'GS Paper 1(World History) : The changing world economy since 1900'

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Till 1900 world was a single world economy.
Only a few industrialised countries provided manufactured goods and the remaining countries provided the raw material necessary for the same.
Each country exploited the respective colonies or their respective neighbouring countries. For example USA exploited Latin America and Britain exploited Uganda.
Always the colonial products were taken at a very cheap rate and the finished goods from the industrialised countries were sold at the highest rate possible.
USA as a dominant industrial power
By 1900, USA was producing twice the resources than any other European
Even the incomes of USA where twice high.
Main causes for the American success: 1) the First World War and after 2) the Second World War
The First World War and after:
1. First World War help USA to become an economic power
2. First World War resulted into boosting of American economy.
3. Success was met by two ways : 1) by selling goods to China and Latin America. 2) with the help of interest on the war loans
4. China and Latin America depended on Europe for the material goods. But in the war times the supply of these goods was stopped. Due to this they started purchasing from America and continue to do so even after the war.
5. Britain and her allies took huge war loans from USA. Europe became dependent on USA so much so that the economic depression of 1929 in USA caused a huge loss in Europe as well.
The Second World War
1. Second World War helped USA to become an industrial and military power along with economic which it was already due to First World War.
2. All the wartime needs of Europe were met by USA has no direct war was fought on the American soil.
3. After the war, American industries quickly turned to consumer production and the trade between Europe and USA continued.
4. USA even helped Europe to recover from the war losses by giving financial help which was called Marshall aid.
5. There were two motives behind this: a) they wanted Europe to prosper so that they can easily buy American goods. B) they wanted Europe not to switch to communist regime.
The 1945 split
After 1945 the world split into capitalist and the communist blocs
Capitalist bloc - it consisted of the highly developed industrial nations - like USA, Canada, Western Europe, Japan, Australia and New Zealand. These believe in the private ownership of property and a minimum state interference.
Communist blocs - it consisted of USSR, Eastern Europe countries, and later China, North Korea, North Vietnam. These believed in the State ownership of property and greatest amount of state interference.
The 1990s, this fight popularly known as Cold War continued.
From the economic point of view it is important, as the rival blocs in this period spent a huge amount of money on nuclear programs and space programs despite the fact that this amount could be used for the development of underdeveloped countries.
The period between 1970s and 1980s
USA was going through a huge economic crisis.
Main causes were the money spent on defence and the war in Vietnam (1961-1975).
Also from 1960 USA was witnessing budget deficit every year.
USA at that time even devaluated the dollar
Also in the same period oil crisis started because of the decisions of the members of OPEC.
Till 1980, solution of the rising rate of interest was tried. It boosted employment but was not able to keep check on huge budget deficit due to defence spending.
USA even borrowed from Japan to meet their budget deficit
This crisis in USA led to ‘trade recession’ all over the world.
Japan’s success
Most astonishing was the country Japan in this period.
It was defeated in the world War second but still by the period of 1970s and 1980s it made huge progress due to different reasons.
The third world
The term Third World was being used in 1950s talk about those countries which were neither the part of first world (the industrialised capitalist states) nor the part of second world (the industrialised communist states)
These were mostly poor and consisted of Africa, Asia (except USSR and China), Latin America and the Middle East.
They were all once colonies.
Brandt report
In 1980 when international group of politicians under the chairmanship of Willi Brandt produced the report which was called Brandt report.
It many dealt with the problems of the third world.
This report demarcated the whole world into North and South.
North- these included those countries which way industrially welldeveloped. These included Australia, New Zealand, Japan, USSR, Europe and North America.
South - these included those countries which were underdeveloped or in the developing stage. These included the rest of the country’s which are not mention above in the north section.
Conclusions of the report - 1) North is becoming richer and richer and South becoming poorer and poorer 2) gross national product of the North countries is very much high that the South countries.
Why the South was poor ?
1. South even after independence was still under the new form of colonialism called neocolonialism.
2. One product economies (that is those countries whose total economy depended on only one product they exported) had no money for developmental programmes as all of their money was being consumed by their hungry population and the lower rates of agricultural production added more to the misery.
3. At the same time, Manufacturer goods from the North were sold at higher rates.
4. Financial aid from the North was given to South but that too was with a huge rate of interest which South countries were not able to afford. For giving the interest amount these countries to more loans. That is why poverty perpetuated.
5. Main problem was the amount of population growth which was being witnessed by the South. Population was growing alarmingly and the kind of capital that was available to meet developmental programmes was finding itself insufficient to meet the demands.
6. Also drought where witnessed frequently by the African countries.
7. Many of the third world countries had suffered a long-time war with neighbouring countries and civil wars within their country.
Solutions by the Brandt report:
1. Suggested that North should help South to prosper. It is in the interest of the North of as a prosperous south would buy more goods from the north.
2. Rich nations of the North should contribute 0.7 % of their national income to poorer countries by 1985 and 1% by the year 2000.
3. International energy plan should be drawn up
4. Agricultural techniques in the south should be improved with the help of North
5. A new World Development Fund be set up where the decisions would be taken collectively by the lenders and borrowers.
Evaluation of the Brandt report
1. Though this report was submitted by 1980, there were no significant economic changes till the year 1985.
2. Also by 1985 only few of the rich nations of the North had contributed the said 0.7% of the national income.
3. There was a terrible famine in the same period in Africa, which worsened the situation.
The split in the Third World economy
The occurred a split in the Third World countries due to 2 factors-1) oil and 2) industrialization
1. In order to conserve oil resources members of the Organisation of Petroleum Exporting Countries (OPEC), in 1973 started to increase the oil prices.
2. Many countries of the Middle East made huge profits because of this rising oil prices.
3. But this should not be considered that these profit-making countries used the money generated for the welfare of their citizens.
4. On the contrary, many of these countries didn’t use the money generated for the welfare of people. The only country that used money for such purpose was Libya.
5. These countries made such a huge profit that they could now compete with the lower rungs of the European countries
1. Some Third World countries where progressing industrially.
2. Popular among them were four ‘Pacific Tiger’ (Singapore, Taiwan, South Korea and Hong Kong).
3. This was mainly due to the migration of big companies of the North to the South.
4. They migrated to the south because of the cheap labour available in the South.
5. Some countries like China even started propagating that their labour is cheap and can work for more hours.
6. Some analysts of the West, criticised this move saying that these labour also have human rights which no one can take. They also said that Labour in the South should be allowed to form trade unions and there should be abolition of forced labour and child labour.
7. Many countries after joining International Labour Organisation accepted the analyst suggestions. But practising them is a different aspect.
The world economy and its effects on the environment
The two problems that emerged - 1) resources of raw materials started to exhaust 2) pollution of the environment
By the start of 1900, North had become more obsessive for making profits for which a rapid industrialisation was taken up.
Unregulated exploitation of the resources and environment created these problems which were realised only after a long period of time.
Exhaustion of the world resources
Fossil fuels according to analyst would only last till the mid-of 21st century. OPEC countries increase the prices due to the same reason. Many countries are finding other revenues or sources for power. As more progress is still to make in nonconventional energy sources, nuclear energy for the time being is greatly harnessed.
Even the metal resources are getting depleted at a very fast rate.
Water, timber, fish, phosphates, etc. are decreasing at the faster rate.
Due to growing population the amount of land available for agriculture is decreasing.
Pollution of the environment
Polluted water being discharged directly into the rivers and seas
Fertilisers and pesticides being used extensively which eventually run off in the River.
In this period from 1900 CFCs that is chlorofluorocarbons, which are very dangerous for ozone layer were emitted greatly.
Recently even the nuclear accidents are increasing the pollution. Not to mention the accidents like Chernobyl disaster.
The amount of CO2 being emitted by the factories
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