C&C Course Notes - Week 9 - Jeffry Frieden Global Capitalism Chapter 16(pp 363-391 Prices increased in the 1970s with the collapse of Bretton Woods

C&C Course Notes - Week 9 - Jeffry Frieden Global...

This preview shows page 1 - 3 out of 9 pages.

Jeffry Frieden, Global Capitalism, Chapter 16 (pp 363-391) Prices increased in the 1970s with the collapse of Bretton Woods and the removal of the exchange rate constant. OPEC contributed to the 1973 crisis by cutting off deals with foreign oil companies during the war between Israel and Arab countries. OPEC was originally created to raise royalty and tax rates hat private oil companies paid their host countries. As a result of demand and supply inelasticity, as well as the cultural and political solidarity of OPEC members, OPEC could easily quadruple oil prices without consequence to OPEC member-nations. The 1970s were characterized by high and rising inflation (10%) due to floating currencies, which eventually resulted in the deepest recession since the 1930s and bank collapse. Economic recession had political implications, as evidenced by the rise of labor unions. Subsequent oil shocks in 1979, 1980 reinforced belief that the world economy was out of the control of advanced capitalist countries. The 70s were even more trying for developing countries, who had trouble paying for imports to fuel their developing industries while economic stagnation in the West decreased demand for exports. However, foreign borrowing allowed a select group of NICs to continue developing. The 1980s reversed the trend of inflation, but did so by building up enormous budget deficits. Volcker, the new Fed chairman appointed by Carter, raised interest rates up to 20% to slow down inflation, resulting in massive unemployment. High US interest rates translated to high interest rates worldwide, creating a rightward political turn. For the developing world, however, the rising interest rate compounded the problems of debtors. For example, in Latin America, the collapse of economies resulted in democracies and an orientation toward export-dominated markets. Given the economic downturn of the 70s, socialist economies began giving up central planning during the 80s and moved towards capitalism (i.e. China and Vietnam, glasnost and perestroika in USSR under Gorbachev). Regionalism in the 80s and the 90s facilitated the integration of national economies into the international market. The creation of the EU through the Single European Act (1986) and the Maastricht Treaty was followed by NAFTA (1995) and the WTO, which replaced GATT. Frieden argues that the process of globalization was rife with problems, as growing capital in developing nations encouraged foreign investment; however, when overspeculated, investors would quickly draw out, resulting in economic collapse: “In a familiar spiral, the flow became a flood, then a deluge, then a panic.” However, despite problems, the 70s-90s marked a return to global financial markets (through borrowing and lending) and global capitalism. Argentina Letter of Intent, May 10, 1999
Image of page 1
Despite strong foreign investment and confidence, the economic situation in 1999 is bad due to an expected shrinking of real GDP. The slowing economy will have an effect on public finances, yet the government is working to slightly reduce the deficit whilst still being able to provide necessary public services. Argentina has been keeping to its other
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 9 pages?

  • Winter '13
  • MichaelJ.Hiscox
  • Saudi Arabia, OPEC, 1973 oil crisis, Yom Kippur War

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes