Aadishesh/ncerts · Datasets at Hugging Face

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reconstruction. The first was the US’semergence as the dominant economic, politicaland military power in the Western world. Thesecond was the dominance of the SovietUnion. It had made huge sacrifices to defeatNazi Germany, and transformed itself froma backward agricultural country into a worldpower during the very years when the capitalistworld was trapped in the Great Depression.
4.1 Post-war Settlement and the
Bretton Woods Institutions
Economists and politicians drew two key lessons from inter-war
economic experiences. First, an industrial society based on massproduction cannot be sustained without mass consumption. But toensure mass consumption, there was a need for high and stableincomes. Incomes could not be stable if employment was unstable.Thus stable incomes also required steady, full employment.
But markets alone could not guarantee full employment.
Therefore governments would have to step in to minimise
Fig. 24 – German forces attack Russia, July 1941.
Hitler’s attempt to invade Russia was a turningpoint in the war.
Fig. 25 – Stalingrad in Soviet Russia devastated by the war.
99
The Making of a Global WorldBriefly summarise the two lessons learnt by
economists and politicians from the inter-war
economic experience?Discussfluctuations of price, output and employment. Economic stability
could be ensured only through the intervention of the government.
The second lesson related to a country’s economic links with
the outside world. The goal of full employment could only beachieved if governments had power to control flows of goods,capital and labour.
Thus in brief, the main aim of the post-war international economic
system was to preserve economic stability and full employment inthe industrial world. Its framework was agreed upon at the UnitedNations Monetary and Financial Conference held in July 1944 atBretton Woods in New Hampshire, USA.
The Bretton Woods conference established the International Monetary
Fund (IMF) to deal with external surpluses and deficits of its membernations. The International Bank for Reconstruction and Development(popularly known as the World Bank) was set up to finance post-war reconstruction. The IMF and the World Bank are referred toas the Bretton Woods institutions or sometimes the Bretton Woodstwins. The post-war international economic system is also oftendescribed as the Bretton Woods system.
The IMF and the World Bank commenced financial operations
in 1947. Decision-making in these institutions is controlled bythe Western industrial powers. The US has an effective right ofveto over key IMF and World Bank decisions.
The international monetary system is the system linking national
currencies and monetary system. The Bretton Woods system wasbased on fixed exchange rates. In this system, national currencies,for example the Indian rupee, were pegged to the dollar at a fixedexchange rate. The dollar itself was anchored to gold at a fixedprice of $35 per ounce of gold.
4.2 The Early Post-war Years
The Bretton Woods system inaugurated an era of unprecedentedgrowth of trade and incomes for the Western industrial nations andJapan. World trade grew annually at over 8 per cent between 1950and 1970 and incomes at nearly 5 per cent. The growth was alsomostly stable, without large fluctuations. For much of this period
the unemployment rate, for example, averaged less than 5 per cent
in most industrial countries.Fig. 26 – Mount Washington Hotel situated in
Bretton Woods, US.This is the place where the famous conferencewas held.
India and the Contemporary World
100These decades also saw the worldwide spread of technology and
enterprise. Developing countries were in a hurry to catch up withthe advanced industrial countries. Therefore, they invested vastamounts of capital, importing industrial plant and equipmentfeaturing modern technology.
4.3 Decolonisation and Independence
When the Second World War ended, large parts of the world werestill under European colonial rule. Over the next two decades mostcolonies in Asia and Africa emerged as free, independent nations.They were, however, overburdened by poverty and a lack of
resources, and their economies and societies were handicapped by
long periods of colonial rule.
The IMF and the World Bank were designed to meet the financial
needs of the industrial countries. They were not equipped to copewith the challenge of poverty and lack of development in the formercolonies. But as Europe and Japan rapidly rebuilt their economies,they grew less dependent on the IMF and the World Bank. Thusfrom the late 1950s the Bretton Woods institutions began to shifttheir attention more towards developing countries.
As colonies, many of the less developed regions of the world had
been part of Western empires. Now, ironically, as newly independent
countries facing urgent pressures to lift their populations out of
poverty, they came under the guidance of international agenciesdominated by the former colonial powers. Even after many yearsof decolonisation, the former colonial powers still controlled vitalresources such as minerals and land in many of their former colonies.
Large corporations of other powerful countries, for example the
US, also often managed to secure rights to exploit developingcountries’ natural resources very cheaply.
At the same time, most developing countries did not benefit from
the fast growth the Western economies experienced in the 1950sand 1960s. Therefore they organised themselves as a group – theGroup of 77 (or G-77) – to demand a new international economic
order (NIEO). By the NIEO they meant a system that would give
them real control over their natural resources, more developmentassistance, fairer prices for raw materials, and better access for theirmanufactured goods in developed countries’ markets.New words
Tariff – Tax imposed on a country’s imports
from the rest of the world. Tariffs arelevied at the point of entry, i.e., at the border
or the airport.What are MNCs?
Multinational corporations (MNCs) are large
companies that operate in several countries atthe same time. The first MNCs were establishedin the 1920s. Many more came up in the 1950sand 1960s as US businesses expanded worldwideand Western Europe and Japan also recoveredto become powerful industrial economies. Theworldwide spread of MNCs was a notable featureof the 1950s and 1960s. This was partly becausehigh import tariffs imposed by different
governments forced MNCs to locate theirmanufacturing operations and become ‘domesticproducers’ in as many countries as possible.Box 4101
The Making of a Global World4.4 End of Bretton Woods and the Beginning of
‘Globalisation’
Despite years of stable and rapid growth, not all was well in
this post-war world. From the 1960s the rising costs of its
overseas involvements weakened the US’s finances and competitivestrength. The US dollar now no longer commanded confidence
as the world’s principal currency. It could not maintain its value
in relation to gold. This eventually led to the collapse of the
system of fixed exchange rates and the introduction of a system
of floating exchange rates .
From the mid-1970s the international financial system also changed
in important ways. Earlier, developing countries could turn tointernational institutions for loans and development assistance. But
now they were forced to borrow from Western commercial banks
and private lending institutions. This led to periodic debt crises in
the developing world, and lower incomes and increased poverty,
especially in Africa and Latin America.
The industrial world was also hit by unemployment that began
rising from the mid-1970s and remained high until the early 1990s.
From the late 1970s MNCs also began to shift production operations
to low-wage Asian countries.
China had been cut off from the post-war world economy since
its revolution in 1949. But new economic policies in China and
the collapse of the Soviet Union and Soviet-style communism inEastern Europe brought many countries back into the fold of the
world economy.
Wages were relatively low in countries like China. Thus they became
attractive destinations for investment by foreign MNCs competing
to capture world markets. Have you noticed that most of the TVs,mobile phones, and toys we see in the shops seem to be made in
China? This is because of the low-cost structure of the Chinese
economy, most importantly its low wages.
The relocation of industry to low-wage countries stimulated world
trade and capital flows. In the last two decades the world’s economic
geography has been transformed as countries such as India, China
and Brazil have undergone rapid economic transformation.New words
Exchange rates – They link national currencies
for purposes of international trade. There are
broadly two kinds of exchange rates: fixed
exchange rate and floating exchange rateFixed exchange rates – When exchange rates

reconstruction. The first was the US’semergence as the dominant economic, politicaland military power in the Western world. Thesecond was the dominance of the SovietUnion. It had made huge sacrifices to defeatNazi Germany, and transformed itself froma backward agricultural country into a worldpower during the very years when the capitalistworld was trapped in the Great Depression.

4.1 Post-war Settlement and the

Bretton Woods Institutions

Economists and politicians drew two key lessons from inter-war

economic experiences. First, an industrial society based on massproduction cannot be sustained without mass consumption. But toensure mass consumption, there was a need for high and stableincomes. Incomes could not be stable if employment was unstable.Thus stable incomes also required steady, full employment.

But markets alone could not guarantee full employment.

Therefore governments would have to step in to minimise

Fig. 24 – German forces attack Russia, July 1941.

Hitler’s attempt to invade Russia was a turningpoint in the war.

Fig. 25 – Stalingrad in Soviet Russia devastated by the war.

99

The Making of a Global WorldBriefly summarise the two lessons learnt by

economists and politicians from the inter-war

economic experience?Discussfluctuations of price, output and employment. Economic stability

could be ensured only through the intervention of the government.

The second lesson related to a country’s economic links with

the outside world. The goal of full employment could only beachieved if governments had power to control flows of goods,capital and labour.

Thus in brief, the main aim of the post-war international economic

system was to preserve economic stability and full employment inthe industrial world. Its framework was agreed upon at the UnitedNations Monetary and Financial Conference held in July 1944 atBretton Woods in New Hampshire, USA.

The Bretton Woods conference established the International Monetary

Fund (IMF) to deal with external surpluses and deficits of its membernations. The International Bank for Reconstruction and Development(popularly known as the World Bank) was set up to finance post-war reconstruction. The IMF and the World Bank are referred toas the Bretton Woods institutions or sometimes the Bretton Woodstwins. The post-war international economic system is also oftendescribed as the Bretton Woods system.

The IMF and the World Bank commenced financial operations

in 1947. Decision-making in these institutions is controlled bythe Western industrial powers. The US has an effective right ofveto over key IMF and World Bank decisions.

The international monetary system is the system linking national

currencies and monetary system. The Bretton Woods system wasbased on fixed exchange rates. In this system, national currencies,for example the Indian rupee, were pegged to the dollar at a fixedexchange rate. The dollar itself was anchored to gold at a fixedprice of $35 per ounce of gold.

4.2 The Early Post-war Years

The Bretton Woods system inaugurated an era of unprecedentedgrowth of trade and incomes for the Western industrial nations andJapan. World trade grew annually at over 8 per cent between 1950and 1970 and incomes at nearly 5 per cent. The growth was alsomostly stable, without large fluctuations. For much of this period

the unemployment rate, for example, averaged less than 5 per cent

in most industrial countries.Fig. 26 – Mount Washington Hotel situated in

Bretton Woods, US.This is the place where the famous conferencewas held.

India and the Contemporary World

100These decades also saw the worldwide spread of technology and

enterprise. Developing countries were in a hurry to catch up withthe advanced industrial countries. Therefore, they invested vastamounts of capital, importing industrial plant and equipmentfeaturing modern technology.

4.3 Decolonisation and Independence

When the Second World War ended, large parts of the world werestill under European colonial rule. Over the next two decades mostcolonies in Asia and Africa emerged as free, independent nations.They were, however, overburdened by poverty and a lack of

resources, and their economies and societies were handicapped by

long periods of colonial rule.

The IMF and the World Bank were designed to meet the financial

needs of the industrial countries. They were not equipped to copewith the challenge of poverty and lack of development in the formercolonies. But as Europe and Japan rapidly rebuilt their economies,they grew less dependent on the IMF and the World Bank. Thusfrom the late 1950s the Bretton Woods institutions began to shifttheir attention more towards developing countries.

As colonies, many of the less developed regions of the world had

been part of Western empires. Now, ironically, as newly independent

countries facing urgent pressures to lift their populations out of

poverty, they came under the guidance of international agenciesdominated by the former colonial powers. Even after many yearsof decolonisation, the former colonial powers still controlled vitalresources such as minerals and land in many of their former colonies.

Large corporations of other powerful countries, for example the

US, also often managed to secure rights to exploit developingcountries’ natural resources very cheaply.

At the same time, most developing countries did not benefit from

the fast growth the Western economies experienced in the 1950sand 1960s. Therefore they organised themselves as a group – theGroup of 77 (or G-77) – to demand a new international economic

order (NIEO). By the NIEO they meant a system that would give

them real control over their natural resources, more developmentassistance, fairer prices for raw materials, and better access for theirmanufactured goods in developed countries’ markets.New words

Tariff – Tax imposed on a country’s imports

from the rest of the world. Tariffs arelevied at the point of entry, i.e., at the border

or the airport.What are MNCs?

Multinational corporations (MNCs) are large

companies that operate in several countries atthe same time. The first MNCs were establishedin the 1920s. Many more came up in the 1950sand 1960s as US businesses expanded worldwideand Western Europe and Japan also recoveredto become powerful industrial economies. Theworldwide spread of MNCs was a notable featureof the 1950s and 1960s. This was partly becausehigh import tariffs imposed by different

governments forced MNCs to locate theirmanufacturing operations and become ‘domesticproducers’ in as many countries as possible.Box 4101

The Making of a Global World4.4 End of Bretton Woods and the Beginning of

‘Globalisation’

Despite years of stable and rapid growth, not all was well in

this post-war world. From the 1960s the rising costs of its

overseas involvements weakened the US’s finances and competitivestrength. The US dollar now no longer commanded confidence

as the world’s principal currency. It could not maintain its value

in relation to gold. This eventually led to the collapse of the

system of fixed exchange rates and the introduction of a system

of floating exchange rates .

From the mid-1970s the international financial system also changed

in important ways. Earlier, developing countries could turn tointernational institutions for loans and development assistance. But

now they were forced to borrow from Western commercial banks

and private lending institutions. This led to periodic debt crises in

the developing world, and lower incomes and increased poverty,

especially in Africa and Latin America.

The industrial world was also hit by unemployment that began

rising from the mid-1970s and remained high until the early 1990s.

From the late 1970s MNCs also began to shift production operations

to low-wage Asian countries.

China had been cut off from the post-war world economy since

its revolution in 1949. But new economic policies in China and

the collapse of the Soviet Union and Soviet-style communism inEastern Europe brought many countries back into the fold of the

world economy.

Wages were relatively low in countries like China. Thus they became

attractive destinations for investment by foreign MNCs competing

to capture world markets. Have you noticed that most of the TVs,mobile phones, and toys we see in the shops seem to be made in

China? This is because of the low-cost structure of the Chinese

economy, most importantly its low wages.

The relocation of industry to low-wage countries stimulated world

trade and capital flows. In the last two decades the world’s economic

geography has been transformed as countries such as India, China

and Brazil have undergone rapid economic transformation.New words

Exchange rates – They link national currencies

for purposes of international trade. There are

broadly two kinds of exchange rates: fixed

exchange rate and floating exchange rateFixed exchange rates – When exchange rates