The Political Economy of the Cold War (pdf)
Transcript of The Political Economy of the Cold War (pdf)
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The Political Economy of the Cold War
http://www.youtube.com/watch?v=-CvQOuNecy4&feature=related (3.00-5.00)
London School of Economics, October 18, 2010
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A foregone conclusion?
Nixon and Khrushchev in the kitchen, Moscow 1959
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A foregone conclusion?
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A foregone conclusion?
Jules Régis Debray, French leftist philosopher and comrade in arms of Che Guevara: There is “more power in rock music and blue jeans than the entire Red Army”
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A foregone conclusion?
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11/9/1989: The scoop that never was
Checkpoint Charlie: The crossing-point from West to East Berlin
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The scoop that never was
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A foregone conclusion?
• Growth rate declined• Total factor productivity
(TFP) declined– Raw materials worth more
than finished products• Price controls blocked
market signals (as Hayek
• Corruption—the ‘grabbing hand’ (Shleifer)– Officials have an interest in
restricting output• ‘You pretend to pay us
and we pretend to work.’– No incentives in the
• Price controls blocked market signals (as Hayek had warned)– Steel consumption/GDP
ratio 4 times as high as in the United States
• Only oil price hike kept show going– Armageddon Averted
(Kotkin)
– No incentives in the workplace
• Excess defence spending• Inadequate allowances
for depreciation of capital stock – Chernobyl, April 16, 1986
• Ill health and alcoholism– 17 litres a year …
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Source: HBS Case 795-060TFP = Total Factor Productivity
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Source: Maddison, World Economy
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Source: HBS Case 795-060
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The sad truth
• Soviet GDP was not 49% of US level in 1990 (CIA), more like 36% (European Comparison Project)Project)
• In 1945 it had been 27%• Soviet per capita
consumption was not 31% of US level, more like 24%
• In other words, Turkey –Bergson (1997)
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West Texas Intermediate crude (1962=100)
800
1000
1200
0
200
400
600
01/31/1962 01/31/1967 01/31/1972 01/31/1977 01/29/1982 01/30/1987
Source: Economagic
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Source: Maddison, World Economy
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Source: World Bank, WDI
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What I used to think:The Eurocentric narrativeThe Eurocentric narrative
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Europe’s predicament in 1947
• Population up 10%, despite death toll of war
• Industrial production down 40%
• Reduction of overseas • Reduction of overseas invisible earnings and worsening terms of trade reduce capacity to import by 40%
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Industrial production, 1946 (1938=100)
80
100
120
140
0
20
40
60
Wes
t Ger
many
Austria
Greec
e
Nether
lands Ita
lyTota
l
Franc
e
Luxe
mbour
g
Belgium
Norway
Denmar
k
Britain
Irelan
d
Sweden
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40
50
60
70
80
90
Percentage of votes going to Communist parties/coalitions (*) in post-war elections
0
10
20
30
40
Den
mar
k
Wes
t Ger
man
y
Gre
ece
Irel
and
Net
herla
nds
Nor
way UK
Sw
itzer
land
Aus
tria
Sw
eden
Bel
gium
Fin
land
Hun
gary
Fra
nce*
Eas
t Ger
man
y*
Italy
*
Bul
garia
*
Cze
chos
lova
kia
Rom
ania
*
Pol
and*
Yug
osla
via*
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The traditional answer: Marshall’s Plan
‘Europe … must have substantial additional help or face economic, social, and political deterioration of a very grave character.’ – at Harvard, June 5, 1947
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Causes of the post-war ‘miracles’
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3
4
5
6
Growth of per capita GDP, annual average compound rate, 1950–73
0
1
2
Spa
in
Por
tuga
l
Ger
man
y
Italy
Aus
tria
Oth
er
Fin
land
Fra
nce
Bel
gium
Net
herla
nds
Nor
way
Sw
itzer
land
Den
mar
k
Sw
eden UK
E E
urop
e
For
mer
US
SR
US
Source: Maddison, World Economy
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1. External factors?
• Marshall Aid– Around 2.5% of recipient GDP– For each $1 of aid some 65 cents went to increased
consumption and 35 cents to increased investment– An extra $1 of investment raised national product by 50
cents in the subsequent yearcents in the subsequent year– Helped finance early trade deficits
• American sponsorship of trade liberalization• ‘Americanization’ of business
– ‘Taylorist’ management, U.S. marketing techniques • Sustained American military expenditures
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Marshall Aid: Total grants and loans, 1948-1952 (million dollars)
1,500
2,000
2,500
3,000
3,500
Total aid 1946-52 equivalent to 1.1 per cent of US GDP; but biggest recipients not best performers
-
500
1,000
Icelan
d
Portug
al
Sweden
Irelan
d
Turke
y
Norway
Denmar
k
Belgium
-Lux
embo
urg
Austria
Greec
e
Nether
lands
German
y, Fed
eral
Repub
licIta
ly
Franc
e
United
King
dom
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2. Internal factors
• Those who started from lowest base generally had highest growth– Spain, Portugal, Germany, Italy, Austria
• Abundant labour (refugees) plus wartime investment •in capital stock gave Germans an advantage
• Reduction of class conflict compared with 1920s—the success of ‘corporatism’ (Maier)– Unemployment down from 10% (1950) to 1% (1960)– Lower labour radicalism, e.g. Germany
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(a) Social and Christian Democracy
• ‘Scarcely anyone doubts that we must move towards socialism’ (Hayek)– Planning as legacy of war
economy
• France: Monnet’s Plan—dirigisme
• West Germany: Erhard’s social market economy’– Stable currency
economy
• Britain’s welfare state– 20% of productive capacity
nationalized– Welfare “from cradle to
grave”– Healthcare free at point of
delivery
– Stable currency– Free trade– Deregulation
• Italy: Church, industry plus Mafia– The ‘honored society’ in
Sicily
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Social services expenditure as a percentage of GDP, 1870-1975
20
25
30
ItalyBritainFranceGermany
NB Not including education and housing
0
5
10
15
1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970
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(b) Versus ‘real existing socialism’
• Soviet exactions: c. $14 bn.• Five and Six Year Plans
– Heavy industry and urbanization
• Collectivization• Collectivization– Esp. Baltic states, Romania
• Forced labor– Danube-Black Sea Canal– Bulgaria 100,000 slaves, 361,000 workers
• The ‘New Class’ (Milovan Djilas)
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Catch: The West’s slide into ‘stagflation’
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Source: Maddison, World Economy
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Source: Maddison, World Economy
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Source: OECD
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Source: ONS
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Source: Global Financial Data
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Source: Nationwide
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What I think now:East Asia as the keyEast Asia as the key
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The view from the East
• West European success was not the surprise of the post-war period
• Asian growth was much more remarkable
• We need to give more
• The Soviets fared much better in Latin America and Africa, where economic performance deteriorated (Westad, Mitrokhin)• We need to give more
weight to American occupations in Japan and South Korea
• Also Hong Kong, Malaysia, Singapore, Taiwan and even Indonesia
Mitrokhin)• South Vietnam: exception
that proves the rule• The decisive year was not
1989 but 1979 … when China joined the Asian bandwagon
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Asian share from 14% to 34% …
… W European down from 36% to 22%, N American from 44% to 26%
Source: Bridgewater
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Source: World Bank, WDI
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Source: OECD
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Source: World Bank, WDI
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Understanding Asian success
• Long-term security guarantees vital after military interventions (especially Japan, Korea, Taiwan)
• Increasingly open economic order upheld by the United States principally benefited Asian countriesTaiwan)
• Post-war reforms created secure institutional basis for growth – especially land reform (Japan 1946)
Asian countries• They were able to
export their way to prosperity thanks to American FDI plus American consumption
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A problem for liberals
• A series of military interventions and occupations were successful: Japan, Korea, Malaya (UK), Philippines
• Economic success in Asia was not a function of democratic institutions*
• But it was followed by democratic transitionsMalaya (UK), Philippines
• South Vietnam was the exception that proved the rule
• (In a counterfactual world, South Korea 2.0)
democratic transitions• Success was not based on
standard market models … but it benefited from liberalize global trade regime
E.g. Generals Park Chung-hee (1960-79) and Chun Doo-hwan (1980-87) in South Korea … also Lee Kuan Yew in Singapore, Suharto in Indonesia 1-party states in Taiwan and Japan.
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Yet ex post interventions were worse
‘Successes’• Iran (1953)• Guatemala (1954)• Congo (1961)
‘Failures’• Indonesia (1957)• Cuba (1959) • South Vietnam (1964-• Congo (1961)
• Brazil (1964)• Dominican Republic
(1965)• Chile (1973)
• South Vietnam (1964-1975)
• Angola (1975-76)• Ethiopia (1977)• Afghanistan (1979)
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The counterfactual question
• Would the United States have won the Cold War if East Asia had not experienced an economic miracle?
• Weren’t the Soviets better positioned to win • Weren’t the Soviets better positioned to win …
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24 November 2010
The Third World’s War