International Political Economy

¶ … Great Depression and the end of World War II marked a major shift in economic ideas that transformed not only the international economic order, but domestic policies within most countries of the world as well. The shift of ideas occurred primarily in the United States, arguably one of the hardest hit nations by the depression. The shift was representative of a movement away from the very liberal economic policies of the nineteenth and early twentieth century towards collective economic cooperation between public and private sectors. The result was a "cushion" that served to prevent economic and social breakdown in society.

It has been argued that the catalyst behind the depression was the lack of governmental regulation of the stock market, and other important economic activities. In the early twentieth century, the markets of the world, especially those of the United States, were relatively free of regulation. Unlike today, there were no monetary and fiscal checks and balances to stabilize the economy (i.e. preventing mass inflation, deflation, ect.) The United States government saw a booming stock market, assumed it was infallible, and did not want to regulate it with the potential of staggering its growth.

This decision ultimately turned out to be detrimental, as a fairly instant change in investors' confidence in the market led to its "bust," and government had no regulatory powers to prevent, or even cushion the fall. Known as "Black Thursday," the market went into a downward spiral, which instantly led to deflation of the dollar and massive unemployment. An excerpt from the website history.searchbeat points out that, "Although the initial trigger event may not have been the result of government action, many have argued that incorrect economic policies turned the stock market crash from a momentary crisis into a decade long depression." The excerpt continues by pointing out that, along with the lack of monetary regulation, the government was practicing "protectionism," which is the act of highly taxing foreign goods in an effort to boost the sale of domestic ones.

After the fall of the American stock market, it was clear that the entire world was in economic trouble. Many leaders, most American, looked for solutions, especially those mandated by the government that served to stabilize economies.

When Roosevelt was elected President in 1933, the United States had a twenty-five percent unemployment rate and very little domestic production (history.searchbeat). With the advice from his top aides, he sought to integrate the federal and state governments into the private sector, in a way never done before. Roosevelt's New Deal expanded the federal government, creating thousands of new jobs. He also implemented new policies to regulate the stock market, and other economic sectors in the United States. Finally, Roosevelt worked with other developed nations (those of whom were also experiencing economic hardships) to develop plans for eliminating their protectionist policies.

Domestically, the economic cooperation between the private and public sectors was the most important transformation of ideas during the time between the Great Depression and World War II. In his book, World War II and the West, Gerald Nash describes the cooperation between public and private sectors, "In the United States such restructuring has been accomplished through complex processes of co-optation. This has allowed the close interaction of groups representing private enterprise -- such as business, agricultural, and labor -- with a wide range of governmental agencies in all branches -- legislative, administrative, executive, and judicial" (xxi).

Internationally speaking, the slow elimination of protectionist policies was the most important transformation of ideas. The major trading nations (most of them developed countries) came to the understanding that high tariffs (i.e. The Smoot-Hawley Act in the United States) may benefit a country during times of prosperity, but in times of economic trouble, only perpetuated the problem.

When one country imposes high tariffs, it is inevitable that its trading partners will follow suit, which eventually leads to a decline of trade, and ultimately, overall production and jobs. It is arguable that America's Smoot-Hawley Act was primarily responsible for this dynamic during the time period between the depression and World War II (history.searchbeat). It is also arguable, however, that Roosevelt was responsible for the scaling back of protectionist policies, and the eventual bolstering of world trade.

The economic dynamic of the third world countries during this time was a little different. Many third world countries were colonies of the developed nations in Europe and Asia, or were just achieving independence from colonialism. Many of the economic issues these nations had to deal with were quite different than those of the United States, and the other developed nations.

Firstly, because the third world countries had very little trading partners (usually just those of their hegemonic nation), the worldwide depression had very little affect on them. Usually, the main struggle for these nations was coping with the withdrawal of colonial businesses. In some ways this was beneficial, yet in others it proved to be problematic.