The Making of a Global World

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1. Second World War broke out a mere two decades after the end of the first world war.
2. The Second World War (1939–1945) was even more devastating than the First.
3. It was fought between the Axis powers (mainly Nazi Germany, Japan and Italy) and the Allies (Britain, France, the Soviet Union and the US).
4. About 3% of the world population perished, more civilians than fighting soldiers.
5. Vast parts of Europe and Asia were devastated, and several cities were destroyed by aerial bombardment or relentless artillery attacks.
6. Two crucial influences shaped post-war reconstruction. The first was the US’s emergence as the dominant economic, political and military power in the Western world. The second was the dominance of the Soviet Union.

1. Post-war era saw rapid decolonisation and many countries in Asia and Africa became independent nations, supported by UNO and NAM.
2. During the initial phase, Bretton Woods Institutions were not in a position to cope with the demands of these new nations. From the late 1950s, the Bretton Woods Institutions began to shift their focus on developing economies of the world.
3. Most developing countries did not benefit from the fast growth of Western economies in 1950’s & 60’s.
4. They organised themselves as a group. The group of 77 or G-77 to demand a New International Economic Order (NIEO). 
5. It was a system that would give them real control over their natural resources more development assistance, fairer prices for raw materials and better access for their manufactured goods in developed countries markets.

1. U.S. Dollar lost confidence and could not maintain its value in relation to gold led to the collapse of the system of fixed exchange rates and the introduction of a system of floating exchange rates.
2. From the mid-1970s, the international financial system also changed in many ways. This led to periodic debt crises in the developing world, and lower incomes and increased poverty, especially in Africa and Latin America.
3. The industrial world was also hit by unemployment that began rising from the mid-1970s and remained high until the early 1990s.
4. China had been cut off from the post-war world economy since its revolution in 1949.
5. China began to follow new economic policies and came back into the fold of world economy.
6. New Economic policy in China:
   1. Wages were very low in countries like China. Therefore, China become a favourite destination for MNCs to invest.
   2. New Economic policy brought China back into the fold of world economy. 
7. MNCs or multinational companies were established in the 1950s and 1960s and operated in several countries.

Two lessons were learnt by the economists and the politicians in the post-war system:

1. to ensure mass consumption in an industrial society by high and stable income.
2. to ensure full employment and government control of flows of goods, capital and labour.

Bretton Woods Institutions:

1. To ensure a stable economy a framework was agreed upon at the United Nations Monetary and Financial Conference held at Bretton Woods in New Hampshire, USA. It established the International Monetary Fund (IMF) and the World Bank.
2. The IMF was to deal with external surpluses and deficits of its member nations.
3. The World Bank was an International Bank for reconstruction and development and was to finance the post-war reconstruction.
4. The IMF and World Bank are often referred to as Bretton Woods Institutions. The post-war economic system is also referred to as the Bretton Woods System.
5. Bretton Woods System was based on a fixed exchange rate. National currencies were pegged to the American dollar at a fixed rate. The western powers, the USA especially, controlled the decision-making provisions such as the right to veto. It linked national currencies and the monetary system.

1. The Bretton Woods System benefitted the Western industrial nations and Japan and brought immense trade and income to them.
2. Between 1950 and 1970, the world trade grew annually at 8% and incomes grew at nearly 5%.
3. The unemployment rate averaged less than 5% in most of the industrialized countries during this period; which speaks about the stable nature of economic growth during this period.