Poverty, Development and Globalization I (L08)

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20 Jun 2011
Poverty, Development and Globalization I
-Germany and US, 1920s, 30s
-1st World War, 1918, treaty of Versailles
oTreaty created to punish Germany for being an oppressive state
Lost its colonial holding in Africa (Rwanda >> Belgium)
Expected to pay reparation to France for damages
Cede territory to France (Alsace-Lorraine)
oImpose such conditions to humiliate Germany and force them to spend their
finances on the reparations to leave them with no spare cash for
militarization >> lead to economy crashing, deflation of currency
Resentment built up
Rise of the National Socialist Party (Hitler) promises of re-
establishing German pride, fix economy
- “Roaring 20s” time of wealth and excess
oCrazy stock market, had nothing to do but go up
oLots of money/profits for stock market people
oDeregulation of market, penny stocks’ (stocks on companies that own stocks)
oMany invested with borrowed money
oStock market is a faith enterprise. In stock trading, if lots of people believe
that the stock value will increase, it will go up. If the stocks are believed to be
overvalued, then people sell them and their prices go down (self-fulfilling
-Stock Market Crash, 1929
oKey investors looked at the stock trade and saw that the stocks are
overvalued (huge difference between the actual value of the stock and the
worth of the company) so they started selling >> stocks became less valued
- Most of the money used to invest were borrowed money >> lead to contraction in
-Decreased availability of money
-No money to buy, less products are manufactured, companies contract and people
laid off
-Govt decided that to protect local enterprises, they must eliminate competition
oEstablished tariff barriers to allow domestic industries to grow without
foreign competition
-Countries that relied on export to US found that they cant sell their stuff because of
the high tariff barriers resulted in less production, laying off, less buying power
oTariff barriers made sure that Depression is exported to other countries
trading with US
-Back then, there were no social safety nets
oLater established them to stop civil unrest
oSome turn to fascism (achieved in part with militarization)
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-Brentwoods, New Hampshire, 1944
o44 world leaders met up for the purpose of finding out how to engineer a
global economy that wont lead to global Depression
oWant economic/political peace
-They came up with 3 agreements:
oGATT (General Agreement on Tariff and Trade)
Global agreement that will regulate levels of tariffs and trade
Work towards free trade (without subsidies, tariffs)
1995, GATT >> WTO (World Trade Org.) works to establish a global
market without tariff and subsidies
Prevent the spread of Depression through tariff barriers
WTO governed by rich countries. They eliminate tariffs and subsidies
in poorer countries but keep it in some rich countries (unfair)
WTO collapsed because southern agricultural countries walked out
(dissatisfied with inequality)
Poorer countries societies suffered because of low export,
devastating consequences (e.g., Caused suicide in India among
oWB (World Bank) >> IBRD (international Bank of Reconstruction and
Pre-War power nations suffered greatly during war (e.g., Britain,
International bank in which countries deposit in money , and from
which they can borrow money to rebuild economies
Only European country to get a loan in Netherlands (to fight
independence wars in Indonesia)
oIMF (International Monetary Fund)
Lender of last resort they cut emergency loans for the desperate
Control, regulate global currencies
Keep things stable to allow global trade
-Gold standard
oAllowed to print as much paper money based on how much metal (e.g., gold,
silver) they have limits amount of currency produced
o(Wiki) it is a monetary system in which the standard economic unit of
account is a fixed mass of gold
oUS set the rate at $35/ounce promised that they will always back their
currency against how much gold they have
Everybody else measure their worth against the US dollar became
the favoured global currency
-Independence movements, 50s 60s
oDevelop economics despite restrictions
oCold War period
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