World War 2

1) The economic model adopted in the wake of WWII (Golden Age) is the fusion of the pre-1914 world and inter-wars economic policies. Comment.

The pre-1914 period is considered as a free trade era, which is pioneered by Britain. Until this time, the world was becoming more globalized with the increased trade activities between inter-continental countries. The world economy was functioning freely. Domestic and international economic activities were regulated by free markets without any regulations or any government interventions.

After WWI, in the inter-war years, Europe tried very hard to recover from the devastation of the war. In 20’s America lived prosperity and experienced high levels of production and employment however, this prosperity continued until 1929, the Great Depression. At the Peace Conference according to “Treaty of Versailles”, Germany accepted the responsibility for the war that charged heavy war reparations and economic restrictions to German government, which triggered German inflation thereafter. Most of the countries believed in the importance of regulation, protective tariffs, physical import quotas and import prohibitions. High tariffs were the most effective weapons of economic policies. Even Britain, who was the pioneer of the “free trade”, pursued protectionist policies. The growth of strict “economic nationalism” lowered the levels of production and income. Foreign trade was disrupted. Nation-states favored economic independency through self- sufficiency policy, which is considered to be a solution for the recovery. For example, Britain imposed high tariffs and pursued “protectionist policies”. US increased its tariffs even higher than before (i.e. Smoot Hayley Tariff). Multilateralism nearly disappeared; the bilateral trade treaties were very popular among protectionist states. WWI is associated with the decline of laissez-faire system and the rise of the regulated market system. Shortly, control and state direction have a huge effect on war economies.

WWII was the most destructive of all wars. It was a global war which affected and harmed every nation from all over the world. Europe faced starvation as a result of trade deficits (IM>EX). In contrast to Europe, US emerged from war stronger than ever.

During WWII many people died and became homeless or disabled. Somebody had to recover this suffering and the answer was the state. Most of the European countries’ economic dirigisme system began transforming into mixed economies. The post WWII economic system was based on: “social solidarity and strong state interventionism”. State interventionism has become very important in port-war Europe. Social solidarity accepted as the leading idea, after long years of war and the desperation it caused. The new system controlled the market economy, income distribution and welfare. The state cooperated with trade unions in controlling the wages and prices. For example in Britain “collective bargaining” was institutionalized in the post war, where union leaders and government discuss and determine about economic policies. Labor unions’ participation in economic affairs had a positive impact on stabilization of the economy and brought peace, paving the way to higher investment. Full employment and increasing productivity balanced the balance of payments in the budget. The regulations held by the state, consisted of economic and social programs, which were in agriculture, housing, transportation, banking and insurance.

The Keynesian model was based on the importance of “planning” and public investments. Superior state planning targeted full employment and, economic and technological modernization, which were reached by various interventions. This model provided full employment. In order to protect the power of the state without harming the capitalist economy, “nationalization” was the key for “modernization”. As a result of Nationalization movements, not only the power and leadership of the state was protected but also the capitalist economy was kept. Coalmines, railroads, transportation, electricity, etc. were being nationalized. The economies were transforming into “state-owned” economies. Nationalization movement was spreading in Europe very quickly. Therefore, the state-sector become the dominating sector in the economy. This economic policy of the post WWII was a fusion of the pre-1914 world and interwar years’ economic policies.

Another important policy of the interventionist state system was the welfare policy. Welfare policy is considered as the “social” part of the interventionist system. Welfare policy offers various health, unemployment and retirement programs for citizens. Therefore, state’s social spending increased tremendously. But because states have limited budgets, the governments had to impose high taxes in order to provide better social rights and allowances for citizens. Redistributive social system of the welfare states aimed to provide wellbeing for everybody.

To sum up, in the pre-1914 period the world economy was regulated by free market. In the interwar years, states pursued very strict interventionist policies, which blockaded international trade, requiring self-sufficiency. The post WWII period is a fusion of these two periods because; the government was not the sole determiner any more. The decisions about economic policies are determined in the assemblies, where union leaders and government can meet and discuss. There is still a degree of private economic freedom. Through nationalizations state holds the power, at the same time, capitalist economy is protected. In a mixed economy there are both public and private ownerships and it exhibits socialism and capitalism.