332
packages to boost their economies.
They increased government
spending and decreased taxes.
Others, especially in Europe,
opted for austerity, freezing public
spending, and increasing taxes.
Protests and strikes swept through
Europe in response to these
measures. Portugal, Spain, and
Greece came under pressure from
the European Union (EU) to lower
their debts. The EU spent billions
propping up weak economies in an
attempt to keep the Eurozone, and
the euro, viable. But the effect of the
economic crisis was devastating,
and many people lost their homes
and jobs. It was the worst economic
downturn since World War II.Post-war economy
After World War II, most of Europe,
Japan, China, and the Soviet Union,
all devastated by war, needed
time to recover. The US, which
had experienced a huge rise in
manufacturing for the war effort
and was spared destruction,
continued manufacturing at
higher levels than ever before and
dominated the world economy.
The post-war economic planners
sought a new economic order
based on industrial strengthand a stable dollar. In 1944, the
International Monetary Fund (IMF)
was formed to foster the revival of
global trade. The US’s strong post-
war economy and the Marshall
Plan of 1947, a US-led initiative to
aid Western countries, invigorated
world trade through encouraging
capitalism and the free exchange
of goods between nations. Signed
in 1947, the General Agreement on
Tariffs and Trade (GATT) dictated
that tariffs be removed to open up
markets around the world.The Asian tiger
Japan, meanwhile, saw massive
economic growth. The Japanese
government implemented reforms
based on efficiency and restricted
foreign imports. They did not
sign up to the GATT agreement
until 1955. Japan invested in its
coal and steel industries, as well as
shipbuilding and car manufacturing.
In the 1960s, Japan specialized in
high-tech products such as cameras
and computer chips. Countries such
as South Korea, Taiwan, Singapore,
and Malaysia experienced similar
growth with an emphasis on
electronics and technology. These
successes became collectively
known as “Asian tiger economics.”THE GLOBAL FINANCIAL CRISIS
The role of oil
By the 1970s, the world was divided
between rich industrial countries
and poor developing nations, and oil
had become increasingly important.
In 1960, the Organization of Arab
Petroleum Exporting Countries
(OAPEC), including Saudi Arabia,
Egypt, Iraq, and Iran, was founded.
As oil reserves in other countries
dwindled, the states around the
Persian Gulf, where this resource
had remained plentiful, became
dominant. In October 1973, when
Egypt and Syria invaded Israel
during the Yom Kippur War, OAPEC
embargoed oil to any country
helping Israel, and prices tripled.
Without oil, industrial output
dropped. The United States
introduced strict fuel rationing,
which ended in March 1974, when
the oil embargo was lifted.A new economic model
The oil crisis in the mid-1970s led
to a deep global recession, soaring
inflation, and high unemployment.
In response, a new “neo-liberal”
economic policy was adopted,
transferring control of economic
factors from the public to the
private sector. Welfare programs
were perceived to be one cause of
economic failures, and there were
drastic cutbacks. Deregulation
became the driving force behind
world economics, sweeping away
many governmental controls and
freeing up organizations to trade
across a wider range of territories.
The need for this was particularly
felt in the United States, which
faced stiff competition from a
world now fully rebuilt from theThe oil crisis that struck Western
countries in 1973–74 was the result
of the Yom Kippur War. Fuel rationing
in the US led to scenes such as this,
with motorists getting stranded.US_330-333_Financial_crisis.indd 332 15/02/2016 16:46
333
destruction of World War II. Some of
the rigid laws and regulations that
had been put in place to protect
consumers were now considered to
be interfering with free enterprise.
The global push for deregulation
resulted in the adoption of new
markets, greater competition, and
openness, especially as the world
adapted to the end of the Cold War
and the collapse of the Soviet Union.
The example set in east Asia
influenced policy makers in other
Asian countries, such as India and
China. Mexico and Brazil loweredtheir barriers to trade and embarked
on economic reform, leading to a
dramatic improvement in living
standards. As East and West
Germany reunited in 1989, after the
fall of the Berlin Wall, the European
Union (EU), an economic union of
28 European countries, emerged as
a major force in the world economy.
Also in the 1980s, China opened
up to foreign trade, and huge sums
of foreign investment poured in,
leading to extraordinary growth.Global economy
The world economy is now far more
open. Internet use allows people to
order goods in one part of the world
and have them delivered elsewhere
within a matter of days. World trade
is made up of global partnerships,
with multinational companies that
boast huge turnovers. Across the
globe, people tend to migrate to
cities to find work, resulting in
an increase in urbanization.
One complaint that is often
aimed at globalization is that some
companies exploit cheap labor and
behave unethically in their bid for
profit. Another is that globalization
has contributed to the extraordinary
accumulation of wealth by a fewTHE MODERN WORLD
individuals and, thus, increased
inequality. Some countries have also
remained extremely poor—areas of
sub-Saharan Africa, for example
have fared badly and been left
behind, in debt to wealthier nations.
Economic recessions have
occurred throughout history, but the
financial crisis of 2008–11 was the
worst—at least since the Great
Depression of 1929—and maybe
the worst ever. Many felt it was
an avoidable disaster caused by
widespread failures in government
regulation and heedless risk-taking
by investment bankers. Only
massive monetary and fiscal stimuli
prevented catastrophe. Household
and business debts remained high,
and there was widespread fury
directed at bankers, whom many felt
had survived relatively unscathed.
Austerity measures provoked civil
unrest. Demonstrations were held
against capitalism; the Occupy
Movement spread, with tens of
thousands marching in New York,
London, Frankfurt, Madrid, Rome,
Sydney, and Hong Kong. While
financiers argued over the causes of
the Global Recession, the impact
on the lives of ordinary people had
profound, lasting consequences. ■September and October
of 2008 was the worst
financial crisis in global
history, including the
Great Depression.
Ben Bernanke
Former head of the Federal ReserveAn era of protest
The global economic crisis that
began in 2008 generated much
anger at institutional symbols of
power and greed, and there was
an upsurge of popular protest.
Demonstrations united those
venting at bankers and capitalists,
anti-globalization protestors, and
environmentalists. There was
growing anger at the level of
inequality, corporate greed,
and the lack of jobs.
When the G20, an international
forum for finance ministers, met
in the financial heart of Londonin 2009, they were faced with
thousands of angry protestors.
Social media became critical
in the organization of large
gatherings and the occupation
of physical spaces. As protests
spread throughout Europe, they
used the banner of “Occupy,”
a movement set up in New York
to protest against social and
economic inequality. There were
riots in Rome, strikes in Greece,
demonstrations in Portugal,
and occupations in the public
squares of Barcelona, Moscow,
Madrid, New York, Chicago,
and Istanbul.People took to the streets to
protest against the actions of banks
and multinationals, which were seen
as the trigger of the financial crisis.US_330-333_Financial_crisis.indd 333 26/02/2016 15:49