Thursday June 11, 2009
Poverty, Development and Globalization
Causes of 2 World War
Bretton Woods (GATT, Gold Standard, WB, IMF)
Creating Debt (OPEC, 4 Arab-Isreali War
The Debt Crisis
Structural Adjustment Programs and Neo-Colonialism
1949 Point Four
1951 UN Report
No film next class.
- How is it that two thirds of the world is still poor despite sixty years of development? How should we approach this
problem given the current state of global politics?
- Think about some of the global institutions created after WWII that have been significant in managing and structuring
the global economy. How have they been instrumental in creating poverty? Next class think about what poverty is and
how we should address it/have addressed it.
Causes of WWII:
Bretton Woods (1944), before official end of war, was invented to prevent WWIII. The goal after WWII was to stop war
from ever erupting again. Searched for causes.
First world war (1914-8) leads directly to the second. The main legal instrument that concludes WWI is the
treaty of Versailles.
o Treaty of Versailles: goal was to punish Germany as severely as possible for having instigated WWI.
Wanted to ensure that Germany would not be able to arm itself, and continue on its path of domination.
And also to embarrass and shame German population.
o Treaty does 3 things:
Germany can no longer be a colonial power. Rwanda and other African states are taken from
Germany, given to other countries. Loses the right to have colonies.
Loses parts of territory that were disputed for a long time between France and Germany. The
treaty removes these from Germany and gives them to France alsaronne
Made Germany pay reparations. Because Germany caused such a loss of life, they were ordered
to pay a bulk sum of money most of which went to France.
o The treaty ensured that Germany was maximally embarrassed, ashamed and also impoverished. They
wanted to make sure Germany would never be wealthy enough to arm itself.
o This created a failing economy, unemployment and general economic chaos in Germany.
o This laid the groundwork for someone like Hitler to come along and mobilize nationalism again, and
rearm for war. This is a key reason why WWI caused WWII.
1920s saw optimism, wealth, etc. because the stock market seemed only to go up. There was an unprecedented
rise in the value and volume of stocks. Even people with average needs were able to take advantage of the stock
Market. People were able to buy shares and thereby buy into optimism and wealth of the 20s.
o Stock market is a self-fulfilling prophecy. When investors believe the stock market is strong, they buy
shares and the market becomes strong. There was an irrational confidence that stocks could go up forever.
With this faith in place stocks continued to rise for most of the 20s as happened in the 80s, 90s etc.
o The problem was the companies whose stocks were being traded were not getting richer. Stock value rises
but not because the company is producing more or getting richer. The stock value goes up because
everybody believes the stock market is going up.
o Creation of new companies and new stocks: older stocks were real shares of ownership in real
productive companies. But in the 20s people were buying stocks and then calling it their own value.
They would buy shares and then call themselves a company in themselves. Then they would issue stocks
in their company so if you bought stocks in a holding company, there is no concrete production. There
is no productivity to rise.o Penny stocks: stocks that were cheap because they werent shares in a productive company. They were
shares of companies that owned shares, who owned shares etc.
o People wanted to own stocks who didnt have any money. People would borrow money to buy stocks
o What instigated the stock market crash was the increasing uneasiness of the lenders. Banks started to
worry about the split between real value and trade value, and the holding companies. They started to ask
what stocks were really worth. As investors realized this kind of problem was happening (stocks werent
as valuable as people were saying), they began to call in their loans.
o To pay off their loans, people would sell their stocks. Everybody sold back their stocks, over about 3 or 4
months. Black Thursday was the first day it became clear that the stock market was falling. This spurred
a panic, and more people sold back their stocks.
o There were a number of attempted to stop the crash: meetings of the richest investors, government
involvement etc. But all the investor confidence was lost.
The consequence of the Stock Market Crash was that all stocks fell in value, including the real stocks in
productive companies (railroads etc). They now had stock they couldnt use to make money. They had to begin
lay-off workers, shut down factories, and so begin the Great Depression.
- Problem 3 the market seemed to be so strong in the 20s, so a lot of people wanted to get in, even though they
didnt have the money. Went to bank and said they dont have collateral but they have faith that if you give them
money, in a very short time I will be able to pay you back. The collateral will be my stock and the fact that it goes
- What instigated the stock market crash?
o Increasing uneasiness of the lenders/banks, especially those who lent huge monies to big investors
o Banks started to think through the business of the holding companies and the split between the real and
trade value of stocks
o The people who lent a lot of unsecured money started to say, what are thes