Introduction | The free market
The Great Depression | Boom | Globalisation
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Globalisation

Rising inflation in the West turned into an economic crisis in 1973 when the major producers in the Middle East dramatically raised the price of oil. This was done partly as a protest against US support for Israel in its wars with the Arabs. The price of a barrel of oil rose from $3 to $18, with devastating consequences for all oil importers.

Inflation rose, unemployment rose, but – unlike the 1930s – growth also rose. Capitalism continued to deliver the goods in terms of rising living standards, not only in the West but in the new economies of Japan and South-east Asia. In Japan, industry concentrated on advanced electronics and engineering, and in the late 1970s it became the second wealthiest country in the world. By 1987, the American trade deficit with Japan had reached $60 billion.

In the last quarter of the 20th century, the long postwar boom slowed down. Despite local recessions – such as that in Britain during the early 1990s – the story has been one of an increasingly integrated global economy dominated by multinational companies. Some developments have been particularly striking.

China

The long period of Mao Zedong's rule ended with his death in 1976, and the Communist Party's fiercely autocratic grasp on the economy gradually slackened.

In the 1980s, Deng Xiaoping moved China away from state control and towards liberalisation. Freeing prices, allowing private businesses, giving farmers the right to own their surplus and attracting foreign investment led to an astonishing economic boom. Many heavy industrial plants closed, causing local unemployment, but, overall, incomes rose and many Chinese left poverty behind.

A plentiful labour supply enabled China to gain a world advantage in labour-intensive industries such as textiles, toys and shoes. The main disadvantages were a massive increase in pollution and a fall in social security provision.

South-east Asia

The economies of Taiwan, South Korea, Singapore, Thailand, the Philippines and Malaysia also experienced high growth. Cheap and flexible labour, funded by heavy investment from foreign governments such as Japan and the US, encouraged the creation of industries making consumer goods for export. Despite problems with the financial system, which led to a serious banking crisis in the late 1990s, the economies soon bounced back, and the 'Asian Tigers' remained a challenge to the US economy.

By contrast, the Indian economy – where population growth constantly compromised the state's desire to plan the economy – was still waiting to benefit from its liberalisation policies of the 1990s.

The Soviet Union

In the USSR, there had been some success in competing with the US in space technology and arms during the Cold War. However, the low living standards of most of the population and the lack of rights at work led to a demoralised workforce and the slowly grinding failure of the centrally controlled state system.

After the reforms of Mikhail Gorbachev in the 1980s and the consequent collapse of the Soviet planning system, Russia and eastern Europe faced severe economic problems. Unable to make the capitalist financial mechanism work, because of corruption and lack of trained managers, these countries also faced the complete collapse of state-owned industries and a loss of social security systems, which resulted in unemployment, poverty and acute social conflict.

Latin America

Here, the legacy of the economic nationalism of the 1940s – a mixture of state control and protectionism – compromised growth. By the 1970s, inflation, social conflict and political instability caused most governments to borrow heavily from the US, although the money was not used for economic restructuring.

In the early 1980s, a rise in US interest rates caused a debt crisis in Latin America, with Mexico defaulting in 1982. The IMF and World Bank made export production a condition of further loans, which has distorted the economies of the region and led to a substantial cut in living standards.

Africa

The economic consequences of colonial rule have continued despite independence. Cash crops such as cocoa in Ghana, coffee and vanilla in Madagascar and copper in Zambia take priority over other production. Industrialisation remains limited and communications poor, and domestic demand has been held back by poverty. Technology has been imported and there is not enough work to employ the population. The dependence of much of sub-Saharan Africa on oil imports is a serious problem.

After 1973, economic growth declined, with Zambia, Niger and the Ivory Coast suffering falls in gross national product (GNP). High population growth, widespread poverty and indebtedness all restrain growth and make the continent vulnerable to exploitation by multinational companies. The consequences of the Aids pandemic, which hit Africa hardest of all the world's regions, were still to be fully felt.

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