders, it erases old traditions and old jobs in favor of new ways of seeing the world and new ways of working. War’s Aftermath The modern era of globalization was ushered in after World War II. The war wreaked havoc on the world, kill- ing more than 60 million people (though no one knows the exact number) and destroying the economies of Europe and much of Asia. The United States was the only major power that emerged from the war virtually unscathed and with its economy in robust shape. Led by President Franklin Roosevelt, and later Harry S. Truman, the United States envisioned a postwar world of liberalized free trade and open markets directed by the newly formed United Nations. Free markets, they be- lieved, would keep the peace, spur democracy, and bring people together economically and culturally. The destruction of all the other industrialized econo- mies allowed the United States to assert its liberally minded dominance over the world’s economic affairs.

IN THEIR OWN WORDS UN Secretary-

General Kofi Annan It has been said that arguing against globalization is like arguing against the laws of gravity, but that does not mean we should accept a law that allows only heavyweights to survive. On the contrary, we must make globalization an engine that lifts people out of hardship and misery, not a force that holds them down. — From the opening address to the 53rd annual UN Department of Public Information NGO Confer- ence, August 2000.

In fact, more than a year before the end of World War II, world leaders from forty- four Allied nations, including the Soviet Union, gathered at Bretton Woods, New Hampshire, to discuss the economic future of a postwar world.

10

TRADE, ECONOMIC LIFE, AND GLOBALIZATION

A meeting of world leaders at the United Nations Monetary and Financial Conference at the Mount Washington Hotel in Bretton Woods, New Hampshire, to discuss the establishment of new international economic systems following World War II.

Officially known as the United Nations Monetary and Financial Conference, the goal of the Bretton Woods meeting was to provide war-ravaged nations the financial help they needed to rebuild their shattered economies. Consequently, the conference created the International Monetary Fund (IMF) and the International Bank for Re- construction and Development (IBRD), which is now part of the World Bank. The guiding principle of the Bretton Woods Conference was the belief that free trade promotes international prosperity and peace. Roosevelt, along with many of those who attended Bretton Woods, believed that high tariffs and the devaluation of currencies—undertaken to help countries compete better against each other in trade— all contributed to the economic calamity that precededWorldWar II and led to the rise of Nazi Germany and Imperial Japan, the two main protagonists in the war. One of the first acts of the IMF, therefore, was to establish a monetary system to sta- bilize exchange rates (rates at which one country’s currency is valued against another’s). Given the strength of the U.S. economy after the war, the IMF used the U.S. dollar as

11

CHAPTER 1

an exchange-rate standard, requiring signers to the IMF agreement to tie the value of their currency to the dollar, which in turn was tied to the value of gold; establishing a gold standard. A Second System As the United States took its seat as a military and economic superpower in the postwar world, a second economic and social system emerged stronger than ever— communism . Communism is a social and econom- ic philosophy characterized by a classless society and the absence of private property. The idea of a capitalist -run system of globalization dominated by the United States was repugnant to Joseph Stalin, the communist leader of the Soviet Union since the mid-1920s. Even before the war ended, Stalin had begun economically and politically dominating Eastern Europe. After the war, Stalin believed the new monetary system emerging from Bretton Woods put the United States in the driver’s seat, a leadership role he was not willing to give up. In fact, the Soviet Union did not sign on to the Bretton Woods institutions. In Stalin’s view, and the view of other Soviet leaders, the Great Depression and World War II were symptoms

THE WORLD BANK The World Bank provides financial and technical assis- tance to developing countries in an effort to alleviate poverty and improve living standards. IBRD, which is part of the World Bank, provides loans to middle-income and creditworthy poor countries. The first loan, $250 million, was given to France in 1947 to rebuild its infrastructure . The International Development Together, the World Bank and the IDA try to help developing nations by providing low-interest loans, interest-free credit, and grants for education, health, infrastructure, communications, and many other purposes. Association (IDA) provides grants to poor countries.

of an inferior capitalist system. The disastrous economic conditions following the war made Germany and other nations a prime target for the communist system. In Germany alone, the war had destroyed 25 percent of all urban housing and caused the country’s gross domestic product—the total value of goods and services produced by a country—to fall 70 percent.

Joseph Stalin, pictured here delivering the eulogy at the funeral of the supreme commander of the Soviet Union’s Red Army, Mikhail V. Frunze, in November 1925.

12

TRADE, ECONOMIC LIFE, AND GLOBALIZATION

IN THEIR OWN WORDS U.S. Secretary of State George Marshall Our policy is directed not against any country or doctrine but against hunger, poverty, desperation, and chaos. Its purpose should be the revival of a working economy in the world so as to permit the emergence of . . . conditions in which free institutions can exist.

— From a speech at Harvard University, June 5, 1947.

The Marshall Plan was put to work in Germany in the postwar years, as symbolized by this worker in West Berlin.

Marshall Plan American policy makers feared that if the United States did not take a more active role in rebuilding Western Europe, the Soviets would control all of Europe. As Stalin slowly consolidated power over Poland, the Balkans, East Germany, and other Eastern European nations, U.S. secretary of state George Marshall unveiled an economic plan to rebuild Western Europe. In March 1948, Congress passed the Economic Cooperation Act—the Mar- shall Plan—earmarking $12 billion to reconstruct Europe. The plan jumpstarted industrialization and stimulated the U.S. economy by establishing new overseas markets for American-made products. Eventually, sixteen nations participated in the Marshall Plan, receiving nearly $13 billion in aid and allowing their economies to grow quickly. Just as importantly, the Marshall Plan stopped the communists from expanding westward.

13

CHAPTER 1

GATT In addition to the Marshall Plan, the IMF, and the IBRD, the Western democracies also created the General Agreement on Tariffs and Trade (GATT), which would set international trade rules. The idea of GATT, established in 1947, was to treat every country fairly as their economies expanded. At the heart of GATT was “most favored nation” status, or MFN. Under this des- ignation, nations treated foreign businesses equally by eliminating barriers to foreign trade and reducing tariffs. All of the institutions put in place after the war—GATT, the IMF, and the World Bank—opened foreign markets to investment, which helped a good portion of the world rebuild. Communist Bloc Still, Stalin was not going to sit idle while the West dominated world economic affairs. Under Stalin, the Soviet Union formed a coalition of nations, not always of the

willing, that would become known as the Communist Bloc, or Eastern Bloc, to head off the apparent threat of an American-led global capitalist economy. The Soviet leader foresaw a world split into two markets— one communist, the other capitalist. He believed that the communist systemwould win out, as it promoted full industrialization. Tothat end, Stalin in1949helpedformtheCouncil for Mutual Economic Assistance, which included such nations as the Soviet Union, Poland, Hungary, Romania, Czechoslovakia, and East Germany. The idea behind COMECON was to foster trade among its member states, while urging “specialization” in manufacturing. That would reduce “parallelism,” or duplication of industrial production. A very chilly Cold War had begun. Because each economic system needed to be safeguarded, the United States led the formation of the North Atlan- tic Treaty Organization (NATO), a military alliance between the United States and most of the Western democracies, while, in response, the Soviet Union and its satellite countries formed the Warsaw Pact.

14

TRADE, ECONOMIC LIFE, AND GLOBALIZATION