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

POLS/ECON 426 International Political Economy. Lecture 7: The 20th Century--World Wars and the Post-1945 Order April __, 2008. Professor Timothy C. Lim Cal State Los Angeles tclim@calstatela.edu. The 20th Century: World Wars and the Post-1945 Order. The World Wars: Overview

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

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  1. POLS/ECON 426 International Political Economy Lecture 7: The 20th Century--World Wars and the Post-1945 Order April __, 2008 Professor Timothy C. LimCal State Los Angelestclim@calstatela.edu

  2. The 20th Century: World Wars and the Post-1945 Order 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”

  3. The 20th Century: World Wars and the Post-1945 Order 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? Hint: Think about Susan Strange’s concept of structural power

  4. The 20th Century: World Wars and the Post-1945 Order 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” “Schädel” (1924) by Otto Dix. At the time, a shocking depiction of German soldiers in WWI

  5. The 20th Century: World Wars and the Post-1945 Order World War I and the Inter-war Period • 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 institutiondesigned to regulate relations among states • The manifestation of this new mode of thinking was the _________________ League of Nations

  6. The 20th Century: World Wars and the Post-1945 Order World War I and the Inter-war Period The League of Nations: D.O.A.? Consider these political cartoons and the message they convey about the League of Nations

  7. The 20th Century: World Wars and the Post-1945 Order World War I and the Inter-war Period The 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

  8. The 20th Century: World Wars and the Post-1945 Order World War I and the Inter-war Period Rigid 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 What was so problematic?

  9. The 20th Century: World Wars and the Post-1945 Order World War I and the Inter-war Period The 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.”

  10. The 20th Century: World Wars and the Post-1945 Order World War I and the Inter-war Period German Reparations The 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: 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

  11. The 20th Century: World Wars and the Post-1945 Order World War I and the Inter-war Period German 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

  12. The 20th Century: World Wars and the Post-1945 Order World War I and the Inter-war Period 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 __________________. last resort Why not?

  13. The 20th Century: World Wars and the Post-1945 Order World War I and the Inter-war Period Social 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 So, what was the problem?

  14. The 20th Century: World Wars and the Post-1945 Order World War I and the Inter-war Period Social 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 … double movement

  15. The 20th Century: World Wars and the Post-1945 Order World War I and the Inter-war Period 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 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

  16. The 20th Century: World Wars and the Post-1945 Order World War I and the Inter-war Period Double Movement: Some Background 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’.

  17. The 20th Century: World Wars and the Post-1945 Order World War I and the Inter-war Period Double 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 notentirely unsuccessful: for a time, they even seemed superior

  18. The 20th Century: World Wars and the Post-1945 Order World War I and the Inter-war Period Double 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 One can argue that the new deal “saved” capitalism in the United States by providing the basis for long-term economic and political stability

  19. The 20th Century: World Wars and the Post-1945 Order The Second World War The dislocation caused by the imposition of the market on society (some argued) created the basis for WWII The “alternatives” to the market had become too entrenched, too socially powerful to simply stop While another world war may not have been inevitable, in the mid-20th century, there was essentially no mechanism available to amerliorate the collapse of the international political economy The result was a catastrophic war

  20. The 20th Century: World Wars and the Post-1945 Order 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 We will focus on this last point

  21. The 20th Century: World Wars and the Post-1945 Order World War II: Consequences The Post-1945 Order One 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 ______________ World Bank IMF GATT

  22. The 20th Century: World Wars and the Post-1945 Order The Post-1945 Order The 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 …

  23. The 20th Century: World Wars and the Post-1945 Order The Post-1945 Order Despite 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

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