IN THE BELLY OF THE BEASTPART I
THE POST-WORLD WAR II GOLDEN AGE OF CAPITALISM AND THE CRISIS OF THE 1970s
World War II was one of the Houdini-like maneuvers that capitalism has miraculously come up with in its history to escape great crisisin this case, the economic crisis of the depression years [1929-1939], which followed the political tumult of World War I and the Russian revolution. World War IIby contrast, and at the great social cost of a descent into fascism on the part of certain representatives of capitallifted the global economy into full-fledged recovery, with special benefits to the United States, the new world hegemon.
In the United States before the war, the New Deal policies implemented by Franklin Delano Roosevelt's administration had proven to be moderately successful, but the US economy still faced serious constraints. In 1939, for instance, 15% of the American workforce was unemployed. The war effort quickly lifted the US labor force into full employment through high rates of output growth and investmentin other words, the economy was busy, with factories employing many workers, producing many products (which means more income, which then re-enters the system) and having an edge in productivity within the world system. This dynamic growth was driven initially by industrial production for the war, then by the expansion of production for export. The American economy, thus hyper-charged with industrialization, ushered in the Golden Age of post-WWII capitalism.
It is important to clarify that "Golden Age" refers only to the conditions of capital accumulation from the 1940s to the 1970s and to the rise of the "welfare state" in centralized economies within the capitalist sphere, primarily in Western Europe, Japan and the United States. These are also the countries that became synonymous with the term "First World." It does not describe the condition of complex social life around the world in an era that also brought forth the Cuban and Chinese revolutions, the Vietnam war, the de-colonization in Africa and Asia, the Cold War, McCarthyism, and intense class conflict and political turbulence around the globe.
To really understand what was happening during the Golden Age, it is important to look at the rate of profit. The global economy created conditions for very high investment rates, high output growth, low inflationand surprisinglylow unemployment.
This economic climate created extremely favorable conditions for profit rates to grow. But what allowed the profit rates to continue to grow year after year, from the mid-1930s until the end of the war in 1945, was a pattern of technical change in which labor-productivity rose at increasing rates and capital productivity kept solid rates of growth. Technical change during World War II created more jobs than it destroyed, not the opposite, as conventional wisdom would expect.
The Golden Age trends in accumulation, profits, investment, output growth, and employment are associated with these particular historical conditions. As such, they laid the groundwork for the set of institutional arrangements that urged capitalism toward the mixed economies of the 1950s. In addition, the threat of communism and the US victory in World War II established the terms of the Pax Americana. Internationally this meant an increasing role for the US, which had already been the main creditor of World War I, and now seemed to have two main goals:
First, the political and economic containment of Soviet influence in Europe, which was seen as the most strategic region of the globe. This idea materialized in the reconstruction of Western Europe through a series of money transfers and direct investment like the short-term emergency relief from United Nations Relief and Rehabilitation Administration and especially the Marshall Aid (European Recovery Programme) that started in April 1948 and was due to last four years. The Marshall Plan provided aid to pay dollars ($13.365 billion) for commodities and services.
In Germany in 1947-49, 57% of imports were financed by this form of aid, which remained at 2.3% of GDP for five years, and peaked at 5%, thus helping Germany reach pre-war production levels in only three years.
Second, after 1950, US emphasis shifted to global military containment, a strategy that necessitated a worldwide American military presence, and wars in Korea (1950-53) and Vietnam (1957-75).
There was also a faction of the US government and capitalist class that wanted to create a set of long-term international arrangements capable of rebuilding and regulating global capitalism. Thus the US took a leading role in the organization of the Bretton Woods agreement, which was codified in new set of international institutions:
- Exchange Rate Stability and Return to the Gold Standard:
One of the main goals of Bretton Woods was the idea of exchange rate stability in order to avoid (according to Keynes) a "beggar thy neighbor" policy, through competitive devaluations of national currencies in order to boost exports. The negotiators at Bretton Woods devised rules of behavior designed to avoid unilateral devaluations. A crucial element in this new arrangement was a return to a gold-backed exchange rate systemthe "gold standard."
This worked via a mechanism that linked non-US currencies to gold via the US dollar. In practice, this meant that the gold-value of one dollar (fixed at $35/1 oz fine gold until 1971) was the core of the international monetary system. This dollar-backed, fixed-exchange rate meant that devaluations of currencies required American consent.
- Financing Trade DeficitsThe Creation of the IMF:
The International Monetary Fund was set up to help finance trade deficits and prevent recessions. The Fund would manage a central pool of reserves used whenever a member country faced a temporary crisis in their balance of payments. The US has kept a tight leash on the IMF since its foundation and has historically been its main contributor.
- GATT and Free Trade:
The US insisted on trade liberalization. The new terms of trade were written up in the General Agreement on Tariffs and Trade [GATT], which was signed in 1947 and which was succeeded by the World Trade Organization [WTO] in 1995. GATT dictated that tariffs be removed, according to the tenets of orthodox economic doctrine, in a move that opened markets around the world for American products.
And last, but not least...
- The Establishment of the World Bank:
The World Bank was created to finance the postwar reconstruction and development of post-colonial countries.