JC History Tuition Online - What is the Winsemius report - Economic Development Notes

What is the Winsemius report?

Topic of Study [For H2 History Students]:
Paper 2: Economic Development after Independence
Section B: Essay Writing
Theme II Chapter 1: Paths to Economic Development

Find out how the Dutch economist Albert Winsemius contributed to Singapore’s economic development [Video by The HEAD Foundation]

Who is Albert Winsemius?
Albert Winsemius began his career as a price controller in the Netherlands. After the end of the Second World War, Winsemius assumed the role as a director-general of industrial development in the Finance Ministry. After Singapore attained self-government in 1959, Winsemius made a visit to Singapore. He was involved in the United Nations Development Programme (UNDP) team to determine Singapore’s capacity for industrialisation.

The Report
Then Prime Minister Mr Lee Kuan Yew had welcomed the Dutch economist’s review of Singapore’s economic conditions. Alongside the finance and Deputy Prime Minister Dr Goh Keng Swee, Winsemius served as an economic advisor to the government from the early 1960s to mid-1980s. There were two key observations that were made in his report.

The first was that Singapore did not lack entrepreneurs but they were mainly in commerce and not in manufacturing. This suggested the need for the government to participate directly to operate certain basic industries if neither foreign nor local enterprises were prepared to do so.

… The second point recommended the establishment of a nonpolitical EDB with divisions for financing, industrial facilities, projects, technical consulting, services, and promotion. The report recognized that the EDB’s core function should be the promotion of investment and that it should eventually hand over its financing activities to an industrial development bank.

An excerpt from “Lessons from East Asia” by Danny M. Leipziger.

Notably, the Singapore government had accepted the report’s recommendations. On 1 August 1961, the Economic Development Board (EDB) was established as a statutory board to plan and implement strategies for Singapore. The EDB was helmed by Hon Sui Sen, overseeing the industrialisation policies, particularly the development of the Jurong Industrial Estate.

The Jurong Project
The Report concluded that the development of industrial infrastructure was of paramount importance to Singapore’s growth and expansion of its manufacturing sector. Jurong was identified as a viable location for industrialisation, given its flat terrain and proximity to commercial port installations.

Jurong was the only waterfront area in Singapore that “possessed all the necessary conditions for development as an integrated town with the economic base centered around an industrial estate of considerable magnitude“. The Winsemius Report recommended establishing an integrated township that would consist of about 16,000 acres, significantly larger than the 9,000 acres a team of Japanese experts had proposed earlier.

An excerpt from “Infrastructure Strategies in East Asia: The Untold Story” by Ashoka Mody.

What can we learn from this article?
Consider the following question:
– How far do you agree that the Winsemius Report was the fundamental cause of Singapore’s successful industrialisation policies.

Join our JC History Tuition to learn more about Paths to Economic Development in independent Southeast Asia. The H2 and H1 History Tuition programmes feature online learning lessons that cover topical review, essay and source based case study skills development.

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JC History Tuition Online - When was Acer founded - Asian Tigers Notes

When was Acer founded?

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]

Retrace the steps and find out how Acer was formed in the 1970s [Video by Acer]

The Origins: MultiTech
In 1976, Stan Shih (施振榮) founded MultiTech with six others, including his wife Carolyn Yeh (葉紫華). The company began its journey as an Original Equipment Manufacturer (OEM) by producing video games and distributing electronic imports. In the 1980s, MultiTech expanded its production by involving Amex as its first international distributor.

Multitech… it’s not just another new computer company. It is a leading manufacturer in the computer age, and its Taiwan manufacturing facility is the largest for personal computers. Since 1976, Multitech has been a pioneer in microcomputer technology. Today its products are sold in more than 40 countries. Earning a world-wide reputation for consistent high-quality, Multitech products have captured the loyalty of large OEMs, VARs and distrubtors.

An excerpt from “Multitech – the computer family that carries many famous names” by PC Mag, 13 May 1986.

The Rising Star: Acer
In 1987, MultiTech was renamed to Acer, signifying its entry as a key player in the Personal Computer (PC) industry. Shih capitalised on the low labour costs in Taiwan to accelerate export production. By 1991, more than two-thirds of Acer’s sales were accrued from foreign markets. Although Acer sought to position itself as a full-line PC supplier, about a third of its sales was still derived from OEM in the mid-1990s.

In addition, Acer had the support from the Taiwan government to engage in a joint-project with Texas Instruments (TI) to produce semiconductors in the famed Hsinchu Science Park. Joint ventures proved advantageous as Acer acquired technology to broaden its scope of production and improve quality.

Because technological capabilities were seen as necessary core competence and proximity to sophisticated customers was important to building these capabilities, Acer invested abroad to be near these customers. Initially, Acer penetrated OECD markets in Europe and North America. By 1993, Acer had moved from assembling PCs in Taiwan and Malaysia and shipping to European and US customers to assembling abroad with strict quality standards.

… By 1995, Acer, with a market value of US$2 billion, began to split itself into 21 public companies, listed on stock exchanges around the world, to open the company to foreign investment.

An excerpt from “Multinationals and East Asian Integration” by Wendy Dobson & Chia Siow Yue.

What can we learn from this article?
Consider the following question:
– Assess the importance of government intervention in shaping the rise of Acer.

Join our JC History Tuition to learn more about private businesses in Taiwan as part of the Rise of Asian Tigers topic. The H2 and H1 History Tuition programmes feature online learning lessons that cover content review and the development of answering techniques for essay and source based case study.

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JC History Tuition Online - Why is Hyundai so successful - Asian Tigers Notes

Why is Hyundai so successful?

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]

Learn more about the history of Hyundai to find out how it grown to become a dominant Korean automaker [Video by Hyundai]

Humble beginnings
Chung Ju-yung was born in poverty-stricken family that relied on farming to make a living. After the end of the Second World War, Chung established the Hyundai Engineering and Construction Company (HECC). The HECC began its operations as a civil engineering subcontractor that provided maintenance and repair work in the 1950s.

A turn of events: The Korean War
During the Korean War, the HECC took on projects by the United States Army, enabling it to expand into one of the leading construction companies in South Korea. Furthermore, Chung worked with the Rhee administration to secure construction projects for the development of local infrastructure.

When General Park Chung-hee took over in the 1960s, Chung continued to obtain contracts to entrench Hyundai’s market dominance, such as the development of the Gyeongbu Expressway. Externally, the HECC helped to develop infrastructure in Vietnam and the Middle East, which proved to be a fortuitous time for diversification.

The success of HECC in the construction industry, aided by support from the Park military government, enabled Hyundai to diversify into the automobile and shipbuilding industries and establish the Hyundai Motor Company and Hyundai Heavy Industries in 1967 and 1974.

… This aggressive entry into the Middle East market had important implications for the growth of both HECC and the Hyundai Business Group. It enabled HECC to become an international construction company no longer dependent on its domestic market. Moreover, the rapid expansion of its heavy industrial construction projects created a large internal demand for materials, enabling Hyundai to strengthen its monopoly position in the domestic construction market during the 1970s.

An excerpt from “The Chaebol and Labour in Korea: The Development of Management Strategy in Hyundai” by Seung-Ho Kwon and Michael O’Donnell.

Enter Hyundai Motor
Initially, the Hyundai Motor Company (HMC) forged a joint agreement with the US-based Ford Motor Company. Yet, the lack of consensus over managerial and marketing issues led to the termination of the partnership in the early 1970s. In 1976, HMC developed its first car, the Hyundai Pony, in 1976.

The Hyundai Pony as described by George Turnbull [Video by ThamesTV]

The Hyundai pony was developed with the support of the Mitsubishi Motor Company that sought to expand its market access beyond the shores of Japan. Hyundai was granted a technical licensing agreement, which enabled it to develop its very own nameplate cars.

Additionally, Chung roped in George Turnbull, who was formerly the president of the British Leland – an automotive company. Turnbull assumed the role as vice president of the HMC. In two years, Turnbull oversaw the development of the car production facilities in Ulsan.

By 1976, the new plant was completed and the first cars began rolling off the assembly line. Chung named the new model the Pony, a familiar name to many Koreans who were brought up on American Western movies. The Pony was a 1.2 liter rear-wheel-drive subcompact of modest quality. No market research had been done. Chung and his company had simply designed and built the car they thought the Korean people should have. President Park guaranteed the financing; Hyundai built it. It was Korea’s first national car.

An excerpt from “Made in Korea: Chung Ju Yung and the Rise of Hyundai” by Richard M. Steers.

From mid-1970s onwards, the HMC moved beyond the limited domestic market to the export markets. Alongside other similar automakers like Daewoo and Kia, the HMC increased export production in the 1980s. Hyundai Motors set up a production facility in 1985, which had an annual capacity of 300,000 units. By the mid-1980s, more than half of the total car production was exported, enabling the South Korean economy to benefit from continued current account surpluses by 1989.

What can we learn from this article?
Consider the following question:
– Assess the reasons for the rise of Hyundai from the 1970s to 1980s.

Join our JC History Tuition to learn more about chaebols and other factors relating to the Asian Tigers. The H2 and H1 History Tuition programmes feature online learning activities to consolidate your content awareness and improve answering skills. Attend our free writing practices to improve your time management and application techniques.

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JC History Tuition Online - What is the role of multinational corporations in the global economy - Global Economy Notes

What is the role of multinational corporations in the global economy?

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

Find out what are multinational corporations (MNCs) and how they affect host countries. [Video by Mr. Sinn]

What are multinational corporations?
By definition, a multinational corporation (MNC) is a company that operates businesses in two or more countries. In contrast with corporations that operate strictly in their country of origin, MNCs expand their scale of operations to other countries. In the post-WWII period, the United States took the lead in establishing MNCs based in different parts of the world, such as Western Europe and Japan.

The Post-War Years
In the 1950s and 1960s, the United States contributed to nearly half of the world’s manufacturing output. American MNCs made their way to host countries like Great Britain, facilitating the transfer of technology and technical know-how. In return, host countries benefited from job creation and improvement of living standards.

By 1966 US multinationals accounted for more than 80 per cent of sewing machines, typewriters, and color film, more than 60 per cent of the calculating machines, razor blades, breakfast cereals, and spark plugs, and more than 50 per cent of the automobiles made in Britain. More than 80 per cent of the computers sold in West Germany and Italy were produced by American multinationals.

An excerpt from “Transnational Corporations and the Global Economy” by Richard Kozul-Wright and Robert Rowthorn.

The meteoric rise of Western Europe and Japan: New competitors
With the continued American support, economies in Western Europe and Japan recovered quickly. MNCs from these two parts of the world began to secure a foothold in the international landscape. By the 1980s, the American firms acknowledged the remarkable feats of their innovative counterparts in Europe and Japan.

In the 1970s, Japanese electronic multinationals moved their investments into Asia, exporting popular consumer electronics like televisions. Host countries like Singapore, Hong Kong and Taiwan benefited from the influx of Foreign Direct Investment (FDI). Similarly, Japanese automakers have gained global recognition due to its fuel-efficiency, even challenging the dominance of veteran American companies like General Motors and Ford.

The oil shocks of 1973 and 1979 increased the demand for more fuel-efficient cars, and the Japanese were well-positioned to capture an initial portion of the U.S. market. The ensuing growth during the 1980’s of foreign competition in the domestic market marked several significant transformations of the domestic automobile industry. Japanese producers priced their automobiles very competitively and consumers placed increasing emphasis on product quality and value in their purchase decisions. By 1990, Japanese firms had captured 33 percent of all U.S. car sales; European firms 5 percent; and Korean companies, 2 percent.

An excerpt from “Monthly Labour Review” by the U.S. Government Printing Office, 1992.

Vehicles of foreign investment and international trade
In addition to the role of governments in advanced economies driving the growth of the world economy, MNCs support FDI flows to accelerate the economic development of different countries. In the 1960s, Third World nations attracted nearly half of the entire world’s FDI. However, the proportion of FDI in developing countries has declined to nearly one-third by the 1970s.

An increasing proportion of world trade occurs within transnational corporations, that is, from one branch or plant of a corporation to another branch in a different country. In 1970, more than a quarter of US manufactured exports were sold by multinational corporations to a majority-owned foreign affiliate.

… Almost all foreign direct investment originates in the developed world. In 1978, the USA alone provided 41.4% of the total stock of accumulated foreign direct investment; Japan 6.8%; and Canada 3.5%. A mere 3.2% derived from developing countries.

An excerpt from “The Golden Age Illusion: Rethinking Postwar Capitalism” by Michael John Webber.

What can we learn from this article?
Consider the following question:
– Assess the view that the multinational corporations were necessary in advancing the growth of the global economy after the Second World War.

Join our JC History Tuition to learn more about this enriching topic. Our H2 and H1 History Tuition offer online and physical classes to match your learning preferences. Additionally, you will receive concise study notes that explore various themes based on the syllabus requirements. Join our free writing practices to improve your knowledge application skills within a limited time.

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JC History Tuition Online - How did Japan emerge as a developed economy - Global Economy Notes

How did Japan emerge as a developed economy?

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

Take a look at the history of Toyota’s 2000GT that was released in the 1960s. [Video by Garage Dreams]

Rapid industrialisation
After experiencing defeat during the Second World War, the Japanese government focused its efforts on post-war reconstruction. Under the ‘Reverse Course’ policy, Japan was backed by the USA to rebuild its industries.

The Cold War climate proved to be fortuitous as Japan gained from the surge of demand during the Korean War in 1950. The increased US involved in the conflict became an opportunity for Japan to raise production of war supplies.

Additionally, the Japanese government turned to the Americans for access to foreign technology. The purchase of technology then aided the private firms’ efforts to raise the efficiency of production, as seen by the rise of prominent companies like Toyota and Honda.

Japanese companies in the 1950s and 1960s spent one-quarter to one-half of all their research and development budgets to buy foreign technology.

… Over the next few years [Sony] made cheap copies of the tape recorders American occupiers had brought to Japan. In 1953 it licensed from Western Electric the right to produce the new transistors that Bell Labs had recently invented. Sony turned out its first transistor radio – the world’s second – in 1955 and brought a miniaturized “pocket radio” to market two years later.

An excerpt from “Global Capitalism” by Jeffry A. Frieden.

Better lives: Impacts of industrialisation
Strong state intervention was recognised as a major contributing factor for the Japanese ‘economic miracle’. Subsidies and loans were granted to the private firms to accelerate industrial production. Over time, living standards in Japan have improved tremendously. By 1970, almost every Japanese household owned a television, refrigerator and washing machine, ushering the ‘electronics age’.

Practically every household in Japan is now in possession of a radio while the dissemination rate of television sets is 87.8 per cent, that of electric washing machines 61.4 per cent and electric refrigerators 38.2 per cent, indicating that the standard of living in Japan has been raised considerably.

An excerpt from Japan Report, Volume 10 Number 19 – by Japan Information Center, Consulate of Japan, 15 May 1964.

By the 1970s, Japan had caught up with the USA, becoming the second-largest market economy in the world.

What can we learn from this article?
Consider the following question:
– How far do you agree that the government was responsible for the phenomenal growth in Japan after the post-war years?

Join our JC History Tuition to learn more about the developments of the global economy. Our H2 and H1 History Tuition feature live-streamed classes for thematic discussion and online practices to improve your answering techniques. Find out how you can enhance your writing skills for essay and source based case study questions.

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JC History Tuition Online - How effective is the International Court of Justice - United Nations Notes

How effective is the International Court of Justice?

Topic of Study [For H2 History Students]:
Paper 1: Safeguarding International Peace and Security 
Section B: Essay Writing
Theme III Chapter 2: Political Effectiveness of the UN in maintaining international peace and security

All bark and no bite?
Ever since the formation of the International Court of Justice on 26 June 1945, it has addressed a variety of cases. It is involved either in the provision of advisory opinion on legal matters or arbitration.

Yet, there is increased skepticism towards the Court’s efficacy in ensuring member nations adhere to the international law.

For instance, the Court failed to enforce its ruling against the United States in 1986. Although it ruled in favour of Nicaragua, the United States refused to comply, thus diminishing the confidence of other members in submitting their cases to the Court.

The United States refused to participate in the merits phase of the case, considering the Court’s ruling ‘clearly and manifestly erroneous as to both fact and law’.

…The United States’ reaction culminated with a notice of termination of its declaration accepting compulsory jurisdiction of the Court on 7 October 1985. Given the support that the United States had traditionally given to the Court, its withdrawal from the Optional Clause System was a cause for much regret and concern.

An excerpt from “Nicaragua Before the International Court of Justice: Impacts on International Law” by Edgardo Sobenes Obregon and Benjamin Samson.

Yugoslavia: Legality of force
Following the NATO bombing campaign during the Kosovo War in 1999, the Federal Republic of Yugoslavia brought up a case to the International Court of Justice. It alleged that the NATO members used military force, which was in violation of the international law.

On April 29, 1999, Yugoslavia brought proceedings before the International Court of Justice (ICJ) against Belgium to redress a “violation of the obligation not to use force,” and against nine other NATO countries as well. The claims were based upon the UN Charter and several international legal conventions, including the 1949 Geneva Convention, its 1977 Additional Protocol 1, and the Genocide Convention.

An excerpt from a “Journal of Legal Studies” by the United States Air Force Academy, Department of Law.

However, the Court concluded that the parties filing the case, Montenegro and Serbia were not members of the United Nations, thus the proceedings could not take place for dispute settlement.

What can we learn from this article?
Consider the following question:
– Assess the political effectiveness of the International Court of Justice in maintaining the international law.

Join our JC History Tuition to learn more about the organisational structure of the United Nations. Our H2 and H1 History Tuition feature thematic review and writing practices to improve your knowledge application skills.

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JC History Tuition Online - What is NAFTA and what is its purpose - Global Economy Notes

What is NAFTA and what is its purpose?

Topic 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

Examine the contributions of the NAFTA to the affordability of goods and services [Video by Vox]

The North American Free Trade Agreement (NAFTA)
On 1 January 1994, the NAFTA was signed by three members – the United States, Mexico and Canada. Its purpose was to eliminate tariffs between the signatories, facilitating market integration. Furthermore, the agreement required all parties to support the gradual elimination of trade barriers over a course of fifteen years to enhance cross-border investment and the flow of goods and services.

Before the signing, the Mexican government sought US investment in the wake of the Latin American debt crisis. In June 1990, Mexican President Carlos Salinas de Gortari and the American President George H. W. Bush announced the creation of a free trade area between the United States and Mexico.

Impacts on involved parties
It turns out that the NAFTA yielded tremendous benefits to the trading partners. NAFTA amounted to a $6 trillion economy with a population of 360 million. By 2004, the NAFTA area expanded to a $12.5 trillion economy.

Wonnacott believes, that in one important way, the NAFTA is superior to treaties like the GATT, which allows developing countries to maintain many of their own barriers to liberalized imports. The NAFTA has effectively told Mexico and other future participants that if they want to participate in the agreement, they must be prepared to remove their own trade barriers.

An excerpt from “Nafta As a Model of Development: The Benefits & Costs of Merging High-And Low-Wage” by Richards S. Belous and Jonathan Lemco.

From the US perspective, the NAFTA was seen as a significant step forward to achieve encourage international trade. The agreement was meant to be a signal to other participating members of the GATT to re-affirm their commitment to achieve freer trade.

I am gratified that, as Vice President Gore and Chief of Staff Mack McLarty announced 2 weeks ago when they met with President Salinas, next year the nations of this hemisphere will gather in an economic summit that will plan how to extend the benefits of trade to the emerging market democracies of all the Americas.

The United States must seek nothing less than a new trading system that benefits all nations through robust commerce but that protects our middle class and gives other nations a chance to grow one, that lifts workers and the environment up without dragging people down, that seeks to ensure that our policies reflect our values.

An excerpt from US President Bill Clinton’s speech on the NAFTA, 8 December 1993.

What can we learn from this article?
Consider the following question:
– How far do you agree that the USA played a crucial role in the resurgence of trade in the 1990s?

Join our JC History Tuition to learn more about the development of the global economy. Our H2 and H1 History Tuition classes are conducted online to broaden your knowledge of diverse issues and enhance your writing skills.

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JC History Tuition Online - What caused Japan's lost decade - Global Economy Notes

What caused Japan’s Lost Decade?

Topic 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

Examine the impacts of the ‘Lost Decade’ that led to the commercialisation of ‘closeness’ [Video by Polygon]

The geese ahead of the flock
Before the ‘Lost Decade‘, Japan’s economic progress have continued until it was the second largest in the world, after the United States. In fact, the ‘flying geese paradigm’ was used to refer to Japan as the frontrunner of economic development in Southeast Asia (contrast with the ‘Four Asian Tigers’).

The pattern was one in which first Japan, followed by its former colonies, achieved miracles of growth. They left such bastions of U.S. influence as the Philippines in the dust. South Korea, Taiwan, Hong Kong, and Singapore, followed by Thailand, Malaysia, and Indonesia were all members of Japan’s flock. Even China took its turn.

An excerpt from “How Asia Got Rich: Japan, China and the Asian Miracle” by Edith Terry.

Speculative activities: A growing asset bubble
After the Plaza Agreement was signed, Japanese Yen was twice the value of US dollar between 1985 and 1987, spurring speculators to plough their funds in assets and stocks. Additionally, borrowers could obtain funds from banks in Japan easily, fueling more speculative activities. Over time, stock and land prices surged.

Between January 1985 and December 1989 the real value of the Nikkei 225 stock price index tripled. By the middle of 1992, the index in real terms was less than 20% above its January 1985 level. Land prices have behaved similarly. An index of land prices in Japan’s six largest cities almost tripled in real terms between 1985 and 1990.

An excerpt from “Japan’s Bubble, Deflation, and Long-term Stagnation” by Kōichi Hamada, A. K. Kashyap, David E. Weinstein.

The Bank of Japan viewed the growing bubble as a threat. As such, it raised interest rates from 2.5% to 6% to discourage speculation. Consequently, borrowers were alarmed by higher interest rates as they anticipated their inability to finance their loans. Panic selling took place, causing the value of shares to plunge drastically.

By August 1990, the discount rate reached 6%. meanwhile, starting in 1990, the Bank of Japan sharply reduced the growth in the supply of money. Although Japanese officials were trying to engineer a soft landing by gradually deflating the speculative bubble, it burst with surprising speed. By October 1990, the Nikkei had fallen to nearly 20,000 yen. The price of real estate began its descent in 1991… Non-performing loans piled up at banks. Economic growth virtually ground to a halt, as it averaged only 1% per year from 1990-2003.

An excerpt from “Japan’s ‘Lost Decade’: Causes, Legacies and Issues of Transformative Change” by Miles Fletcher III, Peter W. von Staden.

What can we learn from this article?
Consider the following question:
– How far do you agree that the Japanese government was responsible for the ‘Lost Decade’?

Join our JC History Tuition to learn more about the development of the global economy. We conduct H1 and H2 History Tuition Online classes, featuring thematic discussion and writing workshops.

We have other JC tuition classes, such as GP TuitionEconomics TuitionJC Chemistry TuitionJC Math Tuition and China Studies in English Tuition. For Secondary Tuition, we provide Secondary English TuitionSecondary Math tuitionSecondary Chemistry Tuition and Secondary Economics Tuition. For Primary Tuition, we have Primary English Tuition. Call 9689 0510 to learn more.

JC History Tuition Online - What was the Plaza Accord - Global Economy Notes

What was the Plaza Accord?

Topic 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

Learn more about the economic challenges faced by the United States that prompted the Reagan administration to introduce the Plaza Accord of 1985 [Video by Danieljbmitchell]

New competitors; Trade deficits
Following the abandonment of the ‘gold standard’ in 1971, the United States (US) continued to experience severe trade deficits vis-à-vis Japan and West Germany. The Japanese Yen and German Deutsche Mark were relatively weaker than the US Dollar. This meant that these two advanced economies’ exports were cheaper than the American exports, fueling demand for the former group’s.

In the US, heavy manufacturers and automobile firms called for their politicians to embark trade protectionism. With American jobs at stake, the Reagan administration had to step in to manage this worrying trend.

At the beginning of the 1980s the American auto industry was reeling under pressure from foreign competition – deservedly so, as the quality of American-made autos from the Big Three was noticeably inferior to that of imports from Europe and Japan.

…Unable to meet this quality competition head-on, and having lost $4.2 billion in 1980, the Big Three American automakers pressed for the predictable solution: trade protectionism.

…After a heated debate at the White House, Reagan passively agreed to seek a “voluntary export restraint agreement” with Japan.

An excerpt from “The Age of Reagan: The Conservative Counterrevolution: 1980-1989” by Steven F. Hayward.

In addition to the voluntary export restraint (VER) with Japan that limited the number of imported automobiles, the US government oversaw the meeting with the G5 nations. The G5 comprised of industrialised nations, namely United Kingdom, Japan, West Germany, France and the US.

The Plaza Accord
On 22 September 1985, the G5 nations met at the Plaza Hotel in New York. At main outcome was the formulation of an agreement to depreciate the US dollar relative to the Japanese Yen and German Deutsche Mark.

The main purpose of the accord, however, was to address the United States-Japan trade imbalance by making American goods less expensive and Japanese goods more expensive, so that Japanese customers would buy inexpensive American goods and Japanese companies would have to raise their prices in dollar terms and therefore lose customers.

… The time from 1986 until the middle of 1990 in Japan is often referred to as the ‘bubble economy‘. This period saw massive expansion, primarily due to a rapid surge in domestic demand – a growth in capital investments and in personal spending. Stocks and real estate prices skyrocketed.

An excerpt from “Government, International Trade, and Laissez-Faire Capitalism: Canada, Australia, and New Zealand’s Relations with Japan” by Carin L. Holroyd.

Although the Accord did manage to reduce trade deficits, the repercussion on the Japanese economy was severe. As the Japanese Yen appreciated relative to the US dollar, individuals and firms purchased real estate and stocks, pushing up the prices artificially. Speculators used their newly-purchased real estate as collateral to buy more. Eventually, the expanding asset bubble burst, ushering the ‘Lost Decade’ in Japan.

What can we learn from this article?
Consider the following question:
– Assess the view that the Plaza Accord of 1985 was key in explaining the decline of the Japanese economy in the 1990s.

Join our JC History Tuition to learn how to write essays effectively. Our online learning classes are suitable for JC students taking either H1 or H2 History. We conduct thematic discussions and written practices to improve your reading, thinking and writing techniques.

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JC History Tuition - Why did Nixon abandon the gold standard - Global Economy Notes

Why did Nixon abandon the gold standard in 1971?

Topic 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

Let’s take a look at the implications of the collapse of the ‘gold standard’ on the US economy and the rest of the world [Video by Ampleforth]

An unsustainable model
Ever since the Bretton Woods system was established in 1958, the convertibility of United States (US) dollars to gold was fixed at $35 an ounce. Initially, the US government held nearly 75 percent of the world’s official gold reserves, instilling confidence in the global monetary system.

However, demand for gold increased in the 1960s when exports from Western Europe and Japan became more competitive with the US. Additionally, the large Cold War expenditures contributed to excess supply of US dollars in circulation.

The economy falters
In the late 1960s, the US economy was hit by the increase in inflation (5.4%) and unemployment (6%) rates. An unexpected phenomenon has occurred – stagflation, which meant a combination of slow growth and high inflation.

In order to fight stagflation, US President Richard Nixon addressed the nation on 15 August 1971, declaring the end of the fixed exchange rate system that underpinned the Bretton Woods ‘gold standard’.

The Bretton Woods system of fixed exchange rates based on the free convertibility of the U.S. dollar into gold, which had been showing signs of strain for many years, came apart entirely on August 15, 1971. President Nixon’s announcement that the U.S. would no longer sell gold at $35 per ounce effectively set the dollar afloat. By December 1971, the dollar had fallen about 6% relative to a multilateral trade weighted average of currencies, as the world groped for a new international monetary system.

An excerpt from “Economic Policy and the Great Stagflation” by Alan S. Blinder.

Bold actions
During Nixon’s historic speech on 15 August, he raised three points to protect the US economy – lower unemployment rates, curb inflation and minimise international speculation.

For the third point, Nixon claimed that the ‘gold standard’ was not sustainable as currency speculators have been ‘waging an all-out war’ on the US dollar even though it functioned as a ‘pillar of monetary stability’ on the global scale.

I have directed Secretary Connally to suspend temporarily the convertibility of the American dollar except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.

… If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.

The effect of this action, in other words, will be to stabilize the dollar.

An excerpt from a speech by Richard Nixon, 15 August 1971.

Nixon defended his position by asserting that the devaluation of the dollar was to ensure fair competition between the American workers and the rest of the world. Furthermore, he imposed a 10 percent tax on imported goods into the US as a temporary measure to protect domestic jobs.

Fragmentation of markets
In response, the European governments were taken aback by the policy shifts of the US government. On 10 September 1971, The New York Times reported that the imposition of tariff barriers may affect nearly 90 percent of the European exports to the US, amounting to $7 billion.

What can we learn from this article?
Consider the following question:
– How far do you agree that the collapse of the Bretton Woods fixed exchange rate system was a turning point?

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