economic history of world

8/11/2019 Economic History of World

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Strategic Management Assignment # 1

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Economic History of World

JAPAN:

Before the mid-19th century, Japan's economy was supported by a rural, agrarian society. Japan

had maintained a policy of isolation, preferring to keep some distance between itself and the rest

of the world. With the visit of U.S. Naval Commander Matthew Perry, this situation changed

dramatically. The Japanese also did several things within their own country. They officially

abolished the class system and established a free and compulsory education system. They began

a policy of offering government subsidies to encourage people to start private businesses. They

also began putting money into key industries such as textiles. Along with these changes they

developed systems of modern communication and transportation. Railroad and telegraph lines, as

well as a postal system, were established. The Japanese began to import machinery for their

factories. Silk and cotton milling became an important industry. With the assistance of Western

technology and advice, mining also began to take on some importance. Modernization depended

on traditional factors of production - a labor force, raw materials, food supply, and an industrial

infrastructure.

World War 2 changed many things in Japan. The war left the Japanese economy destroyed. Its

roads, cities, factories, hospitals, etc. had been systematically destroyed by the bombing. Over 8

million people were dead or injured. Japan was occupied by U.S. armed forces and did not have

sufficient resources to rebuild on its own. It was completely dependent on western nations for

economic aid. Japan's occupation by the U.S. resulted in many changes. Before World War II

Japan's early economic system had been controlled by what were known as "zaibatsu". These

were large, powerful financial organizations owned by single families who were very wealthy,

conservative elites. They controlled and operated such things as banks, factories, mines and so

on in ways which were often of more benefit to the family than to Japan. Japan also benefited

from a number of American policies toward Japan following the war. Japan was not forced to

pay for war damages to the U.S. and other countries. The U.S. gave $2 billion in direct aid to

Japan. The terms of Japan's peace treaty stated that Japan could no longer have a large military.

The Japanese concentrated on new technology in such areas as steel production, shipbuilding,

electronics, household appliances, and the automotive industries. The Japanese government

established protectionist systems which made it very difficult for any other nation to sell in the


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Japanese market. During this time, Japan concentrated on international trade, rather than the

territorial expansionism they had been practicing. By the mid-1950's, industrial production had

risen dramatically and economic output began to increase by over 10% each year. There were

two things that helped Japan during this time. First, it began to produce things for export in the

international market, and second, world trade began to accelerate making it easy to sell on the

world markets. The work force, of course, was as disciplined and hard-working as ever and so

was able to turn out large quantities of inexpensive goods.

Today, Japan is successful to the point where western nations are either complaining about its

trading practices or looking to it to discover the secrets of economic growth. Japan still makes it

extremely difficult for nations to export goods to Japan. Despite the fact that it has few natural

resources, Japan has the strongest economy of all industrialized nations. Most observers agree

that Japan's commitment to quality products, good education, and an emphasis on hard work,

protectionism, and little military spending are the reasons for Japan's success.

GERMANY:

Medieval Germany, lying on the open Central European Plain, was divided into hundreds of

contending kingdoms, principalities, dukedoms, bishoprics, and free cities. Economic survival in

that environment, like political or even physical survival, did not mean expanding across

unlimited terrain, as in the United States. Even under these difficult conditions, Germany had

already developed a strong economy during the middle Ages. It was based on guild and craft

production, but with elements of merchant capitalism and mercantilism and Germany as a whole

often had trade surpluses with neighboring states. The Industrial Revolution reached Germany

long after it had flowered in Britain, and the governments of the German states supported local

industry because they did not want to be left behind. Many enterprises were government

initiated, government financed, government managed, or government subsidized. As industry

grew and prospered in the nineteenth century, Prussia and other German states consciously

supported all economic development and especially transportation and industry. German banks

played central roles in financing German industry. They also shaped industry wide producer

cooperatives, known as cartels. Different banks formed cartels in different industries. The first

German cartel was a salt cartel, the Neckar Salt Union of 1828, formed in Wrttemberg and

Baden. The process of cartelization began slowly, but the cartel movement took hold after 1873


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in the economic depression that followed the post-unification speculative bubble. It began in

heavy industry and spread throughout other industries. By 1900 there were 275 cartels in

operation; by 1908, over 500.

From the prosperity of the empire during the 1890-1914, Germany plunged into World War I, a

war it was to lose and one that spawned many of the economic crises that would destroy and

ruinous to German and global prosperity. The war and the treaty were followed by the Great

Inflation of the early 1920s that wreaked havoc on Germany's social structure and political

stability. During that inflation, the value of the nation's currency, collapsed from 8.9 per US$1 in

1918 to 4.2 trillion per US$1 by November 1923. Then, after a brief period of prosperity during

the mid-1920s, came the Great Depression, which destroyed what remained of the German

middle class and paved the way for the dictatorship of Adolf Hitler. During the Hitler era (1933-

45), the economy developed a hothouse prosperity, supported with high government subsidies to

those sectors that Hitler favored because they gave Germany military power and economic

autarchy, that is, economic independence from the global economy. Finally, the entire enterprise

collapsed, when Germany lay in ruins at the end of World War II in May 1945 and when every

German knew that he or she had to begin life all over again. The first several years after World

War II were years of bitter penury for the Germans. Their land, their homes, and their property

lay in ruin. Millions were forced to flee with nothing but the clothes on their backs. As

Germany's postwar economic and political leaders shaped their plans for the future German

economy, they saw in ruin a new beginning, an opportunity to position Germany on a new and

totally different path. First step was currency reform: the abolition of the Reichsmark and the

creation of a new currency, the deutsche mark. The German economy as it is known today is an

outgrowth of the 1990 merger between the dominant economy of the Federal Republic of

Germany (West Germany) and that of the German Democratic Republic (East Germany). This

merger will one day produce a massive economic entity that will constitute the fulcrum of

Europe as a production center, as well as a transportation and communications center. The recordof the West German economy during the four decades before unification shows a signal

achievement. The first decade, that of the 1950s, had been that of the "economic miracle." The

second decade that of the 1960s had seen consolidation and the first signs of trouble. The 1970s

had brought the oil shocks, the generous social programs, the rising deficits, and finally a loss of


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control. In the 1980s, new policies at home and a more stable environment abroad had combined

to put West Germany back on the path of growth.

FRANCE:

Subsequently, the country was ruled by a series of monarchies belonging to the Germanic,

Capetian, Valois, Bourbon, and Orlean dynasties until the French Revolution erupted in 1789.

The aristocracy promoted an unequal society by systematically extending socio-economic

privileges to the feudalistic nobility and the clergy at the cost of the common man. The

revolution, which lasted a decade, crushed the monarchy and virtually transformed the social and

political landscape of France. Other European powers, viewing the uprising as a threat to their

own regimes, attempted to stifle the movement. The country, which has a rather tumultuous

economic history, is today the fifth largest economy in the world and the third largest in Europe.

However, in the middle ages, from the 14thcentury to the 17thcentury, France was

predominantly a rural economy that used medieval agricultural techniques. It did have some

amount of trade and commerce, but frequent wars and harsh weather proved to be its nemesis.

By the end of the 17thcentury, innumerable people had lost their lives and the economy lay in

ruins. Things changed for the better after the 1730s when the nation saw 30 continuous years of

population as well as economic growth. During this phase, France emerged as the richest country

in Europe and its growth rate was only second to the United Kingdoms. Prices and wages rose,

agriculture and industry were modernized, and trade increased. Despite competition from British

industry, especially in textiles and cotton, French industries saw a period of steady growth until

the end of the 18th century. In the 19 th century, the French economy was influenced by three

watershed events -Napoleon Bonapartes rule, a phase of rapid industrialization, and the wars in

late 19thcentury and early 20thcentury. France experienced broad-based economic expansion as

an imperial power under the reign of Napoleon (1795-1815). However, the Napoleonic era

culminated with the defeat of the French forces by the British army, putting the economy in the

doldrums yet again. Nevertheless, the products of the elite schools of France came to the rescue

and became the architects of French industrialization. The country greatly benefited from the

industrial techniques it had developed for the wars. Through most of the 19 thcentury, France

experienced industrial development, which was bolstered by rapid urbanization as well as an

emphasis on education and workers skill development. The end of the 19thcentury saw France


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in the league of industrialized nations, rubbing shoulders with the likes of Germany and Great

Britain. Thereafter, in late 19thcentury and the first half of the 20thcentury, wars played havoc

with the economy of France. The hostilities that stemmed from Bismarcks re-united Germany

and later Hitlers Nazi Germany were particularly debilitating.

The post-war period or the latter half of the 20 thcentury is often referred to asLes Trente

Glorieuses, or the 30 glorious years. This period witnessed the emergence of France as a modern

global economic power. Interestingly, though we see France as a capitalist or a free-market

economy today, it is actually a blend of interventionist and free market policies that have

propelled the economy to the global center stage. France played a key role in fostering co-

operation among members of the European Community. This eventually led to the formation of

the European Union in 1993. The economic and monetary integration actually took place over a

period of five decades and France was one of the six founding members of the geo-political

entity. France has successfully sustained a reasonable pace of economic growth since the mid -

1980s. Between 1984 and 1991, its GDP grew at an annual average rate of 2.5%, but moderated

to around 2% in the early 1990s. After expanding at an impressive rate of 3.3% in 1998, and 4%

in 2000, the GDP expansion decelerated to 1.4% in 2000 because of a global economic

slowdown. During 2004-2007, the French economy has been averaging 2% growth.

RUSSIA:

Accordingly, Russian economic thought of Muscovy in the sixteenth and seventeenth centuries

oscillated between the doctrines of mercantilism and those of the Middle Ages. The ideas of

some authors remained subordinated to religious, legal and political discourses, especially the

vast fusion of state and church which tended to strictly limit the range of independent

thinking. Nonetheless, the principal topics were the system of land ownership, money and trade.

The eighteenth century manifested the conflict between the radical economic reforms of Peter

the Great and Catherine II, on the one hand, and the continuing medieval social structure, on the

other. Liberal rhetoric was silenced by autocratic claims for enforcement of absolute power.

Later thinkers and statesmen helped to develop the system of finance and banking,

unintentionally, one supposes, establishing some of the institutional foundations of the initial

Russian industrial economy of the late nineteenth century. The largest republic of the erstwhile

Soviet Union, Russia has also been witness to contrasting political structures. As a part of the


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Soviet Union, it experienced an authoritarian one-party communist regime from 1917-1990.

Under its rule, critical decisions related to production, consumption, and distribution were

centrally planned and enforced. The period also marked the genesis and build-up of the Cold

War, characterized by the rivalry between the U.S. and the former Soviet Union, the two

superpowers who battled each other on numerous turfs, whether it be ideological, political,

economic, technological, industrial, or military. While Joseph Stalin, who assumed power as the

communist leader of Russia in 1922, rapidly transformed the Soviet Union into an industrial

powerhouse, his policies were inward-oriented, and led to increasing isolation of Russia from the

rest of the world. A country that derives its economic strength substantially from its natural

resources, especially oil and petroleum products, Russia has been successfully riding the high oil

price wave since the onset of the decade. Moreover, Russia surpassed Saudi Arabia in oil exports

recently for the first time since the Soviet Unions collapse. Over 70% of Russian crude oil

production is exported, while the remaining 30% is refined locally. After the tumultuous

transition years from communism to capitalism spanning the 1990s, the Russian economy has

been on a steady growth path since the onset of the 21st century, barring the recessionary phase

during the latter half of 2008.

CHINA:

Before 1911, China was still characterized as a feudalistic economy run by the Qing authorities.

Even by 1949, China was primarily an agricultural economy. However, colonial capitalism did

have a long and significant impact in some coastal cities, Shanghai and Guangzhou in particular.

The general economic condition of the nation was terribly bad because of the World War II and

continuous civil wars. A crucial reason why Jiang Jieshi did not defeat Mao Zedong was that the

capitalist economy was just forming and the industrial power was still very weak in most parts of

China. From 1949 1978, China, for the first time, systematically built its industrial base and

transformed itself from an agricultural economy to an industrial one. The period between 1949

and 1956 was recognized as the golden period of Chinese industrialization, as the country

established its primary industries including steel, automobile, textile, chemical, and defense.

The GDP grew at the rate of over 20% per year. Because of over-optimism, Mao made his first

huge mistake by summoning his nation to speed up the industrialization. This was the Great

Leap, which resulted in the significant economic recession in 1958 and 1959 and also the


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disaster in early 1960s. The economy recovered, however, under the leadership of Liu Shaoqi in

the early 1960s. Nevertheless, it was during this period when China as a nation, rather than in a

few cities, started its industrialization, though a lot of ups and downs. China created its college

system and built hundreds of national labs throughout the country, and developed its most

advanced technology under Maos dictation, such as nuclear weapons, satellites and rocket

science, and super computers. Under his dictation, the most talented Chinese students chose

science and engineering majors instead of law or economics, which Mao saw as trouble-making

majors. This, maybe unintentionally, prepared todays China with many talented scientists and

engineers, many of whom became the technocrats in the government. If Mao was the person who

led the Chinese to the entrance of the industrial highway, Deng was the one who led the Chinese

to drive on the highway. During this period, China has grown at a rate of over 10% per year.

During this period, China started to migrate from the economy of import-substituting to export-

led. Like Japan and the US, the power of China was not built overnight, but was a cumulative

growth over the past 50 years. Though China has experienced rapid economic growth for over 25

years, most western countries paid attention to it only after its entry into WTO and the hosting of

the 2008 Olympics.

The restructuring of the economy and resulting efficiency gains have contributed to a more than

tenfold increase in GDP since 1978. Measured on a purchasing power parity (PPP) basis, China

in 2005 stood as the second-largest economy in the world after the US, although in per capita

terms the country is still lower middle-income and 150 million Chinese fall below international

poverty lines. Economic development has generally been more rapid in coastal provinces than in

the interior, and there are large disparities in per capita income between regions. The government

has struggled to: sustain adequate job growth for tens of millions of workers laid off from state-

owned enterprises, migrants, and new entrants to the work force; reduce corruption and other

economic crimes; and contain environmental damage and social strife related to the economys

rapid transformation.

One demographic consequence of the one child policy is that China is now one of the most

rapidly aging countries in the world. Another long-term threat to growth is the deterioration in

the environment notably air pollution, soil erosion, and the steady fall of the water table,

especially in the north. China continues to lose arable land because of erosion and economic


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development. China has benefited from a huge expansion in computer Internet use, with more

than 100 million users at the end of 2005. Foreign investment remains a strong element in

Chinas remarkable expansion in world trade and has been an important factor in the growth of

urban jobs. In July 2005, China revalued its currency by 2.1% against the US dollar and moved

to an exchange rate system that references a basket of currencies. Reports of shortages of electric

power in the summer of 2005 in southern China receded by September-October and did not have

a substantial impact on Chinas economy. More power generating capacity is scheduled to come

on line in 2006 as large scale investments are completed. Thirteen years in construction at a cost

of $24 billion, the immense Three Gorges Dam across the Yangtze River will be essentially

completed in 2006 and will revolutionize electrification and flood control in the area. The

Central Committee of the Chinese Communist Party in October 2005 approved the draft 11th

Five-Year Plan and the National Peoples Congress is expected to give final approval in March

2006. The plan calls for a 20% reduction in energy consumption per unit of GDP by 2010 and an

estimated 45% increase in GDP by 2010. The plan states that conserving resources and

protecting the environment are basic goals, but it lacks details on the policies and reforms

necessary to achieve these goals.

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