Lecture 7: The 20th Century--World Wars and the Post-1945 Order April __, 2008 Lecture 7: The 20th...

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Lecture 7: The 20th Century--World Wars and the Post-1945 OrderApril __, 2008

Lecture 7: The 20th Century--World Wars and the Post-1945 OrderApril __, 2008

Professor Timothy C. LimCal State Los [email protected]

Professor Timothy C. LimCal State Los [email protected]

POLS/ECON 426 International Political Economy





The World Wars: Overview “The First and Second World Wars were massive shocks to the international economy, forcing a retreat from liberal and international policies.”

The wars led directly to far-reaching changes, most of which we still feel very strongly today; these include …

The decline of Great Britain and the ultimate rise of the United States as a “hyper-power”

The division of the world into competing ideological camps

The transformation of the state

The growth of international organizations and regimes, and the concomitant rise of transnational non-governmental organizations

The emergence of “global governance”

The World Wars: Overview “The First and Second World Wars were massive shocks to the international economy, forcing a retreat from liberal and international policies.”

The wars led directly to far-reaching changes, most of which we still feel very strongly today; these include …

The decline of Great Britain and the ultimate rise of the United States as a “hyper-power”

The division of the world into competing ideological camps

The transformation of the state

The growth of international organizations and regimes, and the concomitant rise of transnational non-governmental organizations

The emergence of “global governance”



The 20th Century: World Wars and the Post-1945

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The World Wars: Overview The authors also note that the wars, especially WWI, deeply affected capital movements, turning a number of debtor nation-states into creditors and some creditor nation-states into debtors

The United States and Japan both became creditor nation-states after WWI

In what way was this significant?




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Hint: Think about Susan Strange’s concept of structural

power

Hint: Think about Susan Strange’s concept of structural

power



World War I and the Inter-war Period

The causes of the first war are complex, and there’s no basic consensus, but almost certainly it was the product of a variety of forces--economic, political, and social

While there is no consensus on the causes, the outcome was clear: it disrupted trade and finance patterns, it created the basis for continuing tensions and instability in Europe, and it weakened Europe as a whole

The war also served as a huge “history lesson”: in set in motion a deep rethinking about the nature of world affairs and whether states and their leaders could do anything to construct a “better world order”




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“Schädel” (1924) by Otto Dix. At the time, a shocking depiction of German soldiers in WWI “Schädel” (1924) by Otto Dix. At the time, a shocking depiction of German soldiers in WWI




One of the results of this rethinking was the emergence of idealism (a variant of liberalism) as an important new mode of thought

Idealists, of whom the most famous is Woodrow Wilson, believed that world stability and peace could only be achieved through the creation of an international institution designed to regulate relations among states

The manifestation of this new mode of thinking was the _________________




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League of Nations














The League of Nations: D.O.A.?




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Consider these political cartoons and the message they convey about the League of Nations



World War I and the Inter-war PeriodThe League of Nations was not the only failure of the inter-war period: indeed, the League’s failure was, perhaps, the least importantduring this period

Other significant failures included the … Inability to establish a “flexible” international

monetary system

Profound miscalculation of the effects of the punitive reparations forced on Germany

Neglect of the social and political consequences of market capitalism

Lack of political will within the United States to play a stabilizing role in the international system




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World War I and the Inter-war PeriodRigid Monetary and Financial Systems

“There were two aspects of the international monetary and financial system that proved to be very problematic”:

The decision to re-establish the gold standard

The system of war reparations from Germany to France in compensation for the First World War




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What was so problematic?What was so problematic?



World War I and the Inter-war PeriodThe decision to re-establish the gold standard While the gold standard was meant to provide stability in the

international financial system, it only works when governments remain committed to the standard--in both good and bad times

Without a mechanism to help governments through “bad” times, however, the temptation to abandon the gold standard is high

This happened to Britain and other countries in the 1920s:

“For example, Britain fixed its currency to gold at the same rate as it was before the war even though the economy was weaker. This meant that the British currency was overvalued and its exports were expensive for other states. This reduced employment as British exporters lost business and jobs.”




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World War I and the Inter-war PeriodGerman ReparationsThe Treaty of Versailles stipulated that Germany make reparation payments to the victorious countries because it was guilty of starting the war • Importantly, the issue of reparations reflects basic differences in the mercantilist and liberal views:




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Mercantilist: The victorious powers, especially France, were seeing the world through a Mercantilist lens: punishing Germany and ensuring it remained economically weak made perfect sense given the threat a strong Germany posed to them

Liberal: Through a liberal lens, by contrast, ensuring Germany remained economically weak, meant ensuring that Europe’s recovery would be minimal, since, as many liberal economists at the time recognized, Germany was the motor of European economic growth

Mercantilist: The victorious powers, especially France, were seeing the world through a Mercantilist lens: punishing Germany and ensuring it remained economically weak made perfect sense given the threat a strong Germany posed to them

Liberal: Through a liberal lens, by contrast, ensuring Germany remained economically weak, meant ensuring that Europe’s recovery would be minimal, since, as many liberal economists at the time recognized, Germany was the motor of European economic growth





World War I and the Inter-war PeriodGerman Reparations

In retrospect, it the liberals were right: not only did the punitive policy toward Germany after WWI hurt Europe as a whole, but it generated a huge backlog of resentment within Germany, from which Hitler was able to draw in his rise to power

More generally, punitive policies toward Germany help to create the conditions for the financial crisis of 1931 (including Britain’s abandonment of the Gold Standard) and the collapse of the liberal international economic order




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Reparations and the inflexibility of the Gold Standard were crucial to the collapse of the liberal economic order of the inter-war period

However, an equally important problem was the absence of any international financial institution

In particular, when states began experiencing economic difficulties, there was nothing available to provide credit. In other words, there was no lender of __________________.




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last resort

Why not?



World War I and the Inter-war PeriodSocial and political consequences of market capitalism

The story so far. If liberals were running the world in the first half of the 20th century, the world would have been much better off

To a certain extent, this is hard to deny, but it’s also important to recognize that, in many respects, the early part of last century was a liberal paradise, at least with regard to domestic economies

There was little regulation of business, labor unions were weak or non-existent in many capitalist economies, international trade, while not completely free, was strong, government spending was relatively low, and so on




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So, what was the problem?

So, what was the problem?



World War I and the Inter-war PeriodSocial and political consequences of market capitalism

The main problem was the assumption that people were commodities adjusting to supply and demand of the market in the same way that commodities such as land or capital might adjust

In the liberal world of the early 20th century, in other words, people were not human beings, they were merely seen as units of labor

Unfortunately, the laws of supply and demand, when they impact people, often have brutal and terribly destructive results: this can create serious social and political problems. To deal with these problems, states must response. This reflects a dynamic called the …




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double movement










Double Movement: Action-Reaction

Part 1. The creation of an unfettered liberal market

Part 2. Political reaction to the suffering cased by the liberal market




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Much of the history of the international and global political economy in the 20th century can be understood in terms of the double movement: the embrace of Marxism and communism in the early 1900s, the rise of fascism in the 1930s, the emergence of the “welfare state,” and the rise of fundamentalism, the “alter-globalizaton” movement

All were responses to the development, expansion, and deepening of capitalism

Much of the history of the international and global political economy in the 20th century can be understood in terms of the double movement: the embrace of Marxism and communism in the early 1900s, the rise of fascism in the 1930s, the emergence of the “welfare state,” and the rise of fundamentalism, the “alter-globalizaton” movement

All were responses to the development, expansion, and deepening of capitalism

Action Reaction




Double Movement: Some Background




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The concept of the double movement was introduced by Karl Polanyi in The Great Transformation. Polanyi turned the tables on the orthodox liberal account of the rise of capitalism by arguing that “laissez-faire was planned,”whereas social protectionism was a spontaneous reaction to the social dislocation imposed by an unrestrained free market.

The market intentionally turned land, labor and money into "fictitious commodities" and “subordinate[d] the substance of society itself to the laws of the market.” This, he argued, resulted in massive social dislocation, and spontaneous moves by society to protect itself.

In effect, Polanyi argues that once the free market attempts to disembed itself from the fabric of society, social protectionism is society’s natural response; this is the ‘double movement’.

The concept of the double movement was introduced by Karl Polanyi in The Great Transformation. Polanyi turned the tables on the orthodox liberal account of the rise of capitalism by arguing that “laissez-faire was planned,”whereas social protectionism was a spontaneous reaction to the social dislocation imposed by an unrestrained free market.

The market intentionally turned land, labor and money into "fictitious commodities" and “subordinate[d] the substance of society itself to the laws of the market.” This, he argued, resulted in massive social dislocation, and spontaneous moves by society to protect itself.

In effect, Polanyi argues that once the free market attempts to disembed itself from the fabric of society, social protectionism is society’s natural response; this is the ‘double movement’.





World War I and the Inter-war PeriodDouble Movement: Key Points In trying to understand the rise of communism and fascism, it

is absolutely critical to keep in mind the historical, social, and political context in which these systems developed

To put it simply, these systems did not just spring up from nowhere, but they sprang up as a direct response to an existing system that was not meeting the most basic needs of huge numbers of people

It’s also important to understand that these “alternatives” to liberal capitalism were not entirely unsuccessful: for a time, they even seemed superior




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World War I and the Inter-war PeriodDouble Movement: A Little More In the U.S., Britain, and a few other countries, a less radical alternative was used in the form of Keynesianism

In the United States, the “New Deal” was the first attempt to forge a liberal alternative to unfettered capitalism

The New Deal, among other things, created the Civilian Conversation Corps, the Agricultural Adjustment Act, the FDIC, the Securities Act and the SEC, the National Labor Relations Act, the Fair Labor Standards Act, Social Security, and the Public Works Administration




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One can argue that the new deal “saved” capitalism in the United States by providing the basis for long-term economic and political stability

One can argue that the new deal “saved” capitalism in the United States by providing the basis for long-term economic and political stability







The Second World WarThe Second World WarThe dislocation caused by the imposition of the The dislocation caused by the imposition of the market market onon society (some argued) created the basis society (some argued) created the basis for WWIIfor WWII

The “alternatives” to the market had become too The “alternatives” to the market had become too entrenched, too socially powerful to simply stopentrenched, too socially powerful to simply stop

While another world war may not have been While another world war may not have been inevitable, in the mid-20th century, there was inevitable, in the mid-20th century, there was essentially no mechanism available to amerliorate essentially no mechanism available to amerliorate the collapse of the international political the collapse of the international political economyeconomy

The result was a catastrophic warThe result was a catastrophic war

The Second World WarThe Second World WarThe dislocation caused by the imposition of the The dislocation caused by the imposition of the market market onon society (some argued) created the basis society (some argued) created the basis for WWIIfor WWII

The “alternatives” to the market had become too The “alternatives” to the market had become too entrenched, too socially powerful to simply stopentrenched, too socially powerful to simply stop

While another world war may not have been While another world war may not have been inevitable, in the mid-20th century, there was inevitable, in the mid-20th century, there was essentially no mechanism available to amerliorate essentially no mechanism available to amerliorate the collapse of the international political the collapse of the international political economyeconomy

The result was a catastrophic warThe result was a catastrophic war




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World War II: Consequences

The Second World War had a number of far-reaching results

Fundamentally altered the balance of global economic power and effectively marked the demise of Europe to secondary status, and the rise of the United to primary status

Solidified and expanded the welfare state

Provided the starting point for a gradual, but more profound shift in global power from Europe to the Asia-Pacific

Marked the triumph of “liberalism” as the dominant ideology and dominant basis for international economic policy




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We will focus on this last point



World War II: Consequences

The Post-1945 OrderOne of the most important consequences of World War II was acceptance of liberal-idealist principles; this acceptance was manifested in a number of areas:

The creation of a mechanism to maintain a stable international monetary system and to facilitate the flow of liquidity: this led directly to the establishment of the _________ and the _________________

Recognition that the dominant economic actor--the United States--had to assume a proactive role in world affairs

Attempt to create a more liberal trading environment through multi-lateral negotiations; this was achieved through ______________




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IMF World Bank

GATT



The Post-1945 OrderThe post-1945 order also witnessed the emergence of much stronger levels of cooperation among the major Western powers (also based on liberal principles)

Examples of this cooperation were evidenced in the IMF, World Bank, and GATT, but also in …




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Marshall Plan

NATO

European Economic Community (EEC)/EU

United Nations

Bilateral Security Treaties (esp. U.S-Japan Security Treaty)





The Post-1945 OrderDespite flaws and serious problems, the post-1945 order has turned out to very effective: this does not mean, of course, that all problems have been resolved

One of the major issues facing the world today is the struggle for development: much of the world remains mired in poverty, disease, and violence. Global inequality, while improving, still remains a serious problem, and new challenges—such as the rise in global terrorism—are emerging

Moreover, some of the lessons of the early post-war period are being rewritten, the most salient example is the state: increasingly state leaders are abandoning the Keynesian and welfare state and replacing it with the “competition” state




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The Post-1945 Order

The abandonment of the Keynesian state raises a number of critical and inter-related questions: Are we likely to see a return to the past?

That is, are we likely to see a the reemergence

of “alternatives” to the liberal market, which may lead to another, but far more destructive cycle of global violence and war?

Are we already seeing another double movement?

What’s different today compared to the 1930s?




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