How did the twentieth century conflict impact the World economy
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At the beginning of the 20th century the global economy was in turmoil. ... War. The advent of technology in warfare had devastating effects.
The transformation of the world economy in the course of the twentieth century would have been impossible for even the most acute observer living in 1900 to forecast or perhaps even to imagine. Output per capita, the structure of production, and the domestic and international financial systems that sustained the growth of economic activity over this period have been altered almost beyond recognition. This chapter provides an overview of some of these changes, the connections between them, and the major policy implications. Any account of these profound changes is, by necessity, selective. The discussion focuses on three broad interrelated areas.
First, technological change has driven an enormous increase in the production of goods and services, sufficient to support both vastly higher living standards and vastly larger populations than ever before in history. The increase in productivity has been accompanied by greatly increased specialization in production, leading to the rising importance of markets that have facilitated the exchange of goods and the diffusion of technology, both within and between national economies. By greatly reducing transportation costs, technical progress has contributed to the geographical expansion of markets. The fruits of economic growth have been distributed unevenly among countries, but the extent to which this is true depends on the indicators chosen. Inequality between the world’s rich and poor regions, measured by output per capita, has increased dramatically over time. However, alternative measures of development—de-emphasizing output per capita beyond a certain threshold but including non-pecuniary aspects, such as life expectancy and levels of education—actually show some convergence in the course of the twentieth century, although large differences between nations remain for these measures as well. The first part of this chapter documents these developments and divergencies.
Second, the nature of the international monetary system has changed significantly and repeatedly in the course of the twentieth century. The second part of the chapter traces these developments, describing how the international financial system has interacted with trends and developments in the real economy, and particularly how it has affected
international trade and capital movements. This includes a discussion of the forces underlying changes in institutions and policies, and how these, in turn, have influenced countries’ ability to capitalize on the opportunities afforded by globalization.
Third, the role of the public sector has expanded significantly in the course of the twentieth century, both in industrial and developing countries. This is clearly reflected in the increase in the ratio of public expenditures and revenues to GDP, but regulation and various off-balance activities have also increased. At the same time, views on the appropriate role of government versus the reliance on market forces have changed considerably and are continuing to evolve. After reviewing the changing role of the public sector, the third part of the chapter summarizes some of the major lessons for public policy to be learned from twentieth century experience. The final section points to three major global policy challenges facing the international community at the beginning of the twenty-first century.
The issues discussed in this chapter, and the lessons highlighted, are not necessarily those that other analysts or observers would emphasize. These topics reflect the developments that the authors of the World Economic Outlook, seen from their particular vantage point, regard as particularly striking. One important issue that will be addressed only in passing is the development of demand management policies. Although this is clearly a major change—the very concepts of macroeconomics and (cyclical) stabilization policy are essentially twentieth-century creations—this topic has been dealt with extensively in earlier World Economic Outlooks.
This chapter incorporates some of the many insights contained in two supporting studies commissioned for the World Economic Outlook.1 “Globalization and Growth in the Twentieth Century” (IMF Working Paper 00/44), by Professor Nicholas Crafts of the London School of Economics, discusses real developments during the twentieth century and was particularly important for the discussion of growth and divergence. “The International Monetary System in the (Very) Long Run” (IMF Working Paper 00/43), by Professors Barry Eichengreen and Nathan Sussman of the University of California Berkeley and Hebrew University Jerusalem, respectively, provides an overview of the international monetary system over the last thousand years, and was particularly important for the discussion of the changing nature of international monetary relations in the twentieth century.
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