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Economic Growth and Globalization since 1850 The Age of Globalization • Exponential change Video: Did you know? Shift Happens I. Introduction: A. Global time line 1850-1914 Industrialization and growth of international trade 19181939 Interwar years 1950-1990 Liberalization and Acceleration of trade/ Development of Communist Economic Model B. Successive Shifts of Power 19th-21st Centuries 1850-1914 1914-1990 1990 -2014 • British Hegemony • American Century • Multipolar World II. Stages of Economic Growth • How did the world progressively enter into a system of production of wealth? A. 19th Century Economic Growth since 1850 • Since 1850, continual acceleration of technical progress and strong economic growth • Sustained demographic growth • Inequalities in development continued 3 stages of Economic Growth 1. 1850-1945 Beginnings of Growth 2. 1945-1973 Exceptional economic growth 3. 1973-2016 Another model of growth Annual Growth Rate of World GDP 1820-1870 0.93% 1870-1913 2.11% 1913-1950 1.85% 1950-1973 4.91% 1973-1998 3.01% 1999-2008 3.10% 2009 -1.3% 2010-2014 3.7% Source: OECD and World Bank 1st Stage: Beginnings of Growth 1850-1945 • From the mid-19th Century, western European countries, facing rapid increase in population growth, experienced a 2nd industrial revolution strong growth = monetary abundance and new technologies (railroads, automobiles, steel, textiles) irregular growth = periods of rapid growth followed by major recessions and depressions (1873-1896) (19291939) Capitalism, well-established in the 19th c. in Europe, contributed to this trend Despite the rise in global population, economic growth enabled improvement in standard of living. (buying power x2 French workers) Lithograph by Otto Bollhagen and Fritz Jacobsen, Krupp Factories in Essen, Germany in 1912 Capitalism in Crisis Early signs of instability in 1929 The Mechanism of the Crisis In October 1929, a violent storm descended upon Wall Street. The intervention of the most powerful financial groups could not manage to stop the avalanche of sales due to the general panic. […] The prosperity of million of American households was built upon the gigantic structure of overblown debt […] The speculation on stocks was spread over the entire nation, encouraged by the loans that even the most famous banks easily granted : a vast system of purchasing homes, furniture, cars and numerous other items of domestic comfort also developed. All of that collapsed in an instant; the formidable machine of production in the United States found itself disorganized and paralyzed […] Twenty thousand local banks suspended their payments. The system used to trade goods and services between individuals collapsed […] From 1929 to 1932, the collapse of the market resulted in an implacable fall in prices which brought on a reduction in production followed by general unemployment. The consequences of this economic disorganization spread throughout the entire world. Unemployment and the fall in production caused a general decrease in trade. Customs restrictions were imposed everywhere in order to protect domestic markets […] Financial ruin and unemployment generalized from one end to the other of the planet. Source: Winston Churchill, Memoirs of the Second World War, 1948 The Limits of Capitalism Series of financial/economic crises highlighted the limits of capitalism and the interdependence of the world – Stock market crash 1929, end of period of strong growth of US economy, warning to speculators – Collapse of 1st economy in the world causes contraction of international trade and massive increase in unemployment around the world 2nd Stage: Exceptional World Growth 1945-1973 • reconstruction of Europe and Japan thanks to U.S. aid (strongest growth in TRIAD) • agricultural sector modernized in the 20th c. • Service sector developed • Industry remained motor of growth (cheap oil, chain production, free trade) • Mass consumption stimulated by higher salaries and easy credit After 1945, world growth rate increased thanks to trade •Stimulated by the gradual liberalization of trade (Atlantic Charter, GATT, WTO, etc) •From 1970’s by acceleration of globalization 3rd Stage: Another Model of Growth 1973-2016 • The End of the Miracle – Monetary crisis in 1971 (Bretton Woods) – 2 oil crises in 1973 & 1979 – Working conditions of chain production contested – Production decreases – Inflation & unemployment rise • Change in Growth Patterns – Excess debt and speculation result in new crises in 2008 & 2012 – Very high growth rates obtained in BRICS Recent Financial Crises and Economic Recessions • Financial crisis in 2008 – led to growing intervention of international regulatory organizations • IMF • G20 • Economic recession in 2011-2012 – Caused by banks making risky loans – Populations over-indebted – Speculation on real estate market Comparison of 1929 and 2008 Crises GNP Growth (%) 1929-1932 2009 2010 World -30 -0.6 +4.2 United States -51 -2.4 +2.7 Germany -23 - - Euro Zone - -4.1 +1 -57 % -12% +13.5% International Trade Unemployment rate 1929 1933 2007 2009 2010 United States 3.1 25.2 5 10 9.7 Germany 10 33 7.8 9.8 10.3 Change of Paradigm late 20th /early 21st century • Early 21st C. highest economic growth rates in emerging countries BRICS nations (Brazil, Russia, India, China) + South Africa since 2011 – Known for rapid growth of their industrial sectors – Capitalizing on their advantages (e.g. natural resources, labour, infrastructure) – Strong state intervention New Model of Sustainable Development • Limits of old model of industrial growth spread by TRIAD • Demographic giants (India & China) have huge needs • Production based on fossil fuels causing pollution and global warming • Economic growth must be reconciled with the environment Conclusion Periods of Crisis have enabled capitalism to adapt and for new powers to emerge. – Slowing down of growth in Europe – Birth of multinational corporations – Progression of international trade – Appearance of new competition in Europe (Germany) and outside of Europe (BRICS) The Global Power Shift • TED Talk – Paddy Ashdown Homework • Read Globalization Chapter 34 Unfinished Nation (chapter scanned on blog) Watch the TED talk (Global Power Shifts) and answer the questions.