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A Level M. Nichols SCIE 2011 THE INTERNATIONAL ECONOMY SINCE 1945-1991 1

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THE INTERNATIONAL ECONOMY

SINCE 1945-1991

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Theme 5: The Development of the International Economy, 1945-91The Differing Economic Impact Of WWII On The Allied & Axis Powers

It is important to know what economic condition the world was in, in 1945.

(Using pages 1-6 in Pollard, find the missing information).

Great Britain: GB (and its empire) had been the only country to fight the Nazis from the beginning of the war in 1939 to its end in 1945. It had been bombed in the Blitz, and by V1 and V2 rockets (resulting in over 30,000 civilian deaths); tens of thousands more were wounded and made homeless; it had lost __% of its housing stock; GB’s economy had been badly affected and its merchant fleet had declined by _____ million gross tons; its people had been subject to rationing and would be until the mid 1950s. 500,000 service men and women had lost their lives.

Europe as a whole had seen its share of world trade decline from 47% in ____ to just ___% in 1948;

However, GB itself had not been invaded and occupied, and its losses were far less than those suffered in WWI. It (and nations like the USA) had a number of innate advantages, which meant it would recover relatively quickly (and by ___ its GNP was higher than it had been in 1938). These advantages included:

Technological developments made in the War, which could now be utilised in peacetime, e.g. jet engines;

An infrastructure that was already in place; The existence of a skilled workforce; Long traditions of enterprise, saving and capitalism; A government that was stable and democratic; And wealthy friends like the USA and Canada;

USA: American troops had fought bravely all over the world and were chiefly responsible for the defeat of the Japanese. However, the US had never been occupied, invaded or even suffered much rationing. US military casualties had also been relatively light (with _______ dead).

The US, though, had contributed immensely in material terms to allied victory, supplying both GB and the USSR with ships, tanks and food. Its economy had boomed. The USA now produced almost ___ % of the world’s manufactures, as compared to only ___% in 1936-8. Her merchant marine rose from __% of the total world’s tonnage in ___ to a massive ___% by 1947.

In fact, the War solved many of the US’s economic problems. Unemployment had stood at 9m in 1939, but was under 1m by 1945. By 1950, its GNP had

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jumped by a massive ____% compared to the pre-War period. The US economy was, as it had been in 1900, the world’s strongest, and as such the US had an economic hegemony over the world, especially given its currency’s dominance.

USSR: At least 20m Soviets had been killed; in other terms for every one American killed, at least 80-90 Soviets had died. Millions more Soviets had been made homeless. It was the USSR, which ultimately defeated the Nazis, rather than the Americans and British. It was the Red Army, which first reached Berlin and ‘liberated’ most of Eastern Europe.

Invaded and occupied by the Nazis in 1941, over _____ Soviet towns and _____ villages were destroyed in ‘The Great Patriotic War’. It had lost ________ km of railway track and saw ______ bridges destroyed. World wheat production (of which the USSR was a big grower) went down from 176 million tons in ____ to only ____ m tons by 1948.

However, after Stalin instigated a new round of Five Year Plans, the Soviet economy began to recover very quickly and by 1950 its GNP was ____% higher than it had been in 1938.

Germany, Japan and Italy: The War’s losers had also suffered enormous economic damage. Germany’s shipping had gone from 4.5 m tons to only ____ tons; Italy’s 3.4m tons to ______ tons also. Canals and harbours had been blocked or destroyed. In Germany, allied bombing had eradicated ___% of its housing stock, over twice what GB had lost. Japan had suffered ___ million dead and seen its wooden cities razed to the ground. Germany and Japan’s GNP would still be below the 1938 level in 1950. Japan’s ___% and Germany’s a massive ___%. Italy, however, saw a (modest) ___% overall growth.

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WWII US bonds propaganda, even the US government relied heavily on borrowing during the War

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Basic Economic Terms

You will need to understand some basic economic and geographical terms.

(Use Pollard pages 4-5, 29-30 and 113-117)

Term Definition ExplanationGNP Organisation for Economic

Co-Operation & Development

a. The total production of a nation divided by the total population, not including imports and exports

GDP Less Economically Developed Country

b. This is perhaps a fairer assessment of a nation’s true productivity level, as it excludes goods and services which go into replacing worn out capital

NNP Gross Domestic Product c. This refers to poorer or Third World nations like Kenya, for example

LEDC Foreign Direct Investment d. Refers to richer, more industrialised nations like France, for example

MEDC Gross National Product e. Opposite of multinationals – capital comes from individuals and small businesses

OECD More Economically Developed Country

f. The total production of a nation divided by the total population, including imports and exports

FDI Net National Product g. A body that included most MEDC’s, but not all of them

Term Definition ExplanationGNP

GDP

NNP

LEDC

MEDC

OECD

FDI

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Economic Growth

Why did nations, even defeated ones like Italy, largely recover by 1950? The reasons have been touched upon above, but there were many others.

The world changed rapidly after 1945. GB and France were impoverished former imperialists, and so the USA came to dominate the globe, both financially and militarily. It had only one real rival, the USSR. De-colonisation, especially in the 1960s, but beginning in the 1940s (India was granted independence by GB, in 1947) led to the creation of many new nation states. Thirdly, international bodies and organizations flourished; though Pollard is very critical of the UN’s security functions (claiming it has “not been conspicuously successful”), he praises its ESOC bodies like UNESCO and FAO.

Growth can be looked at in the domestic and foreign trade areas.

The reasons for the former include:

Productivity efficiencies Technological innovation Output (industrial and agricultural) increases The role of Multi-nationals/Corporations

The Growth in Output & Productivity

Pollard calls the unprecedented increase in production and productivity “the key role” in economic growth.

Growth in the period 1950-75 was most acute in MEDC’s; from 1975-94 in LEDC’s. The Marxist, British economist David Harvey has pointed out, like Pollard, that growth has averaged around 3-4% per anum. To Harvey, this is worrying and unsustainable, but to Pollard it seems a welcome miracle.

Productivity rose despite decreasing working hours, suggesting the working environment (and the efficacy of rested workers) was more productive than even that of its hyper-energetic, Victorian counterparts.

The cause of growth is controversial and often dependent on the political biases of the economist or historian. To the Marxists, it is the worker’s input, his increased efficiency, skills and labour that matter most. To conservatives, it is due to the entrepreneurial spirit of the owners and organisers of labour and their willingness to invest their capital. Others put it down to residual factors (other causes).

More workers have certainly been available after 1950 because of: Increasing populations; Lower mortality rates;

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Higher birth rates; Better health services and nutrition; More women in the workplace

However, Pollard is skeptical. He places more stress on the availability of capital (money for investment). He points out that: In MEDC’s capital input has gone up by 20-22% of GNP year by year; In LEDC’s, by 16-18 and then, after 1972, by a whopping 22-25%;

Residual factors include: A switch from low to high output businesses e.g. from farming to industry.

In six European nations agriculture employed about 70% fewer people in 1980 than it did in 1950; the UK has only c.2% of its total population engaged in farming, yet is the world’s fifth or sixth biggest economy;

The ‘economies of scale’ mean a bigger factory is more efficient than a smaller one; a large company can cut costs in a way a small one cannot;

Rising output leads to falling costs of goods and services, as they become more abundant; this leads to increased consumption;

Good transport and communications aid with marketing and distribution; Better banking facilities enable credit to be expanded;

The Role of Technological Innovation

Stressed as vital by Pollard are the better machines and chemical processes, etc.

Japanese electronics, German machine tools, US computers, British jet engines and Italian cars have all led to a booming economy. The car has changed considerably, even from when I was a child. Car ownership has seen massive increases. In 1960s Britain, many working class areas would not have had a single car parked on the streets. Nowadays, over one in two Americans has a car. Whereas in 1947, 4 million vehicles were being churned out, in 1990, it was over 35 million. The damage to the environment, of course, is incalculable.

The USA initially produced the majority of vehicles, now Europe and Japan are the global leaders. Japan turned out nearly twice as many cars as the USA by 1991.

Manufacture is largely concentrated in the hands of only a dozen or so firms. Given the nature of cars, components are manufactured globally. Governments compete keenly to bring car plants to their nations, particularly to deprived areas.

Electronics and computerisation, plastics and man made fibres and pharmaceuticals are also big money earners. Many components of human DNA have been patented by genetics companies. Mass infrastructure

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programmes: tunnels, airports, bridges and roads have all contributed towards the post-War boom. Better energy systems have accounted for the rise in consumption from 5, 800 million kilowatt hours in 1980, to 7, 700 by 1991.

Agriculture was also a booming business by 1991, often being too efficient. It has resulted in food-mountains and the EU CAP system, being especially distasteful in world where many still go to bed hungry. Even Africa and Asia though have started to grow more food (c.2.5-5% rises).

Pollard claims the world is big enough to accommodate and feed the growing population, but only “if political and social organization were adequate to the task”.

Service industries also grew in importance. Nations like GB became a service provider rather than manufacturer in the post-WWII era. Whereas before, it was known for its coal, steel and ship-building, now it is a financial and trade centre. Of course, Pollard points out, it is more difficult to measure output objectively of a hairdresser, teacher, etc. than a steel foundry!

Discussion1. List some environmental problems arising from the post-WWII economic

boom2. What type of ‘political and social barriers’ are there to feeding everyone in

the world?3. Which factor do you think was the most vital for economic prosperity after

the War?4. What problems are there in adapting a service, instead of a manufacturing

economy? What advantages are there?

Industrial & Commercial Organisation

Further development and refinement of Henry Ford’s methods of the assembly line (‘Fordism’) took place. Charlie Chaplin would make a film about how Ford and his ilk had turned men into automatons, doing boring repetitive jobs.

Such plants, besides destroying men’s souls, required massive investment, but also enabled the output of masses of cheap, easily affordable products promoting the consumer boom. Vacuous materialism was here to stay.

Fordism though would be adapted to meet more exacting consumer demands and the need for a better educated workforce to cope with the manufacture of increasingly complex objects off desire (TV’s, DVD’s, etc). Mind-numbingly boring tasks were replaced by batch production where a greater variety of roles and actions are required.

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People before the industrial revolution tended to work at home (‘cottage industry’), but the moved to mills and factories. The process has now gone full circle and people are once again able to operate from home using computer and telecommunications technology.

Fordism may also have suffered by the lack of a skilled, artisan (or manufacturing) class, as these people who would once have undertaken engineering apprenticeships are now going into call-centres and insurance broking. Pollard, however, is a clear fan and supporter of the service economy, believing that they encourage “constant initiative and flexibility” - unlike the old conveyor belt.

The Multinationals

Often accused of being the real power ‘behind the throne’, with branches in many nations. They existed before 1945, even before 1914, but it is the modern era which has really seen their dominance and cancer-like spread. Very few nations in the world now don’t have a Starbucks or McDonalds! They are often close to their raw materials or a cheap source of labour. They can by-pass trade restrictions and tariff barriers. Pollard, again, seems favourable to them, pointing out they are not monopolistic, but face stiff local competition. However, my experience is that if you want a burger or Cappuccino, McDonald’s and Starbucks are often your only option! Many multinationals also tend to come only from certain nations, namely the USA, GB, France, Germany and Japan. Even Pollard admits they have many faults and lists them as: An inclination to cartelization; They exercise control over employment, often blackmailing governments

into providing huge subsidies or favourable trading conditions; They operate on a ruthless business principle, which despite the

propaganda, has few social responsibilities; profit is everything; Bribery and corruption often follows in their wake; They utilise child and sweated labour to keep costs down; LEDC’s also tend to have fewer labour laws and so workers can be

exploited more easily, their rights ridden rough shod over; They drive local and family businesses out; They contribute to a bland homogeneity of an increasingly ‘global village’ Lundestad points out they exploit local economies e.g. US copper firms in

Chile; and export most of their profits, while importing experts, etc.Pollard though praises other aspects about them: They are highly efficient, cost-effective, innovative, and technological

leaders and pioneers; They have contributed massively to post-War prosperity; They have also brought into much need capital investment to nations,

some of them very poor; Claims they can be criticized for not setting up in the Third World but

staying in MEDC’s (only 26% of direct foreign investment by 1975 was in

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the LEDC’s); FDI, he points out, also accounts for a great deal of foreign capital

investment; the Dutch and Swiss invested a lot abroad, but the USA, UK and Germany had a higher degree of inward investment;

Lundestad also points out that host nations get wise to the multinationals; the oil companies in LEDC’s are being reined in, in nations like Venezuela;

The Problems of Growth

Find the problems and place them in the boxes

THE PROBLEMS

OF GROWTH

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1. Over-farming has led to desertification e.g. in Saharan Africa it is a creeping 250 000 acres p.a.

2. Depletion of mineral resources, like copper and tin, has allowed speculation to run rife

3. Over-fishing has resulted in extinctions and quotas, and massive declines in species like cod

4. The demand for oil has provoked wars(1991 Gulf War) and led to oil crises (1973-4), and the

creation of the OPEC oil & petroleum cartel5. De-forestation, due to the demand for timber, has

created soil erosion, species endangerment, etc.6. Food shortages have resulted, as population has soared

and cash crops, and bio-fuels, have been grown instead1. One of Asia’s ‘tigers’, its economy grew enormously, especially after the Asian wars, and its GNP rose much

faster than the USA’s (5-6% p.a. versus the US’ 3-4% p.a.)2. The US government’s containment policy created an expensive military global commitment, arms race, etc.

3. The US was a generous giver of aid to the Third World = led to payments deficit from 1950s

4. US’ lead in technology cut by espionage & piracy, etc.

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5. Caught up with and even surpassed the US and some nations saw “astonishingly high growth rates” (Pollard)

Issues in Trade

The issue of free trade or protectionism has often dogged economic policy, and history is full of wars begun by trade disputes or clashes over raw resources.

Free trade means (largely) unhindered access to international markets, with no (or reduced) customs and excise tariffs. The idea is that countries buy and sell with each other on a level playing field.

Protectionism is all about protecting domestic industry, often by creating tariff barriers and high customs duties to dissuade imports. Domestic industry and agriculture is often given unfair subsidies that price the foreign competition out of the market.

Theoretically, free trade encourages competition, lowers prices for the consumer, allows access to raw materials - and benefits international relations and co-operation.

The disastrous policy of protectionism pursued by the USA in the 1920s and 30s (the 1930 Smoot-Hawley tariffs, for example) helped to both cause and exasperate the Great Depression. After WWII, the US was never to repeat this mistake, but Lundestad points out protectionism was still employed when it suited US interests, most infamously with its steel industry. During the 1970s, the recession only entrenched selfish trade policies.

The General Agreement on Trade and Tariffs (GATT) was only completed in 1979 after six years of hard negotiation. Lundestad calls its results “small”, despite lofty goals. The EEC (European Economic Community) and US continued to clash over agricultural products. Even within the EEC (and later EU) nations supposedly free trade partners like GB and Germany have pursued protectionist policies in what Lundestad calls ‘build-up’ phases. Japan had also hedged its bets pursuing both a free trade agenda for its exports, while ensuring protectionism against imports. Korea, Singapore and Malaysia have done likewise. Hong Kong was one of the rare, genuinely free trade ‘Asian tiger’ economies. Third World nations, of course, generally get little out of free trade (or globalism). They are rarely in powerful trading blocks like the EEC and have little political influence or military muscle. MERCOSUR is a rare example.

The USSR had COMECON, which guaranteed it cheap raw resources like Polish coal (at one tenth of its true market value), but also meant the USSR had to

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buy shoddy Eastern European manufactures - and subsidise its own oil and gas sales to them and parasitic allies like Cuba.

Discussion1. Can you think of any other reasons why free trade is something of a

misnomer?2. How does exactly protectionism both benefit and hinder a nation’s growth?The USA’s Role – Why is it the Globally Dominant Economic Power?

Using the statistics on pages 260-262 in Lundestad & p. 45-47 in Pollard & p.47 in Edwards (and what you have learned so far), answer the following TRUE or FALSE questions on the reasons for US economic hegemony. We will then create a narrative from what they tell us.

1. Even as late as 1971 the USA accounted for a third of all the world’s industrial production ____

2. The US had not suffered in WWII to the same degree as other nations _____

3. The US had an advanced infrastructure, a democratic liberal government and a history of technological innovation __________

4. The population of the USA is relatively small in comparison to its geographical area, agrarian land and resources base, including oil ________

5. Levels of education and literacy in the US were low _________

6. The US pursued ruthless protectionist policies when it suited it ___________

7. The USA was an extremely efficient and productive country and had the highest global productivity levels per man hour from 1950-1979 _________

8. The USA had the highest per capita GDP of any nation _________

9. The USA had the highest levels of longevity _________

10.The USA was the most generous UN, foreign aid and development donor in the world per capita _________

11.The USA had the world’s most powerful military _________

12.The USA had a large arms exporting tradition ___________

13.The world’s reserve currency is the US dollar _________

14.The USA had no trade deficits with any nation ________

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15.Americans were often willing to write off foreign debts and loans _______

16.The US imported huge percentage of the world’s oil reserves _________

17.The US had a very diverse economy _______

18.All presidents of the World Bank have to be US citizens _________

A Narrative of Reasons for US Economic Dominance

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Why US Economic Dominance Declined

Find the labels and put them into the correct box (supplement more detail, when studying)

Politcal

Technological

Economic

The Japanese

The Europeans

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The Asian Tigers

The economies of South-East Asia saw an almost miraculous period of growth after WWII. (Use pages 48-9 in Pollard to find the nations being described)

Nation Detailsa. A city-state with trade and banking facilities, it benefitted from the liberal capitalist rule

of GB. By the early 1990s, its GNP was the equal of the UK’s. Its purchasing power in comparison to the US is considerably higher than the UK’s.

b. A former British colony and Muslim nation. It experienced annual growth of an impressive 7-10% p.a. like its, slightly less prosperous, neighbour, Thailand.

c. An ethnic-Chinese city-state dependent on trade and banking, it was a former British colony and has a very stable political system. Its GNP per capita was higher than the UK’s

by the early 1990s. Its purchasing power in comparison with the US is higher than the UK’s.d. Benefitted from low wages, a massive labour pool, limited social spending and a close

association with the US which protected it from the PRC with its 7th Fleet. Its exports driven economy benefitted from increasing levels of free trade from the 1960s

e. Another incredible success story was this former Japanese colony and divided nation. Benefitting from the Cold War and substantial US aid, it established major electronics and car manufacturing. Like the others it has an impressive, if utilitarian, educational system.

f. The real miracle economy (though Pollard finds it perplexing just why it was so successful; and it is not classed as an Asian tiger). It rose from devastation and defeat in WWII to become the world’s second economic power. This was all the more impressive given its lack of raw materials, and the mountainous and over-crowded nature of the

country. It was able to diversify and adapt moving to producing what the market required. Initially, textiles, then cars and now, famously, technological goods. Despite its handicaps it

also had a number of innate advantages: A large population, many of whom could be moved from unproductive agriculture into

industry; An initially low wage base, which kept overheads down and made its products

competitive on the world market; A tradition of saving and re-investment (30% of GNP);

Traditions of industry in famous companies like Mitsubishi; It benefitted from US involvement the Korean and Vietnam Wars and the stimulus they

gave to its economy; The conformist, hard-working ethos of the country’s energetic, well-educated people;

The close relationship and loyalty between employer and employee; Initial US aid and help – its position made it to US policies of containment; and so a US

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military presence in places like Okinawa helped local economies;Questions1. Name three things the Asian tigers have in common___________________; ___________________; _____________________;2. How did the Cold War benefit these nations?_____________________________________________________________;3. What weaknesses were there in their economies that helped lead to the

1997-8 crash?_____________________________________________________________;The Development of International Economic Policies

The world has since WWII developed many new organizations and agencies to facilitate trade and business. Money makes the world go around, rather than love these days.

The activities of the IMF and World Bank have been discussed already (as economic agencies of the United Nations). Two other major players, amongst many, were the G7 and the GATT agreement.

The Group of 7

(Using internet sites like www. wisegeek.com /what-is-the- g7 .htm and en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Trade find the missing information).

The G7 consisted of the richest nations in the world, a type of elite club for MEDC’s. It included: the USA, GB, Germany, Italy, _______, France and Japan. It was a meeting of the _________ heads of these MEDC’s. Their basic aim is economic ________ to avert potential economic crises and ensure a ______ world economy.

The two main criticisms of the G7 concern firstly its membership, as it does not include two other major economies like _______ and nowadays _______. In the past, this meant the G7 was a pro-Western _________ club.

It is also accused of lacking real power, as it is central ______ and not they who ultimately determine _________ rates, etc.

GATT

A UN connected organization the General Agreement on Trade and Tariffs was set up in ___ it was replaced by the _______ _______ ________ (___) in 1994.

Its basic aim is to promote ____ trade and counter _____________.

Questions on Information Below

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1. What is GATT primarily concerned with doing to tariffs?2. Which economic issue caused most controversy in GATT talks?3. Why might the earlier rounds have been less effective than the later

ones?4. What does it suggest when the discussions lasted months and even years

at a time?5. What is ‘anti-dumping legislation’? Why is ‘dumping’ not all bad?6. What are ‘property rights’? Why do they need protection?

GATT and WTO Trade Talks

Name Start Duration Countries Subjects covered Achievements

Geneva April 1947 7 months 23 TariffsSigning of GATT, 45,000 tariff

concessions affecting $10 billion of trade

Annecy April 1949 5 months 13 Tariffs Countries exchanged some 5,000 tariff concessions

Torquay September 1950 8 months 38 Tariffs

Countries exchanged some 8,700 tariff concessions, cutting the 1948

tariff levels by 25%

Geneva II January 1956

5 months 26Tariffs,

admission of Japan

$2.5 billion in tariff reductions

Dillon September 1960

11 months 26 Tariffs Tariff concessions worth $4.9 billion

of world trade

Kennedy May 1964 37 months

62 Tariffs, Anti-dumping

Tariff concessions worth $40 billion of world trade

Tokyo September 1973

74 months 102

Tariffs, non-tariff

measures, "framework" agreements

Tariff reductions worth more than $300 billion dollars achieved

Uruguay September 1986

87 months

123Tariffs, non-

tariff measures,

rules, services,

intellectual property,

The round led to the creation of WTO, and extended the range of

trade negotiations, leading to major

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dispute settlement,

textiles, agriculture, creation of WTO, etc

reductions in tariffs (about 40%) and agricultural subsidies, an agreement to allow full access for textiles and clothing from developing countries,

and an extension of intellectual property rights.

Past Questions on Theme 5

1.‘The World Bank and IMF have ensured economic stability in the international economy in the years from 1945 to 1991.’ How far do you agree? [M. 2009]

2. To what extent was government involvement the reason for the rise and success of Asian Tiger economies? [M. 2009]

‘The World Bank and IMF have ensured economic stability in the international economy in the years from 1945 to 1991.’ How far do you agree? This question offers candidates the opportunity to discuss the role of the World Bank and INF in the development of the international economy from 1945. Both institutions were central pillars of the Bretton Woods system. They helped stabilise the international economy by supporting countries in economic difficulty and in encouraging economic development in the Developing World. The UK benefited from IMF support from 1975 to 1978 as an example. However, the IMF has been criticised for forcing Developing countries into severe economic policies which have cause social hardship and political instability. Both institutions have been accused of encouraging Developing World debt in 1970s and 1980s.

To what extent was government involvement the reason for the rise and success of Asian Tiger economies? This question offers candidates the opportunity to discuss the reasons behind the growth of Asian Tiger economies. Economies which are likely to be cited are South Korea, Taiwan, Hong Kong, Singapore and possibly Malaysia. Candidates may state that in each of these countries economic conditions were created to encourage inward investment and domestic enterprise in terms of banking/interest rates and government sponsorship of enterprise. They may also state that culturally each state had a strong aspirational desire to support free enterprise capitalism. This was supported by government policies on the encouragement of education, in particular education linked to the enterprise

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A Level M. Nichols SCIE 2011

culture. Finally, candidates might refer to strong work ethic in each state and how this contributed to success. To counter the argument candidates may mention the favourable economic conditions in 1970s and 1980s where the western economies in North America and western Europe suffered difficulties. Also, they benefited from the electronics/ICT revolution which allowed each to benefit from new product markets. Finally, each state had labour conditions which gave each of them a major advantage over their western and Japanese rivals.

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