TECHNOLOGY,
INDUSTRY,
& ECONOMICS
1914 - PRESENT
ECONOMIC SYSTEMS
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4 Economic Questions: Who produces, what they produce, for whom and how much
Traditional Economies
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Historic tradition determines answers to four economic questions
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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
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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
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Labor intensive, low capital, low technology
Subsistence economies, no trade
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
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Once civilization begins, mixed economies are most prevalent
Most economies today are a combination of command, laissez faire
TECHNOLOGY & CULTURE
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19th Century: Era of Transportation
20th Century: Era of Telecommunications
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Newspapers: 1890s
Radios, Movies, Teletypes: 1920s
News magazines, journals: 1930s
Television: 1950s
Personal Computers, Fax: 1980s
Internet, World Wide Web, Email: 1990s
Cell Phones: 1990s
Mechanization of the Home
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Major aspect of consumerism
Began with electrification of 1910s, 1920s
Refrigerators, washing machines, vacuum machines
Home computers, microwaves, advanced entertainment
• Service Industries
– Largest sector of Western economies is now service related
– Service industries are retail, entertainment, sales, technology support
WORLD IN 1914 & 1919 & 1945
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Standard
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Wartime Effects
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1914: Between developed countries especially US, Western Europe
1919: No change except Germany eliminated
International Finance
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1914: Great Britain, Germany, US
1919: US, Great Britain, France
USA was the world’s largest industrial nation and producer of foodstuffs
Trade
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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
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Heavy Industry
Agricultural Production
Exports over Imports
Capital to lend and invest
Domestic and foreign companies, assets
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
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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
GREAT DEPRESSION
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Weaknesses of postwar global economy
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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
Industrial innovations reduced demand for raw materials--rubber, coal, cotton
Agriculture depressed in Europe, United States, Canada, Argentina, and Australia
Crash of 1929
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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
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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
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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
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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
REACTIONS TO DEPRESSION
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Great Depression caused enormous personal suffering
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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
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Government policies
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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
Reduce female, minority employment, especially of married women
Massive deficit spending, money to unemployed
– Some nations not overly effected (USSR)
Economic experimentation
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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
GLOBAL ECONOMY
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Global Economy
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Technology impacts globalization
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Containerized, intermodal shipping helped create
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Trade, exports became largely commodities, necessities
Costs decreased, efficiency increased
National Economies
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Without it, globalization would be impossible
Prior to 20th century, world was still small, localized
Competition, everywhere all at once
Barriers of time, distance eliminated
Surplus labor will attract industry, move to places of work
Off-shore, outsourcing of industry, capital common
Service Industries and Leisure Time
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Non-farming, non-technological jobs arose
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Primary responsibility is serving the consumer economy
Called gray collar work force: in Western economies, it is largest single employer
Machines reduced workers, need to work to minimum: free time results
19th to 20th Century: 12-14 hour work days, six days a week or more common
Late 20th Century: 8 hour day, 5 days a week – trend is now to 35 hours/week
Leisure Time means leisure industry
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Hobbies, past times, vacations, resorts, tourism
Sports, entertainment industries (music, TV, movies)
GLOBALIZATION
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World War II, the Cold War globalized the western economy
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Council for Economic Cooperation and Development
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Expanding trade, foreign investments, privatization of industry
Free trade: free of state-imposed restrictions
Perils of the new economy: vulnerable to global forces
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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
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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)
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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
Investors withdrew support from Thailand in 1997
Ripple effect: contraction of other Asian economies
Critics of globalization
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To supporters
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Global economy efficient
Best path to global prosperity
To critics
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Widens gap between rich and poor
Destroys environment
Threatens local and traditional crafts and economies
MULTI-NATIONAL CORPORTATION
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Global corporations symbols of the new economy
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As defined: Exxon, Ford, Boeing, Phillips, General Motors, Nissan Bank, Shell, Alcatel
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Multinational businesses
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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
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GNP: Gross National Product
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Value of all goods and services produced in your home country
Includes difference between imports and exports
GDP: Gross Domestic Product
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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
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Branches in many different countries
25% of business is in a country other than home country
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
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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
GROSS DOMESTIC PRODUCT
MORE THAN $15,000
$10,001 TO $15,000
$3,001 TO $10,000
$1,000 TO $3,000
LESS THAN $1,000
MARKET SIZE BY G.D.P.
SINGLE PRODUCT EXPORTERS
ECONOMIC WORLDS
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Simplified way of looking at world c. 1980 - Present
1st World: US, Western Europe, Canada, Japan, Australia
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2nd World: PRC, former states of the USSR, Eastern Europe, N. Korea, Cuba, Vietnam
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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
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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
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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
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
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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
ECONOMIC WORLDS
ECONOMIC FREEDOM
TRADING BLOCS
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Western Europe
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European Coal and Steel Union
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Begun as a coal and steel tariff union of Italy, France, West Germany, Benelux
Became Economic Communities (EEC) in 1970s
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Sweden, Finland, Norway, Denmark, UK, Austria, Switzerland
Many nations have today joined the EU
COMECON: Communist version of the Warsaw Pact Treaty nations
Organization of Petroleum Exporting Countries (OPEC)
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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
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Added UK, Ireland, Greece, Denmark in 1970s; Spain, Portugal join in the 1980s
A common market, free trade, free travel within the Union
Cartel established in 1960 to raise global oil prices
After Arab-Israeli war of 1973, OPEC placed embargo on oil to United States
Price of oil quadrupled from 1973 to 1975, triggered global recession
Overproduction, dissension among members diminished influence
Regional trade associations
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Formed to establish free-trade zones for member states
Association of Southeast Asian Nations (ASEAN)
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North American Free Trade Agreement (NAFTA)
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Grew from Singapore, Indonesia, Malaysia, Thailand, Philippines in 1967
Today includes Vietnam, Cambodia, Laos, Myanmar (Burma)
Signed in 1993: US, Canada, Mexico
MERCORSOR
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1993: Argentina, Uruguay, Paraguay, Chile form, trend is to link it and NAFTA
ASSOCIATION OF SOUTH EAST
ASIAN NATIONS (A.S.E.A.N.)
DRAW CONCLUSIONS
• Using the information on the past slides, describe the
following modern nations:
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Nigeria
South Africa
Egypt
Algeria
Peoples Republic of China
Japan
Korea
Brazil
Argentina
Mexico
Cuba
Iran
Pakistan
Turkey
India
Vietnam