TECHNOLOGY, INDUSTRY, & ECONOMICS

1. TECHNOLOGY, INDUSTRY,& ECONOMICS 1914 - PRESENT

2. ECONOMIC SYSTEMS • 4 Economic Questions: Who produces, what they produce, for whom and how much • Traditional Economies • Historic tradition determines answers to four economic questions • Labor intensive, low capital, low technology • Subsistence economies, no trade • Feudalism, traditional caste systems, serfdom are common examples • Common prior to 1750 outside of Europe • Almost totally vanished in 20th century except when government fails • Command Economies • Regulation by government massive to absolute • Government sets taxation, makes policies, regulates market place, prices • Tells people what to produce, when, how much • Can be labor intensive, capital is often technological • Innovation not all that common, trade exists but can be regulated to controlled • Common since history began often mixed with traditional aspects • In 20th century, absolute command economies aspects of Communism, Nazism • Wartime economies in the Western world tend to be command economies, too • Mercantilism is a mild form of a command economy • Often political, social goals motivate government decisions • Laissez Faire Economies • Market place of buyers, sellers determine answers to four economic questions • Interaction creates a fair market price; maximization of profit is major concern • Abhors government regulation except to secure currency, enforce free trade • Tend to be technology intensive, capital intensive, reward for entrepreneurship, risk takers • Labor is allowed to freely seek its value, private property absolutely protected • Mixed Economies • Once civilization begins, mixed economies are most prevalent • Most economies today are a combination of command, laissez faire

3. WORLD IN 1914 & 1919 & 1945 • Standard • Heavy Industry • Agricultural Production • Exports over Imports • Capital to lend and invest • Domestic and foreign companies, assets • Wartime Effects • European industry forced to convert to war effort • US industry supplies all types of goods, services to countries at war • US finances, supplies allies 1917-1919 • Industry Leaders • 1914: Great Britain, Germany, US • 1919: US, Great Britain, France • USA was the world’s largest industrial nation and producer of foodstuffs • Trade • 1914: Between developed countries especially US, Western Europe • 1919: No change except Germany eliminated • International Finance • 1914: UK (London) was the center of finance capital • 1919: US (New York) was the center of finance capital • Pattern repeated during World War II (1945) • Germany, Japan, France, United Kingdom eliminated as competitors • US was the great economic superpower • USSR joined statistics of heavy industry, foodstuffs but many aspects illusionary

4. GREAT DEPRESSION • Weaknesses of postwar global economy • Germany, Austria borrowed money from United States to pay reparations • Allies used the money to pay war debt to United States • 1928 U.S. lenders withdrew capital from Europe; financial system strained • 1928: Austria unable to repay loans to US, defaults also on reparations (repayments) • Industrial innovations reduced demand for raw materials--rubber, coal, cotton • Agriculture depressed in Europe, United States, Canada, Argentina, and Australia • Crash of 1929 • U.S. economic boom prompted many to speculate, invest beyond their means • Black Thursday (24 October 1929): stock prices dropped, investors lost life savings • Lenders called in loans, forcing investors to keep selling • Economic contraction in world economy 1929 - 1932 • Overproduction and reduced consumer demand • Widespread business failure and unemployment • By 1932 U.S. industrial production and national income dropped by half • Industrial economies felt banking crisis, unemployment (1932) • Germany, Japan unable to sell manufactured goods to purchase fuel and food • Germany: 35 percent unemployment, 50 percent decrease in industrial production • European industrial states and Japan unable to sell to United States because of tariffs • Primary producing economies especially vulnerable • Export prices declined sharply after 1929: sugar, coffee, beef, tin, nitrates, and so on • Latin American states enacted import tariffs that actually helped domestic industry • Brazil under dictator Betulio Dornelles Vargas built up steel and iron production • Impact on colonial Africa varied: exports hurt, but not local markets • China not integrated into world economy, less affected • Philippines was a U.S. colony; its sugar production protected by the United States

5. REACTIONS TO DEPRESSION • Great Depression caused enormous personal suffering • Millions struggled for food, clothing, and shelter • Marriage and birthrates declined, suicide increased • Intensified social divisions and class hatreds • John Steinbeck's Grapes of Wrath criticized U.S. policy of "planned scarcity" • Governmental Reaction to the Depression • Economic nationalism • Favored over international cooperation • High tariffs, import quotas, and prohibitions to promote economic self-sufficiency • Trade restrictions provoked retaliation by other nations • International trade dropped 66 percent between 1929 and 1932 • Government policies • Reduce female, minority employment, especially of married women • Massive deficit spending, money to unemployed • Some nations not overly effected (USSR) • Economic experimentation • John M. Keynes challenged classical economic theory • Classic theory: capitalism self-correcting, operated best if unregulated • Keynes argued the depression was a problem of inadequate demand, not supply • Governments should play active role in stimulating economy, consumer demand • Government to influence economy through spending (fiscal policies), interventions • The New Deal of President Franklin Delano Roosevelt anticipated Keynes's ideas • After 1932, protected banking system, massive public works, farm subsidies • Also, legislation established minimum wage, social security, workers' unions • Military spending in WWII ultimately ended the depression in United States • Dictatorships, change in governments, Nazism = experimentation, reaction to Depression

6. GLOBALIZATION • World War II, the Cold War globalized the western economy • Western allies coordinated their resources to defeat Axis and communists • US took the lead especially in aid to develop economies • Us built whole industries abroad to supply its troops, allies: became world corporations • American, European, Japanese companies began to operate outside of home country • Council for Economic Cooperation and Development • American led economic effort to cooperate in capitalism, free trade, development of industry • Pumped billions through Marshall Plan into allies to prevent communist takeover • General Agreement on Tariffs and Trade (GATT) • Formed in 1947 as vehicle to promote free trade • In 1994, 123 GATT members created Word Trade Organization (WTO) • Dramatic growth in world trade, 1966-1990 • Global economy evident after collapse of communism • Expanding trade, foreign investments, privatization of industry • Free trade: free of state-imposed restrictions • Perils of the new economy: vulnerable to global forces • Investors withdrew support from Thailand in 1997 • Ripple effect: contraction of other Asian economies • Critics of globalization • To supporters • Global economy efficient • Best path to global prosperity • To critics • Widens gap between rich and poor • Destroys environment • Threatens local and traditional crafts and economies

7. MULTI-NATIONAL CORPORTATION • Global corporations symbols of the new economy • As defined: Exxon, Ford, Boeing, Phillips, General Motors, Nissan Bank, Shell, Alcatel • Branches in many different countries • 25% of business is in a country other than home country • Multinational businesses • Operate apart from laws and restrictions of any one nation • Move capital to maximize profit (lower business costs) • Able to get around expensive labor, labor restrictions • Seek cheapest labor and resources • Prefer lax environmental laws • Pay less in taxes in developed world than formerly • Economies of Scale • An industry which only becomes cost efficient in large production • Able to minimize costs, take advantage of mass production • Exploit expensive technologies • Transfer technologies, capital easily across borders • Forces change from GNP to GDP • GNP: Gross National Product • Value of all goods and services produced in your home country • Includes difference between imports and exports • GDP: Gross Domestic Product • Value of all goods and services produced in your home country • And foreign countries IF the corporation is majority owned by a citizen, national corporation • Switch shows influence of Trade, Multinational Corporations • Problems • MNC tend to diminish national sovereignty and ignore smaller nations’ laws • MNC have no political or social agenda short of maximization of profit • MNC ignore labor laws, environmental restrictions • MNC will often sell products to countries totally at odds with mother country

8. GROSS DOMESTIC PRODUCT

9. MARKET SIZE BY G.D.P.

10. ECONOMIC WORLDS • Simplified way of looking at world c. 1980 - Present • 1st World: US, Western Europe, Canada, Japan, Australia • Capitalist, high industrialized economies • Stable democracies with high standard of living, social index • Private property, economic decisions left up largely to free market • Heavy trade and high technology sectors; large service sectors, capital markets • 2nd World: PRC, former states of the USSR, Eastern Europe, N. Korea, Cuba, Vietnam • Communist and ex-Communist command economies • Tendency to outdated technology: heavy industry, mining; few consumer industries • Means of production owned largely by state, private property limited • Great environmental damage • 3rd World: South Africa, Iran, Indonesia, Malaysia, Philippines, Peru, Colombia, Nigeria • Nations with resources, educated population, capital to develop • Hampered by wars, dictatorships, internal ethnic strife, including economic problems • 4th World and 5th World: Most of West Africa, East Africa • Nations with few if any natural resources short of populace, which is poor, uneducated • If any resources, tend to be cash crop or one crop, resource export dependent • Often exist as subsistence economies: labor intensive, little capital, little trade • 5th World is poorest: often seen as nations which exist merely on paper with simplest economy • Newly Industrializing Nations: 4 Tigers, India, Brazil, Mexico, Argentina, Chile • Often called Newly Industrialized Economies • Former 3rd world nations which have significantly modernized industries, trade, resources • Population has education, abilities to advance, innovate, progress • Private property generally respected; active participants in trade • Rule of law and government stability relatively new, or stability subject to strife

11. ECONOMIC WORLDS

12. ECONOMIC FREEDOM

13. TRADING BLOCS • Western Europe • European Coal and Steel Union • Begun as a coal and steel tariff union of Italy, France, West Germany, Benelux • Expectations of eventual European political union leads to European Union • Eleven members adopted a common currency, the Euro, in 1999 • EFTA: European Free Trade Association • Many nations have today joined the EU • Organization of Petroleum Exporting Countries (OPEC) • Cartel established in 1960 to raise global oil prices • Price of oil quadrupled from 1973 to 1975, triggered global recession • Overproduction, dissension among members diminished influence • Regional trade associations • Formed to establish free-trade zones for member states • Association of Southeast Asian Nations (ASEAN) • Grew from Singapore, Indonesia, Malaysia, Thailand, Philippines in 1967 • Today includes Vietnam, Cambodia, Laos, Myanmar (Burma) • North American Free Trade Agreement (NAFTA) • Signed in 1993: US, Canada, Mexico • MERCORSOR • 1993: Argentina, Uruguay, Paraguay, Chile form, trend is to link it and NAFTA

14. ASSOCIATION OF SOUTH EAST ASIAN NATIONS (A.S.E.A.N.)

15. DRAW CONCLUSIONS • Using the information on the past slides, describe the following modern nations: • Nigeria • South Africa • Egypt • Algeria • Peoples Republic of China • Japan • Korea • Brazil • Argentina • Mexico • Cuba • Iran • Pakistan • Turkey • India • Vietnam