Topic of Study [For H2 History Students]:
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapters 1: Reasons for growth of the global economy & Problems of economic liberalisation
Origins of a multilateral trading institution: ITO
Before the World Trade Organisation (WTO) was established on 1 January 1955, leaders from over 50 countries gathered during the “Bretton Woods” Conference and contemplated on the creation of an International Trade Organisation (ITO). Ideally, it was to be the third pillar of the Bretton Woods, together with the World Bank and the International Monetary Fund (IMF).
The proposed ITO was meant to promote world trade, cross-border investments and commodity agreements. Following the end of World War Two, more countries supported trade liberalisation. They sought to reverse the adverse protectionist stance since the early 1930s.
A by-product of failed negotiations: GATT
Amidst negotiations, 23 “contracting parties” signed the General Agreement on Tariffs and Trade (GATT) on 30 October 1947. GATT was created as a framework for international trade, taking effect on 1 January 1984.
The signatories were: Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, United Kingdom and the United States.
There were three provisions:
- Conferment of “Most Favoured Nations” status to other members
- Prohibition of trade restrictions (except for emerging industries)
- Elimination of import tariffs (by developed countries to support the admission of developing countries)
However, the path to institutionalise world trade proved difficult. Although the USA was one of the key advocates of free trade, the US Congress opposed the decision. During the fifth Session of the Contracting Parties, USA announced that the ITO Charter (Havana Charter) would not be re-submitted to the US Congress. From then on, the ITO did not take shape. Instead, GATT became the multilateral framework from 1948 to 1995.
Periodic Bargaining: Trade Rounds
From 1949 to 1973, the trade rounds were focused on reduction of tariffs. In 1964, the “Kennedy” Round took place and a noteworthy act was signed. The Final Act was signed by 50 participating countries that accounted for three-quarters of world trade. Concessions were estimated at $40 billion of trade value.
Following the admission of newly-independent countries (Recall: the Third World decolonisation in Asia and Africa led to the admission of new developing member countries into the UN), the GATT included its third provision to support developing countries. The Committee on Trade and Development was established to ensure that developed countries gave priority to the reduction of trade barriers to exports of developing countries.
Setbacks: The advent of “New Protectionism”
Although trade rounds were still being conducted from 1973 to 1993, the start of the Crisis Decades made it difficult for member nations to fully adhere to the provisions of trade liberalisation. Although economic integration enabled freer access of goods and services between countries, it also meant the intensification of trade competition from developed and developing countries.
For example, USA experienced severe and persistent trade deficits vis-à-vis West Germany and Japan. In response, USA introduced protectionist policies, particularly non-tariff barriers to shield its economy from the adverse effects of trade competition. For example, the “Voluntary Export Restraint” (VER) agreement restricted the quantity of Japanese automobile exports to USA in 1981.
The next phase of international trade: WTO
Trade negotiations during the Uruguay Round finally made progress. On 15 April 1994, the Marrakesh Agreement was signed, which led to the formation of the WTO that succeeded the GATT.
Developing nations demanded that VERs should be outlawed. Notably, this led to the creation of the Multi-Fibre Arrangement that accelerated the liberalisation of trade in the agricultural sector.
What can we learn from this article?
Consider the following question:
– How far do you agree that GATT was the main driving force that caused the liberalisation of world trade [to be discussed in class]?
Sign up for our JC History Tuition and learn how to answer A Level History essay and source based case study questions effectively. We also incorporate online learning features to diversify your study methods such that learning the historical developments is enjoyable and productive at the same time.
The H2 and H1 History Tuition feature online discussion and writing practices to enhance your knowledge application skills. Get useful study notes and clarify your doubts on the subject with the tutor. You can also follow our Telegram Channel to get useful updates.
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What is financial liberalisation?
/in Economic Development, History Essays/by Justin NgTopic of Study [For H2 History Students]:
Paper 2: Economic Development after Independence
Section B: Essay Writing
Theme II Chapter 1: Paths to Economic Development
The Pursuit of Economic Growth
As governments in independent Southeast Asian states raced to advance their economies through various approaches, financial liberalisation became of the pivotal efforts in fulfilling their targets. This trend was largely observed by the late 1980s across the nations in Southeast Asia.
Vietnam: Doi Moi
In 1986, Vietnam introduced free-market economic reforms known as Doi Moi (“economic renovation”) to revive its economy and spur growth. Led by the General secretary Nguyen Van Linh, the Vietnamese government passed the Foreign Investment Law (1987) that allowed foreign ownership for firms investing in areas like consumer goods. Two years later, the government floated the exchange rate, which supported further liberalisation of markets.
Thailand: Currency devaluation
In early 1980s, the Prem government sought to attract foreign investments to support its export-oriented industrialisation (EOI) policies and correct a trade deficit. In November 1984, the Thai baht was devaluated by 15%. This proved beneficial as foreign investments from Japan surged to $27.9 billion in 1990. In addition, the Bangkok International Banking Facility (BIBF) was set up in 1993, which provided tax incentives to its banks.
Singapore: Export Promotion
In comparison with its regional counterparts, Singapore embarked on financial liberalisation at a relatively earlier stage due to its inherent constraints, such as limited land size. As such, the government adopted EOI in the late 1960s, as observed by the Export Expansion Incentives Act (1967) that reduced the tax rate for selected industries to 4% for 15 years.
On 1 January 1971, the Monetary Authority of Singapore (MAS) was established. The MAS was granted the authority to regulate the financial services sector in Singapore. The MAS maintained a strong and stable exchange rate to attract foreign investments.
A Brewing Storm: The Washington Consensus
Against the backdrop of Crisis Decades that plagued many developed and developing economies in the 1970s and 1980s, particularly the Third World Debt Crisis, British economist John Williamson introduced the “Washington Consensus” term in 1989.
At that time, USA proposed that both the World Bank and the International Monetary Fund (IMF) should support debt management through a series of liberal reforms. These structural reforms included financial liberalisation, flexible exchange rates and free trade. In return, these developing countries would receive loans.
However, the increased emphasis on liberalisation proved disastrous to Southeast Asian economies. Without adequate regulatory frameworks, the adverse effects of currency speculation then triggered the Asian Financial Crisis in 1997.
What can we learn from this article?
Consider the following question:
– Assess the significance of financial liberalisation in shaping the economic growth of Southeast Asian states after independence [to be discussed in class].
Join our JC History Tuition and find out how you can apply your knowledge of Paths to Economic Development as well as other topics in the A Level History syllabus to essay and source based case study questions effectively. Our programmes are conducted online to support students taking either H1 or H2 History. Get feedback on how your answers can be further improved by consulting our JC History Tutor.
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What is industrialisation?
/in Economic Development, History Essays/by Justin NgTopic of Study [For H2 History Students]:
Paper 2: Economic Development after Independence
Section B: Essay Writing
Theme II Chapter 1: Paths to Economic Development
Historical Context: Why governments pursued industrialisation?
After the end of World War II, many Southeast Asian economies were severely damaged. These countries lost their physical infrastructure and were in dire need of immediate post-war recovery. In Philippines, nearly fourth-fifths of its infrastructure in Manila was wiped out by the war.
Additionally, the adverse consequences of the Japanese Occupation could be observed in the conversion of industries to support the war efforts of these adversaries. In Burma, the Japanese restructured its economy and caused severe famine. After the war, rice exports fell to 500,000 tons in 1950.
In view of these significant challenges, the governments in Southeast Asian states embarked on industrialisation.
1. Modernisation of the agricultural sector
For countries that had agrarian economies, industrialisation was carried out to raise production. Governments established state agencies and provided substantial funding to support producers in the agricultural sector.
In Malaysia, the Federal Land Development Authority (FELDA) [Lembaga Kemajuan Tanah Persekutuan] was established on 1 July 1956 under the Land Development Act. Its purpose was to support resettlement for the local families that had land with substantial oil palm or rubber.
In addition, FELDA received loans from the World Bank to finance infrastructural development. In particular, the Malaysian government supported the construction of roads, farms and water supply access.
2. Import-substitution industrialisation (ISI)
At the initial stages of economic development, many governments implemented ISI to nurture domestic firms. Their intent was to kick-start industrial production to grow the local economy rapidly.
In Singapore, the government reviewed the Winsemius Report that highlighted the importance of state-guided industrialisation. In 1959, the Pioneer Industries Ordinance was passed to grant exemptions from company tax for five years.
Furthermore, the Economic Development Board (EDB) was formed on 1 August 1961. Under the guidance of then Minister for Finance Dr Goh Keng Swee, the EDB would “plan, coordinate and direct” the industrialisation process.
3. Export-oriented industrialisation (EOI)
Yet, the emphasis on ISI was inadequate to sustain economic development in Southeast Asian states. Therefore, governments shifted their focus towards EOI.
As the global economy became more inter-connected due to the liberalisation of world trade, countries in Southeast Asia began to promote international trade.
In Indonesia, Suharto’s government signed the General Agreement on Tariffs and Trade (GATT), thus admitting the country as a member of GATT in March 1985. Also, the government reduced its tax rate and eased trade regulations.
Coupled with the process of financial liberalisation, the Indonesian government was successful in enabling the large inflows of foreign investment by the early 1990s.
What can we learn from this article?
Consider the following question:
– How far do you agree with the view that industrialisation was most important in shaping the economic development of independent Southeast Asian states [to be discussed in class]?
Join our JC History Tuition and find out how you can organise your content materials. We provide summary notes, essay outlines and source-based case study practices. Our exam-driven classes feature the refinement of reading and writing skills through the review of past examination questions. These programmes are offered to JC1 and JC2 students taking either H1 or H2 History.
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What is Rukun Negara?
/in Approaches to National Unity, History Essays/by Justin NgTopic of Study [For H2 History Students]:
Paper 2: Search for Political Stability
Section B: Essay Writing
Theme I Chapter 2: Approaches to National Unity
Historical origins of the national ideology
The Rukun Negara (National Principles) was introduced on 31 August 1970 by the Malaysian Government to celebrate the 13th anniversary of the nation’s independence (Hari Merdeka).
Its creation as a national ideology was in response to “13 May” incident in 1969 , following the general election in Malaysia. The outbreak of riots had resulted in the creation of the National Operations Council (Majlis Gerakan Negara) to restore peace and stability to Malaysia till 1971.
From then on, the Rukun Negara was created to forge national unity among the citizens.
Details of the National Principles
According to this national ideology, the citizens of Malaysia pledge to achieve the following five principles:
Implementation: Education
Students are required to sing the national anthem (Negaraku) and recite the Rukun Negara during school assemblies Over the years, this ideology has become a guiding principle to encourage racial harmony and mutual respect.
Other approaches were used as well such as the creation of an organisation to promote the ideology. The Kelab Rukun Negara (Rukun Negara Club) was formed in schools to conduct activities focused on promoting the appreciation and practice of this ideology among students.
What can we learn from this article?
Consider the following question:
– Assess the significance of ideology in supporting the government’s efforts in forging national unity [to be discussed in class].
Join our JC History Tuition and learn to organise your content effectively. We provide study notes, essay outlines and source based case study practices to ensure that you have adequate support to be ready for the GCE A Level examination. Our lessons are available for those taking either H2 or H1 History.
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What is GATT and its purpose?
/in Global Economy, History Essays/by Justin NgTopic of Study [For H2 History Students]:
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapters 1: Reasons for growth of the global economy & Problems of economic liberalisation
Origins of a multilateral trading institution: ITO
Before the World Trade Organisation (WTO) was established on 1 January 1955, leaders from over 50 countries gathered during the “Bretton Woods” Conference and contemplated on the creation of an International Trade Organisation (ITO). Ideally, it was to be the third pillar of the Bretton Woods, together with the World Bank and the International Monetary Fund (IMF).
The proposed ITO was meant to promote world trade, cross-border investments and commodity agreements. Following the end of World War Two, more countries supported trade liberalisation. They sought to reverse the adverse protectionist stance since the early 1930s.
A by-product of failed negotiations: GATT
Amidst negotiations, 23 “contracting parties” signed the General Agreement on Tariffs and Trade (GATT) on 30 October 1947. GATT was created as a framework for international trade, taking effect on 1 January 1984.
The signatories were: Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, United Kingdom and the United States.
There were three provisions:
However, the path to institutionalise world trade proved difficult. Although the USA was one of the key advocates of free trade, the US Congress opposed the decision. During the fifth Session of the Contracting Parties, USA announced that the ITO Charter (Havana Charter) would not be re-submitted to the US Congress. From then on, the ITO did not take shape. Instead, GATT became the multilateral framework from 1948 to 1995.
Periodic Bargaining: Trade Rounds
From 1949 to 1973, the trade rounds were focused on reduction of tariffs. In 1964, the “Kennedy” Round took place and a noteworthy act was signed. The Final Act was signed by 50 participating countries that accounted for three-quarters of world trade. Concessions were estimated at $40 billion of trade value.
Following the admission of newly-independent countries (Recall: the Third World decolonisation in Asia and Africa led to the admission of new developing member countries into the UN), the GATT included its third provision to support developing countries. The Committee on Trade and Development was established to ensure that developed countries gave priority to the reduction of trade barriers to exports of developing countries.
Setbacks: The advent of “New Protectionism”
Although trade rounds were still being conducted from 1973 to 1993, the start of the Crisis Decades made it difficult for member nations to fully adhere to the provisions of trade liberalisation. Although economic integration enabled freer access of goods and services between countries, it also meant the intensification of trade competition from developed and developing countries.
For example, USA experienced severe and persistent trade deficits vis-à-vis West Germany and Japan. In response, USA introduced protectionist policies, particularly non-tariff barriers to shield its economy from the adverse effects of trade competition. For example, the “Voluntary Export Restraint” (VER) agreement restricted the quantity of Japanese automobile exports to USA in 1981.
The next phase of international trade: WTO
Trade negotiations during the Uruguay Round finally made progress. On 15 April 1994, the Marrakesh Agreement was signed, which led to the formation of the WTO that succeeded the GATT.
Developing nations demanded that VERs should be outlawed. Notably, this led to the creation of the Multi-Fibre Arrangement that accelerated the liberalisation of trade in the agricultural sector.
What can we learn from this article?
Consider the following question:
– How far do you agree that GATT was the main driving force that caused the liberalisation of world trade [to be discussed in class]?
Sign up for our JC History Tuition and learn how to answer A Level History essay and source based case study questions effectively. We also incorporate online learning features to diversify your study methods such that learning the historical developments is enjoyable and productive at the same time.
The H2 and H1 History Tuition feature online discussion and writing practices to enhance your knowledge application skills. Get useful study notes and clarify your doubts on the subject with the tutor. You can also follow our Telegram Channel to get useful updates.
We have other JC tuition classes, such as JC Math Tuition and JC Chemistry Tuition. For Secondary Tuition, we provide Secondary English Tuition, Secondary Math tuition, Secondary Chemistry Tuition, Social Studies Tuition, Geography, History Tuition and Secondary Economics Tuition. For Primary Tuition, we have Primary English, Math and Science Tuition. Call 9658 5789 to find out more.
What is the difference between the World Bank and the IMF?
/in Global Economy, History Essays/by Justin NgTopic of Study [For H2 History Students]:
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapters 1: Reasons for growth of the global economy & Problems of economic liberalisation
A confusing perspective: The World Bank and IMF
It has become a common issue for people to ask what are the defining roles of the World Bank and the International Monetary Fund (IMF). In fact, during the inaugural meeting of the IMF, the British economist John Maynard Keynes was confused by the names. He added the the IMF should have been described as a ‘bank’, whereas the World Bank should be recognised as a ‘fund’.
Let’s recap on the roles of the IMF and the World Bank separately.
#1. The IMF
From 1945 to 1971, the IMF was established for two key purposes:
Currency stabilisation was achieved through the US Dollar (USD) that was pegged to the gold. From 1958 to 1971, the USD was fixed in value to gold at $35 per ounce. Then, all other foreign currencies were pegged to the USD. In other words, USD became the international reserve currency. As such, stable currency values ascertain prices, thus encouraging greater trading and investment activities.
As for the second purpose, the IMF held a pool of funds that nations could borrow from to finance their debts. This pool of funds was to be contributed by member states, including the USA. The correction of balance of payment deficits is critical in maintaining exchange rate stability as well. These conditional loans were given to countries that agreed to correct their trade deficits through policy adjustments like austerity measures.
#2. The World Bank
As for the World Bank, its immediate role after World War Two was to provide long-term financing for devastated nations to rebuild their economies. Formerly known as the International Bank for Reconstruction and Development (IBRD), the institution was initially backed by the USA. For instance, the Marshall Aid was given to Europe for post-war reconstruction.
By the 1960s, the World Bank was more involved in financing the infrastructure projects in developing countries to realise their economic potential. Following the decolonisation of the Third World nations in Asia and Africa, many developing countries were in dire need of these loans.
Changes in the functions of the IMF and the World Bank: 1970s
After the US experienced the twin deficits in the 1960s and realised that a fixed exchange rate system was unsustainable, US President Nixon announced the abandonment of the fixed exchange rates regime on 15 August 1971. From 1973 onward, the IMF focused its efforts in providing short-terms to correct the balance of payment deficits of member nations.
Also, it was involved in managing the Third World Debt Crisis of the 1980s. In 1982, the Latin American nations negotiated with both banks and the IMF for debt repayments. As a result, the ‘bail-out loans’ were introduced. Should the debtor nation agree to accept the IMF loan, the government must agree to conduct policies to achieve macroeconomic stabilisation, such as reduction in government subsidies (part of the austerity measures).
However, the IMF bail-outs had disastrous impacts on the debtor nations. Without government subsidies, many households were unable to cope with the high cost of living. In Bolivia, the price of bread rose four times. Living standards deteriorated significantly. On separate but related note, the ‘IMF bail-out loans’ were introduced to Thailand and Indonesia during the Asian Financial Crisis.
As for the World Bank, it expanded its lending role to include “structural- and sector-adjustment loans” in the 1980s. These loans were meant to facilitate economic reforms to support the heavily indebted nations in Latin America and sub-Saharan Africa.
What can we learn from this article?
Consider the following question:
– Assess the significance of the IMF and World Bank in contributing to the growth of the global economy [to be discussed in class].
Sign up for our JC History Tuition and review your comprehension of the Global Economy as well as other topics like the United Nations to be ready for the GCE A Level History examinations. We also conduct classes for students taking H1 History, which covers contrasting topics such as Superpower Relations with China and the Cold War in Southeast Asia.
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What is the Green Revolution?
/in Economic Development, History Essays/by Justin NgTopic of Study [For H2 History Students]:
Paper 2: Economic Development after Independence
Section B: Essay Writing
Theme II Chapter 1: Paths to Economic Development
Origins of the Green Revolution: Enter Norman Borlaug
Many countries such as Mexico and India were facing hunger and poverty. Together with a growing population, rice producers could not keep up with the burgeoning demand for food.
After Norman Ernest Borlaug completed his studies at the University of Minnesota, he embarked on his research journey in Mexico. He held the belief that sustainable agriculture could be achieved. In time, Borlaug’s efforts had paid off. It led to the creation of disease-resistant wheat strains that paved the way for the Green Revolution.
In 1964, Borlaug joined the Centro Internacional de Mejoramiento de Maíz y Trigo (CIMMYT) that specialised in the improvement of maize and wheat as well as the Consultative Group for International Agricultural Research (CGIAR). The CGIAR later became the central network for international organisations that engaged in research on food security.
Over the years, Borlaug’s contributions led to the improvement of new crops like barley, sorghum and triticale.
International Rice Research Institute (IRRI)
In 1960, the Philippine Government oversaw the creation of the IRRI. The institute set up its headquarters in Los Baños, Laguna (near Manila). With funding support from the Ford and Rockefeller Foundations, the IRRI aims to reduce poverty and hunger via rice research.
In 1978, the government capitalised on the Green Revolution by launching the Masagana 99 (Rice production programme) to improve credit access to rice farmers and achieve rice self-sufficiency. As a result, the local farmers benefited from the cultivation of high-yielding varieties (HYVs).
Impacts on Southeast Asian economies
The Green Revolution was a boon to many economies in the region. In Thailand, the government increased its investments in fertilisers and high-yielding strains of rice. From the late 1960s to early 1970s, rice production doubled.
In Indonesia, Suharto introduced the BIMAS (agricultural guidance programme) to facilitate the distribution of high-yielding rice varieities. By 1985, poverty was significantly reduced and the country attained self-sufficiency in rice.
Conclusion: Was the Green Revolution important?
In view of these developments, it is imperative to consider the significance of the Green Revolution in driving the growth of the economies in independent Southeast Asian states. Its importance has to be understood by analysing the state-guided approaches as well as the outcomes.
What can we learn from this article?
Consider the following question:
– How far do you agree that the economic development of independent Southeast Asian states was largely the result of external factors [to be discussed in class]?
Sign up for our JC History Tuition and find out how you can organise your content for the topic on Paths to Economic Development. Given the wide spectrum of issues to consider, we have derived a condensed set of notes to support your revision.
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What is OPEC?
/in Global Economy, History Essays/by Justin NgTopic of Study [For H2 History Students]:
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 1: Problems of economic liberalisation
History of the OPEC
The Organization of the Petroleum Exporting Countries (OPEC) was formed in September 1960. Its five founding members comprised of Saudi Arabia, Kuwait, Iran, Iraq and Venezuela. The OPEC was established with a central aim of price stabilization for oil producers through discussions.
Before OPEC, seven multinational corporations dominated the petroleum industry since the mid-1940s. They were commonly known as the “Seven Sisters”, which consisted of
Ever since its establishment, the OPEC membership continued to grow (such as Algeria, Nigeria, Ecuador and Gabon). As of 2019, the OPEC has 14 members.
The “Black Gold”: Energy Crisis of the 1970s
In 1973, the OPEC members reduced oil output and caused a spike in the oil prices. Its consequences were devastating to many oil-dependent economies since it is an essential resource for industrialization. In 1979, the oil price surged extensively in the wake of the Iranian Revolution. By 1980, global oil price had peaked over US$35 per barrel.
[Chart taken from the World Economic Forum]
Even the economic giant, USA, was not spared from this unilateral action by the OPEC. The unprecedented impacts included stagflation (high inflation rates and economic stagnation) that forced households to conserve oil consumption for the first time in U.S. history.
Petrodollar Recycling
OPEC members benefited tremendously from this oil spike. With the increased in earning from oil exports (also known as ‘petrodollars’), these oil exporters engaged in petrodollar recycling, in which their money was loaned to the International Monetary Fund (IMF). Then, the IMF used these loans to finance the balance of payment deficits by oil-importing countries.
However, these non-oil exporting countries were disadvantaged, especially for the Latin American nations in the 1970s. Over time, these borrowing nations had growing debts that later gave rise to the Third World Debt Crisis in the 1980s.
The Oil Glut of 1986
By mid-1980s, some countries had reduced their dependence on oil to sustain economic development. For instance, advanced economies like USA and France explored alternative energy. Likewise, Japanese auto firms engaged in innovation to produce fuel-efficient automobiles. These developments led to the falling demand for oil in the global petroleum industry.
On the other hand, there were emerging oil producers that did not belong to the OPEC that engaged in oil extraction. In 1980, the Canadian Government introduced the National Energy Program to promote self-sufficiency for oil. As such, the increase in supply from these alternative sources had diminished the share of the OPEC members.
OPEC went for a last-ditch attempt to maintain high oil prices by decreasing oil production from 1980 to 1986. However, these efforts were unsuccessful. In 1986, oil price plunged from $27 to nearly above $10 per barrel.
Recent Developments
In view of the COVID-2019, the decreased economic activities (such as airline flights) led to the fall in demand for oil. OPEC has held online meetings to contemplate on the decrease in oil production. However, some countries are hesitant to follow through as Saudi Arabia takes the lead.
On 20 April 2020, the US crude oil (West Texas intermediate crude, WTI) plunged from US$17.85 a barrel to negative US$37.63 a barrel. This is a typical scenario in which oil glut combined with falling demand results in falling oil prices, such that there is negative crude oil price.
[Published on BBC; Source: Bloomberg]
What can we learn from this article?
Consider the following question:
– Assess the economic impacts of volatile oil prices in affecting the development of the global economy from 1945 to 2000 [to be discussed in class].
Join our JC History Tuition and learn how to organise your learning materials to do well for the essay writing component at the A Level examination. Our online lessons feature content discussion and class practices to review knowledge application.
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We have other JC tuition classes, such as JC Math Tuition and JC Chemistry Tuition. For Secondary Tuition, we provide Secondary English Tuition, Secondary Math tuition, Secondary Chemistry Tuition, Social Studies Tuition, Geography, History Tuition and Secondary Economics Tuition. For Primary Tuition, we have Primary English, Math and Science Tuition. Call 9658 5789 to find out more.
What were the twin deficits of USA?
/in Global Economy, History Essays/by Justin NgTopic of Study [For H2 History Students]:
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 1: Problems of economic liberalisation
Why was the “Golden Age of Capitalism” unsustainable?
In the first two decades of the post-WWII period were characterised by the miraculous economic recovery and expansion of many countries, such as Japan and Western Europe.
USA, as the major advocate of trade liberalisation, also benefited from this sustained period of economic progress, as observed by its wide-reaching influences through the deployment of American multi-national corporations (MNCs). Host countries gained from influx of foreign investment as well as job creation.
However, this economic exuberance did not last by the 1960s. USA experienced a severe economic problem known as the “twin deficits”. Furthermore, the energy crises (oil shocks) of the 1970s further exacerbated the problem as it gave rise to stagflation in the USA.
What are the “twin deficits”?
The “twin deficits” refer to the onset of fiscal deficit and current account deficit.
1. Fiscal Deficit: Overspending
By definition, fiscal deficit occurs when the government expenditure exceeds its revenues. This is more commonly known as a ‘budget deficit’. In the case of the post-war years, countries encounter a fiscal deficit when the government spend large sums of money to rebuild their infrastructure. Similarly, this form of deficit can also be seen when governments are trying to recover from a recession.
The causes of fiscal deficit in USA were largely linked to two notable areas: US President Lyndon Johnson’s “Great Society” programme and the Vietnam War.
In 1964, Johnson introduced the welfare programme to eliminate poverty (War on Poverty) and improve the socioeconomic conditions of the American people.
However, as the American troops were increasingly deployed in Vietnam to fight the Cold War proxy conflict, the US President had to divert his funds from the above-mentioned welfare programme to sustain the war effort.
According to The New York Times, the American government spent approximately $141 billion in Vietnam over the course of 14 years. It was reported that the Vietnam War cost the USA nearly $2 billion per month.
Therefore, the US government directed the Federal Reserve to increase money supply by printing more US dollars (USD). Later, this created an oversupply issue that caused the collapse of the Gold-Dollar fixed exchange rate system in 1971.
2. Current Account Deficit: Trade Imbalances
The second type of deficit is more closely related to the condition whereby the import expenditure exceeds the export revenue. This is a problematic condition as the government has to finance the trade deficit.
This trade deficit can be explained by the increased trade competition with Western Europe and Japan. In the post-war years, USA tolerated the protectionist measures of these two growing economies so that they can become new markets for trade.
However, after these economies achieved pre-war industrial levels of production, many firms competed with American counterparts. In particular, West Germany and Japan became the key competitors that outpaced USA in the global markets.
For example, Japanese automobiles were highly sought-after due to its fuel efficiency and affordability. In fact, some of the top ten automobiles originated from Japan, such as Nissan and Toyota.
As a result of the loss of export competitiveness, USA experienced severe trade imbalances vis-à-vis West Germany and Japan. By 1980, US trade deficit rose to $40 billion. In response, USA reversed its trade liberalisation policy and engaged in protectionism, as seen by its imposition of the Voluntary Export Restraint (VER) towards Japan autos in May 1981 to mitigate the adverse effects of trade imbalances.
What can we learn from this article?
Consider the following question:
– How far do you agree that the twin deficits of USA were the most important cause for the decline of American economic dominance in the 1970s [to be discussed in class]?
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What caused Japan’s economic miracle?
/in Global Economy, History Essays/by Justin NgTopic of Study [For H2 History Students]:
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 1: Reasons for growth of the global economy
Historical Context: What is the “Japanese Economic Miracle”?
It refers to the period from 1945 to 1991 where Japan experienced rapid economic growth. Following the end of World War Two (WWII), Japan’s infrastructure was severely devastated by the bombing campaigns. Millions were unemployed. There was high inflation. However, USA chose to oversee the post-war recovery of Japan.
Under the auspices of the Supreme Commander of the Allied Powers (SCAP), General Douglas MacArthur, Japan received substantial financial aid and assistance to rebuild its economy. This was carried out after the signing of the Treaty of Peace with Japan (also known as the Treaty of San Francisco) on 8 September 1951 that marked the end of Japan’s imperialism and the start of a US-Japan allied relationship.
1. Role of the USA: Dodge Line, foreign aid and the rise of Keiretsu
The president of Detroit Bank Joseph Dodge introduced economic stabilisation plans to lower inflation rates in Japan. This was known as the “Dodge Line” stabilisation in 1949. One of the key points in the policy was to fix the exchange rate to 1 USD to 360 Yen. With stable exchange rates, Japanese export prices could be kept low and competitive.
Following the start of the Korean War on 25 June 1950, USA launched the “direct procurement” program that enabled the US forces to purchase wartime supplies from Japan directly. For instance, the US army bought processed food, disinfectants and medical syringes from Japan. Industrialised firms like Toyota also gained from this favourable climate as it exported trucks to support the American military efforts in Korea.
Another US-guided reform was the breakup of the Zaibatsu, which were big businesses (Sumitomo, Mitsubishi and Mitsui) that supported Japanese militarism during WWII. Instead, these companies became a new form of firms, known as the keiretsu. It refers to a group of companies that have interlocking business relationships. In the subsequent years, these companies became the key pillar of the Japanese economic miracle.
2. Role of the Japanese Government: MITI and EOI
In addition to the support provided by USA, the Japanese government established the Ministry of International Trade and Industry (MITI) in May 1949. Its purpose was oversee the conduct of industrial policies through cross-agency coordination.
The MITI identified sectors that yield large economic potential and channel state resources to nurture the relevant industries. The government then implemented protectionism (use of artificial trade barriers to limit the inflow of foreign goods) to accelerate the growth of domestic firms. Over time, the government facilitated the dominance of the keiretsu.
Under the leadership of Japanese Prime Minister Hayato Ikeda, the early 1960s marked the start of the export-oriented industrialisation (EOI). By 1970, Japan was one of the world’s largest producers of ships and cars.
3. Significance of Culture: Industriousness and Frugality
Similar to South Korea, the Japanese were known for their high level of self-discipline. Due to their willingness to work and support their employers, many firms benefited from the increased labour productivity. This hard work ethic can be traced to the shared hardship experienced by the citizens during wartime. Therefore, the Japanese firms maintained strong employer-employee relations.
Additionally, many households in Japan had large domestic savings. This meant that banks had greater sources of financing to support the business activities of firms. The government capitalised in this frugal nature of the citizens by offering lower interest rates so that firms were incentivised to take loans and support the growth of the economy.
What can we learn from this article?
Consider the following question:
– Assess the importance of the government in causing the Japanese economic miracle [to be discussed in class].
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What happened at the Bretton Woods Conference in 1944?
/in Global Economy, History Essays/by Justin NgTopic of Study [For H2 History Students]:
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 1: Reasons for growth of the global economy
Historical Context
Amidst the ongoing World War Two, world leaders from 44 nations, including USA and Soviet Union, attended a conference at Bretton Woods, New Hampshire in July 1944.
As the Great Powers envisioned a world that is free from Nazi and Japanese occupation, there were calls for a global financial order. Two institutions were established following the Bretton Woods Conference: The International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) [later known as the World Bank].
1. The International Monetary Fund
Before the Conference, Harry Dexter White (Special Assistant to the US Secretary of the Treasury) and John Maynard Keynes (advisory to the British Treasury) carried out plans in 1942.
Their drafts include the creation of organisations that provide financial assistance to countries that are experiencing balance of payment deficits. Eventually, there was common consensus to pursue fixed exchange rates at the global level.
On 21 April 1944, leaders of the Allied Powers released a joint statement that officially declared the creation of the IMF. The IMF was responsible for the maintenance of a system of fixed exchange rates.
In particular, it was based on a Gold-US Dollar exchange rate system. Till 1971, the USD was pegged to gold at $35 per ounce. Other foreign currencies were fixed to the USD. By doing so, USD became the anchor for stable currencies and facilitated international trade and investments.
Additionally, the IMF was also charged with the responsibility to provide short-term financial assistance to countries that experience temporary deficits in their balance of payments.
2. The World Bank
The second product of the Bretton Woods Conference was the IBRD. Both White and Keynes observed that many developing nations were lacking funds to develop their infrastructure.
Furthermore, the devastation caused by World War Two left these countries in dire need of post-war recovery, which incurred large expenditures. Therefore, the IBRD was set up to provide financial assistance to Europe, Japan and developing nations for reconstruction.
At the early stages, USA provided a major source of financing for post-war recovery, as evidenced by the Marshall Plan. Nevertheless, the IBRD played its part, as seen by its first issuance of loan to France.
Later, the organisation was renamed as World Bank. It expanded into multiple sub-entities, such as the International Development Association in 1960 (IDA) that lends to low-income countries and the International Finance Corporation in 1956 (IFC) that supports private investments in countries.
3. General Agreement on Tariffs and Trade (GATT)
The third feature was formed much later in April 1947. During the Bretton Woods Conference, proposals were made to establish an International Trade Organisation. However, USA did not ratify the treaty, thus an alternative arrangement was carried out, known as the GATT.
The GATT was introduced to encourage free trade between countries. This is done through regular meetings that facilitate periodic bargaining, in which member countries agree to reduce tariffs for various products.
In 1995, GATT was replaced by the World Trade Organisation (WTO). It was a milestone achievement as more countries agreed to liberalise their markets and reduce tariffs.
What can we learn from this article?
Consider the following question:
– How far do you agree that the Bretton Woods system was the main reason for the growth of the global economy from 1945 to 1973 [to be discussed in class]?
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