JC History Tuition Bishan Bedok Tampines Singapore - What caused the Third World Debt Crisis - JC History Essays - Global Economy Notes

What caused the 1980s Third World Debt Crisis?

What happened during the Third World Debt Crisis of the 1980s?
In the 1970s, developing nations were in need of financial support to carry out their economic development. As such, the governments took loans from international banks and developed nations. However, poor resource management resulted in the accumulation of debts, which was worsened by external factors like petrodollar recycling. By 1985, the total external debt rose to $1,017 billion, causing severe disruption to the international banking system.

Examine the origins of the Third World Debt Crisis: How oil production affected debtor nations?

Topic of Study [For H2 History Students]: 
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 2: Reasons for problems of the global economy 

In the following sections, we will look at the contributing factors of the Third World Debt Crisis and its consequences on the global economy. This case study is crucial as students are expected to be weigh the significance of the Debt Crisis, with respect to other factors like the Oil Crisis of the 1970s and trade protectionism.

1. [OPEC] Cause #1: Petrodollar Recycling
One of the major contributing factors of the Third World Debt Crisis was related to twin oil shocks in 1973 and 1979. The OPEC (Organization of Petroleum Exporting Countries) profited tremendously from the artificial oil shortage, thus accumulating ‘petrodollars’. With these excess profits, the OPEC members invested in international banks. Subsequently, these banks lent money to developing countries.

However, as these developing nations accepted loans to purchase raw materials and oil to facilitate economic development, the external shocks in the global market led to the expansion of foreign debts.

2. [USA] Cause #2: Volcker Shock
The second contributing factor relates to the US government’s response to the high inflation rates that plagued their economy. The Chairman of the Federal Reserve, Paul Volcker, proposed the increase in interest rates to combat the double-digital inflation caused by the 1979 oil shock.

The Federal Reserve hiked its interest rates from 10.25% to 20% by March 1980. Consequently, higher interest rates led to higher costs of loan repayments for borrowers. For example, the total interest payment for Latin American countries increased by 360% from 1978 to 1983.

3. [Third World Nations] Cause #3: Mismanagement of Loans
Internally, it can be argued that some of these debtor nations were ineffective in managing their loans. In particular, the money was used for other purposes, besides economic development. For instance, inept leaders diverted the loans to the purchase of military equipment.

Besides, a large proportion of the loans were used to purchase oil and inflated prices. As a result of the interest rate hike (as discussed earlier), loans were also used to finance interest payments. Hence, it is clear that some of these nations were unable to repay their loans.

4. [Third World Nations] Consequence #1: Economic slowdown
In view of the debt accumulation, one significant impact is the slowdown in economic growth for debtor nations. Governments were unable to focus on economic development as they lacked the finances to function. Furthermore, Third World nations experienced a decline in living standards as many citizens suffered from extreme poverty.

Latin American countries, such as Mexico and Brazil, defaulted on loans, which caused severe disruption to the international financial system. For example, Mexico declared its inability to finance the loans in Aug 1982, which caused a cascading effect on other neighbouring countries.

5. [IMF] Consequence #2: Washington Consensus and SAPs
As such, these countries turned to the International Monetary Fund (IMF) for solutions, such as debt re-scheduling or even cancellation. the IMF proposed a ‘bailout’ strategy, which was known as the ‘Structural Adjustment Programmes’ (SAPs).

To ensure these debtor nations are committed to the repayment of loans, the IMF imposed a set of strict conditions before loans were handed to them (i.e. Neo-Liberalism). In short, countries must adopt a policy of macroeconomic stabilization, trade liberalization and privatization.

Contrary to IMF’s expectations, the bailout was more of a hindrance than help to the indebted countries. For example, governments were forced to cut spending (i.e. austerity measures) to reduce debt. Yet, this meant that less subsidies were given to keep the price of necessities low, thereby resulting in higher cost of living. Eventually, the aim of debt reduction was not achieved.

Note to students: In fact, this IMF ‘bail-out package’ was accepted by some of the Southeast Asian governments during the 1997 Asian Financial Crisis (Paper 2 Theme II topic), which also created problems for their economies.

What can we learn from this case study?
Consider the following questions to understand this economic issue:
– How far do you agree the debt crisis of the 1980s was more severe than the oil shocks of the 1970s? [to be discussed in class]

Following the thorough analysis of the Third World Debt Crisis, it is imperative to apply your newfound knowledge to practice questions. Sign up for our JC History Tuition and learn to form cohesive and persuasive arguments that answer a wide range of A Level History essay questions effectively.

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JC History Tuition Bishan Bedok Tampines Singapore - What caused the energy crisis of the 1970s - JC History Essays

What caused the energy crisis of the 1970s?

What was the oil shocks about?
Following a period of rapid economic modernization, also known as the ‘Golden Age of Capitalism‘, the world witnessed a sudden turn of events that resulted in the gradual decline in this fast-paced growth, ushering the ‘Crisis Decades‘. The twin oil shocks that took place in 1973 and 1979 were the result of geopolitical conflicts that involved the key driver of the global economy – USA – as well as the OPEC (Organization of the Petroleum Exporting Countries) that dictated the output of oil. In general, the surge in oil prices dealt a significant blow to many economies, including USA, reflecting the significance of oil as an essential resource for households and firms.

Learn more about the causes and consequences of the energy crisis of the 1970s

Topic of Study [For H2 History Students]: 
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 2: Reasons for problems of the global economy 

In the next section, we will look at the background causes to understand what happened during the energy crisis of the 1970s.

1. [USA] 1973 Oil Crisis: Causes
There were two major factors that contributed to the start of the 1973 Oil Crisis – the dismantling of the ‘Gold Standard’ (US Dollars -Gold) fixed exchange rate system as well as the Yom Kippur War.

On 15 Aug 1971, US President Nixon announced that the United States would cease to maintain the Gold-USD standard fixed exchange rate system, which was based on the 1944 Bretton Woods Agreement. Consequently, the loss of market confidence towards the USD resulted in its depreciation (fall in currency value). In contrast, many firms and investors valued gold, contributing to the surge in gold prices.

However, the depreciation of USD undermined the OPEC as their export revenue (earnings from the sale of oil) was in USD. Therefore, OPEC lost a significant proportion of its export earnings.

The second factor was the Yom Kippur War, which began on 6 Oct 1973. Following Israel’s victory during the Six-Day War in 1967, both Egypt and Syria deployed its military to attack Israel on a religious day for the Jewish population, known as the Yom Kippur. Several weeks later, Nixon sought Congress funding of $2.2 billion to provide military backing for Israel.

2. [OPEC] Oil Embargo of 1973: Consequences
In view of the American intervention in the Yom Kippur War, the OPEC members in the Middle East, such as Egypt and Syria, protested by engaging in an oil embargo. This embargo persisted even after the end of the Yom Kippur War, thus triggering a global energy crisis.

The price of crude oil surged from $3/barrel to $12/barrel in 1974. The oil crisis was arguably a major cause of the economic recession in the developed economies from 1973 to 1975.

In the US, the economy experienced stagflation, in which there was high inflation, high unemployment and slow economic growth rates. Unemployment rate peaked at 9% in 1975.

In the UK, it experienced a fall in GDP (Gross Domestic Product) by 3.9% in the same time period. Also, the UK experienced double-digit inflation that went beyond 20%.

3. [USA & OPEC] 1979 Oil Crisis: Causes
The energy crisis resurfaced in the late 1970s. Primarily, the Iranian Revolution of 1979 was a major contributing factor that led to the spike in oil prices. After the departure of the Shah of Iran, the world supply of crude oil fell significantly.

4. 1979 Oil Shocks: Consequences
Similar to the 1973 energy crisis, the oil shortage was detrimental to the oil-dependent economies. The price of crude oil increased to nearly $40/barrel from 1979 to 1980.

In the US, many households were forced to undergo conservation, since petrol and fuel were needed for transport and other domestic purposes (like cooking). Also, the automobile companies, such as Detroit’s “Big Three” (General Motors, Chrysler and Ford) suffered from the oil spike.

In contrast, Japanese manufacturers adapted to the situation by producing fuel-efficient automobiles, which then captured a significant market share in the global industry.

On a separate but related note, the OPEC earned a significant sum from the sale of petroleum exports – known as ‘petrodollars’. OPEC members then placed their earnings in international banks, which were handed out to developing nations as loans. Later, this petrodollar recycling process was known to have contributed to the ‘Third World Debt Crisis‘ of the 1980s.

What can we learn from this case study?
Consider the following questions to understand this economic issue:
– How far do you agree that the energy crisis of the 1970s was more significant than the debt crises of the 1980s in causing the problems of the global economy? [to be discussed in class]

Now that you have studied the key considerations, you can enhance your knowledge application skills through the answering of History Essay questions. Join our JC History Tuition and find out how we teach you to form clear and logical arguments to answer fundamental and complex questions effectively and efficiently.

Furthermore, we offer other complementary JC tuition classes, such as GP Tuition, Economics Tuition, JC Chemistry Tuition, JC Math Tuition and China Studies in English Tuition. For Secondary Tuition classes, we offer Secondary English Tuition, Secondary Math tuition, Secondary Chemistry Tuition and Secondary Economics Tuition. Call 9689 0510 to learn more.

JC History Tuition Bishan Bedok Tampines Singapore - How did Taiwan become a successful export economy - JC History Essay Skills

How did Taiwan become a successful export economy?

How did Taiwan become an economic power in Asia? 
In continuation of the previous article pertaining to the contributing factors that led to the economic transformation of South Korea, we will now examine how Taiwan, also known as the ‘accidental nation’, achieved its economic success from the 1960s to the 1990s. Taiwan also undergone a process of rapid industrialisation, shifting its focus from domestic production to export-driven production that propelled the nation to its developed status.

Topic of Study [For H2 History Students]: 
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 3: Rise of Asian Tigers from 1970s to 1990s [South Korea and Taiwan] 

In the following section, we will focus on four major roles that led to the economic miracle in Taiwan. Take note that these points are to be evaluated based on role and factor comparison, so as to improve your comprehension of these contributing roles to the economic development of Taiwan. For example, you should analyse the varying degrees of importance for government and private businesses in affecting the economic transformation of Taiwan.

1. Role of the Government
a. Target Setting and Planning
Taiwan began its planning phase with the establishment of the Council for United States Aid (CUSA) in 1948, which was later reformed as the Council for Economic Planning and Development (CEPD). The CEPD played the role as a government agency to draft plans and set targets for the economic development of Taiwan. As a planning body, the CEPD decided on the allocation of state resources for the growth of industries, such as the distribution of development funds.

b. Policy Implementation
From the 1950s to 1960s, Taiwan’s economic policies were centred on the the implementation of the ‘import-substitution industrialisation’ (ISI) strategy, which focused on the protection of infant industries. For instance, the government introduced import restrictions on consumer goods to protect local firms from external competition. As a result, the agricultural sector flourished, contributing to the growth of the Taiwanese economy.

However, the economic contribution of the agricultural sector was low in value. As such, the Taiwanese government shifted its focus to ‘export-oriented industrialisation’ (EOI), which emphasised on the production of exports in capital-intensive industries. The government oversaw this development by passing laws that reinforced export-based production, such as the Provisions for Export Zone in 1965. Consequently, the EOI strategy was met with great success, as evidenced by the domination of numerous exporting goods in the international markets by the 1980s. For example, Taiwan was known for its exports of motherboards and computer terminals as it occupied more than three-quarters of the global exports.

2. Role of the Private Businesses [i.e. SMEs]
On the other hand, not only the public sector contributed to the economic transformation of Taiwan, but also the private counterpart, particularly the small and medium enterprises (SMEs). In contrast to South Korea, which is known for its few and massive chaebols that dominated the entire economy, Taiwan’s economic growth was driven by the existence of many SMEs. These SMEs played a crucial role in pursuing the goals set by the government, as observed by the large-scale production of exports. In the 1960s and 1970s, SMEs accompanied the government’s focus on EOI by producing standardised light-industry products. These goods were produced and sold at the international markets.

Over time, SMEs dominated the Taiwanese export production, accounting for nearly two-thirds of the entire country’s exports. Given that Taiwan’s economic developed hinged on export gains, this implied that SMEs became the key driver of the economy.

3. Role of Culture
Although Taiwan had a stark difference in the role of private businesses as compared to South Korea, the cultural factor remained similar, in the sense that favourable cultural influences could explain the remarkable economic performance of Taiwan from the 1960s to 1990s. Taiwan was also shaped by Confucianism, which is a philosophy that encouraged diligence, frugality and respect for authority.

One of the notable consequences of such cultural traits is the emergence of SMEs. In this case, the Taiwanese people were entrepreneurial. Their willingness to innovate and battle against the odds was critical in supporting this significant development. As a result, many business owners possessed the business acumen to deal with economic uncertainties.

Furthermore, the relevance of frugality to economic development can be explained by the high savings rate, which means that many firms have sources of financing to conduct investment activities that propel economic growth even more. Therefore, cultural values were important in helping us to understand the vigour that drives these firms.

4. International Developments [i.e. Role of USA]
The economic development of Taiwan was also supported by the role of USA, which increased its presence in Asia as a response to the perceived ideological threat of Communism. This response was carried out in the form of advancing economic progress by providing financial aid and other forms of support. For example, Taiwan was given exclusive access to American market and the privilege to impose trade protection temporarily. As such, USA occupied nearly two-fifths of Taiwan’s exports. From 1960s to 1970s, USA became Taiwan’s major export market, accounting for a large proportion of its economic growth.

Points to Ponder
Now that you have looked into the four major roles that affected the economic transformation of Taiwan, do consider the following ideas to reinforce your study of this topic for essay writing:
– How did the role of SMEs contribute to the economic miracle of Taiwan? 
– In comparison between South Korea’s chaebols with Taiwan’s SMEs, analyse their approaches in supporting the economic development of these two Asian Tigers. [to be discussed in class]

Are you ready to sit for the A Level History examination? If you are experiencing difficulties in organising your materials and completing your essays on time, fret no more! In addition to these regular articles that are published on this site, we also offer JC History Tuition programmes for JC1 and JC2 students to support their revision efforts. Examine topics in International History and Southeast Asian History together in class with fellow students and our JC History Tutor Justin Ng. We teach you to analyse historical issues carefully, form arguments logically and express ideas systematically

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JC History Tuition Bishan Bedok Tampines Singapore - How did South Korea become a developed nation - JC History Essay Skills

How did South Korea become a developed nation?

What are the Four Asian Tigers? 
To understand how South Korea become a developed nation, we must start off the discussion with the understanding of the ‘Four Asian Tigers‘. The ‘Four Asian Tigers’ refer to the fast-developing nations of South Korea, Taiwan, Hong Kong and Singapore. These four Asian economies were identified as remarkable case studies, given their high levels of sustained economic growth from 1960s to 1990s. Due to their extensive focus on export-oriented industrialisation, these countries have caught up with developed countries and competed at the international markets

Topic of Study [For H2 History Students]: 
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 3: Rise of Asian Tigers from 1970s to 1990s [South Korea and Taiwan] 

In the following section, we will examine the contributing factors that can explain the economic transformation of South Korea.

1. Role of the Government
a. Target Setting and Planning
At the stage of economic development, the South Korean government undergone a process of central planning that involved target setting and resource management. Central planning was essential in the prioritisation of promising industries to nurture and expand, especially the family-owned chaebols. Institutionalisation of planning procedures took the form of the Economic Planning Board (EPB was established in 1961), which took the lead in formulating Five-Year Plans (FYP), which were important in charting the direction on a progressive basis. The EPB was accredited for the successful policy shift from import-substitution industrialisation (ISI) to export-oriented industrialisation, which propelled the South Korean economy significantly.

b. Policy Implementation
The strategies employed by the South Korean government have evolved over time. At the initial stage, the South Korean economy was built upon the foundations of domestic production. This strategy is known as ‘import-substitution industrialisation‘, which refers to the use of artificial trade barriers to insulate the domestic economy from foreign competition. The main purpose of ISI was to nurture local firms, such that they will develop and expand to become the key driver of the South Korean economy. In this case study, the government imposed trade protection to develop labour-intensive sectors that produce textile, agriculture and light consumer goods.

However, the South Korean government realised the economic gains of ISI were not sustainable as the above-mentioned goods yielded low-value economic growth. Hence, they turned their gaze towards foreign markets. This approach involved ‘export-oriented industrialisation‘. In contrast to ISI, EOI involved the production of exports (i.e. domestically-produced goods to be sold in the international markets) to promote economic development. In order for exports to be competitive, the South Korean government provided financial support to exporting firms, such as tariff exemptions on the import of raw materials for export production. Given that the foreign markets were much larger than the domestic market of South Korea, it was evident that the country enjoyed tremendous success, which was indicated by the increase in per capita income from $100 from 1963 to $6614 in 1990.

2. Role of the Private Businesses [i.e. Chaebols]
In addition to the notable contributions by the South Korean government, the economic transformation was made possible through the efforts of the private enterprises. In this case, the chaebols played a crucial role in the economic development of this Asian Tiger. Chaebols are family-dominated conglomerates that serve as the key pillars of support for the development of the South Korean economy. These major business corporations (e.g. Samsung and Hyundai) were formed in the 1960s under the auspices of the government, which provided extensive financial support and exclusion from stiff foreign competition. As such, these companies expanded and dominated the economy.

It was an economic success as the chaebols could compete in international markets against multinational corporations (MNCs) as they possessed large capital to innovate and improve the quality of exports. By 1980s, these major companies were self-sustaining and no longer needed government support to function. In return, these companies acted as the lifeline of the South Korean economy. For instance, Samsung occupied nearly one-fifth of South Korea’s Gross Domestic Product (GDP), implying that a single chaebol could support nearly 20% of the entire nation’s economy.

However, the remarkable achievements of these chaebols were blemished by structural flaws that began to appear over time. The over-bearing influence of these major companies was observed in the monopolisation of markets, which crowded out small and medium enterprises (SMEs). The nearly-absent competition cultivated a culture of complacency, which resulted in the deterioration of product quality. Furthermore, the family-oriented structure of chaebols encouraged the top management to appoint family members, which translated to the growing inefficiencies of these corporations. As such, it was imperative for the government to intervene and address the dominance of chaebols.

3. Role of Culture
The ‘Miracle on the Han River’ can also be explained by the inherent characteristics of the South Koreans, particularly the cultural traits shaped by Confucianism. Similar to the Japanese, many look up to the South Koreans for their work ethics, as they are described as industrious and reliable. In economic terms, many firms benefited in terms of higher labour productivity levels, which contributed to increase in economic growth rates.

Additionally, the frugal mindsets of South Koreans were beneficially for economic developments as savings rate was high. This meant that many firms could take loans from banks to finance their investment activities, thus promoting economic growth.

4. International Developments
South Korea’s economic development can also be explained by the tremendous economic support provided by USA during the Cold War period. During and after the Korean War (1950 to 1953), USA supported Korea’s industrialisation policy as part of its strategy to stem the tide of Communism in Asia. For example, USA provided post-war financial aid to South Korea, in which the financial resources were important for public infrastructure projects, like road-building and airport construction. From 1950 to 1980, the estimates of American aid to South Korea amounted to nearly US$6 billion. Due to the efforts of the USAID (United States Agency for International Development), South Korea’s exports increased from US$4 million to over $150 billion in 1980. Therefore, it can be observed that USA played a significant role in the development of the Korean economy.

Points to Ponder
Now that you have covered the four major factors that could explain the economic transformation of South Korea, consider the following pointers to integrate your knowledge for essay writing application:
– Which role was more important in the economic transformation of South Korea: Government or Private Enterprises [explain why]
– “The role of USA was most crucial in achieving the economic miracle of South Korea.” Assess the validity of this statement. [to be discussed in class]

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JC History Tuition Bishan Bedok Tampines Singapore - What caused the end of the Golden Age of Capitalism - JC History SBQ Skills

What caused the end of the Golden Age of Capitalism?

What led to the end of the Golden Age of Capitalism?
As the world observed a sustained period of phenomenal growth that accelerated the pace of economic development in many countries, problems began to emerge. The feasibility of existing international financial systems and frameworks, such as the Bretton Woods System, began to exhibit flaws that hindered growth. Eventually, the Golden Age of Capitalism came to an end.

Topic of Study [For H2 History Students]: 
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 2: Reasons for problems of the global economy 

In the following section, we will focus on the key factors that have contributed to the decline in the global economy.

1. Collapse of the Bretton Woods System [15 Aug 1971]
Initially, the Bretton Woods System was essential in creating financial stability through the fixed exchange rate system that pegged the U.S. dollar against gold [USD 35 per ounce of gold]. However, excessive domestic spending [Great Society program] and military expenditure in foreign campaigns [Vietnam War] caused the American dollar to be overvalued. This meant that USA was unable to provide adequate gold to match the vast volume of dollars in international circulation.

As a result, speculators foresaw the U.S government seeking to devalue USD, creating a widespread panic to sell the currency. Market pessimism was pervasive. Eventually, it culminated in the historic moment in August 1971, when American President, Richard Nixon, declared the suspension of the dollar-to-gold convertibility, signalling the end of the fixed exchange rate system. As such, many countries were given the choice to adopt fixed or flexible exchange rates, resulting in declining stock prices, rising oil prices and bank failures.

2. Twin Oil Shocks [1973 and 1979] 
In addition to collapse of the Bretton Woods System, there were two disastrous events that led to skyrocketing oil prices and declining economies, also known as the Twin Oil Shocks of the 1970s.

The first oil shock took place in 1973-1974, which was attributed to the actions of the Organisation of Petroleum Exporting Countries (OPEC, in short). The OPEC sought to undermine USA for its provision of support to Israel in the Yom Kippur War [part of the longstanding Arab-Israeli War] by imposing an oil embargo. As a result of the sudden artificial shortage of oil, oil prices surged from $3 per barrel to $12 per barrel in one year. Consequently, the increase in oil prices had devastating impacts on the affected economies. Given that oil was an essential resource for production, many businesses declined. In contrast, OPEC benefited from the gains in revenue due to the sale of oil at artificially high prices.

The second oil shock occurred in 1979 due to the Iranian Revolution. Oil production was once again cut, causing an increase in price of oil. This had a severe impact on the developed economies, especially USA. Firms in oil-dependent industries, like car manufacturers, were undermined by this development. Furthermore, consumers had difficulty coping with the increase in price of fuel for domestic usage.

3. Third World Debt Crisis [1980s]
The Third World Debt Crisis was a regional economic challenge that plagued developing nations in the early 1980s. Countries, such as Mexico, were unable to finance the external debts. Although international financial institutions, like the World Bank and International Monetary Fund (IMF) extended loans and aid to these countries, their efforts were inadequate to resolve the persistent debts.

Furthermore, the twin oil shocks of the 1970s had worsened the government deficits, causing many Third World countries to suffer from the longstanding debt issue. For example, the Mexican government’s budget deficit was at 16.3% of its Gross National Product (GNP). Consequently, economic activities declined in these countries, causing growth rates to slow down.

4. Advent of Trade Protectionism
Although the General Agreement on Tariffs and Trade (GATT) was the reason for the economic boom that started the Golden Age of Capitalism, liberalisation of world trade did not benefit all countries evenly. In particular, developing countries were incurring losses, while developed nations gained from the freer movement of labour, commodities and capital.

Besides, the U.S. economic slowdown in the 1970s and emergence of developed countries, like Germany and Japan, as well as the ‘Four Asian Tigers’, influenced the shift in economic stance by the American government. As such, trade protectionism was imposed to insulate the domestic economy from the adverse effects of economic competition. For example, the American government introduced a Voluntary Restraint Agreement (VRA) that forced Japan to cut down its exports of automobiles into USA. Developed countries, like UK, raised tariffs.

As such, this artificial trade barriers began to undo the beneficial impacts of the free trade agreements, causing a decline in global output and the subsequent slowdown in economic development.

What’s Next?
Given this understanding of the devastating impacts that caused the decline in the global economy, you should examine the following questions and think about the significance of the above-mentioned factors to reinforce your knowledge comprehension to better apply them to your SBQ answers:
– Why was the Golden Age of Capitalism not sustainable? 
– What were the internal and external factors that contributed to the decline in the global economy? [class discussion]

In preparation for the examination, sign up for our JC History Tuition to be ready for the complexities of the essay and source based case study questions. We provide many useful revision materials and additional practice questions to supplement your school lessons. Furthermore, we make learning enjoyable and enriching, incorporating online resources and videos that can synergise your knowledge of past issues with the present.

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JC History Tuition Bishan Bedok Tampines Singapore - What caused the Golden Age of Capitalism - JC History SBQ Skills

What caused the Golden Age of Capitalism?

What is the Golden Age of Capitalism?
The ‘Golden Age of Capitalism’ refers to a momentous period of economic growth that lasted from the end of World War Two in 1945 to the early 1970s. The economic recovery of Western Europe and East Asia had accelerated growth and expansion of the global economy. In this topic, we will find out what were the contributing factors that gave rise to this remarkable period of economic prosperity that improved the living standards of many countries.

Topic 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 

In the following section, we will cover some of the key reasons for the growth and development of the world economy.

1. Post-War Economic Reconstruction [After 1945] 
Against the backdrop of a devastating war that left the affected countries in ruins, post-war economic reconstruction was of paramount importance to revive the industries. The emphasis on wartime production had affected the nature of industries [e.g. production of military supplies]. In particular, Western Europe and Japan were in poor shape due to the protracted military confrontations. As such, economic recovery was made possible through the provision of foreign aid, such as the United Nations Relief and Rehabilitation Administration (UNRRA) and the Marshall Plan.

With the substantial economic relief, these recipient countries revive their industries quickly. For example, Western European countries only required three years to restore pre-war production levels. By 1947, global industrial production was back to pre-war levels. As a result, the robust growth of developed countries contributed to higher consumption of goods and services. This development was then reinforced by the liberalisation of world trade.

2. Liberalisation of World Trade [General Agreement on Tariffs and Trade, 1947]
During the Bretton Woods Conference of 1947, members of the United Nations (UN), including USA, deliberated on the creation of an international monetary system. This system was developed with the goal of ensuring financial stability at the global level. During the Conference, members planned to establish an International Trade Organisation (ITO) to set the rules and regulations for international trade. However, the plan failed to take shape. Nevertheless, a palatable alternative was formed, also known as the General Agreement on Tariffs and Trade (GATT).

Before the World Trade Organisation was formed in 1955, the GATT played the primary role of pushing for periodic bargaining, in terms of the removal of trade barriers between member nations. The reduction in tariffs, for example, enabled freer flow of resources and commodities, raising world output and propelling growth of the global economy.

3. Establishment of an International Financial System [Bretton Woods System, 1944]
As mentioned earlier, the Bretton Woods Conference had the main aim of creating an international financial system to achieve financial stability. In the process, two financial international institutions were formed, namely the International Monetary Fund (IMF) and the World Bank.

Initially, the World Bank was named International Bank for Reconstruction and Development (IBRD). It was responsible for the provision of loans that supported post-war economic reconstruction, since the late 1940s. Subsequently, the World Bank aided developing countries in their goal of achieving economic and social progress.

As for the International Monetary Fund (IMF), its role was to provide financial support to member countries and correct temporary payment imbalances. Members could access the financial support only if they met the requirements set by the IMF Articles of Agreement, which stipulated conditions, like the need to disregard foreign exchange controls. As a result, the IMF contributed to the freer flow of currencies between countries, promoting growth.

The third notable feature of the Bretton Woods System was the gold exchange standard that facilitated foreign exchange convertibility. From 1944 (Year of the Bretton Woods Conference) to 1971, all foreign currencies were pegged to the U.S. Dollar (USD). The USD was pegged to gold, specifically 35 USD per ounce of gold. Consequently, this gold exchange standard gave rise to the creation of foreign exchange markets that led to exchange rate stability. Hence, stable currency values boosted market confidence and promoted greater trading and investment activities. As such, the Bretton Woods System contributed to the remarkable growth of the global economy.

What’s Next?
In view of the above-mentioned factors, it may appear that the seemingly-sustained period of economic prosperity could last indefinitely. However, from the 1970s onwards, the expansion and growth of the global economy began to slow down. In the next issue, we will discuss the problems of the global economy, such as the twin oil shocks of the 1970s. To support your revision, consider these questions:
– How did the United States contribute to the growth of the global economy?
– Which was more important: The Bretton Woods system or the liberalisation of world trade [to be discussed in class]

Do consider joining our JC History Tuition to create and adopt an exam-focused revision plan that will prepare you for the demands of the A Level History examinations. Rest assured, you will experience a progressive learning structure that builds up a strong foundation in the historical knowledge for the essential areas of learning. Furthermore, we conduct essay and SBQ skills development workshops that hone your answering technqiues.

On a separate but related note, our tuition centres offer GP Tuition and Economics Tuition classes as well. These programmes will be instrumental in the cultivation of reflective thinking, knowledge application and intellectual acumen. At the end of the way, our classes will prepare you for the complex but exciting future.