Critically analyse the crises of the post-war economy.

Critically analyse the crises of the post-war economy.


The post-war economy is generally analyzed in the context of its two broad
phases, the ‘Golden Years’ when the major European powers tried to and
successfully overcame the debacle of the economy resulting from World War
II, lasting roughly from 1950s to the early 1970s; and the down turn and its
features from the early 1970s to 1989, marked by the collapse of the socialist
states and their economies. Since capitalist economy is a global economy, the
years of ‘high’ and ‘low’ coincided in almost all the countries of the world,
although not on the same scale and exactly the same form. The imperialist
rivalries and capitalist crises too became intertwined.
Although independent now, many of the former colonies remained tied through
aid to the imperialist countries, on terms that linked the fortunes of capitalist
economies with their own development, or non-development one might say.
They were thereby effected by the crises.


Immediate Aftermath of the War


Almost all the western economies experienced the adverse effects of the War,
except the US, which in fact found itself in a favourable position. The crisis for
capitalism in the immediate aftermath consisted in having to rebuild shattered
economies. The second element was the fierce competition and rivalry with
the socialist world. The capitalist countries had collaborated with the Soviet
Union in order to defeat fascism. With this defeat having been achieved, and
with the German economy equally shattered, the main economic contradiction,
as in the sphere of politics, was seen with the socialist alternative economic
system. Within Europe there was shift in the balance of power, with the Soviet
Union becoming a major influence over the people democracies in Eastern
Europe, which adopted socialist economic policies. These factors were crucial
in the policy actions adopted by the advanced capitalist countries to overcome
the war-created stagnation in the economy.
These policy actions were transcontinental in dimension since the idea was to
guarantee a capitalist system for as much of the world as possible, and to
ensure that the post colonial countries did not adopt socialist alternatives.
The decision to divide Germany into two separate states, the Federal Republic
of Germany (FRG) and German Democratic Republic (GDR), meant not just
a German economy weakened by the ravages of war but now two German
economies with divided assets in place of one – the first capitalist in nature
and under the influence of the US primarily but also western Europe, and the
second, socialist, aided by the Soviet Union.
The European countries ravaged by war began to have a subordinate
relationship with the US, now the only capital-surplus country. It was truly the
continuation of what has been called the ‘American century’, in terms of
not just political domination, but a political domination based on economic

power – characterized by itself as leadership of the capitalist world. At the The Crisis of Capitalism
end of the War the US was responsible for nearly two-thirds of the world’s
industrial production.
These arrangements and aims underlined above became the basis of the Truman
Doctrine and the Marshall Plan, through which the rebuilding of war torn
economies and ensuring of capitalism in greater part of the world was achieved.
Marshall Plan (officially the European Recovery Program, ERP) was the
American initiative to aid Europe, in which the United States gave $17 billion
(approximately $160 billion in current dollar value) in economic support to
help rebuild European economies after the end of World War II.
The War had neatly divided the capitalist economies in Europe and in the US
into two separate sectors: one based solely on demands created by the
government, for example armaments and other war related and infrastructural
requirements, including requisition of grain etc., and that concerned with
production of everyday needs of consumers and other businesses. It was this
second sector that was completely deprived of resources and in stagnation
even during the war. The record of World War II in stimulating demand and
economic growth is thus mixed and not as good as is generally believed: it was
an artificial demand that ended with the war. On the whole, from 1941 to
1943, real gross private domestic investment plunged by 64 per cent; during
the four years of the war, it never rose above 55 per cent of its 1941 level.
With the end of war the first (war demand generated by govts.) was no longer
(at least in immediate future) required and the second remained stagnant due
to lack of demand and resources at peoples’ command to buy goods. Both
sectors therefore, deprived of markets, became incapable of creating profits,
and hence growth of capitalist economy. There was also a general fall in the
standards of living, causing an equally generalized disgruntlement across
classes and regions.
The first phase of recovery from 1945 to 1947 was channeled through
negotiated loans from the US disbursed through the United Nations Relief
and Rehabilitation Agency (UNRRA). GNP increased by 8% in the years
after 1946. Industrial output rose to pre-war levels. A monetary and trading
system allowing for unrestricted movement of capital and commodities within
the capitalist world was achieved, aided by the political-military alliances
between capitalist Europe and the US.
During the next phase of recovery and rebuilding, 1948-1951, the West
European countries received close to 13 billion dollars as loans from the US
sponsored recovery programme, supplemented by 1 billion dollars from the
IMF and World Bank, two international economic organizations created by
the US for this purpose and to boost controlled capitalist development. The
maximum aid was given to Britain, France, Italy, and West Germany, which
have remained consistent supporters of the US since then. These loans were
loaded with conditionalities: these countries had to ally themselves with the
Organisation for European Economic Co-operation and to submit to it a
national plan every four years, apart from making available on agreed terms a
set of funds (depending on quantum of aid given) for the organization, to be
spent in ways approved by the US. In addition they had to agree to food
imports only from the US, despite cheaper alternatives available elsewhere,

and to use US shipping and insurance services for an agreed amount. Thus the
“free” economy created a lot of restrictions and monopolies in order to benefit
the most dominant among them.



The ‘Golden Years’


While the recovery had aimed primarily at rebuilding the economies of European
countries, there was some growth throughout the world; although the reference
to Golden years applies essentially to the growth and prosperity attained in
the western world between 1951 and early 1970s. During these decades the
developed capitalist countries accounted for three fourths of the world’s
production and almost 80% of the manufactured exports. In general, the
production of manufactures quadrupled between 50s and 70s if we take the
entire world into account, and world trade grew ten times over. Capitalism
seemed to be moving ahead, competing well with the rates of growth in the
socialist Soviet Union. Food production also grew rapidly, so much so that
there was surplus for exports and then so much that a percentage of it needed
to be ‘dumped’ at unprofitable rates.
How such production levels achieved and what were the chief characteristics
of growth during this period? First, there was the tremendous investment in
R&D and the consequent development in technology, which made possible
capital-intensive growth and thus more profits for industry. The spread of the
Ford model and the older technology, now obsolete in the developed world,
found takers in the developing world, fuelling industrialization of these
countries. Second, this period saw the restructuring of capitalism and
emergence of trans-nationals, what came to be known as multi-national
companies, based primarily in the developed capitalist world. As Hobsbawm
points out, 85% of the big 200 were based in the US, Japan, Britain and
Germany, with firms from 11 other countries making up the rest. These firms
also tended to emancipate themselves from the confines of their nation states
in so far as investment and profit making decisions were concerned. This
brings us to the third feature of this age, off-shore finance, whereby there was
even a shift of industries to areas of low cost labour. Fourth, in trade, there
logically emerged a new international division of labour between the advanced
capitalist countries providing manufactures, and the developing countries the
raw materials and agricultural produce, to provide people in western countries
with tropical fruits and vegetables all the year round, otherwise not possible
given their climate. This international division of labour was necessarily
favourable to the developed capitalist countries. Fifth, the growth in key sectors
continued to be achieved through state intervention in key areas of economy,
particularly infrastructural areas like transport and banking. Thus liberalization
of trade accompanied state role in these key areas. Nationalization of railroads,
coal, steel, played a major role in expansion of economy in West Germany,
France, England, Belgium and Italy. The Italian government in fact owned
30% of Italian industry.



The Crisis Years


Why then did this sense of prosperity not continue into the 70s, which became
the crisis years once again for capitalism? Hobsbawm points towards the
contradictions within the capitalist system that we spoke of in the earlier sections
of this Unit. A capital-intensive industry with rapid development of technology
needed less and less inputs of labour. In fact the very features of rapid growth
made possible by more sophisticated technological developments meant that
in the scheme of profits the major use of people for industry was primarily
their role as consumers; particularly in the western countries with shifts of
production to areas of cheap labour.
But if people did not find good employment and increase in wages how could
they remain good consumers – with little money to spend? This was the central
contradiction of capitalism that was not resolved during the golden years, which
eventually contributed to the crisis in the decades after early 70s.
The crisis of these decades was reflected most starkly, therefore, in decline of
employment, and growing homelessness even in the most advanced of capitalist
countries, and the inevitable decline in production — although not of the same
proportions as in the Depression years. The oil crisis in the later part of these
decades contributed to the general crisis. The 1973 OPEC oil embargo on
the part of oil producing countries sent energy prices soaring. The years 1973-
75 and then 1981-83 were recession years. In 73-74 industrial production in
the capitalist countries of Europe and the US fell by 10 per cent in one year
and international trade by 13 per cent. At the same time, labour unrest was on
the rise, and social struggles from anti-racism to feminism, to environmentalism
and gay liberation, were also breaking out. Britain saw its first national postal
strike in 1971, followed by the successful miners’ strike of 1972. The miners
struck again in 1974 ensuring the downfall of Ted Heath’s government, which
had introduced the 1971 Industrial Relations Act precisely to curb such examples
of working class power. There were huge strikes across France and Italy in
late 60s and early 70s, involving students and youth and eventually the working
Unemployment in Western Europe rose from 1.5 per cent in the 1960s to 4.2
per cent in the 70s, in late 80s averaging 9.2 per cent. You would be aware of
some of these aspects from examples in your everyday life: even as
communications increased, the number of people working in the telecom sector
was considerably reduced, with mobile phones and internet having made much
of the labour redundant in telecom and postal departments. The rise of

occupations in services did not offset this decline. In UK 400,000 people
were classed as homeless and it is estimated that in the city of New York more
than 20,000 people slept in streets or public shelters. The structural logic of
capitalism thus contributed in this stage to more loss than creation of jobs,
even as societies became more modernized. All this points to the nature of
growth that had been achieved in these countries: inequalities were stark. A
small percentage of capitalists controlled a big percentage of the nations’ wealth
in all the capitalist countries, as it is now true today even in our country. This
should be seen as part of crisis of capitalism.
The governments were constrained between their welfare measure expenditures
and investment and bailing out of industry, with expenditures rising higher than
revenues. The unplanned nature of economy, with markets as the driving forces
of economy, meant that investments and flights of these investments from
particular countries were beyond the control of national governments,
contributing to the general chaos in the capitalist world economy. The
beginnings of globalization weakened the powers of governments, in later
decades even making them subservient to capital at the cost of welfare.
The constraints of governments in following the interests of capital rather than
of popular welfare also stemmed from the logic of capitalist society. This led
to a crisis of the social democratic political systems, and the choice for right
wing solutions in these countries. The slump in the 80s was overcome through
the economic policies of neo-liberalism, in which the poor in these countries
and in the developing nations bore the cost of the survival of capitalism.
Meanwhile, although not a major theme of this Unit, it is interesting to note
that even the socialist world was by the 70s not free from crisis. The years of
rapid growth and equally rapid increase in social rights reflected in free and
almost equitable education, healthcare and leisure, and almost equal
opportunities, free crèches at workplaces, etc. had meant more equitable
distribution, but perhaps not as high a standard of living as the better off strata
of population in capitalist societies. This, coupled with huge investments of the
Soviet Union in the developing countries (on terms far less mercenary than the
capitalist world), and on its security and in the arms race, created a crisis in
socialist economies. The socialist countries were also never able to match the
capitalist propaganda that grew enormous with corporate owned media in the
west, particularly the reach of television channels. The nature of crisis in the
socialist countries was thus different, although as critical



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